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Tuesday, 10 February 2009 01:03

Pipe predicts mobile-driven demand for international capacity

Pipe Networks (ASX: PWK) has briefed investors on the refinancing of its PPC-1 submarine cable, revealing forecasts showing demand for international capacity out of Australia growing at 31 percent CAGR to 2020.

By this time, according to Pioneer, mobile devices will be responsible for one third of total traffic and the Internet the remainder (corporate data and voice will be insignificant in comparison). Pioneer's most optimistic forecast for likely demand puts the peak demand for capacity out of Australia at 8.2Tbps by 2020.

Pipe Networks' CEO, Bevan Slattery, said that Pioneer was forecasting "massive growth in bandwidth for video beyond 2010" both video on demand and IPTV. He said that Pipe was "already in discussions with numerous parties seeking additional capacity," and added: "The value of capacity deals currently in discussion are in excess of $60m [and] PPC-1 expects significant new capacity sales leading up to system completion in July 2009 [there is a] high level of profitability on new capacity sales."

Slattery said that Pipe International, a subsidiary of the ASX listed Pipe Networks, had invested approximately $US47m to date in PPC-1 and would be required to pay a further $US5m in Q1-2009. "Approximately a further $US40m is being paid back-to-back with customer IRU receipts in 2009/10 [and] a further $US38m is to be paid in 2010," Slattery said. Of this $US25m will be covered by existing seven year long-term service contracts and $US13m is expected to be supported by future sales."

Slattery was extremely bullish about the parent entity, despite the economic gloom. "Corporate customers are focusing on opex savings through better value products (eg Pipe dark fibre) and pulling back from 'easy' whole of company outsource contracts," he said.

"Corporate customers are reducing capex budgets and continuing to push for outsourcing of data centre requirements (and associated fibre connectivity). [There is] continuing growth in demand for bandwidth from wholesale and corporate clients [and] strong interest in backhaul upgrades for wireless providers."

He added: "Whilst the past six months has seen customers purchase decision process stretched by 60-90 days, Pipe is still seeing the same level of enquiry for our services. As a result, our sales pipeline is the largest in the company's history with sales representatives working on opportunities of over $1.5m of new monthly recurring revenue."

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