"Sustainability" Matters for South Asia Internet Access Business

“Sustainability” was not an issue in the old monopoly telecommunications world. With profits guaranteed by “rate of return” regulations, service providers literally could not lose money, and also were guaranteed a fixed rate of return on invested capital.

Also, in many cases, since the firms were directly owned by national governments, there was an implied financial backstop provided by the national government, as well.

All that has changed as firms have been privatized and deregulated, exposing all the former incumbents to market pressures and the risk of failure.

Also, with the rise of new services, especially Internet access, sustainability--and business model issues--are paramount. Unlike voice services, Internet access requires a number of other enablers.

Literate users, low-cost devices, knowledge of how to use the Internet, compelling applications, network costs, ISP operating costs and end user recurring cost, are key requirements.

As much progress as Internet service providers are making at supplying Internet access to everyone, at prices consumers can afford, supplying Internet access to virtually everyone in South Asia and Southeast Asia, within 10 years, will likely require an order of magnitude lower network costs.

A few examples will illustrate the issue.

Across Asia, for example, the cost of a prepaid mobile service, and the cost of a fixed network voice service typically are correlated.

The cost of mobile voice and fixed voice tend to cost about the same, at least where fixed networks actually exist.

In most Asian markets, the ability to buy mobile service exceeds 90 percent of people.

Internet access, limited and featuring dial-up speeds, can be significantly more expensive, however. In Bangladesh, mobile Internet access can be an order of magnitude more expensive than either mobile or fixed voice service, for example.

A mobile Internet plan featuring perhaps 200 Mbytes of usage can cost four times more than a prepaid mobile voice plan.

The price differential is about the same  n the Indian market as well.

So major cost reduction is required, to supply Internet access to most consumers in South Asia, which most have assumed would be provided by mobile service providers.

In 2012, fixed broadband prices represented 1.7 percent of monthly gross national income (per capita) in developed countries, where 80 percent of households often buy broadband Internet access.

In developing countries, fixed broadband services still remains expensive and unaffordable for many, at 30 percent of average monthly incomes. Whether new fixed networks can reduce costs 10 times in a decade, while increasing coverage by 10 times to 100 times, are key issues.

In Bhutan, about four percent of homes buy fixed voice service, for example. In India, perhaps five percent of homes buy fixed voice service. In either country, Internet access is purchased by perhaps one percent to two percent of households, according to Insight, a new research program by the Pacific Telecommunications Council available to all PTC members.

So the business model requires innovation. Services have to be priced reasonably, devices costs must drop and all network and operating costs likewise have to be right-sized.