The Southern Cross Cable Network (Southern Cross) and its shareholders have announced they have signed agreements and received regulatory approval for Telstra to become a 25 percent shareholder of Southern Cross and an anchor customer of the Southern Cross Next undersea data cable (SX Next). Southern Cross also reports conditional agreements have been executed and regulatory approvals have been obtained to enable construction of the Southern Cross Next subsea cable to soon begin. Telstra thus joins existing Southern Cross shareholders Spark, Singtel and Verizon. The shareholders have agreed to commit the necessary equity funding to enable Southern Cross Next to proceed with additional funding raised from debt and SCCN cash reserves.
SX Next has been developed as an extension of the existing Southern Cross cable ecosystem. When completed, SX Next is expected to be the lowest latency path from Australia and New Zealand to the US. The transaction is scheduled for completion within the next few days.
Costs for SX Next deployment are expected to reach USD 300 million and will be funded via a combination of debt held by Southern Cross; retention of dividend streams from the existing cable network during the build phase – with no dividends expected to be received from Southern Cross in FY20 and FY21; and further equity investment by Southern Cross shareholders.
In connection with Telstra becoming a Southern Cross shareholder, Spark’s shareholding in Southern Cross will be diluted from 50 percent to approximately 40 percent. Depending on the level of SX Next pre-sales that are secured, Spark expects to contribute a total of between NZD 70 million and NZD 90 million of equity across FY20, FY21 and FY22, with this investment providing Spark with owners economics for international bandwidth, which will continue to be a critical component of the telecommunications infrastructure serving New Zealand homes and businesses; certainty of supply should demand for data grow faster than expected; and strong long-term returns, with dividend receipts from Southern Cross expected to resume from FY22.
Southern Cross Cable Network (SCCN) has received regulatory approvals received for the Southern Cross Next cable to move into build phase with Contract in Force (CIF), expected to be ready for service by January 2022; and Telstra to acquire a 25 percent equity interest in SCCN, joining existing shareholders Singtel, Spark and Verizon.
Alcatel Submarine Networks (ASN) has also been granted CIF to build the new high capacity express route which, once complete, is expected to be the lowest latency path from Australia and New Zealand to the US, based on its design and route.
Southern Cross Next will provide data connectivity between Sydney, Auckland, and Los Angeles and is scheduled for completion by January 2022. The new route will also provide critical international cable connectivity to the Pacific Islands of Fiji, Tokelau and Kiribati. The new 13,483 kilometre cable system has been developed as an extension of the existing Southern Cross two cable eco-system. It will allow customers to leverage Southern Cross’ point-of-presence network and access infrastructure already in place. It is also expected to allow Southern Cross Next customers to flexibly assign new and existing capacity across the three routes across the Pacific, connecting Australia, New Zealand, Fiji and the US.
The construction is being funded by a combination of capacity payments, equity contributions and financing. With work already completed including pre-sales, marine survey, landing arrangements, Pacific Island agreements, detail design and the cable RFT, Southern Cross expects its Next project to meet its target completion date of January 2022.
