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Pipe's Guam cable: What does it mean?

Opinions are split amongst analysts, telcos and ISPs as to whether Pipe's new PPC-1 Sydney to Guam submarine cable will lead to lower broadband prices for Australians, but all agree the threat of its arrival, set for October, has had a positive impact already.
Written by Liam Tung, Contributing Writer

Opinions are split amongst analysts, telcos and ISPs as to whether Pipe's new PPC-1 Sydney to Guam submarine cable will lead to lower broadband prices for Australians, but all agree the threat of its arrival, set for October, has had a positive impact already.

Over the course of Pipe Network's tumultuous ride to launching PPC-1 — which has included alleged threats of violence to its chief Bevan Slattery from a tier one telco, and withdrawal of support from its financiers — broadband enthusiasts have speculated widely on what the new highway to Australia's largest content provider, the US, will mean.

Greater competition, leading to dramatic price drops and faster speeds are two that have been bandied about, but opinions are divided on how these will play out. One clear benefit to ISPs has been the response from Southern Cross Cable Network — 50 per cent owned by Telecom NZ, 40 per cent by SingTel-Optus and 10 per cent by Verizon Business — which dropped its prices by 50 per cent in the past 18 months, and is on the move to significantly boost capacity.

According to one industry source, Southern Cross has a lot of room to move, but has only done so in response to the impending threat of PPC-1. Southern Cross has utilised a small percentage of its capacity, said the source, but only faces incremental costs in expanding that. In other words, it can boost its capacity without it equating to lower returns.

How that plays out for consumers though is another matter. iiNet's managing director Michael Malone told ZDNet.com.au, "No [ISP] will do lower charges. You just increase quotas and pass the benefit through to customers", which iiNet had done one month ago. In other words, when PPC-1 becomes operational in October, don't expect lower charges — they've already been passed on.

Primus managing director, Ravi Bahtia, also reckons Pipe's launch won't lead to lower future prices. "We've already done that. Our $49 plan includes 80 gigs [GB]."

A bigger factor influencing the cost of broadband in Australia, according to Bahtia, is wholesale access to Telstra's Unbundled Local Loop Service (ULLS), which allows an ISP to deliver broadband without the traditional landline connection. Bahtia is strongly opposed to the Australian Competition and Consumer Commission's plan to increase the ULLS pricing payable to Telstra by 40 per cent over the next three years.

"We have an excellent deal given the distance of Australia," Bahtia said, but the difference between the US and Australia is that "[US ISPs] don't pay the exorbitant access charges which we do in Australia, which the ACCC, in all its wisdom, decided to increase."

As for the impact Pipe will have on Primus' costs, Bahtia said: "The international component cost is very little. If you look at the most popular plans, the international carriage costs around 10 per cent." Other costs that he's more concerned about were backhaul, network equipment and power.

M2 Telecommunications chief executive Vaughan Bowen, which buys its international capacity from Telstra, Optus and Tata Communications, disagreed with Bahtia: "It certainly creates a more competitive market for international bandwidth, which is the highest component of our bandwidth consumption. There's been some very significant price improvements in bandwidth cost and this Pipe link pending has helped negotiate because everyone knows it's on the horizon," he said.

Internode's carrier relations manager has previously said that customers won't notice any performance difference once PPC-1 has launched, but that consumers can expect cheaper broadband.

Ovum telecommunications analyst, David Kennedy, has taken a longer term view of the impact that Pipe will have in terms of demand for content expected once the National Broadband Network (NBN) is launched.

"The government's NBN project will increase demand for international capacity significantly, though it's still difficult to quantify this," said Kennedy. "The PPC-1 project ... will help to provide the additional capacity needed to support the government's NBN plans, and it will increase the competitiveness of the international capacity market, improving the price outcome for users of the domestic network."

Like M2's Bowen, iiNet's chief technology officer, Greg Bader, said that Pipe's impending arrival had been a "step jump" in terms of its costs, but benefits were being offset by increased demand.

"Bandwidth prices were ludicrous for many years, and they have been coming down but not at the rate that's keeping up with increasing consumption," Bader told ZDNet.com.au. In order of volume, the US and Europe still dominate incoming Australian traffic, but locally sourced and Asian-sourced traffic was showing fast growth.

"Customers are consuming more bandwidth and there are more of them," said Bader. While more traffic was being generated locally, thanks to, for example, Google's recent decision to host its content locally, international consumption is heading north too. The other high growth region where Australians source content from is Asia, according to Bader.

But in an NBN world where high bandwidth services such as IPTV may prevail, how much PPC-1, Telstra's Endeavour, Southern Cross or the Australia Japan Cable is used to carry international traffic will depend on how ISP's architect the delivery of content and may place greater emphasis on local networks.

"You could argue that domestic traffic could be more important. With IPTV, the requirement to have robust domestic networks increases. Realistically, all IPTV traffic will be sourced from Australia. A great example of this is English Premier League, which we stream in once, put into our own distribution system and stream it out domestically. That model is becoming more common," he said.

One of the issues that PPC-1 suffers in terms of its use as a US to Australia link is that it is a slightly less direct and higher latency route between the US and Australia than existing cables, such as the Southern Cross Cable Network, and Telstra's Sydney-Hawaii Endeavour cable, launched last year.

One industry source said that this will mean that a majority of ISPs will still mostly rely on Southern Cross, rather than Pipe, but according to Bader this isn't necessarily a bad thing since PPC-1 will be used as a preferred route to Asian content.

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