The telecommunications sector in Papua New Guinea, long synonymous with high prices and poor service, is undergoing a sea change as fresh competition, infrastructure rollout, and market reforms result in increased coverage and access.
While sector regulators and participants are partly at fault for the industry’s poor historic performance metrics and the lack of infrastructure development to date – internet penetration as of December 2013 stood at just 6.5%, while SIM card penetration remains under 50% – adjudications must be issued in context, as the young country arrived late to the telecoms table, with the first phone service not introduced until 1964. Furthermore, PNG is at an inherent geographic disadvantage due to its physical isolation from key global undersea cables, a rugged jungle terrain and a widely dispersed population.
Tackiling Obstacles
Although PNG’s market size of some 7.3m people is the largest amongst Pacific Island nations, a GDP per capita of around $2200 constrains spending power and limits the business case for commercial operators to allocate capital expenditure outside of the major population centres, where nearly 80% of the population lives in villages.
Hopes are that a potential third mobile operator could inject further competition into the market, while the National Information and Communication Technology Authority (NICTA) is enacting measures to rationalise market structure and reduce the market dominance enjoyed by the incumbent carriers.
A significant recent structural reform has been the establishment of an independent entity to manage wholesale-only infrastructure and provide telecommunication services at an arm’s length. Investments are also being made to install fibre lines connecting the major cities to high-speed international undersea cable networks, while international bodies such as the World Bank are assisting and advising the country on ways to provide basic telecommunication services in rural areas that are presently underserved.
Historic Concentration
Until only as recently as 2006, state-owned Telikom PNG, incorporated in 1995, was the sole owner and operator of fixed-line and mobile communication networks and services.
As tends to happen the world over when state-owned entities are left to contend in a monopolistic landscape, the incumbents’ government owners struggled to create the right structure and framework for the operator to be both profitable and effective, and Telikom failed to keep up with the growing demand for communications networks. In 2005, prior to the arrival of Irish-owned Digicel as a second licensed mobile network operator, there were only 75,000 mobile phone accounts in the country registered to bmobile (formerly BeMobile), Telikom’s mobile subsidiary. By January 2014, this figure had risen to 2.7m, with Digicel today possessing around 90% market share and responsible for most new subscriptions.
Competition
While bmobile has been responding to Digicel’s arrival with investments to upgrade its infrastructure and improve its service, it has a long way to go to recapture the goodwill lost over its 10-year monopolist reign during which customers, by the firm’s own admission, felt they had been taken advantage of with high rates and poor call quality.
Indeed, bmobile charged PGK125 ($47.3) for a SIM card, which Digicel, upon entry, priced substantially lower at PGK25 ($9.5). In recent years, the government, whose stake in Telikom today totals 85%, has injected $88.2m towards improving the company’s competitiveness. In July 2013, a $243m deal with China’s Huawei was signed to improve infrastructure. According to bmobile, the investments are bearing fruit in terms of service and performance: for example, the complete call ratio in the capital Port Moresby and industrial city of Lae jumped from 33% to 98.5%.
Considering the market share that bmobile has lost to Digicel of late, the company is practically insolvent, and it has been announced that Telekom will re-merge the subsidiary it had split independently after 1997 in an attempt to keep the company afloat and rationalise spending, while development of the network continues. Hopes are that should mobile number portability be introduced to the market, with investments in infrastructure and improved performance quality, bmobile should be able to win back customers.
Three’s Company
Digicel operates in 33 countries in the Caribbean, Central America and Asia Pacific. The company has invested more than $5bn worldwide and introduced international expertise and global synergies into the local market. In response, bmobile has recently reached a non-equity partner market agreement with UK-based Vodacom Group in an effort to gain access to its best products and services.
Another operator with a global footprint could soon be joining the fray, following the awarding in 2014 of a 10-year mobile operator licence to Dubai-based AWAL Telecom for $260m. AWAL has a presence in 26 countries throughout the Middle East, Africa and South-east Asia, and according to statements from the company, rather than trying to turn customers away from existing carriers, it will instead focus on parts of the country that are currently underserved.
There remains an element of uncertainty over when and how AWAL will roll out its infrastructure and services, and some analysts question whether a market of PNG’s maturity and size is able to absorb three competing mobile players.
“Digicel has 90% of the market, so there is certainly share to be captured by a new operator,” Paul Komboi, managing-director of state-owned telecommunications wholesaler DataCo, told OBG. “However, we are still not sure how serious they are in launching and how serious the regulator is in ensuring they have access to shared infrastructure to avoid them having to invest from scratch, which is costly and inefficient as it leads to unnecessary duplication,” he said.
Regulatory Muscle
The task of industry regulation falls to NICTA, which was formed in 2009 to absorb the responsibilities of the former sector regulator, the PNG Telecoms Authority, as well as those of the Independent Competition and Consumer Commission related specifically to telecommunications.
