Telecom may have to rescue cable network

By PETER GRIFFIN

The sluggish market for international telecoms capacity could force Telecom into rescuing the Southern Cross Cable Network of which it is a 50 per cent stake holder.

Southern Cross Cable, which operates the cable network linking New Zealand with Australia and the US, has US$499 million ($1 billion) in bank debt outstanding, US$360 million of which is covered by bandwidth sales already in the bag.

Telecom's chief financial officer Marko Bogoievski said that left US$139 million in debt exposed to future sales, in a market facing an oversupply of telecoms capacity.

Telecom, along with its Southern Cross Cable co-owners, SingTel Optus (39.99 per cent) and WorldCom (10.01 per cent) would now work with the banks to try to "re-schedule" the repayment of the US$139 million portion to give Southern Cross Cable "more breathing space".

Bogoievski said Southern Cross Cable had met its sales targets but prices had slumped leading to a shortfall.

"The volume forecasts for international bandwidth have largely been met.

"What has come under pressure is the pricing for some of these units."

Telecom would have to provide credit support for a rescheduled debt repayment scheme if the banks demanded it, and could ultimately become responsible for repaying its portion of the US$139 million if circumstances deteriorated badly. The exposure Telecom faces would also depend on bankrupt carrier WorldCom's ability to chip in and repay debt.

Bogoievski said Southern Cross Cable just needed some time to "work through the overhang in international capacity" and make new sales.

Telecom has a commitment to buy $180 million of capacity on the cable over the next three years.