A Study on Submarine Cables Crossing Egypt and their Costs

Used international bandwidth almost doubles in every two years on a global average, there is even higher growth rate for international bandwidth from Asia to Europe. The geographic position of Egypt allows for an efficient crossing from the Red Sea to the Mediterranean Sea for Asia to Europe connectivity. Almost all the existing submarine cables connecting Asia, Africa and Europe are crossing Egypt. SubmarineNetworks.com has an intensive Study on Submarine Cables Crossing Egypt and their Costs. The full Study Report is available upon ordering.

Executive Summary

First of all, it should be noted there is no cable crossing Egypt through the Suez Canal at all. The Suez Canal is a man-made canal and it is not technically feasible for crossing submarine cables. People thought that submarine cables can cross Egypt like ships in the Suez Canal. It is wrong. All cables crossing Egypt are connected to terrestrial cables in ducts buried underground, without touching the Suez Canal.

Telecom Egypt, the incumbent monopoly fixed network operator in Egypt, operates the TE Transit Corridor, which comprises the terrestrial network infrastructure linking the Red Sea and the Mediterranean Sea, over diverse and redundant routes. The TE Transit Corridor is the route of choice for submarine cables from Asia and Africa to Europe.

But Telecom Egypt charges high prices when providing services for submarine cable crossing Egypt, for their uses of cable landing facilities and fiber pairs in the TE Transit Corridor terrestrial cables.

Telecom Egypt was blamed to charge about US$300million for a subsea cable crossing Egypt. If it is true, such a cost may account for more than 50% of a submarine cable from Asia to Europe. In this study by SubmarineNetworks.com, it will be convinced that such information is not true and fact.

In this study by SubmarineNetworks.com, it evaluates and analyzes 12 submarine cables crossing Egypt, which have procured Indefeasible Right of Use (IRU) of fiber pairs on the TE Transit Corridor from Telecom Egypt during 2000-2019. The 12 submarine cables have paid Telecom Egypt a total of at least US$369 million for fiber pairs on IRU basis, with additional Operation and Maintenance (O&M) charges during the lifetime of corresponding systems.

In this study by SubmarineNetworks.com, it has an overview analysis on the telecom operators in Egypt, which indicates Telecom Egypt has the monopoly position on fixed network and international cables in Egypt.

In this study by SubmarineNetworks.com, it shows Telecom Egypt has achieved excellent financial performance during the past years. Its EBITDA margin was about 28% in 2019 although it has been declining from more than 50% in 2001. And its Net Profit margin was about 19% in 2019. Revenue from international customers and networks, including aforesaid charges on submarine cables crossing Egypt, contributes a significant share of total revenue of Telecom Egypt. Such shares varied from 6.62%-17.39% during 2008-2019, accounted for 11.6% of the total revenue of Telecom Egypt during 2008-2019.

[Excerpts] Telecom Egypt's Roles on AAE-1 and SMW5

Notably, Telecom Egypt is the key member to initiate the AAE-1 cable system, and has done great jobs on both AAE-1 and SMW5.

In 2011, Telecom Egypt tried to promote the idea to build a new submarine cable connecting Asia, the Middle East, Africa and Europe, crossing Egypt. It was named as Asia Africa Europe submarine cable system in the beginning. But Telecom Egypt didn’t get positive response from many potential partners it approached. Fortunately, Telecom Egypt got expected positive support from China Unicom. In December 2011, Telecom Egypt and China Unicom signed a two-party Memorandum of Understanding (MOU), to jointly develop the AAE submarine cable system. Later on, Telecom Egypt and China Unicom got support from PCCW Global which contributed a lot to move ahead with the project. For a better pronunciation and promotion, the name of the cable system was changed to AAE-1, instead of AAE. Please try to prounce it, you may find the difference. Did you get it? If not, message Winston.

Telecom Egypt, China Unicom and PCCW Global tried to contact the parties which have been almost excluded from the SMW5 consortium which initiated earlier than AAE-1, and finally teamed up the AAE-1 consortium in 2013 and signed the Construction and Maintenance Agreement for Asia-Africa-Europe 1 submarine cable system (AAE-1 C&MA) in Hong Kong on January 27^th, 2014

There was a time, the SMW5 Consortium tried to make the SMW5 cable without the participation or investment by Telecom Egypt. They failed to reach a feasible solution, and had to pull back Telecom Egypt to the SMW5 Consortium. The SMW5 Consortium finally signed their C&MA in Kuala Lumpur, Malaysia on March 7^th, 2014, behind the signing of AAE-1 C&MA.

