The FALCON has landed: Middle East and India

Flag Telecom, the transoceanic cable operator recently revived from Chapter 11, has spectacularly consolidated its position by announcing a new cable project which ties what are probably the two most underserved regions in the world--Middle East and India. The new cable system--named FALCON--will provide 15,000km terabit capacity from Egypt and around the Gulf region on a self-healing network; it will then link to India and then Hong Kong and China on an "aggressive timetable" by 2005, says Flag CEO Patrick Gallagher. As with the original Flag network, the FALCON system will be 100 per cent owned by Flag without operator co-ownership or vendor financing.

Launching a new international cable project takes advantage of a regional imbalance in telecom connectivity and demand, although operators and vendors have been very hard hit in the continuing downturn on major routes elsewhere, particularly in the Atlantic and Pacific oceans. The new cable deployment also comes hard on the heels of the acquisition by Indian company Reliance of Flag in January 2004, a fact which no doubt helped in the prospective Indian portion of the FALCON cable, where the system transits on a terrestrial route across India from Mumbai to Chennai.

The system will be used to provide external connectivity for Indian demand although the system is not part of the network of VNSL, the licensed Indian international carrier. Reliance has 80,000km of domestic infrastructure--linking 1100 cities and towns--with which FALCON will interconnect. Reliance is India's largest business grouping and, despite a late entrant into the telecom business, has built up a formidable domestic presence. Reliance Infocomm is said to be the only private service provider with licences to operate in 18 telecom regions that cover 95 per cent of the Indian population, whilst Reliance IndiaMobile, its mobile service launched commercially in May 2003, is almost certainly--according to Gallagher--the fastest growing mobile business in the history of telecom. By the end of 2003, it had become India's largest mobile service provider with over 6.5 million mobile subscribers.

The thinking behind FALCON is that aggregate demand from both burgeoning fixed and mobile businesses means that high capacity broadband external connectivity is urgently needed. "Is the system an overkill?" asks Gallagher. "No, it isn't."

The telecom boom saw several groups wanting to provide Europe-India connection via the Mediterranean and Middle East routing with high quality submarine links, although plans for most have either been shelved or delayed, even in spite of the regional demand. The last major development in the region was the SAT/SAFE cable opened in 2002 linking South East Asia with Europe via the Indian Ocean and South Africa.

The next major transcontinental system, SEA-ME-WE 4, a "club" system involving participation of many operators, which would link Europe with South East Asia, is still in the planning process. Flag says that it does not expect SEA-ME-WE 4 to be competitive. FALCON appears to be the only project to achieve actuality, although Gallagher declines to discuss total cost or even vendor arrangements until these have been finalised, beyond saying that the system will not involve external debt provision.

Flag says that it is "in the final stages of negotiating with several Gulf States" and has the potential to provide to Egypt, Oman, Bahrain, Kuwait, Iran, and Qatar. Gallagher also suggests that Iraq will be an eventual addition once political and economic circumstances have stabilised. OmanTel, Batelco, Telecom Egypt and Kuwait's Ministry of Communications have been public in their support of the project, citing strategic development needs. Flag's history and continuing existence as a carriers' carrier in the region, says Gallagher, has helped credibility and momentum on the FALCON project. "Flag [already] carries 80 pe cent of the international traffic in and out of Egypt," says Gallagher.

COPYRIGHT 2004 Horizon House Publications, Inc.
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