John Linton
I have to say that I have been surprised, for the second time, by the implications behind the announcement from Pipe that it was uncertain about the future of its cable laying venture:
http://business.smh.com.au/business/cash-shortfall-leaves-crossing-a-pipe-dream-20081202-6pr3.html
(the first time I was surprised was when Pipe announced that it was actually going to invest in laying cable for international IP transit).
I have read other reports than the one I cited as well as the ASX announcement and I'm not sure that I actually understand what Pipe is trying to say. Is it saying that there is a temporary glitch with finalizing the funding?.......or is it saying that there is a major change that may result in no funding being available? As far as I can see the meaning of the ASX documents and the subsequent quotes from the Pipe CEO are very far from being clear.
My 'second surprise' is that a major venture such as the laying of trans-ocean cable can get to such a late point and then run into financing difficulties. I have noticed that there have been some financial difficulties around the world over the last few months but I don't see how those issues would affect a solidly approved 'business case' put in place two years ago that has now reached this point in its implementation time frame. Unless my memory fails me (more than a possibility)
I thought I remembered reading a press tour of the Sydney cable termination point/data centre where more than one 'foundation user' of the cable had installed its termination equipment and was "testing"?
I could have sworn that I more recently read that the actual 7,000 kms of cable had been manufactured and was 'sitting on the dock' awaiting pick up by the cable laying ship?
I know Exetel has been approached more than once about buying transit on the cable which, again if my memory isn't totally screwed, was originally scheduled to go 'live' before this? Perhaps these approaches were ill considered but they were a factor in Exetel considering its future IP needs.
Now, some time after the service was meant to be operational, the ASX is advised of some doubt on financing which may, if it isn't resolved, result in a material change to the financial well being of Pipe moving forward - which is 'spin speak' for "we're going to have to write off mega money which will result in a major loss and severe damage to our balance sheet/share price." Apart from any personal financial impacts on Pipe employees and shareholders, there are wider implications for a lot of Australian broadband users.
All of this, if it turns out for the worse, is bad news for everyone. It's mainly bad news for the future of brave initiatives in Australian communications because this was a very brave initiative in terms of a small company making a huge financial investment that may have benefited all Australia's broadband uses by increasing the competition in, and therefore lowering the costs of, trans-Pacific IP transit. If Pipe do abandon their current plans then, together with the recent fall in the $A (not to mention the predicted levels that some currency analysts are predicting the $A to fall to) the steady fall in trans-Pacific transit over the past five plus years may be affected. It was very good to see that an Australian company would restrict the flow of currency being exported to overseas entities as Australia's use of the internet continued to increase in terms of traffic to and from other countries and, presumably, entities in other countries would pay Pipe to use the service therefore increasing Australia's 'exports'.
However it's also bad news because any possible future major write off in the cable venture will almost certainly have some effect on Pipe's current major business of intra-city and inter-city fibre connections which are moving in to the multi gbps levels that even small ISPs such as Exetel are beginning to need. Pipe isn't a big supplier to Exetel (less than $A50,000 a month) mainly for Sydney - Melbourne and Sydney - Brisbane connectivity and a number of inter-city cross connects for peering and other purposes but we wouldn't like to see these services disrupted by either a price increase or delays in making the higher speed services available. Pipe have done a very good job to date of providing low cost transits to and from an increasing number of locations around Australia and it would be highly detrimental for the costs of these valuable services to be increased by any problems caused by any mishaps in the cable venture.
Pipe made some 'brave' decisions to establish its business and the services it has provided to date have been very beneficial to a great many broadband end users - who would never be aware that whatever pricing they are getting is lower than it would be if Pipe hadn't had the courage and understanding of the Australian network market they have displayed to date. It would be a great pity if that was to be affected in any way by whatever difficulties they are now experiencing in attempting to increase the advantages they currently provide.
Obviously the 'bad news' may well not happen which would be nice to see. If it does turn out badly then I suppose this will be seen as the first, very tangible, negative affect on broadband services in Australia resulting from the GFC.