In the late 1980s, as KMI looked at the cables then in existence and the systems that were slated for the next few years, they noticed an almost monstrous imbalance.
The United States would, by the late 1990s, be massively connected to Europe by some 200,000 circuits across the Atlantic, and just as massively connected to Asia by a roughly equal number of circuits across the Pacific. But between Europe and Asia there would be fewer than 20,000 circuits.
Cables have always been financed and built by telecoms, which until very recently have always been government-backed monopolies. In the business, these are variously referred to as PTTs (Post, Telephone, and Telegraphs) or PTAs (Post and Telecom Authorities) or simply as “the clubs.” The dominant club has long been AT&T—especially in the years since World War II, when most of the international telecommunications system was built.
Traditionally, the way a cable system gets built is that AT&T meets with other PTTs along the proposed route to negotiate terms (although in the opinion of some informed people who don’t work for AT&T, “dictate” comes closer to the truth than “negotiate”). The capital needed to construct the cable system is ponied up by the various PTTs along its route, which, consequently, end up collectively owning the cable and all of its capacity. This is a tidy enough arrangement as those telecoms traditionally “own” all of the customers within their borders and can charge them whatever it takes to pay for all of those cables. Cables built this way are now called “club cables.”
Given America’s postwar dominance of the world economy and AT&T’s dominance of the communications system, it becomes much easier to understand the huge bandwidth imbalance that the analysts at KMI noticed. Actually, it would be surprising if this imbalance didn’t exist. If the cable industry worked on anything like a free-market basis, this howling chasm in bandwidth between Europe and Asia would be an obvious opportunity for entrepreneurs. Since the system was, in fact, controlled by government monopolies, and since the biggest of those monopolies had no particular interest in building a cable that entirely bypassed its territory, nothing was likely to happen.
But then something did happen. KMI, whose entire business is founded on knowing and understanding the market, was ideally positioned, not just to be aware of this situation, but also to crunch the numbers and figure out whether it constituted a workable business opportunity. In 1989, it published a study on worldwide undersea fiber-optic systems that included some such calculations. Based on reasonable assumptions about the cost of the system, its working lifetime, and the present cost of communications on similar systems, KMI reckoned that if a state-of-the-art cable were laid from the United Kingdom to the Middle East it would pay back its investors in two to five years. Setting aside for a moment the fact that it went against all the traditions of the industry, there was no reason in principle why a privately financed cable could not be constructed to fill this demand. Investors would pool the capital, just as they would for any other kind of business venture. They would buy the cable, pay to have it installed, sell the capacity to local customers, and make money for their shareholders.
The study was read by Gulf Associates, a group of New York–based moneyed Iranian expats who are always looking for good investments. Gulf Associates checked out KMI’s prefeasibility study to get an idea of what the parameters of such a system would be. Based on that, other companies, such as Dallah Al-Baraka (a Saudi investment company), Marubeni Corp. (a Tokyo trading company), and Nynex got involved. The nascent consortium paid KMI to perform a full feasibility study. Neil Tagare, the former vice president for KMI, visited 25 countries to determine their level of need for such a cable. The feasibility study was completed in late 1990 and looked favorable. The consortium grew to include the Asian Infrastructure Fund of Hong Kong and Telecom Holding Co. Ltd. of Thailand. The scope of the project grew also, extending not just to the Middle East but all the way to Tokyo.
Nynex took on the role of managing sponsor for the FLAG project. A new company called Nynex Network Systems (Bermuda) Ltd. was formed to serve as the worldwide sales representative for FLAG, and FLAG’s world headquarters was sited in Bermuda. This might seem a bit peculiar given that none of the money comes from Bermuda, the cable goes nowhere near Bermuda, and Nynex is centered in the northeastern United States. But since FLAG is ultimately owned and controlled by a Bermuda company and the capacity on the cable is sold out of Bermuda, the invoices all come out of Bermuda and the money all comes into Bermuda, which by an odd coincidence happens to be a major corporate tax haven.
