News round-up, July 7, 2023
Editorial…
Why do the monetary authorities refuse to recognize that we are —or very close— in a deep economic crisis, perhaps one of the worst in history?
The New York Times, in the October 20, 2023 edition, published the following article: “A Warning for the World Economy: "The Worst Is Yet to Come" The International Monetary Fund has lowered its growth outlook for 2023 and has suggested that interest rate increases could trigger a severe global recession. On Tuesday, the International Monetary Fund (IMF) stated that the global economy was facing challenging times ahead. The IMF downgraded its projections for global growth for the upcoming year and cautioned that a severe global recession could occur if policymakers mishandled the battle against inflation. The grim assessment was detailed in the fund's closely watched World Economic Outlook report, which was published as the world's top economic officials traveled to Washington for the annual meetings of the World Bank and the IMF. The gathering arrives at a critical time, as ongoing supply chain disruptions and Russia's conflict in Ukraine have resulted in a significant increase in energy and food prices in the past year. As a result, central bankers have been compelled to raise interest rates significantly in order to stabilize their economies and mitigate inflationary pressures. Raising borrowing costs will likely curb inflation by reducing business investment and consumer spending. Still, higher interest rates could also lead to a new set of problems: a series of recessions in wealthy nations and debt crises in poorer ones…
Everything points today at to the International Monetary Fund's economic prognosis being fulfilled.
Today the media outlets worldwide focus on the stock market's "unfavorable" performance and the predictions of an upcoming financial crisis. This morning, “The Telegraph U.K.” reported that the stock market had experienced a significant decline due to concerns about possible interest rate increases. As a result, borrowing costs have risen to their highest level in 15 years. This drop is a result of a worldwide "sell-off" triggered by high inflation... On Thursday, the stock market experienced a sharp decline, causing government borrowing costs to soar to their highest level since 2008. In the United Kingdom, the FTSE 100 index reached its lowest point this year, while gilts climbed to their highest level in over a decade. This market behavior was driven by investors speculating that the Bank of England would raise interest rates to 6.5% by the beginning of next year.
Furthermore, unexpectedly strong U.S. jobs data has raised concerns about potential price increases across the Atlantic, further exacerbating the situation. The FTSE 100 index fell by 2.17% due to worries that higher interest rates would have a negative impact on company investments and consumer demand. Paris markets closed with a 3.13% decline, and shares fell by 2.57% in Germany. On Wall Street, the S& P 500 index experienced a 0.8% decline. HSBC, one of the largest mortgage lenders in Britain, announced on Thursday evening that it would be withdrawing all deals offered to new customers through brokers for the third time in a month. This decision burdens borrowers more, as the bank plans to reintroduce these deals with higher interest rates on Monday. The market turmoil has also led to a significant increase in the Treasury's borrowing costs.
Most read…
Is China really leading the clean energy revolution? Not exactly
The country generates more solar energy than all other countries combined, but burns half the planet’s coal. There are lessons here for the rest of us, though
The Guardian by *Li Shuo, July 6, 2023 ‘Revolutionary’ solar power cell innovations break key energy threshold
Next generation cells surpass limits of today’s cells and will accelerate rollout of cheaper, more efficient solar power
The Guardian by Damian Carrington Environment editor, July 7, 2023Stock market falls sharply amid fears of further interest rate rises
Borrowing costs soar to 15-year high amid global sell-off triggered by rampant inflation
The Telegraph By Szu Ping Chan and Adam Mawardi, July 6, 2023 EXCLUSIVE: “Inside the subsea cable firm secretly helping America take on China…
SubCom, a New Jersey company born out of a Cold War spy project, has become a key player in the U.S.-China tech war. It’s laying internet cables on the ocean floor to boost Washington’s economic and military might, including a clandestine mission to a remote island naval base, Reuters can reveal.
REUTERS By JOE BROCK, July 6, 2023
At the COA Spring Gala 2023, Andrés Gluski, the CEO & President of AES and Chairman of the Americas Society/Council of the Americas, presented President Lacalle Pou with the prestigious Gold Insigne. This award was given in recognition of President Lacalle Pou's outstanding leadership in successfully transforming Uruguay into a prominent technology and innovation hub, all while upholding a thriving democracy and robust economy.
Image by Germán & Co‘Revolutionary’ solar power cell innovations break key energy threshold
Next generation cells surpass limits of today’s cells and will accelerate rollout of cheaper, more efficient solar power
The Guardian by Damian Carrington Environment editor, July 7, 2023Solar power cells have raced past the key milestone of 30% energy efficiency, after innovations by multiple research groups around the world. The feat makes this a “revolutionary” year, according to one expert, and could accelerate the rollout of solar power.
Today’s solar panels use silicon-based cells but are rapidly approaching their maximum conversion of sunlight to electricity of 29%. At the same time, the installation rate of solar power needs to increase tenfold in order to tackle the climate crisis, according to scientists.
