The new bandwidth barons: as the dust settles within the global subsea cable industry, cable network ownership has shifted decidedly eastward with Asian companies having bought out American assets. But doubt remains whether the new bandwidth barons have learned from the fate of their predecessors

Telecom Asia, April, 2005 by Grahame Lynch

It was a phone call to President George W Bush that sealed it. The Federal Bureau of Investigations was opposed. So was the Central Intelligence Agency. And the Department of Defense.

But the phone call placed by then-Singapore Prime Minister Goh Chok Tong to Bush swung the deal. Global Crossing, the fiber network connecting considerable points within the US to Europe and Latin America would be sold to Singapore Technologies Telemedia for $250 million, a fraction of the $54 billion the firm was worth at the height of the tech boom. Bush acquiesced in the interests of a competing economic goal: spreading the free trade mantra.

And so continued the great American telecom infrastructure sell-off.

Just late last year, another multi-billion dollar fiber network, Tyco Communications Network, was sold to VSNL, the telecom unit of India industrial conglomerate Tata Group. Earlier, FLAG Telecom (a business venture initially conceived by Nynex and, later executed by Bell Atlantic) was sold to Reliance Group, another Indian industrial conglomerate. And Asia Global Crossing, majority-owned by Global Crossing and Microsoft, was transferred to China Netcom, a state-owned agency in China.

Some independent observers see grounds to question the sell-offs. Asia business academic Michael Backman points to the fact that Global Crossing is now owned by a company controlled by Singapore's government. "Are such investments always motivated by commercial considerations alone, or might there also be some political or strategic motivation as well?" Backman asks. "To what degree are they stand-alone entities, or do they gather information to be passed back to the Singapore government? This is the legitimate concern of many."

US concerns about national security--or for that matter, misuse of commercial intelligence--aren't necessarily misplaced. Much US Department of Defense bandwidth usage traverses international networks, even if via US carriers. Just recently, the DoD acquired 40 Gbps of capacity for use in Europe from MCI, but this will often traverse networks in foreign hands. Singapore might be a close ally, but India and China clearly aren't. Indeed, China is publicly identified as a strategic rival to the US.

However, the companies themselves provide a countervailing viewpoint, with executives suggesting that many concerns are misplaced.

Strict security

Global Crossing says it now has arguably the most stringent security procedures of any US network provider, an onerous regulatory imposition that it has now turned into a unique selling proposition. Anthony Christie, executive vice president and chief marketing officer, says that Global Crossing negotiated and implemented an exhaustive network security agreement in response to US government concerns.

The agreement is quite precise in its obligations. All staff undergo security training, while those with access to the network are screened under US government procedures. The agreement specifies security procedures for the routing of traffic and is subject to oversight by a security committee whose members are approved by DoD.

The new owner of Global Crossing's Asia assets, Asia Netcom, expresses similar sentiments. Although now owned by a mainland Chinese company, Asia Netcom's chief executive, Bill Barney, says his firm is a "Bermuda-based company" that is "independently Western-managed." China Netcom is hardly the typical secretive Chinese government state agency, either. Its board of directors includes News Corporation's Rupert Murdoch and Goldman Sachs' Mark Schwartz.

Both Global Crossing and Asia Netcom executives say they have won the confidence of security-conscious customers. Global Crossing provides services to some US defense customers and the United Kingdom foreign office, while Asia Netcom provides the same for the Australian embassy network.

Economic giveaway

But there is also the nature of the economic giveaway of this capacity to consider. Billions of dollars of US-funded infrastructure have been sold for an average of five to six cents on the dollar to companies that could conceivably use their cheap capacity to launch more bandwidth price wars and further undermine the economics of the international telecom order.

Firms such as Global Crossing, Tyco and MCI faltered because of their poor corporate governance and their questionable understanding of the economics of bandwidth. There's little evidence that the new owners of this infrastructure are inherently superior custodians.

Global Crossing's ultimate owner is a case-in-point. Temasek Holdings is the highly secretive $60 billion investment arm of the Singapore government, with a wide range of investments in banks, hotels, airlines and media. Neither Temasek nor its telecom unit, ST Telemedia, is publicly listed, and several observers have decried their lack of transparency and accountability.

Similar questions exist about Reliance, the owner of FLAG Telecom that is a major provider of American connectivity into key regions such as the Middle East and South Asia. Reliance executives like to boast that they make more money than McDonald's but the firm isn't so highly regarded in its own home base.