Project Oxygen Reported as Dead - Brief Article

In the August 1, 2000 issue of America's Network, an article by Graham Lynch announced that Project Oxygen is dead.

Its scale was breathtaking for 1997. That was the year that Flag cable founder, Neil Tagare, unveiled plans for a multi-Gigabit cable traversing over 170 countries and 180,000 miles. Project Oxygen aspired to the ideal of giving the nations of the world the same access to broadband enjoyed in the West at a distance independent flat price.

Give Tagare's track record in developing the similarly revolutionary Flag cable, which connected Europe with South and East Asia, his plan certainly attracted notice. But five years on, his stillborn project has come to an unremarkable end.

Project Oxygen's Washington, DC office lies seemingly abandoned with no one answering calls. Tagare has gone underground and, at press time, had not issued a formal announcement on Oxygen. But no one has refuted speculation of the project' demise. Indeed, it was left to Oxygen's biggest customer, obscure carrier start-up, Layer 2, to confirm the bad news. Layer 2's owner, Australian investor Shield Equities, told its shareholders that "equity funding to finance the development of Oxygen was suspended following withdrawal of principal equity participants and development of the cable network is unlikely to proceed."

A ship builder who was to help construct Oxygen's cable-laying fleet also confirmed the project's demise in a UK publication.

Layer 2 accounted for 20 percent of Oxygen's entire pre-funding commitment, undertaking to purchase $200 million of capacity on the network. Of well known operators, only Bezeq of Israel, Telecom Egypt, and VSNL of India had committed to buying capacity.

Oxygen was in such a parlous state that late last year it was negotiating to grant 40 percent of its equity to Bezeq and Israeli firm, Elbit Medical Imaging. But the straw that broke its back was failed negotiation to obtain financial support from Telstra of Australia and Pacific Century Cyberworks of Hong Kong earlier this year. According to Australian reports, the two abandoned Oxygen at the eleventh hour, causing it to miss important funding deadlines.

However, Oxygen seemed doomed almost from the very start. Tagare's plans and rhetoric challenged the established global cable club, who missed few opportunities to criticize his plans.

As Oxygen failed to gain support from the major operators, it repeatedly scaled back its plans, until it became little more than a trans-Pacific and trans-Atlantic cable. In the meantime, Global Crossing and a plethora of smaller systems in Asia and Latin America were unveiled and implemented, stealing the thunder from Oxygen's ambitions.

The smaller systems were a particular challenge to Oxygen. It's distance-independent pricing regime made it comparatively expensive up against localized point-to-point systems. As it missed deadlines, it lost guarantees that suppliers could meet its needs.

Tagare warned of this in January, when he said a virtual monopoly was emerging in submarine cable supply, after manufacturer Tyco announced it was entering the operator market and building its own global cable system. Oxygen's proposed ship-builder said that even if Oxygen could be resurrected, there is virtually no shipbuilding capacity available to if to the foreseeable future.

Oxygen's demise isn't necessarily good news for Global Crossing, its major global rival. Global Crossing's stock price has been decimated this year, falling over 50 percent from its high. One of the reasons is concern over its expensive strategy to buy end-carriers.

Proposed buy-outs of U S West and European-based global carrier, Equant, have failed, while the company paid over $1.5 billion for a relatively small financial industry carrier, IXNet. In the meantime, the company is rolling out massive links to Latin America and Asia.

Indeed, investors are increasingly nervous about the prospect for global cables. Many current plans assume that the broadband demand seen in the US will inevitably follow elsewhere. This is perhaps true for some regions such as Japan, Australia, and Northern Europe.

But there's less evidence that broadband demand will swell in locations such as the Caribbean, Latin America, and Southeast Asia, where much of the cable build out is concentrated.

Ovum analyst, Stephen Young, who is writing one of the world's first surveys of actual broadband usage, warns that global demand for Gigabit and Terabit cable capacity shouldn't be assumed. He pointed out that that development of local caching, minoring, and content will act as a brake on demand for international Internet connectivity. He also said that the development of last-mile broadband in the US has yet to occur elsewhere, and that the dominating connections will cap usage growth.

"We're amazed of the levels of skepticism (about demand) but it's going to change. Bankers will want to validate these forecasts," Young said.

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