North American Network Operators Group
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Re: Lessons from the AU model

  • From: Geoff Huston
  • Date: Sun Jan 20 23:14:54 2008

Matthew Moyle-Croft wrote:



Southern Cross cost some US $1B to construct about a decade ago
RFS was Nov 2001. They full paid the debt from a US$1.3B cost of construction in Oct 2005.
(see http://www.southerncrosscables.com/public/News/newsdetail.cfm?StoryID=14)

So, they're making some VERY decent money out of the duopoly with AJC.

Yes, that exercise managed to weather the slump in prices a couple of years back when supply far exceeded demand, and then exploit their excellent technical position when demand picked up and translate that position into good revenue streams that appear to be well above initial construction and ongoing operational costs.

I don't believe AJC has had a similar story, but others may know more here.


Hence why Telstra's building their OWN cable to Hawaii. It's cheaper to build than buy!

My comment is that its generally more complicated than that, and from a sufficiently distanced view overspending on infrastructure forces up prices as much as underspending. The only real revenue stream to fund this infrastructure comes from this pool of 24M folk living at the bum end of the Pacific Ocean. Paying for a large number of underutilized cable projects does have a higher total recurrent cost than would be the case of there were efficient sharing of a smaller number of cable projects, and ultimately its consumers who fund this inefficiency in supply. So sometimes competition provides natural incentives for cost efficient investments, that ultimately benefit consumers, and sometimes competition gets it wrong and over-invests because the actors cannot resolve their individual requirements in ways that result in efficient sharing of common venture infrastructure investments, and in such cases the consumer ends up paying for the inefficiency in infrastructure investment. So sometimes it is cheaper to lease than construct, and sometimes its not.

Here endth the Nanog lesson in economics from me ( :-) )

My only point in entering this thread was to make the observations that the lessons from the AU model may not be very generic - small isolated communities often have a unique set of constraints for investments in communications systems and that often results in different industry structures, different relationships between the actors and often results in different pricing structures in the consumer market. I'm not sure that I'd be confident in generalizing this particular history into anything more generic that would apply to other communities in other parts of the world.