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Hot Topic NBR Focus: GMO
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Pacific Fibre sunk, attention turns to transtasman contenders

Are Kordia and a Chinese consortium real contenders? UPDATED with comment from Kordia, plus Pacific Fibre's Rod Drury and Sam Morgan.

Thu, 02 Aug 2012

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.
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Pacific Fibre sunk, attention turns to transtasman contenders