Pacific Connectivity Report - Overview: Enhancing Pacific Connectivity

The Pacific Leaders’ United Nations ESCAP Special Session (PLUS) held in Jakarta on 10 April 2006 in conjunction with the sixty-second session of the Commission and the Asia-Pacific Business Forum, identified among the major priority areas for assistance a request for ESCAP to undertake a study on the situation of telecommunications connectivity infrastructure and services supporting development in the Pacific region.

This study summarizes the connectivity situation in the Pacific, examines technical options, economical and commercial aspects, and discusses institutional and financial considerations and opportunities for enhancing connectivity in the Pacific region.

I. Introduction: Taking Stock

Pacific island economies have had basic international telecommunication connectivity since the 1970s. Of about 500 populated Pacific islands, telecommunications reach about 265 of them, serving a majority of the people. However, connectivity and benefits thereof have been hindered by high costs of existing limited international and domestic bandwidth, perceptions and institutional structures that discourage telecommunications investment.

Pacific island economies have expressed their desire to change institutional structures and to cooperate to move forward on a comprehensive range of issues. Conditions now support the pursuit of significant progress in Pacific connectivity, and the benefits thereof to all stakeholders, primarily because of global developments and the interest of potential partners.

Recent advances such as voice-over IP (VoIP), streaming audio (radio) and video (television), improved performance and pricing of satellite communications bandwidth, lower-cost very small aperture terminals (VSAT), wireless networking, and the existing, upgradeable fibre-optic undersea cables have broken price and performance barriers.

In addition, research 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 5,200 transponders in 2004 to 7,500 transponders by 2013. Broadcasting, including direct-to-home broadcasting and distribution of television content via satellite, consumes around 52 per cent of total demand; while telephony, data and Internet trunking are expected to require around 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 beginning to trigger great demand. As a result, commercial satellite services will be revitalized in delivering worldwide information and communication technology services.

Socio-economic situation

One sees a wide diversity of development performance among Pacific island economies. Most independent Pacific island economies have Human Development Indices in the middle-development range of .59 - .79. This is a stage at which ICT use begins to take off, but many developing countries defer such issues as ICT infrastructural prioritization until education and health-care investments are delivering results. Most Pacific island economies have reached such a stage, so they might logically prioritize ICT when such investments appear timely.

Four economies have literacy rates of 57-77 per cent (noting that they include some of the larger populations in the region), and the rest have literacy ranging between 89-100 per cent. That the lowest literacy rates correlate with several of the larger population centres suggests that there is considerable potential for ICT-strengthened literacy campaigns in such States, if supportive infrastructure can be provided.

A. Connectivity Situation

Formerly, cable was considered unaffordable for small economies, and would unlikely be built out to all islands of a dispersed multi-island State, but economies such as Hawaii, Guam, Johnston Atoll, Fiji, the Northern Mariana Islands and Papua New Guinea are connected to international cable. Now, more Pacific economies are aspiring for cable service, thanks to new approaches to economically re-deploying underused cable, new cable clubs that include small developing countries, and new initiatives/promotions by prospective providers.

The original wireless telecoms in the Pacific were two-way radio and broadcasting. Now they also include mobile telephones, microwave signal trunking, and wireless networking such as WiMax to provide last-mile connectivity in towns, and even in the countryside. This is the fastest growing field of telecoms at the end-user side of developing countries, though the Internet accounts for most actual traffic bandwidth growth.

Dozens of Pacific islands are served by satellite communications, which could serve all islands “today,” with satellite phones or VSAT. Most Pacific island economies rely on satcom for external telecommunications. With new technologies and business models, it may be timely to pursue cost-effective universal satcom service in the Pacific by exploring the possibility of designing and operating a dedicated communications satellite to provide broadband services to the Pacific, or the possibility of contracting for more efficient use of bandwidth towards universal service at more favourable pricing.

