Chapter 3: Economic and Commercial Viability ¹

I. Introduction

Enhancing connectivity within a region and between the region and the rest of the world conveys benefits not only commercially but also economically and socially to the region. There are always commercial and non-commercial costs and benefits involved.

This section assesses situations, costs and benefits pertinent to possible enhancements to the telecommunication infrastructure for the Pacific, and describes government and regulatory impact issues. Business models for information and communication technology (ICT) services are suggested, along with examples of factors influencing the commercial viability of the services.

As de/re-regulation of telecommunications from monopolistic to competitive business environments proceeds, in much of the world one regularly sees drops in prices and increases in traffic. An inclination is to wonder if lowered prices, combined with increased demand for services, would lead to financial difficulties for suppliers.² Figure 3-1 demonstrates that the recent tendency is for traffic growth to exceed price drops – making for significant revenue opportunities for carriers, even before considering value-added products and services that can be added for larger markets because of such revenue growth. Globally, average volume declines have exceeded price dips (signalling revenue growth) in all years since 1991, except during 2000-2002.³ This pattern is anticipated to continue through the decade, after which forecasts are difficult.

Figure 3-1. Internet traffic increases exceed price drops, leading to revenue gains
Source: Figure from Stephan Beckert and Eric Schoonover. Global traffic, bandwidth and pricing trends and wholesale market outlook. Presented at PTC’07.

II. The Pacific Service Area/Marketplace

In an attempt to move beyond generalizations about Pacific island economies’ socio-economic abilities to support potential telecommunications enhancements, this section provides itemized estimates for urban and rural populations (important for designing “last-mile” connectivity and services) in Table 3-1, current international cable and satellite communications traffic in Table 3-2, and current and forecast teleconnectivity in Table 3-3. The figures “push the envelope” geographically, thematically and temporally – making them thus imperfect measures. Nevertheless, they should serve as an initial basis for developing ideas, which may be tested with better data that may be developed.

Table 3-1. Urban and rural population distribution

Country	Population	Est. % 2015/ 2005 Change	Urban (%) Population	Urban Population	Rural (%) Pop.	Rural Population
American Samoa	57,084	(decrease) - 4%	33	19,009	67.0	38,075
Cook Islands	21,388	7%	50	10,694	50.0	10,694
Fiji	905,949	15%	51.7	468,376	48.3	437,573
French Polynesia	274,578	15%	40	109,831	60.0	164,747
Guam	171,019	14%	85	145,366	15.0	25,653
Kiribati	105,432	25%	47.3	49,869	52.7	55,563
Marshall Islands	60,422	22%	66.3	40,060	33.7	20,362
Micronesia	108,004	(decrease) - 3%	11.2	12,096	88.8	95,908
Nauru	13,287	19%	16	2,126	84.0	11,161
New Caledonia	239,067	12%	61.6	147,265	38.4	91,802
Niue	1,733	?	60	1,040	40.0	693
Northern Mariana Islands	82,459	25%	85	70,090	15.0	12,369
Palau	21,492	11%	68.6	14,744	31.4	6,748
Papua New Guinea	6,002,079	22%	13.2	792,274	86.8	5,209,805
Samoa	183,308	0%	22.3	40,878	77.7	142,430
Solomon Islands	552,438	26%	16.5	91,152	83.5	461,286
Timor Leste	1,062,777	22%	8	85,022	92	977,755
Tonga	114,689	17%	33.4	38,306	66.6	76,383
Tuvalu	11,810	15%	55.2	6,519	44.8	5,291
Vanuatu	217,955	12%	22.8	49,694	77.2	168,261

Table 3-2. Pacific cable and satellite circuit activity reported to the FCC
(units are 64 kbps equivalents)

Country	Population (000s)	Cable 2004 2000 1996	Satellite Communications 2004 2000 1996	Combined 2004 2000 1996
American Samoa	57	0 0 0	418 187 82	418 187 82
Cook Islands	21	0 0 0	0 0 0	0 0 0
Fiji	906	297 46 20	14 85 26	311 131 46
French Polynesia	276	0 0 0	42 57 35	42 57 35
Guama	171	1873 1964 533	655 6 94	2528 1970 627
Kiribati	105	0 0 0	0 0 0	0 0 0
Marshall Islands	60	0 0 0	883 156 68	883 163 7
Micronesia	108	0 0 0	89 70 65	89 70 65
Nauru	13	0 0 0	0 8 8	0 0 0
New Caledonia	239	0 0 0	8 8 4	8 8 4
Niue	2	0 0 0	0 0 0	0 0 0
Northern Mariana Islands	83	320 363 0	227 138 337	547 501 337
Palau	22	0 0 0	109 37 28	109 37 28
Papua New Guineaa	6002	30 15 8	8 8 10	38 23 18
Samoa	183	0 0 0	8 16 13	8 16 13
Solomon Islands	552	0 0 0	0 30 0	0 30 0
Timor Leste	1062	0 0 0	0 0 0	0 0 0
Tonga	115	0 0 0	31 30 30	31 30 30
Tuvalu	12	0 0 0	0 0 0	0 0 0

