The cuckoo’s egg

[Originally published with a slightly longer title in the Vanuatu Daily Post]

It’s fairly natural in business to want a return on one’s investment. That’s pretty much the point of capitalism, after all. But investment implies risk, too; if you put your money into play, you are accepting at least a small likelihood that it will be lost. Normally, the riskier the venture, the higher the expected return if things go right.

In some endeavours, however, the risk is unavoidable and the reward is slow in coming – if it comes at all. Telecommunications infrastructure is one such area. Especially here in the Pacific, capitalisation can require investment levels that –rightly– make the average investor blanch. It’s no accident, therefore, that private sector players often seek institutional backing before embarking on large-scale projects.

The plain fact is that in this global marketplace, some sort of inducement is needed in order to make investment in the comparatively tiny Pacific market attractive. Pretend for a moment you’re an investor. Given the choice between backing a fibre-optic cable landing in Port Vila or one that lands in Jakarta, which would you choose?  All other things being equal, you’d be a fool to choose the former.

Competitors have cried foul in the past when concessionary financing was used to induce increased private sector participation in various Pacific telecoms markets, but experience shows that healthy competition has raised revenue levels across the board. Competition, even with its attendant risks, is better for all concerned.

The challenge, then, is how to make the capitalisation phase, with its necessary reduction in risk, lead seamlessly into a competition phase, with a level of risk characteristic of a healthy marketplace?

One approach is to treat the physical parts of the network differently from the actual data that flows across them. It’s extremely hard to justify building two mobile towers where one would do, but not so hard to hang a second antenna off the one tower once it’s built. This approach is not without issues, of course. For one, the company who built the tower is probably going to ask why they should allow a competitor to profit from their efforts.

One telco CEO characterized this as ‘the cuckoo’s egg problem’: His company goes to extreme effort and assumes a lot of liability, only to have a later entrant gain access to the network via regulatory intervention. While the terms may originally be fair, the fact is that using someone else’s network is pretty low-risk behaviour, so the latecomer is free to expand more aggressively. In effect, they use the first company as a springboard, and this ultimately allows them to gain a better position than the one who assumed all the risk in the first place.

Fine, say others, then stop trying to profit from the physical network. It’s just too easy to fall into the monopoly trap if you do. Treat the backbone network as a public, commonly-held resource and let the service providers use it as a platform on which to compete to their heart’s content.

But some people’s business plans are predicated on having a natural monopoly, and they won’t be satisfied with anything less. Some people would rather do without than share with others. Likewise, some are happy to profit, provided someone else assumes all the risk. These factors often compound an already difficult problem, getting in the way of rapid and healthy development, often leaving a policy vacuum.

On June 25, ran a brief, rather cryptic press release, announcing that ‘seven pacific nations have come together to initiate their own satellite program.’

This caught most IT watchers in the Pacific by surprise. ‘The funny thing is that no one at Tuvalu Telecom is aware of this’, reported one IT professional. Even more surprised were the citizens of New Caledonia, which had apparently become a ‘nation’ since they last checked.

A closer inspection showed that the signing event was presided over by Barak Tame Sope, a former politician from Vanuatu who has been associated with numerous other imaginative –and wildly unrealistic– ventures, including an order for a fleet of 24 ships from Brunei, following a purported USD 200 million commitment for 12 ships in August of 2010. At his side was ‘His Excellency Thureign’, apparently a trade envoy from Dubai. (H.E. Thureign’s Google Profile page features little else than a grainy camera-phone photo of a man of apparently Southeast Asian descent in a T-shirt.)

The Pacific seems to be a particularly popular target for get-rich-quick schemers and dreamers. And when the policy development process is diverted or even halted by unrealistic demands and expectations, such characters are never far away.

Perversely, there’s some comfort to be taken from the fact that people with more enthusiasm than sense are circling the IT trough. If it shows nothing else, it does at least make it clear that even a fool can see that telecommunications infrastructure is not only critically important, but worthwhile.

It’s unfortunate, therefore, that few Pacific nations are making progress in building out their national infrastructure. As this is being written, only Tonga is forging ahead with a new fibre-optic cable. Governments in numerous countries find themselves in a quandary: private companies with significant money invested in their networks don’t always react kindly to public sector recommendations on sharing infrastructure and resources. They especially object to this when it implies allowing new entrants into a market that, they claim, is already stretched too thin. Equally vexing is the presence of entrepreneurs who can’t proceed without institutional support, but cry foul when told that such support is contingent on having less than exclusive control over how the resource is used.

But resolving conflicts like these is precisely why governments exist in the first place. Across the Pacific, the single most integral factor in determining the spread of technology among the populace is the clarity and commitment of government policy. Pacific governments should stop shilly-shallying and letting hucksters and would-be monopolists dictate the pace of growth in telecommunications.