Cold water poured on Kordia cable

The consortium that owns the Southern Cross cable says a rival trans-Tasman communications cable backed by the Government will be chasing a slice of a market worth less than $20 million a year, and it might consider a legally binding guarantee making the extra competition pointless.

Southern Cross Cable Network sales director Ross Pfeffer says medium to heavy broadband users pay an average of only US$3.50 a month to use the network, which carries most Internet traffic between New Zealand, Australia and the United States.

The Government announced in the Budget it would this year contribute $15 million toward the capital cost of a new subsea cable. Communications Minister David Cunliffe said in December that consumers were paying too much to connect to the outside world.

State-owned enterprise Kordia is poised to use the capital to help fund a trans-Tasman cable costing tens of millions of dollars that will link with another cable being laid by Australian firm Pipe Networks from Sydney to the regional hub of Guam.

Mr Pfeffer says Southern Cross isn't afraid of the competition, but released figures that questioned whether the economics would stack up. Southern Cross says its customers could buy all the trans-Tasman capacity they now use for only US$10 million to US$15 million a year if they were negotiating a new contract with Southern Cross today.

Kordia spokeswoman Susie Stone says market feedback suggests there is demand for a new trans-Tasman cable and Kordia expects to complete a business case for the investment by the end of the year.

Mr Pfeffer indicated his support for a legal guarantee that would ensure Southern Cross continued to charge New Zealand and Australian customers the same price for bandwidth to and from the United States.

"It is not something I could personally do, but I think it is an idea we should pursue," he says.

Such a guarantee could help allay fears about the competitiveness of New Zealand's international connections, as it appears likely there will be at least four rival owners of fibre optic subsea cables competing for customers in Australia by 2010. This should act as a check on prices on the Australia-US route.

Mr Pfeffer indicated Southern Cross had been stung by suggestions that it was a brake on broadband uptake and had recently made presentations to the Economic Development Ministry and the Opposition. "I don't know what we are doing wrong. We are getting a lot of flak."

Southern Cross is half-owned by Telecom. Singtel owns 40 per cent and Verizon 10 per cent.

Mr Pfeffer says that only 15 per cent of the Southern Cross cable's theoretical capacity is now in use, and its prices are at or below those charged on major trunk routes between the US and Asia – and are falling by more than 20 per cent a year.

The price of the smallest 155 megabit per second connection sold to ISPs has dropped from about US$3 million a year in 2004 to $500,000 and it would now cost less than US$10 to send a 30 gigabyte film to or from the US.

Prices were higher than on trans-Atlantic routes, where a glut of capacity sent most cable operators into bankruptcy and resulted in no new cables being laid for the past "five to 10 years".

Telecommunications Users Association chief executive Ernie Newman says he is "sure competition would bring prices down", but the security rather than the price of international connections is the user group's main concern. "There is concern about what happens if there is a major break in the cable."

Southern Cross' network comprises two cables that form a "figure of 8" loop, but Kordia and Pipe Networks argue their cable would provide a back-up if Southern Cross was cut in two places.

Southern Cross' last complete outage was in 2001 when damage caused by a ship's anchor and faulty hardware conspired to bring down the entire network for about 10 hours. Single fibre strands on the cable are out of service for an average of one week in a year, but that hasn't effected a customer for three years.

Mr Pfeffer says Southern Cross will lay a third cable long before capacity on its existing loop runs out. The new cable will be able to carry at least five times as much traffic as the existing network, even once an upgrade now underway is complete, and is likely to be laid by 2015. "I can't see why that cable wouldn't be five or 10 terabits, or bigger."

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