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Telecom, Vodafone, Telstra coinvest in Auckland-Sydney cable

"It's a very smart move by Moutter and the other players which now makes it essentially impossible to justify another cable," a Pacific Fibre co-founder tells NBR ONLINE. UPDATED wiith conference call comments.

Tue, 19 Feb 2013

UPDATE: Scroll to end of story for conference call comments by Telecom CEO Simon Moutter, Vodafone NZ CEO Russell Stanners

Telecom, Vodafone and Telstra have signed a memorandum of understanding to build a submarine fibre optic cable between Auckland and Sydney.

The cable will become New Zealand's second major broadband link with the outside world, breaking the 50% Telecom-owned Southern Cross Cable's monopoly.

The "Tasman Global Access" cable will cost "less than $US60 million and be completed by mid to late 2014, Telecom said in a statement this morning.

Lost opportunity
Rod Drury, co-founder of Pacific Fibre, told NBR ONLINE he had mixed feelings about the news.

"The sad thing is that if NZ Inc [government and private enteprise] could have got together, we could have done a step change. This is good, but it's not the vision were were hoping for. It's a lost opportunity."

In an ideal world, he would have preferred a public-private-partnership that saw a new Sydney-Auckland-LA cable running across the Pacific as well as the Tasman, which would have led to what he calls a "real step change."

But a new transtasman cable was still a welcome development for business and home internet users, Mr Drury says.

Not cheaper but faster
Mr Drury did not expect it to lead to cheaper broadband, but he did expect higher data caps for the same money, and better performance.

True competition?
NZ Institute of IT Professionals CEO Paul Matthews also welcomed the news.

"It's excellent to hear of the new NZ-Australia cable. It's essential New Zealand has competition in international connectivity and this will certainly help secure the future," he told NBR ONLINE.

"The only slight hesitation we have is whether it will represent true competition, given Telecom's partial ownership of both cable options - Southern Cross and this one). But if so, this is very good news indeed."

Telecommunications Users Association head Paul Brislen also welcomed the news, but shared Mr Matthews' partial reservation about Telecom's role as an investor in both cables out of NZ: "We'd like to know how that's going to be handled." 

Mr Brislen will keep a sharp eye on pricing - but don't look for any formal monitoring. Southern Cross Cable (50% owned by Telecom, 40% by Singtel-Optus and 10% by Verizon) is incorporated in Bermuda. Expect this new joint venture to also be registered in a locale that's safely beyond the Commerce Commission's clutches.

Heading off competition?
Pacific Fibre folded its tent in August last year, having failed in its bid to raise $400 million of a Sydney-Auckland-LA cable.

Following its failure, Mr Dury formally wrote to ICT Minister Amy Adams outlining a public-private partnership for a Pacific cable. Ms Adams gave him a polite but non-committal response

Pacific Fibre's collapse also saw Kordia reanimate its plan for a possible Auckland-Sydney cable. Kordia's logic has always been that if a second cable can be laid to Sydney, the problem of competition will be solved as their are a half dozen cables from Australia up to Asia and the US.

Huawei and Axin have also talked up a transtasman link, while the French-backed Hawaiki put plans back on the table for a cable that would link NZ and Australia with the US via Tahiti.

And of course Kim Dotcom had his own cable dream.

None have got beyond the drawing board. Now, they'll probably be stuck there permanently.

"It's a very smart move by [Telecom CEO Simon] Moutter and the other players which now makes it essentially impossible to justify another cable," Pacific Fibre co-founder Lance Wiggs told NBR.

For price and performance, Mr Wiggs would still like to see a cable laid directly from NZ to the US, where most of the world's websites and services are hosted.

Minister: more content hosted in Austrlia
“The new cable will provide an important step in New Zealand’s connectivity, and it also provides the market solution that the government always expected would happen," Information, Communications and Technology Minister Amy Adams said in a statement.

“It is estimated [by Telecom and Vodafone; see RAW DATA below] that about 40% of New Zealand’s international traffic is on the transtasman route and this volume is growing more rapidly than traffic on the trans-Pacific route to the US, due to an increasing amount of content being hosted on servers in Australia and Asia.”

