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@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 US$6.3 trill. to US$3.8 trill. • More than 400’000 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 (US$2.3bn profit in 2000) • Only one of top ten lost money • Several still expanding overseas (e.g., SingTel in Australia, TM in South Africa) Top ten operators, US$ bn, 2000

10. Incumbent operators and the Internet (selected ASEAN nations) Source: ITU ASEAN Internet case studies (www.itu.int/ti/casestudies)

11. 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 2’500 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 US$30 per month and international bandwidth is plentiful

12. The critical factor: IP connectivity 3'000 1.2 The bit-minute index is calculated as Mbit/s of int’l bandwidth divided by billions of mins of int’l traffic Int’l traffic mins 1.1 Int'l bandwidth 1.0 2'500 1.0 Bit-Minute Index 2'000 0.8 (Mbit/s) 1'500 0.6 Int'l traffic (bn mins) and Int'l bandwidth 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).

13. 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.

15. Future challenges (1): IP Telephony • Highly competitive in Singapore (>70 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, CAT’s PhoneNet offers savings of up to 33% on int’l 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

16. 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 <www.mdc.com.my/msc>

17. 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 2’500 pesos (US$50) per month, residential • But, market demand seems to have plateau’d at around 10’000 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

18. 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 (<100 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

19. For more information … • Internet case studies (www.itu.int/ti/casestudies) • IP Telephony (www.itu.int/wtpf) • Broadband (www.itu.int/broadband)