Nynex also has responsibility for building the FLAG cable system. One might think that a Baby Bell such as Nynex would be a perfect choice for this kind of work, but, in fact, Nynex owned none of the factories needed to manufacture cable, none of the ships needed to lay it, and not enough of the expertise needed to install it. Nynex does know a thing or two about laying and operating terrestrial cable systems—during the mid-1990s, for example, it wired large parts of the United Kingdom with a “cable television” system that is actually a generalized digital communication network. But transoceanic submarine cables were outside of its traditional realm.
On the other hand, during the early ’90s, Nynex found itself stymied from competing in the United States because of regulatory hassles and began looking overseas for markets in which to expand. By the time FLAG was conceived, therefore, Nynex had begun to gain experience in the countless pitfalls of doing business in the worldwide telecommunications business, making up a little bit of AT&T’s daunting lead.
FLAG’s business arrangements were entirely novel. The entire FLAG concept was unfeasible unless agreements could be made with so-called landing parties in each country along the route. The landing party is the company that owns the station where the cable comes ashore and operates the equipment that patches it into the local telecommunications system. The obvious choice for such a role would be a PTT. But many PTTs were reluctant to participate, partly because this novel arrangement struck them as dubious and partly because they weren’t going to end up monopolizing the cable.
Overcoming such opposition was essentially a sales job. John Mercogliano, a high-intensity New Yorker who is now vice president—Europe, Nynex Network Systems (Bermuda) Ltd., developed a sales pitch that he delivers too rapidly for any hacker tourist to write down but goes something like this: “In the old days AT&T came in, told you how much to pay, and you raised the money, assumed all of the risk, and owned the cable. But now FLAG’s coming in with investors who are going to put in $600 million of their own cash and borrow a billion more without any guaranteed sales, assuming all of the risk. You buy only as much capacity on FLAG as you want, and meanwhile you have retained your capital, which you can use to upgrade your outdated local infrastructure and provide better service to your customers—now what the hell is wrong with that?”
The question hangs in the air provocatively. What the hell is wrong with it? Put this way, it seems unbeatable. But a lot of local telecoms turned FLAG down anyway—at least at first. Why?
The short answer is that I’m not allowed to tell you. The long answer requires an explanation of how a hacker tourist operates; how his methods differ from those of an actual journalist; and just how weird the global telecom business is nowadays.
Let’s take the last one first. The business is so tangled that no pure competition exists. There are no Coke-versus-Pepsi dichotomies. Most of the companies mentioned in this story are actually whole families of companies, and most of those have their fingers in pies in dozens of countries all around the globe. Any two companies that compete in one arena are, at the same time, probably in bed with each other on many other levels. As badly as they might want to slag each other in the press, they dare not.
So, like those “high-ranking officials” you’re always reading about in news reports from Washington, they all talk on background. Anyone who wants to write about this business will come off as either a genius with an encyclopedic brain or a pathological liar with an
axe to grind—depending on the reader’s point of view—because all truly interesting information is dished out strictly on background.
Perhaps a real journalist would go into Woodward-and-Bernstein mode, find a Deep Throat, and lay it all bare. But I’m not a real journalist: I’m a hacker tourist, and trying to work up an exposé on monopolistic behavior by big bad telecoms would only get in the way of what are, to me, the more interesting aspects of this story.
So I’ll just say that a whole lot of important and well-informed people in the telecom business, all over the planet, are laboring under the strange impression that AT&T used its power and influence to discourage smaller telecoms in other countries from signing deals with FLAG.
In the old days, this would have prevented FLAG from ever coming into existence. But these are the new days, telecom deregulation is creeping slowly across the planet, and many PTTs now have to worry about competition. So the results of the FLAG sales pitch varied from country to country. In some places, like Singapore, FLAG never made an agreement with anyone and had to bypass the country entirely. In other places, the PTT broke ranks with AT&T and agreed to land FLAG. In others, the PTT turned it down but an upstart competitor decided to land FLAG instead, and in still others, the PTT declined at first, and then got so worried about the upstart competitor that it changed its mind and decided to land FLAG after all.
