What Hawaiki cable green light means for New Zealand

Odd email appears in journalists’ inboxes on April 1. Here’s one:

Please find attached a media release from Hawaiki announcing the coming into force of the Hawaiki cable.

Please also note that despite the date, this is not an April Fools’ joke – it is for real.

Hawaii cable contract

Hawaii cable contract

Hawaiki: Australia to Hawaii via New Zealand

If it was an April Fools Day prank, it wouldn’t have been a funny joke.

When built, Hawaiki’s cable will run from Australia to Oregon in the USA via New Zealand and Hawaii. There are options for branches to Pacific island nations.

It will be the second trans-Pacific submarine cable network linking New Zealand to the USA. The Southern Cross Cable Network has been doing the same job since 2000.

There may soon by a third. The Dominion Post reports rival cable operator, BlueSky, says it will still push ahead with yet another trans-Pacific submarine cable.

Hawaiki appears to have succeeded where Pacific Fibre and Spin did not.

Remi Galasso, Hawaiki CEO, has worked on the project for years and was previously involved in the Spin cable. It can’t have been easy getting this project over the line.

Hawaiki investor group

Hawaiki investors. From left: Remi Galasso, Laurent LeBretan, Sir Eion Edgar, Hamish Edgar, Malcolm Dick.

It’s very much a New Zealand project. Galasso lives here. He has teamed with Malcolm Dick, best known for being the power behind CallPlus and Slingshot. Sir Eion Edgar is a Hawaiki co-developer.

Hawaiki: Cable to the islands too

Like Spin’s abandoned project, Hawaiki plans to run cable spurs to New Caledonia, Norfolk Island, Fiji, Vanuatu and Samoa among other island destinations. There’s also provision to reach the Cook Islands.

Hawaiki Network

The April 1 press release has no specifics about island links. Instead it says there are : “options to expand to several South Pacific islands”.

Earlier Galasso said the cable would run to Hawaii and then pick up other cables to mainland USA. The April 1 press release says it will go to the US West Coast and provide an alternative route from Hawaii to Oregon.

Hawaiki contract signed, construction phase coming

The press release says a contract between Hawaiki Submarine Cable LP and TE SubCom has come into force and “the construction phase has commenced”.

We need to be careful about that last clause. While a contract “coming into force” is officially the moment when a cable project goes live — in theory, it is unstoppable — nothing is real or final until the ships lay cable. Indeed some submarine cables have been laid and not lit.

Hawaiki says the system will be complete by mid–2018.

Cable completion dates can slip

When Vodafone, what was then Telecom NZ and Telstra announced the go-ahead for the Tasman Global Access cable in December 2014, the press release said:

“The project will begin early in 2015. Alcatel-Lucent has been selected as the cable laying contractor after a competitive tender process, and the TGA Cable is expected to be built and providing data traffic by mid–2016.”

According to sources close to the project, the ship that was booked to lay the cable across the Tasman is now busy repairing the damaged Basslink cable between Tasmania and Victoria. TGA now hopes work will start in October of this year.

Cable laying is quicker than you might expect, so TGA could be live early in 2017 — just six months or so after the promised date.

If it runs to schedule, or even a little behind, the new trans-Pacific cable will be operational by the time New Zealand finishes its urban, fibre-to-the-premises UFB roll-out in 2019.

You won’t notice a thing… but that’s not the point

Few everyday users will notice if another submarine cable connects New Zealand to the rest of the world. It won’t make your broadband faster. It won’t mean bigger data caps. Prices for internet plans won’t change.

For most of us it will be business as usual.

The chances of an accident cutting us from the rest of the world will reduce. But for ordinary users that’s just another way of saying business-as-usual.

After all, we haven’t been cut off in the 15 years or so the Southern Cross Cable Network has been our digital gateway to the rest of the world.

There’s no pressing need for extra capacity. The Southern Cross Network has plenty of headroom and when the TGA cable starts operation it will add further capacity across the Tasman to where the big regional cloud and entertainment data centres are located.

SCCN CEO Anthony Briscoe on why Hawaiki isn’t needed

At a Tuanz After Five meeting in Auckland earlier this week Southern Cross CEO Anthony Briscoe used the same arguments his company has always used against a new trans-Pacific cable.

Tunaz After Five, Auckland April 2016. From Left: Luke Mackinnon, Vocus, Anthony Briscoe, Southern Cross, Mark Rushworth, Paymark

Tunaz After Five, Auckland April 2016. From Left: Luke Mackinnon, Vocus, Anthony Briscoe, Southern Cross, Mark Rushworth, Paymark.

