International fiber-optic companies scramble to South America
By PETER HOWARD WERTHEIM AND DAYSE ABRANTES
Latin America's hunger for fiber-optic networks has raised concerns of a possible lack of fiber-optic cables and ducts in South America's largest market, Brazil, according to industry sources in the region.
Barramar Mercantil Ltda (Sao Paulo) is a Brazilian company that undertakes commercial accords with concessionaires of highways, railways, and subways as well as with the National Highway Department (DNER). Barramar executive Paulo Borges says the company already has bought practically all the fiber-optic output from six Brazilian plants to meet their requirements, which average 14,000 km of fiber per month. The company intends to invest $1.2 billion in its national project, of which $400 million has already been spent.
Barramar represents only one example of the demands placed on fiber-optic infrastructure suppliers. The opening of the Brazilian and Argentine markets for competition is attracting major players, including many non-traditional telecommunications companies. In the latter camp are utilities such as Enron (Houston), the world's leading electricity and gas company; Petrobras, Brazil's state-owned oil and gas giant; and Eletronet, the data-communications joint-venture formed by Argentina's AES and Brazil's Lightpar, a pair of power distributors. These companies are providing fiber to the new operating companies focusing on building their subscriber base.
Major fiber-optic suppliers in the region are Alcatel, Pirelli, Ficap, Furukawa, and others have announced plans to boost their production levels. Lucent Technologies (Murray Hill, NJ) recently inaugurated its second production plant in Brazil.
Brazil and Argentina represent almost 80% of Latin America's telecommunications market, with rising demands for Internet, telephony, multimedia, and video facilities, as well as other services requiring high transmission capacities.
Analysts say that the cables to be used in the projects under construction in South America are enough to circle the globe more than four times.
According to the International Telecommunication Union (ITU), Latin America posted the world's largest growth rate in Internet hosts in 1999, with numbers that more than doubled during the year. Latin America has more than one million hosts, compared with only 56,000 in 1995; it is projected that the region will have two million hosts by year-end 2000.
Analysts predict the demand for advanced services in Latin America will skyrocket. The number of Latin American Internet users is expected to grow at a 47% compound annual rate between 1998 and 2003, beating growth rates in the United States, Europe, and Japan. Brazil makes up the largest Internet market with 3.8 million users-45% of the region's total. Frost & Sullivan (Mountain View, CA) expects the number of Internet subscribers in the top six Latin American markets, which include Mexico, to grow from 3.6 million in 1999 to 41.7 million by 2005. Revenue from the Internet services market will reach $17.4 billion by 2005, up from $1.1 billion in 1999, according to the consulting firm.
Foreign direct investment, particularly in technology and telecommunications, continues to be a driving force in the continent's economic development. The overall flow of money into the region rose from $68 billion in 1997 to $71 billion in 1998 to $85.9 billion last year, according to the United Nations Economic Com mission for Latin America. Analysts predict just over one-third of that amount went toward communications and technology initiatives.
Investments are taking many different forms, but most are directed at the area's five most affluent countries: Brazil, Chile, Colombia, Venezuela, and Argentina. These five are looking to build out their communications infrastructure and services, particularly in the Internet and wireless areas.
Service providers such as AT&T, BellSouth Corp., SBC Communications Inc., Telefónica S.A., and America Online Inc. have all strengthened their ties to the region through joint ventures, direct acquisitions, or the establishment of tracking stocks focused on the region.
Telefónica de Argentina and Telecom Argentina, the former duopoly (each was responsible for half the country until November 1999), expect completion of networks in the regions formerly dominated by the other company by November of this year. New operators that recently have entered the market don't plan to duplicate the national fiber-optic networks of the former monopolies. The majority of these companies are concentrating on building networks in Argentina's capital, Buenos Aires, as part of a corridor that goes from the Atlantic coast to the Chilean frontiers. Some companies such as Argentina's Impsat Fiber Networks Inc. and BellSouth Movicom are interchanging traffic in metropolitan and long-distance fiber-optic networks to reduce costs and expand more rapidly.
Meanwhile, Chilean telecommunications company Telefónica Manquehue plans to invest $310 million through 2003 in new technology and fiber-optic networks, according to Cristobal Philippi, the company's CEO. Manquehue will build its broadband fiber-optic network in the capital city of Santiago, in conjunction with the rollout of the natural gas network of shareholder Metrogas. The company aims to provide local and long-distance telephony, cable-TV, and Internet services to some 200,000 clients in Santiago by 2002. Southern Cone Communications-a joint venture among Britain's National Grid, Manquehue, and U.S.-based Williams Communications-aims to invest $220 million to develop a 4,300-km broadband fiber-optic network linking major cities in Chile and Argentina.
