What Lies Ahead?

[This week’s Communications column for the Vanuatu Independent.]

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.