New operators and reforms in Papua New Guinea set to transform telecoms sector

 

The Papua New Guinea telecoms market is set to enter a new phase. After nearly a decade of rapid expansion, largely the consequence of Jamaica-based Digicel’s market dominance on the mobile side, and given state-run Telikom’s virtual lock on essential infrastructure, credible and effective competition may soon be arriving.

A restructuring has been proposed that promises to combine Bmobile, the number two player in the mobile space, and Citifon, the number three, and bolt them on to a new nationwide 4G network to create a powerful challenger to Digicel.

In terms of infrastructure, the government is in the process of transferring the country’s main fixed-line and gateway assets into one entity, DataCo. This entity will provide backbone services and international connectivity on a non-discriminatory basis to all players in the market. The many smaller companies in the telecoms sector might find their business models working better with this utility provider in place, and the dominant provider could see challenges from different directions (see analysis).

Working against the vision of increased competition are the persistent trend of consolidation and the realities of the PNG marketplace. Digicel has built a formidable position in all lines of telecoms, from mobile to television, and the company is set to continue building on those strengths.

Competition

According to senior government officials, it is not altogether clear whether the newly reconfigured government-owned competitor will be able to take much of Digicel’s market share. The smaller players may also find it difficult to go up against such a large, well-established and successful player, regardless of how deregulated the underlying wholesale services become. Repeated attempts to create serious and enduring competition in the past have had no lasting effect, and there are doubts as to whether this attempt will have a major impact on the sector. “We have opened up the market to competition,” said Jim Miringtoro, minister for communication and information technology, told OBG. “But the monopolistic regime we did away with is coming up in a different form.”

History Of Liberalisation

PNG has been liberalising the market almost as long as the country has had a telephone system. Work was started on a national telephone service in 1964, and in 1973 the Department of Information and Communication Services was formed. In 1982 the Postal and Telecommunications Services Division was corporatised and became the Post and Telecommunication Corporation. In 1996 that entity was split up into Telikom PNG, Post PNG and the PNG Telecommunications Authority (PANGTEL).

The Ministry for Information and Communication Services was formed in 2007, and PANGTEL was placed under its purview. Telikom’s monopoly on the provision of all telecoms services both domestically and across borders was set to last through 2001, and that right was extended by agreement with the Independent Consumer and Competition Commission (ICCC) through to 2007. Telikom started Pacific Mobile Communications (PMC) in 2002 to provide internet services under the Tiare name. Bmobile (also called B Mobile B-Mobile or Bemobile) was formed in 1997.

The decision was made in 2005 to open the market for mobile communications in PNG, and competition was introduced in 2007, when Digicel received its licence. The National Information and Communications Technology Authority (NICTA) was formed in 2010 as the telecoms regulator, and since its inception has worked to make sure that the sector is well populated with companies and that the environment allows them to thrive unhindered.

When Digicel entered the market in 2007, prices dropped significantly, and the penetration rate for mobile phones exploded, jumping from 1% in 2005 to 25% in 2011; it is now an estimated 41%. Internet usage also spiked in PNG after Digicel got heavily involved in that business and as the use of smart-phones and tablets increased, according to research commissioned by the National Research Institute, a PNG-based public policy think tank. From 2000 to 2010, the penetration rate in PNG rose from 1.5% to 2%, but it jumped to 10% in 2014. By early 2016 the country had more than 900,000 internet users, or an estimated 11.7% of the population.

However, claims of anti-competitive practices were made as the carrier quickly went about establishing a dominant position in the market. The role of Telikom in the PNG telecoms sector was questioned by critics as well, as it has had a monopoly over the main international cable gateway, and seemed at times to be exploiting the lack of competition to maintain prices above market rates.

The issues were complicated, especially in the case of mobile phones. Digicel was making significant investments in the economy and was able to do what Bmobile had been unable to despite having the market to itself for a good five years.

