Southern Cross cable struggles with demand

The Southern Cross Cable Network company is just keeping up with customer demand says Asia-Pacific market director Ross Pfeffer.

The Southern Cross Cable Network company is just keeping up with customer demand, says Asia-Pacific market director Ross Pfeffer.

"We're just keeping our head above water” in meeting requests for bandwidth and the equipment to shunt the traffic to and from users, Pfeffer says.

Wood products company Carter Holt Harvey, which expected great things from the New Zealand-Australia-US cable when it was launched in November, is still waiting to be connected. The company's shared services director, Jeremy Fleming, says provision of the new bandwidth, which CHH is making a substantial investment in, is due this week, taking "slightly longer than expected".

Pfeffer's bullish claims about cable demand come amid speculation that Telecom, which owns 50% of the company, might sell its stake to help fund the possible purchase of Australia's second biggest telco, C&W Optus. But according to Telecom spokesman Glen Sowry, "there are no plans in the near future” for such a step. The possibility of floating off Southern Cross “was just something [chief executive Theresa Gattung] was asked by one of the media, and she said ‘there is a chance of that’. That's all it was.”

Pfeffer says projections for bandwidth expansion in New Zealand and Australia are in a range from “just under 100% compound growth a year to 250% a year, depending on which forecasts you read”.

While Southern Cross will supply enough capacity for this expansion “for the foreseeable future … the next few years”, the problem is with procuring interface equipment at the network’s nine cable stations.

“We only went live on November 15,” Pfeffer says, “and already we have had to upgrade capacity [to cope with current and future demand]. “Obviously we pre-ordered the [interface] equipment, but we have 12- to 18-month lead times on supply, and we’re only just keeping up with demand on that.

“We’ve sold $US1.2 billion-worth of capacity according to the latest set of figures we have, and we’ve had another sales round since then,” he says.

The key factor in demand, Pfeffer says, is consumer take-up of broadband internet. “There are a lot of 28.8Kbit/s and 56Kbit/s modem users looking at the increase in throughput that broadband services like Telecom’s JetStream will give them.”

Southern Cross partner Alcatel says in a recent issue of its News Link magazine that growth scenarios of 80% to 100% a year are at the “modest” end of the scale in the US and Europe. Pfeffer believes Australian and New Zealand demand will keep up with at least those rates. Handling such huge capacities will depend not only on raw capacity but on smart traffic management, Alcatel says.

Telecom international capacity manager Dave Melville says it is difficult to put an accurate figure on likely bandwidth growth rates. “But Optus is talking about 200% or so a year. That’s pure bandwidth, not revenue.”

Economies of scale may drive prices down leading to slower growth in revenue, he says. “My personal view is that internet bandwidth is pretty lowly priced already and there’s not a lot of margin in it.”

Telecom is on top of the situation, Melville says. “We are in a strong position to provide significant growth,” either with new cabling – “perhaps a Southern Cross 2” – or through new laser technology to squeeze more wavelengths of light down the same cable, or to extract more bandwidth from existing wavelengths.

“We are also looking at options beyond [the routes covered by] Southern Cross, in line with our entry into Australia through AAPT.” Acquiring capacity on Telstra’s new AJC cable from Sydney to Japan is one option. A cable known as Nava 1, linking Sydney with Singapore, has been “mooted”, and various cable links are being set up between Singapore and Japan.

Carter Holt's Fleming expects the Southern Cross cable to be more secure than its predessors against outages, and should give headroom for growth in the company’s use of international data communications.

He also expects the cost of communication “as a proportion of the cost of servicing our customers” to drop. Carter Holt, which is doing an increasing amount of business in Australia, needs its transtasman wide-area network to operate at LAN speeds, Fleming said at the cable launch.

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