internet pricing and price comparisons dr tim kelly, itu itu/tot workshop on ‘trends in telecom...

Internet pricing and price comparisons

Dr Tim Kelly, ITUITU/TOT Workshop on

‘Trends in Telecom Prices and Costing in Developing

Economies of the Asia Pacific Region’ Bangkok,

26-29 November 2001The 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 [email protected].

International Telecommunication Union

2

AgendaAgendaInternet around the world

Still growing worldwide, even after the Dot.com bubble burst

Doing even better in AsiaInternet pricing

Cost components Pricing components Input costs and prices

Internet price comparisons OECD price comparison methodology ASEAN price comparisons

Choosing the most appropriate model


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Bursting the Telecom BubbleBursting 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 daysSource: www.ft.com

Share price trends in the US “Technology Media and Telecoms

(TMT)” sector


4

Nevertheless, the Internet Nevertheless, the Internet continues to grow …continues to grow …Internet users, million, and growth rate in %Internet users, million, and growth rate in %

311

230

3454

90

14935%

55%

66%67%59%

109%

1995 1996 1997 1998 1999 2000

Change

Source: ITU.


5

How is ASEAN doing? How is ASEAN doing? Growth rate in Internet usersGrowth rate in Internet users

Source: ITU World Telecommunication Indicators Database.

0%

50%

100%

150%

200%

250%

1992 1993 1994 1995 1996 1997 1998 1999 2000

ASEAN average growth rate

Global average growth rate


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The SE Asia Digital DivideThe SE Asia Digital Divide

0.1%

0.1%

0.3%

0.9%

2.0%

2.3%

3.8%

15.8%

24.9%

0% 5% 10% 15% 20% 25% 30%

Cambodia

Laos

Vietnam

Indonesia

Philippines

ASEAN 8

Thailand

Malaysia

Singapore

Internet users as % of population2000

Source: ITU.

Can and ISP control it’s costs?Can and ISP control it’s costs?Regulatory bottlenecksRegulatory bottlenecks

Wireless Access

ISPPOP or IXP

International connectivity

ADSL?

Cable TV

?

?

?

?

?

?

?

ISP

TELEPHONE

EXCHANGE

Dial-up

Leased line

National connectivity


8

Internet pricing: Cost componentsInternet 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

Typical ISP cost comparisonsTypical ISP cost comparisons

Commercial & operational

costs



Commercial & operational

costs



<<<ASEAN countries

OECD countries >>>


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International component of International component of ISP costsISP costsCountry Total Int’l

bandwidthCost (per Mbit/s)

Int’l as % of total costs

Cambodia 2 Mbit/s US$40k 80%

India 1 Gbit/s US$2.6k 19%

Nepal 10 Mbit/s US$10k 24%

S. Africa 260 Mbit/s US$7k 22%

Uganda 5 Mbit/s US$20k 30%

Zambia 5 Mbit/s US$16k 25%

Source: Study carried out by Antelope Consulting for DFID, available at: www.antelope.org.uk.


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International GatewayInternational Gateway

Cost issuesNear-end and far-end costsBackhaul costsUnit costs related to

economies of scale Is connectivity bundled in or

separate from infrastructure costs?

Regulatory issuesWhat is the typical waiting

period to obtain bandwidthHow much choice for ISPs?Can ISPs own their own

gateway (e.g., using VSAT technology)?

$397

$388

$384

$320

Cambodia

Thailand

Laos

Philippines

Vietnam

$2'500

Wholesale Price per 64 kbit/s of international bandwidth, US$

Source: ITU Case Studies


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The critical factor: IP connectivityThe 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 tra

ffic

(b

n m

ins)

an

d In

t'l b

and

wid

th

(Mb

it/s

)

0.0

0.2

0.4

0.6

0.8

1.0

1.2

Bit

-Min

ute

Ind

ex

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


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National connectivity:National connectivity:Leased line price comparisonsLeased 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

$0

$200

$400

$600

$800

$1'000

$1'200

$1'400

$1'600

Sing. Malay. Indo. VN Thai. Phil.

Typical prices for a 64 kbit/s leased line, per month (US$)

Source: ITU ASEAN Internet diffusion case studies.


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Retail pricing modelsRetail 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: OECD pricing comparisons: Methodological issuesMethodological 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?


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Internet retail pricing Internet retail pricing

$0 $10 $20 $30 $40 $50

Singapore

MalaysiaThailand

Indonesia

PhilippinesMEDIAN

Vietnam

LaosCambodia

ISP chargeTelephone usageTelephone rental

30 hours of Internet access, US$, October 2001Source: ITU adapted from ISPs / PTOs

OECD average

Competition among ISPs drives Competition among ISPs drives down pricesdown prices

$0 $10 $20 $30 $40 $50

Singapore

MalaysiaThailand

Indonesia

PhilippinesMEDIAN

Vietnam

LaosCambodia

ISP chargeTelephone usageTelephone rental

No. of ISPslicensed (operational)

3 (3)

2 (2)

5 (4)

150 (50)

150 (60)

18 (18)

18 (?)

44 (?)

Source: ITU Internet diffusion case studies.


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Internet strategies: What works Internet strategies: What works where?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 accessNationwide 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


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ConclusionConclusionInternet 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”


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For more information …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

costswww.antelope.co.uk

www.itu.int/ti/casestudies

internet pricing and price comparisons dr tim kelly, itu itu/tot workshop on ‘trends in telecom...

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