Reannz, Pacific Fibre sign $91m deal
Sugar-daddies Bill English and Wayne Mapp approve contract - which has super-sized from the initally promoted $15 million.
UPDATE July 12: Pacific Fibre, founded by NBR Rich Listers Sir Stephen Tindall, Rod Drury and Sam Morgan, is a big step closer to funding its dream of a cable linking Sydney, Auckland and LA - thanks to a fat government contract.
Pacific Fibre and Reannz today confirmed they have signed a $91 million definitive agreement for the supply of international capacity.
Reannz is a Crown-owned company, which maintains a high-speed network linking tertiary education and research institutes. The deal was approved by the board and by shareholding Ministers Bill English and Wayne Mapp.
Previously, the Reannz contract has been promoted as worth $15 million plus "operational funding".
Bidding for the contract was restricted to newcommers, shutting out the 50% Telecom-owned Southern Cross Cable (which currently holds a monopoly on New Zealand's broadband connection to the outside world) and effectively giving Pacific Fibre a government-funded leg-up.
Businesses and consumers labouring under high broadband bills (of which international traffic is an expensive component) could consider it money well spent.
Pacific Fibre hopes to launch its network in 2014 at a total cost of $US400 million.
Minor funding rounds, including a recent $4 million private equity placement, have attracted investors including New Zealand Trade & Enterprise, which chipped in $250,000 through its strategic investment fund, and American Peter Thiel, a Forbes list billionaire by dint of his early investments in PayPal and Facebook.
Pacific Fibre recently named ANZ as its lead bank. ANZ also pledged to provide a "significant portion" of the company's debt financing.
Pacific Fibre scores anchor customer - and, indirectly, some government cash
MAY 20: It may not be fully funded, or have laid an inch of submarine cable, but the wannabe Southern Cross competitor Pacific Fibre has landed its first major customer.
Government-owned company Reannz this morning revealed that Pacific Fibre had won a competitive tender to supply international bandwidth.
Reanz runs the Karen fibre network that connects tertiary education institutes and research institutions around New Zealand. According to a blog post by Reannz chief executive Donald Clark, successive governments have spent around $100 million on Karen.
Pacific Fibre will receive $15 million plus Reannz "operational funding" under the deal.
The Reannz agreement was the second major piece of recent good news for Pacific Fibre, which on April 28 said ANZ would be its lead financier, and itself fund a "substantial portion" of the company's debt (Pacific Fibre is looking for a mix of debt, vendor finance and anchor customer deals to fund its roll-out).
Government money reserved for new player
The Crown gave Reannz a $15 million grant, which could only be awarded to a new cable player (that is, the 50% Telecom-owned, Bermuda-incorporated Southern Cross Cable could not bid). An earlier RFP - instigated by Labour, was closed without a winner after it was deemed that none of the contenders were up to snuff.
Reannz chief executive Donald Clark refused to tell NBR the level of operational funding that would go to Pacific Fibre on top of the $15 million.
Clear signal
Pacific Fibre co-founder Rod Drury told NBR the deal was "a really clear signal that the government wants another cable to pick from".
Holding pattern
Mr Clark said he was not worried that Pacific Fibre was still some distance from its goal of raising $US400 million to fund its fibre network, which will connect Sydney, Auckland and LA.
The deal would not take effect until mid 2014, Mr Clark said.
No contract yet
The Reannz boss (who's scheduled to resign in July) noted that his company and Pacific Fibre had agreed on "key terms" of a commercial agreement, but had yet to sign a contract.
Mr Clark said this was not because he was hedging his bets on Pacifc Fibre getting up and running, but because the two parties had not had time to sign any paperwork yet.
Speed up
From a tech-wonk point of view, Reannz was looking forward to the Pacific Fibre deal, which Mr Clark said would offer bandwidth of 160Git/s - up from just 1Gbit/s today.
The losers
TelstraClear manages Karen's international data connection (FX Networks holds the domestic contract). Mr Clark would not name any cable operators used by TelstraClear, saying it utilised a number worldwide. However, for the Australia-NZ leg at least, there's only one choice: Southern Cross.
Mr Clark would not comment on who else was in the running for the $US15 million contract, but the French government backed Spin Networks would have fit the criteria, and state-owned Kordia has been open about its ambition to win Reannz as an anchor customer for its (still on teh drawing board) transtasman Optikor cable.
Today's development is the third recent piece of bad news for Kordia, which was part of the consortium that lost the government's $300 million rural broadband initiative to a combined Telecom-Vodafone bid. Kordia also missed out on the bulk of a contract to upgrade Freeview's terrestrial network, which went to JDA.
The cable guys
Founded by NBR Rich Listers Sir Stephen Tindall, Rod Drury and Sam Morgan, Pacific Fibre would compete against the Southern Cross Cable Network, at this point the only submarine cable running out of New Zealand, plus six cables running out of Australia.
Minor funding rounds, including a recent $4 million private equity placement, have attracted investors including New Zealand Trade & Enterprise, which chipped in $250,000 through its strategic investment fund, and American Peter Thiel, a Forbes list billionaire by dint of his early investments in PayPal and Facebook.
Today, chief executive Mark Rushworth told NBR that further anchor customer deals were in the pipeline, but would not give details.
Reanz runs the Karen fibre network that connects tertiary education institutes and research institutions around New Zealand
Chris Keall
Wed, 13 Jul 2011
Wed, 13 Jul 2011
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