Project Runway: cleared for take off

PIPE Networks announced today that Project Runway has been cleared to take off. This will see PIPE Networks spend $200 million investing in international capacity to help break a ‘gang-of-four’ competition bottle neck.

PIPE plans to hit the ground running once the cable is deployed in mid to late 2009, slashing prices on international connectivity by as much as 50%.

That’s an incredible point to enter the market, one would have thought they’d drop down by about 25%, and then come down if they need to (ie. let the others come down first).

It just seems like they’d be giving up extra money by not getting involved in encouraging a price fight.

Sure, they might come down by 50% in the end, but profit terms, you’d probably want to wait and see what you can milk it for?

PIPE do have their heads screwed on though, requiring no fund raising for the $200 million deployment cost, simply instead funding it from financing and current cash flows.

That type of situation means they’ll be debt free within 6 months of the cable getting deployed, and seeing very positive returns within years 3 – 5 of what generally is a 15-30 year plus deployment, so the profits made off a cable are great!

The effects this has on consumer broadband services won’t be fully known, but we can estimate that with a 50% drop in cost, comes a 15%+ increase in data usage by some ISPs, and others might simply maintain same quotas and chop prices by the equivilent.

iiNet were singing PIPE praises too, stating that the domestic transit is fine, the international transit comprises a large amount of the bill, and by halving that iiNet are theoretically positioning themselves to instead, spend the same, but GET more (and with more data becomes better plans).

It’ll be a while after deployment for the benefits to trickle down through to everyone, but if your ISP is in the top 10, no doubt they’ll be on the ball to get access to that PIPE data, either directly, or indirectly, for the savings they’ll realise, and the benefits it delivers.

PIPEs cable has been made possible with VSNL, PNG Telekom, iiNet, Internode and Primus, to name just part of a list.

I doubt they’ll all just run away from the existing providers, I think they will simply slash bandwidth levels with them, so that they can obtain better savings.

PIPE obviously have international benefits from deploying this cable too, with interest from PNG Telekom suggesting they see themselves benefitting from it.

PIPE also have a spur planned for the Gold Coast at some point in the future, perhaps that will link the Gold Coast to Sydney, and from the Gold Coast to Brisbane, creating an interstate link for interstate data. Just theory, but it could be happening. Brisbane could become a popular place for POPs to be deployed for international connectivity and redundancy from Sydney.

We might see some benefits sooner if any of them feel a threat of this cable, but its doubtful.

Back in line for 2009.


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