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New internet cable another blow for Telecom?

It's probably a reasonable bet that if you'd canvassed the boys in the Telecom boardroom last year, they'd have been pretty bullish about their chances to be the major player in the national broadband network(NBN) that is being proposed for NZ.

But oh, what a difference a few months and a string of bad news can make to one's chances.

Not only has the fiasco known as the Telecom XT Network shaken the nation's (and the government's) confidence in Telecom's ability to handle large projects but now it seems as if the company's huge investment in international connectivity may face serious challenge.

Thanks to the plans of TradeMe's Sam Morgan,The Warehouse's Stephen Tindall and a bunch of other well-off entrepreneurs, it's looking as if the Southern Cross Cable will no longer be the only game in town for international internet traffic.

At last, when it comes to international connectivity, everyone might just get a bargain (and maybe even a money-back guarantee with proof of purchase (software, CDs and DVDs excluded)).

Over in Telecom's ivory towers they must be spitting tacks.

Just watch Telecom's shareprice take a dip on the news as its market dominance in key sectors is slowly dismantled by a combination of bad luck, poor management and real competition.

Consumers can probably look forwards to larger data caps, cheaper broadband, and better international download speeds.

And the really silly thing is that it's only Telecom's greed that has allowed another player to come waltzing into the international bandwidth market in the manner that they're proposing to.

If Telecom had lower prices and commissioned more of the bandwidth that is available by way of the existing SCC cable, the economics of another player entering the market would be significantly compromised -- perhaps to the extent that they'd think twice.

As it is however, Telecom's pricing structure and dominance has made it exceedingly easy for Morgan, Tindall et al to come up with a convincing business plan to lay their own cable and make money out of the $900m investment involved.

But before we get all excited, I think it's time for a little reality check in respect to the claims being made by Morgan, Tindall et al...

Tindall is quoted as saying ""If we are able to deliver on this cable this it could be as valuable to our New Zealand economy as the quantum leap refrigerated ships were to our export trade many years ago."

Well that comparison with refrigerated ships was commonly made back at the turn of the century, during all those Knowledge-Wave conferences.

I call BS on this one.

This uber-fast, uber-wide communications channel is only going to be of value to the nation if we actually create businesses that can harness it for profit -- and so far we're just not doing that. We're still busy driving our best cyber-entrepreneurs offshore where their access to venture capital, fair tax-treatment of R&D and other factors is far better than here in NZ.

Mark Rushworth, former Vodafone chief marketing officer and proponent of the new cable justifies the project by claiming that (according to the NZ Herald) "businesses wanted high resolution multi-party video conferencing, while grandparents expected to be able to Skype video their grandchildren in high definition or better".

Well I'm sorry but I don't think that higher-def video conferencing is going to swing many export deals and while it's nice to be able to use Skype with hi-def, that doesn't earn NZ a bean.

Sure, we will use more and cheaper bandwidth if it's available -- but until there's a major change of mindset within government and the VC industry, Kiwis will use all this new international connectivity for the same things they're using the Net for now: watching YouTube videos, downloading (legally and otherwise) music, movies and TV series, updating their FaceBook pages, sending/receiving email, playing online games, etc.

The old saying "if you build it, they will come" is true -- but simply having a massive new superhighway with no speed limit and twelve lanes isn't going to encourage anyone to do much if the country still has such a punitive attitude towards motor vehicles (ie: R&D and other key parts of a KBE) that it's better to do your driving overseas where your driving skills will be appreciated.

What's more, if this $900m cable is rolled out, we'd find ourselves with the equivalent of a fleet of refrigerated ships in our harbours but without any meat to ship. In fact, right now, we haven't even cleared the scrub to make the farms we need to fill those ships.

We (and Telecom) also ought to remember that right now, these rich-listers are only "talking" about laying a new cable -- they're not committed yet.

If Telecom had its head screwed on (but there are very good signs that they don't) then they'd immediately drop the prices they charge for international internet traffic -- to the point where the competition has no business case and therefore would find it far more difficult to raise the necessary capital.

Will Paul Reynolds have the balls to take such a bold move?

Or perhaps the rich-listers are banking on him doing just that and their real game is to launch a venture that relies on the availability of low-cost international bandwidth. Perhaps, by making this announcement, they're trying to force Telecom's hand and thus get themselves a massive savings on the bandwidth they'd otherwise have to buy at current prices.

One thing's for sure with the telco industry. Never assume that the obvious answer is the right one.

What do readers think?

Do we really need all that extra bandwidth the rich-listers are claiming they'll deliver?

When will people stop perpetrating this myth that big broadband is just as important as refrigerated shipping to NZ's export economy?

Would NZ actually be better off if these rich-listers threw their $900m into a VC fund that was then used to help develop many of the really good Kiwi hi-tech ideas that are currently stuck for lack of funding? (hey, I've got a notebook full of them;-)

And could this be yet another devastating blow to Telecom's fortunes.

Will Paul Reynolds get is bonuses this year? Should he get them?

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