Agony Lance: Not enough fibre

Why did Pacific Fibre not make it? – Curious, Auckland

Ouch – thanks for the easy question. Yes, I was part of the founding team for Pacific Fibre, active for the first 1.5 years of its 2.5-year life. The founders, staff and investors put a lot on the line over the life of the project. Like everyone involved, I am deeply thankful for the efforts from investors, the board and the team, as well as for the resounding support from the public in New Zealand. But sadly we could not get it done (as I write this).

Let’s start with the founders, staff and investors – were we to blame? The only answer is yes, as we failed to deliver. We can all look back and talk about what we could have done better, but I suspect that with that learning we would not be a lot more effective. While the economics were strong, the funding market just never arrived for us. Perhaps we could have reached out to more funders, or perhaps we approached them in the wrong way.

The team Mark Rushworth assembled was very strong and the external support provided by Minter Ellison’s Alison Lindsay and others was world-class. Pacific Fibre was able to recruit such great talent because of the generosity of investors, who contributed $7.5 million over several rounds. The investors and most of the founders were sophisticated investors who knew the risks, but I’m probably not alone when I say I have few regrets about making the investment of both time and money.

Getting it off the ground required three pieces of a puzzle to be simultaneously solved: signed contracts to build a cable, signed customers to show demand and income, and confirmed funding to pay for the build. The three elements were dependent on each other – suppliers do not give good prices for projects without potential, many customers will not sign an unfunded cable, and most funders require signed customer contracts. It’s that last piece where it seems we failed to convince funders. It’s a recurring theme in the industry that more customers arrive after funding is confirmed and again after the cable is operating. The idea that demand keeps increasing by 35-50 percent year after year seems to be too much for many traditional funders to swallow. Those funders perhaps had visions of the fibre industry collapse after overbuilding in the 1999 dot-com boom, but an extra cable was never going to collapse the markets.

I would like to have heard about Pacific Fibre conversations with key New Zealand funds that were collaborative (how can we help you) rather than what seemed like combative. These conversations needed to happen from both directions, and we should be collectively wondering which New Zealand funds, if any, seriously entertained the investment.

NZTE was fabulous for Pacific Fibre. Its early conversations were simple, with a ‘how can we help’ approach. We accepted a small grant and help making international connections and forging alliances. We talked to various people in Government, but ultimately they decided that we did not need them. Whoops.

I commend the hard-working team, the initial vision of the project from Sam [Morgan] and Rod [Drury] and the help they received from those who gave it. There’s still a very strong business case for an Australia-New Zealand- USA cable, but it will require an extraordinary effort to get it away. In the meantime, if you have a spare $400 million, then let’s chat.