Broadband Strategies Toolkit Country Case Studies June 3, 2014 1 2 © 2011 The International Bank for Reconstruction and Development / The World Bank 1818 H Street NW Washington DC 20433 Telephone: 202-473-1000 Internet: www.worldbank.org E-mail: feedback@worldbank.org All rights reserved The findings, interpretations and conclusions expressed herein are entirely those of the author(s) and do not necessarily reflect the view of infoDev, the Donors of infoDev, the International Bank for Reconstruction and Development/The World Bank and its affiliated organizations, the Board of Executive Directors of the World Bank or the governments they represent. The World Bank cannot guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply on the part of the World Bank any judgment of the legal status of any territory or the endorsement or acceptance of such boundaries. 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Cover design by infoDev To cite this publication: Mike Jensen , 2011. Broadband in Brazil: A multipronged public sector approach to digital inclusion. Washington, D.C: infoDev / World Bank. Available at http://www.broadband-toolkit.org/. Table of Contents Executive Summary………………………………………………………………………………. 7 1. Demographic, Political and Economic Context………………………………………………. 9 2. Broadband Market Dynamics…………………………………………………………………. 11 2.1 National ICT sector management – policy and regulation…………………………………… 11 2.1.1 Broadband licensing…………………………………………………………………. 12 2.1.2 Radio spectrum………………………………………………………………………. 13 2.1.3 Internet governance………………………………………………………………… 13 2.2 The broadband ecosystem………………………………………………………………… 13 2.2.1 Backbone networks…………………………………………………………………… 13 2.2.2 Alternative/complementary infrastructure operators………………………………… 14 2.2.3 Interconnection……………………………………………………………………… 15 2.2.4 Broadband providers………………………………………………………………… 15 2.2.5 Access devices………………………………………………………………………… 18 2.2.6 Public access facilities………………………………………………………………… 18 2.2.7 Content and applications……………………………………………………………… 19 2.3 Patterns of broadband utilization…………………………………………………………… 19 3. The PNBL………………………………………………………………………………………. 21 3.1 Price and performance targets………………………………………………………………. 22 3.2 Coverage targets…………………………………………………………………………… 23 3.3 Backhaul/backbone network development………………………………………………… 23 3.4 Promoting increased broadband competition……………………………………………… 23 3.5 Use of satellite……………………………………………………………………………… 24 3.6 Extension of mobile services to remote areas……………………………………………… 24 3.7 Universal service…………………………………………………………………………… 24 3.8 Content and applications…………………………………………………………………… 25 3.9 Radio spectrum liberation…………………………………………………………………… 25 3.10 Subscription/cable TV broadcasting……………………………………………………… 25 3.11 Fiscal incentives and subsidies…………………………………………………………… 25 3.12 State and municipal efforts………………………………………………………………… 26 4. Lessons Learned………………………………………………………………………………. 28 5. Annexes…………………………………………………………………………………………. 31 5.1 A timeline of events related to the PNBL…………………………………………………. 31 5.2 Relevant links……………………………………………………………………………… 32 4 List of Figures Figure 2-1: CGI.br structure………………………………………………………………………… 12 Figure 2-2: Brazil’s submarine cable systems………………………………………………………… 13 Figure 2-3: OI/Tele Norte Leste backbone fibre network…………………………………………. 14 Figure 2-4: Petrobras and Electronet fibre networks………………………………………………… 15 Figure 2-5: Growth in average traffic exchanged on Brazil’s IXPs…………………………………. 16 Figure 2-6: Mobile coverage in Brazil………………………………………………………………. 17 List of Tables Table 1-1: General statistics………………………………………………………………………… 9 Table 2-1: Broadband users by type of technology, 1000s, February 2011…………………………. 17 Table 2-2: Fixed broadband subscribers by speed of access, 1000s, February 2011………………… 17 Table 2-3: Key features of the broadband market in Brazil…………………………………………. 20 5 Acknowledgments Mike Jensen drafted this report with significant contributions by Michael Minges, who directed the case studies for the Broadband Strategies Toolkit. The supervision of Tim Kelly (infoDev) and Carlo Rossotto (TWICT), for their direction on the overall project, is also acknowledged, as is Samhir Vasdev for editing and preparing the document for publication. The Handbook and its case studies are generously funded by the Korean Trust Fund (KTF) on Information and Communications for Development (IC4D). The KTF is a partnership between the government of the Republic of Korea and the World Bank Group whose purpose is to advance the ICT4D agenda to contribute to growth and reduce poverty in developing countries. The KTF, as well as Philippe Dongier, Sector Manager (TWICT) and Valerie D‘Costa, Program Manager (infoDev), are owed the author‘s gratitude for their support and guidance on this project. 6 Executive Summary Although classed as an emerging economy, Brazil areas, most particularly in the less wealthy north is among the top ten countries worldwide when and west part of the country. For example in the ranked by total number of broadband users. At Nordeste, fixed broadband penetration the end of 2010 Brazil was in 9th position, with languishes at 1.46%, while it is over 11% in the about 15m fixed broadband subscribers, as well Sao Paulo region to the south. as 20m mobile broadband (3G) subscribers. This is not particulalry surprising considering that The pattern of uneven access also repeats itself at Brazil is the world's fifth most populous nation, the local level. Most cities have wealthy areas but due to the high levels of wealth disparity and with high levels of domestic broadband access, the relatively large numbers of poor and rural while close by, in the informal townships inhabitants scattered across its vast terrain, (favelas), which house most of the country's broadband penetration in Brazil is lower than in poor, there is almost no fixed broadband and other countries of equivalent income levels residents mostly depend on cybercafes or (ranked by the World Bank as 57th in the world relatively slow and more expensive 3G by GDP/capita - US$10,710 in 2010). connections. Regionally, Brazil is slightly above the Latin In the last 10 years, the federal government has American average in terms of penetration, but had little success in disbursing its Universal behind Chile, Argentina, and Uruguay. Speed of Service Funds to address the digital divide using, access follows a similar pattern – Brazil is better although a variety of state and municipal level than the regional average, but below US or initiatives have improved the availability of public European levels. Likewise, Brazil has relatively access facilities to some extent. good international fibre connectivity, although it is not as well connected as some of its Limited fixed infrastructure: The private sector neighbours. Similarly, prices for has invested about USD80bn in telecommunication and broadband access are telecommunications over the last 12 years, but lower than other countries in the region yet still Brazil's vast size and low population density in relatively high compared to North America and the rural areas has resulted in limited national Europe, especially outside the major cities. pervasion of telecommunication infrastructure. Phones, computer and telecommunication This presents one of the biggest problems in equipment costs are also significantly higher, broadening access to the Internet. The relatively partly due to import duties on IT equipment, low level of fixed infrastructure, both in the long- further reducing affordability of access among haul and in the local loop for DSL-based the lower-income groups. broadband services is one of the key constraints, and the lack of middle-mile infrastructure Large variation in access levels: As reflected necessary to ensure the connection of the 5500+ by the wide variation in income levels, within the municipalities to the national backbones probably country, broadband access is very uneven. At one represents one of the biggest challenges to end of the spectrum there is a high density of ensuring equitable broadband access across the access in the industrialised urban areas, mostly in country. the south east of the country. In these areas, Brazil has recorded some of the world's highest Competition in the fixed-line sector is low and levels of Internet use, and in particular, Brazilians fixed line penetration has actually been falling have been early users of social networking due to mobile subscriber substitution. With the services such as Orkut, and now Facebook. At relatively high level of penetration and the other end of the spectrum, there are the vast competition between mobile networks, 3G hinterlands of unconnected rural and remote services are expanding rapidly to fill the demand 7 for broadband, especially among lower income The initial focus of the PNBL has been to households. As a result wireless access is likely to address the deficiencies in the existing be the main growth area for broadband in Brazil, telecommunication operator backbones by especially now that some of the constraints in bringing on the oil and electricity network access to radio spectrum have recently been operators to help fill in the gaps. Local access is addressed. now also being addressed through a variety of other measures, such as tax exemptions, reducing National broadband initiative launched: In an broadband license fees, accelerating efforts to effort to help to improve coverage and reduce make additional radio spectrum available and the cost of broadband access, the government other incentives to encourage the provision of has begun a major broadband infrastructure broadband in rural areas. In May this year development initiative which has set ambitious (2011), Telebras awarded three operators targets to triple broadband uptake by 2014. The contracts worth USD43mn to provide transit, largest ICT infrastructure project ever carried out wholesale and broadband services in some states. in Brazil, called the National Broadband Plan (PNBL1), it aims to ensure that broadband access The Internet sector in Brazil is also supported by is available to low-income households, especially a large number of industry, government and civil in areas that have so far been poorly served. society groups, both monitoring and promoting access to ICTs. As a result the level of up-to-date In May 2010, when the project was officially information on broadband utilisation is high, and announced, it was initially allocated up to R$1bn the debate over strategy is widespread. (US$600m) a year until 2014 to ensure broadband reaches the 4000 cities and towns without The resurrection of the old public monopoly broadband services, so that at least 40 million operator Telebras to compete with the private homes (or 68% of the population) have access to sector has not been without controversy, and the speeds equal to or greater than 1Mbps, for about extent to which the poorest of the poor get USD20 per month. access to broadband remains to be seen. But steadily rising economic prosperity for the less The new government, under President Dilma wealthy, along with the flurry of ICT investment Rousseff, has re-affirmed its commitment to the made to prepare for the FIFA World Cup in PNBL which was originally developed under the 2014 and the Olympics in 2016, suggests there previous President Lula da Silva's administration. are much improved prospects wider adoption of To implement the programme, the dormant broadband in Brazil. The strategies adopted and former state-owned monopoly operator, lessons learned from both public and private Telecomunicacoes Brasileiras (Telebras), has initiatives will be valuable for other developing been resurrected and given the task, working countries planning to promote better access to closely with the national regulator, Anatel, and broadband, and are likely to have special the Ministry of Communications which has also relevance for other large emerging economies, in set up a special secretariat to co-ordinate the particular the BRICS countries - Russia, India, PNBL in concert with the government's other China and South Africa. digital inclusion programmes. 1PlanoNacional de Banda Larga http://www.mc.gov.br/plano- nacional-para-banda-larga 8 1. Demographic, Political and Economic Context Brazil is the fifth most populated and fifth largest and culture. Emerging from decades of military country in the world, with over 190 million rule in 1985, Brazil has since been governed as a people and an area of about 8.5 million sq km. democratic republic. The president is elected to a Urbanisation levels are relatively high compared four-year term and each state has a governor and to many other emerging economies, and a large each municipality has a mayor, both being elected majority (84%) live in built-up environments, directly. Similar to other federal republics, the mostly along the coast. The five largest cities are individual states have a significant degree of São Paulo, Rio de Janeiro, Salvador, Belo financial and policy-making autonomy, resulting Horizonte, and the federal capital, Brasilia. There in some significant variations public policy are 44 cities of over 500 000 people, and 5,563 support for broadband access. municipalities. With almost 30 million people in the rural areas outside municipal services, Brazilians are diverse in origin, with just under provision of affordable broadband to this group, half the population being of European descent, which have among the lowest average income while more than 40% are of mixed African and levels, presents a particularly severe problem. European ancestry. There are an estimated 350,000 to 550,000 indigenous peoples, mainly Constitutionally, Brazil is a federation of 26 states found in the rain forests of the Amazon River and the Federal District (Brasilia), which can be basin. Portuguese is the official language and is divided into five regions - the North, North-East, nearly universal, while English is widely taught as South, South-East, and Centre-West. Each a second language. None of the other countries region has its own geography, economic activity, in the region speak Portuguese, and the relative Unit Date Area 8,514,876 Sq. Km. n/a Population Density / sq Kms 22 People 2010 Population 190,755,799 People 2010 Annual Population Growth 1 % 2010 Households 67,200,000 2010 Rural Population 29,830,007 People 2010 Urban Population Proportion 84 % 2010 Population of Top 200 Cities 72,409,158 People 2010 Number of cities > 500 000 people 44 2010 Municipal Districts 5,565 2010 GDP (trillion) 2.1 USD 2010 GDP/ capita PPP 11,239 USD 2010 GDP Growth 7.50 % 2010 Unemployment 6.00 % 08/2011 Exchange rate R1 0.6 USD 09/2011 Table 1-1: General statistics (Source: IBGE 2010 Population Census http://www.censo21.ibge.gov.br) size of the diaspora is very small, resulting in class’ by the media, includes people with an minimal demand for access to Internet content individual monthly income of US$188-$815 and applications in neighbouring countries or (R$300 to $1,300). The growth of this group is outside the region, and vice-versa, except for the one of the most important trends of the last few other Portuguese speaking countries (Angola, decade, now representing just over half of the Cap Verde, Macau, Mozambique, Portugal and population, and expected to reach 60% by 2014. Sao Tome e Principe). Part of the increasingly influential BRICS2 group of large emerging nations, Brazil is now a net With the progressive macro-economic, social creditor to the US and has over US$300bn in support and education policies of the centre-left currency reserves. Since early 2009 the value of administrations of the last decade, Brazil's the Brazilian currency, the Real (R), has been economy has grown steadily, bolstered by the steadily appreciating against the US dollar, rising global demand for commodities and the from about 0.4 to 0.65 USD in August 2011, and countries relatively advanced industrial export by many benchmarks is amongst the most sector. As a result record numbers of poor have overvalued currencies in the world. Although its entered middle class, unemployment is at an all- value slid by more than 10% in September 2011, time low (6%), and population growth is down to the Real is still seen as overvalued, and as a result, 1% annually. Official statistics divide Brazilian the currency's strength needs to be taken into society into 5 classes, A-E, with E being the account when making broadband cost poorest. Class C, often called ‘the new middle comparisons with other countries. 2 Brazil, Russia, India, China and South Africa 10 2. Broadband Market Dynamics Brazil's broadband market is serviced by a wide range many the fragmented directives that have built up of access technologies deployed by the network over the years to respond to the evolution of the operators. These range from fibre to the home, market. The telecommunications legal regime is copper cable-based DSL, broadband over power lines defined at a high level in the General and cable-TV, to a variety of wireless and satellite- Telecommunications Law4 (LGT) of 1997 which based systems, but mainly 2.5/3G, MMDS and WiFi. provides the main guidelines on telecommunication services, universal service goals and the functions of Similarly there are substantial variations in the types Anatel. The licensing regime includes provisions that of broadband providers (fixed, mobile and TV if an operator does not provide the services it has network operators, as well as domestic and agreed to in its license the State can take over its internationally based companies), and many do not operations, including its existing infrastructure.The compete directly with each other due to geographic LGT is supported by a large number of more specific market segmentation of licensing at the four regulations, the major ones of which are outlined government levels – national, regional, state, and most below. recently, municipal. In 1998 the General Grant Plan5 (PGO), with a 10- In addition, the sector is going through major year scope, identified which telecommunication transformation, with the merger of a number of the services must be provided as a public service, with large fixed and mobile operators, and the recent consequent price controls, quality of service and opening up of the subscription/cable TV market to universal service obligations. At the time PGO only foreign owned telecom operators. Mobile operator included voice services, and this did not change in the Claro, and fixed operator Embratel, are both now 2008 updated PGO, however MiniCom has since majority owned by the Mexican businessman Carlos proposed that it be modified to include broadband Slim, and Telefonica of Spain controls the country’s services. The 1998 PGO also established the basis for leading mobile carrier by subscribers, Vivo privatisation of the state owned monopoly operator Participacoes, as well as Telesp, the incumbent Telebras6, and divided Brazil geographically into four operator in Sao Paulo state. major areas, limited cross ownership and the number of players in the market. This web of technologies, multiple licensing regimes, types of service providers, geographic separation and In addition, the 1998 PGO also established the basis supplier consolidation has created a highly complex for a universal service fund known as the Fund for broadband market compared with most other the Universalisation of Telecommunication Services countries. (FUST). An additional fund was also established at the same time, aimed at supporting innovation and 2.1 National ICT sector management - capacity building to make the Brazilian telecom sector policy and regulation more competitive, called the Fund for Telecommunications Technological Development The main ICT sector policies are determined at a (FUNTTEL). There is a third fund, the national level by the Ministry of Communication Telecommunication Inspection Fund (FISTEL), to (known as MiniCom) and regulated by Anatel3, the cover the cost of managing the telecom sector. national telecommunication agency. Anatel is also Revenues for the three funds are gathered from the responsible for regulating satellite capacity provision operators licensed to provide public and administering radio frequency channels for use by telecommunication services (i.e not ISPs currently, both telecommunications service providers and although this would likely change if broadband broadcasting companies. becomes defined as a public service under the PGO). Brazilian telecommunications services do not have a unified legislation, and policy is implemented through 4 Lei Geral de Telecomunicações 5 Plano Geral de Outorgas 6 Of interest is that all telecom services were in private hands until 3 Agência Nacional de Telecomunicações 1972, when they nationalised by the military government Figure 2-1: CGI.br structure Universal service objectives (USOs) and obligations In August 2009 the Steering Committee for Digital are defined in more detail in Anatel's General Plan of Inclusion Programmes9 (CGPID) was established, Universalization Goals7 (PGMU). The PGMU has which laid the groundwork for the National been updated a number of times, and in September Broadband Plan (PNBL), subsequently announced in 2010 the PGMU III was adopted, and is expected to May 2010. The PNBL is described in more detail in cost participating service providers R1.7 billion for section 5. the network infrastructure and maintenance costs between 2011 and 2015. While not directly focussed 2.1.1 Broadband licensing on broadband development, the infrastructure that will be required will naturally be used to support Anatel requires a license for all entities that provide broadband services. broadband access, with the most prevalent licenses being 3G mobile, cable TV and the Multimedia In 2008 Anatel issued the General Update Plan of Communication Services10 (SCM). The latter is the Brazilian Telecommunications8 (PGR) which defined most common public ISP license, allowing service the 10-year strategic vision for the sector and included delivery using wireless technologies, and more goals for improving broadband access and recently cable technologies, following Anatel's establishing mobile virtual network operators sanction of broadband over power lines (BPL) in (MVNOs). The 1998 PGO restriction which 2009. precluded the incumbents from operating in more than one of the authorized regions was also ended at In addition, the Limited Private Service11 (SLP) this time. permit is available and mainly used by municipalities to provide free access to relevant public information 7Plano Geral de Metas para a Universalização 9 Comitê Gestor do Programa de Inclusão Digital 8 PlanoGeral de Atualização da Regulamentação das 10 Serviço de Comunicação Multimídia Telecomunicações 11 Serviço Limitado Privada 12 services (such as for libraries and e-government 2.2 The broadband ecosystem applications in public spaces). The Private Network Service12 (SRP) permit is similar, but for corporate 2.2.1 Backbone networks entities. The SCM license used to cost R9000 annually (but is being revised – see below), while both the SLP With Oi/Telemar's purchase of Brazil Telecom in and SRP permits cost R400 per year. 2008, the group now operates the largest fibre network in the country, as well as one of the main Voice over IP (VoIP) services are permitted, and submarine cable networks linking the country to the unlicensed in Brazil, as they do not qualify as a global backbones. The terrestrial network is about telecommunications service - rather they are seen as 138,000 kilometres of long distance fibre, 30,400 value added services that are supported by the kilometres of metropolitan fibre and the 22,000 underlying telecommunication network. kilometre Globenet submarine cable network links Brazil to Venezuela, Bermuda and the USA. As 2.1.2 Radio spectrum shown in the map below, an indication of the challenges presented by the vast size of the country SLP and SRP licensees may use the unlicensed Wifi combined with the low income and population levels spectrum in the 2.4 and 5.8Ghz bands. SCM licensees in the northern region is that capital of Amazonas was may also use these bands, but they can also operate in only connected to the fibre backbone this year, and it the 2.5Ghz band using MMDS type services, which was more cost-effective to do this via Venezuela's are often used for subscription/cable TV, or network. sometimes WiMax. Spectrum licenses are required for all frequencies in cities larger than 500 000 people, While not even close to the same scale as Oi's including the WiFi 2.4 and 5Ghz bands. In towns network, the incumbent long distance operator smaller than 500 000 people, licenses for these bands Embratel's network is also among the largest in the are not required. country, running from the extreme south to Rio Spectrum licenses are required for Wimax (available in the 2.5, 3.5 and 10.5Ghz wavebands) and for 3G in the 800 and 900Mhz. The auctioning of the (1.9/2.1 Ghz) with mandatory sharing of infrastructure, took place in December 2010 despite some operator protests against the inclusion of Nextel, a new fifth player (the band was only to be available to operators with a mobile voice license). The mobile operators have a total of about 340MHz of spectrum allocated, with the maximum amount available per operator being 85MHz. 2.1.3 Internet governance Management of key Internet resources, such as domain names, the CERT13 and Internet exchange points (IXPs), is carried out by the Brazil Internet Steering Committee14 (CGI.br) which also monitors the uptake of Internet services and helps guide the development of the Internet in the country. As shown below, CGI.br is structured as a multi-stakeholder group comprising an equal mix of government and civil society representatives appointed by Ministerial decree. 12 Serviço de Rede Privado 13 Computer Emergency Response Team Figure 2-2: Brazil’s submarine cable systems 14 Comitê Gestor da Internet no Brasil (Source: http://www.cablemap.info) 13 Grande do Sul in the north, totalling about 26,000 Europe and Asia via the west African coastal cable kilometres of optic fibre. systems. Aside from Telebras' recently established national 2.2.2 Alternative/complementary infrastructure network of about 31,000 kilometres combining the operators infrastructure of the electricity and fuel distribution operators (see Section 5), the other major backbones The operators and owners of overhead electricity are operated by AES/AES Electropaulo Telecom, pylons and poles, ducts and rights of way for GVT, Geodex and CEMIG Telecom. AES/AES highways and railways are well known for charging Electropaulo Telecom has a network of about 4,700 high fees for use of these resources for kilometres. GVT (owned by Vivendi) has about telecommunication fibre cabling in Brazil. It is not 25,000 km of optical fibre, while Geodex (owned by uncommon to find a charge for overhead poles as UBS, Deutsche Bank and Meridiana Interprises) has a high as R10 per month per pole, compared to R1 in network of 11,000 km. CEMIGTelecom, which the USA. changed its name from Infovias in 2010, offers the largest optical fibre network in the state of Minas The current situation also favours the incumbent Gerais. operators, which negotiated long-term contracts decades ago, and there may not be physical space Internationally, a number of other submarine cables available for new entrants or they are charged much connect Brazil to the region and to North America more for the more valuable resource that these rights and West Africa (Sam-1, SAC, Americas-I, Americas- of way have become. II and Atlantis-2). There are also plans for a large (12Tbps) cable called SAex to connect Brazil with Considering that much of the new investment in Angola, which will also give it an alternative route to backbone infrastructure is going into the more remote Figure 2-3: OI/Tele Norte Leste backbone fibre network (Source: http://www.globenet.net/PDF /Network-Map.pdf) 14 and less population-dense areas, where returns are 2.2.3 Interconnection lower, high costs of access to alternative infrastructure are a significant constraint to more rapid deployment There are 16 Internet exchange points (IXPs) in of broadband to the peripheral areas. Brazil, which improve performance for customers and applications on different provider networks. The There are also a variety of large electrical energy IXPs also save on transit fees for broadband generation and transmission companies operating at providers, reducing the flow of local data that transits either the federal or state level that sell externally. The IXP model in Brazil is independent telecommunication services directly, usually via a non-commercial, with NIC.br providing financial and subsidiary. The largest of these are: capacity building support for establishing IXPs where needed.  Eletronet, a joint venture between the parastatal Eletrobrás and AES. The The first IXP in the northern region will be Eletrobrás group has subsidiaries in different inaugurated this year and their deployment in a provinces - Furnas, Chesf, Eletronorte and number of major cities in other states is also Eletrosul, with a total of 16,000 kilometres of underway. optical fibre drawn. The network runs through 18 states, but only reaches the As to be expected the largest is in Sao Paulo city with outskirts of large cities. In the least well- 185 members exchanging about 50 Gbps of traffic at served area, northern Brazil, the Eletronorte peak times, with the remaining IXPs exchanging a network is now expanding considerably total of about 10 Gbps of traffic at peak times. because of plans to distribute hydroelectric energy to many cities due to the construction 2.2.4 Broadband providers of new hydroelectric schemes in Amazonia. 2.2.4.1 Fixed broadband  CEMIGTelecom operates a carrier-to-carrier model using the infrastructure of its parent The current extent and future growth of fixed line company, electrical energy provider CEMIG broadband services is mainly limited by the stagnating in Minas Gerais. market for fixed voice services, although this is being increasingly augmented by deployments of  Petrobras has an extensive fuel distribution subscription/cable-TV services, spread spectrum/Wi- network across the country Fi, fibre to the home (FTTH) and broadband over power lines (BPL). Figure 2-4: Petrobras and Electronet fibre networks (Source: ???) 15 Brazil's fixed-line teledensity is about 23% higher than TV market are Net Servicos, Sky Brasil, Embratel, average for Latin America, but there has been little Telesp, and Oi TV. Net Servicos is the largest multi- growth since 2002, partly because fixed line rentals are service cable provider in Latin America, and is relatively expensive compared with other countries in controlled by local media group Globo, although the region. The fixed voice market is dominated by long-distance fixed-line incumbent Embratel owns a three groups which all have substantial foreign majority of the company's stock. Sky Brasil, the ownership - Spain's Telefonica, which owns Telesp largest High Definition satellite TV operator, is (and mobile provider Vivo), Mexico's America Movil, controlled by DirecTV, with Globo as a minority which owns Embratel (and mobile provider Claro) shareholder. Independently of Net Servicos, Embratel and fixed/mobile provider Oi (Telemar Norte provides satellite TV services. Leste/Telemar), which is owned by Brazilian investors and Portugal Telecom. The market leaders All of these companies provide TV/broadband are the two incumbents Oi and Telesp, with 48% and double-play packages, except for Sky, which has a 27% respectively of the fixed lines. Two other partnership with GVT for broadband services. companies, the long-distance incumbent Embratel, However Sky will soon enter the broadband market as and Vivendi's GVT, have gained an increasing share it is now in the process of establishing one of the first of the market with 18% and 5% respectively. deployments in the world of TD-LTE technology, following its purchase of 2.5Ghz spectrum. Although there are about 2,700 companies that provide fixed broadband services in Brazil, the five Fibre to the home (FTTH) is now beginning to take largest hold about 95% of the market, mainly off in Brazil's major cities, seeing much increased consisting of the incumbent voice operators. investment over the last two years. Telefonica Brasil is According to the government's Institute for Applied among the largest providers of FTTH services and is Economic Research (IPEA), in June 2011 Oi was the planning to extend its network coverage, initially largest broadband provider, with about 36% of the focussing on Sao Paulo state. Backed by Telefonica of broadband market, followed by NET Servicos Spain, the group already has fibre coverage of a (Embratel) with 26%, Telefónica Brazil with 24%, potential 400,000 households, of which 20,000 are and GVT with 8%. currently signed up to its services. By the end of 2011 it plans to increase coverage to about one million Until the arrival of Telebras (see below) there has households and boost the actual subscriber base to been little structural wholesale/retail separation in the 70,000, with a long term plan to have one million market and the 1,600 small ISPs largely resell (and fibre customers by 2015. compete with) capacity from the larger telecom operators. Intelig, a subsidiary of TIM Brasil (owned by Telecom Italia), has recently launched broadband and fixed The principal operators in Brazil's cable/subscription telephony services using broadband over powerline Figure 2-5: Growth in average traffic exchanged on Brazil’s IXPs (Source: ???) 16 Technology Users (1000s) xDSL 10222 Cable Modem 4121 Ethernet 794 Spread Spectrum/Wifi 647 ATM 383 Fibre 185 HFC 151 Satellite 40 FR 24 FWA 23 WIMAX 19 MMDS 10 BPL/PLC 0 Total 16619 Table 2-1: Broadband users by type of technology, Figure 2-6: Mobile coverage in Brazil 1000s, February 2011 (Source: Anatel) (Source: http://www.teletime.com.br) (BPL) technology in selected areas of Sao Paulo city, 1,500 municipal areas, while it's nearest rival, Claro, is provided over the infrastructure of local power utility present in only about 500 so far. Eletropaulo. Having heavily invested in new 3G spectrum (a total Triple-play bundles (voice, Internet and IPTV) and of R2.7 billion was realised in the H band auction in quad-play bundles (plus mobile) are becoming December 2010), the mobile operators are now increasingly available, following recent consolidation rapidly expanding their 3G networks, which should of fixed, mobile and subscription-TV providers. The cover at least 2,000 municipalities by 2012. In the H triple-play leaders in this area are GVT in partnership band auction a new operator, Nextel, acquired with Sky, and TVA (owned by the Abril Group and frequency in virtually all of Brazil and will soon Telefónica), while Oi launched the first, and so far become a new specialised 3G competitor in the only, quad-play service in the country in 2008. market. 2.2.4.2 Mobile broadband The government is looking to ensure that 4G/LTE networks are in place in time for the FIFA World Cup There are seven GSM operators in Brazil – Vivo, in 2014, and it has already identified about R200 Claro, TIM, Brasil Telecom, Oi, Sercomtel and CTBC million worth of investments to encourage this. (now Algar Telecommunications). By August 2011 Bidding for 4G mobile network licenses is scheduled they had rolled out 3G services in 28% (1,588) of the for April 2012. 5,565 municipal areas, which covers about 144 million people, or 76% of the total population. Vivo is the 2.2.4.3 Satellite dominant player in terms of numbers of subscribers and also in terms of coverage - it is present in over Because of the remoteness of many areas in Brazil, 512Kbps- 2Mbps- 12Mbps- Speed 0-512Kbps > 34Mbps Total 2Mbps 12Mbps 34Mbps Subscribers 2977 6961 4215 1972 496 16621 Table 2-2: Fixed broadband subscribers by speed of access, 1000s, February 2011 (Source: Anatel) 17 the country has an extensive satellite sector. Three companies operate national satellites: Star One, 2.2.6 Public access facilities Telesat Brasil, and Hispamar. Star One was the first to provide satellite services, and is the market leader. Star Internet cafes, or LAN-houses, as they are commonly One C3, scheduled for launch in 2012, will cover all called in Brazil, are widely used throughout the of South America including Brazilian territorial country and are present in virtually every community, waters. The launch of Telstar 14R (known as Estrela either to serve the youth in the richer areas, or to do Sul 2 in Brazil), was launched in mid-2011 and serve the general population in the poorer areas. covers the whole Brazilian territory as well as Privately run, usually by small businesses (90% of delivering services to the rest the Americas. which are informal), the Cetic.br15 estimated in 2010 that there were about 100,000 in the country, serving 2.2.5 Access devices 30-35 million people. This is a slight decline on previous years, most probably because of the PCs and laptops are also becoming more widely increased penetration of broadband in homes and on present in households, although smartphones are now mobiles. the dominant consumer broadband access device in Brazil. In total it is estimated that there are 60 million Provision of public access facilities for those who PCs and laptops in use in Brazil, rising to 100 million cannot afford their own equipment and connections by 2012. However not all of these are connected to has also long been part of the Brazilian government's the Internet and many are in businesses or large digital inclusion strategies. The largest of these is households which share the Internet connection. government parastatal Serpro's16 digital inclusion programme (PSID17) which has rolled out over 8,000 In contrast, there is a closer match between the telecentres, providing free access in 98% of number of 3G phones and the number of 3G municipalities. Part of Serpro's remit is to facilitate broadband subscribers, although again the match is citizens' relations with the government, including the not 1:1. In a field survey, Grupo Mobi estimated in development of e-government applications and under February 2011 that there were 19 million this responsibility the PSID was launched in 2003. smartphones in Brazil; this is also higher than the The programme includes donation of computers to number of 3G subscribers due to the large number of public and civil society institutions. subscribers with multiple phones, and many using smart phones on 2/2.5G subscriptions. The survey Serpro is now developing a new programme with the found that 41% of their sample of mobile phone Ministry of Agricultural Development which will users in general, and 83% of the smartphone users support integrated management of telecentres, called used their phone to go online. the Brasil Digital Network18 which will be used to support the digital inclusion initiatives of both The federal government has a long history of support institutions. The proposal is to form a central for local industry to develop low cost access devices. database with information from a variety of digital In 2000 strong efforts were made to establish inclusion initiatives in order to generate inputs for the reference models for low-cost open-source based PC implementation of government policies. manufacture. As a result Linux is widely available as an option on locally made desktop and laptops from In addition to a tool kit for the management of the the major white-goods chain stores and other outlets. telecentres, the Brazil Digital Network provides the In 2010 it was estimated that about 14 million, mostly coordination of a digital inclusion panel with locally made computers, had been sold in Brazil, often information necessary for decision making. The data on instalment plans provided by the major retailers. are presented in reports and graphs, as well as geo- referencing. So there is a mechanism for monitoring Recent plans to provide tax incentives to promote the local manufacture of low-cost tablet devices echo 15 Center for Studies on Information and Communication these earlier efforts, and have attracted Taiwanese Technologies computer manufacturer, Foxconn Technology, to 16 Formed in 1964 to modernise the strategic sectors of the produce Apple's iPad tablet in the city of Jundiai in Brazilian Public Administration, Serpro is one of Brazil's largest public companies, responsible to the Ministry of Finance. Sao Paulo state. In addition Motorola, Samsung and 17 Programa Serpro de Inclusão Digital Asus have also expressed interest in producing tablets http://www.serpro.gov.br/inclusao/oprograma locally. 18 Rede Brasil Digital http://www.serpro.gov.br/inclusao/rede- brasil-digital / redebrasildigital.org.br 18 and tracking of benefits to the population and the variables that hamper the smooth operation of Another indication of trends in Brazilian applications telecentres in Brazil. and content is that Google Brazil's revenues grew 80% in the last year, bringing in close to US$500 Serpro's PSID is also collaborating with the million. government's Casa (House) Brazil project19, Broadband in Schools20 and One Laptop per Student 2.3 Patterns of broadband utilization programmes21. As of mid-2011 there were an estimated 43 million Casa Brazil is a similar but much smaller project, also broadband subscribers in Brazil, representing a established in 2003. Working in poor communities, penetration rate of about 23% of the population. the project provides computers and connectivity to With about 74 million Internet users in the country, communities, focusing mainly on use of open source this brings the proportion of broadband subscribers technologies to promote culture, art, entertainment, to about 60%. popular participation and community liaison. A Casa Brazil typically has a telecentre, a reading room, an The rate of broadband uptake also appears to be auditorium and several laboratories and workshops accelerating fast - new activations hit a record in the where use of digital technologies can be made. About month of August 2011 when there were 2.2 million 100 units have so far been established with support additions, compared to the average of about 1 million from the Ministry of Science and Technology, in a month between July 2010 and July 2011. As a partnership with other government agencies, the whole, broadband subscriber growth over the last private sector and municipalities. year was about 60%. In the last year 3G broadband overtook fixed broadband subscriptions. Telebrasil's Banco Brazil and other large businesses are also August 2011 assessment indicates that fixed donating computers to public access programmes broadband grew by 25% in August 2011, while such as the above to support digital inclusion efforts. mobile broadband had a growth rate of 87%. Other features of broadband uptake in Brazil include: 2.2.7 Content and applications About 27.4% of households had Internet access of With a large population and advanced electronic and some form in 2009 according to IBGE's National print media market, along with the relatively high Household survey, while 12% of households had number of wealthy people, Brazil's local online broadband access in 2010, estimates IPEA. content market is well-developed. This has been encouraged by the lack of Portuguese content Regional variations in access to broadband are large, elsewhere (except to a certain extent in Portugal), the mainly reflecting the pattern of income levels and popularity of local social networking, and the population densities. About 80% of broadband users substantial efforts by government to provide services are concentrated in the Southeast, while the Northeast online. and Midwest have 9% each, and the North, only 2%. Subscription/Cable TV had about 11.1 million In addition, e-commerce services for consumers are subscribers in mid-2011, representing a growth of widespread, partly due to the relatively high 31.8% over the last 12 months. proportion of the population that have bank accounts and credit cards22. It is expected that e-commerce will A number of projections have been made on the have a turnover of US$18.7 billion at the end of 2011, future levels of broadband uptake. These include: representing an increase of around 26% compared to 2010. By the end of 2011 it is expected that about 32 Mobile chip manufacturer QUALCOMM estimates million people will have made at least one purchase that there are likely to be over 107 million 3G online. subscribers in Brazil by 2014. Telecom industry group SindiBrasil estimates that if 19 http://www.casabrasil.gov.br investments of about R145 billion are made in 20 Banda Larga nas Escolas 21 Um Computador por Aluno network infrastructure and services, broadband 22 The reasons for this date back to the years of hyper inflation in penetration could reach 78 million subscribers in 2014 the previous century, where funds kept in bank accounts were and 153.6 million in 2020. If no action to encourage index linked to maintain their value. 19 Fixed line subscribers 42.0 million Mobile Subscribers 224.0 million Fixed Broadband Subscribers 15.2 million 3G Phone Users 22.8 million 3G Modems/Data Terminals 5.6 million Total 3G users 28.4 million Total 3G + Fixed Broadband subscribers 43.61 million Broadband penetration 23 % Internet users 74 million Broadband users as % of total Internet users 59 % Municipal Districts with 3G 1594 Average 3G speed 769 Kbps Broadband subscriber growth Aug 2010-Aug 2011 60 % Subscription/Cable TV Subscribers 11.1 million Cable TV broadband subscribers (Q4 2010) 3.7 million Computers in use 60 million Table 2-3: Key features of the broadband market in Brazil (Source: Anatel, Teleco) Note: Data are for end of Q2 2011 unless otherwise stated. public or private investment takes place, this next section), the number of households connected expansion would be limited to 57.3 million in 2014 would rise to 35 million (52% of total households). and 93.2 million in 2020. Brazil also has had an extensive 'Broadband in The IPEA estimates that if the price for broadband is Schools” program which has resulted in about 84% of reduced to the PNBL target of R35/month (see Brazilian students having access to free broadband in urban public schools. 20 3. The PNBL Beginning with the PGR in 2008, the Federal and also been made responsible for ensuring that State governments have adopted extensive and wide connectivity is provided for some of the 2014 World ranging strategies for supporting improved access to Cup stadiums. broadband. These efforts emerged from earlier efforts to promote the uptake of ICTs more generally in The government owns 89.88% of Telebras shares Brazil, prior to the advent of 'broadband Internet'. with voting rights, and 72.67% of the share capital. In June 2011 it was announced that additional private The first systematic effort by the Government took investment in Telebras can be made, but that place in 2000 when the then President Henrique government would still maintain control. Telebras' Cardoso issued a decree to establish the Secretariat business model envisions it to be cash flow positive for Logistics and Information Technology in the by its 2nd year. Ministry of Planning, Budget and Management (SLTI/MP), as the lead agency for developing and Aiming to cover 40 million households or 68% of the implementing Brazil's 'e-strategy'. SLTI/MP served as population by 2014, Telebras core activity will be to the secretariat for an inter-agency committee chaired act as a 'wholesale' operator, providing infrastructure by the President’s Civilian Chief of Staff23 - the and network capacity for the broadband providers, as Executive Committee on e-Government, to which a well as the administrations of the federal government, number of inter-agency technical groups reported. the states and Federal District, municipalities and non-profit organizations such as universities, schools, ICT development at the Federal level continued hospitals, community telecentres and other points of during the first administration of President Lula da public interest. The deployment of a national fibre Silva (2003-2006), and some progress was made in network which will eventually reach 3,045 digital inclusion, with the development of an municipalities without access to fibre. interoperability framework and other aspects of e- applications development. E-strategies also advanced In essence the overarching strategy with the revival of at lower levels of the federal system, albeit unevenly Telebras has been to create a public broadband in the 26 states and the Federal District, as described operator that will compete with the private operators further below. in order to lower prices and improve service levels. The government's view is that the private broadband Developed by the Lula government in 2010, the providers are not competing effectively and therefore culmination of earlier efforts toward digital inclusion charging too much and giving poor service. MiniCom is the PNBL (Programa Nacional de Banda Larga, cites as evidence for this the fact that average National Broadband Program), which, after about a broadband prices have already dropped by 50% since year of preparation, marked its first deployment in the announcement of the PNBL strategy, even prior August 2011. The five key objectives of the PNBL are to any actual roll-out of services. to: Not unexpectedly, the larger providers have criticised the entry of a state funded entity into their market  Broaden access to broadband-based Internet arguing instead that the government's role should be services restricted to stimulating demand, such as through  Accelerate economic and social development provision of improved online services and perhaps  Promote digital inclusion subsidising users. Nevertheless some of the larger providers have signed agreements with Telebras, and  Reduce social and regional inequalities a large number of the smaller operators have  Promote job creation and income approached Telebras, seeing the opportunity to break the control of the larger operators on the market. To implement the programme, the dormant former state-owned monopoly operator, Telecomunicacoes The service is expected to be particularly useful to Brasileiras (Telebras), was revived and given the task, small broadband providers operating in the smaller working closely with the national regulator, Anatel, towns and more remote areas that have not been and the Ministry of Communications. Telebras has reached effectively by the large operators. So far about 600 broadband providers have registered their 23 Ministro da Casa Civil 21 interest on the Telebras web site, with 1000 cannot even afford the R35/month target price for registrations expected by the end of the year. broadband. These include extending tax breaks to mobile phones and television sets, more public The other key actions being taken by Telebras and the support for additional public access/telecentre government agencies to achieve the PNBL objectives facilities, and offering prepaid plans and fractional above are: prices (weekly rates for example).  The establishment of a broadband The key elements of the envisaged activities outlined price/performance target of R35 per month above, along with other related government initiatives for a 1Mbps connection are described in more detail below.  The provision of broadband services directly to consumers where other operators are not 3.1 Price and performance targets present or providing inadequate services  Provision of soft loans to small broadband The R35/month target was determined by field providers to expand their services24 research which indicated that the 70% of the  Freeing up additional radio spectrum for use Brazilians that are still offline would be willing to pay in broadband provision this amount for the connection. As mentioned above however, the September 2011 IPEA indicates that  Tax exemptions for equipment and providers even this price is still too high to be affordable by the meeting local manufacturing or performance poorest segment of the population. In addition the objectives R35/month target does not include the cost of the subscriber equipment, and this could also be a The PNBL also aims to support the development of significant barrier to entry unless bundled into long- the Brazilian ICT equipment and related services term contracts. industry, which is seeing strong international competition especially from China. Telebras is able to The initial speed target is perhaps the more difficult give preferential treatment to Brazilian firms by component to derive, since 'broadband' is such a allowing Telebras' procurement process to select local rapidly evolving area26, and in fact the initial speed companies even if the cost is higher than the bids of target for the PNBL was 512Kbps, but this was foreign companies. subsequently increased to 1Mbps shortly after the Rousseff government took over. Operators using the A consortium was formed in July 2011 to promote Telebras network are initially required to provide a the development of local Brazilian ICT equipment minimum of 20% of the target speed of 1Mbps. sector, called GENTE25, which consists of companies that each invest more than R150 million of their sales The government is also planning to ensure the speed in R&D (about 20%). This includes Gigacom, CPQD, of offerings of all broadband connections in the ASGA, WXBR, Trópico, Icatel, Parks, Digitel e country is guaranteed. Currently most broadband Datacom and PadTec. Padtec recently won Telebras' users receive considerably less capacity than R68 million tender for hardware to support the advertised. As a result Anatel has proposed that PNBL rollout. The company is a subsidiary of the providers with more than 50,000 customers will have Centre for Research and Development in to deliver to users at least 60% of average contracted Telecommunications (CPqD), a private foundation plans. The rule also provides for raising the that was the technology arm of Telebras prior to its requirement to 70% in 12 months, and 80% after the dissolution following privatization of the telephone following year. sector. Telebras still holds a 65.7% stake in Padtec. Efforts are also being made to monitor and The scope of the PNBL may widen further if the benchmark the quality of available broadband PNBL adopts the September 2011 recommendations services. In mid-2011 Anatel proposed the of the IPEA. The IPEA proposes a series of measures establishment of a broadband speed test service to address those at the bottom of the pyramid who which would be available to subscribers directly, and the test is now available on the NIC.br web site. 24 Lines of credit have been made available by the National However Sinditelebrasil, the national lobby group of Development Bank (BNDES) with interest rates of 1% per month and no collateral requirements. 26It may be recalled that the maximum speed only a decade ago 25 Grupo de Empresas Nacionais de Tecnologia was 56Kbps dialup or GPRS was the standard 22 telecom operators and service providers, has objected In May 2010, the first 100 under-served cities were to using this as a benchmark because it believes that identified and the availability of PNBL services from the variable capacity of the end-user access devices27 Telebras' wholesale facility announced. With a will distort the test and make it unreliable in providing combined population of 14 million, most of the cities an accurate assessment of broadband quality. are in the Northeast (58) and Southeast (30). The Sindibrasil has made an alternative proposal that the states with the most cities listed are Bahia, Minas ISPs should provide speed measurements directly. Gerais and Rio de Janeiro, with eight listed in each. Although Telebras' speed target is expected to rise to By the end of 2011 at least 300 cities should be 5Mbps by 2014, a major limitation currently is the covered. These have been selected as those at the total traffic download limits allowed by Telebras. This bottom of the Human Development Index (HDI) is only 300Mbytes/month for fixed links and and in states that have exemption from sales tax. 150Mbytes for mobile links (after which users will be responsible for paying additional usage fees). This 3.3 Backhaul/backbone network places a major restriction on the extent of use for the development fixed fee of R35, especially as speeds increase. For example, this would only allow a download of one To establish its national backbone fibre network, 45minute video28 per month. As a result this aspect of Telebras is leasing capacity from traditional and the PNBL strategy has come under criticism from alternative infrastructure fibre operators (mainly the civil society groups and a number of the broadband energy distribution parastatals). So far it has providers who have indicated that this will limit their established a fibre network of about 35 000kms, interest in using the Telebras network, pointing out having reached agreement with Eletronet and that many of their low-end packages already offer Petrobras. better value. For example GVTs basic service is 5Mbps for R49 per month and NET offers a triple- Telebras is in the process of making similar play package in Sao Paulo, including 1Mbps internet arrangements with other wholesale fibre operators, for R29.80 per month, taking advantage of the VAT such as electrical energy distribution group exemption. CEMIGTelecom in the state of Minas Gerais. At the wholesale level, Telebras is selling dedicated 3.4 Promoting increased broadband capacity on its network for R230/Mbps/month, competition which is currently about half the available price from the commercial providers. This is a significant In July 2011 Anatel approved rules to increase decrease and will no-doubt put downward pressure competition in the telecom sector with the on the wholesale market, and should therefore be introduction of the General Plan for Competition29 good value for the small providers. However some (PGMC) which applies only to the large have observed that combined with the minimum telecommunication and subscription/cable TV price/performance stipulations the economics of the companies with Significant Market Power (SMP). The offering do not yet make business sense. They point regulation allows Anatel to compel the operators to out that with the 20% minimum performance target share network infrastructure with smaller players who this means only 5 subscribers can share the 1Mbps must be offered lower wholesale prices than the SMPs upstream capacity purchased, thereby only generating offer at the retail level. In the area of subscription TV, a revenue of R175/month (R35/month/subscriber). users would be allowed to purchase their own decoders at retail prices. A form of local loop 3.2 Coverage targets unbundling is also being considered that would allow any provider to sell services on the last mile if the As indicated above the primary target is to ensure that operator that installed it is not providing services. In 40 million households or 68% of the population are addition broadband providers will also will be able to access broadband by 2014. required to implement 51 new internet exchange points IXPs. 27 Such as CPU speed, memory, viruses, botnets, downloads running in background etc 28 Using a rough estimate of 600Mb for a 90minute video in a standard compression format such as the AVI codec 29 Plano Geral de Metas e Competições 23 The PGMC also aims to create three organizations 3.5 Use of satellite funded by the operators. One will compare the offers from retail services to give more transparency to the A network of free broadband services via satellite, consumer and pinpoint the best options for them. known as the GESAC Program, has been Another will provide a representative forum for incorporated as part of the national broadband operators without significant market power, and a strategy. In November 2010 new contracts were supervisory body will be create a centralized database signed between MiniCom and a private satellite of wholesale offers and to promote conflict resolution operator to expand the number of ground stations in between operators. schools, community telecenters and other public or community entities in areas not served by other Finally, operators are expected to provide a range of broadband services. The number of ground stations backhaul capacities, depending on the city size – 32 will be expanded by 1,460 to a total of 13,379, Mbps (for municipalities of up to 20 000 inhabitants), operating at speeds between 512 kb/s and 2 Mb/s. 64 Mbps (for 40,000 inhabitants), 128 Mbps (60,000) and 256 Mbps (over 60 000 inhabitants). Where there In addition, the auction of four satellite positions for is capacity available companies will have 60 days to private use took place in September 2011, should install the link. reinforce the availability of satellite capacity for remote areas by 2014. In the same month broadband In August 2011 Anatel announced proposed revisions provider Ozônio Telecomunicações announced it to the SCM license (the main broadband service planned to invest US$1.2bn in a satellite based provision license), which aimed to make it easier for internet service for the Amazonas, using the O3b small providers to enter the broadband market. The satellite network which is to be launched in 2013. main changes are to relax the criteria for evaluating IPEA has also proposed that the feasibility of a the credentials of the licence applicant and to create national satellite to complement PNBL be examined. new licenses with smaller geographic scope – state and municipal level licenses. Previously there was only 3.6 Extension of mobile services to the national licence costing R9000 per year, the price remote areas of which remains unchanged, while the annual fees of the new licenses are R1200 for a state license and Another strategy that is being discussed by Anatel to R400 for a municipal license. support the PNBL is to improve mobile network coverage in the more remote and rural areas that are Other planned changes include: currently under-served. The two options under consideration are either to provide some type of  Companies without SCM licenses would be subsidy to encourage the existing operators to extend able to partner with an existing SCM license their networks, or to establish a shared wireless holder to provide niche services such as infrastructure managed by a third party which would broadband-based home security systems lease services to the existing operators.  The individual costs of bundled services (such as broadband with IPTV or voice 3.7 Universal service telephony) are to be made explicit and operators required to allow any part of the This year (2011) Anatel has been conducting a 5-year service bundle to be cancelled by the review of voice telephony (PSTN) licenses, the subscriber concessions for which expire in 2025. This includes  Above the 50 000 subscriber threshold the reviewing the licensees' universal service objectives to quality of the provider's service will be ensure they are in line with updated requirements for regulated and increased time limits imposed meeting outstanding connection needs in remote and on subscriber data retention30. rural locations31. In May 2011, Anatel held a series of  The concept of net neutrality would be public consultations on the license review which upheld, whereby providers are not allowed to culminated in new USO proposals. Supporting the limit the speed of any of the data passing to objectives of the PNBL, they included expansion of the subscriber 31 1,894 police stations and federal and state roads, 82,301 rural schools, 7,945 settlements, 10,989 health posts, 2,224 Indian 30 Currently only about 13 SCM licensees have more than 50 000 villages, 824 maroon communities, 741 public airfields, 300 subscribers. conservation and sustainable use offices and 1620 military camps. 24 the fixed telephony network to support broadband changed, in order to foster broadband access, services by ensuring a minimum transmission capacity and has published public consultations of 2.5 Gbps to all municipalities with more than 30 regarding the designation of other radio 000 inhabitants. In addition the proposals, if adopted, frequency channels, with similar objectives. will allow operators to apply their license renewal fees directly toward universal service projects. 3.10 Subscription/cable TV broadcasting 3.8 Content and applications The opening up of the subscription/cable TV sector has been under discussion for some time but this Demand for local government services is to be intention appears to have been accelerated following supported by the PNBL with Federal government the announcement of the PNBL. In August 2011 the plans to establish a cloud services platform for use by government announced the removal of the legal municipalities. This strategy has also generated some limitation that prohibited majority foreign owned controversy among some members of the private telecommunication companies from operating in the sector which have said the provision of application subscription/cable-TV market. This will allow entry services should be left to the private sector, as with by some of the major telecom providers who are broadband service provision. foreign owned, notably Embratel, Telefonica, GVT and Sky. 3.9 Radio spectrum liberation The IPEA's analysis of the impact of this measure on Anatel is accelerating the process of making more broadband-use indicates it should boost the number radio spectrum available for broadband, and a of subscribers significantly. The agency said in a number of spectrum bands have already been September 2011 research report that the presence of a released. With its long-distance transmission subscription/cable-TV provider could increase characteristics, the 450Mhz band has been opened for broadband subscribers in the location by up to 35%. rural communications, previously held by a number of state agencies. In the 3.5Ghz band Anatel also expects 3.11 Fiscal incentives and subsidies to allocate a specific segment for the PNBL. The availability of the 3.5Ghz band was initially delayed in Tax levels on equipment and services are relatively court by the fixed line operators, which challenged high in Brazil, and according to the telecom industry Anatel's plan to make the band available for only for lobby group Telebrasil, the government tax on new competitors32, but their protest was unsuccessful. broadband services currently increases the cost to the consumer by 43%, while taxes on imported modems Unused parts of the 1.9 GHz band are to be issued to adds 78% to the price. Some tax exemptions on new mobile operators with the requirement that 3G connectivity services pre-dates the PNBL in some services be provided with coverage in all states, however the government at both federal and municipalities of 100,000 inhabitants or more, even state levels is now adopting a broad a range of tax although mobile services are not under PGO public exemptions to promote the uptake of broadband and service regulatory regime. Similar requirements are other ICTs. likely to be imposed on operators seeking authorizations to operate in parts of the 3.5 GHz Concerned that the backbone and middle-mile band. networks will not be sufficient to cope with rising local demand for broadband, in August 2011 the Other spectrum liberation activities include: Ministry of Finance agreed to forfeit an estimated R4 billion in tax revenue to encourage operators and  Frequencies above 6 Ghz will be made suppliers to make R70 billion worth of investment in available for Telebras to provide point-to- the construction of fibre-optic networks over the next point links in municipalities using high-speed four years. Priority will be given for projects that radios include coverage of North and Northeast regions.  The designation of the 2.170-2.182Ghz band, and the 2.5-2.690Ghz band has been Due to import substitution promotion, foreign ICT equipment is subject to 50% duties and this is encouraging efforts to develop more advanced local 32 The license for the 3.5Ghz band does not allow existing fixed manufacturing facilities to help reduce the cost of line operators to use it in their market areas. 25 computers, phones and other telecommunication 3.12 State and municipal efforts equipment. In 2009, the government announced that the exemption on taxes for strategic capital goods, Prior to the PNBL there have been a variety of including computers and tablets, would be extended number of municipal and state supported efforts to to 2014. For computers alone, this was expected to improve access to the Internet, including the use of cost the government about R1.6bn in 2010. In tax incentives and provision of low cost, or even free, addition all taxes and import duties have been waived broadband services in public access facilities and on computers for the public school system. schools. These efforts are now accelerating following the PNBL. A growing number of municipalities are To further reduce the cost of tablets and related participating in the PNBL and partnering with network access devices, in May 2011 the government Telebras for use of network infrastructure. In the announced its intention to exempt locally made agreement, the Telebras will use the municipal hardware from industrial taxes which, when networks and offer access in cities where broadband combined with sales tax exemption, this could reduce is not widely available. prices to consumers by 30-40%. The bill was passed by the lower house in September and is expected to An example is the state of Sao Paulo which has be approved by Senate shortly. Also in September, exempted broadband from sales tax for the last two IPEA published a report proposing that tax years but in August 2011, the State announced that a exemptions be extended to mobile phones and complete mapping of the investment by operators televisions if universal access to the Internet is to be would be made, including capacity and locations achieved. covered. From this, the department will mount a public investment plan for municipalities not covered. A growing number of states are exempting broadband The goal is to ensure that in the next two years, all from sales taxes. In 14 of the 26 states (which have a municipalities of less than ten thousand inhabitants in total of 49% of the population) agreement to exempt urban areas, have broadband access – this is expected broadband from sales tax (VAT) has recently been to be about 230 cities. Where current operators reached. However of these, only seven have signed indicate they are unlikely to cover these cities within the exemption in local law - Sao Paulo, Rio de two years, the state will offer finance and tax Janeiro, Espirito Santo, Parana, Goias, Pernambuco incentives to other operators to ensure that access is and Pará. The remaining states where this is pending provided. are Distrito Federal (Brasilia), Acre, Amapá, Ceará, Rio Grande do Sul, Santa Catarina and Sergipe. The State of Paraná has been taking a different approach to improving connectivity for its citizens, Brazil's lower house has given approval to a proposed using the state energy company, Copel33, as its measure offering tax breaks for national production primary vehicle for this. The Paraná State Plan for of tablet computers. The bill, which still must gain Broadband was adopted In August 2010 and in final approval in the Senate, would offer February 2011, Copel announced that it would use its manufacturers full exemption from industrial 17 000 km fibre optic network to provide 100Mbps manufacturing and retail taxes, as well as import taxes broadband connections. With an investment of R100 for electronic components. According to government million, the company plans to ensure 100% coverage estimates, the tax breaks could help reduce the final of all municipalities by 2012. Paraná State is allowing cost to consumers by 20%-30%. Copel to defer its tax payments in return for a) ensuring the wholesale 1Mbps price is R230 or less, b) To promote deployment of broadband to remote and reserving 15% of capacity for low-income groups under-served areas the government is currently paying R15/month or less, and c) reserving another discussing the possibility of subsidising the cost of 15% of capacity for services at R30 per month. In providing connections to the end user. addition a 10:1 contention ratio is specified by the state. The government also plans to discuss with the energy distributors the possibility of offering lower electricity The State of Ceará is also amongst the most advanced prices to small broadband providers. in its efforts to ensure broadband access for its citizens. In 2008, the state government decided to 33 Companhia Paranaense de Energia 26 create its own fibre optic and WiMax infrastructure, At the city level, the mountain municipality of Canela with the aim of providing broadband access in major with about 40 000 inhabitants near Porto Alegre has cities. Coverage of 92% of the population was become a digital city role model. In March 2011 expected by July 2011. Known as the Ceará Digital Canela planned to open a 1 Gbps network, developed Belt34 (CDC), with an investment of R65m, a ring of in partnership between city and federal governments 2500 km of fibre has been established linking all 56 and private enterprise. The network has been metropolitan areas. Free access is provided to all established mostly with support from the private public institutions in the state. sector in provision of infrastructure. 34 Cinturão Digital do Ceará 27 4. Lessons Learned When the Cardoso government promoted the cost of providing connections to those who cannot privatisation of the telecommunications sector in afford current market rates. Brazil in 1998, the promise was that increased competition would bring down prices. While the In any event the 'proof will in the pudding' and it extension of services has reached most areas for voice remains to be seen how effective Telebras will be in services, prices have remained relatively high, and the competing with the private sector to drive down availability of new services such as broadband have prices and extend the range of services. However it been slower and more costly than expected. In seems that simply the threat of this type of initiative addition the telecom sector has become more has already caused the private operators to respond by concentrated among fewer dominant players which lowering prices and increasing their coverage targets. are mostly owned by foreign operators. The PNBL is clearly responding to this market environment, aiming In Brazil, as in China, the role of the state is notable to reduce costs, increase coverage and support local in equipment development and the efforts of the Brazilian industry. government to support local manufacture of equipment are extensive, ranging from R&D support, It is notable that the PNBL did not come out of tax breaks and import barriers for foreign equipment. nowhere and builds on much prior experience, The effectiveness of import barriers is as yet unclear, including in sector regulation. However most direct but currently the cost of much of the consumer initiatives concentrated on public access facilities equipment available in Brazil is higher than it is in (telecentres), e-applications development and low cost Europe or North America. This has also resulted in a access equipment – open source, locally manufactured small but significant grey market in ICT goods, either desktop computers. Since then the environment has bought from tourists, or while travelling abroad, and moved on, broadband has become a priority, local sometimes even smuggled in. applications development has continued to take place and access devices have switched to laptops, Among the other key issues that the initiatives taking smartphone and tablets which are a once-off cost and place in Brazil have drawn attention to so far are: becoming increasingly affordable. As a result lowering broadband costs and improving performance is  The setting of performance targets for the rightly seen as the key priority to achieve digital quality of broadband services under the inclusion and leverage the benefits of ICTs for PNBL has highlighted discussion of the development. relative importance of speed versus traffic limitations. Many have said that with low The operators' mixed reactions to the PNBL has monthly traffic caps, access to higher highlighted the continuing tension between public broadband speeds is largely meaningless. and private sectors, and between the dominant players and the small ones, in defining the best way forward.  Price target setting needs to be able to take The technical and market complexity of Internet into account the bundled service offerings provision generally, and in Brazil in particular, has not which can extend the basic broadband service helped either side to identify a clear collaborative to double and triple-play, where TV and strategy, and as elsewhere in the world, this is an voice services may be part of the broadband ongoing area of debate. package. In fixed line ADSL services, the bundling of voice telephony subscriptions is The discussion over the role of the public versus the also very common, but increasingly unneeded private sector is also taking place within different due to the availability of mobile telephony. parts of the federal government. Subsequent to the announcement of the PNBL, which was largely  If the setup cost for the access equipment developed by the Ministry of Planning, some other (modem and terminal device) is not taken parts of government have indicated that they are not into account, and remains at market -related entirely in agreement with the strategy, and similarly prices, the lowest income-groups will likely to the private operators, have indicated their find the cost of entry unaffordable. Some preference for a model focussing on subsidising the operators have initially responded by making a USB modem free if a contract is signed, but exemptions underscores the need for buy-in this is not guaranteed to continue indefinitely. at each level of government.  Brazil's experience also show that tensions  Top-level support from government has been between broadcast and telecom sectors, and observed as a key feature of many of the between fixed and mobile sectors needs to be more successful national broadband plans anticipated. The broadcast sector will resist and Brazil is no exception. The PNBL was opening up to telecom operators and the devised under the previous President Lula's subsequent debate over network neutrality close leadership and reaffirmed by the can slow down implementation of effective current President Rousseff, who said, in her solutions. first public address to the population following her taking of office earlier this year,  Technically, the debate over the ability of that the implementation of the PNBL would mobile operators to service the demand for be accelerated. At the other end of the high speed broadband (>5Mbps) continues. spectrum, the efforts of a number of Clearly, in developing and emerging markets municipal governments to support where the penetration of fixed infrastructure broadband development, and even provide is low, mobile wireless will have a vital role to free broadband services, are noteworthy, play for some time to come. But even in highlighting the important role of municipal these markets, notwithstanding the lack of governments in provision of broadband as a experience with LTE, fixed-line infrastructure utility, just like water, electricity and – fibre to the home in particular, may well be sanitation. Finally, the variation in activities the ultimate evolutionary path to cope with of the federal, state and municipal exploding demand for capacity. governments also calls attention to the need for all levels of government to co-ordinate  The consolidation of fixed, TV and mobile their efforts to ensure the most effective use operators in single integrated companies of resources and to make affordable high offering triple- and quad-play services also speed broadband available as quickly as appears to be becoming a world trend, possible. improving operator profitability with economies of scale, streamlined management  The opportunity to massively reduce the and better optimization of investments. costs of broadband network deployment by Demand for broadband is also an accelerator ensuring access to other complementary of this process in the mobile sector - with infrastructure sectors – namely power and 3/4G mobile broadband, the only way to transport, has not gone unnoticed by scale services sufficiently is to use fibre in the Brazilian broadband policy makers - one of backhaul transmission to connect their cell Telebras' first actions was to secure access to sites. These conclusions seem to be gaining the fibre infrastructure of the petroleum and wider acceptance as underlined by the merger electricity distribution networks. However of Embratel and Claro, the purchase of GVT little discussion has so far taken place for the by Vivendi and the efforts of Telefonica to future advantages of ensuring that ducts are buy Portugal Telecom's share in Vivo. A provisioned in every new road, and ensuring similar dynamic is also evident between the smooth and low cost access to rights of way broadband and TV broadcasting sectors. for fibre cable.  Fiscal measures such as tax exemptions for  In making additional radio spectrum available equipment and broadband services are a key for broadband, the tensions with the plank in Brazil's broadband strategy but do dominant players, and incumbent mobile not seem to be as well recognised elsewhere. operators in particular, to use control over Brazil's approach is even more innovative in access to spectrum as a way of staving off that it proposes to exempt operators who competition signals the importance of reduce the cost of their offerings by a forward planning in spectrum management significant margin. In a federal system such as and the need for strong independent policy- Brazil, the variation in the extent of making. 29 In conclusion, although it is early days in the PNBL access to ICTs has become a national policy issue. In programme, developments over the coming year will this respect the Brazilian experience is and will be watched with keen interest by policy makers, civil continue to be a valuable one for most other society and providers wherever the promotion of countries planning broadband strategies. 30 5. Annexes 5.1 A timeline of events relating to the PNBL August 2009. The Steering Committee for Digital Inclusion Programmes is formed, which lays the groundwork for the PNBL. May 2010. The PNBL is officially announced by Government decree 7.175. June 2010. Supported by the CGPID, a series of public consultations on the PNBL takes place with civil society, private sector and government officials. 24 Aug 2010. Complementing the 16 State capitals already announced, Telebras publishes the list of the next 100 cities that will receive broadband access by end 2010. It said a further 1063 cities are planned for 2011. November 2010. Padtec, a Campinas based Brazilian equipment supplier, wins Telebras' R68m tender for hardware to support the PNBL roll-out. A consortium of 29 operators, represented by SindiBrazil, files an objection in the Federal Court in Rio de Janeiro claiming that Telebras does not hold the power to provide services for the Federal government, and saying that the use of Telebras as a state company is "anticompetitive". The claim is not upheld. Anatel approves measures allowing operators to apply their license renewal fees directly toward universal service projects. The government announces plans to host cloud-based applications in support of the PNBL to make it easier for municipalities to provide online content. January 2011. The budget for the PNBL is revised – Initially, R600 million was to be released to Telebras in 2010 and R400 million in 2011. Now, Telebrás is to have R316million for 2010 and an additional R273 million in capital investment in 2011. Federal development bank, Banco Nacional de Desenvolvimento Economico e Social (BNDES), provides credit lines without collateral requirements to small Internet providers participating in the PNBL. Telebras is issued with an SCM license and thereby authorised by Anatel to provide services to the last mile. February 2011. The new Secretariat for Digital Inclusion is inaugurated by the federal Government Ministry of Communications. Fibre optic cable reaches Manaus (the capital of the Amazonas) via Venezuela in a joint project with Brazil to interconnect the power and fibre networks of the state utilities of Eletrobrás and the Compañia Anónima Nacional Teléfonos de Venezuela (CANTV). Seven Brazilian state governments agree to eliminate state taxes for broadband service provision and tablet computers will also be exempt from federal taxes, in line with the existing exemption on PCs and laptops. April 2011. Telebras announces that it had invested R166m in equipment and services to establish itself as a broadband provider. May 2011. Telebras reaches agreement with Petrobras and Eletrobras (Furnas, Chesf, Eletrosul and Eletronorte) to use the fibre networks of their energy distribution grids. Government announces intention to reduce taxes on locally manufactured tablet computers. June 2011. Government moves to encourage additional private investment in Telebras. The 'Broadband is Your Right' campaign is launched by a coalition of civil society groups. August 2011. The cable TV market is opened to telecom operators and others with foreign-ownership exceeding 49%. After public consultation Anatel releases the proposed revisions to the SCM license which aims to make it easier for small providers to enter the broadband market. The Ministry of Communication announces that it plans to ensure that at least 80% of metropolitan areas will have 4G coverage by 2014 (in time for the FIFA World Cup). To achieve this, tenders for the provision of 4G are being speeded up and the first set of tenders will be issued in April 2012. Telebras announces that budget cuts for the PNBL programme this year from R1bn to R350m will delay the roll out but that 250 cities should be covered by end 2011. Mobile operator Claro announces that it will join the PNBL and is now able to provide a 1Mbps service based on 3G in 515 cities for R29.90 / month (with a 200Mb/month traffic cap). Claro also said that by the end of 2011 the service will be available in 1017 cities. The city of Santo Antônio do Descoberto in Goiás state is the first to see the rollout of PNBL with residents able to obtain the 1Mbps service. The Federal government says it will provide tax exemption for the deployment of new telecommunication networks in areas which are not yet served. Telebras signs a contract with the state of Ceara to use its 740km of it 2500km fibre backbone for the PNBL. September 2011. Brazilian manufactured tablets become available. Brazil's government (lower house) agrees to exempt locally manufactured tablets from the federal taxes, which is expected to reduce tablet price by 30%. The bill now goes to Senate. Telecom operator GVT, part of the Vivendi Group, announces it will invest U.S.$300–500 million to build a backbone network International in partnership with international carriers. Telebras announces that it has signed contracts to supply network infrastructure for more than 20 Internet service providers and expects to close the year with more than one thousand ISPs registering their interest on the Telebras web site (currently about 600 have registered). 