Broadband Strategies Toolkit June 3, 2014 MODULE 1. Building Broadband Table of Contents MODULE 1. Building Broadband ....................................................................................... 1 1.1 Introduction ...................................................................................................................1 1.2 What is Broadband? .......................................................................................................4 1.2.1 Broadband as an Enabling Platform ......................................................................................... 4 1.2.2 Broadband in Terms of Speed, Functionality and Technology ................................................ 5 1.3 Why is Broadband Important? ...................................................................................... 10 1.3.1 Development Impact of Broadband....................................................................................... 10 1.3.2 Impact of Broadband on Gross Domestic Product ................................................................ 10 1.3.3 Broadband, Employment and Job Creation ........................................................................... 16 1.3.4 Broadband as a General Purpose Technology ....................................................................... 17 1.4 What Market Trends are Fostering Broadband Deployment and Adoption? ................... 29 1.4.1 Trends in Supply ..................................................................................................................... 30 1.4.2 Trends in Demand .................................................................................................................. 35 1.5 How Can Broadband Development Be Supported? ........................................................ 49 1.5.1 Broadband Ecosystem: Framework for Deployment and Adoption ..................................... 49 1.5.2 Lessons and Principles from Broadband Experience ............................................................. 56 List of Figures Figure 1.1. Comparison of Availability of Networks, Services and Applications in 2001 and 2011 .............. 2 Figure 1.2. Growth Effects of Various ICTs on GDP .................................................................................... 11 Figure 1.3. Impact on GDP of an Increase of 10 Percent in Broadband Penetration ................................. 12 Figure 1.4. Global Fixed and Mobile Broadband Penetration Rate per 100 People (2000-2010) .............. 29 Figure 1.5. Digital Divide for Wireline and Wireless Broadband, 2010 ...................................................... 30 Figure 1.6. Wireline and Wireless Broadband Subscriptions by Region, 2011* ......................................... 31 Figure 1.7. Average Broadband Speed: Top 10 Countries, Q2 2011 .......................................................... 31 Figure 1.8. Wireline Broadband Prices in Developed and Developing Countries between 2008 and 2010 .................................................................................................................................................................... 32 Figure 1.9. Worldwide LTE Network Commitments, Launches and Trials as of January 2012 ................... 34 Figure 1.10. Percentage of Internet Users Watching Videos on Video-Sharing Sites by Age, 2006-2011* 37 Figure 1.11. Number of Internet Users by Language, May 2011 ................................................................ 41 Figure 1.12. The Broadband Ecosystem and Its Impact on the Economy................................................... 50 Figure 1.13. Reasons for Non-Adoption of Internet in Brazil and Broadband in the United States ........... 53 Figure 1.14. Illustrative Examples of Elements of Absorptive Capacity...................................................... 55 Figure 1.15. Sweden and Italy: Internet Adoption Proxies ......................................................................... 56 List of Tables Table 1.1. Expected Impacts of the NBN on Output of Major Industries at 2020 ...................................... 13 Table 1.2. Estimated Broadband Employment Creation Multipliers .......................................................... 16 Table 1.3. Necessary Upstream and Downstream Speeds for Various Services and Applications............. 22 Table 1.4. Comparative Evaluation of Deploying Broadband Technologies in India ................................. 33 List of Boxes Box 1.1. Understanding Broadband Speeds ................................................................................................. 5 Box 1.2. Examples of the Potential Impacts of Broadband on Innovation in R&D ..................................... 18 Box 1.3. Mobile Health Services in Nigeria ................................................................................................ 22 Box 1.4. Impact of Facebook—Some Key Statistics ................................................................................... 36 Box 1.5. Three Trends in User Devices ....................................................................................................... 42 Box 1.6. Examples of Smart City Initiatives around the World .................................................................. 44 Box 1.7. Technological Absorptive Capacity .............................................................................................. 55 Box 1.8. Public Sector’s Role in Fostering Broadband Development—Key Lessons.................................. 57 1.1 Introduction In just one decade, the world of information and communications technologies (ICT) has changed dramatically. The Internet has become an integral part of people’s personal and business lives; critical for a wide range of information, communication and entertainment services. With broadband networks, consumers can now access the Internet at speeds up to or exceeding 100 megabits per second (Mbit/s) and they can use their mobile phones for a wide range of activities, including surfing the Internet, purchasing goods and services online, streaming video or music and conducting financial transactions. A look at the state of broadband some 10 years back, however, presents a much different picture. In 2001, fewer than 11 in 100 people around the world had any type of Internet access, the majority of which was through a dial-up connection.1 Korea (Rep.) was the only country with a wireline broadband penetration rate in the double digits;2 the other top five countries in the Organisation for Economic Co- operation and Development (OECD) had just over three subscribers per 100 people by the end of 2001.3 Wireless broadband was still in its infancy. Although there were 15.7 mobile cellular subscriptions per 100 people worldwide in 2001, third generation (3G) networks capable of mobile broadband services and applications were just beginning to be deployed. Despite relatively low speeds and penetration, by 2001 the Internet was already beginning to provide a rich and dynamic source of content and communications. Email was in common use—in 2001 nearly 12 billion email messages zipped around the world every day. Blogs had become a popular form of social media, with sites such as LiveJournal and Blogger.com leading the way. Entering the search engine business in 1998, Google had quickly expanded and provided access to over three billion documents by December 2001. Due to limited bandwidth, however, many websites were text-heavy, with few images and virtually no video. Social networking sites were merely looming on the horizon; it would be another two years before the launch of Myspace, three years for Facebook and four years for YouTube. Other bandwidth-intensive online applications, including Skype, YouTube and Apple’s iTunes store, were also years away from commercial launch. Converged services, such as Internet Protocol television (IPTV), were just being introduced. Fast-forward a decade and we find that much of what was popular in 2001 is still in high demand today. Google has continued its rise and now processes over one billion search requests every day (see Figure 1.1). The number of email accounts worldwide exceeded three billion in 2011, while the number of emails sent averaged about 300 billion per day and is expected to reach over 500 billion per day by 2013.4 With over 150 million blogs in 2011, blogging has evolved from a simple online diary to a type of new media, which is used by “citizen journalists” as an alternative to traditional journalism, as well as by governments and corporations to communicate less formally with the public. In addition, a multitude of new services and applications has emerged that were not even conceived of a decade ago. YouTube has surpassed three billion views a day,5 while Skype has over 700 million user accounts6 and Facebook over 845 million active monthly users at the end of 2011.7 The growth of today’s most popular services and applications would not have been possible without broadband access. In turn, for those currently without such access, many of these tools are still not available. 1 Figure 1.1. Comparison of Availability of Networks, Services and Applications in 2001 and 2011 2001 Internet Access Fewer than 11 in 100 people 2011 Broadband Access No. of fixed line broadband subscriptions about half a around the world had any billion globally type of Internet access Mobile Telephony Mobile Broadband 15.7 mobile subscriptions per Mobile broadband top 1 bn 100 inhabitants world-wide, subscriptions in 2011 with but 3G just beginning to be total mobile subscriptions deployed topping 5 bn Email Email Nearly 12 billion emails sent About 300 billion emails sent worldwide each day worldwide each day Google Searches Google Searches Provided access to over 3 Provided access to about 40 billion documents billion documents Converged Services Converged Services Skype's VoIP app not Skype had over 700 million available while IPTV just user while IPTV reached 50 starting (e.g. FastWeb) million users worldwide Source: TMG, Inc. Improvements to users’ online experience and the rise of digital media are largely attributable to more widespread deployment of wireline broadband, along with significant improvements to mobile technologies and services. As of December 2010, the OECD found that the average wireline broadband penetration rate in the top five countries was over 36 subscribers per 100 people, more than a ten-fold increase in less than a decade.8 Additionally, among all OECD countries, the average advertised wireline broadband speed had surpassed 37 Mbit/s by September 2010, which allows users to download a feature-length movie in a matter of minutes.9 Despite these advances, a digital divide remains between developed and developing countries. Although wireline broadband has grown considerably in terms of the global average, penetration levels in developing countries remain low. By the end of 2010, the number of fixed line subscriptions reached about half a billion globally, with just 4.4 subscriptions per 100 people in developing countries compared to 24.6 in developed countries.10 In effect, wireline broadband deployments in many developing countries are a decade behind those in developed countries. But broadband is not just about high-speed access to the Internet to allow users to surf the web, play video games and engage in social networking (although these are useful drivers of demand and provide their own benefits to users). Broadband is an enabling platform for advanced services and applications. The benefits of broadband can reverberate throughout the economy and act as an essential input in all 2 other sectors, including education, health, transportation, energy and finance; similar to the impact that electricity has had on productivity, growth and innovation. However, in order to achieve this potential, governments must put in place effective policies that spur supply and demand, as well as encourage uptake of broadband in all sectors of the economy. The roll-out of broadband requires significant investment from the private sector, as well as support from the public sector. It will also require a long-term perspective because its benefits will not occur overnight. For developing countries with limited resources, it may be difficult to focus on broadband when many of their communities do not have schools for children, safe drinking water or access to hospitals and health care. However, broadband offers countries a platform to provide other sectors of the economy with new tools to enhance businesses, improve the economy and benefit its people. This will require resources and the benefits will not be immediate, but making this high priority and part of a country’s development agenda will be necessary to ensure that developing countries do not further extend the digital divide between developed and developing countries. This module of the Broadband Strategies Toolkit expands on the significance of broadband to both developing and developed countries, first by identifying what broadband means in various contexts, including speed and functionality, identifying broadband as an enabling platform and broadband in terms of network infrastructure. Secondly, this module examines why broadband is important, particularly the potential positive impact that broadband can have on the productivity, employment and throughout every sector of the economy. The main market trends regarding the supply and demand of broadband networks, services and applications are addressed, as well as an overview of how policymakers and stakeholders can take advantage of these trends to implement deployment and adoption strategies that maximize the benefits of broadband. 1 ITU, ICT-Eye Database: Estimated Internet users per 100 inhabitants 2001 , available at http://www.itu.int/ITU- D/ICTEYE/Reports.aspx. 2 ITU, ICT-Eye Database: Estimated fixed broadband subscriptions 2001, available at http://www.itu.int/ITU- D/ICTEYE/Reports.aspx#. 3 OECD, 1h. Historical Penetration Rates, Top 5 (June 2010), available at http://www.oecd.org/sti/ict/broadband. 4 Pingdom, “Internet 2011 in Numbers,” January 17, 2012, http://royal.pingdom.com/2012/01/17/internet-2011- in-numbers/; The Radicati Group, Inc., “Choose Your Sign-Off,” December 31, 2011, http://www.radicati.com/?p=8025. 5 YouTube, “Statistics,” http://www.youtube.com/t/press_statistics. 6 Skype Journal, “Attention: Skype is Half-a-Facebook in user activity, a Quarter of all International Phone Calls,” January 10, 2012, http://skypejournal.com/blog/2012/01/10/attention-skype-is-half-a-facebook-in-user-activity-a- quarter-of-all-international-phone-calls/. 7 Facebook, “Fact Sheet,” http://newsroom.fb.com/content/default.aspx?NewsAreaId=22. 8 OECD, 1d. Fixed and wireless broadband subscriptions per 100 inhabitants (Dec. 2010), available at http://www.oecd.org/document/54/0,3746,en_2649_34225_38690102_1_1_1_1,00.html. 9 OECD, 5a. Average advertised download speeds, by country (Sept. 2010), available at http://www.oecd.org/sti/ict/broadband. 10 ITU-D, Measuring the Information Society (2011), available at http://www.itu.int/ITU- D/ict/publications/idi/2011/Material/MIS_2011_without_annex_5.pdf. 3 1.2 What is Broadband? Despite its worldwide growth and promotion by policymakers, network operators, content providers and other stakeholders, broadband does not have a single, standardized definition. The term “broadband” may refer to multiple aspects of the network and services, including: 1) the infrastructure or “pipes” used to deliver services to users; 2) high-speed access to the Internet; and/or 3) the services and applications available via broadband networks, such as Internet protocol television (IPTV) and voice services that may be bundled in a “triple play” package with broadband Internet access. Further, many countries have established definitions of broadband based on speed, typically in Mbit/s or kilobits per second (kbit/s), or based on the types of services and applications that can be used over a broadband network (i.e., functionality). Due to each country’s unique needs and history, including economic, geographic and regulatory factors, definitions of broadband vary widely. Traditionally, broadband has often been defined in terms of data transmission speed (i.e., the amount of data that can be transmitted across a network connection in a given period of time, typically one second, also known as the data transfer rate or throughput). Defining broadband in terms of speed has been an important element in understanding broadband, particularly since the data transfer rate determines whether users are able to access basic or more advanced types of content, services and applications over the Internet. However, attempts to define broadband in terms of speed present certain limitations. To address these limitations, some countries (e.g., Brazil)1 and international organizations (e.g., OECD)2 have decided or proposed not to categorize broadband in terms of speed, but are instead looking at broadband in terms of functionality—focusing on what can and cannot be done with a certain type of connection. 1.2.1 Broadband as an Enabling Platform The Broadband Strategies Toolkit and Handbook view broadband more holistically as a high-capacity ICT platform that improves the variety, utility and value of services and applications offered by a wide range of providers, to the benefit of users, society, and multiple sectors of the economy. From a policy perspective, broadband should not be viewed simply as a certain speed or functionality, but as an enabling ICT platform that can potentially influence the entire economy. As noted by the OECD and the World Bank, the true benefits of broadband are expected to arise less from any direct impact but instead from the applications that broadband enables and the associated gains in productivity.3 While there are direct effects from investments in broadband technology and deployment of the infrastructure, the indirect effects arise from factors that drive growth, including innovation, efficiency and competition, as well as the facilitation of new and useful products, services, processes and business models that could not exist without broadband.4 According to the OECD, as broadband technology continues to improve and bandwidth increases, the capacity for broadband to act as an enabler of structural change in the economy expands due to its impact on an increasing number of sectors and activities.5 Viewing broadband as an enabling platform and key input across sectors is the basis of identifying the role that broadband can play as a general purpose technology (GPT), which is further addressed in the section 1.3.4. In order to capture the full range of these potential benefits, it may be useful for policymakers to consider broadband through an ecosystem framework, as outlined in section 1.5.1. This perspective comprises both supply-side considerations (network platforms) and demand-side considerations, such as e-government initiatives, development of services and applications). To encourage the diffusion of 4 broadband-enabled innovations throughout the economy, policymakers should also consider the absorptive capacity of various sectors, including health, education, energy and transportation. Unless all these elements—supply, demand, and absorptive capacity—are coordinated, the impact of broadband on the economy as a whole will be constrained. 1.2.2 Broadband in Terms of Speed, Functionality and Technology Seeing broadband as an enabling ICT platform does not contradict or exclude common understandings that define broadband in terms of speed, functionality, or technology. This section will give an overview of more specific elements of broadband, usually used to narrow the term down. In the most practical sense, the term broadband is generally understood to mean a dedicated or “always-on” connection to the Internet with speeds faster than dial-up. The concept of broadband also involves being able to do things that are virtually impossible to do over dial-up given its limited bandwidth—videoconferencing, online gaming and watching videos, to name a few. Broadband has commonly been defined in terms of a minimum data transmission speed, usually referring to the amount a user can download. Defining broadband in terms of speed refers to the amount of data (generally in bits) that can be transmitted across a network connection in a given period of time, typically one second. Also known as the data transfer rate or throughput, speed has been an important element in understanding broadband, particularly since the data transfer rate determines the types and range of content, services and applications that a user may access. Speed matters for users: An increasing number of Internet applications, such as those that display high- quality video content, require high speeds to work. These applications often cannot be downloaded or viewed unless the Internet connection is of a certain speed and quality. When a user tries to access an application hosted on a remote server, the speed and quality of the user’s connection is measured by the server, and an error message is displayed if the connection does not meet the minimum requirements to provide the service. Even if an Internet application or website does not impose these requirements, there are other consequences to users on slower connections. Usability suffers when an application or website meant to be used over broadband is accessed over dial-up, often to the point of futility. A website or application that is accessible but effectively unusable over slower connections will lead only to frustrated users and, for commercial websites, higher expenses for customer support. In addition, as broadband connections have become faster and more widespread, website designers have taken advantage of the added bandwidth to offer richer and more complex websites. Consumers on slower connections, and especially those on dial-up, may find that their experience on the Internet worsens with each website redesign. Box 1.1. Understanding Broadband Speeds 1 kbit/s = 1,000 bits per second 1 Mbit/s = 1,000,000 bits per second (1,000 kbit/s) 1 Gbit/s = 1,000,000,000 bits per second (1,000 Mbit/s) However, definitions of the precise threshold of transmission rates that determines whether Internet access is considered broadband vary. At the low end, broadband is often defined as download speeds of at least 256 kilobits per second (kbit/s). A 2009 ITU document, for example, defines broadband as at least 256 kbit/s.6 This is the definition used by other organizations, including the OECD, the United Nations Conference on Trade and Development, and the Partnership for Measuring ICT for Development, a consortium of international organizations and agencies. However, Recommendation 5 I.113 of the ITU Standardization Sector, defines broadband as “transmission capacity that is faster than [...] at 1.5 or 2.0” Mbit/s, and in reality, broadband services are increasingly being offered at 100 megabits per second (Mbit/s), with the goal of reaching 1 Gigabit per second (Gbit/s) and beyond.7 The higher the data transfer rate, the faster that files can be transmitted and, in this way, broadband speed is linked with functionality. Attempts to define broadband more specifically in terms of speed can be challenging. As a 2008 study on behalf of the European Union (EU) noted: Definitions based on data transfer speed are not able to take into account the very fast evolution in technologies and uses. Is a bandwidth of 256 kbit/s a broadband connection? Should the lower limit be set to 1 Mbit/s? There is no definitive answer as the bandwidth required to run internet applications is continuously increasing and infrastructure standards are also continuously improving to face the growing demand. Such a definition can only be relative to a 8 particular moment in time in a particular country. Defining broadband in terms of speed presents several difficulties. First, broadband speed definitions vary widely among countries and international organizations from at least 256 kbit/s on the low end (such as in India)9 to faster than 1.5 Mbit/s on the high end (such as in Canada). Second, as referenced in the above-mentioned EU study, definitions based on speed may not keep pace with technology advances or with the speeds services and applications require to function properly. In other words, what is considered “broadband” today may be seen as too slow in the future as more advanced applications technologies develop. Thus, any speed-based definition of broadband will need to be updated over time. Third, such definitions may not reflect the speeds realized by end users such that the speeds advertised by commercial broadband providers may be much higher than the speeds set by the government as broadband or vice versa. For example, while Colombia’s broadband speed definition is 1 Mbit/s, its average broadband connection speed is already 1.8 Mbit/s. Policymakers and regulators are struggling to develop definitions of broadband that are appropriate to the time and that reflect rapidly improving technological capabilities. In July 2009, for example, India’s telecommunications regulator suggested that the government redefine broadband as connectivity of 2 Mbit/s or faster, up from the 256 kbit/s defined in the Broadband Policy of 2004.10 Some countries have developed different categories in addressing broadband. The Canadian Radio-television and Telecommunications Commission, for example, distinguishes between “high-speed Internet service,” defined as at least 128 kbit/s, and “broadband service,” which must be at least 1.5 Mbit/s. In addition to or in place of these definitions, a number of countries have minimized or avoided the issue of defining broadband in terms of speed and have focused instead on setting ambitious minimum speed goals. Broadband speed goals in these countries include:  Australia’s goal is to make connections with speeds of 100 Mbit/s available to 93 percent of homes, schools, and businesses by 2018.  Finland has the goal of making 100 Mbit/s connections available to every household by 2016.  Germany’s goal is 50 Mbit/s connections for 75 percent of households by 2014.11  The EU’s “Digital Agenda for Europe” calls for all Europeans to have access to connections with speeds of at least 30 Mbit/s by 2020, with 50 percent or more of households having access to speeds in excess of 100 Mbit/s.  Korea, a country where broadband connection speeds already average almost 50 Mbit/s, has set the lofty goal of 1 Gbit/s connections by 2013.12 6  Sweden aims for 40 percent of households and businesses having access to 100 Mbit/s connections by 2015, and 90 percent by 2020.13  The United Kingdom has relatively modest goals. Its “Digital Britain” plan aims for universal connections of at least 2 Mbit/s by 2012.14  The United States set a goal of providing 100 million households with access to actual (not advertised) speeds of 100 Mbit/sMbit/s and all households with access to actual speeds of at least 4 Mbit/s downlink and 1 Mbit/s uplink by 2020.15 Given the speed and unpredictability of technological progress, the FCC plans to “review and revise” these goals every four years.16 Some countries are moving away completely from understanding broadband in terms of speed and instead seek to define it in terms of functionality. This is because minimum upload and download numbers do not always paint the whole picture, and definitions based on bandwidth run the risk of always being a step behind. Defining broadband in terms of functionality cuts to the chase: what can and cannot be done with a certain connection. As with many information technologies, broadband has demonstrated that it is quick-to-market, continually changing and unpredictable. Customer expectations are continually ramping up as the need for more bandwidth and faster connections is driven by more advanced services and applications. For example, Brazil’s broadband plan avoids attaching a minimum speed to its definition of broadband. Instead, broadband is defined as “the provision of telecommunications infrastructure that enables information traffic in a continuous and uninterrupted manner, with sufficient capacity to provide access to data, voice and video applications that are common or socially relevant to users as determined by the federal government from time to time.”17 This definition identifies those Internet applications that must be accessible over an Internet connection in order for that connection to be considered broadband. At the same time, it allows for the government to adjust the set of Internet applications that serve as the benchmark. However, for some purposes, defining broadband in terms of functionality can be problematic as meeting the definition becomes more subjective. A definition based on speed is easy to apply: if broadband is defined as at least 1.5 Mbit/s, a 2 Mbit/s connection is broadband while a 1 Mbit/s connection is not. But when broadband is defined in terms of functionality, the distinction between what is and is not broadband becomes fuzzy. Admittedly, this can lead to positive outcomes, for example, if citizens of a country can appeal to operators and regulators for speeds that meet actual current usage criteria. Yet, the questions that need to be answered also become more equivocal: Is being able to watch a YouTube video equal to a broadband connection? What if it takes minutes to buffer and starts and stops throughout? For several contexts, being able to universally quantify broadband can be useful. If a country wants to compare itself to its peers in terms of broadband penetration, for example, it needs to follow a common metric. If it wants to be able to track its growth in broadband availability from year to year, it needs to set a standard that can be easily and reliably measured over time. Likewise, if it wants to hold accountable telecommunications providers to their broadband deployment plans it must provide a clear definition or set of expectations for providers to meet. To allay some of the aforementioned shortcomings, some countries seem to be embracing a “hybrid” approach to defining broadband. On one hand, they specify the minimum speed that will qualify as broadband. On the other hand, they list the Internet applications that a broadband connection should support. For example, the Canadian National Broadband Task Force has defined broadband as “a high- capacity, two-way link between end users and access network suppliers capable of supporting full- 7 motion interactive video applications to all Canadians on terms comparable to those available in urban markets.” Nonetheless, the CRTC defines broadband as at least 1.5 Mbit/s (with anything faster than 128 kbit/s being defined as “high-speed”). The U.S. Federal Communications Commission divides broadband into tiers as described above, but also describes broadband as an “advanced communications systems capable of providing high-speed transmission of services such as data, voice, and video over the Internet and other networks.”18 Next to speed and functionality, in addressing “what is broadband,” it is also useful to identify the various wireline and wireless technologies that deliver connectivity to users. Generally, the three main wireline technologies currently in use to deliver broadband to end user locations are: 1) digital subscriber line (DSL); 2) hybrid fiber coaxial cable (HFC) or cable modem; and 3) fiber optic cable. Fiber networks generally offer the fastest speeds. Particularly if fiber network access reaches directly to the end user’s home or business, referred to as fiber-to-the-premises (FTTP), then download speeds can reach 100 Mbit/s or more.19 Maximum download speeds ranging from 40 Mbit/s to over 100 Mbit/s can be achieved through fiber-to-the-curb or -cabinet (FTTC), which carries the fiber network to within a few hundred meters of the end user location with the remaining distance covered by DSL or HFC.20 Fiber, as well as cable modem and the more advanced versions of DSL (such as Very-High-Speed DSL), can support the latest business services, such as videoconferencing ‘or triple play’ services for households (Voice over Internet Protocol (VoIP), television services and video-on-demand, and high-speed Internet access). Third generation (3G) networks are the main mobile broadband technologies available today. In 2011, there were nearly three billion 3G subscriptions,21 of which over 70 percent had peak download speeds of 7.2 Mbit/s or higher.22 As the number of Long-Term Evolution (LTE) deployments grows, mobile users will be able to take advantage of the wide array of services available with fourth generation (4G) networks offering download speeds of up to 100 Mbit/s. Notably, LTE deployments are occurring at the fastest rate of any mobile technology ever, faster than both second generation (2G) and 3G networks.23 For greater detail on the evolution of mobile broadband, as well as greater technical specifications of wireline broadband, see Chapter 5 of the Broadband Handbook and Module 2 of the Broadband Toolkit. 