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Kiwi Pacific Fibre cable project sunk by US fears about Chinese investment, espionage; 'It was made clear US authorities would not allow Chinese investment,' Pacific Fibre's Drury says

Kiwi Pacific Fibre cable project sunk by US fears about Chinese investment, espionage; 'It was made clear US authorities would not allow Chinese investment,' Pacific Fibre's Drury says

By Alex Tarrant

A Kiwi project to lay another undersea internet cable between New Zealand, Australia and the United States was scuppered by American concerns about Chinese investment in the venture and fears that might allow for Chinese espionage.

Pacific Fibre director Rod Drury told it was made "very clear" by American authorities they would not permit significant Chinese investment in the US$400 million 13,000 km fibre-optic cable linking Auckland, Sydney and Los Angeles.

The next logical step after allowing a Chinese stake in the venture was demands for the use of Chinese equipment and technology in the cable, which would not have been allowed by the US government.

The project had been on track "several times" but ultimately fell through. Pacific Fibre had been caught in the middle of "real political issues" between the US and China, Drury said.

The team had this week sent someone over to China to talk face-to-face with the potential investors to tell them why the project was not going ahead. Pacific Fibre did not want the result to harm New Zealand's reputation in any way, something the potential investors were appreciative of, he said.


Pacific Fibre announced on Wednesday afternoon it had ceased operations after failing to raise the US$400 million needed to build the trans-Tasman and trans-Pacific cable, which would have competed with the 50% Telecom-owned Southern Cross cable and cut internet prices in New Zealand significantly.

It had planned to announce the details of the project in June this year. That had been extended until the decision this week to cancel the venture.

An initial year-long search from March 2010 for local investment had proved fruitless. The New Zealand Super Fund had carried out extensive due diligence on the project, but ultimately decided it was too risky to invest in.

In July 2011, Pacific Fibre announced it had signed a deal with US company TE Subcom to build the cable. Almost a year later, when it was revealed in March 2012 that the Australian government had banned Chinese telecoms company Huawei from participating in its national broadband roll-out due to espionage concerns, Pacific Fibre said this highlighted fears held by Australian and US authorities.

"The United States has previously expressed concerns about Huawei and other Chinese submarine cable suppliers fearing security breaches (e.g. interception of sensitive data)," CEO Mark Rushworth said in a media statement in March 2012.

"The issues raised by the US and Australian authorities’ concerns with Chinese suppliers further validate our decision last year to appoint TE SubCom, a US company and industry pioneer in undersea communications technology, to build the sub-sea portion of the Pacific Fibre cable," Rushworth said.

After failing to attract local capital, a subsequent hunt for potential overseas investors was boosted by support from the likes of New Zealand Trade Minister Tim Groser, who had done an "outstanding job" hustling for potential investors, particularly in China, Drury told on Wednesday evening.

In August 2011, the NZ Herald reported Groser had introduced Pacific Fibre to a large Chinese investor, "talking serious money." Pacific Fibre CEO Mark Rushworth said at the time that discussions with Chinese equity investors had been "very successful." 

However, following those talks, as Pacific Fibre kept US authorities informed about the potential stake holders, it was made clear "we couldn’t have had significant Chinese funding on the project,” Drury said.

US vendor helped, Chinese investment didn't

Pacific Fibre always knew there would be issues if it secured a Chinese company to build the cable, hence it was happy to have secured TE Subcom, which had offered it the best deal, Drury said.

“That had been our first big thing. It had been made very clear from those who look at national infrastructure that there would be potential issues if it was a Chinese vendor connecting to the US," he said.

But as it became clear local investors would not back the project, and as sticking points rose with Australian super funds and other sovereign wealth funds, it became clear China was where the money was.

"And they love investing in infrastructure, especially strategic infrastructure like this," Drury said.

“Then as we just tested that with some of the US connections, it was made clear that that may be a problem," he said.

The sticking point with US authorities was that having Chinese investors in the project meant they would likely require the use of Chinese equipment for use in the cable: “Potentially that was the next issue," Drury said.