5.2 Relevant links 5.2.1 Government agencies Cabinet Office of the President http://www.casacivil.gov.br Ministério das Comunicações (primary broadband policy maker) http://www.mincom.gov.br Anatel (National regulator) http://www.anatel.gov.br PNBL – http://www4.planalto.gov.br/brasilconectado/pnbl Multistakeholder Internet Management CGI.br (Internet governance) http://www.cgi.br CETIC.br (Internet Metrics) http://www.cetic.br PTT.br (Internet Exchange Points) http://www.ptt.br ICT and broadband market information sources Teleco http://www.teleco.com.br Teletime http://ww.teletime.com.br Anatel http://ww.anatel.gov.br CETIC.br & NIC.br - Reference centres for indicators and statistics on the use of ICTs in Brazil http://cetic.br http://nic.br Digital Cities Guide http://www.guiadascidadesdigitais.com.br 5.2.2 Major broadband and telecommunication operators active in Brazil AES Com http://www.aescomrio.com.br Cemig Telecom http://www.infovias.com.br Claro http://www.claro.com.br CTBC http://www.ctbc.com.br Dialdata http://www.dialdata.net.br Diveo http://www.diveo.net.br Dsli vox http://www.dsli.com.br Easytone http://www.easytone.com.br Eletropaulo Telecom http://www.eletropaulotelecom.com.br Embratel http://www.embratel.com.br Engevox http://www.engevox.com.br Epsilon informática http://www.epsilon.com.br Global Crossing www.globalcrossing.com Global Osi http://www.globalosi.com.br GT Group http://www.gtgi.net GVT http://www.gvt.com.br IDT http://www.idtlatinamerica.com Nextel http://www.nextel.com.br Oi/Telemar http://www.oi.com.br Portugal Telecom Brasil http://www.portugaltelecom.pt Sdw http://www.sdwtecnologia.com.br Sercomtel http://www.sercomtel.com.br Sky http://www.sky.com.br Telebras http://www.telebras.com.br Telefonica http://www.telefonica.net.br Tellfree Brasil http://www.tellfree.com.br Tim http://www.timbrasil.com.br Tmais http://www.tmais.com.br Transit do Brasil http://www.transitbrasil.com.br Vivo http://www.vivo.com.br 5.2.3 Industry Associations Abramulti35 ISP industry association http://www.abramulti.com.br Abranet Brazilian Internet Association http://www.abranet.org.br Abrater36 Rural telecommunication providers association http://www.abrater.org.br Abrint Assocation of Brazilian Internet and Telecommunication service providers http://www.abrint.com.br Campaign for Universal Broadband http://campanhabandalarga.org.br Conapsi37 Internet Service Providers Assocation http://www.conapsi.org.br SINDITELEBRASIL38 Lobby association of the 40 largest telecom operators http://www.sinditelebrasil.org.br TelComp39 Telecom industry association http://www.telcomp.org.br Telebrasil40 Association of Brazilian Telecom operators http://www.telebrasil.org.br 35 Associaçaõ Brasileira dos Provedores de Internet e Operadores de Comunicação de Dados Multimídia – 36 Associação Brasileira de Telecomunicações Rurais 37 Conselho Nacional das Entidades de Provedores de Serviços de Internet 38 Sindicato Nacional das Empresas de Telefonia e de Serviço Móvel Celular e Pessoal - 39 Associcao Brasileira des Prestadoras de Servicos de Telecommunicoes Competitivas 40 Associação Brasileira de Telecomunicações 1 2 © 2011 The International Bank for Reconstruction and Development / The World Bank 1818 H Street NW Washington DC 20433 Telephone: 202-473-1000 Internet: www.worldbank.org E-mail: feedback@worldbank.org All rights reserved The findings, interpretations and conclusions expressed herein are entirely those of the author(s) and do not necessarily reflect the view of infoDev, the Donors of infoDev, the International Bank for Reconstruction and Development/The World Bank and its affiliated organizations, the Board of Executive Directors of the World Bank or the governments they represent. 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For permission to photocopy or reprint any part of this work, please send a request with complete information to infoDev Communications & Publications Department; 2121 Pennsylvania Avenue, NW; Mailstop F 5P-503, Washington, D.C. 20433, USA; telephone 202-458-4070; Internet: www.infodev.org; E-mail: info@infodev.org. All other queries on rights and licenses, including subsidiary rights, should be addressed to the Office of the Publisher, The World Bank, 1818 H Street NW, Washington, D.C. 20433, USA; fax: 202-522-2422; e-mail: pubrights@worldbank.org. Cover design by infoDev To cite this publication: Msimang, Mandla, 2011. Broadband in Kenya: Build it and They Will Come. Washington, D.C: infoDev / World Bank. Available at http://www.infodev.org/publications iii Table of Contents List of Figures, Tables and Boxes …………………………………………………………... v Glossary of Terms …………………………………………………………... vi Acknowledgments …………………………………………………………... vii Executive Summary …………………………………………………………... 1 1. Why Broadband Matters …………………………………………………………... 2 2. The Kenyan Context …………………………………………………………... 4 2.1 Country Background …………………………………………………………... 4 2.2 Human Development …………………………………………………………... 4 2.3 Socio-Economic Climate …………………………………………………………... 4 2.4 Regional Role—Kenya as a Hub …………………………………………………………... 5 3. Strategy, Policy and …………………………………………………………... 7 Regulation 3.1 Vision 2030 …………………………………………………………... 7 3.2 Policy and Regulatory Framework …………………………………………………………... 7 3.2.1 Modern ICT Policy Framework …………………………………………………………... 8 3.2.2 Policy Framework Beyond …………………………………………………………... 11 Networks 4. Institutional Arrangements …………………………………………………………... 13 `4.1 Defining Roles …………………………………………………………... 13 4.2 Line Ministries and Departments – …………………………………………………………... 13 Breaking the Silo 4.3 Too Many Actors? …………………………………………………………... 14 4.4 The People Factor …………………………………………………………... 15 5. ICT Market Snapshot …………………………………………………………... 16 5.1 The Mobile Miracle… …………………………………………………………... 16 5.2 … Meets the Broadband Revolution? …………………………………………………………... 16 5.3 Affordability …………………………………………………………... 18 6. Strategies and Approaches to Support Kenya’s Long-Term …………………………………………………………... 20 Vision 6.1 Supply Side: Kenyan Approach to …………………………………………………………... 20 Building Network Capacity 6.1.1 Wholesale: How Kenya Did It …………………………………………………………... 20 6.1.2 Moving Inland: How Kenya is …………………………………………………………... 23 Doing It 6.1.3 Kenyan Internet Exchange …………………………………………………………... 27 6.2 Stimulating Demand: Services, …………………………………………………………... 27 Applications and Content 6.2.1 Education …………………………………………………………... 29 6.2.2 Equipment …………………………………………………………... 30 6.2.3 BPO Sector …………………………………………………………... 31 6.2.4 Funding Local Demand …………………………………………………………... 34 7. Lessons Learned …………………………………………………………... 37 7.1 Potential Stumbling Blocks …………………………………………………………... 37 7.2 Kenya’s Strengths …………………………………………………………... 37 8. Conclusions …………………………………………………………... 39 9. References …………………………………………………………... 40 iv List of Figures, Tables and Boxes Figures Figure 1: Map of Kenya ……………………………... 4 Figure 2: Annual average growth by sector, 2000-2009 ……………………………... 5 Figure 3: Kenya’s vision 2030 ……………………………... 8 Figure 4: ICT Sector institutional framework ……………………………... 14 Figure 5: Regional rates: Kenya takes the lead, mobile subscriptions per 16 ……………………………... 100 people Figure 6: Uses of mobile phone in Kenya, 2009 ……………………………... 17 Figure 7: Decline in mobile tariffs (KES) ……………………………... 18 Figure 8: Kenya’s international Internet bandwidth (Mbps) ……………………………... 20 Figure 9: African fiber optic submarine cables ……………………………... 20 Figure 10: TEAMS original ownership structure ……………………………... 22 Figure 11: Kenya ICT Trust Fund Structure, collaboration through ……………………………... 30 PPPs Figure 12: How PesaPal works ……………………………... 32 Tables Table 1: Broadband subscriptions in Kenya, 2010 ……………………………... 19 Table 2: Monthly retail broadband prices, February 2011 ……………………………... 19 Table 3: The cables have landed: Fiber optic cables in Kenya ……………………………... 21 Table 4: Internet subscriptions by operator, September 2010 ……………………………... 23 Table 5: How computers are used in Africa ……………………………... 28 Table 6: Categories of Pasha Centres ……………………………... 35 Boxes Box 1:Kenyan Licensing Regime ……………………………... 9 Box 2: Electric Company & Infrastructure Sharing ……………………………... 24 Box 3: East African Backhaul System (EABs) ……………………………... 26 Box 4: BPO Bandwidth Capacity Support ……………………………... 31 Box 5: Judiciary Telepresence Project ……………………………... 32 Box 6: Mobile Money Meets E-Commerce ……………………………... 33 v Glossary of Terms ADSL Asymmetric Digital Subscriber Line ASP Application Service Provider BPO Business Process Outsourcing CCK Communications Commission of Kenya COMESA Common Market for Eastern and Southern Africa CSP Content Service Provider DSL Digital Subscriber Line EABs East African Backhaul System EAC East African Community EASSy Eastern Africa Submarine Cable System FONN Fibre Optic National Network GDP Gross Domestic Product HDI Human Development Index KENET Kenya Education Network KICTB Kenya Information and Communications Technology Board KIE Kenya Institute for Education KIXP Kenya Internet Exchange Point KNADS Kenya National Archives and Documentation Service KTCIP Kenya Transparency Communication Infrastructure Programme LLU Local Loop Unbundling LTE Long Term Evolution LION Lower Indian Ocean Network (undersea cable) MOIC Ministry of Information and Communications MTP Multimedia Technology Park NEPAD New African Partnership for Development NFP Network Facilities Provider NOFBI National Optic Fibre Backbone Infrastructure PPP Private Public Partnership QoS Quality of Service TEAMS The East African Marine System TESPOK Telecommunications Service Providers Association of Kenya USF Universal Service Fund vi Acknowledgments This report was drafted by Mandla Msimang, Managing Director, Pygma Consulting (South Africa) with significant contributions by Michael Minges, who directed the case studies for the Broadband Strategies Toolkit. The project was carried out under the supervision of Tim Kelly (infoDev) and Carlo Rossotto (TWICT), with the Telecommunications Management Group Inc. (USA) providing overall project coordination. Philippe Dongier, Sector Manager (TWICT) and Valerie D’Costa, Program Manager (infoDev), provide overall management guidance for the development of the toolkit. Samhir Vasdev edited the report and prepared it for publication. This case study is one of an initial series of seven that will contribute to the Broadband Strategies Toolkit, an online resource for policy-makers and regulators, especially in developing countries (see www.broadband- strategies.org).. The case studies are generously funded by the Korean Trust Fund (KTF) on Information and Communications for Development (IC4D). The KTF is a partnership between the government of the Republic of Korea and the World Bank Group whose purpose is to advance the ICT4D agenda to contribute to growth and reduce poverty in developing countries. . vii Executive Summary This report considers the case of broadband in With an estimated fixed and mobile broadband Kenya and the manner in which the country has penetration rate of 2 subscriptions per 100 people tackled its capacity challenges. Kenya has a in 2010, Kenya still has significant progress to natural geographic advantage, being strategically make with respect to broadband uptake. positioned on the East Coast of Africa. Its Stimulating demand and usage by Kenyan citizens government-led “build it and they will come” and the public and private sector remains a approach to broadband development has challenge. Kenya has, largely through the leveraged that advantage, and has played a major government, taken an innovative and pro-active role in dramatically increasing fibre optic approach to putting the user at the centre and backbone capacity. Many of Kenya’s milestones addressing the other elements of the broadband have been realized in less than five years – three ecosystem, such as education, literacy, applications cables had landed by the end of 2010 changing the and content. This has been done through good face of the broadband market. The country has regulation, the promotion of polices relating to gone from relying on satellite for international ICT in education, the subsidization of relevant capacity, to having access to almost four terabits content and application projects, and facilitating over fibre from the three cables combined. creative Public Private Partnerships (PPPs). Although the landing of the cables is merely a first This report finds that much of Kenya’s success is step, it has already resulted in an 80 percent due to four important factors: decrease in wholesale bandwidth costs. Lower prices and greater availability are expected to • A clear national vision articulated in increase access to the Internet as well as to Vision 2030; promote the continued spread of sophisticated mobile applications and services and consequently • Strong leadership and direction; improve opportunities for the creation of and access to information and knowledge. Affordable • A credible regulatory, policy and broadband is expected to increase Kenya’s institutional framework; and competitiveness, particularly in the Business Process Outsourcing (BPO) sector, and to • Leveraging the strength of the public and encourage entrepreneurship and innovation. private sectors through PPPs. What the Kenyan case demonstrates is that the The initiatives discussed in the report possess promotion of broadband capacity is multifaceted elements of these traits across all aspects of the and takes place on a number of different levels. broadband ecosystem. This report analyses the approach that has been The Kenyan experience is inspiring, yet it has not taken to addressing network capacity challenges been perfect. There have been a few hiccups in (supply side), as well as human capacity considerations affecting usage and uptake terms of the pace of implementation, and overlaps (demand side) by considering: in the policy and institutional framework. These are discussed in this report to provide a proper • the wholesale market for broadband context for the Kenyan broadband story and to connectivity (domestic and international enable countries to learn from Kenya’s backbone connectivity); experiences. • the retail market for broadband access (i.e. “last mile connectivity”); and • the development of services, applications and content. 1 1. Why Broadband Matters The economic and social impact of broadband is Developing country policy makers in the ICT well researched and documented. An increase in sector have spent the last 15 to 20 years broadband penetration has a greater impact on encouraging the competitive supply of networks economic development than a concomitant and services through market reform processes. increase in access to other telecommunications The same policy makers are now faced with the services. The World Bank estimates that in low challenge of moving beyond networks and the and middle-income countries such as Kenya every need to start developing strategies to increase 10-percentage point increase in broadband demand. They are furthermore faced with the penetration accelerates economic growth by glaring reality of the cross cutting impact of ICTs 1.38 percentage points.1 and the need to recognize that ICT access is not just a Ministry of Information and The economic impact of broadband2 is wide – it Communications issue – government agencies positively impacts innovation, job creation and responsible for the ICT sector now need to work employment, as well as the software and more closely with other public sector stakeholders manufacturing industries. It promotes access to to create content (e.g. online application forms, e- information – thus promoting transparency and government solutions, online payment good governance, critical in a country like Kenya mechanisms, etc.) to drive demand in order to with a historic reputation for corruption, with make broadband access meaningful. The policy related political and social benefits. In recognition response to broadband is thus changing. of the critical role of broadband, and in light of the Ministry of Information and Communications’ The Government of Kenya recognized this objective of moving Kenya towards a Knowledge relatively early and in 2006 had included a holistic Based Economy by 2012,3 policy makers, regulators approach to ICT in its national Vision 2030, its and industry players alike are seeking ways to National ICT Policy and its approach to increase broadband coverage and increase usage. regulation. Although there is no separate In light of the high costs associated with Broadband Policy, making the Kenyan approach deploying broadband networks, and the fact that seem fragmented at a glance, there is a holistic broadband is part of an ecosystem which includes ICT framework with strong dependencies on demand side factors such as applications and access to high-speed connectivity in Kenya. The content, and in which users are central, tackling national framework recognizes that broadband is the broadband divide is not quite the same as an ecosystem and as such considers strategies, tackling the digital divide which has been primarily policies and regulations that address both supply conquered through mobile phones with light and demand side considerations. The ICT touch regulation. framework is set against the backdrop of the MOIC Strategic Plan and includes the regulatory incentives provided by the Communications 1 Qiang, Christine Zhen-Wei, and Carlo Rossotto. 2009. Commission of Kenya (CCK) relating to “Economic Impacts of Broadband.” In Information and infrastructure sharing and spectrum licensing, as Communications for Development 2009: Extending Reach and Increasing Impact. World Bank Publications. well as supply side interventions made by agencies 2 The term broadband is defined differently in different such as the Kenya ICT Board which are discussed countries, primarily with reference to speed. As such, the in section 6.2. The Kenyan framework recognizes term must be understood within a country context and the that there are two types of broadband capacity – particular aspects of the broadband value chain should be network capacity, i.e. the development of high-speed recognized. Broadband in Kenya is defined “as speeds greater data communications networks, and human capacity than or equal to 256 Kbps in one or both directions.”2 In addition, there are several layers in the broadband value chain enabling the use of the services through the (wholesale, retail, applications and content) each of which development of relevant content and applications must be treated differently. to promote the use of these networks. Building 3 Ministry of Information and Communications Towards a capacity in both areas is what will make Knowledge Based Economy: Strategic Plan 2008 – 2012. http://www.information.go.ke/index.php?option=com_cont broadband matter. ent&task=view&id=239&Itemid=370 2 2. The Kenyan Context 2.1 Country Background the working population, accounts for 50 percent Located in East Africa, Kenya is bordered by of all exports and 25 percent of the GDP. In light Ethiopia, Somalia, Sudan, Tanzania and Uganda. of the fact that the Kenyan economy is highly Kenya’s coastline, along the Indian Ocean, covers dependent on agriculture, periodic drought has a over 536 km and its port, like the undersea cables significant impact on the economy and has that land along the coast, serves its land-locked threatened GDP growth. Traditionally tourism, neighbours. Kenya is divided into eight provinces tea and coffee have been the largest foreign and 47 semi-autonomous counties each having it exchange earners, but horticultural products and own semi-autonomous government headed by an industrial exports such as refined petroleum are elected governor. At present the country’s also becoming important.6 population is approximately forty million, with 68 percent of Kenyans living in rural areas, and about 13 million people living in urban areas.4 Nairobi is 2.2 Human Development the capital city, and the largest city in East Africa, Inequality in Kenya is high with the distribution of with a population of over three million.5 income, measured by Gini coefficient, estimated at According to the Constitution, Kenya’s national 39 percent in rural areas and 49 percent in urban language is Kiswahili, and English and Kiswahili areas.7 Kenya ranks 128 out of 169 countries in are the official languages, with most Kenyans the United Nations Development programme being bilingual. (UNDP) Human Development Index (HDI), an alternative to conventional measures of national development. The HDI looks beyond economic growth and provides a composite measure of three basic dimensions of human development namely health, education and income; it represents a push for a broader definition of well-being.8 According to the UNDP, over the past 30 years Kenya's HDI has remained higher than the Sub Saharan African average and has risen by 0.5 percent annually. Kenya’s HDI in 1980 was 0.404 and has risen to 0.470 in 2010; this can be compared to the HDI of the region which increased from 0.293 in 1980 to 0.389 over the same period. 9 Kenya’s position as 128 out of 169 makes it a developing country with low human development. Figure 1: Map of Kenya (Source: CIA World Factbook) Kenya is one of the most industrialised countries in the East African region, yet industry represents 6 http://www.fco.gov.uk/en/travel-and-living-abroad/travel- only 10 percent of its Gross Domestic Product advice-by-country/country-profile/sub-saharan- (GDP). The largest sector of the economy is the africa/kenya/?profile=economy 7Waema, Timothy, Catherine Adeya, and Margaret Nyambura agricultural sector which employs 80 percent of Ndung’u. 2010. Kenya ICT Sector Performance Review 2009/2010. Cape Town, South Africa: Research ICT Africa. 4 Kenya 2009 Population and Housing Census Highlights. Kenya http://www.researchictafrica.net/publications.php . National Bureau of Statistics 8 International Human Development Indicators, http://www.knbs.or.ke/Census%20Results/KNBS%20Broc http://hdrstats.undp.org/en/countries/profiles/KEN.html hure.pdf 9 International Human Development Indicators, 5 http://www.unicef.org/kenya/overview_4616.html http://hdrstats.undp.org/en/countries/profiles/KEN.html 3 Figure 2: Annual average growth by sector, 2000-2009 (Source: Kenya National Bureau of Statistics and World Bank staff estimates) increasingly urbanized (32.2 percent11), highly 2.3 Socio-Economic Climate educated (at least 61.5 percent literacy rate)12 and According to a report from the World Bank, over bilingual professional workers who are fluent in the last decade, the Kenyan economy has grown at English.13 This positions Kenya well to use an average of 3.7 percent.10 In this time, the broadband to support its own internal market, as Kenyan ICT sector has grown at a rate of 20 well as to participate globally. percent per annum and has outperformed all other segments of the economy. The World Bank estimates that without ICT, economic growth 2.4 Regional Role – Kenya as a Hub would have been only 2.3 percent, and income per An investor-friendly country, Kenya is generally capita would have stagnated. perceived as East and Central Africa's hub for financial, communication and transportation In 2010, largely due to tourism, services; and rivals South Africa as an investment telecommunications, transport, and construction sector growth and recovery in the agriculture 11 Kenya 2009 Population and Housing Census Highlights. Kenya sector, an estimated 4.5 percent GDP growth was National Bureau of Statistics achieved. A GDP growth of 5.3 percent is http://www.knbs.or.ke/Census%20Results/KNBS%20Broc hure.pdf forecast for 2011. These improvements in the 12 Kenya National Adult Literacy Survey, 2007 as discussed in economy are supported by a large pool of “The Development of Education: Kenya National Report”, the Department of Education, November 2008, http://www.ibe.unesco.org/National_Reports/ICE_2008/ke 10 World Bank. 2010. Kenya at the Tipping Point? Kenya Economic nya_NR08.pdf Update. Nairobi, Kenya: World Bank. 13 English and Swahili are the official languages of Kenya; http://go.worldbank.org/S743MCDPM0. English is the language of instruction at all levels of school. 4 hub in Sub Saharan Africa. Political stability is key The country is well positioned as a member of the for Kenya to maintain its influential position in Common Market for Eastern and Southern Africa the region and following political instability in (COMESA), which has 19 member states with a 2007, Kenya enacted a new Constitution in 2010 combined population of 430 million (2008).14 and has emerged in less than five years with a Kenya is also a member of the East African strengthened political, economic and social Community (EAC), which includes Kenya system. The return to political stability was Burundi, Rwanda, Uganda and the United enabled by the swearing in of a Grand Coalition Republic of Tanzania. The EAC adopted a Government in April 2008 which was established common market protocol in mid-2010 creating a under the “National Accord and Reconciliation single 130 million-person market with a combined Agreement.” The National Accord provides for a GDP estimated at $72 billion (KES 5.98 trillion).15 power sharing arrangement between the Kenya is the largest player in the EAC President’s Party of National Unity (PNU) and the contributing 40 percent to the regional block’s Prime Minister’s Orange Democratic Party GDP. (ODM). 14COMESA Website. See: http://www.comesa.int/ 15Ibid, Study on the Establishment of an East African Common Market: Final Report, and http://www.eac.int/advisory-opinions/cat_view/68-eac- common-market.html 5 3. Strategy, Policy and Regulation One of Kenya’s strengths lies in the central role further reflected in the approach taken by the that ICT in general and high-speed Permanent Secretary of the MOIC to implement communications infrastructure in particular, plays the Strategic Plan, which is to ensure that the ICT in its national strategy, Vision 2030. A key sector is not considered in isolation and that it has characteristic of the Kenyan broadband space is an impact on national development. the pervasive role of the government which is supported by the strategic, policy and regulatory The MOIC Strategic Plan takes the objectives framework. However, criticisms have been articulated in Vision 2030, interprets them from levelled against the heavy institutional framework an ICT sector perspective and puts timeframes that has been created to support this vision, and resources to them. It defines projects particularly in the ICT sector. While the intended to increase ICT sector developments; framework has facilitated the growth of the ICT discusses strategic initiatives and proposes projects sector in general, the impact on consumers of such as the National Optical Fibre Backbone Internet and broadband has yet to be fully felt. Infrastructure (NOFBI), the East African Marine System (TEAMS), and the Kenya Transparency Communication Infrastructure Programme 3.1 Vision 2030 (KTCIP) which includes Digital Villages and The Kenyan government’s recognition of the Bandwidth subsidies as sub-projects. The strategic role played by ICTs in the economy is an establishment of ICT/Business Process important aspect of the implementation of Vision Outsourcing (BPO) Parks and Multimedia 2030, the country’s ‘development blueprint”.16 Technology Parks (MTP) forms part of the MOIC Vision 2030’s key goal is that Kenya will be one of Strategy and these projects are specifically linked the top three investment destinations in Africa by to promoting broadband infrastructure rollout and 2030. This will be achieved by addressing three encouraging capacity uptake. The Strategy pillars – Economic, Social and Political (Figure 3). recognises that the ICT sector requires input from ICT is explicitly dealt with under the Economic other sectors of the economy and suggests that Pillar, which is geared at attaining prosperity for all despite the aggressive targets set at a national Kenyans through an economic development level, budgetary and financial constraints, non-ICT programme aimed at achieving an average GDP infrastructure such as electricity and roads, are key growth rate of 10% per annum over the next 25 challenges to meeting ICT sector objectives. years. Importantly, one of the factors that has been 3.2 Policy and Regulatory Framework identified to enable the Kenyan economy to The government has liberalized the ICT sector to achieve its Vision 2030 targets is the Business achieve universal service and access objectives, Process Outsourcing (BPO) industry, one of 20 firstly through competition—all ICT markets are flagship projects of the Vision, which includes call theoretically open to competition— and reliance centres, back office operations and software on the market to deliver services; and where development. Even where it is not explicitly necessary through government intervention. stated, ICTs cut across all three pillars in light of Governments participation in the sector includes e-governance applications and the vision towards a retaining equity interest in a number of ventures at knowledge based economy, as is reflected in the various levels of the ICT value chain – as a Ministry of Information and Communications’ shareholder in Safaricom (mobile, broadband), (MOIC) Strategic Plan (2008 – 2012).17 It is Telkom Kenya (fixed, mobile, broadband) and recently TEAMS (undersea cable) and NOFBI (terrestrial backbone network). Recent indications 16Vision 2030, http://www.communication.go.ke/documents/Vision_2030 are the government will participate in the rollout _Popular_Version.pdf http://www.information.go.ke/index.php?option=com_cont 17Ministry of Information and Communications Towards a ent&task=view&id=239&Itemid=370 Knowledge Based Economy: Strategic Plan 2008 – 2012. 6 Figure 3: Kenya's Vision 2030 (Source: Kenya Investment Authority) of a national LTE last mile network.18 Balancing • 2006 ICT Strategy: Collaboration and public sector participation in the ICT sector with Outsourcing for Economic Growth20 market reform can be a challenge; the manner in which seeks to simultaneously target the which Kenya has addressed this is discussed in development of the ICT sector and to use Section 6.1. ICTs for creating employment, poverty reduction, enabling economic recovery 3.2.1 Modern ICT Policy Framework and achieving national developmental The national policy framework that supports goals. It is aligned with Vision 2030 and broadband network deployment and access has a key focus on the BPO sector. includes: • 2006 National ICT Policy19 which deals with convergence, ICT in health and education, e-commerce, e-governance, privacy and cybercrimes, and recognises the evolution of the ICT market; 18 Interview with Permanent Secretary on 16 January 2011, and Osiakwan, E. “Kenya to launch an open access LTE network to help drive down prices and extend coverage.” http://www.afrispa.org/index.php?option=com_content&ta sk=view&id=96&Itemid=2 viewed on 28 February 2011 19 See Communications Commission of Kenya website, 20 http://www.cck.go.ke/regulations/downloads/national_ict_ http://www.ictvillage.com/Downloads/2006_Kenya_ICT_S policy.pdf trategy.pdf 7 Box 1: Kenyan Licensing Regime Like its regional counterparts in Rwanda, Uganda and Tanzania the CCK has adopted a technology neutral unified licensing framework (ULF). Network operators and service providers are licensed under a market structure consisting of the following broad market segments:- Network Facilities Provider (NFP) - Licensees under this category can own and operate any form of communications infrastructure (based on satellite, terrestrial, mobile or fixed). The NFP category is further divided into National NFP and International NFP. Investors who wish to land a submarine cable in Kenya require a Submarine Cable Land license while those interested in building system for the provision of international voice/data services are required to get a license for international Systems and Services. An International NFP (Incl. submarine cables and international gateway facilities) costs KHS 15 million as an initial fee, and the higher of 0.5% of Annual Gross Turnover or KES 5 million (US$ 60,170) per annum. The spectrum fee payable is based on bandwidth and coverage. National NFP are described based on the use of spectrum. National NFPs are further identified as Tier 1 (exclusive use of spectrum countrywide), Tier 2 (exclusive use of spectrum regionally) and Tier 3 (exclusive utilization of spectrum by Administrative District). The initial license fee for Tier 1 and Tier 2 NFP licenses is KES 15 million; the fee for Tier 3 NFP licenses is KES 200,000. (US$ 2400) In addition a spectrum fee is payable based on bandwidth and coverage. Applications Service Provider (ASP) - Licensees under this category are permitted to provide services to end users using the network services of a facilities provider (NFP). The initial license fee is KES 100,000, and an annual fee of the higher of KES 100,000 (US$1200) and 0.5 percent of Annual Gross Turnover is payable. Content Services Provider (CSP) - Licensees under this category can provide content services material, information services and data processing services. The initial license fee is KES 100,000 (US$1200) and an annual fee of the higher of KES 100,000(US$1200) and 0.5 percent of Annual Gross Turnover is payable. Source: CCK Website, http://www.cck.go.ke/licensing/telecoms/telecom_marke_structure.pdf • 1998 Kenya Communications Act, as Kenya into an area that still requires more amended in 2009 to become the Kenya definition - electronic commerce and Information and Communications transactions. The 2009 Amendment Act Act.21 The 1998 Act separated the roles provides a high level framework for, of policy formulation, service provision amongst others, the recognition of and regulation and as such restructured electronic signatures and records and Telkom Kenya, splitting out the regulator introduces content regulation. (Communications Commission of Kenya), and creating a policy advisory A gap in the Kenyan legal framework is the body (National Communications absence of a specific law that address electronic Secretariat) and an Appeals Tribunal. It transactions. While a framework is provided by dealt with the progression from a market the Communications Act which recognizes monopoly to a liberalised ICT sector. The advanced e-mail, electronic signatures and 2009 Amendment Act was aimed at electronic records as equal to written signatures aligning the 1998 legislative framework and physical records respectively, consumers, with the 2006 ICT Policy. It did this by particularly first time users of the Internet, require enabling a technology neutral and comfort to provide documents electronically and converged approach to the market to spend money online. A legal framework that is structure, licensing and regulation in sufficiently detailed, practical and implementable general. It also delved for the first time in and instils trust would play a key role in encouraging the use of the Internet by consumers and businesses for daily transactions. The CCK’s 21See Communications Commission of Kenya website, http://www.cck.go.ke/regulations/downloads/Kenya- regulations which seek to expand on the Information-Communications-Act-Final.pdf provisions of the Communications Act, only 8 provide a broad framework and are still fairly high spectrum, will be arrived at “based on the level. For example while they define the economic value of the spectrum in a institutional framework they have not yet licensed manner that promotes its efficient use Certification Service Providers to authenticate and sector growth.” 26 To date although electronic signatures.22 the law provides for auctions as one of the methods of licensing, beauty contests The legal and policy framework is complemented have been used for initial licenses, and a by recent 2010 regulations issued by CCK, all of ‘first come first served’ approach for which, while they do not explicitly deal with requests for additional spectrum, such as broadband, create an enabling environment and 3G spectrum. A dispute is underway affect the impact of the regulatory environment regarding the pricing of 3G spectrum – on the promotion of broadband, namely: Airtel and Orange were granted 3G licenses in 2010 for 60 percent less than • Universal Service and Access the fee paid by Safaricom in 2007. The fee Regulations23 which address both access reduction was motivated by a desire by to public voice and to Internet. Many the government and regulator to increase African countries are still undergoing broadband penetration. processes to amend the definitions of universal service and access to include At present in Kenya 3 licensees have 1900 Internet and advanced services. The MHz spectrum, 3 licensees have been regulations provide for the provision of assigned 3G spectrum in the 2100 MHz subsidies, loans and grants for both basic band and 18 licensees have been assigned and advanced ICTs as well as building broadband spectrum in the 3.3 GHz – 3.5 human capacity and encouraging GHz bands27; innovation – key areas if Kenya is to encourage Internet uptake. Operators • Licensing and Quality of Service must pay a levy not exceeding one Regulations28 provide a framework for percent of gross revenues to the newly granting, registering, transferring, and established USF for projects and otherwise managing licenses, as well as programmes which may include Internet quality of service monitoring and and broadband projects for both public reporting. The CCK measures the quality and private access. A report on Universal of each of the mobile networks, however Service indicates a target for 2005 – 2010 no specific QoS requirements have been of 1 internet point of presence per stipulated and thus measured for district24; but no formal tracking or broadband to assess speeds, network evaluation of this is available. quality or other parameters; • Frequency Spectrum Regulations25 • Facilities Leasing and Interconnection which deal with spectrum licensing and Regulations29 and Fair Competition pricing, and provide for spectrum sharing where CCK mandates it (not yet mandated). Importantly they provide that pricing, including that for broadband 26 See CCK website, http://www.cck.go.ke/regulations/sector_regulations.html 22 The process is now underway, see: CCK Plans Tough Rules to 27See CCK website, Check Electronic Signatures, Okuttah, M. November 8, 2010. http://www.cck.go.ke/licensing/downloads/List_of_access_ http://allafrica.com/stories/201011090245.html frequencies_assigned_to_operators.pdf 23 See CCK Website, 28See CCK website, http://www.cck.go.ke/regulations/downloads/xUniversal_A http://www.cck.go.ke/regulations/downloads/xLicensing_a ccess_and_Servicesx_Regulationsx_2010.pdf nd_Quality_of_Servicex_Regulationsx_2010.pdf 24http://www.cck.go.ke/services/universal_access/download 29 See CCK Website, s/FinalUAreport.pdf http://www.cck.go.ke/regulations/downloads/xInternnectio 25 See CCK website, n_and_Provision_of_Fixed_Linksx_Access_and_Facilitiesx_ http://www.cck.go.ke/regulations/sector_regulations.html Regulationsx_2010.pdf 9 Regulations30 which indicate the 3.2.2 Policy Framework Beyond Networks regulators’ encouragement of co-location Government’s role in promoting broadband agreements which are to be commercially network rollout is a fundamental pillar in Kenya’s negotiated, however CCK has the right to broadband achievements to date. The bandwidth intervene in case of a dispute. The now available is impressive, however, the regulations also provide for the provision challenge remains how to make it meaningful of Reference Interconnection and Access from a user perspective. Some aspects of the Offers by dominant operators to facilitate regulatory framework will need to be amended to fair competition and the entry of new address this. This includes consideration of the players. The Fair Competition legal and regulatory framework dealing with Regulations provide a framework for content and applications. In addition to the above, market reviews and determinations of there is legislation that specifically affects the dominance, and confirm the CCK’s online sector including the following: mandate over ICT competition matters. They provide that licensees must give • Constitution (2010)31 – Under the new equal access and non-preferential Constitution, every person has the right treatment to all customers on a first to privacy, which includes the right not to come, first served basis. This applies to all be searched (i.e. their person, home or network facilities, i.e. any element that property); not to have their possessions forms part of an electronic seized; information relating to their family communications network including ducts, or private affairs unnecessarily required or cables, antennae and masts – critical revealed; or the privacy of their elements of a terrestrial backbone communications infringed. Citizens network. furthermore have the right of access to information held by the State; the The regulations also define dominance, provision to the public of timely and and aspect of the regulations that proved accurate information is promoted for the controversial and was contested by some public sector. operators in the market, and provide for the CCK to undertake market reviews as • Public Archives and Documentation necessary, none have been conducted in Service Act which was passed in 1966 the broadband markets. and revised in 1990, and which created the Kenya National Archives and CCK regulations on Dispute Resolution, Tariffs, Documentation Service (KNADS) Type Approval, Numbering and Consumer provides a framework for the Protection also form part of the framework. The preservation of public records and Consumer Protection Regulations are important in archives. The Government Printer and an Internet context due to requirements stipulated government ministries, agencies and in the regulations to protect children and for departments must provide KNADS licensees to provide clear and accurate copies of any published or generally information on the pricing and capability of their circulated document or report produced services to consumers – an area, like the by their respective offices. As noted by monitoring of QoS, that becomes increasingly Global Information Society Watch, the important in a broadband context with regard to Act does not, however, expressly speeds, prices and capacity. recognize the rights of citizens to access these public archives, nor does it require the information to be made available in 30See CCK Website, 31 http://www.cck.go.ke/regulations/downloads/xFair_Compe http://www.kenyalaw.org/klr/fileadmin/pdfdownloads/Con tition_and_Equality_of_Treatementx_Regulationsx_2010.pdf stitution_of_Kenya__2010.pdf 10 electronic format, which are important education network thus reducing costs aspects of e-law. and increasing access. • Copyright Act (2001)32, which provides • Freedom of Information Bill, which intellectual property and copyright deals with the general right of access to protection and restricts access to information, which is defined as “any information. It is focussed on the documentary material regardless of its traditional broadcasting sector and more physical form,” that is held by public recent concepts such as “open source”, authorities and private bodies performing and “online content” are not sufficiently a public function. The Bill addresses the covered in the Act which is problematic proactive dissemination of information from a broadband content and through the publishing and updating of applications perspective. Strengthening information by public authorities, and the such provisions will have a practical right for persons to correct their personal impact and facilitate the sharing of data held in government records, as well resources in schools, hospitals and clinics, as introducing the principle of maximum amongst others. In the education sector disclosure.33 It also provides for the as an example, digitised textbooks and appointment of an Information educational software, can be shared Commissioner to ensure compliance with electronically by all schools on an the legislation. 32 33 http://www.kenyalaw.org/Downloads/Acts/Copyright%20 http://www.tikenya.org/documents/The_Freedom_of_Infor Act.pdf mation_Bill.pdf (2007) 11 4. Institutional Arrangements and levelling the playing fields across the Kenyan 4.1 Defining Roles economy. Kenya’s ICT sector and market reform process is supported by the sector ministry, the national ICT regulatory authority and the relevant Parliamentary 4.2 Line Ministries and Departments – Portfolio Committee on Communications. From Breaking the Silo an implementation perspective, Kenya’s market The promotion of broadband presents both oriented approach sees licensed operators opportunities and challenges in light of the cross responsible for implementing the aspirations set cutting impact of broadband on the economy, and out in national policy. This is done by private the role that government as a whole (and not just operators and also through a number of the Ministry responsible for ICT) must play to innovative joint ventures and Public Private meet the country’s ICT targets and objectives. partnership models. Further to the institutions Kenya has learned that the promotion of that have become the norm in liberalised markets broadband requires a level of coordination across (i.e. policy maker, regulator, operators), Kenya line Ministries that appears to be unprecedented in has a fairly unique framework which demonstrates recent history; hence a common concern is raised its commitment to increasing universal service and about the “silo effect.” Public administration, access of ICTs, and also the strategic importance health, education, agriculture and trade and of ICTs and specifically broadband and Internet industry departments are key institutional access in the economy. stakeholders in the development of broadband in Kenya. Their role is to ensure the promotion of Kenya’s institutional framework as it relates to broadband for their own internal efficiency, as promoting broadband uptake and impact, is well as to deliver content and services to their closely tied to a relatively new organisation called respective constituencies. Kenya’s experience the Kenya Information and Communication demonstrates that once the cables have landed the Technology Board (KICTB). It plays an important effective use of broadband by line ministries role in terms of the promotion of the BPO requires that they: industry, and also with respect to the facilitation and subsidization of projects that drive demand, • Recognize the value of broadband such as the creation of “Pasha Digital Villages” and the rollout of the “Wezesha”34 programme to • Are themselves comfortable with using subsidize laptops for university students. In technology in general, and broadband in addition, the establishment of the Government specific Information Technology Services (GITS) in 2000, a Directorate of E-Governance (created in 2004), • Trust technology and a National Communications Secretariat (NCS) (created in 2006) points to the strategic import of • Have the capacity to evaluate broadband ICT to the government and its recognition that it projects and initiatives is important that it creates content for users to access. Each of these institutions has a critical role • Coordinate their policy intervention and to play in promoting and facilitating broadband projects access, mainly on the demand side. The above does not seem to be the case for all These ICT sector specific institutions are further government departments which is leading to supported by a Monopolies and Prices delays in the achievement of some of the Vision Commission which deals with competition issues 2030 targets, particularly as they relate to digitisation of government content and e- 34 The program provides a voucher of KES 10’000 (US$120) government. Looking outside of the MOIC, in towards the purchase of a laptop. The subsidies for the first Kenya a policy exists for ICT in Education, phase will cover the purchase of around 16’000 laptops. See: however, no formal ICT policy seems to exist for http://www.ict.go.ke/index.php/sport/wezesha/about 12 Minister Assistant Assistant Minister Minister 1 . Ke nya 1.C om m un icatio n Br oad ca sting Co mm ission o f Ke nya Co rp or atio n 2. Keny a Bro ad cast ing 2 . Pos tal C or po rat ion Co rpo ra tion o f Ken ya Permanent Secretary 3. Mu lti M ed ia ve rsit y o f Ke nya Un i 3 . T elko m Keny a 4. Keny a F ilm Cen so rsh ip Bo ar d 4 . Ken ya Colleg e of 5. Keny a F ilm Co m mu nica tion Co mm ission T ec hn olog y 6. Natio na l Co mm un ica tion s 5 . Co mm u nica tion Co m missio n o f Ke nya 2007 Proposed Secr eta ria t 7. Posta l Co rp or atio n 6 . Ken ya Film (2008 – 2012) of Keny a 8. GIL GI Ce nso rs hip Boar d T eleco m mu nic atio n Ind us tries 7 . Na tion al on 9. Com m un icat i Co m mu nica tion s s T ribu na l App ea l Sec re tar i at 10 . Ken ya ICT Bo ar d 11 . Ken ya Year Bo ok 8 . GIL GI Edito ria l Boa rd T elec om m un icatio ns 12 . Bra nd Ken ya In du str i es Boa rd 13 . In for ma tion Co mm ission b un al 9 . App ea ls T r i 14 . T he East Afr ic an Ma rin e Sys tem (T EAM S) c 15 . F ibr e O pt i o na l Ne two rk Nat i (F ON N) Figure 4: ICT Sector Institutional Framework (Source: Adapted from MOIC Strategy, 2008- 2012) other sectors. As such, the extent to which they policy formulation and its implementation are are coordinated with the National ICT Policy is comprehensively addressed, on another it has unclear, and monitoring and evaluation of such been criticized for causing duplication in functions policies is done by line ministries, with sharing of for example between the National information across ministries reliant on the Communications Secretariat and the better known relationships between particular government KICTB which are both responsible for advising officials, as opposed to mechanisms built into the the government on policy issues;35 and the KICTB institutional framework. This has the potential to and the Brand Kenya Board which both promote increase costs and duplicate efforts – for example the ‘ICT image and reputation’ of the country. In when the Department of Health promotes addition, the role of the KICTB (funded primarily projects aimed at connecting rural clinics without through donor funding) and the newly established collaborating with the Department of Education Universal Service Fund (funded through levies on which may be addressing the rural schools divide operators) may overlap with respect to the simultaneously. Similarly, where Local promotion and subsidization of projects which Government Departments may initiate seek to increase accessibility, availability and infrastructure projects, without having regard to affordability of ICTs and in particular broadband. projects underway that may be led or funded by Projects such as the telecentres and community other ministries. access points projects that are promoted by the 4.3 Too Many Actors? 35Waema, Timothy, Catherine Adeya, and Margaret Nyambura Ndung’u. 2010. Kenya ICT Sector Performance Review While on one hand the institutional framework 2009/2010. Cape Town, South Africa: Research ICT Africa. can be seen as a strength in that all aspects of http://www.researchictafrica.net/publications.php . 13 USF and provide communities with a server, people implementing it. In Kenya, a strong computers, printers, and free Internet connectivity Permanent Secretary and dedicated and for at least one year, may overlap with the charismatic leaders of key ICT sector institutions KICTB’s Digital Villages programme discussed are an important part of the country’s success. In later in this report. The presence of a strong addition, the entrepreneurial nature of Kenyans MOIC Permanent Secretary who has a good has played a role. The conceptualisation and understanding of the sector and how best to use implementation of TEAMS and NOFBI required the institutions effectively is central to minimising strong leadership to push national objectives, conflict and reducing overlap. particularly in the face of regional challenges and the need to negotiate implementation with regional political and private sector players. The 4.4 The People Factor Kenyan case, like that in countries like Rwanda, Many countries have excellent ‘paper policies’ but South Korea and Malaysia, shows the importance are thin on implementation. A significant of a “champion” to meet targets. contributor to the success or otherwise of a broadband strategy is the commitment of the 14 5. ICT Market Snapshot Like most countries in Sub-Saharan Africa, Kenya the mobile operators have a mobile money has experienced a telecommunications revolution, service. Over 80% of Safaricom’s subscribers or and particularly a mobile revolution. It has seen an 13.5 million people have registered for the M-Pesa increase in mobile subscriber numbers, and has service.37 Mobile money is not the only non-voice innovated in ways that have impacted the region application people are using on their mobiles with and the world. As expected, the ICT sector is an other activities including sending SMS, accessing engine for economic growth. the Internet and watching TV (Figure 6).38 Despite mobile success, there is still room for 5.1 The Mobile Miracle... progress. Population coverage of 2G networks is One of Kenya‘s greatest successes has been the still far from universal (86% in 2010) and 3G unprecedented uptake and usage of mobile coverage is limited to urban areas. The remaining services. Kenya was a slow starter with only challenge remains access for residents of rural and 114,000 subscribers seven years after mobile was remote areas without affordable network first introduced, well below the subscription rates coverage. of the country’s Sub Saharan peers. Following market reform and liberalization, there were 22 million subscribers in September 2010 for a 5.2 …Meets the Broadband penetration rate of 60 subscriptions per 100 Revolution? people (Figure 5). The mobile miracle has become a typical success story of most developing countries, with the The mobile market comprises four licensees, advent of pre-paid coupled with mobile including a dominant player in the market in the technology driving the uptake of mobile voice form of Safaricom (76 percent market share), a services. What is unique about Kenya is that over publicly listed company with shares also owned by the last two years, its broadband market has the government and strategic investor Vodafone undergone a revolution. This was spurred by key of the United Kingdom. The remainder of the developments including the landing of three market is divided between private operators Airtel undersea fibre optic cables (see Section 6.2). This Figure 5: Regional Rates...Kenya takes the lead, mobile subscriptions per 100 people (Source: CCK and ITU) 80 Kenya 60.4 54.0 60 46.0 32.8 40 21.4 16.0 20 10.7 5.0 0.4 1.9 3.8 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 (14%), Essar (7%) and the mobile arm of the incumbent, Orange (4%). Washington D.C.: World Bank. http://www.microfinancegateway.org/p/site/m/template.rc Kenya’s mobile sector is characterized by /1.9.43376/. innovation, particularly mobile money. 37 Safaricom. “Half-Year Results Presentation.” 10 November Safaricom’s M-Pesa36 led the way and today all of 2010. http://www.safaricom.co.ke/index.php?id=323 38 Bowen, Hannah. 2010. Information at the Grassroots: Analyzing the Media Use and Communication Habits of 36 For more on M-Pesa see: Mas, Ignacio, and Dan Radcliff. Kenyans to Support Effective Development. 2010. “Mobile Payments Go Viral: M-PESA in Kenya.” In http://www.audiencescapes.org/africa-research-survey- Yes Africa Can: Success Stories from a Dynamic Continent. quantitative-analysis-ghana-kenya. 15 favourably positions the country from an has been limited and in fact the number of fixed infrastructural perspective particularly lines has been declining. The number of copper- international Internet capacity. The undersea based fixed lines stood at just 228,391 in cables (that at least four licensees have built, or September 2010 of which 12,216 were connected that are in the process of being built), are to a DSL subscription meaning that only a little complemented by Kenya’s regional and national over 5% of fixed lines were connected to fibre backbone projects (see Section 6) to drive broadband. Fixed wireless lines are based on connectivity in rural areas. CDMA 2000 1x technology including broadband EV-DO in the case of Telekom Kenya. Despite the landing of the cables, there is significant scope for retail broadband to take off. Consistent with the trends displayed as part of Internet and broadband services are provided by the 2G ‘mobile miracle,’ mobile broadband is far mobile operators and by Internet Service more prevalent than fixed with some 780,000 Providers (ISPs) including the more popular subscribers by the end of 2010.39 Until recently Kenya Data Network (KDN), Jamii Telkom, Safaricom was the only mobile operator offering UUNET, AccessKenya, Wananchi Online, 3G services. It was granted a license in 2007 and Figure 6: Uses of mobile phones in Kenya, 2009 Communications Solutions and AfricaOnline. launched service in 2008. Its HSDPA network While there is competition in the Internet and uses the 2100 MHz frequency and provides broadband markets, these are the least accessible download speeds up to 7.2 Mbps comparing ICT services in Kenya, as is the case in most favourably with fixed broadband solutions. Airtel African countries. There were only 37,356 fixed and Orange were granted 3G licenses in 2010. Internet subscriptions at September 2010 using WiMAX, DSL and fibre optic technologies. One It is likely that broadband usage and uptake in a challenge is the lack of fixed telephone lines and Kenyan context, like in many developing countries coaxial cable television networks to provide the with high mobile penetration, will be primarily basis for developing fixed broadband access. The wireless. Overall Internet access (narrowband and total number of fixed lines (both copper and fixed broadband) from mobile phones already far wireless) stood at 369,971 in September 2010. outstrips fixed Internet subscriptions, and this is Telkom Kenya, of which France Telecom is the strategic investor, is the primary provider of fixed lines. Though some competition has been injected 39GSMA. “African Region Mobile Broadband Landscape.” through the licensing of Tier 2 (local loop, and November 2010. http://www.gsmamobilebroadband.com/resources/global_c regional) Network Facilities Providers the impact overage_maps/list.aspx. 16 unlikely to change going forward in light of fixed 2011 keep their costs high. Instead of lowering line penetration. prices, operators are increasing speed or adding other features. For example, while the price of the Telkom Kenya 256 Kbps ADSL offering has not 5.3 Affordability changed since 2009, it now includes 30 minutes of With reference to the broadband market, while free on-net talk time per month. Another wholesale bandwidth charges have decreased, contributing factor to the perception of there is a perception that retail prices have not broadband price rigidity is the rapid drop in prices dropped as much. According to the Kenya ICT on mobile networks, particularly following a Board the price of a monthly international E1 link recent reduction in wholesale termination rates. dropped from US$7,500 in 2007 to US$ 1,290 by According to the CCK, the average price of a pre- Figure 7: Changes in mobile tariffs (KES) (Source: Communications Commission of Kenya) To fixed Q3 09/10 Off net Q2 09/10 Q3 08/09 On net 0 2 4 6 8 10 12 14 30 20 10 0 2004/5 2005/6 2006/7 2007/8 2008/9 2009/10 Avg pre-paid On net Avg pre-paid Off net Avg Charges mobile network Avg Charges fixed network the end of 2009, a reduction of over 80%.40 paid on-net call dropped 33.4% from June- During the same time period retail prices have September 2010. dropped by the same magnitude. For example Telkom Kenya’s 256 Kbps DSL package dropped One notable aspect of Kenyan retail pricing is the from KES16’008 to KES 2’999. There is some variety of choices and entry-level speeds (Table 5- truth however to the recent rigidity in retail 2). While an entry-level ADSL package begins pricing. After initial reductions, they have mostly with an advertised download speed of 256 kbps, remained fixed at the same price with some most other technologies have a higher starting operators arguing that their long term contracts speed. The least expensive monthly price is fixed with satellite providers which only expire post wireless using EVDO technology at around US$11 (KES 900) per month. However even that price is out of reach for many Kenyans. In order 40Kenya Information and Communications Technologies to make access more affordable most mobile Board. 2009. Progress Report 2007-2009. http://www.ict.go.ke/oldsite/images/pdfs/kictb%20progres operators offer prepaid data packages in small s%20report%202008-2009.pdf denominations. For example Orange offers 150 17 MB of use for US$2 (KES 150) per month while intensive on-line use, they at least provide an Safaricom offers as little as 5 MB for KES 5 option for the budget conscious consumer to (US$0.07) per day. While these may not allow check their e-mail. Table 1: Broadband subscriptions in Kenya, 2010 (Source: GSMA and CCK) Technology Subscribers Penetration Mobile broadband 779,886 2.1 Fixed broadband 84,726 0.2 - Terrestrial wireless 15.907 - - DSL 12,216 - - Fiber optic 8.369 - - Others 864 - TOTAL 864,592 2.4 Note: Mobile broadband subscriptions refer to data published in November 2010. Fixed broadband refer to September 2010. There is a discrepancy between the total number of broadband subscribers reported by CCK and the item breakdown. Penetration figures based on 2010 population reported by the IMF Table 2: Monthly retail broadband prices, February 2011 Price Download Monthly Monthly per Operator Technology speed price price Comment Mbps (Mbps) (KES) (US$) (US$) Orange EVDO 3.1 850 $11.16 $4 Data card Telkom Includes 30 minutes per month of free ADSL 0.256 2,999 $39.36 $154 Kenya voice on Orange networks Price adjusted to reflect 1GB per month Safaricom HSDPA 7.2 1,428 $18.74 $3 usage Cable Zuku 1 999 $13.11 $13 Limited availability; hybrid fiber/cable modem Guaranteed speed; speed shown Access WiMAX 0.32 4,640 $60.90 $190 averaged over month since different speeds apply at different times of day Source: Adapted from information on operator websites. Note: Including taxes. All plans are entry level with download speed of at least 256 kbps. Converted to US$ using 2010 annual average exchange rate. All packages for unlimited access unless noted. 18 6. Strategies and Approaches to Support Kenya’s Long-Term Vision The Kenyan government’s role in the ICT sector position. From no international fiber optic has been all but “hands off.” It is an example of a connectivity at the beginning of 2009, Kenya had country where focussed and strategic three high-speed undersea cables landing in interventions in the market by government have Mombasa by the end of 2010 (Figure 9 and Table brought about positive benefits for the industry as 3). In addition the LION cable and a terrestrial a whole. However, balancing playing a strong and National Optical Fiber Backbone Infrastructure central leadership role in the ICT sector, with are being laid and set to launch commercially in promoting the principles of a competitive market, 2011. can be difficult as seen in the discussions on PPP projects such as TEAMS and NOFBI and the The addition of new fiber optic capacity has BPO and Multimedia Technology Parks. While dramatically increased the amount of international PPP modelled interventions have received a Internet bandwidth available to Kenya (Figure 8). significant amount of attention, the supply side By mid-2010 Kenya had 20 Gbps of international and demand side interventions made in Kenya bandwidth, an increase of 20 times since just have been carried out using a combination of before the cables landed and astounding 2,000 private, public and PPP financing structures that times since the beginning of the decade. It can are discussed in the following section. draw on an available capacity of 200 Gbps if needed. Satellite accounts for just one percent 25,000 compared to 100 percent at the beginning of 2009. 20,384 This current bandwidth glut firmly places Kenya in a position to participate in the global 20,000 information economy and is the most dramatic illustration of the country’s proactive broadband 15,000 push. 9,881 10,000 5,000 1,037 ,885 ,759 ,209 ,11 ,56 ,58 ,60,140 - 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Figure 8: Kenya’s international Internet bandwidth (Mbps) (Source: CCK) 6.1 Supply Side: Kenyan Approach to Building Network Capacity Kenya’s approach to addressing the network Figure 9: African fiber optic submarine cables (Source: http://manypossibilities.net/african- capacity challenge has been bullish. As discussed undersea-cables/) earlier in this document, the government’s’ attitude to broadband network deployment has 6.1.1 Wholesale: How Kenya Did It been to “build it, and they will come.” This is dramatically reflected in international Internet Private Public Partnerships: The benefits of bandwidth capacity. It has taken advantage of its TEAMwork strategic location along the East Coast of Africa The Kenyan government has been keen to gain and used it to strengthen its infrastructure access to undersea fiber optic cables for years 19 Table 3: The cables have landed: Fiber optic construction of the cable from Fujairah to cables in Kenya (Source: Summit Strategies Ltd, Mombasa. supplemented by Pygma Consulting research) Participating Launch Cable Capacity Configuration Business model parties – Date promoters Covers almost 10,000km linking Eastern 8 countries from Owned and operated Africa Sudan to South by a consortium of 16 22 telecom Submarine Africa via African (92%) and 6 3.84 Tbps July 2010 Djibouti, Somalia, international (8%) operators from 20 Cable countries System Kenya, Tanzania, operators and service (EASSy) Madagascar providers. and Mozambique. TEAMS Limited holds 85 Kenya Government The East %, Etisalat (UAE with Etisalat of the Incumbent) holds 15%. United Arab African Links Fujairah, Sept TEAMS Limited is a Emirates. regional Marine 1.28 Tbps UAE to consortium consisting of operators and 2009 Mombasa. System the Government of Private investors (TEAMS) Kenya (20%) and private from Kenya and investors (80%). Uganda. Aga Khan Fund for 13,000 km Economic undersea fibre Development optic network SEACOM is a Mauritian (26.56%) connecting company, owned by Venfin (25%) SEACOM 1.28 Tbps July 2009 South Africa, non-telecoms operator Shanduka (12.5%) Madagascar, private investors. Convergence Mozambique, Partners (12.5%) Tanzania, Kenya, Herakles Telecom India and Europe (23.44%) given their suitability for massively increasing international bandwidth compared to satellite. It realized that the only solution for building a viable The cable project was done under a PPP model BPO sector was being connected to international and managed through a special purpose vehicle fiber optic systems. The government became namely TEAMS. The decision of the government increasingly frustrated with the slow pace of the to take the lead and to invest in a broadband then New African Partnership for Development infrastructure project in a liberalized ICT sector (NEPAD) endorsed EASSy cable project. It requires some analysis. The liberalization of the commissioned the TEAMS project to hasten ICT sector in Kenya is premised on the belief that provision of bandwidth and in the longer term encouraging competition and private sector provide variety when other submarine cables land participation in the delivery of ICTs is key. The to ensure competition and redundancy. The end decision to invest in TEAMS was taken by the result was Kenya’s decision to promote a national government against the backdrop of a situation project, with benefits for the region, as opposed to that had prevailed for over a decade of only one waiting for the regional (NEPAD) approach to means of getting international bandwidth – bear fruit. As such, the Government of Kenya satellite – which was costly and the absence of any established TEAMS in terms of the Companies prior investment in the delivery of undersea cable Act when the Government and ETISALAT (the capacity to Kenya. incumbent telecom operator in the United Arab Emirates) entered into an MoU for the 20 20% each - GoK (through Min. of Finance); Safaricom Ltd; Telkom Kenya Ltd 10% each - Kenya Data Networks Ltd, Etisalat (UAE) – 15 % Econet/Essar Telecom Ltd TEAMS (Kenya) – 85% 5% - Wananchi Group 3.75% - Jamii Telecom Ltd 1.25% each- Broadband Access/AccessKenya Ltd, Africa Fibrenet (Uganda) Ltd, InHand Ltd, iQuip Ltd, Flashcom Ltd Figure 10: TEAMS Original Ownership Structure (RIA Kenya ICT Sector Performance Review 2009/10) The approach to structuring TEAMS is one that equivalent ownership of TEAMS’ share of can be replicated for any major ICT infrastructure capacity on the cable system. All TEAMS project. Its ownership is structured in terms of a consortium members are licensed and can sell two-tiered PPP approach. capacity – since they all compete in the market, this will ensure price competition at both retail • In the first tier, the project was initially and wholesale level. Importantly, funded by the Government of Kenya and ETISALAT according to their percentage • All licensees were given an opportunity to ownership (85/15). ETISALAT then participate in the cable project, thus signed a construction and maintenance reducing costs. Amongst the 11 agreement to design and build the cable. participants, there is representation from all of the license categories; • In tier two, a privatization process was undertaken and the Government of • Government’s shareholding is held Kenya sold part of its 85 percent stake in through the Ministry of Finance and not the project to local and regional investors, the MOIC which would present problems retaining only 20 per cent. The PPP since it is the policy maker for the sector; consortium was called TEAMS Limited. • Concerns of potential collusion in light of An investor’s ownership of shareholding in so many players cooperating are reduced TEAMS Limited is directly proportionate to the 21 in light of Government’s participation future. A simple ownership structure and good and 20 percent shareholding; financial backing have been cited as key reasons why the TEAMS submarine cable succeeded. • TEAMS was not given exclusive rights and its implementation was not done at Since the launch of TEAMS, two other undersea the exclusion of other fibre projects, fiber optic cables have landed in Kenya, both hence the landing of EASSy and using different ownership models. SEACOM, SEACOM within 12 months of each launched in July 2010, is a private sector other. consortium whose partners are specifically not operators to reduce conflicts between ownership • TEAMS capacity or access is provided to and use. The EASSy cable, launched in July 2010, all market players on a competitive basis is owned by African operators. The importance of and in a transparent and non- these two additional cables is that it demonstrates discriminatory manner. that the Kenyan government’s involvement in TEAMS did not discourage investment by private The Government’s involvement in the cable, and players nor did it distort competition. In fact, it is its ownership of capacity equivalent to the value arguable that Kenya’s decision to promote of 20 percent of its shareholding gives it a lever. TEAMS hastened the deployment of the other Table 4: Internet subscriptions by operator, September 2010 (Source: CCK) Note Subscriptions refer to both narrowband and broadband. Celtel Kenya now trades as Airtel. Although this option has not been exercised, the two cables. All three cable systems are offered on Permanent Secretary argued that if the an open access basis providing competition which government was not satisfied with prices, it could in turn increases quality and puts downward sell capacity and compete with the other 11 pressure on prices. Along with TEAMS they TEAMS shareholders thus driving down market provide Kenya with a high degree of redundancy prices; and if that failed, the model enables the in case of disruptions to one of the cables. regulator to intervene through price regulation.41 In addition, Government may dilute its 6.1.2 Moving Inland: How Kenya is Doing It shareholding should additional market players Kenya has a number of terrestrial networks which wish to “join the TEAM.” This is critical in that it connect to the three undersea cables that land in ensures that new entrants can also participate in the country. The regulatory framework has enabled the entry of a number of players into this 41 Interview with Permanent Secretary, January 2011 space and has resulted in some large ISPs rolling 22 Box 2: Electricity Company & Infrastructure Sharing Kenya Power and Lighting Company (KPLC) was granted a Network Facility Provider licence (Tier 2, with regional spectrum) by CCK enabling it to construct, install and operate an electronic communications system which may in turn be leased to licensed operators. KPLC has indicated that it has 18 pairs of fibre for leasing and has so far leased three through infrastructure sharing agreements signed with licensed operators Safaricom (20 years), Wananchi Group (5 years) and Jamii Telecoms (5 years). The agreements allow them access to KPLC's fibre optic network that runs on the national electricity grid. KPLC’s model enables ISPs to connect to them to reduce their time to market, and the need to duplicate costly broadband infrastructure.1 Their infrastructure sharing model provides a supplementary revenue stream for KPLC. The three infrastructure sharing contracts signed to date are worth KES 588 million (USD 7.2 million) in revenue. out national and metropolitan fibre backbones Open Market Entry and wireless broadband access networks. The Market entry is an important aspect of the policy main players in this area are licensed by CCK and regulatory framework in that it determines the under the unified licensing regime which allows availability of opportunities for investment in the Network Facility providers to rollout competitive ICT sector. The CCK, like its counterparts in international, national and regional networks (see Tanzania, Rwanda and Uganda, has implemented Box 1). an open licensing regime which enables market entry into all categories of licenses on an on-going There are now a number of players competing to basis. The CCK issues operating licenses on a provide retail broadband service on a fixed and first-come-first-served basis with an estimated wireless basis. Competitors in this market include turnaround time of 135 days.42 Market entry is two players who provide fixed residential fibre and subject to the operator or service provider (1) copper networks; at least five players in the meeting publicised minimum criteria, including corporate fibre network space; and at least ten the requirement that in general licensees should be licensees providing wireless services. Table 4 registered and located in Kenya and issue at least shows the main ISPs including the number of 20 percent of their shares to Kenyans within 3 both narrowband and broadband subscriptions. years of being licensed, and (2) paying a license fee. Spectrum licensing is subject to availability of Last mile access remains a challenge, however it is the frequency spectrum resource. surmountable using a combination of private and public funding, and regulatory and policy clarity. The CCK started the process of migrating to a The gains that have been made in Kenya with unified licensing regime in 2007 and issued the respect to last mile access have been enabled by a first licenses in 2008. The regime allows operators number of strategic regulatory and policy level to decide which market to play in from a service interventions including: and technology perspective, without the regulator being prescriptive. Since moving to the unified • open market entry, licensing framework, the country has seen in • facilitating competition through increase in mobile internet and mobile operators mandating infrastructure sharing, have become the biggest providers of internet • frequency spectrum licensing, services; at the same time though ISPs who were • facilitating private initiatives with regional previously required to obtain a separate VoIP implications, and license and limited by technology restriction have • investing in a PPP based terrestrial been able to expand their service offerings.43 At network. 42http://www.cck.go.ke/licensing/telecoms/procedures.html 43Waema, Timothy, Catherine Adeya, and Margaret Nyambura Ndung’u. 2010. Kenya ICT Sector Performance Review 2009/2010. Cape Town, South Africa: Research ICT Africa. http://www.researchictafrica.net/publications.php . 23 an infrastructure level, in addition to the Network end of 2010, Airtel and Orange had been issued Facility Licenses, investors who wish to land a 2100 MHz 3G spectrum bringing the total submarine cable in Kenya require a Submarine number of 3G licensees in the market to three. Cable Landing license; those interested in building Safaricom was granted a 3G license in November system for the provision of international 2007. voice/data services are required to obtain a license for international Systems and Services (see Box 1). The unified licensing regime leaves it to licensed operators to determine which technologies to Infrastructure sharing deploy. While the corporate market is well served, A common solution that is encouraged as the residential market is still in its infancy. Other regulatory best practice for enabling last mile than 3G, broadband wireless technologies such as connectivity is Local Loop Unbundling (LLU). EV-DO and WiFi are available and can be This helps to boost the ADSL broadband market provided with the necessary licenses relating to since it allows competitors to the frequently provision on network facilities and retail access. monopolized copper line network of the incumbent operator. This has not been Despite the recent award of two additional 3G implemented by CCK and as such there is no licenses, spectrum allocation continues to remain a specific framework governing this area in Kenya challenge particularly given its importance for outside of the generic Facilities Leasing wireless broadband. The expected growth of Regulations (See Section 3.2.1). The fact that wireless data is likely to put severe pressure on broadband is increasingly expected to be delivered existing spectrum availability. One constraint is over wireless networks brings to question the that the government itself has important spectrum importance of focussing on local loop unbundling that could be used for broadband wireless access. where the copper local loop is inconsequential Apart from freeing up the government-owned relative to wireless penetration. Although LLU is spectrum, another solution is to reuse spectrum in not in place, Kenya has promoted infrastructure the transition to digital TV. One problem in sharing and facility leasing on a non- addressing the looming spectrum crisis is that the discriminatory and transparent basis in regulation issue has not received widespread public as well as in its ICT sector Strategic Plan. This attention.45 approach has seen the conclusion of infrastructure sharing agreements between telecoms operators Government-Led PPP and by telecoms and traditionally non-telecoms Following the success of the use of PPPs in companies (i.e. the electricity utility, see Box 2) to deploying the TEAMS network, the government increase revenue streams by selling excess has utilised a PPP model to address the challenges capacity. relating to the national backbone network. The open access National Optical Fibre Backbone Licensing Broadband Access spectrum Infrastructure (NOFBI) terrestrial network The ease of entry, including the cost of acquiring a complements TEAMS, SEACOM and EASSy by license affects market entry and ultimately connecting the districts in the country. It is competition. The CCK played an important role undertaken by a company established in terms of in creating a framework to encourage competition the Companies Act called the Fibre Optic in the mobile market by reducing the license fee National Network. Telkom Kenya has been issued for third-generation (3G) spectrum by 60 percent a management contract to rollout the network, to $10 million in order to increase competition, which contract will be open for competitive which should in turn reduce prices and raise tender when it expires according to the Permanent penetration. It furthermore indicated that aside Secretary. Over 5,000 km of cable has been laid from the normal frequency and service license to date in major cities and districts. fees, CCK would not charge operators for an upgrade to 4G.44 As a result of its actions by the to-cut-3g-licence-fee-no-charge-for-4g- cck.htm#ixzz1DlO2eVqM 45 Mureithi, Muriuki. 2010. Open Spectrum For Development: 44Read more: Kenya Case Study. Association for Progressive http://www.ibtimes.com/articles/28163/20100611/kenya- Communications. http://www.apc.org/en/node/11700. 24 Private initiatives with regional implications 3). Kenya’s decision to promote TEAMS does not appear to have been dismissive of the need for a Universal Access: Still more to do... regional approach to ICT development. Kenya’s Providing access to broadband spectrum, private operators such as Jamii Telecoms and encouraging infrastructure sharing and licensing Kenya Data Networks (KDN) are building converged and technology neutral networks and backhaul networks connecting countries in the services have promoted broadband network region. Jamii Telecoms is set to launch its Fibre to deployment. However providing service to rural the Home (FTTH) network to deploy fibre-optic areas remains a challenge. The ICT sector cables to 100,000 homes in Kenya. Kenya Data framework provides a number of options for Networks, East Africa’s largest data network, has stimulating investment in the last mile in deployed more than 15,000 km of fibre across underserved areas. The newly formed USF can be Kenya, Rwanda and Uganda. KDN has a stake in used to obtain subsidies at either an operator or TEAMS and also works with SEACOM to consumer level based on projects identified by the distribute their services in Kenya. In Kenya, KDN Fund. Similarly, the Kenya ICT Board promotes covers the main towns and has over 500 km of projects aimed at the same objective (see Section metropolitan fibre optic cable in Nairobi, 50 in the 6.2.4). cities of Kisumu and Mombasa and 20 in Nakuru, Eldoret and Thika. The Government of Kenya has also recently endorsed a project to roll out an open access The CCK licensed KDN in January 2003 as a national Long Term Evolution (LTE) network in “Public Data Network Operator.” The changes in 2011 in a bid to ensure universal access to services the regulatory framework enabling a technology and to create a level playing field for operators neutral and converged approach have made it seeking access. According to discussions with the possible for KDN to become a Tier 2 operator Ministry, the government will issue a tender for a with permission to rollout a national network and public-private partnership to build a national access spectrum on a regional basis. This has network to be shared by telecoms providers enabled KDN to provide a broader range of ensuring a transparent, fair and open process. services than originally envisaged in terms of the license. It provides last mile access using WiMAX Unlike the TEAMS project where high project technology as well as wholesale Internet costs and long time lags could be used to justify connectivity to ISPs. government intervention, the LTE project is more difficult to position in a competitive environment, In addition to the initiatives by private operators and its impact on the market will depend on on an individual basis, a consortium approach has where the network is deployed and the been taken to the deployment of a regional identification of underserved areas. The process backhaul network. Over 30 operators in the EAC that the Kenyan government follows will be have initiated and participated n the East African critical in light of the fact that there is competition Backhaul System (EABs) project to rollout in the last mile market, and there is a risk, as with infrastructure to connect to the undersea cables any project where public subsidies may distort that have landed in Tanzania and Kenya (See Box competition if it not managed properly. However, Box 3: East African Backhaul System (EABs) EABS is a joint venture project among operators from Tanzania, Burundi, Rwanda, Uganda and Kenya. The Backhaul system links the five East African Community countries, and is particularly important for the three landlocked EAC countries Burundi, Rwanda and Uganda. The EABs involves about 30 operators in Eastern and Southern Africa and feeds from the cable systems that have landed in Mombasa and Dar es Salaam. The backbone infrastructure has been rolled out in four of the five EAC countries, with Burundi’s segment still under construction. http://www.intelligencecentre.net/2010/05/28/fixed-broadband-in-africa-is-finally-turning-the-corner/ 25 in light of Kenya’s previous PPP experience in the improving the end user experience, and lowering costs ICT sector, it is anticipated that the model for ISPs and operators who no longer have to send followed will be sound and transparent. regional traffic via Nairobi. Unlike the Nairobi IXP which was hosted at a neutral location not owned by 6.1.3 Kenyan Internet Exchange any licensee at launch, the Mombasa one is hosted by SEACOM for the next 3 years.48 Most internet traffic generated by users in developing countries tends to be international, resulting in large capital outflows paid to foreign 6.2 Stimulating Demand: Services, Internet providers. Local content providers tend Applications and Content to be hosted offshore to lower the costs of Despite the availability of bandwidth and more infrastructure – thus a local Internet Exchange than ten retail access providers offering a Point (IXP) is important to stimulate local hosting multitude of broadband technologies (WiMAX, of services and encourage local content 3G, fiber and ADSL amongst them), and 2 IXPs, development. It also enhances competitive Kenyan broadband penetration is currently at only opportunities; reduces latency thus improving approximately 2 percent demonstrating room for quality; and uses more local bandwidth thus significant improvement. On one hand, the low increasing affordability of Internet services.46 penetration is partly due to coverage; networks are urban focused and universal service and access Kenya has two IXPs (KIXP) – one located in must be addressed. On the other hand, the low Nairobi (launched initially in 2000) and one in penetration in the face of the availability of large Mombasa (launched in 2010) – operated by the amounts of bandwidth is evidence of the key Telecommunications Service Providers difference between broadband networks and Association of Kenya (TESPOK) which is a non- mobile networks that catered for voice. While 2G profit organisation that represents ISP and other voice networks were successful based on an “if telecoms operators interests. The first KIXP was you build it, they will come” approach, this is not launched in Nairobi before the market was fully the approach for broadband. Once networks are liberalised. Following a dispute in 2000, the KIXP deployed, broadband use and uptake is still was forced to shut down when CCK ruled in dependant on other factors such as digital literacy, favour of Telkom Kenya which lodged a levels of education, relevance of content and complaint arguing that KIXP was not licensed and applications. Affordability is also an issue since violated its exclusive rights to carry international broadband access typically entails higher costs traffic. TESPOK/ KIXP appealed the CCK’s than mobile in terms of access devices and decision at the Communications Appeal Tribunal sometimes the lack of prepaid options. presenting technical arguments demonstrating that KIXP was locally exchanging domestic Internet Demand stimulation is an important part of traffic and not infringing on Telkom Kenya’s Kenya’s broadband framework, and is seen to be a international rights. Following a year of debate, key component of the policy framework in many KIXP Limited was granted a licence by CCK in of the countries that have been successful in November 2001, making Kenya the first country developing broadband connectivity.49 With literacy in the world to create and issue an IXP license.47 rates of over 60 percent, high levels of entrepreneurialism and an innovative IT and Since then, following the arrival of the undersea applications market, Kenya is well positioned to cables and in anticipation of an increase in local and regional Internet traffic, a second IXP has been launched in Mombasa, the landing point for the undersea cables. This development ensures that the region’s traffic is exchanged locally, thus 48See http://www.businessdailyafrica.com/Company%20Industry/ Internet%20data%20exchange%20point%20launched%20in 46 Jensen, M. Promoting the Use of Internet Exchange %20Coast/-/539550/978498/-/5hru7b/-/index.html Points : A Guide to Policy, Management and Technical Issues. 