1 Brazil’s broadband plan defines broadband as “the provision of telecommunications infrastructure that enables information traffic in a continuous and uninterrupted manner, with sufficient capacity to provide access to data, voice and video applications that are common or socially relevant to users as determined by the federal government from time to time.” Ministério das Comunicações, Um Plano Nacional Para Banda Larga: O Brasil Em Alta Velocidade (BrazilianNational Broadband Plan) at 24 (2009) (translated by Telecommunications Management Group, Inc.) 2 OECD, Broadband Growth and Policies in OECD Countries at 134 (2008). 3 Valerie D’Costa and Tim Kelly, Broadband as a platform for economic, social and cultural development: Lessons from Asia, infoDev / World Bank, Joint OECD-World Bank Conference on Innovation and Sustainable Growth in a Globalized World, Paris (Nov. 18-19, 2008), available at http://www.itu.int/wsis/stocktaking/plugin/broadband/documents2BB.asp?project=1287068545&lang=en&email =&userid=. 8 4 OECD, Broadband and the Economy, DSTI/ICCP/IE(2007)3/FINAL, OECD Ministerial on The Future of the Internet Economy, p. 11 (June 17-18, 2008), available at http://www.oecd.org/dataoecd/62/7/40781696.pdf. 5 OECD, Broadband and the Economy, DSTI/ICCP/IE(2007)3/FINAL at 11 (2008). 6 ITU, Manual for Measuring ICT Access and Use by Households and Individuals at 22(2009). 7 ITU, ITU and Its Activities Related to Internet-Protocol (IP) Networks at 55 (2004). 8 Martin Fornefeld, Gilles Delaunay, and Dieter Elixmann, The Impact of Broadband on Growth and Productivity , A study on behalf of the European Commission, p 9 (2008), available at http://ec.europa.eu/information_society/eeurope/i2010/docs/benchmarking/broadband_impact_2008.pdf. 9 ITU, Manual for Measuring ICT Access and Use by Households and Individuals at 22 (2009). 10 The Hindu Business Line, TRAI for ‘redefining’ floor broadband speed at 2Mbps, July 24, 2009, available at http://www.thehindubusinessline.com/2009/07/24/stories/2009072451070400.htm 11 Germany Federal Ministry of Economics and Technology, The Federal Government’s Broadband Strategy at 8 (2009). 12 ABC News, South Korea to Get Super High-Speed Broadband, February 3, 2009, available at http://abcnews.go.com/Technology/PCWorld/story?id=6794550. 13 Government Offices of Sweden, Broadband strategy for Sweden at 14 (2009). 14 U.K. Department of Business Innovation & Skills, Digital Britain Report at 12 (2009). 15 U.S. FCC, Connecting America: The National Broadband Plan at 25, 135 (2010). 16 U.S. FCC, Connecting America: The National Broadband Plan at 135 (2010). 17 Brazil Ministério das Comunicações, Um Plano Nacional Para Banda Larga: O Brasil Em Alta Velocidade (Brazilian National Broadband Plan) at 24 (2009) (translation ours). 18 U.S. FCC, Federal Communications Commission Strategic Goals – Broadband, available at http://www.fcc.gov/broadband/ (last visited Jan. 31, 2011). 19 Ray Le Maistre, “BT Ramps up Its FTTX Speeds,” Light Reading, October 5, 2011, http://www.lightreading.com/document.asp?doc_id=213082. 20 Rupert Wood, “Extending the Speed and Reach of Copper NGA,” Analysys Mason Knowledge Centre, May 19, 2011, http://www.analysysmason.com/about-us/news/insight/Insight_extending_copper_May2011/. 21 ITU, “ICT Facts and Figures,” The World in 2011, October 2011, http://www.itu.int/ITU- D/ict/facts/2011/material/ICTFactsFigures2011.pdf. 22 Global mobile Suppliers Association, “Mobile Broadband Wallchart: 3GPP Systems,” November 7, 2011, http://www.gsacom.com//downloads/charts/WCDMA_Networks_Wallchart.php4. 23 Global mobile Suppliers Association, “GSM/3G Market/Technology Update,” Evolution to LTE Report, January 5, 2012, http://www.gsacom.com/gsm_3g/info_papers.php4. 9 1.3 Why is Broadband Important? 1.3.1 Positive Impacts of Broadband With the appropriate policies in place, broadband is a transformative platform that impacts the ICT sector as well as other sectors of the economy. While some may disagree on the precise economic and social benefits that can be attributed specifically to broadband, and may challenge the studies that have suggested a large impact, few argue against the fact that broadband has dramatically changed our personal lives, our businesses and our economies. Moreover, as an enabling ICT platform and potential GPT, broadband can facilitate growth and innovation in the ICT sector and throughout the economy, serving as a vital input for each sector that strengthens the economy as a whole. Broadband has the capacity to “contribute to virtually every sector in the economy through productivity gains.”1 Even beyond productivity increases, broadband affects the economy in multiple ways, for instance, through job growth and improved quality of life. It is capable of facilitating micro- and macroeconomic growth by “accelerat[ing] the distribution of ideas and information and foster[ing] competition for and development of new products, processes, and business models.”2 Broadband impacts a country’s economic output and GDP in multiple ways by: 1) enhancing the role of human capital through easier acquisition of knowledge and technical skills; 2) improving the efficiency and productivity of enterprises; 3) increasing community competitiveness by attracting knowledge-based businesses; and 4) sparking new and innovative technologies, services, applications and business models.3 The multiplier effect of broadband can drive GDP, productivity, and employment growth. However, policies that support the supply and demand elements of the ecosystem, as well as the absorptive capacity to develop broadband capabilities in other sectors, must all be in place in order to fully realize such benefits. 1.3.2 Impact of Broadband on Gross Domestic Product Due to the potentially wide-ranging impacts of broadband, and its ability to provide easier access to information that increases efficiencies and productivity in the economy, it is unsurprising that increased use of broadband networks and services has been found to produce positive outcomes that reverberate throughout a country, particularly involving GDP. A frequently cited World Bank study found that low- income and middle-income countries experienced “about a 1.38 percentage point increase in GDP for each 10 percent increase in [broadband] penetration” between 2000 and 2006.4 The World Bank further found that the development impact of broadband on emerging economies is greater than for high-income countries, which “enjoyed a 1.21 percentage point increase in per capita GDP growth” per 10 percent increase in broadband penetration.5 The study also demonstrates that broadband has a potentially higher growth effect than other ICTs, including wireline telephony, mobile telephony and the Internet, as shown in Figure 1.2. The predominance of broadband may be unexpected considering that, over the last decade, mobile telephony has been the fastest growing ICT worldwide, with a 2010 global penetration rate of 76.2 out of 100 persons.6 10 Figure 1.2. Growth Effects of Various ICTs on GDP 1.50 High Income Economies Low Income Economies 1.38 1.21 1.12 Percentage Growth 1.00 0.81 0.77 0.73 0.6 0.50 0.43 0.00 Fixed Mobile Internet Broadband Source: Adapted from Qiang and Rossotto, Extending Reach and Increasing Impact, Chapter 3: Economic Impacts of Broadband, p. 45. The World Bank’s findings of broadband’s growth effects are supported by other independent studies. In a study noting the extensive benefits of broadband for emerging markets, management consulting firm McKinsey & Company estimated that “a 10 percent increase in broadband household penetration delivers a boost to a country’s GDP that ranges from 0.1 percent to 1.4 percent.”7 Additionally, a study of OECD countries by global consulting firm Booz & Company found that among high-income countries, there is a strong correlation between average annual GDP growth and broadband penetration wherein “[c]ountries in the top tier of broadband penetration have also exhibited 2 percent higher GDP growth than countries in the bottom tier of broadband penetration.”8 Although numerous studies have found a positive impact on economic growth, the estimate of its actual magnitude varies. For example, a ten percent increase in broadband penetration has been found to increase economic growth from a low of range of 0.24 percent to a high of 1.50 percent (Figure 1.3). 11 Figure 1.3. Impact on GDP of an Increase of 10 Percent in Broadband Penetration Katz * 0.24% 0.26% McKinsey (average studies) ** 0.60% 0.70% Analysys Mason *** 1.10% Qiang & Rossotto + 1.21% 1.38% Czernich et al. ++ 0.90% 1.50% 0.00% 0.25% 0.50% 0.75% 1.00% 1.25% 1.50% 1.75% Minimum Maximum 9 10 11 12 13 Sources: Katz 2010; Analysys Mason 2010; McKinsey 2010; Qiang&Rossotto 2009; and Czernich et al. 2009. Notes: * Only includes Germany; ** Average of five country studies, including United Kingdom, Australia, New Zealand, Malaysia and a Middle Eastern country, from various sources 2003 and 2004, and Qiang and Rossotto 2009 study; *** Limited to mobile broadband impact in India; + Various countries, upper range applies to developing countries and lower range to developed countries; ++ Sample of 20 OECD countries. While these studies provide important insight into the growth effects of broadband, data collection and further systematic research and analysis in this area are needed, particularly for developing countries. Currently, there is ample anecdotal evidence of the effects of broadband on economic growth, with some cases highlighted below. However, these cases provide only limited evidence of the impact that broadband has on the economy as a whole. It is also important to note that investment in broadband or policies fostering its deployment or adoption are unlikely to produce significant GDP gains without complementary investments or policies in other sectors, notably education, innovation, civic participation and health care. However, even with the implementation of appropriate policies, the impacts of broadband on growth in certain areas may be limited. For example, developing countries may be in less need of telemedicine to improve health outcomes and more in need of low-tech and inexpensive solutions, such as mosquito nets and de-worming pills.14 Additionally, despite providing a new educational resource, broadband can also create a new distraction if careful controls are not in place that limit Internet access to non-academic sites such as Facebook, YouTube and file-sharing websites.15 Examples of the impact of broadband on economic growth around the world Australia The Australian Government is in the process of deploying the country’s largest-ever infrastructure project, the National Broadband Network (NBN). At a cost of up to AUD 43 billion (USD 41 billion) over eight years, the NBN is set to rollout a fiber network delivering broadband speeds of up to 100 Mbit/s 12 to at least 93 percent of the population and wireless networks delivering speeds of 12 Mbit/s or more to those living in remote areas.16 As the NBN is implemented, both the public and private sectors are researching the impact that the NBN is expected to have on economic growth. One such study, completed in November 2010, reviewed the anticipated effects of the NBN up to the year 2020 based on the NBN’s rollout plan.17 The results revealed that for 18 industries, the NBN’s impact would improve economic outcomes between 0.17 percent and 0.54 percent with an average of 0.43 percent across all industries.18 As Table 1.1 below shows, four industries—transportation, electricity, water and government services—will have more than 0.5 percent growth due to broadband. Interestingly, the communications industry is expected to gain 0.46 percent in output from broadband, which is less than the expected gain in the top six sectors. Despite these estimated gains, the authors of the study believed “they most likely underestimate the full impacts of applications, processes and business models that are only available with a high speed and quality service.”19 Overall, the benefits across all sectors help to demonstrate the significant network effects of broadband. Table 1.1. Expected Impacts of the NBN on Output of Major Industries at 2020 Industry % Change (most to least) Transport 0.54 Water 0.54 Electricity 0.53 Government services 0.51 Finance and insurance 0.49 Construction 0.49 Gas 0.48 Communications 0.46 Trade 0.44 Other business services 0.43 Oil 0.42 Recreation and other services 0.38 Coal 0.34 Manufacturing 0.33 Forestry and fishing 0.27 Other minerals 0.25 Processed foods 0.23 Primary agriculture 0.17 Source: Simes, et al., Australian Business Expectations for the National Broadband Network, p. 6. The study also surveyed 540 businesses across the 17 industry groups with annual revenues ranging from less than AUD 5 million to over AUD 1 billion, finding that 57 percent expected that the NBN will change the way they communicate with suppliers and customers while 55 percent believed that their online capabilities will definitely or likely be enhanced by the NBN.20 13 Canada Over the last several years, broadband access studies in Canada have focused on the importance of broadband for economic growth and development, particularly in rural areas. In 2005, for example, Industry Canada commissioned a survey to be conducted in the rural areas of British Columbia regarding subscribers’ views of the significance of broadband access. More than 80 percent of all business respondents “reported that absence of broadband would affect their businesses negatively” and over 18 percent stated “they could not operate their businesses without broadband.”21 Additionally, according to business owners’ self-reported figures, broadband increased productivity by 62 percent and there was “a majority indicating an increase in productivity of more than 10 percent.”22 Overall, the study showed that, even prior to 2005, broadband had become a significant competitive factor for businesses in rural British Columbia.23 An earlier study on broadband investment, conducted in the township of Dundas, Ontario in 2003, showed that investment in fiber optic network infrastructure of CAD 1.3 million resulted in CAD 25.22 million “increase in GDP for Dundas County and CAD 7.87 million increase for the Province of Ontario,” as well as the creation of 207 new jobs.24 The researchers also found that the new fiber lines directly contributed to an additional CAD 3.5 million in provincial tax revenues and CAD 4.5 million in federal tax revenues.25 China Between 2010 and 2013, China’s network operators, China Unicom, China Telecom and Chi na Mobile, are expected to invest an estimated CNY 62.billion (USD 9 billion) in the creation of a single fixed broadband access network providing speeds of 1 Mbit/s or more.26 These investments seem justified given the fast growth of the number of fixed broadband subscribers: it is expected to reach 182 million by 2013, which represents growth of nearly 77 percent between 2010 and 2013.27 Set against these figures, the impact of broadband on China’s GDP is anticipated to be substantial. As such, China’s “dial-up and broadband Internet together may contribute a combined 2.5 percent to GDP growth for every 10 percent increase in penetration.”28 Germany Under Germany’s National Broadband Strategy, 75 percent of households are expected to have broadband access of at least 50 Mbit/s by 2014. By 2020, 50 percent of German households will have 100 Mbit/s access while another 30 percent will have 50 Mbit/s broadband access. A 2009 study on the economic impact of the National Broadband Strategy found that investments in the network are expected to result in a contribution of EUR 18.8 billion to Germany’s GDP between 2010 and 2014.29 By 2020, Germany’s ultra-fast broadband network will contribute an additional EUR 14.6 billion in GDP. The study further found that from an “incremental economic growth standpoint, network construction would yield additional value added of 33.4 billion Euros, while network externalities will result in additional 137.5 billion Euros.”30 India A study released by Analysys Mason in December 2010 on the deployment of wireless broadband in India found that each percentage point increase in mobile broadband penetration in India could increase India’s GDP by INR 162 billion (USD 3.8 billion), or 0.11 percent, by 2015.31 The study further indicated that if the Indian Government allocates an additional 5 MHz of 3G spectrum to each licensee, the broadband penetration rate would likely increase 3.3 percent.32 This could result in an increase of 14 INR 538 billion (USD 12.7 billion) of GDP, in addition to the case that no additional allocation is made, translating into an additional 3.3 percent growth in GDP by 2015.33 The study also estimated significant improvements to other sectors within the wireless broadband ecosystem by 2015 regarding content, applications, service models and device categories:34  82 percent increase in the consumer/retail sector, including mobile advertising, entertainment and commerce.  67 percent increase in the financial services sector, including mobile banking.  101 percent increase in social services, including mobile learning, health and government. Latin America and the Caribbean A study of 24 countries in Latin America and the Caribbean found that, controlling for educational and developmental starting levels, a “1 percentage point in broadband penetration can generate 0.0178 percentage points in GDP growth” (i.e., 10 percent increase in broadband penetration results in 1.78 percent increase in GDP).35 Based on this figure, it was estimated that the contribution of broadband to GDP growth throughout Latin America and the Caribbean was 3.4 percent between 2009 and 2010.36 The study also found that from 2007 to 2008, the growth of broadband access in Latin America and the Caribbean contributed between USD 6.7 billion and USD 14.3 billion to the economies, taking into account both direct and indirect effects.37 South Africa In July 2010, the South African Government issued the Broadband Policy for South Africa, which aims to provide 256 kbps download speed to 15 percent of the country’s households with broadband being within 2 km of the remaining households by 2019.38 A 2010 study by Analysys Mason reviewed the likely direct and indirect effects the broadband policy might have on South Africa’s economy, finding that wireless broadband is expected to increase the country’s GDP by 1.8 percent, or over ZAR 72 billion (USD 9.4 billion) by 2015.39 In addition, wireless broadband is expected to create about 28,000 new jobs directly, not including further jobs outside the communications industry.40 Thailand A 2010 study of broadband in Thailand noted that even without a formal broadband plan or policy —the “business as usual” (BAU) path to broadband access (considering fixed and wireless connections with speeds of at least 256 kbit/s) would result in a broadband penetration rate of 17 out of 100 households.41 This is expected to add nearly 1 percent to the country’s GDP growth by 2015.42 The study notes that while “this increase will contribute marginally to Thailand’s economy, it represents a 50 percent to 60 percent lower broadband penetration rate than what we can expect from most other Asian peer nations by 2015,” which is likely to leave Thailand at a competitive disadvantage vis-à-vis its neighbors.43 The study noted that if a broadband plan is implemented that provides “meaningful broadband,” the penetration rate in Thailand may nearly double by 2015, with 80 percent of this penetration based on wireless broadband technologies.44 Based on this broadband projection, mobile broadband “would drive new investments, expand the domestic economy, and bring a rise to GDP of as much as 2.4 percent per year, all other things being equal.”45 As such, broadband has the potential to be a “meta- driver” of “overall macroeconomic growth, rather than merely a driver of ICT industries alone.”46 15 1.3.3 Broadband, Employment and Job Creation Broadband enables job creation through three main channels: 1) direct jobs created to deploy the broadband infrastructure; 2) indirect and induced jobs created from this activity; and 3) additional jobs created as a result of broadband network externalities and spillovers.47 Each of these channels includes the employment of unskilled, skilled and highly skilled workers. Direct jobs relate primarily to civil works and construction of broadband infrastructure, which involves more low-tech positions. Indirect and induced jobs require various levels of skilled workers. However, network-effects (i.e., spillover) jobs are mainly high-skill jobs requiring specific technical knowledge and education. Indeed, broadband spillover employment effects are not uniform. Instead, they tend to concentrate in service industries, such as financial services, health care, etc. It can also produce some effects in middle-skills jobs, such as in manufacturing, but usually related to the use of ICT, requiring ICT-skills. Numerous studies have estimated the impact on broadband in each of these job creation categories for specific countries by calculating employment multipliers for each of the categories (Table 1.2). While these studies are country-specific and cannot be applied directly to other nations, they provide an estimate of the potential employment gains that could result from effective broadband development. A simple average of these estimates indicates that potential broadband job creation results in 2.78 indirect and induced jobs per direct broadband construction job created and 1.17 spill-over additional jobs created per direct job. This means that broadband can create between 2.5 and 3 additional jobs per direct broadband employment. Some studies have estimated the impact of broadband on the employment creation rate. For instance, Katz estimated that an increase of about 8 percentage points of broadband penetration in 12 Latin American countries could result in almost 8 percent increase on average over their employment rate.48 Table 1.2. Estimated Broadband Employment Creation Multipliers Study Year Scope Type I Type II Network Effects Crandall et al. 2003 US … 2.17 … Katz et al. 2008 Switzerland 1.4 … … Atkinson et al. 2009 US … 3.60 1.17 Katz et al. 2009a US 1.83 3.43 … Libenau et al. 2009 UK … 2.76 … Katz et al. 2009b Germany 1.45 1.93 … Average 1.56 2.78 1.17 Note: Type I (Direct + Indirect)/Direct; Type II (Direct + Indirect + Induced)/Direct 49 50 51 52 Sources: Katz 2009, citing Crandall el al. (2003), Katz et al. (2008), Atkinson et al. (2009), Katz et al. (2009a), 53 54 Libenau et al. (2009) and Katz et al. (2009b). It should be noted that although broadband is likely to have overall positive effects on job growth, short- term job losses may result from broadband-enabled improvements in productivity due to process optimization and capital-labor substitution. Various studies have confirmed that broadband creates many more jobs than it displaces in the longer term. For example, the OECD has found that increased broadband penetration rates can significantly affect labor productivity; raising broadband penetration five percentage points has yielded an estimated 0.07 percent increase in labor productivity.55 Similarly, 16 Booz & Company found that “10 percent higher broadband penetration in a specific year is correlated to 1.5 percent greater labor productivity growth over the following five years.”56 By simultaneously lowering the costs of doing business and increasing productivity, broadband can be instrumental in promoting the growth of enterprises.57 As with broadband’s effects on GDP, further data collection and analysis are needed to confirm the positive impact that broadband has on employment growth. Yet, aside from the studies identified above, researchers focusing on various regions and outcome measures have reported more evidence of how broadband development has stimulated the job market. A European Commission study found that broadband had a positive impact on employment in 2006 with a net creation of 105,000 jobs throughout Europe due to broadband deployment.58 A nationwide study in the United States examined how broadband deployment affects job creation, determining that the availability of broadband at a community level increased employment growth by more than 1 percent.59 Another study focusing just on the state of Kentucky in the southern United States found that a 1 percentage point increase in broadband penetration increased employment by 0.18 points, with the increase ranging from 0.14 percent to 5.32 percent depending on the industry sector.60 In Malaysia, the Malaysian Communications and Multimedia Commission (MCMC) estimated in 2008 that achieving 50 percent broadband penetration by 2010 could increase the country’s GDP by 1 percent, as well as create 135,000 new jobs. The regulator further projected that by 2022, the number of jobs created would reach 329,000, again based on 50 percent broadband penetration rate.61 An evaluation of multiple studies showed that for “every 1000 additional broadband users, roughly 80 new jobs are created.”62 1.3.4 Broadband as a General Purpose Technology The importance of broadband might only be fully realized once it is understood as a general purpose technology (GPT). While the notion of broadband as a GPT has been addressed only in recent discussions of broadband and development, as well as in government-funded stimulus plans, the concept of GPTs was introduced on a more general basis already in the 1990s. It includes three key characteristics:  Pervasive use in a wide range of sectors;  Technological dynamism (inherent potential for technical improvements); and  As GPTs evolve and improve, they spread throughout the economy, bringing about general productivity gains.63 In broad terms, GPTs are technologies that enable new and different opportunities across an entire economy, rather than simply addressing one problem or one sector. According to the OECD, GPTs “fundamentally change how and where economic activity is organized.”64 Common examples of GPTs include electricity, the internal combustion engine and railways. Although the initial conception of GPTs did not include the ICT sector, later research has considered ICTs (with broadband as the enabling platform) through the lens of the GPT concept. This view of broadband as a potential GPT has also been embraced in publications from, or on behalf of, the World Bank, infoDev and the European Commission, as well as in academia.65 When taken holistically, broadband as a platform—coupled with services, applications, content and devices—has the potential to satisfy the three criteria mentioned above, so that it can be considered a GPT. First, broadband can be used as a key input in nearly all industries. Second, broadband has the 17 potential for technological dynamism through the development of new technologies, as well as improvements to the capacity and speed of broadband systems. For example, the average global broadband (wireline and wireless) speed in mid-2011 was 2.6 Mbit/s, with the top 20 countries having average speeds of over 7.6 Mbit/s, which allows services and applications requiring higher bandwidth, such as streaming video, to develop and become accessible to users.66 Third, broadband has the potential to enable and engender new organizational methods that result in more general increases in productivity. Global architecture firms, for example, may have offices around the globe, but team members working on a new building design no longer have to be in the same place or even the same time zone. By using broadband connections to share work products, the team can be completely decentralized. As broadband’s potential as a GPT is realized, it becomes an enabler of technology-based innovation and growth throughout the economy by businesses and individuals, as well as by academic, governmental and other institutions. Businesses and individuals are able to use currently available broadband technologies and services to create entirely new applications and services in areas such as advertising, e- commerce, online video, social networking and financial services, including online banking and loans.67 Innovation in these areas is important for the growth of new markets in developed economies and for the transfer of technology to emerging economies, which can benefit from e-services, such as mobile health and mobile banking.68 Broadband-enabled services also allow the public sector to access new communities and regions, as well as deliver higher quality services more efficiently, including online education, telemedicine and civic participation. In the following several specific examples of how broadband can enable growth in and beyond the ICT sector in both developed and developing countries are provided. Five common themes are discussed: improved research and development efforts, reduction in business costs through cloud computing, improved productivity in the retail, services and manufacturing sectors, and improved outcomes in education and health care. Research and Development throughout Economic Sectors Broadband can have a particularly strong impact on research and development (R&D) leading to innovative technologies, as well as enabling new ICTs to lead to further innovations. Additionally, broadband may allow businesses to move more rapidly in the product development cycle from the idea stage to final product.69 For example, a company could have teams in various locations around the world working on related portions of the same project, using broadband connectivity to provide seamless communication and information sharing (see Box 1.2). Box 1.2. Examples of the Potential Impacts of Broadband on Innovation in R&D  Enable instant sharing of knowledge and ideas  Lower barriers to product and process innovation via faster and less expensive communications  Accelerate start-ups  Improve business collaboration  Enable small business to expand their R&D and collaborate in larger R&D consortia  Reduce time from idea to final product  Foster greater networking  Promote “user-led innovation” Source: OECD, Broadband and the Economy (2008). 