BusinessJuly 9, 2018

The new Hawaiki cable is doing what Sam Morgan and Peter Thiel could not


Next week, a new trans-Pacific fibre-optic cable connecting New Zealand to Australia, the Pacific and onto the United States will light up, changing the way data travels around the Pacific.

In November 2000, New Zealand’s first trans-Pacific fibre-optic cable, the Southern Cross system, lit up for New Zealanders. We finally had our first direct connection to the internet’s core in America. Eighteen years later, we’re about to get our second. Its name is Hawaiki, and it’s part of a rapid and prodigious redrawing of the way data travels around the Pacific.

Hawaiki is a half-billion dollar, 43 terabit per second cable system – about eight times the current capacity of Southern Cross – that runs from Pacific City in Oregon, through Hawaii and past several Pacific Island nations before splitting northeast of Norfolk Island, with one fork heading for Sydney and the other to a landing at Mangawhai Heads.

Haiwaiki Submarine Cable’s investors and board members include Forsyth Barr chair Sir Eion Edgar and CallPlus founder Malcolm Dick, but more than anything it’s the brainchild of chief executive Remi Galasso, a French telecommunications entrepreneur. When it opens for business on July 16, it will mark nearly six years of work for him.“It has,” he acknowledges, “been a long and challenging journey.”

It’s not like no one else has tried. Most notably, Pacific Fibre, whose heavy-hitting board (Sam Morgan, Stephen Tindall, David Kirk) was obliged to announce in 2012 that even with promised cash from the likes of Rod Drury and Peter Thiel it had been unable to secure the investment it needed for its $526m cable proposal.

All that was left was a lot of excitable headlines and Peter Thiel’s New Zealand citizenship. A proclaimed attempt by Kim Dotcom to pick up the project went about how you’d expect. But before admitting defeat, Pacific Fibre had signed up $170m in future customer commitments. There was clearly a demand for a competitor to Southern Cross.

That pent-up demand helped get Hawaiki Submarine Cable over the line. But the biggest factor in New Zealand getting a new cable is probably that Hawaiki is a New Zealand-based company, with entirely New Zealand shareholders. (Southern Cross, although it was financed by the old Telecom and is still 50% owned by Spark, shelters from the taxman in Bermuda these days.) There’s not necessarily an obvious commercial logic in building trans-oceanic cable connections to New Zealand, with its isolation, relatively tiny market and paucity of major customers. You have to really want to do it.

“New Zealand is part of Hawaiki’s DNA and so the spur to New Zealand was obvious,” says Galasso. “Our shareholders were very concerned by the lack of an alternative cable system connecting New Zealand, Australia and the US and decided to invest to change that.”

Remi Galasso (far left), November 2016 at the Hawaiki Cable groundbreaking ceremony, Mangawhai Heads (PHOTO: SUPPLIED)

John Houlker, who established New Zealand’s first internet connection to the world in 1989 (a 9.6kbit/s link to Hawaii, about 10,000 times slower than your personal home broadband probably is now) and then worked on the Southern Cross deployment at Telecom International, says Hawaiki being based here is “a terrific plus”.

But he notes that the business case wouldn’t make sense if it didn’t also service Australia, which will be served by two cable pairs while New Zealand gets one. “It’s been quite hard to get new cables to Australia,” says Houlker. “Building trans-oceanic cables is a very complex and highly-specialised task. There are so many elements. There are technical issues, competitive issues. And it’s even harder for New Zealand.”

It’s a good thing we’re just a kayak away. But distance isn’t your only enemy in the cable business. While Hawaiki was building its system last year, the 20tbit/s Tasman Global Access cable, owned by Spark, Telstra and Vodafone, and linking Sydney and Raglan, came online. There were other “mostly commercial” obstacles that delayed completion beyond its original 2015 target, says Galasso. “Competitors were naturally keen to protect market share, which is fair, and they did their best to prevent the arrival of a challenger. But ultimately the market and customers chose to support Hawaiki to unlock the market and get better capacity pricing.”

The former CallPlus group (Orcon, Slingshot and others), among the first to sign up to Hawaiki in 2015, withdrew that commitment after it was sold to Australian-based Vocus Communications. Vodafone and the education and research network REANNZ are the only publicly-revealed local customers, but Hawaiki says other deals are protected under NDA.

Vocus New Zealand’s chief executive Mark Callander says he’s still happy to see Hawaiki in business. “The more cable systems, the better for New Zealand Inc, from a diversity and competition perspective,” says Callander. “More players in the market simply drives a better outcome for people who are using capacity and the reliability of it.”

