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Why Internet Prices in Papua New Guinea are high?

The reasons behind high internet prices are multiple. There are  range
of reasons spanning five broad categories: infrastructure; wholesale; regulation; retail and
competition; and PNG specific issues.

1.  Infrastructure

• Maintenance and capital costs for internet infrastructure in PNG are considerably
higher than in other countries, although by how much is unclear. One estimate is
around four to five times higher. This includes both maintenance costs incurred by
Telikom for the undersea cables, and costs of maintaining the infrastructure required
to transport internet signals between population centres.
• A lack of reliability and the need for internet traffic to be ‘offshored’ further add to the
cost of providing internet services, adding more upward pressure on end user prices.

2.   Wholesale
• Telikom pays approximately A$30 per megabit per second (A$30/mbps) to TPG (the
owner of the PPC-1 cable) for bandwidth, then on-sells this bandwidth at a rate of
K1,950/mbps, or approximately A$800/mbps. While the spot price of bandwidth appears
comparatively low to the wholesale price passed on to Internet Service Providers
(ISPs), we note that Telikom faces a range of costs in providing wholesale internet
services including costs for operating the cable, maintenance, electricity, and various
staff and overhead costs.
• Telikom has advised that all ISPs face the same wholesale access price. However we
consider that the regulatory settings (as discussed below) are not necessarily well-designed
to ensure that this price is efficient.
• Some stakeholders also commented that Telikom often appears reticent in allowing
other parties to utilise its transmission infrastructure, effectively forcing them to either
invest in their own infrastructure or not enter the market.
• The use of satellites when cable connections are available reflects not so much a business
decision but rather a necessity based on the unreliability of cable access, and is also
likely to add to costs faced at the retail level.

3.    Regulation
• Deregulation of the ICT sector in the last decade has driven significant improvements
in market entry and diversification of services. However, the regulatory environment
has not kept up with the pace of market and technological change in recent years.
• While the provision of wholesale internet services is declared under the NICT Act, and
hence notionally subject to non-discrimination and efficient pricing requirements, a
number of regulatory gaps have been identified which in our view are likely to contribute
to higher end user internet prices.
• In particular, with its focus being primarily on establishing a level playing field for ISPs,
the regulatory framework appears to provide limited incentives in terms of ensuring
that access charges are efficient, or in driving reductions in Telikom’s costs.

Retail and competition
• Over the past decade the retail internet environment has grown substantially, particularly
due to and following the entry of Digicel to the market in 2008.
• Digicel appears to enjoy a considerable degree of market power in the retail ISP market,
with ‘fringe’ providers seemingly unable to make inroads.
• The degree of Government involvement in retail is considerable, with three Government-owned
retail service providers competing with the private sector and each other.
• There is very limited transparency of retail prices.

Information Source: Discussion Paper Published by Deloitte Touche Tohmatsu with partnership with PNG NRI titled: Why Internet Prices in Papua New Guinea are High? All of the information is sourced from this publication . 

Next:  Internet Issues in Papua New Guinea
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