Both issues were brought to NICTA, and the regulator conducted a public inquiry into Digicel’s pricing of calls out-of-network in 2011 as well as Telikom’s gateway pricing in 2012. In both cases, NICTA took action. It ruled that Telikom’s wholesale pricing should become a so-called “declared service”, and as such the company would be required to provide connectivity to its international gateway on a non-discriminatory basis for a period of five years. In the Digicel case, NICTA recommended that a cap be placed on the difference between in- and out-of-network calls of 40% for a period of five years.

Benefits To The Market

Since NICTA took action against these dominant positions, the market seems to have improved. Wholesale bandwidth prices have been steadily falling. In late 2015 Telikom CEO Michael Donnelly said that the company had reduced prices by 60% over an 18-month period, with prices down by 33% in July 2015 alone.

Over time, the provider has also changed the pricing mechanism so that customers pay for bandwidth rather than total data transfer. This has significantly helped the market, as it is now possible for internet service providers (ISPs) and commercial enterprises, such as hotels, to offer always-on unlimited internet.

The current situation with the mobile carriers operating in PNG also appears to be stable, with signs of competition and a tempering of rates over time. Digicel currently offers in-network calls at PGK0.79 ($0.27) per minute during peak hours and PGK0.99 ($0.34) per minute out-of-network. In-network rates are unchanged from four years ago, though out-of-network rates are down from PGK1.38 ($0.47). In terms of data, rates start as low as PGK1.50 ($0.51) for 30 MB of data in a 24-hour period. A 5-GB plan good for 30 days costs PGK220 ($75).

Bmobile is a somewhat cheaper alternative to Digicel, with in-network calls costing PGK0.50 ($0.17) per minute during the peak times and out-of-network calls costing PGK0.77 ($0.26) per minute. The in-network rates are down from PGK0.79 ($0.27) per minute four years ago. Bmobile offers a 5-GB package good for 30 days for PGK225 ($77). The company has also been relying heavily on the use of promotions in order to attract and keep customers.

Market Interest

According to NICTA, interest and participation in the market is quite high, and official policy is to keep the sector open and allow for competition to enter, in line with its obligations under ICT Phase 2. ICT Phase 2 was introduced in 2011 in an effort to encourage more competition in the sector. Although it seems that the country has only a handful of telecoms companies and service providers, the regulator has issued dozens of licences across a wide range of categories. Many of these licences are unused, but a good number of the players are active or considering offering services in the country. “We have seen an increase in gateway licences. Currently there are 12. We also have 37 operator licences, and about 12 or so are active,” Gibson Tito, manager of licensing and business regulation at NICTA, told OBG.

Signs of positive activity are apparent in the sector, and it seems that NICTA’s recent efforts to keep the market open and maintain fair prices have started to pay some dividends. One local ISP called MyNet, for example, is set to offer citywide Wi-Fi in the country’s commercial capital of Lae. The company is utilising Speedcast services via the O3b network to provide international access. Established in 2015, MyNet hopes to eventually to transition to 4G LTE sometime in the near future.

Mixed Message

While Digicel is often the subject of criticism, it has a record of investing in the development of the market. The company has invested more than $800m in the country, and is continuing to work on improving connectivity and service. For example, it has announced a significant capacity increase on the O3b satellite network for PNG, as well as smaller increases in neighbouring Nauru and Samoa. The upgrade is in part aimed at utilising the network’s “low earth orbit” satellites for company’s 3G and 4G services. It will also be accessing the “medium earth orbit” O3b satellites in order to offer cheaper internet services. Digicel Pacific has been a partner of O3b since 2013, and is its largest telecoms customer.

In terms of international connectivity, Digicel has also been discussing the building of its own submarine cable from PNG to Australia. The company is working to expand internet penetration within the country, with a goal of reaching 3G coverage for more than 80% of the population by 2020, and it has been developing innovative partnerships to extend its reach. In Morobe Province, it is cooperating with the Kabwum District Development Authority (DDA) for the provision of ICT services.

The DDA will contribute PGK1m ($341,371) to the effort for the building of two cellular towers. In cooperation with the UN’s Business Call to Action, Digicel is supporting the proliferation of digital technologies to places in PNG that to date have not been reached.