Drury would not comment on whether he thought there was any strength to the American claims.

“It’s a world I’ve never had any real experience with. Certainly the concerns they had seemed to be pretty real [to them], and they turned out to be a real problem – we couldn’t have had significant Chinese funding on the project,” he said.

Pacific Fibre had been caught between "real political issues" between the US and China.

“It was made very clear. These are cables connecting whole countries. These are very political things," Drury said.

The project had been on track “several times.” Due to the progress being made, the initial investors, including Drury, Sam Morgan, Stephen Tindall, David Kirk and Peter Thiel, had kept putting more of their money in to keep the project going – to the tune of about NZ$6 million.

Spying fears

The development comes after Chinese telecommunication equipment companies Huawei and ZTE were placed under investigation by the US House Intellegence Committee in 2011 due to concerns their expansion and technology posed a threat to US security. Read the latest on that investigation here at Reuters.

In March this year it was revealed that Huawei had been banned by the Australian government from its national broadband network roll-out due to national security concerns held by the Australian government. 

While New Zealand's Communications and Information Technology Minister Amy Adams would not comment directly on individual companies, she did say in March that security concerns had been raised with the government regarding its roll-out of ultra-fast broadband through the country.

Huawei is involved in contracts to help roll out the New Zealand government's ultra-fast broadband package in parts of New Zealand.

The government was confident New Zealand authorities used the "full range of associations and collaborative relationships that we have," when it came to security concerns, Adams said.

Read Huawei's reaction to the Australian allegations here.

Aussie super funds, sovereign wealth funds

Drury said Pacific Fibre had also been in discussion with Australian superannuation funds and sovereign wealth funds who were interested in the venture.

The Aussie super funds required a big incumbent like Telstra or Optus to come on board as well. However, those incumbents were not keen on allowing a new competitor to set up shop.

It was a very “murky and political world” when it came to undersea cables.

“Someone had to stump up and do the big thing. We were very disappointed," Drury said.

“If we'd had a sovereign wealth fund at the beginning for the first hundred [million], you could do something around building it. We had quite a few interested in the ten to thirty million range," he said.

"It was going to take quite a few of those to get there; You had to have a big foundation fund to come in and then everyone follows on. It’s pretty binary: You get one, you get them all, and if you don’t get one, you don’t get anything.”

Future hope?

Asked whether he thought there was a possibility of the plan coming alive again, Drury said:

“I think it’s worse than that. We were very conscious of this because we had Vodafone and Reannz stepping up to the plate. That’s a big risk for them, and I think they’d be pretty unlikely to do that again.

"I think the best we can hope for now is probably somebody gets a trans-Tasman cable away, which is hardly transformational. It’s a real disappointment. We knew that if we didn’t get this away, it would be a real problem for anyone else," he said.

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Ah , America ....... the home of the free & the brave .......
.....  and the extremely paranoiac .....

Have a read of "Gideon's Spies" Gummy. For a Non-Fiction book it is like reading a novel.

Well if you have been following the Olympics GBH , you will note the Anthem Ohhh Canada has taken on a whole new... tone and delivery.

Given the vast amount of US treasuries that are held by the Chinese government - it is amazing to see this overt hostility towards other forms of Chinese investment by the US.

After failing to attract local capital, a subsequent hunt for potential overseas investors was boosted by support from the likes of New Zealand Trade Minister Tim Groser, who had done an "outstanding job" hustling for potential investors, particularly in China, Drury told on Wednesday evening.
In August 2011, the NZ Herald reported Groser had introduced Pacific Fibre to a large Chinese investor, "talking serious money." Pacific Fibre CEO Mark Rushworth said at the time that discussions with Chinese equity investors had been "very successful."
Was the US Ambassador to New Zealand AWOL throughout this obviously expensive failure? Or was it a case of mindless acceptance that 'best friend status' would take care of all concerns?
I suppose it is a case of easy come, easy go where the dosh is concerned.

Well done Alex, that's an interesting interview. It's significant to note capitalism could have brought us high speed Internet, but yet again, governments have stopped actual wealth creation.