18 Increasing broadband penetration may also enable more than just large firms, governments and academic research institutions to develop innovative products. For example, Apple’s iPhone App Store has over 100,000 registered application developers, most of which are small companies.70 Since the App Store opened in 2008, Apple has paid app developers over USD 2.5 billion.71 Cloud Computing: Reducing Costs for Businesses For enterprises of all sizes, the costs of IT infrastructure, including hardware, software, and technical support, can be significantly reduced with the adoption of cloud computing technologies. Cloud computing generally allows for instant access to and storage of applications and data via broadband connectivity. Currently, almost every traditional business application has an equivalent application in the cloud, which means that cloud services can effectively replace the more conventional, and typically more expensive, method of accessing and storing applications and data through software installed locally on one’s own computer or in-house server.72 Additionally, cloud computing reduces or eliminates the need for on-site IT staff since these data processes are handled remotely. Other potential benefits of cloud computing for businesses include:73  Reduced need for up-front investment since cloud-computing is typically based on a pay-as- you-go pricing model;  Lower operating costs since the service provider does not need to provision capacities according to the peak load;  Easy access through a variety of broadband-enabled devices; and  Reduced business risks and maintenance expenses, as business risks (such as hardware failures) and maintenance costs are shifted to infrastructure providers, who often have better expertise and are better equipped for managing these costs and risks. In 2011, Harvard Business Review Analytic Services conducted a global survey of nearly 1,500 businesses and other organizations on their current and planned use of cloud computing, as well as the perceived benefits and risks associated with cloud computing services.74 About 85 percent of respondents stated that their organizations will be using cloud computing tools on a moderate or extensive basis over the next three years in order to take advantage of the benefits of cloud computing, including improved speed and flexibility of doing business, lower costs and new avenues for growth, innovation and collaboration. Only seven percent of respondents stated that their businesses had been using cloud computing for over five years; however, these early adopters reported that real business value had already been created, including faster time to market, lower operation costs and easier integration of new operations. In addition, cloud computing itself can provide for new business models and avenues for revenue. For example, Amazon, the largest U.S. online retailer, began offering cloud computing services to businesses and individuals in 2002 because the company had excess computing and storage capacity.75 In order to accommodate the busiest shopping week of the year in the United States, Amazon had to purchase a much larger amount of capacity than was required for the rest of the year. Rather than let the extra capacity go unutilized, Amazon began renting out its system to others, thereby becoming a “utility” for computing services. Despite the promise of cloud computing as a source of substantial cost savings for enterprises, there are various issues that may limit its impact, particularly lack of access to broadband services. Cloud computing requires access to fast, reliable and affordable broadband in order to achieve its maximum functionality. In addition, cloud computing raises several network and data security concerns.76 Other 19 significant concerns include reliability of the technology, lack of interoperability with existing IT systems and lack of control over the system. Retail and Services Sectors Particularly for the retail and services sectors (that is, customer relations averages 50 percent or more of a company’s activities), broadband can improve the ability to reach new customers and maintain contact with existing customers.77 As such, the ability to send multimedia email or use targeted online advertising to keep and attract customers can increase a company’s sales while using less capital and labor inputs than would be required for postal mailings or door-to-door sales calls. Broadband also enables self-service websites, such as online airline reservations or e-government services, as well as remote services such as online technical support and video conferencing.78 For example, broadband is essential for developing countries, particularly India, Mauritius, and China, which are the main off- shoring destinations for IT technical support and business process outsourcing.79 In addition, sophisticated services, enabled by broadband and the development of ICTs, have become not just a traded input for goods, but a final export for direct consumption.80 Success stories such as call centers in Kenya, business consulting and knowledge-processing offices in Singapore, accountancy services in Sri Lanka, and human resources processing firms in Abu Dhabi are different forms of this phenomenon. Recent research has found that sophisticated service exports are becoming an economic driver of growing importance in developing countries and may be an additional channel for sustained high growth.81 The deployment and adoption of broadband also has the potential to provide an additional conduit for economic growth through service exports. Manufacturing and Industrial Sectors: Supply-Chain Management Broadband allows businesses to more efficiently manage their supply chains by automatically transferring and managing purchase orders, invoices, financial transactions and other activities.82 As with any information-based business activity, broadband can enable faster, more secure and more reliable processing than previously possible. Broadband connectivity saves processing and transfer time along the supply chain, and it can also substantially increase competitiveness by helping businesses reduce stock levels, optimize the flow of goods and improve the quality of final products.83 Since manufacturing and industrial sectors have been the main driver of overall economic growth in developing countries for the last 15 years, broadband is expected to play a vital role for them in improving productivity in these sectors and in ensuring the ability for companies to effectively compete in a global market.84 Education: Building Human Capital In order to fully realize broadband’s potential for economic growth, it is necessary to have an educated workforce trained in the use of ICTs. Additionally, there is a self-reinforcing effect between education (and technological literacy in particular) and broadband adoption, since broadband can help improve fundamental educational outcomes, including learning how to better use broadband. For example, the services and applications available over broadband networks have been shown to improve basic educational performance in a review of 17 impact studies and surveys carried out at national, European and international levels by the European Commission.85 These studies found that broadband and ICTs positively impacted learning outcomes in math, science and language skills.86 In addition to facilitating basic skills, broadband improves the opportunities for those with ICT training; they generally have a higher chance of finding employment, as well as higher earning potentials.87 Bridging the connectivity divide is critical to ensuring that today’s students—and tomorrow’s high-tech workforce—can take advantage of these benefits. 20 One way to expand access to broadband and ICTs in rural and remote areas is through the deployment of mobile education labs: vehicles fitted with broadband connectivity, computer equipment and learning facilities.88 They allow educators to drive to various schools throughout the week. In addition, these mobile labs can provide ICT training for adults to improve digital literacy. As opposed to transporting children in rural areas to where broadband facilities exist or waiting until the network is built out to them, mobile facilities offer a more cost-effective way to reach rural populations.89 The United Nations has noted the success of mobile schools in Mongolia, where 100 mobile “tent” schools have been introduced in 21 provinces, as well as in Bolivia.90 Bolivia has implemented a bilingual education program for three of the most widely used indigenous languages, which has been expanded to include indigenous children in remote areas.91 In Morocco, the government implemented a program called NAFID@ to help over 100,000 teachers afford wireline or mobile broadband connections, which has allowed the teachers to receive training in the use of ICTs in the classroom, as well as to use e-learning programs and online libraries to improve class lessons.92 Health Care Sector Health-based broadband applications and services are significantly improving health and medical outcomes around the world, particularly for patients in remote areas and those with limited mobility through e-health and mobile health (m-health) initiatives.93 Considering that there are fewer than 27 million doctors and nurses for the more than six billion people in the world—and only 1.2 million doctors and nurses in the lowest income countries—harnessing mobile technologies will be a valuable tool for healthcare practitioners to reach patients. As mobile broadband develops and spreads in developing countries, examples of the benefits are already becoming clear.94 Although basic voice and data connections can be useful in improving health and medical care, broadband connectivity is necessary to capture the full potential of e-health services, including telemedicine that enables real-time audio and video communications between patients and doctors, as well as between healthcare providers. Improvements in telemedicine and other e-health initiatives rely on increasing bandwidth capacity, more storage and processing capabilities and higher levels of security to protect patient information.95 As noted in Table 1.3, the U.S.-based California Broadband Task Force estimated that telemedicine will require speeds between 10 and 100 Mbit/s and high definition telemedicine will require broadband speeds of over 100 Mbit/s.96 The current wireline and wireless infrastructure in most countries is insufficient to take advantage of the e-health opportunities in the digital economy. This is particularly important for developing countries where ensuring access to and adoption of wireline and wireless broadband networks would be particularly useful for including those who have been left out of more traditional healthcare models. 21 Table 1.3. Necessary Upstream and Downstream Speeds for Various Services and Applications Source: California Broadband Task Force, The State of Connectivity, Building Innovation through Broadband, Final Report (2008). This was the case in Rwanda where a three-phase e-health project was delayed due to lack of high- speed broadband connectivity.97 The first phase of the initiative, which established an electronic data storage system that permitted sharing of patient information among three hospitals, was completed without delay. However, the final two phases involving video conferencing and a real-time telemedicine system were put on hold for a year until a broadband Internet connection could be established to connect the three hospitals with a fiber optic cable network.98 Box 1.3. Mobile Health Services in Nigeria In Nigeria, the government lacked sufficient public health information to efficiently allocate health care services to over 800 villages that lacked primary health care. A public-private partnership, Project Mailafia, was established to alleviate this situation. Project Mailafia sends teams of mobile health care providers to remote villages, where they treat patients and collect health data that support better public health decision-making and resource allocation. The mobile health workers collect the data on ruggedized netbooks, and transfer the data to area clinics. The clinics then upload the data to a central database using Worldwide Interoperability for Microwave Access (WiMAX) and Wi-Fi technologies. Source: Intel, Realizing the Benefits of Broadband (2010).E-government applications E-government covers a broad range of applications that transform government processes and ways that it connects and interacts with businesses and citizens. This allows citizens to better participate in society and improves the efficiency, accountability and effectiveness of government programs and processes.99 Broadband is important for e-government as it provides the foundation for public administration networks that allow processes to flow more smoothly.100 E-government can also help to drive demand for broadband. 22 Countries around the world are providing increasing access to online services, including the provision of basic services, the use of multimedia technology to promote two-way exchanges and consultation with citizens on public policy issues.101 Although the Republic of Korea, the United States, and Canada take the top three places in terms of number of online government services available, the UN found that several countries have made significant progress over the last two years, including Bahrain, Chile, Colombia and Singapore.102 The UN also found that the use of mobile phones for e-government services, such as alert messages, applications or fee payments, are almost as popular in developing countries as they are in developed countries.103 1 Christine Zhen-Wei Qiang, Broadband Infrastructure Investment in Stimulus Packages: Relevance for Developing Countries, info, Vol. 12 No. 2, p. 43 (2010), available at http://siteresources.worldbank.org/EXTINFORMATIONANDCOMMUNICATIONANDTECHNOLOGIES/Resources/282 822-1208273252769/ Broadband_Investment_in_Stimulus_Packages.pdf (last visited Jan. 18, 2011). 2 Nina Czernich, Oliver Falck, Tobias Kretschmer & Ludger Woessmann, Broadband Infrastructure and Economic Growth, CESifo Working Paper Series No. 2861 (Dec. 2009), available at http://ssrn.com/abstract=1516232 (last visited Jan. 20, 2011). 3 Christine Zhen-Wei Qiang and Carlo M. Rossotto, IC4D: Extending Reach and Increasing Impact, Chapter 3: Economic Impacts of Broadband, GICT Dept. World Bank, pp. 36-395 (2009)Qiang and Rossotto, IC4D: Extending Reach and Increasing Impact, Chapter 3: Economic Impacts of Broadband (2009), pp. 36-39. 4 Christine Zhen-Wei Qiang and Carlo M. Rossotto, IC4D: Extending Reach and Increasing Impact, Chapter 3: Economic Impacts of Broadband, GICT Dept. World Bank, p. 45 (2009). See also Yongsoo Kim, Tim Kelly and Siddhartha Raja, Building Broadband: Strategies and Policies for the Developing World , GICT Dept. World Bank (Jan. 2010), available at http://siteresources.worldbank.org/EXTINFORMATIONANDCOMMUNICATIONANDTECHNOLOGIES/Resources/282 822-1208273252769/Building_broadband.pdf. 5 Qiang and Rossotto, IC4D: Extending Reach and Increasing Impact, Chapter 3: Economic Impacts of Broadband (2010), p. 45. 6 Qiang and Rossotto, IC4D: Extending Reach and Increasing Impact, Chapter 3: Economic Impacts of Broadband (2009), p. 45. 7 Sören Buttkereit, Luis Enriquez, Ferry Grijpink, Suraj Moraje, Wim Torfs & Tanja Vaheri-Delmulle, Mobile Broadband for the Masses: Regulatory Levers to Make It Happen , McKinsey & Company (Feb. 2009), available at http://www.mckinsey.com/clientservice/telecommunications/Mobile_broadband_for_the_masses.pdf (last visited Jan. 18, 2011). 8 Roman Friedrich, Karim Sabbagh, Bahjat El-Darwiche & Milind Singh, Digital Highways: The Role of Government in 21st Century Infrastructure, Booz & Company, p. 4 (2009), available at http://www.booz.com/media/uploads/ Digital_Highways_Role_of_Government.pdf (last visited Jan. 18, 2011). 9 Raul Katz, Stephan Vaterlaus, Patrick Zenhäusern and Stephan Suter, The Impact of Broadband on Jobs and the German Economy, Intereconomics: Review of European Economic Policy. Vol. 45, Issue 1, p. 2 (Jan. 2010), available at http://www.polynomics.ch/dokumente/Polynomics_Broadband_Brochure_E.pdf. 10 Analysys Mason, Assessment of Economic Impact of Wireless Broadband in India (2010), available at http://www.gsmamobilebroadband.com/upload/resources/files/AM_India_Final_Full_Report.pdf 11 McKinsey, Fostering Economic and Social Benefits of ICT, The Global Information Technology Report 2009-2010, World Economic Forum. 12 Qiang and Rossoto, Economic Impacts of Broadband, 2009 Information and Communications for Development, World Bank (2009). 23 13 Czernich et al., Broadband Infrastructure and Economic Growth (2009), available at http://www.cesifo- group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2009/wp-cesifo-2009- 12/cesifo1_wp2861.pdf 14 Charles Kenny, No Need for Speed, Foreign Policy (May 16, 2011), available at http://www.foreignpolicy.com/articles/2011/05/16/no_need_for_speed?page=full. 15 Rodrigo Belo, Pedro Ferreiray and Rahul Telangz, The Effects of Broadband in Schools: Evidence from Portugal (July 8, 2010), available at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1636584. 16 Dept. of Broadband, Communications and the Digital Economy, National Broadband Network—Overview (May 2010), available at http://www.nbn.gov.au/sites/all/files/pdf/National-Broadband-Network-Overview-fact- sheet.pdf (last visited Jan. 19, 2011). 17 Dr. Ric Simes, Nicki Hutley, Susan Havyatt & Rebecca McKibbin, Australian Business Expectations for the National Broadband Network, Access Economics (Nov. 16, 2010), available at http://www.accesseconomics.com.au/publicationsreports/getreport.php?report=253&id=322 (last visited Jan. 18, 2011)). 18 Simes, et al., Australian Business Expectations for the National Broadband Network , p. 6 (2010). 19 Simes, et al., Australian Business Expectations for the National Broadband Network , p. 6 (2010). 20 Simes, et al., pp. 12-13 (2010). 21 Julie Zilber, David Schneier, and Philip Djwa, You Snooze, You Lose: The Economic Impact of Broadband in the Peace River and South Similkameen Regions, Prepared for Industry Canada (2005), available at http://www.7thfloormedia.com/news/71 (last visited Jan. 19, 2011). 22 Zilber, et al., You Snooze, You Lose: The Economic Impact of Broadband in the Peace River and South Similkameen Regions, (2005). 23 Zilber, et al., You Snooze, You Lose: The Economic Impact of Broadband in the Peace River and South Similkameen Regions, (2005). 24 Darrell M. West, An International Look at High-Speed Broadband, Governance Studies, Brookings Institution, p. 9 (Feb. 2010), available at http://www.brookings.edu/~/media/Files/rc/reports/2010/0223_broadband_west/ 0223_broadband_west.pdf (last visited Jan. 19, 2011). 25 West (2010), An International Look at High-Speed Broadband, p. 9. 26 Judy Zhao and Levi Ruan, Broadband in China: Accelerate Development to Serve the Public , Value Partners, p. 2 (Mar. 2010), available at http://www.valuepartners.com/VP_pubbl_pdf/PDF_Comunicati/Media%20e%20Eventi/ 2010/value-partners-PR_100301_BroadbandInChinaZhaoRuan.pdf (last visited Jan. 19, 2011). 27 Zhao and Ruan, Broadband in China: Accelerate Development to Serve the Public (2010), p. 2. 28 Zhao and Ruan, Broadband in China: Accelerate Development to Serve the Public (2010), p. 1. 29 Raul Katz, Stephan Vaterlaus, Patrick Zenhäusern and Stephan Suter, The Impact of Broadband on Jobs and the German Economy, Intereconomics: Review of European Economic Policy. Vol. 45, Issue 1, p. 2 (Jan. 2010), available at http://www.polynomics.ch/dokumente/Polynomics_Broadband_Brochure_E.pdf (last visited Jan. 20, 2011). 30 Katz, et al., The Impact of Broadband on Jobs and the German Economy (2010), p. 16. 31 Analysys Mason, Assessment of Economic Impact of Wireless Broadband in India, Discussion Document, Report for GSMA (Dec. 2010), available at http://www.analysysmason.com/About-Us/Offices/New-Delhi/Increase-in- broadband-penetration-by-1-will-contribute-INR162-billion-to-Indias-GDP-by-2015/ (last visited Jan. 19, 2011). 32 Analysys Mason, Assessment of Economic Impact of Wireless Broadband in India (2010). 24 33 Analysys Mason, Assessment of Economic Impact of Wireless Broadband in India (2010). 34 Analysys Mason, Assessment of Economic Impact of Wireless Broadband in India (2010). 35 Dr. Raul L. Katz and Javier G. Avila, The Impact of Broadband Policy on the Economy, Proceedings of the 4thd ACORN-REDECOM Conference Brasilia May 14-15, p. 5 2010 (2010), available at http://www.acorn- redecom.org/papers/acornredecom2010katz.pdf (last visited Jan. 19, 2011). 36 Katz and Avila (2010), The Impact of Broadband Policy on the Economy p. 5. 37 Katz and Avila (2010), The Impact of Broadband Policy on the Economy p. 5. 38 Dept. of Communications, Broadband Policy for South Africa, Government Gazette, No. 33377 (July 13, 2010), available at http://blogs.timeslive.co.za/vault/2010/07/14/south-africas-new-broadband-policy/ (last visited Jan. 20, 2011). 39 Analysys Mason, Assessment of Economic Impact of Wireless Broadband in South Africa , Report for GSMA (Nov. 2010), available at http://www.gsmamobilebroadband.com/upload/resources/files/AnalysisMasonSAReport.pdf (last visited Jan. 20, 2011). 40 Analysys Mason, Assessment of Economic Impact of Wireless Broadband in South Africa (2010). 41 Craig Smith, Meaningful Broadband 2.0 Report: Thailand 2015, Center for Ethics of Science and Technology on behalf of Chulalongkorn University Secretariat, pp. 34-36 (May 2010), available at http://www.stc.arts.chula.ac.th/MBR2.0-broadband-Thailand-2015.pdf. 42 Smith, Meaningful Broadband 2.0 Report: Thailand 2015 (2010), p 34-36. 43 Smith, Meaningful Broadband 2.0 Report: Thailand 2015 (2010), p. 34. 44 Smith, Meaningful Broadband 2.0 Report: Thailand 2015 (2010), p. 36. 45 Smith, Meaningful Broadband 2.0 Report: Thailand 2015 (2010), p. 40. 46 Smith, Meaningful Broadband 2.0 Report: Thailand 2015 (2010), p. 40. 47 Raul Katz, Estimating Broadband Demand and Its Economic Impact in Latin America (2009), available at http://unpan1.un.org/intradoc/groups/public/documents/gaid/unpan036761.pdf. 48 Countries include Argentina, Brazil, Chile, Colombia, Ecuador, El Salvador, Mexico, Nicaragua, Panama, Peru, Uruguay and Venezuela. 49 Crandall et al., The Effect of Ubiquitous Broadband Adoption on Investment and the US Economy , Criterion Economics, Washington, DC (2003). 50 Katz et al., An Evaluation of Socio-Economic Impact of a Fiber Network in Switzerland, Mimeo, Polynomics and Telecom Advisory Services (2008). 51 Atkinson et al., The Digital Road to Recovery: A Stimulus Plan to Create Jobs, Boost Productivity and Revitalize America, the Information Technology and Innovation Foundation , Washington, DC (2009). 52 Katz et al., Estimating the Economic Impact of the Broadband Stimulus Plan , Columbia Institute for Tele- information, Working paper (2009a). 53 Libenau et al. The UK’s Digital Road to Recovery, LSE Enterprise and the Information Technology and Innovation Foundation (2009). 54 Katz et al., The Impact of Broadband on Jobs and the German Econom y, Columbia Institute for Tele-information, Working paper (2009b). 25 55 Broadband Commission for Digital Development, Broadband: A Platform for Progress, UN Millennium Development Goals Summit, New York, p. 15 (Sept. 19, 2010), available at http://www.broadbandcommission.org/report2.pdf. 56 Roman Friedrich, et al., Digital Highways: The Role of Government in 21st Century Infrastructure (2009), p. 4. 57 Qiang and Rossotto, IC4D: Extending Reach and Increasing Impact, Chapter 3: Economic Impacts of Broadband (2009), p. 37. 58 Fornefeld, et al., The Impact of Broadband on Growth and Productivity (2008), p. 6. 59 Katz and Avila, The Impact of Broadband Policy on the Economy (2010), p. 3. 60 Raul L. Katz and Javier G. Avila, The Impact of Broadband Policy on the Economy, Proceedings of the 4thd ACORN-REDECOM Conference Brasilia May 14-15, 2010 (2010), available at http://www.acorn- redecom.org/papers/acornredecom2010katz.pdf (last visited Jan. 19, 2011). 61 Malaysian Communications and Multimedia Commission (MCMC), Broadband Fact Sheet, Press Release (May 2008), available at http://www.skmm.gov.my/index.php?c=public&v=art_view&art_id=326 (last visited Jan. 21, 2011). 62 Erik Almqvist, Social Net Benefits Of IPTV And BB Infrastructure Investments, IPTV World Forum MEA, Dubai (Nov. 1, 2010), available at http://www.ericsson.com/campaign/televisionary/content/pdf/regulation/7f16d52b- d310-4b4f-8a48-1f3fb7fb3c0b.pdf (last visited Jan. 21, 2011). 63 Timothy F. Bresnahan and Manuel Trajtenberg, General purpose technologies: “Engines of growth?” (1995). 64 OECD, Broadband and the Economy (2007), p. 8.. 65 See, for example, Christine Zhen-Wei Qiang and Carlo M. Rossotto, IC4D: Extending Reach and Increasing Impact, Chapter 3: Economic Impacts of Broadband, GICT Dept. World Bank, p. 35 (2009), available at http://siteresources.worldbank.org/EXTIC4D/Resources/IC4D_Broadband_35_50.pdf; infoDev/The World Bank, Building Broadband: Strategies and Policies for the Developing World at 4 (2010); infoDev, What role should governments play in broadband development? at 3 (2009); Dr. Martin Fornefeld, Gilles Delaunay, and Dieter Elixmann, The Impact of Broadband on Growth and Productivity at 7 (2009) available at http://ec.europa.eu/information_society/eeurope/i2010/docs/benchmarking/broadband_impact_2008.pdf; and S.K. Majumdar, O. Carare and H. Chang, Broadband adoption and firm productivity: evaluating the benefits of general purpose technology, Industrial and Corporate Change at 641 (2009) available at http://icc.oxfordjournals.org/content/19/3/641.full.pdf+html. 66 Om Malik, “Worldwide, broadband demand and speeds are zooming,” GigaOm, October 23, 2011, http://gigaom.com/broadband/worldwide-broadband-demand-speeds-are-zooming/. 67 Katz, The Impact of the National Broadband Plan on Jobs (2010), p. 9. 68 Fornefeld, et al., The Impact of Broadband on Growth and Productivity (2008). 69 OECD, Broadband and the Economy (2008), p. 11. 70 Apple, Staggering iPhone App Development Statistics to be Unveiled at Inaugural App Exhibit at Macworld 2010, Press Release (Feb. 2, 2010), available at http://www.iphoneappquotes.com/press-staggering-iphone-app- development-statistics-unveiled-at-macworld.aspx. 71 Christian Zibreg, “Apple Issues App Store stats: 425,000 Apps, 15B Downloads, $3.6B Revenue,” 9to5 Mac, July 7, 2011, http://9to5mac.com/2011/07/07/apple-issues-app-store-stats-15b-downloads-425000-apps-nearly-3-6b- revenue/. 72 Nicholas G. Carr, The Big Switch: Rewiring the World from Edison to Google , W.W. Norton & Co., New York, p. 72 (2008). 26 73 Qi Zhang, Lu Cheng and Raouf Boutaba, Cloud Computing: State-of-the-Art and Research Challenges, Journal of Internet Services and Applications (May 2010), available at http://www.springerlink.com/content/n2646591h5447777/fulltext.pdf. 74 Harvard Business Review Analytic Services, How the Cloud Looks from the Top: Achieving Competitive Advantage in the Age of Cloud Computing, Report Commissioned by Microsoft (May 2011), available at http://www.microsoft.com/en-us/cloud/tools- resources/whitepaper.aspx?resourceId=Achieving_Competitive_Advantage&fbid=nSj309bhGW3. The respondents were large companies: the average annual sales for 2010 for respondent companies were USD 1.3 billion and average company size was 3,280 employees. However, the respondents were from a wide range of sectors: 17 percent were in the IT sector; 12 percent were in professional services; and financial, manufacturing and government/nonprofit each represented 10 percent of the respondents. 75 Nicholas G. Carr, The Big Switch: Rewiring the World from Edison to Google , W.W. Norton & Co., New York, pp. 74-75 (2008). 76 Harvard Business Review Analytic Services, How the Cloud Looks from the Top: Achieving Competitive Advantage in the Age of Cloud Computing, Report Commissioned by Microsoft (May 2011). 77 Fornefeld, et al., The Impact of Broadband on Growth and Productivity (2008), p. 75. 78 Fornefeld, et al., The Impact of Broadband on Growth and Productivity (2008), p. 75. 79 Gartner, Gartner Identifies Top 30 Countries for Offshore Services in 2010-2011, Press Release (Dec. 20, 2010), available at http://www.gartner.com/it/page.jsp?id=1502714. 80 Saurabh Mishra, Susanna Lundstrom, and Rahul Anand, Service Export Sophistication and Economic Growth. Policy Research Working Paper 5606, World Bank, p. 2 (2011) available at http://www- wds.worldbank.org/servlet/WDSContentServer/WDSP/IB/2011/03/22/000158349_20110322141057/Rendered/P DF/WPS5606.pdf 81 Saurabh Mishra, Susanna Lundstrom, and Rahul Anand, Service Export Sophistication and Economic Growth. Policy Research Working Paper 5606, World Bank, p. 4 (2011) 82 Fornefeld, et al., The Impact of Broadband on Growth and Productivity (2008), p. 74. 