Fibre cable investors want secure contracts

Investors would be keen to fund a proposed international telecommunications link, say industry and market commentators - as long as there are stable, long-term tenants on board.

Market commentator Arthur Lim said getting the planned high-speed fibre cable, Pacific Fibre, off the ground rests on a chicken-and-egg scenario.

If the Pacific Fibre venture can get the customer contracts and usage it would be a very good asset, Lim said, but market interest in a debt instrument with a fixed return would depend on securing a strong customer and revenue base.

"I believe personally there will be demand for [capacity] but whether the demand is sufficient to support $900 million is the $900 million question at this moment."

On Thursday a group of business high flyers, including Sir Stephen Tindall, Sam Morgan and Rod Drury, announced plans to build a high-speed fibre cable connecting Auckland and Wellington to Sydney and and the United States.

Expected to be completed in 2013 the 13,000km cable is likely to cost $900 million.

Brett O'Riley, chief executive of technology industry association NZICT and one of the original architects of the Telecom-backed Southern Cross cable said financing will be one of the challenges for the project, with a lot depending on the financial model.

A pure infrastructure play offering capacity on a cost plus basis - prices set to cover the cable rollout and operation costs, with some margin on top - would appeal to investors with a longer term investment horizon, said O'Riley.

The days of the speculative investment in cable capacity at the turn of the century are over, said O'Riley.

"The industry now has a long track record of successful private projects and investors are able to look at a fairly mature demand curve of growth."

He pointed to international capacity growing by 60 per cent during the global financial crisis.

"The metrics are right but all these things come down to the quality of the anchor tenants," said O'Riley.

He said in his talks with the industry there were clear signs that companies were looking for more capacity, not just local players but international telcos and the likes of Google and Facebook.

"If they're looking for long term anchor tenants and their investors are happy to accept returns over time that takes the pressure off."