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Trans-Pacific telecom cable prices cut again

Monday 14th January 2013

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The price of internet connection to the rest of the world is dropping again as New Zealand's only international cable owner, Southern Cross Cables, announces a 20 percent cut in its capacity prices.

However, critics of the single carrier say it should be cutting its fees much harder to encourage the uptake of fast internet services which government policies have identified as a crucial element in getting New Zealand growing faster.

Jointly owned by Telecom New Zealand, Singtel-Optus of Singapore and Australia, and the American telecommunications provider Verizon, Southern Cross has long been the butt of accusations that its pricing is uncompetitive.

But a would-be competitor involving prominent New Zealand businesspeople, Pacific Fibre, withdrew its plans after failing to raise funding for an alternative cable to service the New Zealand and Australian mainlands via the US and Pacific.

Despite annual average rate cuts by Southern Cross of just over 20 percent over the last decade, former Pacific Fibre spokesman Lance Wiggs said capacity demand was increasing by as much as 50 percent annually.

"I get angry because 20 percent (rate cuts) isn't sufficient to drive the growth we need in New Zealand," said Wiggs. Revenues would continue to rise at Southern Cross even with the rate cut because demand growth was likely to more than offset the reduction.

However, Southern Cross's director of sales and marketing, Ross Pfeffer, said the new pricing was consistent with regular price reductions and relected "the capacity side and market conditions, particularly in Australia, Hawaii, and the US", where Southern Cross faces competitor cables.

A further 15 percent reduction from the latest list price was also available for parties who signed up in the first half of this year, and it was also common for longer term contracts for very large bulk buyers of capacity to be struck at prices reflecting the expectation that prices will keep falling in the future.

Dion Hallam of Wellington internet service provider Xtreme Networks said there had been particularly active discount offers last year when Pacific Fibre was still in prospect, but that the company was paying "maybe 20 percent of what we were paying eight years ago."

Part of Southern Cross's ability to continue price-cutting reflects improvements in cable technology, which have allowed increased capacity to be installed without adding additional physical cable.

The cable, which runs in a figure-eight loop between New Zealand, Hawaii, Fiji and the US mainland, is nearing completion of its eight capacity upgrade, taking total lit capacity to 2 Terbits a second, with potential to go to "at least 7Tbps, about 30 times higher than our original design capability," said Pfeffer.

(BusinessDesk)

BusinessDesk.co.nz

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