role of govt for broadband

8/9/2019 Role of Govt for Broadband

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What role should governments play in broadband development?

Tim Kelly, Victor Mulas, Siddhartha Raja, Christine Zhen-Wei Qiang and Mark Williams,

World Bank1

Paper prepared for infoDev/OECD workshop on Policy Coherence in ICT for Development,Paris, 10-11 September 2009

Why broadband?

Broadband is a key driver of economic growth and the

competitiveness of nations2

. Recent World Bankresearch, presented in theInformation andCommunication for Development 2009 report,suggests that the contribution of broadband toeconomic growth is indeed substantial, and may bemore profound than comparable narrowband or voice-based ICTs, providing a boost of 1.38 percentagepoints on GDP growth in developing countries for

every ten percentage points increase in broadbandpenetration (see Figure 1)3. Broadband is a GeneralPurpose Technology (GPT)4 which is having a majorimpact on the way in which we live and work.Companies are using broadband to improveproductivity through remote monitoring, logisticsmanagement and online procurement. They are alsousing broadband to provide services such as media

content, online shopping and electronic bankingservices.

Broadband is also increasingly the primary

Figure 1: Impact of a ten per cent increase in

0.77

1.121.21

1.38

0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

High-income economies Low- and middle-income

economies

Narrowband internet

Broadband


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g y p yi f l d ICT GDP i

improve government accountability7 and improves quality of service provision8. By reducing the costof accessing information about what governments are doing, broadband is becoming a key facilitator ofgood governance. Finally, broadband networks are increasingly being used to deliver public services:

financial services, health-care, electronic voting, electronic land-registration are all examples ofservices that were previously delivered manually but are now being automated and delivered overbroadband networks, often substituting online interaction for travel or the physical displacement ofgoods.

Despite the rapid growth in broadband networks that has already taken place, broadband is still in theearly stages of deployment. The future will see wider deployment, increased capacity and a shifttowards a wireless platform which will enable mobility. Broadband in developing countries is likely tofollow a similar path but with a greater emphasis on wireless networks. In this context and given thesignificant economic and social benefits, expanding affordable access to broadband is becoming a highpriority for governments of developed and developing countries alike. How is this best achieved? Thisnote discusses the principles that should underlie government efforts to increase broadband access.

Broadband as an ecosystem

Broadband is typically defined as a high-speed communications network that

connects end users at data transfer speedsthat are greater than some minimum (e.g.256 kbit/s). While this is a populardefinition, it is incomplete. Connectivity isthe critical component, but broadband ismore than just a network.

Rather, broadband can be considered as an

ecosystem that comprises differentelements that use high-speed connectivity tointeract in different ways (see Figure 2). Bycontrast with relatively passive dial-up


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because this reflected typical user applications, such as email or web-browsing. But users of todaystwo-way multimedia services will demand high-speeds in both direction. Worries about a deluge ofbandwidth-hungry services overwhelming the Internet abound, but these dire predictions have only

come true in isolated incidents and the global Internet seems remarkably robust in terms of scaling to alarger number of users, more demanding applications and higher speeds.

Hence, the network is part of an ecosystem that is evolving and includes users and applications that aremore demanding. Simultaneously, users creating and sharing more content and applications that requiremore bandwidth should drive the supply of broadband. This virtuous cycle forms the basis of what werefer to as the broadband ecosystem. In this note, we define the broadbandecosystem as a multi-layered system of interconnected high-capacity communications networks, bandwidth-intensive

services and applications, and users.

The role of government

Definingbroadband as an ecosystem rather thansimply as a network helps in positioning the likelyrole(s) that governments will need to play in usingbroadband as a tool in ICT for development(ICT4D). Traditionally, governments have played a

push role in ensuring the right environment for theprovision of ICT infrastructure and the developmentof the domestic ICT sector. This might becharacterized as Policy 1.0 (see Figure 3).Increasingly, governments will need to movetowards pull strategies aimed at promoting digitalliteracy, establishing an enabling environment,including an appropriate legal framework, andfostering the development of applications, includinglocal content. This might be characterized as Policy2.0 and corresponds with popular concepts such asW b 2 0 M bil 2 0

Figure 3: Evolution of government approaches

to ICT for developmentSource: Adapted from Pea-Lpez, Ismael (2009)

