Undersea Cables Solvency Update

1. U.S. Federal Government Action is Unnecessary New sources of private

investment are expanding the cable network things have totally changed
DAN O'SHEA (Managing Editor) Lightreading Subsea Market Lures New Cast of
Characters November 14, 2014 http://www.lightreading.com/optical/subsea/subsea-market-lures-new-cast-ofcharacters/d/d-id/712074?piddl_msgid=171817#msg_171817
Yes, we all know a lot of new cables are being planned,

built and activated. We also all know that

many existing cables are in the process of being upgraded to 100G and beyond. But those
well-understood trends are only part of the story; another part has more to do with who is
putting up the money to build them, and why. Google (Nasdaq: GOOG) last month was revealed
as an investor in yet another submarine cable, at least its fourth in the last six years. As with
Google's other subsea ventures, this US-to-Brazil cable is being financed by a consortium that also includes traditional telecom
carriers. Also, this past summer, the Web giant became part of the FASTER submarine cable project in Asia. (See TE SubCom Tapped
for US-Brazil Cable and Google's Game for Another Subsea Project.) Subsea market watchers believe Google is

not the only non-traditional carrier interested in subsea investments. Much as giants of the content
sector have taken increasing financial interest in the data center and wireless sectors, they are also looking to dip their toes into subsea.
"We're at a turning point in networking," says Hunter Newby, CEO of Allied Fiber LLC ,
which operates a carrier-neutral dark fiber network linking submarine landing points and access networks. "There

were only
a few companies that owned subsea systems before. Now, there is the potential for a lot of
non-traditional carriers buying in. We will see a consortium at some point that doesn't have a traditional carrier
involved." Google is not the only Web giant throwing its money into the oceans. Facebook is an investor in the Asia
Pacific Gateway, and is seen as a potential investor in other projects , or even as a buyer of a company
already operating submarine cables. (See Facebook Invests in Subsea Cable and Could Tata Be Facebook's Next M&A Target?)
Also, Microsoft Corp. (Nasdaq: MSFT), which in September committed to buy capacity on the planned Seabras-1, another
cable linking the US and Brazil, is a likely candidate
with massive private network and data center needs.

to invest in a project, as are several other global Web players

2. Today is the worst possible time to announce that the U.S. government has
a new initiative to underwrite new cables. The reaction of the world will be
Sure the Americans want to encourage building new cables that way the
NSA snooping devices can be built in from the start instead of having to add
them later! U.S. cables backed by the Federal Government will be shunned
by the international community they are already refusing to allow U.S.
hardware or cables that even touch U.S. soil.
Anna Edgerton and Jordan Robertson (Bloomberg Analysts) Bloomberg News Brazil-toPortugal Cable Shapes Up as Anti-NSA Case Study October 30, 2014
http://www.bloomberg.com/news/2014-10-30/brazil-to-portugal-cable-shapes-up-as-anti-nsa-case-study.html

Brazil is planning a $185 million project to lay fiber-optic cable across the Atlantic Ocean,
which could entail buying gear from multiple vendors. What it wont need: U.S.-made technology. The cable is
being overseen by state-owned telecommunications company Telecomunicacoes Brasileiras SA (TELB4), known as Telebras. Even
though Telebrass suppliers include U.S. companies such as Cisco Systems Inc. (CSCO), Telebras President Francisco Ziober Filho
said in an interview that the cable project can be built without any U.S. companies. The potential to exclude U.S.

vendors illustrates the fallout that is starting to unfold from revelations last year that the
U.S. National Security Agency spied on international leaders like Brazils Dilma Rousseff
and Germanys Angela Merkel to gather intelligence on terror suspects worldwide. The issue
of data integrity and vulnerability is always a concern for any telecom company, Ziober said. The NSA leaks last year from contractor

Edward Snowden prompted Telebras to step up audits of all foreign-made equipment to check for security vulnerabilities and
accelerated the countrys move toward technological self-reliance, he said. Nigel Glennie, a spokesman for San Jose, California-based
Cisco, declined to comment. Last November, Cisco Chief Executive Officer John Chambers said uncertainties related to NSA spying
were causing international customers to hesitate in buying U.S. technologies. Vanee Vines, a spokeswoman for the NSA, didnt
return a call for comment. The Telebras-planned cable, which will run 3,500 miles from the

