Recently we’ve seen a bit of a lull in activity (or at least excitement) in the Vanuatu telecommunications sector. Customers are becoming a little blasé about choice in the mobile market. The mobile telephone incumbents have more or less established their positions, with TVL making real efforts to smoothe its complexion and Digicel allowing the first small warts to peep through its make-up.

The post-election transition of power slowed the policy process down some, and movements at the executive level meant that some of the local businesses needed a bit of a breather as well.

So let’s take this opportunity to do a little crystal ball gazing. What can businesses and Internet users generally expect in the coming months?

Available evidence seems to point to an upcoming spike in activity among new and existing service providers as they attempt to establish a sustainable long-term position in the nascent ISP market. All eyes are going to be on the numbers, and the numbers will be in the household market. I expect to see a rather boisterous, slightly confused, slightly messy marketing and advertising blitz as a few new faces join our now-familiar cast of communications characters in a bid to be first in the hearts of Vanuatu consumers.

It’s almost certain that we’ll see price reductions, accompanied by a significant increase in available satellite bandwidth. If Digicel were to make their full capacity available, for example, we’d see national capacity more than double.

As usual, Telecom is playing the bellwether role. Its pride of place in the market allows it to anticipate others’ moves. In mid-October, it slashed Internet prices by as 65% and doubled its Internet capacity.

(I cannot forebear from observing how far we’ve come from the days when past management of TVL obstreperously opposed the government’s suggestion that they increase their satellite capacity beyond the few paltry megabits the nation had at the time. My, how times have changed.)

Caveat Emptor: Price is not the only thing to consider when choosing your ISP.

It’s reasonable to expect that there’s further room for price cuts. Depending on how thinly the providers are available to slice and dice their international connections, we could see prices fall significantly. More importantly, though, I strongly suspect we’ll see what appear to be much more generous business and personal Internet packages, offering ‘up to’ 5 megabits or more per account.

Note that I say ‘appear to be’ and ‘up to’. All of our Internet connections here in Vanuatu come via satellite, and satellite is inherently expensive. Commissioning a communications satellite requires an investment of tens of millions of US dollars at a minimum, and that money has to be recouped somehow. While it’s possible that the international economic slowdown might have some small downward effect on bandwidth prices, there’s a pretty hard limit to how low they can go.

Until we finally accumulate the political and business capital to invest in a fibre-optic link, Internet services in Vanuatu will continue to operate as an economy of scarcity.

This means that anyone moving into the ISP market is going to have to maintain a fine balance between aggressively consumer-friendly prices and a relatively high operating overhead. The easiest way to accomplish this is to perform a little bit of sleight of hand.

Increasing the level of contention is one tactic. In layman’s terms, contention refers to the number of people who share each actual bit of bandwidth. Think of bandwidth as the number of checkout lines at the supermarket, and contention as the number of people in each individual queue.

It’s normal for ISPs around the world to use about a 10:1 ratio of contended to un-contended bandwidth, meaning that they’ll sell roughly 10 megabits for each actual megabit they have. That’s not entirely a bad thing. Unless you’re downloading non-stop, 24 hours a day, you don’t need that whole megabit to yourself. That 10:1 ‘magic’ ratio has been proven over time to be a realistic compromise between service availability and affordability.

But consider this: The best commercial rate I’ve seen in the Pacific for un-contended (or ‘pure’) bandwidth in only slightly less than 400,000 vatu per megabit. Divide that by ten and you get a monthly cost per user of about 40,000 vatu – hardly an attractive price for the average Internet consumer.

There’s no doubt that some of the bigger fish in our little pond will get much better prices than I’ve quoted here. But the fact remains that in order to get monthly prices for flat-rate Internet down to a level that appeals to consumers locally, providers will have to accept a contention ratio far closer to 20:1. Some might be tempted to surpass even that number in order to appear more attractive.

Beware as well of ISPs that have ridiculously low introductory prices, but only for ‘capped’ services. A capped service is one in which a base amount of bandwidth is offered very cheaply, but going over the limit results in extremely high charges. Back in the bad old days when this was the only service available in Vanuatu, I heard stories of unwitting individuals being billed hundreds of thousands (millions, in one lamentable case) of vatu per month.

There’s almost certainly going to be a lot of jostling – and possibly a little flim-flam – as new ISPs roll out their services. We’ll compare and contrast the respective offerings in future columns as the new services roll out.

There’s probably more room in the Internet market than many – if not most – of the would-be competitors realise right now. It’s reasonable to assume that the Internet market here will resemble the early days of Internet elsewhere in the world, before the big players finally managed to consolidate their hold.

