FX Networks signs MOU with Pacific Fibre

Construction of New Zealand terrestrial portion of proposed international cable expected to begin this year

FX Networks has signed a memorandum of understanding with Pacific Fibre, a key aspect of which is the construction of the New Zealand terrestrial portion of the planned Pacific Fibre cable.

Details of the definitive agreement are still being worked through; but the MOU sets out the basic principles of a strategic relationship between the parties.

FX CEO David Heald says the terrestrial infrastructure will allow FX to complete a ring around Auckland, further strengthening options for carriers who want diversity.

Construction is scheduled to begin this year and will connect the west coast of New Zealand to the east coast. Computerworld understands the cable is likely to come ashore around Muriwai, pass close to the major datacentres on the North Shore, and exit somewhere north of Auckland.

Pacific Fibre CEO Mark Rushworth says that FX’s ability to move large volumes of internet data to all UFB regions of New Zealand makes it a natural partner for distributing Pacific Fibre bandwidth to businesses around the country.

Heald says FX’s vision is to become New Zealand’s backbone for telecommunications.

“From our perspective, we are striving to get our network into all the high points of interconnection,” he says.

“Previously, we’ve been constrained at the access layer. Companies like CityLink and Enable only have pockets of fibre. At the other end, international pricing has been a hindrance.

“Now, we’re seeing this all unhooked.”

He has identified 36 high population points in New Zealand. “We’re in 28 of them.” Towns and cities where FX has yet to go are New Plymouth, Hawera, Wanganui, Gisborne, Invercargill, Queenstown, Greymouth, Waiuku, and the special case of Waiheke Island.

“Invercargill should be next off the rank,” he says. “We’re got plans to do Gisborne, and Taranaki is a priority. We’re unlikely to get to Queenstown for some time.”

FX is installing nodes in exchanges in the 28 towns and cities. Heald says the company has gone to tender for the equipment. “We’re trialling some equipment now. I expect a decision in the next few weeks.”

Respondents to the tender include Cisco, Alcatel-Lucent, Huawei and Hewlett-Packard.

“We’re budgeting around $50,000 for each point of interconnect. We want to be the carrier of carriers. It’s a lofty objective but a good one to aspire to.”

He points out that the FX network is the only one that has been built in New Zealand this century.” The capacity and capability of our core network means it is probably the most scalable in the country.”

The market has never been in such a state of flux, he says. “The big telcos are really struggling with their business models. Some are trying to hold on to their traditional revenue streams.”

FX’s business model, when it was established, was to aggregate the access service providers from day one. Heald says that since the separation of Telecom and Chorus a lot of players are expressing interest to get into the market as retail service providers.

Heald became chief executive of FX last October. “The biggest milestone during my time in the role was the hiatus in the market while awaiting the government decisions over UFB. All the decks have now been cleared and the market has actually lifted dramatically.

“Previously it had been a shambles. Dark fibre sales were a disaster, though our managed services were performing well.”

That has changed dramatically in the past six months. Heald says that after a poor first half, revenue year on year will be up around 21 percent, while ebitda will be up more than 50 percent.

“Our project revenues for the past six months are around the same as we did all the previous year.”

FX divides its business into two parts. The first is annuity business – managed services, typically with three to 10-year contracts.

The second is project revenue, earned externally from the construction team which lays fibre. Around 50 percent of its build operations are for the company’s own fibre.

“Then we’ve got one-off sales of dark fibre,” Heald says. “For example, we’ve built a route from Whakatane to Taupo for Horizon, selling them fibre.”

Over the past year, FX staff numbers have risen to 55, from 50, on the telco side. But construction staff numbers are up more than 30 percent.

Heald says that in the company’s early days it was “getting ripped off blind” by contractors. “We bought some gear to hold over them, then began using it. It’s become a highly efficient and fruitful ancillary business.”

The company has spent around $10 million on capital equipment, such as drills to prepare the ground to lay fibre. It also hires a lot of equipment.

There is an ongoing need for capital to fund such builds and buy new capital equipment for the construction division. “We don't want to be leased up the wazoo,” Heald says.

FX has issued 85,000 new shares and has approached the equity market and existing shareholders in a capital raising that Heald says FX is close to completing.

Excluding the new shares, it has 713,900 shares on issue. Privately, they are trading at around $100 a share, he says.

General manager wholesale Richard Cohen says the deal with Pacific Fibre will offer tremendous diversity.

“We think UFB uptake will be strong, though it’s hard to say over what period. Growth will be phenomenal if people begin to stream TV from offshore.”

Earlier this month Pacific Fibre has announced it has secured a fifth foundation customer for its undersea internet cable, bringing its total forward sales to US$200 million.

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Tags pacific fibreFX NetworksMark RushworthDavid Heald

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