Australian Financial Review Thursday, September 27, 2007

Dili Observed

Pioneer Fights Locals Over Digital Divide

by Angus Grigg

The Avenue de Portugal, with its rocky beach and occasional palm tree, is Dili's embassy row. All the big nations are represented, alongside slums, dive shops and bars selling VB.

It's home to the privileged, impoverished and also the country's only internet entrepreneur, Mike Pye.

The Manchester native, who came to Australia as a professional soccer player, then forged a 29-year career with Telstra, has all the makings of a successful entrepreneur.

But his whiteboard tells another story. Listed down the right side are 30 new broadband customers he can't connect, on the left are those who have already cancelled.

He's in trouble. The Portuguese-controlled Timor Telecom (TT), which has a monopoly on mobile and fixed lines, doesn't want him around. Like telecommunications monopolies the world over, TT wants to keep prices high and competitors out.

As a result, East Timor - the world's newest and poorest country - has the world's most expensive internet service. The prices are staggering. A basic package from TT will cost you $US1000 a month ($1153) - 33 times the country's per capita gross domestic product.

And that's just for the basics. One Australian company is known to pay $US4100 a month to connect a handful of terminals.

It's a bad situation that has not only kept business and the public sector offline, but ensured the "digital divide" remains huge across East Timor. If the market was working, Pye would be making rapid advances. His prices are 40 per cent cheaper, despite TT doubling line rental charges to $US280 a month.

But the market has failed. Since last April TT has refused to provide his company, i-Net, with any new lines to connect customers.

"They wanted me to become a reseller of their services, which would ensure prices remained high, but I refused," he says. "It was collusion." And the law came down on his side. The telecommunications regulator ruled in his favour and ordered TT to re-open its lines and allow Pye to connect new customers. But so far this has been ignored.

Pye's story demonstrates the difficulty of doing business in a country where institutions are weak and laws can't be enforced.

It shows why the World Bank recently judged East Timor the world's second-worst destination for foreign capital.

That rating was mainly a result of last's year's civil unrest, but the country's lack of a robust legal system and framework for resolving disputes surely contributed. Pye's case, which is well known around town, is a bad result for the country.

East Timor, with 40 per cent unemployment and virtually no industry, needs entrepreneurs such as Pye, who will bring down prices and get the population online.

Entrepreneurs like him also employ and train locals in a country where a lack of skills is a huge obstacle to development.

And one job goes a long way. Pye estimates the eight staff he employs probably support 50 others.

But politics and the country's historical links to Portugal seem to be standing in the way of strong intervention from the government. This is despite senior figures knowing about the problem.

The new Economic Minister, Joao Mendes Goncalves, does not even bother logging on at work. Instead, the man in charge of the country's purse strings, can only access the internet at home late in the evening.

"It's hardly ideal," he says gesturing to a computer that's not even plugged in.

And just to make matters worse, TT, which did not respond to interview requests, should not be operating as an internet service provider until next year, under terms set out in its original contract with the government. But once again there's no one to enforce this contract.

For now, Pye is staying around and further testing the legal system by suing TT for $US500,000 in lost income and other damages.

He's also taken the matter to the acting Communications Minister, but there's a problem here - his wife works for TT.

It's a small country.

The genesis of his and the country's problem is the deal TT struck with the then-government in 2003. To be fair, it had few other options.

In return for rolling out services in remote districts, which the government could not afford and other providers would not do, TT was given a monopoly over fixed lines and mobiles.

The deal also specified that all internet services must use TT's satellite. This and the lack of scale in Timor have kept prices high.

"I pay $US10,000 to rent 1.5 megs [megabytes] of satellite capacity from TT," Pye says.

"I could probably source 6 megs from another provider for about $US12,000 a month."

But that would be illegal. And while Pye has opted not to break the law, other businesses around town have and in doing so, secured their own satellite time privately and at far lower rates. Pye says TT's behaviour is mostly about protecting its fixed line business.

"They are trying to stop voice over internet protocol taking off here," he says. "Why would you deny a country like this a cheap phone call?"