The demise of the project will leave New Zealand with one cable - Southern Cross Cable Network - connecting the country with the rest of the world, raising concerns about capacity restraints as the Government continues its ultra-fast broadband project.
Pacific Fibre chairman Sam Morgan broke the news yesterday that the board had decided to end its operations, citing an inability to raise the $400 million required to fund the cable.
The board had spent millions of shareholder funds trying to get the job done. Despite getting some good investor support, the board had not been able to find the level of investment required in New Zealand initially and, more broadly, offshore, Mr Morgan said.
Vodafone NZ chief executive Russell Stanners, who was in Dunedin yesterday, said Vodafone believed the Pacific Fibre proposal made sense and he was disappointed it had fallen through.
However, other opportunities could open up in the future. There was enough capacity on the Southern Cross cable.
"The key question in New Zealand is price. With more fibre being rolled out, capacity will increase exponentially. We have more than enough capacity but we are looking for fair pricing," he said.
Telecommunications Users Association chief Paul Brislen said he was perplexed why the New Zealand Superannuation Fund had not taken a stake in the project, as it offered enormous growth potential.
"This is exactly what superannuation funds invest in, for long-term, steady-as-it-goes growth. You only have to look at the dividends delivered to Telecom through the Southern Cross cable to know there are good opportunities there."
The Australian Pension Fund had indicated it would support the Pacific Fibre project, along with iiNet, Mr Brislen told the Otago Daily Times.
The association was concerned that projected future broadband use in both New Zealand and Australia could leave the Southern Cross cable at full capacity by about 2020. That would mean Southern Cross would have to either upgrade or build its own new cable sometime soon, he said.
Mr Brislen acknowledged there was plenty of spare capacity on the cable but with the Government's UFB project and the Australian National Broadband Network expected to drive growth, capacity could still be under pressure.
Most people who had broadband wanted faster speeds and more capacity. New Zealand was still a country that downloaded from the United States and that would not change anytime soon, Mr Brislen said.
Mr Morgan said the global investment market was difficult but the board knew it was always going to be hard, regardless of the timing.
Pacific Fibre co-founder Rod Drury said the high cost of broadband in New Zealand made it hard to connect globally and it was that market failure, not a technical failure, the board tried to solve.
"We still cannot see how the Government's investment in UFB makes sense until the price of international bandwidth is greatly reduced."
In September last year, the Australian telecommunication research company Market Clarity reported the cost of bandwidth to the United States from New Zealand was nearly six times greater than the price paid by Australians.
"We feel like we've done everything we can to succeed and we are all hugely disappointed that we have not managed to get there," he said.
Pacific Fibre had earlier argued that the second cable would bring competition to the market and would bring the price of international internet capacity down.
The second cable would allow internet companies to increase the monthly data caps they offered, so users could take advantage of the faster speeds of the Government's $1.35 billion UFB network.
The UFB scheme aimed to provide download speeds of 100 megabits per second to 75% of New Zealand by the end of 2019.