Measuring digital development for policy-making:Models, stages, characteristics and causes, unpublished

PhD thesis, UOC, Barcelona

Strategies ICT4D Approach

Push

Infrastructure

1.0ICT Sector

(Digital) Literacy

Pull 2.0Enabling Environment

Applications

(content and services)
http://www.broadband.gov/ws_int_lessons.htmlhttp://www.broadband.gov/ws_int_lessons.html


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What should be the role of government in theprovision of broadband? The Annex to this noteprovides a summary of the economic

characteristics of ICT markets and the basis forpolicy interventions in the sector. The basicprinciple is that they should only intervenebased on sound economic principles and wherethe benefits of such intervention outweigh thecosts. There are essentially two different rolesfor the public sectormaking markets workmore efficiently and ensuring equitable access

for all.

Making markets work more efficiently

Already by 2008, broadband service wasavailable in 182 economies (see Figure 4) and,by the start of 2009, the combined total ofglobal broadband users on fixed and mobilenetworks exceeded one billion. Since the vast

majority of these broadband connections havebeen supplied by privately-operated companies,it might be thought that the market is workingquite effectively and that there are no marketfailures in the broadband market.

However, there are market failures in broadband, as in many other markets for the provision of publicinfrastructure. The structure of the broadband market itself has sometimes created problems for the

development of the service. The most common form of market failure is the persistence of monopoly-type structures in the provision of broadband infrastructure, even when no legal monopoly exists. Inmany countries, the dominance of incumbent public telecommunications operators arising from theirhistorical monopoly position has been one of the key obstacles to the development of effective

Figure 4: Number of economies with

commercially-available broadband, 2002-2008Source: ITU.Note: Broadband is defined as speeds equal toor in excess of 256 kbit/s

81

113

133

145

166174

182

2002 2003 2004 2005 2006 2007 2008


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In France, for instance, a ladder of

investment approach can be seen in

the evolution of the broadband

market. This term was coined byMartin Cave12 and adopted by theEuropean Regulatory Group

13. At

the lowest level is resale of theincumbents capacity, whichrequires interconnection at only onepoint in a network. Later, bitstreamaccess was offered at a regional

level, whereby the entrant wouldinterconnect at multiple regionalpoints and construct a backbonenetwork between them. As fullunbundling of the local loop wasmandated, full-service operators,such as Iliad (free.fr), have furthergenerated growth in direct

competition to the incumbent,France Tlcom (See Figure 5),while building their own networks.

Some countries, such as theRepublic of Korea, have gonefurther than this market regulationapproach by providing positive

financial incentives for operators toinvest and compete. In the earlydays of broadband development, thisallowed Korea to defy the S-curve

Figure 5: Evolution of broadband subscribers in France,illustrating the ladder of investment

Source: Mulas, Victor (forthcoming) Potential for broadband diffusion inLatin America, based on EU data. Note, this is not a uniform data series.

20

25

30

35

40


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government also provided funds to foster demand through multiple policies, such as ICT training andpromotion of local applications.

Although other economies, such as Denmark and the Netherlands, have subsequently overtaken Korea

in broadband penetration as measured by per-inhabitant penetration, Korea still leads in terms ofhousehold penetration, with 94 per cent coverage by the end of 1998. The initial lead it was able toestablish has helped Korea to realize economic and social benefits. For instance, since the late 1990s,Korea has seen the percentage of its national GDP coming from the ICT services sector double. Koreahas also emerged as one of the leading economies in terms of improved educational attainment in theOECDs PISA (Programme for International Student Assessment) survey14.

The Korea case can be characterized as a public/private partnership in which the government has

provided administrative guidance to the private sector and has worked via public/private institutionsto foster national targets and goals. In other countries, it is the regulator that has set the tone byestablishing an environment conducive to intensive competition. In the United Kingdom, the structuralseparation of the incumbent, BT, appears to have had an immediate beneficial effect on broadbanduptake (Figure 7). Interestingly, itwas BT itself that offered thissolution in 2005, following Ofcoms

review of the market, perhaps as a

way of heading off a more radicalrestructuring. The main obligationsagreed between BT and Ofcom werethat a new and operationallyseparated division (Openreach)would be created, staffed with BTsemployees, responsible for networkoperations, which would run at

arms-length from BT management.Openreach would then provideservices to all players on the basis of i l f i t d

0

2

4

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2003 2004 2005 2006 2007 2008

Millions


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Following market liberalization, this approach has been replaced by explicit subsidy mechanisms suchas Universal Service Funds.