83 Fornefeld, et al., The Impact of Broadband on Growth and Productivity (2008), p. 75. 84 United Nations Industrial Development Sector (UNIDO), UNIDO Releases Latest International Yearbook of Industrial Statistics, Press Release (Mar. 10, 2010), available at http://www.unido.org/index.php? id=7881&tx_ttnews[tt_news]=455&cHash=09cad462f0. 85 Anja Balanskat, Roger Blamire and Stella Kefala, The ICT Impact Report: A Review of Studies of ICT Impact on Schools in Europe, European Schoolnet, p. 3 (Dec. 11 2006), available at http://ec.europa.eu/education/pdf/doc254_en.pdf. 86 Anja Balanskat, et al., The ICT Impact Report: A Review of Studies of ICT Impact on Schools in Europe , European Schoolnet, p. 3 (Dec. 11 2006). 87 UNCTAD, Trends and Outlook in Turbulent Times, Information Economy Report (2009), p. 57. 88 Ananda Samudhram, Building ICT Literate Human Capital in the Third World: A Cost Effective, Environmentally Friendly Option, Ascilite Sydney Conference, New South Wales, December 5-8, 2010 (2010), available at http://www.ascilite.org.au/conferences/sydney10/Ascilite%20conference%20proceedings%202010/Samudhram- poster.pdf. 89 Ananda Samudhram, Building ICT Literate Human Capital in the Third World: A Cost Effective, Environmentally Friendly Option (2010). 27 90 United Nations, Millennium Development Goals: Goal 2 Achieve Universal Primary Education , United Nations Summit, New York, Sept. 20-22, 2010 (2010), available at http://www.un.org/millenniumgoals/pdf/MDG_FS_2_EN.pdf. 91 United Nations, Millennium Development Goals: Goal 2 Achieve Universal Primary Education (2010). 92 Intel, Realizing the Benefits of Broadband, White Paper (2010), available at http://www.intel.com/Assets/PDF/Article/WA-323857001.pdf. 93 WHO, Global Survey for eHealth (2005) at http://www.who.int/goe/data/en/. 94 WHO, World Health Statistics 2010 at http://www.who.int/whosis/whostat/2010/en/index.html. 95 ITU, Implementing e-Health in Developing Countries: Guidance and Principles (Draft), p. 11 (2008), available at http://www.itu.int/ITU-D/cyb/app/docs/e-Health_prefinal_15092008.PDF. 96 The State of Connectivity, Building Innovation through Broadband, Final Report of the California Broadband Task Force, 2008, p. 6. 97 Rodrigue Rwirahira, Rwanda: Better Health Care by Using ICT in Medicine , All Africa (Aug. 28, 2009), available at http://allafrica.com/stories/200908280497.html. 98 Moses Ndahiro, RDB Forging Ahead with E-Health Development, The New Times (Sept. 20, 2010) at http://www.newtimes.co.rw/index.php?issue=13963&article=17756. 99 Nagy K. Hanna, Christine Zhen-Wei Qiang, Kaoru Kimura & Siou Chew Kuek, National E-Government Institutions: Functions, Models, and Trends, IC4D Report, World Bank (2009), available at http://siteresources.worldbank.org/EXTIC4D/Resources/5870635-1242066347456/IC4D_2009_Chapter6.pdf. 100 UNCTAD, Trends and Outlook in Turbulent Times (2009), p. 21. 101 UN, United Nations E-Government Survey 2010: Leveraging E-Government at a Time of Financial and Economic Crisis (2010), pp. 76-77. 102 UN, United Nations E-Government Survey 2010: Leveraging E-Government at a Time of Financial and Economic Crisis (2010), p. 77. 103 UN, United Nations E-Government Survey 2010: Leveraging E-Government at a Time of Financial and Economic Crisis (2010), p. 80. 28 1.4 What Market Trends are Fostering Broadband Deployment and Adoption? Broadband connectivity is expanding globally. Between 2005 and 2010, the average wireline broadband penetration rate grew over 60 percent—from 3.3 to 8.8 subscribers per 100 people.1 As a result of such growth, the estimated number of wireline broadband subscriptions surpassed 550 million by mid-2011, up from 471 million in 2009.2 A sizable number of these new subscriptions come from Brazil, Russia, India, and China (known as the BRIC countries), which have collectively doubled their subscriber base in the last several years.3 The number of active mobile broadband subscriptions reached nearly 1.2 billion by mid-2011, representing a 45 percent increase annually since 2007, with total mobile subscriptions topping five billion.4 By the end of 2010, there were over twice as many mobile broadband as wireline broadband subscriptions (see Figure 1.4).5 Figure 1.4. Global Fixed and Mobile Broadband Penetration Rate per 100 People (2000-2010) 18 Penetration Rate (Subscribers per 100 People) 16 Mobile Broadband 14 Wireline Broadband 12 10 8 6 4 2 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011* Source: ITU, World Telecommunications/ICT Indicators Database, Global ICT Trends, www.itu.int/ITU- D/ict/statistics/material/excel/2011/Global_ICT_Dev_01-11.xls (2011). Despite these advances, a “digital divide” remains between developed and developing countries. Technology fitting the needs of users is critical, but broadband deployment also depends on structural market characteristics, such as competitiveness and purchasing power, as well as the evolution of relevant (localized) content, international connectivity, geography, and several other factors. As shown in Figure 1.5, there are nearly six times more wireline broadband subscribers in developed countries than in developing countries and nearly four times more mobile broadband subscribers.6 In effect, wireline broadband deployments in many developing countries are a decade behind those in developed countries. Given the cost and resources required for the deployment of wireline broadband, wireless broadband is more likely to be the broadband solution for users in developing countries, particularly in rural and remote areas. 29 Figure 1.5. Digital Divide for Wireline and Wireless Broadband, 2010 60 50.67 50 Developing Countries Subscribers per 100 Inhabitants Developed Countries 40 30 24.07 20 13.08 10 4.22 0 Wireline Broadband Wireless Broadband Source: ITU, World Telecommunication/ICT Indicators Database (2011). 1.4.1 Trends in Supply Developments in the types of technologies and business models used to deploy broadband network infrastructure are allowing operators to supply more people at lower costs. In developed countries, network operators are installing fiber optic cables closer to end users, reaching directly into their neighborhoods, offices and homes. In developing countries, the spread of high-speed wireless networks promises to gain momentum over the next few years. Wireless broadband is already more prevalent than wireline broadband in many developed and developing countries. As noted in Figure 1.6, the number of wireless broadband subscriptions in Africa, for example, is more than four times that of wireline.7 In comparison, Europe’s wireless broadband penetration is nearly double the wireline penetration rate at 26 percent and 54 percent, respectively.8 This suggests the potential for wireless broadband in areas where traditional wireline infrastructure may be absent, as well as in areas with substantial wireline build-out. With the number of wireless broadband subscriptions worldwide surpassing the one billion mark in 2011, developing countries, particularly India and China, are often leading the way.9 Together, India and China have the top five mobile operators in terms of total number of subscriptions, which is expected to continue as mobile broadband grows.10 30 Figure 1.6. Wireline and Wireless Broadband Subscriptions by Region, 2011* Source: ITU, The World in 2011: ICT facts and Figures (2011). *Estimates Another important trend affecting broadband networks is their ever-increasing speed. In 2011, Akamai, a major Internet traffic manager, noted a global shift away from narrowband to broadband connectivity.11 As shown in the figure below, the global average Internet connection speeds (for users who pass through the company’s servers) rose 43 percent year-over-year to 2.6 Mbit/s, and all of the top ten countries achieved average connection speeds well above the “high broadband” threshold of 5 Mbit/s. Figure 1.7. Average Broadband Speed: Top 10 Countries, Q2 2011 Denmark 6.4 Belgium 6.4 Romania 6.8 Switzerland 7.3 Czech Rep. 7.4 Broadband Speed (Mbit/s) Latvia 8.2 Netherlands 8.5 Japan 8.9 Hong Kong 10.3 Korea (Rep.) 13.8 Top 10 Average 8.4 Global Average 2.6 Source: Akamai, The State of the Internet, 2nd Quarter, 2011 Report. 31 A result of greater supply of broadband and improved technologies is the steady decrease in broadband prices, generally for equal or faster broadband speed. In its report, Measuring the Information Society 2011, the ITU reported that among 165 countries studied, the retail price of “entry level” (i.e., 256 kbit/s) wireline broadband access halved between 2008 and 2010.12 In developed countries, these monthly broadband subscriptions represented just 1.5 percent of income—for 31 developed countries, a basic broadband subscription costs on average the equivalent of 1 percent or less of average monthly gross national income (GNI) per capita. Comparatively, in 19 countries, most of which are least developed countries, a broadband subscription costs on average more than 100 percent of monthly GNI per capita. For example, the monthly price for a wireline broadband connection in Ethiopia, Guinea, Malawi and Zimbabwe is over ten times the average monthly income. As such, the price of wireline broadband Internet access in developing countries is substantially more expensive relative to developed countries, which demonstrates that despite falling prices, broadband Internet access remains too expensive for many around the world. While wireline broadband prices may be prohibitively high, they are declining most rapidly in developing countries. The ITU found that the steepest reduction in retail broadband prices has taken place in developing countries with wireline broadband prices dropping by over 50 percent between 2008 and 2010, as compared to a drop of 35.4 percent in developed countries (Figure 1.8). Figure 1.8. Wireline Broadband Prices in Developed and Developing Countries between 2008 and 2010 Percent of Monthly GNI per capita Source: ITU, The World in 2011: ICT Facts and Figures. In addition to overall increased availability, faster speeds and declining prices in broadband network access, the release of new broadband-enabled devices may also be viewed as a supply-side input. The overall trend for broadband devices is improved capabilities, mobility and portability. According to research firm IDC, in the second quarter of 2011, global smartphone shipments grew 11.3 percent year- on-year while the feature phone market shrank 4 percent over the same period.13 In Western Europe, the number of smartphone shipments surpassed feature phone shipments for the first time.14 By the end of 2011, over 450 million smartphones will be shipped, leading to the worldwide smartphone 32 market growing nearly 50 percent since 2010 as users upgrade to smartphones with more advanced features.15 These devices are designed to take advantage of broadband connectivity, whether provided by a mobile network or by Wi-Fi distribution of the wired broadband connection in a home, workplace, or Wi-Fi “hotspot.” Mobile Broadband for Developing Countries While developing economies often do not have the type of infrastructure that is usually associated with broadband deployment (that is, wireline access), the significant deployment and availability of mobile services is proving to be an easier way for the developing world to shrink the digital divide. Access to 2G mobile networks is now available to 90 percent of the world population and 80 percent of the population living in rural areas. By mid-2011, 3G networks reached 45 percent of people worldwide.16 According to the ITU, people are moving rapidly from 2G to 3G platforms, in both developed and developing countries, with 159 countries offering 3G services commercially by mid-2011, compared to 95 countries in 2007.17 Globally, there has been steady growth in the number of advanced mobile wireless broadband networks. As of October 2011, 424 HSPA systems had been launched commercially in 165 countries, including 152 commercial HSPA+ networks launched in 79 countries.18 By mid-2011, nearly 600 WiMAX networks had been planned or launched commercially worldwide.19 Most of these WiMAX networks are being deployed in developing countries and Africa regions. For example, there have been 120 commercial or planned WiMAX deployments in 33 Latin American and Caribbean countries and 117 deployments in 43 African countries.20 As mobile broadband subscriptions have overtaken fixed broadband subscribers, the continued accessibility to mobile services has spurred the growth and deployment of broadband in the developing world. Indeed, because of high penetration of mobile in the developing world, as the broadband market matures, the majority of growth is likely to occur there.21 The immense commercial success of mobile telephone service attests to the attractiveness of untethered access to users around the world. In the developing world, it is important to note that mobile services are in many cases the first widely available two-way telecommunications technologies. As such, while the appeal of mobility is certainly a factor, the choice for many users is not between mobile and fixed service, but rather between mobile broadband and no broadband. In addition, in many countries, particularly developing countries, the deployment of new access lines is time consuming, costly, and yields unattractive returns. As noted in the case of India (see Table 1.4), there are substantial cost differentials when comparing the costs of deploying broadband technologies. Table 1.4. Comparative Evaluation of Deploying Broadband Technologies in India Technology Time to Deploy Capex per Subscriber DSL (FttN) Existing Line Low USD 799 DSL(FttN) New Line High USD 2,200 FttH High USD 2,540 FttB Medium USD 1,390 WiMAX Low USD 133 33 HSPA Low USD 125 Source: Analysys Mason, Assessment of Economic Impact of Wireless Broadband in India, December 2010, available at http://www.gsmamobilebroadband.com/upload/resources/files/AM_India_Exec_Summary_Final.pdf. Deployment of mobile broadband technologies is beginning to advance beyond 3G in both developed and developing countries. In particular, LTE systems are capable of providing broadband speeds faster than DSL and comparable to fiber optic networks. Regulators are assisting these developments by increasingly permitting mobile operators to upgrade existing network infrastructure, as well as releasing new spectrum bands for mobile services. As of January 2012, 285 network operators in 93 countries were investing in LTE systems, including 49 commercial LTE networks launched in 29 countries (Figure 1.9).22 Although current commercial deployments of LTE are focused in developed countries, there have been a few commercial LTE launches in emerging economies, including Saudi Arabia, the Philippines and the United Arab Emirates.23 LTE is in the trial stages in many other developing countries throughout Latin America (e.g., Argentina, Bolivia, Brazil, Chile, Colombia, Dominican Republic, Mexico, Peru and Uruguay); the Asia-Pacific region (e.g., China, India, Indonesia, Malaysia, Sri Lanka, Thailand and Vietnam); and the Middle East and Africa region (e.g., Angola, Bahrain, Egypt, Kenya, Namibia, Oman and South Africa). Figure 1.9. Worldwide LTE Network Commitments, Launches and Trials as of January 2012 Global mobile Suppliers Association, Map: Worldwide LTE Network Commitments, Launches and Trials, January 5, 2012. Towards Ubiquitous/Seamless Broadband Access Perhaps the ultimate trend in advanced wireline and wireless broadband technologies is the ability for users to access networks seamlessly, whether at work or at home, in shops or restaurants, on planes, trains, at sea and in the most remote areas. Beyond the current and emerging terrestrial wireless and 34 wireline technologies being used for provision of broadband services addressed above, satellites are also capable of providing Internet access, reaching the most remote locations. A new generation of satellites was launched in the beginning of 2010 that are capable of providing true broadband speeds to end users. The advantage of satellite broadband access is that it can extend broadband to those areas that neither wireline nor terrestrial wireless providers can go. Collectively, terrestrial and satellite broadband deployments will help to provide ubiquitous access and ensure that anyone has the option to subscribe to a broadband service, as well as maintain connectivity regardless of where they travel. In addition to ubiquitous broadband access, cloud computing services, which help to drive demand for broadband, will enable a seamless broadband experience from any device, as addressed below. 1.4.2 Trends in Demand The development of novel or enhanced applications, services and devices enabled with broadband connectivity has served as a key driver of demand for broadband access over the past several years. The availability of broadband networks has allowed at least a partial migration of existing services away from more traditional models requiring consumers to conduct in-person transactions and/or abide by pre- scheduled services (such as banking, education, healthcare, shopping and entertainment) towards broadband digital networks that allow consumers to conduct a wide variety of activities online and on their own time, regardless of standard business hours or scheduled programming. While many of these same services saw an initial online presence with dial-up and other narrowband services, the rise of broadband connectivity has facilitated the development of more robust applications and services. Today, broadband networks allow consumers near-instantaneous access to on-demand entertainment content; permit professionals to better communicate and collaborate with far-flung colleagues; and create opportunities for students to access richer, more interactive educational materials. From the perspective of organizations leveraging broadband-enabled services to better reach consumers, clients, members and citizens, the efficiency of electronic communications has led to an increasing interest in bringing traditionally offline or non-electronic services to the Internet, or at least augmenting traditional means with online alternatives. Innovative Applications and Services Demand for more and higher-quality video and other rich content will be a major factor in driving the demand for higher-capacity broadband access. In addition, applications are also increasingly driving broadband use and development. Applications consist of function-specific software that delivers content to users or allows them to perform certain tasks.24 Social media applications, which connect users and allow for creative, collaborative, user-centered and interoperable environments in real time, are also helping to drive demand for broadband.25 These applications include social networking, a wide variety of Web 2.0 applications and cloud computing services, as addressed below. Social Media and Web 2.0 Social media, which include YouTube and Facebook, are applications that facilitate social interaction, using web and mobile technology. For example, YouTube, which allows users to generate video content, upload it and share it with others, is one of the most widely used social media applications and requires broadband capabilities to be effective. In 2011, some 48 hours of video was uploaded to YouTube every minute, resulting in nearly eight years of content uploaded each day—equivalent to 240,000 feature films every week.26 Web 2.0 is closely related to social media and is a term generally associated with applications that feature user-generated content and facilitate collaboration among users.27 Web 2.0 applications—including web-based communities, hosted services, web applications, social networking sites, photo and video sharing sites, wikis, blogs, mashups and folksonomies—are 35 interoperable, user-centered, and collaborative. Unlike the “traditional web,” they allow users to generate, distribute and share content in real time and typically require broadband connectivity. The availability of social media and Web 2.0 applications is stimulating demand and is an important factor to bear in mind in developing demand creation or facilitation strategies. Social Networking Social networking applications allow people to initiate and maintain connections, communicate with one another via various media, including text, voice and video, interact through social games and share user- generated and traditional media content. The highly personalized, easy, and flexible nature of social networking applications makes them some of the most-used online tools and one of the main drivers of broadband demand. Since these websites tend to offer only limited functionality with low bandwidth Internet connections, they help to drive broadband demand among users seeking to take full advantage of them. Non-adopters who may not have found broadband to be relevant in the past may seek out broadband services in order to interact with family and friends, as well as discover and create other engaging user-generated content. Mobility is an important part of social networking. In December 2011, of the over 845 million active Facebook users, more than 425 million accessed Facebook through their mobile devices and use Facebook twice as much as their non-mobile device counterparts.28 Indeed, evidence already exists that social networking applications are driving mobile broadband use in many countries. In the United Kingdom, mobile operator Hutchison 3G released traffic statistics showing the amount of data customers use when browsing social networking sites.29 The operator found that social networking accounts for most mobile broadband usage in the country, with Facebook being the most popular application. With the number of mobile broadband users surpassing the one billion mark in 2011, the value of social networking driving demand for ever-increasing amounts `of data is substantial.30 Box 1.4. Impact of Facebook—Some Key Statistics  Facebook has more than 845 million active users around the world.  About 80 percent of Facebook users are located outside of the United States and Canada.  Over 70 languages are available on the site.  Over 700 billion minutes a month are spent on Facebook.  Over 425 million people access Facebook via their mobile phone per month.  48 percent of young people said they now get their news through Facebook.  The average user is connected to 80 community pages, groups and events.  On average, more than 250 million photos are uploaded per day.  In just 20 minutes on Facebook over 1 million links are shared, 2 million friend requests are accepted and almost 3 million messages are sent. Source: http://www.facebook.com/press/info.php?statistics; as of January 2012 Particularly in developing countries where mobile broadband is likely to be more accessible than wireline broadband, social networking applications accessed through mobile devices are likely to be a major driver of demand for broadband access. Facebook is actively reaching out to users without advanced phones or networks, in the expectation that it will entice more advanced usage in time.31 India is now number two (after the United States) in terms of active Facebook users with nearly 43.5 million users as of February 2012, with Indonesia a close third with over 43 million users.32 One of the reasons for Facebook’s popularity in Indonesia is that it is “a way to establish social status, success and a platform for self-promotion.”33 This resonates with many people in developing countries where Facebook has emerged as the leading application.34 Indonesia’s interest in social networking extends to 36 Twitter: around one-fifth of Indonesian Internet users access the microblogging application, equaling the world’s highest penetration.35 All of this has spurred a demand for faster connectivity, with available mobile broadband speeds rising to 40 Mbit/s.36 In general, the exchange of user-generated content, particularly through video-sharing sites, also helps to drive broadband. Since social media focus on user-generated content, they are often quite localized, meaning they are available in local languages and character sets and deal with topics that are locally relevant. As noted in a 2011 survey by Pew Research Center, 71 percent of online adults in the United States use video-sharing sites, which is a 38-point increase from 2006.37 For example, with more than three billion videos viewed every day, YouTube has become the most popular online video sharing site in the world.38 As Forbes magazine noted, the site is likely the “biggest television station on the planet.”39 Not only does broadband access facilitate use of these social networking applications, but the applications are major drivers of broadband demand. Perhaps most indicative of future trends is that younger users report more frequent usage of video- sharing sites, implying that, as younger users get older, the popularity of video-sharing sites among all age groups will continue to rise. This trend is visible in data from the last five years, as shown in Figure 1.10. In each of these cases, broadband connectivity enables access to the media, information, conversations or services that users are sharing. While some of these services may function over a narrowband connection, most are intended for the always-on, high-speed connectivity of broadband. Figure 1.10. Percentage of Internet Users Watching Videos on Video-Sharing Sites by Age, 2006-2011* 100% 90% 80% 70% 60% 18-29 50% 30-49 50-64 40% 65+ 30% 20% 10% 0% 2006 2007 2008 2009 2011 Source: Pew Internet & American Life Project, The Audience for Online Video-Sharing Sites Shoots Up *2010 data broken down by age range are not available. As another important social networking application, Twitter, an application that allows users to broadcast short text messages, had over 100 million registered users worldwide in 2011.40 Formed in 2006, it is already a powerful tool for the organization of social and political activities across the world.41 In particular, Twitter and other social media helped play a pivotal role in the 2011 so-called “Arab Spring” uprisings. Protest organizers used Twitter, Facebook and YouTube, in addition to texting and 37 similar narrowband technologies, to coordinate protest activities. Social media facilitated the spread of information about citizens’ grievances through YouTube videos and conversations on social networking websites when official or traditional media sources may not have given those grievances much or any coverage. These online tools are now firmly embedded within a more expansive media ecology that includes traditional sources such as radio, as well as popular satellite television stations. Indeed, there is much interest in user-created content created outside of professional routines and practices. The OECD predicts that the popularity of user-created content will likely continue to grow, with new drivers furthering its creation and use. Specifically, consumers will increasingly use mobile devices to watch and create user-created content, with higher uplink data transmission speeds and other consumer devices allowing easier content upload.42 All this means that the demand for mobile broadband devices capable of video capture and sharing will only grow. Social Collaboration: Wikis, Mashups, and Crowdsourcing Web 2.0 applications allow for more than simply connecting with others—they also allow for people anywhere in the world to collaborate: they can create content through blogs and podcasts; co-create content, for example, through wikis; link different types of content from different sources together to create new media (e.g., mashups); or use social tags to identify folksonomies. Additionally, Web 2.0 applications often have strong network effects in which websites become more useful as more people participate (e.g., Wikipedia entries or reviews of products on Amazon). Although perhaps to a lesser extent than social networking applications, these social collaboration tools help to increase the demand for broadband services by engaging users and making the online experience more personalized and flexible. Often, they draw on the idea of the “wisdom of the crowd,” which refers to practices where opinions and information are collectively created rather than arrived at by the views of a single or small group of experts.  Wikipedia is a well-known example of such social collaboration. The popular collaborative encyclopedia is multilingual, web-based, free to access and written by Internet volunteers, most of whom are anonymous. Anyone with Internet access can write and make changes to Wikipedia articles, and there are currently more than 82,000 active contributors around the world who are creating and editing over 19 million articles in 270 languages.43 Launched in 2001, Wikipedia is now available in over 280 languages—the English Wikipedia contains nearly 3.9 million distinct articles, followed by German with 1.36 million and French with 1.21 million44, though many languages native to developing countries remain under-represented. .45  Users can also create mashups, which are interactive Web applications that integrate content (e.g., video, text, audio or images) retrieved from third party data sources in order to create new and innovative services and applications.46 Mashup websites tend to rely on external websites that use open source application programming interfaces (APIs), which expose all of the instructions and operations in an application to facilitate the interaction between different software programs. Mashups may be as simple as a restaurant’s website embedded with a single API, such as a Google map to make it easier for customers to find it. Other mashups combine multiple APIs. For example, a web-based interactive restaurant guide could use APIs from sites with online reviews, photos, and maps to tell you the best places to eat in a given city and where to find them.  