Vocus says it can keep ASC cable project afloat

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Vocus says it can keep ASC cable project afloat

Ships due to start laying cable at the end of the year.

Vocus has doused suggestions it might have to “stall” its Australia-Singapore Cable project to shore up its financial position in the wake of a damaging profit downgrade.

Addressing investors on Wednesday morning, Vocus CEO Geoff Horth said the telco remained “absolutely committed” to the ASC project.

The US$170 million ($226 million) cable will span 4600km and is one of three projects vying to deploy on the west coast route.

ASC appears to have first-mover advantage over the other two projects – including the heavily-backed Indigo consortium build – having last month locked down the final design and commenced manufacturing of the cable itself.

The initial funds for ASC are to be drawn from “existing debt capacity”, augmented from next year by operating cash flow and “expected customer pre-payments” for capacity on the cable.

However, Vocus’ financial woes – twin profit downgrades and 25 percent share price freefalls in the past six months – had at least some financial analysts questioning whether the project could sustain its funding commitments.

“We remain absolutely committed to that project,” Horth reassured investors today.

“We have no intentions to raise equity. We have a program of work underway to secure cornerstone customer commitments and we remain confident that we can fund the construction of that asset.”

Vocus International head Luke MacKinnon told iTnews last month that a contract variation signed with cable builder Alcatel-Lucent in December last year had committed Vocus “to the billing milestones” for ASC, as well as starting the procurement process for Alcatel.

“When we signed our agreement in December that committed us to the project financially and contractually,” he said.

Last month, the telco signed “contract variation five” with Alcatel-Lucent, which locked down the cable design following surveying of the planned route.

MacKinnon said cable was now being manufactured in Calais, France, while the repeaters and amplifiers to be used on the route are built at an Alcatel facility in Greenwich, UK.

The manufacturing process is expected to take “about 5-6 months”, after which the cable will be transported to the region.

Two ships – one beginning Singapore and one in Perth – will then jointly lay the cable over a three-month period, starting around the end of this year.

In the meantime, Vocus has started nearshore works, which encompass activities such as “directional boring and beach manhole construction” where the cables will land.

Vocus hopes to have the cable ready for service in August 2018.

Competition

Two other projects hope to build a similar cable between Singapore and Perth.

One of those is the newly-named Indigo Consortium, which consists of heavy-hitters like Google, Telstra, Singtel and SubPartners, and is hoping to be completed by mid-2019.

The other is Trident Subsea Cable's system. In December last year, the company acquired two fibre pairs on an existing cable between Singapore and Indonesia, which it said would form “stage one” of its larger project connecting Singapore and Perth.

MacKinnon appeared unconcerned with the formation of the Indigo project, noting that ASC was at a more advanced contractual stage.

“Indigo now have a contract with their [cable-laying] vendor,” he said.

“We had our contract with our vendor Alcatel-Lucent back in 2011. Obviously a fair bit of water has gone under the bridge between now and then, and it’s a very different thing to have a contract with a vendor and a contract that’s in force, which is the variation we signed in December last year.

“They still need to get to that stage.”

MacKinnon also reiterated the difficulty in obtaining permits to land a cable in Indonesia; all three cable projects have Indonesian partners, but MacKinnon noted that even so, “the process takes 18 months or more”.

Vocus CEO Geoff Horth said last year there was “only enough demand” on the route for one of the new cable projects to succeed.

The route is currently served by the ageing SEA-ME-WE3 cable.

MacKinnon said Vocus’ model for ASC “has always included a competitive cable”, and he appeared unconcerned at the prospect of more than one of the new projects getting their cables online.

“Having multiple cables on that route does address a market of a specific size, but it is a very significant market,” he said.

“We’ve seen the centre of the internet universe move from the US to Asia for Australia and New Zealand, so we’re seeing a lot more demand for capacity on that route than we are heading east [to the US].

“I don’t really know [a second new cable] changes our model too much. I don’t think it’s as bad as people think.”

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