The breakthrough is adding a layer of perovskite, another semiconductor, on top of the silicon layer. This captures blue light from the visible spectrum, while the silicon captures red light, boosting the total light captured overall. With more energy absorbed per cell, the cost of solar electricity is even cheaper, and deployment can proceed faster to help keep global heating under control.
The perovskite-silicon “tandem” cells have been under research for about a decade, but recent technical improvements have now pushed them past the 30% milestone. Experts said that if the scaling-up of production of the tandem cells proceeds smoothly, they could be commercially available within five years, about the same time silicon-only cells reach their maximum efficiency.
Two groups published the details of their efficiency breakthroughs in the journal Science on Thursday, and at least two others are known to have pushed well beyond 30%.
“This year is a revolutionary year,” said Prof Stefaan De Wolf, at King Abdullah University of Science and Technology in Saudi Arabia. “It’s very exciting that things are moving rapidly with multiple groups.”
The current efficiency record for silicon-only solar cells is 24.5% in commercial cells and 27% in the laboratory. The latter may well be as close the cells can practically get to the theoretical maximum of 29%.
But one group, led by Prof Steve Albrecht at the Helmholtz Center Berlin for Materials and Energy in Germany, has now published information about how they achieved efficiencies of up to 32.5% for silicon-perovskite cells. The other group, led by Dr Xin Yu Chin at the Federal Institute of Technology in Lausanne, Switzerland, demonstrated an efficiency of 31.25% and said tandem cells had the “potential for both high efficiency and low manufacturing costs”.
“What these two groups have shown are really milestones,” said De Wolf. His own group achieved 33.7% efficiency with a tandem cell in June, but has yet to publish the results in a journal. All the efficiency measurements were independently verified.
“Overcoming the 30% threshold provides confidence that high performance, low-cost PVs can be brought to the market,” said De Wolf. Global solar power capacity reached 1.2 terawatts (TW) in 2022. “Yet to avert the catastrophic scenarios associated with global warming, the total capacity needs to increase to about 75TW by 2050,” he said.
The solar industry is also part of the race to high efficiency. Chinese company LONGi, the world’s biggest producer of solar cells, announced in June they had reached 33.5% in their research. “Reducing the cost of electricity remains the perpetual theme driving the development of the photovoltaic industry,” said Li Zhenguo, the president of LONGi.
“The industry is running very, very fast,” De Wolf said. “And I’m sure that multiple companies are working on this in China.” Europe and the US need to increase its research and development funding to keep up and contribute to an accelerating roll out of solar power, he said.
A worker produces photovoltaic modules used for solar panels at a factory in China’s eastern Jiangsu province in May 2023. China is one of the leaders in the race to high solar efficiency. Photograph: AFP/Getty Images
All of the high-efficiency tandem cells above 30% efficiency are small so far, measuring 1cm by 1cm. They now need to be scaled up to the size of commercial cells, which are 16-cm squares.
The scale-up is already under way with UK company Oxford PV announcing in May a record 28.6% efficiency for a commercial-size cell. “Solar is already one of the least expensive and cleanest forms of energy available, and our technology will make it even more affordable,” said Chris Case, chief technology officer at Oxford PV.
The Oxford PV cell was made on the same production line as conventional silicon-only cells, making the large-scale production of tandem cells far easier. Tandem cells may prove to be more expensive than silicon-only cells, but the cells are only a small part of the cost of producing and installing solar panels, De Wolf said.
One issue that remains to be resolved is how fast the tandem cells degrade over time in real-world conditions. Today’s solar cells still have 80-90% of their capacity after 25 years and De Wolf said tandems would have to match that, but that there was only limited data on their stability to date.
The key to the higher efficiencies of the tandem cells from the German and Swiss groups was tackling tiny defects on the surface of the perovskite layer. These allow some electrons liberated by solar photons to flow back into the perovskite, rather than contributing to the cell’s electrical current and therefore reducing its efficiency.
The solution was to put a layer of organic molecules between the perovskite and the conducting layer through which the current flows, which compensated for the defects.
Significantly, all the groups used different methods to address the problem, giving more options in the search for the best commercial design, said De Wolf. “There’s still lots of room to go further,” he said. “I believe that the practical limit is well beyond 35%.”
Prof Rob Gross, director of the UK Energy Research Centre, said: “Solar is already a low-cost way to generate electricity and has a wide resource base across the world. The cost reductions already achieved are the main reason solar now plays such a large role in scenarios of decarbonised energy systems. Improvements in efficiency have the potential to increase the output of solar and therefore will help to reinforce that effect.”
There are other technologies, such as multi-junction cells, which can have efficiencies as high as 47%, but these are very expensive to produce and would only be suitable for niche uses such as on space satellites or when sunlight is highly concentrated on to the cells.
