A group of patriotic entrepreneurs behind a $900 million bid to lay a new high-speed cable between Australia, New Zealand and the United States say the move could mean the end of our restrictive internet data caps.
Warehouse founder Stephen Tindall, Trade Me founder Sam Morgan and Xero chief executive Rod Drury are behind the Pacific Fibre undersea cable which will require capital of around $900 million and take 22 months to build.
The cable would offer a transfer speed of 5.12 terabits per second in 2013, and be upgradable to 12 terabits per second, offering “five times” as much capacity as is currently supplied by the Southern Cross Cable.
In an exclusive interview with Morgan in Idealog this month, Morgan hinted at his plans to tackle the international data capacity bottleneck he says is holding the country back. “We need to solve the international bandwidth problem. We need a cable which is not based on price maximisation,” he said.
“I'm almost inclined to just do it myself. It’s maybe US$600 million and I think you can make that happen.”
Whether Morgan and company can make it happen will depend on appetite among investors in the region and on pre-sales from customers seeking to purchase capacity on the cable, which would stretch 13,000 kilometres across the Pacific.
When I talked to him today, Pacific Fibre’s Mark Rushworth, a former executive of Vodafone New Zealand, said building the network would be relatively straightforward. “The hard work is around establishing interest from investors and customers.”
Pacific Fibre was in the process of contacting prospective customers, investment banks and establishing the appropriate debt levels the venture could handle.
Rushworth says Pacific Fibre estimated the cable could be built for just under $900 million and, once financing was secured, could be constructed in under two years.
“It’s 22 months from landing consent, doing undersea surveys, getting the glass made, laying it, switching it on,” he says. “That’s a single leap from New Zealand to the US and it doesn’t go through Hawaii. So it will be the lowest latency cable.”
The direct route to the US meant the cable would offer connections up to seven milliseconds faster between the US and New Zealand than Southern Cross could provide, and four milliseconds faster between the US and Australia.
He says target markets for low-latency international connections included the financial sector, which Prime Minister John Key plans to develop in New Zealand with the creation of an international hub for funds managers. “Banks spend millions designing algorithms so they can trade faster than their competitors,” says Rushworth. He says small businesses would also benefit from faster connections and the removal of data caps. “The idea is to put a massive amount of capacity into the market at a lower price—unconstrained data, no data caps.
“Just talk to Rod Drury about problems getting multi-party video conferences up.”
Residential users would also benefit from the arrival of new capacity. Rushworth says the move from copper-based ADSL to faster ADSL2 services had seen a sharp increase in bandwidth used by home internet users, from an average of around two gigabytes per month to six gigabytes.
The arrival of fibre to the home services as part of the government’s Next Generation Network would increase bandwidth use even further.
“The NGN is the key reason we are making it a large capacity cable. We won’t need to light it all up initially, but there is plenty of capacity there,” says Rushworth.
Other sectors that could take advantage of lower international bandwidth costs include research organisations, which currently connect to each other and to overseas organisations to collaborate on projects involving supercomputers via the KAREN network. “If there’s a cable there that provides volume at lower cost, they’ll be interested,” says Rushworth. “This makes the world smaller.”
Morgan was confident when he spoke to Idealog that there would be sufficient appetite for buying services on a new undersea cable.
“You do a cost plus model, and you sell some bandwidth to the likes of TVNZ and Sky TV and Vodafone—big corporates,” he said. “You put a little cable across to Australia, so you get the Australian demand as well, and you've got a business there.”
Also in Idealog, Sam Morgan on international data capacity: "We could have unconstrained international bandwidth basically free within two years if we laid a cable. It is not acceptable to go and stay in a hotel and be charged $30 for bandwidth overnight. Fibre to the home is great, but it only takes you to Auckland—so unless Google is going to live in Auckland, it’s kind of a waste of time."
My take: This is exactly what Rod Drury had in mind with his Digital Trade Routes paper a couple of years ago, which captured the imagination of the tech sector with its ‘cost plus’ investment model for a new undersea cable to free up international bandwidth capacity. The difference is that this cable network will not be owned by the New Zealand government on a state-owned enterprise model, as Drury envisaged. A private consortium will likely fund it, though Pacific Fibre should be talking to the government and Kordia, the state-owned communications network company that was likely to have led a government-run cable initiative. Kordia has already despatched a press release to say it’s keen to work with Pacific.
If Pacific Fibre plays its cards right, it will come onboard with a high-capacity, low-latency cable just as new services are developed for deployment over the next-generation broadband network the government is putting $1.5 billion into. There are a lot of balls to juggle here and the economics will depend on the financing deal Pacific Fibre can put together. But the prospects for companies that rely on the internet and home users frustrated with data caps are decidely better as a result of this high-profile and credible syndicate putting its chips on the table. More power to them.