FSM TELECOM AGAIN COMPARES WELL IN THE PACIFIC REGION ACCORDING TO REPORT

May 6, 2013

By Bill Jaynes
The Kaselehlie Press

May 2, 2013 Pohnpei, FSM -As the World Bank pushes Information and Communication Technology (ICT) reforms in the Pacific region, data on a report released by Network Strategies, a New Zealand based telecommunications consultant suggests once again that FSM Telecommunications Corporation is an anomaly in the region.

Network Strategies did not specifically say in its report that FSMTC is a unique Pacific monopoly but its data suggests that conclusion. According to FSMTC Chief Operating Officer Fredy Perman who returned this week from a telecommunications conference in Apia, Samoa, the author of the report constantly pointed FSMTC's uniqueness out.

The report says that for low-level mobile use, the cheapest deals are in Tonga, Fiji, Timor-Leste, FSM, and Samoa, and the same countries also have the best deals for typical prepaid users. The highest price for that service is in the Marshall Islands, at more than twice the price for the same plan in the FSM. Palau, and Digicel Vanuatu costs at least twice what those same services cost in the FSM.

The same countries have the best prices for typical prepaid users. PNCC Palau had the highest typical prepaid user price at $100 followed by PMC Palau and the Marshall Islands. FSM's typical prepaid user price is just over $20.

For SMS-based usage, the Cook Islands has the best plan followed by the two telecom providers in Tonga, and the FSM. FSM's price is at about $27. Bemobile Solomon Islands was the most expensive for this type service at just over $80. PNCC Palau, Digicel Vanuatu, and Telecom Vanuatu were the next highest prices.

FSMTC continued to fare well when Network Strategies included American Samoa, Norfolk Island, and the French Territories. FSMTC's customer monthly spend for typical prepaid mobile service is about $16. The best deal was provided by ASTCA American Samoa at about $7 followed by Timor Telecom, Digicel Tonga, Bluesky American Samoa, TCC Tonga, and Digicel Fiji. FSMTC was seventh lowest on a list of 25 providers. Most expensive was OPT New Caledonia at nearly $70 per month followed by PNCC Palau at nearly $60 per month and Telecom Cook Islands at approximately $44 per month. NTA Marshall Islands price is approximately $28.

"In Kiribati, Timor-Leste, PNG, and the Solomon Islands consumers struggle to afford even a low level of cell phone usage," the report says. In those countries customers pay between approximately 13 and 14 and a half percent of their average monthly income on mobile services for low volume use. The per capita Gross Domestic Products of those countries start at about $1800 in Timor-Leste, to about $2500 in the Solomon Islands. In the FSM where the per capita GDP is about $3500, customers spend approximately 6 percent of their average monthly income on mobile services for low volume use.

Though Palau prices are much higher than in the FSM, customers in Palau spend approximately 4 percent for the same low volume mobile use. Palau per capita GDP is approximately $15,000, over four times higher than in the FSM. In the Marshall Islands the per capita GDP is about $6200, about 75 percent higher than that of the FSM but their customers spend just over 10 percent of their average monthly income on low-level mobile use.

The numbers and comparisons are about the same for prepaid services for typical usage. Kiribati, the Solomon Islands, Timor-Leste, and PNG are the least affordable countries. The percentage of monthly income for this service in Palau increases to about 5 percent, and the FSM it's about the same as above.

Customers in Timor-Leste should be prepared to pony up nearly 35 percent of their hard to come by average monthly income if they want SMS-based usage. It's about 12 percent for the same service in the FSM. RMI is at about 13 percent in its larger economy. Palau, which has a per capita GDP more than 50 percent higher than the combined per capita GDP's of FSM and RMI is at about 4 percent.

On analysis of low level use of mobile data services which is defined at 100MB, 30 calls and 100 text messages per month some countries drop out of the comparison because they don't offer those services including Palau and RMI. FSM and Timor are tied at about $30 a month, the lowest of the nations compared. Bemobile PNG charges over $150 for that service. Digicel Nauru is the next highest at over $80 a month.