B. Policy/Regulatory Issues

Many laws and policies pre-date the explosive impact of the Internet, mobile telephony, and broadband on telecommunications benefits to society, and/or the tremendous involvement of such telecommunications in the new 21^st century globalization. The data indicate that the regulatory and ownership status in many Pacific island economies remains uncompetitive, though a number of discussions and actions have moved toward increased competition in some Pacific economies.

Such an environment may come at a cost. Costs for Internet and mobile telephone access tend to be higher in Pacific island nations than in peer small island economies elsewhere, even when adjusted for income status. Re-designing Pacific telecommunication markets for innovative competition may benefit consumers in Pacific island economies by about US$80 million annually, according to this report, which means that perhaps US$400 million might be saved over five years. Much of these savings could be attracted to modernizing telecommunications products and services – and thus underwrite costs of new infrastructure such as cable, wireless, and satellite-based products and services.

Removing constraints on telecommunications innovation should put millions of dollars into the pockets of telecom customers in the Pacific. In addition, new products and services should bring business and income to the region. This should be more than enough money to pay for investment in telecoms infrastructure like cable, satellite, and wireless – and for additional products and services. The cost savings, and additional incomes, should also bring some prosperity to other segments of Pacific society.

Deregulation and services of the Eastern Caribbean Telecommunications Authority (ECTEL), gratis wireless Internet in Niue, domain name revenue for Tuvalu and Tokelau, economical reuse of first-generation undersea cables by Telikom Papua New Guinea, new-style “club” partnerships building undersea cable systems, and other modalities offer potentially valuable examples for the Pacific to build upon for its own benefit. In some cases, governments and/or operators continue to pursue policies or practices that hinder progress in connectivity infrastructure, services, and pricing – to considerable social cost. Others, such as Samoa, are making considerable progress in these arenas, to considerable social benefit.

II. Technical Viability

A. Technical Options for the Pacific

Connectivity infrastructure may be broadly categorized as wired, terrestrial wireless, and satellite. Each of these different types of “pipe” has traditional analogue, narrowband digital, and broadband digital capabilities, and can provide broadcasting, telephony, Internet and conferencing services. Technical options include those shown in Table 1.

The Pacific can benefit by blending the three (cabling, satellite, and wireless) classes of connectivity. All have valuable roles to play in the region. Infrastructure projects may be pursued on their appropriateness for the existing situations in areas targeted for each project.

B. Undersea Cables

Wired connectivity has evolved from copper to fibre-optic cable. New technologies have prolonged the life of copper in the “last mile” through the use of digital subscriber line (DSL) technology. Previously considered unaffordable for small Pacific island economies, undersea fibre-optic cable is nevertheless considered desirable for its cost-effective and relatively reliable bandwidth. Although relatively few small Pacific island economies formerly benefited from broadband cable connectivity, this situation is improving as several cable projects are underway. Anticipated service areas include the Marshall Islands, the Federated States of Micronesia, and New Caledonia.

Papua New Guinea is using retired cables, especially first-generation fibre-optic cables to redeploy part of the PacRimWest cable to Port Moresby. This pioneering effort might give other countries ideas about doing similarly. Such an approach could connect many Pacific islands to existing cables for perhaps about US$3-5 million per country on average.

C. Terrestrial Wireless

Terrestrial wireless connectivity used to mean two-way radio, shortwave and AM/FM radio, and television. It now includes mobile phones, and in some countries, between-island microwave backbone and/or WiFi/WiMax end-user connectivity.

Mobile phone is gaining popularity among users faster than all other forms of telecommunications. In countries where mobile phones are advanced, many products and services available on the Internet are also available via phone. These include short messaging, Internet banking and other e-business, e-government, radio, television and film broadcasting, as well as simple voice. Phones also have the advantage that they are easier and cheaper to purchase and maintain than computers, in many island economies. Facilitating their creative growth should be at the centre of telecom development in the Pacific.

