Govt rejects claim as cable plan fails

22:10, Aug 01 2012

The Government is rejecting claims from Labour that its $1.5 billion ultrafast broadband initiative has been dealt a big blow by the collapse of Pacific Fibre's plan to lay a new communications cable to the United States.

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.

Southern Cross is half-owned by Telecom.

Labour communications spokeswoman Clare Curran said the UFB initiative programme "was always dependent on a second high-speed fibre-optic cable connecting New Zealand to Australia and California and providing much-needed competition to bring fibre prices down".

By expecting the market to deliver a second cable, the Government had gambled and lost, she said.

InternetNZ chief executive Vikram Kumar said there was a "general sense of disappointment" that Pacific Fibre had failed.


There was demand for another cable but not enough backing from investors and that implied the Government might have to get involved, he said.

However, Communications Minister Amy Adams said that although the Government saw value in a second cable and expected new ventures to emerge, its assessments showed the Southern Cross Cable had sufficient capacity to support broadband users in the medium term.

"Labour's claims that UFB is dependent on a second international cable are utterly wrong and show once more their lack of understanding," she said.

Pacific Fibre's chairman, Trade Me founder Sam Morgan, said he and fellow "rich listers" Rod Drury and Sir Stephen Tindall were deeply upset at the plan's collapse, but were unsure what they could have done differently.

Like Southern Cross, Pacific Fibre's submarine cable would have connected New Zealand to the United States and Australia.

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.

Morgan said he and his fellow investors had put more than $5m into Pacific Fibre and had found people willing to invest and lend money but it was not a simple matter to say how far they had fallen short.

At some point another trans-Pacific cable would have to be built but Morgan said he could not see that being done by a similar group of entrepreneurs.

It was possible that telecommunications firms themselves might club together on another initiative, he speculated.

Vodafone and Crown-owned company Reannz, which operates a high-speed network linking universities and research institutions, had together agreed to buy about $80m of capacity on Pacific Fibre's cable and the collapse of the venture meant they would have to make alternative arrangements.

Vodafone chief executive Russell Stanners said last year that he was confident enough about the venture not to have a "plan B" and "hadn't thought of a scenario where the cable doesn't go ahead and isn't built".

Spokeswoman Sarah Newcombe said it was very disappointed that the project hadn't come to fruition. "We are still in favour of a second international cable to help break down the digital divide between New Zealand and the rest of the world.

"However, for now, we will continue with our current international bandwidth arrangements."

The next-best hope for cable competition may lie in a proposal by Axin, a company owned by New Zealand and Hong Kong investors, to lay a cable between Auckland and Sydney. It could then carry traffic on to Asia and the US via other international cables.

Axin chairman Robin Lee said its project was still progressing but he could not put a percentage chance on it going ahead. It had not yet set a date for a marine survey that would need to precede cable construction.

Axin said in September that it would use Anglo-Chinese joint venture Huawei Marine to build the US$100m communications cable which it hoped to commission next year. However, there have been concerns the venture could fall victim to Australian Government concerns over Chinese involvement in its telecommunications industry, even if the business case stacks up.

The Australian Government announced in March that it was investigating another proposed cable between Perth and Singapore that Huawei Marine intended to build for Melbourne-based subsea cable company ASSC-1 because of "security concerns".