The next several billion

OECD Directorate for Science, Technology and Industry

©David Rooney

Only a fifth of the world’s population currently has access to the Internet. That figure should be increased.

President Franklin Delano Roosevelt was once asked which book he would like to place in the hands of every citizen of the Soviet Union. He replied: “Sears, Roebuck Catalog”!

The quip reflected an understanding that people’s desire to improve their everyday lives is a powerful agent for economic and social change. And, that those aspirations are shaped and enabled by the information and communication possibilities at their disposal.

Thanks to the Internet, an ever-increasing part of our economies and societies is at our fingertips. Today, more than a billion users access an online market place as well as a wealth of news and information online in ways hardly possible to imagine just a few years ago. They have joined the Internet economy and been empowered by the opportunities this presents for commercial choice, social interaction and civic engagement.

Yet only a fifth of the world’s population currently has access to the Internet. The OECD ministerial on the Future of the Internet Economy (17-18 June, Seoul, Korea) will grapple with the question of how to connect the next several billion users with the aim of increasing their economic and social development. First, who are the new users? The characteristics of these “new” Internet users will be vastly different from the first billion users. The majority will be from developing countries and will connect to the Internet principally via wireless networks rather than computers. In some developing countries the number of mobile subscribers now outnumbers those for fixed networks by more than 20 to 1.

Many of the new users will have incomes of less than $2 per day. That has not proven an insurmountable barrier for telephony when the cost of using a mobile phone can be less than $2 per month. As cheaper “Internet-capable” handsets become the norm and competition lowers access prices the same can be expected for Internet services. In India unlimited wireless access to the Internet can already be had for less than $6 per month.

This is still expensive for many individuals but, as with telephony, the spread of shared use and resale of call time to people without phones can make access more affordable. Sharing has driven mobile phone use in India to two to three times the average seen in most OECD countries. In Nigeria, small entrepreneurs known as umbrella people have flourished by buying prepaid airtime at a discount and reselling that airtime on a micro-scale at slightly higher rates. As with Internet cafés, customers can afford the sessions, though not the equipment, and access rises as the market adapts to user needs.

When those users are empowered by skills and education, the Internet can be a powerful force for economic and social development. Information applicable to users’ needs, of course, is fundamental to this process, whether it be local market prices or school results.

The information also needs to be accessible over the devices they use, including those with small screens. Content and service providers, such as the BBC or Yahoo, are devoting greater resources to tailoring their products to the dimensions of mobile phones. New information management tools, such as browsers specifically designed for handheld devices, with graphical instead of text interfaces and voice commands are all increasingly available. As these technologies develop, they enable local developers to create relevant content and services for less literate populations.

What are the benefits of IT for these new users? It is tempting to answer this standard question with a standard list of benefits such as employment, education and health. But did you know it could lead to the emergence of a new filmmaking boom in Nigeria? Indeed, thanks to the advent of inexpensive digital cameras and computer editing, the country has developed what by some measures has become the third largest film industry in the world after the US and India.

Nor is there a lack of service development and innovation, aimed at more mundane markets. In its own right the communications industry has created hundreds of thousands of micro-entrepreneurs reselling services, many of which simply help individuals live their lives in very challenging circumstances. A well known example is that of the “telephone ladies” of Bangladesh who provide telephony services to rural villages, a model that is now being replicated in other countries and further developed to include Internet access.

Farmers use mobile phones to track commodity prices they previously knew little about, helping them to bypass intermediaries and corruption. And more people without bank accounts are using mobile phones for banking services from being a store of funds to purchasing goods and services. Greater communications access has also led to cheaper and secure services to help foreign workers send money back to their families.

The point is, yes, education and employment benefit, but on top of that, local services and innovation will also meet local requirements in new ways, as long as the tools and enabling environments are in place.

What should governments do? For much of the last century telecommunications services were principally in the domain of state-owned monopolies. These operators had to compete for capital against other priorities for public expenditure, such as health and education. To the extent that they produced a surplus it was frequently not reinvested in the sector, or if it was, it was often done so inefficiently. Accordingly, growth of network access frequently struggled to break out of a perpetual cycle of under-development.