Only if there is any competition....telecom faught tooth and nail to stop cable and adsl from eating out their ds lines....but then if you can get $2400 a month plus volume for a 128k ds v $90 for 2meg speed ADSL why would a capitalist want to move forward?


Well almost right there Tribeless except it would be Communist's  capital bringing the hi speed internet not Capitalist's capital.

It doesn't matter what their system is in this instance, Christov: so long as we're prepared to have open markets on the global stage, and welcome such foreign investment, then we reap the advantages.
This country's xenophobia against China, and against free markets, is coming home to roost, on your computer.

This country's xenophobia against China,...? surely you mean the U.S. not N.Z...?
Frankly I think we have an open door policy to China from where I see it.
Tribeless I respect your consistency on Freedoms, I'll stick my neck out and say China does not share your ideology just seeks to capitalise on it.,

Actually, I meant to say the West's xenophobia ..

While Im sure some are xenophobic, I think its mostly a case of wishing to protect their own monopoly.....more cronyism than anything....

Just when you thought they don't get stupider than George W. along comes Mitt Romney proving the poor have no monopoly on stupidity.
perhaps he needs an interpreter to translate from Moron back to English.

Sarah Palin jumps to mind....her of chicken bucket fame....though maybe she's the other way.....moron to inbred cretin.
I was actually hoping Obama would lose to someone even worse. And here is Romney proving he is disasteriously incompetant in public as I thought he was.......damn.....I hoped he'd be able to get in and so seriously screw things up Americans might finally wake up and take their country back....fat chaace, so Obama will get back in and stay in the banksters hip pockets...

Your right about that least Reagan could act.....this guy is a disaster on legs, an embarrassment to the citizens of the U.S.
Although, it is not just America that is prone to the notion that if someone has a deal of money ,it follows they know what they are doing.......sound familiar.
There is talk of providing Romney with a thinking running mate, I believe it's a close one between a chimpanzee and a prancing horse...

@ Christov - different interpretations abound - but I thought this excerpt amusing:
If anything, it's Romney's worldliness that the Obama campaign hopes to hang around his neck. He's the one with the Cayman Island holdings and the Swiss bank account, the guy whose money is so well-traveled that it uses a bidet. And thousands of jobs that belonged to companies he oversaw liked traveling the world so much that they haven't come back.

A few eye poppers in this lot too Stephen H.
Cheers for the extract, nice encapsulation.

Fact check, Mitt Romneys actions as governor were more left wing than Obamas as president (albeit on a much smaller scale). Thats why the Republican cycle tried to elect anybody else as their representative over a series of months. Its a bit dumb to get confused between his actual record and the record he has fervently tried to hide with an election personality.
In fact, as far as US political debate goes, the Polish government doesn't take part in their economy. The US election spin zone is a place where facts don't exist, so there is hardly some point in debating if Mitt Romney actually believes what he is saying. He wouldn't be in that position if he was saying anything different, so its totally irrelevant if he believes it or not. Or maybe we still think Obama is a serious Christian.

Nic the N.Z. er...I like some of your stuff....a lot...but this ....". so there is hardly some point in debating if Mitt Romney actually believes what he is saying..."......just is not one of your finest moments....
The discussion was really whether you would want this person to represent ,let alone lead a Country...
 believes what he is saying...let's try ,understands what he is saying........which he clearly does not.

Why? Obama doesn't believe what he is saying either does he. I mean the only difference is that at times the democratic party has tended to be a bit more benevolent. I should point out at other times the democratic party has also been a bit less direct, e.g the rhetoric was a bit more palatable, though the message was frequently the same or worse. I think thats worth thinking about, Obama was the first to actually use robotic assasination, I mean at least with Bush it was pretty clear there was going to be a war before it started.
Buy you can hardly accuse Mitt of being an idiot for playing the game. He would be an idiot for not playing the game wouldn't he.
complimenting my stuff will get you no marks with me, but thanks for taking it seriously.