It would be very easy for you, dear reader, to underestimate what a sea change this all represents for the clubs. They are not accustomed to having to worry about competition—it doesn’t come naturally to them. The typical high-ranking telecom executive is more of a government bureaucrat than a businessperson, and the entire scenario laid out above is irregular, messy, and disturbing to someone like that. A telecrat’s reflex is to assume, smugly, that new carriers simply don’t matter, because no matter how much financing and business acumen they may have, no matter how great the demand for their services may be, and no matter how crappy the existing service is, the old PTT still controls the cable, which is the only way to get bits out of the country. But in the FLAG era, if the customers go to another carrier, that carrier will find a way to get the needed capacity somehow—at which point it is too late for the PTT.
The local carriers, therefore, need to stop thinking globally and start thinking locally. That is, they need to leave long-range cable laying to the entrepreneurs, to assume that the bandwidth will always somehow be there, and to concentrate on upgrading the quality of their customer service—in particular, the so-called last mile, the local loop that ties customers into the Net.
By the end of 1994, FLAG’s Construction and Maintenance Agreement had been signed, and the project was for real. Well before this point, it had become obvious to everyone that FLAG was going to happen in some form, so companies that initially might have been hostile began looking for ways to get in on the action. The manufacture of the cable and the repeaters had been put out to bid in 1993 and had turned into a competition between two consortia, one consisting of AT&T Submarine Systems and KDD Submarine Cable Systems, and the other formed around Alcatel and Fujitsu. The former group ended up landing the contract. So AT&T, which evidently felt threatened by the whole premise of the FLAG project and according to some people had tried to quash it, ended up with part of the contract to manufacture the cable.
IN WHICH THE HACKER TOURIST RETURNS (TEMPORARILY) TO BRITISH SOIL IN THE FAR EAST. THE (TEMPORARY) CENTER OF THE CABLE-LAYING UNIVERSE. HOISTING FLAGONS WITH THE ÉLITE CABLE-LAYING FRATERNITY AT A WATERFRONT ESTABLISHMENT. CLASSIC REPRISE OF THE ANCIENT HACKER-VERSUS-SUIT DRAMA. HISTORICAL EXPLOITS OF THE FAMOUS WILLIAM THOMSON AND THE INFAMOUS WILDMAN WHITEHOUSE. THEIR RIVALRY, CULMINATING IN THE DESTRUCTION OF THE FIRST TRANSATLANTIC CABLE. WHITEHOUSE DISGRACED, THOMSON TRANSMOGRIFIED INTO LORD KELVIN . . .
22˚ 15.745' N, 114˚ 0.557' E Silvermine Bay, Lan Tao Island,?b Hong Kong
“Today, Lan Tao Island is the center of the cable-laying universe,” says David M. Handley, a 52-year-old Southerner who, like virtually all cable-laying people, is talkative, endlessly energetic, and gives every indication of knowing exactly what he’s doing. “Tomorrow, it’ll be someplace else.” We are chug-a-lugging large bottles of water on a public beach at Tong Fuk on the southern coast of Lan Tao, which is a relatively large (25 kilometers long) island an hour’s ferry ride west of Hong Kong Island. Arrayed before us on the bay is a collection of vessels that, to a layman, wouldn’t look like the center of a decent salvage yard, to say nothing of the cable-laying universe. But remember that “layman” is just a polite word for “idiot.”
Closest to shore, there are a couple of junks and sampans. Mind you, these are not picturesque James Clavell junks with red sails or Pearl Buck sampans with pole-wielding peasants in conical hats. The terms are now used to describe modern, motorized vessels built vaguely along the same lines to perform roughly the same functions: a junk is a large, square-assed vessel, and a sampan is a small utility craft with an enclosed cabin. Farther out, there are two barges: slabs with cranes and boxy things on them. Finally, there are several of what Handley calls LBRBs (Little Bitty Rubber Boats) going back and forth between these vessels and the beach. Boeing hydrofoils and turbo cats scream back and forth a few miles out, ferrying passengers among various destinations around the Pearl Delta region. It’s a hot day, and kids are swimming on the public beach, prudently staying within the line of red buoys marking the antishark net. Handley remarks, offhandedly, that five people have been eaten so far this year. A bulletin board, in English and Chinese, offers advice: “If schooling fish start to congregate in unusually large numbers, leave the water.”
