New subsea cable may undermine Cayman’s telecom market

Liberty Networks, the operator of Cayman’s existing two subsea communication cables, said government plans to build a third connection could undermine the local telecom market.

Carmine Sorrentino, chief commercial and operating officer at Liberty Networks, warned that it could potentially force Liberty to “drop some cables” or request subsidies from government.

“Lately there has been a push from different entities saying the cables are old in the Caribbean, we need to invest, we need new things,” said Sorrentino. “Much of what you hear comes from parties that will not be investing their own capital.”

Government plans for a third cable have been the subject of media discussion and in an interview with the Compass on 2 Oct., Sorrentino gave his perspective on the debate.

Capacity and cost

The core of Sorrentino’s argument is that there is no business case for adding a third cable. “We just spent more than US$10 million upgrading one of our existing cables, Maya. Even if Cayman sent all of its current data through that one cable, it would only be at 5% capacity.”

So, the third cable isn’t needed to handle current data flow. Nor will it help with price, Sorrentino said.

“I always hear that we have a monopoly because we have two cables,” he said. “Capacity prices in the Caribbean are low, and they stay low because Cayman is part of a regional network of 17 subsea systems across more than 30 countries.”

Sorrentino estimated that a new cable connecting Cayman to the US would cost around US$150 million and said that a single cable cannot “match the economics” of a regional network.

In January, Blair Lilford, CEO of Salt Wireless – a company that forms part of a consortium competing against Liberty Networks to build and operate the third cable – told the Compass that it wouldn’t necessarily lower costs. The government has also said it would give a subsidy to support a third cable.

Sorrentino said he “cannot exclude” the possibility of Liberty Networks asking for government subsidies if it has to share the market with a subsidised competitor.

It raises the spectre of Cayman turning a privately funded telecoms market into a subsidised one. “Is the government going to subsidise the third cable and then subsidise the other two to make sure they will be kept alive forever?” asked Sorrentino.

Supplementing or substituting?

Proponents of a third cable have argued that while the cable isn’t needed now, it will give Cayman an advantage by ensuring ample connection capacity in the future. But Sorrentino said that argument is inconsistent.

“People say the existing cables are old, so we need a third cable. Well, if that were true – and it is not – you would not have increased resilience if you are replacing an old cable with a new one.”

Moreover, Sorrentino suggested that a third cable could lead to Liberty Networks cutting back in Cayman. “We are a private company that invests private money. When you see the ecosystem change, and this is a discussion not only for Cayman but in general, when the ecosystem changes and you disrupt the private market with public money, why should the private sector be there if it is not making money and competing with public capital?

“If you start to disrupt that ecosystem, of course the company has to make rational business decisions and maybe exit some markets or maybe drop some cables if these become loss-making after the disruption.”

Sorrentino said the Caribbean is the world’s most expensive region for maintaining subsea cables, with Liberty Networks spending up to US$80 million per year maintaining subsea cables in the Caribbean.

“If you are adding a subsidised cable, can you expect Liberty to stay there and continue to spend private money to maintain all those cables and continue to provide the service it has given you all these years without subsidising Liberty also? If you don’t support the existing ecosystem, you are not accomplishing anything.”

Liberty Networks is owned by Liberty Latin America, which also owns Cayman-based telecoms provider Flow, so splitting Cayman’s subsea cables between different companies would provide some commercial resilience for the jurisdiction. This could provide protection from company-specific risks such as a cyberattack or bankruptcy.

Sorrentino argued that the company’s track record shows how small that type of risk is. Its two cables, the Cayman-Jamaica Fiber System and Maya 1, have operated for 29 years and 26 years respectively. “We have never had a situation where both cables have been down at the same time. Since 2000, we have had about 150 hurricanes in the Caribbean and never had an issue with the stations because of hurricanes.”

The Compass understands that the government is currently reviewing proposals for a third subsea cable from Liberty Networks and a consortium made up of Caymanian internet firm SALT Wireless, its sister firm the Cayman Cable Co., and Telconet Latam, an Ecuadorian telecoms firm.