REGIONAL
REALITY - a pragmatic look at the gap between expectations and economics By Rogan Hollis
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et me start with a couple of questions: how can an island with a population of around 300,000, and a GDP of $10,000 or less, justify having three international submarine cables? In a competitive environment, where telecommunications providers are struggling for every dollar, where does the money come from to justify building even one international cable? Frankly, some islands might consider themselves fortunate to have had submarine cable connectivity in the past, because trust me, not all cables were justified on economic grounds. Rather than pounding the incumbent – always a fun and easy sport – perhaps people ought to recognise that there were some benefits to being in an environment where companies felt secure in building expensive infrastructure that required a long term commitment to achieve payback. The demographics of many islands could never have justified such major investment at the same time as demanding competition, and it is my personal view that far from all island economies can justify it in the future. There just isn’t enough money to go round to make it worth the while for the phone companies. The problem for some of the islands is that there are unrealistic expectations out there. In the case of regional systems, these expectations are that there is a divine right to have cheaper calls, and more bandwidth, and at higher speeds. Forgive me now for making an obvious statement, but it is one that I believe the many proponents of regional systems as our industry saviour need to acknowledge: submarine cables cost a lot of money. The next statement is perhaps less obvious to some but no less true: telecommunications providers are not working as charities (for proof of this we need only look at the numbers of our colleagues that are
no longer employed in our industry). Carriers are in business to make money, believe it or not, and the idea of investing massive sums in infrastructure is only realistic when there is a realistic chance of making your money back. Before Tom Soja and the like leap on my back and shout that I am advocating a return to the “regulated” days, let me say clearly that I am a believer in the benefits of competition and liberalisation. I’m a consumer like everyone else and like everyone else I tend to use something more if it is cheap. The issue I see is one of balance. There needs to be enough profit in a service for a company to justify providing it. When this simple truth is extended to regional submarine cable systems, it means that there needs to be enough return to justify a major investment. We can argue all we like that system costs are cheaper due to the pressure on suppliers. We can all argue that the benefits of competition to the consumer are lower prices and better service. How do we square the circle that less revenue justifies more investment ? This is where the classical argument comes in that competition will lead to lower prices but more takeup, thereby increasing the overall market size or the pie that the phone companies take their living from. It is this bigger pie that we are supposed to believe will provide the incentive to companies to risk investing in the infrastructure. How big a pie can 300,000 people make? How much bigger can it get just because they can each afford a little bigger slice ? How much pie can they afford with a GDP of less than $10,000 ?
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