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Regulatory authorities in the United States are taking a closer look at anti-competitive business practices. Mobile operators now find themselves being scrutinized for practices involving exclusivity arrangements signed with phone manufacturers. Also coming under examination are roaming and interconnection arrangements for data services. Operators like AT&T and Verizon own considerable segments of land-line networks and it is widely felt that this creates a conflict-of-interest, delaying the wider rollout of mobile Internet services.
A new market research report for the telecoms sector in New Zealand has been released on the website companiesandmarkets.com. The title for the publication is “2009 New Zealand – Telecoms and Overview & Analysis” and the executive summary can be found here.
The report provides a great deal of insight into the telecoms sector in New Zealand. It finds that the total New Zealand market grew by 2% to $7.1 billion for the year up to June 2008. BuddeComm predicts that the total New Zealand telco market will grow around 2.3% in 2008/09 and 3.5% in 2009/10, although these growth rates could be up to 1% lower, depending on the severity of the global financial crisis.
New Zealand and the United Kingdom are the only countries in the world that have enacted functional separation as a regulatory tool. Citing many of the same reasons given on this site, the report states emphatically that implementation of this regulatory measure has benefitted users in New Zealand tremendously:
Even Telecom New Zealand has itself admitted that functional separation has already begun to stimulate competition in New Zealand. Existing participants now have the opportunity to extend their activities, and additional competitors now have more opportunity to enter the market which has previously been dominated far too much by Telecom. Smaller competitors now have more attractive wholesale arrangements coming into place and this will put further pressure on prices, which have historically been far too high due to Telecom’s overwhelming market dominance.
In Fiji, it’s FINTEL’s dominance over the international gateway that most closely resembles our New Zealand counterparts. The first stages of sharing under liberalisation are being implemented. However, until the prescription of functional separation is handed down from regulators, we will not reap the kind of benefit that New Zealand is experiencing now. Interestingly, even the incumbent operator in NZ acknowledges that the regulatory measure has been a positive development. How long before we see these steps being taken in Fiji?
An earlier post outlined how regulators in Australia would require Telstra to agree to a functional separation of its network and retail operations. This post is an attempt to explain how a shifting regulatory environment is forcing major changes for Australia’s incumbent operator. Later this week, another post on Telstra will highlight a recent court verdict which forms the basis for why funtional separation is an unavoidable reality for network operators like FINTEL.
Leadership at telecom operators around the Pacific would be wise to look at the situation Telstra finds itself in down under. The Australian, reports on what can only be described as an implosion. Telstra finds itself battling government regulators, trying to piece together a functioning board of directors, selecting a successor
Telstra comes under attack on many fronts
for a very controversial CEO who has been sent packing, and in the latest development, likely prospect of a shareholder revolt.
Under the confrontational leadership style of CEO Sol Trujillo, the company has for years bristled at what they called burdensome government regulation. At times, this has resulted in Telstra carrying out a quite vocal campaign against Canberra. The aggressive stance of the company under the Trujillo-era culminated in the recent exclusion of Telstra’s bid to tender for construction of a national fiber network and the government opting to go the process under its aegis.
Unwired Fiji has selected Motorola to deploy its next-generation WiMAX network in Fiji. A very positive development. Coming in front of the July 17th announcement, it’s proof that operators are willing to invest in considerable upgrades that expand network coverage and increase performance.
From Communications Direct:
Motorola announced today that it has been selected by Uniwired Fiji to design and deploy an end-to-end 8012.16e-based WiMAX network to upgrade and provide increased capacity to the operator’s existing network for expansion of network coverage and capacity.
In the Philippines, The National Telecommunications Commission (NTC) has allowed Globe Telecom to ‘make permanent its mobile internet service for post-paid subscribers’. The company offers monthly subscriptions starting at PHP149 (USD3.1), giving ten hours of mobile internet. A low-priced introductory service option is critical for expanding Internet usage in the population.
