Pacific Fibre responds to Chinese transtasman cable threat

UPDATE 3.45pm: Pacific Fibre chief executive Mark Rushworth told NBR he was not worried by a Chinese consortium's plans, revealed this morning, to lay cable between Australia and New Zealand by the end of 2012 - two years ahead of the Kiwi start-up's target launch date.

"Our business case is in connecting Australia and New Zealand to the US - where the content is," Mr Rushworth said.

"Another transtasman cable is possibly good for New Zealand banks and corporates, but it's a very small part of our business case and changes nothing for us. We wish them luck."

The Auckland-Sydney leg of Pacific Fibre would account for only 2.9% of the company's projected income.

Three cables necessary for price war
IDC telecommunications senor market analyst Rosemary Spragg told NBR that three cables were needed to truly drive competition.

"The challenge is that, while two operators would introduce a degree of competitive pressure, it is unlikely to drive a significant price war," Ms Spragg said.

"With three operators, price competition is likely to intensify, particularly with an operator whose investment is essentially sunk (Southern Cross) and a new entrant with deep pockets (Huawei/China Telecom)."

Three companies, three models
Sydney-based market analyst Paul Budde, principal at Paul Budde Communication told NBR there could be room for three, noting all had different business models.

The Southern Cross Cable is co-owned by phone companies (Telecom 50%, SingTel Optus 40%, Verizon 10%) that also have retail ISP operations.

In contrast, Pacific Fibre has billed itself as independent, with no crossownership with any retailer.

Huawei's model is "significantly different," Mr Budde said. "Their business is to sell equipment. The more bandwidth demand they generate, the more equipment they sell." The Chinese company's return-on-investment could come from its transtasman cable helping to spur broadband demand withiin Australian and New Zealand, leading to phone companies buying more Huawei gear for their domestic networs.

So: room for theree? Only if all the players have their business models right, said the analyst. 

"If their models are based on inflated prices, there will be a lot of pain."

NZers paying twice as much for data
InternetNZ, which administers local doman names and lobbies on behalf of end-users, also welcomed the China Telecom/Huawei Marine plan.

Chief executive Vikram Kumar said the Chinese cable would add divesity and choice. "It further strengthens access to and via Asia, an area of growing importance to New Zealand," Mr Kumar said.

"We think this move will spur innovation in business models.

"This is sorely needed as the latest ITU [International Telecommunications Union] report [released Monday] shows Kiwis still pays double per gigabyte of data than the Australians."

Huawei responded to a request for comment, but the company's Australian office was not immediately able to address NBR's questions.

See an interactive map of fibre optic cables running out of Australasia here.
 

SEPT 20, 6am: Can the telecommunications market stand three cables between Australia and New Zealand?

We might soon find out.

A consortium that includes a Chinese government-owned telco and bank, wants to lay a new cable between Australia and New Zealand by the end of 2012 - two years ahead of the target launch date for local start-up Pacific Fibre  (although the Kiwi start-up already has three anchor customers in the bag; see below).

Axin, the Australasian agent for China Communications Service, has told trade journal Communications Day that it will partner with Huawei Marine Networks to build a submarine fibre optic cable between Sydney and Auckland.

China Communications Service is a subsidiary of state-owned China Telecom, which in June opened its first Australian office.

Huawei Marine is joint venture between privately-held Chinese telecommunications infrastructure giant Huawei (which at one point appeared to be wooing local cable start-up Pacific Fibre, which ultimately went with US company US Subcom) and UK-based Global Marine Systems, which claims to have installed more undersea fibre optic cables than any other operator.

According to Axin, financing for the $US100 million project has already been approved by the state-owned Export-Import Bank of China.

More choice for NZ ISPs
“With this cable, New Zealand ISPs will have a greater deal of choice out of the Australian market,” Huawei Marine chief executive Nigel Bayliff told Comms Day.

Axin chairman Robin Lee said the new cable would capitalise on demand created by Australia’s National Broadband Network (NBN) and the New Zealand government’s Ultrafast Broaband (UFB) roll-out.

A monopoly, for now
Currently, there is only one cable between Australia and New Zealand, the Southern Cross Cable (which also runs up to the US), 50% owned by Telecom NZ, 40% by SingTel-Optus and 10% by Verizon.

Pacific Fibre, Kordia lining up
 The news will come as a bombshell for Pacific Fibre, which is planning a Sydney-Auckland cable as part of a broader $US400 million rollout linking Australasia with the US.

And, to a lesser extent, state-owned Kordia, which also has Sydney-Auckland cable ambitions (recently put "on pause", as first-reported by NBR.

Backed by Rich Listers Rod Drury, Sam Morgan and Sir Stephen Tindall, the startup has signed major anchor customer contracts with top-tier Australian ISP iiNet, Vodafone NZ, and Crown company Reannz. The Reannz deal, announced by Bill English, is worth $91 million.

Pacific Fibre recently signed US company Tyco Electronics Subsea Communications (aka TE Subcom) to manufacture and build its cable.

Chief executive Mark Rushworth did not immediately respond to a request for comment.