Moreover, developing communications access was sometimes viewed as a luxury which could be afforded once other more pressing economic and social needs were satisfied. There was no understanding that people with low incomes may have demand for access and very little thought given to how this could be accomplished.

The idea that opening the sector to competition and private capital would stimulate access growth and broader economic and social development began to be seriously explored in the 1980s, and gained traction in the 1990s as new digital technologies also came on stream. Whether liberalisation unleashed innovation or whether technology forced change can be debated, but in practice, liberalisation and technological advancement go hand in hand. Both have played a key part in the expansion of communications networks and in making these services increasingly affordable and applicable to people with very low incomes. Perhaps the innovation which has made the most difference to developing countries has been pre-paid cards for mobile phones. This was an innovation that came from competitive markets, first in OECD countries, but increasingly adopted in developing countries.

It is not that services could not be developed in monopoly markets–they can be and were–but they may be held back or have been unresponsive to customer demand. ISDN (Integrated Services Digital Network) is an example of a technology which emerged in a monopoly environment, but which acted to slow the deployment of broadband access. While there was plenty of supply push, there was little customer demand in most countries because of high prices and few applications. After investing a great deal in the technology, incumbent operators were then reluctant to roll out broadband access quickly so as not to cannibalise other parts of their business revenue–even though there was, by then, patent demand for high speed access to the Internet.

Likewise, as communications access spreads in developing countries, business rather than governments have been leading the way by offering lower prices and wider choices, with liberalisation as an enabling factor.

Jamaica presents a striking example. Telephone penetration in Jamaica, which has a much lower GDP per capita than any OECD country, went from less than 5% to just under 100% in the five years following market liberalisation. This led one wireless entrepreneur providing services in that country and currently investing in Haiti’s communications market to state in The Economist: “You don’t look at GDP. You ignore that.

A recent OECD report examines the experience of countries in Africa and South Asia which are undergoing sharp increases in communications access. What these countries grasp is that they can harness competitive forces to build out core networks to serve the commercial market, which is much larger than previously thought. The existence of these “commercial networks” in turn enables targeted policies–a village telephone, Internet kiosk or telecentre, etc.–to become economically feasible when these are not supplied by the market.

Notwithstanding the growing success of open markets, more than 70 countries still have monopolies over the provision of international gateway services. These are in the developing world. Such monopolies raise the prices for accessing international capacity far beyond costs and increase prices beyond the affordability of Internet access to users. Inherited monopolies or monopoly power are still firmly a barrier to bringing down the costs of Internet access for much of the world, and addressing this is key to spreading the web’s net even wider.

Liberalisation is one variable which communications policymakers could leverage, but there are others. Take Internet Exchange Points (IXPs). These enable service providers to exchange traffic domestically that would otherwise have to traverse expensive international links through other continents. Encouraging the creation of local IXPs, that are open to all communications providers, would enhance competitive opportunities and improve Internet services. By April 2007, however, some 92 countries did not have an IXP.

The barriers to establishing IXPs are not financial. It is estimated that expenditure of less than $40,000 in total would fund the establishment of an IXP in each of those 92 countries where they do not exist. That’s a total of under $4 million. Moreover, an efficiently managed IXP can rapidly generate savings that pay for its establishment and maintenance, as well as improving Internet performance in the country concerned. Getting this message across to stakeholders is, alas, not easy.

Policymakers eager to boost the communications market and support broader economic and social development, must also ensure other policies do not drive up costs, such as high tariffs on ICT equipment or taxes on related services that are over and above those applicable to the rest of the economy. In other words, policy coherence can help bring down costs as countries reform their communications markets.

A few years ago everyone was talking about digital divides. These still exist, but there are plenty of grounds for optimism as policies change, technology advances and users derive tangible new benefits. The next billion Internet users will come relatively quickly and are already on the way. Adding the next billion or two after that will be more challenging, but the potential rewards are great. Government policy is key to creating an enabling environment but, unlike much of the previous century, all stakeholders have a vital role to play in expanding communications access and the opportunities that this creates.

References

  • The Economist, “The Irish are coming”, 29 September 2007, p68.
  • Paltridge, Sam (2008), “Global Opportunities for Internet Access Developments”, OECD, February

©OECD Observer No 268 June 2008




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