TRANSCRIPT: PM discusses failed Pacific Fibre venture

  • 02/08/2012

Prime Minister John Key discusses the Kiwi Pacific Fibre cable project, amid reports it was sunk by US fears of Chinese investment and espionage.

What's your reaction to Rod Drury's comment that Pacific Fibre could not attract Chinese funding because it was opposed by the US authorities?

"Look I can't comment on issues of security.  In the end we are disappointed that Pacific Fibre could not get off the ground. Would have been an important step I think for New Zealand and important competition for the Southern Cross cable. But in the end the reasons why that fell over are for other people to opine on, but not for me."

Labour is saying that the government should have put some money into it to help it out?

"It's easy for Labour to argue that they should spend money or we should spend money, but it is money we don't have. At the moment we see plenty of capacity on the southern cross cable. May have certainly added competition which would have been useful, but in terms of stacking up as a priority project we didn't believe it stacked up in terms of some of the other things that we look at.  In the end ultimately if there had been such a compelling economic proposition then it would have attracted that private sector capital."

You say, Prime Minister, you can't comment on a security matter. Was it a security matter?

"By definition I am not commenting on it."

Are you worried this might deter others from trying to do the same, this deal falling apart?
"No, I don't think so. There were some very unique and specific things about it.  It was always going to be very ambitious. It was a significant investment. There have been a number of other cables around the world that have not got off the ground either at this time, so it's, I think we need to acknowledge New Zealand's a smaller market in that regard and Southern Cross does have quite a lot of capacity. There were always risks there for investors and I guess those investors over time have considered the merits of the proposition, some decided not to go forward and that's why the project ultimately has not got off the ground."

Doesn’t it affect the Ultra Fast Broadband investment side of things?

"We don't believe so, no."

No one has given any implications that there is still only one pipe coming in?

"We believe there is enough capacity coming in there, I know there is a counter view from the Pacific Fibre people who believe it would have added and maybe it'd be more competition and more bandwidth, but the understanding we have at the moment is that there is plenty of capacity on the current cable."

Are you concerned businesses and consumers are worse off?

"No. I don't think that is the situation. Prices have been coming down anyway on the Southern Cross. I mean it's always better if there is competition than if there is a monopoly position, but no we are not concerned."

Sam Morgan said this morning on radio that this capacity question is a red herring, it's like saying we have got one baker that can prepare the whole city so let's just have one bakery?

"Yeah, but I mean there is nothing stopping anyone investing in the Pacific Fibre network if they want to and so at the end of the day this is a consortium that was put together quite some time ago, and for a few years they have been looking for people to invest in the project. The project has got a theoretical high rate of return, so the fact that they haven't been able to cobble together a group of investors over a period of time tells you it is not quite as straightforward as the supporters of the project might believe." 

Do you think the newly strengthened Vodafone taking over Telstra Clear is perhaps another opportunity for another cable, Vodafone being somewhat bigger than Pacific Fibre?

"Yeah, I can't answer that. I mean they're in a different space. I mean it's possible Vodafone might want to invest in that infrastructure, but they would have had that opportunity through Pacific Fibre, but I can't rule out somebody doing it another day. But I think the concern from all those investors is they look at the capacity on Southern Cross at the moment, and they say while there is always the capacity to compete on price, there is so much bandwidth still there, that the concern is that once competition comes in price would not only fall it would mean returns would be less, but also ultimately there is plenty of capacity."

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