U.S. FIRM TYCO GETS CONTRACT TO PERFORM SURVEY FOR FIBER

UNCLAS SECTION 01 OF 02 NAIROBI 000565

SIPDIS

SENSITIVE

SIPDIS

STATE PASS USTR - BILL JACKSON AND JONATHAN MCHALE
STATE FOR AF/E, AF/EPS AND EB/CIP

E.O. 12958: N/A
TAGS: ECON ECPS EFIN KE AE
SUBJECT: U.S. FIRM TYCO GETS CONTRACT TO PERFORM SURVEY FOR FIBER
OPTIC CABLE

REF: A. 06 NAIROBI 5265, B. 06 NAIROBI 2075

NAIROBI 00000565 001.2 OF 002


Sensitive-but-unclassified. This cable contains business
proprietary information and is not for release outside USG
channels.


1. (SBU) Summary: The Kenyan government has awarded a tender to
U.S. firm Tyco Telecommunications to do a marine survey for the
eventual construction of an undersea fiber optic cable to run
between the United Arab Emirates and Mombasa, Kenya. Despite
question marks about financing, the relevant ministry claims it has
the money to fully fund the $70-75 million project with money raised
through another piece of telecom reform - the auctioning off of a
unified second national operator license. Tyco will have to bid
again to win the system contract for the cable, but by doing the
marine survey, it is now the frontrunner against its French and
Japanese rivals. End summary.

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Kenya Awards Marine Survey to U.S. Firm Tyco
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2. (SBU) Reftels chronicle several initiatives vying to bring
high-speed internet connectivity to the East Coast of Africa through
construction of undersea fiber optic cables. In late 2006, it
appeared that a U.S.-owned and financed project, Sithe East Africa
(SEA),was the frontrunner in the race to begin construction of a
cable, in this case one connecting the entire eastern seaboard from
South Africa to the UAE. In tandem, however, a Government of Kenya
(GOK) initiative, dubbed TEAMS - the East Africa Marine System - was
pursuing a more modest project connecting Mombasa, Kenya to the UAE.



3. (SBU) The relative fortunes of the two ventures appear to have
shifted. On January 31, GOK officials publicly announced that U.S.
supplier Tyco Telecommunications was awarded a $2.7 million tender
to conduct the marine survey required for construction of the cable
system. Econ/C spoke February 2 with Jeff Stark, Tyco's regional
Managing Director. He confirmed the contract for the marine survey
had been inked. He related that luck played a role: Tyco was able
to subcontract with a survey vessel enroute from Europe to the Far
East, enabling the company to meet the GOK's accelerated timeline.
Survey work will begin February 16 in Fujaira, UAE, and reach
Mombasa 45 days later. The GOK intends to issue the system tender,
worth around $75 million, by the end of February and to award it in
March, with system construction to begin as soon as possible
thereafter.

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Financing: Can You Show Me the Money?
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4. (SBU) The GOK has publicly committed itself to completing an
undersea cable by XXXX. It is unclear, however, if the GOK can
stick to such an ambitious timetable, even in the short-term. One
potential problem is global capacity. Tyco has just committed to
fast-tracking construction of a 12,000-mile undersea cable in the
Far East that will absorb much of the global industry's vessel and
fiber fabrication capacity. This could delay the start of
construction of TEAMS. Further, according to Stark, the GOK and its
UAE partner, Etisalat, have not yet concluded a construction and
maintenance agreement, which is a prerequisite for the construction
tender to move forward. Etisalat is committed via an MOU to provide
20% of the financing for TEAMS. Beyond the Etisalat piece of the
financing, it's not clear how the GOK intends to raise the other 80%
of required funds. Stark termed the issues surrounding financing
for TEAMS "confusing," and noted that construction cannot begin
until the first payment is made to the vendor.

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Kenya Says Yes, We've Got the Cash
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5. (SBU) Dr. Bitange Ndemo, Permanent Secretary in the Ministry of
Information and Communication told Econ/C also on February 1 that
Kenya has the money almost in hand to fully fund TEAMS. Ndemo, who
is the driving force behind a number of inter-related telecom and
ICT reforms in Kenya, explained that the money will come from the
auction of a lucrative unified second national operator license
awarded in November to a consortium led by Dubai-based Vtel

NAIROBI 00000565 002.2 OF 002


Holdings. But the consortium fell apart over an internal dispute,
and in late January, the Communications Commission of Kenya
cancelled the tender and offered the second highest bidder, Reliance
Telecoms of India, the option of taking it up at Vtel's original
offer price, $169 million. (Note: Reliance is also reportedly
planning to build an undersea fiber optic cable along Africa's East
Coast that would tie into its FLAG system, but details are sparse.
End note).


6. (SBU) Ndemo reported Reliance has accepted the offer, and that
the Ministry has the authority to use the proceeds to fully fund the
TEAMS undersea cable in order to fast-track completion. Eventually,
the GOK's share will drop to 40% or less, as it will sell 40% or
more of the project to operators in Kenya and neighboring
countries.

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What About Those Other Cables?
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7. (SBU) The Sithe Group's Sithe East Africa (SEA) undersea cable
project looked like the frontrunner in terms of timing in December,
according to Tyco's Stark. But now, the company is "not executing,"
for reasons Stark was unable provide. But he said Tyco remains
interested in supporting the SEA project if/when it moves forward.
Ndemo later said the GOK "has not said no" to a merger of the SEA
and TEAMS projects under which Sithe would build a cable from South
Africa to Mombasa and plug into TEAMS at the latter landing point.
Meanwhile, Ndemo said the International Finance Corporation is
working with the moribund EASSy cable project (see ref B) and trying
to get it to similarly lay fiber undersea between South Africa and
Mombasa.


8. (SBU) Sithe told EB/CIP earlier in the week that it was
approached in late December 2006 about expanding its proposed SEA
cable beyond the planned Africa-UAE-India route and expect to make
an announcement by mid-February. Sithe claims it is still actively
negotiating with Tyco and other companies to build the SEA system
and hopes to select a company in the coming month.

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Comment
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9. (SBU) It's good news that one cable (any cable) is moving
towards construction, and even better news that Tyco, a U.S. firm,
is in on the ground floor. Tyco can't relax - the much larger and
more lucrative tender for system construction will be competitive.
But by winning the marine survey portion of the project, Tyco is
clearly in the driver's seat vs. its French and Japanese rivals.
Ranneberger