Crowdsourcing is a type of web collaboration referring to the outsourcing of tasks to a large, undefined group or community (the “crowd”) through an open call for assistance, such as via Twitter, Facebook or a dedicated webpage. Following the 2010 earthquake in Haiti, the Crisis Map of Haiti used crowdsourcing to coordinate relief efforts on the island. Those in need could submit 38 incident reports via the organization's website, phone, SMS, email, Facebook, Twitter, etc., and thus request aid or even report missing persons. After being reviewed by volunteers, the reports were mapped with Global Positioning System (GPS) coordinates in near real-time on a map also showing shelter sites and hospitals. These tools helped speed search-and-rescue efforts and provide vital supplies to those most needing them. The events in Haiti provide a model for how to deal with future disasters, both natural and man-made, as well as demonstrating a practical application of Web 2.0 technologies. Collaborative Working Tools for Businesses and Institutions Businesses and institutions are taking advantage of Web 2.0 applications (often referred to as “Enterprise 2.0”) to improve productivity and efficiency, as well as lower costs. Generally, Web 2.0 applications are not only less expensive, faster to deploy and more flexible than commercial or customized software packages, but also offer built-in collaborative workspace tools that enable people to interact across differences in time and space.47 These tools often center around “groupware” that allows multiple people to work together on projects and share documents, calendars and other data and to participate in video and audio conferences. Since Web 2.0 apps require large amounts of bandwidth to download and upload the various types of digital media, a broadband connection is essential. Education and Web 2.0 Support for school connectivity programs can be strengthened through the use of Web 2.0 applications in education. Even where virtual classrooms or other e-learning tools are in use, Web 2.0 tools can replace or complement expensive Virtual Learning Environment (VLE) software to provide a more flexible approach through the use of blogs, wikis, and other collaborative applications. For example, a classic VLE involves the teacher sharing slides and resources with students through an enabling software program. Web 2.0 applications, such as Slideshare for presentations, Google Docs for documents, Flickr for images, and YouTube for videos, however, are capable of replicating the core functions of the VLE software at no cost to educators or students.48 Open source and cloud technologies also allow for more educational opportunities where fewer resources are available. For example, students without personal computers can complete assignments at a university computer lab or Internet café via Google Docs. Other services, such as Flat World Knowledge’s open source textbooks, allow professors to review, adopt, and even customize textbooks for their classes, which students can then purchase in print format or view online for free, further reducing the cost of education. Additionally, teachers can incorporate blogging and wikis to encourage student participation and interaction. A 2009 study by the Joint Research Centre of the European Commission on e-learning initiatives in Europe found that student and teacher participation in Web 2.0 applications supports technological innovation in education and training by providing new formats for knowledge dissemination, acquisition, and management.49 These tools increase the accessibility and availability of learning content through a range of platforms that offer a large variety of educational material. Further, Web 2.0 tools support new strategies for studying a subject matter by making available a host of dynamic tools for transforming content and displaying information in different formats, as well as contribute to diversifying and enhancing teaching methods. Students are able to have more personalized and flexible lessons targeting their specific needs and are able to learn valuable networking and community-building skills. Additionally, these tools allow collaboration among geographically dispersed groups and can facilitate intercultural, cross-border, and cross-institutional exchange, while reduced costs allow for institutions in developing countries to compete with those in other areas. 39 Cloud Computing While applications have traditionally resided on the user’s computer or other device, there is increasing interest in hosting applications on remote servers, or in “the cloud.” Some cloud-based applications, such as web-based email (or webmail), have been in use for several years, even predating widespread broadband deployment. However, the rise of broadband has enabled more robust applications, including productivity applications, such as the office suites offered by companies including Google50 and Microsoft.51 Some of the benefits of cloud-based applications include access to information and documents from multiple locations, decreased processing power requirements for end-user devices, and decreased responsibility for users to update and maintain applications. In particular, cloud computing allows users to use any device from any network location to access uploaded files while keeping the costs of software and data distribution very low. Other cloud computing applications focus on file storage, independently of format. For example, Dropbox is a digital storage service with over 50 million subscribers who can upload, access and share documents, photos and videos from any location—up to 2 MB of storage is free while 50 MB is USD 10 and 100 MB is USD 20.52 Online retailer Amazon also offers cloud services to consumers and businesses, allowing users to create a “personal hard drive in the cloud.”53 By January 2012, Amazon had hundreds of thousands of customers in 190 countries storing 762 billion objects, which was nearly triple the number of stored objects at the end of 2010.54 The rising popularity of cloud computing services can help drive consumer demand for broadband since access to fast and reliable broadband is needed in order to maximize the value of the cloud. Compelling and Local Content Ultimately, what motivates people to buy broadband services and devices is that they believe broadband will enrich their lives, offer convenience, provide entertainment and improve their businesses. The network infrastructures or policies in place to expand broadband access are less important to end users on a day-to-day basis than the availability of relevant and useful online services and applications that allow users to access, create and share content. What Bill Gates said about the Internet in 1996 remains true today: “Content is King.”55 Attractive and useful content, as well as context (with the development of location based services, which require broadband access), are perhaps the most important underlying elements of broadband adoption. The English language currently used for the majority of websites around the world;an estimated 56.4 percent of all websites are in English followed by German at 6.6 percent and Japanese and Russian at 4.7 percent each.56 Interestingly, when looking at the number of Internet users by first language, Chinese was a close second to English in May 2011 (Figure 1.11) and is likely to overtake in the near future. However, Chinese is ranked number six in terms of number of websites with about 4.5 percent of all websites in Chinese. This discrepancy helps highlight how there can be a significant obstacle to Internet and broadband use by non-English speakers due to the scarcity of content in their own languages. 40 Figure 1.11. Number of Internet Users by Language, May 2011 English 565 Chinese 510 Spanish 165 Japanese 99 Portuguese 83 German 75 Arabic 65 French 60 Russian 60 Korean 39 0 100 200 300 400 500 600 Number of Users in Millions Source: Internet World Stats, Top 10 Languages Worldwide in Millions of Users (May 2011), available at http://www.internetworldstats.com/stats7.htm. Efforts to create content that is relevant and interesting, using the local language and character sets, is expected to increase the demand for broadband services in local areas. For example, the Kenya ICT Board in 2010 launched a grant of KES 320 million (USD 3.7 million) to promote the development of relevant, local digital content and software by targeting entrepreneurs in the film, education, entertainment and advertising industries. The goal of the project is to increase Internet penetration and promote local content, which is viewed as a potential area for new revenues in the country. In addition to direct grants for the production of local content, governments can support the development of local content and applications in other ways, such as the development of standardized keyboards, character sets and character encoding. This type of indirect intervention would have an impact on the content available by enabling users to create content in their own languages.57 Additionally, translation and standardization of operating systems into local languages can help to facilitate the development of local applications that are relevant and comprehensible to local users.58 Governments can also play an important role in developing local content and local applications by directly creating local content and local applications in the form of e-government applications as described above. Some forms of user-generated content, such as YouTube videos, face fewer barriers to expression as the speaker is recorded in his or her own language directly. YouTube is localized in 25 countries and is available in 43 languages.59 This helps to overcome some of the barriers in content reaching a possible community of interest, but not entirely, as content generated in languages other than those used in the 43 local versions or the worldwide version may encounter barriers in reaching an audience. It is likely that greater amounts of local content will continue to become available in the near term. For example, a website called d1g.com is a platform in Arabic for sharing videos, photos, audio, a forum, and a question and answer facility. Launched in 2007, d1g.com is one of the Arab world’s fastest -growing 41 social-media and content-sharing websites, with more than 13 million users and 5.3 million unique monthly visitors in mid-2011.60 It has 15 million videos, and streams an extensive amount of Arabic videos—600 terabytes of data per month. Notably, nearly 100 percent of d1g’s content is user - generated, with a small amount produced in-house. d1g.com became the most popular Arab social- media site (after Facebook and Twitter) when a user created the “Egyptstreet” diwan during the Egyptian revolution. During that time, unique visitors rose from three million to five million per month, and visits per month grew from six million to 13 million. Broadband-Enabled Devices In addition to services and applications, the continual development and evolution of devices and device use cases has been and will continue to be a key driver of broadband demand. The trends in device development are to make them smaller, faster, less expensive and more useful with a wider range of capabilities. Portable Internet access devices, including laptops, smartphones, netbooks and tablets, can leverage broadband connections to access services and applications in much the same ways as traditional desktop PCs. Further, there is a growing trend toward connecting devices not traditionally used for Internet access to online services and to connect devices to each other directly – an idea known as the “Internet of Things.” A wide spectrum of services and applications are used by a variety of devices, each enabled by broadband connectivity. As more devices are able to take advantage of broadband to provide information, services or functionality in a more effective or efficient manner, they drive demand for broadband service. Box 1.5 describes three trends in user devices that promise to alter the terrain of the computing and communications industries, bringing them closer to converging. Box 1.5. Three Trends in User Devices Three trends in user devices have implications for broadband. First, traditional computers such as desktops and laptops are becoming cheaper. A computer capable of multimedia functions and Internet connectivity is much cheaper today, with prices dropping over 90 percent over the last decade. Indeed, producer price indices for the computer manufacturing industry have plummeted since 1992 (see figure below). Prices of computer hardware in the United States, log scale, 1992–2009 Personal computers and workstations (excluding portable computers) Portable computers, laptops, PDAs and other single user computers 100 Log Index: 1992=100 10 1 0 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Second, mobile telephones are becoming smarter. Popular smartphones include handsets powered by Windows or Linux derivatives. They both host applications and allow users to connect to applications over wireless connections. A survey of business technology professionals found that more than a third of smartphone users “occasionally or frequently leave their laptops at home in favor of their 42 smartphones.” Over 700 million smartphones were shipped worldwide in the first half of 2011 with double-digit growth expected in 2012. A third development is the netbook—inexpensive portable computers that support simple applications and Internet connectivity. Netbooks are increasingly being bundled with mobile broadband connectivity. In the United States telecommunications service provider Sprint has bundled a netbook for USD 1 for subscribers who sign a two-year mobile broadband service contract. Pyramid Research predicts that netbooks will accelerate mobile broadband adoption among low-income customers, estimating that mobile broadband subscriptions will rise by 25 percent after services go below USD 20 a month and include ultralow-price netbooks. A growing demand for netbooks has led microprocessor maker Intel to see rapidly increasing sales of its Atom microprocessor, designed for the netbook market. Sources: U.S. Bureau of Labor Statistics; Information Week Oct 2008, Your next computer; Budde Global - Mobile - Handset Market 10/06/2009; http://news.cnet.com/8301-1035_3-10280886-94.html; Pyramid Research, Mobile broadband for the masses: The case for bundled netbooks, May 2009, p. 8; http://www.marketwatch.com/story/intel-margins-soar-as-manufacturing-might-kicks-in-2009-10-13; International Data Corporation, Worldwide Mobile Phone Market Grew More Than 11% in the Second Quarter; Feature Phones Decline for First Time in Almost 2 Years, According to IDC (July 28, 2011), available at http://www.idc.com/getdoc.jsp?containerId=prUS22962811. Portable Devices With respect to the expanding universe of Internet access devices, the rise of portable devices is generating significant new demand for broadband services, especially mobile broadband. While feature phones continue to outsell smartphones, the latter are enjoying significant growth. Research firm IDC has also found that the nascent tablet computing market is growing rapidly. For example, nearly 18.1 million tablets were shipped worldwide in Q3 2011 alone, representing a 265 percent increase over the previous year.61 In a separate forecast, IDC predicted that combined shipments of smartphones, tablets, and other application-enabled devices would overtake traditional PC shipments by mid-2011 as complementary devices to PCs.62 By October 2011, however, it appeared that tablets had not yet displaced PCs in terms of sales.63 It is important to note that the majority of tablet shipments in 2010 and 2011 were Apple’s popular iPad and iPad2, which now have a 61.5 percent worldwide market share, while the first competing product from a major vendor did not enter the market until the last quarter of 2010.64 The expected growth in 2011 tablet shipments reflects continued interest in the iPad, as well as further introductions of competing products, many based on the Android operating system. However, IDC believes that the non-PC devices are not necessarily replacing PCs, but rather are expanding the market for Internet access devices. All of these devices are designed to take advantage of broadband connectivity, whether provided by a mobile network or by Wi-Fi distribution of the wired broadband connection in a home or workplace. The explosive growth of wireless telephony services in the developing world has been one of the great ICT success stories in recent years, and has brought about significant change in the way the world’s population communicates and conducts business. With the low level of fixed telephony or broadband connections in the developing world, it is expected that advanced mobile devices will provide a primary means by which those in developing countries gain access to broadband. Thus, while broadband services in much of the developed world began with PCs and laptops and expanded to mobile devices, the pattern in the developing world is more likely to be the reverse, or may not even include a significant role for traditional PCs and laptops. 43 Internet of Things The Internet of Things can be characterized as the networked interconnection of objects, including those that are not traditionally considered as Internet access devices. It includes the idea of machine-to- machine (M2M) communications, in which machines or devices exchange information without the need for human intervention. Beyond connecting consumer devices, such as household appliances or cameras, the Internet of Things can also encompass connections to, for example, a wide range of sensors, utility networks (the “smart grid”) and healthcare devices. The connection of everyday devices and objects could enable a number of activities, including remote monitoring or activation of household devices; automated reporting from networks of weather, geologic, or other sensors; improved vehicle traffic management; and alerts to individuals or doctors regarding medical needs. As stated in the U.S. National Broadband Plan, “the Internet of Things will likely create whole new classes of devices that connect to broadband, and has the potential to generate fundamentally different requirements on the fixed and mobile networks: they will require more IP addresses, will create new traffic patterns possibly demanding changes in Internet routing algorithms, and potentially driving demand for more spectrum for wireless communications.”65 As shown in Box 1.6, a number of countries are deploying smart city initiatives around the world. Box 1.6. Examples of Smart City Initiatives around the World The concept of an Internet of Things may be extended to encapsulate all of the major systems of a city. In such a “smart city,” transportation, public services, utilities, and other systems are interconnected and constantly updated to create a type of “living, breathing” organism. Businesses, residents, tourists, and government can all tap into this network to communicate with each other, glean information, identify trends, and even provide corrective action as needed. As advanced, Internet-connected devices become available and more ubiquitous, a number of smart city initiatives have appeared. In Barcelona, a municipal fiber-optic network complemented by a Wi-Fi mesh network facilitates smart city functions. Traffic lights, parking meters, surveillance and traffic cameras, and public lighting are all connected to the network. In addition, sensors throughout the city monitor traffic flow, parking availability, pollution, and noise and report to the network. Police officers, city planners, and even social workers can tap into this network for real-time information. Even trash containers are tracked using RFID tags; a pilot program measures the amount of trash produced per household to enable a “pay as you throw” program and optimize collection routes. In Venice, 10,000 kilometers of fiber optics and 120 Wi-Fi hotspots combine to enable a smart city platform that connects residents, businesses, schools, universities, museums, and city management. An RFID-enabled card allows citizens to access municipal buildings (including libraries, museums, and sports venues), use municipal transportation services, and even pay for items and services such as parking, tickets, and food. A similar service is available for tourists, allowing them to plan their visit and pre-pay for tours and services online. ARGOS, the Automatic & Remote Grand Canal Observation System, provides city managers real-time information of canal traffic and automatically detects and highlights illicit behavior. In India, a number of smart cities are being developed. For example, the Rajasthan government is collaborating with the Japanese government to develop Bhiwadi-Neemrana town in Alwar district as a smart city—part of a smart community development project. The aim is to integrate water supply, solid waste management, power production, and transportation systems to create an efficient city with a low carbon footprint. The project is being financed largely by Japan's Ministry of Economy, Trade and Industry (METI) would finance the ambitious project, with additional support from India’s Delhi-Mumbai 44 Industrial Corridor project. Source: http://ec.europa.eu/information_society/policy/rfid/index_en.htm Although the concept of the Internet of Things has been discussed for several years, and some devices are deployed, it is fair to say that a global Internet of Things is still in the early stages of development. A variety of stakeholders are taking steps to guide and advance development of multiple aspects of a world where most humans are surrounded by perhaps hundreds or thousands of networked objects at any given time. For example, the European Commission in 2009 adopted an Internet of Things Action Plan66 intended to promote the evolution of the Internet of Things through technology standardization and research funding, as well as protection of privacy, data and security. In June 2010, the European Parliament followed with a resolution encouraging the development of the Internet of Things in Europe.67 In July 2010, China’s vice minister of industry and information technology announced that his ministry was developing a national Internet of Things plan. Further, the European Union and China in May 2010 inaugurated a joint Internet of Things expert group.68 Beyond government plans to guide and promote the Internet of Things, private-sector companies are also moving forward with technologies and solutions to develop and expand the Internet of Things. For example, Hewlett-Packard’s CeNSE (“Central Nervous System for the Earth”)69 and IBM’s Smarter Planet campaign70 both work to create networks of Internet-connected sensors that enable a feedback loop for objects and people, and thus the monitoring and analysis of a wide range of environmental conditions and data. The volume of data transmitted to or from an individual device may be miniscule, but if billions or trillions of objects around the world are connected to the Internet, the result will be significant data flows best that can only be handled by broadband connectivity. One Hewlett-Packard estimate, for example, states that one million sensors, running continuously would generate 20 petabytes of data over a six-month period.71 1 ITU-D, ICT Facts and Figures: The World in 2010 (2010), available at http://www.itu.int/ITU- D/ict/material/FactsFigures2010.pdf. 2 ITU, The World in 2011: ICT Facts and Figures (2011), available at http://www.itu.int/ITU- D/ict/facts/2011/material/ICTFactsFigures2011.pdf and Point Topic, World Broadband Statistics: Short Report Q2 2011 (Oct. 2011), available at http://point-topic.com/dslanalysis.php. 3 World Bank analysis based on TeleGeography GlobalComms data (Dec. 2009). 4 ABI Research, One Billion Mobile Broadband Subscriptions in 2011: A Rosy Picture Ahead for Mobile Network Operators (Feb. 2011), available at http://www.abiresearch.com/press/3607- One+Billion+Mobile+Broadband+Subscriptions+in+2011:+a+Rosy+Picture+Ahead+for+Mobile+Network+Operators 5 ITU, The World in 2011: ICT Facts and Figures (2011). 6 ITU, World Telecommunication/ICT Indicators (WTI) Database (2011), available at http://www.itu.int/ITU- D/ICTEYE/Reports.aspx. 7 ITU, The World in 2011: ICT facts and Figures (2011). 8 ITU, The World in 2011: ICT facts and Figures (2011). 9 ABI Research, One Billion Mobile Broadband Subscriptions in 2011: A Rosy Picture Ahead for Mobile Network Operators (Feb. 2011), available at http://www.abiresearch.com/press/3607- One+Billion+Mobile+Broadband+Subscriptions+in+2011:+a+Rosy+Picture+Ahead+for+Mobile+Network+Operators 10 ABI Research, One Billion Mobile Broadband Subscriptions in 2011: A Rosy Picture Ahead for Mobile Network Operators (Feb. 2011). 45 11 Akamai, State of the Internet report, Q2 2011 (Oct. 2011), available at http://www.akamai.com/stateoftheinternet/. 12 ITU, Measuring the Information Society 2011, p. 71-72 (2011), available at http://www.itu.int/ITU- D/ict/publications/idi/2011/Material/MIS_2011_without_annex_5.pdf. 13 International Data Corporation, Worldwide Mobile Phone Market Grew More Than 11% in the Second Quarter; Feature Phones Decline for First Time in Almost 2 Years, According to IDC (July 29, 2011), available at http://www.idc.com/getdoc.jsp?containerId=prUS22962811. 14 International Data Corporation, Smartphones Outstrip Feature Phones for First Time in Western Europe as Android Sees Strong Growth in 2Q11, Says IDC (Sept. 9, 2011), available at http://www.idc.com/getdoc.jsp?containerId=prUK23024911. 15 International Data Corporation, IDC Forecasts Worldwide Smartphone Market to Grow by Nearly 50% in 2011 (Mar. 29, 2011), available at http://www.idc.com/getdoc.jsp?containerId=prUS22762811. 16 ITU, The World in 2011: ICT facts and Figures (2011). 17 ITU, The World in 2010: ICT facts and Figures (2010). 18 Global mobile Suppliers Association, Global HSPA+ Network Commitments and Deployments (Oct. 28, 2011), available at http://www.gsacom.com/downloads/pdf/global_ehspa_network_commitments_281011.php4; Global mobile Suppliers Association, HSPA Operator Commitments (Oct. 28, 2011), available at http://www.gsacom.com/downloads/pdf/HSPA_operator_commitments_281011.php4. 19 WiMAX Forum, Monthly Industry Report (May 2011), available at http://wimaxforum.org/files/industry_reports/Monthly_Industry_Report_May2011.pdf. 20 WiMAX Forum, Monthly Industry Report (May 2011). 21 Strategic Options for Broadband Development, World Bank GICT study for NTRA at 38. 22 Global mobile Suppliers Association, Evolution to LTE report: 285 Operators Investing in LTE in 93 Countries; 49 Commercial Networks,” Information Paper, January 5, 2012, http://www.gsacom.com/gsm_3g/info_papers.php4. 23 Global mobile Suppliers Association, Evolution to LTE report: 248 operators Investing in LTE in 87 Countries; 35 Commercial Networks (Oct. 12, 2011) at http://www.gsacom.com/gsm_3g/info_papers. 24 infoDev/The World Bank, Building Broadband: Strategies and Policies for the Developing World at 24 (2010). 25 infoDev/The World Bank, Building Broadband: Strategies and Policies for the Developing World at 24 (2010). 26 YouTube, Statistics, available at http://www.youtube.com/t/press_statistics. 27 Tim O'Reilly, What Is Web 2.0: Design Patterns and Business Models for the Next Generation of Software (Sept. 30, 2005), available at http://oreilly.com/web2/archive/what-is-web-20.html. 28 Facebook, “Fact Sheet,” http://newsroom.fb.com/content/default.aspx?NewsAreaId=22. 29 Ian Mansfield, Social Networking Dominates UK Mobile Broadband Traffic , Cellular-News (Oct. 28, 2010), available at http://www.cellular-news.com/story/46136.php. 30 Pascal-Emmanuel Gobry, HUGE: Mobile Broadband Will Hit 1 Billion Users In 2011, Business Insider (Jan. 12, 2011), available at http://www.businessinsider.com/mobile-broadband-will-hit-1-billion-users-in-2011-2011-1. 31 Balancing Act, “Facebook on basic phones for Africa” (Feb. 17, 2012), available at http://www.balancingact- africa.com/news/en/issue-no-592/web-and-mobile-conte/facebook-on-basic-ph/en 32 Social Bakers, Facebook Statistics by Country (Feb. 2012), available at http://www.socialbakers.com/facebook- statistics/?interval=last-week#chart-intervals. 46 33 Tyler Thia, Social media most evolved in Singapore (Feb. 10, 2011), available at http://www.zdnetasia.com/social-media-most-evolved-in-s-pore-62206580.htm. 34 For example a study among mobile users in ten Southeast Asian nations found that Facebook was the top site in five of them, the second ranked site in three, the third ranked in one and not among the top ten in only one of the countries. Opera Software, State of the Mobile Web, January 2011, available at http://www.opera.com/smw/2011/01/#snapshot. 35 comScore, Indonesia, Brazil and Venezuela Lead Global Surge in Twitter Usage (Aug. 11, 2010), available at http://www.comscore.com/Press_Events/Press_Releases/2010/8/Indonesia_Brazil_and_Venezuela_Lead_Global_ Surge_in_Twitter_Usage. 36 Indosat, Annual Report (2010). 37 Pew Research Center, 71% of Online Adults Now Use Video-Sharing Sites (July 26, 2011), available at http://pewresearch.org/pubs/2070/online-video-sharing-sites-you-tube-vimeo. 38 YouTube, Statistics, available at http://www.youtube.com/t/press_statistics. 39 Forbes Magazine, GooTube, June 16, 2008, available at http://www.forbes.com/forbes/2008/0616/050.html. 40 Graeme McMillan, “Twitter Reveals Active User Number, How Many Actually Say Something,” Time, September 9, 2011, http://techland.time.com/2011/09/09/twitter-reveals-active-user-number-how-many-actually-say- something/. 41 Time, How Twitter Will Change the Way We Live, June 5, 2009. 42 OECD, Information Technology Outlook 2008, p. 262 43 Wikipedia, Wikipedia: About, available at http://en.wikipedia.org/wiki/Wikipedia:About. 44 WikiMedia, List of Wikipedias (as of Mar. 23, 2011), available at http://meta.wikimedia.org/wiki/List_of_Wikipedias. 45 WikiMedia, List of Wikipedias (as of Mar. 23, 2011), available at http://meta.wikimedia.org/wiki/List_of_Wikipedias. 46 Duane Merrill, Mashups: The New Breed of Web App, IBM developerWorks (July 24, 2009), available at http://public.dhe.ibm.com/software/dw/xml/x-mashups-pdf.pdf. 47 Susan Kuchinskas, A Beginner's Guide to Web 2.0 Tools for Business, BNET (May 2007), available at http://www.bnet.com/article/a-beginners-guide-to-web-20-tools-for-business/66096. 48 R. John Robertson, Technical Standards in Education, Part 7: Web 2.0, sharing, and the open agenda, IBM developerWorks (Apr. 5, 2011), available at http://public.dhe.ibm.com/software/dw/industry/ind-edustand7/ind- edustand7-pdf.pdf. 49 Christine Redecker, Kirsti Ala-Mutka, Margherita Bacigalupo, Anusca Ferrari and Yves Punie, Learning 2.0: The Impact of Web 2.0 Innovations on Education and Training in Europe , Joint Research Centre of the European Commission (2009). 50 See http://docs.google.com. 51 See http://office.microsoft.com/en-us/web-apps/. 