Pacific Fibre sunk, attention turns to transtasman contenders

Pacific Fibre CEO Mark Rushworth

KeallHauled

Chris Keall

UPDATED with comment from Kordia, plus Pacific Fibre's Rod Drury and Sam Morgan (end of article).

Like nearly everyone canvassed by NBR ONLINE yesterday, InternetNZ CEO Vikram Kumar was very disappointed by yesterday’s news about Pacific Fibre.

“We were a strong supporter of their initiative, given the importance of additional international telecommunications links in ensuring the robustness of New Zealand's connectivity to the rest of the world,” Mr Kumar told NBR.

"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," he says.

So let's look at possible contenders:

1. Kordia
State-owned Kordia has been seeking to build a transtasman cable since 2008, estimated to cost around $150 million.

The idea is that while the 50% Telecom-owned* Southern Cross Cable has a monopoly on fibre out of New Zealand, once you get to Australia there are a half dozen cables to Asia and the US, and the price competition that implies.

Kordia put plans to build a transtasman cable on hold in September last year.

It had hoped to build on support from a second government-owned company, tertiary broadband network operator Reannz, to help get a cable laid, which would then be operated on a commercial basis.

In the event, Reannz backed Pacific Fibre, committing to a multi-year, $91 million international capacity contract. It will be interesting to see if the government puts that juicy pot of cash back on the table, whether the tender again seeks a new cable operator – and if so if Kordia will make a fresh grab (NBR has queries in with the government and Kordia on those points).

Earlier they had been prospect of a joint venture with Australia's Pipe Networks – but an ownership change at Pipe saw a change in direction to Guam.

UPDATE: A Kordia spokewoman told NBR this morning, "As the company that promoted the OptiKor trans-Tasman submarine cable, we know from experience just how difficult it is to get these kinds of projects launched.

"There is a necessity for a new trans-Tasman cable from a diversity and resiliency point of view, but as we are reviewing our position it’s really too early for us to comment."

2. Axin-Huawei
A second transtasman contender is a joint venture between China’s Axin and Huawei Marine (itself a partnership between Huawei and a UK cable operator). Kordia is pitching to manager the cable.

The pair say bank funding is lined up, yet after a bullish period of publicity they have been more or less silent for six months.

The problem is political. The Australian government has blocked Huawei from bidding on its National Broadband Network, and opened an investigation into Huawei’s proposed Perth-Singapore cable (something Pacific Fibre made hay from at the time – so much for yesterday’s comments that political heat stopped it tapping potential Chinese funding).

I don’t think our government would stop a Huawei-Axin cable landing in Auckland. But across the Tasman it would be a tussle – and cable funding seems hard enough to come by without that kind of project-threatening complication.

3. "Other"
So: who will step up?

No other transtasman contenders are on the immediate horizon.

It fit does, it could well be a telco.

All of the existing Australasia-Asia-US cables have ownership controlled by telcos and ISPs (in Southern Cross’s case, Telecom, Optus and Verizon – imagine a world in which a more aggressive separation had handed the 50% Southern Cross holding to its natural home, network operator/wholesaler Chorus rather than Telecom).

Part of the beauty of Pacific Fibre’s model was that the start-up was independent of telco domestic telco and ISP interests.

4. Pacific Fibre redux
Speaking of Pacific Fibre, did it ever consider scaling down to a transtasman cable?

“There is no business case across the Tasman.  You still have to buy connectivity to the US and the marginal price of that is the same as simply buying connectivity on Southern Cross from New Zealand,” chairman Sam Morgan told NBR this morning.

A lot of the internet content accessed by New Zealanders was hosted in the US.

Co-founder Rod Drury added that the company looked at a variety of options, including Guam and Hawaii, but only a cable to the US had the scale to make a real difference and build a strong business case. 

Mr Drury said no private cable would be built out  of New Zealand following Pacific Fibre's funding failure.

The start-up got good support, with Vodafone and iiNet – the largest independent Australian ISP – signing anchor customer contracts. 

"Those guys will be loath to put their hands up again," he said.

A second transtasman contender is a joint venture between China’s Axin and Huawei Marine (itself a partnership between Huawei and a UK cable operator). Kordia is pitching to manager the cable.

This article is tagged with the following keywords. Find out more about My Tags

Post Comment

11 Comments & Questions

Commenter icon key: Subscriber Verified

"The idea is that while the 50% Telecom-owned* Southern Cross Cable"

This is not correct. Telecom own 51% of the SCC - therefore a majority share holding in this cable.

