The cable guys
By Matt Cooney,
Pacific Fibre looks like a perfect proposition: local heroes dreaming big, and hiring a crack team to bring New Zealand truly into the world of ubiquitous internet. But do these high-growth champions actually know anything about infrastructure? By
photograph by Phillip Simpson
Put these six gentlemen in a room and tell them to invent a company, and you’d expect some pretty fantastic ideas. They’ve spent their careers with internet startups, biotech research, brand-building, marketing and advertising, mobile development, and the like, and they’re used to success.
But this time they’re doing something that’s both more prosaic and much grander. They’ve co-founded a company that they expect to revolutionise New Zealand business and society with a product that, even to its customers, will be invisible—literally.
Their startup, Pacific Fibre, plans to lay submarine fibre-optic cables linking New Zealand, Australia and the US—where about 85 percent of the internet data New Zealanders consume originates from. If they’re successful, the amount of data Kiwis and Aussies can download from the US will increase fivefold—for starters—over the incumbent Southern Cross cable, and it’ll arrive faster too. The aim, says chief executive Mark Rushworth, is to make offshore internet access so plentiful and cheap that local ISPs will stop limiting the amount we can use.
“We thought, right—maybe we should do this. And about two seconds later I realised I didn’t really know enough about the business””
Which partly explains why Pacific Fibre’s founders are so keen on the idea. “I’m doing this because I just want the end service,” says director and tech entrepreneur Rod Drury. We’re missing out on business and social opportunities, he reckons— “things that are very easy for the technology to do. We can’t do Live Meeting demos or WebEx demos credibly into [offshore] markets. We can’t have US phone numbers. We can’t do good Skype video calls. It just doesn’t work. In the US they’re doing multi-party video calls.
“I had a mate from Microsoft who was here last week and he has a 50 megabit per second fibre connection and no data caps. He just lives completely differently and when he does work here it feels like a backwater.”
Frustrating? We all feel the pain. The Australian and New Zealand governments are each putting aside billions of dollars to make high-speed internet services widely available in rural and urban areas. But most of the data we consume comes from the US, so faster national broadband won’t help much if our international broadband networks aren’t upgraded, which is why Drury and Trade Me founder Sam Morgan tried to convince politicians that the government should find a few hundred million for a much better connection to the US. It would even recoup its investment, they said. David Cunliffe, the former technology minister, had a ready response: if the numbers stack up, why don’t you do it yourself?
“We thought, right—maybe we should do this,” recalls Morgan. “And about two seconds later I realised I didn’t really know enough about the business.”
So they started formally investigating the possibility with consultant and tech entrepreneur Lance Wiggs and networks expert John Humphrey. “We put a little bit of money in to do that and it just looked more and more positive every stage of the way,” Morgan says. Drury called old pal Stephen Tindall to see if he was keen to be involved, and the Warehouse founder was quick to see the benefit and say yes. “Basically, you’ve got a whole country wired into the US. That’s what I believe this does. It’ll give Kiwis much more of a sense that they can participate in the US economy with small businesses to start with … we are constrained by distance, and this is going to alleviate that problem.”
Meanwhile, Rushworth had just resigned from Vodafone. He’d spent some busy years on the telco beat, first as chief executive of Ihug and later, after Vodafone bought Ihug, as Vodafone’s chief marketing officer. He had some idea where he wanted to work next: a startup doing something to benefit New Zealanders, with a bit of equity and the opportunity to make a difference.
Rushworth wasn’t exactly sitting by the phone, though—he and his wife had started planning an extended trip through Europe and he was set to do some long-delayed work on their house. He figured he’d be back at work within a year, but it was only a week before Drury and Morgan called. The break was over before it had really begun.
Did he hesitate? Like hell. “Let’s get started on this thing! It just made absolute sense. I could see the need for it—the biggest pain in the arse at Ihug was the cost of international capacity.” Rushworth compares it to the likely cost of flights if New Zealand had only one airline.
“An ISP is a very simple beast,” he says, but he found he could never afford enough international bandwidth for peak times. “Customers found the impact of that decision at six o’clock, seven o’clock at night when everyone is on the internet trying to get stuff out of the States. Everything would come to a grinding halt. You wanted to invest more, but of course you couldn’t. But if you didn’t invest enough, then calls would come into your contact centre, complaints and your churn would go up.
“There would be this dark balance between how much more capacity you could buy, inbound calls and your churn levels, which is a dangerous way to run your business.“
The team was assembling: Rushworth as CEO, Wiggs as the ‘finance guy’, and Humphrey as the technical lead. Tindall, Morgan and Drury formed the original board. Sounds like a dream team.
Since then, another director has been added— David Kirk, former chief executive of Fairfax and, ahem, a promising amateur rugby player of the mid- 1980s—plus a Sydney-based head of sales, Mark Kuper. As Idealog went to press, Michael Gelissner was appointed CFO and Mike Constable, a veteran of many submarine cable projects, named head of business development.
Building a team, of course, is the easy part. But laying a skinny fibre-optic cable between Auckland and Los Angeles is a daunting logistical and financial operation.
First, there’s the cost, which was originally estimated at around US$700 million, though it may now have dropped to below US$400 million. It’s still real money, even to rich-listers like Tindall and Morgan.
Then there’s the submarine cable industry, which is unlike any other. Cables are completely unregulated at sea, but when a cable comes ashore the local authorities get very prickly about what you can and can’t do. It is dominated by giant carriers, yet tales abound of dodgy companies set up with little more than dreams and ego. Maps of the world’s submarine connections are covered with legions of ultra-high-capacity cables connecting East, West and the Old World. They look very much like the shipping lanes of days gone by—which is not surprising, as submarine cables serve the same purpose as the mighty merchant navies once performed.