Table 1. Technical options for Pacific connectivity “pipes”: a summary

Pipe Media	Media Details	Generalized Description
Wired	Fibre-optic cable	This is the most desired and cost-beneficial connectivity for sufficiently large markets. The market size necessary for cable appears to be dropping, making cable possible for increasingly small communities. First-generation cable is being retired due to excess capacity in the marketplace. Redeployment of such cable may be an affordable opportunity for small markets.
Wired	Copper cable	This might be largely obsolete for international connectivity. Where already installed, this might be maintained, awaiting replacement by fibre, wireless or broadband satellite. In some communities, digital subscriber line (DSL) over copper may justify installing or upgrading the copper infrastructure for such a purpose.
Terrestrial wireless	Microwave wireless phone, WiFi, WiMax, Wireless LAN, etc.	The revolutionary connectivity brought by WiFi/WiMax has been extended to several kilometres from each transmitting node. Such approaches enable a single transmission node (satellite terminal or broadband cable) to cover larger dispersions of people – thus making them more cost-effective. Microwave, limited by its relay requirement for every 50 km, could be used as backbone connecting neighbouring areas.
Wired	Terrestrial two-way radio	This “pipe” may be the least capable and reliable option today, but has long served distant, dispersed populations with basic telecommunications. Where other means become cost-effective, this might be replaced. However, modernized two-way radio, including amateur radio, may continue to serve communities for years to come.
Satellite	Communication satellites	For an appropriately located satellite, this can bring “universal service” more practically than cable where populations are widespread. Existing C-band services are reliable, and may be worth continuing for high-reliability needs, though a satellite phone might also provide basic backup at lower cost in some locations. Ku band may be lower cost for higher bandwidth yet adequately reliable for Pacific island environments – for all but the most essential basics. New approaches suggest that a dedicated satellite for the Pacific can now improve performance, yet be cost-effective. New approaches to jointly negotiating for one or more existing satellite transponders and shared ground supporting facilities (by collectives of Pacific economies) may bring economies of scale to several countries.

In many cases, small islands may be amenable to new forms of wireless networking such as WiFi, Wireless LAN, WiMax, or WiBro. WiMax can reportedly serve an area of up to about 10,000 square kilometres from one fibre-optic or VSAT node. Though it should be noted that there are some trade-offs between coverage area, reliability and bandwidth in wireless networking, it can greatly increase the coverage around a cable node or VSAT installation.

D. Communication Satellites

Satellite communications provided a leap forward in Pacific connectivity about three decades ago. Since then, costs have dropped somewhat, and C-band connectivity has been adapted for digital as well as broadcast capabilities. However, the recent revolution in cost-effective satellite broadband, coupled with great improvements in terminal performance/cost, has not yet substantially benefited the Pacific. A satellite communications service model, designed to maximize service/cost for the Pacific, now appears possible and may be able to significantly improve the financial sustainability of such a service. In the short term, Pacific States may wish to form user consortia to negotiate grouped bandwidth (at lower rates for the consortium than may be achievable individually by the States).

For “immediate” benefit, several countries which currently lease less-than-full-transponder bandwidth may wish to consider joining forces for longer-term leases of multiples of full-transponder bandwidth at the reduced rates given to such leases. The Pacific Islands Telecommunications Association (PITA) is working on this concept. Longer-term benefits may stem from adapting to the Pacific recent developments in North America and Asia, whereby satcom broadband has been designed to serve dispersed populations at economical rates using inexpensive terminals. This study describes several options for higher performance satellite communications for the Pacific (summarized in Table 2). These can be sufficiently economical for the region to include new satellite capabilities in its telecoms strategy.

Estimating the Cost of a Satellite System, Including Major Application Supporting Systems

A refined cost estimate of a desired satellite system would depend on a number of factors, such as the applications and equipment to be supported, services to be provided, the coverage area, data rate, satellite power, the construction of the satellite, launching costs, insurance, and operation and maintenance.

Costs would also depend on other factors: whether a single bigger satellite, or a number of medium-sized satellites, would be required; redundancy option (e.g. potential for backup by another satellite or other means); and time duration for building and launching a satellite.

