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A new cable brings the promise of more internet capacity

A new joint venture announced yesterday will double Australia’s international data capacity by 2013. Such a vast improvement to key national infrastructure is newsworthy in itself. The implications for the competitiveness of Australia’s so-called ‘digital economy’ are even more significant.

Pacific Fibre first announced plans for this $400 million undersea cable from Sydney to Los Angeles via Auckland in March. Backers included Stephen Tindall, founder of New Zealand shopping site The Warehouse; Hoyts chairman and former Fairfax CEO David Kirk; Rod Drury, founder of cloud accounting software service Xero; and Sam Morgan, founder of NZ’s leading online auction and classifieds site Trade Me.

Yesterday, Pacnet joined them in an equal partnership. Pacnet already operates the EAC-C2C cable network that links East Asian locations from Singapore to Korea and Japan, and the EAC Pacific cable across to North America.

The new cable will consist of at least two fibre pairs, one each for Pacific Fibre and Pacnet, with a total capacity of up to 5.12 terabits (Tb) per second. (A terabit is 1000 gigabits; a gigabit is in turn 1000 megabits.) Emerging technology will allow subsequent upgrades to 12 Tb/s or more.

The option is still open for further players to invest in additional fibre pairs. Adding them at construction time would only add around 10% or 20% to the total cost.

Although Australia’s last-mile telecommunications construction costs are perhaps five times what they are in, say, Japan or Korea, our real problem has always been a relative lack of international capacity. That in turn has led to high prices.

When the PPC-1 cable to Guam landed in Sydney last year, it was only the sixth major data cable out of Australia. It increased capacity around 40% and was the first carrier-neutral cable — that is, one that wasn’t tied to a major telco.

And yet a higher proportion of our internet traffic is international. Most Japanese or Korean-language traffic stays within Japan or Korea. The same goes for Germany, Norway or France. But most English-language speakers are a long way from Australia.

The net result is that international bandwidth is the single biggest cost for an Australian internet service provider. “Put it this way,” Pacnet CEO Bill Barney told analysts yesterday, “per megabyte when we’re selling it, out of a hundred dollars, 81 of them is international capacity. What’s that for Korea or Japan? That number is 16%.”

So customers of Australian ISPs have monthly download caps. Customers here pay much the same as their US counterparts for the base capacity, typically $100 per month for 3 to 8Mb/s, but thanks to those caps, we dare not use that capacity for long.

“This is one of the largest markets today in terms of broadband penetration, but it’s also one of the weakest markets in terms of usage of the internet,” Barney said. “If you look at the total [monthly] usage of a user in Australia or New Zealand, an American user uses as much as an Australian or New Zealand consumer in the first day.”

To put it another way, if Australians used the internet the way Americans do, they’d be paying $3000 a month.

“Bringing competition to this spectrum will actually have more of an impact, we believe, than the NBN itself,” Barney said. “It’s one thing to have fibre, but if you can’t access the content you’re only half-way there.”

The Pacific Fibre/Pacnet consortium is about to start selecting a vendor to build the cable, and will announce the winning bidder within the next few months.

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