Southern Cross Cable 20% price cut not nearly enough - Kordia boss

Southern Cross Cable Network has cut its capacity prices by 20% - the latest in a series of reductions (see RAW DATA below).

The Bermuda-incorporated company, 50% owned by Telecom, operates New Zealand's only major broadband connection with the outside world.

Scott Bartlett, CEO of Kordia NZ (the new Kordia division that includes ISP Orcon) told NBR he welcomed any price reduction - but also explained why it was not nearly enough.

"A 20% decline in prices is a long way from offsetting the growth in bandwidth demand, which tends to double every 18 months," Mr Bartlett said.

"Our recent experience with launching an unlimited plan shows that current bandwidth growth is artificially constrained.

"Our unlimited customers use five times the capacity compared with data-cap plans."

CallPlus chairman Malcolm Dick struck a similar note.

"It is always great to see the price of IRU’s (Indefeasible Rights of Use) dropping, as that will filter through to the wholesale market," he told NBR.

"However this masks the fact that bandwidth costs per user are still actually increasing.

ABOVE: The cost of capacity on the Southern Cross Cable is dropping, but the amount of data - much of it from international sites and services - used by the average NZ customer is rising steeply. This means ISPs have to buy more and more capacity from Southern Cross, increasing their bill overall. The above graph shows usage trends for Slingshot, CallPlus' residential brand.

"The average consumption of a Slingshot residential customer has increased from 6GB per month in 2009, to 38GB per month in 2012.

"That’s an almost doubling of capacity every year.  So the effect of the Southern Cross 20% price reduction is merely to slightly slow the relentless increases in International capacity that New Zealand ISPs are paying.  It is worth noting that this trend is continuing internationally, and there is no reason to assume this will not continue in New Zealand as well

"We can understand that Southern Cross will keep dropping the headline rates while consumption continues to accelerate.  Given that their cost is largely a sunk cost, they can continue to increase their profits by doing so."

Potential new competitors circle
Last year, Pacific Fibre threw in the towel with its effort to fund a second cable. Despite a $91 million anchor customer commitment from the government, and major contracts from Vodafone and iiNet, it got less than half way to raising the $400 million needed for a Sydney-Auckland-LA cable.

Since then, Pacific Fibre alumnus Rod Drury has pitched the idea of a public-private cable to ICT Minister Amy Adams (who was politely non-committal), Kim Dotcom has floated the idea that his new file sharing service, launching January 20, could become an anchor customer for a second cable; French Polynesian contender Hawaiki has rebooted its plan for a Pacific cable; and Kordia (conspicuously absent from Pacific Fibre's anchor customer list) has made noises about reanimating its plans for a transtasman cable (possibly in partnership with Axin, a joint venture involving Huawei - whose relationship with the Australian government remains challenging).

The various second cable plans are all very much at the conceptual stage, however.

"What New Zealand needs is extremely low cost bandwidth to the rest of the world. It's great to see Southern Cross lowering prices, but the simply reality is we're unlikely to see sustainable/low pricing until we have competition," Mr Bartlett said.

RAW DATA: Southern Cross Cable press release

Southern Cross prices have again fallen and the company continues to expand its international capacity as it continues to upgrade the network.

“We have reduced our capacity prices by another 20%”, said Sales and Marketing Director Ross Pfeffer. “This will be our 10th major price reduction since 2000 and over the period our
price decline has averaged more than 22% per year.

“It’s been pleasing to see big increases in data caps and declines in retail data cost for internet users in both Australia and New Zealand over the last year. Our continued initiatives to increase supply and reduce price are designed to encourage this process and to support the needs of Australia's NBN and New Zealand's UFB” Pfeffer noted.

The Southern Cross Network provides uninterrupted hi-speed connectivity to US based internet content. Constructed as a protected twin cable network of 28,500 kilometres of
undersea cable the Southern Cross cable network has become a major regional asset for reliable high-speed broadband.

The latest price decline marks the second stage of the eighth major capacity expansion programme since 2001 and it is due for completion in February. This Stage is based on
Ciena’s 40Gbps transmission equipment and takes total lit capacity on the Southern Cross Network to 2 Tbps.

The third stage of the current expansion programme is being implemented concurrently and it is based on Ciena's 100 Gbps transmission equipment. 100G technology is already installed on some network segments and will take lit capacity to 2.6 Tbps by June 2013.

Ross Pfeffer commented that, “the increasing simplicity of equipment upgrades provides

Southern Cross with the ability to frequently and rapidly expand capacity. We currently ave the potential to go to at least 7 Terabits per second, about 30 times higher than our original design capability.”

“Our capacity potential will increase dramatically over the next few years when transmission equipment speeds are expected to quadruple. With ongoing and dramatic advances in technology Southern Cross has the ability to stay well ahead of demand over the longer term”.

While continuing to reduce cost and to expand supply, Southern Cross remains dedicated to continuous circuit availability. “Our protected circuits continue to provide 100% availability and the performance of the six fibre pairs and 500 repeaters on the diverse cable network is better today than when constructed more than 10 years ago” he noted.