Telecommunications companies have also invested in undersea infrastructure. One of the main players in Latin America, Embratel/MCI WorldCom, started up operations for Embratel's new subsea fiber-optic cable system, Atlantis 2, last May. With a total length of 12,000 km and 40-Gbit/sec transmission speeds, the Atlantis 2 project connects Brazil and Argentina to Europe and Africa through stations at Las Toninas (Argentina) and Fortaleza (northeast Brazil) as well as Portugal, Spain, Senegal, and Cape Verde.
MCI WorldCom owns a controlling interest in Embratel, Brazil's premier communications provider and the operator of the only nationwide network in Brazil (which is the largest network in all of Latin America). The company is a leading provider of Internet and frame relay service in Central and South America.
The Atlantis 2 effort has absorbed some $370 million, invested by 25 companies through an international consortium representing the world's largest telecommunications operators. As the lead investor in this consortium, Embratel channeled $100 million into this system.
"The new international fiber-optic system launched by Embratel will ensure full service for its rising international communications media demands," explains Edson Soffiatti, Embratel's international director. Together with two other cables, Columbus III (connecting Europe to the United States) and Americas 2 (linking Brazil and United States), the Atlantis 2 will complete Embratel's Atlantic digital ring (see Figure).
Through this ring, Brazil will be linked to the United States, Europe, and Africa by diversified routes with reciprocal backup capacities. This modern, versatile network also will allow Embratel to handle demands between Brazil and the United States through the Atlantis 2/Columbus III route until the Americas 2 system starts up operations, a milestone the company expects to achieve this month.
Within the infrastructure of the Atlantis 2 network, Embratel installed two additional pairs of 40-Gbit/sec fiber-optic cables for its exclusive use, running between Fortaleza and Rio de Janeiro. That creates an expressway to South and Southeast Brazil sized to handle the entire flow of international telecom traffic arriving in Fortaleza over the subsea cables.
On land, Embratel owns a fiber-optic network that is over 23,000 km long, in addition to a 24,000-km digital micro wave network and a nationwide satellite communications network with over 60 land stations (see Lightwave, September 1996, page 18).
For Spain's Telefónica, which has two of its most important Latin American companies in Brazil and Argentina, the Sam-1 undersea cable system will be critical for increasing operations and incorporating services such as those provided by Terra, Telefónica's Internet service provider in these countries. Recently, Telefónica created the Emergia company to administrate and sell excess capacity on SAm-1.
SAm-1 is a joint venture between Telefónica Internacional and the U.S. company Tyco Submarine Systems Ltd. (TSSL). The two were joined in August 1999 by International Discount Telecom (IDT), a Hackensack, NJ-based carrier. Linking North, Central and South America, this cable will be a key element in Telefónica's effort to consolidate its global franchise in long-distance Internet Protocol (IP) and data networks (see Lightwave, July 1999, page 27).
Telefónica claims that the SAm-1 system will be the first South American regional network utilizing DWDM technology, offering more than 1.28 Tbits/sec of undersea capacity on each segment. The network comprises 23,000 km, connecting the United States, Puerto Rico, Guatemala, Brazil, and Argentina on the east coast, and Chile, Peru, Colombia, and Guatemala along the west coast of South America. The first phase will be operational in December 2000, allowing Telefónica to offer complete connectivity for all the principal Latin American cities. The full system is scheduled to be operational by July 2001, with further improvement in its capacity. Telefónica argues that combined with the company's existing terrestrial infrastructure, the SAm-I will provide the lowest unit circuit cost in the region.
In addition to its deal with Telefónica, TSSL and Germany's Norddeutsche Seekabelwerke GMBH, signed a supply contract with CEN-TA Telecom and the New World Network for the ARCOS-1 cable system valued at $300 million. This undersea cable system will directly connect the United States, Mexico, Belize, Guatemala, Honduras, Nicaragua, Costa Rica, Panama, Colombia, Venezuela, Curaçao, Puerto Rico, Dominican Republic, Turks and Caicos, and the Bahamas.
ARCOS-1 is an 8,000-km cable system with a capacity of 15 Gbits/sec, expandable to 960 Gbits/sec. It was slated to be completed as this issue was going to press. The system comprises both repeatered and non-repeatered links, which combine to form an SDH ring network. The repeatered segments contain two fiber pairs and the non-repeatered segments contain 12 fiber pairs. ARCOS-1 uses WDM technology and optical amplifiers designed by TSSL Laboratories (Eatontown, NJ).
