Pipe Patches up Financing for the PPC-1 Cable Project

A GROUP of large Australian telcom service users have reached an agreement on December 2008 to rescue Pipe's $200 million PPC-1 cable project.

Tyco Telecom, which won the tender to build the link last year, has reached an agreement with Pipe and its largest customers, to get the PPC-1 cable project back on track for its scheduled completion next July.

Pipe chief executive Bevan Slattery said that the customers, which include internet providers and other large enterprise and government bandwidth consumers, had agreed to pay for capacity on the cable.

"All this is, is realigning of payments. The customers are bringing their payments forward to meet Tyco's," Mr Slattery said.

The customers would pay for the cable during its construction rather than after its completion.

Local internet providers are hopeful that the new cable will break a duopoly on Australia's international communications links. Optus parent SingTel and Telstra currently have substantive ownership of Australia's international bandwidth capacity through holdings in companyies that operate the Southern Cross Cable and the Australia Japan Cable.

Telstra also has its own capacity.

"The addition of Pipe would raise levels of competition in international transit and that can only be a good thing for telecommunications prices overall, particularly broadband prices," Ovum senior telecommunications analyst David Kennedy said.

There were concerns that the PPC-1 cable project would fail early this month after Pipe's previous financing deal fell over. It's understood that a senior executive within the company's lender was pushed aside, delaying financing for the deal. Mr Slattery said that the delay was unacceptable. The company called a trading halt while it sought alternate arrangements.

Tyco and Pipe have signed a confidential memorandum of understanding – Mr Slattery was reluctant to release details of the deal but confirmed that Tyco would not be taking a share of revenue that the cable generates once it begins operation.

The customer payments would cover the "vast majority" of the costs of building the link, he said.

The cable is expected to be completed July 2009.

Pipe is also working on a trans-Tasman link to New Zealand called PPC-2.

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