Today Takapuna... tomorrow the world
He left his high-flying corporate job as Vodafone’s chief marketing officer in January. Two months later Mark Rushworth appeared at the forefront of an ambitious project called Pacific Fibre, which intends to build a second international cable connecting New Zealand to the US. Telecommunications Review editor Sarah Putt caught up with Rushworth in a Takapuna cafe overlooking the beach where the existing international cable Southern Cross Cable landed a decade ago.
Q: You were chief executive of ihug during the fight for unbundling the local loop, so you have a kind of challenger background. But just as LLU was announced in 2006, ihug went up for sale. Why?
A: iiNet’s (ihug’s Australian owner at the time) growth expectation was always in Australia, and when they picked up ihug they were really interested in its Australian customers. New Zealand performed very well, but they needed capital to expand in Australia, so they sold an asset and that worked out well for them.
Q: Did it work out well for you? Because you changed from being a chief executive to becoming the chief marketing officer of Vodafone. What was that transition like?
A: It was great; as we neared the end of the sale you could see really good synergies between Vodafone and ihug – very similar as a brand and as a culture. For the first 18 months we kept the ihug brand; I was the CEO reporting into Vodafone and it was about integrating people, expertise, systems into the Vodafone business, and with that we were able to scale the business. It enabled us to position Vodafone as a player in total telecommunications, as opposed as just mobile.
Q: What were your thoughts when the ihug brand died?
A: I’m always someone who looks forward rather than back. It had been very successful as a tier two, tier three telco operating in that space, but it needed access to capital to grow. So having Vodafone buy ihug was a great move for everyone involved. I look today at all the people that came across from ihug into Vodafone and they’re still there.
Q: Did you have much to do with the Red Network – that is, Vodafone’s unbundled network? That was something that you fought for as ihug CEO and that you were able to enact as part of Vodafone. Can you describe what that process was like?
A: There were a few challenges along the way; there were learnings along the way in how to work with Chorus – they were finding their feet, we were finding our feet and we got through it.
Q: Do customers understand the difference between unbundled lines and what you were reselling from Telecom Wholesale?
A: I don’t think they do; I don’t they necessarily need to. Customers choose their ISP based on service, performance – all those different things. Unbundled lines just enable an ISP to control more of the end-to-end process.
Q: Why do you think Vodafone hasn’t unbundled beyond Auckland?
A: You’d have to talk to Vodafone about that. I can talk generally about the industry and Vodafone, but I won’t go into detail. I’m still under a restraint from Vodafone.
Q: What about the Chief Marketing Officer role? What would you say was your chief achievement in that role?
A: Ask me that in six months’ time when my restraint is out. I don’t want to talk too much about Vodafone. I had an absolutely great time, it’s a fantastic organisation and it’s been very successful in having mobile only and then a total telco.
Q: Fair enough. So you returned from holiday in January and handed in your notice. When I spoke to Vodafone CEO Russell Stanners last week, he said you came back, you had a beard and said “I’ve had enough of corporate life, I’m leaving.” Is that what happened?
A: I’d been at Vodafone two and half years and the time felt right. I had a great summer and decided there were some other things that I wanted to do. I’m doing them.
Q: Did you know about Pacific Fibre?
A: No, I didn’t.
Q: So how did that happen?
A: Part of the announcement said I was on the beach surfing and growing a beard. That went out in the media, Sam Morgan and Rod Drury saw it and thought “great, we want someone like Mark in this venture” and gave me a call.
Q: Were you surprised?
A: I guess so, but I was looking forward to some more time off. I got a few calls, but this was one that was really exciting. This is great for New Zealand and I thought I’d love to be involved with it.
There are six founders and what we will do over time, as we move through the certain gates, we’ll look at what’s needed to get through certain stages and we’ll bring on an exec team.
Q: I understand that Rod Drury, Stephen Tindall and Sam Morgan have put money into the venture. But what about you, Lance Wiggs and John Humphreys?
A: We all have, we’ve invested both time and cash, which is good.
Q: Can you say how much money?
Q: The bill for this is $900 million; that’s a lot of money. Can you talk me through how you’re going to get it?
A: $900 million is a lot, but it is the largest and fastest pipe that will come out of New Zealand and I imagine there will be a combination of equity and debt in funding it. Our approach is to talk to some long-term large investors about the right mix of debt versus equity. There’ll be some financial gymnastics that come into it – when you build a cable, a large part of it is getting customer commitment upfront. And we’re talking to customers who might be interested in taking some equity on board. That’s the traditional way; that’s how the Southern Cross was funded.
Looking at the project if you’re just trying to connect New Zealand to the US, I think you’d have a greater degree of difficulty in terms of finding customers on board that could fund it. New Zealand is an absolutely beautiful country but only 4.4 million customers – we really need access to Australia and that’s the beauty of this venture.
Q: You’ve got a lot of competition in Australia; there are four cables there already.
