New Zealand could miss the benefits of the next wave of cheap, web-based computing unless the country improves its international broadband links, says internet entrepreneur Rod Drury.
While debate over improving New Zealand's broadband infrastructure has focused on the Government's vision for a super-fast fibre-optic network reaching most homes and businesses, Drury says the top priority should be increasing international bandwidth.
He says this will enable local consumers and businesses to take full advantage of the international trend towards "cloud computing" - software and data-storage services accessed over the internet rather than run through computers' internal operating systems.
Falling PC hardware prices and the arrival of small, low-cost "netbook" devices with limited onboard memory are accelerating the cloud-computing trend.
"What that's going to mean is that rather than storing your photos and video locally on your PC, these devices are going to make it compelling to put your stuff up on the web, which doesn't work in a country with broadband data caps," Drury says.
Because of the high cost of international bandwidth, local internet service providers generally limit - or cap - the amount of data customers can use each month, whereas overseas, in markets where data traffic costs are lower, uncapped plans are popular.
"So one of the risks of cloud computing for New Zealand is that because of our bandwidth infrastructure and the way things are capped, we are not really well geared up for this next computing revolution," says Drury, who is chief executive of NZX-listed software company Xero.
Xero is itself an example of cloud computing at work. It sells business accounting solutions on a "software-as-a-service" basis, meaning customers pay a monthly fee to access and process their accounts through a website rather than buying and installing software on to a specific computer.
"We need to connect ourselves to these cloud services and unfortunately a whole lot of them are going to be overseas," Drury says.
"[For example] we don't have a New Zealand photo-sharing site [like the internationally popular Flickr] because we don't have the scale to have developed one of those ourselves. A lot of our data is going to be living overseas, where it's not cost-effective to participate in these services."
With several other industry observers, Drury believes the country's international broadband pricing issue could be solved if a second operator were to lay an undersea fibre-optic telecommunications cable link out of New Zealand.
The Southern Cross Cable Network, part-owned by Telecom, runs the only submarine fibre links out of New Zealand.
The cost of building a second cable between New Zealand and Australia has been estimated at between $50 million and $100 million.
State-owned communications and broadcasting technology infrastructure company Kordia announced last year it was working with Australian internet network company PIPE Networks to develop a business case to build a second transtasman fibre cable.
Kordia chief executive Geoff Hunt says the company is not looking for a slice of the $1.5 billion National has promised to spend on broadband infrastructure development because the cable project "stacks up very well financially" without the need for direct Government funding.
"We're looking to project finance it. We're not looking for Government money, as such, to enable this project to proceed."
Hunt is, however, hoping to court another state-owned business, Research and Education Advanced Network New Zealand (Reannz), which runs a super-fast broadband network used by universities and other research organisations.
"We're certainly looking for foundation customers and Reannz would be a critical foundation customer for the network but we are also looking to sign up additional foundation customers."
Late last year Kordia commissioned a study by Auckland economics consultancy Covec which concluded that if its Auckland-to-Sydney cable project did go ahead, the resulting competition would reduce average retail broadband data prices by about 24 per cent by 2020, equating to about $2 billion in cost cuts for consumers.
In November Southern Cross Cable Network said it had cut the cost of using its service by 44 per cent.
"We'd like to take some credit for that," Hunt says. "The very fact that there's another project coming up to speed is probably the cause of that price drop."
But he added that before the project could proceed it needed to sign up a sufficient number of foundation customers, line up bank financing and gain approval from the Government as Kordia's shareholder.
"There's nothing certain until the business case is finally signed off and the swinging exchange rate doesn't actually help because a lot of the material - the cable - is priced in US dollars," he says.
"But we're pretty confident there's a very good business case for this project and it's a project that's also very good for New Zealand, because we're about as remote as you can get in terms of being connected to the rest of the world and the cost structure at present just reconfirms our remoteness. We need to get a lot of that cost taken out and this project has that benefit."
UP AND AWAY
New Zealand's thirst for international broadband capacity is ballooning as the way many computing services are delivered changes.
Cloud computing: Information is stored and processed in centralised overseas data centres, rather than on individual computers. Users pull information "out of the cloud" via the internet when they need it.
Software as a service: An increasing number of computer applications can now be accessed through a web browser interface for a monthly fee. Again, many of the services of interest to New Zealand users are based overseas.
Netbooks: Ultra-small, and increasingly cheap, portable computers. They tend to have limited onboard memory capacity, increasing the demand for access to cloud services.