Transatlantic competition heats up with FLAG Atlantic-1

Transatlantic competition heats up with FLAG Atlantic-1

By KATHLEEN RICHARDS

Competition in the high-demand transatlantic cable market turned up a notch in January, when independent carriers FLAG Telecom (London) and Global TeleSystems Group Inc. (GTS, Washington, DC) announced a joint venture to build a city-to-city loop between New York, London, and Paris.

The companies formed a 50-50 partnership to build and operate a dual transoceanic cable system called FLAG Atlantic-1. The three-loop system with city nodes in midtown and downtown Manhattan and landings in Brittany, France and Cornwall, U.K., is designed to be upgradeable to 1.28-Tbit/sec capacity with full-core cable deployment expected in the first half of 2001.

"The North cable from London to the North Shore of Long Island to Manhattan would be in place the second half of 2000," says Robert Capozzi, a GTS spokesman. "The main cable and the crossconnects that create the three-ring system would be in place in the first half of 2001. The actual upgrading of the circuits from the 160 Gbits/sec to the 1.28 would happen in 160 [Gbit/sec] increments as demand requires."

The submarine cables are roughly 5900 and 6350 km covering 12,500 km in total. The companies will provide back-haul links from the European landings to Paris and London and also allow customers to interconnect to GTS`s Hermes Europe Railtel (HER) network and other infrastructures.

"We have put the pieces in place to really become the leading independent in Europe," says Capozzi. "Our carrier services group, the Hermes Railtel network, is currently 9200 km connecting 17 cities and going to 50 cities next year, 25,000 km. So it will be the largest pan- European network when built out, certainly, that has been announced.

"The technologies are making the Atlantic a narrower place than it otherwise was," adds Capozzi. "Of course, telecoms and the Internet play a big factor, so being able to connect from New York to Warsaw, or New York to Milan, or NY to Stockholm, or NY to London seamlessly on one system is, we think, very attractive."

GTS acquired two business services units, Esprit Telecom and Netsource Europe. "Our plan is that the business services companies would buy capacity on the Hermes network [inter-company] and also buy capacity on the [FLAG Atlantic-1] cable," says Capozzi. "So they would be able to offer retail business customers a very elegant, high-quality service that we think we will be able to price very competitively."

The FLAG Atlantic-1 system will use Synchronous Digital Hierarchy (SDH) and dense wavelength-division multiplexing to achieve maximum capacity, commercially transmitting broadband data at a minimum rate of OC-3 (155 Mbits/sec) to OC-192 (10 Gbits/sec), says FLAG Telecom`s chief technology officer Frank Denniston.

"The actual cable and repeater technology will be 320 Gbits/sec per fiber pair," explains Denniston. "We`ll be putting additional [repeaters] over what our initial design was, so we`ve added about 15% more amplifier. The undersea stuff is designed for 320 wavelengths per fiber pair; the system is a 4-fiber pair system so that`s where you get the 1.28.

"We are putting in terminal equipment essentially that is designed to operate at 320 Gbits/sec, but I`m just not equipping the transponders for the wavelengths until the market develops. It will be market driven, but it is essentially done by adding what I call `plug-ins` to the terminal equipment," says Denniston.

FLAG Telecom and GTS have designated Alcatel Submarine Networks (ASN) as the main supplier. Alcatel will use the new "wider core" large-effective-area submarine fiber offered by vendors such as Corning Inc. and Lucent Technologies, according to Denniston. Network management of the submarine cable will be accomplished using Alcatel`s "standard packages." Automatic protection switching will be accomplished using SDH/ATM. "We are pushing technology," says Denniston.

"I think we will be the first in the water, but somebody will come along three months after us and do the same thing. It`s just the way the technology is coming out, but we`re on the leading edge, which is where I`d rather be," says Denniston.

"There`s a couple of advantages that I think we have in our design, one of which is it is pure, what I call the heart of Europe to the heart of the markets in New York," observes Denniston. "If you look at some of the other designs, for example TAT-14, they go all the way up with a landing in Holland and a landing in Germany, and go all the way around the north in Scotland. It`s a longer and more expensive route. Certainly ours is direct and it has a minimum number of landings, two in Europe and two in the U.S., which in my view is a minimum ring structure, so it is really designed to be an express for the business markets. My view is it`s simple and therefore more reliable."

Investors in FLAG Telecom include Bell Atlantic (United States), the Asia Infrastructure Fund (Hong Kong), Dallah Albaraka (Saudi Arabia), General Electric Capital Corp. (United States), Gulf Associates Inc. (United States), Telecom Holding Co. (Thailand), GE Capital, Marubeni Corp. (Japan), and AT&T Capital (United States).

The carrier currently operates the FLAG cable system, which extends 27,000 km between the United Kingdom and Japan. It became commercially available in November 1997.

"The FLAG cable running from the U.K. to Japan did okay. It didn`t do spectacularly, but it has generated a healthy cash flow for all of its investors," says Michael Ruddy, senior fiber optics analyst at Pioneer Consulting (Cambridge, MA). "The sales levels were a bit lower than expected when it went into service at the end of `97. It is close to selling out capacity on the eastern and western ends of the cable.

"GTS has proven itself as a force to be reckoned with," adds Ruddy. "The HER network is one of only three or four facilities-based fiber networks going into the pan-European market and Hermes has done a great job with getting sales in that market. GTS Group has a great track record."

While competition in the transatlantic market is heating up, opportunity raised its head when independent Global Crossing had quick success selling out its AC-1 transatlantic cable, say analysts. Other high-profile transatlantic cables include Gemini, sponsored by MCI Worldcom and Cable & Wireless, and TAT-14, a consortium cable expected to be operating at the end of 2000. The TAT-14 consortium includes AT&T, France Telecom, British Telecom, Cable & Wireless, Deutsche Telecom, and others.

"Those were really the only cables on anyone`s radar," says Ruddy. "FLAG and GTS coming in changes the market scenario. This is not a completely independent venture here, but it`s a lot closer to the independent model---it`s something new that I think has really changed the parameters of the transatlantic market because it is no longer going to be dominated by one consortium cable. There is another option for people looking for transatlantic capacity in 2000.

"You didn`t have any cable that was independent of carrier participation until Global Crossing came along," says Ruddy. "At that point people started saying, `This whole consortium model is a bit out of line with the rest of the industry.` Terrestrially, companies were building their own fiber networks and competing against each other."

Global Crossing filed a petition with the Federal Communications Commission on Jan. 4, requesting that the commission examine the parameters of the Japan/U.S. consortium cable, which the network provider claims is anti-competitive.

"The Atlantic is a high-traffic region, and Global Crossing`s success in the region makes it a logical step for FLAG," says Stacey Yates, an analyst at market researcher KMI Corp. (Newport, RI). "I think the fact that they are doing a joint venture with GTS`s Hermes Europe Railtel is significant because now you are talking a joint terrestrial and undersea network, which I think opens up a lot of possibilities. We`ve already seen some of that with Global Crossing announcing some of their pan-European terrestrial network and the terrestrial network in Japan.

"FLAG and GTS will be one of a new breed of private cable," Yates continues. "GTS is providing back haul on the European side for the connection so there will be city-to-city links versus shore-to-shore links."

Meanwhile, FLAG Atlantic-1 is subject to financing and other agreements. Funding will come from the companies, capacity sales, and non-recourse bank debt. The first cable at 160 Gbits/sec is projected to cost $1 billion. q

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