In terms of average monthly income spent on such a service Solomon Islands is the least affordable at over 25 percent. Though Timor-Leste tied for the lowest price for the service, because of a low average monthly income it was the second least affordable country at over 24 percent. PNG is just behind Timor Leste. Customers in countries with relatively high per capita GDP's spent less of their average monthly income for the same service likely because they had more monthly income to spend.

Where FSMTC doesn't look quite so good on the report is in the area of market penetration. Amongst the nations the report compares, FSM ranked third lowest in terms of market penetration of mobile services to its customers and had the fifth lowest per capita GDP at $3500.

Palau has a significantly lower population than the FSM and has the highest per capita GDP of the countries listed. As a result, Palau has achieved approximately 75 percent market penetration.

"RMI has the lowest penetration rate, is a monopoly and offers no data services. Though it charges high = rates for some levels of usage, it fares moderately on affordability" report coordinator Dr. Suella Hansen wrote in an email.

A news story by Giff Johnson in Islands Business subtitled "NTA left out as bank prepares new ICT policy" quotes National Telecommunications (NTA) General Manager Tommy Kijiner as saying that NTA has achieved a much deeper market penetration than that for which they are being credited, or more appropriately, discredited. He suggests that there has been a disconnect between the World Bank and the National Government on the one hand, and NTA on the other. World Bank promised $3 million to the RMI government if it would eliminate its legal bar against telecommunications competition. According to the Island Business article, the government can use that money any way that it sees fit. Kijiner wonders why, if the World Bank thinks there is a problem with NTA's service didn't the Bank give NTA the money to help them to improve what it needs to improve.

World Bank representative Natasha Beschorner who has been working with FSM's Department of Transportation, Communications, and Infrastructure and with FSM Telecommunications Corporation on ICT reforms skirted our questions saying that if I wanted to know about World Bank involvement in the FSM we could discuss that directly.

We sent another email and asked her if the telecommunications monopoly is ended by statute in the FSM would the end result will be greater connectivity for the average potential telecom user across the FSM. We also asked if she thought that FSM customers would end up paying less for their connectivity than they currently pay and to explain why she thought so. She did not respond to that one.

Dr. Hansen did respond. To the first question she replied, "Certainly some of the other countries in the region have experienced dramatic increases in availability of mobile services following market liberalisation, as shown in the presentation. However I can't comment on FSM's particular circumstances." She suggested that we might want to talk to World Bank about that, but World Bank did not respond to the question.

To the second question she wrote, "Again I can only make general comments. Typically if it is possible to introduce a well-functioning competitive market then we would expect to see more competitive offerings coming to the market. However if it is just one monopoly replacing another then the outcomes may not be so favourable to consumers, so it helps to ensure that the market is ready for competition and the regulatory settings are appropriateā€¦ At the end of the day it can be quite complex. The best outcomes for the consumer in the Pacific appear to have occurred in countries where the former monopoly operator has been able to compete vigorously with the new competitor (e.g. Tonga, Fiji, and more recently Samoa now that SamoaTel has been taken over by Blue Skies and is really ramping up competition)."

World Bank holds to the theory that competitive pressure results in greater connectivity and better affordability for telecommunications customers which in turn stimulates the economy. But there seems to be a fair amount of evidence that things don't always work that way.

Dr. Hansen referred us to a paper entitled, "Affordability of mobile services hampered by quasi-monopolies in the Pacific" on the "Network Strategies" website (www. strategies.nzl.com) written by Shynaz Musa. The article provided an analysis of some markets where competition did precisely what it was supposed to do-specifically, Fiji, Tonga, and Samoa. It lists Palau as well but though competition is allowed in Palau the services offered by the two providers is compartmentalized.

