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Bill Bennett


Questioning Rod Drury’s Pacific Fibre reboot

Xero founder Rod Drury offers an alternative technology-focused budget (no longer online) at the NBR’s website. Drury’s first item is a Pacific Fibre reboot:

The government announces NewZealand.net, a new Crown-owned company that commissions and manages a new international fibre cable that connects Australia, New Zealand and the USA.  The government commits $50 million of funding; the NZ Super Fund invests $100 million from Kiwisaver; and the government seeking expressions of interest from other investors such as iwi and ACC. The cable will cost $US300 million and deliver in excess of 12.5TB/sec of new capacity. Its charter would be to return 10% return annually on funds invested with other income used to improve New Zealand internet.

There’s nothing wrong with a government building infrastructure. That’s how roads are still built. Governments built railways, airports and copper telecommunications networks.

I’ve heard people argue a submarine cable would have made a better investment than the ultrafast broadband network.

Drury’s plan suggests two questions:

First, Pacific Fibre failed because Drury and some of New Zealand’s richest people couldn’t convince commercial backers of the project’s viability. They were unwilling or unable to finance it themselves.

In other words, a trans-Pacific cable is too risky for people who have deep pockets and an appetite for risk. Does that make it a prudent way to spend taxpayer funds?

Second, should government compete with the existing and planned commercial submarine cables?





14 thoughts on “Questioning Rod Drury’s Pacific Fibre reboot

  1. I loved the idea of pacific fibre, but I think the goals for it were about designing for last decade, not the next decade.

    Historically we all wanted connectivity to the US because that’s where content was always historically located. However in recent years, more and more providers are serving content from Australia, which is only a short 50ms or so from NZ.

    Sydney has Amazon, Rackspace and soon MS Azure – some of the largest cloud providers around opening up here. If we focus on a good link to AU, we can take advantage of these providers in Sydney as well as the large number of international links into AU.

    Better and more cost effective to be a suburb of Sydney, rather than a suburb of L.A.

    1. Gamers get excited about low ping times to the USA. I’m not convinced a few milliseconds one way or another makes much difference for other applications. If market traders need a faster response to, say, the New York Exchange, they can do what everyone else does: locate servers in Manhattan.

      1. It can be surprising at times… you can get considerable performance impact on AJAX heavy modern web applications due to the nature of how they interact with their servers.

        If you website is making lots of calls back and forth to the server, it can quickly add up – 50ms round trip would make a 10 serial request page load in around 500ms – not to bad. But a 300ms round trip quickly pushes that page load time up to 3 seconds, a noticeable delay for users.

          1. In some cases it’s poor code and I see a lot of that. But in other cases it’s an unavoidable limitation of complex apps – certain tasks can require a number of requests and sometimes it just can’t be worked around.

            Keep in mind that we aren’t building any cables for today’s applications – we are building them for the applications that will be in use in 10 years time. And I would bet strongly that these applications are going to get more complex and make more calls that ever before.

            The latency to AU is low enough that it’s the latency becomes a minor/unnoticable issue and the fact that the big players are building points of presence there means that NZ companies can take advantage of the lower cost of hosting in these shared infrastructure environments.

            I think it’s very unlikely we’ll see companies like Amazon building data centers in NZ any time soon, our size is too small to make them feasible – by becoming a suburb of Sydney, we can take advantage of the AU market’s size and buying power.

  2. Very tricky question! Bandwidth is essential to progress, and every government in the world is frantically building out connections as fast as possible, public and private. Currently, New Zealand connections are throttled by Southern Cross. It is one of those cases where a new cable may not be immediately viable financially, but may be essential to building NZ business in future. It’s a very tough decision. Expensive, on the one hand, but, if it’s not there,future generations will perhaps view us all as shortsighted and a bit foolish.

  3. Hi Bill,

    The Pacific Fibre team got much closer than is portrayed. We had two separate funders who were willing to invest – but were not acceptable for connection into the USA. We had a third funder also close but to remove all risk we needed to sell to one of the incumbent cable owners. It is like a club, they’ll keep you out until you’re in. Then they become friends.

    Connecting countries raises a whole lot of issues you need Govt support for. As in my article I don’t think it requires a lot of Govt money but the Govt putting in the first amount (which would earn a return), with some policy work (like completing the wholesale rate card) indicates a direction that should see investment flow in. There are plenty of investors looking for infrastructure, bond style, returns. Like our own superfund.

    It was frustrating after all the lobbying from Southern Cross that there was plenty of capacity (which points to the problem – the monopolist is motivated not to unlock capacity) and then several months after we fold up the tent a new cable from SX owners is announced.

    I think this raises three big issues:

    1. Did SX intentionally mislead the Govt, effectively cheating NZ out of $US300m of investment in vital infrastructure? They have a history of announcing new capacity whenever a new cable is announced. There will be many Powerpoints that were presented to Govt advisors. Is this acceptable corporate behaviour?
    2. If a new cable is suddenly required now, is the life of SX not as portrayed? Is our current infrastructure in less fit condition than we’ve been lead to believe?
    3. If the next cable goes just to Sydney it kills any potential business case for a AU-NZ-US cable and NZ is forever relegated to being 50ms behind AU. Do we accept that?

    My natural state is free market, but after many years I worked out that some big projects, like infrastructure, need some central help and will bring substantial benefits to all. It was an expensive lesson personally and for our other investors to try and pull a cable off. But I still believe it’s something than can step change New Zealand which is why I continue to put energy into it.

    We still get phenomenal support from parts of Govt but there is no real owner of these go forward projects. That is why I continue to suggest the Govt establish a CTO role who can interact the Govt and all the vested interests of industry and say ‘here is a technology plan for New Zealand’.

    As the country furtherest away from anywhere else, we have more to gain. Lets leverage that. We should be small and nimble enough to be the best connected little country in the world.

  4. More links and bandwidth won’t solve latency, it’s an issue of distance and we’ll always have that problem being located where we are. The cost of bandwidth is an issue an for us and the monopoly that SX holds is always going to limit that. Note how as soon as Pacific Fibre got some traction, they dropped their prices. The latest move by SX with this second link could be construed by the cynical as just a ploy to pretend there is competition. The big barrier to leveraging “Cloud” style services like AWS and Azure is bandwidth cost. Solve that and technical innovation in this country has a better chance of success.

    1. It’s good to read a comment where someone who understands latency just pops in to lay down some rational thoughts.

    2. “The latest move by SX with this second link …etc”. Presume this is a reference to Tasman Global Access cable proposal but this has nothing to do with Southern Cross. SX is owned by Telecom NZ, Singtel Optus and Verizon – TGA cable is a three-way partnership between Vodafone, Telecom and Telstra. Andrew Pirie (Telecom).

  5. Adding to the business case for a new cable, a point that was raised again at IBM Smarter Cities presentation in Christchurch last week is New Zealand’s vulnerability to a major geological event in Auckland. As far as I am aware, ALL three of the major cables in and out of NZ land within ~23Km of each other in and around Auckland. Given how fresh in our minds the Christchurch earthquakes are, whenever the investment case for NZ’s next undersea cable does stack up it needs to land on South Island. Satellite won’t cut it if our overseas links go down, we’d be cut off for weeks or months…. (Apparently this Auckland vulnerability was covered on Wikileaks as a major strategic risk to the US’ overseas interests, not sure how attributable that is…).

    So if it’s an issue of national and economic security, then some would say the Govt has a bit of a role to play here…


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