NICTA acknowledges that PNG’s limited market size and challenging terrains make it difficult for private firms to construct national networks. Aiming to increase the number of mobile phone towers from 800 to 1160 to achieve coverage for 100% of the population, Digicel has a major first-mover advantage, discouraging new entrants from purchasing licences.
In its short existence, NICTA has demonstrated that it is not afraid to show its regulatory teeth. In January 2013 it ordered state-owned Telikom to cease the sale of its range of ZTE handsets until the firm complied with the regulator’s approval process. This move followed attempts by NICTA in November 2012 to push Telikom towards making the country’s principal fibre-optic connection available to all internet service providers for direct sale as broadband products, a move that it hopes will open up the sector.
Working to not only enact reforms that alleviate Telikom’s fixed-line monopoly, such as investigations into measures to reduce wholesale internet costs, NICTA is simultaneously looking to reduce Digicel’s market dominance within the mobile space. Believing that the out-of-network rates charged were too high, it capped the allowance at 40% above in-network rates.
NICTA also published a ceiling related to retail mobile service prices in October 2012, saying it would restrict the extent to which Digicel could discriminate in the pricing for pre-paid mobile calls. As a result, the operator will be required to revise a number of its tariffs to reflect a more competitive pricing model.
These and other moves have been applauded by independent analysts as contributing to reduced costs for the end consumer, and the next step advocates of further liberalisation would like to see is mandated facility sharing. “This is an agenda we have been pushing with the regulator for some time. But they have been reluctant to act on it as the carriers can fairly argue that they incurred tremendous costs to build their infrastructure and should be permitted to enjoy the fruits of these investments as a competitive advantage,” Komboi told OBG.
Internet
According to International Telecommunication Union statistics, only 6.5% of the population used the internet in 2013, an extremely low figure that can be attributed to a lack of rural penetration but more so the prohibitive costs for services. According to NICTA figures published in 2009 during an investigation into entry-level broadband pricing, fixed broadband subscriptions amounted to 150% of average monthly income, while wireless broadband was 20-80% – well above the 5% international benchmark.
Compounding the challenge of low uptake is the fact that businesses and consumers receive little value for money, as the performance does not justify the high costs. In its latest broadband download speed index, Ookla rankings placed PNG in 168th place out of the 200 countries surveyed.
Of the many factors contributing to high broadband retail prices, one has been the lack of a rational market structure around wholesale capacity, which has been in the hands of Telikom as both an owner and operator. This particular issue is being addressed via the establishment in 2013 of PNG DataCo as an independent company tasked with providing wholesale-only infrastructure management and telecommunication services on an arm’s length basis.
Infrastructure
In April 2013 PNG revised its National Broadband Policy, with the aim of achieving 100% broadband service availability in urban areas, 30% access in rural areas, and 50% access overall within the next five years. A key focal point in this ambition is the further construction and overhaul of the National Transmission Network (NTN), a fibre project linking the country’s major cities.
The NTN’s main leg consists of a 700-km fibre line running from the Hides Gas Field to the PNG liquefied natural gas plant, from which a 50-km line runs from the plant to Port Moresby.
The new system will eventually connect to a new line being constructed to run between the city of Lae and the Southern Highlands, where it will then link to a high-speed international undersea cable from Medang to the island of Guam. The new connection is expected to replace a 20-year-old legacy radio link that has been serving Lae and the Highland provinces, ultimately resulting in cheaper prices and better connectivity. It will also provide the country as a whole with more security and redundancy through expanded utilisation of a second international gateway.
“Things should be completed by mid-2016 for connectivity of the seven Highland region provinces, which comprise more than 50% of the population, with the goal that all 23 provinces will be connected by fibre,” Komboi told OBG.
As part of the NTN overhaul, useful wholesale assets and project responsibilities will be transferred over from Telikom to DataCo, which will over time also receive the firm’s microwave and satellite assets in addition to the existing fibre lines.
Basic Cable
PNG is the unfortunate victim of poor positioning relative to some of the world’s leading global undersea cable networks. It is not located in near proximity to any of the major systems, and has historically lacked the financial clout to fund its own direct lines. At present, its only international connection comes via the Australia PNG-2, which links directly to Australia and indirectly to New Zealand, and only from there the rest of the world, and has approximately 1100-MB data capability. The new Madang-Southern Highlands loop is set to gain further utilisation out of the international gateway link to the PIPE Pacific Cable, with a cost of around PGK55m ($20.8m). According to Komboi, it will also improve capacity and speeds, and reduce costs by approximately 60-70%.