In some markets ICT reform didn't quite turn out the way it was planned. The International Finance Corporation (IFC), essentially the private sector arm of the World Bank, approved a $40 million loan to Digicel in 2007 in order to help the company to enter the market in PNG. It approved another $80 million loan in 2009, and a $26.8 million loan in 2011. The loans "allowed Digicel to rapidly deploy mobile infrastructure in the more populous parts of PNG, achieving a market share of over 70% in the mobile market by 2011, that is, within four years of entering the market," industry paper said.

Meanwhile, the cash strapped incumbent Bemobile PNG languished. It could not compete. Bemobile PNG is still in operation but Digicel is what the paper calls a "quasimonopoly". Connectivity in PNG increased dramatically. Prices did not increase quite as dramatically but they did increase. The article says that since 2011, prices have begun to fall off a bit.

The ICT regulation toolkit warns against unfair competitive advantages by an incumbent operator but The Network Strategy paper says that in some Pacific islandnations they are seeing evidence of precisely the opposite. The paper goes on to explain the mechanism by which Telecom Vanuatu has found it very difficult to compete with Digicel Vanuatu. Vanuatu now has about 80 percent market penetration but it costs about 9 percent of the average monthly wage for the lowest level of mobile phone service.

In Nauru there is about a 65 percent market penetration but according to the Islands Business article on the RMI, the incumbent telecommunications provider in Nauru has gone the way of the dodo. Nauru customers pony up nearly $50 a month for SMS services, and nearly $40 a month for low level mobile usage plans.

FSMTC's Chief Operating Officer, Fredy Perman said that he learned in a conversation with Nauru's Minister of Communication during meetings in Apia, Samoa this week that Digicel Nauru cut fixed line services in Nauru so that communication is now by cell phone or the Internet. We were unable to verify that information before press time.

"The unique characteristics of the Pacific means that building a ubiquitous network is often a challenge for an incumbent operator without deep pockets. A combination of factors such as small populations spread over large distances, rugged terrain, a number of small islands and a large number of rural / remote dwellers has historically meant that incumbent operators have struggled to provide universal service. Prematurely ending an operator's exclusivity in the market also may mean that inadequate time is allowed for the operator to prepare for impending competition. In these circumstances the introduction of a competitor with access to funding and the absence of regulatory intervention can lead to a playing field tilted against the incumbent, allowing the new entrant to dominate the market within a very short space of time," the Network Strategy paper said.

It warned that active regulatory involvement is required to ensure a level playing field for the former monopoly operator against the new entrant. Otherwise, regulatory intervention will only be "the ambulance at the bottom of the cliff for incumbents".

"While competition has been viewed as the mechanism to encourage investment, lower prices and increase uptake/use of mobile services, in both PNG and Vanuatu a quasi-monopoly has formed following market liberalization allowing the dominant operator to maintain service charges above competition levels," the Network Strategy paper says. "The unique challenges of infrastructure rollout in the Pacific coupled with incumbent operators that were ill-prepared for competition meant that the new entrant has been able to rapidly acquire a large market share to the detriment of endusers. For example, as we have illustrated, real prices have actually increased since the early days of competition in PNG whereas in Vanuatu mobile service prices remain relatively unaffordable in relation to income levels."

No one knows for certain what might happen in the RMI when ICT policy changes. What is known is that NTA in RMI is on the hook for a $30 million loan from when it bought into the Guam to Majuro fiber optic connection. It's already missed several loan payments and because the RMI government is the guarantor for the loan its government had to make the payments. If NTA goes under because it is not ready for competition then the RMI government will be on the hook for the payments.

In the FSM it is illegal for the National Government to guarantee a loan for FSMTC. In fact, FSMTC's credit rating has increased the FSM's credit rating. FSM Petroleum Corporation is also contributing to the FSM's credit rating. FSMTC will be paying its $30 million loan for the next 15 years if it lasts that long. If it doesn't, telecommunications will likely be run by a foreign "quasi-monopoly".