49Williams, M. Broadband for Africa: Policy for Promoting 47 Ibid. the Development of Backbone Networks. 26 Sending Browsing Word Computer Spread /downloading Others internet processing games sheets e-mail TOTAL (1’792) 69% 56% 50% 37% 28% 5% Nairobi Kenya 82% 69% 60% 52% 40% 8% (290) Lusaka 57% 59% 60% 50% 22% - Zambia (107) Antananarivo Madagascar 44% 27% 59% 63% 39% 16% (133) Lagos Nigeria 78% 67% 43% 18% 19% 6% (204) Hargeisa Somaliland 56% 23% 8% 9% 16% - (140) Kampala 69% 57% 73% 41% 33% 3% Uganda (206) Luanda 67% 21% 55% 47% 25% - Angola (169) Addis Ethiopia 80% 82% 75% 54% 60% - (150) Bujumbura 69% 72% 29% 18% 8% 21% Burundi (190) Kigali Rwanda 71% 69% 67% 22% 36% - (125) Dar Tanzania 73% 61% 17% 43% 14% 1% (1480) Table 5: How computers are used in Africa disadvantage in terms of gaining access to high (Source: Maisha (2008) Consumer Insight Limited ) speed, high quality fixed broadband networks. The growing preference for mobile communications maximize on usage if the right policy framework is and wireless internet connectivity may satisfy in place. This section discusses the Kenyan consumers’ needs to use basic applications and education and ICT policy framework, an access content in the form of e-mails, browsing, important factor in broadband uptake, and then and file transfers. However, wireless platforms are describes some model initiatives taken and not likely to provide high speed, high quality strategies adopted which position Kenya well to networks for heavy business use or for rolling out increase uptake and usage. triple play services in homes. New value added services, and in particular the Triple play services in Kenya are hampered by the Internet have emerged over the last decade in lack of fixed line infrastructure in the country, parallel with the mobile boom. Amongst the which in turn negatively affects the availability of Internet based services available in Kenya are fixed line broadband. In another Sub Saharan first, Voice over IP and WiFi which are legally provided Kenya’s Wanainchi Group, has launched a triple and liberally used in Kenya. In developing play service branded as Zuku which offers countries, the existing fixed infrastructure is customers television, Internet broadband and leveraged to deploy broadband and to offer triple telephony on one line using a combination of play services — telephone, Internet and television fibre, cable and Wimax technology. Zuku’s triple – over IP networks. Notwithstanding the benefits play service is only available in a few of the mobile revolution, one of its drawbacks is neighborhoods in Mombasa and Nairobi and that it has left countries like Kenya at a starts at KES 1’999 (US$ 24) per month for 27 unlimited broadband (1Mbps) and 43 English The National ICT Policy emphasises the channels, plus free on-net voice calls.50 Zuku has importance of integrating ICTs in the curriculum regional aspirations with a plan to launch in 9 at all levels of education, establishing education countries. networks so that educational resources can be easily accessible and shared, and promoting e- 6.2.1 Education learning. They can also be integrated in the A 2008 study which compared Nairobi to 15 other curriculum in order to equip Kenyans to capital cities in Africa, found that Kenyans had the participate in a knowledge based economy. highest rate of using computers for browsing the Computer Studies is offered as part of the official Internet (Table 5). In addition, 74 percent of Kenya Certificate of Secondary School residents in Nairobi have used a computer at least Examination (KCSE) curriculum defined by the once, followed by Lagos, Nigeria and Kampala, Kenya Institute of Education (KIE). In this Uganda at 69 and 68 percent, respectively. Kenya’s curriculum, students are expected to learn and high urban computer usage can be attributed to develop practical ICT skills with the main focus high literacy rates and the concerted efforts by the being general IT awareness and software government and other stakeholders in promoting development. In the final year of study, candidates use of ICTs through various programmes and are expected to develop a complete software projects discussed in this section. The main project using a recommended set of tools and challenges with respect to accessibility of ICTs in programming languages.54 The CCK has initiated education are with respect to schools in remote a number of universal access projects including areas and urban slums.51 the digitisation of the secondary school curriculum. The CCK has collaborated with the Kenya’s 8-4-4 (primary – secondary - tertiary) Kenya Institute for Education (KIE) and provided educational policy introduced universal free but KES 15 million (US$ 180,500) of funding to non-compulsory primary school education in support the acquisition of software and hardware, 2003. From a policy perspective, in addition to and provide capacity building, to digitise 11 the 2006 National ICT Policy which promotes e- subjects for the Form 1 KCSE curriculum. The learning, there is the 2006 National ICT Strategy digitised subjects were piloted in 20 schools of for Education and Training,52 which addresses which 16 are the beneficiaries of the CCK’s connectivity and infrastructure, digital equipment school-based ICT centre initiative.55 and content, harnessing emerging technologies, integration of ICT in education, training and research and development.53 The Ministry of Education (chaired by the Permanent Secretary and supported by the ICT unit) leads in terms of the ICT and Education strategy. ICT can be used to address the challenges related to the high costs of purchasing and distributing text books and other learning and teaching materials, and poor math and science performance – broadband will be important to ensure sufficient capacity and speeds to download voluminous information, and open source software can increase access to information at a low or no cost. 50 Zuke Website, http://www.zuku.co.ke/coverage/ 51 ICT in Education Options Paper (Ministry of Education & USAID), July 2005 54Use of ICT in Enhancing Teaching and Curriculum 52National ICT Strategy for Education and Training, Ministry Delivery in Marginalised Secondary Schools in Kenya of Education. 2006. http://www.strathmore.edu/hp/ http://www.csdms.in/gesci/pdf/KENYA.pdf 55 53 Farell, G. ICT in Education in Kenya, Survey of ICT and http://www.cck.go.ke/services/universal_access/projects/di Education in Africa, Kenya Country Report, 2007. gitisation_of_secondary_school_curriculum.html 28 Figure 11: Kenya ICT Trust Fund Structure, Collaboration through PPPs (Source: Kenya ICT Trust Fund) Another important institution in the ICT for At a tertiary and regional level, three East African Education (ICT4E) space is the Kenya ICT Trust higher education regulatory authorities have Fund, founded in 2004, which facilitates PPPs to signed an agreement harmonizing their approach mobilize resources to bring a portal for to ICTs making the possibilities of distance information sharing and the development on a learning, e-education and use of virtual universities national computer assembly centre.56 Its more accessible. This will enhance the EAC, implementation arm is the Network Initiative of increase the mobility of EAC residents, and Computers in Education (NICE) which is promote the use of regional and international responsible for core activities aimed at promoting standards. ICTs in the learning institutions (primary, secondary and tertiary institutions). Kenya ICT 6.2.2 Equipment Trust Fund draws its membership from the Access devices, which are traditionally laptops and government, private sector, and regulatory bodies. computers, and increasingly smartphones and Kenya ICT Trust Fund in 2010 successfully tablets, must be affordable for broadband uptake disbursed over 3000 donated software licenses, to increase. In Kenya, laptops and PCs are issued at least 200 teacher training certificates in competitively priced and readily available on the collaboration with Microsoft, and refurbished 250 market. In 2003, in line with measures taken in computers donated by the Kenya Ports Authority Tanzania and Uganda, the Department of Finance for distribution in the coastal region of Kenya.57 zero-rated tax on all computers and other ICT equipment imported into the country in a move that has seen the sector accelerate its growth. The 56Ibid. decision is part of a strategy to drastically reduce 57See Kenya ICT Fund website: the cost of computers in the country and http://www.kenyaictfund.or.ke/initiatives.html complement other projects such as the 29 Technology Parks. The Ministry of Finance in software; and Kenya took bold moves in the 2009/10 financial year and committed to58: • exempt all handsets from VAT. • invest KES 1.3 billion (US$ 100 million) These comprehensive incentives should stimulate for mobile computer labs for high schools the supply of computers, reduce costs and in all constituencies; increase PC penetration to stimulate broadband use. However, a related factor that is not included • support Digital Villages in partnership in the favourable tax regime is the 10 percent with the World Bank to create business excise duty on mobile airtime. It is argued by hubs and entrepreneurial opportunities in operators that the 10 percent airtime tax coupled rural areas with the 16 percent value added tax (VAT) adds to the cost of services for end users and negatively • launch a one million laptop/PC campaign impacts the affordability and accessibility of in conjunction with broadband providers services. by undertaking to underwrite part of the interest on funds that are borrowed to 6.2.3 Promoting Applications, Content and buy personal computers and laptops; Services • allow ISPs to offset against their taxable BPO sector income the costs incurred in acquiring the right to use undersea cables over a 20 year period; • increase the depreciation on telecoms equipment, including cables from 12.5 percent to 20 percent; and • provide tax deductions of 5 percent on Box 4: BPO Bandwidth Capacity Support The Kenya ICT Board supports the Local BPO industry by providing bandwidth capacity support funding. The purpose of this capacity support is to reduce the cost of bandwidth making local operators competitive on a global scale. The BPO “Bandwidth Capacity Purchase Scheme” is aligned with Kenya’s Vision 2030 and was conceived as a transitional and non-discriminatory support with a sunset clause so as to be compatible with Kenya’s existing commitments under the WTO. The period of validity was initially between 1st July 2007 to 31st December 2008, pending the landing of the undersea cables which were expected to significantly reduce retail rates. This period has however been extended and the subsidies are still available pending an evaluation of retail reductions. . BPO operators are licensed by the CCK and eligibility for the support is open to all operational BPO operators in Kenya. The subsidy is provided by means of a reimbursement of monies paid for bandwidth as indicated on the ISPs invoices to the BPO operator. Source: Kenya ICT Board, http://www.ict.go.ke/oldsite/index.php?option=com_content&task=view&id=178 58 2009/10 Budget Vote Speech, Deputy Prime Minister and Minister of Finance, June 2009. http://www.statehousekenya.go.ke/economy/budget2009- 2010.pdf 30 Box 5: Judiciary Telepresence Project “The Judiciary ICT Committee” which is chaired by the Judge of Appeal. This Committee oversaw the formulation of the ICT Policy and Strategic Plan 2011-2013 which eventually led to the establishment of the “Telepresence” and other ICT based projects. Through a PPP initiative between a broadband provider, an equipment vendor and the Ministries of ICT and Justice, the judiciary in Kenya has ushered in the digital era by commissioning a telecommunication link that connects courts in Nairobi with those in Mombasa. Using “Telepresence” it is anticipated that Kenya will ease court processes and help in curbing cases of corruption. The private sector offered the technical support for this project which will enable sitting judges to preside over cases remotely, a move that will effectively cut down on travel costs incurred by judicial personnel. Apart from video conferencing there are other applications that will be instituted in the judicial Telepresence scheme. A system for recording, preserving and retrieval of court proceedings will be put in place. In relation to this, there will be imaging and automation of court records. In order to manage the telecommunication link for distant court stations, a Wide Area Network is in place while Local Area Networks will be used within individual court stations. Other applications include a web portal for judicial information, an Integrated Financial Management Information System (IFMIS), and an Integrated Personnel and Payroll Database (IPPD). Source: Safaricom http://www.safaricom.co.ke/safaricombusiness/2010Oct/post2.html Kenya’s BPO strategy is central to Vision 2030 industry. As with other aspects of the country’s and is highlighted as one of the means to make broadband strategy, Kenya’s policy framework Kenya a middle-income country within a period of (Kenya ICT Strategy 2006) provides strategic 20 years; in part through creating 7,500 direct jobs direction on how to realize the BPO vision. In in the BPO sector and 2,500 indirect jobs by terms of institutions, a self-regulatory regime is 201259. Kenya compares itself to Mauritius—one provided for – the “Kenya BPO and Contact of Africa’s BPO successes—in the ICT sector Centre Society60” has been formed to set Strategic Plan and hopes that increased standards and provide for self-regulation. The bandwidth, cheap labour, clear accents and its Kenya ICT Board is responsible, as part of its role location could help it tap this multi-billion dollar of marketing the sector, for promoting the Figure 12: How PesaPal works country abroad as a BPO destination. The Kenya 59Vision2030, ICT Board furthermore provides bandwidth http://www.communication.go.ke/documents/Vision_2030 _Popular_Version.pdf 60 http://www.kenyabposociety.or.ke/ 31 subsidies to the BPO sector through a grant from created from a baseline of 500 in 2007.62 the World Bank (See Box 4), in anticipation of price decreases until the impact of the newly Online government services landed cables is felt. The Kenyan government is taking steps to digitise content and provide services online. Although Other measures taken in countries like India and there is still significant work to be done in this Philippines that have thriving BPO sectors include area, the Kenyan e-government portal government-supported corporate locations such (http://www.e-government.go.ke) enables citizens as business and technology parks and export to apply for public service jobs, track the status of processing zones; laws supporting intellectual ID and passport applications, obtain exam results, property; attractive labour laws; and reasonable submit tax returns and report corruption. In rates for skilled and unskilled workers. Similarly, addition there is a business licensing e-registry. Kenya has identified Export Processing Zones Providing e-government services has proven to be (EPZ) which will be used to locate technology challenging in light of the ‘silo effect’ discussed parks such as Kitengela (See Section 6.2.4, Public earlier and the need for line ministries to take Private Partnerships). It is also in the process of responsibility for developing and digitising amending and updating its IP legislation. relevant content for users. Following the various funding and policy initiatives relating to the BPO sector, Kenya The fact that ICT Units are not necessarily senior currently has 25 licensed BPO operators, although in the organisational structure of a ministry means not all of them are operational.61 According to the that the projects may not be prioritised or given KICTB, by 2009 about 3,550 BPO jobs had been the strategic importance that they deserve. Kenya Box 6: Mobile Money Meets E-Commerce In a recent innovation launched in early 2011, registered customers of mobile phone money transfer service, M-Pesa, can withdraw cash in any currency from Visa branded automated teller machines (ATMs) anywhere in the world. They can also make purchases in accepted merchant outlets or shop online moving it from a money transfer service to a mobile commerce innovation, still for the unbanked. This innovation will move M-Pesa from a service conducted primarily over 2G networks, to one whose relevance will increase over broadband networks in light of the ability to use it to shop online and across borders. PesaPal1 is a payment platform that enables Kenyans to buy and sell on the Internet using M-Pesa, Zap and Credit Cards and has targeted e-commerce, school payment, and e-ticketing as value propositions. It is an online based service that uses the popular mobile money accounts that were launched in Kenya, or credit cards to: • Get receipts immediately for payments, • Get email and SMS notifications. • Load money once and use it for multiple payments using PesaPal Credit, • Make payments (such as school fees) in instalments, • Request and receive payments from other members, • Receive protection from fraudulent sales • Buy tickets for events in Kenya online • Buy products and services from vetted merchants. 62Kenya Information and Communications Technologies Board. 2009. Progress Report 2007-2009. 61CCK Register of Licensees under Unified Licensing http://www.ict.go.ke/oldsite/images/pdfs/kictb%20progres Framework s%20report%202008-2009.pdf http://www.cck.go.ke/licensing/telecoms/register.html 32 has seen that line ministry projects that are done this are the Kenya ICT Board (KICTB) and the in collaboration with the MOIC, such as the newly established Universal Service Fund Judiciary Telepresence Project (see Box 5) and the managed by the CCK and focused on under Technology Park project which is partnered with serviced areas. The USF is funded from a levy the Trade Ministry are likely to achieve success. imposed on licensed operators, while the KICTB receives funding for projects mainly from donors, Encouraging local innovation including a Revolving Fund for Digital Villages. Kenya is earning a reputation as an innovation hub, and a centre for the development of relevant In 2007, as part of the World Bank’s Regional African applications and content. Initially Communications Infrastructure Project, Kenya developed on narrowband mobile and SMS agreed to rollout Digital Villages in rural areas to platforms, many of Kenya’s innovations have had promote Internet connectivity to enable citizens regional and global impact. Innovations include: to access government and commercially generated information available on the web.63 The KICTB • Ushahidi, an open source application used started with a pilot programme in 2009 called the in conjunction with Google Maps, use “Pilot Pasha Centres” (Pasha means “to inform” crowd sourcing for social activism and have in Swahili). The pilot programme was important since been replicated in Haiti. to ensure the development of a model that was relevant within the Kenyan rural context and was • M-Pesa which has generated considerable sustainable. Although a single model was initially publicity leading to similarly styled mobile envisaged, the pilot resulted in three categories of money solutions to spread across the Pasha Centres being developed. The categories continent. Interestingly, although M-Pesa acknowledge the evolving definition of broadband is a 2G mobile solution, it is finding and the types of applications supported by relevance online through its recent different speeds. Accordingly, human resource partnership with Visa, and can be used as capacity and training will vary depending on the a tool to generate demand. category of the Pasha Centre that is deployed. Five digital villages located in Nkubu, Garissa, • KenyaImagine, a local website originally Kangundo, Malindi and Mukuru were established founded to address the gap in quality of in the pilot phase.64 The Kenya ICT Board in 2009 online content from Kenyan news and and 2010 had conducted nationwide training of magazines, has turned into an online 1000 people in business management, content hub, with involvement of local entrepreneurship, marketing, basic accounting and Kenyans as well as the Kenyan Diaspora. technical management (a “starter-kit”) to prepare potential Pasha Centre managers to run their In addition, to these innovations which have taken centres, and from January 2011 will disburse at place in a narrowband context, applications like least one loan for a Pasha Centre per county. PesaPal, a locally developed payment platform that KICTB’s target is to have 210 Pasha Centres, one is a sort of hybrid of PayPal and M-Pesa, will find in each constituency, by 2012. greater relevance as broadband take up increases. PesaPal enables Kenyans to buy and sell on the While Pasha Centres are a significant project Internet using mobile money or a credit card and aiming to increase digital inclusion, other projects has targeted applications such as school fee are underway involving other consumer groups payment, e-ticketing and e-commerce (See Box 6). such as academia. The Kenya Education Network (KENET) and the KICTB have worked together 6.2.4 Funding Local Demand to disburse 200 MB of bandwidth to 64 tertiary Loans, grants and subsides While it is still early and the impact cannot be 63 Drury, Peter. 2011. Kenya’s Pasha Centres: Development Ground evaluated, Kenya has put in place several funding for Digital Villages. mechanisms to support local development of http://www.cisco.com/web/about/ac79/emgmkt/index.ht content and applications, and to stimulate the ml. 64 http://www.ict.go.ke/index.php/sport/pasha/pasha- BPO sector. The institutions that mainly support updates/299 33 institutions across Kenya using private and donor many are able to obtain laptops relatively easily, funding.65 the low cost of hardware and the competitive nature of the market being two contributing Table 6: Categories of Pasha Centres factors. The cost of the laptop or PC is far less of (M=Mandatory) (Source: Cisco IBSG, 2010) Mandatory Functions Basic Standard Advanced Number of PCs M>3 M>7 M>15 M (512 kbps Internet Access M (256 Kbps) uncontended for all M (minimum 1Mbps) PCs) Collaboration software M Videoconferencing M software Web 2.0 access – webcam and M M microphone M eSkills Training Services M M M Group training facilities M M M Pasha Portal accessible Government M M M information Management M M M Information a concern that the cost of connectivity itself. The KICTB recognizes the need for locally Public-private partnerships developed and relevant national content and has Most of the demand side initiatives in Kenya have issued grants for digital content and software been either led by donors or established through applications as part of the Tandaa Digital Content PPPs. Kenya has managed to successfully Strategy. The KICTB has amongst its priorities: structure PPPs to stimulate demand. The biggest issuing Kenyan firms and software application success stories do two important things – they developers grants to support local content and leverage the strengths of the private and public software applications; providing subsidies for sectors, and they break the “silo effect” by laptops for university students (“Wezesha”), encouraging collaboration across government although uptake has been low and through departments and line ministries. This is interviews with university students it appears that exemplified in the approach to the establishment of technology parks. 65KICTB Interim Update (11 June 2010) at http://www.ict.go.ke/index.php/theboard/board- The Government has committed to establishing reports/update-on-11th-june-2010- Multimedia Technology Parks and promoting home-grown industries developing ICT products 34 through fostering a partnership between the land and plan, will then be able to build out the MOIC, the Ministry of Trade and Industry and business premises and either use it for their own private investors. The Minister of Trade and operations or lease it out to other appropriate Industry has identified Export Processing Zones businesses. (EPZs) which will also house the Technology Parks, thus linking the ICT sector to broader PPPs are furthermore used in Kenya to establish economic projects. The government through the data recovery centres, to provide storage and MOIC will, in terms of the PPP, provide land (500 recovery for all government databases, and for the hectares in Kitengela which is about 25 kilometers establishment of Incubation Centres and Satellite outside of Nairobi) and the plans for the layout. Assembly Centres where local PCs will be Private sector players interested in the concept, assembled. Additionally skilled graduates will be employed at Incubation Centres and Satellite Assembly Centres , thus increasing the impact of broadband on job creation. 35 7. Lessons Learned from 4 percent then to 20 percent in 2010 and 40 7.1 Potential Stumbling Blocks percent by 2020.66 Despite Kenya’s success it is important to acknowledge some of the unique aspects of the Kenyan regime, which if not noted and properly 7.2 Kenya’s Strengths managed may make the implementation of similar Kenya’s accomplishments arise first from the strategies in other countries a challenge. Two manner in which it has tackled the challenge of aspects of the Kenyan case that make it different lack of backbone network infrastructure and now from most best practice case studies are that the creation of strategies and programmes to Kenya does not have a broadband policy, nor increase uptake is vital. The manner in which does it have a simple institutional framework – Kenya has approached these two elements of the these two issues are discussed in turn. broadband ecosystem can serve as a model for other developing countries. The lessons it has Kenya does not have a single broadband strategy. learned and challenges it has faced are also The strategy is instead integrated into a number of instructive. Developing countries can learn key policies and plans found in a number of sectors, lessons from the Kenyan broadband experience such as education and health. Vision 2030, including: supported by the ICT Strategic Plan 2008 – 12, is what ties all of these strategies together and in so • Necessity of a clear vision, in Kenya’s doing, recognizes the role of ICT as an enabler of case Vision 2030, which includes ICTs all other policies, and broadband or high-speed and specifically a focus on the BPO access is a key component of the ICT sector. In sector as one of its key pillars provides the absence of a single policy, strong leadership is guidance to all ministries, departments the main factor that ties the various aspects of the and agencies, as well as the private sector; policy together and makes the Kenyan approach work. • Importance of government leadership and a project “champion” – It is Kenya has created a multidimensional institutional repeatedly mentioned that the story of the framework. The Kenya ICT Board is a success landing of the cables in Kenya is not story in itself in terms of its ability to design and complete without the perspective of the develop programs and secure funding for Permanent Secretary. Clear and implementing them. A strong, central body is thus unequivocal leadership in support of essential, as is determined leadership. However, stated national policy objectives is critical the risk lies in the fact that the Kenya ICT Board in ensuring that projects move from has overlapping mandates with the Kenya ICT theory to practice; Trust Fund (education) and the USF (CCK) creating the potential for conflict and duplication. • Central role of good regulation, Likewise the National Communications Secretariat including flexible and technology neutral and the MOIC have similar roles. licensing, the facilitation of infrastructure sharing, the encouragement of facilities In addition to ICT specific and Kenya specific based and service based competition, the challenges, there are challenges which are shared regulation of wholesale prices to stimulate with many developing countries. Challenges competition, and the facilitation of arising both from the ICT sector as well as innovation; adjacent sectors such as electricity and education remain. These challenges may stall the further impact of broadband in the country – Kenya has 66 See: Kenya to Miss Rural Electricity Target for 2010, missed its 2010 target to provide electricity Reuters. See: overage in 20 percent of the country. The national http://www.reuters.com/article/2009/10/22/kenya- target was to raise the coverage rate gradually electricity-idUSLM45319020091022 36 • Benefits of Public Private Partnerships programmes and properly structured at all levels of the broadband projects is critical, while respecting the ecosystem – to build high cost backbone market reform process. Although the networks, to develop applications, government of Kenya has demonstrated services and content, and to support this in the cases of TEAMS and NOFBI, initiatives to improve literacy and ICT in this remains to be seen with regards to education. These must be well designed demand stimulation. For example, while so that they promote broadband without the new Constitution declares the citizen’s distorting the market; right to public information, actual access is limited by various factors, including the • Actions speak louder than words – availability of content and the nature of implementation of legislation, the platforms on which this information is deployed. 37 8. Conclusions Kenya’s “Build It and they Will Come” approach downloaded on mobile phones. The user to broadband has led to broadband achievements experience would be enhanced through being partially realized in less than five years since broadband networks, however, this does not mean the ICT Policy was adopted. The Kenyan that in the absence of broadband Kenya will government has taken an active role in breaking remain behind. It is mainly businesses and the the satellite dependency for international capacity BPO sector that will be the beneficiaries, in the and thus overcoming the first hurdle, with the short term, of the broadband revolution that is highest upfront costs, in the broadband taking place in Kenya – the same is likely to be ecosystem. The delivery of international true for all of the countries in the region. As with bandwidth over high-speed networks has been the evolution of 2G, broadband for the mass successfully accomplished with the landing of market, accompanied by low cost services and three cables to date. Stimulating demand remains a importantly devices, will be introduced over time challenge. Kenya has proactively put in place a as operators, vendors and equipment sound regulatory and policy framework, backed by manufacturers broaden their consumer markets. clear strategies to try to improve this going forward. The strategy of improving Kenya’s positioning in terms of broadband access is deliberate, and is However, broadband is not a panacea. Using aligned with the objectives of Vision 2030. The innovative means, 2G mobile networks, service glut of capacity enabled by infrastructure and applications are being used to achieve many investments which have been both government of the same functionalities that broadband enables led and privately driven, places Kenya in a in Kenya including access to banking, mobile strategic position in the region and in the money and now e-commerce, SMS based e- continent and promises, if all other elements of government services, and even e-education the ecosystem are supportive, to improve socio- through applications such as textbooks economic development. The cables have been laid and now the people need to come. 38 9. References Bowen, Hannah. 2010. 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It acts as a neutral convener of dialogue—and as a coordinator of joint action among bilateral and multilateral donors—supporting global sharing of information on ICT for development (ICT4D), and helping to reduce duplication of efforts and investments. infoDev also forms partnerships with public and private sector organizations who are innovators in the field of ICT4D. infoDev is housed in the Financial and Private Sector Development (FPD) Vice Presidency of the World Bank Group. For additional information about this study or more general information on infoDev, please visit www.infodev.org/publications. 41 ii © 2011 The International Bank for Reconstruction and Development / The World Bank 1818 H Street NW Washington DC 20433 Telephone: 202-473-1000 Internet: www.worldbank.org E-mail: feedback@worldbank.org All rights reserved The findings, interpretations and conclusions expressed herein are entirely those of the author(s) and do not necessarily reflect the view of infoDev, the Donors of infoDev, the International Bank for Reconstruction and Development/The World Bank and its affiliated organizations, the Board of Executive Directors of the World Bank or the governments they represent. The World Bank cannot guarantee the accuracy of the data included in this work. 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All other queries on rights and licenses, including subsidiary rights, should be addressed to the Office of the Publisher, The World Bank, 1818 H Street NW, Washington, D.C. 20433, USA; fax: 202-522-2422; e-mail: pubrights@worldbank.org. Cover design by infoDev To cite this publication: Samantha Muwafaq Constant , 2011. Broadband in Morocco: Political will meets socio-economic reality. Washington, D.C: infoDev / World Bank. Available at http://www.broadband-toolkit.org/. iii Table of Contents Acronyms ................................................................................................................................. vii 1 Socio-economic overview ......................................................................................................1 2 Regulatory and institutional framework of the ICT sector ................................................. 2 2.1 Background ........................................................................................................................................................... 2 2.2 The regulator ........................................................................................................................................................ 4 2.3 Policies and national strategies .......................................................................................................................... 5 2.4 From e-Morocco to Digital Morocco............................................................................................................... 6 3 The broadband market ........................................................................................................ 8 3.1 Background ........................................................................................................................................................... 8 3.2 International connectivity ................................................................................................................................... 9 3.3 In-country backbone infrastructure ................................................................................................................ 10 3.4 Penetration of broadband................................................................................................................................. 10 3.4.1 Wireline broadband.................................................................................................................................... 10 3.4.2 Broadband on the move............................................................................................................................ 11 3.5 Retail broadband prices .................................................................................................................................... 13 4 Creating an enabling environment ..................................................................................... 16 4.1 Overview ............................................................................................................................................................. 16 4.2 Regulation ........................................................................................................................................................... 16 4.2.1 Tariff guidelines .......................................................................................................................................... 16 4.2.2 Local Loop Unbundling ............................................................................................................................ 16 4.2.3 Universal access .......................................................................................................................................... 17 4.3 Applications ........................................................................................................................................................ 18 4.4 e-Government .................................................................................................................................................... 18 4.5 Moroccans online............................................................................................................................................... 20 5 Success and challenges .......................................................................................................23 5.1 Well-balanced infrastructure ............................................................................................................................ 24 5.2 Improved quality and affordability .................................................................................................................. 24 5.3 Greater push for demand driven services ...................................................................................................... 24 5.4 Lessons learned and remaining challenges .................................................................................................... 24 Endnotes ...................................................................................................................................27 iv List of Figures Figure 1-1: Morocco, Socio-economic indicators…………………………………………………… 1 Figure 2-1: Dial-up and broadband shares of total Internet subscribers in Arab states, 2008………... 3 Figure 2-2: Morocco’s score in ICT sector governance performance, 2010-2011…………………… 3 Figure 2-3: Main stages in the Moroccan telecom market, 1997-2010………………………………. 6 Figure 2-4: Digital Morocco vision for the advancement of ICT in Morocco………………………. 7 Figure 3-1: Internet market shares, June 2011………………………………………………………. 9 Figure 3-2: 3G market share, June 2011…………………………………………………………….. 9 Figure 3-3: ADSL subscription……………………………………………………………………... 11 Figure 3-4: ADSL distribution by speed, March 2008 and 2011…………………………………….. 11 Figure 3-5: Distribution of broadband subscriptions, Morocco……………………………………... 12 Figure 3-6: 3G subscriptions per 100 people, selected economies, 2010…………………………….. 12 Figure 3-7: Speeds and usage of mobile broadband networks, Q1 2011…………………………….. 12 Figure 4-1: Internet uses, Morocco, 2010………………………………………………………….... 19 Figure 4-2: Share of Facebook users, Arab region, April 2011……………………………………… 19 Figure 4-3: Moroccan e-Government targets……………………………………………………….. 20 Figure 4-4: Internet users in Morocco and selected countries………………………………………. 22 List of Tables Table 2-1: ICT policy-making bodies from 1994-present…………………………………………… 4 Table 3-1: Key ICT indicators……………………………………………………………………… 8 Table 3-2: International Internet bandwidth………………………………………………………... 10 Table 3-3: Number of mobile base stations, 2011…………………………………………………... 13 Table 3-4: Regional comparison of ADSL residential pricing, 2011, US$……….……….………… 13 Table 3-5: Morocco 3G tariffs, September 2011……………………………………………………. 14 Table 3-6: Mobile broadband prices, September 2011, US$………………………………………… 14 Table 3-7: Bundled offers, September 2011………………………………………………………… 15 Table 4-1: Universal Service Fund programs………………………………………………………... 17 Table 5-1: Household Internet penetration rate by geographic zone and monthly income, 2008……. 23 List of Boxes Box 3-1: Awarding 3G in Morocco: The story behind INWI’s success……………………………... 15 Box 4-1: e-Fez……………………………………………………………………………………… 21 Box 5-1: Experimenting with Community-Driven Wi-Fi in Morocco………………………………. 25 v Acknowledgements Samantha Muwafaq Constant of Wolfensohn Family Foundation drafted this report with significant contributions by Abdesselam El Omari of Softkey Solutions and Michael Minges, who directed the case studies for the Broadband Strategies Toolkit. The author wishes to acknowledge the support of Bachir Badaym and Samia Melhem of the World Bank, Samira Khallouk of ANRT, Said Boulisfane of WORMITEC, and Khalid Hannafi of Shabakkat as well as thank all the local counterparts who participated during interviews in Morocco. The supervision of Tim Kelly (infoDev) and Carlo Rossotto (TWICT), for their direction on the overall project, is also acknowledged, as is Samhir Vasdev for editing and preparing the document for publication. The Handbook and its case studies are generously funded by the Korean Trust Fund (KTF) on Information and Communications for Development (IC4D). The KTF is a partnership between the government of the Republic of Korea and the World Bank Group whose purpose is to advance the ICT4D agenda to contribute to growth and reduce poverty in developing countries. The KTF, as well as Philippe Dongier, Sector Manager (TWICT) and Valerie D‘Costa, Program Manager (infoDev), are owed the author‘s gratitude for their support and guidance on this project. vi Acronyms 2G Second Generation mobile telecommunications system 3G Third Generation mobile telecommunications system ADSL Asymmetric Digital Subscriber Line ANRT Agence National de Réglementation des Télécommunication (National Telecommunications Regulatory Agency) GB Gigabyte Gbit/s Gigabit per Second GDP Gross Domestic Product GHz Gigahertz GNI Gross National Income GPRS General Pack Radio Service HCP Haut-Commissariat au Plan (High Commission for Planning) HSDPA High Speed Downlink Packet Access ICT Information and Communications Technology IP Internet Protocol IPTV Internet Protocol Television ISP Internet Service Provider ITU International Telecommunications Union kbit/s Kilobits per second MAD Moroccan Dirham. Conversions to United States dollars have been carried out on the basis of US$1 = MAD 7.83, the rate of 1 September 2011 MENA Middle East and North Africa Mbit/s Megabit per Second MHz Megahertz NGN Next Generation Technologies ONCF Office National des Chemins de Fer (National Office of Railroads) ONE Office National de l'Electricité (National Office of Electricity) POP Point of Presence PSTN Public Switched Telephone Network SEPTI Secrétariat d'Etat aux Postes et Technologies de l'Information (State Secretariat for Posts and Information Technology) SMEs Small and Medium Enterprises SMS Short Message Service SMW3 South-East Asia - Middle East - Western Europe 3 US$ United States Dollar USF Universal Service Fund VAT Value Added Tax VoIP Voice of Internet Protocol VSAT Very Small Aperture Terminals (satellite) WCDMA Wideband Code Division Multiple Access Wi-Fi Wireless Fidelity WiMAX Worldwide Interoperability for Microwave Access vii Executive Summary This report presents the broadband landscape in • Expanding private competition and Morocco and the approach by which the country opting for an emphasis on technical has advanced its ICT sector over the past fifteen requirements, innovation, quality, and years. Despite being constrained by human access. development challenges and regional political uncertainty in today’s “Arab Spring,” Morocco has The mobile industry is a big spotlight in emerged as a trailblazer in certain areas with Morocco’s broadband achievements. The particularly impressive mobile broadband results. introduction of third generation wireless technology in 2007 led to substantive growth of This would not have been possible without early overall Internet subscriptions. This however has visioning. Morocco was one of the first countries come at the cost of investment in fixed in the Middle East and North Africa region that infrastructure. There is a need to boost fiber institutionalized a regulatory environment for deployment in both local access and backbone promoting competition in the telecom sector and networks. Understandably, such civil works as such made great strides in leveling the playing require financing that will only happen if the field for private operators to enter and succeed in private sector is confident it will see a return in its the market. As early as 1999, a national strategy investments. was developed to lay out the country’s ICT vision which later became the foundation for subsequent In order for Morocco to meet its ICT vision, the plans such as e-Morocco and now Digital Morocco. By following three areas merit attention: 2006, both the fixed and mobile markets had • Incentives that encourage a well-balanced, become competitive with the award of operator broadband infrastructure and greater licenses focused on quality rather than price. investments in both fiber backhaul and As a result, Morocco’s broadband share of total local access networks; Internet subscribers was over 99 percent by 2008, • The prioritization of broadband in exceeding that of its neighboring Arab states. universal access policies including Today, the country boasts a quarter of households concrete efforts for dealing with equipped with broadband, significantly higher affordability and awareness issues; and than two percent in 2004. Almost half the country • Programs to develop digital literacy uses the Internet, demonstrating public demand in among the older and rural population in virtual networking and communicating via the addition to those that can effectively World Wide Web. cultivate a next generation of e-content and software producers and developers. Overall, the report finds that three factors contributed to Morocco’s success: Going beyond its initial broadband success and making broadband sustainable and • Prioritizing ICT at an early stage so that transformational will be a challenge for Morocco. subsequent planning could build on Deeping broadband access must find a way to deal previous experiences; with the social and economic reality of a lower- • A youthful and eager population first middle-income country. This will require fresh getting online at the widespread cyber and innovative solutions including more emphasis cafes and later wireless broadband; and on bottom-up initiatives. viii 1 Socio-economic overview The Kingdom of Morocco is a lower-middle- increasing pressure on natural resources. income economy situated in the northwest of While Morocco weathered the economic crisis Africa with a large coast bordering both the relatively well, pre-crisis challenges persist. Atlantic Ocean to the west and the Mediterranean Primary enrollment has improved, but secondary Sea to the north. enrollment stood at 56 percent in 2009, and the The population of Morocco was estimated at 31.9 literacy rate is still low at 58 percent. Young million in 2010 distributed over 16 districts, with people continue to suffer from lack of economic 57 percent living in urban areas. i Rabat is the opportunities and gainful employment. Youth capital and lies 88 kilometers north of Casablanca, unemployment (ages 15-24) was 18% in 2009 with the country’s financial center and largest city of almost one third of urban youth without a job. three million inhabitants. Moroccans are a fused Additionally, while the agriculture sector is society of Arabs and Berbers. Arabic and very shrinking, it employs 41 percent of the nationally recently (since July 3rd 2011) Tamazight and active population, demonstrating a mismatch of Hassani are the official languages with French available skills and labor market demand. Finally, operating as language of government and these figures do not take into consideration the business. The local dialect of Darija is a mix of number of people who are underemployed or Berber, Arabic and French. working for the informal sector, where security and social safety nets are not available. Over the past two decades, the country has demonstrated progress in human development Historic changes are taking place in Morocco and and economic indicators. It achieved a primary the wider Middle East and North Africa region.ii school completion rate of 80 percent in 2009 up Yet, the country has emerged relatively stable from 51 percent in 1990 (Figure 1-1, left). Life from the “Arab Spring” compared to the dramatic expectancy increased from 64 years in 1990 to 72 events that have transformed the political in 2009. landscapes of neighboring Egypt, Libya, and Tunisia. The government has responded to the In 2009, Morocco’s GDP annual growth rate was call for reforms with a new constitution that 4.9 percent and GNI per person doubled between proposes drastic changes to diffuse the power of 2003 and 2010 reaching US$ 2,950 (Figure 1-1, the King and give greater legislative power to the right). Economic diversification as well as climate parliament. With elections due on November 24th vulnerabilities resulting in frequent droughts have 2011, outcomes are yet to be seen but contributed to a gradual increase of non- expectations from citizens remain high. Similar to agricultural activities, led by the services sector their fellow Arab neighbors, Moroccans are constituting 55 percent of GDP in 2009. Despite becoming increasingly more demanding of their this progress, the country continues to be government to develop effective policies that vulnerable to economic shocks, high translate into concrete accomplishments. unemployment and low literacy rates, as well as Primary school completion and life GDP per capita, US$ expectancy 3500 2900 100 80.3 80.4 74 3000 2540 80 72 56.7 2500 2130 Percentage 51.4 47.8 70 60 71.6 1740 Years 70.4 68 2000 40 68.7 66 1310 1300 66.6 64 1500 20 64.1 62 1000 0 60 1990 1995 2000 2005 2009 500 0 Primary Completion Rate Life Expectancy 2000 2002 2004 2006 2008 2010 Figure 1-1: Morocco, Socio-economic indicators 1 2 Regulatory and institutional framework of the ICT sector 2.1 Background three additional plans have been developed, e- Morocco experienced important reforms in its Morocco 2004, updated in 2010, and Digital Morocco. ICT sector starting in 1995, when access to the Hence with this early planning, Morocco was one World Wide Web became available to the public. of the first in the MENA region to put in place At the time, telecom and postal operations along and enforce a competitive timeline for with the administering of Internet access was liberalization of its telecom sector. It was ahead of carried out through the state-owned institution its neighbors in establishing an independent Office National des Postes et Télécommunications regulating authority and a partially privatized (ONPT). telecommunications operator (by 1998) and also During the period 1995-2000, the Moroccan ahead in instituting competitive markets in both government instituted a series of reform efforts the fixed and mobile industry as well as the launch that continued to build and evolve into the of third generation (3G) mobile services. millennium, leading up to the present-day national All of this translated into concrete results. As early ICT plan Maroc Numeric 2013 (Digital Morocco). as 2008, Morocco’s broadband share of total At the time however, the most significant measure Internet subscribers was over 99 percent, was the passing of Law 24-96 in 1997.iii This law exceeding that of neighboring Arab states (Figure led to the separation of ONPT into three entities: 2-1). Today, Internet usage is estimated at 49 i) the creation of a new regulating authority Agence percent of the population, higher than Tunisia, Nationale de Réglementation des Télécommunications Jordan and Saudi Arabia.v Overall, the role of the (ANRT); ii) the formation of Maroc Telecom government has been central in gaining successes (Itisaalat al Magreb) as a limited liability company; and between 2008-2010 the country moved up 10 and iii) the restoration of Poste Maroc (Bareed al positions in the International Telecommunication Maghreb) which retained its national state-owned Union (ITU) ICT Development Index (IDI).vi identity dedicated solely for postal and some financial services. At the same time, the government has faced challenges. Impact on the ground has been mixed, In addition, a secondary level of efforts was with questions about the effectiveness of the carried out in 1997-1998. The Ministry of Industry sector’s governance. In the most recent study and Trade created an independent group to hold a carried out by the World Economic Forum and seminar on the role of teleservices in June of 1997, INSEAD benchmarking countries for national which then later emerged into a formal body in readiness in adaptation of ICT, Morocco ranks 83, 1998 as the Secrétariat d’Etat aux Postes et Technologies down thirteen positions from 2006-2007 and de l’Information (SEPTI), responsible for developing trailing Egypt, Jordan, and Tunisia. vii When it strategies specific to the ICT sector. In parallel, comes to the perception of laws related to ICT, the Committee for Information Technologies institutional effectiveness, and government ICT Monitoring (CITM), a public private partnership, prioritization, Morocco falls behind the world was formed in 1999 to support SEPTI and the mean and trails peer countries despite its advanced result was a report analyzing the sector and policy positioning (Figure 2-2). This suggests that strategies for moving forward. Building on this not only is there is a divergence between analysis, Morocco produced a five-year visioning government ICT strategies and the opinion of document (1999-2003) outlining the potential of business leaders in the country but that other peer ICT and this became the basis for future strategy governments are just as absorbed as Morocco in making across the sector at that time.iv Since then, actively promoting ICT. 2 Figure 2-1: Dial-up and broadband shares of total Internet subscribers in the Arab states, 2008 (Source: ITU 2009, Information Society Statistical Profiles 2009: Arab States) 7 6 5 4 Egypt Jordan 3 Morocco Tunisia 2 1 0 Importance of ICT to gov't Laws relating to ICT Gov't prioritizaton of ICT Gov't success in ICT vision promotion Figure 2-2: Morocco’s score in ICT sector governance performance, 2010-2011. Note: Out of a 1-7 (best) scale. This indicator is derived from the World Economic Forum’s Executive Opinion Survey. (Source: INSEAD and WEF. The Global Information Technology Report 2010-2011) 3 A possible factor for Morocco’s relatively low Casablanca Technopark and the expansion of sector governance perception could be attributed offshore services such as call centers, both of to the high turnover in the ministries responsible which are creating employment, attracting private for ICT policy (Table 2-1). Since September 2007, (foreign and domestic) investment, and driving ICT policies and planning in Morocco have been demand for high quality, high speed Internet. designed and carried out by the Ministry of Industry, 2.2 The regulator Trade and New Technologies while the Ministry of The Agence Nationale de Réglementation des Communications, which had previously handled the Télécommunications (ANRT) was established in1998 ICT sector, is now responsible for governmental under Article 27, Law 29-06 as the national internal and external affairs, media relations, regulatory authority responsible for the drafting support in the development of communication and enforcing of laws related to the telecom sector and partnering on audiovisual efforts sector, including licensing, pricing, compliance, ratified by the office of the Prime Minister. While and fair competition. While it is entitled to the Ministry of Communications is not in charge financial autonomy and has its own legal status, of ICT, it has an important role to play in ANRT presides in the office of the Prime Minister advancing broadband and is an active partner in and is subject to state supervision. The agency the governing structure of Digital Morocco. consists of three main bodies: Ministerial changes are common in many i. Conseil d’Administration, chaired by the developing countries, and where these do create Prime Minister and consisting of challenges in areas of governance they also create government representatives along with opportunities. Two complimentary tactics five key ICT experts from the private and emerged in Morocco that helped the country public sectors. It sets the strategy, fiscal continue its focus on ICT – the backing of the envelop, and carries implementation sector from the highest national level (the Prime oversight; Minister office, and His Majesty King Mohammed ii. Comité de Gestion, appointed by the Conseil VI) and from municipal ICT strongholds (such as d’Administration and on a five year rotation the example in Fez (see chapter 4). While this to consider all affairs decided upon by the report primarily focuses on broadband access, the council; and country has demonstrated considerable iii. Directeur Général which houses four major commitment to development of ICT in the operations of the ANRT – the business sector notably with the establishment of department of Monitoring and Year Official body June 1994-January 1995 Ministry of Postal Services and Telecommunications February 1995– February 1998 Ministry of Postal Services and Telecommunications Ministry of Communications March 1998 – August 2000 Ministry of Communications Prime Minister Office, Department of Post, New Technologies, and Communications (SEPTI) September 2000 – September Ministry of Culture and Communications 2002 Prime Minister Office, Department of Postal Services, Media, and Communications Technologies November 2002 – May 2004 Ministry of Trade, Industry, and Communications June 2004 – August 2007 Ministry of Communications September 2007-Present Ministry of Trade, Industry and New Technologies Table 2-1: ICT policy-making bodies from 1994-present 4 Competition, Technical Department, the Secretariat d’ Etat aux Postes et Technologies de General Secretariat, and National Institute l’Information (SEPTI) was not significant in of itself of Posts and Telecommunications.viii as its principal role was to design a strategy before it was then rebranded as a new department after Under Law 29-06, Articles 2-28 establish the two years of existence. SEPTI’s importance lay in regulatory framework by which ANRT is the fact that it set the stage for strategic national authorized to carry out its responsibilities planning, with both international and domestic including licensing of public telecommunications ICT visioning. On the international front, its networks operating in the public domain or using 1999-2005 strategy focused on building a radio frequency service, authorization of knowledge-based economy and developing human independent networks, assignment of radio resources to compete with an increasingly frequency spectrum and approval of radio globalized world; on the domestic level, the facilities and terminal equipment connected to strategy highlighted the need for the government public networks. It also enforces compliance to be a model for the rest of the country in terms measures to ensure conditions outlined in the Law of new technology usage and delivering of are adhered to, including fees, validity period of services. the licensing, zoning in terms of coverage, leasing of lines, and technical requirements for licensing. It was not until 2004, with the passing of Law 55- 01, incorporating addendums to Law 24-96 that Since its establishment in 1998, ANRT has guidelines were introduced to further open the progressively increased its institutional capacity. It market, expand competition and enhance has pushed sector liberalization, enhanced the universal access. xi The major reform measures consultative process, increased transparency related to Law 55-01 include: through online availability of sector laws and regulations and monitors ICT development - Strengthening the role of ANRT in terms through regular statistical reports and analysis. of compliance, monitoring and Early in 2010, ANRT released an orientation note enforcement of fair competition. This covering its perspectives on the sector through includes managing the numbering system, 2013 in areas such as regulation and legislation, regulating prices and imposing reporting liberalization, development of broadband, and requirements on operators. universal access. ix A select number of measures - Expansion of the definition of universal highlighted in the note include inter-network service to include value added services tariffication rules that favor small-scale operators, such as the Internet. A key goal is to the ability for customers to change operators ensure that all areas especially rural and while maintaining the same number, and low-density regions are covered. development of new models to incentivize However, as it stands universal access can wholesale traffic. Further, a study to allocate be done via 2G mobile networks at less frequencies for 4G technologies by end of 2011 is than broadband speeds. under review along with new policy levers to - The possibility for companies to lease support VSAT viability, including a plan to issue their infrastructure to telecom enterprises new licenses for VSAT and GMPCS networks. In and for operators to share infrastructure addition to its domestic efforts, ANRT also if requested. This is of particular pursues active cooperation with Arab and significance considering the incumbent francophone regulators and according to a World Maroc Telecom owns most of the fixed Bank study, “ANRT’s excellence is recognized on infrastructure. a regional scale.”x - The creation of the Fund of Universal 2.3 Policies and national strategies Telecoms Service (FUTS) and a reduction of contribution by telecom operators of In 1998, when liberalization efforts were two percent of revenues (net of taxes and underway with the splitting up of the ONPT, the interconnection payments). government instituted a ministerial level body to - The establishment of a special fund for design strategies that would help advance research and development. The fund Morocco’s ICT position. The formation of depends on contributions from licensed 5 operators of 0.25% of net turnover licensing framework as in the case of some (excluding interconnection charges). wireless services being restricted to limited mobility. The multiple policy efforts that were underway early on were a positive sign of government Nevertheless Morocco has come a long way in a commitment. However they proved a challenge little over a decade, from a government-owned given that duplication and divergence of activities monopoly to the creation of an independent became inevitable. xii For example, as discussed regulator and a competitive market driven by three earlier, government turnover was frequent (the private operators (Figure 2-3). Further it is ministerial bodies related to the sector alone continually exploring new solutions. For example, changed seven times in a decade) hence not all this past year, ANRT commissioned two major policies designed were implemented. Further, studies, currently underway, to look into an some regulatory measures have created artificial effective approach to national planning of constraints for the operators as well as the broadband xiii and accelerating growth of high regulator such as a specific rather than generic speed Internet in new project developments. xiv Figure 2-3: Main stages in the Moroccan telecom market, 1997-2010 (Source: Roland Berger. 2011. Acceleration in deployment of High Speed in new planning zones in Morocco. 2.4 From e-Morocco to Digital Morocco community access centers and equipping schools The government’s vision for the ICT sector has with computers among many others were been guided by a series of holistic plans. The first introduced early in the e-Morocco planning and e-Morocco strategy was launched in 2001, followed either continue to date, were merged with other by a second updated version in 2005 laying out the programs, or re-prioritized in future strategy vision until 2010. Drawn from the SEPTI strategy making. of 1999-2005, the themes of e-Morocco focused At the heart of Morocco’s modern-day ICT vision on closing the digital divide and positioning is Digital Morocco 2013: The National Strategy for Morocco globally as a key ICT player. The Information and Digital Economy 2009-2013 (better premise was to create an ecosystem of good known as Maroc Numeric) released by the Ministry governance and enabling regulation that fosters of Industry, Trade, and New Technologies.xvi The competition, knowledge production and ICT strategy focuses on umbrella areas – the exportation. xv Major programs such e-governance, governance structure, the beneficiaries and e-commerce services, social and health care program, and the budget allocation to fund provision to citizens, NGO/youth portals, proposed strategies and recommendations. 6 Digital Morocco stands out from earlier e-Morocco 2) Focusing on e-government and strategies primarily for two reasons. The first is its public service provision that is user- emphasis on broadband, which for the first time is oriented; not only explicitly articulated but is the first pillar 3) Promoting computerization across in the strategy. The second is the country’s small and medium enterprises to demonstrated commitment -- endorsed by His increase productivity; and Majesty King Mohammed VI -- to advance the 4) Supporting local actors to develop IT sector and engage cross-sectoral governance markets and build greater potential bodies to support ANRT in its regulatory mandate for sector exports. and oversee implementation of planned activities. The importance of interacting economic gains Built on the principals of creating momentum, with social needs supported by a multi-sectoral strategic prioritization, governance reform and governance body and an enabling environment smart resource distribution, and long-term action resonates in the strategy set forth by the planning, Digital Morocco is designed around four Moroccan government. (Figure 2-4) demonstrates strategic priorities: the conceptual visioning of these aforementioned components, and how the country sees the 1) Expanding citizen access to objectives fit in to meet its goal to place itself on broadband with an emphasis on the forefront of the ICT field. knowledge; Figure 2-4: Digital Morocco vision for the advancement of ICT in Morocco (Source: Digital Morocco 2013) 7 3 The broadband market 3.1 Background result of Law 29-06, the incumbent Maroc Telecom Broadband became available to the Moroccan was created as a limited liability company and public via the introduction of ADSL in mid-2003, partially privatized in 2001 when 35% was sold to and users had options in obtaining high-speed the French company Vivendi.xviii Since then there Internet at speeds ranging from 128, 256, 512, or was an additional sale to Vivendi and in 2007, part 1024 kbit/s. At the time, the broadband market of Maroc Telecom was offered to the public consisted of ADSL and leased lines, which were through a listing on the Casablanca Stock sold to businesses and ISPs. Today, ADSL is Exchange. At the end of 2010, Vivendi owned available at downlink speeds of 2, 4, 8, and 20 53% of the shares, the Kingdom of Morocco 30% Mbit/s. and the public 14%. Maroc Telecom is also a strategic investor in West Africa with holdings in The mobile market was built from the GSM incumbent telecommunication operators in standard later evolving to GPRS and EDGE and Burkina Faso, Gabon, Mali and Mauritania. then 3G through Wideband CDMA (WCDMA) and High Speed Downlink Packet Access Maroc Telecom is the only company that owns (HSDPA) with speeds ranging from 1.8 to 7.2 the copper fixed line telephone network (local Mbit/s. Fixed wireless technologies such as loop unbundling is available). It has a 49% share WiMAX xvii and CDMA 2000 1X EV-DO were of the mobile market, a 57% share of the overall also introduced. Internet market and a 45% of the 3G market. It offers ADSL, leased lines and fiber optic in the There are three major companies operating in the fixed broadband market and GSM and HSDPA in Moroccan telecommunications services sector the mobile market. It also provides IPTV service. market: Maroc Telecom, Méditel and INWI. As a Total Per 100 people 2010 June 2011 2010 June 2011 Population 31,851,000 32,187,000 — — Fixed telephone subscriptions 3,749,364 3,646,318 11.9 11.3 - of which fixed wireless 2,493,336 2,383,290 7.9 7.4 Mobile subscriptions 31,982,279 34,975,076 101.5 108.6 Total Internet subscriptions 1, 866,963 2,345,725 5.9 7.3 - of which ADSL 497,640 527,016 1.6 1.6 - of which 3G 1,366,472 1,816,792 4.3 5.6 -- of which data cards … 1,281,616 … 4.0 Total broadband (ADSL + 3G) 1,864,112 2,343,808 5.8 7.3 % of households 2010 Households with Internet access 25 Households with a PC 34 Households with a mobile phone 84 Households with a classic (wired) fixed line 13 Households with a fixed wireless line 29 Households with electricity 92 (2009) Households with a television 90 (2009) Households with a satellite dish 65 (2009) Table 3-1: Key ICT indicators (Source: Adapted from ANRT, HCP, Les Indicateurs sociaux du Maroc, 2009) 8 Until the year 2000, Maroc Telecom was the sole operator providing telephony and Internet Internet subscriber market share services in country with the exception of a limited number of small-scale ISPs.xix After being awarded the second GSM license in 1999, Méditel began to operate on March 2000 leading to a major INWI evolution in Morocco’s mobile history. Méditel 24% original owners were Portugal Telecom, Telefónica (Spain) and local investors. Portugal Maroc Telecom and Telefónica sold their shares in 2009 Telecom and the following year France Telecom bought 40 Méditel 57% percent.xx The two local shareholders are Caisse de 19% Dépôt et de Gestion (CDG) and FinanceCom.xxi Méditel’s offerings include corporate leased line and fiber access, GSM and HSDPA mobile and WiMAX. In June 2011, its mobile market share was 32% and its 3G market share stood at 24%. Figure 3-1: Internet market shares, June Rebranded in early 2010, INWI is also referred to 2011 (Source: ANRT) as Wana Corporate. Formerly a subsidiary of France Telecom, Wana Corporate became the third operator when it was awarded a landline license in 2005 under the name of Maroc Connect. 3G market share It was awarded a 3G license in 2006 and later a GSM mobile license. In 2009, 31% of the company was opened to a joint venture between the Zain Group and Al Ajial Investment Fund Holding leading to a rebranding of Wana INWI 31% Corporate to INWI.xxii The company offers leased Maroc lines and fiber for corporate clients, ADSL Telecom (through local loop unbundling), CDMA 2000 1x 45% fixed wireless, EV-DO broadband and GSM mobile. Its share of the fixed market (copper line and limited mobility wireless subscriptions) stood at 66% in June 2011 with its mobile market share Méditel at 19% and its share of the 3G market at 31%. 24% 3.2 International connectivity The country’s geography with over 3,000 kilometers of coastline facing both the Atlantic Figure 3-2: 3G market share, June 2011 Ocean and Mediterranean Sea ensures access to a 2011 (Source: ANRT) number of international fiber optic submarine gateway. INWI leases international bandwidth cable systems. Maroc Telecom obtains access to mainly through operators in Spain. international bandwidth through two gateways in Casablanca and Rabat, and four submarine fiber During 2002 – 2010 Morocco increased its optic cables: SMW3, Estepona-Tetouan, Eurafrica international bandwidth capacity from 200 Mbit/s and more recently Atlas Offshore. In addition, to 75,000 Mbit/s, with 25 percent increase in the Maroc Telecom is investing in a new fiber optic last year alone. In 2010, there was 2,461 bits per network to connect its operations in Mauritania, person in Morocco, higher than Algeria and Burkina Faso, Gabon and Mali. xxiii Since 2003, Egypt, similar to Jordan but significantly below Méditel has been using its own international Tunisia (Table 3-2). 9 report, ANRT is planning to carry out an Gbit/s Bits per second per person operational study to assess the feasibility and cost of running 500 kilometers of fiber and then Country proposing to the three operators that they share 2010 2008 2009 2010 75 percent of the cost (25 percent each) with Egypt 94 348 1,143 1,196 ANRT paying the remaining quarter and selecting one to manage the network. If agreement can only Jordan 15 833 1,899 2,581 be reached with two operators, an alternative Morocco 73 861 1,704 2,461 strategy would be a one third cost share. Algeria 35 98 601 1,164 3.4 Penetration of broadband Tunisia 50 1,170 2,830 5,096 3.4.1 Wireline broadband The fixed infrastructure in Morocco's delivery of broadband to the home is based on the copper Table 3-2: International Internet bandwidth network that was inherited by Maroc Telecom (Source: ANRT and regional regulatory from ONPT. With the introduction of ADSL in authorities) 2003, there came new Internet billing options that made access more affordable than traditional dial- 3.3 In-country backbone infrastructure up, and hence led to an accelerated rate of take up. At the end of December 2003, four percent of As the incumbent, Maroc Telecom has the widest Internet subscriptions were ADSL. This figure coverage of fiber in country with a 24,440- jumped to 61 percent by the end of 2004, and kilometer network.xxiv With the awarding of their continued to grow until the introduction of fixed licenses in 2005, Méditel and INWI have the mobile broadband. Narrowband access has option to either build their own backbone or lease decreased to a negligible amount accounting for infrastructure from others. This includes utilities less than 1,000 subscriptions by June 2011. Fiber such as the Office National d’Électricité (ONE) with to the premises is limited to mainly commercial nationwide coverage of 4,000 kilometers of fiber use with home fiber access basically non-existent. and the Office National de Chemin de Fer (ONCF), Broadband via cable modem never developed in the national railway operator, which has 1,100 km Morocco due to a preference for direct to home of fiber.xxv satellite for the delivery of multichannel television. There are also alternative wholesalers such as the Leased lines accounted for 1,003 Internet Marais Group (via its subsidiary Finetis Maroc) subscriptions in June 2011 but have been having deployed 1,200 km of fiber in 2008 dropping. Maroc Telecom started offering leasing currently available for use.xxvi For example, INWI lines in 1995 and at the time lines were copper. leases fiber from ONE and Marais. In 2006, Today, leased lines are all fiber but in time entities Méditel established a long-term partnership with that were leasing started switching to ADSL. ONCF to construct fiber optics along the rail Several reasons can explain the declining figures: i) connecting major cities in Morocco and has The introduction of static IP addresses to ADSL installed around 2,500 kilometers of fiber subscribers in 2005 which until then were backbone to support its mobile base stations and available only via leased lines, 2) around the clock fixed wireless systems. service guarantee with ADSL subscriptions, With concerns that the current infrastructure is inspiring greater confidence among customers, limiting or controlled tightly by the incumbent, and 3) cost of leased lines are high compared to there are high-level discussions led by ANRT ADSL lines. However, government agencies and among various institutional actors regarding big banks continue to see value in renting fiber deployment of new cables. Since the cost of optic lines to run Wide Area Networks (WAN) as deploying new fiber cables is prohibitive, do other businesses who want to control their improving existing networks is always an option own servers directly. but reaching rural and remote areas still without By June 2011, there were 527,016 ADSL coverage remains a problem. At the time of this subscriptions in the country, almost all of which 10 are provided by Maroc Telecom. The rate of keeping the price stable. In July 2011 Maroc ADSL subscriptions grew rapidly following launch Telecom removed the 1 Mbit/s connection and with penetration reaching 1.5 percent of the today the entry-level bandwidth a subscriber population by 2007 (Figure 3-3). Since then receives is 2 Mbit/s. growth has been negligible due to the impact of The incumbent, Maroc Telecom had a monopoly the introduction of 3G. As demand for services over the fixed infrastructure network until landline that require greater bandwidth and speed licenses were allocated to Méditel (the second increased, ADSL has experienced a slightly operator) and Maroc Connect (which later became upward trend recently. This might continue if the Wana Coporate and now INWI) in 2005. environment and infrastructure is right. This is However they choose not to invest in wired especially true with enterprises that require fixed telephone lines. In order for the other operators technology to operate effectively. Nevertheless, to offer broadband using ADSL they have to the long-run potential for ADSL broadband will purchase it through local loop unbundling which inevitably remain constrained due the limited did not go into effect until 2007 (partial)/2008 number of wired telephone lines. Only two in five (full), and is still very limited. When Méditel and households have a “fixed” telephone line and this Wana received their landline licenses, ANRT was number is inflated since it includes fixed wireless keen to have them invest in fixed infrastructure; subscriptions. Just 13% of households have a however, the financial burden was much higher classic copper-based fixed line. than investing in wireless networks. The return on investment for deployment of large-scale, intensive civil works is not apparent, and As of March of 2011, the majority of ADSL continues to be a challenge today especially with subscribers access at speeds between 1 and 4 the mobile market being so robust. For this Mbit/s, much faster than mid-2008 when most reason, ANRT is exploring incentives for the were well below 1 Mbit/s (Figure 3-4). One operators to further invest in building fixed reason is the need for bandwidth is increasing as networks. users become more interested in downloading photos, videos, etc. On the other hand, the 3.4.2 Broadband on the move incumbent has been increasing bandwidth while ADSL subscriptions Per 100 people Distribution of ADSL subscriptions by speed, % 600,000 1.6 1.80 1.5 1.5 1.5 1.6 1.60 500,000 20 Mbit/s 527,106 1.3 1.40 497,640 482,791 476,414 474,561 8 Mbit/s 400,000 1.20 390,834 0.8 1.00 4 Mbit/s 300,000 0.80 Mar-11 2 Mbit/s 248,011 200,000 0.2 0.60 Mar-08 0.01 1024 kbit/s 0.40 62,960 100,000 2,712 0.20 512 kbit/s - 0.00 <=256 kbit/s 0.0% 20.0% 40.0% 60.0% Figure 3-3: ADSL subscriptions (Source: Figure 3-4: ADSL distribution by speed, Adapted from ANRT) March 2008 and 2011 (Source: Adapted from ANRT) 11 Distribution of broadband subscriptions, Morocco 3G subscriptions per 100 people, 2010 3G ADSL Libya 100% 90% Saudi Arabia 80% 70% Bahrain 1655,499 1366,472 60% 707,137 50% Morocco 40% 30% Egypt 268,131 20% Tunisia 42,729 10% ,0 0% 2006 2007 2008 2009 2010 Mar. Algeria 2011 0.0 5.0 10.0 15.0 20.0 Figure 3-5: Distribution of broadband subscriptions, Morocco (Source: Figure 3-6: 3G subscriptions per 100 Adapted from ANRT) people, selected economies, 2010 (Source: Adapted from ANRT, GSM, TRA Morocco was one of the first countries in the Bahrain, CITC Saudi Arabia) MENA region to award 3G frequencies in 2006. up almost three quarters of all broadband Unlike most other countries that awarded 3G connections in 2010 (Figure 3-5). spectrum through an auction, Morocco chose a The number of 3G subscriptions in Morocco beauty contest, resulting in lower costs for stood at 4.3 per 100 people in December 2010. It operators. Spectrum was awarded to a new is difficult to make comparisons to peers due to operator, shaking up the existing duopoly and definitional issues and the lack of data. Among triggering intense competition in the mobile MENA countries for which data is available, broadband market (Box 3-1). As a result, mobile wealthier upper income nations such as Bahrain, broadband, which launched in 2007, surpassed Libya and Saudi Arabia have a higher 3G fixed broadband connections by 2009 and made penetration than Morocco (Figure 3-6). However, Speeds, kbit/s Usage, Average MB / Month Average Peak 450 12000 400 10000 350 300 8000 250 6000 200 150 4000 100 2000 50 0 0 Egypt Morocco Kuwait Qatar Saudi Egypt Morocco Kuwait Qatar Saudi Arabia Arabia Figure 3-7: Speeds and usage of mobile broadband networks, Q1 2011 (Source: Akamai, State of the Internet 1st Quarter, 2011 Report) 12 except for Libya, Morocco had the highest 3G outside the range of 3G, speeds drop to 2G penetration among North African countries (by technologies (GPRS/EDGE or CDMA 2000 1x). the end of 2010, Algeria and Tunisia had yet to commercialize mobile broadband according to the 2nd 3rd GSM Association).xxvii Operator Generation Generation Technology Technology It is revealing to compare the assessed speed and MAROC 6,336 3,099 TELECOM usage of mobile broadband networks in Morocco MEDI TELECOM 3,500 1,000 with peer countries. According to monitoring of WANA mobile networks in five MENA countries carried 1,939 1,635 CORPORATE out in the first quarter of 2011, users in Morocco TOTAL 11,775 5,734 consumed the most data on a monthly basis (414 MB) (Figure 3-7, right). This is a reflection of the Table 3-3: Number of mobile base stations, operator’s liberal mobile data consumption 2011 (Source: ANRT, July 2011) policies. Further though Morocco was not top- ranked for average speeds, it did rank first for peak speeds with bandwidth surging up to 9.8 3.5 Retail broadband prices Mbit/s (Figure 3-7, left). This is somewhat surprising given that the highest speed advertised Moroccan retail prices for fixed broadband are by Moroccan mobile operators is 7.2 Mbit/s. competitive compared to other countries in the region. In a benchmarking survey covering 200 Currently two variations of 3G broadband ADSL services across 18 Arab countries, Morocco technology are used in Morocco. Maroc Telecom had the lowest prices for low and medium speeds and Méditel have deployed WCDMA with and the second cheapest for very high speed (after HSDPA extensions whereas INWI uses CDMA Saudi Arabia). xxviii Maroc Telecom’s entry-level 2000 1x EV-DO technology. Méditel has a ADSL package provides the highest speed and WiMAX network used to offer fixed wireless lowest prices compared to other Arab countries broadband services. According to ANRT’s (Table 3-4). Also, it is the only Arab operator General Orientation Note for the sector, 4G LTE outside the Gulf that offered high-speed options spectrum will be allocated prior to 2013. (i.e., > 15 Mbit/s). Overall Internet subscriptions grew 300 percent in less than three years largely due to 3G. Growth In respect to 3G prices, there are both prepaid might be even greater if 3G coverage was higher. and postpaid options (Table 3-5). Ninety six Although 2G networks cover over 95% of the percent of the population use pre-paid tariffs that population, the rate for 3G is much lower (Table tend to be structured around duration (one day, 3-3). For example, while Maroc Telecom covers one week or one month). In respect to postpaid, practically the entire population with 2G the pricing differences revolve around the download corresponding figure for 3G was 46.4% coverage speed of the package. Maroc Telecom has a in 2010. When mobile broadband users are relatively liberal download limit (5 GB per month); Band-width Algeria Jordan Tunisia Moroc (Down-link) Egypt co Entry level 31.76 27.26 59.51 23.53 38.24 > 256 kbit/s (256 kbit/s) (256 kbit/s) (512 kbit/s) (256 kbit/s) (512 kbit/s) 4 Mbit/s N/A N/A 102.27 46.04 86.04 > 15 Mbit/s N/A N/A N/A 136.07 N/A (20 Mbit/s) Table 3-4: Regional comparison of ADSL residential pricing, 2011, US$. Note: Moroc Telecom quotes the following ADSL rates to its customers: 2, 4, 8, 20 Mbit/s at 99, 149, 199, 499 MAD (12.54, 18.87, 25.21, 63.21 US$) respectively. (Source: Adapted from Teligen) 13 Pre-Paid (Orange) (Orange) (Mobinil) Telecom Duration in Maroc Méditel INWI Jordan Tunisia Maroc Egypt days Telecom 1 MAD 10 MAD 10 MAD 20 ($1.27) ($1.27) ($2.53) 7 MAD 50 MAD 50 MAD 70 Prepaid (one month validity) ($6.33) ($6.33) ($8.87) $22.0 $10.1 Price 1 $25.53 2 $9.90 30 MAD 200 MAD 200 MAD 180 unlimite ($25.33) ($25.33) ($22.80) GB included 5 d 0.5 1 Monthly subscription (voice and data) Theoretical Bandwidth Maroc Méditel INWI speed Telecom (Mbit/s) 7.2 0.5 7.2 10.5 1.8 N/A MAD 139 N/A $20.2 ($17.61) Price per GB $4.40 N/A 4 $9.90 3.6 MAD 99 MAD 245 N/A Price per (US$12.53) ($31.03) Mbit/s $3.06 $51.06 $1.41 $0.94 US$ 7.2 MAD 199 MAD 419 N/A $22.0 $14.0 (US$25.21) (53.01) Price 1 $12.64 $8.43 3 GB included 7.5 5 1.5 2.5 Table 3-5: Morocco 3G tariffs, September 2011 Theoretical (Source: Adapted from operator websites) speed (Mbit/s) 7.2 3.6 7.2 21.1 if it is exceeded then the user’s speed is reduced. Price/GB $2.93 $2.53 $5.62 $5.61 Méditel offers unlimited data explaining its higher Price/Mbit/s $3.06 $3.51 $1.17 $0.66 tariffs. INWI offers data-only postpaid packages offers the second cheapest tariff compared to with speeds up to 1 Mbit/s so its offering is not peers and the cheapest on a price per GB basis. comparable to the other operators. However like the prepaid option, Maroc Telecom’s prices are the highest on a price per Comparing mobile broadband prices to peer theoretical speed basis. countries is difficult due to different pricing structures, speeds and options. Furthermore, there In respect to Table 3-6: Mobile broadband prices, is a difficulty with 3G speeds in that actual prices for September 2011, US$ (Source: Adapted from bandwidth can differ dramatically from theoretical bundling of Maroc Telecom, Orange Jordan and Tunisia, speeds based on the user’s device, coverage and broadband Mobinil) network capacity. In terms of prepaid mobile services, both broadband, Maroc Telecom offers an unlimited Maroc option with a validity of one month. However the Telecom and Méditel offer triple play packages. speed is 0.512 kbit/s, lower than what peer Maroc Telecom provides a package of television operators in other countries advertise. On the (IPTV), broadband (ADSL) and telephony (PSTN other hand the peer operators have data caps after and VoIP) (Table 3-7). By December 31, 2010, which speeds are reduced or users have to pay for Maroc Telecom recorded 40,000 households with additional downloads. Although the Maroc IPTV, which is a fixed line TV service launched in Telecom prepaid price is the most expensive 2006.xxix Given that Méditel does not offer fixed compared to peers, on a data download basis it line broadband, its package uses 3G voice and could be considered the cheapest since it offers data coupled with satellite television. unlimited usage with no penalty (Table 3-6). For monthly mobile broadband using USB connections to link a laptop, Maroc Telecom 14 Maroc Telecom Méditel BOX SILVER BOX GOLD BOX HD-BOX Monthly Price MAD 299 (US$37.21) MAD 349 (US$43.42) MAD 389 (US$48.41) MAD 249 (with VAT ) (US$ 31.54) ADSL Speed 2 Mbit/s 4 Mbit/s 8 Mbit/s 3.6 Mbit/s Table 3-7: Bundled offers, September 2011. Note: Maroc Telecom packages include IPTV with two channels and the option to purchase additional ones, a wired telephone line and VoIP service with unlimited free calls to Maroc Telecom fixed lines. Meditel’s package includes free calls between other HD-BOX subscribers. (Source: Adapted from Maroc Telecom and Meditel) The option of holding a beauty contest rather than an auction to award licenses is attractive for governments interested in assessing each applicant’s vision and long-term business plan before making final selections. In a beauty contest the request for proposals focuses on technical criteria rather than price, and includes questions that request prospective operators to address equity in coverage especially in rural areas, job creation, service provision, and to also provide strong indication of financial viability. Further, the option of the beauty contest provides space for new entrants or aspiring operators who are not as well financed to compete against incumbents that may be better positioned financially and with a stronger customer base. Although a beauty contest may be perceived as less transparent than an auction, a significant benefit is that winners typically do not pay the large amounts that an auction entails, which theoretically should result in lower prices for consumers. In the case of Morocco, ANRT ran a beauty contest in 2006 to award three 3G licenses and the results were astounding – mobile broadband subscriptions increased 530 percent between 2007 and 2008. Today, mobile broadband accounts for three quarters of the country’s broadband market share. As it wished to expand competition in the marketplace and push for universal access, ANRT designed a proposal that would ensure that the license would be awarded to the best technical and quality oriented bid. In addition to the technical requirements, a fixed license fee was set at MAD 360 million plus an additional MAD 36 million for the re-organization of the radio frequencies. In the end, bidders included Maroc Telecom, Méditel, WANA (Maroc Connect at the time) and Maroc Nejma (a Kuwait-based company). The evaluation was based on four criteria: 1) deployment of infrastructure, 2) service quality engagement, 3) diversity, innovation, and incentive packages to customers, and 4) financial viability of bidder and shareholder relations. The aspiring operator WANA made a great impression and was ranked first, followed by Maroc Telecom and Méditel. The introduction of a third operator in the market reaped benefits for both ANRT and the newly licensed company. WANA’s launch of its restricted mobility service (branded as Bayn) in 2007 and full mobility service (branded Wana Mobility) in 2008 expanded mobile broadband as well as its own public reach and penetration. So large was this achievement, however, that WANA became a victim of its own success. When the company launched WANA mobility using CDMA technology as opposed to the GSM standard Méditel and Maroc Telecom use, they also followed the policy of giving away free phones (two for the price of one). The promotion was so popular that WANA sales exceeded expectations and the company faced two major challenges: 1) a still under-developed infrastructure that could not handle the burden of so many users at once, and 2) technology incompatibility resulting in unexpected roaming issues (most neighboring countries were using GSM). Eventually, many of the customers switched back to Maroc Telecom and Méditel and the surge of customers leveled. A lesson learned and improved upon – since 2010 WANA was recapitalized through new investments by the Zain Group, changed management, and adopted a new brand name “INWI” phasing out WANA mobility and upping its sale figures. INWI currently claims the greatest 3G coverage, providing CDMA2000/EVDO for all new customers and 1X (an IMT-2000 technology but slower) where coverage areas have not yet been enhanced with EVDO technology. Source: INWI Interview, July 2011; ANRT. 20 July 2006. Rapport d’instruction - Attribution de licences de 3ème génération en vue de l'établissement et l'exploitation de réseaux publics de télécommunications au Royaume du Maroc. Box 3-1: Awarding 3G in Morocco: The story behind INWI’s success 15 4 Creating an enabling environment 4.1 Overview • Unfair cross-subsidization where an operator The World Bank views broadband as an uses profits from one service to subsidize ecosystem consisting of various components that losses in another service. needs to be in harmony for the broadband market The document purposes to protect against the to be healthy and sustainable. xxx An enabling potential domination of one operator over the environment is necessary to promote supply-side other, especially the one with greatest cliental growth as well as to facilitate demand. The network and financial leverage. The above Moroccan government has implemented prohibitions of practices would cover voice, data, regulations to open up the local loop in an effort messaging and other data transmission services to create greater supply of broadband connections over telephone, mobile and data networks. and has also developed a number of programs to increase access. It has also promoted e- 4.2.2 Local Loop Unbundling Government through several strategic plans with In an effort to promote competition, ANRT the aim of developing e-services to encourage prioritized the issue of local loop unbundling as citizens and businesses to interact with it online. early as 2004 through a decision resulting in negotiations with the incumbent Maroc Telecom 4.2 Regulation which needed to provide technical specifications 4.2.1 Tariff guidelines about its legacy copper infrastructure and pricing At the time of writing this report, a set of tariff options for operator access. However it was not guidelines produced by ANRT in August 2010 is until an order from the Prime Minister that dates still ongoing with the aim of establishing a were set for implementation of local loop regulatory framework around retail pricing, paying unbundling – with partial unbundling expected by special attention to the newest operator which January 2007 and full unbundling by July 2008.xxxii may not benefit from the same reach and A final agreement on full unbundling was reached longevity as the incumbents. With these on December 27, 2007 after a series of guidelines, ANRT will be monitoring four major correspondence between ANRT and Maroc practices that it will consider unlawful:xxxi Telecom. This also included new modifications to pricing of partial unbundling.xxxiii • The squeeze effect resulting in tariffs that cannot be replicated by competitors in a Under ANRT oversight, the monthly costs that manner that will be economically viable. were decided upon for 2008 were competitive and It is strategy by which a vertically favored affordable operator access. The tariff integrated operator sets its tariffs below structure is multi-layered, including costs relating the cost level of a reference operator. to: • Predatory pricing practiced by an operator • Maroc Telecom intervention in case there that exposes the competition to a is a problem, reduction of their margin and as such is • technical issues specific to shared access, apt to exclude them from the market. • the creation of specific applications in • Abusive bundling is taking advantage of the order to access the local loop, ability to provide the sale of two or more different services that cannot be • infrastructure (or entities) within Maroc Telecom to implement the local loop, and replicated by competition, affects the interest of the client, comprises the • billing access to the local loop. commercialization of competitor offers, With the final agreement, Méditel and INWI’s and reduces demand for competitor expected monthly cost to access high frequencies products. of the unbundled lines (partial) was estimated at MAD 35, 30 percent less than what was initially agreed upon for the year 2007. For full 16 Program Objective Budget Time frame GENIE Equipping 9,260 educational institutions with MAD 2 billion of 2009-2013 multi-media rooms and Internet which MAD 1 Target: 6 million students billion from is from the USF NAFID@ Providing computers with mobile broadband MAD 216 million 2009-2012 to teachers (including support Target: 150,000 teachers from the Mohammed VI Foundation) GENIE –SUP Provision of digital equipment to universities MAD 120 million 2011-2012 and training institutions. INJAZ Provision of computers with mobile MAD 246 million 2009-2013 broadband to senior secondary school students Target: 80,000 students CAC Creation of community access centers that MAD 80 million 2009-2013 provide access to ICT Target: 400 centers Table 4-1: Universal Service Fund programs (Source: Adapted from ANRT) unbundling, the estimated cost was MAD 100, extending citizen access to broadband is viewed as lower than what Maroc Telecom charges its direct an essential ingredient for social transformation. customers and what many incumbents in Europe As mentioned earlier, a Universal Service Fund were charging their competitors. (USF) was created in Law 55-01 requiring all Additionally, Maroc Telecom was required to operators to allocate two percent of revenue. This provide information about its subscribers as well meant that a fund would be available for as specifications that pertain to its equipment sites incentivizing infrastructure development in enabling competitors to have the option to either remote and hard to reach areas. If operators invest rent lines or share the physical infrastructure.xxxiv in those areas on their own, the amount they This would give flexibility to the competitors in spent is reduced from their USF contribution terms of lowering costs by running their own lines (“Pay or play”). through shared infrastructure. While these In 2007, the “PACTE” program (2008-2011) was measures are deemed encouraging for approved by a special commission in charge of competitors, the impact of local loop unbundling universal service. The program, which is the on broadband has so far been limited. As of June largest financed by the USF intends to address 2011, Maroc Telecom had a 99.8 percent share of coverage of 9,263 locations classified as “white the ADSL market. areas,” of which 50 percent are listed under the In addition, while local loop unbundling can be National Initiative for Human Development useful policy for promoting broadband (Initiative Nationale pour le Développement Humain, competition, in the case of Morocco its relevance INDH).xxxv These areas belong to 55 regions and is also restricted. There are only 1.2 million 841 communes of the territory, including 2.3 copper-based fixed lines of which 40% are already million habitants or approximately 17% of the used for ADSL. rural population in Morocco. The budget for this is activity is estimated at MAD 1.44 billion. By the 4.2.3 Universal access end of the PACTE program it is envisaged that A key objective of ANRT and the Ministry of essentially all populated areas will have mobile Industry, Commerce and New Technologies has coverage, up from 97.5% of the population in been the promotion of universal access. It is also a 2010.xxxvi fundamental strategy of Digital Morocco where 17 For the period of 2008-2013, the remaining • Finally, social media has pushed allocation of the USF (around 60 percent) is Morocco’s ahead many of its neighbors in disbursed across five targeted programs most of broadband usage and as such reveals a which relate to provisioning schools and students niche population ready to be networked with ICTs. In addition there is a program to create and capitalized. 