When I first commented on the potential impact of rising fuel prices on the telecommunications market back in March, oil was a mere US$102 a barrel and while many I spoke to did admit power prices have risen, there was not too much concern as power, despite rising costs, is still only a small percentage of a telco’s overall opex.

Fast forward less than three months and the price of oil has reached US$135 a barrel, and threatens to impact major economies across Asia to the effect of billions of dollars. According to a recent report by AFP, governments in Indonesia, Malaysia and Taiwan have already decided to cut multi-billion dollar subsidies that previously insulated the population from international oil price fluctuations.

In the case of Indonesia, the decision not to keep adding subsidies to maintain current gasoline prices resulted in a hike of 33.3% overnight. The move will actually reduce government subsidies by 14 billion dollars, or 3% of the nation’s GDP, analysts cited by the report said.

All over Asia, governments throw billions of dollars to maintain affordable gasoline prices for its population, but with soaring oil prices, even the governments are finding it hard to keep paying. Many, including India, are considering ending price freezes on gasoline and letting the market absorbed, at least some of, the hikes in the price of oil internationally.

In Hong Kong alone, the price of gasoline has near double in the last six months, and drivers have taken to the streets in protest while logistics firms are shutting their doors.

Even in China, who has so far remained mute on the removal of fuel subsidies, is starting to show signs of buckling – if not due to lack of money, then perhaps generating capacity. While the government maintains that it will keep gas prices at current levels, perhaps to maintain a healthy economy in the wake of the Beijing Olympics, the official state power company is reportedly considering raising prices during the peak usage periods in the summer in an attempt to dissuade usage – some say to avoid overloading the infrastructure and the potential of a catastrophic meltdown.

Already, power shortages in China are rampant. One factory owner told me that power blackouts are now so prevalent that power is sometimes cut for three out of six working days during a week. To maintain power, he has had to purchase power from diesel generating facilities at up to three times the standard government set price for electricity to keep his factory running.

BEYOND FUEL:
So what does that mean to the telecoms industry? To a certain extent, all the factors that were mentioned in Part 1 of this story still applies. There will be some impact in terms of rising costs, and there will be mechanisms that cushion the blow, such as forward buying. At the same time, energy is not the biggest operational costs component in telcos, especially when compared with salaries, rent and equipment.

On the other hand, the impact of fuel hikes will go far beyond the price of electricity or gas. Already, social unrest, inflation, economic and political turmoil have been predicted as governments plan to remove their long established fuel subsidies or suffer under growing national deficits.

Even if telcos can absorb the fuel hikes within its own operations, how can it drive growth when their customers have to allot more money towards their gas and power bills? When the whole economic gets impacted, can one sector thrive?

The implication of high fuel prices does have a silver lining for telecoms operators. Initiatives such as teleworking, Internet banking, online government services, all rely heavily on a robust telecommunications infrastructure.

In one recent report, New Zealand rural broadband provider Farmside calculated that as petrol prices doubled in April, rural residents doubled enquiries on broadband subscriptions. The ISP estimates that by leveraging broadband for online services such as banking, shopping and education and government services, rural residents can save up to NZ$721 on gas by travelling just 20% less on an annual basis.