Ovum report sees HSPA services posting the steepest price drops in emerging markets, compared to DSL and Wimax
Broadband services are still a pipe dream for many consumers in emerging markets worldwide, as prices continue to be as much as two to three times higher than in their developed counterparts.
In a study titled "Broadband pricing in emerging markets: a comparison of DSL, Wimax and HSPA," Ovum notes that as GDP per capita is also lower in emerging markets, broadband services are unattainable by most consumers and are only affordable to users on the higher end of the income strata.
The muted competitive environment also does not help the consumers' case, as broadband service providers are able to "skim" the market, keeping prices higher than in more mature markets where competitive rivalry is fierce.
Given this scenario, the report says demand for broadband services in emerging markets will remain relatively slow, at least until prices decline.
While waiting for prices to significantly decline, consumers who want broadband services will do well to seek the technology that offers either the lowest entry-level price or the best value for money.
According to Ovum, consumers who are conscious of price alone may take the HSPA route, as this offers the lowest entry-level rate, averaging only $381 a year in the 15 countries included in the study. However, HSPA does not necessarily offer the best value for money as entry-level plans have far lower usage caps than their DSL and Wimax counterparts.
The study finds Wimax as the best value-for-money entry-level broadband technology, 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.
DSL, while the most expensive alternative of the three available options, is next to Wimax in terms of value for money. In Ovum's sample of 15 countries, entry-level DSL plans average around $542 a year, but with very high usage caps. Being provided mostly by old incumbents, however, DSL is hard pressed to bring prices down to lower than Wimax levels due to general lack of efficiency and ongoing adjustment to the new competitive environment.
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.
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's 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.
In relation to a country's GDP, the study finds that the broadband affordability index - computed by dividing an economy's GDP per capita by the annual cost of a service package - is only at an average of 34.1 for the 15 economies in the study.
Although carrying the highest price tag for entry-level services, HSPA has the highest affordability index among the three technologies at 51.4. Wimax registers a 20.6 on the affordability index scale while DSL lands at 30.4.
Moving forward, Ovum expects HSPA services to post the steepest reduction in rates in emerging markets, fueled in part by the current high prices per 100MB of usage and increased competition among mobile operators, which will then seek greater ARPU growth via mobile broadband services.
Since Wimax is now priced relatively low as compared with the other broadband technologies in the market, it is expected to have the flattest price curve over the coming years. Wimax players also have little room to move in terms of pricing as they have lower economies of scale.
DSL pricing in the future will move between HSPA and Wimax.
In the medium to long term, as technologies evolve and incomes increase in emerging market countries, Ovum says broadband rates are also expected to start declining. With economic growth in emerging markets seen outpacing that of their developed equivalents, the drop in broadband prices will spur both demand and competition, thus reducing prices further and more significantly.
Pricing innovation, like sachet pricing (low usage caps, shorter period contracts, and prepaid packages), in light of increased competition will likewise boost broadband affordability in the long term.
The 15 countries included in the Ovum study were India, Malaysia, Pakistan, and the Philippines in Asia; Poland and Russia in Eastern Europe; Bahrain, Jordan, Kenya, Nigeria, Saudi Arabia, and South Africa in Middle East and Africa; and Colombia, Mexico, and Venezuela in Central and South America. They were chosen by virtue of their having all three technologies - HSPA, Wimax and DSL - present in their broadband markets.
Lack of scale is costly
ITU statistics show huge disparities globally in the take-up and affordability of fixed broadband.
While some 30% of people in wealthy countries in Western Europe now have a broadband subscription, which costs around 1% or less of monthly income, in BRIC countries penetration is still below 10% and broadband access can cost 5% or more of average monthly income. In many of the world's poorest countries, fixed broadband penetration is below 1% and broadband access costs more than 100% of average monthly income.
The US had the highest affordability of fixed broadband, with citizens spending just 0.5% of monthly income on the service. In China, with 7.7% penetration, people have to spend 7.2% of their monthly income for broadband service. Affordability in Brazil, with just 7.5% penetration, was 4.6%; India 5.84% (just 0.7% broadband penetration); and South Korea 1.41% (34% penetration).
Based on findings by the UNESCO Broadband Commission for Digital Development, every 10% increase in broadband penetration leads to a 1.3% rise in GDP. With this in mind, it has called on national governments to help spur broadband growth by ensuring adequate spectrum availability, easy market entry, and reasonable broadband taxes for industry players, which will help bring broadband prices down in the long run.