52 Victoria Barrett, Dropbox: The Inside Story of Tech's Hottest Startup , Forbes Magazine (Oct. 18, 2011), available at http://www.forbes.com/sites/victoriabarret/2011/10/18/dropbox-the-inside-story-of-techs-hottest-startup/. 53 Amazon, Amazon Cloud Drive, available at https://www.amazon.com/clouddrive/learnmore. 47 54 Rich Miller, “Amazon: 762 Billion Objects Stored on S3 Cloud,” Data Center Knowledge, January 31, 2012, http://www.datacenterknowledge.com/archives/2012/01/31/amazon-762-billion-objects-stored-on-s3-cloud/. . 55 Bill Gates, Content is King, Microsoft (Jan. 3, 1996). 56 W3Techs, “Usage of Content Languages for Websites,” Web Technology Surveys, February 6, 2012, http://w3techs.com/technologies/overview/content_language/all. 57 For example, there is no standardized keyboard layout for Pashto, an Indo-Iranian language spoken by about 25 million people in Afghanistan, India, Iran, Pakistan, Tajikistan, the UAE and the UK. There is a standard for Pashto text encoding, so some progress is seen. However, there is no standard interface terminology translation in Pashto, which makes achieving digital literacy more challenging. Samad Hussain, Nadir Durrani, and Sana Gul, Pan- Localization, Survey of Language Computing in Asia (2005), available at http://www.panl10n.net/english/outputs/Survey/Pashto.pdf. 58 Sri Lanka’s ICT Agency has a Local Languages Initiative to enable ICT in languages such as Sinhala or Tamil (http://www.icta.lk/en/programmes/pli-development/68-projects/557-local-languages-initiative-lli.html). 59 Wikipedia, YouTube, available at http://en.wikipedia.org/wiki/YouTube. 60 Matthew Kalman, “Arabic Social Startup Stays Local,” Technology Review, June 3, 2011, http://m.technologyreview.com/web/37671/. 61 International Data Corporation, “Media Tablet Shipments Miss Third Quarter Targets, But New Entrants and Holiday Demand Will Spark Fourth Quarter Growth, According to IDC,” Press Release, December 15, 2011,http://www.idc.com/getdoc.jsp?containerId=prUS23228211. 62 Patrick Thibodeau, In historic shift, smartphones, tablets to overtake PCs (Dec. 6, 2010), available at http://www.computerworld.com/s/article/9199918/In_historic_shift_smartphones_tablets_to_overtake_PCs. 63 International Data Corporation, “Worldwide PC Market Grapples with Slow Growth in Third Quarter as Lenovo Rises to Number 2 Position, According to IDC,” Press Release, October 12, 2011, http://www.idc.com/getdoc.jsp?containerId=prUS23087711. 64 International Data Corporation, “Media Tablet Shipments Miss Third Quarter Targets, But New Entrants and Holiday Demand Will Spark Fourth Quarter Growth, According to IDC,” Press Release, December 15, 2011. 65 Federal Communications Commission, Connecting America: The National Broadband Plan at [sec. 3.2] (March 2010). 66 European Commission, Internet of Things – An action plan for Europe (June 2009), available at http://ec.europa.eu/information_society/policy/rfid/documents/commiot2009.pdf (last visited Jan. 20, 2011). 67 European Parliament, European Parliament Resolution of 15 June 2010 on the Internet of Things (June 2010), available at http://www.europarl.europa.eu/sides/getDoc.do?pubRef=-//EP//TEXT+TA+P7-TA-2010- 0207+0+DOC+XML+V0//EN (last visited Jan. 20, 2011). 68 See http://www.iot-eu-cn.org/. 69 See http://www.hpl.hp.com/news/2009/oct-dec/cense.html. 70 See http://www.ibm.com/smarterplanet/us/en/. 71 1 petabyte (PB) = 1,000 TB. 48 1.5 How Can Broadband Development Be Supported? Despite the rapid growth in broadband supply and the development of broadband-enabled applications, services, and devices, there are also notable challenges. Whether within a particular economy or when comparing nations or even regions, the more affluent and better-educated populations generally have earlier and better access to broadband networks and services than the less-affluent and less-educated populations. With the rise of broadband-enabled services and applications, and the increasing migration of many aspects of modern life online, a lack of broadband connectivity can increasingly have a negative impact on social and economic development by excluding those who lack broadband access or do not see the relevance of broadband services. Governments can employ a wide range of strategies and policies to support the development of broadband, such as through market liberalization efforts including opening international gateways to competition and the allocation of new spectrum for wireless broadband, including the release of the “digital dividend” spectrum for commercial wireless use once a country’s digital television transition is completed. To help government policymakers and private sector investors better understand the various ways in which broadband networks and services can best be supported, it is useful to have an overarching concept of how to think about broadband from a policy point of view. This Toolkit proposes to view broadband as an ecosystem of mutually dependent and reinforcing components of supply and demand. Viewing broadband as an ecosystem helps to encourage the development of coherent, integrated policies that maximize the benefits of broadband across all sectors of the economy and aspects of society. 1.5.1 Broadband Ecosystem: Framework for Deployment and Adoption Under the ecosystem model (Figure 1.12), the supply of broadband network platforms is the first necessary condition—broadband infrastructure must be available. However, demand for broadband is just as important in order to make substantial network investments worthwhile. Additionally, the ability for non-ICT sectors to use and create broadband-enabled services and applications boosts demand and encourages further network deployments. Developing these synergies will largely determine the extent to which broadband impacts the economy and serves as an enabling platform, and ultimately, as a GPT that can act as an essential input in driving innovation and growth in all sectors. 49 Figure 1.12. The Broadband Ecosystem and Its Impact on the Economy Source: Adapted from Kim, et al, Building Broadband, World Bank, 2010. Viewing broadband as an ecosystem helps define the likely roles that governments will need to play in using broadband as a tool in ICT for development (ICT4D). Broadband is more than the supply of access to networks and services, and thus represents a significant shift away from the models used with telephones. To foster broadband markets, governments will have to move beyond their traditional “push” role focused on supply-side growth in ICT infrastructure and development of the ICT sector. A broader conceptual framework helps because it encourages a rethinking of the areas of focus for broadband policies and strategies. It suggests that, in order to expand the ecosystem, governments will have to design various policies and programs focused on different components of the ecosystem. Countries might overlook the “demand facilitation” aspect of broadband strategies if they consider only the supply of broadband connectivity. For instance, failing to consider the demand side, such as promotion of useful applications and services, could lead to an incomplete policy or strategy. There are various interdependencies among the components of the broadband ecosystem, and hence a holistic approach to broadband development will tend to produce better results. These interdependencies link the various components in multiple ways. Investments in high-speed networks improve the quality of service and promote the creation of even more complex or bandwidth-intensive applications. Similarly, the availability of various applications attracts more users by increasing the value of broadband and supports wider investments in networks and quality of services. Widespread access to services has also allowed users to create their own content, again driving the demand for high quality services that can do more than simply ‘download’ content, but also allow sharing among users. Building a high-speed telecommunications network is only the necessary first step in developing a broadband system. A range of policies and programs are needed to promote and universalize the use of this network by supporting the development of services and applications, encouraging users to go online and taking steps towards wider inclusiveness. 50 Viewing broadband as an ecosystem fits with the growing recognition that government strategies need to develop “push” measures that promote broadband supply, as well as “pull” measures focused on building demand. Such pull measures can promote digital literacy, establish an enabling environment (including an appropriate legal framework), and foster the development of applications (including local content). Broadband Ecosystem: Supply-Side Constraints The basic elements of supply in the broadband ecosystem consist of four levels: 1) international connectivity; 2) domestic backbones; 3) metropolitan and backhaul connectivity and 4) local connectivity (see Module 2 for more on the broadband supply chain).1 At all levels, broadband connectivity is expanding globally. The estimated number of wireline broadband subscriptions surpassed half a billion in 2010, up from 471 million in 2009 with Brazil, Russia, India and China (referred to as the BRIC) countries doubling their subscribers in the last four years.2 The number of wireless broadband users has also expanded rapidly with over 1 billion mobile broadband subscriptions in 2011. Between 2002 and 2008 demand for international submarine cable bandwidth grew 54 percent a year. And supply is rising to meet this demand: more submarine cables will be built between 2009 and 2011 than between 1999-2001, at the height of the telecommunications boom.3 Capacity will grow even faster because technologies are able to squeeze more data into the same bandwidth. In considering policies and strategies to promote broadband development, one important goal is to ensure that access is available to the widest possible user base. This means that networks need to be built out to reach as many people as possible. But facilitating broadband supply presents at least two significant issues. First, there are areas in virtually every country that have no meaningful access to broadband services at all. This problem is most pronounced in developing countries, which have seen less investment in the construction of networks outside metropolitan areas. This situation has improved in recent years with the spread of wireless networks, but there are still areas without network coverage. Second, some areas have networks in place, but these networks are not capable of supporting broadband speeds and services. These areas will need to be upgraded to provide broadband through the construction of high-speed wireline networks and/or through advanced wireless networks (3G or 4G services). In many developing countries, where wireless penetration can far exceed wireline penetration, upgraded wireless networks capable of providing true broadband speeds are expected to be the main supplier of broadband services. On the supply side, the problem is not as simple as just building more networks; as operators roll-out their broadband business plans, issues of cost, service quality (bandwidth/data speeds), and technology choice will also play important roles in deciding how best to bring access to a nation’s citizens. Even then, simply building more networks or providing access to all is not a guarantee of success— governments may need to support broadband development by encouraging demand for broadband in those limited instances where the private sector does not generate useful and relevant applications, services and content. Broadband Ecosystem: Demand-Side Constraints For the demand side of the ecosystem, relevant, useful and innovative advancements in services, applications, and content are important for encouraging adoption and use of broadband. As such, the many demand-side components—including services, applications and content—are essential to promoting a vibrant broadband ecosystem. While generally a distinction is made between services and applications, as technology evolves there is likely to be overlap between them. For example, mobile banking may be treated as a service or an application (and maybe even as both), depending on how and what features are offered. In addition, electronic government (e-government) covers an entire range of 51 services and applications that transform government processes and modes of interacting with businesses and citizens.4 The distinction, at least in terms of the ecosystem, may be irrelevant—what is important is that these services/applications drive demand. In order to improve access to broadband, stakeholders will need to consider approaches that can alleviate cost concerns, improve digital literacy across societies and ensure the availability and awareness of relevant content. There has long been discussion of a “digital divide,” the gap between the “haves” and the “have-nots.” With the rise of broadband-enabled services and applications, and the increasing migration of many aspects of modern life online, a lack of broadband connectivity can increasingly have a negative impact on relative social and economic development. Improving the availability of broadband networks only addresses one impediment linked to broadband development. Even with networks in place and accessible, there are likely to be barriers due to lack of demand and skills. This problem involves people who have access to broadband networks, but are unable or unwilling to obtain service. Addressing lack of demand is important because low adoption rates will leave networks underutilized. This has at least two implications. First, from a network externalities standpoint, fewer users reduce the economic and social utility of the networks. Where relatively few people can communicate online, the network externalities will be reduced since there is a smaller number of potential customers for businesses to serve. This further means that there may be fewer local businesses and consumers to offer broadband-enabled services and applications, such as video streaming services (e.g., Hulu+), voice and video communications (e.g., Skype) and download services for a variety of applications like software, e-books, etc. Second, low adoption and use will undermine the business case of any network—even those built with public funds. Fewer users means that the cost of networks is spread over a smaller user base, making them relatively more expensive to build and maintain/operate. Thus, it is important from the overall goal of improving broadband development for governments to focus their attention on developing policies that not only facilitate and encourage the building of broadband networks, but ensure that as many people as possible can and do use them. Barriers to adoption vary and will likely not be the same in all countries, but some broad categories are identifiable. In studies conducted to identify barriers to Internet and broadband adoption, the primary reasons respondents cite for not subscribing to broadband services can be grouped into four main categories: 1) broadband is not relevant; 2) equipment or service is too expensive; 3) lack of training or comfort with using broadband Internet services; and 4) broadband is not supplied.5 This is not to say that demand inhibitors are exactly the same in all countries. The factors seen as impediments to adoption in some countries may be less of a factor than in other countries, due to different social and cultural histories and experiences, as well as different socio-economic conditions.6 Figure 1.13, which reflects survey data collected from non-adopters of Internet services in Brazil and the United States, shows how some factors vary in their importance in these two countries.7 Respondents in the United States, for example, see digital literacy as a much bigger problem than respondents from Brazil who consider high cost to be a larger issue. Therefore, each country must analyze and address the demand-reducing factors on a case-by-case basis and tailor solutions to the individual problems. 52 Figure 1.13. Reasons for Non-Adoption of Internet in Brazil and Broadband in the United States 60 Percentage of respondents (%) 50 Lack of access 40 High cost 30 Digital literacy 20 Relevance 10 Internet access 0 elsewhere Brazil USA Sources: NIC Brasil, Análise dos Resultados da TIC Domicílios and FCC, Broadband Adoption and Use in America. With respect to social and political development, broadband can serve as an enabler of more effective and efficient delivery of services and information. As an increasingly large percentage of customers (or citizens, in the case of government services) take advantage of online services, the resulting savings or revenues encourage an increasing number of private and public service providers to shift more services online. However, an increasing reliance on online services will result in the exclusion of those populations who lack broadband access or do not see the relevance of broadband-enabled services. There are, of course, multiple levels and arenas in which broadband access enables social and political interaction, whether casual communication on social networks, familiarity with the news or entertainment of the day on a video-sharing website, or access to current government information and services. However, as these online platforms become increasingly integrated into social and political lives, it becomes more important for broadband to be widely available and accessible so as to ensure the possibility of participating for all sectors of society. As Dr. Nicholas Gruen, former chair of Australia’s Government 2.0 Taskforce stated in September 2010, a new facet of the digital divide is what he termed the “participation partition,” in which citizens who are more active in online discourse have more influence in their communities.8 Given the social and economic benefits of broadband access, the countries, communities, organizations and populations that lack broadband have a greater likelihood of being excluded from important economic and social developments. It is incumbent upon all stakeholders to pursue strategies to expand broadband access in order to enhance the social development of citizens and organizations as well as the economic development opportunities of communities and countries. Absorptive Capacity Addressing supply and demand are necessary conditions for the promotion of broadband network and services, but by themselves they are still not sufficient to guarantee that broadband can reach its full potential in the economy. For that to happen, broadband users (citizens, businesses and government) must also have the capacity to understand, learn and apply the lessons learned about broadband’s benefits and capabilities across the economy and society. Absorptive capacity generally refers to the ability of an organization to recognize the value of new, external information, to assimilate that information and then apply it to the organization’s benefit. This ability is critical to an organization’s innovative capabilities, as new technologies are assimilated by organizations to create, improve and transform business processes, products and services.9 As users 53 have the ability to become co-creators of content10 and as broadband user-led innovation is enabled11 this same concept can be extended to include other users of the broadband platform, including citizens. Thus, to fully realize the benefits of broadband, the various sectors of the economy and society must have the capacity to acquire, assimilate, transform and exploit the capabilities enabled by this platform. Under the ecosystem model, absorptive capacity is the mechanism by which the benefits obtained from broadband feed into the greater economy, allowing this technology to unleash its potential as a GPT. Policymakers can facilitate the capacity to understand and incorporate the many benefits of broadband through the development and implementation of policies that are complementary to broadband build- out. In addition, the private sector should be encouraged to adopt broadband as an input to drive productivity, growth, innovation, and welfare throughout the economy and society. Broadband alone has limited direct impact as a technological platform, but instead acts as an enabler. As such, broadband holds the potential to significantly impact economic and social progress and transform the economy. However, for this potential impact to materialize, broadband must be used by businesses, government and citizens in ways that increase productivity in the economy.12 This requires: 1) that the creation and availability of broadband-enabled services and applications that increase efficiency and productivity and 2) that businesses, government and citizens have the capacity to use broadband-enabled services and applications in a productive and efficient way. These two requirements are critical for achieving the potential economic impact that broadband can produce. The economy’s capacity to absorb broadband depends on how the two requirements described above are fulfilled in the economy. In a nutshell, a country’s absorptive capacity can be thought as determined by: 1. The capacity of business to create broadband-enabled services and applications and use these applications and services to transform their business processes to be more productive and efficient; 2. The capacity of citizens to create and use broadband-enabled services and applications to increase their welfare; and 3. The capacity of the government and other institutions (e.g., schools) to introduce and accommodate broadband-enabled services to deliver public services more efficiently and transparently to the public. Components of Broadband Absorptive Capacity Four components determine the degree to which a country’s economy is able to absorb broadband and translate it into economic and social development. These components are: 1) the economy’s macroeconomic environment; 2) the business environment; 3) the quality of human capital; and 4) the governance structure (Figure 1.14). The macroeconomic environment determines the “broadband- friendliness” of the economy and whether the economy and its main actors (i.e., businesses, government and citizens) are open to using ICTs. The business environment, which includes access to financing and diffusion of previous technologies, determines the ability of businesses and entrepreneurs to create new broadband-enabled innovations, modify business processes based on these innovations and update existing products, services and strategies using broadband and the broadband-enabled environment. The quality of human capital depends on the ability of the labor force, businesses and academic institutions to understand the potential of broadband and adapt their mindsets to the broadband-enabled environment. Finally, the governance structure determines the degree to which businesses and citizens are permitted to share and access information openly, as well as to share broadband-based ideas and innovations. Additionally, governance addresses the security of investment 54 and the cost of creating new broadband-enabled business, services and products. Governance that promotes the absorptive capacity of broadband generally requires free, open access to information and abidance by the rule of law to protect investments. Although there are a wide range of elements for each of the components of absorptive capacity, the following figure provides some important examples. Figure 1.14. Illustrative Examples of Elements of Absorptive Capacity •General government balance Macroeconomic •CPI inflation rate Environment •Real exchange rate volatility •Ease of starting new businesses Business •Ease of access to financing and capital Environment •Access to complementary technologies (e.g., electricity) Quality of Human •Secondary and tertiary education attainment Capital •ICT related education /e-literacy •Rule of law and regulatory quality Governance •Political stability and accountability •No corruption Source: Partially based on World Bank, Global Economic Prospects 2008: Technology Diffusion in the Developing World (2008). Degree of Broadband Absorptive Capacity The degree of absorptive capacity in a given economy will determine the amount of broadband-enabled economic development. Without strong absorptive capacity, the impact of broadband on economic development will be limited or even non-existent (see Box 1.7 below). A country can have nationwide broadband coverage and widespread adoption, but will obtain very little overall economic and social benefit if absorptive capacity is limited. Conversely, in a country with relatively limited broadband coverage or adoption, broadband can have a targeted impact on the economy if there is sufficient absorptive capacity. Moreover, absorptive capacity can be targeted to specific sectors of the economy, which has been the case with the IT and business process outsourcing (BPO) industry in countries like India. This targeted absorptive capacity can then expand throughout the economy. Box 1.7. Technological Absorptive Capacity An economy with a flexible facilitating structure that has an entrepreneurial business environment; few technological regulatory restrictions; an ICT-educated workforce; high penetration of previous complementary technologies (e.g., electricity); a business-friendly financing structure; and a responsive public policy structure will experience faster diffusion of broadband-enabled applications and services and larger economic and social impact. The impact of broadband-enabled ICTs on economic growth will be slower and smaller in an economy that lacks some of these elements or that delays the needed changes to adapt the facilitating structure to broadband-enabled ICTs (e.g., by not modifying the regulatory framework to eliminate technological restrictions or to facilitate their diffusion). 55 In relative terms it can be put as follows: assuming that the maximum and fastest effect on the structure of the economy that a country can obtain from broadband-enabled ICTs is 100 (i.e., potential positive impact from broadband), the degree of absorptive capacity of the economy will determine how much and how fast that 100 value can be actually realized. Sweden and Italy provide a good illustrative example of how this mechanism works. Both countries have relatively similar levels of GDP per capita and an in-depth penetration of previous complementary technologies, such as electricity and telephone lines. However, the absorptive capacity in both countries was different. Sweden performed better in business environment and human capital. In addition, Sweden took a very active role in modifying the facilitating structure of its economy to allow for faster diffusion of broadband (e.g., by establishing a public policy to enable the diffusion of broadband and implementing e-literacy programs). Figure 1.15. Sweden and Italy: Internet Adoption Proxies Sweden Italy Percent of population with no Internet skills (2007) 22 percent 58 percent Percent of enterprises receiving Internet orders (2007) 26 percent 4 percent Percent of enterprises purchasing on Internet (2007) 72 percent 29 percent Source: LECG (2009) citing Commission of the European Communities (2008). There are many other factors in place that explain the better performance of Sweden’s economy in the diffusion of broadband-enabled ICTs, but what it is important to highlight is that Sweden actively adapted the facilitating structure of its economy to allow broadband to diffuse faster and broader than Italy did. As a result, the economic effects of broadband-enabled ICTs in Sweden have been larger and surfaced faster. For instance, from 1998 to 2007, average annual productivity growth has been much faster in Sweden than in other peer countries (2.32 percent vis-à-vis 0.39 percent in Italy and an average of 1.66 percent among OECD countries). Even though the source of this growth is not exclusively due to broadband, Sweden’s policy has transformed the country into a broadband leader, which has played an important role in its economic growth. Source: LECG, Economic Impact of Broadband: An Empirical Study (2009), available at http://www.connectivityscorecard.org/images/uploads/media/Report_BroadbandStudy_LECG_March6.pdf. 1.5.2 Lessons and Principles from Broadband Experience There is no “one-size-fits-all” approach that will guarantee greater broadband deployment and adoption in every country. Political and economic conditions vary, and each country is endowed with different technological resources. Some countries have a relatively well-developed wireline telephone network that could support broadband deployment, while others have widely deployed cable TV networks that might be able to provide a measure of facilities-based competition from the start. In yet other countries, there may be various regulatory, political, economic or other barriers to entry that prevent potential competitors from offering broadband services or building broadband networks. This variance makes it unwise to propose a uniform solution to promote broadband development. In some cases, the challenge will be to create incentives so that widespread networks can be used to offer broadband services. In other countries, the main challenge may be to find ways to educate potential users about the benefits of broadband and train them to use broadband applications and services. As a result, each country will face its own unique circumstances that will drive policy and investment 56 decisions. However, the key objective for governments is to pursue policies that will create an enabling environment that will foster broadband development. Development of Country-Specific Solutions Important lessons can be learned from those countries that have pursued broadband development policies (see Box 1.8Box 1.8).13 First, the focus in these countries has been on improving the incentives and climate for private investment—a policy that even highly resource-constrained countries might be able to follow (and many have successfully attained with mobile telephony). Many of the policies and programs that have been developed support private sector investments and call for specific, limited and well-justified public funding interventions only in exceptional circumstances. In particular, where governments are trying to promote growth of underdeveloped markets, policies and regulations that may reduce private sector investment should be avoided. Government funding or policy should generally avoid having the effect of “crowding out” private sector investment. For example, governments can encourage private investments in many cases without direct subsidies, such as by developing passive infrastructure—ducting, towers, cable conduits, and opening rights of way—which can significantly cut costs and create minimal market distortions.14 Public investments should be considered only when no or insufficient private investments are expected for a significant period. Furthermore, to maintain a level playing field for competition even with public investments, governments should seek to avoid favoring one company (or access technology, e.g., telephony vs. cable) over another. For example, if and when governments intervene to increase network availability, it may be necessary to ensure that subsidized networks are open access—meaning that network operators offer capacity or access to all market participants in a nondiscriminatory way.15 This is the case in some countries, particularly Australia and South Africa, which have opted to create publicly financed, state-owned enterprises to deploy nationwide broadband networks on a wholesale, open access basis.16 Additionally, it is recognized that there may be cases where a dominant provider may need to be appropriately regulated to avoid market concentration or other adverse impacts on overall market competition. Box 1.8. Public Sector’s Role in Fostering Broadband Development—Key Lessons  Government should focus on maximizing competition, including removal of entry barriers and improving the incentives and climate for private investment.  