Doubts cast over Pacific cable

No demand now.

The former joint venture partner in the Pacific Fibre initiative has cast doubt on the viability of the project, which aims to link Australia, New Zealand and the US with a new submarine cable.

The new, 12,750-kilometre link between Sydney, Auckland and Los Angeles aims to provide an additional 5.12 terabits per second of bandwidth capacity across the Pacific route by 2014, at a cost of $US400 million.

But Pacnet chief executive, Bill Barney, rejected the need for such high demand for Australia and New Zealand, despite fibre-to-the-home projects in both countries expected to significantly increase internet use among homes and businesses.

Pacnet operates subsea routes to Asian countries but none linking Australia.

It split from the Pacific Fibre project just ten months after joining as a partner. The partnership was initially expected to shave approximately $300 million off the total build and ongoing costs.

The split was blamed at the time on a lapsed memorandum of understanding between the two companies and the failure to meet key performance indicators.

But Barney told iTnews this week Pacnet left the project because it could not justify the cost.

"The challenge I think we found with submarine cables out of Australia and [Pacific Fibre] in particular was actually making the dollars work," he said.

"There isn't enough demand to pay for the cost of a new cable unless you're an incumbent carrier. Telstra can obviously justify it and Telecom NZ can sort of justify it but you get beyond the two largest carriers and it becomes very difficult."

Pacnet's departure from the project left Pacific Fibre without a key source of investment, ultimately leading to significant delays in sourcing investors, anchor tenants and pushing construction completion back a year.

Pacific Fibre chief Mark Rushworth said the project continued to be viable, despite an eight-month financing delay and the cable's completion a year later than expected.

Rushworth told iTnews five anchor tenants had signed up to use the prospective cable. Those were worth $200 million in revenue and included iiNet, Vodafone New Zealand and an as-yet-unnamed US-based telco.

The company was "on track" to finalise the $400 million financing required by the end of June, he said, with construction from subcontractor TE SubCom to begin the next month.

"Demand across Australia has been doubling every two years and we know there's a supply constraint looming," he said.

"Even with existing cables and the ability to upgrade, by the time you get to 2018/2020 you're out of supply. The dynamics are there for an independent, carrier-neutral carrier out of Australia.

"Pacnet isn't an independent player, they're seen as a competitor by the likes of the telcos that operate in the SME and corporate space."

Other links?

Barney also slammed two competing plans for new links between Perth and Singapore, headed by Leighton Holdings, Telstra and Huawei.

The shallow water between the two locations and heavy bandwidth costs of hauling data across Australia to the populous eastern cities would likely prove the biggest issue for those projects, Barney said.

"There's been a lot of announcements but I'm not seeing many cables built. The reality is a lot of these guys are talking but I'm not seeing any manufacturing or building of cables," he said.

Despite pulling out of Pacific Fibre, Barney said the possibility remained for additional capacity to the US in future, where Australia continues to source the vast majority of its overseas data.

Barney would not rule out further attempts to obtain ownership of a subsea link to Australia, with services currently provided under a long-term lease on Southern Cross.

But, he said such a move would have to be "the right deal".

"The challenge is we've got to make sure that you can make money from it at the end of the day," he said.