I will be watching with special interest for the innovations provided by smaller ‘mom-and-pop’ operations. While others fight for pride of place and name recognition, we will inevitably see a few niche operators offering tailored services to particular segments of the market. The bigger operators will inevitably appropriate the best innovations, but in the first year or two, the best deals will be found among the smaller players.

How soon will all this happen? Sources have told me informally that we can expect to see new ISP license applications coming within the next few months, approvals shortly thereafter. The licensing regime has been designed such that it’s not bound to ongoing legislative revamp currently underway, likely to be tabled in April’s parliamentary session.

It’s no secret that all the prospective entrants are champing at the bit, so we can expect them to hit the ground running. As long as our political leaders keep a steady hand on the tiller (and out of the cookie jar), 2009 should prove just as interesting as 2008 was.

I expect that, by the end of next year, Vanuatu’s telecommunications scene will once again have changed fundamentally.

The report is the first of a series of annual surveys that will provide an overview and update of economic developments in the Pacific island region and Timor-Leste. It collates and summarises public data on various aspects of the region’s national economies, performs some comparative and collective analysis with the results, then provides a few basic recommendations.

The theme for this year’s report was Connectivity. The survey focuses on aviation, shipping and telecommunications. It argues that liberalisation, more input from the private sector, and a cooperative regional approach to the problems inherent in improving connectivity are keys to improving Pacific economies.

The findings in the area of telecommunications do much to validate the Government of Vanuatu’s market liberalisation strategy and provide every encouragement to expand upon them. It addresses some potential pitfalls that might be encountered, primarily where access to technical expertise is concerned. And that is where it risks missing the boat.

First, let’s take a look at some of the findings.

“Competition has led to explosive mobile phone growth and lower prices,” states the report. The extent of this truth should prove very encouraging for people in Vanuatu, poised as we are to start tasting the fruits of market liberalisation.

In Samoa, only 1.5 per cent of the population had mobile phones in 2002; by mid-2007, this had increased to 46 per cent. During the same period in Tonga, competition increased mobile phone ownership from 3.4 per cent to 30 per cent. In PNG, the introduction of competition in mid-2007 led to a sharp increase in coverage and a doubling of mobile phone subscribers in a short period.

None of this is terribly surprising, of course, but it’s nice to see our sense of the situation validated. It’s especially encouraging to note the explosive growth rate in access to communications. In just a few short years, for example, nearly half of all Samoans have subscribed to mobile services.

The effects of this fundamental improvement in communications are transformative, to say the least. Papua New Guinea estimates that telecommunications liberalisation and the resulting benefits have already added nearly one percent to GDP growth. Arguably, the impact of such radical change on Vanuatu’s smaller economy might be even bigger. There is no doubt, however, that it will increase commercial activity in the islands. In some cases, it will make it possible for the first time in modern history.

Prices also tend to drop the most in liberalised telecoms markets. Currently, Vanuatu stands in third-to-last place where prices are concerned. Only the Solomon Islands and Telikom in PNG are more dear. In fairness, customers in PNG are free to use Digicel, which in 2007 charged about 35 vatu to Telikom’s 55.

Prices have fallen elsewhere when competition was introduced. But they haven’t fallen hugely in every case. In PNG, Digicel rates aren’t significantly less than we’re paying now to Telecom Vanuatu. While there’s every reason to believe that Digicel will charge less than we’re currently paying, we shouldn’t necessarily expect rates to plummet.

The report states, “Access to the Internet in the Pacific is increasing, albeit from a very low base. It remains limited outside capital cities [and] the majority of subscribers are institutional….” Vanuatu fares moderately well, relative to the rest of the countries in the study. It’s firmly in the middle of the pack where coverage and prices are concerned.

But that’s no compliment. Of all the Pacific nations, only tiny Palau has extended Internet access to more than 25% of its people. In Vanuatu, coverage is said to have reached about 10% of the population. Personal and anecdotal experience suggest that this might be a generous interpretation of data, and that the number of people who use the Internet on a consistent and active basis could be much lower.

The effect of market liberalisation on Internet prices is startling. In Fiji, personal broadband Internet is available for as low as 2000 vatu per month. Business class connections cost about 25% of what we pay here in Vanuatu. Even allowing for differences in population and economic activity, the contrast is stark.

The road to a liberalised telecoms market in Vanuatu has been a long one, and there’s a lot of ground to cover yet. Of the six major service areas available for liberalisation, only one has been opened so far. There’s been no visible motion so far on broadband and dial-up Internet, fixed-line telephone service, leased lines or international gateway services.