A: What’s the Australian population? About four or five times what it is in New Zealand. You just need to look at the way bandwidth use is growing, and that’s before things like Ultra Fast Broadband in New Zealand and the NBN in Australia, and the volume that will come as a result of that. There’s more and more demand for bandwidth. When I was at ihug 90% of the traffic was international; now it’s about 70% because what people are doing is to have big caching servers, so you only bring in content once to bypass the high international costs – you’re forced by the high price of international traffic to do things differently.
You’re already starting to see this digital divide forming. In New Zealand we didn’t get the iPad in the first round, we didn’t get the Kindle, because there isn’t that strong connection to the US.
Q: You’re working with Kordia on Optikor (proposed trans-Tasman cable) – would that become the Australian-New Zealand leg?
A: We’re talking with Kordia. It’s too early to say. We’ve said we’ll talk with all the major cable projects around and find a way where we can unite it into the project. It doesn’t appear to make a lot of sense to overbuild capacity on that leg, and so we’ll look at ways that we can both work together.
Q: What about the other end – going from Australia, across to Perth and up to Singapore – what’s this dotted line on your plans?
A: It’s phase two. We’ve had some interest from customers saying a couple of fibre networks are going across Sydney to Perth, and they’re asking in the second phase if we could connect up to Asia, as they expect far greater growth up in Asia and strong links with New Zealand and Australia. That’s phase two and has potential.
Q: Going back to phase one: a continuous cable from NZ to US – Telecom Wholesale says you need a geography lesson if you think you can achieve it.
A: The world is actually round and not flat. Go onto Google Earth and have a look at the curvature of the Earth, and there’s a direct route from Sydney up over New Zealand out to the US.
All those alternate cables, Southern Cross included – we’re talking technology that’s 10 years old. That technology had to stop in Hawaii, because they couldn’t do a single hop across. With fibre most of the latency comes in when you do a landing, but because we’re not doing that landing, we’re not going to Hawaii, we’re not stopping.
So it’s not a geography lesson, it’s a pure one of physics – we’re reducing latency because we’re not stopping at a landing site; we’re going straight across with a technology that’s not 10 years old.
And why that’s important is, banks and financial institutions spend millions designing algorhythms so they can trade faster than any other bank – that’s their competitive advantage. Now in order to have a differentiator here we also need some kind of technology difference, and that is lower latency. So compared to other cables out of Australia it will be about 6-7 milliseconds faster; out of NZ it’ll be four milliseconds faster.
Q: The Southern Cross has a figure eight configuration for resiliency and diversity; won’t Pacific Fibre need to be a figure eight?
A: No. There are four cables out of Australia and one out of New Zealand. Customers these days want carrier diversity; they don’t want to lump everything with one carrier. Southern Cross goes down, that’s it. It’s quite normal around the world to do what’s called ‘capacity swaps’. Figure eight was used in the olden days to cover diversity, but now with IP systems it’s easy to route it through any of the other networks.
Q: Have you spoken to other cable providers?
A: We’re in the process of talking to them. We’ve only been out five working days; the most important thing is to talk to all the customers. One of the reasons for announcing it last week was so we could have those conversations. We could go out and see what’s the appetite, what’s the interest in this, and see whether there’s a desire to build this for New Zealand and Australia.
Q: Do you think there is?
A: It’s not what I think; it’s certainly what I’m hearing – letters from the public, letters from investors, from the media, from the government; there’s a strong desire to make this happen.
Q: The government – what’s been your contact with them?
A: We kept them in the loop when we first started with the idea. They’re bringing on all this demand with fibre-to-the-home connectivity and appear to welcome more international capacity. Their public comments of support are welcome.
Q: Do you think the government will provide funding?
A: No, we’re not looking for funding from them. The government’s focused on fibre to the home.
The whole vision for the six of us is that we’re very proud to be New Zealanders; we’re very passionate about New Zealanders being successful on the world stage. The reason we’re here is it’s a beautiful country and we’ve all decided to work down here and we don’t want to have compromise. So if we can bring the rest of the world closer by building this big bridge, if you like, it means that we can live in New Zealand but interact with big businesses and other markets overseas.
SMES here, according to the New Zealand Institute, get to a certain size and then stop because it’s too hard to break into international markets. If we could bring those markets closer it would be great.
Q: What’s the timetable? There are six of you out there, three of you hands-on and it will be up and running by 2013. It takes 22 months to build once you get funding. So how are you going to scale up?
A: We realise this is a big, big project. It’s a vision that’s out there and we want to make it happen, but we realise there are going to be big challenges along the way and one of them is getting that customer commitment up front, and with that we can go and finalise business models. That’s the first hurdle.
Q: You don’t have an office; the most you’ve got now is a website.
A: We’ve got a website, mobiles, email. I can sit in a cafe with a beautiful view and do business on a mobile phone and my laptop. That’s the way the internet’s done these days. You don’t need to sit in an office to work. What I’ve got to do is spend time talking to customers.