Southern Cross scoffs at billion-dollar cable savings

01:43, Jan 31 2009

The consortium that owns the Southern Cross Cable has laughed off a suggestion by state-owned enterprise Kordia that a competing trans-Tasman communications cable could save New Zealanders more than a billion dollars over the next 10 years.

Kordia chief executive Geoff Hunt last week signalled he hoped to press ahead with plans to lay a cable across the Tasman, despite the collapse of bank funding arrangements for a Sydney-Guam cable proposed by Australian firm Pipe Networks, that would have carried traffic on to Asia and the United States. Pipe Networks is seeking alternative funding sources.

Pipe issued a trading halt on Monday and then suspended its shares from the ASX indefinitely, pending an announcement, when trading was due to resume on Thursday.

Mr Hunt estimated savings of up to $1.5 billion would result from breaking the Southern Cross Cable's near monopoly over international communication links.

"If our assessment was wrong and it was only $500 million, that is still a hell of a saving over 10 years," he said.

New Zealanders had probably already seen the benefit of the mooted competition, he said, speculating that it had prompted the Telecom half-owned Southern Cross Cable - which connects New Zealand, Australia and the United States - to recently slash its prices. "Competition drives innovation, and it generally drives pricing down. I can't think of a circumstance where competition has driven prices up, so the question is by how much."


Southern Cross Cable sales director Ross Pfeffer says he cannot see savings of the magnitude suggested by Kordia "in a million years" and it is absolutely wrong to suggest the company lowered its prices in response to Kordia's initiative.

Southern Cross had been reducing its prices regularly for several years and the latest cuts followed an upgrade of the Southern Cross Cable's capacity, he said.

The consortium had promised it would continue to sell capacity on the cable to customers in New Zealand at the same price as it sold to customers in Australia, who had a choice of submarine cables.

"If [the cuts] are responding to a competitive market it is the competitive market that actually exists out of Australia today, which is where we compete," Mr Pfeffer says.

Crown-owned company Reannz meanwhile says it has received several responses to its request for information on a new trans-Tasman telecommunications cable, leaving the market to speculate as to the number and identity of the mystery suitors.

Reannz - which operates a high-speed communications network linking educational and research institutions - was allocated $15 million in the Budget to buy international capacity.

That was on the proviso that it was for a new cable that broke the stranglehold the Southern Cross Cable has on international bandwidth.

IDC analyst and InternetNZ president Peter Macaulay says he is aware of some parties who were likely to bid. "I don't think it'll be many. If it's more than three I'll eat my hat."

Wellington telco FX Networks has previously expressed interest.


The Dominion Post