The MEA Submarine Cable Wars (1996 - 2018) - Episode I - Part 3

The End of the War

In case it wasn’t clear already from reading the first two parts of this war expose, I am - firmly! - of the view that the MEA Cable Wars are now effectively over. Saying this does NOT mean that there won’t be new cable projects landing across MEA in the future, nor does it mean that the region’s Telcos will cease to invest in cable-related infrastructure (cables, landing stations, backhaul facilities, etc.)

The end of the MEA Cable Wars simply means that it is highly unlikely that those future developments will materially alter the already-established positions of the region’s key Telcos at the end of 2018; whether these are winning or losing positions.

Furthermore, and perhaps more alarming, those winning positions in the MEA Cable Wars provide a distinct competitive advantage to their respective holders in the ever-so-important MEA Cloud Wars, which has been underway for the last 3-4 years and the stakes there are even higher!

I'll briefly pause here to examine a distinction made in part 1 of this episode, which was the difference between the national perspective and the operator perspective when analyzing such a competitive “capital intensive” & “security sensitive” regional environment. When looking at the positions of the winners and losers, we find that this distinction - rather straightforwardly - is of merely academic significance. Almost all of the key Telcos engaged in the MEA Cable Wars had government backing/control, and so how well or poor their performance was reflected in their countries’ final standing.

With more and more countries/governments now becoming aware of the significance of the upcoming cloud services tidal wave, and pursuing “Digital Vision X” or “Growth Strategy Y” of various flavors, they are just discovering the full extent to which their precious nationally-held Telcos empower or impede the realization of such ambitious development goals. If you - as a country - tied your future to the actions of one of the losers, then you definitely have your work cut out for you (meaning you have both an internal/national war front and a regional/international ware front to fight the MEA Cloud War on!!)

If you are a believer in the infamous Clausewitzian war principle of “War is not an independent phenomenon, but the continuation of politics by different means”, then you can look at the positions of the MEA region’s winning/losing nations as reflective of their regional political agendas. Of course, the Telcos (the pawns in the bigger regional game of chess) needed to be aligned with the national master plan for their actions to push forward towards a national advantage in this regional conflict. I would argue again that this was NOT the case everywhere, and this is one key reason explaining why specific “Loser” Telcos were engaging in commercial & systems development activities that ran counter to their nation's regional security strategic imperatives.

In my view, the MEA Cable Wars that started in 1996, effectively ended in 2018. The war ended in the same manner it started; quietly and unceremoniously. There was no “coup de grace” to mark the end.

Looking at the map above (credit: TeleGeography's Kate Reilly, originally published here https://www2.telegeography.com/capacity-middle-east-2019 ), you can make a few observations on the cumulative effect of all the competitive moves made by both state & private actors in this war, as follows:

• A handful of locations with a significant concentration of international & regional cables were established (natural candidate for the MEA hub holy grail status).
• Those locations remain “tightly controlled” by their respective operators (the landing station owners) and so the economic value created by those facilities accrue mainly to their holders (not necessarily to their sovereign sponsors)
• The correlation between the attractiveness/competitiveness of a specific hub location and the number of cables (lines on the map) remains weak, which may sound counter-intuitive, but can easily be rationalized through a careful examination of the “Critical Success Factors” framework covered in part 2 of this article.
• In one extreme case, one particular operator with a fairly large number of systems landing under their control is both strategically “impotent” and tactically “crippled”, to the extent that they have become a liability to their country as it fights to protect & grow its regional geopolitical sphere of influence (the ultimate "mea culpa").
• On the other side of the “efficiency spectrum”, another particular operator exhibited near-perfect “Sun Tzu-ian” behavior when conducting their war activities; with stellar results for their business as well as their host country/owner.

Battle Dynamics Review

On average, a single cable system takes 2-3 years to be implemented. Some large cable projects - involving many Telcos negotiating complex consortium Construction & Maintenance Agreements (“C&MAs”) - can take up to 5 years to materialize. This long development cycle makes tracking the battle “blow by blow” rather difficult, so instead, we’ll focus on a snapshot view of the last 5 years of the war, to understand how this dynamic battle unfolded.

