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Introducing broadband: Investment conditions, regulatory challenges and quality issues

Rohan SamarajivaTelecoms World South Asia

Dhaka, 8-9 October 2008

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Agenda

What is the scale of the challenge?South Asia’s mobile voice success

story: What worked?Implications for quality

Lessons for broadband?Implications for

Investment Regulation Quality

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The challenge

Give the currently unconnected access to the many functionalities of the Internet, includingCommunication in multiple formsInformation retrievalPublicationTransaction

All problems can be solved if hardest problem can even be partially solved

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Pakistan India Sri Lanka Philippines Thailand

Use the Internet

1.9% 0.3% 1.5% 8.8% 10.4%

Internet use

3%

0%

2%

12%

14%

1%0%

1%

6%

7%

0%

2%

4%

6%

8%

10%

12%

14%

16%

Pakistan India Sri Lanka Philiphines Thailand

% a

t B

OP

Male

Female

Large gender divide, even in South East Asia

The hardest problem: Bottom of the Pyramid

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Have not heard about the Internet before

36%

72%

29%

14%

36%

0%

20%

40%

60%

80%

Pakistan India Sri Lanka Philippines Thailand

% a

t th

e B

OP

…what Internet at the BOP??

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South Asia’s success story: Mobile voice

Lowest prices in the worldAmong the highest EBITDA margins

. . . suggesting, a different business modelBudget telecom network model,

analogous to budget airline model

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Low prices and . . . Four South Asian countries + Uzbekistan have the lowest

Total Cost of Ownership (TCO), according to Nokia

Four out of 5 with total cost of ownership < USD 5

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. . . high profits* (enabling continued investment & rapid rollout)

Revenues (USD ‘000)

EBITDA (USD ‘000)

EBITDA margin

(%)

Bangladesh

655,900 344,500 53

Sri Lanka 259,042 124,833 48

India 26,723,674 9,938,341 37

* 2007

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The business model

Driven by hostile external conditions, low purchasing power and pressure from disruptive competitors, South Asian operators haveDiscovered a new “budget-telecom-

network” business model andImplemented service-process

innovations that enable exploitation of long-tail markets Revenue-yielding minutes not ARPUs high

minutes of use and high EBITDA margins

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Increased network utilization

Driven by radical price reductions and effective service design and marketing yielding higher use by those at the top of the pyramid and increased

minutes from those at the bottom of the pyramid

0.88 1.20 1.88 3.58 6.5013.00

33.60

52.17

90.00

166.00

0

2

4

6

8

10

12

14

16

18

Mar-98 Mar-99 Mar-00 `Mar-01 `Mar-02 `Mar-03 `Mar-04 `Mar-05 `Mar-06 `Mar-07

Eff

ecti

ve t

ari

ff (

Rs

./min

)

0.00

20.00

40.00

60.00

80.00

100.00

120.00

140.00

160.00

180.00

Mo

bil

e S

ub

scri

ber

ba

se (

mn

)

Fixed Tariff Cellular Tariff Mobile Subs

NTP-99

Telecom Tariff Order

3rd & 4th cellular

operator

WLL Introduced

CPP introduced

Lowering of ADC from 30%

to 10% of sector revenue

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Long-tail markets and reduced transaction costs

Prepaid and the ability to buy in ways that fit earning patterns of daily/sporadic earners was key

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One consequence

Because of high loading of networks quality of service is likely to be spotty

However, this being a necessary feature of the model, excessive quality regulation could have prevented/delayed its discovery/ implementation

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Lessons for broadband

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Recognize that not everyone has regular income

New prepaid voice model recognizes that income is irregular at the BOP and comes in small increments: “chota recharge” Broadband pricing should follow; all-

you-can-eat, flat-rate pricing models will not work at BOP

Should it be based on time (easier to understand) or on volume of data?

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Unbundle the mobile Internet

The Internet is a meta medium, which includes multiple functionalities those who are starting may not

require all the functionalities and may not be able to pay for all at first

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16 04/18/23

Some broadband services and significance of quality

Throughput Delay

Service Down Up RTT Jitter Loss

Browse (text) ++ - ++ - -

Browse (media)

+++ - + + +

Download file +++ - - - -

Transactions - - ++ + -

Streaming media

+ - + ++ ++

VOIP + + +++ +++ +++

Games + + +++ ++ +++++ highly relevant, ++ very relevant, + relevant, - not relevant

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Keep costs (and prices) down

Low prices are key, but cannot be sustained unless costs are also lowered

This would, most likely, require economizing on links to the Internet cloudDomestic access network is not the

problem now

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2 Mbps

Sri Lanka download speeds (Business Packages) within ISP domain…

> 75%

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Download speed Sri Lanka and Singapore (accessing International servers)

> 75%

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Where is the bottleneck (Sri Lanka)?

NB: Upto 5th hop IP addresses are within SL (www.whois.net)

65 ms

25 ms

170 ms

10 ms

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RTT from Bangladesh- Submarine Cable vs Satellite (international sites)

0

100

200

300

400

500

600

700

800

900

8:15 11:30 15:00 17:30 20:00 22:30

Time

RT

T in

ms

SKYbd, Submarine Cable ADNSL, Satellite

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Download Speed - Sirius Broadband (256 kbps Shared)

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

8:15 11:30 15:00 17:30 20:00 22:30

Time

Actu

al S

peed

as a

% o

f P

rom

ised

Local National Global

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Upload Speed - Sirius Broadband (256 kbps Shared)

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

8:15 11:30 15:00 17:30 20:00 22:30

Time

Actu

al S

peed

as a

% o

f P

rom

ised

Local National Global

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Options

Buy more international capacity, and/or

Do a lot of mirroringCan this be done within the region?

And, encourage locally hosted contentGiven nature of mobile broadband

(possibly more P2P content), this may be a significant factor

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Regional mirroring?

The route to www.yahoo.com (hosted in USA) from Colombo takes roughly 250-300 milliseconds with 11 hops

To next-door India (ww.yahoo.co.in), takes roughly the same time and 17 hops to Mumbai via Singapore and Chennai

Unless these links are improved, not much benefit from regional mirroring

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Quality adequate to purpose at affordable prices

If voice quality is atrocious and price is high, will people buy voice services?

But when service was offered at quality adequate for purpose and at low prices, the market flourished and enabled needed investment

This is the key to broadband success, though the quality problem is more complex than was with voice