Lessons from the AU model

Mon Jan 21 04:14:07 UTC 2008

Matthew Moyle-Croft wrote:
> 
> 
>>
>> Southern Cross cost some US $1B to construct about a decade ago 
> RFS was Nov 2001.  They full paid the debt from a US$1.3B cost of 
> construction in Oct 2005.
> (see 
> http://www.southerncrosscables.com/public/News/newsdetail.cfm?StoryID=14)
> 
> So, they're making some VERY decent money out of the duopoly with AJC.

Yes, that exercise managed to weather the slump in prices a couple of 
years back when supply far exceeded demand, and then exploit their 
excellent technical position when demand picked up and translate that 
position into good revenue streams that appear to be well above initial 
construction and ongoing operational costs.

I don't believe AJC has had a similar story, but others may know more here.

> 
> Hence why Telstra's building their OWN cable to Hawaii.   It's cheaper 
> to build than buy!

My comment is that its generally more complicated than that, and from a 
sufficiently distanced view overspending on infrastructure forces up 
prices as much as underspending. The only real revenue stream to fund 
this infrastructure comes from this pool of 24M folk living at the bum 
end of the Pacific Ocean. Paying for a large number of underutilized 
cable projects does have a higher total recurrent cost than would be the 
case of there were efficient sharing of a smaller number of cable 
projects, and ultimately its consumers who fund this inefficiency in 
supply. So sometimes competition provides natural incentives for cost 
efficient investments, that ultimately benefit consumers, and sometimes 
competition gets it wrong and over-invests because the actors cannot 
resolve their individual requirements in ways that result in efficient 
sharing of common venture infrastructure investments, and in such cases 
the consumer ends up paying for the inefficiency in infrastructure 
investment. So sometimes it is cheaper to lease than construct, and 
sometimes its not.

Here endth the Nanog lesson in economics from me ( :-) )

My only point in entering this thread was to make the observations that 
the lessons from the AU model may not be very generic - small isolated 
communities often have a unique set of constraints for investments in 
communications systems and that often results in different industry 
structures, different relationships between the actors and often results 
in different pricing structures in the consumer market. I'm not sure 
that I'd be confident in generalizing this particular history into 
anything more generic that would apply to other communities in other 
parts of the world.