This bay is the center of the cable-laying universe because cable layers have congregated here in unusually large numbers and because of those two barges, which are a damn sight more complicated and expensive than you would ever guess from looking at them. These men (they are all men) and equipment have come from all over the world, to land not only FLAG but also, at the same time, another of those third-generation fiber-optic cables, APCN (Asia-Pacific Cable Network).
In contrast to other places we visited, virtually no local labor is being used on Lan Tao. There is hardly a Chinese face to be seen around the work site, and when you do see an Asian it tends to be either an Indonesian member of a barge crew or a Singaporean of Chinese or Indian ancestry. Most of the people here are blue-eyed and sunburned. A good half of them have accents that originate from the British Isles. The remainder are from the States (frequently Dixie), Australia, or New Zealand, with a smattering from France and Germany.
Both FLAG and APCN are just passing through Hong Kong, not terminating here, and so each has to be landed twice (one segment coming in and one segment going back out). In FLAG’s case, one segment goes south to Songkhla, Thailand, and the other goes north toward Shanghai and Korea. It wouldn’t be safe to land both segments in the same place, so there are two separate landing sites, with FLAG and APCN cables running side by side at each one. One of the sites is at the public beach, which is nice and sandy. The other site is a few hundred meters away on a cobble beach—a hill of rounded stones, fist- to football-sized, rising up out of the surf and making musical clinking noises as the waves smash them up and down the grade. This is a terrible place to land a cable (Handley: “If it was easy, everybody would do it!”) but, as in Thailand, diversity is the ultimate trump card. Planted above the hill of cobbles is a brand-new cable station bearing the Hong Kong Telecom logo, only one of the spoils soon to be reaped by the People’s Republic of China when all this reverts to its control next year.
Lan Tao Island, like most other places where cables are landed, is a peculiar area, long home to smugglers and pirates. Some 30,000 people live here, mostly concentrated around Silvermine Bay on the island’s eastern end, where the ferries come in every hour or so from Hong Kong’s central district, carrying both islanders and tourists. The beaches are lovely, except for the sharks, and the interior of the island is mostly unspoiled parkland, popu
lar among hikers. Hong Kong’s new airport is being built on reclaimed land attached to the north side of the island, and a monumental chain of bridges and tunnels is being constructed to connect it with the city. Other than tourist attractions, the island hosts a few oddities such as a prison, a Trappist monastery, a village on stilts, and the world’s largest outdoor bronze Buddha.
Cable trash, as these characters affectionately call themselves, shuttle back and forth between Tong Fuk and Silvermine Bay. They all stay at the same hotel and tend to spend their off hours at Papa Doc’s (no relation to the Haitian dictator), a beachfront bar run by expats (British) for expats (Australians, Americans, Brits, you name it). Papa Doc’s isn’t just for cable layers. It also meets the exacting specifications of exhausted hacker tourists. It’s the kind of joint that Humphrey Bogart would be running if he had washed ashore on Lan Tao in the mid-1990s wearing a nose ring instead of landing in Casablanca in the 1940s wearing a fedora.
One evening, after Handley and I had been buying each other drinks at Papa Doc’s for a while, he raised his glass and said, “To good times and great cable laying!” This toast, while no doubt uttered with a certain amount of irony, speaks volumes about cable professionals.
For most of them, good times and great cable laying are one and the same. They make their living doing the kind of work that automatically weeds out losers. Handley, for example, was a founding member of SEAL Team 2 who spent 59 months fighting in Vietnam, laid cables for the Navy for a few more years, and has done similar work in the civilian world ever since. In addition to being an expert diver, he has a master mariner’s license good up to 1,500 tons, which is not an easy thing to get or maintain. He does all his work on a laptop (he claims that it replaced 14 employees) and is as computer-literate as anyone I’ve known who isn’t a coder.
Some Remarks: Essays and Other Writing Page 15