Hawaiki cable- the real Pacific Fibre?

I have to make up for an error of omission. Two weeks ago I wrote an opinion piece for the NBR website about attracting global data centres to NZ. In terms of proposed international cables, I mentioned Tasman Global Access but not Hawaiki. Not as in the mythical homeland of Māori but the Aus-NZ-Pacific Islands-Hawaii-USA West Coast cable.

Since then, I’ve found out much more about the proposed Hawaiki cable. My assessment: there is a real chance that it will fulfil the hopes that Pacific Fibre ignited but failed to deliver. It will take six months to know whether the cable can get past the tipping point (more on that below). Fingers crossed.

The tipping point

Building an international cable is for the big boys. The stakes are high. And there is a mixture of business, strategy and politics that aren’t for the faint-hearted. Most international cables are owned by telcos, folks who are used to long-term infrastructure plays.

The way I see it, there is a local NZ game that sets off when CableCo (any new player entering the game) airs its intentions. There is some media attention and lots of hope tinged with scepticism. CableCo gets on with all the work around plans, design, raising funds, pre-sales, etc. In the meantime, the big telcos have a vested interest to try and stop CableCo. Overtly and covertly, the big telcos with ownership in existing cables will do everything possible to undermine CableCo.

Couple of months down the track, CableCo is still going and (hopefully) at a point where the finance, both equity and debt, is lined up. There is an agreement with the main contractor and some pre-sales. They’ve also probably figured out the permitting requirements for landings in the various countries involved. CableCo is at the tipping point.

At the tipping point, the big telcos now have to make some hard internal assessments and decisions. Once the big telcos are convinced that CableCo is going ahead, they come on board and CableCo sails over the tipping point.

The critical thing is that they are actually, well and truly, convinced. From opposing CableCo to protect their entrenched interests, the big telcos now want to get a share of the new capacity. The messages change and there are good feelings all around. Theoretically, it’s all go from then on.

Hawaiki Cable seems to be six months away from the tipping point. If it can successfully get over it, NZ will finally get some real competition to the Southern Cross Cable system.

Trans-Tasman glut?

There is a detail that is not obvious from the Hawaiki Cable map. Yet that detail could have significant impact on the proposed Tasman Global Access cable (or whatever it is eventually called) and the Trans-Tasman IP transit market.

Hawaiki Cable will have fibre connecting NZ to USA and fibre connecting Australia to USA. These two meet near Norfolk Island and then they head off together to Hawaii and the US West Coast. In between, there are connections to various Pacific Islands.

The detail that isn’t apparent from the map is that there is additionally a NZ-Aus cable. What that means is that Hawaiki is going to deliver a Trans-Tasman cable for marginal cost. Think about the implications for Tasman Global Access which is expected to cost around NZ$ 70 million to build. The business case is going to be under real strain.

The Hawaiki Cable will have more latency than Tasman Global Access as it has a longer path. Still, it will be built at marginal cost with perhaps no or little big telco ownership. So, if both cables go ahead and taking into account capacity from the Southern Cross Cable, there may be a medium-term capacity glut in the Trans-Tasman IP transit market. Which will then lead to interesting market dynamics.

Unlike the Australian market, the NZ market prefers to buy protected capacity. So there is likely to be continued preference for the Southern Cross Cable system for the NZ-US route. But, with a real alternative and a longer life, Hawaiki is going to shake up the market.

Now, wouldn’t that be excellent for us consumers? Plus it will open up new business opportunities for NZ entrepreneurs.

Will Hawaiki Cable make it?

That’s hard to say right now.

Tasman Global Access is going to be owned by the big telcos (Telecom, Vodafone and Telstra) so it has to be the odds-on favourite. The three telcos have the resources and need to make it happen.

Speculating, there is always a chance that the three big telcos will back the Hawaiki Cable once it is a certainty instead of going ahead with their own Trans-Tasman cable.

I hope Hawaiki gets past the tipping point. There are lots of New Zealanders who will also be wishing them the best.

If it does, I’ll have to concede that the Government was right. I was one of the people who said that we can’t get a new NZ-US cable without some NZ Government funding. I’ll be delighted if Hawaiki proves me wrong.

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2 thoughts on “Hawaiki cable- the real Pacific Fibre?

  1. the existing telcos dropped prices to hinder pacific fibres business case, not sure they have the will to drop much more in response to this new player, but have price drops to date affected the business case for this cable?

    • Hi Brendan,

      Good comment. I don’t know enough about the business case to answer that. My guess is that it won’t make a difference. Southern Cross Cable is dropping prices 22% per year so that would be included in their base case. But you’ve got a point that a fully depreciated cable like Southern Cross can really make life hard for any new player.

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