The company is beginning to offer more services over its network. In 2016 Digicel partnered with international mobile money company WorldRemit. This service allows people to transfer funds to another person as easily as sending an SMS. The money goes directly into the customer’s Digicel Mobile Wallet. Mobile users in 50 countries can access WorldRemit. Digicel has also introduced a service which delivers daily religious updates to the user, including Lent and Easter messages and Bible stories. It costs PGK0.20 ($0.07) per day to use.

As internet services continue to expand, and prices fall, the internet in PNG is being used for a wider range of purposes and is beginning to match the utility of networks in more developed countries. Water PNG has started to enable online payments for customers. The service was made available as of October 2015. No fees are charged, but customers are required to have a bank account at BSP, Westpac or ANZ. Divine Word University will start to offer online courses starting in 2016. This is expected to help the university take more students. As it stands, too few spaces are available for the number of students seeking a university education in PNG.

Remaining Issues

PNG stacks up well with other countries the region. The country has the biggest subscriber base in the Pacific by far, with GSMA Intelligence putting the number at 2.3m subscribers, while Digicel estimates the figure at 2.5m and other sources claim 3.3m. That compares with 591,000 in Fiji, 275,000 in Solomon Islands and 39,000 in Tonga. It is also surprisingly competitive when compared to its regional peers as its three mobile companies make PNG a bit of a rarity. There are 10 countries or territories in the Pacific with only a single carrier. Those with monopolies are the Cocos Islands, Cook Islands, Kiribati, the Marshall Islands, Micronesia, Nauru, New Caledonia, Niue, Norfolk Island and Tuvalu. Fiji has two, as does American Samoa, Samoa, Palau, Solomon Islands, Tonga and Vanuatu.

However, PNG’s penetration rate is one of the lowest in the South Pacific region. The GSMA places it at 31%, compared with 66% in Fiji, 80% in New Caledonia and 61% in Samoa. PNG ranks relatively high in terms of the technology mix, however, with almost 60% using 2G technology and the rest using 3G or 4G. Many countries in the region, including Micronesia, the Marshall Islands, Palau and Tuvalu, are still all 2G, while Tonga is about 90% 2G. Smartphone adoption is still quite low in PNG, at 16% of all subscribers. Only Micronesia has fewer smartphones as a share of all phones at 14%, compared with Solomon Islands (24%), Vanuatu (20%) and Fiji is at 21%. Smartphone ownership should to climb to over 55% of all cell phones in PNG by 2020 according to GSMA, and despite Customers, even business customers, are not yet taking full advantage of available internet and mobile technologies. Cloud computing, for example, is an obvious sell in a place like PNG, vendors argue. It allows companies to store their information in a way that is less vulnerable to viruses and hacking, while the use of the cloud can reduce the need to have foreign employees on staff. It is especially useful for smaller companies, which need technological capabilities but do not have the capital to make the in-house investments. However, some executives, who work in the ICT sector say that cloud computing is under appreciated and underutilised. “The cloud is not a reality yet,” Trilochana Reddy, CEO of Datec, told OBG. “It is used more for backup purposes.”

Pricing Problems

Despite the deregulation and the actions taken against the dominant players, the sector remains unbalanced, and indications are that this may continue into the future. According to Digicel’s own disclosures, it had 97% of the mobile market as of March 2015. Pricing is high by international standards; a 5-GB data package cost almost two weeks of minimum wage.

The regulators agree that pricing is a problem, but they are reluctant to dictate precise levels. The minister says that the company made a great and valued commitment to the country and has helped the development of the sector, and he adds that it would set a bad precedent to intervene in the market. That could scare off other investors.

However, the government would like to see the cost of access move closer to global norms. “Somehow the pricing must go down to a level where it is acceptable,” Miringtoro told OBG.

NICTA remains an active regulator, and is continually addressing consumer concerns. In early 2016, for example, the authority said it would be looking into the subject of vanishing phone credits.