Governments are reassessing regulations toward telecommunications as they look for investment in next-generation wireless networks. In Vietnam, significant reforms are being put in place, including provisions for foreign-ownership of network infrastructure. According to a Telegeography update:
… the country’s draft Bill of Law on Telecommunication has been put forward for discussion at the National Assembly Steering Committee. If passed, the bill will allow private companies to build network infrastructure for the first time and will open up the telecoms market to foreign investors, as part of Vietnam’s commitment to the World Trade Organisation (WTO).
In the Asia-Pacific region, there’s a great deal of activity that impacts the deployment of wireless networks and services. Again we see governments taking steps to change policies and increase investment in next-generation networks. A nation like Vietnam opening itself up to outside investment in telecom infrastructure is a sign of how old attitudes are making way for new pragmatism.
Telstra has received clear signal of change in policy direction from Canberra
Last week, an unprecedented $43 billion plan to build a next-generation national fibre network was announced by the Australian Government. The announcement is a change in direction by the Government, which is now seeking a public-private partnership to deploy a fibre-to-the-home network covering 90% of Australians in the next eight years. The paper also outlines new measures the Government and regulatory bodies will pursue to foster greater competition. The move has great implications for incumbent operator, Telstra, now facing a very different competition landscape and downward pressure on its stock price.
A key new addition to the toolkit of regulators is functional separation, where the incumbent operator (owner of the network) is required to create a separate network unit which handles essential network services to other providers and to the incumbent’s own retail units at the same prices and using the same non-price terms and conditions and processes.
Growing demand for traffic in South Pacific, means that infrastructure needs have to be re-examined. You can read from a sample of previous Coconut Wireless posts on the issue here:
- update on the SPIN cable project
- upgrades to the Southern Cross Cable Network
- developments with the American Samoa-Hawaii (ASH) cable
- launch of the Gondwana cable connecting New Caledonia – Sydney
The literature on Internet affordability and accessibility in the Pacific is pretty clear on the explosive growth in IP traffic the region is set to undergo. But behind a statement like “demand for internet access will be 192% greater in the Solomons Island” is a more complicated picture of demand for internet services in the islands.
Consider the following chart of international voice calls from countries in the region:
This graph is from a report titled “Satellite services in the Pacific” compiled by Network Strategies, a consulting firm (Download the PDF of the full report here). It is a representation of the number of minutes used by people in the Pacific making international phone calls. Note the general upward trend, showing a growing demand for international service.
Since 2004, Fiji’s outgoing minutes have been in decline, something that can be attributed entirely to the proliferation of VOIP services like Skype.
What would this graph look like if projected out to 2009? The general decline in minutes used over traditional land-lines would continue downward as more voice traffic in Pacific countries is diverted the Internet.
As more users become fluent with VOIP offerings, telecom operators will face the same fate as those in other parts of the world:
Thanks to European broadband service providers treating voice as a loss leader to attract triple-play customers, local voice has become almost free in Europe, according to research conducted by Telegeography, a division of market research firm PriMetrica.
Source: GigaOM “In Europe, VOIP Grows and Grows“
Triple play refers to the provisioning of telephone service, broadband, and television over one network by a single provider. As landlines become less profitable for telecoms in Fiji, the providers will inevitably have to move toward providing voice services in the manner described above, as a loss leader for broadband internet and TV. Yet another reason to make sure regulatory policies ensure a competitive environment.
If this makes no sense to you yet, don’t worry as it’s causing sleepless nights for our existing telecoms. Right now, in high-rise offices all over capitals in the Pacific, people with Accounting degrees are examining spreadsheets very closely trying to figure what these shifts in traffic mean for future profitability.
Yet, no discussion of future possibilities for retail services and offerings can proceed without assessing the underlying need for cheaper backhaul facilities. The chart below is taken from a World Bank report (Download the PDF of the full report here):
Proposed Cable projects. click image to view in Hi-res. (Source: World Bank)
The chart shows three types of proposed networks: regional, sub-regional, and point-to-point. Point-to-point refers to connecting two countries directly. The World Bank does not have recommendations for many projects of these types, tending to throw its support for projects which solve the connectivity issue at the regional level. The few instances where they support sub-regional projects are for the Solomon Islands, Tonga, and Samoa to connect to the infrastructure in Fiji (Southern Cross Cable Network).