a. Some 2004 figures not reported to the United States FCC; figures for 2002-2003 used.

Table 3-3a. Current and forecast teleconnectivity

Country	Popu-lation (000s)	Urban Popu-lation (%)	Wired Phone (%) 2005	Wired Phone (%) 2015	Mobile Phone (%) 2005	Mobile Phone (%) 2015	Internet (%) 2005	Internet (%) 2015
American Samoa	57	33.0	26.0	40	8.0	70	10.0	60
Cook Islands	21	50.0	34.0	40	8.0	80	20.0	60
Fiji	906	51.7	12.4	25	17.0	80	7.0	60
French Polynesia	276	40.0	21.0	25	34.0	90	22.0	70
Guam	171	85.0	51.0	51	59.0	80	48.0	80
Kiribati	105	47.3	5.1	20	0.7	60	2.4	50
Marshall Islands	60	66.3	8.3	20	1.1	75	3.5	60
Micronesia	108	11.2	11.2	20	12.7	50	13.0	50
Nauru	13	16.0	16.0	25	13.0	80	2.3	60
New Caledonia	239	61.6	23.0	30	57.0	70	32.0	65
Niue	2	60.0	62.0	65	22.0	80	53.0	80
Northern Mariana Is.	83	85.0	40.0	40	27.0	80	13.0	60
Palau	22	68.6	33.0	45	5.0	75	9.0	60
Papua New Guinea	6002	13.2	1.1	5	0.4	30	3.0	20
Samoa	183	22.3	7.3	20	13.0	60	3.0	40
Solomon Islands	552	16.5	1.3	5	0.2	30	0.8	15
Timor Leste	1062	8.0	0.2		2.5		0.2
Tonga	115	33.4	11.3	15	16.0	50	3.0	40
Tuvalu	12	55.2	7.0	10	0.0	60	13.0	50
Vanuatu	218	22.8	3.1	10	6.0	50	5.9	40

Table 3-3b. Estimation of future wired connectivity

Country	Popu-lation	Urban Popu-lation (%)	Urban Popu-lation	Wired Phones (%) 2005	Wired Phones 2005	Wired Phones (%) 2015	Wired Phones 2015	Total Increase (2005-2015)	Rural only Increase
American Samoa	57,084	33	19,009	26.0	14,842	40	22,834	7,992	5,355
Cook Islands	21,388	50	10,694	34.0	7,272	40	8,555	1,283	642
Fiji	905,949	52	468,376	12.0	112,338	25	226,487	114,150	55,134
French Polynesia	274,598	40	109,831	21.0	57,661	25	68,645	10,983	6,590
Guam	171,019	85	145,366	51.0	87,220	51	87,220	0	0
Kiribati	105,432	47	49,869	5.0	5,377	20	21,086	15,709	8,279
Marshall Is.	60,422	66	40,060	8.0	5,015	20	12,084	7,069	2,382
Micronesia	108,004	11	12,096	11.0	12,096	20	21,601	9,504	8,440
Nauru	13,287	16	2,126	16.0	2,126	25	3,322	1,196	1,004
New Caledonia	239,067	62	147,265	23.0	54,985	30	71,720	16,735	6,426
Niue	1,733	60	1,040	62.0	1,074	65	1,126	52	21
Northern Mariana Is.	82,459	85	70,090	40.0	32,984	40	32,984	0	0
Palau	21,492	69	14,744	33.0	7,092	45	9,671	2,579	810
Papua New Guinea	6,002,079	13	792,274	1.0	66,0923	5	300,104	234,081	203,182
Samoa	183,308	22	40,878	7.0	13,381	20	36,662	23,280	18,089
Solomon Is.	552,438	17	91,152	1.0	7,182	5	27,622	20,440	17,068
Timor Leste	1,062,777	8	85,022	0.2	2,125
Tonga	114,689	33	38,306	11.0	12,960	15	17,203	4,243	2,826
Tuvalu	11,810	55	6,519	7.0	827	10	1,181	354	159
Vanuatu	217,955	23	49,964	3.0	6,757	10	21,796	15,039	11,610
Total	9,144,193	23.1	2,115,635	5.6	507,212	10.9	991,903	484,691	348,017

