Questions as Vocus lifts Southern Cross capacity

In a press release Vocus says it aims to lift its Southern Cross capacity by 10 times.

Sydney-based Vocus entered into an agreement to buy extra capacity on the undersea link between New Zealand, Australia and the US over a six-year period, beginning from December this year, it said in a statement.

When fully-allocated that will increase the firm’s existing capacity by almost 10 times to ensure it “will continue to meet the rapid growth in internet data demand,” it said. The capacity is for the life of the cable, which is currently until November 2030.

“This significant increase in capacity enables Vocus to continue to leverage the high growth in data demand from the wholesale and enterprise sectors,” chief executive James Spenceley said. “Given its redundant and protected nature, Southern Cross capacity is a valuable asset and key differentiator for Vocus.”

The move speaks volumes about the growing demand for international data capacity out of New Zealand and hints at the likely success of the Tasman Global Access project.

It has me wondering how much of total Southern Cross capacity is now controlled by Vocus and what that means over the long-term.

Southern Cross Cable sells capacity on its international submarine cable to service providers. The price model means that bigger customer get a lower unit price. Large service providers buy direct from Southern Cross. Vocus buys bulk capacity at similar lower rates, then parcels up its bandwidth reselling it to smaller carriers at prices that lower than they’d pay if they cut their own deals with Southern Cross.

Kudos to Vocus for seizing the opportunity created by Southern Cross’s price structure. It’s a business model that makes sense to all parties at the moment but one that might collapse if Southern Cross changed its price structure — which is unlikely at this stage.