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Penetration rates of telecom services in the South Pacific Island region are still comparatively low, with large differences between urban and rural areas where coverage is usually poor. Access to basic telecom services remains relatively expensive. Less than half of all Pacific Islanders have a phone and generally there was only one supplier for any particular fixed, mobile or Internet service. 

However, a lack of reliable fixed infrastructure combined with cheaper installation costs has enabled mobile services to begin to make significant inroads into the market, and Digicel Pacific is leading the market here, as it sets up networks across a number of islands. As well improving the penetration of telco services and lowering prices, more competition in the mobile market is in fact benefiting the entire economy, including the creation of more jobs. Mobile telephony is expected to continue outpace growth in fixed-line connections as the market moves into 2009. 

The global financial crisis is likely to have only a moderate impact on the South Pacific islands, although it is difficult to make cross-regional generalisations due to the complexity of the region. Tourism is one sector which is likely to be hit the hardest across the region. The economies of islands such as Fiji and Vanuatu are very dependent on the tourist dollar, and there is no doubt that in a severe economic downturn, more overseas travellers will be re-considering non-essential overseas travel. 

Broadband market

Several of the region’s nations are upgrading satellite links to outer islands, installing wireless broadband and upgrading fixed-line broadband capability and some are rolling out high-speed ADSL2+ broadband. WiFi services are now operating in a number of islands including Fiji, Cook Islands, Vanuatu, Papua New Guinea, Guam, Niue and Tonga. 

Broadband availability by access type - 2008

(Source: BuddeComm based on industry data) 

Deregulation is opening up local markets

Despite local resistance, a move to deregulate the telco sectors of a number of islands, is paving the way for more competition and lower prices. The Fijian telco sector has been finally deregulated, after a lengthy process involving much resistance from the incumbent and many legal court battles. Such resistance is understandable, with uncertainty and fear arising as to how a foreign competitor could impact the local economy. However, as we are seeing, new competition is not having an adversely negative impact on the incumbent; rather it is in fact making the incumbent sharper and more in tune with market demands. As well as improving the penetration of telco services and lowering prices, more competition is indeed benefiting the entire economy, including the creation of more jobs. 

Mobile competition begins to thrive

Many of the islands only have one incumbent telco, which often provides all residential telco services: voice, and Internet access, as well as mobile access. The majority of the islands do in fact have a large enough economy to sustain competition, although in most cases only one additional competitor could realistically supported. 

Already a choice of mobile operators is now available in a number of South Pacific islands: Papua New Guinea (two); Samoa (three); Tonga (two), American Samoa (two); Guam (five); North Mariana Islands (three) and Palau (two). 

Since Digicel’s entry into the PNG market, the price of calls has decreased by as much as 60%. People in remote villages are now able to ring for medical help where previously they could not. This is a trend that BuddeComm is finding in many developing regions including Asia, Africa, Eastern Europe and South America. 

Wireless broadband services through either WiFi/WiMAX access or 3G mobile are typically only developing as niche broadband services in most developed markets, as fixed-line broadband is normally the most cost-effective and efficient alternative. However, as we are seeing, there is often a real mainstream business case for them in developing and remote areas such as the South Pacific, in favour of fixed-line ADSL. 

Digicel launch in Fiji - a key turning point for the South Pacific

BuddeComm views Digicel’s launch in Fiji as a key turning point in terms of stimulating competition in the Oceania region, after the operator already launched services in Samoa, Papua New Guinea, Tonga and Vanuatu. 

Digicel ended a 14-year monopoly in the mobile sector enjoyed by Vodafone Fiji. BuddeComm predict that prices could fall by as much as 50%, as has been seen in other islands. Also the flow-on effect to other parts of the Fijian economy should be significant. There is also likely to be a flow-on effect to stimulate growth on other islands. 

For more information see: 2009 South Pacific Islands - Telecoms, Mobile and Broadband

Many countries have begun to understand that broadband transmission infrastructure is not merely important for the direct social and economic use of citizens, but that it is equally important for the digital economy and includes critical sectors such as healthcare, education and smart grids.  In addition, because broadband infrastructure enables tele-work and simply makes day-to-day living more convenient for residents, there are clear indications that property values are positively affected by the presence of such infrastructure. Several countries (Norway, Netherlands) have initiatives whereby the home owners can become the owners of the fibre tail that ends in their homes.

The International Telecommunications User Group (INTUG) commented that encouraging the ubiquitous supply of high-speed broadband infrastructure supporting competitively provided services and content will contribute significantly to growth, productivity and jobs.  A study in which INTUG participated earlier in 2008 showed that this would add 1.6%-2.0% GDP in the EU within ten years.

Once these social and economic values of the digital economy are recognised the issue of network separation - either formal structural separation or voluntary or regulatory separation - arises, because of a systemic divergence between:

• the interest of a network owner/operator in maintaining scarcity in transmission capacity to maximise its returns (both in selling access to the capacity and in propping up the retail price of services that depend on the artificially scarce bandwidth)

and

• the interest of society as a whole in deploying abundant transmission capacity as widely as possible and at both the lowest cost and the lowest retail price feasible. Indeed, if we are correct that there are large positive externalities to the widespread deployment of such capacity that would support providing it on a subsidized basis in order to internalize those externalities to the price facing the end-user 

At a minimum, socially critical services such as healthcare, education and smart grids need to be provided at the lowest possible cost, and their ROI models therefore need to be based on utilities-based costing.  Otherwise, achieving the national goals associated with those services will require, in effect, the payment of a tax to network operators whose ability to assess the tax - in the form of high payments for cheap-to-provide connectivity - arises entirely from their occupation of the public rights-of-way to reach consumers and businesses and their own economic motivation to benefit from ensuring that the supply of bandwidth is limited. 

It is hard to see the policy logic that would support granting rights to use the public right-of-way in order to achieve important public policy goals and then economically impairing the nation’s ability to reach those same goals by permitting pricing at rates above the (very low) utility-based economic costs of doing so. 

In situations where it is effective, competition - including full facilities-based competition - is definitely preferable to regulation.  But where the market is dominated by a monopoly or a duopoly, either due to economies of scale or entry barriers (both of which appear to exist in local broadband infrastructure), it makes no sense to simply say that those who wish to compete can do so.  Pursuit of competition as an end in itself, and an unthinking faith that it can and will develop regardless of the actual economic and engineering realities on the ground, is a critically ill-informed cop-out.  The sheer dominance of the incumbents under the current regulatory and economic circumstances makes facilities-based competition impossible in the long run and, in any event, economically unviable. 

The main reason why some countries have fallen behind in digital economy developments is because of a lack of affordable high-speed broadband access.  The private interest of the network operators in minimising capital expenditures and maximising the returns they earn on the capital they do expend conflicts directly with the public interest in true broadband connectivity to all citizens and businesses. 

BuddeComm believes that there is no rational basis to think that within the framework of current regulatory philosophy existing network operators have now, or will ever have, the incentive to deploy the kind of ubiquitous broadband connectivity - required to underpin the digital economy - that other nations have achieved. 

Paul Budde 

This article is based on a collaboration process in which a dozen international experts have participated. 

See also

• Global - Infrastructure - Strategies for the Digital Economy
• Global - Investing in the Communications Revolution
• Global - Broadband - FttH Overview & Statistics
• Global - Broadband - Internet & Broadband Statistical Tables by Country
• Global - Broadband - Regulating Fibre Access
• Global - Infrastructure - Structural Separation