Table 3-3c. Estimation of future mobile connectivity

Country	Popu-lation	Urban Popu-lation (%)	Urban Popu-lation	Mobile Phones (%) 2005	Mobile Phone 2005	Mobile Phone (%) 2015	Mobile Phones 2015	Total Increase (2005-2015)	Increase for Rural only
American Samoa	57,084	33	19,009	8.0	4,567	70	39,958	35,391	23,606
Cook Islands	21,388	50	10,694	8.0	1,711	80	17,110	15,399	7,700
Fiji	905,949	52	468,376	17.0	154,011	80	724,759	570,748	275,671
French Polynesia	274,578	40	109,831	34.0	93,357	90	247,120	153,764	92,258
Guam	171,019	85	145,366	59.0	100,901	80	136,815	35,914	5,387
Kiribati	105,432	47	49,869	1.0	738	60	63,259	62,521	32,949
Marshall Is.	60,422	66	40,060	1.0	665	75	45,317	44,652	15,048
Micronesia	108,004	11	12,096	13.0	13,717	50	54,002	40,285	35,774
Nauru	13,287	16	2,126	13.0	1,727	80	10,630	8,902	7,478
New Caledonia	239,067	62	147,265	57.0	136,268	70	167,347	31,079	11,934
Niue	1,733	60	1,040	22.0	381	80	1,386	1,005	402
N. Mariana Is.	82,459	85	70,090	27.0	22,264	80	65,967	43,703	6,555
Palau	21,492	69	14,744	5.0	1,075	75	16,119	15,044	4,724
Papua New Guinea	6 ,002,079	13	792,274	0.0	24,008	30	1,800,624	1,776,615	1,542,102
Samoa	183,308	22	40,878	13.0	23,830	60	109,985	86,155	66,942
Solomon Is.	552,438	17	91,152	0.0	1,105	30	165,731	164,627	137,463
Timor Leste	1,062,777	8	85,022	2.5	26,570
Tonga	114,689	33	38,306	16.0	18,350	50	57,345	38,994	25,970
Tuvalu	11,810	55	6,519	0.0	0	60	7,086	7,086	3,175
Vanuatu	217,955	23	49,694	6.0	13,077	50	108,978	95,900	74,035
Total	9,144,193	23.1	2,115,635	6.7	611,753	42	3,839,518	3,227,785	2,369,173

Table 3-3d. Estimation of future Internet connectivity

Country	Popu-lation	Urban Popu-lation (%)	Urban Popu-lation	Inter-net (%) 2005	Inter-net 2005	Inter-net (%) 2015	Internet 2015	Increase (2005-2015)	Increase for Rural
American Samoa	57,084	33	19,009	10.0	5,708	60	34,250	28,542	19,038
Cook Islands	21,388	50	10,694	20.0	4,278	60	12,833	8,555	4,278
Fiji	905,949	52	468,376	7.0	63,416	60	543,569	480,153	231,914
French Polynesia	274,578	40	109,831	22.0	60,407	70	192,205	131,797	79,078
Guam	171,019	85	145,366	48.0	82,089	80	136,815	54,726	8,209
Kiribati	105,432	47	49,869	2.0	2,350	50	52,716	50,186	26,448
Marshall Islands	60,422	66	40,060	4.0	2,115	60	36,253	34,138	11,505
Micronesia	108,004	11	12,096	13.0	14,041	50	54,002	39,961	35,486
Nauru	13,287	16	2,126	2.0	306	60	7,972	7,667	6,440
New Caledonia	239,067	62	147,265	32.0	76,501	65	155,394	78,892	30,295
Niue	1,733	60	1,040	53.0	918	80	1,386	468	187
N. Mariana Is.	82,459	85	70,090	13.0	10,720	60	49,475	38,756	5,813
Palau	21,492	69	14,744	9.0	1,934	60	12,895	10,961	3,442
Papua New Guinea	6,002,079	13	792,274	3.0	180,062	20	1,200,416	1,020,353	885,667
Samoa	183,308	22	40,878	3.0	5,499	40	73,323	67,824	52,699
Solomon Islands	552,438	17	91,152	1.0	4,420	15	82,866	78,446	65,503
Timor Leste	1,062,777	8	85,022	0.2	2,125
Tonga	114,689	33	38,306	3.0	3,441	40	45,876	42,435	28,262
Tuvalu	11,810	55	6,519	13.0	1,535	50	5,905	4,370	1,958
Vanuatu	217,955	23	49,694	6.0	12,859	40	87,182	74,323	57,377
Total	9,144,193	23.1	2,115,635	5.8	532,783	30.4	2,785,333	2,252,553	1,553,596