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Senior Vice President, Chief Strategy and Commercial Officer and President, New Energy Technologies SBU
A molten salt tower harvests solar power in Jiuquan, north-west China. Photograph: Hu Chengwei/Editing by Germán & CoIs China really leading the clean energy revolution? Not exactly
The country generates more solar energy than all other countries combined, but burns half the planet’s coal. There are lessons here for the rest of us, though
The Guardian by *Li Shuo, July 6, 2023 “Big numbers are a hallmark of China’s economy and now its energy transition: they thrill, they mystify, and at times they contradict, at least on the surface.
China’s solar capacity is now 228 gigawatts (GW), more than the rest of the world combined, according to Global Energy Monitor. And wind capacity, at a whopping 310GW, also leads the world. With another 750GW of new wind and solar projects in the pipeline, China will hit its 2030 target of 1,200GW – an unimaginable number when proposed just a few years ago – five years early.
Scratching through the big numbers, two issues deserve the world’s deeper understanding. The first is that China’s successful clean technology campaign has more to do with its economic strategy than its climate commitments. The second is that, alongside its impressive achievements in renewable energy, China is also one of the world’s biggest polluters. Neither is likely to change imminently.
The ability to manufacture at scale and quality, and deploy funds competitively, underpins China’s impressive growth of wind and solar, as well as electric vehicles. This is the outcome of an industrial policy that features consistent state support, highly integrated supply chains, cut-throat competition, indigenous innovation and entrepreneurship, and the economies of scale that only a country the size of China can offer. China’s EV manufacturers, for example, have been supplying millions of cars in a fiercely competitive domestic market for years, and have been boosted by government support. In contrast, their western counterparts are only beginning to enjoy a similar market scale at home. They also face stronger resistance from conventional vehicle producers.
This is not to say that the rest of the world is hopeless in the face of an established clean technology giant. But other countries need to do much better in translating cutting-edge technologies into actual manufacturing. Western countries have prided themselves on innovations in the lab for so long. Failing to bring them to the factory floor or to realise that many innovations take place along the assembly line would be a grave mistake.
For China, the good news is that the economic conditions that propelled its rapid clean technology growth are here to stay. Astronomical numbers are the forecast for the foreseeable future. If anything, Chinese solar and electric vehicle manufacturers will become more efficient and supply ever cheaper solutions to reduce carbon emissions nationally and globally.
These opportunities are key points of leverage as the international community tries to appeal for greater climate ambition from China. Climate diplomats coming to Beijing need to help Chinese leaders realise the alignment between their economic agenda and the climate agenda. Global climate conversations in places such as the G20 and Cops will be better served if they incentivise Chinese action based on its strengths.
China’s current and future domination of clean technology also raises important questions for other countries. Can they become more cost-efficient than China? Are they prepared, economically and politically, to risk the bankruptcy and failure suffered by their Chinese counterparts before many of them emerged as industry leaders? What does deglobalisation in the clean energy supply chain mean for the effort of combating climate crisis? For sound policies and a liveable planet, these questions require serious thought by world leaders, but they have so far been overshadowed by geopolitical zeal.
China on course to hit wind and solar power target five years ahead of time
Meanwhile, China’s rapid clean energy expansion needs to be read together with its continued expansion of new coal power. More than half of all coal the world consumed over the past decade was consumed in China, and the country’s coal fever shows no sign of waning. Just in the first quarter of 2023, provincial governments in China have already approved at least 20.45GW of new coal projects. Coal combustion is currently projected to increase at a “reasonable speed” into 2030.
While the pro-growth and pro-infrastructure development mentality has boosted China’s clean energy sector, it is exactly the same logic that fuels coal development. Beijing is simultaneously becoming the biggest solution provider and the biggest troublemaker.
But in the current climate crisis, the world cannot afford this trend of renewable energy and coal going head to head with one another. Currently, the percentage of China’s electricity that is generated by wind and solar is expected to grow by less than 1% a year between 2023 and 2030. At this rate, the country may achieve peak CO2 emissions before 2030, but is less likely to reach carbon neutrality by 2060, as President Xi Jinping pledged in 2020.
The challenge for China is to maintain its record on clean technology but to shut off the coal pipeline. That will require decisive reforms in its power sector, where many of the rules still favour coal over clean energy sources. Technological solutions such as energy storage could also help the transition in the interim. But ultimately, the country needs to gather the political courage to stop building coal plants and start phasing them out.
As for the rest of the world, global persuasion for China to shift its course on coal is critical. Climate diplomacy won’t be pain free, but it is the only way to tackle the defining global crisis of our times. Countries in the west also need to learn from China, even if there is no simple cut-and-paste solution for them. It is a blessing that a template for success exists. Refusing to learn from each other, in a world where countries are more interested in fighting one another than climate change, would be futile.
