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Pacific Fibre out – time for government to step in?

Now that Pacific Fibre has called it quits on its plan to challenge the Telecom-owned Southern Cross monopoly by building a second high-speed cable connecting New Zealand to the US, it's time the government got involved, say commentators.

TUANZ chief executive Paul Brislen says the state has invested significantly in domestic fibre and rural broadband and can't afford to ignore the other side of the equation.

"Now that private equity has shown it can't make the grade in this area we really have to turn to government and say 'what can you do'?" he said.

While a public-private partnership could take two to three years to raise funding, and another few years to fully get off the ground, he said it was vital to start planning right now as the internet would look very different in six years. 

Although Southern Cross would ensure it had enough capacity to keep "plodding along", Brislen warned there was a risk of New Zealand being cut off economically from the rest of the world.

"Just look at data caps to see how much international capacity impacts on the market in New Zealand. That's before you factor in things like potential growth of TV and video on demand over the internet. It's got huge potential impact on the demand side and I just don't think we are in a position to service that."

And according to Computerworld, InternetNZ chief executive Vikram Kumar is of the same mind, saying the government should meet with Pacific Fibre to discuss what went wrong and what can now be done.

“We need to start thinking of alternatives. For something else to work I don’t think we can escape from a need for some sort of government funding," he said.

Brislen said if UFB was to be a success then the broader picture of New Zealand's connection to the rest of the world needed to be addressed.

Australia was well served, he noted, with Telstra having recently built its own cable connecting Sydney to Hawaii.

"They've got four or five cables already. They don't need to bring anything through New Zealand and we can't really afford to build our own all the way to the US," he said.

Labour's communications and IT spokesperson Clare Curran said the government's $1.5 billion flagship programme was always dependent on a second high-speed fibre-optic cable connecting New Zealand to Australia and California and providing competition to bring fibre prices down.

"By expecting the market to deliver a second cable, the government has gambled and lost," she said.

Curran said Pacific Fibre's inability to get off the ground was "a blow to local industry, it's a blow to the government's UFB project and it's ultimately a blow to the Kiwi consumer and business community wanting to take advantage of new technology".

"The government could have been playing closer attention and should have factored into its business model the need for greater international interconnectivity. The question is, what will they do now to ensure their UFB programme doesn't continue to flounder?"

Pacific Fibre had expected to deliver the goods from 2013. US-based cable company TE SubCom was to build, design and lay the cable, while Pacific Fibre had signed Vodafone, REANNZ and Australia's iiNet as customers.

Vodafone said it was disappointed the project hadn't come to fruition and that it still favoured a second international cable, while iiNet also told Business Desk it was a blow for New Zealand.

Pacific Fibre also had the backing of Peter Thiel through his New Zealand investment fund Valar Ventures.

The tech community reacted as might have been expected, with varying levels of shock and disappointment.

Paul Matthews of the Institute of IT Professionals yesterday tweeted: "V saddened to see Pacific Fibre project didn't make it. Huge kudos to those behind it who gave it a crack. Bloody good effort."

Kumar said he was deeply disappointed; meanwhile Brislen said the news was quite a shock – "I always figured they would take longer than they had thought to get it built but that they would eventually get enough investment to get off the ground."

Pacific Fibre's efforts not all in vain

University of Auckland senior lecturer in information systems and operations management Dr Fernando Beltran said it was unlikely consumers would see any movement in price for now, although he believed Pacific Fibre had some impact on the market.

"If it wasn't for Pacific Fibre them untaking this effort to build a cable, we wouldn't have seen data caps go up. It is clear that [Southern Cross Cable shareholder] Telecom was pre-empting the move from Pacific Fibre," he commented to the Science Media Centre.
 
"The short term implication of this is that we may not see this trend we've seen in recent months where data caps were increased by Telecom and other providers for residential access. They have been increased but that trend won't gather any pace because there is no pressure from a competitor like Pacific Fibre."

Said Brislen: "We don't have competition on a critical route and that's the international leg. We're stuck with one provider. Even if Southern Cross do a good job, as they do, there's always that concern that a monopoly provider has on price."

'Bloody good try' for an audacious challenge

Yesterday, Pacific Fibre chairman Sam Morgan said in a statement that setting out to build a 13,000km cable was an audacious undertaking.

Morgan then tweeted: "Terribly disappointed we couldn't get Pacific Fibre away.  Was always going to be tough but feel we gave it a bloody good try."

Co-founder and director Rod Drury said the high cost of broadband in New Zealand made it hard to connect globally, a market failure Pacific Fibre hoped to solve.

“We still cannot see how the government’s investment in UFB makes sense until the price of international bandwidth is greatly reduced.”

He previously told Idealog that New Zealanders were missing out on business and social opportunities due to the state of our broadband. “I’m doing this because I just want the end service."

Last year Matt Crockett, a former Telecom executive who served on the board of Southern Cross, told Idealog that Pacific Fibre faced a "whole bunch of challenges".

"I personally think the Australia and New Zealand market is pretty well served in terms of international capacity ... I’m not quite sure where [Pacific Fibre] is going to get the kind of scale of demand that they would need to make this work. They’ve talked about differentiation with latency and all of that but the latency differences they’re talking about are trivial and will make no real difference.”