In October 2014 DataCo signed a deal for a 75% stake in a third international connection valued at $72m, dubbed the Melanesian Cable, which will connect PNG, the Solomon Islands, Vanuatu and Fiji with international internet hubs in Sydney and the US via the Southern Cross Cable System.
“There is tremendous scope for greater connectivity with the US, through Guam and Hawaii, and Southeast Asia, and we are well situated in between. The focus for now is on improving our own access to international gateways; however, in the future we can start to consider the commercial opportunities associated with handling traffic and might even set up our own international data centres,” Komboi told OBG.
Microwave & Satellite
While fibre-optic links are at the core of the NTN, microwave trunk lines and satellite solutions are being deployed in areas where jungle terrain and large expanses of water between smaller, more remote islands make the laying of fibre either prohibitively expensive or an arduous task. And in some instances, such as the crucial connection between Port Moresby and Lae, towards which a 21.5m microwave line that can handle data throughput of up to 3 GB per second has been installed, alternative technologies are in place to provide additional capacity and serve as a back-up route should the main fibre line experience outages or need to be taken offline for maintenance and repairs.
Going Rural
Over 80% of PNG’s population resides in rural areas, where many earn their livelihoods through subsistent activities such as farming and fishing. Teledensity in some of these parts is practically nil and the provision of even the most basic telecommunication services, even if they are not latest generation, can contribute tremendously to rural socio-economic development. Small business and entrepreneurial enterprises in fields such as tourism and crafts can convey information to and transact with prospective customers, while community members can benefit from remote access to essential health care and education services.
The World Bank, with funding from the International Development Association, is spending $15m on the Rural Communications Project, which sets out to provide affordable and reliable residential communication services to between 400,000 and 500,000 rural Papua New Guineans in the provinces of Chimbu and East Sepik, while establishing public internet facilities in 60 rural districts nationwide that at present have no fixed-line facilities at all.
As part of the project, Digicel has been contacted to handle the installation of the telecommunications points, with the World Bank intending to demonstrate to the private sector that commercial returns can be generated so that in the future they are motivated to invest in infrastructure on their own without relying on subsidies from the government or multilateral institutions. In addition to an initial round of financial assistance, the World Bank is providing technical assistance to the Department of Communication and Information in the area of policy development, and is providing guidance to NICTA on regulatory challenges.
Government Adoption
The pace and extent to which the government deploys ICT to enhance the provision of public services could have a significant impact in a country like PNG, making an impact on rural development while also addressing other national challenges such as corruption.
PNG ranked in the bottom quartile of Transparency International’s most recent Corruption Perception Index, placing 145th out of 175 countries evaluated in the watchdog’s 2014 study. The Department of Finance, assisted by the UN Development Programme, has launched the Phones Against Corruption initiative, whereby via a no-charge text message individuals can anonymously report an incidence of corruption. A similar effort is underway to reduce and assist with family violence and sexual assault rates that are amongst the highest in the world, through the establishment of a free domestic violence hotline.
According to Jimmy Miringtoro, the minister of Information and Communication, beyond enabling the government to deliver new digital services such as e-health and e-education, the adoption of ICT takes on additional importance in a young and diverse nation such as PNG, where around 800 different cultural groups speak 900 languages.
“The process of integration has never been easy for us, but we feel that technology will be instrumental in speeding it up,” the minister told OBG in a 2014 interview. “I have no doubt that PNG could turn into a homogenous society by 2030, and that the ICT sector will be one of the main drivers in the process.”
Challenges
As a young, low-income, geographically isolated country with a population spread over hundreds of islands and rugged jungle terrain, prevailing physical and market conditions have not been conducive to high rates of teledensity. The country, understandably, lags behind global norms when it comes to the penetration of both fixed and mobile communications due to a combination of limited access to services outside of urban centres and price points that the average consumer cannot afford.
The sector, however, is in a period of transformation and modernisation. Competition is being bolstered through new entrants, increased regulatory intervention, and the restructuring and dilution of the market influence held by some key state-owned entities. As a result, consumers are being presented with more choice, and this is leading to reduced tariffs and improvements in call quality, broadband speeds, reliability and service consistency.
Outlook
In addition to a competitive impetus, improvements are being rendered as a result of infrastructure expansion and upgrades. More connections to major international subsea cable systems are being put in place. Domestically, with fibre as the backbone and microwave links and satellite systems acting as complementary technologies offering redundancy and connectivity to more remote parts of the country, the government’s goal of achieving 50% broadband penetration by 2018 seems on track.
As speeds increase, capacity improves and costs come down, ICT is set to become a more integral part of many PNG businesses and help them improve their competitiveness and global integration. With 40% of residents owning mobile phones – a proportion that is growing rapidly as 3G and 4G networks are rolled out – this presents newfound opportunities for critical government services to be delivered online.
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