*Li Shuo is senior policy adviser for Greenpeace East Asia
Image: Germán & CoCooperate with objective and ethical thinking…
Borrowing costs reach highest level since financial crisis, Blomberg / Editing by Germán & CoStock market falls sharply amid fears of further interest rate rises
Borrowing costs soar to 15-year high amid global sell-off triggered by rampant inflation
The Telegraph By Szu Ping Chan and Adam Mawardi, July 6, 2023 The stock market fell sharply and Government borrowing costs soared to a 15-year high on Thursday amid a global sell-off triggered by rampant inflation and rising interest rates.
In Britain, the FTSE 100 fell to its lowest level this year, while gilts climbed to their highest since 2008 as investors bet the Bank of England will raise interest rates to 6.5pc by the start of next year.
Further chaos was caused by unexpectedly strong US jobs data, leading to fears that price rises might also take off across the Atlantic.
The prospect that higher interest rates would hit company investment and consumer demand sent the FTSE 100 down 2.17pc. Paris markets closed down 3.13pc and in Germany, shares fell 2.57pc. The S&P 500 fell 0.8pc on Wall Street.
In a sign of more pain to come for borrowers, HSBC – one of Britain’s biggest mortgage lenders – announced late on Thursday that it was pulling all deals offered to new customers through brokers for the third time in a month. The bank will return to the market on Monday with higher rates.
The chaos also sent the Treasury’s borrowing costs sharply higher.
Two-year gilt yields, which are more sensitive to interest rate bets, rose above 5.5pc to their highest since 2008. Benchmark 10-year borrowing costs almost hit 4.7pc, rising above their highs in the aftermath of then-Prime Minister Lizz Truss’s tax-cutting mini-Budget.
Nearly all stocks on the FTSE 100 sank on Thursday, with Britain’s blue chip index recording its worst one-day drop since the US regional banking crisis sparked a brutal sell-off in March.
The UK’s blue-chip index ended trading at 7,280.50, its lowest point since November 3. The domestically-focused FTSE 250 midcap index finished down 2.59pc at 17,916.46.
It came as US statistics showed that 497,000 new private sector jobs were created last month, more than double analysts’ estimates.
The strong reading will add to speculation of higher rates, a day after the US Federal Reserve’s June meeting revealed that “almost all” policymakers expected more increases despite agreeing to hold rates last month.
The Bank of England has already increased rates 13 times to 5pc in an attempt to cool the economy. Lifting them to 6.5pc would take borrowing costs to the highest level since 1998.
Analysts warned that the surge has also left taxpayers on the hook for much bigger losses from Threadneedle Street’s money-printing programme.
”Losses from QT will be greater the higher Bank Rate and yields go,” she said. “These costs should not be underestimated – a reasonable base case could be that together, the cumulative hit between now and end-2026 could be higher than £150bn.”
This would be around 50pc higher than Bank estimates published only in April.
The Bank estimated in its annual report on Thursday that the Treasury would be forced to stump up £191bn if it sold off its entire bond stockpile in one go under an indemnity deal struck during the financial crisis.
This is up from £22bn last year, and reflects the surge in borrowing costs.
A separate report by Moody’s Analytics warned more fixed-rate mortgages in the UK had created a “refinancing time bomb”, while also damping the impact of rate rises.
It said people who fixed their mortgage two years ago faced the most “severe” increases in payments, with a typical borrower now facing a near £500 jump in monthly payments.
“As a share of average incomes, this represents a larger increase than in those periods of the past when interest rates rose,” said David Muir, . More than a million families will refinance in the next 12 months.
Seaboard: pioneers in power generation in the country…
…“More than 32 years ago, back in January 1990, Seaboard began operations as the first independent power producer (IPP) in the Dominican Republic. They became pioneers in the electricity market by way of the commercial operations of Estrella del Norte, a 40MW floating power generation plant and the first of three built for Seaboard by Wärtsilä.
Source: REUTERSInside the subsea cable firm secretly helping America take on China
SubCom, a New Jersey company born out of a Cold War spy project, has become a key player in the U.S.-China tech war. It’s laying internet cables on the ocean floor to boost Washington’s economic and military might, including a clandestine mission to a remote island naval base, Reuters can reveal.
REUTERS By JOE BROCK, July 6, 2023On Feb. 10 last year, the cable ship CS Dependable appeared off the coast of the island of Diego Garcia, an Indian Ocean atoll that’s home to a discreet U.S. naval base.
Over the next month, the ship’s crew covertly laid an underwater fiber-optic cable to the military base, an operation code-named “Big Wave,” according to four people with direct knowledge of the mission, as well as a Reuters analysis of satellite imagery and ship tracking data.
The new super-fast internet link to Diego Garcia, which has not previously been reported, will boost U.S. military readiness in the Indian Ocean, a region where China has expanded its naval influence over the last decade.
The CS Dependable is owned by SubCom, a small-town New Jersey cable manufacturer that’s playing an outsized role in a race between the United States and China to control advanced military and digital technologies that could decide which country emerges as the world’s preeminent superpower.