Vanuatu should absolutely not open the market pell-mell and all at once, of course. The pace at which the process has moved is a sober and reasonable – albeit frustrating – reflection of Vanuatu’s capacity to manage change.

To its credit, the Economic Survey recognises the reality of limited technical capacity, and provides some prescriptive relief. It rightly observes that market reform needs a watchdog to oversee the process and to arbitrate, if necessary, when disagreements arise. The benefits of such a process, even for tiny markets like Palau, are significant.

The survey authors further suggest that competition is the key to coverage:

New entrepreneurs tend to bring in additional capital and management resources and are often smaller and nimbler than incumbents—faster to adopt new, lower-cost technologies, more focused on customer needs and marketing, better attuned to local conditions and business opportunities, and better able to assess and deal with local risks.

This assertion, however is quickly hedged by the claim that government subsidies may be required in order for market entrants to justify services. Governments should be prepared to provide funds and incentives to telecoms companies to ensure the widest possible coverage area. Vanuatu’s Universal Service Fund, which makes millions of dollars available to improve coverage, is listed as an example.

Another important element of universal access is affordablility:

The more sustainable public-access approaches have proven to be subsidised village-phone-type initiatives where business risk is taken by the self-employed agent, rather than publicly-funded telecentre programs, where business risks are left with government.

‘Village phone’ projects have been rolled out in numerous countries. They typically involve providing a local person of proven acumen with one or more mobile phones, a signal repeater to reach areas that were previously un-serviced, and allowing them to pocket part of the charges for each call.

This micro-business approach ensures coverage in places of marginal profitability. Interestingly, network effects guarantee that the benefit to the phone company is well beyond whatever paltry income derives to the agent. Family in the capital will certainly originate most of the calls, meaning that they end up spending more than they would have on mobile services.

The Daily Post has observed that the survey lists Vanuatu as one of the healthiest economies in the region. But some commentators have cautioned that this relatively robust state of affairs could lead to complacency, which in turn could lead to poor management practices from which we all could suffer. We’ve seen this pattern in the past, where lax management processes have led to near disaster.

Technical experience and expertise is a particular liability in this regard. Australia’s response to this is to suggest the creation of a regional ‘pot’ of technical expertise, and to encourage all Pacific nations to work cooperatively, sharing learning and ideas.

The idea has some merit. It will almost certainly be necessary to create something like this for the short term at least. But it misses an important point: All the technical expertise in the world won’t save you if it’s not communicated effectively and fit properly to the individual circumstances of each individual nation.

The recommendation, in other words, does nothing to mitigate the need for the kind of human resource development outlined in this column recently. More about this next week.

The answer is mostly yes, with a few important qualifications. It’s almost certain that costs will decrease, service coverage will increase and quality will improve. It’s also quite likely that new kinds of services will be rolled out as well. But many of the environmental factors that constrained telecommunications in the past still remain.

With competition guaranteed. The major telecoms companies are in a beauty contest now. Customers in Vanuatu will shortly find themselves being wooed by players old and new, offering all kinds of exciting services, prices and promotions.

Let’s look into our crystal ball and try to see what things will be like over the next year or so.

MOBILE PHONE COVERAGE

We have evidence that mobile phone coverage is going to increase significantly very soon. TVL has already rolled out service in Ambae and North Efate, and expects to inaugurate service on Tanna early in the new year.

Digicel is one newcomer that has been quite busy preparing itself for this day. There are mobile phone towers under construction already throughout the country, many of them in places that have never seen mobile phone services before.

Between the two carriers, it seems that the government commitment to provide mobile coverage over 75% of the country is not entirely unreasonable. The new competition agreement that Parliament ratified includes a fund of not less than 450 million vatu to help ensure that this comes to pass.

COSTS

Prices will almost certainly drop across the board. TVL has been smart in this regard, and has tried of late to make its prices competitive, in order to force Digicel and any other players to compete on other ground. Current SMS prices are on par with Australia, North America and Western Europe, and flat-rate calling nation-wide will make dialing our family back in the village much easier to bear, when we finally get service there.

It’s likely that mobile calling prices will come down some more, if only in the short term. But we’ll almost certainly find that the cost of setting up a new account will drop as close to zero as the new competitors dare. They want to make it as easy as possible for new customers to join the service, or even better, for existing customers to switch.

Watch especially for flat-rate and bulk plans that offer blocks of calls or SMS messages for a single, highly discounted fee. Sign-up bonuses will likely be very generous in the early days.

SERVICES

New services are another way for our suitors to distinguish themselves. Carriers will go out of their way to make using their mobile service as easy as possible. We will likely be able to transfer phone credit between accounts (but not between companies, of course). We should also be able to buy new credit using a bank card or some other means of online payment.

