Telecom Retail's Southern Cross control, 'odd' UFB decisions helped sink Pacific Fibre – Drury

"Odd" government decisions about the demutualisation of Telecom and the $1.35 billion Ultrafast Broadband helped sink Pacific Fibre, co-founder Rod Drury told NBR ONLINE.

When Telecom was separated last year, it maintained its 50% share of the Southern Cross Cable.

NBR agrees that was an odd decision, given the government was trying to boost market competition by separating the company into a wholesale/network operating business (Chorus) and a retail business (the remaining Telecom). 

But in the international market, Telecom's vertical monopoly remains.

The 50% share in Southern Cross should have gone to Chorus. The situation is complicated by the fact Southern Cross' holding company is incorporated in Bermuda, and half the company is owned by Singtel Optus and US carrier Verizon.

NBR thinks the government could have strong-armed Telecom (and it hasn't been shy in other areas) or required it to sell its Southern Cross stake as a condition of its (now spun-off) Chorus arm's participation in the UFB.

Says Mr Drury: "It's crazy that Southern Cross sits inside Telecom Retail."

Beyond that, the entrepreneur says "a really elegant way for the government to help Pacific Fibre would have been to put the UFB international rate card out to tender".

Some of the international capacity contracts for Southern Cross, and some to Pacific Fibre as regional service fibre providers bid for bandwidth, would hace given the newcomer a crucial leg-up.

Pacific Fibre put the concept to the government, but no dice – and, of course, the Crown backed away from its original vision of dozens of local fibre companies in favour of a roll-out 80% dominated by Chorus.

The Pacific Fibre co-founder has always maintained the start-up was aimed at addressing a market problem, not a technical problem. Two competitors beat a monopoly.

And today he remained exasperated by comments by from ICT Minister Amy Adams (see NBR's initial coverage) that Southern Cross has enough capacity.

"Of course Southern Cross has spare capacity. As soon as it nears [full] capacity, it has to spend capital," Mr Drury says. Making bandwidth a lot cheaper would mean it had to upgrade sooner.

Southern Cross was acting logically, trying to maximise profit.

No one will follow
Mr Drury says no private cable would be built out of New Zealand following Pacific Fibre's funding failure.

The start-up got good support, with Vodafone, iiNet (the largest independent Australian ISP) and an un-named US telco signing anchor customer contracts.

"But those guys will be loath to put their hands up again," he says. 

The Rich Lister also had jabs at the govenment over Telecom Retail's control of the Southern Cross Cable and its handling of the UFB. Read them here.