By far, the most promising project is the regional New Caledonia to French Polynesia project. Trying to connect the two French territories to each other would present opportunities for many other Pacific Island countries to jump onto a project which could bring significant additional bandwidth capability. But, with an estimated price tag of USD $250 million, this project will be a long time in getting past the planning stages (a big reason to hope for the success of efforts like O3B Networks).
The same World Bank report shows how countries in the region could share in the costs of deploying the NCFP cable:
NCFP costs and benefits shared by countries in the region. Click image to view in Hi-Res (Source: World Bank)
Under this scenario, all participant countries could benefit and help help shoulder the costs of the project. To become reality, significant policy and regulatory hurdles would have to be overcome to ensure all participant countries receive access to the cable.
On Wednesday, I had the chance to speak with representatives of O3b Networks via conference call. I talked to Nara Sihavong who is their Regional Director of Sales, Asia-Pacific. Also on the call were John Dick, from Regional Sales and Mike Serrano, Director of Marketing. Together, they updated me on what has been going on at O3b since the launch of operations in Sept. ‘08. They also briefed me on the company’s plans in the Pacific.
ITU Ministerial Forum in Tonga, Feb 17-20: "Connecting the Unconnected"
O3b launched operations in September of 2008 with Google, HSBC, and Liberty Global as primary investors. Initial focus of the company’s sales and marketing efforts has been on African countries. However, O3b’s overarching mission is to provide improved connectivity for emerging economies, the “other 3 billion”. They have been quick out of the gate, signing agreements with several operators & ISPs, including the Microcom, the largest ISP in the Democratic Republic of Congo.
Coconut Wireless has covered O3b Networks here, here, and here. O3b’s presence at PTC ‘09 in Honolulu was the kick-off of its efforts in the Pacific. It was at PTC ‘09 where they revealed details of their plans to offer improved connectivity to the Pacfic Islands.
The recent ITU meeting in Tonga was part of this effort and the O3b team met with Ministerial level delegates to pave the way for further talks in Pacific Island nations. Nara then spent a week in Fiji, where he held meetings and discussions with the telecom operators.
He reports an enthusiastic response from the operators and adds that he sees the business development units within these companies moving with an urgency that reveals their understanding of what increased competition means for market dynamics.
Nara Sihavong
O3b also met with the members of the Communication Ministry and outlined to them the kind of support and guarantees government would have to come forward with in order to get services underway in Fiji. For ministers in the region, O3b offers a new pathway to building up ICT sectors which can become generators of employment and income.
As a provider of backhaul service, O3b would not provide direct service to customers in the region. Instead, they are looking for agreements with ILECs, CLECs, mobile providers and ISPs. For remote areas not currently served, O3b would be interested in talking to entrepreneurs interesting in building ISPs.
When agreements are in place, O3b will work with existing operators in Fiji, like FINTEL, Vodafone, TFL, and Digicel. O3b is also in similar discussion with operators in other Pacific countries. Any provider who signs on with O3b gains superior quality connectivity to the international infrastructure, something that is only possible now through two very expensive options, the Southern Cross Cable Network or GEO satellite service providers.
With O3b, at the national level, governments do not have to wait for undersea cables. A look at the following map of the region will show how O3b is mapping all the islands for service:
Proposed coverage for Pacific Islands (Please click image to view in Hi-res)
They can leap frog that process that can take years, take a look at what O3b can do and create a congruent domestic and international network to inter-connect all their remote islands:
How O3b works: A diagram of QuickStart and QuickVar Solutions
O3b would provide the backhaul service and the telecoms would deploy wireless (WiMAX or LTE) or cable networks to reach customers. Signing service agreements with O3b would mean realizing huge cost savings, which hopefully is the incentive that the incumbent telecom operators need to ensure wider propagation of services at much lower costs.
