Pacific Fibre folds
UPDATE Aug 1: Pacific Fibre will cease operations, chairman Sam Morgan says.
The company was only able to raise half the $400 million required to build a fibre optic cable between Sydney, Auckland and Los Angeles.
The cable would have broken the 50% Telecom-owned, Bermuda-based Southern Cross Cable's monopoly as New Zealand's only fibre optic connection to the outside world.
Mr Morgan told NBR ONLINE yesterday that he and fellow investors – who include Peter Thiel, Rod Drury, Sir Stephen Tindall, Gareth Morgan and David Kirk (see list end of article) – had collectively lost "north of $5 million, perhaps $6 million", on the project.
Pacific Fibre's six staff, led by CEO Mark Rushworth, have been given notice.
Mr Morgan says Pacific Fibre had gone hell for leather in a final push, but "the nature of these projects is that once you start to falter there is a downward spiral".
The capital raising process was always going to be difficult, but it had proved more difficult than anticipated.
$1.35b Crown fibre marooned without cheaper international link
In a statement, fellow Pacific Fibre backer Rod Dury said the high cost of broadband was a case of market failure, not a technical problem.
“We still cannot see how the government’s investment in UFB makes sense until the price of international bandwidth is greatly reduced,” he said.
Southern Cross Cable cuts its pricing and upgraded its service after Pacific Fibre began its quest for funding.
Last week, iiNet – Australia's largest independent ISP and, like Vodafone, an anchor Pacific Fibre customer – signed a deal to triple its business with Southern Cross.
However, Mr Morgan would not be baited into criticising Southern Cross. It was the nature of the business that pricing was continually reduced while volume increased, he said. Pacific Fibre's proposition remained viable despite the Southern Cross price cuts.
Telecom acting CEO Chris Quin told NBR, "While Telecom is obviously a shareholder, we're also a Southern Cross customer."
Like other customers, Telecom wanted more bandwidth at a cheaper price. Beyond its transtasman leg, Southern Cross had to compete in an international, price-competitive market, he said.
InternetNZ: Transtasman cable second-best option
"The main impact of Pacific Fibre's demise is likely going to be a lack of new business models and innovation around supply of international capacity, and we very much hope that a transTasman cable as a second-best path still goes ahead."
Both state-owned Kordia and a joint venture between China's Huawei Marine and Axin have attempted to raise funds for a Transtasman cable, so far without success. Kordia is also angling to manage a Huawei-Axin cable, should it go ahead.
Adams: UFB not dependent on second cable
ICT Minister Amy Adams told NBR, "While a second international cable is seen as beneficial for New Zealand into the future, the success of the UFB programme is not in any way reliant on a second cable.
"Our assessments show the Southern cross cable has sufficient capacity in the medium term. In addition, UFB is likely to use significant amounts of locally cached content reducing its reliance on international bandwidth.
"Planned upgrades of the Southern cross cable will further enhance existing capacity."
Ms Adams noted that the government had supported Pacific Fibre indirectly through government-owned tertiary broadband network operator Reannz, which had committed to a $91 million, multi-year contract with Pacific Fibre.
The dynamics of the market meant it was likely another cable contender would emerge, she said.
Super fund should have stepped in
"This is terrible news for New Zealand’s digital future. Without strong competition on the international leg, all we’re doing is building the world’s fastest intranet," Telecommunications Users' Association chief executive Paul Brislen told NBR.
"I would like to know why the NZ Superannuation fund did not step up and support the network build. It’s one of those long-term investments that clearly appeal to retirement funds around the world.
"The Australia pension fund could see the benefit in it [for the National Broadband Network across the Tasman], so why is there no sign of our own fund getting in behind something that will not only deliver a return on investment but also deliver a brighter economic future for the country as a whole?"
Mr Morgan said he had never had any expectation the Crown would ride to the rescue in the event that the start-up failed to raised sufficient funds.
UPDATE: The Super Fund has responded that Pacific Fibre was too risky.
More optimistic times last year: TE Subcom CEO David Coughlan, Pacific Fibre boss Mark Rushworth and US Ambassador to Australia Jeff Bleich at a signing ceremony for Pacific Fibre's cable contract with the New Jersey-based submarine cable company.
Pacific Fibre blows funding deadline
June 25: Pacific Fibre has blown its mid-June deadline to fully fund its ambitious trans-Pacific cable.
Founded by Mr Morgan and fellow NBR Rich Listers Sir Stephen Tindall and Rod Drury, the company has been attempting to raise $US400 million to build an undersea cable between Sydney, Auckland and LA – in the processing busting the 50% Telecom-owned Southern Cross Cable's monopoly on New Zealand's internet connection to the outside world.
"We are still engaged with global institutional funds and expect to provide an update on capital raising towards the end of this month. The board and existing shareholders continue to support the business," CEO Mark Rushworth told NBR ONLINE late on Friday.
He said there was no change to Pacific Fibre's target date for a commercial launch (the first quarter of 2014).
It is now just uner a year since Pacific Fibre contracted US company TE Subcom to lay its cable.
On April 10, Pacific Fibre said customer sales had reached $US200 million with the addition of a fifth foundation customer – an un-named US telecommunications company.
A statement from chairman Sam Morgan added, "We have had great engagement with global institutional funds and are now bringing our fundraising to a close. We expect to announce completion in mid-June”.
The company has been seeking to raise funds through a mix of equity, debt and anchor customer contracts.
Mr Morgan made his April 10 statement in reaction to an AFR report alleging "failed funding and delays."
Mr Rushworth said on March 13 that Pacific Fibre had secured $US170 million in anchor customer contracts, indicating the US deal announced this morning could be worth $US30 million.
Pacific Fibre's funding so far includes a $91 million commitment from government-owned broadband network operator Reannz, plus 10-year contracts with Vodafone NZ and iiNet (the largest independent ISP in Australia). The start-up has also secured a debt funding facility with ANZ.
Up to 45% of the project could be funded by debt, Mr Rushworth has previously told NBR.
Mr Rushworth told NBR on March 13 that Pacific Fibre is on track for a commercial launch in the first quarter of 2014.
Mr Morgan is the largest shareholder in Pacific Fibre with a 17.5% stake.
Mr Drury holds 15.09%.
A syndicate including John Humphrey – the one-time Telecom network executive who serviced as technical advisor during Pacific Fibre's formative stages – holds 11.05%.
Lance and Glen Wiggs hold 10.87%.
Sir Stephen holds 9.66%.
Mr Rushworth and his partner hold 6%.
A syndicate including Gareth Morgan holds 4.23%.
Other shareholders include NBR Rich Lister John Holdsworth (4.23%), David Kirk (2.54%) and the Peter Thiel-backed Valar Ventures (2.42%).