War has broken out in the hitherto sleepy trans-Pacific capacity market with Pipe Networks announcing yesterday it would proceed with a new Australia-Guam cable and route incumbent Australia-Japan Cable hitting back with news of massive upgrades.
Pipe said it would proceed with its PPC-1 cable, first announced in December 2006, after signing sufficient foundation business to cover the cost of the installation. Named customers are Australian broadband carriers Internode, Primus and iiNet along with VSNL and Telikom Papua New Guinea.
MD Bevan Slattery intimated to CommsDay yesterday that other anonymous customers had also signed up. In a trans-Pacific hookup, Slattery launched the cable build from Hawaii patching in via a simple laptop video conference to the Primus Data Centre in Melbourne, Australia where Communications Minister Stephen Conroy, Pipe chairman Roger Clarke and executives from customers presided over the launch ceremony.
Construction has begun on the 6,900 km 1.92 terabit cable which will link Sydney with Guam, with a spur connecting to Madang in Papua New Guinea. There are also plans for a branching unit to the Gold Coast, which will provide cable landing diversity on Australia’s East Coast for the first time as well as spare fiber pairs from Sydney which could eventually form the foundation of a new route to New Zealand or elsewhere.
Slattery described Guam as one of two major interconnection hubs in the Pacific—the other being Hawaii– with the service offering comprising of routes from Australia to Guam, Japan and the USA. Pipe will offer a range of bandwidth products including 2.5 and 10 Gbps wavelengths, STM-16 and 64 SDH and Gigabit and 10 Gbps Ethernet in a variety of purchase options including 3 year leases and IRUs. Pipe is also aiming to establish points of presence in Equinix, San Jose; PAIX, Palo Alto; One Wilshire, Los Angeles; Global Switch, Sydney and Equinix, Sydney.
AJC HITS BACK: Speaking with CommsDay in Honolulu yesterday, Slattery said he expected competitive reaction to be strong and he wasn’t disappointed when Australia-Japan Cable issued its own media statement committing to a upgrade of 160 Gbit/s. The new capacity under AJC’s Ready for Service milestone became available from Friday December 21 and will be followed by the completion of a second phase in April 2008—effectively doubling Australia’s existing Internet capacity. The Phase 1 implementation provides capacity in 10 Gbit/s wavelengths while Phase 2 will provide capacity in 10 Gbit/s wavelengths and also SDH and Ethernet capabilities.
Australia Japan Cable CEO Robin Russell said that the upgrade would increase the international capacity available from Australia by 50 percent. “Our upgrade goes a long way to filling the identified need for the foreseeable future, even taking into account the large growth in demand.”
Russell said that at the completion of Phase 2 of the AJC upgrade, the AJC Network would have a total of 240Gbit/s installed between Australia, Guam and Japan.
“The current technical capability of the AJC Network is more than 1,000 Gbit/s and further capacity upgrades to augment the 240 Gbit/s will be implemented as required.”
Despite the competitor upgrades and the prospect of a new Telstra cable servicing the Sydney-Hawaii route, Pipe believes it can grow the market through pricing. Stopping short of naming its price differential, Slattery indicated that customers of its cable should be able to buy twice as much bandwidth for the same price as today. Slattery dismisses suggestions of an impending South Seas bandwidth bubble, claiming that the cable is fully funded and will be debt free within months of launch and profitable in its first year. One customer, iiNet, said it has signed up for 15 years.
The cable, expected to take 18 months to build, will cost about $160m, with the firm committing another $40m to Guam-Japan and Guam-USA capacity.
Somewhat amusingly a rumour swept around PTC ‘08 yesterday morning ahead of the announcement proper suggesting that Pipe was to announce its sale to VSNL!
ABN AMRO Morgans analyst Nick Harris has maintained his ‘buy’ recommendation for Pipe shares. Harris has previously stated that the successful implementation of Project Runway would add $1.20 to its core Pipe share valuation of $4.02. Pipe shares yesterday were steady at around $4.50.
Grahame Lynch