400 access centers as called for in Digital Morocco (Table 4-1). According to ANRT orientation note, In contrast to entertainment activities, e- it is anticipated that a study will be launched by commerce usage by consumers in Morocco is low. the end of 2011 to establish guidelines for the next Only six percent of Internet users take advantage stage of the program development including plans of online banking or ordering goods over the for Universal Service Fund during 2012-2016 Internet. In respect to purchasing goods over the Internet, only 4% of surfers do this. The main 4.2 Applications reason given is that there is no need. This is tied The majority of those using the Internet in to 57% who say they do not purchase online Morocco are doing so for entertainment purposes because they cannot “touch” the product. Security or for communication via email (Figure 4-1). is also a concern with almost seven out of ten Exchanging videos and music, social networking users. and Internet telephony are main uses driving There are several domestically developed online people to broadband, averaging a combined payment services for Moroccan Internet users. increase of 29 percentage points in 2010. Maroc Telecommerce, an initiative of Moroccan banks, provides an e-commerce platform where There is no denying that social media is driving users can make online purchases and merchants Internet usage in the Middle East, particularly can sell products and services. Businesses use the given the recent political events. According to a service to open online stores after passing security 2011 study, in UAE and Qatar, almost 30 percent clearance and demonstrating financial capability in of the population is on Facebook. xxxvii Egypt order to provide users with confidence when added two million Facebook users in four months. making purchases. Mobicash introduced in 2008 by In Morocco, 67 percent of the population that Maroc Telecom is a mobile payment system. goes online does so for social networking. This is up almost 20 percentage points from 2009 and Users can transfer and receive money from others, pay their Maroc Telecom bills or recharge their today the country has the third highest number of phones and use their handsets to make purchases Facebook users in the Arab world (Figure 4-2). With 79% of Moroccan Facebook users between from authorized merchants. the ages of 15-29, there are three considerations 4.3 e-Government when thinking about the Internet market: The Moroccan government has promoted the • The first is that given that most Internet vision of ICTs for transforming public users in Morocco are on some kind of administration for a number of years. The social networking platform with rich government can be a leader by computerizing its multimedia features, demand for better own operations as well as providing online quality in service will increase. services to stimulate broadband demand. A • Second, the majority of users driving number of initiatives have been launched but broadband are between the ages of 15 and progress has been slow. One challenge has been 29, an attractive audience for broadband incentivizing the bureaucracy to adopt a greater market opportunities but also in terms of public service perspective. Successful projects finding ways of increasing usage of include those that have been able to overcome applications that impact their livelihoods. ingrained resistance through a proactive public administration such as in the city of Fez (Box 4-1) 18 Figure 4-1: Internet uses, Morocco, 2010 (Source: ANRT) Egypt 24% Other Arab countries 25% Algeria Saudi Arabia 7% 15% Tunisia 8% UAE 9% Morocco 12% Figure 4-2: Share of Facebook users, Arab region, April 2011 (Source: Dubai School of Government) Morocco developed a four-year e-government leverage on government progress to date for plan called IDARATI (Informatisation des example in establishing a national portal and Départements Administratifs et leur mise en Réseau passing supporting legislation. By 2010, there were Adéquate via les Technologies de l'Information) covering 370,000 visits to the citizen public administration the period 2005-2008. xxxviii It was intended to portal and some 200 forms online.xxxix 19 Figure 4-3: Moroccan e-Government targets (Source: Digital Morocco) E-government is a key pillar of the Digital Morocco digitizing public services, especially if other strategy. Concrete targets include increasing the mediums of delivery are phased out before online number of e-government services from 16 in 2008 access is universal. to 89 by 2013 (Figure 4-3). Additionally, the government is anticipating that by 2013 all 4.4 Moroccans online enterprises generating revenue of more than MAD Morocco has experienced major growth of the 20 million annually will be using transactional Internet over the last decade, reaching an services. Other targets include raising the estimated 14 million users by the end of 2010 or country’s e-Government score in UN rankings almost half the population (Figure 4-4, top). When and increasing the number of public it reached one million in 2003, the majority were administration sites in the top Moroccan 100. accessing via cybercafés. The significance of these public spaces continues with 76 percent of users In order for the program to meet its objectives, a who access the Internet outside of the home governing structure was established with 15 doing so via a cybercafé (approximately 8 million flagship services to be implemented by 2011 and a users).xl As the country continued to push reforms timeline for the completion of all targeted 89 e- with Law 55-01 in 2004 and the liberalizing of Government services by 2013. The 89 e- fixed and cellular markets, the usage of Internet government services include 42 transactional, 30 expanded. In particular, the country experienced informational, and 17 infrastructure related its highest Internet growth rates between the applications. The focus is on delivery of years2007-2009 which coincided with the transactional processes given that e-services deployment of 3G technologies by the three require direct interaction with citizens and operators. As a result, when compared to the rest enterprises to achieve their full utility. of the region, the percentage of the online It will be important to ensure that services population in Morocco exceeds most countries in available online are also accessible in some the MENAregion including neighbors Egypt and alternative form so that all segments of population Tunisia (Figure 4-4, bottom). benefit. There is a risk of exclusion when 20 Employees of the Bureau d’État Civil (BEC) in the Moroccan city of Fez previously had to search for birth certificates through hundreds of handwritten records and transcribe by hand information from the original birth certificate to provide citizens with copies needed for applying for a job. It could take hours, if not days, to fill this request along with the many others received that day. Applying for these certificates could take days. Although under-the-table bribes were common, the process could still be unbearably long. Those who finally received their documents were often so elated that they fail to double-check the handwritten copies, resulting in a return visit to the BEC to fix poorly transcribed entries that had not been accepted at their final destination. In an effort to remedy this problem the local Al-Akhawayn University developed the e-Fez Action Research Project, funded by Canada’s International Development Research Centre (IDRC) to design, develop, and implement an e-government system to automate delivery of citizen-oriented services. With a two-year grant from IDRC, the university had to prioritize. It opted for automating one of the most widely used services in BEC offices: providing birth certificates. A pilot project, undertaken in partnership with the Université Laval in Québec and in collaboration with the Fez municipal government, was planned for the Agdal district. Its BEC office was set up in 1986, and had registered approximately 15,000 citizens. The research team soon discovered that automation required more than they had bargained for. Every birth certificate in the Agdal office would have to be digitized. This meant installing the necessary infrastructure in the office, which previously had no computers or Internet connections. Even the electrical service was prone to interruptions. The municipality of Fez played a major role by installing new electrical lines, Internet connections, and computers; the project provided cables and servers. The municipality was so highly motivated that it began automating two other offices at the same time. The team then needed to find a way to digitize the existing records. They tried scanning, but the error rate was 60%. The only viable alternative was to enter the information on each birth certificate into a database. The result was unprecedented. For the first time ever, Moroccan citizens’ records were digitized. Data entry began in February and ended in November 2005. Citizens now have three choices for obtaining a birth certificate. Rather than wait days to receive a handwritten copy, they can provide office staff with their serial number and the computer system generates and prints a copy of the certificate. The impact of the e-Fez Action Research Project has been far-reaching. At the local level, some 15,000 registered citizens now have access to government services instantly. Services are transparent and take less time and effort. The project generated collaboration between various sectors of society in Fez. An academic institution, citizens, elected officials, government employees, and an international organization worked together to make better local governance a reality. The project has won widespread recognition, winning Morocco’s National Prize for Electronic Administration: e-Mtiaz 2006. And in 2007 the project earned a Technology in Africa Award (TIGA) and a United Nations Public Service Award (UNPSA). Building on e-Fez, Al Akhawayn University launched another project with IDRC and IT+46 of Sweden and with support from the city and the ANRT to deploy a WiMAX network interconnecting government offices and providing public access through hotspots. The Wireless Metropolitan Area Network @ Fez (Wman@Fez) project is the first WiMAX community network in the country. It has been extended to several other towns in the Middle Atlas region. Adapted from IDRC, “Fez: The e-capital of Morocco.” http://web.idrc.ca/uploads/user-S/12089602911E- Fez.pdf and “Al Akhawayn Workshop Focuses on Innovative Project to Enhance Local Government with Wireless Networks.” News, November 24, 2010. http://www.aui.ma/PresidentsCabinet/News/news10/news10-index.htm Box 4-1: e-Fez 21 Thirty-four percent of households have personal computers and 25 percent of households have Internet users, Morocco 49 broadband access at home, significantly higher 14,000 50 than the two percent in 2004. Of the households 41 with Internet access, 78 percent use 3G with a 12,000 40 USB modem. Just over a fourth of households 33 with electricity but without Internet access 10,000 Users in Thousands Per 100 people envision having 3G in the next 12 months. 30 8,000 There are barriers to increasing Internet use that 20 22 are likely to constrain future growth such as the 6,000 15 20 lack of electricity in some rural areas. Another 12 4,000 barrier is cost with just over half of households 10 without Internet saying they cannot afford it. This 10,300 13,000 14,000 2,000 3 1,000 3,500 4,600 6,100 6,600 is mainly attributed to the price of purchasing a computer. A key obstacle is digital literacy with ,0 0 almost half of households without Internet saying they do not see the utility and one quarter replying they lack skills to use it. This is mainly a problem with the older generation given that most of the Internet users Per 100 people, 2010 country’s Internet users are young. While the Digital Morocco plan calls for providing Internet Morocco 49 access to all schools, it does not explicitly deal with digital literacy training for those no longer in Saudi Arabia 41 school. Thus digital illiteracy is likely to remain a bottleneck for increasing broadband access. Jordan 38 Tunisia 37 Egypt 27 Algeria 13 0 10 20 30 40 50 Figure 4-4: Internet users in Morocco and selected countries (Source: Adapted from ANRT and regional communications authorities) 22 5 Success and challenges Morocco was one of the first countries in the available. Middle East and North Africa region that At the same time, the impact of the programs institutionalized an independent regulator to implemented over the years has not always been govern and incentivize the market and introduce certain and there is limited evaluation regarding 3G technologies, in an effort to expand the quality and outcomes of increasing access. broadband access to the people. The framework Facilitating dialogue on deeper reform of the of Digital Morocco reinforces essential policies sector, intensifying the competitive environment, around access and content, a multi-stakeholder and demonstrating improvements in livelihoods governance body to oversee the process and a through ICTs are some of the key issues facing budget to finance activities. There is a monitoring ANRT, which is in the process of strengthening system via the regulator’s Observatory where an its capacity to deliver on its mandate. The online platform is available for the public to access regulatory and political environment are only parts results and analysis of the market on a quarterly of an ecosystem; the business environment, the basis. production of content, exporting of broadband Government policies such as the introduction of enabled services, and the consumption of an additional operator and early awarding of 3G information are parts that are at times licenses through a beauty contest have impacted disconnected from each other. At the same time, Morocco’s broadband market. Dial-up Internet while there are high expectations for ICT in the access has practically disappeared and speeds of country, Morocco’s level of social and economic up to 20 Mbit/s are available with ADSL. Fixed development including more than two out of five broadband pricing is relatively low compared to people residing in rural locations, constrains peer countries. Mobile broadband has taken-off broadband diffusion and will be difficult to following allocation of the three licenses in 2006 change in the short-term. and accounted for over three quarters of the There are three overarching gaps that Morocco broadband market by mid-2011. Operators offer a faces when one considers the current state of variety of mobile broadband payment plans broadband in country: the need for well- ranging from one-day use to monthly balanced infrastructure, improved quality and subscriptions. Though difficult to measure affordability, and greater push for demand precisely because of different speeds and data driven services. These gaps are interrelated as consumption practices, mobile broadband pricing shown by the table below which illustrates the in Morocco is relatively inexpensive compare to its penetration of Internet access in Moroccan peers. Usage of mobile broadband is high households according to income and geographic compared to peer countries for which data is zone and the corresponding literacy rate. Monthly household income (MAD) 8,000- > 18,000 18,000 3000-8000 <3,000 High Density Zones 80% 35% 15% 2% 0% Medium Density 35% 15% 2% 0% Grey/White Zones (sparsely populated) 0% 0% 0% Literacy rate (%) 100% 95% 90% 55% 35% Table 5-1: Household Internet penetration rate by geographic zone and monthly income, 2008 (Source: Adapted from Digital Morocco) 23 Penetration is reduced with the geographic 5.3 Greater push for demand driven location indicating the need for well-balanced services infrastructure. Penetration drops as income falls, Morocco has made tremendous strides in getting indicating the need for greater affordability. its population online. The number of Internet Finally penetration is less where illiteracy is high users has increased from 3.5 million in 2004 to 14 indicting the need for skills development in order in 2010. According to surveys many people are to use broadband services. using entertainment type applications. There is a 5.1 Well-balanced infrastructure need to channel that demand into other applications that can help improve livelihoods. Growth in the broadband sector in Morocco is This includes developing applications in driven by the mobile industry, in particular 3G. education, government and health that Today, over three quarters of broadband incorporate social network features to make them penetration is due to 3G and it has the promise to attractive and encourage user content creation. It reach populations otherwise neglected. Yet the also calls for private-public partnerships to explore overall country access rate remains low especially innovative ways of getting young people online to in low-density areas. And while all operators use search for jobs and economic opportunities 3G technologies, Maroc Telecom delivers 99 otherwise only accessible by a select few via percent of ADSL, through its historic control over personal connections. the wired telephone network. Local loop unbundling has been in effect since 2007 but At the same time there is a need to remedy the results are negligible. Operators must be digital divide in Moroccan Internet use. Most encouraged to share infrastructure to lower costs Internet users are young indicating a need to get in an environment where fixed networks are more people over thirty online. While government limited and wireless networks costs can be is focusing efforts on increasing school leveraged to help cover larger areas. In order for connectivity there is a pressing need to provide broadband diffusion to be successful significant digital literacy training to those out of school. efforts to improve backhaul is critical. This 5.4 Lessons learned and remaining includes deploying fiber deeper into rural areas. At challenges the same time, the level of electrification in rural areas needs to be boosted. These steps will require • Just under half the population uses the fresh and innovative thinking since purely Internet in Morocco, higher than other competitive solutions can only go so far in countries, and an impressive achievement addressing these problems. considering the relatively low literacy level. The widespread availability of 5.2 Improved quality and affordability Internet cafes and more recently a trend 3G has proven quite popular in Morocco and is towards home access with 3G has been a the main channel for broadband access. factor contributing to Internet growth as Nevertheless, there are looming quality concerns. has a youthful population. Most usage is One issue is inconsistent coverage with users currently towards entertainment. A shift is often switched to slower 2G speeds outside urban needed to make users become producers areas. Additionally, the popularity of social and access information that can help networking is resulting in growing mobile data them in their daily lives. usage that is starting to place a strain on mobile • The government’s early decision to networks. Quality issues also affect fixed license of 3G through a beauty contest broadband particularly for subscribers who are not has boosted Internet penetration, with close to the exchange. household penetration tripling. The Affordability is a significant barrier. It is cited as challenge will be to expand access beyond the main reason people do not have computers or the one quarter of households that already Internet access at home in ANRT surveys. have it. Stimulating and filling demand Additional efforts are needed to make broadband will be challenging due to lack of adequate service and end user devices cost effective for coverage and electricity in rural areas, ordinary citizens. affordability constraints, and unawareness 24 about the benefits. There needs to be diversity of options beyond ADSL and focus on reducing prices and raising 3G. Morocco faces a situation where digital literacy, especially among the older fixed broadband options are essentially population. limited to ADSL because cable modem is • Enhancement of infrastructure is not a viable alternative (due to the fundamental. Mobile broadband coverage popularity of satellite television) and is not consistent across the country with where the cost of fiber installation for bandwidth often falling back to 2G local access is often prohibitive. A fresh speeds outside urban areas. At the same approach is needed including incentives time, the exponential growth in mobile for encouraging fiber deployment and broadband use is affecting quality. reviewing experiences of other countries Greater efforts are needed to expand with open access and flexible ISP laws. high-speed backbone infrastructure Inclusive and bottom up approaches throughout the country. Microwave could also stimulate local broadband technology is limited in its ability to development. One example is municipal support the exponential growth in mobile Wi-Fi (Box 5-1), where efforts in broadband. In that respect, operators Morocco have been constrained by need to upgrade their backhaul with fiber. various laws and regulations. These might • Innovative approaches are needed to be loosened to encourage alternative low- expand local high-speed access to increase cost solutions for broadband access. Global efforts to build community-based Wi-Fi networks have emerged as a solution for people to access free broadband. One such example is FON established circa 2007 in Madrid, Spain.1 Today, the network has over four million hotspots in 24 countries. Morocco is the only country in the Middle East and North Africa region with members formally registered with the network. In 2007, Abdesselam El Omari, an IT entrepreneur based in Rabat heard of the newly established FON network. When Abdesselam contacted the company to join, he received four routers free of charge and was requested to keep one for himself while giving the remaining three to others with broadband connections and interested in becoming part of the movement.1 As a member, he received an identifier that would allow him to connect to any FON wireless network around the world and could potentially make enough money to subsidize his monthly broadband connection costs if traffic was sufficient. This was made possible because the company also sold prepaid cards that would allow anyone to connect to the community network. Money generated by these cards would be split between the company and the owner of the router to which the prepaid card holder connects to at any given time. Abdesselam installed one router in his apartment and one in his parent’s house as they live next to the Hilton Hotel with promising potential for traffic. He gave the two other routers to friends in Casablanca. After speaking to a lawyer about this opportunity and his desire to expand it in country, he was dissuaded from continuing as it posed two types of legal problems: • The first challenge was in regards to his ISP and rules against reselling Internet access. Sharing was permissible but selling was not. • The second was related to fiscal issues and declaration of unauthorized income. Making money without declaring it and receiving VAT from users was problematic. As a result, Abdesselam stopped the service. While in principal, the network provided an alternative solution to accessing broadband the incentive model does not take into consideration local telecom regulations in regards to sharing versus reselling bandwidth. Also, the emergence of mobile devices to connect to broadband reduced the market base. Nonetheless, community-based Wi-Fi networks remains relevant where creative solutions are needed to provide broadband access in poorly served areas. Interview with Abdesselam El Omari, Rabat, July 2011. Box 5-1: Experimenting with Community-Driven Wi-Fi in Morocco 25 About infoDev infoDev is a global development financing program among international development agencies, coordinated and served by an expert Secretariat housed at the World Bank Group, one of its key donors and founders. It acts as a neutral convener of dialogue—and as a coordinator of joint action among bilateral and multilateral donors—supporting global sharing of information on ICT for development (ICT4D), and helping to reduce duplication of efforts and investments. infoDev also forms partnerships with public and private sector organizations who are innovators in the field of ICT4D. infoDev is housed in the Financial and Private Sector Development (FPD) Vice Presidency of the World Bank Group. For additional information about this study or more general information on infoDev, please visit www.infodev.org/publications. 26 Endnotes i This section draws on Haut Commission au Plan. Le Maroc en chiffres 2009. http://www.hcp.ma/downloads/Maroc-en- chiffres_t13053.html and the World Bank Data Catalog at:http://data.worldbank.org/country/morocco?display=default ii For the purpose of this study and unless otherwise noted, the Middle East and North Africa region constitutes the following countries: Algeria, Bahrain, Egypt, Iraq, Jordan, Kuwait, Lebanon, Libya, Morocco, Qatar, Tunisia, Saudi Arabia, Syria, West Bank & Gaza, and United Arab Emirates. iii Loi 24-96 relative à la poste et aux télécommunications. 7 August 1997. http://www.anrt.net.ma/fr/admin/download/upload/file_fr1818.pdf. The basic telecom law has had several amendments over the years. A consolidated version, Loi n°24-96 consolidée relative à la poste et aux télécommunications, telle qu’elle a été modifiée et complétée, is available here: http://www.anrt.ma/fr/admin/download/upload/file_fr1825.pdf iv SEPTI, 2000. Rapport de la Sous-Commission des Technologies de l’Information: Plan quinquennal 1999-2003. v The figure refers to the electrified areas only; the figure over entire population is 43 percent. vi ITU. 2011. Measuring the Information Society. The IDI is a composite index consisting of 11 indicators including access, use, and skills. http://www.itu.int/ITU-D/ict/publications/idi/2011/ vii World Economic Forum. 2011. Global Information Technology Report 2010-2011. http://www.weforum.org/reports/global- information-technology-report-2010-2011-0 viii ANRT. 2010. Annual Report 2009. ix ANRT. 2010. Note d’orientations générales pour le développement du secteur des télécommunications à horizon 2013. x World Bank. 2004. Morocco: Developing Competition in Telecommunications. http://go.worldbank.org/T4B5VCU0D0 xi Loi 55-01 modifiant et complétant la Loi 24-96 relative à la poste et aux télécommunications. 4 November 2004. http://www.anrt.ma/fr/admin/download/upload/file_fr1820.pdf xii A 2001 ITU report notes there was a “Lack of a clear separation between the functions and roles of the SEPTI and ANRT in the area of regulation; overlapping of functions, as noted by representatives of the State.” ITU. 2001. Effective regulation case study: Morocco. http://www.itu.int/itudoc/gs/promo/bdt/cast_reg/79125.pdf xiii Piot, Stéphane. 2011. National broadband plan in Morocco Approach and key findings to date presented at the Broadband Development in Morocco: Challenges, Policies and Regulation, using lessons learnt from South Korea, July 7, Rabat. http://www.anrt.ma/fr/content/main.php?id_page=116&id_sous_page=0&niveau3=0#. xiv Roland Berger. 2011. Acceleration in deployment of High Speed in new planning zones in Morocco presented at the Broadband Development in Morocco: Challenges, Policies and Regulation, using lessons learnt from South Korea, July 7, Rabat. http://www.anrt.ma/fr/content/main.php?id_page=116&id_sous_page=0&niveau3=0#. xv Ministry of Industry, Trade and New Technologies. 2007. E-Morocco 2010 Strategy: Accomplishments, Perspectives & Action Plans. xvi Maroc Numeric: Stratégie nationale pour la société de l’information et l’économie numérique 2009 – 2013. http://www.egov.ma/Documents/Maroc%20Numeric%202013.pdf xvii WiMAX is considered fixed in the case of Morocco however it can also be classified as mobile depending on the specific technology. xviii Maroc Telecom’s formal name is Itissalat Al-Maghrib (IAM). For more information about the company see its web site at: http://www.iam.ma/Groupe/Pages/accueil.aspx xix Initially, ONPT rented out its bandwidth to ISPs through leased lines and the ISPs then sold dial-up services to customers. With dial up, customers were paying a connection fee in addition to minutes since their phone service was billed on a pay per use basis and this continued until the introduction of broadband. When Maroc Telecom was formed in 1998, it modified its policy and began selling services directly to customers making it difficult for smaller ISPs to compete. In 1999, Casanet was bought by Maroc Telecom which then became its Internet subsidiary Manara; Maghrebnet canceled its internet provision and only providing network services, Wanadoo Morocco a subsidiary of France Telecom eventually became Wana which was later absorbed into WANA Corporate, now INWI, and other internet service providers shut down, such as ELAN and Fusion. MTDS, one of the oldest ISPs in Morocco, was established in 1993 and continues to date. As a wholesaler, it buys bandwidth from the incumbent selling mostly to a select group of commercial customers, as well as providing network security, technical know-how, and ICT applications for social and economic development purposes. xx France Telecom. September 21, 2010. Méditel enters into a strategic partnership with France Telecom to become the value and innovation champion in Moroccan telecoms. http://www.orange.com/en_EN/press/press_releases/att00017093/20100920-Meditel and FTEUK(vdef).pdf. xxi Méditel’s full name is Médi Télécom. For more on the company see its web site at: http://corporate.Méditel.ma/servletAccueil?tache=PageIndex# xxii For more on INWI see: http://www.inwi.ma/corporate xxiii TeleGeography. “Maroc Telecom’s first phase of regional fibre backbone 60% complete.” February 20, 2010. http://www.telegeography.com/products/commsupdate/articles/2010/02/26/maroc-telecoms-first-phase-of-regional-fibre- backbone-60-complete/ xxiv Maroc Telecom. 2011. Document de Reference 2010. http://www.amf-france.org/DocDoif/txtint/RAPOSTPdf/2011/2011- 028400.pdf xxv Williams, Mark. 2010. Broadband for Africa: Developing Backbone Communications Networks. Washington D.C.: World Bank. http://publications.worldbank.org/index.php?main_page=product_info&cPath=&products_id=23786. 27 xxvi “Marais Groupe porte le capital de sa filiale Finetis Maroc à 20 MDH.” La Vie éco, November 5, 2009. http://www.lavieeco.com/news/economie/marais-groupe-porte-le-capital-de-sa-filiale-finetis-maroc-a-20-mdh-13688.html. xxvii GSM Association. 2010. Mobile Broadband Success Story, Challenges and Opportunities.http://www.gsmamobilebroadband.com/upload/resources/files/GSMA%20- %20SMC%20Tunisia%208Nov2010%20MBB.pdf xxviii Teligen. September 2011. 2011 Telecommunications Retail Prices Benchmarking Report for Arab Countries. http://www.tra.org.bh/en/PriceBenchmarking.asp xxix Maroc Telecom. 2011. Document de Reference 2010. http://www.amf-france.org/DocDoif/txtint/RAPOSTPdf/2011/2011- 028400.pdf xxx Kim, Yongsoo, Tim Kelly, and Siddhartha Raja. 2010. Building Broadband: Strategies and Policies for the Developing World. Washington D.C.: World Bank. http://www.infodev.org/en/Publication.756.html. xxxi Décision ANRT/DG/n°05/10 du 11 Aout 2010 portant adoption des lignes directrices encadrant l’examen par l’ANRT des offres tarifaires des exploitants de réseaux publics de télécommunications. http://www.anrt.ma/fr/admin/download/upload/file_fr2127.pdf xxxii Partial unbundling includes access to only high frequencies in the copper line (ADSL) and full unbundling includes both voice and ADSL. xxxiii Décision ANRT/DG/N°03/08 du 04 janvier 2008 portant approbation de l’offre technique et tarifaire relative au dégroupage partiel et total de la boucle locale d’IAM pour l’année 2008. http://www.anrt.ma/fr/admin/download/upload/file_fr1433.pdf xxxiv The local loop unbundling policy applied to operators. MTDS which has a customer base of around 1000 ADSL subscribers has a separate agreement with Maroc Telecom dating back from the days of ONPT. Specific details are confidential. xxxv INDH was announced in a speech by King Mohammed VI to highlight social challenges and launch a program that can mobilize resources and raise living standards and social development indicators: http://www.indh.gov.ma/ xxxvi ANRT. 2011. “The ICT Sector In Morocco: Key Figures” presented at the Broadband Development in Morocco: Challenges, Policies and Regulation, using lessons learnt from South Korea, July 7, Rabat. http://www.anrt.ma/fr/admin/download/upload/file_fr2230.pdf. xxxvii Salem, Fadi and Racha Mourtada. 2011. “Civil Movements: The impact of Facebook and Twitter.” Arab Social Media Report, May. http://www.dsg.ae/portals/0/ASMR2.pdf xxxviii Comité National eGov. 2006. IDARATI-Programme national e-Government 2005-2008. http://unpan1.un.org/intradoc/groups/public/documents/un-kmb/unpan040433.pdf xxxix Ministère de l’Industrie, du Commerce et des Nouvelles Technologies. 2011. Programme eGouvernement. http://www.egov.ma/Espace%20Services/Documents/Programme%20eGov%20Morocco%20(2).pdf xl ANRT. 2011. Enquête de collecte des indicateurs TIC 2010. 28 i | Broadband in Sri Lanka: A Case Study ii | Broadband in Sri Lanka: A Case Study © 2011 The International Bank for Reconstruction and Development / The World Bank 1818 H Street NW Washington DC 20433 Telephone: 202-473-1000 Internet: www.worldbank.org E-mail: feedback@worldbank.org All rights reserved The findings, interpretations and conclusions expressed herein are entirely those of the author(s) and do not necessarily reflect the view of infoDev, the Donors of infoDev, the International Bank for Reconstruction and Development/The World Bank and its affiliated organizations, the Board of Executive Directors of the World Bank or the governments they represent. The World Bank cannot guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply on the part of the World Bank any judgment of the legal status of any territory or the endorsement or acceptance of such boundaries. Rights and Permissions The material in this publication is copyrighted. Copying and/or transmitting portions or all of this work without permission may be a violation of applicable law. The International Bank for Reconstruction and Development/The World Bank encourages dissemination of its work and will normally grant permission to reproduce portions of the work promptly. For permission to photocopy or reprint any part of this work, please send a request with complete information to infoDev Communications & Publications Department; 2121 Pennsylvania Avenue, NW; Mailstop F 5P-503, Washington, D.C. 20433, USA; telephone 202-458-4070; Internet: www.infodev.org; E-mail: info@infodev.org. All other queries on rights and licenses, including subsidiary rights, should be addressed to the Office of the Publisher, The World Bank, 1818 H Street NW, Washington, D.C. 20433, USA; fax: 202-522-2422; e-mail: pubrights@worldbank.org. Cover design by infoDev To cite this publication: Galpaya, Helani, 2011. Broadband in Sri Lanka: Glass Half Full or Half Empty?. Washington, D.C: infoDev / World Bank. Available at http://www.infodev.org/publicationsbroadband-toolkit.org/. iii | Broadband in Sri Lanka: A Case Study Table of Contents List of Tables and Figures ……………………………... vi List of Acronyms ……………………………... vii Acknowledgments ……………………………... viii 1. Executive Summary ……………………………... 1 2. Socioeconomic Overview ……………………………... 3 3. The ICT Sector ……………………………... 5 3.1 Regulatory and policy institutions and ……………………………... 5 instruments 3.1.1 ICT policy ……………………………... 5 3.1.2 The regulator ……………………………... 5 3.1.3 The ICT agency ……………………………... 7 3.2 Size and importance of the ICT sector ……………………………... 7 3.3 Operators and services ……………………………... 8 4. The Broadband Sector ……………………………... 10 4.1 Retail broadband ……………………………... 10 4.2 Wholesale infrastructure ……………………………... 10 4.2.1 In-country backbone infrastructure ……………………………... 10 4.2.2 International connectivity ……………………………... 12 4.2.3 Internet Exchange ……………………………... 13 4.3 Penetration of broadband ……………………………... 13 4.4 Retail broadband prices ……………………………... 15 5. Driving the Demand for Broadband ……………………………... 18 5.1 Public access ……………………………... 18 5.2 Digital literacy ……………………………... 20 5.3 Converged and bundled offerings ……………………………... 21 5.4 Content and applications ……………………………... 22 5.4.1 Browsing habits of users ……………………………... 23 5.4.2 E-government applications ……………………………... 23 5.4.3 Emergence of “App Store” model ……………………………... 24 5.4.4 Online payments ……………………………... 25 5.5 Regulatory measures to protect the ……………………………... 25 consumer 5.5.1 Online security ……………………………... 25 5.5.2 Broadband quality ……………………………... 26 6. Assessing Performance: Glass Half ……………………………... 28 Full or Half Empty? 6.1 What worked ……………………………... 28 6.1.1 Early availability of 3G spectrum ……………………………... 28 iv | Broadband in Sri Lanka: A Case Study 6.1.2 Innovations by operators ……………………………... 28 6.1.3 Creating the ecosystem: e-Sri Lanka ……………………………... 29 6.1.4 Tax relief ……………………………... 29 6.2 Challenges ……………………………... 29 6.2.1 Reaching the mass market ……………………………... 29 6.2.2 The language barrier ……………………………... 30 6.2.3 Regulating broadband quality ……………………………... 31 6.2.4 Special dispensation for the telecom ……………………………... 32 sector 6.3 Has Sri Lanka achieved enough, given ……………………………... 32 favorable conditions? 7. Lessons Learned ……………………………... 33 v | Broadband in Sri Lanka: A Case Study List of Tables and Figures Figures Figure 1: Province, District and DS division boundaries of Sri Lanka ……………………………... 3 Figure 2: Sri Lanka GDP composition by sector, 2004-2009 ……………………………... 4 Figure 3: e-Sri Lanka program components ……………………………... 6 Figure 4: Total cost of ownership, mobile services including data, USD, ……………………………... 9 2010 Figure 5: Tail-link cost for 2Mbps backhaul in South Asia, USD ……………………………... 11 Figure 6: Proposed route for the NBN ……………………………... 12 Figure 7: Mobile and fixed broadband subscriptions per 100 people, ……………………………... 16 South Asia, 2010 Figure 8: Sri Lanka’s network readiness, 2009 ……………………………... 18 Figure 9: Internet users, Sri Lanka, 2004-2009 and selected lower ……………………………... 19 middle-income economies, 2009 Figure 10: Services provided by various types of government ……………………………... 23 organizations Figure 11: Mobile broadband speed tests, Sri Lanka, January 2011 ……………………………... 26 Figure 12: Actual download speeds (kbps) per USD, 2009 ……………………………... 31 Tables Table 1: Major telecom operators in Sri Lanka ……………………………... 9 Table 2: Broadband market and operators in Sri Lanka, March ……………………………... 10 2011 Table 3: International Internet connectivity, South Asia ……………………………... 13 Table 4: Fixed and mobile broadband subscriptions, Sri Lanka, ……………………………... 14 2010 Table 5: Year-over-year growth of mobile connections by speed ……………………………... 15 Table 6: Monthly broadband packages, Sri Lanka, USD, ……………………………... 17 February 2011 Table 7: Entry level 3G prices, South Asia, USD, March 2011 ……………………………... 17 Table 8: Top 20 web sites in Sri Lanka, March 2011 ……………………………... 22 vi | Broadband in Sri Lanka: A Case Study List of Acronyms 3G Third Generation ADSL Asymmetric Digital Subscriber Line BPO Business Process Outsourcing CAGR Compound Annual Growth Rate CDMA Code Division Multiple Access DCS Department of Census and Statistics, Sri Lanka DS Divisional Secretariat (a unit of government administration) EBITDA Earnings Before Interest, Tax, Depreciation and Amortization FDI Foreign Direct Investment GDP Gross Domestic Product GPRS General Packet Radio Service GoSL Government of Sri Lanka HSPA High Speed Packet Access ICT Information and Communication Technology ICTA Information and Communication Technology Agency of Sri Lanka IT Information Technology ITeS Information Technology Enabled Services IX Internet Exchange Kbps Kilo bits per second LEARN Lanka Education and Research Network LKR Sri Lankan Rupees (Rs.) Mbps Mega bits per second NBN National Broadband Network NGN Next Generation Network SIM Subscriber Identity Module SLT Sri Lanka Telecom Tbps Terra bits per second TCO Total Cost of Ownership TRCSL Telecom Regulatory Commission of Sri Lanka USD United States Dollars (US$) WCDMA Wideband Code Division Multiple Access WiMAX Worldwide Interoperability for Microwave Access vii | Broadband in Sri Lanka: A Case Study Acknowledgments This report was drafted by Helani Galpaya of LIRNEasia, with significant contributions by Michael Minges, who directed the case studies for the Broadband Strategies Toolkit. The project was carried out under the supervision of Tim Kelly (infoDev) and Carlo Rossotto (ICT Sector Unit), with the Telecommunications Management Group Inc. (USA) providing overall project coordination. Philippe Dongier, Sector Manager (ICT Sector Unit) and Valerie D’Costa, Program Manager (infoDev), provide overall management guidance for the development of the toolkit. Samhir Vasdev edited the report and prepared it for publication. This case study is one of an initial series of seven that will contribute to the Broadband Strategies Toolkit, an online resource for policy-makers and regulators, especially in developing countries (see www.broadband- toolkit.org). The case studies are generously funded by the Korean Trust Fund (KTF) on Information and Communications for Development (IC4D). The KTF is a partnership between the government of the Republic of Korea and the World Bank Group whose purpose is to advance the ICT4D agenda to contribute to growth and reduce poverty in developing countries. viii | Broadband in Sri Lanka: A Case Study 1. Executive Summary Sri Lanka, an island nation located in the Indian minutes of use per user enabled operators to make Ocean just south of India, has lately experienced positive EBITDA margins even though the an explosion in the use and availability of Average Revenue per SIM was low, around USD broadband services. The increase is primarily due 2 – 5. to the high rate of adoption of third generation This budget model of telecom that was first (3G) mobile technologies such as HSPA and developed for the voice business is now being HSPA+ dongles and associated SIM cards. This applied to mobile broadband in Sri Lanka. In trend is typical of Sri Lanka and many other South particular, enabling pre-paid mobile broadband Asian countries which do not have access to wide- and allowing for very low value re-charges, the spread copper last mile connectivity, and therefore youth (who have highly variable incomes) have are reliant on wireless networks to increase access, been brought into the mobile broadband market. be it simple voice or broadband. Several factors The two first movers into the 3G space (Dialog have contributed to Sri Lanka’s success in Axiata and Mobitel) offered special promotional connecting it’s citizenry to the internet via mobile discount packages of up to 50% specifically for broadband: students. These early adopters created significant interest in mobile broadband. By 2008, the Innovative Business Models making services English and Sinhala blogosphere in Sri Lanka was accessible to all: The increase in mobile barely mentioning fixed broadband; all the broadband rides on the wave of extremely high discussions and debates about quality and price mobile voice growth, enabled by successful was about mobile broadband. innovations by the Sri Lankan (and Asian) operators. Faced with low ability to pay of many Early availability of 3G spectrum: Of course all consumers in the region, the operators could have of the above was made possible because 3G settled into serving the high-end, rich consumers. spectrum was made available early to the However, because the regulators and policy operators in Sri Lanka. Here, the regulator makers enabled new entry into the market, the deserves credit. As far back as 2003 test intense competition forced operators to innovate frequency was made available. By 2006, in such a way as to be able to profitably serve even commercial 3G was launched. This is in sharp the poorest consumers. Network costs were contrast to India which only managed to allocate reduced drastically by sharing passive and active 3G spectrum in 2010. Early access to spectrum infrastructure, by outsourcing key parts of the enabled Sri Lanka to become the first Asian operation including even the management of the nation to offer 3G services. core network. Cost of billing was completely dispensed with and credit risk eliminated by Government’s e-development agenda moving to a pre-paid model. Distribution costs motivating investment: Apart from the were minimized by enabling electronic reloading regulator, the ICT Agency of Sri Lanka (ICTA) (e-reload), thereby eliminating cost of printing and has had a major focus on broadband in the distributing top-up cards for pre-paid users. country. ICTA is the implementer of e-Sri Lanka, Finally, even consumers with very low and very a cross-sectoral ICT-enabled development variable incomes were attracted to the market by program for the whole country. ICTA set the enabling extremely small top-ups at any time (as ICT agenda through a series of comprehensive low as USD 0.50 or less). This “budget telecom supply and demand side activities/projects (for model” 1 based on low costs high volumes (high example, setting up network of over 500 rural telecenters, announcing plans for a least-cost 1 subsidy scheme to build and operate a fiber Samarajiva, R.(2010). Leveraging the Budget Telecom Network Business Model to Bring Broadband to People: how backbone in rural areas, development of e- voice connectivity was achieved. Information Technologies and International Development, 6, Special Issue: 93-97. Also, The Economist (2009).“The mother of invention: Network in innovative ways”. Sep 24 2009. Print Edition. Available at Operators in the world are cutting costs and increasing access http://www.economist.com/node/14483880. 1 | Broadband in Sri Lanka: A Case Study government applications, providing ICT skills to broadband. While the Sri Lankan mobile citizens from all walks of life, promoting broadband performs better than Sri Lankan fixed investment in Business Process Outsourcing broadband various quality of service measures, which in turn drives the demand for high speed when compared with the developed world Sri connectivity) and helped create a significant buzz Lankan consumers get less value for money on about the potential demand for BB in the country. broadband. Part of the reason is bad advertising All this helped increase awareness about (promising broadband speeds that are possible opportunities afforded by ICTs. Operators were theoretically, but not in reality). But a bigger part motivated to invest in the network infrastructure is the infrastructure – in particular, bottlenecks in in light of upcoming demand. international connectivity due to high prices. However, having reached this stage, Sri Lanka The other challenge for operators is to keep up needs to overcome several challenges if it is their investments necessary to move to the next continue on its early success and make broadband technology cycle in face of declining margins. a truly mass-market product instead of the niche While at least two mobile operators have popularity it still enjoys. announced LTE network deployments, extending these upgrades beyond the population centers will A key challenge is that of bringing a product of prove challenging because of revenue and margin adequate quality to consumers. Budget erosions due to intense competition. broadband/budget telecom models mean low cost and therefore low prices. But they also mean low quality. This is indeed the case with Sri Lankan 2 | Broadband in Sri Lanka: A Case Study 2. Socioeconomic Overview The Democratic Socialist Republic of Sri Lanka is identifying themselves as Buddhists, 8% as Hindu, an island nation of just over 65,000 square 8% as Islamic and 7% as Catholic and Christian.8 kilometers located in the Indian Ocean near the southern tip of India (Figure 1). Sri Lanka is a Sri Lanka is of late undergoing considerable lower-middle-income economy emerging from economic growth. Year-over-year GDP growth years of conflict. With a GDP Per Capita of USD for the first half of 2010 was 7.8%. 9 Though 2,053 2 in 2009 (or about USD 4,715 3 PPP agriculture played a significant role in the Sri adjusted), an adult literacy rate of 91%4 among the Lankan economy in the past, today the economy 20.6 5 million population and a Human is driven by the services sector (Figure 2) Development Index of of 91, Sri Lanka is the most developed country in the South Asian region While the economy is on the upswing, until a few behind the Maldives. Primary and secondary years ago Sri Lanka was in the middle of civil war education indicators are good, with only 4.4% of that saw the country unable to capture the the population reported as having never attended economic growth rates experienced by its school and 99.4% of the population aged 5 - 14 emerging market peers. The war that went on for years currently attending school.6 Sri Lanka is a multi-ethnic society consisting of Sinhalese (82%), Tamils (9.4%), Moors (7.9%) and other groups. 7 Sinhala and Tamil are official languages while English is widely spoken (Sri Lanka is a member of the Commonwealth). After the government introduced English medium instruction into primary and secondary education, it has become an increasingly popular choice for students who could previously study only in Sinhalese and Tamil, with English only taught as a second language. Sri Lanka is also a multi- religious society with 77% of the population 2 The Central Bank of Sri Lanka. (2010). Annual Report 2009. http://www.cbsl.gov.lk/pics_n_docs/10_pub/_docs/efr/an nual_report/ar2009e/ar09_content_2009_e.htm 3 Using IMF PPP exchange rates available at: http://www.imf.org/external/pubs/ft/weo/2010/02/weoda ta/index.aspx 4 Department of Census and Statistics. (2001). Census of Figure 1: Province, District and Divisional Population and Housing 2001: Literacy rates by district, sex and Secretariat division boundaries of Sri Lanka sector. Retrieved 25 March 2011 from (Source: Cartography Division, Department of http://www.statistics.gov.lk/PopHouSat/PDF/Population/ p9p10%20Literacy%20rates%20by%20district,%20sex%20an Census and Statistics, Sri Lanka) d%20sector.pdf 5 Department of Census and Statistics Sri Lanka. (2010). Population and Housing. http://www.statistics.gov.lk/page.asp?page=Population%20a nd%20Housing 8 Department of Census and Statistics (2010). Statistical 6 Department of Census and Statistics. (2010). Household Abstract 2010. Income and Expenditure Survey 2009/10 Preliminary Results. http://www.statistics.gov.lk/abstract2010/Pages/index.htm http://www.statistics.gov.lk/HIES/HIES2009Buletin.pdf 9 Central Bank of Sri Lanka recent economic developments 7 Department of Census and Statistics. (2010). Population and highlights of 2010 and prospects for 2011: Housing. http://www.cbsl.gov.lk/pics_n_docs/10_pub/_docs/efr/rec http://www.statistics.gov.lk/PopHouSat/PDF/Population/ ent_economic_development/Red2010/Red2010e/red_2010e p9p8%20Ethnicity.pdf _index.htm 3 | Broadband in Sri Lanka: A Case Study nearly 30 years was often limited to the North and resumed in 2005. 10 In 2009, the conflict was North Eastern provinces of the country though ended through a major military operation by the Colombo and other major cities also came under government. Since then, the North-East region intermittent terrorist attacks. Significant outward has been a focus of development activity and is migration (to Canada, Australia and Europe) of expected be a major attractor of investment in Sri the minority Tamil community took place during Lanka. Indications are that the overall country is the years of the war. The conflict and the already benefitting from the end of the war – resulting under-investment saw the war-torn arrival of tourists and foreign direct investment region declining in all socio-economic indicators. into the country has increased. A ceasefire agreement in 2002 led to a resumption of economic activity in the region, only to be curtailed when fighting 6,000 GDP at current prices, LKR. Billion 5,000 4,000 Services 3,000 2,000 Industry 1,000 Agriculture ,0 2004 2005 2006 2007 2008 2009 Figure 2: Sri Lanka GDP composition by sector, 2004-2009 (Source: Central Bank of Sri Lanka, 2010. Economic and Social Statistics of Sri Lanka) . http://www.idrc.ca/cp/ev-118602-201-1- 10 DO_TOPIC.html 4 | Broadband in Sri Lanka: A Case Study 3. The ICT Sector 3.1 Regulatory and policy institutions development for the country and covered multiple and instruments sectors (private, public, education etc.) and geographies (urban and rural). It also saw the creation of the ICT Agency of Sri Lanka (ICTA) Up until 1991, fixed telephone services in Sri as the implementation body for e-Sri Lanka, and Lanka were provided by the Department of therefore the de-factor policy-implementation Telecommunication (DoT) of the Government of (and in some specific areas, the policy making) Sri Lanka. Corporatization of the incumbent was organization (more on ICTA below). Though done under the Telecom Act of 1991, and a new, ICTA was under the Ministry of Economic government owned, corporation called the Sri Reform, Science and Technology at its creation in Lanka Telecom Corporation (SLT Corp) was 2003, the year 2004 saw ICTA being taken under formed by transferring to it DoT’s assets. SLT the office of the Prime Minister when a senior Corp was partially privatized in 1997, creating Sri ICTA official was appointed Secretary to the Lanka Telecom Limited (SLT), of which 35% was Prime Minister. Since that moment ICTA and e-Sri owned by NTT of Japan, 3.5% by SLT employees Lanka gained prominence in the media and Prime and 61.5% by the Government of Sri Lanka Minister Mahinda Rajapaksa also leveraged it in (GoSL). SLT continued to have the monopoly in the run-up to his presidential election campaign12. fixed line services until 1996 (when WLL licenses Prime Minister Rajapaksa’s election manifesto were issued) and on international telephony until Mahinda Chintanaya13 had a section devoted to IT, 2003 (when EGO licenses were issued). which mentioned all areas that are targeted by the The 1991 Act also created the regulatory agency. original e-Sri Lanka project, and specifically set a In 2003, the ICT Agency of Sri Lanka was created target of increasing IT literacy to 60% over 3 as the apex ICT policy implementing body in Sri years. When he was elected President in 2005, Lanka. ICTA was kept under his wing, and therefore moved under the office of the President. Moving 3.1.1 ICT policy ICTs away from a single ministry into the office of ICT policy making in Sri Lanka has traditionally the Prime Minister and later the office of the been carried out by a ministry (often the Ministry President was justified based on the cross cutting of Post and Telecommunications). However, In nature of the e-Sri Lanka initiative, and the high 2002, ICT was brought to the fore-front of the level leadership demanded by certain e-Sri Lanka government’s development strategy, away from activities, specifically the reform of government any one ministry when the then government’s processes using ICTs. primary policy document titled Regaining Sri Lanka11 made particular mention of using ICTs to 3.1.2 The regulator achieve its goal of pro-poor growth (closing the “information divide between poor communities and dynamics markets” was mentioned, as was The Telecommunications Regulatory Commission “improving access to telecommunication facilities of Sri Lanka is the national regulatory agency. The and bringing the Internet to the countryside”). Commissioners consist of the Director General of Regaining Sri Lanka proposed “e-Sri Lanka”, an the TRCSL, the Secretary to the Minister of the initiative/project to “apply the benefits of modern relevant Ministry (policy maker) and three technology to the workings of government and the private sector”. E-Sri Lanka (further detailed 12 In fact the President’s website mentions “re-energizing the in the e-Sri Lanka Roadmap) laid down a ICT Agency” and “Taking IT and computer literacy to rural comprehensive plan for ICT-enabled areas under the Nenasala [telecenter] project” as key development projects undertaken during his tenure as the Prime Minister. See 11 World Bank. (2002). Regaining Sri Lanka: Vision and Strategy http://www.mahindarajapaksa.com/dev/index.php for Accelerated Development. 13 Available at http://siteresources.worldbank.org/INTPRS1/Resources/C http://www.mahindarajapaksa.com/MahindaChinthanaEngli ountry-Papers-and-JSAs/Sri_Lanka_PRSP.pdf sh.pdf (page 68) 5 | Broadband in Sri Lanka: A Case Study members appointed by the Minister from the Telecommunications (Amendment) act of 199615. fields of law, finance and management, It can regulate most aspects impacting on the respectively. Since 2005, the TRCSL has been sector including the allocation of spectrum under the office of the President, therefore the (including broadcasting spectrum), tariffs, anti- policy maker (i.e. the “Ministry”) is the office of competitive practices and quality of service. The the President of Sri Lanka and the Chairman of only significant activity that the regulator cannot TRCSL is the Secretary to the President. In light do is issue new licenses – this power lies with the Figure 3: e-Sri Lanka program components (Source: ICTA) of the (previously discussed) prominence given to Minister (i.e. the office of the President at ICTs in the national level, and the importance of present), though on the basis of the regulator’s TRCSL to achieve certain goals specified in e-Sri recommendations. Lanka, it was perhaps a natural progression for the TRCSL to be taken under the office of the TRCSL is an independent regulator in that it is President, though it is unclear if this was the only autonomous from the incumbent operator. motivation. However, as in many countries, there are times that the TRCSL is accused of acting in the interest The TRCSL was established in 1991 under the of only the largest operators or it appears that at Telecommunications Act of 1991 14 , which was times the regulator’s independence is later amended by the Sri Lanka compromised by the government itself. 14See http://www.customs.gov.lk/docs/25386.pdf for the 15http://www.trc.gov.lk/about-us/legislation.html for act. consolidated act (1991 and 1996) 6 | Broadband in Sri Lanka: A Case Study 3.1.3 The ICT agency 33,000 telecenter users, 112 on-line e-government The ICT Agency of Sri Lanka (ICTA) was created services for the private sector in 2010 from zero in through an act of Parliament in 2003 and 2004, some 35,000 people trained in ICTs and the mandated to be the “apex ICT-policy making creation of Chief Information Officers in almost body” in Sri Lanka. Its primary mandate was the 600 government agencies.17 implementation of e-Sri Lanka, the comprehensive and cross-sectoral development program with ICT 3.2 Size and importance of the ICT at the center. The e-Sri Lanka strategy, and sector therefore ICTA’s activities focuses multiple facets of ICT-enabled development (Figure 3)16: Sri Lanka’s growth is increasingly fueled by services (as opposed to manufacturing or a) the supply of infrastructure for internet/ agriculture) as seen in Figure 2, and the ICT sector broadband connectivity (through the is part of the services sector growth. provision of backbone networks, the provision of a government-wide While the overall contribution to GDP made by broadband network and the installation of the telecom sector is small at under 1.7 percent in a network of telecenters to enable access 200918 (and was around 3.04 percent in 200719), it in primarily rural areas), is still the largest contributor to GDP growth. b) re-engineering of key government process According to the Ministry of Finance and and the introduction of ICT into these Planning, the post and telecommunications sector processes to increase efficiency and accounted for 11.7 percent of Sri Lanka’s GDP enable online access, growth in 2009 (down from 36% in 2005 and c) developing human capacity in ICTs by 21.5% in 200720). introducing ICT into all levels of education (primary, secondary, tertiary) The regulator, TRCSL, is the organization that and all sectors (government, citizens, makes the single largest contribution to students), government revenue as a result of the fees and d) development of a vibrant, export oriented levies it collects from the sector. Today, IT and IT enabled Service (ITeS) industry contributions from the TRCSL account for 50% in the county, of total Government revenues from state owned e) taking ICTs to rural masses and enterprises (the number was higher in the past, traditionally disadvantaged groups through innovative applications under the e-Society program and 17 World Bank (2010). Implementation Status and Results E-Lanka f) creating the environment for ICT-enabled Development (P081771) (Rep. No. ISR2333). http://www- development through the enactment of wds.worldbank.org/external/default/WDSContentServer/W relevant laws (e.g. e-Transactions, DSP/SAR/2010/12/25/0D9887F3F94C315385257804003D Computer Crimes Law, intellectual 75E0/1_0/Rendered/PDF/P0817710ISR0Di0225201012932 75514930.pdf. property laws) and the development of 18 The Central Bank of Sri Lanka. (2010). Annual Report 2009. technical standards (e.g. local language http://www.cbsl.gov.lk/pics_n_docs/10_pub/_docs/efr/an fonts, internet domain names and inter- nual_report/ar2009e/ar09_content_2009_e.htm 19 The Central Bank of Sri Lanka. (2007). Annual Report 2007. operability frameworks). http://www.cbsl.gov.lk/pics_n_docs/10_pub/_docs/efr/an nual_report/Ar2007/content.htm The funding for ICTA is primarily from the 20 Ministry of Finance and Planning Sri Lanka. (2009). Annual World Bank and the Government of Sri Lanka Report 2009. (GoSL), with some funding also coming from the http://www.treasury.gov.lk/FPPFM/fpd/pdfdocs/annualre Korean Export Import Bank and several other ports/annualreport2009-eng.pdf. Note that GDP growth countries and organizations. Some claimed results contribution figures are reported for the post and of the e-Sri Lanka Development project include telecommunication sector combined. However, given that the Department of Post has reported a net loss for each of the creation of 629 telecenters, an estimated these years (according to the Ministry of Finance and Planning 2009 Annual report, page 55), it’s reasonable to 16http://www.apdip.net/projects/e- attribute to all positive GDP growth contributions to the government/capblg/casestudies/SriLanka-Rainford.pdf telecom sector 7 | Broadband in Sri Lanka: A Case Study with TRCSL contributing more than all state- A key enabler to the IT/BPO growth is the owned banks combined21). telecom sector itself, which makes it possible to engage in off-shoring to begin with. The telecom sector continues to be a primary target for foreign direct investment (FDI) into the country. In 2008, the services sector attracted 3.3 Telecom Operators and services US$ 362 million worth of investment, with telecommunications leading the way with US$ 290 Telecommunications services in Sri Lanka are million 22 or 80%. According to the Board of competitive, with eight operators in the country Investment, telecoms and power usually account making retail offerings at the time of writing. Sri for over 60% of FDI into Sri Lanka23 though this Lanka Telecom (SLT) is the partially privatized percentage is expected to decrease as a result of incumbent (government owns 52%, Global increasing investment into the tourism sector after Telecommunications Holdings N.V of the end of civil war. Netherlands owns 44.9% and the general public owns the rest), and the only firm with a copper Apart from the importance of the telecom sector access network to reach homes and businesses. in terms of revenue generation to the government, Of the five mobile operators, four (Dialog Axiata, the broader ICT sector is also experiencing Etisalat, Airtel and Hutch) are private companies growth and gaining prominence. The ICT Agency that are part of large international or regional and the industry associations engaged in a strategic telecom operators, and one (Mobitel) is a fully initiative to promote Sri Lanka’s export-oriented owned subsidiary of the incumbent SLT. Two IT enabled Services (ITeS) sector (which includes other operators (Suntel and Lanka Bell) primarily Business Process Outsourcing (BPO) and IT). provide CDMA based (fixed-wireless) Developing human capacity in the IT/BPO telecommunications services (Table 1). industry (through financial assistance to IT professionals to achieve internationally recognized The mobile market is highly competitive, with Sri certifications and through the creation of Lanka having among the lowest prices in the educational standards for call-center operator world (Figure 4). Following an aggressive price training) and several years of industry promotion war in anticipation of the arrival of new entrant overseas have yielded positive results. Starting Bharati Airtel, mobile operators saw margin from USD 173 million in 2006 24 , the export erosion in late 2009: for example EBITDA revenues from the IT/BPO industry grew to USD margins which were over 50% fell to the 20-30% 392 million by 2010, a CAGR of 26%. Of this range with negative net profits27. Heavy lobbying USD 294 million was from IT exports while USD by the operators then prompted the regulator to 98 million were from BPO exports25. . According impose termination rates on all calls (eliminating to the ICT Agency, in 2010, the sector was the the sender keeps all interconnection regime that fifth largest foreign exchange generator for the existed previously), in effect imposing floor country26. (minimum) prices in the sector. 21 Author calculations, based on Ministry of Finance and Planning, Annual Report, 2009, table 3.1 22 Trade Chakra. (n.d.). FDI in Sri Lanka. Retrieved 25 March 2011 from http://www.tradechakra.com/economy/sri- lanka/fdi-in-sri-lanka-337.php 23 Lanka Business Online. (2010). Investment Swing: Sri Lanka expects leisure to loom larger in FDI. Retrieved 25 March 2011 from http://www.lbo.lk/fullstory.php?nid=1012423880 24 Export Development Board. (2008). Export Value Survey of the Sri Lankan IT/ITES Industry. Retrieved 25 March 2011 from http://www.slasscom.lk/informationcenter 25 www.slasscom.lk 27Largest operator Dialog’s EBITDA margin for the second 26 SundayTimes. (2011, January 30). Retrieved Arpil 2011, half of 2007 was 50.3%. By Q3 2009 it was 29%. As reported from Sunday Times: sundaytimes.lk/110130/It/it01.html on www.dialog.lk and by Wireless Intelligence/GSMA. 8 | Broadband in Sri Lanka: A Case Study Operator Markets Comment Incumbent operator. Partially privatized in Fixed, fixed wireless, fixed broadband, 1997 through 35% sale to NTT, Japan. Sri Lanka Telecom (SLT) IPTV, mobile (through Mobitel), Mobitel started in 1993 as JV between SLT international connectivity and Telstra, Australia. SLT bought out Telstra’s share in 2002, for full ownership28 Owned by a combination of foreign Suntel Fixed wireless (Swedish, Hong Kong SAR) and local companies as well as the IFC Formed in 1997. Bought by Milford Holdings Lanka Bell Fixed wireless Pvt. Limited, Sri Lanka Subsidiary of Axiata Group Berhad of Dialog Axiata Mobile, fixed wireless, broadcasting Malaysia (formerly TM International). Owned by Hutchinson Whampoa Limited, Hutch Mobile Hong Kong Owned by Etisalat, United Arab Emirates. Etisalat Mobile Purchased from Millicom in 2009. Airtel Mobile Owned by Bharti Airtel, India Table 1: Major telecom operators in Sri Lanka Monthly TCO World Average $,30 $,25 $,20 $,15 $,10 $,5 $,0 Vietnam Côte d'Ivoire Algeria Chad Sri Lanka Sudan Guatemala China Ethiopia Indonesia South Africa Colombia Zambia Guinea DRC Egypt Senegal Madagascar Turkey Mozambique Malawi Burkina Faso Ecuador Chile Haiti Zimbabwe Peru Brazil Morocco Bangladesh Pakistan Uzbekistan Kenya Iran Nigeria Kazakhstan Cameroon India Ghana Uganda Syria Dominican Republic Honduras Argentina Cambodia Tanzania Thailand Bolivia Philippines Angola Tunisia Figure 4: Total Cost of Ownership (in USD) for mobile services including data, 2010 (Source: Nokia, 2010) Note: Basket covers prorated handset cost and consuming the equivalent of the OECD “low use” mobile basket of minutes and SMSs per month as well as 2 MB data allowance per month. 28 Sri Lanka Telecom, Annual Report 2003. Retrieved 25 March 2011 from http://www.slt.lk/data/investor/pdf/annu_2003/html_verti on/financial/reportdirectors.htm 9 | Broadband in Sri Lanka: A Case Study 4. The Broadband Sector 4.1 Retail broadband majority of the country including the formerly war torn North East (3G coverage is still not available Sri Lankan retail users (consumers and businesses) in low density population areas). Etisalat is in the have a choice of broadband technologies and process of investing to increase its 3/3.5G footprint. 31 Airtel covers the major population service providers to choose from. The retail centers of Colombo, Galle, and Kandy with 3G. service offerings can be summarized as described in Table 2. At the time of writing, both Dialog Axiata and In addition to the retail offerings shown above, Mobitel were engaged in LTE trials in Colombo. businesses that need dedicated, higher speed Mobitel had also signed agreements (on tax free Internet connectivity can obtain leased lines from concessions) with the board of investment to invest in its LTE network32. most of the operators shown in Table 2. All mobile operators have nationwide coverage of basic voice and GPRS services. Dialog and Mobitel also provide 3G/3.5G coverage in the Type of broadband Operators with retail-level services offerings connectivity Fixed wired broadband 1. ADSL through Sri Lanka Telecom (incumbent fixed operator) 1. WiMAX through 3 operators: - Dialog Axiata (largest mobile operator) Fixed wireless (limited - Sky Networks (subsidiary of Sri Lanka Telecom) mobility) broadband - LankaBell29 (CDMA-based “fixed” phone operator) 2. Microwave based broadband through Suntel30 (a CDMA based phone operator) 1. WCDMA based broadband from multiple operators: - Dialog Axiata (largest mobile operator) - Mobitel (mobile operator owned by fixed incumbent) - Airtel (new entrant, part of India’s Bharati Airtel) Mobile broadband - Etisalat (pre-paid only mobile operator), about to enter the 3G broadband market at the time of writing. 2. WiMAX (802.16e) based mobile broadband (with plug-and-play dongles) through Sky Networks (subsidiary of Sri Lanka Telecom). About the enter the market at the time of writing. Table 2: Broadband market and operators in Sri Lanka, March 2011 31 Dialog had 673 3G base stations at the end of 2009 and 3/3.5G coverage map is available at http://www.dialog.lk/content/uploads/pdfs/annual_reports /2009_annual_report_en.pdf. Mobitel’s 3G coverage map is available at http://www.mobitel.lk/coverage/. Airtel 3G 29 http://www.lankabell.net/fixed-broadband.htm maps for Colombo, Galle, Kandy are available at http://www.airtel.lk/AirtelSL/broadband/3g_coverage.html. and http://www.lankabell.net/broadband- 32 Telecoms.com. (2011). Sri Lanka hits the LTE with trials, technology.htm rollouts. http://www.telecoms.com/27530/sri-lanka-hits-the- 30 http://www.suntel.lk/business/broadband.php lte-road-with-trials-rollouts/ 10 | Broadband in Sri Lanka: A Case Study 4.2 Wholesale infrastructure broadband speeds of over 20 Mbps to almost all its fixed line subscribers. 4.2.1 In-country backbone infrastructure While the retail broadband market is competitive Despite the significant market power over such as and characterized by competitive and reducing key facility as the optic fiber backbone, SLT is not legally required by the regulator to sell access to prices, a few players dominate the wholesale competitors. As a result, competing operators 18,000 15,865 16,000 14,000 12,000 10,000 8,000 6,000 4,203 4,000 3,163 2,000 ,812 1,040 ,56 ,369 ,392 - Bangladesh Pakistan India Bhutan Sri Lanka Maldives Indonesia Philippines Figure 5: Tail-link cost (in USD) for 2Mbps backhaul in South Asia (Source: LIRNEasia, Broadband Benchmarks Emerging Asia, February 2010.) market. At the time of writing, only two operators were using microwave technology for backhaul had an optic fiber based national backbone. where possible due to the high prices of SLT Incumbent Sri Lanka Telecom (SLT) has the backhaul (for example, backhaul in Sri Lanka was widest fiber coverage with some 8,000 kilometers the second most expensive in South Asia in 2010, of fiber connecting large areas of the country and surpassed only by the Maldives, an island nation another 4,000 kilometers planned by the end of that had many more geographical challenges to 2011. SLT is also transitioning to a Next deal with than Sri Lanka - Figure 5). 35 Several Generation Network (NGN) with around 20% of years ago Dialog began installing fiber optic rings its customers served by this technology at the end starting in the populated cities and offering of 2010. 33 NGNs are the subject of a recent wholesale access non-discriminately. consultation issued by the regulator. 34 SLT has also launched its “i-Sri Lanka” project placing fiber closer to the customer to reduce the length of copper loops. This will enable SLT to offer 33Sri Lanka Telecom. (2011). Annual Report 2010. http://www.slt.lk/data/investor/pdf/annual_report_2010/a 35LIRNEasia (2010). Broadband Benchmarks Emerging Asia, nnual_report_2010.pdf February 2010. Retrieved 25 March 2011 from 34 http://lirneasia.net/wp- http://www.trc.gov.lk/images/pdf/TRCSL_Repoet_on_Pub content/uploads/2010/03/LIRNEasia-Broadband-prices- lic_Consultation_on_NGN.pdf EmergingAsia-Feb-2010.pdf 11 | Broadband in Sri Lanka: A Case Study The regulator and the Office of the President are North Eastern regions where fiber did not extend currently planning for nationwide fiber backbone to at the time of design (Figure 6). According to connectivity through a National Broadband stakeholders, the design was problematic in that Network (NBN). Initially planned by the ICT rights of way from CEB and SLGR were not Agency under the e-Sri Lanka initiative, the guaranteed and the winner of the bid would have procurement process was under way in 2008-2009 to negotiate with each of these entities and there to competitively select a firm based on a least- was uncertainty about the price they would charge cost-subsidy auction and to build and operate the to lay cable along their facilities. In any case, the network. The rights of-way were to be obtained competitive procurement process was halted, and via the Ceylon Electricity Board (CEB) and the Sri in early 2011 it was decided by the Cabinet that Lanka Government Railway (SLGR). SLT would be asked to build the NBN, using Geographically, the new network was to cover the government funds (instead of World Bank funds Deep South as well as the North Central and which were previously allocated for the least-cost Jaffna Kilinocchi Southern Ring (Phase 1) Central Ring (Phase 1) Mannar Vavuniya Western Ring (Phase 1) Eastern Ring (Phase 2) Trincomalee Northern Ring (Phase 3) Anuradhapura Points of interconnection Polonnaruwa Matale Puttalam Badulla Batticaloa Karunegala Kandy Ampara Kegalle Gampaha Colombo Nuwara-Eliya Kaluthara Monaragala Rathanapura Hambantota Galle Matara Figure 6: Proposed route for the NBN (Source: Spectrum Strategy Consultants & Value Partners. (2008), Consultation on Planning and Implementation of a National Fiber Backbone) 12 | Broadband in Sri Lanka: A Case Study subsidy). According to the Director General of station. Operators still claim that if prices to TRCSL, SLT would be given the contract to build connect to the landing station are cost-based, the NBN, with the condition that they then give Internet connectivity prices could come down by non-discriminatory re-sale to other operators. 