SubCom, a company born out of a U.S. Cold War project to spy on Soviet submarines, is living a double life.
Publicly, it is one of the world’s biggest developers of undersea fiber-optic cables for telecom firms and tech giants like Alphabet’s Google, Amazon, Microsoft and Meta Platforms.
Behind the scenes, SubCom is the exclusive undersea cable contractor to the U.S. military, laying a web of internet and surveillance cables across the ocean floor, according to the four people with knowledge of the matter: two SubCom employees and two U.S. Navy staffers. The individuals asked not to be named because they were not authorized to discuss the operations.
The cable-laying vessel CS Dependable is shown docked at Taiwan’s Port of Taichung on April 18, 2023. The ship’s private-sector owner, New Jersey-based SubCom, is central to Washington’s efforts to deter foreign spying on international internet traffic moving through undersea fiber-optic cables. REUTERS/Ann WangThis dual role has made SubCom increasingly valuable to Washington as global internet infrastructure – from undersea cables to data centers and 5G mobile networks – risks fracturing into two systems, one backed by the United States, the other controlled by China.
SubCom is owned by Cerberus Capital Management, a New York-based private equity firm that has invested in defense contractors and national security assets. Last year, Cerberus paid $300 million for a Philippine shipyard on a former U.S. Navy base close to the South China Sea, beating out Chinese competitors for control of a strategic site in a region where Beijing has been flexing its military muscle.
Cerberus is headed by Stephen Feinberg, a billionaire political donor whom former President Donald Trump drafted onto the President’s Intelligence Advisory Board, which counsels the commander-in-chief on U.S. foreign intelligence matters.
SubCom, Cerberus and Feinberg did not respond to requests for comment.
Presented with Reuters’ findings, a spokesperson for the U.S. Navy’s Pacific Fleet confirmed the existence of a new high-speed undersea internet cable to Diego Garcia. It was the first official acknowledgement of that cable.
“The resiliency, redundancy, and security of our communication infrastructure represents a top priority for U.S. Pacific Fleet,” the spokesperson said in an emailed statement.
The statement said the Navy could not discuss specifics for operational security reasons. The Navy did not respond to Reuters’ questions about SubCom or name the company in its statement.
SubCom’s journey from Cold War experiment to global cable constructor and now a shadowy player in the U.S.-China tech war is detailed in this story for the first time.
SubCom is owned by Cerberus Capital Management, a New York private equity firm with investments in defense contractors. Stephen Feinberg, co-founder and co-chief executive of Cerberus, is a billionaire political donor. He was tapped by former U.S. President Donald Trump to serve on a national security advisory board. REUTERS/Florence Lo/IllustrationReuters is revealing details of the Diego Garcia project and SubCom’s deepening ties with the Pentagon. The news agency is also the first to report on a confidential contract the company secured from tech giant Google to build the world’s largest private undersea internet network.
That partnership is the kind of America Inc project that President Joe Biden has been calling for in his drive to promote U.S. advanced technologies.
Google did not respond to requests for comment.
Undersea cables transmit 99% of all transcontinental internet traffic, including instant messenger chats, stock market transactions and military secrets. This underwater network has become one of the key weapons in the U.S.-China tech war, as detailed in a Reuters investigation published in March. Subsea cables are vulnerable to sabotage and espionage, and Beijing and Washington have accused each other of tapping cables to spy on data or carry out cyberattacks.
SubCom’s increasing importance to the United States can be split into two categories, one military and one economic, according to two subsea cable industry officials who have worked on U.S. government projects.
Based in the small borough of Eatontown, New Jersey, undersea internet cable firm SubCom is playing an outsized role in the race between the United States and China to dominate advanced technologies. REUTERS/Brendan McDermidFirst, Washington needs SubCom to expand the Navy’s undersea cable network so that it can better coordinate military operations and enhance surveillance on China’s expanding fleet of submarines and warships, the people said. Second, the Biden administration wants SubCom to build more commercial subsea internet cables controlled by U.S. companies, a strategy aimed at ensuring that America remains the primary custodian of the internet, according to the two industry officials.
SubCom operates six cable-laying ships: bespoke deep-sea vessels fitted with vast storage drums to hold sheaves of fiber-optic cable. The Navy has only one such ship – the 40-year-old USNS Zeus – a vessel so old that it is limited to carrying out repairs, according to Eckhard Bruckschen, director of the UK-based Undersea Cable Consultancy.
“SubCom is indispensable to America if it wants to control subsea cables. They’ve got no one else,” Bruckschen told Reuters.
There are only four major companies in the world that manufacture and lay subsea cables: America’s SubCom, Japan’s NEC Corporation, France’s Alcatel Submarine Networks and China’s HMN Tech.
For sensitive U.S. projects, Washington only works with SubCom, according to five industry sources who have worked on projects with the cable company.
The U.S. Department of Defense and the White House did not respond to requests for comment.