Pacific Fibre, however, isn’t your grandfather’s infrastructure company. Rushworth talks of doing things differently than the industry habitually does. This, after all, is the natural mindset of Pacific Fibre’s founders.
Most cables are built by consortiums of carriers and other network companies, who invest the vast sums required to meet current and predicted demand. For the rest of us, it’s a chicken-and-egg problem: we can’t stump up the half-billion dollars required to lay the cable until we have signed-up customers, but nobody will sign with us until they know we can build the cable. The usual response is deep discounting, but that causes its own problems.
That’s where having a board with credibility and deep pockets makes all the difference. “We can go out and say this cable is going to be built, and bypass that chicken-and-egg situation,” says Rushworth. Still, you have to ask if trans-continental data cables are perhaps a trickier prospect than Pacific Fibre’s can-do Kiwis quite realise.
“I’m not quite sure where Pacific Fibre is going to get the kind of scale of demand that they would need to make this work”
Matt Crockett, a former Telecom executive who served on the board of Southern Cross, traded a few barbs with Pacific Fibre’s founders when the startup launched, though he says it’s a great initiative and he wishes them well. “But they face a whole bunch of challenges. I personally think the Australia and New Zealand market is pretty well served in terms of international capacity. The economics of those cables really hinge around the Australian market and what’s going on there. I think more than 80 percent of Southern Cross business is to Australia, which is just a function of the size of the markets, and when you look at Australia on the supply side you’ve had Telstra’s Endeavour cable go in recently, and Southern Cross has got tons of capacity. There’s still a whole unlit fibre sitting in that. So there’s not a supply-side constraint.
“The other side of the equation which in many ways is more important is about demand. And if you actually look at the big pools of demand, most of those players actually own their own cables now. So Telecom New Zealand does, SingTel Optus does, Telstra does … I’m not quite sure where [Pacific Fibre] is going to get the kind of scale of demand that they would need to make this work. They’ve talked about differentiation with latency and all of that but the latency differences they’re talking about are trivial and will make no real difference.”
TelstraClear’s group manager of product, Richard Bateman, is more optimistic. He sees an opportunity for more bandwidth: “The amount of usage is doubling every two to three years at the moment, so capacity, whether it’s freed up on existing cables or on new cables, is going to be required … but I wouldn’t say there’s a bottleneck.” He does predict a fall in the price which may be good for end users (that’s us). “It will probably force the hands of the incumbent providers to free up more capacity first of all.”
Crockett repeats that he’s not out to bag Pacific Fibre and hopes it does succeed—and in fact Rushworth and Crockett are often singing from the same songbook. Both know that New Zealand depends on Australia for sufficient demand to justify any trans- Pacific cables, for example. But they disagree about the demand for really fast broadband.
At Ihug, Rushworth noticed that when he provided staff with broadband plans with greater data allowances, they would all use it. Since then we’ve seen an explosion in demand caused by relatively low-quality video; next, he says, is streaming of high-definition video and the arrival of mobile and non-computer devices like the Apple TV that are connected 24/7. That’s not even considering the increasing demands of videoconferencing, on-demand entertainment, cloud computing, augmented reality and emerging tools like remote surgery. Make better internet available and we’ll use it, he says.
The subject of all this effort seems remarkably … thin. Submarine fibre-optic cable is about the diameter of a garden hose. Beneath the rubber sheath it’s mainly wound steel, which carries a current to stations along the route. Though it’s able to carry over five terabits of data per second, the actual fibre-optic strand at the centre is no thicker than speaker cable.
This isn’t a short-run job, however. Each cable is made in one single length—so the hop from Auckland to Sydney is 2,000 kilometres, and the cable between to Los Angeles is 11,000 kilometres long (Rushworth predicts it will be the longest cable in the world). Considering that it’s not the kind of thing you can easily dig up once dropped, it seems remarkably flimsy. For the most part, it’s merely laid along the sea floor, where it snakes across valleys, subterranean ranges and whatever obstacles it finds. Where the surface is particularly unfriendly, it’s sheathed in an extra layer of steel. In areas where trawlers are known to drag their gear, it’s buried up to a metre under the surface. As it approaches the busy coasts, it can be buried deeper.
“I had a mate from Microsoft who was here last week and he has a 50 megabit per second fibre connection and no data caps. He just lives completely differently and when he does work here it feels like a backwater”
But it’s the point of landfall that may be the toughest obstacle. Pacific Fibre plans to terminate in Los Angeles, but these days Californian bureaucracy is not as permissive as Californian society. The last submarine cable to successfully get a permit there, says Crockett, was Southern Cross. “No-one goes for a landing in California because the EPA environmental hurdles are absolutely horrific,” he says. “Everyone goes into Portland, Washington state and places like that now.”
It’s not just the EPA, says Rushworth; these days Homeland Security also takes a close interest in foreign-owned infrastructure. But Pacific Fibre has people on the ground in LA and he’s confident they’ll get their permit.
If all goes well, Pacific Fibre expects to be carrying data from mid-2013. It’s still signing investors and customers and the ‘go’ button is yet to be pressed, but Morgan says nobody on the team is expecting anything other than a successful launch.
“I tend to follow things where the opportunity is achievable and I see plenty of ventures where you just don’t think they’ll ultimately work. And this is just a bit of a no-brainer really. The more and more you think about it, the more it works. It’s a hell of a lot easier than building a Trade Me.”