Project Oxygen. Jeff
quote.bloomberg.com
Project Oxygen to Start Building Undersea Fiber Optic Cable By Next June
By Junko Fujita
(Adds background on Tagare in 7th through 9th paragraphs.)
Tokyo, Dec. 1 (Bloomberg) -- Project Oxygen Ltd., which
plans to build a global undersea fiber-optic network, said it
aims to begin cable construction by next June once financing for
the project's first phase is in place.
The Hamilton, Bermuda-based company wants to complete the
168,237-kilometer-long global network, which will cost $15
billion in total to build, by 2003. Project Oxygen is racing to
build its network to profit from global expansion in data
transmission, driven by the Internet and a new generation of
cellular phones.
The network will offer services to Internet providers, phone
carriers and broadcasters around the world at a fixed rate,
essentially making all phone calls over the network ``local,'
said Project Oxygen Chairman Neil Tagare.
Though the company had planned to begin construction this
year, the project is behind schedule because of difficulties
raising money and attracting telecommunications carriers. Project
Oxygen also faces challenges from competing cable networks and
new technology able to expand data transmission capacity on
existing fiber optic cable.
Project Oxygen needs to raise $1.5 billion before it can
begin the first phase of construction. The initial section of
cable, which will link Israel and New York via continental Europe
and the U.K., will begin operating by the end of 2001.
Contractors include NEC Corp. and Alcatel Submarine Networks.
Attracting Investors
None of this is new to Tagare, who has plenty of experience
building a global undersea phone network. He spearheaded at age
27 efforts by NYNEX Corp., which was bought by Bell Atlantic
Corp., to build its ``FLAG' project -- a fiber-optic link around
the globe.
Tagare is also founder of CTR Group Ltd., which created
Project Oxygen's business and technical plans. CTR received start-
up capital initially from sponsors including Alcatel Submarine,
NEC, Tyco Submarine Systems and then later from Corning Inc. and
Lucent Technologies Inc.
After financing is in place and construction begins, CTR
will provide engineering and related services under contract to
the project.
Project Oxygen is now talking to ``a number of people,'
including Japanese investors, about providing $250 million in
financing in return for an equity stake of 40 percent, Tagare
said.
In October a group of Israeli companies, led by Bezeq
International, a long-distance phone-calling unit of Bezeq Ltd.,
and Haifa-based Elbit Medical Imaging Ltd. agreed to invest $250
million for a 40 percent stake of their own.
Lehman Brothers Inc., the fourth-largest U.S. investment
bank, has been chosen to lead a group of investment banks in
arranging $1 billion in loans, Tagare said.
Unlike existing cable networks, Project Oxygen will charge
customers a flat rate for the capacity they use, Tagare said.
Customers will be able to buy a certain amount of capacity, which
they can then use between any landing points on the network.
Customers will also have the ability to change the direction and
volume of their traffic at any time.
That feature is attractive to carriers, Tagare said, because
they'll be able to redirect traffic to other sections of the
network if phone traffic is heavy at one location. The network
will link 76 countries with 100 landing points, or locations
where the cable reaches land.
Five Phases
Project Oxygen is constructing the cable in five different
phases. After the New York-Europe link, the second section will
link nations in Asia such as Japan, Korea, Singapore and China
with the U.S. West Coast. The second phase will cost $2.4
billion, Tagare said.
Still, some analysts and industry experts question whether
Project Oxygen can raise enough money to complete the network.
Others wonder whether there'll be enough demand for the cable by
the time of completion.
``It's possible for Project Oxygen and other cable
construction companies to become profitable,' said Thomas Rodes,
an analyst at Dresdner Kleinwort Benson (Asia) Ltd. ``But it's
increasingly challenging, because capacity has gone from an
economy of scarcity to an economy of abundance as a result of
technological improvements like multiplexing.'
Wavelength Division Multiplexing is a technology used to
increase the amount of data that can be delivered over an optical
fiber transmission cable by sending a number of information
streams as different colors without having to increase the actual
number of light fibers.
WDM, already well established in long-distance networks,
enables digital pictures and video to be sent faster and cheaper
than conventional means.
Cable Competition
Closely held Project Oxygen also faces competition from
several rivals. Bermuda-based Global Crossing Ltd., a two-year-
old company that's building a worldwide undersea fiber-optic
network, has teamed with Microsoft Corp. and Softbank Corp. to
set up a joint venture in Asia.
In Japan, KDD Corp., Japan's biggest international phone
company, is building a network called APCN-2 with Asia's biggest
carriers, such as Singapore Telecommunications Ltd. and
Australia's Telstra Corp. Marubeni Corp., Japan's fourth-largest
trading company, said earlier this month it will add a
transatlantic telecommunications cable linking the U.S. and U.K.
to its network connecting the U.S., Japan, Asia and Europe.
Tagare rules out concerns Project Oxygen won't be able to
attract enough carriers as customers, saying capacity will be
filled by the time the cable is built. Tagare says he's convinced
international data traffic will keep expanding as people begin
using their cellular phones to send video images around the
world.
``Project Oxygen is on the forefront of that change,' he
said.
Tagare said the company, which has no plans at the moment to
offer shares to the public, has already sold $1 billion worth of
capacity to 30 carriers.
The company is now seeking as customers Japanese carriers,
such as NTT Mobile Communications Network Inc., the nation's
dominant cellular phone carrier, though Tagare refused to name
potential customers. |
