The ability for US intelligence agencies to access internet data was used as a bargaining tool by a Telecom-owned company trying to keep down the cost of the undersea cable from New Zealand.
Lawyers acting for Southern Cross Cable quoted a former CIA and NSA director who urged the Senate to "exploit" access to data for an intelligence edge.
The value of intercepted communications to the US was raised during negotiations last year which could increase internet costs 15 per cent.
Documents on the Federal Communications Commission website show the issue was raised by lawyers acting for "undersea cable operators", including Southern Cross Cables, half-owned by Telecom and owner of the 28,900km cable which links New Zealand to the internet.
Lawyers acting for the cable operators told the FCC there were benefits to their clients not having to pay for their cables to land on US soil.
The FCC was told the number of internet connections passing through the US was dropping.
"There has long been speculation that US surveillance following implementation of the Patriot Act could push internet content and information storage outside the United States-to the detriment of the United States."
The legal team footnoted the statement with a 2006 quote from former CIA director and National Security Agency director General Michael Hayden, who set up domestic wiretapping and widespread internet snooping during his terms as an intelligence chief.
He was quoted as saying: "Because of the nature of global telecommunications, we are playing with a tremendous home-field advantage, and we need to exploit that edge.
"We also need to protect that edge, and we need to protect those who provide it to us."
In other documents, Southern Cross Cables raised the possibility of submarine cables coming to land in Canada or Mexico.
Southern Cross Cables lawyer Nikki Shone said the company was legally obliged to co-operate with US laws and it was in relation to those obligations that "it noted that the FCC's proposed universal services charges could harm US security interests by encouraging infrastructure to bypass the United States".
She said Southern Cross Cable was "wholly unaware of recently disclosed US surveillance programmes".
A Telecom spokesman cited the company's contract with residential customers, which tells them it will pass on their information without permission if it believes it is legally required to do so or if it is necessary "to help maintain the law".
Telecom Users Association chief executive Paul Brislen said revelations about US interception of internet traffic meant "we have to assume that all our communications are intercepted".
He said internet and telecoms companies had to comply with US rules or be shut out of lucrative contracts.
Mr Brislen believed the cable from Auckland to Los Angeles was secure but said intelligence agencies would access information beyond the landing stations.
Tech Liberty director Thomas Beagle said any use of American services and networks exposed data to being captured by the US.
But shifting to other countries "will just expose you to surveillance from their national governments".
"It seems that we now have the choice between taking the time to understand and implement secure encryption or choosing services based on which governments we don't mind spying on us."