No Nic...I think at least Obama understands what he is saying even when that is undeliverable........I think Mitt R is just plain ignorant or stupid or both.

I think that US citizens are about as Xenophobic as NZ citizens, and I see enough of it to know its a real sector of US society as of NZ society. You are probably right though, one of the major US political parties contains a significant strand of xenophobia, while the NZ government doesn't particularly discriminate on this basis. The Chinese government certainly does have nationalistic overtones, though who really knows what your average Chinese citizen thinks, their opinion is heavily surpressed of course. One suspects they are more suspicious of government than even the Tribeless one.
Maybe its worth asking, is Tribeless an expression on extreme westernism (because western society has had no visible tribal basis since the iron age) or an expression of complete lack of solidarity with anybody else. I suspect the first sentiment is a bit too much of a racist interpretation to apply, so its the second interpretation, our good friend who does not in solidarity stand with us, or what ever interpretation he wants us to take maybe...
Maybe I should tell him about my recent problems with th tax dept...

Cheers Nic...Tribeless has been here since dot and his identity is known to a number of us, no slouch in the grey matter dept......go back say three years and view a few posts or just ask GBH who he is (tribeless I mean)...
 I think you'll be surprised to learn the Nom is not as ambiguous as you think.
 On the Chinese citizens...I have Family there, ...ten years now, married a Mainlander, he is fluent in oral and written Mandarin and some Cantonese......they think , that is a lot that come here to invest...we are stupid and lazy.

Tribeless dreams of being a truely free man , unfettered by governmental meddling ;  to live his life on his terms , being fully responsible for his actions ..........
..... barking mad of course ! ....... being free will never catch on , too many folk are addicted to their precious cradle-to-grave welfare state ......
... and having to think for themselves ? ...... Altogether too hard that one . Far easier to gift the control levers of your life to some pointy headed bureaucrat in Wellington .... and to let them do the picking of others' pockets , to line yours with your " entitlements " ......
Welcome my friends , welcome to the machine ! ...... ( apologies to Pink & the Floyds )

I know who Tribeless is and some of his other writing, we can chose to disagree on how smart they guy is, because he appears to accept a lot of economic ideological claptrap, without question to me. I happen to think that a bit of a dumb basis for a philosophical argument. I was more interested in why he selected that particular name, because I am sure he thought about it and selected it for what people would interpret it to mean.
Apparantly, the Chinese citizens are right. But good luck getting people in the US to elect a government which will actually make that a basis for US or even NZ society. Everybody in the US wants to hear that they are the chosen ones, and hard working to boot, and NZ pretty similar.

Goodness, easy to figure out who Tribeless is: read his blog.
I've simply learned one thing: a civilised society can only be based on the voluntary transaction between two humans pursuing their happiness.

I think ....he wants to know the depth of your Nom Tribeless.....perhaps a form of exposure...?

Pardon?  My name is on my blog ... how can I be more exposed than that?

He wants to know how you arrived at Tribeless..? best you read his inquiry above , seemed to me to be suggesting you are the lone champion of a lost cause.......just seemed to me , not my thoughts you understand.

Sorry, I'm a bit thick this morning: why did I once use the handle, Tribeless? Note I don't use it anywhere else, now, I use my name, and only use it here because I can't be bothered setting up a new account.
But Tribeless was certainly nothing to do with racism: the opposite. It came from the below Ayn Rand quotation:
“Civilization is the progress toward a society of privacy. The savage's whole existence is public, ruled by the laws of his tribe. Civilization is the process of setting man free from men.”

Tribeless – far too many bad guys without ethical and moral standards are powering the world. That’s why your theory doesn’t work, but it is still a nice dream of most of us.

A sad indictment on the Kiwi mentality when they'd rather spend more time & energy debating  the background of your name , than delve into the actual message you impart ....
...... schlurk , schlorp .... the gummibars are sweet this morning ..... Yum ! ... I love breakfast ..

Ahh, I think I already pointed out the substance of this.
The message is economic ideological claptrap, and frankly if I wanted to debate this with an expert I would not be going to Tribeless. He is more of a philosophical expert.