Brazilian city of Fortaleza to Portugal, shows how losses to U.S. technology companies from
the NSA disclosures are now crystallizing. While much of the handwringing over damage to U.S. firms has focused
on existing technology contracts, the pain may come more from projects that are just getting off the ground. In many cases, its too
costly and complex to remove existing computing infrastructure, no matter the rhetoric coming from government leaders. New
projects are a different matter. With modern data networks being built worldwide -- especially in emerging markets where
information-technology spending is estimated to rise 9 percent this year to more than $670 billion, according to market researcher IDC
-- thats where theres opportunity to look increasingly to non-U.S. technology providers. U.S. companies could forgo as much as $35
billion in revenue through 2016 because of doubts about the security of their systems, according to the Washington-based Information
Technology & Innovation Foundation, a policy research group. Brazils new cable is the perfect project to go non-U.S., said Bill
Choi, an analyst at Janney Montgomery Scott, given that laying cables is a labor-intensive process dominated by non-U.S. companies
such as French firm Alcatel-Lucent and Swiss-based TE Connectivity Ltd. (TEL) Some of the anti-U.S. technology company talk may
just be negotiating ploys to gain lower product prices. While Microsoft Corp. (MSFT) and Verizon Communications Inc. (VZ) have
lost some contracts in Brazil and Germany, and Cisco has reported declining orders from emerging markets, the finances of most U.S.
technology companies have held up so far. Gross margins for the companies in the Standard & Poors 500 Information Technology
Sector Index are at their highest levels since 1990, according to data compiled by Bloomberg. Yet theres more risk for

U.S. companies of being excluded from new projects, said Lee Doyle of consultancy Doyle
Research. In Brazil, Russia, India and China, the anti-NSA sentiment is real and
significant, he said. Doyle added that only a minority of IT projects can realistically be implemented without any U.S.
technology, yet that doesnt make it any less painful for U.S. tech companies looking to grow. Brazil is a key geography where the
pain for U.S. technology firms is rising. The worlds seventh-biggest economy has long prioritized buying from its own companies. A
1991 law gave preference for state-sponsored projects to use locally made technology, and importers face steep tariffs. Once news of
Snowdens leaks broke last year, Brazil began terminating its contracts with Redmond, Washington-based Microsoft for Outlook email services. Brazil President Rousseff tweeted at the time that the change will help prevent possible espionage. Brazil is focusing
instead on an e-mail system called Expresso, developed by state-owned Servico Federal de Processamento de Dados, known as
Serpro. Expresso is currently used by 13 of the countrys 39 ministries. Expresso is 100 percent under our control, said Marcos
Melo, Serpros corporate solutions coordinator. Jack Evans, a spokesman for Microsoft, said the company continues to hear from
customers that where their content is stored and how it is used and secured matters. He said Microsoft is committed to increasing
choice and transparency about how we store our customers content. Last November, Rousseff also signed a decree requiring
government ministries and agencies to use only technology services provided by public or partially state-owned companies, without
competing for contracts in auctions. The transition for the preservation of national security should be monitored by the ministries of
defense, communications and planning and budget, the decree said. The Fortaleza-to-Portugal cable, proposed in 2012 before the
spying allegations, would further the countrys efforts to encourage local companies. The cable will bypass Brazils

existing Internet traffic routes to Europe, which currently go through the U.S. International
submarine cables are prime targets for espionage, [Brazilian President] Rousseff said at a
press conference in Sao Paulo on Oct. 20 as she campaigned for re-election. She said after
the cables to Europe, Brazil will study building direct connections to Africa and Asia. Its a
very important strategy for the country, this question of submarine cables, because its good
to remember that submarine cables are among the main mechanisms of spying today, she
said. Rousseff was re-elected on Oct. 26, in a result that had the tightest margin of victory since at least 1945.

Ext. Brazil is building its own cable specifically to avoid any U.S.
involvement
Kathleen Caulderwood (Journalist) International Business Times Brazil Builds Internet
Cable To Portugal To Avoid NSA Surveillance November 1, 2014
http://www.ibtimes.com/brazil-builds-internet-cable-portugal-avoid-nsa-surveillance-1717417

Brazil is building a cable across the Atlantic to escape the reach of the U.S. National
Security Agency (NSA). The move is one of many ways the Brazilian government is
breaking ties with American technology companies -- but it wont come cheap. The 3,500-mile fiber-optic
cable will stretch from Fortaleza to Portugal, with an estimated cost of $185 million, Bloomberg reported. Of course, none of this will
go to American vendors. Last year, Edward Snowden leaked documents that showed the NSA was

accessing personal information of Brazilian citizens, including listening to phone calls of

President Dilma Rousseff, its embassies and the state-owned oil company Petrobras. "As many
other Latin Americans, I fought against authoritarianism and censorship and I cannot but defend, in an uncompromising fashion, the

right to privacy of individuals and the sovereignty of my country," Rousseff said at the U.N. that year. The arguments that the illegal
interception of information and data aims at protecting nations against terrorism cannot be sustained. Brazil, Mr. President, knows how
to protect itself. We reject, fight and do not harbor terrorist groups," she said. Brazil has already switched its dominant email system
from Microsoft Outlook to a state-developed platform called Expresso, and last November required all government agencies to use
state-owned companies for their technology services. Brazil is the seventh-largest economy in the world. U.S. companies

could lose as much as $35 billion in revenue in the next two years, as buyers doubt the
security of their connections, according to research group Information Technology &
Innovation Foundation. The cable is set to be constructed in early 2015, overseen by state-owned company
Telecomunicacoes Brasileiras SA, known as Telebras.