Internet pricing and price comparisons

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Internet pricing and price comparisons
Dr Tim Kelly, ITU ITU/TOT Workshop on Trends in
Telecom Prices and Costing in Developing
Economies of the Asia Pacific Region Bangkok,
26-29 November 2001
The views expressed in this presentation are
those of the author and do not necessarily
reflect the opinions of the ITU or its
membership. The author can be contacted at
tim.kelly_at_itu.int.
2
Agenda

• Internet around the world
• Still growing worldwide, even after the Dot.com
  bubble burst
• Doing even better in Asia
• Internet pricing
• Cost components
• Pricing components
• Input costs and prices
• Internet price comparisons
• OECD price comparison methodology
• ASEAN price comparisons
• Choosing the most appropriate model

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Bursting the Telecom Bubble

• Total market value of telecom operators down from
  US6.3 trill. to US3.8 trill.
• More than 400000 redundancies announced in
  telecoms since Oct 00
• On average, a major telephone operator goes bust
  once every six days
• Source www.ft.com

Share price trends in the US Technology Media
and Telecoms (TMT) sector
4
Nevertheless, the Internet continues to grow
Internet users, million, and growth rate in
Source ITU.
5
How is ASEAN doing? Growth rate in Internet users
250
ASEAN average
200
growth rate
150
100
50
Global average
growth rate
0
1992
1993
1994
1995
1996
1997
1998
1999
2000
Source ITU World Telecommunication Indicators
Database.
6
The SE Asia Digital Divide
Source ITU.
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Can and ISP control its costs?Regulatory
bottlenecks
?
?
International connectivity
?
?
ISP
Dial-up
ADSL?
?
?
National connectivity
ISP POP or IXP
?
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Internet pricing Cost components

• International connectivity
• Near-end and far-end half-circuits
• Termination and routing services
• National connectivity
• Distribution of points of presence (PoPs)
• National peering? National dial-up number?
• Commercial and operational costs
• Costs of staff recruitment, training and
  retaining
• Marketing and customer acquisition costs
• Billing and customer service

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Typical ISP cost comparisons
ltltltASEAN countries
OECD countries gtgtgt
10
International component of ISP costs
Source Study carried out by Antelope Consulting
for DFID, available at www.antelope.org.uk.
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International Gateway
Wholesale Price per 64 kbit/s of international
bandwidth, US

• Cost issues
• Near-end and far-end costs
• Backhaul costs
• Unit costs related to economies of scale
• Is connectivity bundled in or separate from
  infrastructure costs?
• Regulatory issues
• What is the typical waiting period to obtain
  bandwidth
• How much choice for ISPs?
• Can ISPs own their own gateway (e.g., using VSAT
  technology)?

Source ITU Case Studies
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The critical factor IP connectivity
3'000
1.2
The bit-minute index is calculated as Mbit/s of
intl bandwidth divided by billions of mins of
intl traffic
Intl traffic mins
1.1
Int'l bandwidth
1.0
2'500
1.0
Bit-Minute Index
2'000
0.8
(Mbit/s)
1'500
Int'l traffic (bn mins) and Int'l bandwidth
0.6
Bit-Minute Index
0.6
0.5
1'000
0.4
0.2
500
0.2
0.1
Source ITU/TeleGeography Inc.
0
0.0
Viet Nam
Indonesia
Thailand
Malaysia
Philippines
Singapore
Note International traffic (in billion mins)
includes both outgoing and incoming. Data is for
1999 except Indonesia Philippines (2000).
International IP connectivity is in Mbit/s (Sept.
01).
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National connectivityLeased line price
comparisons

• Huge differences in leased line prices across the
  region
• Big differences between urban and rural areas in
  some countries
• Infrastructure competition is critical factor in
  achieving lower prices
• Leased line prices affect competitiveness of ISPs

Typical prices for a 64 kbit/s leased line, per
month (US) Source ITU ASEAN Internet diffusion
case studies.
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Retail pricing models

• Nationwide at local call
• One number Malaysia, Singapore, Indonesia,
  Vietnam, Thailand
• Internet on demand
• No pre- registration required in Viet Nam,
  Indonesia
• Prepaid cards
• Thailand, Philippines, Viet Nam
• Telephone charges
• Usage Singapore, Vietnam, Laos, Cambodia
• No charge Philippines
• Lower rate Malaysia, Indonesia
• Flat rate Thailand

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OECD pricing comparisons Methodological issues

• Wide variety of pricing options make direct
  comparisons difficult
• E.g., pre-paid/post-paid bundled/unbundled
  telephony charges usage limits/always-on
  broadband/narrowband
• What is an average usage basket?
• Average hours per month of AOL users has risen
  from lt10 in 1996 to around 35 in 2000
• OECD defines baskets at 10, 20, 30 hours per
  month plus always-on
• For broadband, cost per 64 kbit/s per month
• How to handle telephone charges?
• Include PSTN dial-up charges
• Include PSTN line rental charge?

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Internet retail pricing
30 hours of Internet access, US, October 2001
Source ITU adapted from ISPs / PTOs
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Competition among ISPs drives down prices
No. of ISPslicensed (operational)
3 (3)
2 (2)
5 (4)
150 (50)
150 (60)
18 (18)
18 (?)
44 (?)
Source ITU Internet diffusion case studies.
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Internet strategies What works where?

• Prepaid Internet cards
• In the Philippines, more than 40 of use is
  pre-paid, and growing fast
• Internet cafés / Public access
• Only a quarter of Thai users use the Internet
  from home
• In Indonesia, there are more than 2500 Warnets
  providing public Internet access
• Nationwide dial-codes
• In Viet Nam, around 40 of users dial-up via 1268
  and 1269 numbers, without pre-registration
• Low infrastructure costs, through competition
• In Singapore, a 64 kbit/s leased line costs as
  little as US30 per month and international
  bandwidth is relatively plentiful

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Conclusion

• Internet price comparisons are difficult to do
  but necessary
• For benchmarking
• For policy evaluation
• For encouraging consumer choice
• Higher prices reflect limitations on market entry
  and/or higher input prices (esp. international
  connectivity)
• Different PSTN pricing strategies have impact of
  Internet take-up
• Consumers want choice

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For more information

• ITU Internet diffusion case studies
• 2000 Bolivia, Egypt, Hungary, Nepal, Singapore,
  Uganda
• 2001 ASEAN region, Cambodia, Indonesia, Laos,
  Malaysia, Philippines, Thailand, Viet Nam
• OECD Internet price comparisons
• www.oecd.org/sti/telecom
• DFID study of Internet costs
• www.antelope.co.uk

www.itu.int/ti/casestudies