Throughout history Nic...small minded, shortsighted, greedy individuals have had a major impact upon the well being of civilization.....while the philosophers were left to lament unheeded warnings and make historical comment.
Most Constitutions have a stong philosophical base...the lack of adherence to them often has a strong economic base.

So the Americans are saying that if the Chinese are involved they may look at the traffic (in addition to the Americans looking at the traffic, the Australians looking at the traffic, and the Kiwis looking at the traffic).  Whereas if the Americans build it then it will just be the Americans, Australians and Kiwis looking at the traffic.  Hmm.

Doubt it - I believe the US extends their military umbrella to New Zealand as an ally and expects something in return. If borrowed investment capital is being sprayed around to connect communications to their country they want an expensive piece of the action or nothing will happen. 

Given the Chinese can't even play a game of badminton without thier ususal corruption, it is a wise decision to exclude them from this cable deal.

Yes exactly...but realistically if you encrypt its extremely unlikely you will lose data....
On the face of it it looks like rubbish, more like US govn lobbying from cisco etc trying to keep china out of global networking. 
To pickup the traffic in any meaningful way you have to have big computers next to the cable. A VERY big computer setup and disk array just to capture the packets and thats before you try and inspect them.  So something like 2 servers (each way) with 16 cpus and 512gb of ram each, rinse and repeat per 2 fibre cores....and a multi-million dollar disk array behind it.  NB the Americans would have to sell china the kit I would think.
So once you have it stored on disk you then have to search the packets looking for interesting stuff, You would probably need another server per 10gb of bandwidth and thats just to sniff open traffic.  Anybody with any sense has the traffic cant decrypt much traffic in real time without something like a (several) mainframe(s) in cpu power....So somewhere on that link china would have to have a decent datacentre.....several millions in IT hardware let alone the building to house if no one would notice sat the cook islands....
The other alternative is to sniff each packet and send it back to china, so if you are seeing 50gb across that link you have to intercept that and send that same bandwidth to china...not something you can hide....

So Groser goes running off to China..."hustling investors" and generally kissing butts without giving any thought to the potential security concerns by the U.S.........deary me.
How  could Drury and core investors not have foreseen the hurdle given the Australians position on it  back in March, surley that decision was undertaken with full disclosure to the U.S. and vice versa.
We are still just not quite in the loop are we , and tend to become informed on a need to know basis at the twelfth hour...
 Still no excuse for not seeing the potential for this occuring though, lets hope the New Best Friends forgive the apologist en route. 

It really is a bit rich fears of spying coming from the US. At the moment all the telco's here have servers feeding all our mobile, phone and internet through their Echelon network
They use it not only to spy on citizens in the participating countries (US, UK, Aust, NZ, Canada) but also for industrial espionage against everyone including supposed European allies like France and Germany. Despite using NZ bases at Waihopai and Tangimoana, NZ intelligence services only get the part of the "intelligence" the US deems to give us. Not saying the Chinese wouldn't spy on anybody, I'm sure they do, but they are in good company.

No Mist among other things I think they are saying..."the Risk" of China using the opportunity to take advantage of what is already known to be a leaky output, not to mention laughable Millitary intelligence service would be just too good an opportunity to miss.
If ,I'm (speaking for myself only) to be spied upon without my knowledge , I would be less disturbed about it if it were by forces not hostile to my way of life.....
You can moralise it to death ...but if you put a line in the sand and say where do you stand, it becomes far less complex, not perfect in any way, not even living up to it's promises of freedoms in any way.
It's a little bit like freindly fire....your not expecting anything....and it kills you with the best of intentions. 
As to the thingy, it's just a caes of Corporate revenuers using Fedral agencies to bring a case , get a precedent, get some dollars and flex the muscle in the future.