Table 3-1 populations are harmonized from several sources, as are figures for urbanization. Pacific island economies may have better figures for their own territories. In addition to these figures, the population density distribution maps produced by the “Gridded Population of the World Project”⁴ may be very useful to planners, particularly in estimating potential cable lengths or deciding between terrestrial microwave, cable, satellite, wireless (e.g. WiMax) networking, and possible maintenance-redeployment-upgrade of over-the-airwaves infrastructure, including broadcasting and communications radio. Note that the estimated population for the Pacific is over 11.5 million by 2015, a 20 per cent increase, according to forecasts by the United States Bureau of the Census.⁵.

Table 3-2 data are reported by the United States Federal Communications Communication, based on reports from carriers of traffic to or through the United States. Data on States sending international traffic directly to another country (and not through the United States) are not reported here. This is an imperfection in Table 3-2 for our purpose of understanding international traffic to and from Pacific island economies. Indeed, an organization such as the Pacific Islands Telecommunications Association may wish to maintain a more complete version of such data on its web site, for use by potential development partners.

Table 3-3 makes growth forecasts for fixed line and mobile telephony and for the Internet. It assumes that broadcast radio and television will remain stable, unless mobile telephony or the Internet become supplemental means of delivering radio or television programming to potentially wider audiences (which could be global, including serving overseas nationals or friends of Pacific island economies). The estimates should be considered educated guesses, based partly on socio-economic development (Human Development Index), current telecom penetration rates, and the anticipated onset of competition that may bring new products and services to the market and lower prices. Looking at growth patterns elsewhere, when countries have gained competitive connectivity, usage has increased in line with estimates made here for the Pacific.

The main message here is that new, competitive products and services should be able to find customers if Pacific island economies follow best practices elsewhere – particularly for small, disparately located concentrations of people.

The estimates do not incorporate gains from estimated population changes noted in the second column of Table 3-1, many very significant. Planners would do well to include such population growth estimates in their telecommunication policies and activities aimed at services for their populations.

Table 3-4 shows the increase in demand for telecommunications “pipe” in Asia and trans-Pacific,⁶ and it presents normalized low (generally trans-Pacific) and high growth (generally intra-Asia) patterns from such data. Asia Netcom, reported by Barney in the presentation just cited, forecasts that Asian traffic will continue to grow, as reflected in Table 3-5 (which uses Telegeography figures reported by Barney, and other figures reported directly by Telegeography). Such forecasts (and broadly similar statements by others) appear to indicate a return to heady optimism, as in the late 1990s. However, even at half such forecast growth rates, the next decade appears to be one of very significant growth, fuelled by more affordable bandwidth, plus bandwidth-consuming products and services.

For the Pacific, possible implications are that, with a diversity of national policies, socio-economic situations and resultant demands for bandwidth, growth has been significant elsewhere – with the need for bandwidth growth greatest for Internet and other (e.g. private) networking. Such high relative (not absolute) bandwidth growth is possible in the Pacific, as multimedia content is downloaded to – and perhaps also created and served from – the Pacific. Such growth can occur with users and developers working from Internet cafés and community e-centres, offices, businesses, homes, and wireless networking coverage areas (including via mobile phones).

If the region sits on the sides during this period of growth, it risks being bypassed – yet proactive approaches may help get the Pacific connected as cables are laid and satellite systems put into service.

Because international fibre-optic cabling is scalable, there is opportunity for it to serve population centres, and readily deployable and locally scalable communications satellites may provide universal coverage – if accessibility is made affordable. Potential users have funds to pay for new and affordable telecommunication products and services. With the US$300-400+ million estimated to be saved by customers over five years from competitive telecommunications in the Pacific,⁷ and the trends described in Figure 3-1, revenues should be available for investments in complementary satellite and cable infrastructure that can be designed for optimal cost-efficiency.