As an example, Canada is a country that achieved early prominence in broadband (it had the worlds

highest penetration levels between 1998 and 2000), despite having a very low population density. Theproblem of providing service in remote and rural Canada was studied by the IndependentTelecommunications Review Panel, which reported in 2006. In an annex to their report, they arguedthat the government should set a goal of providing affordable and reliable broadband services in allregions of the country by 2010. The panel mapped the availability of broadband and estimated that justunder 90 per cent of Canadians would have access by 2007, leaving around 3 million people withoutaccess, of which for 300000 or so living in the most remote communities, satellite would be the mostpractical solution. Areas that were uneconomic to serve were found to be those with fewer than 1200

people living within a radius of more than 5km from a broadband point of presence, and that this wasfurther affected by terrain. WiMAX might help reduce the number that could not be servedeconomically by 1.2 million, but for the remaining 1.5 million (plus the 300000 to be served only by

satellite); some form of targeted cross-subsidy would be necessary to achieve the goal of universalbroadband service by 2010.

One of the most high profile initiatives is a scheme to provide broadband to Canadians in the far North,in Nunavut and Northern Territories. The Nunavut Broadband Development Corporation

15has been

established as a not-for-profit, federally registered corporation with a multi-stakeholder membership,with the aim of bringing broadband to 25 unserved communities. Under a five-year plan signed inJanuary 2009 (as part of the economic stimulus programme), matching funds from InfrastructureCanada and local customers will raise some C$43.2 million to bring broadband by satellite to theregion.

Providing broadband in rural areas poses significant economic and technical challenges. Costs in areasof low population density are higher and, unlike other ICTs, the provision of broadband (for instance,

using digital subscriber line (DSL) technologies) has technical constraints by which available speedsdiminish with increasing distance from a central location. The rapid growth of the broadband markethas therefore focused primarily on urban centers leaving the majority of people in rural areas unable toaccess network services. As public and private services are increasingly provided online, the inability


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Most recently, broadband investmenthas featured in fiscal stimulus plansaround the world. Australia has

committed around US$33 bn whilethe US administration has set asideUS$7.2 bn for rural broadband

20(See

Figure 8). Broadband is seen asproviding a quick win in thesestimulus plans because, on the supplyside, it stimulates investment andemployment while, on the demand

side, it creates opportunities forentrepreneurship and spillover effectsthat benefit the general economy.

The role of donors, including the

World Bank

The World Bank can supportgovernments in developing their

broadband services. By information-sharing, benchmarking, technicalassistance and support in regulation, the World Bank can help governments to improve the functioningof markets, stimulate investment and learn from the experiences of other countries.

The World Bank can also provide financing for strategic investments to support the development ofkey parts of the infrastructure. International submarine cables, cross-border connectivity and high-capacity domestic backbone networks are all examples of areas in which World Bank investments can

play a catalytic role, crowding-in private sector investment and improving service delivery. The EASSycable along the East coast of Africa and the RCIP program throughout Eastern and Southern Africa areall examples of where the World Bank is supporting the development of these key infrastructurebottlenecks through Public-Private-Partnerships.

Figure 8: Government planned spending on broadband as a

component of economic stimulus packagesSource: World Bank, based on data from ITU, Booz and Co and OECD.

0 50 100 150 200 250 300 350

Australia

Greece

New Zealand

Singapore

Portugal

Finland

Ireland

USA

Korea

Canada

Japan

Germany 0.2

0.3

0.2

0.9

7.2

0.1

0.3

1.2

0.7

1.0

3.0

33.4

Total planned

Gov'tinvestment

(US$bn)Investment

per capita

(US$m)

1'590
http://siteresources.worldbank.org/EXTINFORMATIONANDCOMMUNICATIONANDTECHNOLOGIES/Resources/282822-1208273252769/Broadband_Investment_in_Stimulus_Packages.pdfhttp://siteresources.worldbank.org/EXTINFORMATIONANDCOMMUNICATIONANDTECHNOLOGIES/Resources/282822-1208273252769/Broadband_Investment_in_Stimulus_Packages.pdf