Moutter: important for redundancy
On a conference call, Telecom CEO Simon Moutter said a second cable made business sense, and was "important for redundancy" (an argument that will bring a wry smile for some, given Telecom has always maintained the Southern Cross Cable.

Ownership, incorporation details ... coming
Mr Moutter said the ownership structure of the joint venture had yet to be finalised but broadly speaking he expected Telecom, Telstra and Vodafone would hold equal shares.

On the same call, Vodafone CEO, Mr Stanners said it had yet to be decided where the joint venture would be incorporated.

Mr Stanners noted Vodafone had recently bought fibre company and network operator Cable & Wireless - however, the new cable would go out to tender after a management team was appointed for the joint venture.

Consents were not seen as a problem. Telecom and Vodafone already had landing sites in NZ, while Telstra could use existing landing sites in Australia.

Mr Stanners told NBR ONLINE, "This didn't exist when Pacific Fibre ended; it's not a fallback," he said. Talks had occured over the past few months.

The Vodafone CEO said he expected cheaper wholesale broadband prices across the Tasman. 

"You need two players in the market to be competitive," Mr Stanners said.

Asked if there were wholsale competition issues, given Telecom also owned 50% of Southern Cross, Mr Moutter replied, "No, not at all." Cables are typically owned in what he called a "club arrangements" between telecommunications companies. "This is a very normal arrangement," he said.

Will other ISPs get access?
After the conference call, NBR relayed a reader question Would there be a layer of wholesalers, as with the Southern Cross Cable? Or would ISPs outside Telecom and Vodafone/TelstraClear be otherwise able to buy bandwidth access on the new cable?

A Telecom rep replied:

"Another cable just makes the market more competitive but it's too early to say exactly how that will play out in terms of wholesale arrangements."

Orcon, CallPlus etc are likely to find that a little chilling.

Telecom shares [NZX:TEL] were up 0.67% in early trading.

RAW DATA:  Telecom-Vodafone-Telstra statement


Telecom, Vodafone and Telstra announced today they have signed a non-binding memorandum of understanding (MoU) to co-invest in the construction of a new submarine cable between Auckland and Sydney.

The new cable, tentatively titled the Tasman Global Access (TGA) Cable, will significantly improve New Zealand’s international telecommunications connectivity as well as strengthen links into fast-growing Asian markets.

The total cost of the TGA cable is expected to be less than US$60 million. The cable will incorporate three fibre pairs with a current design capacity of 30 terabits per second – approximately 300 times the current internet data demand out of New Zealand.

The TGA partners expect to finalise the design within the next few months, with a likely completion date of mid to late 2014.

Telecom chief executive Simon Moutter and Vodafone New Zealand CEO Russell Stanners jointly commented: “The business case for a new cable between New Zealand and Australia is compelling, providing greater capacity and global redundancy capability. It also reflects the growing importance of trans-Tasman internet traffic: for example, around 40% of both Telecom and Vodafone’s international internet traffic is now Australia to New Zealand, versus just 10% in 2000.

“We are seeing increased data content being provided from Australia-based servers by global companies and being accessed by New Zealand internet users. An additional cable connection with Australia will strengthen the business case for international data servers to be located in New Zealand.

“The Tasman Global Access cable will also enable New Zealand to better leverage the four additional international cable systems currently serving Australia (with several more proposed or in development),  providing important redundancy for New Zealand.  Australia also enjoys good connectivity with Asia, which is achieving strong internet traffic growth in line with global economic shifts.”

Martijn Blanken, Managing Director, Telstra Global remarked, “The partnership is a great outcome for Telstra as the high capacity, low latency Tasman Global Access Cable will supply greater resilience and redundancies for carriers as well as enterprises that are located in Australia and looking for connectivity to New Zealand as well as stronger international connectivity. This cable will enable New Zealand to better leverage Australia’s much stronger internet connectivity.  It will also achieve significant international connectivity benefits for New Zealand to link with Australia, and also onwards to the USA and into Asia.

The TGA cable will achieve significant international connectivity benefits for New Zealand at a fraction of the build cost of another, much longer trans-Pacific cable, the consortium partners said.

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Telecom, Vodafone, Telstra coinvest in Auckland-Sydney cable