Table 3-4. Demand levels (GBps), 1997-2007

	1998	1999	2000	2001	2002	2003	2004	2005	2006	2007
Intra-Asia
Total used capacity	2.3	8	16.1	29.8	57.6	105.7	181.4	318.7	545.2	902.8
Voice	1.3	1.7	1.9	2.3	2.9	3.5	4.2	5	5.9	6.9
Internet	0.3	2.8	8.3	18.8	41.7	84.8	157.3	290.8	512.9	865.8
Other networks	0.7	3.5	5.9	8.6	1.3	17.3	19.9	22.9	26.3	30.3
Trans-Pacific
Total used capacity	6.3	13.3	28.2	60.2	82.1	135.1	212.8	33.5	517.2	774.4
Voice	1.7	1.8	1.9	2.2	2.8	3.7	4.7	5.9	7.2	9
Internet	1.6	5.6	1.7	40.1	61.2	108.2	181.4	299.4	474.7	724.7
Other networks	3	5.9	9.3	17.8	18.2	23.2	26.7	30.7	35.3	40.6
Normalized Low Bandwith Growth
Total used capacity	1	2.11	4.48	9.56	13.03	21.44	33.78	53.17	82.1	122.92
Voice	1	1.06	1.12	1.29	1.65	2.18	2.76	3.47	4.24	5.29
Internet	1	3.5	10.63	25.06	38.25	67.63	113.38	187.13	296.69	452.94
Other networks	1	1.97	3.1	5.93	6.07	7.73	8.9	10.23	11.77	13.53
Normalized High Bandwidth Growth
Total used capacity	1	3.48	7	12.96	25.04	45.96	78.87	138.57	237.04	392.52
Voice	1	1.31	1.46	1.77	2.23	2.69	3.23	3.85	4.54	5.31
Internet	1	9.33	27.67	62.67	1.39	282.67	524.33	969.33	1709.67	2886
Other networks	1	5	8.43	12.29	18.57	24.71	28.43	32.71	37.57	43.29

Table 3-5. Bandwidth usage growth and pricing: Asia and global

	2006	2007	2008	2009	2010	2011	2012	2013
Intra-Asia Used Capacity (GBps)	545	902	1300	2600	5000	9500	16000	30500
Intra-Asia Demand Growth	+60%	+50%	+40%	+35%	+20%	+19%	+18%	n.a.
Intra-Asia Pricing	0%	-2%	-4%	-5%	-18%	-20%	-18%	n.a.

(Source: Various Telegeography media releases, AsiaNetcom as reported at PTC’07)

III. The Pacific, a Telecommunications Crossroads

The Pacific has long been a crossroads for commerce between Asia, the Americas, Australia, New Zealand, plus between and within individual groupings of islands. It is certainly such a crossroads now, as cables are deployed within or near the territorial waters of Pacific island economies, and as communication satellites orbit overhead. Unfortunately, much of the best connectivity has passed directly through or over the Pacific. A challenge is to tap into such connectivity to benefit Pacific economies.

However, the earthquake of 26 December 2006 brought to Asia the reality experienced by the Pacific when Intelsat satellite 804, at 174° East longitude, failed in January 2005, causing widespread outages of connectivity throughout the Pacific. Those failures, and recent troubles with the GlobalStar constellation, initially attributed to unexpectedly high degradation in the space environment, remind us of the vulnerability of both submarine and space-based telecommunications. Indeed, with the Earth near a low in the 11-year sunspot cycle,⁸ the fact that satellites are having such difficulties does not bode well for 5-6 years from now.

All this argues for a cautious paradigm for new telecommunications infrastructure for the Pacific. Cabling systems should not all traverse the same seismically active zone or other areas at risk of causing service interruptions. Satellites should be well-built to withstand space weather. The former paradigm should serve the Pacific well, as a diversity of cabling routes can reach new markets. The latter paradigm indicates that satellite infrastructural designers may need to refresh their understanding of space weather.

IV. Global Trend of Commercial Satellite Services

In 2001-2003, commercial satellite services experienced an unprecedented crisis resulting from a global economic downturn, which broadly affected the telecommunications business. According to a report by Euroconsult, global transponder capacity demand stabilized at around 4,200 36 MHz equivalent transponders. In 2004, capacity grew, totalling more than 4,500 36 MHz equivalent transponders in the combined C band, Ku band and Ka band (around 70 per cent fill-in rate).

