Two ISPs have cast scepticism over claims a new Australia to US fibre cable system will significantly reduce the cost of purchasing international broadband capacity.
Pacnet and Pacific Fibre have teamed up to build a $US400 million subsea optic fibre connection between Sydney, Auckland and Los Angeles. It will be up and running by 2013.
The objective is to bring more competition into the international broadband capacity market and put pressure on existing high prices.
Pacnet CEO, Bill Barney, said the system will have more affect on the Australian broadband market than the National Broadband Network (NBN) by alleviating international traffic bottlenecks and latency.
Internode was pleased to see a new fibre being built but was sceptical about Pacnet’s ambitions to lower the cost of international capacity significantly.
With the arrival of Pipe network’s PPC-1 line, there are now three cables servicing Sydney. That has broken the classic duopoly between Telstra’s Endeavour cable and the partially Optus-owned Southern Cross link, according to Internode carrier affairs manager, John Lindsay.
“This has simulated a reduction in prices but this new cable follows a different path,” he said. “While in theory it duplicates the connectivity of Southern Cross, it is nonetheless a single path and you can’t survive on a single path because it could take up to three months to repair a cable breakage.”
“… For the new fibre to have a significant impact on the cost of international connectivity, Pacnet and Pacific Fibre will need to partner up with another cable and that cable may possibly not even exist yet.”
Primus Telecom CEO, Ravi Bhatia, was optimistic that the joint-venture fibre will reduce cost of purchasing international capacity. But he dismissed Barney’s statement that the new link will have more impact on the Australian broadband market than the NBN.
“The issue is this: If you look at the true ISP cost of downloads, international forms a very small part of that cost,” Bhatia said. “The domestic Australian network forms a much larger part of that cost. It remains a Telstra monopoly and Australian prices are more expensive compared to international.”
Market Clarity telecommunications analyst, Richard Chirgwin, found Barney’s comments more plausible.
“If we assume nothing is going to change in the local access network, then the next big influencer would be the cost of capacity coming from overseas,” he said. “It is the thing you can change the fastest and cheapest.
“[Barney] has always been an advocate that boosting international capacity is the most cost efficient way to have a quick impact on broadband cost and user behaviour in Australia and he is right to this extent.”
But, ultimately, how the impending fibre affects international capacity prices will hinge on how much Pacnet and Pacific Fibre charge, Chirgwin said.
“If they structure their tariffs aggressively then it would ultimately suck down prices in the longer term,” he said.
But Chirgwin warns the impact on international prices will happen slowly as international cable contracts are often for a long-term basis.
Even if Pacnet and Pacific Fibre offer services at a dramatically low price, ISPs still have existing contracts on other links, some for up to 10 years, at a higher cost, he said.