EXCLUSIVE: China-US row deals body blow to Hibernian Express

EXCLUSIVE: China-US row deals body blow to Hibernian Express

Hibernia Networks has halted all work on its flagship $300 million transatlantic cable, the Hibernian Express, after becoming embroiled in mounting tensions between the US and China over cyber security.

The company was forced to suspend all work on the project, the first attempt to lay a cable across the Atlantic in more than a decade, after key US carriers gave warning that they would not be able to use the proposed network for fear of risking the loss of lucrative contracts with US federal government agencies.

The delay marks the first big casualty in the escalating row between the US and China over alleged links between Chinese equipment makers and the country’s secret services. The development also highlights the growing determination of US authorities to blacklist Chinese equipment makers from new infrastructure projects that could affect the integrity of US networks.

Mike Saunders, vice president of business development at Hibernia, told Capacity that the crisis would delay the launch of the project until the final quarter of 2014 at the earliest. “Basically, we have called a halt to all our work with Huawei”, he said. “There could be further delays. We will know exactly where we are within the next two months.”

Hibernia has contracted Huawei Marine, a UK subsidiary of the world’s second largest telecoms equipment maker, to manufacture 4,600km state-of-the-art fibre as well as transmission and amplification equipment for the flagship project. Crucially, Huawei is also contributing as much as $250 million of the $300 million construction budget in vendor financing.

Last October, the US House Intelligence Committee branded Huawei a national security threat, recommending that US network operators seek alternative equipment suppliers. The committee also stipulated that federal agencies should avoid using Huawei equipment wherever possible. At the time, a Huawei spokesman described the allegations as “baseless… dangerous political distractions” that could ultimately put US jobs at risk.

Hibernia has been seeking clarification for weeks as to whether the US ruling only effects wet plant such as repeaters, or whether it also embraces “dumb” cabling. Frustrated at the lack of any guidance, the company has been forced to suspend work with Huawei altogether.

Saunders stressed that Hibernia had been monitoring the situation for weeks ahead of the publication of the Intelligence Committee’s report but said that the speed at which US carriers had responded was “unexpected”.

Saunders confirmed to Capacity that Hibernia has already begun the process of seeking a new supplier to replace Huawei. The company has received initial tenders from both Alcatel Lucent and TE Subcom after sending out requests for proposals several weeks ago. It is understood that Hibernia’s board will meet by the end of March to make a final decision on how to proceed. “We are in a position where we could make a decision on a rival supplier very soon”, he said.

The news will come as a shock to Huawei. On January 13th, the Chinese firm announced that it had signed a construction contract with Hibernia for the first phase of the Express project after completing vital marine survey work. Hibernia’s Saunders said that the cable company would face losses as a result of any decision to walk away from the contract with Huawei but said that these would not run to beyond “small single digit percentages of the overall contract.”

Saunders also said that Hibernia has appointed Macquarie Bank, the Australian infrastructure financier, to begin the process of raising new funding to replace Huawei’s financial commitment. Macquarie, known as the millionaires factory in reference to the number of advisers within the bank who have made fortunes backing infrastructure projects, owns Arqiva, the mobile phone and television transmitter and Airwave, the telecoms provider to the emergency services in the UK as well as a host of other telecoms assets elsewhere.

For further insight into the developments transforming the transatlantic cable market, watch out for the Low Latency Special Report in the February/March edition of Capacity magazine.