The study was read by Gulf Associates, a group of New York-based moneyed Iranian expats who are always looking for good investments. Gulf Associates checked out KMI's prefeasibility study to get an idea of what the parameters of such a system would be. Based on that, other companies, such as Dallah Al-Baraka (a Saudi investment company), Marubeni Corp. (a Tokyo trading company), and Nynex got involved. The nascent consortium paid KMI to perform a full feasibility study. Neil Tagare, the former vice president for KMI, visited 25 countries to determine their level of need for such a cable. The feasibility study was completed in late 1990 and looked favorable. The consortium grew to include the Asian Infrastructure Fund of Hong Kong and Telecom Holding Co. Ltd. of Thailand. The scope of the project grew also, extending not just to the Middle East but all the way to Tokyo.
Nynex took on the role of managing sponsor for the FLAG project. A new company called Nynex Network Systems (Bermuda) Ltd. was formed to serve as the worldwide sales representative for FLAG, and FLAG's world headquarters was sited in Bermuda. This might seem a bit peculiar given that none of the money comes from Bermuda, the cable goes nowhere near Bermuda, and Nynex is centered in the northeastern United States. But since FLAG is ultimately owned and controlled by a Bermuda company and the capacity on the cable is sold out of Bermuda, the invoices all come out of Bermuda and the money all comes into Bermuda, which by an odd coincidence happens to be a major corporate tax haven.
Nynex also has responsibility for building the FLAG cable system. One might think that a Baby Bell such as Nynex would be a perfect choice for this kind of work, but, in fact, Nynex owned none of the factories needed to manufacture cable, none of the ships needed to lay it, and not enough of the expertise needed to install it. Nynex does know a thing or two about laying and operating terrestrial cable systems - during the mid-1990s, for example, it wired large parts of the United Kingdom with a "cable television" system that is actually a generalized digital communication network. But transoceanic submarine cables were outside of its traditional realm.
On the other hand, during the early '90s, Nynex found itself stymied from competing in the United States because of regulatory hassles and began looking overseas for markets in which to expand. By the time FLAG was conceived, therefore, Nynex had begun to gain experience in the countless pitfalls of doing business in the worldwide telecommunications business, making up a little bit of AT&T's daunting lead.
FLAG's business arrangements were entirely novel. The entire FLAG concept was unfeasible unless agreements could be made with so-called landing parties in each country along the route. The landing party is the company that owns the station where the cable comes ashore and operates the equipment that patches it into the local telecommunications system. The obvious choice for such a role would be a PTT. But many PTTs were reluctant to participate, partly because this novel arrangement struck them as dubious and partly because they weren't going to end up monopolizing the cable.
Overcoming such opposition was essentially a sales job. John Mercogliano, a high-intensity New Yorker who is now vice president - Europe, Nynex Network Systems (Bermuda) Ltd., developed a sales pitch that he delivers too rapidly for any hacker tourist to write down but goes something like this: "In the old days AT&T came in, told you how much to pay, and you raised the money, assumed all of the risk, and owned the cable. But now FLAG's coming in with investors who are going to put in $600 million of their own cash and borrow a billion more without any guaranteed sales, assuming all of the risk. You buy only as much capacity on FLAG as you want, and meanwhile you have retained your capital, which you can use to upgrade your outdated local infrastructure and provide better service to your customers - now what the hell is wrong with that?"
The question hangs in the air provocatively. What the hell is wrong with it? Put this way, it seems unbeatable. But a lot of local telecoms turned FLAG down anyway - at least at first. Why?
The short answer is that I'm not allowed to tell you. The long answer requires an explanation of how a hacker tourist operates; how his methods differ from those of an actual journalist; and just how weird the global telecom business is nowadays.
Let's take the last one first. The business is so tangled that no pure competition exists. There are no Coke-versus-Pepsi dichotomies. Most of the companies mentioned in this story are actually whole families of companies, and most of those have their fingers in pies in dozens of countries all around the globe. Any two companies that compete in one arena are, at the same time, probably in bed with each other on many other levels. As badly as they might want to slag each other in the press, they dare not.
So, like those "high-ranking officials" you're always reading about in news reports from Washington, they all talk on background. Anyone who wants to write about this business will come off as either a genius with an encyclopedic brain or a pathological liar with an axe to grind - depending on the reader's point of view - because all truly interesting information is dished out strictly on background.
Perhaps a real journalist would go into Woodward-and-Bernstein mode, find a Deep Throat, and lay it all bare. But I'm not a real journalist: I'm a hacker tourist, and trying to work up an exposé on monopolistic behavior by big bad telecoms would only get in the way of what are, to me, the more interesting aspects of this story.
So I'll just say that a whole lot of important and well-informed people in the telecom business, all over the planet, are laboring under the strange impression that AT&T used its power and influence to discourage smaller telecoms in other countries from signing deals with FLAG.
In the old days, this would have prevented FLAG from ever coming into existence. But these are the new days, telecom deregulation is creeping slowly across the planet, and many PTTs now have to worry about competition. So the results of the FLAG sales pitch varied from country to country. In some places, like Singapore, FLAG never made an agreement with anyone and had to bypass the country entirely. In other places, the PTT broke ranks with AT&T and agreed to land FLAG. In others, the PTT turned it down but an upstart competitor decided to land FLAG instead, and in still others, the PTT declined at first, and then got so worried about the upstart competitor that it changed its mind and decided to land FLAG after all.
It would be very easy for you, dear reader, to underestimate what a sea change this all represents for the clubs. They are not accustomed to having to worry about competition - it doesn't come naturally to them. The typical high-ranking telecom executive is more of a government bureaucrat than a businessperson, and the entire scenario laid out above is irregular, messy, and disturbing to someone like that. A telecrat's reflex is to assume, smugly, that new carriers simply don't matter, because no matter how much financing and business acumen they may have, no matter how great the demand for their services may be, and no matter how crappy the existing service is, the old PTT still controls the cable, which is the only way to get bits out of the country. But in the FLAG era, if the customers go to another carrier, that carrier will find a way to get the needed capacity somehow - at which point it is too late for the PTT.