As shown in Figure 3-2, such research further indicates the overall growth of worldwide utilization of satellite capacity for the different major segments of the satellite telecommunication market. Total demand is forecast to increase from 4,200 transponders in 2004 to 6,500 transponders by 2015.

Figure 3-2. Transponder demand by application: from 2000 to forecast 2015
Source: Euroconsult: World Satellite Communications & Broadcasting Markets Survey,

Broadcasting, including direct-to-home (DTH) broadcasting and distribution of television content via satellite, consumes more than half of this projection, accounting for around 52 per cent of total demand; while telephony, data and Internet trunking are expected to require around 3,000 transponders, or 40 per cent of total demand. One of the most significant trends identified by this forecast is the emergence of Internet direct broadband access, which is expected to trigger demand approaching 1,000 transponders. As a result, commercial satellite services will be revitalized in delivering worldwide information and communication technology services.

V. Benefits and Risks of Enhancing Pacific Connectivity

A. Economic and Social Benefits

Enhancing Pacific connectivity can play an important role in the economic and social development of Pacific island economies. Establishing community communication centres, for example, in communities where shared resources may be economically and socially effective, can both enhance communication and community spirit among residents and connect them globally. Such centres, as well as other ICT services, also generate employment opportunities for people in the community. However, the level of employment growth may vary, depending on the scope of services and the nature of transactions handled by each centre. In the long run, such ICT enhancement should help operators reduce their unit costs of services, and will help enablers to reach more people quickly, resulting in a decrease of service fees to end-users, and the expansion of impact and demand.

Other indicators of economic benefit are also of interest. For example, people trained to operate communication centres acquire new skills that can stimulate the community economy. Trained staff could offer new services such as customer relations, computer hardware/software technology and the operation of communication technology. To parts of the private sector, such as small or medium-sized business operators (SMEs), the expansion of ICT facilities among and between the Pacific islands will offer new business/service opportunities, new tools and new knowledge. This will stimulate the local business sector, attract more foreign investors and finally lead to an increase in the national GDPs of Pacific economies. It has been shown in the past that attracting highly skilled personnel to relatively quiet, dispersed communities has been a challenge. However, the very connectivity supported by such ICT specialists will bring these communities into the global mainstream, and may be particularly attractive to enough people to sustain SMEs, particularly if such personnel can be shared around the Pacific under the umbrella of a regional cooperative mechanism (see the Overview and Chapter 4).

B. Economic and Social Risks

One of the consequences of enhancing Pacific connectivity concerns the distribution of benefits: who gains and who does not. Of course, the goal is to bring appropriate marketplace products and services to everyone. Although governments in the Pacific will seek to distribute benefits broadly, in reality the expanded telecommunication apparatus may initially favour the sections of the community who are capable of using the new opportunities. For example, rich and poor residents experience information and communication technology differently. On one hand, moneyed and educated segments may enjoy using direct international telephone access, Internet and emailing facilities, multimedia downloads and the like. Moreover, owing to cost structures, only corporate bodies and educated urbanites with substantial incomes are initially likely to use these services on a large scale. On the other hand, people of more modest means – such as labourers, farmers and fishermen – who have limited budgets, skills and training, will experience limited access to the information and communication facilities. Nevertheless, it has been shown that, if economical means of access are available – such as entry-level mobile phones and Internet cafés and e-centres – that people on low budgets will still acquire a used or entry-level mobile phone and incorporate affordable ICTs into their lives when possible.

Another inequality can stem from the different service tariffs in different areas. For example, residents in small towns may have to pay more to use information and communication services similar to those for urbanites because of the higher unit cost to rural telecommunication service operators. This differential cost thus has an impact on the ability of non-urbanites to afford or benefit from the information and communication services. Again, there will be a need to explore the scope for creative accounting or other means to serve outlying communities, without compromising the viability of the new systems in more highly capitalized areas.

C. Opportunity

While enhancing Pacific connectivity may have uneven initial benefits and costs, residents of Pacific island economies would, through expanded connectivity, now have the opportunity to benefit from access to information and communication technologies. Just as in Africa and China we are seeing economic expansion assisted by rapid penetration of mobile phones and other ICT, it is likely to be so, as well, for the Pacific after the expansion of satellite and associated capacity.

VI. Commercial Viability Analysis

This section of the report studies the affordability of telecommunication services in Pacific island economies and compares the estimated costs of providing the services in order to assess the commercial viability of providing telecommunication services in the region.

