Dotcom: I would have hosted Mega in New Zealand, but...

[UPDATE: In July 2013, Mega inked a hosting deal with Telecom's Gen-i services unit. Mega CEO Vikram Kumar told NBR Gen-i would host around 10% of Mega's files.]

Kim Dotcom's new file sharing service, Mega, launched this morning at 6.48am – the to-the-minute anniversary of NZ Police/FBI raid on Dotcom mansion, and the shutdown of Megaupload servers in the US.

For the first phase of Mega.co.nz, the new service is being hosted by servers in Dotcom's home country of Germany.

The company doing the hosting is the German subsidiary of Cogent, a Washington DC-based company that operates globally – and which supplied services to Megaupload.

Dotcom sees Nasdaq-listed Cogent [NAS:CCOI] coming back on-board as a major vote of confidence in his business plan, and his legal arguments for the new service.

In the Megaupload indictment, Cogent was described as one of the world's top five providers of bandwidth and hosting services; the FBI lists a series of monthly payments to Cogent that often topped $US1 million a month for 36 servers in Washington DC and France (a big contract, if smaller than Megaupload's business with Virginia-based Carpathia, where it hosted most of its files; Carparthia was paid more than $US110 million over seven years).

Wait, didn't Dotcom say Mega could be hosted in New Zealand?

During an interview with NBR ONLINE at Dotcom Mansion on Friday, the accused pirate said the original launch plan called for the Cogent servers in Germany, plus a server rack in New Zealand.

But the cost of bandwidth on the Southern Cross Cable prohibited a local hosting deal.

Dotcom says a Southern Cross wholesaler wanted to charge him $28 per megabit of capacity a month, or 30 times what he was quoted for international connectivity in various overseas locations. He was also irked that various ISPs approached for quotes wanted to charge $2 per megabit of capacity a month for domestic traffic.

In Europe, peering (network interconnection) agreements meant there were no domestic bandwith charges, Dotcom said.

Cogent is supplying at least 10 gigabit capacity for an undisclosed price, although it apparently still wasn't enough. Around 8.30 this morning Mega.co.nz was not loading. On Twitter, Kim said the site was overloaded after "massive demand".

Pacific Fibre alumnus Lance Wiggs told NBR those prices sounded high (although he is not closest to the market now). The best deals are gained by dealing with Southern Cross directly, but only one or two local customers have the scale to deal with the cable operator directly (Dotcom went through a wholesaler). " It's not acceptable for any NZ business," Wiggs says.

A preview for a handful of media yesterday revealed Mega as service with a simple, user-friendly interface, similar to that offered by Google Drive and Dropbox.

A key points of difference are much more free capacity. Mega users get a stonking 50GB (there are also paid plans; see here) and one-click encryption to keep your files private from anyone but those you chose to share the key with (although for a self-styled "privacy company" Mega has a surprisingly illiberal, police-friendly privacy policy, as TorrentFreak highlights in Brilliantly Secure, but Not Anonymous).

Dotcom told NBR encryption also fed into the second major plank of Mega's strategy: to develop a distributed hosting setup.

Cogent's German operation had been chosen for launch because Dotcom wanted complete control and easy scalability during the launch period, when sign-up numbers and bandwidth requirements were tricky to predict (business is already brisk by Kim's account; on Twitter he claimed 100,000 sign-up in Mega's first hour; Megaupload crew to the point where it had fifty million unique visitors per day and accounted for 4% of the world's internet traffic, according to the indictment).

But Mega has also been advertising on its splash page for hosting partners. They can be big or small. They just have to be located outside the US.

Dotcom said more than 1000 have applied to become hosts. Several hundred will be chosen over coming months.

Successful candidates will be paid 500 Euros per server a month, for which they must provide 1 gigabit of capacity, plus 24 hard drives with a total of 72 terabytes of storage per server, among other requirements. If the economics work for it, there's nothing to stop a NZ hosting company applying on those terms; a number have.

So, how does a distributed model reconcile with Kim's plan to house Mega at a giant server farm in New Zealand?

Kim says there would be so much bandwidth required, that there could be both a network of hundreds of distributed hosts, plus a giant server farm in NZ.

Earlier, he pitched this setup as a way to solve New Zealand's chicken-and-egg cable dilemma (bandwidth is expensive here partly because we're far away, and Southern Cross is a longer and more expensive to run cable than others; but also because most traffic is one way - US-to-NZ as Kiwis access services and sites largely hosted in the US - but ISPs and others are charged full whack for two-way connections. A huge server farm in NZ would help make things a two-way street).

With most of his estimated $US200 million fortune frozen by the courts, Dotcom is simply not able to put any money into a second cable out of NZ upfront. And it's money up-front that failed second cable contender Pacific Fibre really needed for its $400 million Sydney-Auckland-LA cable (although major anchor customer deals with the government, Vodafone and iiNet that would have helped cashflow over the cable's first 10 years).

Dotcom told NBR a giant server farm for Mega could provide $20 million business for a new cable operator, helping it to build a business case for launch funding. And a while down the track - assuming Mega was successful - he could potentially become a shareholder in a new cable.

On Friday, he said his investigations into bandwidth costs during the search for a Mega launch host had led him to think Southern Cross pricing was even worse than he thought. Over-the-top pricing meant only a minority of capacity on the cable was actually being utilised, he claimed.

His latest proposal is for a cable from NZ to Panama. There would be none of the problems the US has with any cable that includes what he called "a low-cost equipment provider" (read: Huawei). Panama had good peering, and the US could be reached through a submarine cable to Miami, or overland through Mexico.

It's a nifty concept, but as with Dotcom's previous cable plan, it's still at a very woolly, conceptual stage.

Pacific Fibre co-founder Rod Dury told NBR, "Love him or hate him, this phase of Mega is an interesting case study... At least he's keeping the lack of competition for international broadband in the public eye."

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