5th Workshop on "SMART Cable Systems: Latest Developments and Designing the Wet Demonstrator Project" (Dubai, UAE, 17-18 April 2016) The Business Case for Inclusion of Sensors in Commercial Undersea Systems David Ross, Chairman, David Ross Group dross@davidrossgroup.com

Commercial undersea system ownership – what kind of business is this? Major infrastructure construction project Requires highly specialized technology and extensive expertise Extremely capital intensive – difficult to finance Years of planning and heavy expenditure before receiving revenues Politically sensitive – Licenses and permits may be difficult Ultimately capable of generating significant income over many years

Characteristic Cumulative Cash Flow for a Hypothetical Undersea System Years from Start Without Sensors With Sensors Planning & Financing Implementation Operations

Sources of Revenue for a Commercial Undersea System Fiber Pair Sales Payment prior to system RFS date (new system) or at contract signing (existing system) Indefeasible Right of Use (IRU) contract (typically 15 years) Payment at contract signing Capacity Lease Payment monthly Operation and Maintenance (fiber pair and IRU holders) Payment quarterly SENSOR SYSTEMS WILL NEED TO ESTABLISH ANALOGOUS PAYMENT METHODS TO COVER UP-FRONT AND ONGOING COSTS AND RISKS

Who might provide funding for undersea sensor installation and operation? Users of sensor data tend to be government agencies or institutions funded by governments. There is a long history of national governments participating in the development of undersea systems, especially in developing areas, usually through some form of public-private partnership in which governments provide impetus and funding. Multilateral institutions, also funded by governments, provide a potential means of funding for the common good.

The Need for Rigorous Qualification Because the undersea system is so capital intensive and the risks already significant, owners are understandably disinclined to introduce new costs and risks into their projects. At the very least, owners will demand that sensor products be subjected to the same rigorous qualification methods the systems themselves undergo: System simulation by computer System simulation in the Laboratory Understanding of possible failure modes At-sea handling, laying, recovery, and operational testing by major system suppliers

Summary The commercial undersea cable business depends on the ability to raise large amounts of capital, which can be difficult at best. Sensors, while aiding the common good, may only add to the difficulty by adding new costs, risks or delays. The path to success would seem to involve: Rigorous qualification of any new technology by the major system suppliers who would be installing the systems Development of payment terms to compensate system owners for capital and operational costs Enlisting the aid of governments and multilateral institutions for financial support.