It will also be investigating accusations of overcharging for downloads and voicemail messages. However, in terms of pricing, there is a limit to what the regulator has a mandate to do. NICTA cannot go much beyond the actions taken so far. “We still think pricing is too high. But we don’t control pricing. We come up with benchmarks,” Tito told OBG.

In part to correct some of the perceived imbalances in the market, two major sets of transactions are in the works in the country. Telikom is building up its 4G network with funds provided by the China Exim Bank, and the plan is buy up the shares of Bmobile it does not yet own, merge the mobile carrier with Citifon and have a single major government-backed player in the mobile space. The other move is to consolidate sector infrastructure under one entity, DataCo.

While these efforts might help bring balance to the market, it is not clear when the restructuring will be finished, nor is clear whether the new and improved Bmobile will be able to take much share from Digicel given the latter’s clear lead (see analysis).

Consolidation

The main concern is that, as competition is being promoted by the regulators, the sector will just keep consolidating, with the larger players buying up the smaller companies, which would result in the situation remaining much as before. Digicel has been on a buying binge for a number of years, and shows little sign of letting up. Having purchased DataNets in 2010, Daltron in 2013 and Remington’s satellite business in 2014, in 2015 it acquired AllcomMcr PNG. The latter entity is itself the result of an earlier transaction, when Allcom and mcr, which has been active in PNG since 2009, merged in 2014 to form AllcomMcR. Together, the companies have a client list that includes some of the top names in the country, including BSP, InterOil, Airlines PNG and Paradise Foods.

AllcomMcR operates as a systems integrator developing LANs and WANs for customers, configuring internet services and supplying cloud solutions, hosting data centres and virtual servers, providing security consulting and contingency planning, and managing projects on a case-by-case basis. AllcomMcr PNG has partnered with a wide range of international vendors and solutions providers, including Cisco, Microsoft, Citrix and VMW are. In 2014 Telikom purchased Datec as part of the company’s efforts to build up its retail marketing side, and the wholesale business is to be transferred to DataCo. “The sector has been consolidating,” Reddy told OBG. “And infrastructure is ready for the next boom.”

The consolidation of the sector has generated criticism in some circles, as it seems that the ISPs are being acquired so quickly that true competition has never had a chance to emerge despite the addition of new players. In the past, commentators have called on the ICCC and NICTA to explain why the mergers make sense for the public.

Television

Consolidation has also been evident in the television side of the business, and here too the sector appears to be becoming more concentrated. Digicel acquired 60% of Hitron in November 2014 and 100% of Channel 8 that same month; both are cable television companies. Digicel now offers pay television and says it is transforming its business from being simply a provider of connectivity to a provider of content. However, concern has been expressed that Digicel will gain a virtual monopoly in this area.

DigicelPlay, the company’s pay-television offering, currently has 31 channels, two of which are free – a general local channel and one featuring 24 hour-a-day rugby. The service requires the purchase of a digital television box, for PGK99 ($33.80), and a package. The plans start as low as PGK10 ($3.41) for one day of the top-level service, the Supa Package to PGK99( $31.28) for 30 days of the same package. The service is especially popular as Digicel has been able to acquire the rights to key sporting events In late 2015 Telikom acquired 100% of EMTV from Fiji TV. This transaction not only brings a major entity in the sector back to local control, it consolidates significant media ownership back into the government’s hands, with state ownership now of Kundu TV, EMTV, FM100 and NBC. The hope of the new owner of EMTV is to be able to reach customers with voice, data and content, the so-called “triple play”.

Outlook

The PNG telecommunications sector has thrived under the control of Digicel. Despite facing public criticism and maintaining an uncomfortable market dominance, the company largely brought connectivity to the country. Its efforts have transformed PNG from a country with almost no telecommunications to one where access is good and quickly improving. Whether or not the government’s plan to foster competition comes to fruition as currently planned, the market will continue to grow and more people will have mobile phones and internet connections over time. The regulators and the government have indicated that they will be pragmatic in their management of telecommunications, making sure the consumer is being protected without discouraging further, and still much-needed, investment.

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The Report: Papua New Guinea 2016

ICT chapter from The Report: Papua New Guinea 2016

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