The 50% Telecom-owned Southern Cross Cable – currently New Zealand’s only broadband link to the outside world - has slashed its wholesale pricing by up to 44%, the company said this morning.
The bad news: don’t look for the price cut to flow through to retail internet service pricing any time soon – or perhaps any time at all.
Scott Bartlett – chief executive of one of NZ’s largest retail ISPs, Orcon - told NBR he welcomed the cuts, but noted they only applied to new contracts.
With competition from start-up Pacific Fibre and Axin-Huawei Marine looming, Southern Cross has been ramping up its efforts to tie big ISPs into 10-year contracts (although ever-increasing broadband usage sees ISPs constantly returning to the trough to add more bandwidth capacity with fresh contracts).
Southern Cross announced a capacity boost, and plans for a 100 gigabit/sec upgrade by December (that’s a very, very, very fast speed – but also academic, given your ISP will only buy a small slice of capacity, largely dictated by price).
As ever, there’s no doubt, on a technical level, that Southern Cross can carry all the broadband data that New Zealand internet users can throw at it – and likely continue to as the Ultrafast Broadband (UFB) roll-out brings faster fibre connections to homes and businesses over the next decade. The key benefit of the Pacific Fibre (Sydney-Auckland-LA) and Axin/Huawei cables (Sydney-Auckland) will be to provide more price competition.
Mr Bartlett said the speed boost, and cheaper wholesale rate, would lead to higher data caps for Orcon’s 100,000 retail customers, but would not put a time frame on it.
Asked if it was more likely to lead to higher data caps than lower pricing, Mr Bartlett said “hopefully both” would be possible.
CallPlus boss Mark Callander echoed the sentiment, telling NBR, "The key issue in the NZ market is the amount of data customers receive as part of their monthly broadband plan allowance. A decrease in IP transit costs will enable ISPs to meet the increasing customer demand for data." Mr Callander said CallPlus' residential brand, Slingshot, was the only top-tier ISP offering an unlimited data plan. A recent Statistics NZ survey of internet service providers found just 1% of internet users are on all-you-can-eat plans - despite them being the norm in most developed countries.
Telecommunications Users Association (Tuanz) chief executive Paul Brislen told NBR there was a danger that while the Southern Cross price drop was good for customers in the short term, it could make it harder for Pacific Fibre to raise funding – inhibiting long term competition.
“Tuanz believes we need more competition on international routes to see retail prices more accurately reflect the true costs,” Mr Brislen said.
Sydney-based telecommunications market analyst Paul Budde told NBR that the Southern Cross price cut was entirely predictable, and would be factored into Pacific Fibre’s business model.
Southern Cross sales and marketing director Ross Pfeffer implied today's price cuts were not aimed at smothering his company's putative competitors. Mr Pfeffer said Southern Cross had cut its pricing every year since 2001, averaging 21% annual reductions.
Pacific Fibre chief executive Mark Rushworth did not respond to a request for comment.
Earlier, a spokesman told NBR that the company has entered a quiet period while it seeks to finalise around $US400 million in funding for its cable.
Pacific Fibre has signed three anchor customers: Vodafone, Australian ISP iiNet and the government-owned tertiary and CRI broadband network operator REANNZ.
Chinese companies Axin and Huawei said they planned to start work before the end of last year. A media statement this morning said they had initiated a marine survey.
A spokesman for state-owned Kordia, which at one point planned its own Optikor cable, said the company had been in talks with Axin. Kordia hoped to become the commercial operator of the Axin-Huawei cable, but so far no agreement has been signed.
Tue, 17 Jan 2012