Meanwhile, through an accord with IMPSAT Fiber Networks Inc., an Argentine company building broadband fiber-optic networks throughout South America, Global Crossing Ltd. (Hamilton, Bermuda) may be able to provide the same connectivity from city to city as Telefónica. IMPSAT is a provider of data-transmission and private telecommunications network services in Latin America. The two firms have partnered for the provision of the connection between Global Crossing's landing points in the Brazilian cities of Rio de Janeiro and Sao Paulo; the carrier's points-of-presence will be collocated in IMPSAT's telehouses.
IMPSAT will provide Global Crossing with backhauls on an indefeasible rights-of-use (IRUs) basis and maintenance services for Global Crossing's backhauls for a period between 18 and 25 years. The provision includes ducts and nonzero dispersion fiber over 426 route-km of IMPSAT's own network, plus the construction of 24 km of ducts in Rio de Janeiro that will remain Global Crossing's property.
As a result of this operation, IMPSAT adds 187 km of new duct to its own network. This segment is located in metropolitan Sao Paulo and will allow IMPSAT to close a ring connecting the cities of Sao Paulo and Santos in Sao Paulo state, Brazil. IMPSAT committed itself to purchase submarine capacity from Global Crossing for $46 million.
Global Crossing is betting $500 million in Brazil as part of its project to set up onshore and underwater cabling in South America. The three-year-old multinational started Brazilian operations in October 1999 and has its sights on nabbing a 40% market share by 2002. Luis Carlos Pinto Correia, Global Crossing's director in Brazil, points out that telecommunications is a $36-billion market in Brazil and that "the forecast is for that figure to double by 2003."
Global Crossing's undersea effort in the region is the South American Crossing (SAC), which represents Telefónica's main competitor in Latin America. Global Crossing does not rely on cables designed to carry and switch telephone calls and updated to handle the demands of the Internet era. The entire system has been designed to handle high-capacity voice and data transmissions. The network is constructed with the latest DWDM technology.
SAC is a 4-fiber-pair system linking major cities in South America. The network will be implemented in several phases, scheduled for service in early 2001. SAC's initial transmission capacity in each of its four fiber pairs will be 10 Gbits/sec for a total of 40 Gbit/sec. The cable can be upgraded to 1.28 Tbits/sec in scalable increments. Integrated with the entire Global Crossing Network, SAC's shore landings will be in St. Croix, U.S. Virgin Islands; Fortaleza, Rio de Janeiro, and Santos in Brazil; Las Toninas, Argentina; Valparaiso, Chile; Lurin, Peru; Buenaventura, Colombia; and Fort Amador in Panama. The total length of the SAC system will exceed 16,000 km.
Global Crossing will buttress SAC with Pan American Crossing (PAC), a 2-fiber-pair system linking the continental United States, Mexico, Central and South America, and the Caribbean.
The gateway connection of PAC at Fort Amador and St. Croix will provide access to Venezuela, Central America, Mexico, and California, and Mid-Atlantic Crossing (MAC) in St. Croix, which in turn will provide connectivity to Florida and New York. The first phase of deployment, connecting St. Croix and Buenos Aires, is expected to be completed by this month, and the second phase, Santiago to Panama, by April 2001.
Landing points for PAC also include Grover Beach, CA, shared with Pacific Crossing (PC-1); Tijuana and Mazatlán, Mexico; Fort Amador, Panama, shared with SAC; Puerto Viejo, Venezuela; and St. Croix, U.S. Virgin Islands, shared with MAC and SAC.
Using advanced WDM technology, the capacity of each of PAC's two fiber pairs will be 10 Gbit/sec, for a total initial system capacity of 20 Gbit/sec that can be upgraded to 320 Gbits/sec. The total length of the PAC system will exceed 9,500 km (see Lightwave, February 1998, page 1).
Another major player in the region is GlobeNet Communications Group Ltd., which was acquired by 360networks (formerly known as Worldwide Fiber Inc.) for $1 billion. GlobeNet is developing the undersea fiber-optic cable system Atlantica-1, which, together with terrestrial expansions, will offer seamless connectivity between the United States, Brazil, Venezuela, Bermuda, and Argentina. GlobeNet estimates the total cost of building the Atlantica-1 network to be $825 million.
The primary ring of Atlantica-1 is scheduled to enter service by December. A second submarine cable system from Fortaleza to Rio de Janeiro with a terrestrial network to Sao Paulo is scheduled for service by February 2001. Another submarine cable will be installed during the middle of 2001 to provide a closed ring between Fortaleza and Rio de Janeiro. Alcatel is designing, building, and installing Atlantica-1.
Market forecasts that indicate an annual growth rate of 75% to 100% in communications traffic between North and South America support the development of this wide range of fiber-optic infrastructures.
Peter Howard Wertheim and Dayse Abrantes write on telecommunications issues in Latin America from Rio de Janeiro, Brazil.