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. International Telecommunication Union 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. International Telecommunication Union 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. International Telecommunication Union 4 Nevertheless, the Internet continues to grow … Internet users, million, and growth rate in % Source: ITU.

5. International Telecommunication Union 5 How is ASEAN doing? Growth rate in Internet users Source: ITU World Telecommunication Indicators Database. 0% 50% 100% 150% 200% 250% 199219931994199519961997199819992000 ASEAN average growth rate Global average growth rate

6. International Telecommunication Union 6 The SE Asia Digital Divide Source: ITU.

7. Can and ISP control it’s costs? Regulatory bottlenecks Wireless Access ISP POP or IXP International connectivity ADSL? Cable TV ? ? ? ? ? ? ? ISP TELEPHONETELEPHONE EXCHANGEEXCHANGE Dial-up Leased line National connectivity

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

10. International Telecommunication Union 10 International component of ISP costs CountryTotal Int’l bandwidth Cost (per Mbit/s) Int’l as % of total costs Cambodia2 Mbit/sUS$40k80% India1 Gbit/sUS$2.6k19% Nepal10 Mbit/sUS$10k24% S. Africa260 Mbit/sUS$7k22% Uganda5 Mbit/sUS$20k30% Zambia5 Mbit/sUS$16k25% Source: Study carried out by Antelope Consulting for DFID, available at: www.antelope.org.uk.

11. International Telecommunication Union 11 International Gateway 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)? Wholesale Price per 64 kbit/s of international bandwidth, US$ Source: ITU Case Studies

12. International Telecommunication Union 12 The critical factor: IP connectivity 1.1 0.2 0.5 1.0 0.6 0.1 0 500 1'000 1'500 2'000 2'500 3'000 Viet Nam Indonesia Thailand Malaysia Philippines Singapore Int'l traffic (bn mins) and Int'l bandwidth (Mbit/s) 0.0 0.2 0.4 0.6 0.8 1.0 1.2 Bit-Minute Index Int ’ l traffic mins Int'l bandwidth Bit-Minute Index 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). Source: ITU/ TeleGeography Inc. The bit-minute index is calculated as Mbit/s of int’l bandwidth divided by billions of mins of int’l traffic

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

17. Competition among ISPs drives down prices No. of ISPs licensed (operational) 3 (3) 2 (2) 5 (4) 150 (50) 150 (60) 18 (18) 18 (?) 44 (?) Source: ITU Internet diffusion case studies.

18. International Telecommunication Union 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. International Telecommunication Union 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. International Telecommunication Union 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