Manufacture of Optical Core, TE SubCom, October 2016 (PHOTO: SUPPLIED)

This might be a good point to address the question you’re all silently asking: will Hawaiki make my Netflix run better? The answer is no. Well, not directly anyway.

In recent years, most of the big internet brands have set up their own CDN (content distribution network) nodes in Sydney. So your Netflix and YouTube are actually coming from there. Ditto for, say, Pornhub, which uses the CDN providers Limelight and Level 3, which both have Sydney nodes. It all currently reaches us via TGA and Southern Cross’s Australian leg.

From July 16, Hawaiki’s Australian leg adds the third route across the Tasman – one that will be used by another big brand, Amazon Web Services. Given that until March last year, the only options were Southern Cross and the slow and ageing Tasman 2 cable, it all adds up to a remarkable change in the way data travels around the Pacific Rim. And there’s more, west of Sydney.

Vocus now has its own major cable project, a 40Tbit/s link between Perth and Singapore called the Australia Singapore Cable. It’s one of two ventures which will supplant what has been the main route to South East Asia, the increasingly failure-prone SEA-ME-WE3 cable. Vocus’s cable alone will have ten times the capacity of SEA-ME-WE3.

That’s good news for both bankers and gamers, who rely on low latency. (Latency is the delay between a request and a response on the network, which is typically affected by distance, the number of nodes data has to travel through and network congestion.) The more so because the balance of cloud and computing services may be shifting somewhat towards Singapore and away from the US, where key services have traditionally lived.

“All the teleography reports say that half the internet’s traffic should come via South East Asia,” says Callander, “and it’s important that there’s sufficient infrastructure up there. That’s been the rationale behind our investment. You look at world traffic flows, you should see a big swing to the west. It’s limited at the moment purely by capacity.”

That doesn’t mean Hawaiki’s long eastward link to the US is unimportant. Network demand, driven by cloud and video services, is currently growing at more than 40% a year. And, says Houlker, big companies and their shareholders don’t just want to see diversity in cable connections – which may simply mean paired structures with separate landing points, like Southern Cross – they want to be able to buy from separate operators. Belt and braces.

Hawaiki cable landing, Mangawhai Heads February 2018 (PHOTO: SUPPLIED)

A multiplicity of links also breathes life into the idea of New Zealand as a safe place for major data centres – an idea that has fermented since the 9/11 attacks suddenly made America seem a less safe home for the world’s data. “My pitch has long been that New Zealand could export computing – green, safe and trusted,” says Houlker. “Computing powered by renewable energy sources. We’re politically safe and a very long way from the world’s trouble centres. We have good laws on data privacy and protection.”

Hawaiki has another potential business benefit – for Northland. The cable will connect directly with the region’s existing fibre networks at its landing station. It’s crucial to The Server Farms, a planned $125m data centre at Marsden, and it’s not unlikely that similar businesses will follow.

In keeping with Galasso’s background – he ran Alcatel-Lucent’s Pacific islands division then founded the Pacific telecommunications supplier Intelia – Hawaiki is also good for the islands. It already connects American Samoa and there are plans for spurs to New Caledonia, Fiji, and Tonga. Other island nations will see a benefit through their existing connections to American Samoa. “In some ways, connectivity is even more important for Pacific islands, as the distance-related problems can be solved with technology,” Galasso says. “For example, e-learning and e-health applications – if supported by submarine cable connectivity and competitive capacity pricing – can become a game-changer for local communities. And New Zealand has a lot to offer to build this kind of partnership.”

It’s worth noting that the capacity of the 2.3mm strands of fibre inside the Southern Cross cable was an awesome-at-the-time 120Gbit/s. Successive technology upgrades – basically, new ways of encoding data as light – have expanded that capacity far beyond original expectations. An upgrade now in process will give it a potential capacity nearly 200 times what it was on day one.

But like any hardware, submarine cables have a finite lifetime. The Southern Cross system’s presumed expiry date was pushed out to 2030 several years ago, but the company is already working on its successor, Southern Cross Next. Like Tasman 2 and PacRim West – the cable that carried our very first internet connection – the original cable will be retired.

Other cable ventures – pursued in parallel with Hawaiki but slower to the finish line – may yet come to our shores. Houlker believes that faster-than-cable low earth orbit satellite networks are still viable in the longer term.

In a world that seems increasingly to be fracturing at a political level, it’s somewhat comforting to know that we are also becoming much better connected. And these new links under the sea don’t only respond to the geopolitical reality – they may also end up driving it.

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