Introducing broadband: Investment conditions, regulatory challenges and quality issues

1. Introducing broadband: Investment conditions, regulatory challenges and quality issues Rohan Samarajiva Telecoms World South Asia Dhaka, 8-9 October 2008

2. Agenda • What is the scale of the challenge? • South Asia’s mobile voice success story: What worked? • Implications for quality • Lessons for broadband? • Implications for • Investment • Regulation • Quality

3. The challenge • Give the currently unconnected access to the many functionalities of the Internet, including • Communication in multiple forms • Information retrieval • Publication • Transaction • All problems can be solved if hardest problem can even be partially solved

4. The hardest problem: Bottom of the Pyramid Large gender divide, even in South East Asia

5. …what Internet at the BOP??

6. South Asia’s success story: Mobile voice • Lowest prices in the world • Among the highest EBITDA margins • . . . suggesting, a different business model • Budget telecom network model, analogous to budget airline model

7. Low prices and . . . • Four South Asian countries + Uzbekistan have the lowest Total Cost of Ownership (TCO), according to Nokia Four out of 5 with total cost of ownership < USD 5

8. . . . high profits* (enabling continued investment & rapid rollout) * 2007

9. The business model • Driven by hostile external conditions, low purchasing power and pressure from disruptive competitors, South Asian operators have • Discovered a new “budget-telecom-network” business model and • Implemented service-process innovations that enable exploitation of long-tail markets • Revenue-yielding minutes not ARPUs  high minutes of use and high EBITDA margins

10. 18 180.00 166.00 NTP-99 Lowering of Mobile Subscriber base (mn) 16 160.00 ADC from 30% to 10% of Telecom Effective tariff (Rs./min) 14 sector revenue 140.00 Tariff Order CPP introduced 12 120.00 10 100.00 90.00 3rd & 4th WLL 8 80.00 cellular Introduced operator 6 60.00 52.17 4 40.00 33.60 2 20.00 13.00 6.50 3.58 1.88 0.88 1.20 0 0.00 Mar-98 Mar-99 Mar-00 `Mar-01 `Mar-02 `Mar-03 `Mar-04 `Mar-05 `Mar-06 `Mar-07 Fixed Tariff Cellular Tariff Mobile Subs Increased network utilization • Driven by radical price reductions and effective service design and marketing yielding higher use by those at the top of the pyramid and increased minutes from those at the bottom of the pyramid

11. Long-tail markets and reduced transaction costs • Prepaid and the ability to buy in ways that fit earning patterns of daily/sporadic earners was key

12. One consequence • Because of high loading of networks quality of service is likely to be spotty • However, this being a necessary feature of the model, excessive quality regulation could have prevented/delayed its discovery/ implementation

13. Lessons for broadband

14. Recognize that not everyone has regular income • New prepaid voice model recognizes that income is irregular at the BOP and comes in small increments: “chota recharge” •  Broadband pricing should follow; all-you-can-eat, flat-rate pricing models will not work at BOP • Should it be based on time (easier to understand) or on volume of data?

15. Unbundle the mobile Internet • The Internet is a meta medium, which includes multiple functionalities •  those who are starting may not require all the functionalities and may not be able to pay for all at first

16. Some broadband services and significance of quality 16 1/1/2020 +++ highly relevant, ++ very relevant, + relevant, - not relevant

17. Keep costs (and prices) down • Low prices are key, but cannot be sustained unless costs are also lowered • This would, most likely, require economizing on links to the Internet cloud • Domestic access network is not the problem now

18. Sri Lanka download speeds (Business Packages) within ISP domain… 2 Mbps > 75%

19. Download speed Sri Lanka andSingapore (accessing International servers) > 75%

20. Where is the bottleneck (Sri Lanka)? 170 ms 65 ms 25 ms 10 ms NB: Upto 5th hop IP addresses are within SL (www.whois.net)

21. RTT from Bangladesh- Submarine Cable vs Satellite (international sites)

22. Download Speed - Sirius Broadband (256 kbps Shared)

23. Upload Speed - Sirius Broadband (256 kbps Shared)

24. Options • Buy more international capacity, and/or • Do a lot of mirroring • Can this be done within the region? • And, encourage locally hosted content • Given nature of mobile broadband (possibly more P2P content), this may be a significant factor

25. Regional mirroring? • The route to www.yahoo.com (hosted in USA) from Colombo takes roughly 250-300 milliseconds with 11 hops • To next-door India (ww.yahoo.co.in), takes roughly the same time and 17 hops to Mumbai via Singapore and Chennai • Unless these links are improved, not much benefit from regional mirroring

26. Quality adequate to purpose at affordable prices • If voice quality is atrocious and price is high, will people buy voice services? • But when service was offered at quality adequate for purpose and at low prices, the market flourished and enabled needed investment • This is the key to broadband success, though the quality problem is more complex than was with voice