This would create important opportunities to expand access to mobile services, because it means that a bread-winner in Port Vila or even overseas would be able to buy credit for family members or friends without money or access to banking services. It’s also likely that mobile providers will allow their customers to buy very small amounts of credit, for example 100 vatu at a time.

Other possibilities include Internet-to-SMS gateway services – send someone an email or an instant message to their mobile phone – multimedia SMS and more.

The big question though, is who will be first to roll out GPRS and/or other next-generation transmission methods. GPRS means that we could send Internet data via the same system as we use to talk on our mobiles. GPRS can be added to existing GS networks rather easily, because it uses almost exactly the same equipment. It’s not broadband service, so it won’t replace our existing home and business accounts, but it could help make email and casual web access much easier.

LONG DISTANCE

It’s not clear yet what will happen with International calling, but one would assume that with the opening of the telecommunications market, there would be no artificial limitations on any new license-holder. It seems only reasonable that once they have the right to set up their own international connections, they would be able to sell long distance calling services.

Given the importance of the expat and business demographic within this newly opened market, it makes sense that international calling would be an area that any new carrier would want to compete in aggressively.

INTEROPERABILITY

There’s been no confirmation forthcoming that all telecommunications license-holders will be required to allow calls originating from one service to reach the other, but it is known that this has been discussed during the negotiation process. Digicel has faced problems recently in Trinidad and Tobago, where the local incumbent, owned by Cable and Wireless, started blocking calls originating from their mobile network. It put them in a difficult position, because it appeared to customers that Digicel’s system was not working, when in reality the opposite was true.

If such a thing were to happen here, things would only end badly for whoever caused the problem. And that’s why it’s not a likely scenario.

LAND LINES

The status of telephone land lines will not change – at least not in the short term. The big question right now is what will happen with the existing infrastructure. Businesses still need copper lines to handle their PABX telephone systems, and many people prefer the reliability that land lines offer, especially at peak usage times and when there’s bad weather.

The cable infrastructure throughout Santo and Vila is still of tremendous value, and TVL will retain an effective monopoly on provision of land-line services, at least for the time being. Installing a new phone line is many times more expensive than creating a new mobile customer, but the phone line can offer things that mobile service can’t. It will be interesting indeed to see how they use this to their competitive advantage.

CAUTIONS

It’s tempting to see the breaking of the telecoms monopoly as manna from Heaven. While it’s true that virtually everyone expects to see great improvements in the years to come, we need to remember that the geography of Vanuatu hasn’t changed. We are still a nation of islands with good but irregular sea transport, and expensive air services. Servicing mobile equipment on our remote islands will still take time and cost money. There will still be villages with no service at all.

We have just as many land disputes as we had before this agreement was signed. It’s just as easy today as it was yesterday for someone to obstruct service to others if they feel the need to.

Most importantly, we will always have a limited number of service providers. What will happen when the honeymoon is over? What will happen if some day the providers realise that a cartel is almost as good as a monopoly? It doesn’t even have to be overt. Sometimes environmental pressures push all the local operators into line. Just take a look at banking services here in Vanuatu. One would never suggest that they actually sit down and plan it this way, but the service offerings of the two banks sometimes make them indistinguishable from one another.

When a young woman is being courted by two boys, she needs to take a careful look at what they have to offer. She needs to look beyond the flashy outward appearance and determine which one is going to be faithful, reliable and provide her life with enrichment without undue complications. Let’s take full advantage of this honeymoon period to get the best value we can, but let’s not forget that this is just the start of a long and – hopefully – healthy new relationship.

Human history shows us that after the explorers come the missionaries, and after the missionaries come the colonists. Carpet baggers, speculators, misfits and refugees seeking a better future away from the centre of things – these are among the first to arrive. Then come the homesteaders. Then come government, roads, taxes and schools. Before long, the landscape begins to look like the one they left behind.

In this version of events, those who get least mention are those who were there first. Those who, rather than shape the world in their own image, adapted to the shape of the world until it was impossible to tell where one began and the other ended.

This column’s purpose is neither to re-hash the history of Vanuatu nor to moralise about past actions. It is nonetheless useful to understand the shape of human trends, and to understand the forces that drive them. This is especially important because of Vanuatu’s nearly unique position as a country whose family- and village-based culture and ways have remained more or less intact.

It’s important too because we’re at a point in time where we can use our environment and act upon these outside influences. We can, if we choose, mitigate the worst elements, highlight the best and – most importantly – adapt the information society that we join to us, as well as adapting ourselves to it.