Looking at the informative graph above (credit: TeleGeography's Kate Reilly, originally published here https://www2.telegeography.com/capacity-middle-east-2019 ), you can hopefully appreciate the escalating intensity of the war. In some cases, the pace of cable systems development/investment was fuelled by national organic traffic growth requirements, while in others it was a conscious attempt to manoeuvre around regional rivals and beat them to the hub status (without organic traffic growth imperative).

In as much as the “number of cables connected” metric can shed light on the competitiveness of a specific Telco operator/hub location, I would point out the following facts:

• At the end of 2018, there were 79 cable systems in total connecting to the 9 MEA markets on that chart.
• Of those systems, 17 systems launched between 2013 and 2018, and those connected to only 6 MEA markets, rather than 9 (meaning that 3 markets witnessed no change since 2013).
• Focusing on the 6 markets that witnessed growth in the number of systems connected, roughly 25% of all systems connected to those 6 markets (the 17 new cables) got implemented in the 5 years period between 2013 and 2018, while the other 75% were implemented over the preceding 20 years!!
• In markets where only one Telco operator can land/develop cables, all the cables on that chart are naturally attributed to that operator. However, in cases where more than one Telco operator exists, the cable systems above (and most importantly, the incremental ones landed during the 2013-2018 period) are split between those operators. This provides for an additional layer of "per Telco" analysis, on top of the above "per country" layer of analysis.
• You can dig as deep as you like, but I will stop here!

Of course, we have already established that it takes much more than the number of cables landing at a specific location to establish it as a regional hub and extract premium commercial value to its owner/operator. In clearer terms, it's what you do with those cables connecting to your network that sets you apart (to be “the host with the most” is an apt metaphor here)

Specific Battlefields/Skirmishes

The Gulf:

• The most protected/closed region, with a heavy dose of national influence on Telco operator decisions. Because of its topography, Telcos positioned closer to the Gulf’s ingress had more weight/influence on others.
• The track record of private actors in this market is mixed, so it remains largely dominated by state actors (insert your favorite “Asymmetric Warfare” quote here).
• Heaviest investors in both regional & international cable systems.
• Geopolitical forces are both restricting the "elbow room" of some players or forcing their hands altogether while opening a treasure trove of value to others.

Africa:

• Africa is simply too diverse & complicated to lump all of it under one term.
• Each region of Africa (West Africa, East Africa, North Africa) has its own competitive dynamics & market realities that make it completely distinct from other regions, and so there can only be region-specific hubs. The notion of “Africa connectivity” remains an elusive one, and so there are no “Pan-African” submarine cable systems and no single hub location that services all of Africa.
• On the East African front, Djibouti's case is truly “elegant”.

The Red Sea:

• It is a two-horse race, with one horse covertly harboring competitive regional ambitions, while slowly & methodically building capabilities. Nonchalance is the modus operandi for the other horse, though.
• One specific third horse has the potential to scuttle the state of affairs, with truly incalculable ramifications to the established positions of key players in this placid lake. This remains the "T" in the proverbial SWOT.
• Geopolitical developments can truly ignite this race in the Red Sea. Too early to predict, though.

The Mediterranean:

• A beehive of submarine development & landing activity, with both regional & international players engaged in a “coopetition” game of thrones. Much higher stakes are involved here compared with the Red Sea, and a few "super interesting" addressable pockets of value (East Med, South Med, etc.) are ripe for parties with the "right" level of appetite for risk.
• Lots of potential value remains on the table (for the willing player, of course) in landing more cables and providing related connectivity services, even after the massive developments of the past few years.

The Bypass Saga: A continuous War of Attrition that is causing drip-by-drip bleeding of value for the losing party. It is one of the most fascinating “negative-sum” business games to model, as the losing side’s losses outweigh the winning side’s gains.

Closing Commentary

I understand that some aspects of this article (all 3 parts taken together) may be rather vague. This is unavoidable, I am afraid, but I am hopeful that the complete picture will become clearer once the remaining 2 episodes in this trilogy are published. The whole idea behind this series was to present a competitive narrative of the decisions & developments of the past 25 years or so, with an eye towards explaining what we see presently unfolding across MEA.

We need to understand "how did we get here" if we are to address the current Telco business challenges, and hopefully answer the question "where do we go from here?"

End of Episode I

Episode II (next week): The MEA DNS Wars (with a twist!)