View Slideshow with company info:
PowerPoint available for download here (approx. 3 MB)
3.5m fixed terminal for Tier 1 service
The savings are significant. Telecoms in the Pacific currently pay in the range of $3,000-$6,000/mbps, where O3b can provide superior service at a fraction of that cost: $600/mbps for QuickStart.
O3b is a Medium Earth Orbit (MEO) operator meaning much smaller satellite dishes are required. This is because the satellites will orbit about 8,000 km above earth, as opposed to the 36,000 km of existing Geostationary (GEO) platforms. This is an important distinction because it means significantly lower costs for ground equipment. The shorter distance that the signal has to travel to reach a satellite in MEO orbit is what allows for low-latency connections. As MEO technology becomes more widespread and cheaper, even greater savings could be realized. Learn more about what MEO and GEO mean.
A large part of our conversation revolved around the regulatory picture in the S. Pacific. With the ADB and World Bank pushing for liberalization of telecommunications in the region, there is for the first time considerable pressure to change the status quo, which has protected monopolies and the high prices and poor service they offer.
According to Nara, O3b’s technology offering necessitates a re-examination of plans for coping with future infrastructure needs. This moment presents an opportunity for telecom operators, regulatory bodies, and those at the ministerial level to look at their long-term planning and reformulate their outlook for the next 5 and 10 years.
O3b Service can help ISPs and mobile providers address their needs
There are early signs of misunderstandings that can take place. As the people who have to ensure successful implementation of liberalization efforts, regulatory bodies have a key role to play. In Papua new Guinea, regulators require fees for licensing satellite operators to provide service. This is a deviation from normal practice and could be a hindrance to O3b’s entrance into the PNG market.
The challenge is on for all stakeholders in the Pacific to be creative in getting the most out of this technology. In my early posts on Ensuring Universal Access (Part I, Part II), I outlined how next generation wireless deployments should allow for ‘piggybacking’ for schools and emergency services. For this to be realized, this is something that regulators need to demand of operators.
John remarked that the game-changing technology is an example of how innovation is being used to overcome a real problem. Low-cost satellite offers the potential to deploy ubiquitous Internet coverage, dramatically altering the landscape of what is possible for the economies of these countries. This is something not true of submarine cable projects, which can languish on the drawing board for years without any real progress.
For many Pacific countries who have been contemplating spending many millions to get undersea fiber connections , the dream of high-speed connectivity is a step closer to reality. With O3b, they can pursue fiber-like connectivity at a fraction of the cost, allowing them to invest in other projects critical to social and economic development.
Getting from here, to where we need to be...
The Feb/March edition of the journal Telecommunications Policy contains an article titled “Does smallness affect the success of liberalization? The case of Cyprus“. The article is very insightful in outlining why we have to pay attention to regulation. The liberalization process is complex and attempting to merely duplicate solutions from other countries without careful consideration of local conditions, will not result in desired outcomes:
The examination of liberalization in Cyprus shows that despite the NRA enforcing all regulatory measures recommended by the EU model, a very strong incumbent provider dominates in all markets. The progress of competition has been sluggish and new entrants, struggling for survival, have acquired small market shares.
The following table, from the same paper illustrates just what is meant by trying to avoid ‘one-size-fits-all’ types of policies. It’s packed with information, so you should try to take a moment to understand it. Key facts contained are the year in which liberalization started in a particular country, penetration rates for Internet under monopoly and then under competition, the number of operators in a country, and the incumbent operators share of the market 4 years after the start of the liberalization process.
(If above information is difficult to read, please click to open larger image)
The author is drawing comparison between large economies and small ones. The data reveals that small countries, under competition, did not manage to achieve high levels of internet penetration and incumbent operators managed to hold onto a large portion of the market share.
Just some things to think about as we get underway with our own efforts at liberalizing the telecommunications sector.
For several weeks now, I have been parsing through websites and academic papers trying to understand the available literature 
on telecommunication policy. An earlier post on O3b referenced the International Telecommunication Union meeting in Tonga.
One of the outcomes from this meeting was a direction for ‘officials to work toward establishing a shared regulator resource centre at the earliest possible date.’