Right after the signing of the SMW5 C&MA, there happened the saddest story in the history of submarine cable industry, the loss of Malaysia Airlines Flight 370 (MH370) and the loss of “Happy” Zhang of China Telecom, the former IMC co-chair of SMW5 Consortium, on March 8^th, 2014. Immediately after the SMW5 signing ceremony in Kuala Lumpur, Happy boarded the ill-fated MH370 which was lost over the Southern India Ocean. On January 19, 2015, the Malaysian government officially declared the disappearance of MH370 an accident and announced that there were no survivors, which marked the very sad ending of this tragic accident. The South East Asia - Middle East - Western Europe 5 (SEA-ME-WE 5, or SMW5) Submarine Cable System is also named as "The Happy Submarine Cable System" for loving memory of Happy Zhang. I am still feeling so sad when I am writing down this piece of story, now on April 21, 2020.

Ok. Let’s get over it.

It is quite interesting to find out that SMW5 and AAE-1 have many common landing countries, but landing parties in most of those countries are tough competitors. Please refer to details in this article: SEA-ME-WE 5 vs AAE-1.

There is also spreading rumor in the submarine cable industry that Telecom Egypt stole other's idea and design on AAE-1 cable system. Just take it as a rumor.

Telecom Egypt has made the AAE-1 project happen and be a successful project, Telecom Egypt has supported the SMW5 project as well.

How important are AAE-1 and SMW5 cable systems for the Asia-Europe connectivity in nowadays? Any expert in the industry would be able to understand it well.

Telecom Egypt has done great jobs on both AAE-1 and SMW5.

[Excerpts]Closing Remarks 

Egypt takes advantages on geographic position for an efficient crossing from the Red Sea to the Mediterranean Sea for Asia to Europe connectivity.

On the other hand, many submarine cables crowding in the narrow and shallow Red Sea also forms a risk of network resilience.

Heavy cost and potential network risk is offsetting the benefit of Egypt crossing. Stakeholders in the industry are trying to explore alternative routes and solutions for Asia to Europe connectivity. For example, Google has led to successfully explore for its Blue-Raman cable via Israel, avoiding Egypt. And there are others exploring terrestrial routes via the Central Asia and Russia.

It might be time for Telecom Egypt to have more flexible policy and reduce their charges on the TE Transit Corridor and cable landing services to at least the same as comparable to the cost per 1000km for those cables in the EMEA region, as as to attract new cables. From financial point of view, the excellent margins on both EBITDA and Net Profit may support Telecom Egypt to reduce its charge on submarine cables crossing Egypt.

To have the full Study Report on Submarine Cables Crossing Egypt and their Costs, please place an order.

Study Report on Submarine Cables Crossing Egypt and their Costs

Table of Contents

1 Executive Summary 

2 Submarine Cables Crossing Egypt 

3 A Glance at Telecom Operators in Egypt 

4 Telecom Egypt’s Major Investments on International Networks 

4.1 AAE-1 and SEA-ME-WE 5 

4.2 TE North 

4.3 MENA SCS 

5 Costs of Submarine Cables Crossing Egypt 

6 Analysis on Telcom Egypt’s Revenue 

7 Closing Remarks 

Figure 1  List of submarine cables along the TE Transit Corridor 

Figure 2  Telecom operators in Egypt 

Figure 3  Market shares of mobile operators in Egypt 

Figure 4  MENA Submarine Cable Map 

Figure 5  Typical routes and cable length from the Zafarana CLS to the Abu Talat CLS 

Figure 6  Costs for Subsea Cables Crossing Egypt (2000-2019) 

Figure 7  Telecom Egypt’s FY2019 revenue share breakdown 

Figure 8  Telecom Egypt’s long term contracts with domestic mobile operators 

Figure 9  Telecom Egypt’s revenue from international customers and networks (EGP, 2008-2019) 

Figure 10  Telecom Egypt’s revenue from international customers and networks (USD, 2008-2019) 

Figure 11  Telecom Egypt’s financial results in 2019 

Figure 12  Telecom Egypt’s profit margin (2001-2019) 

Table 1 List of submarine cables crossing Egypt and their costs (2000-2019)