Unlike commercial telecom traffic in highly populated areas of the world, in this case it is to be expected that the break-even point in terms of revenue earned may not be reached for quite a long time, or in some cases may not happen at all. It is expected that an element of capital subsidy will be sought, plus some capacity to subsidize remote connections. Alternatively, service sharing, with beams added to serve partner areas, such as eastern Australia, New Zealand, Hawaii and eastern Asia. The overall costing in such cases may thus take into account intangible benefits such as improving the standard of living of the people, establishing a robust communication infrastructure, and other external or non-commercial benefits. The desired satellite systems would need to be built to achieve such objectives.

Table 2. Summary and comparison of four satellite options

Option1	Estimated cost in USD2	Advantages3, 4	Disadvantages
1. Build and own a Ku-band satellite with 11 spot beams	110-120 m., satellite only	High power and reused frequency may provide affordable bandwidth. May meet the bandwidth need in normal ICT development by 2015. May be able to provide additional economically useful services to Pacific Rim countries.	If applications develop quickly, a second satellite may be needed before its retirement.
2. Build and own a Ku-band satellite with 26 spot beams	130-150 m., satellite only	High power and reused frequency may provide affordable bandwidth. More bandwidth than option 1. May be able to provide additional economically useful services to Pacific Rim countries.	Capacity might not be fully used.
3. Build and own a C-band satellite, with part of resources for commercial services	200 m., including satellite and main Earth station	High power and reused frequency may provide affordable bandwidth. Commercial services may reduce subsidiary. Connection to outside world through the same satellite.	Covering only 13 Pacific economies, not all Pacific island countries and territories
4. Own or lease partial capacity of a possible commercial satellite	75-85 m., part of satellite for 12 years	The partner provides all technical support. Connection to outside may be through the partner.	Lower power requires more expensive user terminals. Fixed satellite operator.

1. All satellites have a lifetime of 12-15 years; construction requires 2-3 years.
2. The estimated cost includes satellite manufacture, launch and insurance.
3. Options 1-3: May provide broadband services, accessible with similar low-cost user terminals.
4. Options 1-3: Operation of satellite may be contracted to any satellite operator under satellite footprint; it is not necessary to be in a Pacific island economy.

Estimating the Cost of the Control Facilities and User Terminals and Facilities

The cost of telemetry, tracking and control and satellite control facilities for options 1 and 2 (Table 2) will be US$9 million. For user terminals under options 1 and 2, the cost estimation takes into account the following factors: population to be served; service establishments that need connectivity (hospitals, schools, civil service offices, Internet cafés, security agencies and private establishments); type of service (always-on broadband, dial-up etc.); emergency services; fixed or mobile or television broadcast; communication terminals at personal level or at community level.

Consideration of these factors will lead to an estimate of how many ground terminals would be required in each service category, and cost estimates need to be arrived at appropriately. For the suggested application and services, recurring monthly subscription of the poorer communities should be kept to the minimum, financed by direct subsidies where possible and needed, in order to deliver affordable benefits of ICT to the rural poor people of the region. General access and user charges should, however, be set at commercially viable levels, which will depend on fund sources and costs. While estimating the cost, this point is to be kept in mind and all possible techniques should be adopted to reduce the cost, consistent with sustainable finance.

III. Economic and Commercial Viability

Economically, a competitive, less constrained marketplace has been estimated to save customers¹ $66-80 million dollars annually. The present study estimates total savings for the economies noted here to be perhaps US$80 million. Over the 10-20-year time frame of a communications satellite or undersea cable, we see as much as US$1.5 billion potentially available (conservatively estimated at constant revenue levels and populations) for telecommunications infrastructure, products, and services. An investment of about $300 million could deliver significant satellite, cable and wireless infrastructure, as well as the services available from them. With estimated savings from telecoms restructuring – and with or without supplementation from potential developmental and commercial partners – the Pacific should be in good shape to pay for enhancements from anticipated savings.