His argument is persuasive, there are no pressing technical, economic or political reasons to install a second line across to the USA. He admits there may be an argument for the additional resilience a new cable would bring, but otherwise dismisses Hawaiki’s proposed cable as not making one jot of different to the everyday internet user in New Zealand.

As Mandy Rice-Davies once put it: “He would say that, wouldn’t he?”. Southern Cross stands to lose some business, or potential business, if Hawaiki comes on-line.

Vocus: A customer’s point of view

Vocus is one of Southern Cross’s largest non-telco customers. Chief technical officer Luke Mackinnon appeared on the Tuanz panel to give a user’s perspective of the international submarine cable market out of New Zealand.

Mackinnon says Vocus grew big on the back of wholesaling capacity on the Southern Cross Cable Network and is still experiencing 150 percent year-on-year growth in that market. Although a lot of that growth is out of Sydney, not New Zealand.

Reliable

He says that the network: “Has been architected to provide resilience. It’s not like the other cables operating out of Australia.”

This is a timely reminder of just how reliable SCCN has been over the years. There was a small disturbance when a ship disturbed a cable, but the network’s figure-of-eight configuration meant traffic could be rerouted.

Compare this with other networks out of Australia. Most have suffered major outages in recent months. Basslink, which is connected to a power cable, has been down for three months. Sea-Me-We 3 out of Western Australia is frequently broken.

Mackinnon says Vocus sees Hawaiki as offering an “interesting alternative route. It will give us access to other destinations. We might want that.”

Yet he says Vocus is looking for performance and is unlikely to stray from Southern Cross in the short term.

However, a few years ago Vocus CEO James Spenceley said his company was a “price taker” when it comes to international bandwidth. Since then Vocus has grown in size and importance, the arrival of an alternative route to the US is likely to give Spenceley more bargaining power.

Rushworth: It’s about competition

Tuanz asked former Pacific Fibre CEO Mark Rushworth to offer an alternative view. After agreeing, or rather not disagreeing, with many of Briscoes’ arguments against a new cable, he took little time zooming in on the key point.

“Do we need more capacity? Probably not. Would a new cable change prices? No. But, we’ve learnt in New Zealand that it’s never good when one company owns a market. Imagine life with just one airline or one bank”, he says.

Rushworth says New Zealand needs a second trans-Pacific cable because of what competition brings to a market.

Pacific submarine cable myths

Anthony Briscoe answered the critics, dismissing their arguments as myths:

  • Capacity. If users think they have slow internet because of insufficient international data capacity: “They should talk to their internet service provider. There’s no shortage of capacity. The ISPs may not be buying enough.”
  • Prices won’t change. The international component of a typical home user broadband plan is NZ$4. With plans costing from $75 for 80GB, halving the price of the international component won’t make a difference.
  • Redundancy. “They may have a point, but SCCN has never been out of service. If there was a redundancy problem the Tasman Global Access will go live soon.
  • Choice. “Consumers don’t buy international capacity, ISPs and telcos do. New Zealand ISPs get it for the same price, sometimes lower, than Australians”
  • Congestion at peak times has little to do with international links. Most content is cached locally, almost all the rest is cached in Australia”.
  • *SCCN only cuts costs when competitors emerge*: “We’re not that smart. We have a simple pricing model and we sell a long way ahead”.

Unpicking Hawaiki’s economics

At the Tuanz session, Briscoe ran over back-of-an-envelope calculations for the new cable network. The numbers here have not been checked back with Hawaiki, so they need to be treated with caution, but they’re too interesting to ignore.

Briscoe says the Hawaiki network will cost around NZ$500 million to build. This is the number Hawaiki has used in its publicity material.

“The depreciation on that investment would be $25 million. To break even on these numbers the network would need sales of NZ$50 to $60 million a year. At the moment the total traffic sold in New Zealand is $202 million a year”, he says.

While demand is climbing — remember Vocus talks of 150 percent year-on-year growth — revenue will not be increasing at anything like that amount. So a new player entering the market is likely to have a dramatic impact on Southern Cross Cable Network revenue.

18 thoughts on “What Hawaiki cable green light means for New Zealand

  1. Bill Bennett: Two reasons. First, I knew the Tuanz session looking at cables was happening this week and would give me a broader view of the subject. Second, the April 1 press release was short on details and I wanted more substantial than the standard write-off you could see in other media. via plus.google.com

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