Pacific Fibre folds

Tom Pullar-Strecker reports:

 Pacific Fibre announced yesterday that it had failed to raise the US$400 million (NZ$492m) it needed for the cable, which leaves Southern Cross Cable’s stranglehold on international communications to and from New Zealand as secure as ever.

Around five weeks ago I was in a meeting where I ventured my opinion that Pacific Fibre would not make it, due to the amount of time that had gone by without concrete funding. Sadly I was right.

However some interesting discussion happened about what if PF does not occur, in terms of the economics of a second cable to the US. The problem is that the nature of contracts for cables are firms buy a slice of the pipe in advance for say a term of 20 years, and they are locked in for that price. This means that Southern Cross has a number of customers paying then the market price of 10 years ago. Today’s price are probably 1/4 of what they were then.

This means that any competitor has to compete against not Southern Cross’s average fees, but their marginal fees for extra capacity. As Southern Cross has the revenue stream from the early signers, they can afford to drop their current fees considerably – and have been doing so. Incidentially, this has meant prices have been dropping for international bandwidth – which is good. However now Pacific Fibre is not a potential competitor, industry will be looking at whether or not there will be any further price reductions.

There were expectations competition would have resulted in more generous data caps and perhaps cheaper broadband plans for consumers.

However, research by InternetNZ last year suggested the impact of Southern Cross’s near-monopoly on international bandwidth may have been over-emphasised and other factors could be more to blame for New Zealand’s restrictive data caps.

There is some positive movement with data caps, with some 1 TB/month packages now available. Bandwidth prices certainly is part of the issue, but not the only issue. The secondary bandwidth market is arguably the bigger problem.

Anyway as we were discussing how to make it practical to get a second cable to the US, one person had a pretty good idea I though. Why not focus on getting an additional cable to Australia and push Sydney as a regional data centre for the major players – Google, You Tube, Amazon, Facebook. NZ will never be big enough to get major data centres, but Sydney could arguably do it. And this means that extra cables to Sydney will provide that extra competition we need, if much of our data comes from Australia.