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Facebook Is Considering $1.0 Billion Africa Subsea Cable System

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Facebook sitting on $41 billion cash reserve

Facebook (FB) is planning to develop an undersea data cable ring around Africa, according to a report from the Wall Street Journal citing people familiar with the company’s plans. Facebook could spend as much as $1.0 billion on the Africa subsea cable project, according to the report. Facebook can easily foot a bill of this size without taking a bank loan. The company exited 2018 with $41.1 billion in cash reserves. Twitter (TWTR) and Snap (SNAP) had cash reserves of $6.2 billion and $390 million, respectively, at the close of 2018.

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Opportunity to lower costs

The reason Facebook wants to build a subsea cable system around Africa is that the company sees an opportunity to lower its bandwidth costs, which could make its business more profitable. Although Facebook’s profit increased 61% YoY to $6.9 billion in the fourth quarter, its profit margin has been on a decline as costs soar. Facebook’s fourth-quarter operating margin declined to 46% from 57% a year earlier as operating expenses rose 62% YoY. In addition to reducing its operating costs, the new Africa subsea cable system is also expected to help Facebook sign up more subscribers.

Besides Facebook, Google (GOOGL) is also planning to build a subsea cable system connecting Africa’s Western coast. China’s Huawei is also developing an underwater cable to connect Africa through the Indian Ocean. Huawei is the world’s top vendor of telecom equipment, boasting a 28% market share compared to Ericsson’s (ERIC) 27% and Nokia’s (NOK) 23%, according to IHS Markit estimates.

Facebook’s Africa region revenue

Facebook’s revenue from the region that includes Africa, reported as Rest of World, increased 23.1% YoY to $1.6 billion in the fourth quarter.

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