Picking sides
Until a U.S. crackdown on Chinese tech companies ramped up five years ago, SubCom laid cables for telecom and tech companies worldwide, including the big state-owned Chinese carriers.
Not anymore. The cable firm now works almost exclusively for the U.S. military and big U.S. tech firms, two SubCom employees told Reuters.
SubCom’s pivot reflects a sea change underway in the internet infrastructure industry, which has long seen choosing sides in great-power politics as bad for business. But U.S. sanctions on Chinese tech companies and an increase in trade-protectionist policies under Biden and his predecessor Trump have forced American tech firms to work mainly with companies and countries viewed as friendly to the United States.
The U.S. Department of Justice in 2020 blocked Google, Meta and Amazon from building fiber-optic cables from the United States to Hong Kong due to concerns about Chinese spying.
Microsoft – whose President Brad Smith said in 2017 that the tech sector needed to be a “neutral digital Switzerland”– announced in May that it had discovered Chinese state-sponsored hackers targeting U.S. critical infrastructure, a rare example of a big tech firm calling out Beijing for espionage. China’s Foreign Ministry spokesperson Mao Ning said at the time that the accusations were part of a U.S. disinformation campaign, describing America as the “empire of hacking.”
In December of last year, the Pentagon awarded $9 billion worth of Cloud computing contracts to Google, Amazon, Microsoft and Oracle, entrusting these companies to keep America’s most closely held secrets under digital lock and key.
Sailors participate in a July 2021 beach cleanup on the Indian Ocean island of Diego Garcia, home to a remote U.S. Navy base. SubCom last year delivered super-fast internet service to the atoll via a secret spur off a commercial undersea fiber-optic cable it was laying nearby. U.S. Navy via Reuters“Silicon Valley is waking up to the reality that it has to pick a side,” said Jacob Helberg, former head of Google’s news policy and a member of the U.S.-China Economic and Security Review Commission, a government agency.
Google did not respond to a request for comment. Amazon, Microsoft and Oracle declined to comment.
SubCom’s loyalty is especially important because it is the only major U.S. subsea cable company. Headquartered in the quiet borough of Eatontown, New Jersey, SubCom secured a $10 million-a-year contract in 2021 from the U.S. Department of Transportation (DOT) to run a two-vessel fleet to provide undersea cable security, according to one SubCom employee and one Navy staffer with knowledge of the deal. A 2020 DOT notice to prospective applicants said winners would be responsible for laying, maintaining and repairing subsea cables to support U.S. national security and economic interests, in partnership with the Department of Defense.
The SubCom ships CS Dependable and CS Decisive now make up the U.S. government’s first Cable Security Fleet, the people said.
The DOT and SubCom did not respond to requests for comment.
Operation ‘Big Wave’
One of CS Dependable’s destinations was Diego Garcia, a horseshoe-shaped atoll which hosts U.S. aircraft carriers and submarines, and has an airfield capable of landing long-range bombers.
Located in the heart of the Indian Ocean, Diego Garcia is a British overseas territory. Since the 1970s, Britain has allowed the United States to operate a naval base there. The island is currently home to around 3,000 people, including Navy sailors, family members and support staff, two people who have worked on the atoll told Reuters, speaking on condition of anonymity. Diego Garcia boasts shops, restaurants, bars and pristine beaches, the people said.
Prior to the laying of the new subsea cable, the island base accessed the internet via satellites, which are slower and less reliable than cables, the two people said.
The CS Dependable’s clandestine underwater operation on Diego Garcia was never mentioned publicly by participants in the business deal that made it happen. Rather, they carefully obscured the U.S. military component within a larger private-sector cable project, according to four subsea cable industry sources with knowledge of the arrangement.
In 2020, SubCom announced that it had been commissioned by an Australian tech mogul to lay a $300 million commercial internet cable from Australia to the Sultanate of Oman on the Arabian Peninsula, a route that traverses the Indian Ocean.
That project, known as the Oman Australia Cable, was spearheaded by SUBCO, a Brisbane-based subsea cable investment company owned by Australian entrepreneur Bevan Slattery.
The industry was skeptical about the commercial viability of the route, given it would mostly serve a small pool of Australian telecom firms that already had access to multiple cables running through Southeast Asia to the Middle East, five industry sources told Reuters.
The Secret Splice
SubCom announced in 2020 that it was building a commercial subsea internet cable from Australia to Oman. The $300 million project included a clandestine link to a U.S. Navy base on the remote Indian Ocean island of Diego Garcia, which was funded by the Pentagon.
Sources: TeleGeography; Natural EarthWhat many of them didn’t know was that the Pentagon had paid for around a third of the entire cable on the condition that it include a splice connecting its commercial trunk to Diego Garcia, two of the people with knowledge of the project told Reuters.
The U.S. Pacific Fleet, in its statement to Reuters, said SUBCO’s Oman Australia Cable offered “a unique opportunity” to connect the remote island with an undersea fiber-optic internet cable.
