Papua New Guinea: Linking for growth

The extension of 3G services into more of Papua New Guinea’s (PNG) provinces and a flurry of foreign satellite communication investments have highlighted the potential – and the challenges – of investing in telecommunications in the country.

In April, market leader Digicel announced it had rolled out 3G services to 12 new sites in six provinces, creating hotspots in Popondetta, Wewak and in Port Moresby, the capital. The expansion brings its total number of 3G sites to 63.

In the same month, Hong Kong’s SpeedCast, a satellite telecoms service provider, said it was partnering with Oceanic Broadband Solutions, a regional provider, to invest in a new iDirect hub in PNG. Australian Satellite Communications (ASC) also deployed a similar hub for a planned partnership with Daltron, a domestic IT provider.

Based in the US, iDirect offers a range of satellite-based IP communications products that can potentially offer broadband capabilities in any environment, making it well suited to connect villages and mining sites.

According to a statement from ASC, the company plans to “capitalise on the significant need for high-quality broadband services in PNG and new growth opportunities for service providers”.

While Digicel’s 3G expansion is significant for a nation that for years only had sufficient telecoms infrastructure in major urban centres such Port Moresby, Lae and Mount Hagen, the new hubs planned by SpeedCast and ASC hold the promise of cheaper and faster Internet for remote areas.

This expansion is aided by government efforts to encourage private operators to enter the market. Following the deregulation of PNG’s telecoms sector in 2007, Irish firm Digicel entered the market. In September 2008, state-owned Telikom PNG sold 50% of its mobile subsidiary, Bee Mobile, for $45m to a US-based consortium.

The changes similarly allowed Pactel International, an Australian satellite communications provider, to partner with local IT providers to address connectivity challenges for resource extraction firms in PNG. Pactel’s new high-speed satellite transmission platform can provide both point-to-point and point-to-multipoint satellite links, which will introduce a number of new benefits to the resource sector, PNG Industry News reported in April.

Indeed, the country’s licensing structure has been drastically altered to open the market to foreign companies. “The telecommunications sector in PNG is being opened up for increased competition and new entrants,” Charles Punaha, the CEO of the National Information & Communications Technology Authority (NICTA), the industry regulator, told OBG. “All new legislation will be aimed at opening the market and reducing red tape.”

Such private-sector-led advances in connectivity have run parallel to an explosion of mobile ownership rates, with penetration rising to 47.6% in March 2011 from just 5% in 2007. It seems, however, that this has come at the expense of landlines, with Telikom PNG stating in February that it was on the “verge of insolvency”.

In contrast, Fitch Ratings revealed in February that it expected Digicel’s earnings to grow in PNG, which in turn would boost the firm’s operations elsewhere. Digicel announced in December 2011 that the revenues for its operations in the Caribbean, El Salvador and the Pacific had risen 16% year-on-year to $1.24bn for the first half of the fiscal year.

Internet subscription and social media use are also seeing a rapid rise, with web users increasing from 30,000 in 2008 to 127,000 in 2010. Meanwhile, the total number of Facebook users had risen to 84,140 in April 2011, an increase of 18,880 in the past six months.

In January, the government revealed plans to invest $60m in a fibre-optic cable as part of a rollout of a national broadband network, which will be accessible at competitive costs to the wider public.

Officials said the cable, which is linked to the country’s $15.7bn Exxon-led natural gas project, would be ready for service by the end of 2012. “National broadband will greatly improve our telecoms capabilities and bring internet access to a much wider customer base throughout the country.”

One main challenge going forward will be lowering rates for mobile network and internet rates. Indeed, while the private sector is taking progressive steps in the telecoms market and the government is working towards improving connectivity and accelerating deregulation, Port Moresby could put more pressure on operators to improve pricing. While the initial costs could be high, it will likely boost the nation’s development base in the long term.