Mobile the way to go in emerging markets

HSPA entry-level service comparisonWimax and HSPA are the most affordable broadband options for consumers in emerging markets

Consumers wanting to take up broadband will do well to go the mobile route, as Wimax and HSPA, or a combination of both technologies, present the lowest entry-level and per-MB usage plans in emerging market.

An Ovum study titled broadband pricing in emerging markets: a comparison of DSL, Wimax and HSPA finds that the most price-conscious consumers may opt to go with HSPA since it offers the lowest entry-level rate at an average of only $381 a year in the 15 countries in the study. 

This low entry-level price point also gives HSPA the highest affordability index computed by dividing an economy's gross domestic product per capita by the annual cost of a service package of 51. 

Compared with DSL and Wimax, Ovum computations show that HSPA rates are lower than DSL in 12 of the examined markets and lower than Wimax in 11 emerging economies. The average entry-level HSPA package also costs 36% less than DSL and 38% less than Wimax.

This, however, does not necessarily mean that HSPA offers the best value for money. According to the study, while HSPA entry-level package prices and per-MB rates are lower than both DSL and Wimax, HSPA entry-level plans have far lower usage caps than those offered for the two other technologies. Among the 15 operators examined, only six operators offer entry-level plans with a usage limit of more than 1GB. (see chart above)

In this arena, Wimax emerges as the winner, with the study showing that it offers the best value-for-money entry-level broadband packages, with the average emerging market price placed at only $432 a year but with higher usage caps than HSPA plans. This pricing strategy is reflective of service providers?positioning of Wimax as a cheaper alternative to DSL.

Unlike HSPA low usage caps, entry-level Wimax packages have generally higher limits, mostly mirroring those offered by DSL service providers. In many markets, Wimax packages provide 512-kbps services without download limits, similar to DSL packages. (See chart page 15)

In terms of price, the study shows that, in eight of the 15 markets surveyed, Wimax packages are more expensive than their HSPA counterparts, but largely because of higher download limits. Compared with DSL, Wimax is priced lower in eight of the 15 countries included in the study. 

To be more specific, the study shows that for entry-level plans, Wimax has the lowest average price per 100MB usage at around $0.80 ?almost 40% lower than the DSL average of $1.31. The price of entry-level HSPA services is a high $17.73, on average, across the 15 economies included in the study.

Despite this, Wimax services are still generally unattainable in most emerging markets, with an affordability index of only 21. Services in Africa are the least affordable, while those in Bahrain, Poland and Saudi Arabia are the most reachable in terms of price.

Users opting to get service blends, or combinations of broadband technologies, will get the most bang for their buck with a mix of the highest and lowest-priced technologies under study: Wimax and HSPA. According to Ovum computations, this particular combination has an average entry-level price of $0.27 per 100MB of usage. A Wimax/DSL combination yields an average of $3.70, while an HSPA/DSL blend has an average entry-level rate of $89.15.

Moving forward, Ovum believes that prices and affordability will play major roles in driving broadband growth in emerging markets. At this point, prices of entry-level packages whether HSPA, Wimax or DSL are still too high for most consumers in emerging markets, as these are often at least twice the equivalents in mature markets.

The generally lower GDP per capita in emerging markets also makes broadband services all the more unaffordable. In the 15 surveyed countries, the study finds that the affordability index for all entry-level broadband services averages only 34, with 15 economies even recording an index below 11.

According to the study, consumers in Saudi Arabia are more likely to be able to afford broadband services, with an affordability index of a high 89.7. This is largely due to the oil-rich country relatively high GDP per capita, vis-a-vis the other 14 economies surveyed, and the lower rates for broadband services there.

A far second and third on the affordability index ladder are South Africa and Russia with 69.8 and 69.1. Only five of the 15 countries surveyed had an affordability index of more than 50. Another five registered single-digit indices.

The least likely to afford broadband services, based on the survey, are consumers in Kenya, with the affordability index there placed at a mere 4.7. Just slightly higher on the ladder is Nigeria with an index of 4.8.

But consumers in emerging markets may not be deprived from broadband services for long. Forecasts indicate that economic growth in emerging markets will outpace that in developed economies over the medium term, possibly boosting overall GDP per capita and strengthening currencies.

Also, as competition in the broadband market intensifies, prices are seen to decline, making packages more affordable to more consumers. Players are also expected to employ more innovative pricing schemes to trump the competition. Sachet pricing ?or schemes that make use of low usage caps, shorter period contracts, and prepaid packages ?will increase broadband affordability, as evidenced by what is already happening in the HSPA space.

Several external factors are also expected to drive costs down, in effect reducing prices of broadband offerings in emerging markets. These include economies of scale, cost of equipment, and incremental cost per customer.

All factors considered, Ovum expects HSPA to register the steepest price reduction in emerging economies, fueled partly by the current high per-100MB prices and the relatively healthy scope for further price reductions in the future. Higher competition among mobile operators will also cause them to try to drive ARPU growth through mobile broadband services, resulting in further price drops in HSPA packages.

Wimax, on the other hand, is seen having the flattest price curve over the long term, due largely to already low prices today and Wimax players?limited scope for further price reductions because of lower economies of scale and cost per user.