|Project Rationale and Linkage to Country/Regional Strategy
Geography and economy. Solomon Islands is one of the largest countries in Melanesia, with a land area of about 28,000 km2.The country comprises six large islands, dozens of smaller islands, and hundreds of islets and atolls. About 85% of the population of 528,000 lives in rural areas and is spread across the islands, living in widely dispersed villages of a few hundred persons. The economy is based on primary commodities from agriculture, forestry, and fishing; alternative income-generating opportunities are scarce, especially in rural areas.
Disparity and isolation. Solomon Islands has the second lowest average income in the region, with an estimated gross domestic product (GDP) per capita of $1,347 in 2010 (current prices). Income distribution is uneven, with rural expenditure levels significantly below expenditure levels in urban areas. Social indicators, although improving, are among the worst in the region. Electricity, water, transport, and telecommunications services are not available to a large percentage of the population. Lack of access to markets and services , combined with high transport and communications costs, leaves large parts of the geographically isolated parts of the country economically isolated from national and regional markets. This also limits provision of access to basic services. Investments in submarine cables for the smaller islands of the Pacific have meanwhile been limited, primarily due to (i) the requirement for large upfront capital investments; (ii) a long period of return on investments; and (iii) the inability of the small private sector to mobilize the large investment that is required.
Expected benefits from broadband connectivity. Such constraints to economic and social development can be mitigated by improved access to and more affordable telecommunications, particularly high-speed (broadband) internet, that offers new economic opportunities domestically , as well as connections to larger markets, and new avenues for the delivery of key social services. In addition to the expected positive socio-economic impact in Solomon Islands, improved broadband connectivity is also expected to increase the frequency and quality of communications among the countries in the region, facilitating a growth in trade related services such as tourism and back-office functions. A recent World Bank study indicates that a 10% increase in broadband penetration results in a 1.38% increase in GDP growth in low and middle income countries. Such impact results from (i) reduced transaction costs for business, government, and household communications; (ii) new business opportunities such as investments in e-commerce and business process outsourcing facilities; and (iii) improved public service delivery, in particular through (i) the introduction of e-education and e-health services; (ii) the remote delivery of agricultural extension, policing, judicial, employment, disaster management and other public services; and (iii) mobile banking.
Users of existing mobile services (voice and data) will enjoy an increase in their consumer surplus as a result of reduced prices. They may take this increase in the form of cash or (more likely) in the form of increased usage. Wholesale bandwidth prices are expected to halve, more or less, leading to a conservatively-estimated retail price reduction of 20%.
The telecommunications market. Solomon Islands introduced a second mobile operator in 2010, and competition has already resulted in a 29% reduction in mobile telephony prices and an improvement in the quality of services. Access to affordable good quality broadband internet based services, however, has so far remained out of reach (see Table 1). The limited capacity and high cost of international bandwidth is caused by a total dependence on satellite connectivity, which is also the principal constraint to higher broadband penetration, the introduction of new telecommunications services, and new market entrants.
The current wholesale price for two-way satellite capacity is roughly $3,600 per megabit per second (Mbps) per month. With normal growth, bandwidth demand in the Solomon Islands is projected to increase to 1.243 gigabits per second (Gbps) by 2032. With the current satellite capacity and price, it would be impossible to meet the growing demand. The SCS will provide substantially higher initial capacity of 10 Gbps and is expected to reduce international connectivity costs by more than 60%. Currently, the cheapest broadband internet subscription costs roughly $60 per month, which is about 28% of monthly income, approximated with GDP per capita in 2010.
Government policy and strategy. Following the endorsement of the Government's Debt Management Strategy in June 2012, the Solomon Islands is resuming the first borrowing since 2005. The Government considers the submarine fiber optic communication cable system (SCS) a national asset and an immediate investment priority, thus recognizing the potentially significant contribution that improved broadband connectivity can make in addressing the constraints imposed by geographical and economic isolation, and steering the country on an inclusive growth path. The proposed SCS will build an independent cable from Sydney to Guadalcanal (landing in Honiara) and two domestic spurs linking Guadalcanal with Malaita (landing in Auki) and the Western Province (landing in Noro). Jointly, these provinces are home to roughly 72% of the country's population.
ADB, development partner, and private sector support. Supporting inclusive growth and investment in the information and communication technology (ICT) are important elements of ADB's Pacific Approach (which provides broad operational focus) and the COBP 2012-2014 for Solomon Islands. ADB's sovereign financing has leveraged roughly $40 million of commercial financing for the Solomons Oceanic Cable Company, thereby containing the public debt liabilities to a minimum. ADB's investment support is complemented the World Bank technical assistance (TA) to support the Telecommunications Commission of the Solomon Islands (TCSI), which holds regulatory responsibility for the telecommunications sector. Finally, ADB plans to support the development of broadband applications in the delivery of critical public service, such as health and education.