The process we use to achieve this is simple. Simpler, in fact, than many people are willing to believe. But, as a wise man once said, simple does not equal easy. Cutting down a tree is a simple task, but if that tree is a nambanga, it’s not at all an easy one.

First off, we need to accept some things as inevitable. Port Vila and Santo are modeled on Western cities, with all the strengths and weaknesses that this implies. There’s little we can do to change that now, and there’s much to be taken advantage of if we embrace this circumstance and use it to our advantage.

We can, for example, leverage the willingness of overseas businesses to invest in Vanuatu. We can use it to bring our telecommunications infrastructure up to a level that would make us competitive with the rest of the world. Based on recent events, it seems safe to assume that our leaders in government and business are determined to do just this. If we do indeed commit to a fibre-optic network connection with the outside world, tremendous business potential will be created. Vanuatu’s tax haven status will make this country extremely attractive to all kinds of tech-related business investment.

The secondary effects of this kind of investment would be tremendous, especially in terms of education and opportunity for our burgeoning young population. One especially promising aspect of this is that it would no longer be necessary to travel overseas to find employment on the international markets. The Internet knows no borders, so skilled IT workers could work with companies virtually anywhere in the world.

One example: Vanuatu is lucky enough to be almost exactly twelve time zones away from Western Europe. This means that we could provide overnight technical support and systems administration services to European companies without having to adjust our own work day. The superb French spoken by francophone ni-Vanuatu uniquely qualifies them to work with French companies.

The Vanuatu IT Users Society (VITUS) has done much to develop a community of practice among local IT professionals, but imagine how much more effective it could be if our own community of professionals were interacting daily with the best the world has to offer via the Internet. Add to this an influx of talented and interested IT professionals from overseas, and it becomes possible to envision a veritable flowering of learning, literacy and skills development among Vanuatu professionals.

But what about communications on the islands? Well, there’s much to be taken advantage of there, but the challenge is to remember our environment. The approaches and ideas that apply to our commercial centres will never be fully applicable at the village level. It is likely possible to emulate western standards in critical areas – especially health care and education. And we would all benefit from better roads and more reliable shipping. But it’s just not realistic to expect that villages in Vanuatu will have mains power in every home, a truck for every household, and jobs for every person.

Nor is this necessarily desirable. Three thousand years of experience demonstrate that it’s possible to lead a life of plenty, one with purpose and meaning, without unnecessary complexity or stress. A life like that is something most people in developed countries have long aspired to, but seldom achieve. So let’s put aside the desire to emulate the West for a moment, and consider how to transpose the best elements of Vanuatu society into the Information Age.

It’s a simple process, but not necessarily an easy one. It requires a willingness to be flexible, to search for technical alternatives that require more special knowledge than a pre-fab, cookie cutter office layout in Port Vila. It requires that we design and build our own Information Tookit.

And it’s easy to make mistakes. The problem in a country with such limited resources is that the cost of making mistakes is higher, relatively speaking, than it is in a rich, developed country. If a business fails in the US, for example, nobody really takes any notice. But if a single local business fails in Vanuatu, the impacts are significant. If an Australian loses fifty dollars on a failed service, she might curse the inconvenience, but it wouldn’t make much of a difference. If someone in the village lost their five thousand vatu investment in a local concern, they might not be able to pay their children’s school fees.

This means that we need to work at a smaller scale than most outside businesses are willing to consider. We need to find a way for people to pay for services at prices that won’t force them to decide between food, school fees and the service itself. It also means that these information services have to have an immediate benefit for those using them. There is simply no money available for mere convenience.

If we approach it right, these circumstances can be made to work for us. We have everything we need in order to create village-level technical infrastructure at costs that won’t prove too onerous for the average customer. The problems are well-understood; it’s only a matter of putting together the pieces now.

But once we’ve done that, we need to get out of the way. Every island, every village has its own way of doing things, its own protocols, its own priorities and its own understanding of the world. It would be the height of negligence to ignore these and to attempt to impose a cut-and-paste solution. If the service is not immediately useful, it will probably fail. Even if we ignore the cultural impact, we can’t deny the economic effects.

There is, therefore, no useful way for national or international companies to operate at the village level. A micro-business model, working in increments too small to ever appear on a corporate balance sheet, is the only sustainable means to ensure that communications can bridge the Melanesian Last Mile.

More important than money, though, is that fact that each village, each island will ultimately be able to determine how this new resource is used. They will be better positioned to shape their own destinies, to entwine that destiny with that of this fledgling republic, and ultimately with the rest of the world.