Strength in telco networking numbers

Photo / Thinkstock

When it comes to getting the biggest bang for the broadband buck, it seems playing nicely with our mates across the ditch may be New Zealand's best strategy.

This country will maximise its return on investment in the Government's $1.5 billion ultra-fast broadband network if it keeps pace with a similar A$43 billion ($54 billion) project currently underway in Australia, says Vector chief executive Simon Mackenzie.

He says aligning the two projects through a "closer digital co-operation" between New Zealand and Australia would bring benefits to both countries.

"With Australia also building their network, potentially this opens up a market for retailers, whether they be from Australia or New Zealand, of around 30 million people," Mackenzie says. "This is really important for allowing New Zealand businesses to sell their products, unfettered by how they access a network."

Mackenzie told a recent telecomms conference he was not suggesting the two countries' fibre-optic networks needed to have identical technical specifications for Australasia to maximise its collective broadband investment, but "if Australia powers ahead and builds a fast fibre network, we can't afford to be left behind".

Another example of playing to the strength of a transtasman broadband union came to light last month when New Zealand undersea fibre cable aspirant Pacific Fibre announced it had partnered with Asian telco Pacnet.

The deal marks a significant advancement towards Pacific Fibre's plans to build a new 13,600km broadband cable linking Sydney, Auckland and Los Angeles by 2013.

Pacific Fibre is the brainchild of some of New Zealand's brightest entrepreneurs and technology businessmen, including Sam Morgan, Sir Stephen Tindall and Rod Drury.

The US$400 million ($459 million) project aims to bust the monopoly position of the Southern Cross Cables Network, currently the sole provider of undersea fibre links between New Zealand and the rest of the world.

Pacific Fibre's founders - along with many other industry commentators - have long argued a broadband pricing and capacity bottleneck into and out of New Zealand can be overcome only when a second cable provider arrives in the market.

Reduced international broadband costs will open up new digital services and access to international markets desperately required by New Zealand businesses, they say.

Southern Cross Cables, partly owned by Telecom, argues it has dropped its prices significantly in recent years, and is kept in check competitively by the global fibre cable provider market. Observers expect that even the prospect of Pacific Fibre's new link will force Southern Cross to drop its prices further.

But rather than simply buying into a discounting war, the newcomer has at least one trick up its sleeve. Like Mackenzie's strategy, it involves leveraging an advantage off our Australian cousins.

Pacific Fibre's Sydney-Auckland-San Francisco cable is designed to offer a more direct route from Australia and New Zealand to the US than the path taken by the Southern Cross network.

The shorter route means the new cable has the all-important benefit of being attractive to Australian customers while New Zealand will benefit by acting as a stepping-stone to Sydney.

The local loser out of the Pacific Fibre deal is state owned transmission and broadband technology company Kordia, which has spent the past couple of years trying to broker its own deal to build a transtasman cable in an effort to bust the Southern Cross monopoly.

Kordia chief executive Geoff Hunt says the company has now scrapped its cable ambitions.

"The main thing for New Zealand is that there is competition," he told industry newsletter Communications Day. "Just the threat of competition has brought [broadband] prices down."