Commercial aspects of the Internet

1
Commercial aspects of the Internet
Dr Tim Kelly, Head, Strategy Policy Unit,
ITU Workshop on Internet diffusion in South
East Asia Bangkok, 22 November 2001
The views expressed in this paper are those of
the authors and do not necessarily reflect the
opinions of the ITU or its Membership. The author
can contacted by e-mail at Tim.Kelly_at_itu.int.
2
Agenda

• From Dot.com to Dot.bomb
• The Global Slowdown in the Telecoms sector
• How is ASEAN doing?
• The health of the ASEAN ICT sector
• Incumbent Telecom Providers
• Internet Service providers
• Commercial strategies for Internet
• What works where?
• Price comparisons
• Future challenges
• IP Telephony
• Broadband

3
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
How is ASEAN doing? (1)Growth rate in fixed-lines
30
ASEAN average growth rate
25
20
15
10
Global average growth rate
5
0
1992
1993
1994
1995
1996
1997
1998
1999
2000
Source ITU World Telecommunication Indicators
Database.
5
How is ASEAN doing? (2)Growth rate in
mobilephones
90
80
ASEAN average
70
growth rate
60
50
40
Global average
30
growth rate
20
10
0
1992
1993
1994
1995
1996
1997
1998
1999
2000
Source ITU World Telecommunication Indicators
Database.
6
How is ASEAN doing? (3)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.
7
Signs of a future slowdown

• Telecom investment halved since 1997
• Withdrawal of certain foreign investors, such as
  SwissCom, BT etc
• Evidence of substitution (slowdown in fixed-line
  growth rate)
• Delays in privatisations

Investment in telecom networks, SE Asia, US bn
8
Policies that worked in the early 1990s may no
longer be appropriate

• Franchising policy provides short-term
  incentives, but creates longer-term problems
• Foreign investors deterred by caps on foreign
  ownership
• Privatisation of fixed-line assets no longer
  attractive to investors
• Some ASEAN currencies now much weaker

30
Thailand outperforming
Thailand underperforming
ASEAN
ASEAN
25
20
ASEAN average
15
10
5
Thailand
0
1991
1993
1995
1997
1999
Fixed-line growth rates in Thailand compared with
ASEAN average
9
Nevertheless, ASEAN incumbent operators still
relatively profitable

• Top ten ASEAN operators made (US2.3bn profit in
  2000)
• Only one of top ten lost money
• Several still expanding overseas (e.g., SingTel
  in Australia, TM in South Africa)

Top ten operators, US bn, 2000
10
Incumbent operators and the Internet (selected
ASEAN nations)
Source ITU ASEAN Internet case studies
(www.itu.int/ti/casestudies)
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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 plentiful

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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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Internet price comparisons

• Thai users benefit from unmetered local calls
• Singapore offers free Internet bundled with
  call
• Indonesian users have nationwide dial-up access
• Philippines has flat-rate local calls
• Malaysia has very low ISP charges

Typical Internet access prices, per hour
(US) Source ITU ASEAN Internet diffusion case
studies.
14
Leased 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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Future challenges (1) IP Telephony

• Highly competitive in Singapore (gt70 IPTSPs)
• Offered by incumbent PTOs in Thailand and Viet
  Nam
• In Viet Nam, IP Telephony has taken more than 40
  of market for calls between Hanoi and HCMC
• In Thailand, CATs PhoneNet offers savings of up
  to 33 on intl calls
• In other ASEAN countries, IP Telephony is either
  restricted to the incumbent or prohibited

Price for one minute call from Singapore to US,
using different IP Telephony options
(US) Source ITU, adapted from SingTel
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Future challenges (2) Broadband

• Multiple platforms
• DSL
• Cable modems
• Apartment LANs
• Fixed-wireless
• Satellites
• Cross-media competition tends to speed up
  deployment
• Cross-ownership tends to slow down deployment

ltwww.mdc.com.my/mscgt
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Case study Broadband in the Philippines

• Competitive cross-media framework established
• Cable modems since 1999 (Destiny, Now, SkyCable)
• DSL since 2000 (PLDT, Globe)
• LMDS since 1999 (Broadband Philippines)
• Fixed Wireless starting 2002 (OneVirtual Corp.,
  Meridian)
• Relatively attractive pricing
• DSL priced at 2500 pesos (US50) per month,
  residential
• But, market demand seems to have plateaud at
  around 10000 subscribers
• Low quality CATV networks need major upgrade and
  suffer image problems
• DSL speeds are low (64 kbit/s burstable to 128
  kbit/s for residential)
• Foreign investment restrictions and economic
  uncertainty limit scope for expansion

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Broadband experiences elsewhere in developing
ASEAN

• Thailand
• DSL, cable modems and Satellite broadband, but no
  fixed wireless (no regulator to give licences!)
• Incumbent telcos not yet involved in market
• Only a few hundred users
• Viet Nam
• Only 200 leased line customers (high prices)
• DSL pilot being conducted by VDC (lt100 users)
• No CATV or DTH satellite
• Malaysia
• Major effort to roll-out multimedia super
  corridor
• Unified regulatory framework (Comms Multimedia
  Act 98)
• Good fibre backbone, but DSL still only
  experimental
• Satellite TV, but no cable TV. Satellite killed
  off MMDS.
• Effectively, broadband means business use, not
  residential

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For more information

• Internet case studies (www.itu.int/ti/casestudies)
  
• IP Telephony (www.itu.int/wtpf)
• Broadband (www.itu.int/broadband)