30%. This claim however has to be balanced by the fact that that only a low volume of traffic 4.2.2 International connectivity flows through the competing FLAG cable, Sri Lanka has access to multiple international primarily due to high prices (presumably prices cables: SE-ME-WE 3 and 4, the SLT-Dhiraagu higher than through SE-ME-WE, because cable between Sri Lanka and the Maldives, the otherwise the cheaper option would have the BSNL-SLT cable between Sri Lanka and India, majority of traffic), even when no access problems and the FLAG cable (international cable system or bottlenecks are reported at the FLAG landing with over 16 countries). Landing stations for the stations. In any case, the FLAG cable does first three are controlled by SLT while Lanka Bell provide a useful point of redundancy in case of owns the last. Although capacity on the SE-ME- problems with the alternate. WE cables is competitively priced, the landing point itself acts as bottleneck. For example, SLT SLT reported 8.3 Gbps of international backbone does not allow operators to directly connect using capacity in 2010. It appears that there may be their own fiber, forcing them instead to lease insufficient international bandwidth in Sri Lanka connectivity from SLT and charging high rates for that could be impacting quality. While Sri Lanka this leased line. Non-price barriers are also had the second highest international bandwidth reported, such as delays in implementing requests per person in 2008 in South Asia (after Maldives), for increased capacity. According to operators, by 2010 it was ranked fourth in this metric (Table until recently, the cost of 3). Likewise, its average download speed (1.2 Mbps) only ranks fourth in the region and actually Average download International Internet bandwidth speed Gbps Bits per person Kbps 2010 2008 2009 2010 2009 2010 Bangladesh 15.4 12 … 93 485 739 Bhutan 0.3 66 230 482 … … India 535.0 125 212 440 1,202 1,411 Maldives 0.3† 783 … … 1,821 1,819 Nepal 0.1† 6 … … 387 417 Pakistan 9.0† 56 … … 1,273 1,488 Sri Lanka 8.3 149 306 406 1,284 1,169 Table 3: International Internet connectivity, South Asia (Source: Adapted from World Bank and operator and regulator reports and OOKLA) Note: †2008 connecting to this international cable landing station was estimated to be over 10 times higher than on a reasonable cost-based basis and was even higher than Singapore. As a result, the regulator intervened and facilitated a 50% reduction in the fees to connect to the landing 13 | Broadband in Sri Lanka: A Case Study declined between 2009 and 2010. through a breakdown between those using a mobile handset and those using a data card. There 4.2.3 Internet Exchange are also mobile broadband definitional and Sri Lanka has an Internet exchange (IX) that is terminology issues with 3G often interchangeably operated and managed by Lanka Com (a used for different speeds and further nuances such subsidiary of Singapore Telecomm International) as 3.5G. Some take a broad view—any network with all major operators having a link to the IX.36 based on IMT-2000 standards (that would There is little locally hosted content, and email incorporate technologies such as EDGE and accounts used by a majority of users are CDMA 2000 1x that operate at speeds less than international (Google mail, Yahoo, etc.). As such, 256 kbps). Others take a narrower view that the the amount of traffic to be peered locally appears technology should be faster than 256 kbps such as to be very little. High Speed Packet Access (HSPA) or EV-DO while others take a more restrictive view and 4.3 Penetration of broadband consider only HSPA (sometimes referred to as 3.75G). There is a further complication of There are acknowledged problems counting exact whether wireless technologies such as EV-DO or broadband subscriptions. First, TRCSL does not WiMAX can be used in both fixed and mobile publish data on fixed broadband subscriptions and modes. All of these issues apply to Sri Lanka that has only recently begun publishing data for mobile has a plethora of broadband technologies in use. broadband subscriptions. Second, not all of the As there is no internationally agreed upon operators report the number of broadband solutions to these dilemmas, the context of the subscriptions. Third, there are methodological available broadband data is explained below. issues related to the definition of mobile broadband. These include differences between the Penetration of fixed broadband: In respect to Per 100 2010 Source Comment people Dept. of Population 20,653,000 Census and Mid-year Statistics Internet & Email Provisional including dial-up, ADSL 280,00037 1.4 TRCSL Subscribers – fixed and fixed wireless ADSL subscriptions 213,816 1.0 SLT Provisional. Assumed to include Mobile broadband 294,000 1.4 TRCSL only data cards and postpaid subscribers data subscribers. GSMA HSPA connections 1,000,000 4.8 (Wireless For Q4 2010 Intelligence) Table 4: Fixed and mobile broadband subscriptions, Sri Lanka, 2010 (Source: As noted in table) theoretical capability to use a mobile broadband the overall market for Internet subscriptions, network (through ownership of a mobile TRCSL reported 280,000 fixed Internet and email broadband enabled handset) and active use subscriptions in 2010 or 1.4% of the population. (through access to the Internet in a recent period In terms of fixed wired broadband connections, using the mobile broadband network). Active SLT is the only mass-market retail provider with mobile broadband users can be further analyzed 213,816 ADSL subscriptions at the end of 2010. It offers packages with speeds ranging from 512 36 http://www.robtex.com/as/as45338.html#peer has list of kbps to 4 Mbps (leased lines using SLT’s Metro companies peering at the SL-IX. Ethernet are also available for corporate users 37 Includes ADSL, and fixed wireless (WiMAX) connections. with speeds of up to 2 Gbps). Since neither the 14 | Broadband in Sri Lanka: A Case Study TRCSL nor the fixed wireless operators publish and this number had grown to 1 million information about broadband subscriptions, the connections for WCDMA HSPA by the end of only certain fixed broadband subscription data is 2010. The GSMA data is based on operator that of SLT. The resulting fixed broadband network software is capable of counting (at any penetration is one percent of the population. given moment for any given location) the active ADSL accounts for 76% of the total Internet and data connections at various speeds. email subscriptions. Almost one quarter of SLT’s fixed (copper) lines are connected to ADSL (Table The available statistics suggest that mobile 4). broadband penetration in Sri Lanka was between 1.4% to 4.8% of the population in 2010 (Table 4). Penetration of mobile broadband: In Therefore, while penetration is higher than in December 2010 there were 17.4 million SIM cards fixed, mobile broadband has a long way to grow. Q4 2009 Q1 2010 Q2 2010 Q3 2010 Q4 2010 Total Connections 28.86 % 25.94 % 22.93 % 17.74 % 15.88 % All WCDMA 109.71 % 102.46 % 91.34 % 79.53 % 78.59 % connections HSPA connections 212.16 % 199.65 % 179.03 % 153.45 % 142.45 % Table 5: Year-over-year growth of mobile connections by speed (Source: Wireless Intelligence, Market Tracking Table - Sri Lanka, Q4 2010) in Sri Lanka and the market penetration was But it is happening – while overall mobile 82% 38 . The number of reported mobile connection growth has reached a plateau, broadband subscriptions varies according to the WCDMA based broadband connections are source, reinforcing the methodological challenges growing faster and the fastest HSPA connections discussed above. According to TRCSL there were specifically for mobile broadband data is growing 294,000 mobile broadband subscriptions in even faster (Table 5). 2010. 39 However TRCSL data only captures the connections that are counted through a sale of a In mobile broadband, Sri Lanka compares well HSPA dongle and/or have subscription to a data with its South Asian neighbors, coming only plan, therefore leaving out users who are using a behind the Maldives (a much richer country with pre-paid connection or connecting at HSPA over 100% SIM penetration) (Figure 7, left). Sri speeds through their mobile phones without a Lanka ranks third in the region in fixed broadband formal data plan. As a result, secondary sources subscriptions per 100 people (based only on SLT’s report higher figures. According to published ADSL connections) (Figure 7, right). GSMA figures, there were 546,811 mobile broadband subscriptions in Sri Lanka at 2010 Q140 4.4 Retail broadband prices There are a wide variety of pricing packages in Sri 38 The penetration number is in itself problematic, because of Lanka’s dynamic broadband market. Table 6 lists multiple SIM use. prices compiled by TRCSL as part of its 39 Telecommunications Regulatory Commission of Sri Lanka. broadband quality monitoring for February 2011. (2010). Statistical Overview. Retrieved 25 March 2011 from Mobile broadband is generally cheaper on a http://www.trc.gov.lk/information/statistics.html. Note that monthly basis but packages are capped whereas SLT reported 90,000 mobile 3.5G broadband subscriptions for its Mobitel subsidiary in 2010 while Dialog reported fixed broadband packages are unlimited. On a 28,000 mobile broadband subscriptions in 2009 (2010 data not published). 40 GSM Association. (2010). Mobile Broadband: Asia-Pacific http://www.gsmamobilebroadband.com/upload/resources/f Regional Fact Sheet. Retrieved 25 March 2011 from iles/16082010112500.pdf 15 | Broadband in Sri Lanka: A Case Study Mobile broadband (per 100 people), Fixed broadband (per 100 people), 2010 2010 Maldives 3.7 Maldives 8.3 Bhutan 1.2 Sri Lanka 1.4 Sri Lanka 1.1 Bhutan 0.3 India 0.9 Pakistan 0.07 Pakistan 0.5 India 0.01 Nepal 0.002 Nepal 0.4 Bangladesh 0 Bangladesh 0.003 Figure 7: Mobile and fixed broadband subscriptions per 100 people, South Asia, 2010 Source: Maldives refers to “Mobile broadband” reported by the Communications Authority of the Maldives (CAM) in January 2011 (left chart) and “Broadband ADSL” reported by CAM for December 2010 (right chart). Sri Lanka refers to “Mobile broadband” reported by TRCSL for December 2010 (left chart) and “ADSL subscriptions” reported by SLT for December 2010 (right chart). Bhutan refers to “3G subscriber” (left chart) and “Broadband subscriber” (right chart) reported by Bhutan InfoComm and Media Authority for October 2010. Pakistan refers to EV-DO subscriptions (left) and “Broadband subscriptions” (right) reported by Pakistan Telecommunication Authority for June 2010. India refers to “Mobile Broadband Connections” reported by GSMA in 2010 Q1 and “Fixed Broadband Subscriptions” reported by Telecom Regulatory Authority of India for December 2010. Nepal refers to WCDMA subscriptions of Nepal Telecom in 2009. Bangladesh has not launched WCDMA; fixed broadband refers to “ADSL Connections” of Bangladesh Telecom Company Ltd. at November 2010. price per Mbps, mobile broadband is theoretically Low prices relative to other countries or a better buy. According to the plans tracked by downward movement of prices over time are both TRCSL, the cheapest monthly rental is LKR 5.32 good indicators of competitiveness in a sector. Sri for mobile broadband. Pay per use packages for Lanka’s broadband offerings have been doing mobile broadband are available so that consumers both – particularly in mobile broadband. Nokia can match usage to their purchasing power. For (2009) calculated the mobile data TCO for over 70 example Dialog Axiata provides time-based pay emerging economies in the world, and found Sri per use ranging from 30 minutes to 24 hours; a Lanka to be the 21st least expensive in absolute half hour of mobile broadband Internet access terms and 8th most affordable (affordability being costs LKR 20 (USD 0.18).41 defined as TCO as a share of GDP per capita, lower being better, with the best performing Sri Lanka has the cheapest 3G entry-level prices in countries having TCOs less than 5% of GDP per South Asia (Table 7). Its prices are also the best capita). By 2010, Sri Lanka had become the least value in terms of price per Mbps and price per GB expensive in absolute terms (Nokia 2011). of usage. 41 http://www.dialog.lk/personal/broadband/hspa/packages/p repaid-broadband/ 16 | Broadband in Sri Lanka: A Case Study reduced 27% while fixed broadband packages of Monthly Price Price Monthly Speed data per per Operator Technology rental (Mbps) volume Mbps GB (USD) (GB) (USD) (USD) DIALOG WiMAX 0.512 unlimited 15.51 30.30 LANKA BELL WiMAX 0.512 unlimited 17.73 34.63 SLT ADSL 0.512 unlimited 14.18 27.70 SUNTEL WiMAX 0.512 unlimited 17.73 34.63 DIALOG WiMAX 2 unlimited 44.33 22.16 LANKA BELL WiMAX 2 unlimited 48.76 24.38 SLT ADSL 2 unlimited 48.76 24.38 SUNTEL WiMAX 2 unlimited 39.90 19.95 AIRTEL HSDPA 3.6 3 5.32 1.48 1.77 DIALOG HSPA 7.2 15 26.51 3.68 1.77 MOBITEL HSPA 3.6 8 11.44 3.18 1.43 Price Monthly Price per Monthly per Speed data theoretical Country Operator Technology rental GB (Mbps) volume Mbps (USD) usage (GB) (USD) (USD) Bangladesh Grameen EDGE 0.2368 1 4.39 18.54 4.39 Bhutan BT HSDPA 7.2 1.2 8.74 1.21 7.28 India Airtel HSDPA 7.2 1.25 14.77 2.05 11.81 Maldives Dhiraagu HSDPA 7.2 1 12.68 1.76 12.68 Nepal NTC WCDMA 0.384 1 69.51 181.01 69.51 Pakistan Telenor EDGE 0.2368 2 5.92 25.01 2.96 Sri Lanka Dialog HSDPA 7.2 2 4.34 0.60 2.17 SOUTH ASIA 17.19 32.88 15.83 256 kbps have reduced by 31%42. terms and 8th most affordable (affordability being Table 6: Monthly broadband packages, Sri Lanka, US$, February 2011 (Source: TRCSL) Note: Converted to US$ at 2010 annual average exchange rate. defined as TCO as a share of GDP per capita, lower being better, with the best performing countries having TCOs less than 5% of GDP per capita). By 2010, Sri Lanka had become the least 42Calculated, based on Broadband Benchmarks Emerging expensive in absolute terms (Nokia 2011). Asia, Feb 2010 (http://lirneasia.net/wp- Further, from August 2007 to February 2010, content/uploads/2010/03/LIRNEasia-Broadband-prices- EmergingAsia-Feb-2010.pdf ) and Broadband Benchmarks fixed broadband packages of 2 Mbps have South Asia, Aug 2007 (http://lirneasia.net/wp- content/uploads/2010/03/LIRNEasia-Broadband-prices- EmergingAsia-Feb-2010.pdf) Table 7: Entry level 3G prices, South 17Asia, March 2011, | Broadband US$ (A in Sri Lanka: Source : Adapted from tariff information on Case Study operator web sites) NoNote: WCDMA networks in Bangladesh or Pakistan and HSDPA services in Nepal not available. Converted to US$ at 2010 annual average exchange rates. Monthly Price Price Monthly Speed data per per Operator Technology rental (Mbps) volume Mbps GB (USD) (GB) (USD) (USD) DIALOG WiMAX 0.512 unlimited 15.51 30.30 LANKA BELL WiMAX 0.512 unlimited 17.73 34.63 SLT ADSL 0.512 unlimited 14.18 27.70 SUNTEL WiMAX 0.512 unlimited 17.73 34.63 DIALOG WiMAX 2 unlimited 44.33 22.16 LANKA BELL WiMAX 2 unlimited 48.76 24.38 SLT ADSL 2 unlimited 48.76 24.38 SUNTEL WiMAX 2 unlimited 39.90 19.95 AIRTEL HSDPA 3.6 3 5.32 1.48 1.77 DIALOG HSPA 7.2 15 26.51 3.68 1.77 MOBITEL HSPA 3.6 8 11.44 3.18 1.43 Price Monthly Price per Monthly per Speed data theoretical Country Operator Technology rental GB (Mbps) volume Mbps (USD) usage (GB) (USD) (USD) Bangladesh Grameen EDGE 0.2368 1 4.39 18.54 4.39 Bhutan BT HSDPA 7.2 1.2 8.74 1.21 7.28 India Airtel HSDPA 7.2 1.25 14.77 2.05 11.81 Maldives Dhiraagu HSDPA 7.2 1 12.68 1.76 12.68 Nepal NTC WCDMA 0.384 1 69.51 181.01 69.51 Pakistan Telenor EDGE 0.2368 2 5.92 25.01 2.96 Sri Lanka Dialog HSDPA 7.2 2 4.34 0.60 2.17 SOUTH ASIA 17.19 32.88 15.83 . 18 | Broadband in Sri Lanka: A Case Study 5. Driving the Demand for Broadband Sri Lanka has made extensive progress in Some are spearheaded by the government, in introducing a competitive broadband market with partnership with the private sector and civil a wide array of options and prices. Despite this society. Others are classic competitive responses advance, usage remains less than expected. For by operators who want to attract new customers example the Network Readiness Index, which and keep them. measures a country’s ICT environment along three broad dimensions, finds that Sri Lanka lags 5.1 Public access in usage compared to other components (Figure Not everyone can afford home broadband access. 8). Therefore it is critical to provide other options such as public facilities with broadband access. nment These can also serve as venues to provide training. Compo Environment Component nent 3.53 5 Nenasala program: Nenasala (or “knowledge center”) is the name given to a series of telecenters 4 that are being installed as a part of the e-Sri Lanka 3 initiative and represents the government’s primary 2 public access initiative. According to 1 http://www.nanasala.lk/, the 605th Nenasala 0 opened in March 2011. The initial design for Readin these telecenters was based on a business model Usage that included a government subsidy (anything ess Compo from 25 – 100% of costs) that would be scaled Compo nent Usage Readiness nent down to 0% over 4 years, which was the time Component 2.94 Component 4.49 estimated to reach financial self-sustainability. Later a new type of telecenter (“community model” based telecenters, as opposed to the “business model” based or entrepreneurial telecenters initially envisioned) was introduced, Figure 8: Sri Lanka's network readiness, 2009 where financial sustainability was traded for other (Source: The Global Information Technology development objectives. Over-time, several other Report 2009-2010) community access initiatives (such as e-libraries and distance-learning centers) have also been According to the Sri Lanka Department of Census brought under the Nenasala project, and the and Statistics Computer Literacy Survey, 13.1% of program has deviated from the exclusive focus on the population aged 5-69 used the Internet in 2009 rural areas, and currently includes telecenters even or some 2.3 million people.43 This is a significant in areas that are well served by other alternatives improvement over the 3% reported in 2004 and such as commercial “communication shops” - for there is noticeable rise since the previous survey example, the Colombo district (the most carried out in 2007 (Figure 9, left). Nevertheless, urbanized district that is the financial hub of the current Internet penetration is insufficient country which has numerous commercial particularly when compared to other lower “internet cafes”) reported 12 Nenasalas 44 . middle-income nations that carry out similar Irrespective of location or model, the expected surveys (Figure 9, right). benefits of the Nenasala program are to: increase A number of demand stimulation policies are ICT literacy, provide affordable access to citizen being pursued to raise Internet usage in Sri Lanka. services, provide access to e-commerce and ICT services leading to job growth in rural areas and 43 Department of Census and Statistics Sri Lanka. (2009). 44 According to http://www.nanasala.lk, 25 March 2011. Computer Literacy Survey 2009. Retrieved 25 March 2011 from Almost half of Nenasala users felt there were other locations http://www.statistics.gov.lk/CLS/BuletinComputerLiteracy_ in the vicinity providing similar services, according to a 2008 2009.pdf. survey by the ICT Agency. 19 | Broadband in Sri Lanka: A Case Study promote knowledge sharing. Provision of various then the better solution is to provide a targeted training programs is a primary source of revenue subsidy to the desired user group. This was in fact for Nenasalas with only 9% reporting they do not the design of a pilot “voucher” scheme which was engage in training. 45 Use of computers, use of given to school children in rural areas so that they Internet, and facilities to obtain print-outs were could get a specified number of hours at a the other services offered across the board, while telecenter. This scheme how was not scaled up. a smaller percentage of Nenasalas provided fax, Easy Seva centers: Starting in 2007, mobile Internet users, Sri Lanka Internet users (% of surveyed population), 2009 2,500 Internet users 13.1% 14% Moldova 29.7 12% 2,000 Internet users (% of survey 9.2% 11.5% China 28.9 10% Thousands population) 1,500 Internet users (per 100 people) 8% Thailand† 18.2 8.1% 5.2% 6% 1,000 4.3% Paraguay† 15.1 3.6% 3.0% 4% 4.6% ,500 Senegal 14.5 3.8% 3.2% 2% 2.6% 511 619 751 911 1628 2345 Sri Lanka 13.1 - 0% 2004 2005 2006 2007 2008 2009 0 10 20 30 40 Figure 9: Internet users, Sri Lanka, 2004-2009 and selected lower middle-income economies, 2009. Source: Adapted from national statistical offices except China (CNNIC) and Moldova (IPP). Note: In the left chart, data for non-survey years have been estimated based on inter-survey growth. † = 2008 data. Methodology: Sri Lanka: Age 5-69 used in last year; Senegal: Age 12+; Paraguay: Age 10+; Thailand: Age 6+; China: Age 6+ used in last six months reported as % of total population; Moldova: Age 18+ using at least once in last three months. and telephone (local and international call) operator Dialog has been working with a number services. Secondary school students represented of development partners (e.g., USAid, Qualcomm) the biggest user group (63%). “Basic learning”, to establish 55 Easy Seva Centers based on a “gathering of information” and reading of franchise model. Promoted as a “telecenter-in-a- “newspapers” were listed as the top purposes for box”, the Easy Seva centers operate on a which the Internet was accessed at the telecenters standardized model: four computers, headsets and (the survey does not further define these a 3G modem and everything else (access to categories). 88% of users claimed that Nenasala finance, training, technical support) needed for a prices were lower than other centers in the local entrepreneur to set up an Internet café with neighborhood that offered similar services. This ease is provided. 46 While rural implementations of course points to the market distortions created were planned, the initial 50+ Easy Seva centers by the Nenasalas: government offering lower- were set up in town centers, even in semi-rural priced services when the commercial providers regions. Prices are around US$ 0.60 per hour of may be already providing the service at a higher internet use. Internet and email were the services (market) price. If the government’s aim is to most used. According to Dialog Telekom, Easy encourage internet use by those who are otherwise unable to afford the commercial/market prices, 46USAID (n.d.). Alliances in Action: Easy Seva Sri Lanka. Retrieved 25 March 2011 from 45ICTA (2008). Nenasala Interim Survey, Final Report. http://www.usaid.gov/our_work/global_partnerships/gda/r http://www.icta.lk/index.php/get/category/3-p esources/Easy_Seva.pdf 20 | Broadband in Sri Lanka: A Case Study Seva centers became the largest users of training, with over 2,000 more in the broadband outside the capital city of Colombo.47 pipeline.50 The program is being scaled up. c) Targeting the private sector, over 5,000 5.2 Digital literacy non-ICT sector employees had received According to the Sri Lanka Department of Census training by 2010. and Statistics, “… computer literacy has become the fourth pillar to the traditional three tenets of d) The e-Sri Lanka PC program provided easy education: reading, writing, and arithmetic, and financing for citizens to purchase a computer that a failure to acquire the now requisite technical e) A weekly program broadcast on a popular knowledge will prevent large segments of television channel covered a broad range of population from realizing the fruits of the topics related to basic computer literacy I Information Age…"48 In a 2009 survey, the DCS including the use of simple software packages found that one fifth of the Sri Lankan population and simple hardware maintenance. aged 5-69 was computer literate, defined as a person being able to use a computer on their The Ministry of Education also worked in parallel own.49 Although this is a 25% increase from the to increase digital literacy through several previous survey in 2006, more effort is needed to initiatives starting with the launching of the raise digital literacy if Sri Lanka is to develop wide National ICT Education drive in 2005. participation in the information society. The computer illiterate fall along familiar socio- f) Through various ICT-capacity building economic classes and tend to be disproportionally initiatives of the Ministry, it is estimated that older, less educated and non-English speaking. at least 74,000 teachers had received one or more types of ICT-related training.51 e-Sri Lanka has launched multiple activities aimed at increasing ICT literacy: g) ICT was introduced into the school curriculum and General Information a) Targeting ordinary citizens, the e-driving Technology (GIT) as a subject was introduced license certification was launched, enabling for the G.C.E Advanced Level students. The people to receive low cost, basic ICT training first GIT exams were conducted in 2005.52 through a network of pre-approved private sector training partners. h) In 2006, SchoolNet53, a wide area network connecting schools and other institutions that b) Targeting government employees, a are engaged in education (such as zonal comprehensive program to develop the ICT education offices, the Ministry of Education skills has been launched, covering basic (MoE), the National Institute of Education computer literacy to highly technical skills. By (NIE), etc.) was launched with funding from Q1 2009 around 3,125 government employees the Asian Development Bank. Implemented were given the basic ICT Certification in various stages (and still ongoing), schools were initially provided with a computer lab and an Internet connection under this program. Today, any school that has a 47 SSG Advisors, 2009. Best Practices and Lessons in 50 ICTA. http://www.icta.lk/en/programmes/hrc- Delivering Broadband to Rural Communities suing Micro- building/117-government-training/510-ict-certification.html Franchising. http://www.ssg- 51 Dissanayake, A. (n.d.), ICT Education in Sri Lanka. advisors.com/files/SLLessonslearned.pdf Retrieved 15 March 2011 from 48 Department of Census and Statistics Sri Lanka. (2009). http://info.worldbank.org/etools/docs/library/243154/day1 Census Department Measures ICT Penetration into Households. Session%202_Sri%20Lanka.pdf http://www.statistics.gov.lk/special/index.htm 52 Ministry of Education (2005). Education for Economic 49 Department of Census and Statistics Sri Lanka. (2009). Development and Prosperity. Computer Literacy Survey 2009. http://planipolis.iiep.unesco.org/upload/Sri%20Lanka/Sri% http://www.statistics.gov.lk/CLS/BuletinComputerLiteracy_ 20Lanka%20MOE_Profile_English.pdf 2009.pdf 53 http://www.schoolnet.lk/ 21 | Broadband in Sri Lanka: A Case Study computer lab with a LAN can apply for high capacity Internet to research and connectivity via SchoolNet. At present education institutions in the Asia Pacific around 1,800 institutions (about 1,500 schools region (45 Mbps).55 LEARN operates as a and 300 other institutions) are linked up via non -profit entity owned by the members and SchoolNet. Of these around 1,100 have has a small staff operating the network ADSL Internet connectivity, about 400 have operating center. The majority of traffic CDMA based connections and the rest are generated by the network is international. connected via WiMAX, though at present the majority are being converted to ADSL. Most 5.3 Converged and bundled have 128Kbps connectivity, while bigger or offerings central schools have 256-512 Kbps. The Operators are taking a classic approach of product MoE and the NIE have higher bandwidth of bundling in order attract consumers, increase 6 Mbps and 4 Mbps respectively. Sri Lanka revenues and decrease churn. Some of these are Telecom and Dialog Telekom are the primary helping drive the adoption of broadband. For providers of connectivity. Conversations with example: the Network Operations Center for SchoolNet revealed that the majority of traffic • Dialog’s broadband and voice bundle generated is for web browsing, though there is products (SmartHome and BoxOffice) evidence of provincial level use of the various demonstrated significant growth in 2009 (with collaboration tools that are offered as part of 162 and 64 percent customer growth for each the SchoolNet. Web hosting (of web pages product, respectively), despite broadband-only for schools) and domain name assignment for subscriptions growing only marginally.56 schools are also widely requested services. Revenue contribution from customers of Actual usage of facilities (the lab, or Internet) these two products grew from 35 to 41 is governed by the policies of each individual percent between Q3 2009 to Q4 2009 school, and therefore highly variable: some whereas revenue contribution from allow relatively easy access while others have broadband-only consumers fell from 65 to more restrictive opening hours and policies 59%. on which students can use the facilities. • LankaBell offers free narrowband Internet services to its 1.2 million subscribers.57 In July While internet access at primary and secondary 2009, the company announced that its schools is still emerging, the universities and customer base for high-speed Internet had research institutions have traditionally had better grown by over 300 percent in less than 18 access. months.58 i) Internet connectivity for universities and • SLT launched its IP based television service research institutions is through the Lanka PEO TV and reported over 26,000 Education and Research Network subscriptions in 2010. While pricing for TV (LEARN).54 The majority of national and channels offered on PEO TV is less regional level universities and some private competitive than alternatives, it is an attractive ones are connected to the Internet through option for consumers who have access to LEARN. Operating funding comes from the copper connectivity (within a short distance government (via the University Grants Commission), while capital investment (e.g., for increased network capacity) has been 55 See funded through international donors in the http://www.tein3.net/upload/pdf/TEIN3_Topology_04.10 past. International connectivity is through _low_res.pdf for TEIN3 56 Dialog. 2010. Annual Report 2009. two paths: the incumbent SLT (120 Mbps) http://www.dialog.lk/content/uploads/pdfs/annual_reports and also via the Trans-Eurasia Information /2009_annual_report_en.pdf Network (TIEN 3) which provides dedicated 57 http://www.lankabell.net/lanka_bell_one_step.htm 58 ”Submarine Links.” Lanka Business Online. July 9, 2009. http://www.lankabusinessonline.com/fullstory.php?nid=658 54 www.ac.lk 627048 22 | Broadband in Sri Lanka: A Case Study Rank Name Site Comment 1 Google google.lk Search A social utility that connects people, to keep 2 Facebook facebook.com up with friends, upload photos, share links and videos 3 Google google.com Search YouTube is a way to get your videos to the 4 YouTube youtube.com people who matter to you. Upload, tag and share A major internet portal and service provider 5 Yahoo! yahoo.com offering search results, customizable content, etc. 6 Blogger blogspot.com Free, automated weblog publishing tool 7 ESPN cricinfo espncricinfo.com ESPN Cricket portal A free encyclopedia built collaboratively 8 Wikipedia wikipedia.org using wiki software Largest Online Community and Media Portal 9 ElaKiri elakiri.com for Sri Lanka Gossip Lanka 10 gossiplankanews.com News from Sri Lanka News A premier breaking news web site offering 11 Ada Derana adaderana.lk news from Sri Lanka in English, Sinhala and Tamil 12 Daily Mirror dailymirror.lk Sri Lanka 24 Hours Online Breaking News Social networking and micro blogging 13 Twitter twitter.com service utilizing instant messaging, SMS or a web interface. 14 Windows Live live.com Search engine from Microsoft 15 WordPress wordpress.com Free blogs 16 eBay ebay.com International person to person auction site English Sinhala & Tamil Latest news updates 17 Lankaenews lankaenews.com from Sri Lanka 18 Bing bing.com Search engine developed by Microsoft 19 bp.blogspot.com 20 lankadeepa www.lankadeepa.lk Portal site of Wijeya Newspapers Table 8: Top 20 web sites in Sri Lanka, March 2011 (Source: Alexa http://www.alexa.com/topsites/ countries/LK) of the exchange, in order experience high bundled voice+broadband offering to quality) and do not want the hassle of consumers. maintaining a separate satellite TV subscription. 5.4 Content and applications • At the time of writing, new broadband Access to content that is relevant to users helps to operator Sky Networks was in talks with one drive broadband uptake. This includes access to of the CDMA fixed line operators to offer a popular global sites as well as the development of local content including e-government applications. 23 | Broadband in Sri Lanka: A Case Study 5.4.1 Browsing habits of users forums on Elakiri.com claimed to have over 9 A ranking of the top twenty web sites in Sri Lanka million posts under 874,000 different threads with shows that global applications such as search over 348,000 users.60 portals (e.g., Google, Yahoo!, Bing) and social networking and peer to peer applications (e.g., 5.4.2 E-government applications Facebook, YouTube, Twitter, Blogger, eBay) are Government can be a driver of increased popular (Table 8). Local content, particularly news broadband penetration through its own ICT sites, rank in the top twenty as do sites of activities including the development of online particular interest to many Sri Lankans such as applications to facilitate citizen interaction. One of cricket (ESPN cricinfo at #7). Like everywhere the main components of the e-Sri Lanka program around the world, Sri Lanka has joined the social was the development of e-government services. networking revolution with over 900,000 According to an evaluation of the program, Sri Facebook users in March 201159 or some 4.4% of Lanka has progressed in e-government since 2004 the population and around 40% of Internet users when there were no Internet-enabled services and (based on the DC&S Computer Literacy Survey). only a single central government portal providing Elakiri.com is a popular website that allows users static information.61 By 2010, 290 agencies had a 100% 90% 87% 78% 80% 69% 70% 65% 60% 50% 38% 39% 40% 31% 30% 27% 19% 20% 15% 15% 15% 12% 9% 10% 7% 8% 10% 3% 0% 0% 0% 0% 0% 0% 1% 0% 0% 0% 0% Ministries Departments Statutory Ministries Departments DS DvS Boards (PG) (PG) Information Only Application Forms Downloads Interactive Citizen Services Web Portal Figure 10: Services provided by various types of government organizations (Source: ICTA) to upload (and download from other users) popular content such as music videos, pictures 60Statistics reported on http://www.elakiri.com/forum/ and mobile ring tones. It provides a facility for 61The World Bank. (2010). Implementation Status and Results E- hosting blogs and contains several forums that are Lanka Development (P081771) (Rep. No. ISR2333). http://www- popular. At the time of writing, the various wds.worldbank.org/external/default/WDSContentServer/W DSP/SAR/2010/12/25/0D9887F3F94C315385257804003D 75E0/1_0/Rendered/PDF/P0817710ISR0Di0225201012932 59 www.ictDATA.org 75514930.pdf 24 | Broadband in Sri Lanka: A Case Study web site and there were 112 online services for the center65), traditional counter-services (in the case private sector. More detailed analysis reveals that of certified copies of birth, death and marriage the even though many government offices had a certificates being available under 30 minutes by web presence, only 10% provided some kind of walking-into the relevant government office, interactive service. 62 The others provided achieved through a huge document digitization information and at most allowed the download of initiative) or “drive-through” services (in the case forms (Figure 10). Yet the download of of the payment of motor vehicle road tax in a few government forms should not to be under- minutes thanks to backend computerization of the estimated. Simply having information about how process). According to the UN e-government to access government services and providing the survey, Sri Lanka ranks third in the Southern Asia necessary application forms online provides a region. However its rank dropped ten points huge benefit to users who otherwise may have to between 2009 and 2010 and the country’s overall travel several hours just to obtain these (and travel e-government index has remained stagnant. again to actually obtain the service). 5.4.3 Content offerings from operators and A separate survey of citizens who walked into emergence of “App Store” models selected government offices revealed their most- Private sector is also entering the mobile- used e-government service. Top ranked was application market. The models adopted by the obtaining information from government websites operators vary. Some are creating educational (47.3%), with making inquiries from the content from scratch, hoping people will be Government Information Center (GIC) ranking willing to pay for useful content in a culture where next (46.6%), making inquiries via e-mail from education of children is the primary goal of most government organizations (7.5%) and online families, and majority of secondary schoolers (or applications for government services (6.0%). 63 their parents) pay for “private tuition” that helps Indeed the availability of government information with additional coaching on top of what they learn and forms appears to be a driver of Internet at school. Operators have also started online services, at least for those citizens that access the application stores, inspired by the iPhone App Internet at the Nenasalas (the government’s Store or Nokia’s Ovi. However the difference is telecenters). A 2008 surveys reveal that 70% of that the applications are within a walled garden of users of Nenasalas had accessed government the operator, and operator-centric ((unlike the websites for information and services and that phone-centric models such as the iPhone app 24% of them said access to government services store which are accessible from any operator as through the Nenasala’s had contributed positively long as the phone is an iPhone). At the time of towards their life.64 writing Etisalat was offering application developers standardized contracts that provided There is room for improvement. As noted, more them with a development environment (to government transactions enabled online (instead develop and test the software), revenue share of of simple information) could prompt more 70% and non-exclusivity (i.e. the developer could demand. Further, some of the most widely used make the app available to other operators, but had e-government services implemented by ICTA are to do the marketing)). As with all user driven ones that use ICTs at the backend, but rely on innovation, it is hoped that a large number of citizens using simple old fashioned phones (in the applications will be generated, with a few case of the Government Information Center, becoming extremely popular due to consumer which gives information about applying for demand. However, smart phones that can run various government services through a call these apps are still only a small percentage of the market. Therefore what is required are 62 ICTA (2008). Survey on ICT Usage in Government Sector. http://www.icta.lk/index.php/get/category/3-p) 65The GIC information is both available online at 63 ICTA (2008). Government Organizations Visitor Survey. www.gic.gov.lk and via phone by dialing 1919. However the http://www.icta.lk/index.php/get/category/3-p). GIC 2009 Annual Report states that between 2007 – 2009 a 64 ICTA (2008). Nenasala Interim Survey. total of 1.719 million calls were answered while the website http://www.icta.lk/index.php/get/category/3-p). only recorded a total of 635,928 visits as at March 2011. 25 | Broadband in Sri Lanka: A Case Study applications that can run on basic (feature) phones facilitate the formation of contracts, the and deliver utility to the masses. creation and exchange of data messages and other communications in electronic 5.4.4. Online Payments form in Sri Lanka and to provide for the appointment of a certification authority As with many developing nations, the use and and accreditation of certification service availability of credit cards is low. Therefore, providers”. The law was brought into online payments via credit card for the purchase operation in October 2007 and is based of goods and services is only possible for a small on the United Nations Commission on percentage of the population. However, an International Trade Law (UNCITRAL) alternate payment mechanism exists through Model Law on e-Commerce (1996) and mobile telecom companies – for example, citizens Model Law on e-Signature (2001). make appointments with doctors at various • Payment and Settlement Systems Act No. hospitals by dialing a 225 from their telephones 28 of 2005: This legislation was and speaking to an operator. The doctors’ charges introduced to enable transaction of (and hospital charges) plus a fee for the checks and negotiable instruments in appointment booking service are added to the digital form. consumers bill at the end of the month (in the case of post-paid mobile users) or deducted • Computer Crimes Act No. 24 of 2007: immediately from the users available credit (in the This law covers two categories of case of pre-paid users, who are more than 90% of offences: a) computer related crimes, and, the market). Therefore, any vendor wanting to b) hacking offences which affect integrity, engage in “e-commerce” will have to tie-up with availability and confidentiality of a phone companies for the payment mechanism if computer system or network and deals they want to go mass-market. both with unauthorized access and unauthorized modification and damage. 5.5 Regulatory measures to protect This law was brought into operation in July 2008. the consumer In addition to the above, other laws related to 5.5.1 Online security Data Protection (and approaches other than laws, Proper security and other assurances are necessary such as self-regulation) are being considered. to help some citizens overcome their resistance to use broadband services. This includes, for Apart from the legal framework, simple awareness example, legislation that legitimizes electronic and perceptions with regards to security on the transactions and makes computer crimes illegal. It Internet has a direct impact on demand. In also includes initiatives to raise awareness about particular, access to unsuitable material by how users can limit access to sites they consider children can impact the parent’s decision to undesirable and how they can protect themselves purchase Internet access. Operators are against harmful content. addressing this. For example, at the time of writing, Etisalat was planning the sale of mobile Several key pieces of legislation have been broadband dongles that included pre-installed enacted:66 content filtering software. Dialog has also • Intellectual Property Act No. 36 of 2003: Under this law, computer programs are protected under the existing Copyright Regime • The Electronic Transactions Act No. 19 of 2006: It aims to “recognize and 66 Fernando, J. (n.d.). Impact of Recent IT Related Legislation. Retrieved 25 May 2011 from http://www.icta.lk/en/e-laws- project.html 26 | Broadband in Sri Lanka: A Case Study launched a “Child Safe Internet” account that were therefore ordered to monitor and filter such filters access to inappropriate web sites.67 content. In July 2009 it was reported that based on a petition by the Inspector General of Police The government’s response to pornographic the courts had ordered TRCSL to ban twelve local content online has been haphazard – with the Internet sites identified as containing topic gaining prominence at regular intervals, but pornographic material. In August 2009, it was then disappearing from the radar, without reported that the TRCSL was about to force all concrete policy or regulatory action in between. Internet cafes to register and be monitored closely Figure 11: Mobile broadband speed tests, Sri Lanka, January 2011 (Source: TRCSL) Note: Measures download speeds of various mobile broadband operators over a 16 hour period in Colombo. Tests are based on download of 10Mb file from USA. For example, in August 2008 it was reported in to ensure they do not provide access to the press that the President had ordered the pornographic content.70 But as of today, how it is TRCSL to eliminate opportunities to watch unclear how these rules/orders are being pornographic movies and videos on the Internet68 enforced. and that the National Child Protection Authority of Sri Lanka was considering banning the 5.5.2 Broadband quality receiving of pornographic text messages. 69 ISPs Consumer assurance can be enhanced through quality of service testing of broadband services. 67 Dialog. 2010. Annual Report 2009. TRCSL has commenced carrying out broadband 68 “Unrestricted Web Access for Payment in Future, TRC.” tests to measure advertised speeds against actual The Sunday Times. August 2, 2008. 69 Wattegama, Chanuka. “Sri Lanka: Now Internet porn banned, it is time to immobilise mobile porn.” LIRNEasia, August 26, 2008. http://lirneasia.net/2008/08/sri-lanka- 70“No sex please, we’re Sri Lankans”. The Sunday Times. now-internet-porn-banned-it-is-time-to-immobilise-mobile- August 2, 2009. porn/. http://www.sundaytimes.lk/090802/News/news_04.html 27 | Broadband in Sri Lanka: A Case Study speeds. 71 It conducts tests for both fixed and countries. A January 2011 test for mobile mobile broadband, for all operators, for different broadband found that speeds were above the advertised speeds. The tests are based on 1 Mbps threshold and generally above a 1.5 Mbps download results from servers in different threshold (Figure 11). 71Telecommunications Regulatory Commission of Sri Lanka. January 2011. TRCSL Releases 3G Mobile Broadband Speed Test Results. http://www.trc.gov.lk/broadband/184-trcsl-releases- 3g-mobile-broadband-speed-test-results.html 28 | Broadband in Sri Lanka: A Case Study 6. Assessing Performance: Glass Half Full or Half Empty? On one hand, Sri Lanka’s fixed broadband available), operators were quick to invest. Dialog penetration leaves much to be desired, with only a launched South Asia’s first commercial 3G small portion households being served by fixed network in 2006 72 and other Sri Lankan mobile copper broadband, and an even smaller portion of operators have followed suit. Availability of 3G the served households adopting ADSL. Whether spectrum and 3G services is in sharp contrast to fixed wireless (especially newly emerging 16.e the situation in many of Sri Lanka’s neighbors, WiMAX) will prove successful is unclear because most notably India which did not allocate it till these technologies/services are only just entering until 2010. the market. However mobile broadband has stepped in to fill the void – Sri Lanka has the Sri Lanka is keeping up this track record, and has second highest level of mobile broadband made spectrum available for LTE networks, which penetration in South Asia (only behind Maldives, a are currently being tested by two operators. much richer country) and it has the lowest prices. Though overall adoption is still low, mobile 6.1.2 Innovations by operators broadband is experiencing phenomenal growth. The second key driver of mobile broadband stems Many factors contributed to this success, as from dynamics of an extremely competitive discussed below. mobile industry in Sri Lanka. Market entry has been liberal with a relatively high number of However, the path for continued growth for mobile operators. Once the market got beyond the broadband is far from certain, given the socio- duopoly situation, and disruptive third and fourth economic conditions of the country and operators entered, serious competition set in, competitive dynamics between operators. driving down prices. In order to maintain margins and grow the market, operators could not These factors are discussed in the following continue to “cream skim” (service the rich or section. those at the top of the socio-economic pyramid who have high ability to pay) but had instead to 6.1 What worked reach the masses and the poor. The operators innovated by moving towards a high volume, low 6.1.1 Early availability of 3G spectrum cost network business model characterized by, a) The Sri Lankan regulator was one of the first in outsourcing of network operations, leading to the Asian region to make 3G spectrum available significant reduction in network costs, b) sharing back in 2004 when it authorized its use for testing. of passive and active infrastructure, without By 2006, this spectrum was allocated for regulatory obligation, further reducing operational commercial use to all operators at a charge of costs, c) eliminating credit risk and cost of printing around USD 5 million. Not only was 3G invoices by offering pre-paid service, d) catering spectrum made available at the time, but was to variable incomes of the poor by enabling thereafter available to any operator who paid the extremely small re-charge amounts on pre-paid same price. This eliminated “land-grab” type services (as low as USD 0.50 top-ups) and e) even behavior that would have been otherwise created eliminating scratch cards used for topping-up pre- by a one-off spectrum auction and enabled paid services by moving to electronic re-charge, operators to enter the 3G market when it made saving more costs. This business model is most sense to them – based on their assessment characterized by extremely high network of trade-offs between early entry vs. waiting for utilization and low Average Revenue per User the right time in their capital investment cycle. (ARPU) and has enabled those at the bottom of Though the government arguably lost potential income through this allocation method, it did make spectrum available on a non-discriminatory 72 “New Generation: Sri Lanka’s Dialog Telekom launches basis to all operators, and at a relatively low price. first commercial 3G service in South Asia.” Lanka Business Once the primary barrier to mobile broadband Online. August, 15, 2006 investment was removed (i.e. spectrum was made http://www.lankabusinessonline.com/fullstory.php?newsID =628473154&no_view=1&SEARCH_TERM=5 29 | Broadband in Sri Lanka: A Case Study the socio-economic pyramid to become mobile of e-Sri Lanka is not in the individual pieces, but voice and SMS users.73 rather the holistic eco-system it envisioned, and that even activities that are as-yet-completed The same model is now being extended to mobile contribute to that eco-system and general sense of broadband. Faced with high competition in voice, “excitement” about ICTs created by the program. operators are moving to other services, and data is the first target. While many rich or some middle 6.1.4 Tax relief classes households may have access to copper Sri Lankan consumers have been plagued with wire (and therefore ability to get ADSL high taxes on their telephone bills. Given the ease connections), most other do households do not. of collecting taxes through the telecom operators, Therefore wireless is the only option for many. it was common for the government to impose a Operators are meeting the demand with variety of taxes, and sometimes taxes on taxes, on reasonably priced HSDPA dongles (at under USD phone services, both mobile and fixed (besides 50 per dongle) and data plans (unlimited plans VAT, a Nation Building Tax, an Environment ranging from USD 4 to USD 27 per month). By Levy, etc.). As a result, Sri Lankan consumers enabling pre-paid top-ups, operators are were paying roughly 31% tax on their phone bills. eliminating the need for a monthly contract, This is in addition to the corporate taxes (and further removing barriers to entry by those on low other levies such as spectrum fees) paid by the or irregular incomes. And by targeting students operators themselves. In November 201074, the (e.g. Dialog offered them HSPA dongle and government made drastic changes to the tax package discounts of up to 50% in the early days) structure and, effective from 2011 imposed a they have managed to capture early adopters. reduced, flat tax of around 20% on phone consumers. This was a laudatory action – now Sri Lanka has also traditionally been a leader in instead of only getting browsing-time of 70 rupees mobile telephony in South Asia and often the first on every 100 spent, consumers get 80 rupees of to launch innovative new networks and browsing-time (operators do not think the applications. Dialog was the first 3G operator in reduced taxes would result in the consumers South Asia and Mobitel the first 3.5G. This trend reducing the total amount they spend each continues today – HSPA was first launched in month). It is hoped that this will increase South Asia by Dialog and Mobitel was first with consumption of mobile services including mobile HSDPA and HSUPA. At least 2 operators are broadband. running LTE trials at the time of writing, with plans to invest and launch LTE within 1 – 2 years. 6.2 Challenges The mobile operators are on a constant innovative Though Sri Lanka has achieved much and looks cycle, by matching each other’s investments into poised to continue its growth, operators face faster, more cost-efficient technologies in each major competitive challenges and there are several iteration. areas of regulatory concern. 6.1.3 Creating the ecosystem: e-Sri Lanka 6.2.1 Reaching the mass market We highlighted earlier the e-Sri Lanka initiative Compared to fixed, mobile broadband is enjoying funded by the World Bank, Government of Sri high growth in Sri Lanka. However, unlike mobile Lanka and several other agencies. As an voice (which enjoys 82% SIM penetration), integrated, cross-sector ICT-enabled development mobile broadband reaches far less than 10% program, e-Sri Lanka created extremely high penetration (counting all types of terminal devices expectations in the country. Seven years after it – phones (“small screens”) to computers (“big started, a number of the projects are still being screens”)75). LIRNEasia (200876) shows that over implemented and others have been abandoned. However, most stakeholders agree that the impact 74 2011 budget speech at http://www.news.lk/category- 73Samarajiva, R. Leveraging the budget telecom network table/16732-salient-features-of-the-budget-2011 business model to bring broadband to the people, Information 75 The distinction is important because big screen users Technology and International Development, 6, special issue: 93-97. generate higher revenue for operator through higher http://itidjournal.org/itid/article/viewFile/630/270 consumption. 30 | Broadband in Sri Lanka: A Case Study 88% of Sri Lanka’s poorest citizens (those at the were so drastic that operators requested regulatory bottom of socio-economic Pyramid (BoP)) in intervention (in the form of floor prices for both urban and rural areas are telephone users interconnection), claiming that their viability was (primarily mobile phone). 73% of the BoP also threatened. Even if this does not happen, owned a phone (again, primarily a mobile phone). EBITDA margins for mobile broadband is already However the same survey shows that only 3.2% of low, making it harder to justify the investment the BoP had used the Internet, that 74% had needed to move to 4G island-wide. heard of the internet but never used it and worse yet that 23% had never heard of the internet. Even if the operators can continue with these margins and invest, the bigger question of Mobile broadband has a long way to become a reaching untapped markets or having to “create” mass-market technology in Sri Lanka. The the market (of those as yet unconvinced about the industry claims that 10% – 15% penetration of big utility of broadband) is the true challenge for the screen mobile broadband – i.e. a mobile internet sector. According to some operators, not only is dongle connected to a computer- is possible at the utility something users need be educated current prices without too much effort. Up to about, but fear of the negative impacts of the that point the mobile operators are still serving Internet is also a barrier that has to be crossed. mostly early adopters, or those who do not need much convincing about the utility of high speed It appears that operators are already acting. For Internet access (i.e., those that are already aware of example, the days of “unlimited” data packages the Internet, use it at the office, probably have the are gone. Now the operators are clearly funds to even get an ADSL connection to their advertising FUPs or publishing the additional home, and need a mobile dongle for convenience charges when the monthly data limit is reached. or personal use). But after that market is saturated Others are offering “minute-based” plans – i.e., (which will happen soon), a truly “new” market, pre-paid plans where the users buy credit and are of users who are not convinced about the utility of then able to use the Internet for a certain number broadband has to be reached. This will eventually of hours or minutes. This is because it has been include those at the BoP with low ability to pay. shown that for an average pre-paid user, the But with prices already relatively low (“unlimited” minutes spent online is easier to keep track of and packages range from USD 4.50 – 2777, depending make more “sense” of than how much data was on when the Fair Usage Policy (FUP) becomes downloaded. Some operators are willing to active 78 with majority of users spending around engage in rural awareness building, and to offer USD 10 per month; or limited pre-paid broadband mobile broadband dongles that come pre-loaded is about USD 3 per GB79), there is likely not too with content-screening software (with parental much room for prices to continue dropping. controls for what content is viewable, for Operators worry that increased mobile broadband example) and they think this will help bring some competition will result in behavior similar to that reluctant users into the market. in the mobile voice space where price reductions 6.2.2 The language barrier Sri Lanka uses three languages – Sinhalese, Tamil 76 Published reference to LIRNEasia’s T@BOP data that and English. The majority of Internet traffic is for contains these data points, if possible. If not reference to slide-set online. content hosted overseas, in the English language. 77 February 2011 prices for Dialog Axiata, largest mobile Except for government websites and several operator newspapers, there isn’t sufficient local content in (http://www.dialog.lk/personal/broadband/hspa/packages/ local languages; certainly not content that is unlimited-postpaid-broadband/ ) 78 Unlimited packages have a Fair User Policy (FUP). Once a dynamic and varied, in the way English content is. user reaches a certain download/upload limit per month, the Tamil content (though not Sri Lanka specific service quality downgrades (speeds slows down), but no extra content) is at least widely accessible on the amount is changed. This is differentiated from packages that Internet thanks to the presence of the large Tamil- charge additional fees for additional downloading. speaking population in South India. There is of 79 LIRNEasia (20xx). Broadband Benchmarks Emerging Asia, February 2010. http://lirneasia.net/wp- course a blossoming Sinhala language blogosphere content/uploads/2010/03/LIRNEasia-Broadband-prices- in Sri Lanka – however the readers and bloggers EmergingAsia-Feb-2010.pdf 31 | Broadband in Sri Lanka: A Case Study International: Download speeds (kbps) per dollar 100 Download speed (kbps) per dollar 80 60 40 20 0 800 1100 1500 1800 2000 2300 Sirius (256 kbps) Dhaka, BD Dialog (2 Mbps) Colombo, LK SLT (2 Mbps) Colombo, LK SLT (512 kbps) Colombo, LK Bell (6 Mbps) Ottawa, CA Rogers (10 Mbps) Ottawa, CA Verizon (3 Mbps) Buffalo, US Comcast (6 Mbps) Denver, US Figure 12: Actual download speeds (kbps) per US$, 2009 (Source: LIRNEasia) are often the young and educated and many could 6.2.3 Regulating broadband quality read English content anyway. There are few The budget telecom business model yields exactly websites other than newspaper sites for a Sinhala- what the name implies – low prices, but also low only speaker, or a Tamil-only speaker who wants quality. Actual throughput delivered to the user is locally relevant content. As a result, the non- less than what is promised. Compared to users in English-speaking citizenry appear to be kept out North America, Sri Lankan broadband users of the Internet. receive less value for their money (as measured by actual experienced throughput per USD spent) as This key challenge has to be addressed if the seen in Figure 12. operators are to move beyond the low penetration levels they currently have in mobile broadband. The quality of service issue has caught the The technical groundwork has been laid with the attention of the TRCSL since 2010. It now carries adoption Unicode Sinhala fonts. out its own tests and is about to enact regulation regarding minimum quality standards. One form On the other hand, one could argue that the the regulation may take is setting a minimum speed language barrier is increasingly insignificant – even that must be met at all times at all locations. This children of some non-English speaking parents is technically possible on a mobile network – the are conducting their basic education in English as operator has to add extra capacity so that the a result of the government introducing the option required speed is experienced at all times, of English medium education. This is the irrespective of whether 1 user or 500 users are generation that will drive Internet adoption (by connected. However the result would be an convincing their parents to purchase Internet expensive network that provides optimum subscriptions). Therefore perhaps over time the performance. This is not feasible for networks importance of local language sites may become that are run to optimize network load factors and less important. keep costs to a minimum. Alternatives are needed. One possibility would be to require 32 | Broadband in Sri Lanka: A Case Study average speeds (for the country or a particular 6.3 Has Sri Lanka achieved enough, geographic area) allowing operators to make the given favorable conditions? decisions on where to increase capacity to meet Sri Lanka has an adult literacy rate of over 90%, the average target. Light regulation could also be and has benefitted from a strongly supported pursued where operators offer quality- ICT4D program over the past seven years (e-Sri differentiated pricing. There is sufficient Lanka). Both Internet supply (through competition in the market to encourage operators telecenters, national backbone networks, mobile to differentiate themselves in such ways. broadband) and demand (through the 6.2.4 Special dispensation for the telecom development of e-government and other sector applications, creating awareness, capacity building) As noted, the government of Sri Lanka reduced have been addressed as part of the e-Sri Lanka the tax consumers pay on mobile services recently. program. Therefore, it is reasonable to expect that At the same time, the government exempted the Sri Lanka should achieve more in ICT telecom operators from Value Added Tax (VAT). connectivity and adoption than other developing When this announcement was made suddenly, countries that did not receive such targeted ICT operators who had just ordered multi-million funding and attention. dollars worth of equipment were faced with a Vietnam provides a sharp contrast. In 2002, Sri situation of not being able to claim back the VAT Lanka and Vietnam had similar internet on their purchase. This is perhaps a one-time penetration rates. But between 2002 and 2009, occurrence. However the broader question is why Vietnam increased its Internet penetration by a the telecom sector should be specially targeted factor of 14, while Sri Lanka only did so by 7. By (even in this “helpful” way, as deemed by the 2009 Vietnam’s intent penetration was more than government). It seems that instead of giving the twice as much as Sri Lanka’s. In the World sector special favorable (or unfavorable) treatment Economic Forum Network Readiness Index in relation to other sectors, what’s more (NRI)80, Vietnam’s ranking was 17 spots below Sri appropriate is to provide a stable and predictable Lanka in 2002; by 2009 Vietnam was 18 positions regulatory and policy regime. Given the high level ahead. One would have also expected Sri Lanka of competition, most other issues would then be to gain on its neighbors. But in 2009, Sri Lanka’s taken care of by the market. NRI was behind India and just ahead of Pakistan. Viewed in this light, it appears Sri Lanka should have been performing better, even with the toll of the 30-year ethnic war. 80 http://www.networkedreadiness.com 33 | Broadband in Sri Lanka: A Case Study 7. Lessons Learned Sri Lanka has some ways to go to before it can be enabled development. This creates an eco- declared a broadband success story. It should be system of innovation and even energized the further ahead of the broadband adoption curve private sector into action (due to the threat of than it is today, given the favorable conditions it the government becoming a major player in faced – a highly literate populace and a national the sector). Therefore if funds are limited, level e-development program. However, it has they are better spent on awareness building made significant achievements, under less than and promotion at the nationwide level, than ideal regulatory conditions and under less than on individual projects, which may or may not stable socio-economic conditions including a succeed. prolonged ethnic conflict. And its mobile • The need for “Light touch regulation” in broadband has compensated for the somewhat the early stages: The approach to broadband lackluster fixed broadband performance - it is the QoS regulation that appears to be emerging in best performer in mobile broadband compared to Sri Lanka is an example of the regulator all its South Asian neighbors, many of who have attempting to do the right thing by the more advantages in terms of larger markets consumer (delivering good quality) at the (economies of scale) and better regulatory expense of creating un-achievable targets for regimes. And the growth of mobile broadband operators (regulation based on a guaranteed doesn’t appear to be slowing down anytime soon. minimum speed per connection, instead of average speeds across the network or even Best practice can be identified from Sri Lanka’s average speeds for a local region. The former successes and cautionary tales drawn from its is achievable in the long term, of course. But failures. These are summarized as follows: in the in the immediate term, it’s only achievable at great expense and the risk of not • If nothing else, enable competition in the serving the poor). market by facilitating entry: Sri Lanka is a poster child for what a competitive telecom • Race to the bottom with prices, without market can achieve, even under less than ideal growing the market is dangerous: The market-entry conditions. When enough natural response of Sri Lankan operators players enter a country (certainly more than when faced with stagnant market-share has two, ideally more than three), disruptive often been to slash prices. While this is good competition takes place yielding business for consumers in the short term, lower prices models that enable affordable mobile that lead to lower profits that don’t allow for broadband, especially when voice revenues investment hurts them in the long term. This are declining. is likely in the mobile broadband space, where • Ensure that availability of spectrum is not penetration in the early adaptor and the top- a barrier: Spectrum is the primary resource of-the-pyramid consumer segments will reach required for mobile broadband that is not saturation soon. Unless operators growth the within the control of the operators. The market by breaking barriers and reaching the regulators should make this available early, lower income groups (by creating local and on a non-discriminatory basis, regardless language content, addressing fears of safety of the allocation method. This is doubly on the Internet, providing more services important for developing nations, because through broadband connections and by most don’t have wide-spread copper networks increasing the perceived utility of a broadband (or copper connections of sufficiently high connection), the industry could stagnate. The quality to run xDSL). balance between lower prices and market • Creating “the buzz” is as important as growth has to be found by operators. specific ICT4D projects: e-Sri Lanka’s biggest contribution is arguably the enthusiasm and energy it created for ICT- 34 | Broadband in Sri Lanka: A Case Study About infoDev infoDev is a global development financing program among international development agencies, coordinated and served by an expert Secretariat housed at the World Bank Group, one of its key donors and founders. It acts as a neutral convener of dialogue—and as a coordinator of joint action among bilateral and multilateral donors—supporting global sharing of information on ICT for development (ICT4D), and helping to reduce duplication of efforts and investments. infoDev also forms partnerships with public and private sector organizations who are innovators in the field of ICT4D. infoDev is housed in the Financial and Private Sector Development (FPD) Vice Presidency of the World Bank Group. For additional information about this study or more general information on infoDev, please visit www.infodev.org/publications. 34 | Broadband in Sri Lanka: A Case Study 1 | Broadband in St. Kitts and Nevis 2 | Broadband in St. Kitts and Nevis © 2011 The International Bank for Reconstruction and Development / The World Bank 1818 H Street NW Washington DC 20433 Telephone: 202-473-1000 Internet: www.worldbank.org E-mail: feedback@worldbank.org All rights reserved The findings, interpretations and conclusions expressed herein are entirely those of the author(s) and do not necessarily reflect the view of infoDev, the Donors of infoDev, the International Bank for Reconstruction and Development/The World Bank and its affiliated organizations, the Board of Executive Directors of the World Bank or the governments they represent. The World Bank cannot guarantee the accuracy of the data included in this work. 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All other queries on rights and licenses, including subsidiary rights, should be addressed to the Office of the Publisher, The World Bank, 1818 H Street NW, Washington, D.C. 20433, USA; fax: 202-522-2422; e-mail: pubrights@worldbank.org. Cover design by infoDev To cite this publication: Anius, Diana, Broadband in St Kitts and Nevis: Strength in Depth. Washington, D.C: infoDev / World Bank. Available at http://www.infodev.org/publications iii | Broadband in St. Kitts and Nevis Table of Contents List of Boxes, Figures and Tables.........................................................................................................................v Preface......................................................................................................................................................................vi Acknowledgments...............................................................................................................................................vii Abbreviations and Acronyms.............................................................................................................................viii 1 Background ................................................................................................................................................................. 1 1.1 Geography ......................................................................................................................................................... 1 1.2 History ................................................................................................................................................................ 1 1.3 Population.......................................................................................................................................................... 2 1.4 Education ........................................................................................................................................................... 2 1.5 Economy ............................................................................................................................................................ 3 1.6 Government ...................................................................................................................................................... 3 2 ICT Sector................................................................................................................................................................... 4 2.1 Policy and regulatory environment ................................................................................................................ 4 2.2 Service providers............................................................................................................................................... 5 2.3 ICT in the economy ......................................................................................................................................... 5 3 Broadband market ..................................................................................................................................................... 7 3.1 Retail services .................................................................................................................................................... 7 3.2 National and international backbones........................................................................................................... 8 3.3 Pricing................................................................................................................................................................. 9 3.4 Quality ................................................................................................................................................................ 9 4 Demand ..................................................................................................................................................................... 10 4.1 Current demand .............................................................................................................................................. 10 4.2 Computers ....................................................................................................................................................... 10 4.3 Education ......................................................................................................................................................... 10 4.4 Training ............................................................................................................................................................ 10 4.5 Universal access .............................................................................................................................................. 11 4.6 IT Business ...................................................................................................................................................... 12 4.7 Services and content....................................................................................................................................... 12 4.8 E-commerce .................................................................................................................................................... 13 4.9 E-Government ................................................................................................................................................ 14 5 Lessons learned ........................................................................................................................................................ 15 5.1 Success factors ................................................................................................................................................ 15 5.2 Challenges ........................................................................................................................................................ 16 Bibliography ....................................................................................................................................................................... 18 List of Contributors .......................................................................................................................................................... 19 iv | Broadband in St. Kitts and Nevis List of Boxes, Figures and Tables Boxes Box 4-1: PayKN ................................................................................................................................................................ 13 Figures Figure 1-1: Map of the Eastern Caribbean ..................................................................................................................... 1 Figure 1-2: Map of St. Kitts and Nevis ........................................................................................................................... 1 Figure 1-3: Adult literacy rate (% aged 15 and above), 2010 ....................................................................................... 2 Figure 3-1: Fixed broadband subscriptions, per 100 people, 2009 ............................................................................. 8 Figure 3-2: Fixed broadband subscription as % of per capita income, 2009 ............................................................ 9 Figure 3-3: Average broadband download speeds, Mbps, December 2010 .............................................................. 9 Figure 4-1: Percentage of SME’s using VoIP for international calls, 2008 ............................................................. 12 Figure 4-2: Percentage of the population using Facebook, March 2011 ................................................................. 13 Figure 4-3: UN e-government Online Service Index, 2010 ....................................................................................... 14 Tables Table 1-1: Demographic statistics, 2001 ......................................................................................................................... 2 Table 2-1: Service providers in St. Kitts and Nevis....................................................................................................... 5 Table 2-2: Telecom services sector, St. Kitts and Nevis............................................................................................... 6 Table 3-1: The Cable broadband/television subscriber data ....................................................................................... 7 Table 3-2: ADSL broadband monthly subscription, St. Kitts and Nevis, April 2011 ............................................. 9 v | Broadband in St. Kitts and Nevis Preface Access to affordable broadband has become a priority for many countries, which is perceived as important for social and economic development. The interaction of individuals, communities, and organizations with broadband has contributed to the development and enhancement of social networks, access to and generation of new knowledge, and the creation of diverse innovative processes. The World Bank commissioned this study of the Information and Communication Technology (ICT) sector and specifically broadband within the Federation of Saint Christopher and Nevis. It forms part of a series of case studies carried out to analyze broadband in a representative sample of developing economies as background research for the World Bank Broadband Strategy Toolkit. The study analyses the environment within the small island developing state that facilitated the uptake of broadband technologies and applications, to the extent that St. Kitts and Nevis has the highest fixed broadband subscription rate among all countries of the Latin America and Caribbean region, and even higher than some developed economies. This achievement can be attributed in part to the small physical size of St. Kitts and Nevis that has enabled faster rollout of the physical infrastructure, facilitated more effective marketing, and promoted maximum impact for government-led ICT initiatives. Among the Caribbean islands however smallness is certainly not unique. The study therefore explores other factors that have contributed to high broadband penetration. The phrase “strength in depth” is borrowed from the world of soccer, the most popular sport on the island. The phrase is used to underscore the point that the strength of the island’s achievement in the broadband sector, lies in its commitment to nurturing the foundational components of the broadband ecosystem. Promotion of basic education and digital literacy, building technology awareness, facilitating access to ICT, and encouragement of a competitive telecommunications environment are but a few examples of the country’s core strengths. However, as in any ecosystem, sustainability and growth can be threatened by internal weaknesses. As of the date of this report, mobile broadband has yet to be launched and the lack of appropriate legislation is holding back the development of interactive e-commerce and e-government applications. Other challenges included the high cost of services, an unstable power supply and quality of service issues. Chapter 1 of the report provides a socio-economic overview of St. Kitts and Nevis. Chapter 2 examines key policies and laws that govern the ICT sector, identifies key institutions and service providers and presents data on the size of the telecommunications market. Chapter 3 looks at the broadband market including penetration, pricing and quality. Chapter 4 reviews factors that have an impact on broadband demand. Chapter 5 summarizes the country’s success factors as well as remaining challenges impeding the realization of a sustainable broadband ecosystem. In order to provide regional context, the report provides comparative data for other Eastern Caribbean countries, specifically Dominica, Grenada, Saint Lucia, and Saint Vincent and the Grenadines. vi | Broadband in St. Kitts and Nevis Acknowledgments This report was drafted by Diana Anius based on interviews conducted in St. Kitts and Nevis between December 2010 and January 2011 as well as the documents referenced in this study. The author wishes to acknowledge the support of Ms. Cheryl Hector of the Eastern Caribbean Telecommunications Authority (ECTEL) and Mr. Christopher Herbert of the Department of Technology, Government of St. Kitts and Nevis. The report was drafted with significant contributions by Michael Minges, who directed the case studies for the Broadband Strategies Toolkit. The project was carried out under the supervision of Tim Kelly (infoDev) and Carlo Rossotto (TWICT), with the Telecommunications Management Group Inc. (USA) providing overall project coordination. Philippe Dongier, Sector Manager (TWICT) and Valerie D’Costa, Program Manager (infoDev), provide overall management guidance for the development of the toolkit. Samhir Vasdev edited the report and prepared it for publication. This case study is one of an initial series of seven that will contribute to the Broadband Strategies Toolkit, an online resource for policy-makers and regulators, especially in developing countries (see www.broadband- strategies.org).. The case studies are generously funded by the Korean Trust Fund (KTF) on Information and Communications for Development (IC4D). The KTF is a partnership between the government of the Republic of Korea and the World Bank Group whose purpose is to advance the ICT4D agenda to contribute to growth and reduce poverty in developing countries. vii | Broadband in St. Kitts and Nevis Abbreviations and Acronyms ADSL - Asymmetric Digital Subscriber Line CARICOM - Caribbean Community ECTEL - Eastern Caribbean Telecommunications Authority GDP - Gross Domestic Product GOSKN - Government of St. Kitts and Nevis GPRS - General Packet Radio Service ICT - Information and Communication Technologies ISP - Internet Service Provider Kbps - Kilobits per second LIME - Landline, Internet, Mobile, Entertainment Mbps - Megabits per second NTRC - National Telecommunications Regulatory Commission OECD - Organisation for Economic Co-operation and Development OECS - Organisation of Eastern Caribbean States SKN - St. Kitts and Nevis UNDP United Nations Development Programme USF - Universal Service Fund UWI - University of the West Indies VoIP - Voice over Internet Protocol Wi-Fi - Wireless Fidelity viii | Broadband in St. Kitts and Nevis 1 Background Kitts and Nevis are fairly easy to navigate with 1.1 Geography each island having one main road that passes The twin island Federation of Saint Kitts and through the major communities usually located on Nevis is located in the northern part of the the coastline. Leeward Islands of the Caribbean (Figures 1-1 and 1-2). Figure 1-2: Map of St. Kitts and Nevis Figure 1-1: Map of the Eastern Caribbean Source: The World Factbook. 1.2 History European settlement of St. Kitts and Nevis began in the early 17th century. In 1623 St. Kitts became Source: World Bank. the first British colony of the Caribbean region, The country has a total landmass of 267 square and was nicknamed “the mother colony of the kilometers making it the smallest independent West Indies.”1 The island repeatedly alternated country in the Western Hemisphere. St. Kitts, between British and French rule. The Treaty of formally known as Saint Christopher, is the larger Paris awarded both islands to the British in 1783. of the two islands. The island of Nevis is located In 1967 Saint Christopher-Nevis-Anguilla became southeast of St. Kitts across a two mile wide a self-governing associated state of Great Britain. channel and can be reached by ferry in 15 minutes. In 1980 Anguilla seceded and became a separate Administratively St. Kitts is divided into nine 1 The island of St. Kitts was the first on which an English parishes, and the island of Nevis into five settlement was made, and served as the base for colonization parishes. The administrative capital for both of the other Caribbean islands. Some historical texts refer to islands is Basseterre located on St. Kitts with a St. Kitts as the “mother colony”, see: J.O. Cutteridge. 1947. population of around 13,000. The capital and Geography of the West Indies and Adjacent Lands. Other texts main town of Nevis is Charlestown. Both St. refer to the island as the “cradle” of the British West Indian colonies, see: Rev. C. Jesse. 1964. Outlines of St. Lucia’s History. 1 | Broadband in St. Kitts and Nevis territory. St. Kitts and Nevis, the only federation of the economy. St. Kitts and Nevis accounted for in the Caribbean, gained independence on 19 20% of all remittances among Eastern Caribbean September 1983. In 1998, 62 per cent of Currency Union members during 1991-2009 and Nevisians voted for secession but narrowly fell they contributed 7.1% of the country’s GDP in short of the required 67 per cent. 2009.5 1.3 Population 1.4 Education The most recent estimated population was 51,970 The literacy rate for the federation is 98%, highest in 2009.2 Demographic statistics from the 2001 in the Eastern Caribbean (Figure 1-3). The Census are shown in the table below:3 implementation of universal secondary school education in the 1970s—where all final grade Table 1-1: Demographic statistics, 2001 primary school students, irrespective of ability, are Total St. Kitts Nevis transferred to a secondary school—has Population 46,325 35,217 11,108 contributed to high literacy. Households 15,680 11,848 3,832 Household Figure 1-3: Adult literacy rate (% aged 15 and above), 3.0 3.0 2.9 size 2010 Population distribution 100 76 24 Saint Kitts & Nevis 98 (%) Population Grenada 96 density (per 174 202 119 Saint Lucia 95 km2) Population Saint Vincent 88 under 20 38 40 35 Dominica 88 years (%) Source: Caricom. National Census Report: St. Kitts & Nevis. 80 85 90 95 100 The majority of the population is of African Source: United Nations Development Program. descent and the official language is English. Some There are twenty-four public primary schools and Kittitians and Nevisians also speak an English- seven public secondary schools. St. Kitts and based creole. Nevis has the best teacher to student ratios in the The federation has historically had high rates of Eastern Caribbean. emigration. This has led to a large Diaspora The Student Education Learning Fund (SELF) residing in the United States, Canada, and the provides textbooks to students at no cost and also United Kingdom. There were around 20,000 covers secondary school examination fees. people born in St. Kitts and Nevis living in those Students may withdraw from secondary school in three countries in 2000-01 or almost 40% of the the fourth form (grade 11) and enroll in a program country’s population.4 It is therefore no surprise at the National Skills Training Programme (NSTP) that remittances account for a significant portion or at the Advanced Vocational Centre (AVEC). 2 See the Caricom Regional Statistics at: http://www.caricomstats.org/Files/Databases/Population/ 5Benjamin-Mack, Seana. “Remittances Issues in the Eastern MP.htm Caribbean Currency Union 1991 to 2009” presented at the 3 Caricom. 2009. National Census Report: St. Kitts and Nevis. The World Bank, Canadian International Development Agency www.caricomstats.org (CIDA) and University of the West Indies Knowledge Sharing Forum 4 Organisation for Economic Co-operation and on Remittances, March 24-25, 2010. University of the West Development. “Country-of-birth database.” Indies, Mona Campus, Jamaica. www.oecd.org/dataoecd/18/23/34792376.xls http://go.worldbank.org/2AYU03ZUF0. 