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New Southern Cross Next international broadband cable nearly lands at Takapuna, Spark updates on stake

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The Southern Cross Next cable, which will nearly double New Zealand’s international broadband internet capacity, nearly made a landing at Auckland’s Takapuna Beach this morning – only to be foiled by rough weather 9km offshore.

The US$300 million submarine fibre optic cable is now due to land tomorrow, and will go live in April 2022 – when it will link Australia, New Zealand and the US, with offshoots to Fiji, Tokelau and Kiribati.

The steel-clad, fibre optic-filled cable, being manufactured and laid by French company Alcatel Submarine Networks, is buried up to about 200m off the shore, to protect it from dragging anchors – after which point it just sits on the ocean floor, allowing for a rapid rollout.

Southern Cross Cables Ltd has historically been 50 per cent-owned by Spark (and, before it, Telecom). But the primary mechanism for funding its new cable is to bring Telstra in as a 25 per cent shareholder – although Spark has also chipped in $22 million directly (with another, as-yet unquantified contribution possible this year) and indirectly through suspending its once-fat Southern Cross dividends during the Next cable build period, taking tens of millions of profit off the table.

Spark’s 2020 annual report put its Southern Cross stake at 35 per cent. “The precise shareholdings will shift around a bit through the Southern Cross Next funding period, but we expect our shareholding to be 40 per cent when Next is complete,” a Spark spokeswoman said.

Southern Cross dividends are expected to resume in FY2023.

In the meantime, Spark, as a wholesale customer is buying more capacity from Southern Cross. Spark bought $33m of cable capacity in 2019, and committed to purchase of $62m for 2020.

Spark expects to be able to update further on its Southern Cross situation at its full-year results on August 18.

A modest slice of Southern Cross Next will be funded by the New Zealand and Tokelau governments, which are picking up the tab for the Tokelau spur. Tokelau administrator Ross Ardern was due to attend this morning’s landing ceremony but was delayed. A stand-in MFAT advisor could not immediately comment on the size of NZ’s financial contribution.

Technology Users’ Association head Craig Young says the average Netflix-chugging home user probably won’t notice any difference – because most big internet services already deal with the tyranny of our distance from the US (home of most online content and services) by “caching” popular content locally. For example, having servers with local internet providers that serve up copies of popular shows.

But the new cable is important because it adds to New Zealand’s resiliency, Young says.

Southern Cross VP of operations Dean Veverka says the Next cable will become NZ’s fastest, carrying an additional 72 terabits of data per second in and out of the country – or around three times the capacity of this company’s existing cables. In lay terms, this represents an almost 100 per cent increase in New Zealand’s international connectivity and is the equivalent to streaming more than 4.5 million Ultra HD 4K videos simultaneously, the exec says.

Veverka says Next will be the fastest direct link from NZ to the US and should see an improvement in latency (or lag) of 10 to 15 milliseconds – not something an average punter will notice, but an edge that will be appreciated by Call of Duty jockeys or intensive business users.

And it’s important to note that even though they’ll be additional international bandwidth on tap, you’ll only see the benefits if your retail ISP chooses to buy extra capacity

New competition, new expenses

The Bermuda-based Southern Cross Cables, 50 per cent owned by Spark, 40 per cent by Optus and 10 per cent by Verizon, constructed New Zealand’s first major broadband connection to the outside world – the twin-cable, Australia-NZ-US Southern Cross Cable Network.

Between 2000 and 2018, the Southern Cross Cable Network’s monopoly meant fat profit-share payouts for Telecom then Spark.

In 2017, Southern Cross paid Spark a dividend of $61m.

But that would prove the high-water mark, with Spark’s share of Southern Cross profits slipping to $50m in 2018 then $15m in 2019 as competition arrived in the form of the new, faster Hawaiki Cable trans-Pacific cable bankrolled, in part, by rich-listers Malcolm Dick and the late Sir Eoin Edgar, with 2degrees founder and enfant terrible Tex Edwards onboard as a director.

The 44 terabits per second newcomer was banking on NZ’s insatiable appetite for data, which has been growing 30 to 40 per cent per year since video streaming services like Netflix, and cloud computing for business, hit the mainstream.

Southern Cross – or “SX” as it’s known in the industry – hit back by announcing plans for its “Next” cable, which we saw a glimpse of this morning.

And although SX has upgraded its original twin-cable system over the years, it won’t last forever. Part of Next’s role will be to replace it once the original cable system is decommissioned around 2030.

And Spark further spread its bets by teaming with Telstra and Vodafone on a new Auckland Sydney cable – the US$100m, 20 terabits per second Tasman Global Access link.

Another new international cable on the way

Meanwhile, Hawaiki Cable director Malcolm Dick has welcomed the new competition – and underlined that his company is planning another international cable.

“This is a great outcome for New Zealand. Before we developed the Hawaiki cable, New Zealand was in danger of becoming just a spur off the Australian networks,” Dick told the Herald overnight.

“The reality is that New Zealand needs more resilience than it currently has, so a replacement of the aging Southern Cross system is critical.

“Our Datagrid project will further increase New Zealand cable redundancy with our plan for a new cable to join Invercargill with Sydney and Melbourne, and we will be making an announcement on our progress fairly soon.”

Dick’s Datagrid project, which has Meridian signed on as a partner, is seeking to fill the power-generation gap left by Rio Tinto’s pending departure from Southland with a giant data centre.

The entrepreneur says Datagrid has taken options to buy land in Makarewa, a small town about 7km north of Invercargill.

Dick – who founded CallPlus then sold it to the company now known as Vocus for $250m in 2016 – says the Datagrid build project would cost up to $700m – $530m for the cable, and the balance for a new offshore fibre optic cable, which would be the first to land in the South Island (Auckland’s north and northwest, already home to NZ’s largest peering exchange are popular because of their proximity to the Southern Cross Cable’s NZ landing points).

It’s a stiff ask, but Dick – and business partner Edgar – defied sceptics by raising around $400m for Hawaiki Cable.

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