Ironic .. When Ronald Reagan did his "Star Wars" thing, the US had the upper hand financially speaking over the Soviet Union which was drowning in what, debt? while the US had all the poker chips in front it at the table, the USSR was broke with a lot of IOUs.
Now, the tables have turned. China holds all the chips while the US holds all the IOU's. China probably isn't going to pull a "Star Wars" stunt but the US is terrified that in it's own weakened state it cannot afford to give China the slightest possible advantage.

Mist my position is well documented...I like your post and the freedom with which you expressed it....stay well.

Hey mist...for what it's worth your clever comment on not chopping your Counts before they chicken didn't slide by was funny..! and I responded accordingly.
But don't doubt, that you know who is just waiting for me to cross the line..... ring that.

USA friendly to your way of life? lol that's funny.....

No Steven....I believe it was not hostile...hence the freindly fire comment.... please quote me in context.

Haha - blaming  the Yanks for a faulty business plan is a weasles cop out . Look , whats the big fascination with Rod Drury - I mean Xero hasnt even made a profit yet !

Have to agree on that! Although we all know exactly how paranoid the yanks get don't we so I would not put it pass them at all. If true, one of the last nails in our sovereignty coffin has been hit home 

Don't worry too much Justice.....we're holding a few back for the Chinese.......BTW I was pointing out the lack of dilligence on the part of Drury above you know , all on the same page here.
The way the cut n divi is going , got to wonder if we deserve our is for sale isn't it....?

Hmm.  It's labelled Paranoia, until yer start receiving odd emails over the InterWebs, and yer look inside yer smartphone, router, modem thingo, network switch or similar black box, and y'see Huawei, Zintec, Chitel and such stamped on the chips.
Then, yer google 'dark net' or 'software trapdoor' or 'etched into the silicon' and ye start to see why the US military has, shall we say, certain rigid rules aboot Who makes Its Chips.
Certainly one can err on the side of 'they're All out ter get little Me'!
But the converse is just as bad:  the Green-influenced, happy-clappy notion that the world is a fundamentally benign place, and that any leetle ripples of discord can be exorcised by holding hands and singing 'Kumbayah'.
Choices, choices....

But the converse is just as bad:  the Green-influenced, happy-clappy notion that the world is a fundamentally benign place, and that any leetle ripples of discord can be exorcised by holding hands and singing 'Kumbayah'.
Choices, choices....

Beautifully put Waymad...worth ten but I only got one to give..
I don't disagree with the paranoia as I pointed out above, but I just end up at your point of Choices ...choices.....line in the sand for me , that is all.

The Threat is VERY REAL

Hackers Linked To China’s Army Seen From EU To D.C.

This was 2010:  In at least two instances since mid-March, large amounts of traffic on the Internet have been routed to China in circumstances still shrouded in mystery, Rodney Joffe, senior technologist at DNS (Domain Name System) registry Neustar, told CNET in an interview this week.
The implied threat is if Chinese made Routing equipment is used in the link, then it could be possible in times of great uncertaincy to redirect or disrupt traffic flow.

All this fear of the Chinese probably have roots in the Biblical Book of Revelations.
And there appeared another wonder in heaven; and behold a great red dragon, having seven heads and ten horns, and seven crowns upon his heads. 4And his tail drew the third part of the stars of heaven, and did cast them to the earth: and the dragon stood before the woman which was ready to be delivered, for to devour her child as soon as it was born. [Rev 12:3 - 4]
Great Red Dragon

Most bible commentators place this text as pointing to the EU (10 core nations) and the seven heads being Rome (7 hills) ie the Roman Catholic Church with the Pope.  That is a political uniion between the EU & the Pope/apostate church.     Becoming the worlds last great power.
The woman depicts Israel,  the child is of course Christ - which the 'system' sought to kill (and executed physically).
The tail is in one sense a throwback to Satan & his angels exiting heaven after rebellion - but also overlays the other prophecy outlining a third of the words population being killed (likely middle east + possible China involvement [so you are partially on track]) .
Certain forerunners of this would include the persecution of the Jews, the slaughter of them by Hitler  -  thus setting in motion the re-birth of modern Israel as a refuge for all Jews. However, one can now see world opinion being turned against Israel...