2 | Broadband in St. Kitts and Nevis Graduating secondary school students can pursue protected under the 1985 Confidential post-secondary studies at the Clarence Fitzroy Relationship Act. Bryant College located in St. Kitts or the Sixth Form College in Nevis. The two-year program There is no tax on personal income. A 17 per prepares students for the Caribbean Advanced cent Value Added Tax (VAT) was introduced in Proficiency Exam.. November 2010. The University of the West Indies (UWI) Open The IMF estimated Gross Domestic Product Campus provides distance education programs to (GDP) per capita at US$ 9,918 for 2011 (12,502 in students in St. Kitts and Nevis.6 Approximately purchasing power parity).7 130 students attend the Open Campus in St. Kitts The Federation is home to the Eastern Caribbean and 30 on Nevis with video conferencing to other Central Bank (ECCB). Established in 1985, the campus sites. The country is also home to several ECCB is responsible for the common currency offshore higher educational institutions. used on the region. Also located on St. Kitts is the Eastern Caribbean Stock Exchange (ECSE), a 1.5 Economy regional securities market established by the The economy has traditionally been agriculture- ECCB. based and particularly the production of sugar. In July 2005, after successive losses in the sugar Almost 550,000 tourists visited St. Kitts and Nevis industry due to low global prices, high production in 2009. Recent investment has fuelled growth of costs, and changes in the European Union Sugar the tourism sector with a 57 per cent increase in Protocol, the government shut down the St. Kitts visitors between 2006 and 2009.8 Sugar Manufacturing Corporation and the production of sugar for export virtually halted. 1.6 Government The Federation of St. Kitts and Nevis has a The country has since diversified into other unicameral National Assembly consisting of sectors such as light manufacturing, fishing, and eleven elected members and three senators. The non-sugar agricultural production and the services ruling Labour Party led by Dr Denzil Douglas, the sector particularly tourism and financial services. longest-serving Prime Minister among the Eastern St. Kitts has the largest electronics assembly Caribbean islands, occupies six of the seats and industry in the eastern Caribbean region. Five has been in power since 1995. electronics manufacturing companies, most The island of Nevis has its own administration, established in the Government Industrial Park, legislation and premier; three elected produce a range of electronic components for representatives from Nevis serve in the National export. Assembly. As a member of the Commonwealth, St. Kitts and Nevis has a well-developed offshore the Queen of England is the formal head of state banking and financial services sector. It is of the federation. estimated that more than 15,000 offshore companies are registered in Nevis alone where they are free from taxation and privacy is 7 International Monetary Fund (MF). World Economic Outlook Database. April 2011. 6The UWI Open Campus is an online campus with over 40 8 See “Tourism Data” on the ECCB web site at: physical locations throughout the English-speaking http://www.eccb- Caribbean. See: http://www.open.uwi.edu. centralbank.org/Statistics/index.asp#tourismdata 3 | Broadband in St. Kitts and Nevis 2 ICT Sector 2.1 Policy and regulatory The Eastern Caribbean Telecommunications environment Authority (ECTEL), established in 2000, is the joint regulatory authority for Dominica, Grenada, The National ICT Strategic Plan was published in St. Kitts and Nevis, St. Lucia, and St. Vincent and 2006 covering sector goals over the next five the Grenadines. The three executive branches of years.9 The Plan outlines a road map for the regional body are: (a) the Council of Ministers leveraging ICT for social and economic progress comprised of the five Ministers responsible for including the development of human resources, telecommunications in the respective territories; promoting the integration of technology within (b) the regional directorate headquartered in St. government, and facilitating public-private sector Lucia, acting in an advisory capacity to member partnerships. Other policies are specific to key states on regulatory issues; and (c) the National areas such as a ten-year strategic outlook for Telecommunications Regulatory Commissions integrating ICT within the educational curriculum (NTRCs) established in each member state. outlined in the 2009 White Paper on Education Development and Policy.10 The NTRC in St. Kitts and Nevis consists of five government-appointed Commissioners who are Commitment extends to the highest level of non-full time staff and the regulator’s staff headed government with the Prime Minister consistently the Director. The NTRC is mandated to monitor emphasizing the use of ICTs for socio-economic compliance of telecommunication licensees, development and to universal Internet access: manage the universal service fund, monitor anti- “…I want to emphasize the pledge of my Government that competitive practices, provide support to the Internet access must become a human right for the people of St. sector minister, approve interconnection Kitts and Nevis…every citizen of this country, every resident and agreements, and liaise with ECTEL on relevant every visitor of this country must have the right to access the telecommunications issues. Internet once they are here in St. Kitts and Nevis.”11 The Telecommunications Act of 2000 is the principal A number of institutions are involved with ICT legislation governing the sector.13 A key regulatory policy and regulation. Policy development and event was full liberalization of the implementation rests with the ministry responsible telecommunications sector in 2001. This ended for Information Technology and the exclusive rights of Cable & Wireless to operate Telecommunications. 12 telecommunications facilities and services in the ECTEL states.14 9 Government of St Kitts and Nevis. 2006. National ECTEL has drafted a regional Electronic Information and Communications Technology (ICT) Strategic Plan. http://unstats.un.org/unsd/dnss/docViewer.aspx?docID=2 Communications Bill intended to reform 297. legislation under the original Telecommunications 10 Available at: http://www.moeskn.org/index.php?option=com_docman&t Act such that all electronic communications will ask=doc_download&gid=17&Itemid=138 11 Office of the Prime Minister. St. Kitts Denzil Douglas at Universal Service Fund Launch. September 10, 2010. 13 Saint Christopher and Nevis. 2000. The Telecommunications http://www.youtube.com/watch?v=kql- Act. The Act and other relevant legislation governing the h9fjqWI&feature=youtube_gdata_player. telecom sector are available from the ECTEL web site at: 12 Currently the Ministry of Youth Empowerment, Sports, http://www.ectel.int/actsandregulations.htm Information Technology and Telecommunications and Post. 14 See the “Agreement” of April 7, 2001 between the ECTEL http://www.gov.kn/ct.asp?xItem=1813&ctNode=62&mp=1 member states and Cable & Wireless available at: . http://www.ectel.int/aboutectel_agreement.htm 4 | Broadband in St. Kitts and Nevis be covered (excluding content regulation).15 The • Wireless Ventures (Digicel), a pan- draft Bill is currently undergoing public Caribbean mobile operator, launched in 2005 consultation throughout the region. and provides service in both islands.20 • Winstreme offers fixed wireless Internet 2.2 Service providers services on the island of Nevis only. It is a privately owned company that launched in The following service providers are present in the 2007. telecommunications market in St. Kitts and Nevis: • UTS-Cariglobe (Chippie) offers mobile telecommunication services in both islands.21 • LIME (Landline, Internet, Mobile, It is a joint venture between UTS (Netherland Entertainment), formerly Cable & Wireless, Antilles) and CariGlobe (a local company) and is a regional telecommunications service launched services in 2005. provider offering mobile, fixed line, • 21st Century Telecoms was issued a license broadband, and cable television services in to provide mobile services within the both St. Kitts and Nevis and throughout the federation; however as of January 2011, the Caribbean.16 Cable & Wireless has a long company has not as yet launched its network. history in the country. St. Kitts and Nevis Telecommunications Ltd. (SKANTEL) was Table 2-1: Service providers in St. Kitts and Nevis formed in 1985 as a joint venture between Launched Services Ownership provided Cable & Wireless and the government and LIME/C&W 1985 fixed, 77% foreign; rebranded as Cable & Wireless in 1999. In mobile, 23% public 2007, the government sold its shares and broadband under an agreement made with Cable & The Cable 1984 broadband, 69% Wireless, five per cent of the shares were sold cable tv Government; via public offering to citizens, residents and 31% foreign domestic corporate entities of St. Kitts and Caribbean 2006 broadband, (move to Nevis. In 2001 Cable & Wireless was issued Cable cable tv nationalization) a 15-year non-exclusive license under the new Telecommunications Act terminating its Digicel 2005 mobile 100% foreign existing 25-year exclusive license. • The Cable offers broadband, cable television, and telephone services to consumers in St. Winstreme 2007 broadband 100% local Kitts.17 Established In 1984, The Cable, is UTS- 2005 mobile 60% foreign; partly government-owned. Cariglobe 40% local • Caribbean Cable Communications Note: The Cable operates in St. Kitts while Caribbean Cable provides telephone, cable television and and Winstreme operate in Nevis. All others operate on both broadband Internet services on the island of islands. Nevis. Established in 2006 the company is headquartered on the neighboring island of 2.3 ICT in the economy Anguilla.18 In 2009, after contentious discussions over proposed rate increases, the The telecommunications services sector was Nevis Island Administration moved towards worth EC$ 120 (US$44) million in the year ending nationalization of the company. As of May March 2009 (ECTEL 2010). It contributed about 2011 the dispute has not been resolved.19 8% to GDP, a figure that has fluctuated between 7.7% and 9.4% over the last five years (Table 2-2). 15 The draft Electronic Communications Bill is available at: http://www.ectel.int/elec_communication_bill_pr.html The telecommunications services sector directly 16 See company website at http://www.time4lime.com/kn. 17 See company website at http://www.thecable.net m_docman&task=doc_view&gid=811&Itemid=344&zoom_ 18 See company website at http://ccc2.caribcable.com/nevis highlight=nevis 19 The case was taken before the Eastern Caribbean Supreme 20 See company website at Court – see http://www.digicelstkittsandnevis.com http://www.caribbeanlawonline.com/index.php?option=co 21 See company website at http://www.uts.an 5 | Broadband in St. Kitts and Nevis employed 136 people in 2009, down sharply from the 178 in 2008 and an indication of the impact of the financial crisis. Likewise, investment in telecommunications declined dramatically between 2008 and 2009 from EC$ 23 to EC$ 8 million. Table 2-2: Telecom services sector, St. Kitts and Nevis Years ending March 2005 2006 2007 2008 2009 Telecom 98 91 123 125 120 revenues EC$ million Telecom $36 $33 $45 $46 $44 revenues US$ million Telecom 9.1% 7.7% 9.4% 9.0% 7.8% revenues as % of GDP Investment 38 23 22 23 8 EC$ million Investment $14 $8 $8 $9 $3 US$ million Direct 140 159 157 178 136 employment Note: GDP data from IMF. Converted to US$ using exchange rate of EC $2.7169 = US $1.00. Source: Adapted from ECTEL. 6 | Broadband in St. Kitts and Nevis 3 Broadband market Source: The Cable. 3.1 Retail services Four service providers offer broadband services: Caribbean Cable Communications, the sole LIME, The Cable, Caribbean Cable cable television service provider on the island of Communications, and Winstreme. The latter two Nevis, provides broadband Internet services using companies operate solely in Nevis, The Cable cable modem technology. offers service on St. Kitts and LIME provides service on both islands. Winstreme provides fixed wireless broadband service for residents of Nevis. The subscriber LIME is the only Internet service provider base is less than 200 customers (including a serving both islands. It introduced dial-up access significant number of medical students who reside in the 1990s. In 2001, Asymmetric Digital on the island). The company has installed three Subscriber Line (ADSL) service was launched. towers on the island where the customer premise Around one percent of businesses still subscribe equipment consists of an outdoor directional for dial-up Internet access primarily for the antenna to the base station. purpose of retaining prior email addresses. LIME also offers Wi-Fi through several hotspots and has As of March 2010, the number of fixed Internet installed WiMAX for rural locations in Nevis. subscribers in St. Kitts and Nevis was 14,577 of which 99% were broadband connections. This In 2003, The Cable launched cable broadband puts the fixed broadband subscription rate at 28 Internet services to subscribers in St. Kitts. The per cent. In 2009, St. Kitts and Nevis had the company has seen a gradual increase in the highest fixed broadband penetration in the Latin number of broadband subscribers to almost 4,000 America and Caribbean region and even surpassed as at the end of December 2010 (Table 3-1). The the OECD average (Figure 3-1). Cable is installing a fiber-to-the-home network in a new property development at Christophe Harbor, the first of its kind in St. Kitts. The project is due for completion at the end of 2011. Table 3-1: The Cable subscriber data Cable TV Cable TV Broadband basic Tier subscribers subscribers subscribers 1999 8,304 6,517 - 2000 8,599 7,449 - 2001 8,912 8,456 - 2002 9,076 8,728 - 2003 9,721 10,158 1,562 2004 10,016 10,586 1,805 2005 10,275 11,037 2,213 2006 10,545 11,789 2,089 2007 10,485 13,194 2,220 2008 11,238 14,942 2,906 2009 11,871 17,028 3,429 2010 11,974 17,196 3,761 7 | Broadband in St. Kitts and Nevis Figure 3-1: Fixed broadband subscriptions, per 100 enabled. The company also estimates that almost people, 2009 80 per cent of Blackberry users utilize data 0 20 40 60 80 services. Blackberry users account for Bermuda 62 approximately 30 per cent of the subscriber base. Sweden 41 In January 2011, Digicel launched its “Data Canada 30 United States 28 Bundle of Joy” package which gives non- St. Kitts and Nevis 26 BlackBerry prepaid customers with a data Japan 25 compatible handset the opportunity to purchase Australia 25 weekly, fortnightly, or monthly data packages. Malta 24 OECD 24 New Zealand 23 3.2 National and international Singapore 23 backbones Barbados 22 Both The Cable and LIME have deployed fiber Dominica 22 Grenada 13 rings around the island of St. Kitts. Nevis is St. Vincent 11 connected to St. Kitts via microwave. According Chile 10 to service providers the establishment of a Mexico 9 wireless link presented a more cost effective St. Lucia* 9 LAC option than laying fiber between the two islands. 7 In 2011 LIME applied for a license to implement Note: * 2009. Source: World Bank. a second microwave link between the two islands due to limited capacity. Towers are located on the southeast peninsula of St. Kitts offering direct Three mobile operators, LIME, Digicel, and UTS- line-of-sight to an antenna on the north end of Cariglobe (Chippie) provide mobile service. Nevis at the narrowest point separating the two LIME has the largest market share at just under islands (approximately one mile). Attenuation 50%. from factors such as the effects of severe weather In March 2009, St. Kitts and Nevis registered a and mist (due to the mountainous topography of mobile penetration rate of 148 per cent, the the island) and the passage of a cruise ship highest rate among the ECTEL member states. impacts service quality. This is up from 60% in March 2005. Prepaid Cable & Wireless (along with France Telecom and service far surpasses the number of post-paid AT&T) installed the Eastern Caribbean Fiber mobile subscriptions. System (ECFS) in 1995, an undersea system that Despite the high cellular penetration, mobile connects all of the islands of the Eastern broadband services have not been launched with Caribbean including St. Kitts and Nevis. mobile data service provided through EDGE and In 2007 Global Caribbean Network (GCN), was GPRS technologies. LIME is in the process of awarded a contract to build an undersea fiber upgrading to Enhanced Data for GSM Evolution optic cable network between Guadeloupe and (EDGE). Both Digicel and Chippie have Puerto Rico supported by financing from the deployed General Packet Radio Services (GPRS) European Union. Total overall network capacity networks. of the cable is 1.2 Tbps. The Cable leases an According to Digicel, approximately 22 per cent STM-1 (155 Mbps) from GCN. of its subscriber base use Internet services. This is Both the ECFS and GCN cables land at the same typically through mobile handsets that are data site at Lime Kiln in St. Kitts. 8 | Broadband in St. Kitts and Nevis Figure 3-2: Fixed broadband subscription as % of per 3.3 Pricing capita income, 2009 An entry-level ADSL subscription from LIME costs US$ 37 per month for a 2 Mbps Dominica 12.0 download/512 Kbps upload connection (Table 3- 2). Cable modem prices are higher; for example St. Vincent 7.9 Caribbean Cable charges US$40 for a 512 kbps St. Lucia 6.4 download subscription. Table 3-2: ADSL broadband monthly subscription, St. Grenada 6.2 Kitts and Nevis, April 2011 Down US$ Up- St. Kitts & Nevis 4.0 EC$ US$ -load per load Mbps Mbps kbps 0 5 10 15 MEGA 99 $37 2 $19 512 Source: ITU. Consumers can also access the Internet through MEGA 149 $56 3 $19 512 Wi-Fi enabled laptops or handsets. Data packages PLUS are offered through service providers Consumers MEGA 249 $93 6 $16 768 typically pay about US$ 20 per month for 25 MB MAX daily usage, and US$ 0.10 for each additional 1 MEGA MB used over this base amount. 309 $116 8 $14 1,024 EXTREME Source: LIME. 3.4 Quality Tests are not carried out by the NTRC to measure Fixed broadband prices are more affordable in St. the quality of broadband services. OOKLA Kitts and Nevis compared to other East reported that the average download speed for St. Caribbean nations (Figure 3-2). However prices Kitts and Nevis was 2.2 Mbps in December are relatively high by international standards 201023 only average when compared to other East especially when adjusted for purchasing power Caribbean countries (Figure 3-3). parity (PPP). For example the average monthly subscription price for connections below 2.5 Figure 3-3: Average broadband download speeds, Mbps, Mbps advertised download speed was USD PPP December 2010 27 in the OECD in September 2010 compared to USD PPP 46 in St. Kitts and Nevis. 22 Grenada Dominica Saint Kitts and Nevis Saint Lucia Saint Vincent 0.0 2.0 4.0 22 See: “4f. Average monthly subscription price for connections below 2.5 Mbps advertised download speed” on Source: OOKLA Net Index. the OECD Broadband statistics portal at: www.oecd.org/ sti/ict/broadband. The 2011 PPP exchange rate for St. Kitts and Nevis is from the IMF World Economic Outlook database. 23 http://www.netindex.com/ 9 | Broadband in St. Kitts and Nevis 4 Demand 4.1 Current demand going maintenance and upgrade of the equipment.25 St. Kitts and Nevis has a relatively high degree of Internet penetration. There are an estimated In line with the Prime Minister’s call for the 38,000 Internet users or almost three quarters of provision of a computer to every student of high the population at March 2009.24 Penetration has school age in order to promote digital literacy26, more than doubled since March 2002. the government launched the I-literacy one-2-one laptop initiative in 2010. During the first phase of 4.2 Computers the project (scheduled for completion in 2011), As far back as 2001, (the latest year for which data Hewlett Packard devices will be provided to fifth is available), a relatively high proportion of form secondary school students. The government households already had computers – 20 per cent has partnered with Microsoft to provide low cost on the island of Nevis and 18 per cent in St. Kitts. software on the specially designed touch-screen laptops. The government has also received In 2001 Cable & Wireless launched a bundled PC proposals from service providers for the package for consumers in order to make it easier implementation of a community wireless (Wi-Fi) for individuals to get onto the Internet. As part of network where students would have access to the package computers (with high-speed Internet broadband Internet from their respective homes access at discounted prices) could be acquired on a ‘pay-as-you-go’ basis. from the company on hire purchase. This led to an upswing in computer penetration and Secondary school students typically use the labs as according to Cable & Wireless, resulted in an part of the educational curriculum, particularly in almost 30 per cent increase in the number of preparation for the secondary school leaving Internet subscriptions. examination in Information technology. However the full integration of ICT into the teaching Another factor impacting computer ownership is curriculum remains unfulfilled. The Ministry of the exemption of customs duties on data Education has indicated that a curriculum is being processing equipment. developed which in part aims to integrate computers as teaching tools. 4.3 Education In 1998, the government embarked on a program 4.4 Training to implement computer labs in every school. The Community residents have access to ICT training program was initially targeted at secondary school through several initiatives. One focuses on adult students preparing for the school-leaving training at community centers or schools (typically examinations, but was subsequently extended to after school hours) throughout the islands. The all levels. Both LIME and The Cable offer free centers are typically outfitted through public Internet access to primary and secondary schools. private partnerships. The government typically One of the challenges to the project remains on- 25 There is a central Support Unit within the Ministry of Education for basic maintenance and troubleshooting of computer issues. However staff at the unit is limited. 26 See the Labour Party Manifesto available at http:// 24 The number of estimated Internet users is based on progressnotpromises.com/pdf/2010_Manifesto_Final_Sprea multiplying the number of subscribers by three. ds_lo_res.pdf 10 | Broadband in St. Kitts and Nevis develops the physical infrastructure, local development of e-Government services. Students businesses provide the needed hardware and of the Government Youth Empowerment software (or provide financial support), and through Skills (YES) programme have also service providers such as The Cable and LIME received certification training. provide free broadband access. The programs are designed to improve digital literacy of participants 4.5 Universal access particularly adults and seniors within rural The Universal Service Fund (USF) was established communities. by ECTEL in order to promote access to affordable telecommunications services “including Training is usually provided by community voice telephony and Internet access, as well as development officers and/or facilitated by the broadband connectivity at the community, National Skills Training Programme (NSTP).27 household and individual levels.”29 The fund is Computer training ranges from a general financed by contributions from introduction course to instruction in business telecommunications service providers. A pilot 30 application software such as QuickBooks. USF project for the disadvantaged community of According to the NSTP, demand for computer Dieppe Bay is expected to upgrade access to ICTs training with the organization was particularly high in the area’s community center (located within a during the period 1998 – 2004. A subsequent school). downturn in computer training classes is partly attributed to the provision of training by other Individuals have access to computers at entities. community centers where service providers provide broadband access at no cost. Computer The International Computer Driving License and Internet facilities are also provided in public (ICDL) is a widely used standard for assessing areas such as the Charles A. Halbert Public individuals in various computer skills including Library where broadband access is available to the word processing, spreadsheets and databases. The public at a price of about US$ 6 (fixed) and US$ 2 courses, typically four to six weeks long, are (Wi-Fi) per day. designed to provide end-users with the skills necessary for “proficient use of information and LIME has five Wi-Fi hotspots within St. Kitts communication technology.”28 In St. Kitts, ICDL with three in the Basseterre region including one training is offered by a number of organizations at Port Zanté offering free service primarily including the National ICT Centre, private targeted to arriving cruise ship passengers. Other companies, the Clarence Fitzroy Bryant College, hotspots can be found at the local airport (free and community access centers. The National ICT service), the general post office located near Port Centre estimates that on average more than 50 Zanté (housing three computers and a paid service users complete ICDL training per month. of US$4 per hour) and at most hotels (for a fee of, an average, US10 per day). The government has promoted the training of government employees for achievement of the 29 See the “Council Approved USF Regulations.” ICDL certification as a complement to further November 13, 2007. http://www.ectel.int/pdf/USF%20APPROVED%20regulati ons.pdf 27 The NSTP was launched in 1986 through a regional OECS 30 Contributions are as follows: (a) in the first year of license, project. The Programme was institutionalised in 1992 and 0.25% of gross annual revenue; (b) in the second year of falls under the Ministry of Education. See website at: license, 0.5% of gross annual revenue; and (c) from the third http://ministryofeducartionstkittsnevis.web.officelive.com/d year of license onwards, 1.0% of gross annual revenue. See: efault.aspx Telecommunications (Universal Service Fund Contribution) Order, 28 See the certification authority website at 2008. http://www.ectel.int/Telecoms%20Regulations/ http://www.ecdl.org. St.%20Kitts/Universal_Service_Fund_Order_4_of_2008.pdf. 11 | Broadband in St. Kitts and Nevis 4.6 IT Business demand for computers and broadband applications such as VoIP, instant messaging and According to a 2008 ECTEL survey of social networking. 82 businesses in St. Kitts and Nevis (ECTEL 2009), 93 per cent used the Internet. Although “…One of the things which I think prompted this (high broadband providers have installed fiber in high- uptake of computers) is the large Diaspora so persons took density areas such as Basseterre, most small advantage of tools such as MSN Messenger which was cheaper businesses indicated that an ADSL or cable than making a call...”132 modem connection is used as it was adequate for their processes and the cost of subscribing to fiber Voice over Internet Protocol (VoIP) is used was too high. extensively throughout the country as a cheap alternative to fixed telephone international calling. Young entrepreneurs have launched ICT-based Over a fifth of SMEs use VoIP for international companies offering a range of services as resellers calls, the highest rate in the region (along with St. of hardware equipment to providers of more Vincent and the Grenadines) (Figure 4-1). Many advanced software services such as online small businesses also use low cost Internet payment systems. Protocol private branch exchanges. The Small Business Development Act was passed Figure 4-1: Percentage of SME’s using VoIP for international calls, 2008 in 2009 to provide support to small and medium size enterprises including exemption from or St. Kitts 22% reduction in customs duties on imported equipment or machinery such as computers. One St. Vincent 22% priority activity identified under the Act involves Dominica 13% support for small businesses engaged in ICT St. Lucia 9% services. Grenada 9% Business process outsourcing is not extensive. 0% 5% 10% 15% 20% 25% There is one call center, Clear Harbor, located on the island of Nevis.31 Source: ECTEL, “Use of ICT by SMEs”. With little exception businesses host their servers Facebook is popular with some 21,000 users at outside of St. Kitts and Nevis. This is primarily March 2011 or almost 40% of the population. St. attributed to: (a) high costs for local dedicated Kitts and Nevis has the highest Facebook access for business and (b) the perception that the penetration in the Eastern Caribbean (Figure 4-2). quality of service for advanced services is not adequate, and (c) an unreliable electricity infrastructure exists. 4.7 Services and content St. Kitts and Nevis has a high level of international communications due to the large Diaspora and tourism. This has generated high 31 The Clear Harbor call center (with two other centers in Dominica and Grenada) provides service to external companies and employs in excess of 100 individuals on the 32Interview with Glen Phillip, Minister of Information island of Nevis. Technology and Telecommunications. 12 | Broadband in St. Kitts and Nevis Figure 4-2: Percentage of the population using information on local events, shopping, nightlife, Facebook, March 2011 accommodation and more. The one-hour St. Kitts & program has been made available online.33 38.5 Nevis Grenada 33.5 4.8 E-commerce St. Vincent 32.7 Lack of requisite legislation governing electronic transactions and consumer protection serve as an Dominica 26.9 impediment to electronic commerce. As a result, St. Lucia 26.7 there are hardly any local sites offering e- 0 20 40 60 commerce and the general population purchases products online from nearby markets such as the Source: ictDATA.org. United States rather than locally. Likewise, people abroad cannot purchase from local sites since services such as electronic hotel reservations Video conferencing facilities are used by several systems are typically outsourced to external organizations and businesses. For example the companies. Eastern Caribbean Institute of Banking (ECIB) provides professional development courses via There has been an uptake of online banking video conferencing for persons in the financial services including bill payment as most financial sector within the region. The Government institutions do not provide physical locations National ICT Centre also offers video outside of the central Basseterre or Charlestown conferencing services at reasonable rates to the areas. general public. Box 4-1: PayKN One of the most popular local sites is Kittitian entrepreneur Dion Benjamin started SKNVibes.com, launched by a group of six PayKN, the first centralized online payment Kittitians in 2002. The site serves as a community service in St. Kitts and Nevis. The company formally launched services in November 2009. portal targeted to local residents as well as In addition to online bill payment services Nevisians and Kittitians of the Diaspora. A host (e.g., electricity, water, and phone), the of residential, community, and government company also provides services such as an information on St. Kitts and Nevis is accessible online loan payment mechanism for students from the portal including news, music, classified attending university outside of St. Kitts to ads, streaming videos, as well as services such as make loan repayments at local banks. On email. In 2003, the company signed up with the St. average more than 50 payment transactions Kitts and Nevis National Bank as its merchant are processed per week. bank for online payment services such as top-up According to Benjamin: “Unfortunately we payments for mobile phones and community have not been able to convince banks of the services such as online obituary notices. necessity of the service…(in the case of one According to Greg Gilbert, the company’s CEO, bank) we physically have to cross the street to the site registers more than two million visitors the bank in order to make a loan payment for per month and its popularity has led some students who have made their online payment government agencies to block access to it by through us.” employees. The company employs nine people. The St. Kitts and Nevis Visitor Channel launched in 2008 and offers residents and visitors 33 http://www.stkittsvisitorchannel.com/ 13 | Broadband in St. Kitts and Nevis 4.9 E-Government agency sites. The lack of requisite legislation (such as an Electronic Transactions Act), low demand Most government departments are connected to a by the general public, and perceived costs for wide area network via a fiber optic network online payment services are factors that contribute installed by The Cable. The establishment of the to the lack of online transactional services. The National Information and Communication government has placed emphasis on improved Technology (ICT) Centre has centralized a service delivery by providing training to employees number of services including hardware to enhance their ICT capabilities. maintenance and hosting of government applications such as the email system. The Centre The United Nations e-Government framework is also home to a small business incubator for measures the delivery of online services.35 The start-up ICT-based businesses. rank of St. Kitts and Nevis is below other ECTEL members, ranking only above Dominica, (Figure The government has several computerized back 4-5). This reflects the lack of interactive e- office applications. The Health Information Government services in St. Kitts and Nevis. System provides health providers online access to patient records at the primary hospital. It is Figure 4-3: UN e-government Online Service Index, 2010 expected that the system will be rolled out to other healthcare facilities such as community Grenada 0.187 health centers. Other services include the Vehicle St. Vincent 0.130 Registration System and the Human Resources application. These applications are accessible by St. Lucia 0.111 the relevant government departments to facilitate St. Kitts 0.102 service delivery. Dominica 0.051 The web site of the office of the Prime Minister34 0.00 0.05 0.10 0.15 0.20 has a wide range of resources including access to Source: UN E-Government Development Database. audio files of the weekly “Ask the Prime Minister” radio program, downloadable government application forms, and video files of events/speeches of the Prime Minister (also available on the Office’s YouTube channel). The Prime Minister has also committed to strengthening links to Kittitians in the Diaspora and utilizes technology through bi-monthly postings of his “Video Messages for the Diaspora” that are also available on the official Facebook page of the Office of the Prime Minister. Transactional e-Government services are not 35 The Online Service Index is based upon a four-stage widely available for the public. The central model, which is ascending in nature and builds upon the government portal (www.gov.kn) is primarily previous level of sophistication of a state’s online presence. The model defines four stages of E-Government informational in nature, with some application Development according to scale of progressively forms available for download from individual sophisticated citizen services. As countries progress, they are ranked higher in the Model according to a numerical classification corresponding to the four stages. See: 34 http://www.cuopm.org http://www2.unpan.org/egovkb/ 14 | Broadband in St. Kitts and Nevis 5 Lessons learned The success of St. Kitts and Nevis in the uptake Education of fixed broadband serves as an example for other developing countries and small island developing At 98%, St. Kitts and Nevis has one of the highest states. Some of this success can be attributed to literacy rates in the region. Universal secondary geography: the small land area and population of education has contributed to this achievement. the islands contributed to faster rollout of The availability of computers at all primary and infrastructure, wider reach for marketing, and secondary schools and initiatives for teaching maximum impact of ICT policy initiatives. In adults how to use ICTs have boosted digital addition broadband is more affordable than other literacy, raising awareness and driving broadband countries in the Caribbean due to high per capita demand. income coupled with lower broadband prices. Diaspora However geography and income alone do not The large number of Kittitians and Nevisians explain the broadband success of St. Kitts and abroad contributes to demand for international Nevis. This chapter reviews various supportive communications. This has stimulated usage of factors stimulating broadband growth in the broadband services such as VoIP, instant country. It also identifies bottlenecks impeding the messaging and social networking. realization of a sustainable broadband ecosystem. Access 5.1 Success factors Competition Even prior to the advent of high speed Internet, citizens had access to other ICTs to the extent Unlike other islands, more than one service that the creation of a Universal Service Fund more provider existed in the market prior to full than a decade later served to enhance existing telecommunications liberalization giving the informal universal access policies already in place. country a head start over other Caribbean This included ongoing development of countries. After liberalization in 2001, new community centers outfitted with computer labs entrants in the broadband market provided yet to provide access and training to rural additional alternatives to the incumbent. communities and equipping every primary and secondary school with computers. Regional Coordination The Government of St. Kitts and Nevis promoted As a member of the regional regulatory agency, and secured funding for initiatives such as the ECTEL, St. Kitts and Nevis has benefitted from construction of community access centers and mutual efforts for reform of the installation of computer labs within schools. The telecommunications sector. Examples include goal of the recently launched I-literacy is to development of harmonized policies which facilitate access to laptops by students within the ushered in liberalization of the sector in 2002, school and home environment; it is anticipated joint agreements with the incumbent service that the presence of the technology within the provider Cable & Wireless which ended its home will promote awareness by other members exclusivity in the market and negotiations with of the household. Exemption of customs duties foreign investors which has led to the introduction on computer equipment has also been a boost to of a second submarine cable system. the sector. The Government National ICT Centre 15 | Broadband in St. Kitts and Nevis houses a small business incubator providing following challenges need to be overcome to facilities such as access to computers and ensure a sustainable broadband ecosystem. broadband for small start-up enterprises. Broadband prices are a concern. Competition Government as leader among service providers has reduced the cost of broadband. However, they are more than one and The Prime Minister of St. Kitts and Nevis has half times greater on a purchasing power basis continuously emphasized the role of the Internet than broadband prices in the OECD. in supporting the economic development goals of the country. The government has promoted Political uncertainty impacts network demand for services both by residents and the investment affecting service quality and the Diaspora through a range of multimedia content competitive environment. Government ownership available for download from the government’s of The Cable and the ongoing dispute over site, as well as availability of content on social Caribbean Cable Communications are but two networks such as Facebook and YouTube. The examples. government has also invested in ICT training for its employees. Quality of service requirements for mass-market broadband has not been addressed. Greater Public-private partnerships confidence in the reliability of the network would enhance the types of services offered by Partnerships between the government and private businesses. In the case of Nevis, the use of radio sectors have gone a long way in developing links for backbone connectivity impacts service computer literacy levels among the general quality. population and in ensuring that persons even from a very young age had access to the Internet. The regulatory agency (NTRC) suffers from a Nearly every government-led ICT initiative has lack of resources, impeding its capability. For received support from the private sector. For example it lacks a website and is unable to fulfill example, service providers have ensured every its mandate of administering the .KN domain. school and public community center receive free Perceived weaknesses of the agency may serve as a Internet access. In training initiatives the private deterrent to investors. sector has provided equipment at little or no cost to government. The policy and regulatory framework needs continuous review as the environment changes. 5.2 Challenges Legislation currently lags market developments. Laws covering data protection, privacy and While St. Kitts and Nevis has been successful in electronic transactions are yet to be implemented. boosting fixed broadband penetration, this This is impeding the development of e- accomplishment is riddled by contradictions. The commerce and e-government applications. country has the highest fixed broadband penetration in Latin America and the Caribbean Implementation of national policy by a central but has yet to launch mobile broadband. St. Kitts agency responsible for its execution is necessary and Nevis has the highest Facebook penetration for the government to achieve its long-term in the Eastern Caribbean but the UN ranks its broadband strategies. Strengthening oversight is online e-government level as the second lowest in necessary in order to bring about change, that region. These contradictions serve as particularly for monitoring quality of service, and impediments to effective broadband growth. The ensuring that costs for Internet access are 16 | Broadband in St. Kitts and Nevis reasonable. A balance between sector regulation The establishment of an Internet Exchange and stimulating broadband development is crucial. point (IXP) would facilitate better optimization of international bandwidth usage since most local Policies concerning innovation are needed in Internet traffic is routed to North America. order to facilitate greater demand for new and Discussions at the national level concerning the advanced services; this includes facilitating establishment of a domestic IXP have so far not support for sectors that are dependent on been fruitful. broadband such as “software-as-a-service” companies. The enhancement of public private Mobile broadband has yet to be deployed. One partnerships to involve higher education or reason is that most of the island of St. Kitts is well tertiary institutions may encourage wider research served by fixed line connections. However the and development activities. Implementation of availability of mobile broadband can serve to education policies that serve to promote the use expand inter-modal competition, provide more of the Internet as a tool for educational delivery convenience for consumers and increase the types and for fostering innovation can also support of services offered by local businesses. more advanced activities. Reliability of the supporting infrastructure, The country domain name (.KN) is important particularly electricity has limited exploitation of in branding St. Kitts and Nevis. The resource is the network for advanced services such as the currently under utilized as a marketing tool that provision of hosting facilities. would stimulate additional demand for new and advanced services at the local level. 17 | Broadband in St. Kitts and Nevis Bibliography Carana Corporation. 2002. St. Kitts and Nevis: ICT Assessment. http://www.carana.com/ecict/ECICT/reports& deliverables.htm#Task14c. Eastern Caribbean Telecommunications Authority (ECTEL). 2009. Use of ICT by Small and Medium Enterprises (SMEs) in the ECTEL Member States. http://www.ectel.int. —. 2010. Annual Telecommunications Sector Review: Period ended March 2009. http://www.ectel.int/. Government of St Kitts and Nevis. 2006. National Information and Communications Technology (ICT) Strategic Plan. November. http://unstats.un.org/unsd/dnss/docViewer.aspx?docID=2297. Kim, Yongsoo, Kelly, Tim and Raja, Siddhartha. 2010. Building broadband: Strategies and policies for the developing world. World Bank. http://blogs.worldbank.org/ic4d/node/514. Ministry of Education. 2009. White Paper on Education Development and Policy 2009 - 2019. http://www.moeskn.org/ index.php?option=com_docman&task=doc_download&gid=17&Itemid=138. 18 | Broadband in St. Kitts and Nevis List of Contributors The following persons were interviewed in the preparation of this report: Caribbean Governance Consultants Inc. - Natalie John Eastern Caribbean Institute of Banking and - Analdo Bailey, Director Financial Services (ECIB) eCaribbean - Rodney Browne - Johnathan Bass, Corporate Secretary/Financial Controller LIME (formerly Cable & Wireless) Lionel Evans, Technology Manager Avenelle Warde - Nigel Carty, Minister Ministry of Education Qinton Morton, Education Planner Ministry of Health - Elvis Newton, Permanent Secretary - Rosalyn Hazelle, Permanent Secretary Ministry of Industry and Commerce Andrew Satney, Trade Officer Ministry of Information Technology and - Glenn Phillip, Minister Telecommunications Ministry of Tourism - Diannille Taylor - Christopher Herbert, ICT Development National ICT Centre Coordinator/Acting Director National Skills Training Programme - June James, Director National Telecommunications Regulatory - Patricia Mourillon, Director Commission PayKN - Dion Benjamin, CEO - Greg Gilbert, Chief Executive Officer SknVibes.com Stachio Williams, Chief Financial Officer St. Kitts and Nevis Chamber of Commerce - Howard Richardson St. Kitts and Nevis Hotel and Tourism - Michael Head, Manager Association St. Kitts and Nevis National Development Bank - Lenworth Harris St. Kitts Investment Promotion Agency - Statistics Department, Government of St. Kitts - Ms Beverly Harris, Director The Cable - William Ewing The IT Facility - Russell Williams University of the West Indies Open Campus - Susan Owen, Head UTS-CariGlobe (Chippie) - Ken Hodge, Manager Winstreme Ltd - Steele Douglas Wireless Ventures/Digicel - Sean Latty 19 | Broadband in St. Kitts and Nevis About infoDev infoDev is a global development financing program among international development agencies, coordinated and served by an expert Secretariat housed at the World Bank Group, one of its key donors and founders. It acts as a neutral convener of dialogue—and as a coordinator of joint action among bilateral and multilateral donors—supporting global sharing of information on ICT for development (ICT4D), and helping to reduce duplication of efforts and investments. infoDev also forms partnerships with public and private sector organizations who are innovators in the field of ICT4D. infoDev is housed in the Financial and Private Sector Development (FPD) Vice Presidency of the World Bank Group. For additional information about this study or more general information on infoDev, please visit www.infodev.org/publications. 20 | Broadband in St. Kitts and Nevis i ii © 2011 The International Bank for Reconstruction and Development / The World Bank 1818 H Street NW Washington DC 20433 Telephone: 202-473-1000 Internet: www.worldbank.org E-mail: feedback@worldbank.org All rights reserved The findings, interpretations and conclusions expressed herein are entirely those of the author(s) and do not necessarily reflect the view of infoDev, the Donors of infoDev, the International Bank for Reconstruction and Development/The World Bank and its affiliated organizations, the Board of Executive Directors of the World Bank or the governments they represent. The World Bank cannot guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply on the part of the World Bank any judgment of the legal status of any territory or the endorsement or acceptance of such boundaries. Rights and Permissions The material in this publication is copyrighted. Copying and/or transmitting portions or all of this work without permission may be a violation of applicable law. The International Bank for Reconstruction and Development/The World Bank encourages dissemination of its work and will normally grant permission to reproduce portions of the work promptly. For permission to photocopy or reprint any part of this work, please send a request with complete information to infoDev Communications & Publications Department; 2121 Pennsylvania Avenue, NW; Mailstop F 5P-503, Washington, D.C. 20433, USA; telephone 202-458-4070; Internet: www.infodev.org; E-mail: info@infodev.org. All other queries on rights and licenses, including subsidiary rights, should be addressed to the Office of the Publisher, The World Bank, 1818 H Street NW, Washington, D.C. 20433, USA; fax: 202-522-2422; e-mail: pubrights@worldbank.org. Cover design by infoDev To cite this publication: Telli, Cagatay, 2011. Broadband in Turkey: Compare To What? Washington, D.C: infoDev / World Bank. Available at http://www.broadband-toolkit.org/. iii Table of Contents Executive Summary……………………………………………………………………………… 7 1. Turkish ICT Sector: A General Assessment…………………………………………………… 8 1.1 Background……………………………………………………………………………… 8 1.2 ICT Sector………………………………………………………………………………. 10 2. Turkey’s Broadband Ecosystem: A General Assessment……………………………………… 13 2.1 Synopsis of Near History: Evolution of Markets and Public Reform……………………… 13 2.2 Institution Setup: Current Policy, Legal and Regulatory Framework……………………… 14 2.3 Infrastructure Development……………………………………………………………… 17 2.3.1 Broadband penetration……………………………………………………………. 18 2.3.2 Broadband technologies…………………………………………………………… 21 2.3.2.1 Backbone network…………………………………………………………… 21 2.3.2.2 Local access technologies…………………………………………………… 21 2.3.3 Prices……………………………………………………………………………… 26 3. Applications…………………………………………………………………………………… 30 3.1 Government……………………………………………………………………………… 30 3.2 Electronic Commerce…………………………………………………………………… 34 3.3 Other Applications: The Rise of Social Media…………………………………………… 36 4. Usage and Diffusion…………………………………………………………………………… 39 4.1 People…………………………………………………………………………………… 39 4.2 Business…………………………………………………………………………………… 41 5. Conclusions…………………………………………………………………………………… 44 5.1 The Likely Impacts of High Bandwidth Networks on Turkish Economy………………… 44 5.2 Factors Contributing to Turkey’s Broadband Development……………………………… 45 5.2.1 Lessons learned……………………………………………………………………. 45 6. References……………………………………………………………………………………… 48 6.1 Online Resources………………………………………………………………………. 49 iv List of Figures, Tables and Boxes Figure 1-1: Geographic position of Turkey……………………………………………………… 8 Figure 1-2: Global Competitiveness Index, Turkey, 2010………………………………………… 8 Figure 1-3: Fastest growing economies in ICT spending, 2003-2009……………………………… 10 Figure 1-4: The composition of ICT spending in Turkish economy, 2009……………………… 11 Figure 1-5: Evolution of ICT foreign trade in Turkish economy, US$ million, 2004-2009……… 12 Figure 2-1: Fixed broadband penetration gap with selected countries, 2010……………………… 18 Figure 2-2: Fixed broadband (per 100 inhabitants), net increase, June 2009-2010………………… 19 Figure 2-3: Selected penetration indicators, percent……………………………………………… 19 Figure 2-4: Technological configuration of broadband infrastructure as percent of shares, 2010… 22 Figure 2-5: Breakdown of fixed broadband subscribers by access speeds, 2010………………… 22 Figure 2-6: Shares of technology in total broadband subscriptions, percent, 2010………………… 25 Figure 2-7: Percentage of fibre connections in total broadband, June 2010……………………… 25 Figure 2-8: Broadband average monthly subscription price, Oct 2009, USD PPP………………… 27 Figure 3-1: Number of public sector owned websites…………………………………………… 31 Figure 3-2: The maturity level of selected public services, percent, 2007………………………… 31 Figure 3-3: Ownership of websites, by employment size of enterprises, 2009…………………… 34 Figure 3-4: E-commerce activities of enterprises by sector of activity, 2007……………………… 34 Figure 3-5: The benefits reported through e-commerce, 2008…………………………………… 35 Figure 3-6: The Turkish social media landscape, 2010…………………………………………… 38 Figure 4-1: Household broadband penetration, as percent……………………………………… 39 Figure 4-2: Internet usage by place of connection, male and female, 2009……………………… 40 Figure 4-3: Broadband usage indicators by enterprises, as percent……………………………… 42 Figure 4-4: Internet usage in enterprises by purpose, 2007-2009………………………………… 42 Figure 5-1: Baseline and broadband enhanced growth scenarios, real GDP 2009=100…………… 45 Figure 5-2: Turkey connectivity performance by scorecard component, 2010…………………… 46 Table 2-1: Major institutions and establishments in ICT sector………………………………… 15 Table 2-2: Broadband indicators, Turkey, 2010………………………………………………… 20 Table 2-3: Subscription indicators by technology……………………………………………… 21 Table 2-4: Prices of selected broadband service packages in Turkey, March 2011………………… 28 Table 3-1: Major e-government applications in Turkey…………………………………………… 32 Table 3-2: Top cities on Facebook……………………………………………………………… 37 Table 4-1: Internet activities of individuals who have accessed the Internet in the last 3 months… 41 Box 2-1: Recent strategies and initiatives related to e-government and broadband ecosystem…… 17 Box 2-2: Leveling the field: The battle of broadband in national market………………………… 23 v Acknowledgments The author of this report is Çagatay Telli from the State Planning Organization (SPO) of Turkey, with guidance from Michael Minges, who directed the case studies for the Broadband Strategies Toolkit. This case study was commissioned by Tim Kelly (infoDev) and Carlo Rossotto (ICT Sector Unit of the World Bank Group). Thanks are due to Samhir Vasdev for editing and preparing the document for publication. A number of people contributed to this study by participating in expert meetings and interviews and providing up to date information on the national broadband ecosystem, its relative strengths and challenges faced for future growth. Most notably Ertugrul Karacuha (Vice Chairman, Information and Communication Technologies Authority), Ahmet Hasanbeseoglu (Regional Director, Cisco), Ugur Terzioglu (Manager, Cisco), Ahmet Kaplan (Vice President, TURKSAT), Pasa Yasar (President, ENVITEL), Ramazan Altınok (Head, E-Government Group, Prime Minister’s Office), Emin Sadık Aydın (Head of Information Society Division of SPO), and Furkan Civelek (Planning Expert, Information Society Division of SPO) commented on the draft report. This case study is one of an initial series of seven that will contribute to the Broadband Strategies Toolkit, an online resource for policy-makers and regulators, especially in developing countries (see www.broadband-toolkit.org). The Toolkit and its case studies are generously funded by the Korean Trust Fund (KTF) on Information and Communications for Development (IC4D). The KTF is a partnership between the government of the Republic of Korea and the World Bank Group whose purpose is to advance the ICT4D agenda to contribute to growth and reduce poverty in developing countries. The KTF, as well as Philippe Dongier, Sector Manager (TWICT) and Valerie D‘Costa, Program Manager (infoDev), are owed the author‘s gratitude for their support and guidance on this project. vi Executive Summary Turkey has throughout history been prominent foreign policy resulting in large sums of overseas as a center of commerce because of its land capital flowing into the country. connections to the continents of Europe, Asia Communications, software and hardware and Africa and the sea surrounding it on three segments of ICT industries have expanded sides An Organization for Economic rapidly. This has included significant investment Cooperation OECD member, it has been in upgrading mobile networks to broadband. awaiting European Union (EU) membership[U1] Broadband mobile networks were only launched since 1987. As an upper-middle-income in 2009, yet by the end of 2010 around a quarter economy, Turkey suffers from comparison with of the population were capable of accessing these mainly high-income groupings. Its fixed high-speed wireless services. broadband penetration stood at 9.4 subscriptions per 100 inhabitants in June 2010 The Turkish population has also reacted to compared to the OECD average of 24.2 and social networking in a major way. The country is 34% of Turkish homes had a broadband the fourth largest Facebook market in the world. connection compared to the EU average of 61% Turkey’s own social media content is growing in 2010. and Turkish web sites are becoming more popular and increasingly diversified. These statistics disguise the fact that, compared to other countries in its income group, Turkey is Nevertheless the country continues to face doing relatively well. E-government initiatives economic and social barriers to effectively have been a major driving force for development absorb broadband technologies on a large scale of the broadband ecosystem. This has triggered and better utilize them for leveraging overall demand by enterprises in the ICT sector and economic competitiveness. Fixed broadband motivated citizens to increase Internet usage. competition is limited and dominated by ADSL Ensuring a shared vision among political leaders technology. ICT skill gaps among small and and technocrats has also been an important medium enterprises and the less educated need factor in pushing e-government programs. to be adequately addressed with participation of Political leaders saw e-government as a central private initiatives. The lack of a suitable national instrument that would support public reforms accounting framework for more detailed analysis and larger changes in the political system. A hinders international benchmarking in ICTs and central organizational structure was formulated innovation. to develop strategies and put public money into If Turkey can overcome these barriers, the the pipeline for a set of strategically important results could be considerable. According to the projects with high value and high transaction. National Broadband Vision study, broadband The high tempo growth of Turkish economy in could boost economic growth by 0.8-1.7 the last decade is another supportive factor. The percentage points per year. This economic various market-oriented reforms have been momentum enabled by an enhanced broadband implemented complemented with a proactive ecosystem would create 180,000-380,000 new jobs each year. 7 1 Turkish ICT Sector: A General Assessment 1.1 Background Geographically, the Republic of Turkey is located at a point connecting the continents of Europe, Asia and Africa. Because of its geographical location the mainland of Anatolia possesses an extraordinary geo-strategic value. In the past, it was an important expansion post to many great political powers including Hatti, Hittite, Ancient Greek, Urartu, Phrygia, Ionia, Persia, Roman, Byzantine, Arab, Seljuk and Ottoman. It has also been prominent as a center of commerce because of its land connections to three continents and the sea surrounding it on three sides (Figure 1-1). Modern Turkey was founded in 1923 by Mustafa Figure 1-1: Geographic position of Turkey Kemal following the collapse of the 600-year-old Ottoman Empire. After a period of one-party introduce substantial political and economic rule, since the 1950 election, Turkey has reforms. After intense bargaining, EU experienced a democratic political system based membership negotiations were launched in on multi-party politics. Turkey became a October 2005. European Union (EU) candidate country in 1999 and, in line with requirements, went on to Turkey has two levels of government and several types of administrations: National administration Figure 1-2: Global Competitiveness Index, Turkey, 2010 (Source: Global Competitiveness Index, 2010) 8 with ministries and agencies at the central Foreign Direct Investment (FDI) flows.3 government level and field offices in provinces According to the figures the Turkish economy and districts. Local governments include 3,225 started to absorb growing amounts of foreign municipalities in areas with dense populations capital and it ranks before many similar and 81 special provincial administrations with developing economies such as Chile, Greece, jurisdiction beyond municipal boundaries. In the Korea, and Israel. The average level of FDI last few years Turkey developed another inflows was around just US$ 100 million organizational structure to initiate a more throughout the 1990s. Today with an annual diversified and flexible decision making system average of around US$ 15-20 billion, Turkey is to support endogenous growth of its economic the 15th most attractive destination for FDI in regions by introducing Development Agencies. the world. 4 Currently 26 Development Agencies have From a traditional agricultural and low value become fully operational. added industrial configuration Turkey has With an increasingly urban population of around transformed into a dynamic and sophisticated 75 million1 and a GDP per capita of around economy. While services account the larger share US$10,000 in purchasing power parity, the in national value added with 43%, industry Turkish economy is largely developed. claims 11%, and trade, transport and Benefiting from both a capable and young labor communication sectors each have 8% shares. force2 and diverse natural resources the country Agriculture accounts for only 5% of total is among the world's leading producers of production. agricultural products; textiles; motor vehicles, After its recent aggressive growth records, ships and other transportation equipment; Turkey’s GDP doubled reaching above USD construction materials; consumer electronics and 650 billion in 5 years. Following the recent home appliances. Turkey has a rapidly growing economic downturn Turkish economy proved to private sector not only in industrial activities but be resilient and showed a strong rebound. also in competitive services such as banking, According to estimates GDP growth in 2010 transport, tourism and communications. should be very strong, and be probably among Following the financial crisis in 2001 major the highest in the OECD and EU areas at an economic reforms were launched and annual rate between 7-8%. 5 successfully fulfilled. The monetary, fiscal and A number of challenges loom in the horizon. In financial reforms implemented in the 2000s a world of highly connected economic and made Turkey’s macroeconomic framework very political interdependences and growing robust. The economy rebounded rapidly and uncertainty, raising overall productivity and economic restructuring was transformed into competitiveness is the key to Turkey’s economic strong and sustained growth. This profile of success in the long run. For sustained economic macroeconomic path was confirmed by performance, major elements of the policy mix impressive figures: real GDP growth leading the are maintaining the predictability of OECD and Euro area, inflation rates coming macroeconomic policies, reducing capital and down to single digit levels sharply, strong fiscal employment costs, supporting employment adjustment and large inflows of capital rushing levels, and financing external imbalances with into the country. resilient resources such as FDI. Internalization and underlying dynamism of the economy can be best reflected by the fact that Turkey has lately become a major destination for 3 For more information on general investment climate in Turkey also see The World Bank (2010), Turkey Investment Climate Assessment: From Crisis to Private 1 More than 70 percent of the Turkish population is Sector Growth. This report draws on the analysis of firm- concentrated in urban areas and Turkey ranks among the level survey data collected during April 2008-January 2009, leading countries in terms of urbanization rate. Source: supplemented by other sources, to provide a Turkish Statistical Institute, comprehensive and up-to-date description of the http://www.turkstat.gov.tr/PreTablo.do?tb_id=39&ust_id investment climate facing Turkish firms of all size classes, =11 and OECD (2010) Factbook: Economic, including the impact of government regulations. Environmental and Social Statistics, Paris. 4 UNCTAD (2008-2010), World Investment Prospects 2 The median age of the country is 28.8 indicating a Survey. concentrated structure of young population in the total. 5 According to the January edition of the Global Economic More than 60 percent of total population is below 35 age. Prospects 2011 report prepared by the World Bank, Source: Turkish Statistics Yearbook (2009), Address Based Turkey’s gross domestic product (GDP) growth is expected Population Registration System Population Census Results. to register 8.1 percent for 2010. 9 Figure 1-3: Fastest growing economies in ICT spending, 2003-2009 (Source: OECD database, Economist Intelligence Unit and EITO. The aggregate for Turkey is calculated for the period 2005-2009) The Turkish economy needs microeconomic 1.2 ICT Sector reforms to upgrade its productive potential. Information and Communications Technologies In the Turkish case, the lack of a suitable (ICT) have shown positive and significant effects national accounting framework for more detailed on economic growth and are recognized to be analysis hinders international benchmarking in among most critical general purpose most emerging policy areas notably ICT and technologies which have great transformative innovation. There still remains a persistent potentials. In the current economic information gap on this issue following many environment, policies and investment that reforms in the national statistical system. The promote and accelerate ICT adoption can have Turkish national accounts do not provide an important role to play and improve the information about the size of ICT sector in country’s competitiveness. terms of value added or jobs. Nevertheless utilizing other indicators, it is estimated that According to Global Competitiveness Index, Turkey’s ICT sector accounts for a lower share (2010), Turkish economy is positioned between of economic production activities compared to innovation and efficiency driven stages of advanced industrial economies but has a very development (Figure 1-2). It is an open market robust growth potential. economy in structural transition facing fierce competition in traditional sectors like textile, Market size and ICT spending are among the agriculture, light machinery and automobiles available indicators for comparison. Turkey was from other developing countries like China and placed 13th in the list of highest spending India. Raising productivity and supporting countries within the OECD in 2007 with innovation in these sectors will be of critical spending of USD 36 billion or 6.8% when importance to keep its competitiveness intact. compared to GDP. Various institutions put Therefore in order to make a successful leap forward similar estimates concerning the Turkish from an efficiency-drive to an innovation-driven ICT sector. However estimates vary and a economy, the Turkish economy needs to commonly agreed figure is still unavailable. In upgrade traditional sectors and harness the the absence of official statistics analysts transformative potential of ICTs. frequently rely on business intelligence data provided by different consulting companies. 10 Figure 1-4: The composition of ICT spending in Turkish economy, 2009 (Source: SPO 2010, Information Society Statistics, Ankara; based on data provided by IDC. Even the State Planning Organization (SPO) higher in European markets, being 519 per 1,000 uses these estimates in its official documents and people in Italy, 725 in Germany and 766 in reports. According to the SPO the size of the France. The temporary value-added tax (VAT) ICT market in Turkey was around US$ 20-25 reduction on consumer durables, introduced in billion in 2009. 6 Turkey ranks among the highest March 2009 in the Turkish market to counter growth countries in ICT spending (Figure 1-3). the impact of the financial crisis, augmented the sales of PCs and laptops in 2009.9 The Turkish ICT sector has a great potential for growth. The ICT market experienced double- Leading multinational enterprises, such as IBM, digit growth over the last ten years since the Hewlett-Packard, Dell, Siemens, Cisco, and financial crisis the country experienced in 2001, NCR, have considerable shares in domestic IT but the share of software and services is market. These firms typically operate through significantly behind Western markets, indicating their local subsidiaries, which assemble PCs and substantial growth potential. 7 other IT hardware components imported from overseas. Sales are realized both domestically The Turkish ICT market is dominated by and for export to the EU, Eastern and Central communications, constituting approximately 70 Europe, and the Middle East. percent of the total and the whole IT market, which constitutes the hardware and software Computer services and computer software have categories, comprising the other 30 percent.8 a much lesser role in the Turkish economy because of lower business use of ICTs and the The computer hardware segment is the second rapid growth of mobile and other consumer largest part of the ICT sector with a 25% share communication services. In contrast more following communications. The penetration rate of personal computers (PCs) has grown rapidly and reached levels of 253 per 1,000 people in 2009 from 92 per 1,000 in 2006. This figure is 9 Economist Intelligence Unit (2010). The reduction in 6 SPO (2010), Information Society Statistics, Ankara value added tax (VAT) on consumer durables, introduced (Turkish). in March 2009 to combat the impact of the financial crisis, 7 Turkey Invest’s ICT sector information at boosted PC and laptop sales. The number of PCs per 100 http://www.invest.gov.tr/en-US/sectors/Pages/ICT.aspx population is expected to rise to 38 per 100 population as 8 SPO (2010) Information Society Statistics, Ankara. of 2014. 11 Figure 1-5: Evolution of ICT foreign trade in Turkish economy, US$ million, 2004-2009 (Source: Undersecretariat of Foreign Trade –Export Promotion Center, IGEME) sophisticated economies have a somewhat larger electronics and computer hardware. In 2009, share of computer services and software. 10 while the Turkish economy exported US$ 472 million computer hardware products it imported While being relatively less important and at its US$ 4,444 million of the same goods leading to a early stage of progress, the software industry is US$ 3,972 million trade imbalance. among the fastest developing and most promising sectors in the country. Over the last The ICT sector plays a significant role in terms two decades, the sector has gained great of employment creation opportunities and momentum in terms of capacity, production and generation of R&D demand in Turkish usage. According to some analysts, the software economy. According to the latest available data, industry accounts for a much larger share in the direct employment by the ICT sector was total IT market than previously thought. It is 160,644 in 2006. 12 Including employed people estimated that national software market reached with ICT skills by other industries, a broader US$ 1.6 billion in 2009 with double-digit growth definition of “ICT related employment” over the last years.11 indicates the sector provides much larger opportunities for job creation: the percentage Turkey has rapidly developed its international share of ICT related employment in total linkages in the ICT sector. Export and import employment was above 10 percent in 2006. A volumes in the ICT sector have reached to US$ considerable and steady increase in this figure 3.27 billion and US$ 9.05 billion respectively as has been observed over the recent years and it of 2009 (Figure 1-5). In terms of international reached to 10.8 percent of total employment as trade balance, the Turkish economy is positioned of 2009. to be a net importer of ICT goods and services due to mainly being a large market for consumer 10 For further reading on market segments of ICT spending please see OECD (2008), Information Technology Outlook, Paris, pp. 56. 11 Source: Interpromedya (2009), ICT Market Research. 12Source: TURKSTAT Annual Industry and Service Please see www.interpromedya.com.tr Statistics Survey 12 2 Turkey’s Broadband Ecosystem: A General Assessment This section develops a country snapshot of the investments in wire line at US$ 560 national broadband ecosystem in a historical, million per year and wire line institutional and economic context. Different penetration reached 28 percent. There aspects of national broadband adoption will be were several unsuccessful attempts to covered such as infrastructure, services, market privatize Turk Telekom. environment, applications and usage. 4. Preparation for liberalization (2000 to 2004): This period is characterized by 2.1 Synopsis of Recent Evolution of maturity in wire line and decelerated Markets and Public Sector growth and increased competition in Reform wireless. Two GSM 1800 MHz licenses Reform and structural change in the overall ICT were auctioned in May 2000, at a and broadband sector started early with the most substantially higher fee (close to US$ 3 important segment of telecommunications. The billion including VAT, compared to growth and evolution of the Turkish telecom US$ 500 million for the initial licenses industry in the last 30 years had five separate bought in 1999) to end the revenue- phases: sharing agreements. The Telecommunications Law in 2000 established an independent regulator, 1. Infrastructure pickup (1980 to 1984): the Information and Communication Network infrastructure buildup was a Technologies Authority (ICTA) and priority and public investments played a predetermined full market liberalization major role in this period. As a result, the starting from January 2004. number of access lines grew by 14 5. The period of post liberalization and percent on average; however, despite broadband revolution (2004-...): The the acceleration in telecom investments government maintained its full support and growth in the subscriber base, long for liberalization and privatization of the waiting lines remained during this time. telecommunications sector. The 2. Fast wire line growth (1985 to 1994): ownership of Telsim, a privately owned The late 1980s was a period of ongoing telecom operator, was transferred to the intense infrastructure investment and government after its owners were fast growth. During this period, the convicted of fraud. The operator was government’s annual afterwards privatized in an international telecommunications investments tender won by Vodafone in December averaged US$ 656 million and access 2005. 3G mobile licenses were awarded lines grew by an average of 20 percent to all three operators, Turkcell, annually. Also, the PTT (“Posta Telefon Vodafone and Avea, in 2008 and Telegraf”) was split into postal services services began in 2009. This period is and Turk Telekom. Two GSM 900 also characterized with increasing licenses were granted in 1993 to competition, declining fixed line Turkcell and Telsim, with revenue penetration and falling voice revenues. sharing agreements with Turk Telekom. Broadband, both fixed and mobile, have become a major source of revenue and a 3. Wireless revolution (1995 to 1999): The general technological platform for late 1990s were characterized by overall communication services. explosive growth in wireless phone subscriptions. In 2000, annual As a result of structural policies in order to subscription growth exceeded 100 liberalize the market competition flourished, new percent, and wireless phone penetration entrants emerged as strong operators and reached 25 percent. Average annual foreign capital flew into the country.13 investment in the wireless subsector was more than US$ 1 billion. During this period, the government continued 13 The incumbent operator of the telecommunication sector is Turk Telekom. The legal monopoly of Turk Telekom in 13 Nonetheless a distinction should be made 2.2 Institutional Setup: Current between fixed and mobile segments of Policy, Legal and Regulatory communications. As to the national market, the Framework fixed and mobile subsectors have radically Table 2-1 exhibits major institutions and dissimilar configurations in terms of establishments that are involved in the ICT and productivity, liberalization, and ownership. broadband sector. The State Planning Mobile is more competitive and productive, with Organization (SPO) is the leading institution a more advanced regulatory structure. On the regarding government policies and strategies for other hand, in the fixed subsector, productivity the overall ICT sector. It prepares pivotal is relatively low.14 national strategies and programs such as As observed in many other developed and development plans, economic programs and saturated markets, fixed-line penetration is in sector strategies and action plans. SPO is also continuous decline since its peak period of 2001- involved in resource allocation to e-government 2004. Consequently, the penetration rate is down projects and applications and has access to to 23.3 percent in 2009, from around 28 percent private sector organizations through various in 2004. The penetration is low compared to EU mechanisms. The Office of the Prime Minister countries, for example 37 percent in France, 43 has lately become a significant coordinating and percent in Germany, 46 percent in Greece and a consulting body in terms of e-government 31 percent in Hungary.15 The Turkish mobile initiatives. In regards to ICT related research and telecommunications segment has achieved a determining the national agenda for general considerable growth with a share of 60 percent science and technology policies the Scientific within total sector revenue in 2008 and is and Technological Research Council expected to continue growing. Mobile number (TUBITAK) is the main body. portability (MNP), launched in November 2008, The Ministry of Transport and Communication as well as 3G mobile services introduced in July (MoTC) is responsible for sector oversight in the 2009, have accelerated the competition between provision of public services including the three market players. information and communications to the end Analysts forecast mobile virtual network users. The MoTC is also the top official body on operators (MVNO) are also expected to start issues of safety, quality, standardization and operating in the market along with the three balanced development of the communications mobile operators. Mobile-phone subscribers are infrastructure. The Information and Communications expected to grow at an annual rate of 5.5 percent Technologies Authority (ICTA), founded in 2000, between 2010 and 2014, following a fall of 0.5 has the overall regulatory responsibility over percent in 2009. This will increase the mobile- communications sector. phone penetration rate in Turkey to about 113 A number of non-governmental organizations percent in 2014, similar to most EU countries, are also involved in the general direction and where penetration rates are generally around structure of the ICT sector. The most influential 100-120 percent. establishments include the Turkish Informatics Association (TBD), Informatics Sector Association (TUBIDER) and Turkish Informatics Industry Association (TUBISAD). Turkey’s public sector has a tradition of passing legislation rather than using secondary regulations to interpret basic laws. In an attempt the field of fixed line telephone services ended in 2004 and the sector was opened to full competition. Since then, many to liberalize communications, to regulate operators entered the sector to operate in the field of fixed provision, diffusion and usage of information line telephone services. 55% of the public shares in Turk and enable e-transformation different legislation Telekom were privatized in 2005. As regards to mobile was enacted throughout the 2000s. As to the subsector services started as early as 1994 and currently three operators, namely Turkcell, Vodafone, and Avea, are legal framework in effect (or pending) the operating in the field of mobile communication. following documents constitute the fundamental 14 McKinsey Global Institute (2003), Turkey: Making the architecture for the nation: Productivity and Growth Breakthrough 15 According to the analysts the outlook for fixed-line telephone penetration does not look promising. Fixed-line penetration is expected to decline to 19 telephone main lines per 100 people by 2014. 14 Institutions Abbreviations Functions Web pages Office of the Prime Minister coordinates numerous e-government projects, gives advisory services to Office of the Prime Minister NA NA implementing agencies, encourages the adoption of ICT by public institutions. MoTC is to provide the production and the control of quality, balanced, safe, environmental friendly, fair Ministry of Transport and Communication MoTC and economic transport, information and communication services for all users. www.ubak.gov.tr SPO provides general vision and strategies including ICT sector, integrates these specific visions into The State Planning Organization SPO broader economic programs and coordinates the implementation process. SPO also approves public investment projects including ICT and e-government applications. www.spo.gov.tr BTK prepares plans in telecommunication sector according to Wireless, Telephone and Telgraph Law . Information and Communication Technologies Authority BTK Then BTK presents the plans to MoTC. BTK also regulates and audits tellecommunication market. www.tk.gov.tr Turksat A.S. is the only satellite operator company in Turkey. Turksat manages and operates three satellites International Satellite and Cable Operator TURKSAT (Turksat 1C, Turksat 2A, Turksat 3A) and provides all types of satellite communications. www.turksat.com.tr The Scientific and Technological Research Council of Turkey (TÜBİTAK) is the leading agency for The Scientific and Technological Research Council of Turkey TUBITAK management, funding and conduct of research in Turkey. It was established in 1963 with a mission to advance science and technology, conduct research and support Turkish researchers. www.tubitak.gov.tr TBD is a non governmental organization w hich was established in 1971 to expand Informatics Culture by Turkish Informatics Association TBD members. www.tbd.org.tr TUBIDER IT Sector Association was founded in November in 1999 so as to protect rights and interests of the IT companies operating in the informatic sector and to ensure vocational regulations are implemented. Informatics Sector Association TUBIDER TUBIDER continues its operations having reached to 800 registered members and more than 1500 applicants. www.tubider.org.tr Established in 1979, TUBISAD is the largest non-governmental organization of the Turkish private ICT sector, including industries and services, with a representation base of 95 % through its direct membership. TUBISAD has a group of members comprising of almost 180 leading ICT companies of which Turkish Informatics Industry Association TUBISAD are Software Developers, Hardware Manufacturers, Hardware and Software Distributors, Telecommunication Companies, System Integrators, Local Subsidiaries of IT and Communication multinational companies and/ or Consultants. www.tubisad.org.tr General Directorate of Postage and Telegraph Organization PTT Postage and telegraph services are operated by General Directorate of PTT. www.ptt.gov.tr Table 2-1: Major institutions and establishments in ICT sector 15 • In the field of Information Society: of the first organized action in the Right to Information Law (2003), public sector. However the succession Inclusion of cybercrime in the Criminal of governments; high inflation and Code (2004), Electronic Signature Law recession; and political and economic (2004), Amendments in the Intellectual instability prevented much Property Rights Law, Universal Service implementation from taking place. Law (2005), Law No. 5651 on regulating • The era of e-government (2000-2010): broadcast in Internet and combating Political stability with Development and crimes committed through such Justice Party rule following 2002 and broadcast (2007), Electronic negotiation process with the EU helped Communications Law (2008), and government agencies to devise more secondary legislation on integrated and organized frameworks telecommunications. for action which included active participation of private sector and non- governmental organizations. The E- • In the field of IT and e-government: Transformation Project and the Public Procurement Law (2008), Census Information Society Action Plan are Services Law, Law No.5942 good examples of this period. The amendments in the Traffic Law overall goal in these documents was No.2918, Circulars regarding the defined as promoting Information payment of taxes online, Draft Data Society polices to increase Turkey’s Protection and Privacy Law (pending in competitiveness. A further goal was to the Parliament), e-Commerce studies move from labor-intensive production regarding the harmonization of 2000/31 to a higher-value-added production and EC, and Draft law covering partial from providing a source of low-cost amendments for various e-government labor to a highly educated workforce in services.16 a knowledge based economy. However Box 2-1 gives a quick snapshot of major national going beyond rhetoric, the real focus strategies and initiatives targeting e- was on implementing e-government transformation in the public sector and applications and demand aggregation broadband adoption at large. Evolution of policies rather than promoting e- public policies with regard to Internet based commerce and the digital economy. technologies and e-transformation can be • Beyond e-government (2010-…): With analyzed under four distinct periods: increasing diffusion of ICTs into • Data processing and computerization business applications and government (1970-1990): During this period the operations, there are now new signals focus of public policy was mainly on calling for a shift in public policies. automating back-office functions, such Growing businesses are in clear need of as processing of the census and taxes. accelerated ICT adoption to leverage their competitive power. The high level • Building basic ICT capabilities (1990- of investment in e-government 2000): In the 1990s, there emerged an applications is clearly just one effort to provide basic ICT facilities and component of modernizing the public capabilities from a modernization sector. To better harness the perspective of the government sector. transformative potential of ICTs The “Turkey: Informatics and government agencies are now starting to Economic Modernization” project of look beyond e-government. The the World Bank in 1993 was an initiator National Vision for Broadband Strategy in this sense. In the second half of and updating studies of the Information 1990s the National Informatics Society Strategy provide good Infrastructure Main Plan of the Ministry illustrations of this process. of Transportation was an early example 16For a more detailed discussion please see OECD (2007) E Government Studies: Turkey, Paris. 