Back in February Spark took a first-half profit hit as its usually fat share of earnings from the Southern Cross Cable, in which it holds a 50 per cent stake, dropped to zero amid new competition.
So what's next in the trans-Pacific cable wars? There was good andbad news on that front when Southern Cross updated the Herald yesterday.
The good: a spokesman said funding was expected to close by the end of May for the US$350 million ($519m) new Southern Cross Next cable, which will provide a broadband link between Sydney, Auckland and LA, with a spur running off to Suva along the way (the existing Southern Cross cable, which will continue to operate, diverts to Hawaii).
The new cable, which will be faster than rivals and the only one to offer a straight shot from Auckland to the continental US (giving it a slight advantage for two-connections) is now on schedule for commercial launch in 2021.
The bad: Asked when dividends would resume for Southern Cross shareholders, a spokesman said "we cannot say at this time."
Right now, the shareholders in the Bermuda-incorporated Southern Cross are Spark (50 per cent), Optus (40 per cent) and Verizon (10 per cent).
The new Southern Cross Next cable will be funded through a variety of mechanisms, including anchor customer funding and debt, by a key element will be Telstra buying a 25 per cent stake in the joint venture.
The Telstra buy-in will dilute Spark's stake to around 37.5 per cent, Spark MD Simon Moutter said when the deal was announced in December. Final terms have yet to be settled.
The original Southern Cross cable in blue and the proposed Southern Cross Next in green. Southern Cross says it expects Next to be funded by May this year and operational by 2021. Image / Supplied.
The Southern Cross spokesman said Telstra buy-in should also be "completed in that timeframe [the end of May financial close for Next], if not sooner."
Spark initially forecast its share of Southern Cross earnings for 2019 to be in the range of $10m to $20m against $50m, $61m and $66m in the three prior years.
But in the event, it reported that Southern Cross paid no dividend to its shareholders for the first-half, with the dry-up contributing to Spark's 5.6 per cent to $153m in the six months to December 31.
Once Southern Cross dividends eventually resume, they will reflect Spark's lower stake. The Telstra deal will see the company formerly known as Telecom lose majority control (and profit-share) for the first time since its first cable was launched in 2000.
End of the golden weather
For more than a decade and a half, Southern Cross enjoyed a monopoly as New Zealand's only major broadband connection to the outside world, raising questions over pricing and security (on the latter, Southern Cross is always keen to point out its original cable is actually two cables in a figure-8 configuration for redundancy).
In 2017, it faced its first competition on its Auckland-Sydney leg as the Tasman Global Access cable - a joint venture between Telstra, Vodafone and Spark - went live.
And from July last year, it faced its first trans-Pacific competition from the new Haiwaiki Cable, backed by rich listers Malcolm Dick and Sir Eion Edgar, went live, boasting customers including Amazon Web Services, Vodafone and the Crown-owned Reannz (whose anchor customer contract, worth up to $80m, provided the newcomer with a key leg-up).
Yesterday, Sothern Cross said it had signed a deal with Alcatel Submarine Networks to lay its new Next cable, contingent on funding actually closing in May.
Southern Cross Next will up the ante in capacity or "speed". The new cable will support up 72 terabits per second of capacity, against Hawaiki's 43Tb/sec and the original Southern Cross's 20Tb/sec.
Flashback: Diver Troy Hitchcock helps bring the original Southern Cross cable comes ashore on Auckland's Takapuna beach in 1999. Photo / Russell Smith.
However, for everyday internet users, their experience will depend on how much capacity their internet service provider is willing to pay for from Southern Cross.
Southern Cross has always maintained that a network of resellers has maintained price competition, but most commentators say that, for consumers, three international cables will be better than one. Certainly, that's the effect we're seeing so far on Spark's bottom line.
