International Finance

The transoceanic cable project is big for Chile

But what is complicated is the country being mired in a geopolitical crossfire between Japan and China

Telecom in Chile has come a long way since its privatisation in 1980—having the most sophisticated and well-developed infrastructure in Latin America. Over the years, the country has emphasised the importance to carry out priority programmes, deployment of 5G, submarine fiber optic cable and annihilate the existing digital gap—to build global competitiveness as a result. This is achieved with the combined help of Chilean telecom companies and the government. While the Chilean companies have foreseen the potential of the national telecom system—the government has designed support measures to prevent service interruptions for customers.

Chile’s current fiber optic status
Chile has a broad-range of corporate and residential fiber internet, but the penetration levels remain quite low implying more scope for growth. Last September, the country had 3.43 million fixed broadband connections which increased 71 percent year-over-year, observed telecom regulator Subtel. Of those connections, approximately 1 million correspond to fiber optics internet, with a 55 percent leap in that period. In February, the country’s mobile operator WOM forayed into FTTH pilot in Santiago. Sul Ahmad, Fitch’s associate director, said in a report, “Fitch expects WOM to deliver following a dividend recapitalisation, as the company moves from a challenger to an established player.”

The country’s level of spending in fiber optics projects is significant. There are massive high-speed network projects underway—largely aimed at the domestic market—and has in fact opened up new opportunities for cable providers, technology developers and system integrators. For example, the Fibra Óptica Austral and the Fibra Óptica Nacional which are considered pivotal to the country’s telecom industry will use a combined 14,000 kilometers of fiber cables. While the Fibra Óptica Austral is nearing completion to connect the far south of the country, the works of Fibra Óptica Nacional are yet to begin.

In another example, Google is planning to establish a second data centre in the country with a lifespan of 28 years—necessitating more fiber requirement to connect it. The company’s first data centre is in Santiago. For the second data centre, it has already completed a 10,000 kilometer subsea cable linking the coast of California to Chile—which points to a profound step in the company’s plan to support its global cloud computing infrastructure. Chilean Minister of Transport and Telecommunications Gloria Hutt said in a statement that the new link established by Google will “provide advantages and opportunities for millions of Internet users” in the country. But what is a real game-changer for Chilean telecom is the transoceanic cable project which is underway.

Why is trans-Pacific cable a game-changer for Chile?
Chilean President Sebastián Piñera expressed his interest in prioritising the telecom industry with the Submarine Cable Project linking Latin America and Asia. Last September, Subtel handed over the feasibility study for the Submarine Fiber Optic Cable Project to TMG Telecom and WFN Strategies. The study examined various components of the project including potential routes and traffic projection for existing and future cables. The study was funded by the CAF – Development Bank of Latin America. The project points to a known fact that the country is seeking to create a hub to meet the demand of its regional peers. Even the Chilean government is investing a lot of effort to encourage other countries to take part in the project, especially it being a public-private partnership. It is reported that the French Polynesia, Brazil and Argentina had expressed interest in joining forces and sharing costs.

An exciting highlight of the project is that it will be the first underwater fiber optic cable developed to boost interconnectivity, trade, investment and scientific and cultural exchanges between the two continents. The country has chosen a route suggested by Japan designating Australia and NewZealand as endpoints. The proposed route will have the submarine fibre optic cable stretch approximately 13,000 kilometres across the Pacific Ocean—passing through New Zealand and eventually landing at its terminus in Sydney as planned.

Chile is hoping that the submarine cable linking it to Sydney and Auckland will transform its position as a digital star on the home continent. The bidding for the project’s contract is expected to begin next year, with an estimated initial investment of $500 million. It was in July when Japan and Australia completed their respective submarine cables linking the two countries. This perfectly implies that Japan could connect to the trans-Pacific cable. Australia is important to the project because it is a major junction for a myriad of submarine cables across Oceania and Asia. According to the Minister of transport and telecommunications Gloria Hut, “This is the first initiative that will connect the region with Oceania and finally with Asia, opening enormous opportunities for Chile to become the Digital Hub of South America on the Pacific side, making it an attraction for various investments such as data centres and related to digital commerce.” The government is expected to release a dedicated fund for the project by the end of the year.

Japan supersedes China’s plan in cable route
Another interesting highlight is that Japan’s proposed route has superseded China’s plan which would have otherwise made Shanghai the final landing point. It is reported that the decision comes at a time when the US is doing everything in its power to keep China out of global telecommunication projects. This decision is sensitive and important to Chile because submarine cables carry 95 percent of international communications—which also includes internet data. In fact, expansion of optic cables connecting continents is worrisome, especially with the advent of 5G communications and sophisticated devices.

Chile is mired in a geopolitical crossfire
Although the idea here is to transform Chile into a regional digital hub, the Chinese exclusion has left the country mired in a geopolitical crossfire, especially with China being its largest trading partner. Many global economies including Britain and Australia have already banned Huawei technology from their 5G networks, while Chile only hard resisted the US pressure to ban the Chinese company. But now the situation is seemingly changing. Last April, Huweai had even pledged to invest in Chile’s data centres during the President’s visit to Beijing. The initial anticipation was Huawei would be a prominent candidate for this submarine cable project, but it seems that Chile is unable to overlook the US’ efforts in diplomacy and trade.

In fact, China has in-depth knowledge in submarine fibre optic cables which could have proved to be beneficial to Chile on many levels. This is true because three years ago, China carried out a pre-feasibility study using Huawei equipment to understand the potential routes for submarine cables to follow. The route is approximately between 20,000 kilometers to 24,000 kilometers with an estimated cost of $600 million. Chilean Transport and Telecommunications Undersecretary Pamela Gidi Masías tweeted that “We chose the route that requires a less initial investment, less operating costs, and less technical challenges—that is, less risk. We chose Australia because it is a digital hub in Oceania since it currently has five operational submarine cables that connect to Asia and two in the deployment plan.”

Chile shows preference for NEC—a win for Japan
Tokyo has always pushed for a Trans-Pacific Partnership to liberalise trade and investment linking Asia, the Americas and the Pacific. With the project, Japanese companies will gain a competitive advantage in winning contracts for equipment supply. It is reported that Tokyo seeks to invest in and extend financing opportunities to a special purpose vehicle with the assistance of the Japan Bank for International Cooperation and the Japan ICT Fund. In fact, Chile has chosen Japanese multinational corporation NEC which is one of the top suppliers for submarine cable in the world. The selection implies that the Japanese company will be responsible for building the submarine cable network between the two continents. In fact, NEC recently completed a transatlantic cable between Angola and Brazil—pointing to the fact that Japan is slowly increasing its presence in Latin America’s submarine fibre optic market.

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