16 • “Turkey: Informatics and Economic Modernization” report was prepared by the World Bank in 1993. • The Ministry of Transportation published “the National Informatics Infrastructure Main Plan” (TUENA) in 1998. The plan aimed at developing policy actions and strategies for enabling transition to an Information Society. The Internet Advisory Council and The E-Commerce Coordination Council were established in the same year. • Turkey joined the eEurope+ Initiative, together with other EU candidate countries, in June 2001. Soon after, Turkey started the eTurkey Initiative, which includes the same goals as eEurope+. • A new government of the Justice and Development Party (AKP) took office on 18 November 2002. The Urgent Action Plan (UAP) was developed. This plan included the foundation of the e-Transformation Turkey Project. The Project initiated in February 2003 with Prime Ministry Circular. The State Planning Organization (SPO) was assigned to co- ordinate the e-Transformation Turkey Project. To realize the stated objectives and to ensure the success of e-Tr, a new co-ordination unit, the Information Society Division, was established in SPO in March 2003. • Within the framework of e-TR two action plans were executed: Short Term Action Plan (STAP) with 73 actions (2003-2004) (completion rate: 47%), 2005 Action Plan with 50 actions (2005) (completion rate: 40%) • Information Society Strategy (2006-2010) and Action Plan were developed by SPO and took effect by a High Planning Council decision on 11 July 2006. A new institutional structure was formed by introducing e-Transformation Turkey Executive Board, e- Transformation Leaders and an Advisory Board. • Prime Minister’s Office prepared the countries first National Broadband Vision in cooperation with relevant stakeholders and participation with private sector. The National Broadband Vision under three versions (Turkish, English and Arabic) is to be published before end March 2011. • SPO commenced studies to update its Information Society Strategy and Action Plan to finalize before end of 2011, and decided to arrange a separate chapter on broadband ecosystem. Box 2-1: Recent strategies and initiatives related to e-government and broadband ecosystem (Source: Interviews with Dr. Ramazan Altınok, Dr. Ertugrul Karacuha, Emin Sadık Aydın, Furkan Civelek, Ahmet Hasanbeseoglu and Ugur Terzioglu). Turkey faces a new window of opportunity with flourish rapidly, providing good infrastructural regard to upgrading competition and capacity has been a key policy concern among productivity by means of better ICT adoption. government officials. Evaluating infrastructure Promoting and creating a viable broadband developments require analysts to monitor a ecosystem is the key to success. The country can number of indicators at the same time since any either let the market determine the pace of single dimension will not be sufficient to provide development or promote a more rapid a complete picture. development of broadband infrastructure, as has Broadband is typically defined as a “high-speed been done in advanced countries. Defining, communications network” that offers internet monitoring, and promoting the broadband connectivity with download speeds of at least ecosystem with effective means is an important 256 kbit/s. 17 This definition based on the area where more focus should be devoted. minimum level of speed is a matter of debate though it is clear that broadband technologies 2.3 Infrastructure Development One of the fundamental aspects of broadband ecosystems is broadband infrastructure. As 17 http://www.oecd.org/document/46/0,3343,en_ broadband technologies and applications 2649_34225_39575598_1_1_1_1,00.html 17 are significantly different from dial-up lines in Studies indicate that, though the relationship is terms of functioning. No distinct definition for not necessarily casual, per capita income is broadband exists in Turkey. correlated to fixed broadband penetration with a significant correlation coefficient of 0.70. Since Three basic criteria are incorporated to provide the Turkish economy has depicted a strong an integrated picture of Turkish broadband rebound in the post crisis environment and development: Penetration, technologies and medium to long-term outlook is promising, prices. A benchmarking technique is utilized in rising per capita income levels should establish a order to obtain a better picture of the relative major driver force for broadband infrastructure performance of national broadband capacity development. both across countries as well as over time. In isolation, there is a tendency to view national Turkey faces a challenge in order to catch up growth rates as high, since, as with any new with OECD members in broadband technology, growth is often in the double digits. technologies. Despite growth in broadband infrastructure, when compared to advanced 2.3.1 Broadband penetration countries, Turkey has recorded somewhat poor Overall performance in making broadband an performance and has not been able to close the essential part of daily life has been uneven and broadband gap. As of the second quarter of subject to significant variations among nations. 2010, in terms of fixed broadband technologies The divide in performance of countries is best the leading countries reached penetration levels reflected by the concept of broadband penetration above 35 percent while Turkey managed only a gap. The broadband gap is defined as the 9.4 percent subscription based penetration rate. discrepancy between benchmark countries and that of host country in terms of adoption of Turkey’s fixed broadband growth rate is lagging broadband technologies generally measured in the OECD area. During 2010 Turkish fixed household or population penetration. In the case broadband growth was 0.83 percent compared of Turkey, there is a significant fixed broadband to the OECD average of 1.72 percent (Figure gap as compared to other OECD members 2-2. When compared to major developing (Figure 2-1). economies, Turkish broadband growth is considerably lower; for instance India is A number of factors are important in expanding its broadband capacity with a growth determining penetration rates but as a general of 62 per cent in 2010. observation countries with relatively high fixed broadband penetration rates tend to have Nevertheless the fixed broadband penetration relatively higher per capita GDP and well rate in Turkey still exceeds some European developed communications infrastructure.18 Broadband gap among selected countries and Turkey through, June 35 France 30 Germany 25 United Kingdom 20 Canada 15 United States 10 Japan 5 Turkey 0 Italy Figure 2-1: Fixed broadband penetration gap with selected countries, 2010 Source: OECD broadband portal and author’s own calculations) OECD (2008), Broadband Growth and Policies in 18 OECD Countries, Paris. 18 5 4 3 OECD net increase 2 1 0 -1 -2 -3 Figure 2-2: Fixed broadband (per 100 inhabitants), net increase, June (2009-2010) (Source: OECD) Fixed Line Mobile Fixed Broadband 100 90 80 70 60 50 40 30 20 10 0 2002 2003 2004 2005 2006 2007 2008 2009 Figure 2-3: Selected penetration indicators, per 100 inhabitants (source: author) countries such as Poland, Italy, Bulgaria and in Turkey are expected to create opportunities Romania, and is very close to the rates in for the broadband market.19 Portugal, Hungary, Spain and Estonia. On the Turkey’s relatively well-developed mobile other hand, the personal computer (PC) network has a penetration level around 85 penetration level in Turkey in 2009 was only percent and provides another means for about 25.3 percent, compared to 77 percent in broadband access (Figure 2-3). Wireless the UK. Since broadband usage depends on PC broadband has shown a significant expansion penetration, increasing PC usage and ownership 19 Economist Intelligence Unit, 2010. 19 Penetration Item Subscriptions (per 100 Comment people) Fixed and mobile through data Total broadband 8,516,898 11.6 cards Fixed broadband 7,068,878 9.6 ICTA. ADSL, Cable modem, FTTP ICTA. Technical ability to access mobile broadband without 3G subscriptions 19,400,000 26.3 consideration of whether actively using to access Internet Mobile broadband 1,448,020 2.0 ICTA data cards % of households Households with Turkstat computer - Desktop 33.8 Turkstat - Portable 16.8 Turkstat Households with 41.6 Turkstat access to the Internet Households with broadband access to 34 Eurostat the Internet - of which DSL 30.5 Turkstat Table 2-2: Broadband indicators, Turkey, 2010 (Source: Adapted from ICTA, Turkstat, Eurostat) (note: Subscription penetration calculated based on population of 73,722,988 reported by Turkstat at December 31 2010) following the decision of Turkish government to profits.20 There has been a considerable growth issue 3G licenses during November 2008, in the investments to mobile subsector and more making the market an appealing area for future importantly telecommunication operators have investment. Since then 3G mobile Internet changed their strategy significantly by allocating subscriptions using data cards have grown at a increasingly far more resources to mobile rapid pace and as of end 2010 reached 1.5 investments. Building up of 3G communication million subscriptions (total 3G subscriptions infrastructures constitutes a determining factor reached 19.3 million as of December 2010 for this shift in corporate strategies. according to ICTA). The annual rate of growth Experiences in many countries show that in this segment of broadband was 265 percent governments should leave the choice of between 2009 and 2010. As a result mobile technology and infrastructure expansion as broadband is growing much faster than fixed much as possible to market forces while broadband subscriptions (27 percent annual promoting a level playing field for different growth as of 2010). Total fixed and mobile technologies. Turkey is implementing a policy of broadband through data card subscriptions reached 8.5 million by the end of 2010. A saturated voice market with declining revenues 20 The revenues from broadband access services provided has motivated operators to rely on mobile from the fixed network are rapidly increasing. Parallel with broadband network investments for optimizing the decrease in the number of fixed line telephone subscribers, the revenues from these services decreased by 17.5% between 2006 and 2009 and the revenues of mobile telephone services increased by 24.4% during the same period. 20 Table 2-3: Subscription indicators by technology (Source: ICTA) increased competition through the privatization considerable internal changes as users upgrade of its incumbent telecom operator (55% was their connections with faster speeds. This sold to the private sector in August 2005) and section helps to illuminate Turkish broadband implementing rules to increase competition such development from a technological perspective. as providing competitors access to telephone lines.21 Yet this policy was not transformed into 2.3.2.1 Backbone network increased competition and a high rate of growth Until recently there have been two main in broadband infrastructure. Alternative technologies or platforms over which broadband operators accounting for only 7 percent, the services have been delivered to consumers. The level of competition in fixed broadband access is first is Digital Subscriber Line (DSL) which still very limited.22 entails upgrading the legacy public switched As the National Broadband Vision (2010-2023) telephone network (PSTN). The second highlights, if Turkey wants to develop its platform consists of the cable-modem broadband ecosystem rapidly and close the technology, which entails upgrading the cable-tv broadband penetration gap with advanced network. economies the government should follow an integrated and strategic approach in terms of 2.3.2.2 Local access technologies broadband policy. 23 Waiting for growth in There has been an impressive shift away from household demand for high-speed Internet dial-up Internet connections to broadband. In access to encourage the development of 2005, dial-up connections still accounted for 40 broadband will take time. The public sector per cent of fixed Internet connections but had should consider taking a more pronounced role already fallen to just 10 percent by 2010. in stimulating the development of broadband In Turkey, xDSL is the most widely used infrastructure and using this capacity for technology accounting for 94 per cent of modernizing the public sector. broadband subscribers.24 While 3.9 percent of 2.3.2 Broadband technologies the subscribers use cable networks and 2 percent Penetration data does not deliver enough of subscribers have fiber technologies for information about the quality improvements in broadband access the number of xDSL the broadband infrastructure. While the growth subscribers has touched to 6.6 million by end of rate is slowing down there may still be 2010. When compared to EU countries Turkish broadband is relatively far more concentrated on conventional technologies like xDSL. 21 In March 2010, Oger Telecom declared its interest in acquiring an additional share of the Government's stake in TT. The Turkish Government plans to divest a further 15- 20 per cent of its stake via an initial public offering. The remaining 15 per cent stake in the operator is already listed on the Turkish stock exchange. 22 Source: SPO (2010) Information Society Statistics. 23 Office of the Prime Minister (2010) National Broadband ICTA (2009), Electronic Communication Sector in 24 Vision, Forthcoming. Turkey, Market Statistics Report, February 2010, p. 20 21 Turkey EU ,100 ,94 ,90 ,79 ,80 ,70 ,60 ,50 ,40 ,30 ,20 ,15 ,10 ,4 ,2 ,2 ,4 ,1 ,0 xDSL Cable Fiber Other Figure 2-4: Technological configuration of broadband infrastructure, as percentage shares, 2010 (Source: author) Figure 2-5: Breakdown of fixed broadband subscribers by access speeds, 2010 According to the recent data there has been a percent) have an 8 Mbps connection. The share rapid shift away from lower speed connections.25 of the subscribers who have 1 Mbps connections The great majority of ADSL subscribers (64 has decreased dramatically from 42% to 26% in just six months of 2010. 25Source: Information and Communication Technologies Authority (2010), Communications Market Report, Ankara (In Turkish). 22 The incumbent Turk Telekom (TT) provides landline, mobile and Internet services. It launched ADSL services in 2003, and currently offers Internet services in selected regions through its subsidiary TTnet. In 2005 in a drive for privatization, the government sold a 55 per cent stake of TT to the Saudi-owned Oger Group. In March 2010, Oger Telecom declared its interest in acquiring an additional share of the Government's stake in TT. The Turkish Government plans to divest a further 15-20 per cent of its stake via an initial public offering. The remaining 15 per cent stake in the operator is already listed on the Turkish stock exchange. One of the key benefits of TT’s privatization is the fact that it has lost the special status of a state-owned company and as a result is obliged to follow the same regulations as any other Turkish telecoms operator. TT is likely to remain aggressive within the telecoms marketplace and in the regulatory process as it tries to maintain its leading position. Thus, the low level of competition in the broadband internet is partly due to the strategic behavior of Turk Telekom to prevent the entry of alternative Internet service providers. In most countries incumbent operators such as Turk Telekom have been under the regulatory obligation of allowing new entrants to use the existing network to provide their own DSL service In a landmark decision taken in November 2008, the Competition Authority has imposed a fine of 12.4 million TL (about €6.2 million) on Turk Telekom for abusing its dominance in the wholesale broadband Internet market through price squeeze in the retail Internet market. In its decision, the Competition Board stated that Turk Telekom and its Internet subsidiary TTNet endured operating without profits for long periods of time and implemented campaigns that would not cover losses in reasonable amounts of time and that these strategies were executed in order to monopolize the sector. In a recent decision the Competition Authority stated that Türk Telekom should provide naked DSL services. Provision of naked DSL means that Turk Telekom can no longer bundle voice and data services together and that the subscriber can subscribe to DSL services alone, without having to pay for voice services as well. In recent years Turksat with its UYDUNET cable services has increased its market share by winning some 274 thousand broadband customers as of 2010. However since the cable TV infrastructure is operational mostly in urban areas and lacking somewhat more effective business models the company has not made a major breakthrough in the domestic market. Another striking development was the introduction of 3G services which had a significant impact on the broadband sector. The three mobile operators, Turkcell, Avea and Vodafone, are trying to find new sources of revenue in anticipation of the difficulties associated with increasing subscriber numbers in the saturating market. All three won 3G licences in December 2008 and launched 3G services at the end of July 2009. Avea allocated TRY 1 billion to be spent mostly on 3G network development during 2009. Vodafone followed suit with a TRY 1.3 billion investment allocation. At the end of December 2010, there were 1,448,020 mobile broadband subscribers, showing a 265 per cent growth over the last 12 months. At the end of 2010, the number of customers on 3G networks reached 19.4 million With the emergence of alternative network technologies TT is now under pressure for adopting a more business oriented strategy rather than enjoying its domination in the fixed market. TT introduced its new Internet speed package days before 2011 which enables speeds of up to 32 Mbps with VDSL2 and up to 8 Mbps through ADSL. TT shall begin offering packages with speeds of up to 50 Mbps and 100 Mbps with VDSL2 technology, and shall increase the speed up to 16 Mbps with ADSL2+. TT will need to work hard to retain its market dominance however, as mobile operator Turkcell is investing in considerable fibre infrastructure through its subsidiary Superonline. Vodafone Turkey also bought a major alternative operator in late 2009. Another point is that EU candidacy is prompting Turkey’s telecoms regulator to strengthen the regulation of the sector and curtail TT’s monopolistic powers. Box 2-2: Leveling the field: The battle of broadband in national market (Source: Atiyas Izak (2010) Regulation and Competition in the Telecommunications Industry: An Update; and interviews with Dr. Ramazan Altınok, Dr. Ertugrul Karacuha, Emin Sadık Aydın, Furkan Civelek, Ahmet Hasanbeseoglu and Ugur Terzioglu) 23 Turk Telecom is leading provider of DSL and and became operational by July 2009. Since then owns all of fixed telephone infrastructure (16 mobile broadband subscriptions recorded an million connections in 2010). As of 2009 the explosive expansion. With some 1.45 million share of alternative operators reached to 6.3%. subscriptions (December 2010) and a growth Compared to the previous year, alternative rate of 265 percent, mobile broadband holds operators’ subscriber number increased by 29%. great promise for Turkey, particularly given the Currently two types of Local Loop Unbundling limited competition on the fixed market. Mobile (LLU) namely ‘full access’ and ‘shared access’ broadband provided over the UMTS platform have been implemented in Turkey. 163 central with HSPA extensions came relatively late to offices have been opened to access of alternative Turkey. The 3G market is benefiting from the operators by the end of 2009 under the LLU deployment of HSPA technology and by the regulations of the Authority. Currently introduction of new smartphones. Growth has alternative operators have technical access to been dramatic and mobile broadband accounted almost 7 million PSTN and 2.6 million ADSL for 17% of all broadband subscriptions by the subscribers via the above mentioned 163 central end of 2010. offices. Besides LLU, operators can offer Though the level of competition in fixed broadband Internet access services to their broadband is limited compared to more customers using Turk Telekom’s other wholesale advanced economies, with a broader definition broadband access services such as xDSL simple of broadband including the mobile segment, resale and xDSL bit-stream access (BSA) which Turk Telekom as the incumbent operator is enable ISPs to access the fixed broadband losing its market share rapidly. TT’s broadband network at different levels. Some promotional market domination has been somewhat campaigns including LLU in the above challenged by mobile operators’ (Turkcell, Avea mentioned wholesale access services have been and Vodafone) success in targeting mobile approved by the Authority upon Turk Telekom’s broadband customers and partly due to increases proposal in 2009. in cable and fiber subscriptions. TTNet’s market Co-location areas and problems encountered at share in the broadly defined broadband market central offices opened to access have been was down from 93% to 71% since early 2009. By observed within the central office surveys carried contrast the market share of mobile broadband out in June. Moreover the outdoor DSLAM operators grew explosively up to 17% following implementations of the incumbent operator are the opening of 3G services in the country. It is also observed. estimated that mobile broadband subscribers will occupy an increasingly prominent place in In accordance with the relevant legislation and Turkey’s broadband sector. These are broadband regulations, a Reference xDSL Resale Offer has customers who use devices such as netbooks, been offered to the Authority by Turk Telekom smartphones and USB sticks to connect to the at the end of June 2009. The public consultation Internet wirelessly via a high-speed (3G/HSPA) process regarding to the draft offer has been network. The share of cable network operator completed and approval procedure of the Turksat has also augmented from 1.3 % to 3.2 % reference offer is ongoing. Besides, some new during the last two years and fiber connections re-sale tariffs proposed by Turk Telekom have expanded their share from 1% to 1.8 % since been included in the existing offer upon early 2010 (Figure 2-6). approval by the Authority. In this context, ADSL 2 Mbit/s with 4 GB quota, ADSL 8 Turksat provides both satellite and cable Mbit/s unlimited, MEB ADSL 2 Mbit/s, 4 television services. It has around 1.2 million Mbit/s unlimited, ADSL up to 8 Mbit/s cable television subscribers.26 Turksat has unlimited, with 4 GB and 6 GB quota, ADSL upgraded its networks and made cable 512 Kbit/s with 512 MB quota and ADSL2+ 16 broadband services available to the majority of Mbit/s unlimited resale tariffs have been homes in urban areas. Nonetheless the cable approved in 2009 and included in Turk Telekom network is in its takeoff phase and needs an Reference xDSL Resale Offer. effective management model for further expansion. The Turksat “Uydunet” service Mobile broadband offers a competitive provides its subscribers with broadband Internet alternative to fixed broadband. Turkcell, Avea access through its cable infrastructure at speeds and Vodafone, the three operators in mobile segment had authorization from the government to provide 3G services as of December 2008, 26 http://www.turksat.com.tr/english/v2/cable-services 24 xDSL (TTNet) xDSL Other Cable (Turksat) Mobile Fiber Other Figure 2-6: Shares of technology in total broadband subscriptions, percent, 2010 Japan Korea Slovak Republic Sweden Norway Denmark OECD Czech Republic Hungary Iceland United States Portugal Netherlands Italy Poland Turkey Switzerland Finland Germany Ireland 0% 10% 20% 30% 40% 50% 60% Figure 2-7: Percentage of fibre connections in total broadband, June 2010 (Source: OECD) 25 ranging from 1 Mbps to 20 Mbps. One challenge is proposing to build its own network for for expanding cable broadband access is that exchanging data. most TV subscribers in Turkey have a The lack of a complete and strategic approach preference for satellite delivery (some 10 million would impair this great opportunity. There are satellite dishes in mid-June 2010).27 signs of a better understanding emerging in Fiber networks are ideal because the capacity is government circles. The National Broadband much higher than traditional copper lines and Vision has urgently called on the public and relatively easy to expand once the fiber is in private sectors for the development of a holistic place simply by adding additional lasers to a line. government approach to broadband. SPO is When compared to advanced Asian and getting ready to update the nation’s Information European economies Turkey lags in fiber Society Strategy and disclosed publicly that it broadband penetration (Figure 2-7). However shall prepare a separate chapter on broadband. A the recent expansion in fiber subscriptions is more organized approach should prepare for very promising and it indicates the demand for harder policy designs to broadband challenges high bandwidth network access could possibly and ensure competition in the national be ready in the country. During 2010, the share broadband market since it is the best option and of fiber subscriptions in the total broadband the main driver of continuous improvements. market reached 1.8 percent. The Turkish government should also ensure a In terms of technology deployment, though more effective regulative approach for there have been outstanding market broadening competition in the broadband developments that reflect the overall potential in market. The development of competition in demand and supply sides, the majority of broadband has been extremely slow, primarily Turkish broadband infrastructure is based on because the Ministry of Transport and the traditional forms of connectivity devices which Information and Telecommunication do not allow high bandwidth data services such Technologies Authority have been slow in as advanced e-health and multichannel adopting, implementing and enforcing the television. Turkey shifted from a dial up network necessary secondary legislation. Analysts argue structure to a broadband dominated one at a that Turk Telekom’s influence on the Ministry very rapid pace. Turkey’s fiber Internet and the Information and Telecommunication backbone provides for high-speed connections, Technologies Authority’s lack of full but this has not translated to a high number of independence from the Ministry are to a large broadband users. extent responsible for this state of affairs. In the long run the leading policy challenge for 2.3.3 Prices the government would be facilitating the Prices are a crucial indicator in evaluating the development of high speed broadband networks state of broadband development in any given most notably fiber. High-speed broadband has country. Analysis of prices, the level of service, strategic importance and should be promoted. and the range of choice available to users, can Much as traffic expands to fill roadway capacity help inform questions about the take-up and use after the building of superhighways, having more of broadband services as well as in assessing how broadband capacity will likely facilitate the competitive broadband access is in individual delivery of government e-services, provide a markets. While there is still not enough data to foundation for e-government in whole sectors of systematically examine price and performance government, and stimulate the development of changes, the trend in prices is very much e-business. Besides the recent rapid shift into downward; and the trend in performance is high bandwidth subscriptions and explosive upward. Competition is the main driver of growth in mobile and fiber segments indicate improvements in price and performance. that the future demand for broadband ecosystems will be strong. Turkish universities International comparison suggests that prices of have already developed their own broadband broadband services in Turkey are among the network, as has the National Adjudication highest in OECD and EU economic areas. The Network Project (UYAP). The e-health initiative average broadband monthly price per advertised Mbit/s in Turkey is about 40 percent higher than the OECD average. When prices are corrected for purchasing power parity, prices in Turkey are 27http://www.eutelsat.com/products/broadcast- the highest (). Turkey is also lagging behind in audience.html 26 high-speed connectivity prices. Prices in Turkey Mbps going from US$ 69 per month with are relatively cheaper for low speed connections unlimited data transfer and decreasing prices for and relatively more expensive for high-speed more limited speeds and data cap options. connections. Among independent ISPs offering broadband Presenting the latest situation as of March 2011, Internet services, Superonline provides DSL and Table 2-2 confirms that high prices and fiber Internet access with different speed affordability are among main concerns in options. The baseline starts with a 1 Mbps speed Turkish broadband market. Turk Telekom offers service at USD 28.7 with unlimited data transfer, DSL services with different speed options. The and 8 Mbps speed option goes from USD 24.7 baseline ADSL offer at 1 Mbps costs US$ 13.2 and USD 18.3 with 6 GB and 4 GB Cap per month with a 1 GB cap on data transfer. respectively. Among fiber connections the Higher speed services are much more expensive highest option is 100 Mbps costing USD 125.9 than EU countries. The highest speed 100 Mbps with unlimited data transfer. service is priced at US$ 94.3 per month with As the largest cable TV service provider, Turksat unlimited data option and a fiber 32 Mbps runs its Uydunet to offer broadband services at service costs US$ 27.2 per month with a 10 GB different speed options. The baseline is the Cap. Turk Telekom’s ADSL2+ 16 Mbps services 1 Mbps speed service costing USD 18.3 per are priced at US$ 37.3 and USD 20.9 with month with unlimited data transfer. However unlimited and 5 GB Cap respectively. Turk higher speed services are priced relatively higher Telekom also offers ADSL technology to than the average ADSL services. The 10 Mbps consumers with the highest speed option 8 option costs USD 62.6 and the 20 Mbps service Greece 27.72 Italy 29.91 United Kingdom 30.80 Ireland 31.33 Finland 32.46 Sweden 32.50 France 32.70 Switzerland 33.25 Japan 35.18 Korea 38.50 Average Subscription Price, Germany 38.87 USD, PPP Hungary 39.39 Belgium 39.75 Poland 39.85 Denmark 40.20 Iceland 40.63 Netherlands 41.01 Slovak Republic 46.85 Spain 48.34 United States 49.25 Austria 50.11 Czech Republic 51.64 Canada 54.24 Mexico 56.71 New Zealand 57.06 Australia 59.45 Norway 62.76 Portugal 79.53 Luxembourg 91.29 Turkey 135.36 0 20 40 60 80 100 120 140 160 Figure 2-2: Broadband average monthly subscription price, Oct. 2009, USD PPP (Source: OECD) 27 Price per month Price per month Price per Mbps Operator Technology Speed (Mbps) (TRY) (US$) (US$) Note TTNet (TTelekom) ADSL 1 20,9 13,2 13,2 1 GB Cap TTNet (TTelekom) ADSL <=8 29 18,3 2,3 4 GB Cap TTNet (TTelekom) ADSL <=8 32 20,2 2,5 6 GB Cap TTNet (TTelekom) ADSL 8 109 69,0 8,6 Unlimited TTNet (TTelekom) ADSL2+ <=16 33 20,9 1,3 5 GB Cap TTNet (TTelekom) ADSL2+ <=16 59 37,3 2,3 Unlimited TTNet (TTelekom) Fiber <=32 43 27,2 0,9 10 GB Cap TTNet (TTelekom) Fiber <=100 149 94,3 0,9 Unlimited Superonline ADSL 1 45,3 28,7 28,7 Unlimited Superonline ADSL <=8 29 18,3 2,3 4 GB Cap Superonline ADSL <=8 39 24,7 3,1 6 GB Cap Superonline Fiber <=50 59 37,3 0,7 12 GB Cap Superonline Fiber <=100 199 125,9 1,3 Unlimited Uydunet (Turksat) Cable 1 29 18,3 18,3 Unlimited Uydunet (Turksat) Cable <=10 99 62,6 6,3 Unlimited Uydunet (Turksat) Cable <=20 199 125,9 6,3 Unlimited Turkcell HSDPA 7,2 29 18,3 2,5 1 GB Cap Vodafone HSDPA 7,2 30 19,0 2,6 1 GB Cap Avea HSDPA 7,2 29 18,3 2,5 1 GB Cap Table 2-4: Prices of selected broadband service packages in Turkey, March 2011 (Direct source inquiry to author) costs USD 125.9 per month without any cap on price of the related service including VAT. data transfers. Prices per Mbps offered are Compared to the other communication services, significantly higher than ADSL operators. Internet services are taxed relatively lower: SPC rates on mobile and fixed line communication The three mobile operators, Turkcell, Vodafone services are 25% and 15% respectively. Though and Avea are also offering mobile Internet taxes on Internet services are relatively low the services based on HSDPA technology and there fiscal burden still accounts for a major impact on are quite differentiated service packages for a middle-income household. consumers. Table 2-4 presents a selection of these mobile packages most notably the baseline One can expect that when Internet access options. All three operators offer 1 GB cap requires a lower share of monthly per capita mobile data options at around USD 18-19 as of income, usage rates increase, everything else March 2011. being equal. Internet access cost – measured as the Internet subscription cost as share of average Since the competition in fixed broadband market monthly income – relatively high. According to has been relatively limited in Turkey, the general analysts, middle-income consumers are generally downward trend in prices seems to be somewhat ready for broadband packages costing less than 3 partial. The effect of taxes on broadband service % of their per capita income.28 In Turkey the pricing is another significant variable in assessing Internet access cost of an average broadband the affordability and performance of the market. package has come down significantly in recent As part of the need to augment the tax base years but still exceeds 3% threshold with a rate during the economic crises of 2000-2001, Turkey around 5%. raised taxes on telecommunication services. While these measures have increased tax National growth performance has created revenues, they had a negative effect on e-services opportunities for broadband expansion and take-up. In 2008 the government considered service affordability. The high growth in per ways to increase the affordability and thereby the capita income in recent years affected positively use of e-services by reassessing the broadband affordability by increasing the telecommunication taxes but little has been denominator. It is clear that rising incomes have achieved. supported the market and affordability of The tax rate applied for broadband products and services include the 18% Value Added Tax (VAT) and an additional 5% Special 28Source: Interview with Ahmet Hasanbeseoglu from Communication Tax (SCT) calculated over the Cisco. 28 broadband services in a country where promote faster and more affordable Internet competition was somewhat imperfect. access in line with EU initiatives in this area. Internet use will likely increase significantly if the Mobile phones can provide an alternative, less cost of accessing the Internet can be reduced. expensive channel for delivery of e-services to The government should prompt action to reduce citizens and businesses. Given the high number taxes on both telecommunication and of mobile subscribers in Turkey, the government broadband services. On the supply side the should consider this channel to provide Information and Communication Technologies information and services. In this regard a simple, Authority should continue to actively stimulate flat and more affordable tax rate applied to competition in the telecommunications sector to communication services could be a good and less distortive option. 29 3 Applications Government policies should ensure not only projects have been enablers of e-government development of broadband infrastructure but and e-transformation in the Turkish public also have to ensure that broadband technologies sector. Many of the projects are high volume and are adopted and used increasingly by the high value ones with important transactions on a country’s businesses, households and public daily basis such as MERNIS and UYAP. Turkey sector. The previous sections of the report focus has also demonstrated good progress in terms of on penetration, price, and speed of high electronic tax returns. The Internet Tax Office bandwidth Internet networks in Turkey and has become operational and started to accept highlight how the country tried to promote declarations and payments online. The Custom competition and encourage investment in order Modernization Project, one of the long waited to increase connectivity. This part presents the initiatives, finally completed in this period and content and applications created by private, civil became effective in 2009. E-government and public agents over broadband platforms. applications also include some public portals to provide up to date information to targeted 3.1 Government audiences or to the broader public. The Turkish The period of 2000-2010 can also be called the Foreign Investment Portal, KOBINET and era of e-government in Turkey. The negotiation Tourism Portal are examples in this regard. process with the EU and the rule of a single In the last ten years Turkey has made strong party government helped public agencies to progress to develop e-government applications design and manage more concerted efforts on e- and infrastructure. Some main findings and government applications and infrastructure. policy lessons could be drawn from this Since then Turkey has made strong progress in transformation process to inform similar implementing e-government. The number of countries: services integrated with the e-Government gateway reached 139 (6 fold increase in one year) • Strong political leadership: One of the and the number of visitors increased over half reasons for the rapid development of e- million people (50 fold augmentation in one government in Turkey is its strong year) in 2010. While the central government support within the high-level political allocated US$ 267 million for 203 e-government leadership. E-government leadership is projects in 2002, the public investment budget provided by the e-Transformation rose to US$ 590 million for 244 projects in the Turkey Executive Board, chaired by the pipeline in 2010. The number of web sites to Deputy Prime Minister. The new provide access for public services grew government’s modernization agenda explosively during this period and as of 2010 the considers e-government as a major tool total number was above 20 thousand (Figure for change. 3-1). • Effective organizational management: The share of services provided through In terms of planning, financing and electronic channels in total public services monitoring functions The Executive reached 66% and the e-services user satisfaction Board is aided by the State Planning rate was recorded as 95% in 2009. In a Organisation (SPO), which is benchmarking study conducted by the EU in responsible for scrutinizing all public 200729, the maturity level of 20 basic public investments. From a broader services in Turkey scored very much near the perspective the SPO has provided EU average and even overtaking slightly the EU necessary technical and organizational score in the business services segment (Figure services to develop, implement and 3-2). monitor a coherent strategy for e- transformation in the public sector Table 3-1 presents leading e-government organizations. applications implemented in Turkey. These • A strategic approach to e-government: Together with line ministries and private 29European Commission. 2007. The User Challenge sector agencies these organizations Benchmarking The Supply Of Online Public Services. http://ec.europa.eu/information_society/eeurope/i2010/d ocs/benchmarking/egov_benchmark_2007.pdf 30 Figure 3-1: Number of public sector owned websites 20 Services 12 services for citizens 8 services for business 100 90 80 70 60 50 40 30 20 10 0 Turkey EU27 Figure 3-2: The maturity level of selected public services, percent, 2007 (Source: European Commission 2007. The Use Challenge Benchmarking The Supply Of Online Public Services) 31 Project Explanation Web pages Launched in December 2008, one stop shop, integrated, multi-channel (internet, mobile, call center) service delivery E-Government Gateway platform for identification and payments. Mobile portal launched in October 2009 currently 139 public services are www.turkiye.gov.tr integrated. Central Census Management System (MERNIS) Unique ID number for all citizens (over 130 million records www.nvi.gov.tr ID data sharing platform through web services. More than 2,500 agencies, both public and private, signed 19 protocols to Identity Sharing System (ISS) use the system. PM Circular dictates public agencies do not require citizens to submit ID records and address information and obliges them to acquire this information through ISS. www.nvi.gov.tr Address Record System Citizens address records are integrated with MERNIS through ID numbers. www.nvi.gov.tr Aims to ensure fast, reliable and robust judicial system. Comprises all of the courts, public prosecutors, prisons, other judicial institutions and other government departments. Serves to some 40,000 officials and judges, 66,000 lawyers and for National Judiciary Informatics System (UYAP) all citizens. Litigate online case, reach and examine case information. Informs citizens on their cases through SMS. Ministry of Justice announces 2.7 billion € savings with applications of UYAP. www.uyap.gov.tr Online tax declarations and payments. Online payment of motor vehicle taxes and traffic fines. 99 % of tax returns are Internet Tax Office declared online. OECD study shows unit cost of tax revenue collection decreased from 2 $ to 0.35 $. www.gib.gov.tr Covers 684 locations. Internal applications (26 main applications, 51 search programs and 26 local applications) and some Police Network and Information System (POLNET) online applications: passport application, driving license (application and information on penalty points), denounce on public order and security, search for lost persons. www.egm.gov.tr TUBIDER IT Sector Association was founded in November in 1999 so as to protect rights and interests of the IT companies Informatics Sector Association operating in the informatics sector and to ensure vocational regulations are implemented. TUBIDER continues its operations having reached to 800 registered members and more than 1500 applicants. www.tubider.org.tr Network for communication and data transfer for over 6,000 users in 1,660 auditing branches and 39,500 Accounting Office Automation Project (Say2000i) budget offices throughout the country. All financial transactions are processed online and monitored real-time. www.muhasebat.gov.tr Facilitates legal trade and prevents illegal trade by using ICT. Customs formalities are carried out in a computerized media in Customs Modernization Project real-time. 100% of customs transactions are processed electronically. Around 6.3 million import and export declarations were processed by using this system in 2009. www.gumruk.gov.tr Social security premiums of employees are declared online. People pay the premiums electronically, verify payments made Social Security e-Declaration Project and outstanding balance. More than 90% of firms process declarations online. www.sgk.gov.tr Guide for foreign investors on: starting a business, cost of doing business, taxes and incentives, special investment zones, demography and labor force, business environment and business legislation, infrastructure, economic outlook, Investment Turkish Foreign Investment Portal Support and Promotion Agency assists investors in Arabic, Chinese, English, French, German, Italian, Japanese, Korean, Russian, or Spanish as well as Turkish. www.invest.gov.tr Provides information about business environment (marketing, management, taxes, human resources, internet and KOBINET for SMEs technology, finance, insurance and labor regulations). Information about firms, online business opportunities, 22,915 members. Provides user ID, password, e-mail address, web pages in 7 languages as free of charge. www.kobinet.org.tr Tourism Portal Provides information on history, heritage, life-culture, travel guide, where to go and business. www.goturkey.com Electronic Signature Law is effective since 2004. Electronic signature has the same legal effect as that of a Electronic Signature and Certification Authority handwritten signature. Public Certification Authority (PCA) for public agencies. 3 private electronic certificate service providers www.kamusm.gov.tr Mobile Electronic Signature Introduced by a Turkish GSM operator. Initial applications in banking, customs, justice and some local administrations. www.btk.gov.tr Table 3-1: Major e-government applications in Turkey (Source: Author’s compilation) 32 managed to develop a shared vision and Technologies Surveys carried out by a focused strategy including quantitative TURKSTAT provides information regarding targets for outputs and outcomes in access to and use of online public services by order to make e-government happen. citizens and enterprises. According to these results, enterprises use public web pages more • Prioritizing projects: Instead of creating than the household sector. As of 2008 while many e-government services Turkey 68% of the surveyed enterprises responded that with a clear focus, has managed to they use public web pages to get information prioritize projects that have high volume only 26% of households replied the same and high transactions: e-procurement, question positively. During their visit to the making social security and health public web pages, 91% of households spent time payments, and collecting customs, tax by getting information, 30% by downloading and social security payments etc. This forms and 34% sending information and selective list also included projects to uploading forms in 2009. With a 92% response establish e-government infrastructure share, getting information is among the leading and ICT network platforms to enable motivation for enterprises visiting public sector provision of e-services. web portals. 83% of enterprises get involved in On the supply side the main challenge for downloading forms whereas 70% responded Turkey now seems to be improving Internet positively that they filled and sent some forms access and broadband development. Turkey’s through web sites. More interestingly 7% of basic communications infrastructure is the enterprises submitted proposals for public telephone line network and the country clearly tenders via public web portals. needs alternative technologies such as fiber Individuals who do not visit public web pages networks for next generation broadband responded that the preference to carry out services. Internet access costs remain high transactions face to face in public offices seems causing the penetration rates to go flat. Public to be the chief reason for not using e- policy should assume a more pronounced role in government services. 19% of the group replied terms of ensuring broadband infrastructure the unavailability of online services has development. prevented them to use public web sites Another supply side challenge is increasing the frequently. Likewise 74% of the enterprises not capacity of line ministries and local governments preferring to use public web sites state the major to develop and implement e-government within reason for this behavior to be the preference to their respective sectors and in their subordinate meet face to face. 44.2% give the reason as the agencies. A strong case is needed to make for unavailability of the required services online co-operating rather than developing solutions in whereas another 36.1% report delays of isolation. As e-government applications feedback. Surveys indicate that enterprises need proliferate and the number of projects in the more sophisticated services and the demand for pipeline augment Turkey needs to transform its e-government services becomes more developed centralized organizational setup in e-government in the case of business transactions with the to a more horizontal and participative one. public. An early study conducted by OECD (2001)30 Another interesting finding is that a great defined lack of ICT skills as a hidden threat to e- majority of households and enterprises which do government and e-transformation. Turkey’s e- not prefer to use e-government applications government infrastructure and applications are report that they are motivated to meet face to relatively more advanced than her ICT skill base face rather than making transactions online. This in public offices. To transform the government may be regarded as an indication of a cultural by means of e-government Turkey should focus impact on the e-government applications since on building appropriate skills and ensure people Turkish people are generally known to be are willing to work in the public sector. socializers. However since broadband technologies have also transformed the social On the demand side, the results of the space and socialization process itself, the Turkish Household and Enterprise Use of Information society seems to be in a period of continuing adoption to ICTs and e-government applications. OECD (2001) The Hidden Threat to E-Government, 30 Avoiding large government IT failures, PUMA Policy Brief No. 8. 33 100 90 84.8 80 76.7 70 58.7 60 55.2 50 40 30 20 10 0 10+ 10-49 50-249 250+ Figure 3-3: Ownership of web sites, by employment size of enterprises, 2009 (Source: State Planning Organization Information Society Statistics, 2010) Figure 3-4 E-commerce activities of enterprises by sector of activity, 2007 Hence the chief policy challenge on the demand side is to provide and maintain good skill 3.2 Electronic commerce creation mechanisms and programs for increased The abilities of enterprises to acquire, generate, ICT adoption by households and enterprises. and manage knowledge have become a main Education policy should play a significant role driver of economic growth. To do this, the through formal education and lifelong learning adoption of ICT by business and its widespread programs. and efficient use in enterprises has crucial importance. Electronic commerce (e-commerce) 34 Figure 3-5: The benefits reported through e-commerce, 2008 applications have been at forefront of this economic sector to adopt e-commerce has been transformation process. tourism services. 21.6 % of hotels, motels and camping sites reported to place orders while 28.8 Within the group of enterprises employing 250 % of the same group reported to receive orders or more employees, 85% have established their via internet. Real estate, motion picture and own web sites in 2009 (Figure 3-3). In the group video activities, wholesale and retail trade and of enterprises with 50-249 employees, web site transport and communication sectors are among ownership ratio decreases to 76 % and in the leading sectors in terms of enhanced e- group of 10-49 employees size, it further commerce applications. More industry oriented declines to 55%. The adoption of e-commerce is activities such as construction and positively correlated to financial and managerial manufacturing, by contrast reported somewhat capacity of business units and Turkish poorer adoption rates of e-commerce than enterprises have a growing interest in electronic service based sectors. commerce. Banking and financial sector is an interesting According to survey data by TURKSTAT, 77.9 example where e-commerce systems have been % of enterprises have provided product catalogs developed and embedded into business models and price lists through web sites. It is the leading rapidly. Sayar and Wolfe (2007) found that form of e-commerce activity exercised by Turkish banks offer a wider range of services enterprises. In 2008 44.8 % of enterprises from their internet branches compared to British reported to engage in marketing of their banks, despite the fact that the UK has a more products and services through internet and 28.4 favorable environment for internet banking in % responded of giving after sales support terms of the level of sophistication of its banking services. The share of enterprises conducting sector and technological infrastructure.31 online purchase order, reservation and registration transactions is 16.3 % as of 2008. As While in most of the service-based industries the e-commerce activities get more sophisticated main motivation is to augment sales and ability of adoption by enterprises is observed to increased market penetration, in the Turkish decrease significantly (Figure 3-4). banking sector the main incentive is lower costs rather than increased sales. Analysts calculate E-commerce growth and adoption among Turkish enterprises is uneven and subject to significant variation among different sectors of 31 Ceren Sayar, Simon Wolfe, (2007) "Internet banking economic activity (Figure 3-4). The leading market performance: Turkey versus the UK", International Journal of Bank Marketing, Vol. 25 Iss: 3, pp.122 - 141 35 that an Internet transaction costs a Turkish bank • Having employed information around 5% of the cost of the same transaction in specialists (48.6% of the group with 250 a traditional bank branch.32 Most of the larger and more employees reported to employ commercial banks in Turkey offer Internet- information specialists) or even creating based banking services. Other companies offer their own divisions for this purpose. online services. The most active are airlines and retailers of books and electrical goods, largest E-commerce is growing rapidly in both demand supermarket chains also offer online services. and supply sides. However the degree of adoption differs among enterprises significantly The data on benefits reported through e- and the size of firms plays a major role in commerce activities can also provide a good enhancing e-commerce applications. Larger example in terms of assessing the relative degree firms with expanded financial and managerial of e-commerce adoption by Turkish enterprises capacity are in favorable condition to develop e- (Figure 3-5). A great majority (70 %) of surveyed commerce solutions and online services. Smaller firms have responded that penetration into new enterprises with fewer resources are finding markets and increased sales potential were the difficult to get involved in these next generation foremost benefits after engaging in e-commerce commerce activities. activities. Lower transaction costs and increased turnover with a 60 % response share each are Government policies should address more rapid among positive effects perceived by these firms. and balanced development of e-commerce This clearly shows that enterprises are getting applications in the enterprises sector. KOSGEB, aware of the benefits offered by e-commerce the agency in charge of assisting small and applications. medium-sized enterprises (SMEs), should increase its efforts and design additional There are also a number of challenges that limit programs to address this challenge. In the past increased adoption of e-commerce. According to KOSGEB established 55 Internet cafes with the Survey data in 2008 enterprises reported to instructors to assist SMEs in using the Internet. face following problems: Customers reluctance But this is not sufficient; much more could be to use e-commerce applications (56.4 %), accomplished by, for example, working with difficulty to adopt products and services into universities to provide courses in using the internet based commerce systems (55%), security Internet, as well as providing counseling and issues during payment (48%), uncertainties in training services in e-commerce to SMEs. legal infrastructure of e-commerce (45.5%), technical issues and problems (42.4%), 3.3 Other Applications: The Rise of difficulties to reorganize business models Social Media (42.2%), and negative experiences on electronic The development of social media has been rapid sales (14.2%). in Turkey. While the country is lagging behind in In other parts of the Survey, enterprises gave terms of broadband penetration than more increased attention on security issues related to advanced economies, Turkey’s youthful e-commerce applications. More than 17 % population structure makes it a very vibrant reported to experience some security problems market for most social media applications and during their electronic activities in Internet. services. In Turkey, where 70 percent of the There are also some indications that the share of population is under 35, online communications enterprises having some problem on security is very appealing to young people. issues is on the rise. Enterprises started to With more than 26 million users, Turkey is one introduce necessary measures to overcome these of the 15 largest Internet populations in the challenges on two fronts: world and roughly the size of the Spanish, Italian • Having installed secure servers (94.9% or Canadian markets. Turkey’s mobile of the group reported to have at least penetration is larger than Internet penetration, one server) and software (37.9 % which means that people increasingly access reported to have installed firewalls). social network applications from mobile phones. 32Source: Economist Intelligence Unit, news at http://www.ebusinessforum.com/index.asp?layout=rich_st ory&doc_id=11173&title=Turkey%3A+Overview+of+e- commerce&channelid=4&categoryid=31 36 Table 3-2: Top cities on Facebook (Source: Socialbakers.com) commerce, business networking, social Turkey has the fourth highest Facebook networking, social bookmarking, blogging and population in the world.33 According to one micro blogging, customer tracking, etc.). The source, Istanbul has been ranked as the city with figure demonstrates that social media are the second largest number of Facebook accounts increasingly popular in society and Turkish in the world with over 9.6 million people. content creation is at its emerging stage except Following Facebook, the most popular social for news services where there is a natural networking services are Mynet Eksenim, Netlog tendency to utilize the mother language. In the and MySpace.34 Twitter and personal blogs have electronic commerce services segment the also gained in popularity. leading companies are domestic with uniquely Turkey’s own social media content is growing designed and developed web applications. day by day. According to a recent study conducted by a consulting firm, Turkish web Istanbul recently hosted the World Social Media sites are getting popular and increasingly Forum providing a meeting place for sharing diversified. Figure 3- presents a snapshot of the global experiences and knowledge in this social media landscape in Turkey categorized regard.35 Turkish experience with social media around different activities (e.g., photo, video, applications presents a useful example for other document and music sharing, news services, e- countries with similar economic and cultural backgrounds. 33 http://www.ictdata.org/2011/03/monaco-tops-in- facebook-penetration.html 34 comScore, Inc. 2009. “Instant Messaging Accounts for More Than 25 Percent of Total Time Spent Online in Turkey, Followed by Social Networking at 10 Percent”, July 16. http://www.comscore.com/Press_Events/ Press_Releases/2009/7/Turkey_Instant_Messaging_and_S 35http://www.worldsocialforum.info/news/european- ocial_Networking social-forum-turkey-make-them-pay-for-their-crisis 37 Figure 3-6: The Turkish social media landscape, 2010 2 (Source: Ticktock Boom at www.ttboom.com/index.html) 38 4 Usage and Diffusion Since the Internet can be viewed as a public between urban and rural areas, men and women, good necessary for economic and social young people and individuals aged 55-74, and development, governments should take part in individuals with higher education and people fostering nationwide internet access. A without higher education. In 2009 urban areas competitive private sector needs to develop the have 32.5% broadband household penetration capability to use e-commerce. E-commerce will whereas rural areas have only 11%. However it is develop slowly if there are few Internet users, observed that the rural broadband connections and users will not develop if charges for are growing at a superior rate than that of urban connections are high, coverage low, and the areas which means the digital divide is getting Internet provides negligible content and services. smaller (another factor is because of the This section draws analysis on Internet usage restrained growth of broadband infrastructure and diffusion by people and enterprises. nationwide and particularly in largely populated Discussion herein progresses around issues of urban centers). how individuals and enterprises in Turkey use The Internet usage proportion is the highest in the Internet and differences in usage as to the 16 – 24 age group (59.4 %) according to the gender, age, and where people live – the so- results of the survey applied to the 16 – 74 age called digital divide. groups. The usage of Internet by women (46%) significantly lags behind the usage of men 4.1 People (74.1%) in 16 – 24 age group and all age groups. Household broadband access is relatively low in Consequently, it is important for the Turkey compared to European Union members. government to seek to increase the proportion In 2010 more than three out of five households of individuals using the Internet through better living in EU countries had a broadband geographical coverage and by reducing the cost connection while in Turkey the ratio was 34% of accessing and using the internet. (Figure 4-1). This relatively low share of broadband access represents a barrier to the The level of education and Internet usage are take-up of online government services as well as highly correlated. Internet usage of individuals the development of e-commerce. increases in parallel with their education levels. Internet usage by women with college, Significant differences exist within Turkey: 60 50 EU (27) Turkey 40 30 20 10 0 2004 2005 2007 2008 2009 Figure 4-1: Household broadband penetration, as percent (Source: EUROSTAT) 39 Figure 4-2: Internet usage by place of connection, male and female, 2009 university, and higher education (85.8%) is quite Survey data indicate basic Internet activities such close to the usage levels of men with the same as sending email (73%), reading online news educational background (89%). Those using the (59%), surfing the web and making social Internet most, according to employment status, connections (64%) are among the leading forms are students (88.2%), employers (66.1%), of Internet usage. Usage rates for more waged/salaried employees (56.8%), and the sophisticated Internet activities are still relatively unemployed (41.6%). 36 low: Internet banking (17%), looking for a job (10%), online education (6%) and selling goods A great majority of users (68.2 % for females or services (4%). and 51.6 % for males) report using the Internet at home. The proportion of home usage by Analyses show that Turkey faces a number of females is significantly surpassing the usage by challenges in Internet usage. First and foremost males. The workplace usage is among the top improving Internet access and broadband forms of Internet connection activities among development should be a priority on the supply households and more interestingly Internet cafes side. Turkey needs to promote a high degree of continue to offer a wide mean for internet in broadband coverage using appropriate particular for male groups (31.8%). Individuals technologies. Initiatives to reduce the digital also report that they are using internet during divide in Turkey should also include expanding social activities and visits. (Figure 4-2). the number of computers and computer classes in primary and secondary schools, and providing Though home access have greatly increased increased access to the Internet through recently Turkish people still account for a community use of school computers. Turkey has different structure of access type by place. demonstrated an ambitious case in trying to Internet cafe use is much higher and public close the divide in digital literacy between urban libraries are not used at all. This finding shows and rural areas by means of education policy. that Internet access from home or workplace is The Ministry of National Education (MNE) and not always the most revealing measures of actual local governments have taken part in this individual internet access for comparison collective effort to foster education in digital between countries. skills. The number of students per computer is 30.8 in primary schools and 25.1 in secondary schools nationwide. 27,999 information 36The data come from the Survey results by TURKSAT technology (IT) laboratories were established. and figures are for 2009. 40 Turkey Urban Rural Sending/receiving e-mails 72.8 73.9 66.9 Posting messages to chat sites, blogs, news groups or 64.2 65.0 60.4 online discussion forum, use of instant messaging Reading or downloading online news/ 58.8 58.8 58.9 newspapers/news magazines Finding information about goods or services 55.7 57.7 45.6 Playing or downloading games, images, films or music 51.2 51.1 51.5 Seeking health-related information (e.g. injury, 47.3 48.6 40.8 disease, nutrition, etc.) Telephoning over the Internet/ video calls (via web 47.1 48.3 41.0 cam) over the Internet Listening the web radios or watching web television 41.1 42.1 36.1 Consulting the Internet with the purpose of learning 37.1 38.1 32.1 Uploading self-created content (text, images, photos, 30.3 31.3 25.1 videos, music, etc.) to any websites to be shared Looking for information about education, training or 26.4 27.0 23.5 course offers Using services related to travel and accommodation 22.6 24.9 11.1 Internet banking 16.8 17.8 11.3 Downloading software (other than games software) 14.8 15.6 10.5 Looking for a job or sending a job application 10.2 10.5 8.9 Doing an online course (in any subject) 6.3 6.7 4.5 Selling of goods or services, e.g. via auctions 4.1 4.3 3.1 Table 4-1: Internet activities of individuals who have accessed the Internet in the last 3 months, by private purposes, %, 2010 (Source: TURKSTAT, Results of the ICT Usage in Households and by individuals, 2010) 1,850 Public Internet Access Points (PIAP), to provide ICT access and ICT competency to 4.2 Business citizens, have been completed by the MNE. The business sector has shown somewhat more success in ICT adoption than households. The Since the early take up of information society Turkish business sector has become heavily and e-transformation initiatives Turkey has computerized in the last ten years. Computer launched a motivated program for teaching usage has become a standard nationwide even in computer and information literacy in primary micro sized business units. In 2009 computer and secondary schools, but more is needed. penetration rates are as follows: In enterprises Turkey should provide means to increase with 250 or more employees 99.3%, in computer and information literacy for people enterprises with 50-249 employees 97.7%, in who are not in school. Online distance learning enterprises 10-49 employees 89.5% and in programs and new incentives and programs for enterprises with 10 or more employees 90.7%. Internet cafes to provide a social training base for households living in rural areas may Similarly Internet access by the business sector constitute the essence of an effective policy mix. has grown explosively and reached a level almost The government should also find means to identical to that of computer penetration rates. further motivate citizens to use the Internet by In January 2010, 90.9% of enterprises with at demonstrating and informing citizens about the least 10 persons employed used the Internet. benefits and advantages of accessing information This rate was 98.4% of enterprises with 250 or and government services online. more employees, while enterprises with 50-249 employees was 96.9% and enterprises with 10-49 41 Turkey EU 27 90,0 80,0 70,0 60,0 50,0 40,0 30,0 20,0 10,0 0,0 2007 2008 2009 Figure 4-3. Broadband usage indicators by enterprises, as percent employees was 89.7%. 88.8% of enterprises had to have access via traditional dial up connections Internet access in January 2009. also. Mobile technologies accounted for 13.5 % and cable technology had a proportion of 10.2%. The business sector has demonstrated a major achievement in adopting and utilizing ICTs and Figure 4-4. portrays how firms are integrating broadband. Turkish enterprises have high rate of internet usage into internal business process. broadband usage and as compared to EU 27 Two points can be drawn from data: The trends countries Turkey slightly surpasses the EU are similar between years and a major change is averages (Figure 4-3). In terms of connection not observed. Secondly, business units are type the most frequently used access technology utilizing online connections most for getting in enterprises was DSL with a 94.6% proportion financial services (76.3%) and assessing relevant in 2009. However 19.5% of enterprises reported market trends (78%). Diffusion of internet based Figure 4-4: Internet usage in enterprises by purpose, 2007-2009 42 applications into education and training services However, this has not resulted in a fully accounts for lower but still a significant competent business sector with a high level of proportion (31.6%) in 2009. broadband usage and applications within integral business processes. A large share of small and Lack of sufficient number of candidates with the medium-sized enterprises (SMEs) selling in local required qualifications and job experience markets with few resources find it difficult to (39.4%) stood out as the main difficulty faced by learn and develop new marketing channels. enterprises when employing information These business units are slow to adapt specialists in 2007. While 68.3% of enterprises broadband technologies. Industrial structure is reported that the salary expectation of specialists increasingly fragmented and innovative were high, a greater proportion of 74.4% stated collaboration frameworks and programs are that the work experience and competency of needed. This is where the public policy should specialists as being insufficient. Similarly even a engage in effective mechanisms and incentive greater proportion of 84.5% reported there was structures to enable a favorable environment for very limited number of candidates with required technological take up. qualifications in 2007. 37 According to the Survey, enterprises, with a proportion of 8.9 % Given that broadband technologies have a very in 2007, had started to run internal training strong stimulus for economic growth, the programs to address the skill gap in ICT government might consider means to stimulate technologies. business usage through infrastructure development, as well as providing content and e- Though the broadband penetration has been services over the Internet through various somewhat limited compared to more advanced mechanisms. Requiring firms to interact countries, Turkish businesses have adopted a electronically with e-government services should high level of Internet usage, motivated to a large increase private sector use of the Internet. degree by the desire to use government e- Additionally, increased broadband availability services and penetration into new markets. One will allow faster development of Internet usage exception to this fact is the banking sector where and serve as an important factor in attracting the main motivation is cutting costs rather than foreign domestic investment in the Turkish demand aggregation. economy. Stronger efforts to foster human resource development and to address the ICT skill gap are needed also. Source: SPO (2010), Information Society Statistics, 37 Ankara. 43 5 Conclusions USD 1,652 billion rather than USD 1,216 billion 5.1 The Likely Impacts of High of the baseline scenario. This is a GDP level Bandwidth Networks on the 36% greater than the baseline. It may accurately Turkish Economy be called the broadband effect. According to the National Broadband Vision The broadband effect encompasses two Study of Turkey,38 through fostering broadband distinctive categories: Industry benefits development the Turkish economy could gain (measured as USD 289 billion during 2010-2023) US$ 4.9-10 billion extra value added each year comprising of the overall broadband thereby boosting its economic growth by 0.8-1.7 productivity impacts within and beyond the ICT percentage points. This economic momentum industry; and pillar effects (measured as USD enabled by an enhanced broadband ecosystem 147 billion during 2010-2023) which might would bring 180,000-380,000 new jobs and directly be associated with broadband enhancing provide new income opportunities. This implies policies of the government. Since industry that employment creation in new broadband- benefits are nearly two times larger than pillar related activities would eventually compensate benefits for Turkish economy, broadband for job loss due to process optimization and enhancing policies should trigger a multiplier structural displacements. effect within the economy and their indirect Through help of a toolkit39 the Broadband impacts could potentially outpace the direct National Vision Study reports to find a effects. significant growth impact for the Turkish The study also analyzes detailed impacts of economy fueled by broadband enhancing public enhanced broadband polices on different policies. In the baseline growth scenario Turkish economic sectors, the so called pillar effects. economy would take off by an annual rate of 5.0 Pillar effects can be decomposed into different per cent as depicted in Figure 5-1, and it would sectors as follows: reach the US$ 1,216 billion GDP level by the end of 2023. - 7 per cent of total pillar effects will come from revitalized small/medium business; Under the broadband enhancing growth scenario in which a set of active government - 6 per cent contribution will arrive from programs to boost broadband impact are improved government services; introduced, the economic growth forecast is - 4 per cent to come from the benefits of much faster, with an additional 2.3 percentage broadband-enabled education; points, reaching to 7.3% on annual basis. Government policies targeting enhanced 16 per cent to come from a more attractive broadband infrastructure and ecosystem will business environment; boost economic growth significantly. By 2023 - 67 per cent to come from other sectors, as the Turkish economy would have a GDP at well as multi-factor productivity and the benefits of collaboration across the 38 Turkish Prime Minister’s Office (2011), From Silk Road economy. to Broadband: Enabling Economic Growth and Competitiveness, Ankara. 39 Broadband Dynamic Value Assessment (BDVA) is a Analyses indicate forecast benefits from toolkit that fills a niche between the macroeconomic increased ICT adoption by the SME sector models that link broadband to aggregate economic growth will be large and e-government applications and models that take a wholly microeconomic approach, would provide a significant amount of measuring specific benefits of broadband by sector or type contribution through cutting costs and of usage. The BDVA focuses on broadband implementation objectives of public policy that link improving productivity. Another important broadband penetration rates to “pillars”, which in turn, policy area that should be focused is drive GDP growth. The pillars are essentially proxies for education. The main benefit seems to be broadband implementation objectives. In this manner, the improvements in the general business model user can identify which of these pillars have the greatest impact on GDP growth and use this information to formulate a national policy mix for achieving the greatest benefits from wider broadband usage 44 250 225 7,3 % Base Line 200 Broadband Enhanced 175 5,0 % 150 125 100 75 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 Figure 5-1: Base line and broadband enhanced growth scenarios, Real GDP2009=100 ( environment. Under the broadband enhanced power in 2002, political leaders saw e- scenario policies to foster the business government as a central instrument that would environment, 16 % of total pillar effects will support public reforms and larger changes in the come from improvements in the business political system. A central organizational framework alone. The largest one is the structure was formulated to develop strategies multiplier effect. Broadband adoption will bring and put public money into the pipeline for a set benefits diffusing beyond the ICT sector of strategically important projects with high through channels of multifactor productivity. value and a high transaction volume. The EU candidacy of Turkey and the 5.2 Factors Contributing to Turkey’s membership negotiation process has provided a Broadband Development good opportunity for the country to reform its E-government initiatives have been a major ICT and broadband legal and regulative driving force for development of the broadband frameworks. This process helped bureaucrats ecosystem. Turkey has implemented a highly and top-level managers get closer to European motivated e government program that created institutions, policies and initiatives, and market the necessary demand for enterprises in the ICT developments in these sectors. sector and motivated citizens for increased Internet usage. In this regard Turkey has The high tempo growth of Turkish economy in demonstrated an interesting example that the last decade is another factor supporting in countries with relatively lower level of Internet the Internet revolution. The new national penetration and usage ratios can exploit e- government has implemented ambitious market government programs as a means to ignite oriented reforms complemented with a proactive development of the broadband ecosystem. foreign policy which resulted in large sums of overseas capital flowing into the country. Ensuring a shared vision among political leaders Communications, software and hardware and technocrats has also been an important segments of ICT industries have expanded factor in pushing e-government programs. Since rapidly. the coming of the new national government into 5.2.1 Lessons learned 45 Turkey Consumer (Infrastructure) Best Performing Country 1 0,8 Government 0,6 Consumer (Usage&Skills) 0,4 (Usage&Skills) 0,2 0 Government Business (Infrastructure) (Infrastructure) Business (Usage&Skills) Figure 5-2: Turkey connectivity performance by scorecard component, 2010 (Source: www.connectivityscorecard.org/countries/turkey) The Connectivity Scorecard is a composite index skills, where its score is considerably lower than to assess the relative development level of ICTs one might expect given the state of its business (Figure 5-2).40 Turkey was found to have a infrastructure. Turkey has made considerable robust consumer infrastructure due to its high progress in developing a robust ICT mobile and PSTN penetration and also the infrastructure but its weaker usage and skills recent progress in broadband networks. It also scores indicate that the country is yet to fully scores strong on consumer usage and skills realize its benefits. Therefore, it needs to place metrics such as frequent Internet usage and greater effort on ensuring the adoption and uptake of voice services. According to the diffusion of ICTs to leverage competitive power. Scorecard the country’s business infrastructure is Turkey faces a strategic opportunity in terms of above average, with high penetration of secure broadband infrastructure development. The Internet servers, and substantial business majority of the national broadband network is investments in ICT. Turkey also impresses on based on slower speed connections which do government-related metrics such as government not optimally support advanced applications of spending on ICT and provision of government next generation connectivity such as e-education, services online. e-health, etc. There are signals suggesting the However the Scorecard points out that Turkey current broadband network has become ranks somewhat poorly in business usage and somewhat overloaded. To enhance a rapid take up of high bandwidth 40 The Connectivity Scorecard is the first index to examine broadband networks the government should the quality and quantity of ICT usage and infrastructure and play a more effective and active role. First and to link it to a country’s social and economic prosperity. 25 foremost is ensuring effective regulation. The ‘Resource and Efficiency Driven’ and 25 ‘Innovation public stake in the incumbent operator should Driven’ economies are studied (as defined by the World Economic Forum (WEF)) in this first phase. The first step not prevent authorities from enforcing rules for taken is to divide the economy into 3 ‘pillars’, business, fostering competition in the broadband market. consumer and government and assign weights to these Secondly, Turkey should design a complete and pillars. The greatest weighting is given to the business pillar integrated broadband strategy for coordinating since it is a key contributor to productivity growth. For various individual pieces in the same direction. each component of the scorecard countries are benchmarked against the best-in-class in their tier. Low To enable increased ICT and broadband scores reflect gaps in a country’s infrastructure, usage or adoption by businesses the government should both. For more information see “Connectivity Scorecard” at: http://www.connectivityscorecard.org/methodology/ exercise greater efforts to design effective 46 programs and incentives. In particular skill gaps policy areas notably ICTs and innovation. should be identified and adequately addressed Turkey should take measures to address this with participation of private initiatives. problem and ensure reliable and timely indicators are developed and made available to The lack of a suitable national accounting the public. framework for more detailed analysis hinders international benchmarking in most emerging 47 6 References Atiyas, İzak. 2010. Regulation and competition in the Turkish telecommunications industry: an update. In The Political Economy of Regulation in Turkey. New York: Springer. http://research.sabanciuniv.edu/14658/. Information and Communication Technologies Authority. 2011. Annual Report 2010. Ankara: ICTA. http://www.btk.gov.tr/eng/basineng.html. McKinsey & Company. 2009. Mobile broadband for the masses: Regulatory levers to make it happen. http://www.mckinsey.com/en/Client_Service/Telecommunications/Latest_thinking/Mobile_broadband _for_the_masses.aspx. McKinsey Global Institute. 2003. Turkey: Making the productivity and growth breakthrough. http://www.mckinsey.com/mgi/publications/turkey/index.asp. Organisation for Economic Co-operation and Development. 2001. “The Hidden Threat to E-Government: Avoiding Large Government IT Failures.” Public Management Policy Brief, March. http://www.oecd.org/document/36/0,3746,en_2649_34225_1916324_1_1_1_1,00.html. ———. 2007. e-Government Studies: Turkey 2007. Paris: OECD. http://www.oecdbookshop.org/oecd/display.asp?sf1=identifiers&st1=9789264028449. ———. 2008. Broadband Growth and Policies in OECD Countries. Paris: OECD. http://www.oecd.org/document/1/0,3746,en_2649_34225_40931201_1_1_1_1,00.html. ———. 2009. Communications Outlook 2009. 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The Global Competitiveness Report 2010-2011. http://www.weforum.org/reports. 48 5.1 Online Resources www.carelink.se/en/mission/sjunet http://www.dtc.umn.edu/mints/home.php http://econ.worldbank.org/ www.oecd.org The Central Bank of the Republic of Turkey at www.tcmb.gov.tr The Undersecretariat of the Treasury at www.treasury.gov.tr Invest in Turkey at http://www.invest.gov.tr http://www.invest.gov.tr/en-US/sectors/Pages/ICT.aspx Export Promotion Center (IGEME) at www.igeme.org.tr http://www.turkstat.gov.tr/PreHaberBultenleri.do?id=8450. http://www.turksat.com.tr/english/v2/cable-services http://www.eutelsat.com/products/broadcast-audience.html Economist Intelligence Unit, news at http://www.ebusinessforum.com/index.asp?layout=rich_story&doc_id=11173&title=Turkey%3A+Over view+of+e-commerce&channelid=4&categoryid=31 Ticktock Boom at http://www.ttboom.com/index.html http://www.connectivityscorecard.org/methodology/ http://www.socialmedia-forum.com/ 49 About infoDev infoDev is a global development financing program among international development agencies, coordinated and served by an expert Secretariat housed at the World Bank Group, one of its key donors and founders. 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All other queries on rights and licenses, including subsidiary rights, should be addressed to the Office of the Publisher, The World Bank, 1818 H Street NW, Washington, D.C. 20433, USA; fax: 202-522-2422; e-mail: pubrights@worldbank.org. Cover design by infoDev To cite this publication: Tuan, Tran Minh, 2011. Broadband in Vietnam: Forging Its Own Path. Washington, D.C: infoDev / World Bank. Available at http://www.infodev.org/publicationsbroadband-toolkit.org/. iii Table of Contents Table of Contents………………………………………………………………………………… iv List of Figures, Tables and Boxes……………………………………………………………… v Acknowledgments…………………………………………………………………………………. vi Executive Summary……………………………………………………………………………….. 7 1. Country background………………………………………………………………………… 8 1.1 Geographic and population conditions……………………………………………………… 8 1.2 Macro-economic environment……………………………………………………………… 8 2. Broadband policy, regulatory framework and institutional framework in Vietnam……… 10 2.1 Policy framework…………………………………………………………………………. 10 2.1.1 Direction of ICT development……………………………………………………… 10 2.1.2 Policy of broadband development…………………………………………………… 11 2.1.3 Operator ownership guidelines……………………………………………………… 11 2.1.4 Technology guidelines………………………………………………………………… 12 2.1.5 Service guidelines…………………………………………………………………… 13 2.2 Institutional structure……………………………………………………………………… 13 2.2.1 Government institutions involved in broadband……………………………………… 13 2.2.2 Major telecom operators……………………………………………………………… 13 2.3 Conclusions………………………………………………………………………………… 16 3. Broadband technologies and market in Vietnam…………………………………………… 17 3.1 Broadband infrastructure…………………………………………………………………… 17 3.1.1 Structure of broadband network in Vietnam………………………………………… 17 3.1.2 Fixed broadband technologies………………………………………………………… 18 3.1.3 Wireless broadband technologies…………………………………………………… 18 3.2 Status of broadband market in Vietnam…………………………………………………… 19 3.2.1 Fixed broadband…………………………………………………………………… 19 3.2.2 Wireless broadband…………………………………………………………………… 20 4. Rural broadband strategies………………………………………………………………… 23 4.1 Delta and midland rural areas……………………………………………………………… 23 4.2 Extreme poverty rural areas………………………………………………………………… 24 4.2.1 Communal P&T and Cultural Points………………………………………………… 24 4.2.2 Universal telecommunication services program……………………………………… 25 4.3 Future plans………………………………………………………………………………… 26 5. Analysis of broadband success and challenges in Vietnam………………………………… 27 5.1 Social-economic characteristics…………………………………………………………… 27 5.2 Technological capability…………………………………………………………………… 27 5.3 Conclusion and lessons learned…………………………………………………………… 28 iv Table of Contents………………………………………………………………………………iv Lists of Figures, Tables and Boxes……………………………………………………………...v Acknowledgments………………………………………………………………………………vi Executive Summary…………………………………………………………………………….7 1 Country background 8 1.1 Geographic and population conditions 8 1.2 Macro-economic environment 8 2 Broadband policy, regulatory framework and institutional framework in Vietnam 10 2.1 Policy framework 10 2.1.1 Direction of ICT development 10 2.1.2 Policy of broadband development 11 2.1.3 Operator ownership guidelines 11 2.1.4 Technology guidelines 12 2.1.5 Service guidelines 13 2.2 Institutional structure 13 2.2.1 Government institutions involved in broadband 13 2.2.2 Major telecom operators 14 2.3 Conclusions 14 3 Broadband technologies and market in Vietnam 17 3.1 Broadband infrastructure 17 3.1.1 Structure of broadband network in Vietnam17 3.1.2 Fixed broadband technologies 18 3.1.3 Wireless broadband technologies 18 3.2 Status of broadband market in Vietnam 19 3.2.1 Fixed broadband 19 3.2.2 Wireless broadband 20 4 Rural broadband strategies 23 4.1 Delta and midland rural areas 23 4.2 Extreme poverty rural communes 24 4.2.1 Communal P&T and Cultural Points 24 4.2.2 Universal telecommunication services program 25 4.3 Future plans 26 5 Analysis of broadband success and challenges in Vietnam 27 5.1 Social-economic characteristics 27 5.2 Technological capability 27 v 5.3 Conclusion and lessons learned 28 1 Country background 8 1.1 Geographic and population conditions 8 1.2 Macro-economic environment 8 2 Broadband policy, regulatory framework and institutional framework in Vietnam 10 2.1 Policy framework 10 2.1.1 Direction of ICT development 10 2.1.2 Policy of broadband development 11 2.1.3 Operator ownership guidelines 11 2.1.4 Technology guidelines 12 2.1.5 13 2.1.5 Service guidelines 13 2.2 Institutional structure 13 2.2.1 Government institutions involved in broadband 13 2.2.2 Major telecom operators 14 2.3 Conclusions 14 3 Broadband technologies and market in Vietnam 17 3.1 Broadband infrastructure 17 3.1.1 Structure of broadband network in Vietnam17 3.1.2 Fixed broadband technologies 18 3.1.3 Wireless broadband technologies 18 3.2 Status of broadband market in Vietnam 19 3.2.1 Fixed broadband 19 3.2.2 Wireless broadband 20 4 Rural broadband strategies 23 4.1 Delta and midland rural areas 23 4.2 Extreme poverty rural communes 24 4.2.1 Communal P&T and Cultural Points 24 4.2.2 Universal telecommunication services program 25 4.3 Future plans 26 5 Analysis of broadband success and challenges in Vietnam 27 5.1 Social-economic characteristics 27 5.2 Technological capability 27 5.3 Conclusion and lessons learned 28 vi List of Figures List of Figures Figure 1-1: Map of Vietnam……………………………………………………………………… 8 Figure 1-2: Literacy and years of adult schooling, ASEAN, 2010………………………………… 9 Figure 2-1: VNPT Group………………………………………………………………………… 14 Figure 3-1: Vietnam’s international Internet bandwidth………………………………………… 18 Figure 3-2: Fixed broadband and subscriptions per 100 people in Vietnam and Asia, 2010……… 20 Figure 3-3: VNPT ADSL packages and ADSL entry level prices, selected countries, USD, 2011… 20 Figure 3-4: Mobifone 3G prices and monthly 3G prices, selected countries, USD, 2011………… 22 List of Tables Table 2-1: Objectives for making Vietnam a leading ICT country………………………………… 11 Table 2-2: Allocation of major responsibilities in telecommunications policy…………………… 14 Table 2-3: Main telecommunications operators in Vietnam……………………………………… 15 Table 3-1: 4G trial………………………………………………………………………………… 19 Table 3-3: 3G (WCDMA) obligations of mobile operators……………………………………… 21 Table 4-1: Telecommunications services development in delta and midland areas………………… 23 List of Boxes Box 2-1: Hanoi Telecom: From CDMA to GSM………………………………………………… 11 Box 3-1: TOPIC64……………………………………………………………………………… 21 Figure 1-1: Map of Vietnam ........................................................................................................................................8 Figure 1-3: Literacy and years of adult schooling, ASEAN, 2010 .........................................................................9 Figure 2-1: VNPT Group.......................................................................................................................................... 