New Zealand’s international connectivity is high quality, competitively priced and set to expand
The typical unit pricing for international connectivity has dropped 98.5 percent since the Southern Cross Cable (SX) launched in 1997, and prices on the SX cable have reduced by between 20-30 percent year-on-year.
SX establishes New Zealand market prices by benchmarking against the extremely competitive Australian and Hawaiian markets (5 links to the US), and then applying those prices to the New Zealand market (meaning New Zealand is price competitive with the competition heavy AUS-US route).
This competition is evidenced by the decision of numerous international companies who have the choice of provider and location, and who have selected SX as their providers of international connectivity. This was most recently demonstrated by Immarsat’s decision to locate their satellite servicing station in New Zealand, because of their confidence in the backhaul and international connectivity links from this country.
The nature of New Zealand’s international connectivity needs are changing
The rapidly evolving nature of the internet is changing international data flows: in 4 years the US to NZ route will account for approximately half the network traffic (down from 99 percent 10 years ago and 85 percent 5 years ago), with the other half coming from Australia (and Asia). Currently, AU to NZ traffic sits at 37 percent (up from 1 percent 10 years ago).
The cost of international connectivity does not form a large part of the cost of internet to the average consumer
International connectivity makes little difference to the overall price paid by the average consumer. For example, the average cost of international bandwidth for customers on an average $75 entry-level home broadband plan is under $2, or less than 2 percent of the overall price.
Additional NZ-US cables will not substantially reduce the cost to internet users
The argument that another cable will substantially reduce international data costs for average consumers is not supported by the evidence. As can be seen above – even if international connectivity was made free, the most it could these customers is less than $1 per month.
Additionally, an additional trans-Pacific cable is unlikely to substantially alter the provision of data on any given plan, over and above the increases that are already being provided for by the market. Recent history shows that all retail service providers meet and exceed customer demands for data, with caps continuing to grow, and options available for so-called ‘unlimited’ plans.
A trans-Pacific cable will primarily be driven by Australian market economics
It is important to note that New Zealand traffic makes up approximately 15 percent of data on the current US link, the rest being to Australia. The economics of any international cable to the US are such that NZ acts only as an adjunct to the connection to Australia, because most of the trans-Pacific demand comes from that country.
A New Zealand Government subsidy for a NZ-US link will be a subsidy for Australian consumers
As a result, any direct New Zealand based government subsidy for a US cable will primarily be of use and benefit consumers in Australia, rather than New Zealand. As stated, this is because approximately 85 percent of the traffic on the Pacific route is for Australia (accruing benefits to Australia over New Zealand at a ratio of 6 to 1).
Future connectivity needs are being met
SX utilises 15 percent of its current capacity and with capability enhancements can meet the growth in New Zealand’s demand for data for at least a decade.
The Southern Cross Network has been engineered until 2025. In 2001 total installed capacity was 80 Gb/s, and in January 2003 the total network was expanded to 480Gb/s. Upgrades in 2009 and 2010 increased capacity to 1.2Tb/s. The 40G Coherent technology upgrade in 2012 increased total lit capacity to 1.6Tb/s with the current 100G Coherent upgrade to increasing lit capacity to 2.6Tb/s in 2013. This latest upgrade will increase lit capacity to 3.6Tb/s by Q2 2014.
Additional private sector cable investments have been signalled, which include:
SX’s system to the US has more capacity than New Zealand requires for the foreseeable future, and any investment in the TGA cable will more than double that. Any additional cables will not deliver needed capacity, as we are already oversupplied, and will not reduce prices further.
- Telecom, Vodafone and Telstra have signed a memorandum of understanding (MoU) to co-invest in the construction of the Tasman Global Access (TGA) submarine cable between New Zealand and Sydney. The TGA cable would meet growing demand for capacity with Australia (and indirectly with high growth economies in Asia), and would provide additional international resilience for New Zealand by providing another route to the US, via Australia. The cable would give extra redundancy and reflects the growing importance of trans-Tasman internet traffic: for example, around 40 percent of both Telecom and Vodafone's current international internet traffic is now Australia to New Zealand, versus just 10 percent in 2000
- Hawaiki Cable is planning to build a 14-000km cable system between New Zealand, Australia, Hawaii and the US west coast
Current international connections
Southern Cross (SX)
Southern Cross Cables Limited was founded in 1997 by agreement between Telecom New Zealand, Optus and MFS Globenet (subsequently acquired by WorldCom, and then Verizon). Southern Cross owns and operates a trans-Pacific submarine cable network connecting Australia, New Zealand, Fiji and Hawaii to the internet backbone on the United States West Coast, providing carrier neutral services to carriers, internet and content service providers and corporations.
Southern Cross is an independent entity and is owned by Telecom New Zealand (50 percent), SingTel Optus (40 percent) and Verizon Business (10 percent).
Tasman 2 is an old cable of which Telecom owns 50 percent. It is low capacity (it can carry only 1 percent of the company’s trans-Tasman capacity), however it is used to provide redundancy for some services which are latency sensitive, including corporate traffic and voice.