Vodafone deal boosts cable plan

Computer generated image of a cable plough laying cable on the sea bed. Photo / Supplied

Vodafone New Zealand has signed a 10-year contract worth more than $100 million with the company planning the country's second international internet link, in a deal that near-guarantees the project will go ahead.

Pacific Fibre is planning fibre-optic links between Auckland, Sydney and Los Angeles but is still gathering capital for the project.

Southern Cross Cables, which is half-owned by Telecom, is the only carrier currently transporting internet traffic in and out of New Zealand.

Pacific Fibre argues its planned cable would break Southern Cross' monopoly, lowering the price internet service providers pay for international data traffic.

Yesterday's agreement is the fourth contract the company has signed and would see Vodafone become Pacific Fibre's biggest customer.

Other foundation customers include ASX-listed internet provider iiNet and the Crown-owned education, research and innovation network, REANNZ. Pacific Fibre chief executive Mark Rushworth said the Vodafone contract validated the project's business case and gave foreign investors the confidence to put money into the venture.

"We're confident that with the four anchor customers that we have [enough] contracted revenue and we're over the tipping point ... the [Vodafone agreement] is momentum and further traction," he said.

Given Telecom's stake in Southern Cross will pass to the retail business as the telco is split into two companies, Rushworth said other internet companies would be looking to Pacific Fibre as an alternative provider.

"Any [internet company] that competes with Telecom retail will be asking themselves, 'Do I want to buy capacity from Southern Cross knowing that it is going to effectively provide a nice healthy dividend for Telecom which is then going to use it to compete with me in the retail space?"'

Telecommunications Users Association New Zealand chief executive Paul Brislen agreed that more telcos would be looking to Pacific Fibre, as they would not want to reward Telecom through Southern Cross.

However, technology commentator Ben Kepes said there was no guarantee a second cable would bring a price war to the capacity market. A duopoly was always going to be slightly cheaper than a monopoly. But a price war?

"I just don't see that happening," he said.