15 Figure 3-1: Vietnam’s international Internet bandwidth ...................................................................................... 18 Figure 3-2: Fixed broadband subscriptions per 100 people in Vietnam and Asia, 2010 ................................ 20 Figure 3-3: VNPT ADSL packages and ADSL entry level prices, selected countries, USD, 2011............... 20 Figure 3-4: Mobifone 3G prices and monthly 3G prices, selected countries, USD, 2011 ............................. 22 Figure 1-1-1: Map of Vietnam .....................................................................................................................................8 Figure 1-2: Literacy and years of adult schooling, ASEAN, 2010 .........................................................................9 Figure 2-1: VNPT Group (Source: http://www.vnpt.com.vn/Default.aspx?tabid=212&IntroId=270&temidclicked=270) ..................... 15 Figure 3-1: Vietnam’s international Internet bandwidth (Source: VNNIC) ..................................................... 18 vii Figure 3-2: Fixed broadband subscriptions per 100 people in Vietnam and Asia, 2010 (Source: VNNIC top; ITU bottom) Note: * Median ................................................................................................................. 20 Figure 3-3: VNPT ADSL packages and ADSL entry level prices, selected countries, USD, 2011 (Source: VNPT and leading ADSL operator in each country) .................................................................................. 20 Figure 3-4: Mobifone 3G prices and monthly 3G prices, selected countries, USD, 2011 (Source: Mobifone and leading 3G operator in each country) Note: The left chart refers to pricing for 3.6 Mbit/s ........ 22 List of Tables Table 2-1: Allocation of major responsibilities in telecommunications policy ................................................. 14 Table 2-2: Main telecommunication operators in Vietnam ................................................................................. 16 Table 3-1-1: 4G Trials (Source: MIC 2011)........................................................................................................ 17 Table 3-2: 4G Trials ................................................................................................................................................... 19 Table 3-3: 3G (WCDMA) obligations of mobile operators ................................................................................ 21 Table 4-1: Telecommunications services development in delta and midland areas ........................................ 23 Table 2-1: Objectives for making Vietnam a leading ICT country……………………………………….11 Table 2-2: Allocation of major responsibilities in telecommunications policy…………………………....13 Table 2-3: Main telecommunication operators in Vietnam………………………………………………15 Table 3-1: 4G trials……………………………………………………………………………………...18 Table 3-2: 3G (WCDMA) obligations of mobile operators……………………………………………...21 Table 4-1: Telecommunications service development in delta and midland areas………………………..23 List of Boxes Box 2-1: Hanoi Telecom: From CDMA to GSM ................................................................................................. 12 Box 3-1: TOPIC64 ..................................................................................................................................................... 21 Box 2-1: Hanoi Telecom from CDM to GSM…………………………………………………………..12 Box 3-1: TOPIC64……………………………………………………………………………………...20 viii Acknowledgements This report was drafted by Tran Minh Tuan with significant contributions by Michael Minges, who directed the case studies of the Broadband Strategies Handbook. Victor Mulas, Dzung The Nguyen and Christine Zhenwei Qiang also provided valuable comments. The supervision of Tim Kelly (infoDev) and Carlo Rossotto (TWICT), for their direction on the overall project, is also acknowledged, as is Samhir Vasdev for editing and preparing the document for publication. The Handbook and its case studies are generously funded by the Korean Trust Fund (KTF) on Information and Communications for Development (IC4D). The KTF is a partnership between the government of the Republic of Korea and the World Bank Group whose purpose is to advance the ICT4D agenda to contribute to growth and reduce poverty in developing countries. The KTF, as well as Philippe Dongier, Sector Manager (TWICT) and Valerie D‘Costa, Program Manager (infoDev), are owed the author‘s gratitude for their support and guidance on this project. ix Executive Summary With some 86 million inhabitants, Vietnam is the households, many users have yet to fully exploit 13th most populated country in the world. Its broadband applications. Survey data indicate land area is larger than Italy and almost the size that the use of a computer’s Internet connection of Germany. Wireline broadband has grown in Vietnam is to search for personal information over 1,000 percent since 2005 and with 3.6 and serve children’s learning. The lack of million subscriptions in 2010, it had the ninth relevant content and fragmented information are largest network among developing counties. Its problems; a public information network with a wireline broadband penetration is the sixth unified portal, equipped with an automatic highest among lower middle-income economies translation engine and rich multimedia content with 4.4 subscriptions per 100 people. covering health, education, culture and agriculture is lacking. Solid economic growth has coincided with increased broadband usage. Liberalization of the The cost of fiber optic access is only economical telecommunications sector has led to growing in new urban areas and for large enterprises so competition with 11 enterprises providing DSL remains the fixed broadband choice of infrastructure. Service providers have developed households. But copper lines provide less modern IP-based networks with extensive fiber quality than fiber and it is difficult to upgrade optic backbones. Incomes have risen so that the transmission capacity. At the same time, more people can afford broadband. This in turn telecom enterprises have been lately focusing on has created a virtuous circle with explosive developing mobile broadband subscribers to the demand creating a larger market, resulting in detriment of the fixed network. economies of scale and lower prices. Another The large number of operators has led to factor driving fixed broadband growth is that overlap in investment in the access network. Vietnam was a latecomer to the IMT-2000 Interconnection is difficult because operators WCMDA mobile broadband technology. Major use a variety of technologies, impacting mobile operators did not launch their networks standardization of the national until 2009 with around 15 percent of mobile telecommunications infrastructure. Intense subscribers having WCDMA capability towards competition has resulted in price wars the end of 2010. threatening long-term sustainability. Service Despite these successes, Vietnam faces providers are looking to reduce duplication by challenges broadening broadband access, cooperating on shared infrastructure but so far particularly in rural areas where some 70 percent no specific measures have been implemented. of the population resides. Young people in While Vietnam has made tremendous urban areas “live” with high-speed Internet achievements in broadband, there are challenges access; however, less than one percent of rural arising from its rapid growth: (i) development of households had any type of Internet access in the width (e.g., the number of subscribers) needs 2008. to be coupled with development of depth (e.g., Most businesses are focused on using the service quality); (ii) differences in the level of Internet for basic needs such as email and broadband between regions can contribute to finding information while more advanced widening gaps; and (iii) the rapid development of applications such as e-commerce are not used as broadband can cause policy problems affecting widely. Despite rising Internet access in social life, security, and politics. 10 1 Country background 1.1 Geographic and population April 1. The Kinh are the dominant ethnic group conditions1 numbering 73.6 million, accounting for 85.8% of the population. Their population is concentrated The Socialist Republic of Vietnam is located in in the alluvial deltas and coastal plains of the Southeastern Asia. Its eastern and southern country. There are 54 ethnic minority groups boundaries are largely coastline. To the north is throughout the country. Most ethnic minorities, China; Laos and Cambodia are to the west. such as the Muong, closely related to the Kinh, Vietnam is approximately 331,688 km2 in area are found mainly in the highlands covering two- (not including the Hoang Sa and Truong Sa thirds of the territory. The Hoa (ethnic Chinese) islands), larger than Italy and almost the size of and Khmer Krom are mainly lowlanders. The Germany. The topography consists of hills and largest ethnic minority groups include the densely forested mountains, with level land Hmong, Dao, Tay, Thai, and Nung. covering no more than 20%. There are 61 63 provinces and centrally administered cities grouped into eight regions: Red River Delta, Eastern North Vietnam, Figure 1-1: Map of Vietnam Western North Vietnam, Northern Central Figure 1-1: Map of Vietnam (Source: ?) Vietnam, Southern Central Vietnam, Southern Central Highlands, Eastern South Vietnam and Cuu Long River Delta. Some 70% of the population resides in rural areas. The lowest administrative division is the commune of which there are 9,121. The 2009 Census found the literacy rate for the population aged 15 and older to be 94.0%, up from 90.3% in 1999. This ranks Vietnam fourth among the Association of South East Nations (ASEAN) (Error! Reference source not found.Figure 1-2, top). However the United Nations Development Programme calculates that Vietnamese ages 25 and older have on average only 5.5 years of schooling, one of the lowest rates in ASEAN (Figure 1-3Figure 1-2Error! Reference source not found., bottom). 1.2 Macro-economic environment Historically, Vietnam has been an agricultural civilization based on wet rice cultivation. The Vietnam War destroyed much of the country's economy. Upon taking power, the Government created a planned economy for the nation. Collectivization of farms, factories and economic capital was implemented, and millions of people were put to work in government programs. For a decade, united Vietnam's economy was plagued by inefficiency, The result of the 2009 Census found the underproduction and restrictions on economic population of Vietnam to be 85.8 million on activities. It also suffered from the trade Figure 1-1: Map of Vietnam embargo by the United States and most of Europe after the Vietnam War. Subsequently, 1 This section is largely derived from the web sites of the General Statistics Office of Vietnam trade partnerships with the Communist bloc (http://www.gso.gov.vn) and the Embassy of the Socialist began to erode. Republic of Vietnam in the United States of America (http://www.vietnamembassy-usa.org). 11 Adult literacy rate (both sexes) (% aged Figure 1-3: Literacy and years of adult 15 and above) schooling, ASEAN, 2010 Brunei Figure 1-2: Literacy and years of adult Singapore schooling, ASEAN, 2010 (Source: UNDP, Human Development Report Indicators) Thailand Viet Nam In 2010, the nominal GDP reached US$ 104 billion, with per capita income of US$ 1,100.2 Philippines Vietnam achieved around 7.5% annual GDP Malaysia growth from 1993 to 2002 and continued Indonesia between 5.3-8.4% a year between from 2003 to Myanmar 2010, making it one of the world's fastest Cambodia growing economies. Growth was 6.8% in 2010. Foreign investment and domestic savings have Lao PDR grown dramatically. Manufacturing, information 0 20 40 60 80 100 technology and high-tech industries form a large and fast-growing part of the national economy. Vietnam is a relative newcomer to the oil Mean years of schooling (of adults) business, but today it is the third-largest oil (years) producer in Southeast Asia with output of 400,000 barrels per day. Vietnam is one of Asia's Malaysia most open economies: two-way trade is around Singapore 160% of GDP, more than twice the ratio for China and over four times India's. Philippines Brunei As a result of several land reform measures, Vietnam is now the largest producer of cashew Thailand nuts with a one-third global share, the largest Cambodia producer of black pepper accounting for one- Indonesia third of the world's market and second largest Viet Nam rice exporter in the world after Thailand. Besides Lao PDR rice, key exports are coffee, tea, rubber, and fishery products. However, agriculture's share of Myanmar economic output has declined, falling as a share 0 2 4 6 8 10 of GDP from 42% in 1989 to 20% in 2006, as production in other sectors of the economy has risen. Deep poverty, defined as a percent of the population living under $1 per day, has declined significantly and is now smaller than that of China, India, and the Philippines. Much can be attributed to equitable economic policy that aimed at improving living standards and preventing the rise of inequality; this included Figure 1-2: Literacy and years of adult egalitarian land distribution at the initial stages of schooling, ASEAN, 2010 (Source: UNDP, đổi mớiDoi Moi, investing in poor remote areas Human Development Report Indicators) and subsidizing education and health fees for the poor. In 1986, the Sixth Party Congress introduced significant economic reforms with free market Vietnam has applied sequenced trade economy elements as part of a broad economic liberalization, using a two-track approach by reform package called "đổi mới" (Renovation), opening some sectors of the economy to resulting in a Socialist-oriented market economy. international markets while protecting others. Private ownership was encouraged in industry, Vietnam was accepted into the World Trade commerce and agriculture. 2 http://data.worldbank.org/country/vietnam 12 Organization (WTO) on November 7, 2006. updated its intellectual property legislation to Among steps taken in the process of comply with the WTO’s Trade-Related aspects transitioning to a market economy, Vietnam has of Intellectual Property (TRIPS). 2 Broadband policy, regulatory framework and institutional framework in Vietnam 2.1 Policy framework Telecommunications Development Strategy to 2010 and through 2020; There is no specific definition of broadband in Vietnam. The concept of broadband therefore - Decision No. 246/2001/QĐ-TTg dated can vary depending on the circumstances and October 06, 2005 of the Prime Minister level of development. When narrowband approving The Information and connections are no longer used as a regular Communications Technology service, there will certainly be a changing of Development Strategy to 2010 and broadband concept. through 2020 Currently, Vietnam does not have specific legal - Decision No. 1755/QĐ-TTg dated documents related directly to broadband. September 22, 2010 of the Prime However, telecommunications and Internet Minister approving The Project development strategies often refer to building “Making Vietnam to soon become a the information society based on a modern strong country in the field of broadband network infrastructure to meet the information technology and economic, political, national security and welfare communications"; needs of society. - Decision No. 32/2006/QĐ-TTg dated The legal framework is being modified to February 07, 2006 of the Prime Minister institutionalize the market-opening policy and approving The Master Plan of create a fair, just and equal competition Telecommunications and Internet environment to match the convergence trend of Development to 2010; technology and service. - Direction No. 04/2008/CT-BTTTT Major telecommunications and broadband dated May 22, 2008 of the MIC Minister related legal documents are: on Management and development telecommunications infrastructure. - Telecom Law No. 41/2009/QH12 dated December 04, 2009 of the 2.1.1 Direction of ICT development National Assembly and effective from In recent years, Vietnam has issued several July 01, 2010; breakthrough directives to promote the development of the ICT field. In that respect - Radio Frequency Law No. some have been institutionalized, including 42/2009/QH12 dated December 04, Decision No. 1755/QĐ-TTg dated September 2009 of the National Assembly and 22, 2010 of the Prime Minister “Approving the effective from July 01, 2010; Scheme to Early Make Vietnam a Country - Decree No. 25/2011/ND-CP dated Strong in Information and Communication April 06, 2011 of the Government Technologies.”3 This decision sets out the detailing and guiding the country’s vision and targets for becoming a implementation of a number of articles leading ICT nation by 2020. It envisions several of the Telecom Law; economic and social goals including: - Decree No. 97/2008/NĐ-CP dated • Internationally recognized ICT human August 28, 2008 of the Government on resources managing, supplying and using of • Software and Digital Content Industry Internet service and e-information on becoming a key driver of the economy the Internet; • Nation-wide broadband infrastructure - Decision No. 158/2001/QĐ-TTg dated • ICT usage in all aspects of life, October 18, 2001 of the Prime Minister contributing to sustainable development approving of The Vietnam Post and 3 http://lawfirm.vn/?a=doc&id=2083 13 and enhancing the transparency of the • government agencies. • Annual ICT revenue growth rate doubles the GDP growth rate. ICT business Human Broadband Universalizing ICT industry ICT usage and market resources infrastructure information development - 80% of students of ICT - Formed graduated research - Most from institutions - to - Broadband -Vietnam is in - Improving the households universities develop a network to the group of performance have qualified in strong ICT. almost of the one third of Vietnamese telephones. both English villages leading ICT enterprises - Vietnam is throughout the - 50-60% of countries in the and and among 10 country; households ranking of the professional corporations in leading across the United Nations skills to join - Mobile both service countries country have about e- international broadband and providing computers and government labor market. coverage to manufacturing outsourcing broadband readiness. 95% of the sectors. - Total number services and internet of people digital content. population; - Most basic - Vietnamese access. working in ICT public services ICT businesses - The software - Vietnam industry - Most are provided operate at industry and IT- ranks 55 or reaches 1 households online to ASEAN and based services higher in the million have television citizens and world scale, of become the rankings of the including capable of business at the which some industry's ITU (group of domestic and watching integrated having total fastest growing one third international digital level (online revenues up to industries in the leading markets. channels in payment, $ 15 billion. economic - countries). different ways. online results, - 70% technical high etc.). population proportion of using the GDP. Internet Table 2-1: Objectives for making Vietnam a leading ICT country In 2020, ICT share in GDP reaching 8-10% ICT business Human Broadband Universalizing ICT industry ICT usage and market resources infrastructure information development - 80% of - Formed - Broadband - Most -Vietnam is in - Improving the students of ICT research network to households the group of performance graduated institutions - to almost of the have one third of Vietnamese from develop a villages telephones. leading ICT enterprises universities strong ICT. throughout the countries in the and - 50-60% of qualified in country; ranking of the corporations in - Vietnam is households both English among 10 - Mobile across the United Nations both service and leading broadband country have about e- and professional countries coverage to computers and government manufacturing skills to join providing 95% of the broadband readiness. sectors. international outsourcing population; internet - Most basic - Vietnamese labor market. services and access. - Vietnam public services ICT businesses - Total number digital content. are provided operate at ranks 55 or - Most of people - The software higher in the households online to ASEAN and working in ICT industry and IT- rankings of the have television citizens and world scale, of industry based services ITU (group of capable of business at the which some 14 reaches 1 become the one third watching integrated having total million industry's leading digital level (online revenues up to including fastest growing countries). channels in payment, $ 15 billion. domestic and industries in the different ways. online results, international economic - etc.). markets. technical high proportion of - 70% GDP. population using the Internet • • Up to 2020: 50 - 60% of households have computer and broadband Internet In addition to objectives in a number of areas access, in which 25 - 30% use fiber (Table 2-1), the decision also establishes several optic cable; broadband targets: • Up to 2015: provide most of basic • Up to 2015: Basically complete the online public services to citizens and broadband network to communes enterprises at level 2 and level 3 nationwide, connect all schools to (download forms, interchange Internet; mobile broadband signal to information and send/receive records cover 85% of the population; through the network); • Up to 2020: Complete the broadband • Up to 2020: Most of basic public network to most of the villages; mobile services are online provided to citizens broadband signal to cover 95% of the and businesses at level 4 (service fee population; payment, receive results of service • Up to 2015: 20 - 30% of households online). Table 2-1: Objectives for making Vietnam a leading ICT country ICT business Human Broadband Universalizing ICT industry ICT usage and market resources infrastructure information development - Formed - 80% of research students of ICT - Broadband institutions - to - Most graduated from network to -Vietnam is in - Improving the develop a strong households have universities almost of the the group of one performance of ICT. telephones. qualified in both villages third leading Vietnamese ICT English and - Vietnam is throughout the - 50-60% of countries in the enterprises and professional among 10 country; households ranking of the corporations in skills to join leading countries across the United Nations both service and international providing - Mobile manufacturing country have about e- labor market. outsourcing broadband sectors. computers and government services and coverage to 95% - Total number broadband readiness. - Vietnamese digital content. of the of people internet access. ICT businesses population; - Most basic working in ICT - The software - Most public services operate at industry reaches industry and IT- - Vietnam ranks ASEAN and households have are provided 1 million based services 55 or higher in world scale, of television online to citizens including become the the rankings of which some capable of and business at domestic and industry's fastest the ITU (group having total watching digital the integrated international growing of one third revenues up to $ channels in level (online markets. industries in the leading 15 billion. different ways. payment, online economic - countries). - 70% results, etc.). technical high population using proportion of the Internet GDP. have computer and broadband Internet access; 15 2.1.2 Policy of broadband development 2.1.4 Technology guidelines Vietnam does not have a separate broadband development policy. However, through the Regulatory policies related to broadband directions of ICT development, broadband is infrastructure are relatively neutral. Nevertheless, covered in the specific policies relating to Vietnam is not a technology producer but rather network infrastructure, technology of providing a technology-applying nation, so it prefers services and contents for socio-economic technologies that have global mass deployment. development. One of the most important deployment success factors is that the network equipment is 2.1.3 Operator ownership guidelines inexpensive and advanced and that terminal devices are diverse with a reasonable price. In Decree No.25/2011/ND-CP provides addition, application of common technologies enterprises regulations in the field of will allow Vietnam to have better and deeper telecommunications.4 The decree specifies new international exchange and cooperation guidelines for the execution of several articles of (roaming from Vietnam to other countries and the Telecommunication Law relating to vice versa). ownership ratios, foreign investment, fees and authorized capital. The ownership ratio For new technologies, the MIC reviews trends limitation has impacted the two large mobile applied in the world, develops appropriate networks in Vietnam. frequency planning and make standards and recommendations for enterprises to follow. MIC Pursuant to this new decree, an organization or suggests that enterprises apply new technologies individual who owns over 20 percent of the used in advanced countries. There will be a trial charter capital or stake in one license issued by MIC for a certain period in telecommunications company will not be specified areas before allowing mass allowed to hold more than 20 percent of the deployment. There is a risk in wasted investment charter capital or stake in other or even bankruptcy if the selected technology telecommunications firms operating in the same does not achieve widespread market acceptance. services. One example is Hanoi Telecom that has to Due to this regulation, one of the major telecommunications operators in Vietnam, the Hanoi Telecom launched its CDMA network in Vietnam Post and Telecommunication Group November 2006 and started deploying its (VNPT), is in a dilemma. VNPT Group, which services in January 2007. The operator has currently owns 100 percent capital of the two installed about 800 base stations throughout the big mobile networks Mobifone and Vinaphone, country and has invested US$656 million may be forced to sell one of the two networks or towards its platform, making it one of the largest merge its two affiliates into one in order to be in telecoms projects in Vietnam. By the end of accordance with the new rules. At present, there 2007, Hanoi Telecom’s mobile service, HT still has not been an official plan or solution Mobile, was reported to have just fewer than submitted by VNPT to the Ministry of 200,000 customers. Disappointed with its Information and Communication (MIC) on this progress, Hanoi Telecom started to migrate its matter. While the merger plan has not been subscribers to a GSM network offering from proposed, it is said that schedule of equitizing April 2008. The operator signed its single largest Mobifone has been determined and VNPT is contract with Ericsson in September 2008, to going to announce and implement the plan that migrate its network from CDMA to has been delayed for quite a long time. GSM/EDGE technology at a cost of US$450 million. As part of a three-year agreement, the As per Clause 4.2 of Decree No.25/2011/ND- vendor will be responsible for the management, CP, although full foreign ownership of an operation and network design of Hanoi operator in the Vietnamese telecom sector is not Telecom’s mobile network. The operator re- allowed, overseas investors can enter into launched its mobile services under the name of business cooperation contracts or joint ventures Vietnamobile. with licensed Vietnamese operators. Customers choosing to stay with HT Mobile will receive a new GSM handset. However, those 4“Detailing and Guiding a Number of Articles of the Law who choose to retain CDMA service will be on Telecommunications.” Available at http://asemconnectvietnam.gov.vn/lawdetail.aspx?lawid=1 switched to the CDMA network of mobile 938 operator S-Fone. HT Mobile decided to its implement the transition after failing to reach 16 target of 1 million customers by the end of 2007. Source: BMI Vietnam Telecommunications Report Q2/2011 Box 2-1: Hanoi Telecom: From CDMA to GSM convert to GSM technology after deploying a nationwide CDMA network (Box 2-1). Hanoi Telecom launched its CDMA network in November 2006 and started deploying its 2.1.5 Service guidelines services in January 2007. The operator has installed about 800 base stations throughout the Services based on broadband infrastructure are country and has invested US$656 million regulated by the content of the service. towards its platform, making it one of the largest Regulations differ depending on the service such telecoms projects in Vietnam. By the end of as: online gaming, distance learning, banking and 2007, Hanoi Telecom’s mobile service, HT e-commerce transactions, etc. Mobile, was reported to have just fewer than 200,000 customers. Disappointed with its Online gaming services are being managed progress, Hanoi Telecom started to migrate its carefully regarding content and technical subscribers to a GSM network offering from conditions to ensure that the youth are not April 2008. The operator signed its single largest addictive and it matches recreational needs of contract with Ericsson in September 2008, to users. migrate its network from CDMA to Content services are not diverse and abundant at GSM/EDGE technology at a cost of US$450 the present. This relates to promotion policy of million. As part of a three-year agreement, the the enterprise and also relates to the improving vendor will be responsible for the management, ICT skills for users policy. operation and network design of Hanoi Telecom’s mobile network. The operator re- 2.2 Institutional structure launched its mobile services under the name of 2.2.1 Government institutions involved in Vietnamobile. broadband Customers choosing to stay with HT Mobile will As with most governments, setting policy for a receive a new GSM handset. However, those complex sector like telecommunications requires who choose to retain CDMA service will be action from multiple ministries and agencies. switched to the CDMA network of mobile Given the complexity of the telecommunications operator S-Fone. HT Mobile decided to sector and its impact on the entire economy, implement the transition after failing to reach its Vietnam’s policy-making includes multiple target of 1 million customers by the end of 2007. organizations (Table 2-2). Source: BMI Vietnam Telecommunications Report Q2/2011 2.2.1.1 The Ministry of Information and Box 2-1: Hanoi Telecom: From CDMA to GSM Communications (MIC) Box 2-1: Hanoi Telecom: From CDMA to GSM (Source: BMI Vietnam Telecommunications Report Q2/2011 17 The Ministry of Information and 2.2.2 Major telecom operators Communication (MIC) was created in 2007 from its predecessor, the Ministry of Post and Vietnam has a high degree of competition in its Telematics as well as several departments from telecommunication sector with a number of the Ministry of Culture and Information. The operators providing services (Table 2-3). Eight MIC is responsible for both policy and provide fixed telephone services, seven offer 2G regulation. Its mandate covers a range of fields mobile services and five offer 3G services. In including press; publishing; posts; addition there are 90 licensed Internet Service Table 2-2: Allocation of major responsibilities in telecommunications policy telecommunications and Internet; radio Providers (ISPs) although the top five control frequency; information technology; electronics; 99% of the market. Most operators are owned broadcasting and management of public services by the government or state-owned corporations. on behalf of the government. Some have foreign partners although the structure of the investment is often not MIC’s main functions include submitting drafts straightforward. of laws, ordinances, regulations, strategies and development plans to the Government. It also 2.2.2.1 Vietnam Posts & provides guidance on the implementation of Telecommunications (VNPT) laws, ordinances and regulations as well as Wholly owned by the government, Vietnam development strategies and plans. Posts and Telecommunications (VNPT) is the country’s main service provider. The group’s The Viet Nam Telecommunications Authority holdings span a range of activities ranging from (VNTA) was established under the MIC by telecom services to equipment manufacturing as merging two units under the former Department well as postal and financial services (Figure 2-1). of Telecommunications and Authority of VNPT operates the national backbone network Information and Communications Technology Quality Control, in August 2011.5 The VNTA assumes regulatory activities including advice on management of the telecommunications sector on a national scale. Specifically, the VNTA will focus on monitoring the implementation of the commitments of operators and supervision of infrastructure development. The VNTA will also be the focal point for management, supervision and inspection of regulations on tariffs and quality of service as well as telecommunications sector promotion. Competition issues, disputes and complaints between operators in the telecommunications sector shall also be reviewed by VNTA. The Vietnam Internet Network Information Center (VNNIC) is a government agency under the MIC established in 2000. It manages the country’s Internet resources including domain names, addresses, and autonomous system numbers as well as the Vietnam National Internet eXchange (VNIX). 5 Viet Nam Telecommunications Authority. “Announcement of the establishment of the Viet Nam Telecommunications Authority”, Press Release, August 15, 2011. http://english.mic.gov.vn/tintucsukien/Trang/Annoucem entofestablishmentoftheVietNamtelecommunicationsautho rity.aspx. 18 Agency Responsibilities Of the five DPMs, one holds the portfolio for telecommunications as an Deputy Prime Ministers (DPMs) economic sector, one holds the portfolio for ICT as science and technology sector. This office serves as the PMs and DPMs secretariat and clearing house, and also coordinates interdepartmental policy and institutional Office of Government (OOG) initiatives. OOG also has one department holds the portfolio for telecommunications as an economic sector, one department holds the portfolio for ICT as science and technology sector. Ministry of Information and Sets policy for and regulates the ICT sector; representative of the Communications (MIC) State’s capital interests in facility-based operators. Ministry of Industry and Trade Sets policy and develops legislation and programs for e-commerce (MoIT) and trade. Develops R&D programs for telecommunications and ICT; sets ICT Ministry of Science and standards. Was formerly the chief policy actor in ICT, but this role was Technology (MOST) changed with the creation of MIC. Ministry of Planning and Ensures sufficient and timely investment is available for approved Investment (MPI) development in IT (defined broadly to include telecommunications). Monitors implementation of the national IT plan (which covers National Steering Committee telecommunications, ICT, and the ICT projects, functions and on ICT responsibilities of all ministries and agencies). Table 2-2: Allocation of major responsibilities in telecommunications policy Figure 2-1: VNPT Group (Source: http://www.vnpt.com.vn/Default.aspx ?tabid=212&IntroId=270&temidclicked=270) that connects the provincial operating companies in 63 cities and provinces and 19 Agency Responsibilities Of the five DPMs, one holds the portfolio for telecommunications as an Deputy Prime Ministers (DPMs) economic sector, one holds the portfolio for ICT as science and technology sector. This office serves as the PMs and DPMs secretariat and clearing house, and also coordinates interdepartmental policy and institutional initiatives. OOG Office of Government (OOG) also has one department holds the portfolio for telecommunications as an economic sector, one department holds the portfolio for ICT as science and technology sector. Ministry of Information and Sets policy for and regulates the ICT sector; representative of the State’s capital Communications (MIC) interests in facility-based operators. Ministry of Industry and Trade Sets policy and develops legislation and programs for e-commerce and trade. (MoIT) Develops R&D programs for telecommunications and ICT; sets ICT standards. Ministry of Science and Was formerly the chief policy actor in ICT, but this role was changed with the Technology (MOST) creation of MIC. Ministry of Planning and Ensures sufficient and timely investment is available for approved development Investment (MPI) in IT (defined broadly to include telecommunications). Monitors implementation of the national IT plan (which covers National Steering Committee on telecommunications, ICT, and the ICT projects, functions and responsibilities ICT of all ministries and agencies). 20 Market Date Operator Ownership Services share Comment est’d (2009) Fixed 63.2% Controls mobile operators Mobifone and VNPT 1995 Gov’t Internet 68.6% Vinaphone Fixed The operator is looking to expand its 21.6% GSM presence overseas. Already active in Viettel 1998 Gov’t 33.8% Internet Cambodia, Haiti and Laos, Viettel aims to 11.6% 3G expand its reach into 15 countries by 2015. Comvik International under the Sweden Vietnam Kinnevik had a Business Cooperation Mobile Contract (“BCC”) with the government to Telecom Subsidiary GSM operate Mobifone. The BCC expired in 1996 27.2% Services of VNPT 3G May 2005 and Comvik was unsuccessful in (VMS) negotiations to convert the BCC to an “Mobifone” equity stake. Mobifone plans for a public offering of the company’s shares.6 Subsidiary GSM Vinaphone 1996 27.2% of VNPT 3G S-Fone was a BOT between Saigon Postel and SLD, a Singapore-based consortium comprising Korea’s SK Telecom, LG CDMA 0.9% Electronics and Dong Ah. In April 2010, SPT Saigon (fixed acquired control of S-Fone. SPT and SK S-Fone (S- Postel wireless) 2003 4.7% Telecom changed their business Telecom) Corporatio CDMA cooperation contract into a JV for n (SPT) (mobile) 1.8% managing the Vietnamese operator. SPT Internet will refund the capital invested by SK Telecom and the Korean operator will hold a minority stake in the JV. Hanoi People’s GSM Committee 3G (with Offers mobile through the brand Hanoi 2001 and the EVN 4.1% Vietnamobile in partnership with Hutchison Telecom Vietnam Telecom Group of Hong Kong, China. Science ) Institute CDMA (fixed wireless) 14.3% CDMA Electricity EVN (mobile) EVN is the largest CDMA operator in 2006 of Vietnam Telecom Internet 0.9% Vietnam using the 450 MHz band. (EVN) 3G (with Hanoi 3.2% Telecom ) Corporatio n for Financing FPT 2003 Internet 13.7% and Promoting Technology Affiliated with Ministry Operates GSM network in partnership with GTEL 2009 GSM 2.2% of Public Vimpelcom of Russia. Security 6“MobiFone to hold IPO this year.” TeleGeography, February 17, 2011. http://www.telegeography.com/products/commsupdate/articles/2011/02/17/mobifone-to-hold-ipo-this-year/. 21 Table 2-1: Allocation of major responsibilities in telecommunications policy VNPT owns eight state-affiliated companies, eight joint ventures (with other state-owned The Vietnam Internet Network Information enterprises as well as with private entities) and Center (VNNIC) is a government agency under 13 other subsidiaries. In addition to VinaPhone the MIC established in 2000. It manages the and MobiFone, the state companies include country’s Internet resources including domain Vietnam Telecom National (domestic services), names, addresses, and autonomous system Vietnam Telecom International (international numbers as well as the Vietnam National long-distance services) and Vietnam Data Internet eXchange (VNIX). Communication Company (data services). 2.2.2Major telecom operators 2.3 Conclusions Vietnam has a high degree of competition in its telecommunication sector with a number of Vietnam has made important fundamental operators providing services (Table 2-3). Eight changes to its legal environment with the provide fixed telephone services, seven offer 2G objective of creating a robust and competitive mobile services and five offer 3G services. In telecommunications sector, which in turn addition there are 90 licensed Internet Service provides the foundation for economic growth Providers (ISPs) although the top five control for telecommunications and IT-enabled 99% of the market. Most operators are owned business. However, Vietnam’s reform process by the government or state-owned corporations. remains incomplete. There are concerns that the Some have foreign partners although the country’s policies limit private sector and foreign structure of the investment is often not investment. In terms of transparency of straightforward. regulations, tThe current regulatory environment does not fully meet international norms of Figure 2-1: VNPT organizational structure (Source: http://www.vnpt.com.vn/Default.aspx?tabid=212&IntroId=270&temidclicked=270) 2.2.2.1Vietnam Posts & independence, and this effects licensing, non- Telecommunications (VNPT) discriminatory interconnection and cross- Wholly owned by the government, Vietnam subsidies in tariffs. These issues produce Posts and Telecommunications (VNPT) is the uncertainty and risk for new market entrants and country’s main service provider. The group’s investors, which in turn limits network holdings span a range of activities ranging from expansion, the introduction of new services and telecom services to equipment manufacturing as overall economic growth. well as postal and financial services (Figure 2-1). Fully liberalizing Vietnam’s telecommunications VNPT operates the national backbone network sector, however, is not a short-term proposition; that connects the provincial operating rather the process requires a long-term approach companies in 63 cities and provinces and ithat that impacts on three primary government connects the provincial operating companies in activities: developing a strategy and policy; 63 cities and provinces and inndirectly controls providing the legal foundation for action, for the country’s two leading mobile operators, example, through laws and regulations; and Vietnam Telecom Company (VinaPhone) and ensuring efficient implementation of a consistent Vietnam Mobile Telecom Services (MobiFone), and transparent regulatory environment that will both operating GSM networks. VNPT controls ensure effective policy implementation and 63% of the fixed telephone market, 54% of the compliance. mobile market (through VinaPhone and MobiFone) and 69% of the Internet market. Table 2-3: Main telecommunications operators in Vietnam (Source: Adapted from operator and MIC information) 22 Figure 2-1: VNPT Group (Source: http://www.vnpt.com.vn/Default.aspx?tabid=212&IntroId=270&temidclicked=270) Date Market Operator establish Ownership Services share Comment ed (2009) Governme Fixed 63.2% Controls mobile operators Mobifone and VNPT 1995 nt Internet 68.6% Vinaphone Fixed The operator is looking to expand its 21.6% Governme GSM presence overseas. Already active in Viettel 1998 33.8% nt Internet Cambodia, Haiti and Laos, Viettel aims to 11.6% 3G expand its reach into 15 countries by 2015. Comvik International under the Sweden Vietnam Kinnevik had a Business Cooperation Mobile Contract (“BCC”) with the government to Telecom Subsidiary GSM operate Mobifone. The BCC expired in 1996 27.2% Services of VNPT 3G May 2005 and Comvik was unsuccessful in (VMS) negotiations to convert the BCC to an “Mobifone” equity stake. Mobifone plans for a public offering of the company’s shares.7 Subsidiary GSM Vinaphone 1996 27.2% of VNPT 3G S-Fone was a BOT between Saigon Postel and SLD, a Singapore-based consortium comprising Korea’s SK Telecom, LG CDMA 0.9% Electronics and Dong Ah. In April 2010, SPT Saigon (fixed acquired control of S-Fone. SPT and SK S-Fone (S- Postel wireless) 2003 4.7% Telecom changed their business Telecom) Corporatio CDMA cooperation contract into a JV for n (SPT) (mobile) 1.8% managing the Vietnamese operator. SPT Internet will refund the capital invested by SK Telecom and the Korean operator will hold a minority stake in the JV. Hanoi People’s GSM Committee 3G (with Offers mobile through the brand Hanoi 2001 and the EVN 4.1% Vietnamobile in partnership with Hutchison Telecom Vietnam Telecom Group of Hong Kong, China. Science ) Institute CDMA (fixed wireless) 14.3% CDMA Electricity EVN (mobile) EVN is the largest CDMA operator in 2006 of Vietnam Telecom Internet 0.9% Vietnam using the 450 MHz band. (EVN) 3G (with Hanoi 3.2% Telecom ) Corporatio n for Financing FPT 2003 Internet 13.7% and Promoting Technology GTEL 2009 Affiliated GSM 2.2% Operates GSM network in partnership with 7“MobiFone to hold IPO this year.” TeleGeography, February 17, 2011. http://www.telegeography.com/products/commsupdate/articles/2011/02/17/mobifone-to-hold-ipo-this-year/. 23 with Ministry Vimpelcom of Russia. of Public Security Table 2-2: Main telecommunication operators in Vietnam (Source: Adapted from operator and MIC information) 24 3 Broadband technologies and market in Vietnam 3.1 Broadband infrastructure inter-regional transmission systems, transmission trunk lines connect to the In Vietnam, telecommunications operators are region switches; international gateway gradually building and completing Next switches, toll and tandem transition Generation Network (NGN) infrastructure. This switch, region switch. makes competition in Vietnam's • The access layer: Wireline access telecommunications market increasingly vibrant systems include copper and optical and provides customers many new services at cables access. Wireless access systems reasonable prices. include mobile communication and The backbone network has great reliability by fixed wireless access. using multiple fiber optic cables and microwave. The backbone network in Vietnam is built on The inter-provincial transmission network has fiber optic technology using DWDM and SDH. been liberalized in all provinces and cities. The backbone system is basically divided into In 2008, Vietnam successfully launched the three levels: (i) International level, including Vinasat I satellite opening a new chapter in the satellite earth stations, submarine landing history of the country’s telecommunications stations and overseas switching, (ii) National sector. Information can be transmitted to all level (inter-province), including backbone route regions of the country: mountainous area, and national transit exchange, (iii) Provincial border and sea, island and all means of traffic on level, including inner-provincial transmission the territorial waters. Information exchange with lines, host exchanges, branch exchanges and other countries is enhanced. Many new inner-provincial exchanges (tandem). information services can be provided such as e- Vietnam’s large coastline is an advantage for commerce, e-customs, e-banking, e-library, connecting to submarine fiber optic cable remote health, remote education, remote systems. The country’s international Internet meeting, etc. bandwidth has grown dramatically, increasing 36 However, legacy systems continue to operate. times between 2005 and 2010 and stood at 194 Ring configuration has not been completed to Gbit/s in July 2011 (Figure 3-1Figure 3-1Error! ensure the redundancy of the network. Reference source not found.). Equipment comes from many different The Vietnam National Internet Exchange providers making it difficult to manage and (VNIX) was launched in 2003. The leading ISPs develop the network. are connected with 95 Gbit/s of capacity. The 3.1.1 Structure of broadband network in exchange handled 89,195,660 Giga bytes of Vietnam traffic in July 2011. Vietnam has not built a unique and shared The voice and data networks converge on the national broadband network yet. According to NGN common network. To meet market needs, the MIC, eleven enterprises have been granted all facilities-based telecommunications licenses to build network infrastructure. enterprises are changing their network to the However, in practice, only three major NGN model based on the existing backbone companies have built telecommunications network. This involves building a new core network infrastructure on a national scale NGN and adapting the existing Public Switched (Viettel, VTN (VNPT), EVN Telecom). These Telephone Network (PSTN) into the NGN networks are interconnected with each other. architecture. Operators are exploiting new services based on NGN, such as Internet TV In terms of physical structure, the Vietnam (MegaWan of VNPT), virtual private networks, telecommunications network is divided into two prepaid VoIP services, etc. main layers: The core/transmit layer: includes • transmission and switching systems: THERE ARE TWO PIECES OF TEXT HERE THAT NEED TO BE REMOVED! Table 3-1-1: 4G Trials (Source: MIC 2011) Figure 3-1: Vietnam’s international Internet bandwidth (Source: VNNIC) 25 Figure 3-1: Vietnam’s international Internet bandwidth (Source: VNNIC) 250,000 2,500 200,000 2,000 150,000 1,500 100,000 1,000 50,000 ,500 - - 2005 2006 2007 2008 2009 2010 Jun-07 International connection 3,615 7,076 12,580 50,064 89,619 129,877 194,301 bandwidth (Mbps) Bits per person ,44 ,85 ,149 ,588 1,042 1,494 2,212 Figure 3-1: Vietnam’s international Internet bandwidth (Source: VNNIC) 3.1.2 Fixed broadband technologies one of the early countries to deploy GSM When the Internet began to be offered in technology. Since 2002, CDMA technology has Vietnam, accessing it via dial-up had low speeds, also been used, and from late 2009, 3G mobile high tariffs and poor quality. Broadband Internet networks based on WCDMA technology are allows users connect to the Internet easily with being deployed with four licensed operators: access technologies such as ADSL, leased line Viettel, Vinaphone, MobiFone and a partnership and FTTH (Fiber to the home). Dial-up is now of EVN and HT Mobile. no longer growing and tends to decrease due to Up to now, Vietnam has granted trial WiMAX low speed. licenses using the 802.16e standard in the 2.3 - At present, most Internet users are using ADSL. 3.3 GHz band (compared to 800-1800 MHz for Fiber to the Premise (FTTx) is a new technology 2G and 1900-2100 MHz and 2200 MHz for 3G). deployed by service providers. Although FPT, WiMAX service was first implemented in Lao VNPT, NetNam, Viettel and SPT have deployed Cai province in 2006.8 Until now, WiMAX is still FTTx broadband access technology, it is considered to be in “trial” even though pilots currently not a viable mass solution for have been going on for a number of years. broadband access due to the high price. Telecom Although the pilot programs were intended to companies provide FTTx broadband service in be a pre-runnerprecursor to the official selection major cities such as Hanoi and Ho Chi Minh. of a number of WiMAX service providers, the However, clients are mainly institutions, government ultimately decided to postpone its businesses and apartment buildings. decision due to unfavorable market conditions; these included the high cost of the WiMAX To meet the business demand of for broadband CPE equipment, delays in the 3G licensing Internet access, Vietnam telecommunications schedule, and the regulatory change caused by enterprises are now deploying MetroNET access the creation of the MIC. services (Metropolitan Area Network – MAN broadband service). MetroNET broadband Accessing the Internet via satellite is also service links industrial zones, big commercial deployed although it is mainly offered for large centers, software parks, hi-tech parks, new urban enterprises that have need of leased lines. areas, etc. with significant data transmission traffic. 3.1.3 Wireless broadband technologies 8 Lemon, Sumner. 2007. “Remote Vietnamese Village Gets Mobile networks now cover the entire country Internet Access Via WiMax.” PCWorld, September 21. (to the center of provinces/cities). Vietnam was http://www.pcworld.com/article/137452/remote_vietnam ese_village_gets_internet_access_via_wimax.html. 26 3.1.3.1 4G In April 2010, Vietnam’s Ministry of Information and Communications (MIC) announced its intention to invite proposals for a 4G plan in the country. Given that several 4G license Operator Pilot launch date Vietnam Post and Telecoms (VNPT) Mar-06Trials carried out in Hanoi, Ho Chi Minh City and Lao Cai Vietnam Multimedia Corporation Mar-06 Trials carried out in Hanoi and Ho Chi Minh (VTC) City FPT Telecom Mar-06 To carry out trials of both wireless and wireline WiMAX EVN Telecom Jan-07 To carry out trials of both wireless and wireline WiMAX Viettel Mar-08 To carry out trials of wireless WiMAX Saigon Postel Corporation Mar-08 Trials to be carried out in Ho Chi Minh City and MIC Table 3-1: 4G trials (Source: one2011) neighboring province VNPT, Viettel, FPT Telecom, CMC Sep-10 To carry out trials of LTE for 12 months and VTC operators had already conducted trials of WiMAX services, it is thought that WiMAX would emerge as the preferred technology for developing 4G networks. The MIC sought to ensure that either WiMAX or LTE technology could be used for deploying 4G wireless broadband. In September 2010, the MIC granted trial LTE licenses to five operators: VNPT, Viettel, FPT Telecom, CMC and Vietnam Television, Technology, Investment and Development Company (VTC). According to the terms of the license, the companies will be allowed to operate LTE networks over a trial period of 12 months. The MIC’s Telecommunications Department director said that operators will be required to participate in an auction in order to be granted a 4G license. Also in September 2010, it was announced that Vietnam Data Communication Company (VDC) and Russia’s Antares had reached an agreement to build a trial LTE network.9 The Russian firm plans to invest US$2 million while VDC will be responsible for obtaining the license and securing the infrastructure and equipment. Testing with 15 LTE base transceiver stations began on October 20, 2010 in Hanoi. 9 “Russia and Vietnam team up for trial LTE network.” TeleGeography, September 7, 2010. http://www.telegeography.com/products/commsupdate/a rticles/2010/09/07/russia-and-vietnam-team-up-for-trial- lte-network/. 27 4G license Operator Pilot launch date Vietnam Post and Telecoms (VNPT) Mar-06 Trials carried out in Hanoi, Ho Chi Minh City and Lao Cai Vietnam Multimedia Corporation Mar-06 Trials carried out in Hanoi and Ho Chi Minh (VTC) City FPT Telecom Mar-06 To carry out trials of both wireless and wireline WiMAX EVN Telecom Jan-07 To carry out trials of both wireless and wireline WiMAX Viettel Mar-08 To carry out trials of wireless WiMAX Saigon Postel Corporation Mar-08 Trials to be carried out in Ho Chi Minh City and one neighboring province VNPT, Viettel, FPT Telecom, CMC Sep-10 To carry out trials of LTE for 12 months and VTC Table 3-2: 4G Trials (Source: MIC) to a variety of different clients. For example 3.2 Status of broadband market in VNPT, the largest ADSL provider offers five Vietnam different packages ranging in speed from 1.5 to 8 3.2.1 Fixed broadband Mbit/s with the lowest speed available on a The fixed broadband Internet market in prepaid basis (Figure 3-2Figure 3-23Figure Vietnam is dominated by ADSL technology and 3-3Error! Reference source not found., top). has shown rapid growth. By the end of 2010, Vietnam’s ADSL tariffs are the lowest in Vietnam had 3.6 million ADSL subscribers comparison to other countries analyzed for the (increasing 17 times compared to 2005, Figure 3- World Bank’s broadband case studies (Error! 2, top). FTTX and cable TV broadband also Reference source not found.Figure 3-2Figure exist but so far account for less than 5% of total 3-23Figure 3-3, bottom). fixed broadband subscriptions. With a fixed broadband subscription penetration of 4 per 100 The quality of Internet services is increasingly people, Vietnam ranks in the middle of improving to meet market requirements. comparisons with other Asian nations (Figure 3- However, there are some service providers 2, bottom). Its fixed broadband penetration is competing on the number of subscribers rather the highest of any middle or low-income than the quality of services. In 2010, Vietnam’s economy in the region. fixed broadband subscriptions increased 26.7%. In 2009, the broadband market grew by 44.8% With decreasing dial-up subscribers, the and, in the previous year, it increased by 58.3%. broadband Internet service is dominant and The slowing growth reflects the impact of favored by customers for its flexibility, competition from the 3G mobile sector, where convenience, and speed. The types of service are the major operators are offering affordable diverse and there are different packages suitable mobile broadband services. 28 Fixed broadband subscriptions, Vietnam VNPT ADSL packages, Sep. 2011 Mbit/s Price per month (US$) Subscriptions (000s) Per 100 people 4,000 ,4.2 ,4.5 9 $,90 3,500 ,3.4 ,4.0 8 $,80 3,000 ,3.5 7 $,70 ,3.0 6 $,60 2,500 ,2.4 ,2.5 2,000 5 $,50 ,0.3 ,0.6 ,1.5 ,2.0 1,500 4 $,40 ,1.5 1,000 3 $,30 ,1.0 1,294 2,049 2,967 3,644 ,210 ,517 ,500 2 $,20 ,0.5 - - 1 $,10 2005 2006 2007 2008 2009 2010 0 $- Mega Mega Mega Mega Mega Pro Basic Easy Family Maxi Fixed broadband per 100 people Entry level ADSL packages, price per month, US$, Sep. 2011 0 10 20 30 40 Fixed broadband basket unlimited, 2011 Bangladesh $/Mbps Laos Cambodia $,45 $,180 Pakistan Indonesia $,40 $,160 India $,35 $,140 Sri Lanka $,30 $,120 Philippines $,25 $,100 Thailand $,20 $,80 Asia* $,15 $,60 Vietnam $,10 $,40 Malaysia $,5 $,20 China Taiwan, China $,0 $,0 Singapore Japan Hong Kong, China Korea (Rep.) Figure 3-112: Fixed broadband subscriptions per Figure 3-223: VNPT ADSL packages and ADSL 100 people in Vietnam and Asia, 2010 entry level prices, selected countries, USD, 2011 (Source: VNNIC top; ITU bottom) Note: * (Source: VNPT and leading ADSL operator in Median each country) Fiber-to-the-Premises (FTTP) services were first 3.2.2 Wireless broadband trialed in Vietnam in December 2006. The As discussed earlier, a number of trial WiMAX fastest FTTP service delivers speeds of 100 licenses have been issued and pilots are being Mbit/s, but the service costs VND 16 million carried out throughout different locations in the (US$846) per month.10 However, prices are country. However WiMAX has yet to be expected to come down once the technology deployed on a major commercial basis. matures and competition kicks in. The country’s CDMA operators have introduced mobile broadband using the 1xEV-DO technology. EVN Telecom launched EV-DO in February 2006, S-Fone in October 2006 and Hanoi Telecom (Vietnamobile) in January 2007. 10 “FTTH charges to decrease sharply in near future.” One example of the technology’s use is to VietNamNet Bridge, April 21, 2011. provide wireless broadband for connecting http://english.vietnamnet.vn/en/print/lastest- news/7387/ftth-charges-to-decrease-sharply-in-near- schools to the Internet (Box 3-1Box 3-1Box future.html. 3-1).Error! Reference source not found.). 29 In August 2009, the four winners of Vietnam’s third generation (3G) WCDMA mobile concessions were issued licenses. The recipients The objective of “Training Online Programs and were military-owned Viettel, VNPT subsidiaries Incubation for Communities - 64 Provinces” is Mobifone and Vinaphone, and a joint venture to provide IT skills training and improved between EVN Telecom and Hanoi Telecom. communications to underserved portions of the Although applications were received from six country by equipping 64 community technology operators, a lack of available spectrum in the and learning centers (CLTC) throughout 1900-2200 MHz frequency band was the Vietnam with computers, software, Vietnamese deciding factor behind 3G licenses being limited textbooks and, wireless CDMA2000 1x and to four. The operators have to accomplish 1xEV-DO service for Internet access (in 450 coverage and investment targets (Table MHz). 3-3Table 3-3). The partners are Hanoi Polytechnic University’s The other license applicants were GTel (a Center for Research and Consulting on Russian-Vietnamese Joint Venture) and Saigon Management; EVN Telecom; Microsoft Postel, which is a major shareholder in Corporation and the United States Agency for Vietnam’s fourth largest mobile operator, S- International Development. Fone. Although GTel and S-Fone were not Source: “Qualcomm’s Wireless Reach Initiative granted a concession, they were permitted to Brings Advanced 3G Technology to Vietnam partner with one of the four winners to provide Communities”, Press Release, March 24, 2008. 3G services in the country. GTel is understood to be partnering with rival Vinaphone to build a 3G network and provide the relevant services. Box 3-1: TOPIC64 Two other companies are reportedly planning to provide 3G services over the network of one of Table 3-2: 3G (WCDMA) obligations of mobile operators (Source: ?) Table 3-3: 3G (WCDMA) obligations of mobile operators 30 the market’s established telecommunications operators: they are state-run Vietnam Multimedia Corporation (VTC) and local Mobifone 3G prices, 3.6 Mbit/s, Sep. company Dong Duong. 2011 The first 3G WCDMA-based network was Price (US$) MB included commercially launched in October 2009 by $,7.00 1200 Vinaphone followed by Mobifone in December. To encourage subscribers to upgrade from 2G $,6.00 1000 to 3G, Mobifone launched a three-month special $,5.00 promotion, which allowed customers to make 800 video calls at the same tariffs applied to normal $,4.00 calls, and offering a 50% discount for mobile 600 $,3.00 Internet and mobile TV. By September 2010, all 400 of the licensees had launched their networks and $,2.00 there were some 8.5 million 3G subscriptions, $,1.00 200 exceeding fixed broadband within one year of launch.11 Three operators have launched $- 0 HSDPA with download speeds up to 14.4 1 day 7 days 30 days Mbit/s. The tariff for 3G services is freely set and does Monthly 3G basket 1 GB, 2011, US$ not differ much between operators. Mobifone offers packages depending on the speed (3.6 Mbit/s or 7.2 Mbit/s). Within those two speeds, $,51 daily, weekly or monthly options are available with each having a different amount of data included (Figure 3-4, top). The price of a monthly 3G package (including 1 GB of data) is the second lowest in Vietnam in comparison to $,26 other countries analyzed for the World Bank’s broadband case studies (Figure 3-4, bottom). $,20 $,12 $,6 $,4 Brazil Kenya Morocco Sri Lanka Turkey Vietnam Box 2-1: Hanoi Telecom: From CDMA to GSMFigure 3-4: Mobifone 3G prices and monthly 3G prices, selected countries, USD, 2011 (Source: Mobifone and leading 3G operator in each country) Note: The top chart refers to pricing for 3.6 Mbit/s. 11Wireless Intelligence. “Vietnam makes solid start in 3G”, November 2010. https://www.wirelessintelligence.com/analysis/2010/11/vi etnam-makes-solid-start-in-3g/ 31 Table 3-3: 3G (WCDMA) obligations of mobile operators The first 3G WCDMA-based service network was commercially launched in October 2009 by Figure 3-4: Mobifone 3G prices and monthly 3G Vinaphone followed by Mobifone in December. prices, selected countries, USD, 2011 To encourage subscribers to upgrade from 2G (Source: Mobifone and leading 3G operator in to 3G, Mobifone launched a three-month special each country) Note: The left chart refers to promotion, which allowed customers to make pricing for 3.6 Mbit/s video calls at the same tariffs applied to normal calls, and offering a 50% discount for mobile Internet and mobile TV. By September 2010, all of the licensees had launched their networks and there were some 8.5 million 3G subscriptions, exceeding fixed broadband within one year of launch.12 Three operators have launched HSDPA with download speeds up to 14.4 Mbit/s. The tariff for 3G services is freely set and does not differ much between operators. Mobifone offers packages depending on the speed (3.6 Mbit/s or 7.2 Mbit/s). Within those two speeds, daily, weekly or monthly options are available with each having a different amount of data included (Figure 3-4Error! Reference source not found., lefttop). The price of a monthly 3G package (including 1 GB of data) is the second lowest in Vietnam in comparison to other countries analyzed for the World Bank’s broadband case studies (Figure 3-4Error! Reference source not found., rightbottom). 12Wireless Intelligence. “Vietnam makes solid start in 3G”, November 2010. https://www.wirelessintelligence.com/analysis/2010/11/vi etnam-makes-solid-start-in-3g/ 32 4 R4. Rural broadband strategies 4 The gap between rural and urban areas in access 5.14.1 Delta and midland rural areas to the Internet, especially broadband Internet service is quite large. Broadband in Vietnam is Due to relative geographical and socio-economic considered saturated but in reality, saturation advantages, such as proximity to cities, occurs only in the cities and major centers. economic centers and industrial parks, Internet Vietnam has about 89 million people including in the delta and midland area has developed 72% living in rural areas and the market of rapidly. The broadband network basically potential customers has not been fully exploited. connects to the district level, towns and some This is a huge gap in the development of communes. Specific results as follows: telecommunication services including broadband • Most communes have an access point Internet. Vietnam has adopted various polices in providing telecommunications and an effort to minimize the broadband divide Internet services for the community. between urban and rural areas. • The broadband transmission network From now until 2015 and further to 2020, has come to more than 84% of Vietnam will give priority to the development of communes nationwide, in which: broadband in rural areas, especially to bring broadband to rural districts and poor • Number of communes using fiber communes. In addition to the general policy optic transmission accounts for priorities for rural broadband development, the over 56%. government also has special offers to help people in poor regions have access to • Number of communes using technology and help develop production and microwave transmission accounts improve quality of life. Broadband can more than 25%. contribute to poverty reduction, maintain social • Number of communes using order and national security, raise education levels satellite transmission (VSAT and create conditions for accelerating the DAMA, VSAT IP) accounts 3%. modernization of agriculture and rural areas. Besides priority policies of broadband development for poor rural regions, the The development of broadband services in the government is encouraging investment in delta and midland areas compared to broadband for schools and public hospitals in municipalities is shown in the statistical table rural areas aimed at uniformly developing and below. narrowing the digital gap between regions. Broadband Internet penetration (subscribers per 100 inhabitants) 2006 2008 SONG HONG (RED RIVER) DELTA REGION Hanoi 8.63 10.92 The rural of Song Hong delta 0.47 1.40 THE CENTRAL REGION Da Nang city 4.07 6.79 South-central Coast 0.79 1.362 THE SOUTHEAST REGION Ho Chi Minh city 6.47 8.53 The Southeast area 1.15 2.17 MEKONG RIVER DELTA REGION Can Tho city 1.38 2.15 Cuu Long river delta area 0.49 0.932 Table 4-1: Telecommunications services development in delta and midland areas 33 5.2.14.2.1 Communal P&T and The rural telecommunications market promises Cultural Points great potential and there should be significant VNPT had a program to develop so-called competition because broadband has developed Communal P&T and Cultural Points (CPCP)13 close to saturation levels in urban areas while during the period 1998 – 2007. The objectives of rural markets are in the initial development the program were to provide period. On the other hand, rural areas are now telecommunications service at the commune developing towards urbanization and there are level; to narrow the digital divide between rural many new industrial zones recently built. and urban areas, and to promote socio- Although it achieved some initial results, rural economic development. Internet network infrastructure and quality of Up to 2007, VNPT built and put into use some service still significantly lags urban areas—Hanoi 8,000 CPCPs serving 76% of the rural and Ho Chi Minh City account for 65% of total population, in which 1,535 were located in broadband subscribers—and faces several extreme poverty communes (out a total of 1,644 challenges: extreme poverty communes). In addition to • Network capacity is still weak and there postal and culture services such as books and is not a common master plan for magazines, the CPCPs have played an important network and technology. Except for the role in providing telephone, Internet and mobile sector, most telecommunications information technology services for rural and services and particularly broadband especially for extreme poverty areas. The CPCPs Internet in rural areas are being also played an important part to in complete developed based on extended cities city completing the task of bringing telephones to and towns networks. 100% of communes nationwide in 2005. In • Low income and awareness inhibits 2003, VNPT started supplying mainly dial-up broadband affordability and capability. Internet access to around 3,000 CPCPs at a cost of 35 billion VND (US$2.3 million).14 5.24.2Extreme poverty rural communes After 10 years of operating, besides the notable Communes in remote, border and island areas achievements, the CPCPs also faced obstacles and the 62 poorest districts and communes that limited effectiveness: under “Program 135” are referred to as • Cost of operating, repairing and “extreme poverty communes”. The extreme upgrading has risen due to age of the poverty communes have common system. characteristics: • Turnover in some points is too low and • Tough geographical conditions and does not cover operating costs. harsh weather; Broadband Internet has not been set up • Difficult transportation; in a large number of CPCPs so quality • Underdeveloped infrastructure and of services is low, content is poor and economic and social conditions; hence it is more difficult to attract people. • Construction and maintenance of telecommunications infrastructure is • Some CPCPs are built in places that are costly and slow capital recovery and low located far from residential areas and profitability discourages enterprises inconvenient for people, whereas some from investing in these areas. others are built near urban areas or developed socio-economic region where To develop infrastructure and universalize telecommunications and Internet services for extreme poverty communes, the State has been supporting supply and use of services for 13 The English term used by VNPT but also referred to as inhabitants and enterprises through two special Cultural Post Offices, Communal Post Culture Points and programs: developing communal access points Village Post and Cultural Points. 14 The Asia Foundation. 2009. Training Needs Assessment and providing universal telecommunication Report: Public Library Institutions and Communal Cultural Post services. Offices. http://asiafoundation.org/publications/pdf/563. 34 there is less demand due to other universalization of public utility options. telecommunications services. While the Program • Remuneration for the manager of the of developing the CPCPs was taken care of only CPCP is often low. The general by the VNPT Group, Program 74 has the educational qualification and expertise participation of major telecommunications of the majority of managers is limited companies such as the VNPT Group, Viettel, and they sometimes do not receive EVN Telecom and the Vietnam Maritime adequate training. Communication and Electronics Company (VISHIPEL). VNPT, Viettel and EVN Telecom 5.2.24.2.2 Universal are ordered by the State to provide phone and telecommunication services program Internet services and VISHIPEL is ordered to Universal service and access goals are outlined in provide public utility telecommunications Decision No 74/2006/QD-TTg of the Prime services for fishermen at sea. Minister and called “Program 74”.15 The public Thus Program 74 not only provides an utility telecommunications area is announced opportunity to access and use annually by the Ministry of Information and telecommunications services for more than 20 Communication, including most communes of million people in rural areas for economic and the 62 poorest districts, communes under social development, but this Program also Program 135, and communes in remote and supports and encourages enterprises to island areas where teledensity is below 2.5 aggressively invest in infrastructure networks subscribers per 100 inhabitants. and service development in order to provision The Program’s overall objective up to 2010 was the rural market. Some specific results of to implement universalization of basic Program 74 up to June 2010 are: telecommunications services for extreme • Most people of 4,240 communes in the poverty rural residents including providing 70% 62 poorest districts and communes of communes with a public Internet access under Program 135, in the remote, point. border and islands areas with about 22 The Vietnam Public Utility Telecommunication million people (accounting for 26% of Service Fund supports the implementation of the national population) have received State’s policies on provision of public utility benefits from the public utility telecommunication service throughout the telecommunications support policy of whole country. Mechanisms include: the State. • Support to develop more than 75,623 • Supporting development of new Internet subscribers. telecommunications network • Support to maintain the network for infrastructure and public 275,307 Internet subscribers. telecommunication services access • Support for 4,054 public Internet access points in the form of grant assistance points. and preferential loans. • Raise the Internet subscription density • Supporting people to use in public utility regions rose from 0.018 telecommunications services in the form (late 2004) to 0.32 subscribers per 100 of reduced service charges and VAT inhabitants (late 2009). exemption. The program has faced some difficulties and After more than four years of implementation, limitations: Program 74 has mobilized financial resources and technical capacity of telecommunications • The development of infrastructure has enterprises in Vietnam to develop network not kept up with demand. There are infrastructure and services for extreme poverty many differences in infrastructure and rural areas. Through Program 74, the State has subscriber density between extreme made a balance between rights and obligations poverty rural and urban areas. At the among telecommunications enterprises in end of 2009, Internet subscriber density in the public utility telecommunications 15 “Approving Program on provision of public-utility region is was only 0.3 subscribers per telecommunications service until 2010.” Available at: 100 inhabitants (although it is nearly 18 http://english.mic.gov.vn/vbqppl/Lists/Vn%20bn%20QP times higher than in 2004). Meanwhile PL/DispForm.aspx?ID=6248 35 Hanoi has 13.9 subscribers per 100 other enterprises focused investment in inhabitants, Da Nang has 8.8 urban areas. subscribers per 100 inhabitants and Ho Chi Minh has 10.5 subscribers per 100 5.34.3Future plans inhabitants. Decision No. 119/QD-TTg on 18/01/2011 by • The development of infrastructure and the Prime Minister approving the project for types of services among public utility rural communications during the period 2011 – regions is unbalanced. Communes in the 2020 identifies a number of goals relating to Region 1 and Region 2 with favourable Internet and broadband access and services: conditions have overheated development that exceeds plan targets, • 100% of communes are connected by while communes in the Region 3 far broadband transmission lines. from the district centers have levels that • 100% of communes having People's do not meet targets. The development Committee offices, schools and health of Internet subscribers and public centers are providing Internet Internet access points have not met broadband services. targets. • Internet subscriber density in rural areas • Support in the form of preferential reaches 30% to 40% national average loans to build public telecommunication density. services access points is not realistic • The state agency from the district level, because these areas have difficult departments, sectors or equivalent or geographical and socio-economic higher should have e-portals or websites conditions, low investment efficiency providing all public online services to and are unlikely to recover capital so residents and enterprises in rural areas. they do not encourage enterprises’ • The offices of the Party and investment. Up to now there are 3,130 government authority from the central communes without public Internet to commune level to have their e-mail access points, and Internet subscriber address for receiving and publicly density is very low and does not meet responding to feedback of the people. the target. • The electronic information websites of • Regarding developing new individual the Party, State, political and social and household Internet subscribers, and organizations in central and local levels new public Internet access points, only have programs to receive and reply to VNPT has exceeded the plan while comments the reflection of the people. 36 65 Analysis of broadband success and challenges in Vietnam Given its status as a lower-middle-income added services also improved. With access economy, Vietnam has made impressive strides charges declining, service quality improving, in broadband development. It has the highest variety in the number of services offered fixed broadband penetration among low and increasing and incomes rising, favorable lower-middle income countries in Asia. Though conditions have been created for sustained IMT-2000 WCDMA 3G networks were only broadband growth in Vietnam over the coming introduced in 2009, the number of mobile years. broadband subscriptions already exceeds fixed On the other hand, telecommunications broadband. Rapid economic growth and providers are developing new services but most relatively high literacy levels have contributed to of these services are only suitable for high-speed this achievement. Incomes have risen so more fiber optic transmission. The cost of installation people can afford broadband services while and use of these services is high and only many people, at least in urban areas, have the suitable in new urban areas and large enterprises. skills and awareness to access and use content Fiber to the Home (FTTH) is quite expensive, and applications delivered over high speed so ADSL is the first choice of the household networks. even though it is difficult to upgrade the In terms of policy and regulatory tools for transmission capacity. developing broadband, Vietnam has forged its own path. This has often run contrary to typical 6.25.2Technological capability recommendations for achieving ICT growth. Vietnamese telecommunications service There is no separate sector regulatory entity, the providers now have a system of modern largest operators are government owned and telecommunications equipment with thousands direct foreign investment in the of broadband Internet connection ports. Each telecommunications market has been limited for service provider has developed the network political reasons.16 Nevertheless the country has infrastructure with modern IP-based networks. developed a high- level of competition among The transmission system is built with extensive mainly state-owned enterprises. fiber optic and digital microwave transmission 6.15.1 Social-economic characteristics technology to support multimedia data services. The new broadband services exploiting NGNs When the Internet started to appear in Vietnam meets the needs of advanced users for voice, in 1997, prices were high and speeds slow, and video and data. However, with diverse forms of only a few people had the need and conditions services provided, price pressure is a challenge to access the Internet. However, the opening of for service providers today. the economy and enhanced integration with With cContinuous investment in new other countries in the region and the world, and technologies to improve and update technology the abolishment of monopoly in to keep pace with world trends is a requirement telecommunications, has significantly improved of the market as well as goals for the ICT market sector. telecommunications businesses. Pressure on Parallel to this, the demand for Internet and traditional service prices have led to disparities in especially broadband increased and this investment in telecommunications opportunity was well exploited by the service infrastructure. Telecom enterprises are focusing operators. In addition to improving service on developing mobile subscribers and mobile quality, the price for Internet access and value broadband subscribersnetworks without development of the wired network; meanwhile the wired network is critical to build long-term 16 There has not been a significant change since telecommunications infrastructure. 2002 with one report remarking: “…the On the other hand, due to competition in unwillingness of the Vietnamese governments to Vietnam's telecommunications market today convert the BCCs into joint venture agreements by (there are 12 around a dozen enterprises permitting a degree of foreign ownership.” See: providing telecommunications infrastructure), Minges, Michael, and Tim Kelly. 2002. Vietnam providers have a common need in sharing, but Internet Case Study. Geneva: International Telecommunication Union. http://www.itu.int/ITU- sharing telecommunications infrastructure is D/ict/cs/vietnam/index.html. very difficult, leading to overlap in investment in 37 the access network. This causes problems of in general should be considered as wasted resources, difficulties for users, visual investment in social economic pollution, etc. There are too many businesses infrastructure, laying the foundation providing infrastructure development making it for development in other sectors. difficult for interconnection because every operator applies different technology. This does • There is a need to develop strategies, not lead to synchronization harmonization in planning, programs and innovative national telecommunications infrastructure and projects and it is important to is not sustainable to meet the development mobilize all possible resources to needs of the country in the future. The service promote the development of providers are now trying to develop a shared co- broadband. operation network infrastructure but so far no • Government policy is needed to specific measures have been implemented due to encourage broadband investment by disagreement on the benefits as well as a lack operators (priority, infrastructure appropriate management regulatory guidelines incentives, land, tax exemptions, etc.) from the MIC. and to stimulate users to use the Internet today is associated with modern life. service (free or reduced cost, Young people in urban areas, especially Hanoi subsidized terminal equipment, and Ho Chi Minh "live" with Internet because of training, etc.). their favorable condition and because network • Encourage cCompetition among access is better than in the provinces. They can service providers should be find everything they need with the Internet and encouraged, creating incentives for actively choose their favorite entertainment. An development, while allowing emerging issue is the management of harmful businesses to set prices and information in conflict with Vietnamese introduce services. traditions. High-speeds, rich content and reasonable prices are urgent needs for Internet • There is a need to focus broadband users in general and students in particular. development evenly between regions Especially in the present moment, when the especially rural areas because this is Internet is being deployed in schools and the most concentrated area of the expanded to rural, mountainous areas, the policy population, having long-term growth for development of the Internet in general and potential. broadband in particular should ensure rational development of infrastructure and services as • Challenges arising from the well as the ensuring quality and increasing broadband development process also number of subscribers. need to be considered: Besides, tThe lack of relevant content, as well as o Development of the width (the fragmented information, calls for a public number of subscribers) should information network through a unified portal, be coupled with development equipped with an automatic translation engine, of depth (service quality) for with rich multimedia content such as health, sustainable, long-term education, culture, agriculture, libraries, etc. development. o The difference in the level of 6.35.3Conclusion and lessons learned broadband between regions is The following points summarize Vietnam’s contributing to widening gaps. broadband development: o The rapid development of • There is a need for direction and broadband can create problems, consistency of the Government for affecting social life, security and broadband development; investment politics. in broadband in particular and ICT 38 About infoDev infoDev is a global development financing program among international development agencies, coordinated and served by an expert Secretariat housed at the World Bank Group, one of its key donors and founders. It acts as a neutral convener of dialogue—and as a coordinator of joint action among bilateral and multilateral donors—supporting global sharing of information on ICT for development (ICT4D), and helping to reduce duplication of efforts and investments. infoDev also forms partnerships with public and private sector organizations who are innovators in the field of ICT4D. infoDev is housed in the Financial and Private Sector Development (FPD) Vice Presidency of the World Bank Group. For additional information about this study or more general information on infoDev, please visit www.infodev.org/publications. 39