Hengtong Set to Shape the Global Subsea Market
The small but increasingly sensitive subsea cable market could be in for some choppy waters. The acquisition of Huawei's submarine business by another Chinese vendor, Hengtong Optic-Electric, could shake up the market, forecast to be worth $5.1 billion in 2021.
The business of installing the undersea fiber system that carry virtually all intercontinental data traffic is currently dominated by three firms — Nokia's Alcatel Submarine Networks, NEC and TE Subcom, owned by private equity firm Cerberus Capital.
Huawei offloaded its entire 51% stake in its ten-year-old marine business to Shanghai-listed Hengtong last June.
Hengtong then acquired another 30% stake from H2C, the parent of Huawei's partner Global Marine, for $149 million, valuing the business at $285 million.
H2C, chaired by Philip Falcone, founder of LightSquared –- now known as Ligado Networks — also has an option to sell the remaining stake to Hengtong. (See Spectrum Shift: Anterix Says It's Not Another Ligado.)
Huawei boss Ren Zhengfei denied the company had been forced into the sale by the US campaign against Huawei, arguing that it was not core to Huawei's business.
Under the sale agreement, Huawei became Hengtong's second-largest shareholder, so the company still carries a strong Huawei connection.
Huawei's subsea business, like the rest of the company, is excluded from key geographies, including any cable that lands in Australia or the US.
Eighteen months ago the Australian government took over the Solomon Islands government's contract with Huawei Global Marine for a 4,700km cable to Sydney. (See Pressure on Huawei Shifts Closer to Home.)
But Hengtong, which has already installed more than 10,000 kilometers of undersea cable, sees plenty of opportunity in an industry now in a major build cycle.
One part of this is bringing international connectivity to developing markets. Three months ago Hengtong won the contract from PCCW Global and Orange to build the 12,000km PEACE cable linking Pakistan, east Africa and France.