Government should provide for specific, limited, and well-justified public funding interventions only in exceptional circumstances (e.g., where governments are trying to promote growth of underdeveloped markets).  Government funding or policy should not compete with or displace private sector investment.  Government should maintain a level playing field for competition even with public investments by avoiding favoring one company (or access technology, e.g., telephony vs. cable) over another.  Subsidized networks should be open access (i.e., offering capacity or access to all market participants in a nondiscriminatory way).  Government may need to regulate dominant providers to avoid market concentration or other adverse impacts on overall market competition.  Government should eliminate barriers to content creation and refrain from blocking access to content, including social networking sites, or restricting local content creation. Source: Telecommunications Management Group, Inc. 57 Developing countries in particular will also need to identify ways to leverage limited resources to maximize impact, prioritizing programs based on demand and market evolution, rather than shying away from policy reform altogether. For most developing countries, the most effective approach to promoting broadband development is likely to involve a mix of approaches and policies that rely on private sector investment, coupled with regulatory reform that will promote efficient and competitive markets (which will also increase private sector investment). Direct government intervention should be limited to those cases where markets do not function efficiently (such as providing service to high-cost areas) or where larger social goals are clearly identified (such as digital literacy training). The basic principle remains the same: governments should only intervene based on sound economic principles, where the benefits of intervention outweigh the costs. For example, particularly at the initial stage of broadband market development, there may be a need for aggressive government policies to generate demand, expand networks, and reach underserved areas and communities. Factors and Policies Common in Countries with High Broadband Penetration Some of the main factors common to all countries with high broadband penetration rates—particularly levels of urbanization and wealth—cannot be addressed through broadband policy alone. Achieving high broadband penetration in countries with large rural populations and low levels of urbanization is generally more difficult than in highly urbanized countries due to substantially increased network build- out costs. A country’s wealth also significantly impacts broadband penetration since wealthy countries are better positioned to financially support the supply-side initiatives while consumers in those countries are better able to afford broadband services, applications and devices. These non-policy factors especially challenge many developing countries, which tend to have low levels of urbanization and low income levels. For example, Sub-Saharan Africa not only has the lowest broadband penetration rate of any region in the world,17 but it also has low urbanization and income levels—only 26 percent of the population lives in an urban area while the GDP per capita is just USD 1,286.18 Urbanization, income and other non-policy factors, such as education levels and degree of income equality, also impact broadband penetration in developed countries. According to an analysis of 30 OECD countries, such non-policy factors can account for roughly three-fourths of a nation’s broadband performance.”19 Regardless of a country’s non-policy factors, there are certain policy-related elements common among countries with high broadband penetration rates that may be adopted in developing and developed countries alike.20 The creation and implementation of comprehensive, national broadband strategies are one the main common features among countries with high broadband diffusion. Market liberalization and regulatory frameworks that promote competition are also a key hallmark of high broadband penetration. Many countries have also supported broadband infrastructure deployment through some degree of public financing. Additionally, policymakers in these countries have developed broadband strategies, regulatory frameworks and public-funded initiatives in three main stages: 1) focus on encouraging market growth by creating an enabling regulatory environment, such as by reducing barriers to entry and supporting large infrastructure projects; 2) encourage competition among private sector actors in order to drive growth, using a competition-based (ex post) regulatory framework to provide market oversight and; 3) focus on ensuring universal access to broadband services as the broadband market matures.21 Module 2 further addresses these and other policy approaches to promoting the development of broadband. 58 1 Adapted from Yongsoo Kim, Tim Kelly and Siddhartha Raja, Building Broadband: Strategies and Policies for the Developing World, GICT Dept. World Bank (2010), http://siteresources.worldbank.org/INFORMATIONANDCOMMUNICATIONANDTECHNOLOGIES/Resources/Building Broadband_cover.pdf 2 ITU, “Fixed Broadband Subscriptions,” ITU World Telecommunication /ICT Indicators Database (updated Dec. 2011), http://www.itu.int/ITU-D/ict/statistics/. . 3 TeleGeography Global Bandwidth Research Service, 2009. 4 Nagy K. Hanna, Christine Zhen-Wei Qiang, Kaoru Kimura & Siou Chew Kuek, IC4D Report: National E-Government Institutions: Functions, Models, and Trends, World Bank, 2009, available at http://siteresources.worldbank.org/EXTIC4D/Resources/5870635-1242066347456/IC4D_2009_Chapter6.pdf. 5 See Pew Internet and American Life Project, Home Broadband Survey (2010), available at http://www.pewinternet.org/Reports/2010/Home-Broadband-2010/Summary-of-Findings.aspx; Eurostat, Information Society Statistics at Regional Level (Mar. 2009), available at http://epp.eurostat.ec.europa.eu/statistics_explained/index.php/Information_society_statistics_at_regional_level #Publications. 6 Janet Hernandez, Daniel Leza and Kari Ballot-Lena, ICT Regulation in the Digital Economy, GSR Discussion Paper, Telecommunications Management Group, Inc., p. 4 (2010), available at http://www.itu.int/ITU- D/treg/Events/Seminars/GSR/GSR10/documents/GSR10-ppt2.pdf. 7 Núcleo de Informação e Coordenação, Análise dos Resultados da TIC Domicílios, Gráfico 8, p. 14 (2009). The total percentage of respondents is more than 100 because some respondents provided more than one reason for non- adoption. FCC, Broadband Adoption and Use in America, p. 30 (November 2009). The total percentage of respondents is less than 100 because, for purposes of comparison, not all factors addressed in the study are included in this figure. 8 Alex Howard, “Participation partition” the newest facet of the digital divide, warns Gruen (Sept. 16, 2010), gov20.govfresh, available at http://gov20.govfresh.com/participation-partition-the-newest-facet-of-the-digital- divide-warns-gruen. 9 Wesley Cohen and Daniel A. Levinthal, Absorptive Capacity: A New Perspective on Learning and Innovation , Administrative Science Quarterly (1990), pp. 128-152. 10 http://www.oecd.org/dataoecd/57/14/38393115.pdf 11 von Hippel, Eric (2005), Democratizing Innovation, MIT Press 12 In particular, the World Bank defined absorptive capacity in the context of innovation as the quality of its labor force and the business environment (including access to finance) in which firms operate and are able (or unable) to start up, expand, and reap the financial rewards of their new-to-market innovations. See World Bank, Global Economic Prospects 2008: Technology Diffusion in the Developing World, Washington, DC, 2008, available at http://econ.worldbank.org/WBSITE/EXTERNAL/EXTDEC/EXTDECPROSPECTS/GEPEXT/EXTGEP2008/0,,menuPK:450 3385~pagePK:64167702~piPK:64167676~theSitePK:4503324,00.html. Applied to broadband, this will focus on broadband-enabled services and applications and would also expand to the use of and creation by businesses, citizens and the government of these services and applications to modify transform their behavior and processes to be more productive and efficient. 13 The experiences of the countries surveyed in the World Bank’s report, Building Broadband: Strategies and Policies for the Developing World, for example, may provide good approaches that could be adapted for use in many countries. Yongsoo Kim, Tim Kelly, and Siddhartha Raja, Building Broadband: Strategies and Policies for the Developing World, World Bank, (June 2010), available at http://www.infodev.org/en/Publication.1045.html. 59 14 OECD, Broadband Growth and Policies in OECD countries (July 2008), available at http://www.oecd.org/document/1/0,3343,en_2649_34223_40931201_1_1_1_1,00.html. Also see Christine Qiang, Broadband infrastructure investment in stimulus packages: relevance for developing countries, World Bank (2009), available at http://siteresources.worldbank.org/EXTINFORMATIONANDCOMMUNICATIONANDTECHNOLOGIES/Resources/2828 22-1208273252769/Broadband_Investment_in_Stimulus_Packages.pdf 15 Christine Qiang, Broadband infrastructure investment in stimulus packages: relevance for developing countries, World Bank (2009). 16 See NBN Co, “Our Purpose,” http://www.nbnco.com.au/about-us/our-purpose.html for information on the state-owned enterprise building out Australia’s national broadband network and De pt. of Public Enterprises South Africa, “Broadband Infraco,” http://www.dpe.gov.za/state-2_broadbandinfraco for information on that country’s state-owned enterprise responsible for deploying a nationwide broadband network. 17 ITU, “The World in 2011,” ICT Facts and Figures, 2011, http://www.itu.int/ITU- D/ict/facts/2011/material/ICTFactsFigures2011.pdf. 18 World Bank, Data: Sub-Saharan Africa, http://data.worldbank.org/region/SSA. 19 Robert D. Atkinson, Daniel K. Correa and Julie A. Hedlund, Explaining International Broadband Leadership , Information Technology and Innovation Foundation, p. 18 (May 2008), available at http://www.itif.org/files/ExplainingBBLeadership.pdf. 20 Kim, et al., Building Broadband: Strategies and Policies for the Developing World, GICT Dept. World Bank (2010), 82. 21 Kim, et al., Building Broadband: Strategies and Policies for the Developing World , GICT Dept. World Bank (2010), 83. 60 Module 2. Policy Approaches to Promoting Broadband Development Table of Contents Module 2. Policy Approaches to Promoting Broadband Development..........................................1 2.1 Introduction ..................................................................................................................................... 2 2.2 The Public Policy Context for Broadband ........................................................................................ 2 2.2.1 The Public Sector’s Evolving Role in Broadband ................................................................. 3 2.2.2 Technological Change and Convergence ............................................................................ 3 2.2.3 Defining the Challenges: Barriers to Broadband Growth .................................................. 6 2.2.4 Development of Country-Specific Solutions ..................................................................... 10 2.3 How to Do It: Implementing Policies and Strategies to Enhance Broadband Development ........ 12 2.3.1 General Approaches to Promote Broadband ................................................................... 13 2.3.2 Provide a National Focal Point for Broadband and Develop Broadband Capacity ........... 17 2.3.3 Consult with Stakeholders ................................................................................................ 18 2.3.4 Ensure Broadband Policies Support Other Sectoral Strategies ........................................ 21 2.3.5 Develop Policies for Both Sides of the Broadband Coin: Supply and Demand ................ 28 2.3.6 Sequence Policies for Maximum Effectiveness ................................................................ 29 2.4 Building Infrastructure: Promoting the Supply of Broadband ...................................................... 32 2.4.1 Core Policies to Promote the Buildout of Broadband Networks ...................................... 32 2.4.2 Enabling Policies to Eliminate Bottlenecks in the Broadband Supply Chain .................... 47 2.5 Encouraging Adoption: Promoting Demand for Broadband......................................................... 67 2.5.1 A Model of Demand Facilitation ....................................................................................... 68 2.5.2 Awareness ......................................................................................................................... 69 2.5.3 Affordability ...................................................................................................................... 71 2.5.4 Attractiveness ................................................................................................................... 74 2.6 Financing Broadband Development .............................................................................................. 78 2.6.1 Government Support to Enhance Private Investment ..................................................... 79 2.6.2 Fiscal Support to Facilitate Broadband ............................................................................. 80 2.7 Measurement, Monitoring and Evaluation: Checking Progress .................................................... 89 2.7.1 Why Measure Performance? ............................................................................................ 89 2.7.2 What to Measure? ............................................................................................................ 89 2.7.3 How to Measure?.............................................................................................................. 96 2.7.4 How can measurement data be used? ............................................................................. 98 Endnotes ......................................................................................................................................... 99 List of Figures Figure 2.1: Top five mobile carriers by subscribers compared to Skype registered users (1Q 2010) ......... 4 Figure 2.2: Top 30 countries by number of Facebook users ........................................................................ 5 Figure 2.3. Reasons for Non-Adoption of Internet in Brazil and Broadband in the United States ............ 10 Figure 2.4. Government Support for Broadband Development ................................................................ 13 Figure 2.5. Ten Singapore agencies involved in the Energy Efficiency Programme Office, including ICT Regulator..................................................................................................................................................... 24 Figure 2.6. Framework for Government Intervention to Facilitate Broadband Development.................. 28 Figure 2.7. Typical cost components of a fiber optic network................................................................... 34 Figure 2.8. Average cost of infrastructure installation per kilometer (Index: Water=100) ....................... 36 Figure 2.9. Passive and Active Infrastructure Sharing ............................................................................... 38 Figure 2.10. Difference between Advertised and Actual Speeds, United Kingdom .................................. 44 Figure 2.11. Broadband lines growth in the United Kingdom by infrastructure-type operator................. 46 Figure 2.12. LLU lines growth before and after functional separation is adopted in the United Kingdom .................................................................................................................................................................... 46 Figure 2.13. Addressing Bottlenecks: Policies on the Supply Side ............................................................. 48 Figure 2.14. Roadmap for Backbone Network Policy ................................................................................ 53 Figure 2.15. Ladder of investment in wireline networks in France ............................................................ 59 Figure 2.16. Spectrum Identified Internationally for International Mobile Telecommunications (IMT)... 62 Figure 2.17. The Three Pillars of Facilitating Broadband Demand............................................................. 69 Figure 2.18. Accuracy of Fiscal Support for Broadband Development* .................................................... 88 Figure 2.19. Categories of broadband indicators........................................................................................ 90 Figure 2.20. Wireline Broadband by Technologies and Speed (ADSL) in Turkey Percent, 2010 ................ 92 Figure 2.21. Average Download Speed (Two Mbit/s Packages) and Ping Time (Milliseconds), Bahrain, January-March 2011 ................................................................................................................................... 93 Figure 2.22. Broadband Access per 100 Households in Brazil, China, Mexico, Turkey and Chile, 2000-2014 (est.) ............................................................................................................................................................ 97 List of Tables Table 2.1. Publicly Stated Policy Goals for Broadband Service Delivery and Adoption ............................. 14 Table 2.2. Key policies and programs for building the broadband ecosystem .......................................... 29 Table 2.3. Checklist of Policies to Promote the Supply of Broadband Networks ...................................... 33 Table 2.4. National broadband plans: household targets .......................................................................... 91 Table 2.5. Wireline and Mobile Broadband Monthly Prices, Selected Countries, USD, 2011 .................... 94 Table 2.6. Broadband Indicators ................................................................................................................ 95 Table 2.7. Sources of Official Broadband Statistics..................................................................................... 97 List of Boxes Box 2.1. Constraints on Backbone Capacity in Africa ................................................................................... 7 Box 2.2. Public Sector’s Role in Fostering Broadband Development—Key Lessons.................................. 11 Box 2.3. Broadband Strategies in Middle-Income Countries ..................................................................... 15 Box 2.4. General Elements for Governments to Consider When Creating Policies and Strategies ........... 16 Box 2.5. Benefits of Transparent Regulation ............................................................................................. 18 Box 2.6. Objectives of a Public Consultation.............................................................................................. 19 Box 2.7. Relevant issues for coordinating competition and ICT authorities’ jurisdiction in the ICT sector .................................................................................................................................................................... 22 Box 2.8. Ofcom’s expanded role in enforcing digital piracy law in the United Kingdom .......................... 25 Box 2.9. ITU School Connectivity Checklist ................................................................................................ 25 Box 2.10. Network Sharing in Bahrain ....................................................................................................... 39 Box 2.11. Examples of Infrastructure Development through Demand Aggregation ................................. 42 Box 2.12. Functional separation and broadband uptake in the United Kingdom ..................................... 45 Box 2.13. Extending connectivity to rural and isolated areas in Chile ....................................................... 52 Box 2.14. Wholesale Licensing to Promote Backbone Development ........................................................ 55 Box 2.15. Targeting the rural access gap in Sweden without distorting the market ................................. 56 Box 2.16. Increasing competition through unbundling of the local loop and the ladder of investment .. 59 Box 2.17. Country examples to make broadband hardware more affordable .......................................... 72 Box 2.18. EU Experience with State Aid for Financing Broadband ............................................................ 82 Box 2.19. Municipal Broadband Initiatives ................................................................................................ 86 List of Practice Notes Practice Note 2.1. Broadband Plans around the World.............................................................................. 14 Practice Note 2.2. The Public Consultation Process ................................................................................... 21 Practice Note 2.3. Policies and Programs for Promoting Broadband in Developing Countries ................. 34 Practice Note 2.4. Infrastructure Sharing in Spain...................................................................................... 39 Practice Note 2.5. Wireless Components of Broadband Plans ................................................................... 61 Module 2. Policy Approaches to Promoting Broadband Development 2.1 Introduction The development of broadband networks and services over the last decade or so has been largely focused in developed countries. In that time, private sector investment, coupled with enabling polices put in place through liberalization and regulatory reform, has driven the building of broadband networks and the adoption of broadband services throughout the developed world. But as more economic and social activity has moved onto broadband networks in recent years, developing countries are implementing their own broadband plans and initiatives to realize the benefits that broadband can bring to a country and its citizens. As they consider how best to promote broadband, policymakers and analysts have come to realize that broadband must be viewed as an ecosystem with supply and demand considerations (the ecosystem is described in Module 1). On the supply side, the building of networks to carry broadband services is the first priority. But simply having a network available does not guarantee that broadband services will automatically be used. It will also be necessary for government policy and private sector investment to focus on driving demand for broadband services—whether by putting more services online or educating users on the benefits of broadband and the skills needed to effectively use the new services. Those countries with the best success in broadband development have focused on developing holistic policies to support both sides of the broadband supply and demand equation. This module identifies the issues policymakers must address as they seek to create an enabling environment for broadband and examines what policies and regulatory approaches may be effective in encouraging broadband development. It is designed to provide an overall introduction to the issues, policies and strategies that are discussed in more detail in subsequent modules and provides hyperlinks to the modules where these issues are addressed in detail. These topics are also covered in the Broadband Strategies Handbook, which is a condensed, but comprehensive, version of the Toolkit that the World Bank has also made available. The cross-referenced modules and the Handbook analyze the issues extensively, and provide many examples of how different countries have approached broadband development. They deal respectively with the technologies that make broadband possible, how broadband networks and services can be universalized, how demand for broadband can be stimulated and what changes to policies, laws and regulations can help broadband reach its greatest potential. 2.2 The Public Policy Context for Broadband As discussed in Module 1, broadband is a general purpose technology that significantly affects how people live and work. It is a key driver of economic growth and national competitiveness,1 as well as social and cultural development. Broadband-enabled cities can attract more services firms and so create more jobs than their narrowband counterparts.2 Communities also benefit from faster Internet access: their residents have enhanced real and virtual opportunities to communicate with each other and to access government services and public officials. Conversely, countries, communities, corporations, and individuals that lack easy access to broadband may miss economic and social opportunities. Recognizing the widening broadband divide and the risk that some groups may be missing out on the economic and social benefits of broadband access and use, policymakers in a growing number of countries are looking to encourage greater broadband development. Even some countries with well- developed telecommunications markets and good broadband penetration are looking to universalize broadband, sometimes as part of larger macroeconomic stimulus and development programs. 2 Module 2. Policy Approaches to Promoting Broadband Development The development of strategies and policies to promote broadband, however, is not an easy task. Policymakers are quickly realizing that promoting broadband may be harder to achieve compared to other types of services, such as mobile telephony. The usefulness of a mobile telephone is typically obvious to consumers regardless of income or education level, and, coupled with relatively low prices, such intuitive services have grown rapidly. But the same cannot necessarily be said of broadband— especially if the opportunity to try it is undermined by high prices. Using broadband services requires access to a computer or smartphone, and some way to pay for using the network—either through a subscription (and often some form of term contract), a pay-as-you-go approach or through prepaid services. In the absence of access through the workplace, school or community centers, this can make ownership relatively costly (even with falling prices for hardware and subscriptions) for individual users. In addition, understanding the benefits of broadband, and having the skills to make use of the available services, requires some level of digital literacy, as well as basic literacy (i.e., the ability to read and write). This section addresses the public policy context within which broadband development strategies are made and identifies the challenges that policymakers and other interested parties may face in trying to facilitate greater broadband availability and use. 2.2.1 The Public Sector’s Evolving Role in Broadband The past decade has seen significant debate on the appropriate role for government in expanding broadband diffusion. The public sector has played two general roles in promoting the growth of information and communication technologies (ICT): 1) making markets more competitive, efficient and accountable/transparent; and 2) ensuring equitable access for all. This has enabled the private sector to lead the roll-out and investment in ICT. This same approach should be pursued with broadband development. The role of government should be to enable, facilitate and complement market development, rather than to substitute government decisions for market forces and public sector investment for private investment. Due to broadband’s importance, however, there have been calls to view broadband as a public good in order to ensure affordable universal access and spread the benefits across the full range of economic sectors.3 Based at least partially on a public goods analysis, some countries have taken more direct action to promote broadband development, establishing initiatives and strategies where the government intervenes more directly to promote, oversee and universalize their broadband markets. This was particularly the case as a result of the economic crisis of 2008, as many governments came to see broadband networks and services as a way to preserve and enhance their economies. In 2009, for example, countries with different economic philosophies included broadband in their economic stimulus plans (e.g., Australia), indicating that they were no longer averse to making strategic investments. By 2011, however, such policies were being increasingly called into question as government debt levels rose, in some cases dramatically, forcing austerity programs and corresponding cuts in government spending on a wide range of priorities, including broadband. 