The statement said the U.S. Pacific Fleet partnered with companies laying the Oman Australia Cable to extend a branch to Diego Garcia, but did not disclose how much it paid for the spur.
“This partnership has increased the digital resiliency and security of our communication infrastructure in the Indo-Pacific,” the statement said.
While the Navy had said nothing officially about the cable until now, sailors on Diego Garcia were tipped off last year. Captain Richard Payne, then-commander on Diego Garcia, mentioned the cable during a Feb. 9 guest appearance on the base’s local radio station, “99.1 The Eagle,” a recording of which was posted on the Navy radio station’s Facebook page.
Payne, who was fielding questions submitted by listeners, volunteered that an unusual vessel could be sighted off the western shore of Diego Garcia.
“We're going to have fiber optics here on the island very soon,” Payne told the program’s host, Alex Kerska or “DJ Special K,” during the segment in which he also addressed complaints about high beer prices on the atoll and called on island residents to attend a kickball tournament.
“Starting today (or) tomorrow, we have the cable-laying ship that is out there off the coast now. It’s a commercial company doing that … It’s a very interesting ship,” Payne continued, without naming the company or the ship.
Payne, who now works in the office of the Under Secretary of Defense for Intelligence and Security, did not respond to a request for comment.
The ship Payne was referring to was the CS Dependable, according to the SubCom and Navy sources with knowledge of the operation.
Capt. Richard D. Payne, then-commanding officer of the U.S. Navy base on the Indian Ocean island of Diego Garcia, salutes comrades on July 6, 2021. Payne mentioned the arrival of a cable-laying ship during a 2022 guest appearance on the base’s radio station. That vessel, which he didn’t name, was SubCom’s CS Dependable. U.S. Navy via ReutersSubCom’s CS Reliance vessel laid the first half of the commercial cable from Perth, Australia, to the middle of the Indian Ocean. From there, the CS Dependable took over, running the splice to Diego Garcia and laying the rest of the main trunk up to Oman, the people said.
Reuters analyzed satellite images and ship tracking data on Eikon, the financial analysis platform owned by the London Stock Exchange Group. That information showed the CS Dependable operating around Diego Garcia in February and March of 2022, then sailing on to Oman.
The delicate operation was made possible by a decades-long friendship between three veterans of the subsea cable industry, according to two people with knowledge of the dealings.
a) SubCom CEO David Coughlan talks about undersea cable technology in a video posted to YouTube on July 15, 2021. He coordinated the laying of the secret cable to a U.S. Navy base on the remote island of Diego Garcia, according to Navy and SubCom sources. Pacific Telecommunications Council via YouTube/Screenshotb) Helping Coughlan in that effort, sources said, was Catherine Creese, director of the U.S. Naval Seafloor Cable Protection Office, shown here speaking at an April 8, 2021, virtual forum about Asia’s evolving subsea cable networks. She previously worked with Coughlan at the company now known as SubCom. Center for Strategic and International Studies via YouTube/ScreenshotCoordinating the Pentagon’s end was Catherine Creese, a former U.S. Coast Guard officer who is now Director of the U.S. Naval Seafloor Cable Protection Office, the unit that oversees the Navy’s subsea cables.
Prior to joining the Navy in 2006, Creese worked at SubCom for 11 years, a time when it was known as Tyco Telecommunications. There she worked closely alongside the man who is now SubCom’s CEO, David Coughlan, according to two former SubCom employees who worked with Coughlan and Creese.
Coughlan and Creese planned and executed the Diego Garcia operation, according to one current SubCom employee and one Navy staffer.
Creese and Coughlan did not respond to requests for comment. The U.S. Navy did not respond to questions about Creese’s involvement.
‘Dreams come true’
Selling the cable to investors, meanwhile, was the purview of Slattery, the Australian entrepreneur, who has made a fortune building and selling private undersea cables. In a conservative industry, the businessman stands out as a gregarious and outspoken character who is willing to take on risky projects, according to three industry sources who have worked with Slattery.
Slattery did not respond to requests for comment.
SubCom’s Coughlan helped Slattery pull off his first major cable deal in the late 2000s, setting him on course to become one of Australia’s wealthiest tech moguls, according to two industry sources with knowledge of the matter.
That project, a SubCom-built cable running between Brisbane and Guam, a U.S. Pacific island territory that’s also home to a naval base, almost bankrupted Slattery, the businessman told the Australian Financial Review in a 2016 interview.
Thanks to sympathetic suppliers, Slattery got that cable, known as PIPE, over the line, according to the Financial Review article. Crucially, SubCom, the main supplier on the project, extended Slattery credit to get the cable finished, the two industry sources said.
Slattery sold the company that owned the PIPE cable for A$373 million ($248 million) in 2010, the first of a string of successful tech infrastructure bets. Slattery has a personal net worth of A$564 million ($375 million), according to a 2020 “Rich List” published by the Financial Review.
