US-China subsea terror! The curious case of Dr Peng and PLCN

subsea cables huawei dr peng US China
Image credit: Ideal Stock PhotographyA / Shutterstock.com

ITEM: The US Department of Justice has decided the Pacific Light Cable Network (PLCN) is too dangerous to light up, because it would compromise – say it with me – national security.

PLCN, you may recall, is the planned 12,800-km subsea cable linking Los Angeles with Hong Kong. Google and Facebook are among its investors, as well as Telstra, which invested A$100 million in PLCN at the start of last year.

The cable promises to add another 120 Tbps of trans-Pacific fiber capacity. According to the latest update in March from PLDC (Pacific Light Data Communication Co. Ltd) – the Hong Kong based company that kickstarted the project in 2015 – construction on the first 1,650 km out of LA was already finished, with construction ongoing and scheduled for completion in early Q3 this year. The PLCN is currently scheduled for commercial service before the end of Q3 (which is almost year later than its original scheduled service date of Q4 2018).

However, last week, the Wall Street Journal reported that US DoJ officials were seeking to block the project on the LA end because one of the chief investors in PLDC happens to be Dr Peng Telecommunication and Media Group, a state-owned Chinese broadband operator.

Dr Peng has been looking for ways to grow its business after China’s big three telcos started eating into its broadband business several years ago. One part of its diversification plan has been to invest in subsea cables. To that end, the company bought control of PLDC in 2017. The DoJ says it’s worried about the national security implications of a Chinese government-owned company running the cable, and is recommending that the FCC deny an extension of its temporary license to operate out of LA.

It may seem odd that the DoJ is only just now worried about this, considering Dr Peng bought its way into the project two years ago (and two years after the project had already started). But then two years ago, President Donald Trump’s trade war with China was in the early-discussion stages, and Trump administration’s war on Huawei and subsequent paranoia over 5G being a Chinese trojan horse to take over the internet was still a year away.

There’s also the ongoing protests in Hong Kong, which some government officials are taking as a sign that Hong Kong’s relative autonomy is in steep decline, and they’re nervous about the prospect of a cable linking to HK if it’s going to become just another mainland Chinese city (which technically it will in in 2047 anyway, but you know …).

All of which seems silly to me. I’m not entirely sure what the DoJ team thinks China could do with a subsea cable linking Hong Kong and the US that it can’t already do with other existing regional and trans-Pacific cables that land in Hong Kong or mainland China itself.

Also, it’s worth noting Dr Peng reportedly isn’t in great financial shape. According to a report from Caixin Global in May, the operator’s strategy to diversify its business isn’t going so well. Most of its revenue is still from domestic broadband, where its market share is shrinking to the point that Moody’s Investors Service downgraded the company’s credit rating, remaining unconvinced that its other businesses will see enough growth to make up the difference, and certainly won’t provide the comfortable profit margins that investors prefer.

The article doesn’t mention PLDC, but the subsea cable business isn’t exactly known for its fat profit margins. So if the DoJ is so worried about Dr Peng’s pedigree, perhaps all they have to do is wait for them to collapse and sell out of PLDC.

But then of course, it’s not the health of Dr Peng but the government that ultimately owns it. And the US government seems conditioned by now to assume by default that just about any Chinese telecoms company is secretly a front for the PLA, regardless of proof.

It’s always possible the FCC will grant the license extension anyway. At the very least, I would expect that Facebook and Google plan to lobby the FCC if necessary, although Facebook isn’t exactly on great terms with the US govt right now.

If the FCC denies the license extension, and assuming PLDC’s latest construction schedule hasn’t been delayed, the result may well be an industry first: a perfectly good $300 million subsea cable sitting on the bottom of the Pacific Ocean doing nothing.

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