From its founding, this has been exactly the goal for this blog, to be a resource for everyone in the region to better understand how ICT and telecommunications liberalization impacts the lives of those living in the Pacific.
In true Pacific fashion, island nations have shown up late for the telecommunications liberalization party. This is regrettable, but it presents us with the opportunity to study how liberalization has fared in other countries in the world. In the literature on development, this is referred to as the benefit of being a latecomer.
Of course, it’s only a benefit if we learn the right lessons, make the appropriate comparisons, and take the necessary steps to avoid pitfalls faced by other nations who attempted to bring about change to their telecommunications sector.
Read about telecommunications policy and failures of liberalization in South Africa, as well as challenges faced by small economies, particularly relevant for the small island states of the Pacific.
There is an overwhelming amount of information that is available on this topic from online sources.
Click above image to view table of contents for ITU's ICT Regulation Toolkit
The plan is to have this become the first in a series of posts that will examine issues of telecommunications policy pertaining to liberalization and regulation.
To get a better understanding, it’s helpful for us to develop a road map to better put into perspective the many issues of concern. For our needs, the framework of analysis is offered in Section 2.4 of the ICT Regulation Toolkit, which outlines responsibilities of a good regulatory body:
- implementating the authorization framework that provides opportunities for new companies and investors to establish ICT businesses. Simple authorization procedures tend to maximize new entry (see Module 3);
- regulating competition (including tariffs) involving the effective enforcement of fair and equitable competitive market principles, restraining the power of dominant suppliers and leveling the playing field for new entrants (see Module 2);
- interconnecting networks and facilities. Normally transparent rules are established for interconnecting all types of traditional and new communications networks and associated cost-based payments (see Module 2)
- implementing universal service/access mechanisms to ensure the widespread (and affordable) diffusion of ICT (see Module 4);
- managing the radio spectrum effectively to facilitate new entrants and new technologies, which is particularly relevant to new broadband wireless opportunities such as Wi-Fi and WiMAX (see Module 5); and
- minimizing the burden and costs of regulation and contract enforcement (see Module 7)
Future posts on policy will be oriented around these modules. You can also expect more emphasis on academic articles that focus on small economies, since that is where the most apt comparisons to Pacific nations can be made.
In the US, President Obama’s $800 billion economic stimulus plan includes $7 billion in spending for improving the nation’s broadband infrastructure.
From the GigaOm post:
taking the dollar amount for broadband grants in the Senate bill from $9 billion to $7 billion and increasing the tax credits for broadband deployments, as well as limiting their use [in] rural areas. Wireless also got a boost in the tax credits with faster wireless broadband speeds of 6 Mbps down becoming eligible for a 40 percent credit, while speeds of only 3 Mbps down could receive a 30 percent break.
What’s happening in the US brings up a very important question for Fiji: What role should public policy play in the deployment of network infrastructure?
While everyone in Fiji should be thinking about this question, I think this responsibility falls squarely on the shoulders of the newly set up Telecommunications Authority of Fiji.
Two items that should be high on their agenda:
1) Promoting investment in additional international gateways. Whether it’s additional submarine cables or the satellite-based IP trunking solution offered by O3b, internet in Fiji will not improve unless their is a competitor to the Southern Cross Cable.
2) Deployment of wireless infrastructure. (See previous posts Universal Access Part I, Part II) Provide companies, especially new entrants, with incentives such as lowered tax-bills to ensure that deployed networks:
a) cover as wide a geographic area and as much of the population, including outer-islands and those in the interior
b) have provision for use by Police, Fire, Ambulance, disaster management, and education
c) feature a two-tier structure for service. A premium-offering for paying customers and a free lower-tier offering. Internationally, it is documented that where broadband costs are more than 2.5% of GDP per capita, broadband usage rates remain low.
Regulators (and business people) have to keep in mind that the free users of today will become the paying customers of the future.
It is in interest of taxpayers for governments to promote and sometimes directly fund universal deployment of network infrastructure, because these networks provide for the common good.
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