Pacific Fibre's effort to build a second internet link out of New Zealand has got a multi-million dollar vote of confidence from a Crown-owned education, research and innovation network.

The state-owned entity REANNZ, which operates the high-speed broadband network connecting universities and research centres, has signed up to be Pacific Fibre's first customer.

Pacific Fibre is constructing a second fibre-optic link from Auckland to Sydney and Los Angeles and is aimed to meet the growing demand for capacity, tipped to treble when the Government's ultra-fast broadband scheme rolls out.

REANNZ is committing a $15 million Crown grant, as well as more of its own funding, to buy internet capacity over the sub-marine internet cable.

The agreement will see the internet speeds available to REAANZ's members rise from today's 1 gigabit per second to an initial 40 gigabits and then to 160 gigabits per second over time.

REANNZ's out-going chief executive Donald Clark said the deal secures the long-term performance of the network in New Zealand.

"Pacific Fibre will provide us with effectively unconstrained capacity to Australia and the USA from mid-2014, allowing us to collaborate with the rest of the world on an equal footing," he said.



"Because it is such a large amount of capacity, it should enable any research, innovation, or education application you can dream of in the foreseeable future."

The two companies have yet to finalise the contracts, but said they had agreed on its key terms.

Pacific Fibre chief executive Mark Rushworth said the deal shows potential investors there is a demand for capacity over the cable and it has a strong business case.

The funding from REANNZ will form part of the debt component of the cable, which amounts to 40 to 45 per cent of the build (US$160-US$180 million).

The remaining funding, being led by Credit Suisse and First NZ Capital, will come from investors.

The Pacific Fibre project is tipped to cost US$400 million ($495 million).

Rushworth said in late April the enterprise was running to schedule and the cable system was due to be up and running by 2013.

Negotiations with companies to supply equipment and build the cable are set to happen this month.

Rushworth has consistently argued a second international link is needed for New Zealand to tap into the potential of the UFB scheme, and to cope with rapidly increasing demand for international internet capacity.

It would compete with the existing Southern Cross cable, which has a monopoly on international traffic services.

Pacific Fibre was founded last year. Its board includes Sam Morgan of Trade Me, The Warehouse's Sir Stephen Tindall, and former All Black captain David Kirk.