State-owned telco Kordia has thrown in the towel on its trans-Tasman fibre-optic-cable bid after rival Pacific Fibre announced a major partnership deal.

Kordia chief executive Geoff Hunt said he would probably call Pacific Fibre chief executive Mark Rushworth and co-founder Rod Drury "to congratulate them on getting their project to this point".

Kiwi startup Pacific Fibre yesterday announced a deal with Asian telco Pacnet to share the US$400 million (NZ$548m) cost of building and operating its proposed 13,600-kilometre cable joining Australia, New Zealand and the United States. The project aims to be a competitor for the Southern Cross Cable, half-owned by Telecom, and reduce the price of international data traffic a major part of internet service costs because Kiwis download more than 85 per cent of their net content from overseas.

John Small, director of economic consultancy Covec, said he expected Pacific Fibre would be offering much lower prices to encourage customers to commit.

"The big thing is that they will have to come down in price relative to Southern Cross, simply because buyers now have a choice between the two. I'd certainly expect a material fall in the price."

Mr Hunt said: "Somebody has to get a cable in place to ensure there's competition into and out of New Zealand and it looks like they're about there, so I think it's a really good news story."

Kordia had been promoting its own Optikor cable scheme linking Auckland to Sydney and beyond, but Mr Hunt said it appeared Pacific Fibre, launched in March by business heavyweights including Mr Drury, Sam Morgan and Sir Stephen Tindall, had won the race.

"Who actually got their project to this point first would determine how the next series of conversations went," he said.

"There's only space for one more cable across the Tasman."

It was likely Kordia, owner of internet provider Orcon, would now seek to become a customer of Pacific Fibre, he said.

Mr Rushworth hailed the Pacnet deal. "This even further validates the need for a new cable to Australia and New Zealand, and will ensure the success of the Pacific Fibre system. Pacnet has done this before as the largest investor within Unity cable group, and we are already benefiting from working with them."

The new cable will be built on a model that allows Pacnet and Pacific Fibre to each own and operate a fibre pair on the new cable system, but share responsibility for the cable supply contract, and operations and maintenance costs.

"Under a scenario where we take a fibre pair each, we split the cost, so it reduces the hurdle rate to build a business case," Mr Rushworth said. "If it's one [fibre pair] each it's US$200m each."

He said the project was on track to seek bids from contractors in September or October and select a supplier in the first quarter of next year. The new cable could be in use in 2013.

The project needs committed customers before it can proceed, but Mr Rushworth said the Pacnet deal would help secure signatures.

"Each day we get a greater degree of confidence the more customers we talk to. This is a step in the right direction, it builds momentum. Customers will look at it and go 'crikey, some things are really happening there with Pacific Fibre, it is going to happen, I need to be on board'. "