The entrepreneur pitched the Oman Australia Cable in public statements as an alternative to the traditional route between Australia and the Middle East that passes through Southeast Asia. The spur to Diego Garcia was never mentioned.
A blueprint for such a project already existed. Slattery’s cable was essentially a revival and rerouting of a 2017 plan to build a cable between Australia and the Republic of Djibouti on the Horn of Africa, with a secret link to Diego Garcia funded by the Pentagon, according to a person directly involved in that deal. Djibouti is the site of China’s first-ever overseas military base, which opened in 2017.
The earlier proposed cable – known as the Australia West Express – was never built because the U.S. company behind the project, GoTo Networks, couldn’t secure the private investment needed to cover the portion not funded by the Pentagon, the person said.
SubCom’s cable ship tracked near remote U.S. Navy base
The CS Dependable spent weeks in the waters around Diego Garcia in February and March of 2022, ship tracking data shows. In this period, the ship’s crew laid a secret subsea fiber-optic internet cable to a U.S. Navy base on the atoll, according to SubCom and Navy sources.
Source: Refinitiv EikonJohn Mariano, who was the CEO of the now-defunct GoTo Networks, declined to comment. The U.S. Department of Defense did not respond to a request for comment. An official from the president’s office in Djibouti declined to comment.
Cables are typically owned by a consortium of telecom and tech companies that spread the cost and risk. Occasionally, entrepreneurs or private equity firms build a cable on spec with the aim of selling bandwidth to carriers and tech companies before flipping the cable for a profit.
Slattery is a master of such deals, two people who worked with him told Reuters. He used his experience and contacts to attract enough investors to supplement the Pentagon funding to get the Oman Australia Cable built, the two people said.
The 10,000-kilometer cable was officially opened by Australian Prime Minister Anthony Albanese in October 2022. It includes a splice to the Cocos Islands, an Australian territory which comprises a cluster of tiny islands between Sri Lanka and Australia. Australia’s military has been seeking parliamentary approval for funds to upgrade an airfield there and make other improvements aimed at strengthening its maritime surveillance capabilities in the region.
Subsea cable entrepreneur Bevan Slattery (far right) and Australian Prime Minister Anthony Albanese (center) celebrate the 2022 completion of a fiber-optic cable stretching from Australia to Oman across the Indian Ocean. That commercial cable contained a secret branch to a remote U.S. Navy base. Via Twitter/ScreenshotSlattery on Nov. 19, 2022, tweeted a group photo that included himself and Albanese, both with broad grins, celebrating the cable and the team that made “dreams come true.”
Albanese’s office did not respond to a request for comment about the project, its funding or potential military uses. In an Oct. 22, 2022, tweet sent from his Twitter account, he lauded the cable’s speed, security and reliability, and boasted that it could stream “over 65 million Netflix shows simultaneously.”
The government of Oman did not respond to a request for comment.
Levers of power
SubCom’s role in the project marked a return to its Cold War roots.
The company was founded in 1955, according to its website, the year the first subsea transatlantic telephone cable system was laid between Scotland and Newfoundland. That cable was deployed by AT&T’s submarine cable unit, which would eventually become SubCom.
The true origins of AT&T’s subsea cable business go back five years earlier, when the company was commissioned by the U.S. Navy to build a network of undersea surveillance cables to listen for Soviet submarines, according to three former employees with knowledge of the matter.
The project was known as the Sound Surveillance System, or “Project Caesar,” according to a declassified document about the program available on the U.S. Navy’s website. The document does not mention AT&T’s involvement.
Once the Navy project was complete, AT&T’s submarine cable project morphed into a commercial business, the former employees said.
AT&T did not respond to a request for comment.
In 1997, AT&T sold its cable-laying operation, including a fleet of ships, to Tyco International, a security company based in New Jersey. In 2018, Tyco sold the cable unit, by this time dubbed TE SubCom, for $325 million to Cerberus, the New York private equity firm.
SubCom doesn’t make public many details about its business. The company has more than 1,300 employees and an annual revenue of $344 million, according to data on Eikon.
Last year, SubCom signed a “master service agreement” with Google, one of the world’s biggest investors in subsea internet cables, according to two people with knowledge of the deal.
That contract, which the people said is worth hundreds of millions of dollars, could help Google build the world’s largest-ever private data network, connecting Cloud data centers around the world with a web of SubCom-manufactured undersea cables.
Google did not respond to a request for comment.
More undersea cables and data centers in the hands of U.S. companies like Google and SubCom is a win for Washington as it seeks to keep Chinese firms away from the internet hardware that will underpin global economic and military progress for decades to come, said Kellee Wicker, director of the Science and Technology Innovation Program at the Wilson Center, a Washington-based think tank.
“Cables are an enormous lever of power,” Wicker said. “If you can’t control these networks directly, you want a company you can trust to control them.”