More importantly - they have most, if not all ISP's/Teleco's are on 10 year contracts, therefore when SCC state "we have reduced our prices" the statement is largely meaningless, as ISP's/Telco's are been charged prices that were set 10 years ago.......

Reply
Share

I'm seeking clarification, but Telecom and Southern Cross Cable both list ownership percentages as: Telecom 50%, Singtel-Optus 40% and US carrier Verizon 10%.

Southern Cross has been open about a strategy of (through is wholesalers) signing up telcos and ISPs to 10-year bandwidth contracts.

However, Pacific Fibre pointed out that bandwidth requirements are forever growing. Telcos and ISPs keep coming back to the table to buy more capacity.

Reply
Share

No, TNZ is a 50% owner:
TNZ 50%
Optus 40%
Verizon 10%
Note also that it was Telecom NZ International staff that drove the cable project from start to finish, beginning way back in 1996, realising that NZ would be left out of the loop with Telstra Australia showing no interest in providing capacity to NZ. Efforts to bring Telstra into the project were met with disdain.

Reply
Share

I still find it hard to understand why (if the shareholders of Pacific Fiber believed that this was a great proposition, with anchor tenants), they did not inject the required capital. After all, a significant amount of their wealth creation has benefited from the absence of Capital Gains Tax. The gatekeepers of NZ's Superfund have done the right thing to review this initiative on merit and decide that the investment does not stack up. I would not want the tax payer's money being used to fuel the fancy of high profile persons who do not believe 100% that any investment into PF would work. If they did, I am sure they would have not worried about trying to de-risk their (what is a very small) investment into this venture. I am not suggesting that the benefits would have been anything else than positive to NZ, but we should not confuse the society outcome with the investment required.

Reply
Share

It probably does make sense to just build a transtasman cable - that is the monopoly bottleneck and it isn't anywhere near as far. Maybe Australia will be OK with chinese technology on that cable since it will be carrying traffic to/from NZ, not from AU to rest of the world?

Reply
Share

If it goes through Huawei kit it can go to the rest of the world, i.e. Beijing...and does.

Reply
Share

It is difficult to compete with the Southern Cross Cable. They can erode the investment value in Pacific Fiber network build by simply reducing their pricing.

Reply
Share

BUT - reduced pricing by SCC won't benefit end-users, due to the ISP's/Telco's being on 10 Year Contracts & paying significantly more as a result!

Reply
Share

The bigger issue to delivering low cost IP connectivity to the user is the level of investment required at the domestic level. PF was all about wealthy men with businesses that depend on connectivity OUT of NZ (not in) and attempting to create a glut of capacity at the tax payer or other investors expense. That glut would allow them to buy capacity off of a secondary market and lower the cost of their IP based businesses (Xero, etc.). Otherwise if this was about creating connectivity and generating the fantastic returns their marketing to potential investors claimed from a capital intensive infrastructure project they'd have merrily ploughed in every last dollar they had...but they didn't and investors were fortunately not bamboozled by their rhetoric.

Reply
Share

This is like upgrading your house for fibre, only to find out you only have access to Dial-up

Reply
Share

With the threat from the US government of the offshore cable-landing levy, you have to wonder if this was a major contributor to Pacific Fibre's decision to withdraw (as well as the lack of funding).

Reply
Share

Post New comment or question

Plain text

  • No HTML tags allowed.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Lines and paragraphs break automatically.

NZ Market Snapshot

Forex

Sym Price Change
USD 0.7740 -0.0003 -0.04%
AUD 0.9511 0.0005 0.05%
EUR 0.6324 -0.0002 -0.03%
GBP 0.4954 0.0001 0.02%
HKD 6.0039 0.0001 0.00%
JPY 92.5100 -0.0050 -0.01%

Commods

Commodity Price Change Time
Gold Index 1195.4 -2.890 2014-12-19T00:
Oil Brent 61.4 1.580 2014-12-19T00:
Oil Nymex 57.1 2.910 2014-12-19T00:
Silver Index 16.0 0.096 2014-12-19T00:

Indices

Symbol Open High Last %
NZX 50 5518.5 5545.0 5539.3 -0.21%
NASDAQ 4752.6 4782.1 4748.4 0.36%
DAX 9901.3 9901.3 9811.1 -0.25%
DJI 17778.0 17874.0 17778.2 0.15%
FTSE 6466.0 6566.9 6466.0 1.23%
HKSE 23158.3 23189.6 22832.2 1.25%
NI225 17511.0 17621.4 17210.0 2.39%