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Internet pricing and price comparisons

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.

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Internet pricing and price comparisons

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  1. 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@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

  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. 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.

  7. Cable TV Wireless Access T E L E P H O N E E X C H A N G E Leased line Can and ISP control it’s costs?Regulatory bottlenecks ? ? International connectivity ? ? ISP Dial-up ADSL? ? ? National connectivity ISP POP or IXP ?

  8. 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

  9. International connectivity Commercial & operational International costs National connectivity connectivity National connectivity Commercial & operational costs Typical ISP cost comparisons <<<ASEAN countries OECD countries >>>

  10. International component of ISP costs Source: Study carried out by Antelope Consulting for DFID, available at: www.antelope.org.uk.

  11. 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

  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. National connectivity: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.

  14. 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

  15. 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 <10 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?

  16. OECD average Internet retail pricing 30 hours of Internet access, US$, October 2001 Source: ITU adapted from ISPs / PTOs

  17. 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.

  18. 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 relatively plentiful

  19. 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”

  20. 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

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