A. Affordability Assessment

Two approaches are presented below: (a) Percentage of GDP and (b) Average Revenue per User.

1. Percentage of GDP Approach

The Percentage of GDP approach considers information and communication service revenues as a percentage of GDP globally and applies them to the Pacific island economies in order to determine the purchasing power of residents. Figure 3-3 presents percentages of telecommunication service revenues per GDP for each continent from 1998 to 2004.

Figure 3-3 indicates that the global percentages of telecommunication revenue per GDP in 2004 vary from 2.9 per cent in the Americas to almost 5 per cent in Africa. These figures can be used as an indicator to estimate the purchasing power in Pacific island economies for information and communication services.

Figure 3-3. Telecommunication service revenues as a percentage of GDP, 1998-2004
Source: International Telecommunication Union, World Telecommunication Development Report 2006

As in the “Socio-Economic Situation” section in Chapter 1, the sample group of Pacific island economies includes America Samoa, the Cook Islands, Fiji, French Polynesia, Guam, Kiribati, the Marshall Islands, Micronesia, Nauru, New Caledonia, Niue, Norfolk Island, the Northern Mariana Islands, Palau, Papua New Guinea, Samoa, the Solomon Islands, Timor Leste, Tokelau, Tonga, Tuvalu, Vanuatu, and Wallis and Futuna. In order to characterize the average GDP per capita, the four highest GDP PC (Norfolk Island, French Polynesia, Guam and New Caledonia) and the three lowest GDP PC (Tokelau, Tuvalu and Timor Leste) economies were removed (somewhat akin to the “Olympic Scoring Method”), leaving a total of 16 sample countries. The estimated “average” GDP PC of the PIEs then is US$4,867. As a result, their purchasing power for information and communication services varies from US$12 to US$20.8 per month.⁹ (By comparison, in Thailand, which does not have full competition in telecommunications, unlimited dial-up Internet costs US$8/month, and a basic prepaid mobile phone account can cost the same. Therefore, such revenues can support significant telecommunications usage – even before considering the sharing of resources between families or in e-centres.)

2. Average Revenue per User Approach

The Average Revenue per User approach takes into account the average revenue per user (ARPU) of the telecommunication services in the PIEs. The table below presents samples of population, total telecommunication revenue for each country in 2004, and the calculated ARPU for each country.

From Table 3-6, we find that the average monthly ARPU of the 12 sample countries is US$8.74. This figure is indicative only of the monthly amount PIE residents are currently willing to pay for the telecommunication services with existing configurations.

B. Case Study: Consumer Broadband Service

This case study was conducted by Shin Satellite PLC, Thailand in order to indicate the generic end-user prices for consumer broadband in different scenarios via different solutions, such as urban DSL, fixed wireless, WiFi, broadband satellite, and others. Moreover, it also estimates the monthly cost of consumer broadband and compares it to DSL and broadband satellite (IPStar) costs.

Table 3-6. Average telecommunications revenue per user, Pacific island economies

Country	Population	Total Telecommunication Service Revenue in 2004 (US$ Million)	Telecommunication Monthly ARPU (US$)
Fiji Islands	905949	120.7	11.1
Kiribati	105432	4.4	3.48
Marshall Islands	60422	6.6	9.1
Micronesia (Federated States of)	108004	12	9.26
Nauru	13287	1.5	9.41
Palau	21492	8.01	31.06
Papua New Guinea	6002079	115.88	1.61
Samoa	183308	16	7.27
Solomon Islands	552438	11.57	1.75
Tonga	114689	6.92	5.03
Tuvalu	11810	1.5	10.58
Vanuatu	217955	13.74	5.25

Source: International Telecommunication Union (ITU) Database (http://www.itu.int) and the Stocktaking of UNESCAP’s Pacific Island Connectivity project.

Figure 3-4. Broadband services appropriate for given urban and rural settings

1. Consumer Broadband: End User Prices

Figure 3-5 is a schematic representation of connectivity market share in a typical country that has such options available. In central business district (CBD) areas, connectivity is dominated by fibre-optic and DSL services. Currently in the Pacific, rural connectivity may be dominated by two-way radio, but might benefit from a build-out of satellite and terrestrial wireless infrastructure. Figure 3-5 also demonstrates the diversity of services available in an early 21^st-century diversified market.

