'It wasn’t enough on the day': Sam Morgan

Pacific Fibre chair says finance couldn’t be raised, despite $200m in pre-sales

Despite gaining US$200million in pre-sales, Pacific Fibre could not raise enough finance to build an international cable connecting New Zealand to the US and Australia.

“It wasn’t enough on the day, as they say in rugby,” says chairman Sam Morgan.

The proposed submarine cable connecting Australia, New Zealand and the United States has failed because of a lack of funding. The idea to build a $400 million project was first launched in March 2010, with the ambitious goal of going live in 2013.

Morgan says he and other shareholders – which include Stephen Tindall, Rod Drury and Facebook investor Peter Thiel – have collectively spent around $6 million on Pacific Fibre. But, after failing to secure the additional finance, Morgan announced today that Pacific Fibre has ceased operations.

“We didn’t find much (funding) out of New Zealand, so it was a global search but it was hard to talk to people in other parts of the world about investing in a fibre optic cable connecting Australia, New Zealand the US,” says Morgan.

This was despite achieving US$200 million in pre-sales from companies that expressed interest in using the cable, most notably the $91 million contract with REANNZ and an additional contract with Vodafone.

“We have more pre-sales than in the history of the planet,” says Morgan. “We don’t really think it was an issue of adequacy of customer contracts.”

When asked if the government should have contributed money, Morgan replied: “There are lots of people who would like to have the government sort out their problems and we don’t tend to be those sorts of people.”

Morgan says the demand for faster, cost-effective international connectivity will grow with the rollout of the Ultra Fast Broadband.

“We started the project in the first place because we are strongly of the view that Ultra Fast Broadband itself will not achieve the economic objectives the government has sought,” Morgan says. “So we put our hand up and we had a go at trying to solve the other part, which really is a market failure, which is a monopoly/single supplier [Southern Cross Cable] otherwise.”

When the project was first announced Pacific Fibre spoke to State Owned Enterprise Kordia about a possible collaboration, but Morgan says the two companies had differing views. Kordia’s project, called Optikor, was a trans-Tasman cable, but Morgan says that Pacific Fibre was always focused on connecting to the US.

“There’s no business case for going to Australia because all the content that New Zealanders want to consume is in the US,” says Morgan. “So what that means is that you then have to buy connectivity from Australia to the US, which is further away from the US then NZ is, and you’d be subject to the pricing which is set by a duopoly on that leg. So you would still be paying Southern Cross, or Telstra to get to the content that you want.”

Kordia announced in January that Axin and Huawei Marine (two Chinese-owned technology companies) are now leading the Optikor project.

So what will Pacific Fibre do with its intellectual property, given that it was still working on technical specifications for the project up until last week?

“We’ve go a lot that we can now put in a box and place on a shelf and if anyone else is wanting to look at doing this sort of project, we’d be happy to share what we’ve learnt. It’s of very little use to us at this point,” says Morgan.

Pacific Fibre employed six people, including CEO Mark Rushworth, who also invested in the project. Morgan says the directors will use their networks to help the employees find new jobs.