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Annex 1: Efficiency and Equity in the ICT Sector

Reasons Characteristics Examples in the ICT Sector Implications for sector policy

Efficiency

Externalities

Spillover effect: Marginalsocial/economy-wide benefitwill exceed marginalprivate/individual/single-sectorbenefit

Network effect: The overallvalue of a network increases asthe number of consumers goesup

ICT is a General Purpose Technology thatfacilitates great leaps of innovation, results in afundamental restructuring of the economy and hasa positive impact on productivity, trade/exportsand economic growth.

Investments in broadband infrastructure mayincrease the payoffs from investments in sectorssuch as education/health/agriculture etc.

Efficient and accountable e-governmentservices facilitate good governance and improves

business/investment climate. IT industry: IT is proven to have spillovereffects and contribute to the economy throughproductivity gains, innovation, etc. in IT-usingsectors of both manufacturing and services.

Telecom infrastructure (both voice and Internetservices) has network effects. The new world ofwikinomicsis stimulating an emerging paradigmof value co-creation.

Government has an interest inensuring that affordable ICTinfrastructure is widely available sothat its services can be deliveredover it.

Public investment (in partnershipwith the private sector) in e-government services. Policies aimed at plural medialeading to responsive andaccountable government.

Public support targeted for the ITindustry, where appropriate.

Support for awareness-raising ofICT use and for ICT skillsdevelopment in other sectors.

Public goods

Excludability: theimpossibility or very high costof excluding people who do notpay Non-rivalry in consumption(i.e. one person's consumptionof the good/service does notdiminish the ability of other's toconsume it )

Content (information/knowledge) has attributes ofpublic goods: The fixed cost of producing and

retaining ownership can be very high. But it iscommodious and ubiquitous with very lowmarginal distribution costs, making it difficult toexclude people.

Law, regulation and policies onIPR, public access to information,etc.

Support for the creation andconsolidation of content.


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Reasons Characteristics Examples in the ICT Sector Implications for sector policy

Imperfectcompetition

High up-front investmentcosts required for market entry

and sunk nature of these costsmay constrain the developmentof competition and increaseinvestment costs.Competitive markets alsodepend on the absence ofmonopolistic market structuresand behavior.

Anti-competitive behavior, e.g. telecommonopolies, discriminative interconnection

Large economies of scale and high start-upcosts of backbone networks, like all otherinfrastructure New technologies and convergence pose newchallenges to competition policies (regulation,policies)

Market liberalization andregulations to promote effective

competition. Infrastructure sharing and openaccess policies Reduce commercial riskassociated with high fixed costinvestment through risk guarantees,demand aggregation strategies. Initiatives to catalyze investmentin key telecom infrastructure(EASSy/RCIP).

Imperfectinformation

Competitive markets dependon consumers being able tomake informed choices, andsuppliers knowing the actualand potential demand.

There is imperfect information about advancedICT services and their returns.ICT can help markets work better, reduce theexploitation of middle-men, and extend marketeconomies to households living in subsistenceeconomies and small businesses to participate in(national and international) trade.

Support for awareness raising andICT training/education.Support for demand aggregation.Support for interventions toaddress information asymmetryusing ICT.

Equity

Incomeequity

Everyone should have accessto public services and incomeopportunities which allow themto fully participate in the life ofthe society.

Uneven access to ICT services in rural areasand of the disadvantaged will exacerbate existingincome inequalities, i.e. the digital divide. Lack of access to communications servicescreates barriers for family/social contact, excludes

people from ICT-based communities and limitsaccess to political participation. Lack of access to communications services canlimit access to public services or affect quality(e.g. e-government services, ICT-based health-care services, agricultural extension programs,voting).

Public support to provide servicesin (remote) areas where the marketwill not sustain effectivecompetition (e.g. throughincentives, regulatory interventions,

access to public infrastructure, freeservices, etc.)

Regulations to provide ICTaccess to the disabled (e.g. accessregulations for the fixed service forthe hearing-impaired).

Socialinclusion

Equal accessto publicservices

Note: EASSy = Eastern Africa Submarine Cable System. RCIP = Regional Communications Infrastructure Programme.

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