Figure 3-5. Broadband market share in economic centres to remote rural areas (typical worldwide scenario)

Figure 3-6 shows that in CBD and urban areas, where consumer broadband user density is high, the most appropriate solution for providing the telecommunication services may be urban DSL. Monthly prices of urban DSL service in an area where DSL infrastructure exists may vary from the US$15 price in suburban areas, where there is medium density of broadband consumer users. WiFi + DSL and fixed wireless are often attractive options with monthly end-user prices between US$20-35. Broadband satellite is often essential in rural and remote areas. One of the most important benefits of a satellite solution is that consumer broadband via satellite can also be used to complement service in blind spots anywhere under the satellite’s service area, regardless of terrain. The monthly end-user prices of broadband consumer service via broadband satellite vary from US$30 to US$40. It is noted that concentrations of people in rural areas, such as in villages, might benefit from a central satellite terminal or cable point – whose reach is extended by WiMax or other wireless networking. Similarly, even in some urban areas, if costs of installing cable are high, or administrative restrictions inconvenient, satellite might be cheaper or quicker to install – again linked to wireless networking to extend the number of people served by the satellite terminal.

Figure 3-6. Satellite broadband and wired end-user service scenarios (Service flow is from right to left)

Table 3-7 presents the estimated broadband market share, average for most countries. In CBD areas, the broadband market is dominated by fibre-optic and ADSL services. However, broadband service via satellite plays a much bigger role in remote areas.

Table 3-7. Cost schematic for wired (DSL) vs. wireless (broadband satellite) end-user connectivity

Platform Infrastructure	Total Cost per User (USD/Sub/ Month)	CPE (5 years)	Last Mile Line Access	DSLAM Equipment (5 years)	Domestic Backbone	ISP Services			IP Network
						Billing	Call Centre	Network Operation
DSL	16	1.9	2.5	3.1	1.7	1	1.3	2.5	2.5
Broadband Satellite	32	17	8 (BW+GWCost)			1	1.3	2.1	2.5

2. Consumer Broadband: Monthly Cost Comparison

In general, in the areas where DSL infrastructure exists, it seems that DSL’s monthly cost per user is only half of broadband satellite’s cost. This difference results mainly from the high cost of a broadband satellite’s user terminal or consumer peripheral equipment (CPE). As specified in Table 3-7, the estimated monthly cost per user for DSL and broadband satellite consumer broadband services is US$16 and US$32 respectively.

C. Commercial Viability

The affordability and unit cost studies of consumer broadband services suggest that there may be a gap between the cost and purchasing power of some residents of the Pacific, especially when considering the ARPU approach. Using the Percentage of GDP approach, average monthly purchasing power for telecommunication services varies from US$12 to US$20.8, while the average purchasing power becomes US$8.74 per month per person with the ARPU approach. Nonetheless, the unit cost of consumer broadband via DSL and via satellite is US$16 and US$32 respectively.

However, this discusses individual GDP per capita – which may be more appropriate for developed than developing economies. There are often several individuals in a household. Sharing resources would thus often be sufficient for Internet and at least one (mobile or fixed-line) phone per household. Where communities are comfortable sharing phone or Internet access, a pro-active service model could support individual accounts (which could be shared among households or neighbourhoods). Of course, shared resources such as e-centres and call centres facilitate access for people of more modest means, and may add a social ambiance to the process.

Some relatively simple mechanisms have reduced real costs to users of connectivity. These include efforts to make available low-cost (simplified but high-quality) mobile phone handsets and (recently, with the commercial success of the ASUS eee 701 low cost notebook computer) and portable computers, availability of low-cost prepaid Internet and mobile phone recharges, reduced import duties/taxes on basic ICT equipment, etc.

As demonstrated in a number of countries, if mobile and land line telecommunications can be opened up to competition and micro-finance techniques, this both expands the market base for telecommunications and stimulates a range of economic activity. Therefore, we should be encouraged by these calculations. In higher-income economies, much flexibility of individual options is possible. In lower income economies, family/clan/communal sharing or e-centres and Internet cafés should serve to bring such facilities to everyone, as happens elsewhere.

It is noted here that, in the short term, reductions in cost of existing communications satellite capacity may be achieved if Pacific island economies join together to jointly lease one or more full transponders, as opposed to small States leasing parts of transponders at higher rates. Leasing in units of one or more full transponders, for relatively longer terms (e.g. more than 2-3 years where possible), should markedly reduce per-byte rates. An extension of the OPT French Polynesia / Telecom Cook Islands shared leasing example, as noted in section 2C of this report, might serve several Pacific island States well.