The Pacific lacks most-connected economies, and is characterized by middle-connected and least-connected categories. The levels of human development generally range in the lower- to upper-middle range. The approach taken in this study suggests that, for an “average” Pacific community, per-capita funds available for telecommunications might be US$12-20 per month. When combined in family or clan groupings, this could become $25-100 per month. At prices elsewhere in Asia and the Pacific, this is enough for one or more phones, Internet, and some services. In poorer communities some of those services might be shared through Internet cafes, e-centres, or shared use of phones among neighbours, or by the use of a Grameen Phone type of modality. In more wealthy communities, more individual options, products, and services might be consumed.

A. Affordability Assessment

Two approaches are presented below:

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 Pacific economies in order to determine the purchasing power of residents in Pacific economies. The sample group of economies for this analysis includes a total of 16 sample countries (the four highest and three lowest GDP per-capita economies were excluded). The estimated “average” GDP per-capita of the economies 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. If we consider extremes, the Northern Mariana Islands figure could be $36-$52/month, whereas Tokelau might be $2.50-$4.15/month per capita. Even the latter can be appropriate for shared capacities through e-centres.

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 Pacific. The average monthly ARPU of the 12 sample countries is US$8.74. This figure is indicative only of the monthly amount Pacific residents are currently willing to pay for the telecommunication services with existing configurations.

B. Commercial Viability

A case study was conducted in order to indicate the generic end-user prices for consumer broadband in different scenarios via different solutions. The study compared the generic end-user prices for consumer broadband in different scenarios via different solutions such as urban DSL, fixed wireless, WiFi, and broadband satellite. In urban areas, where consumer broadband user density is high, the most appropriate solution for providing the telecommunication services may be urban DSL. Broadband satellite is often essential in rural and remote areas, because consumer broadband via satellite can also be used to complement service in blind spots anywhere under the satellite’s service area, regardless of terrain. Concentrations of people in rural areas, such as in villages, and in some urban areas where costs of installing cable are high, might benefit from a central satellite terminal or cable point – whose reach is extended by cellular mobile, WiMax or other wireless networking - to extend the number of people served by the satellite terminal.

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 Pacific residents, especially when considering the ARPU approach. The monthly unit cost of consumer broadband via DSL and via satellite is US$16 and US$32 (varying depending on the user’s terminal) respectively. However, this discusses individual GDP per capita. In the Pacific, as in many other societies, at least some telecoms services are shared among family or neighbourhood groups. For example, wired phones and household Internet is usually shared among families, and sometimes among neighbours. If one looks at Average Revenue per Family Grouping (or other grouping), the revenues available for telecoms are considerably higher.

It is worth noting that satellite telephony has dropped in price, both for handsets and for call charges. In addition, reductions in costs for satellite mobile phone, and operators business models of partnering with local service providers can help Pacific States pursue universal service while generating revenues.

As demonstrated in a number of countries, if mobile and land line telecommunications can be opened up to competition and micro-finance techniques – or through shared services like Internet cafes or community Internet/call centres, this both expands the market base for telecommunications and stimulates a range of economic activity. In higher-income economies, much flexibility of individual options is possible. In lower income economies, family/clan/communal sharing or e-centres, Internet cafés and call centres should serve to facilitate access for people of more modest means. A pro-active service model could support individual accounts which could be shared.

In the short term, reductions in cost of existing communications satellite capacity may be achieved if Pacific States 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 might serve several Pacific island States well.

IV. Institutional and associated financial considerations

A. Institutional

Since telecommunications and connectivity are keys to 21^st century economic and social development, there seems little doubt of the social and international case for expanding telecommunications. A corollary question is how to ensure that existing and future stakeholders can benefit from this process. If there is to be a major step forward in terms of Pacific connectivity – and benefits for all stakeholders – the key is to determine and implement what is required of member governments collectively in the Pacific.

An example of good practice may be found in the Caribbean, where similar challenges have drawn successful regulatory, financing and investment responses, within a new competitive framework led by the Eastern Caribbean Telecommunications Authority (ECTEL). ECTEL provides regional expertise, as well as a mechanism for the Eastern Caribbean to partner with enablers toward lower costs and greater effectiveness of telecoms infrastructure, products and services. It is noted that at the Pacific Islands Forum Economic Ministers’ Meeting in 2006, Ministers expressed major interest in the ECTEL experience.

