Many broadband users may find the wind has gone out of their sails, especially if they live in rural areas. What are the solutions?
Broadband has grown enormously over the past three years. The OECD’s latest monitoring report found that the number of broadband subscribers in OECD countries increased from 83 million at the end of 2003 to 221 million as of June 2007, a 187% increase, with some countries reaching 100% coverage. Prices also fell. Between 2005 and 2006 the price of a typical DSL connection fell by 19% and cable connections by 16%. The “last mile”, which in telecoms jargon means the direct connection between a home and a telephone exchange point, looks as if it will finally be covered, even if it is an uphill climb.The main beneficiaries of broadband live in towns and cities, and in rural areas of small developed countries with high population densities. Korea, Japan and the Netherlands rank high on the list of broadband users. In densely populated areas, one exchange point serves a large number of subscribers.There is brisk take up, however, once broadband is available in rural areas. In fact, new research from the UK regulator and competition authority, Ofcom, finds that households in rural areas (not just among commuters but in remote Scottish islands too) are by now as well connected to broadband as their urban counterparts. Still, rural communities tend to rely on sluggish dial-up connections. Dial-up does not evolve quickly, whereas broadband does. By 2004, DSL connections were 36 times faster than dial-up; two years later they were 146 times faster. New technologies are accelerating broadband speeds, but not those of dial-up, condemning many rural and village households in most OECD countries to a “digital” backwater, if not exclusion.Wireless connections are the obvious alternative. WiMAX (for “World Interoperability for Microwave Access”) was once touted as the new technology to bring rural subscribers into the fold. But network operators looked the other way. Instead of deploying the older WiMAX standard designed for fixed lines and capable of travelling long distances, operators chose the newer standard for mobiles. The trouble is, these are more common in dense, urban environments, and at best, in rural areas near large cities.Lack of infrastructure is often blamed, although large and sparsely populated OECD countries such as Australia, Canada and the US have managed to disseminate broadband to remote areas, partly because poles and wires were already in place, having been installed decades ago with the arrival of the telephone. In places where no infrastructure exists, as in much of the developing world, any move to broadband promises to be difficult (see “The next several billion”).Infrastructure alone will not resolve all problems. Too often, broadband subscribers find themselves adrift, wondering why a connection takes so long. The trouble is, the definition “broadband” is itself broad, particularly when it comes to wireless systems. The force of the signal depends on the user’s proximity to an exchange point. Regulators in the UK found that users living within 4 kilometres of an exchange point could download the 8 Mbit/s advertised by the provider, whereas for those living 8 kilometres from the exchange point, the signal trickled in between 2 and 0.5 Mbit/s. In addition, only 20% of subscribers lived close enough to benefit from the advertised speed.The OECD has recommended that providers make this discrepancy known, but providers argue that the information will only confuse customers. Slower speeds also result from providers “overbooking” bandwidth, on the assumption that most people are offline at any given time. Add to that the robust appetites of certain applications, such as video streaming, which consume a lot of bandwidth, and providers may soon have to limit the monthly amount of bandwidth a subscriber may use anyway.The OECD’s monitoring report noted that broadband penetration was deepest in countries that encouraged competition using regulation but also had more than one physical wire (cable, phone) going into each home. Customers benefit most when they can choose among a large number of broadband providers and particularly if each of the providers has its own physical wire into the home. But investors shy away from building different networks for each company the same way they avoid building different airports for each airline serving a city. Therefore, most competition is the result of regulations requiring telephone companies to share the one physical copper phone line going into the home for a small monthly fee. This is a second-best solution, but such enabling regulations are the source of most competition for broadband.There are ways to promote additional physical lines to homes and increase consumer choice. One answer is to take advantage of passive infrastructures, such as conduits, poles and ducts, including those belonging to electrical grids. Wireless and satellite broadband are alternatives, but may be unrealistic for remote areas with only one provider.These difficulties can be surmounted. What is essential is that governments, businesses and individuals recognise the potential of broadband for applications beyond high definition television, music and video downloads, and other entertainment. Broadband promises more teleworking– nearly a fifth of US workers telework one day a month–which could cut transportation and pollution costs, as well as inject economic life into remoter regions. Broadband can improve public services and e-government, while in education, the evidence shows that households with broadband use more online learning tools. In the EU there is a clear relationship between the proportion of teachers using IT in teaching and the percentage of schools with broadband connections.Healthcare improvement is another area broadband can deliver more widely. One US study estimates that over the next 25 years, broadband-based health applications could result in savings of at least $927 billion in healthcare costs for seniors and the disabled, while US and European studies both point to major savings in health spending from remote monitoring of, say, heart patients or for sharing x-ray results.
Another sector which broadband would clearly benefit is e-commerce, which has grown sharply in recent years, yet remains well below potential. In the US broadband users are 20% more likely to purchase online than narrowband users. Countries as diverse as Korea and the UK or Australia have all reported sharp rises in sales; Canadian e-commerce sales saw the fifth consecutive year of double-digit growth in 2006. Yet, e-commerce still represents a small share of total retail sales, and around 70-95% of all e-commerce transactions are between businesses (B-to-B). Again, rural communities that are far from shops could find a new lease of life in e-commerce.Broadband access has reinforced existing activities such as email, information searching or shopping online, while also bringing about new innovations, like video streaming and podcasts. Traditional pastimes, such as listening to the radio or watching television, are done increasingly online. In France, many services once available on the telephone-based Minitel system, such as booking a train ticket, have migrated wholly to the web. And though rural expansion could be far greater, broadband has nonetheless helped many remote communities build better communications.Though broadband has spread much faster to households than the telephone or the computer, only nine OECD countries have 50% or more of households using broadband and some OECD countries are still facing very low household uptake of broadband. Clearly, the potential for further growth is enormous.Policymakers have to help ensure competition in broadband markets while maintaining incentives for private investment. Other issues to deal with include digital piracy, interoperability, open content and rights, distribution deals, licensing standards, and so on.There are costs too. Infrastructure is one, but so is usage. For instance, listening to the radio via a digital source uses more energy than via traditional radio, with implications for the environment and energy supply. “Always-on” high-bandwidth networks have started to come in for criticism too for their energy usage. On the other hand, well-integrated broadband could save on transport and cut back on energy usage that way.The overall cost-benefit balance is tipped in broadband’s favour. It will continue to grow in towns and cities, not least because prices are competitively low, at 1-3% of average monthly GDP per capita in the OECD area. Extending the benefits means governments must do more to assess their country’s wider needs, since by spreading broadband to rural towns and villages, and promoting its advantages more actively, policymakers could lift the economic potential of communities right across the economy. LT
©OECD Observer No 268 June 2008