The issue of coordination and planning led this study to recommend the formation of a similar type of organization, which, for purposes of discussion, may be called “Pacific Islands Telecommunications Authority” (PACITEL).² It could operate as a regional cooperative mechanism to coordinate the process of expanding telecommunications (and digital data) capacities and their governance and financing in the region. The suggestion is that this cooperative mechanism may put in place the regulatory and other arrangements necessary so that countries can elect to join, which in turn can commission and oversee expansions of fibre-optic cable, satellite, and terrestrial wireless telecommunications capacities.

The study suggests, following discussions by decision makers in Pacific telecommunications, that a feasibility study drawing on this and related reports, that the authority would in turn commission one or more platform service providers and operators (tentatively called PACSAT for purposes of discussion). This platform entity (or entities) could be a consortium of commercial investors with the relevant technical, financial and legal expertise. While the service providers could in turn acquire a satellite, lay or re-lay cable, and perhaps be involved in wireless trunking and networking, it would be expected to develop the best expansionary path, including contracting from existing satellite and other service providers. Many telecommunications entities world wide contract with satellite entities and cable operators for bandwidth for periods of time, rather than physically acquiring satellites or cable.

B. Financial

The regional authority could work with private investors and other possible partners (development banks and donor nations), rather than risk tax funds on infrastructure and services that are better managed by the private sector (under a regulatory environment that promotes good governance of such infrastructure and services).

It is envisaged that the international development bank and donor community would arrange financing and/or other assistance for the regional cooperative mechanism – to develop its regulatory and governance framework that would apply to the operators, service providers and other participants. The preparation of tender documents for the platform service providers would also be one of the early tasks of the suggested technical assistance.

There is no doubt that cost-effective enhancements to telecoms infrastructure and services should lead to increased prosperity and stability – but co-investors would want assurances that their investments will not be subject to undue risk. The role that a government takes will have far-reaching effects not only on the public’s use of ICT, but, perhaps even more importantly, on investors’ perceptions of the risks they will face and the type of cooperation they will receive in the short and long term. To ensure that lenders and investors feel comfortable putting their money in Pacific economies, governments need to ensure that private and public sector participants in telecommunications are treated equally and consistently.

C. Financing Mechanisms

Contributory Organizations

A crucial commitment from the development banks and ODA will be to support the formation of a regional cooperative mechanism and preparation of the Charter. If total capital costs are roughly US$200 million for the platform service providers and operators, then seed capital of 20 per cent of this sum, plus funds adequate to sustain the formation of the regional authority, may be required, possibly US$25-$40 million all up. There may be scope to attract financial and technical support from countries that have a strategic interest in the Pacific plus space expertise. There should also be meetings arranged with development banks and agencies.

Private Sector

What is critical in obtaining private sector funds for reasonable maturities is clarity of the commercial opportunities and the likely income stream from selling capacity. Tenderers for services should have a clear perspective on the issues involved. This creates a major responsibility for the regional authority and the member States, to create a market environment of relative certainty in terms of access and other charges and conditions. Hence the capacity to supplement any seed capital available will depend on the new regulatory environment established jointly by regional cooperative organization and the respective telecommunications authorities and policies in the Pacific.

Service Providers

There is a need to consult on technical and commercial issues and alternatives with a range of companies. Companies with experience providing mobile phones, broadband, satellite phones and other services and technologies may be interested in the opportunities arising from satellite and expanded telecommunications systems in the Pacific.

V. Conclusion

A final issue is how to ensure that all relevant stakeholders may benefit from enhanced telecommunications connectivity/services in the Pacific. Willingness of Pacific economies in jointly pursuing information and communication infrastructure connectivity, transparency of policies and regulations, and a successful all-win situation for governments, incumbent and potential providers, communities and peoples of the Pacific, and development partners, will help move forward the process of improving information and communication services in the Pacific.