2.2.2 Technological Change and Convergence New Technologies and Services Provide Opportunities and Challenges4 As policymakers and regulators consider ways to expand broadband infrastructure and stimulate demand for broadband services, it is also important to remember that technologies, applications and services will continue to evolve and present new challenges to the legal and regulatory underpinnings for broadband development. Increased broadband access and use over the next decade will lead to an even greater breadth of applications and services -- many of which are not yet commercially available, 3 Module 2. Policy Approaches to Promoting Broadband Development or even conceived. This is likely to require policymakers and regulators to find ways to embrace these new applications, while balancing competitive and regulatory goals. More importantly, this change is likely to come quickly. For example, little more than five years ago, YouTube was just beginning to become popular; it recently surpassed the four billion views a day milestone on a global basis (as of March 2012), nearly double the combined primetime audience of all three major free over-the-air television networks in the United States.5 Similarly, in its relatively short history, Skype has become the equivalent of the largest “carrier” in the world based on registered users, contributing 12 percent of world-wide international long distance traffic (see Figure 2.1).6 Figure 2.1: Top five mobile carriers by subscribers compared to Skype registered users (1Q 2010) Note: * Figures refer to 4Q 2009 Source: Company reports, TeleGeography, Morgan Stanley The development of such new services and applications may provide policymakers with lessons on how to draw people to the Internet and broadband. A good example is the rapid rise of so-called “social networking sites,” such as Facebook or Twitter. Such services have exploded in popularity among broadband users and are becoming more and more popular in both developed and developing countries. In fact, of the top 30 countries ranked by the number of Facebook users, fully half are developing countries (see Figure 2.2.). In addition, as it has grown and evolved, Facebook has begun to offer a wider range of services—from transferring personal messages and “status updates” to exchanging photos to gaming–all of which gives users a wide range of things to use and do just within Facebook itself. The popularity of such sites, and the many services they offer, can be used as a way to show non-users the benefits of broadband use. However, it is also true that some of these new services also raise new regulatory issues (e.g., relating to data protection and privacy) that may subject such sites to increased regulatory scrutiny as governments seek to further define the rules for personal information, etc. 4 Module 2. Policy Approaches to Promoting Broadband Development Figure 2.2: Top 30 countries by number of Facebook users 41 41 43 45 39 37 37 37 Percentage of populaiton (%) 125 36 40 35 Millions (Log scale) 27 30 25 21 25 19 20 20 15 5 10 5 1 0 Greece South Africa Mexico Venezuela Indonesia India Hong Kong Philippines Argentina Colombia Turkey USA Belgium Israel Australia Sweden Italy France Malaysia Egypt Denmark Brazil Czech Rep Chile UK Canada Spain Germany Thailand Taiwan Mar-09 Mar-10 Pop. on facebook Source: Telecommunications Management Group, Inc. based on Nick Burcher, Facebook usage statistics - March 2010; Population Division of the Department of Economic and Social Affairs of the United Nations Secretariat, World Population Prospects: The 2008 Revision, http://www.nickburcher.com/2010/03/facebook-usage-statistics- march-2010.html. Convergence Continues As broadband technologies and services grow, so will the ability of users to create and share all types of digital content. And as their drive to control costs and grow revenues gets stronger, providers will look to new technologies and services to help them. Countries with policy and regulatory frameworks that allow converging technologies to develop and markets to function well will benefit the most. With the pace of convergence likely to increase, many countries are adjusting their policy and regulatory frameworks to facilitate convergence. Three main forms of convergence can be identified:  Service convergence, or “multiple play,” allows a firm to use a single network to provide severa l ICT services that traditionally required separate networks. Conversely, any individual service can be provided over many different networks.  Network convergence exists where a common standard allows several types of networks to connect with each other. Consequently, a communication service can travel over any combination of networks.  Corporate convergence results from mergers, acquisitions, or collaborations among firms. New business entities are created to offer multiple services (old and new) and address different markets. Convergence has a significant impact because it alters market structure and dynamics. On one hand, users are able to access a wider range of services, choose among more service providers, and produce and distribute content. On the other hand, convergence allows service providers to adopt new business models, offer new services, and enter new markets. Policy frameworks that restrict competition or prevent convergence from playing out in a market lead to suboptimal outcomes that may reduce the development impact of broadband. In the long term, 5 Module 2. Policy Approaches to Promoting Broadband Development countries that resist change are likely to miss the benefits of improved technologies and services. Countries that take a “wait and watch” approach might benefit if the frameworks in place do not pose major immediate problems, but risks remain because converged networks and services typically do not fit easily into traditional policy frameworks and both technologies and markets are likely to continue changing quickly. Evidence suggests that the greatest benefits are derived in markets that seek to facilitate convergence. Expanding access to broadband, the demand for multimedia and user-created content, the availability of inexpensive multimedia devices, and the drive to cut costs while increasing value from broadband services are coming together to speed up the pace of convergence. All these trends are challenging policymakers and regulators on several levels. First, there is the issue of how to treat similar services provided by operators that had been traditionally separate and governed by different sets of rules. In addition, there are numerous issues involved in market and competition law/regulation that depend on specific market definitions and analyses that are coming under increasing scrutiny. Finally, as more and more content and services move online, governments must also address what their role is in promoting the demand for such services as part of an overall strategy to promote broadband development. 2.2.3 Defining the Challenges: Barriers to Broadband Growth As policymakers and regulators consider approaches to stimulate and promote broadband development, it is important to recognize the full scope of the challenges that must be addressed. These challenges tend to be multi-layered and involve stimulating the supply of broadband infrastructure and encouraging demand for broadband applications and services, as discussed in Module 1. On the supply side, the problem is not as simple as just building more networks; as operators develop their broadband business plans, issues of cost, service quality (bandwidth/data speeds), and technology choice will also play important roles in deciding how best to bring access to a nation’s citizens. Even then, just building more networks or providing access to all is not a guarantee of success—governments may need to support broadband development by encouraging demand for broadband in those limited instances where the private sector does not generate useful and relevant applications, services and content. As discussed in Module 1, governments must think of broadband as an ecosystem, with supply and demand components, to maximize their chances for broadband development success. Such a holistic approach, however, may prove challenging for some governments where organizational barriers may exist to greater cooperation and joint policy development and execution between departments that historically have not had to work together. Supply: reaching unserved and underserved users In considering policies and strategies to promote broadband development, one important goal is to ensure that access is available to the widest possible user base. This means that networks need to be built out to reach as many people as possible. But facilitating broadband supply presents at least two significant issues. First, there are areas in virtually every country that have no meaningful access to broadband services at all. This problem is most pronounced in developing countries, which have seen less investment in the construction of networks outside metropolitan areas. This situation has improved in recent years with the spread of wireless networks, but there are still areas without any type of network coverage. Second, some areas have networks in place, but these networks are not capable of supporting broadband speeds and services. These areas will need to be upgraded to provide broadband, either through the construction of high-speed wireline networks and/or through advanced wireless networks (3G or 4G services). In many developing countries, where wireless penetration can far exceed wireline penetration, upgraded wireless networks capable of providing true broadband 6 Module 2. Policy Approaches to Promoting Broadband Development speeds are expected to be the main supplier of broadband services. Box 2.1 describes some of the barriers to bringing higher speed services to the countries of Sub-Saharan Africa. Box 2.1. Constraints on Backbone Capacity in Africa Current backbone network infrastructure in Sub-Saharan Africa is characterized by widespread, low- capacity networks generally owned and operated by vertically integrated operators focusing on voice services. Incumbent network operators have much less extensive networks than in other regions and, in many cases, do not play a major role as providers of backbone network services. In other regions of the world, by comparison, large-scale investment in backbone networks has resulted in intensive competition and vertical disaggregation of networks, encouraging entry into the downstream market and stimulating the rollout of broadband services. The underlying causes of this pattern of network and market development in Sub-Saharan Africa are the high cost of network construction and operation, regulatory restrictions, and the historical evolution of networks and the market. Most of the terrestrial backbone infrastructure in Sub-Saharan Africa is wireless. In fact, only 12 percent of the total terrestrial infrastructure in the region is fiber-optic cable, while the remainder is microwave. If satellite-based backbone network infrastructure is also taken into account, the significance of fiber in the total backbone network infrastructure of Africa is even smaller. This mix of wireline and wireless infrastructure varies considerably among various types of network operators. Approximately 99 percent of the backbone network length of mobile operators in Sub-Saharan Africa is made up of microwave technology, while only 1 percent is fiber. Fixed operators in the region have much more fiber in their networks, with approximately 40 percent of the length of their backbone networks built from fiber technologies. The capacity of a backbone network is determined by the technology on which it is based and the capacity of the transmission equipment installed on the network. Though there are technical limits on the maximum capacity of wireless networks, in practice, the choice of whether to use wireless or fiber- optic cables in the backbone network is usually determined by cost structure rather than technical capacity limitations. For low-traffic volumes such as those generated by mobile voice networks, wireless backbone networks are the most cost-effective technology. For higher volumes of traffic, fiber networks are typically the optimal solution due to their very high data-carrying capacity. Detailed technical information on the capacity of backbone networks in the Sub-Saharan Africa region is not available, since it is usually commercially confidential. However, the predominance of microwave and satellite backbone technologies in the networks provides a clear indication of network capacity limitations. These wireless networks are not capable of handling the volumes of traffic generated by broadband services, particularly for a large customer base. Differences in the cost structure of wireless and fiber-optic backbone networks help to explain why operators have preferred to utilize wireless technologies. In wireless backbone networks, only a small proportion of the total costs are fixed with respect to the capacity of the network, so total costs are primarily driven by the volume of traffic carried. The costs of fiber-optic cable networks, by contrast, are largely fixed. A recent study by the Organisation for Economic Co-operation and Development (OECD) concluded that 68 percent of the costs in the first year of rolling out a fiber network to the premises are in the civil works. These costs are completely unrelated to the volume of traffic that the network will carry. This is consistent with other studies, which have put the percentage of total costs of fiber networks that are fixed at 60-80 percent.7 Going forward, expanding these backbone networks, and improving the capacity of the wireless- dominated backbone networks will be a challenge. African policymakers and regulators will need to creatively address the following issues to help operators make the transition: 7 Module 2. Policy Approaches to Promoting Broadband Development Regulatory Environment. In many Sub-Saharan African countries, mobile operators are allowed to build their own backbone networks for the provision of services to their own retail customers but have been prevented from selling backbone services to other operators on a wholesale basis, effectively constraining the development of a market in backbone network services. The restriction also limits opportunities for taking advantage of economies of scale in network infrastructure and reduces incentives to invest in high-capacity backbone networks. As a result, mobile operators have built their own networks that operate parallel to each other and there is very little consolidation of traffic onto core backbone networks. Stage of market development. The second reason for the lack of aggregation of traffic onto backbone networks in Sub-Saharan Africa lies in the stage of market development in most countries. Operators face a tradeoff when deciding whether to allow competing operators to use their backbone networks. On one hand, by doing so, they increase their revenues and utilize spare capacity on their networks. On the other, they may lose some competitive advantage by allowing other operators to effectively increase their network coverage faster than they would if they were required to build their own networks. The result of this tradeoff is that direct competitors in growing markets typically cannot reach agreement on the use of each others’ backbone networks, a difficulty that is often exacerbated by a failure of the regulatory authority to facilitate commercial negotiations or to impose regulatory interconnection obligations on operators. Network economics. The current predominance of wireless backbone networks in the region has implications for the way in which the backbone market is developing. Wireless backbone networks are scalable, meaning that operators develop them incrementally to meet internal capacity requirements. Operators are therefore less likely to have excess backbone network capacity than might have been the case if they had invested in fiber networks.8 This has implications for the market in backbone services because the marginal cost of capacity on a network in which there is a large margin of spare capacity is much lower than on a network that is scalable. Operators with spare capacity have a strong commercial incentive to sell spare capacity and, since their marginal cost is low, any competition among operators could be expected to reduce prices. An operator with a predominantly microwave backbone network, on the other hand, is likely to install the amount of capacity it requires to meet its own traffic needs. If it were to decide to sell backbone capacity on a wholesale basis, additional capacity would have to be installed. An operator with a wireless backbone network thus has less of an incentive to enter into this market than an operator with a fiber-optic cable network. Source: Mark D. Williams, the International Bank for Reconstruction and Development/The World Bank, Broadband for Africa: Developing Backbone Communications Networks at 3, 2010. Demand: Barriers to adoption Improving the availability of broadband networks only addresses one impediment linked to broadband development. Even with networks in place and accessible, there are likely to be barriers due to lack of demand. This problem involves people who have access to broadband network(s), but are unable or unwilling to obtain service. Addressing lack of demand is important because low adoption rates will leave networks underutilized. This has at least two implications. First, from a network externalities standpoint, fewer users reduce the economic and social utility of the networks. Where relatively few people can communicate online, the network externalities will be reduced since there is a smaller number of potential customers for businesses to serve. This further means that there may be fewer local businesses and consumers to offer broadband-enabled services and applications, such as video streaming services (e.g., Hulu+), voice and video communications (e.g., Skype) and download services for a variety of applications like software, e-books, etc. 8 Module 2. Policy Approaches to Promoting Broadband Development Second, low adoption and use will undermine the business case of any network—even those built with public funds. Fewer users means that networks are correspondingly higher-cost, or their costs are spread over a smaller user base, making them relatively more expensive to build and maintain/operate. Thus, it is important for governments to focus their attention on developing policies that not only facilitate and encourage the building of broadband networks, but ensure that as many people as possible can and do use them. In studies that have been conducted to identify barriers to Internet and broadband adoption, the findings are roughly consistent across countries. In the United States, for example, the Pew Internet and American Life Project found many reasons why people do not use the Internet and/or broadband services.9 The reasons can be grouped into four main categories:  Broadband is not relevant to me 50 percent  Equipment or service too expensive 19 percent  Service not available 17 percent  Lack of training or use issues 13 percent These four groups are generally consistent with the data collected in Europe by Eurostat.10 Importantly, even in high-adoption countries, relevance or need is still the most common reason for non-adoption. In the United Kingdom, for example, 42 percent of those without Internet service said that the main reason was “there’s no need,” or “I’m not bothered” by the lack of access.11 Of that group, 43 percent said they would not get Internet service even if it (and the computer to access it) were free. Demand issues also tend to cluster according to particular demographic groups. In summing up the barriers to adoption for the European Commission’s Supporting Digital Literacy program, the Danish Technological Institute found that the greatest numbers of non-computer and non-Internet users are found among:12  The elderly (from 55 years of age and older – especially those between 65 and 74 years of age);  Women compared to men;  Persons with low education levels;  Persons with few economic resources;  Persons in low-density population areas;  Persons in manual jobs, the unemployed, and especially the retired or inactive. This is not to say that demand inhibitors are exactly the same in all countries. The factors seen as impediments to adoption in some countries may be less of a factor in other countries, due to different social and cultural histories and experiences, as well as different socio-economic conditions.13 Figure 2.3, which reflect survey data collected from non-adopters of Internet services in Brazil and the United States, shows how some factors are more important than others.14 Respondents in the United States, for example, see digital literacy as a much bigger problem than respondents from Brazil who consider high cost to be a larger issue. Therefore, each country must analyze and address the demand-reducing factors on a case-by-case basis and tailor solutions to their individual circumstance. 9 Module 2. Policy Approaches to Promoting Broadband Development Figure 2.3. Reasons for Non-Adoption of Internet in Brazil and Broadband in the United States Percentage of respondents (%) 60 50 Lack of access 40 High cost 30 Digital literacy 20 Relevance 10 Internet access 0 elsewhere Brazil USA Sources: NIC Brasil, Análise dos Resultados da TIC Domicílios and FCC, Broadband Adoption and Use in America. Institutional Barriers Holistic broadband strategies addressing both supply and demand issues should define the institutional framework within which the various programs and policies will be implemented. Some of these institutions might be obvious, such as ICT industry regulators, but there are also other agencies that could have a role in implementing the strategy. For instance, competition regulators, trade ministries, and finance departments might support broadband development by ensuring a level playing field, easing equipment import restrictions, or providing tax breaks. Line ministries such as those overseeing health, agriculture, education, and public administration may also play a role in broadband development by supporting content development, bringing their services online, implementing specific programs or using broadband to streamline their functioning. A range of institutional structures has been tried across countries. Some successful broadband markets have one agency that spearheads policy development and implementation. Japan and Korea offer one model, where a single organization took the entire responsibility for implementing policy, thus ensuring consistent and efficient promotion of broadband. Establishing legal systems to support the broadband vision and policies can also contribute to consistent policy implementation. Japan and Korea enacted laws on their broadband visions and policies and used them to secure stability in policy deployment and secure cooperation from the ministries involved. But political circumstances often hold back governments from reforming organizational structures. Many countries have legacy administrative systems. In such cases, some mechanism for collaboration should be in place to coordinate policies and implementation among government bodies. For instance, the United States and some European countries have regulators that take full responsibility for regulatory policies, while promotional and universalization policies are handled by ministries dealing with economic affairs. Despite such separated management of policies, these organizations have maintained efficiency through their capacity for policy coordination. 2.2.4 Development of Country-Specific Solutions There is no “one-size-fits-all” approach that will guarantee greater broadband deployment and adoption in every country. Political and economic conditions vary, and each country is endowed with different technological resources. Some countries have a relatively well-developed wireline telephone network that could support broadband deployment, while others have widely deployed cable TV networks that might be able to provide a measure of facilities-based competition from the start. In yet other 10 Module 2. Policy Approaches to Promoting Broadband Development countries, there may be various regulatory, political, economic or other barriers to entry that prevent potential providers from offering broadband services or building broadband networks. This variety makes it unwise to propose a uniform solution to promote broadband development. In some cases, the challenge will be to create incentives so that widespread networks can be used to offer broadband services. In other countries, the main challenge may be to find ways to educate potential users about the benefits of broadband and train them to use broadband applications and services. As a result, each country will face its own unique circumstances that will drive policy and investment decisions. However, the key objective for governments is to pursue policies that will create an enabling environment that will foster broadband development. Important lessons can be learned from those countries that have pursued broadband development policies.15 First, the focus in these countries has been on improving the incentives and climate for private investment—a policy that even highly resource-constrained countries might be able to follow (and many have successfully attained with mobile telephony). Many of the policies and programs that have been developed support private sector investments and call for specific, limited and well-justified public funding interventions only in exceptional circumstances. In particular, where governments are trying to promote the growth of underdeveloped markets, policies and regulations that may reduce private sector investment should be avoided. Government funding or policy should not have the effect of “crowding out” private sector investment. For example, governments can encourage private investments in many cases without direct subsidies, such as by opening passive infrastructure—ducting, towers, cable conduits, and providing access to rights of way—which can significantly cut costs and create minimal market distortions.16 Public investments should be considered only when no or insufficient private investments are expected for a significant period. Furthermore, to maintain a level playing field for competition even with public investments, governments should seek to avoid favoring one company (or type of company, e.g., telephony vs. cable) over another. For example, if and when governments intervene to increase network availability, it may be necessary to ensure that subsidized networks are open access—meaning that network operators offer capacity or access to all market participants in a nondiscriminatory way.17 Nonetheless, it is recognized that there may be cases where a dominant provider may need to be appropriately regulated to avoid market concentration or other adverse impacts on overall market competition. Box 2.2 summarizes the actions that governments can take to promote greater broadband development. Box 2.2. Public Sector’s Role in Fostering Broadband Development—Key Lessons  Government should focus on maximizing competition, including removal of entry barriers and improving the incentives and climate for private investment.  Government should provide specific, limited, and well-justified public funding interventions only in exceptional circumstances (e.g., where governments are trying to promote growth of underdeveloped markets).  Government funding should not compete with or displace private sector investment.  Government should maintain a level playing field for competition, including government- owned providers, by avoiding favoring one company (or type of company, e.g., telephony vs. cable) over another.  Subsidized networks should be open access (i.e., offering capacity or access to all market participants in a nondiscriminatory way). 11 Module 2. Policy Approaches to Promoting Broadband Development  Government may need to regulate dominant providers to avoid market concentration or other adverse impacts on overall market competition. Government should eliminate barriers to content creation and refrain from blocking access to content, including social networking sites, or restricting local content creation. Source: Telecommunications Management Group, Inc. Developing countries in particular will also need to identify ways to leverage limited resources to maximize impact, prioritizing programs based on demand and market evolution, rather than shying away from policy reform altogether. For most developing countries, the most effective approach to promoting broadband development is likely to involve a mix of approaches and policies that seek to boost private sector investment, coupled with regulatory reform that will promote efficient and competitive markets (which will also increase private sector investment). Direct government intervention should be limited to those cases where markets may not function efficiently (e.g., providing service to high-cost areas) or where larger social goals are clearly identified (e.g., digital literacy training). The basic principle remains the same: governments should only intervene based on sound economic principles, where the benefits of intervention outweigh the costs. For example, particularly at the initial stage of broadband market development, there may be a need for aggressive government policies to generate demand, expand networks, and reach underserved areas and communities. 2.3 How to Do It: Implementing Policies and Strategies to Enhance Broadband Development Governments have a number of ways to promote the development of broadband networks and services in their countries. In most cases, the most effective government strategies are those that seek to harness the power of private sector investment to spur broadband growth. For purposes of this Toolkit, there are four broad categories of government action in this regard that will be examined: (i) legal and regulatory policies and reform; (ii) universal access policies; (iii) support for private sector broadband network build-out; and (iv) policies that seek to grow demand and spur adoption. These approaches are illustrated in Figure 2.4. 12 Module 2. Policy Approaches to Promoting Broadband Development Figure 2.4. Government Support for Broadband Development Source: Telecommunications Management Group, Inc. 2.3.1 General Approaches to Promote Broadband As policymakers seek ways to promote the development of broadband in their countries, certain general lessons can be learned from those countries with more developed broadband networks and services. This section describes the general elements that governments should be aware of as policies and strategies are created. Establish Specific Plans and Policies Based on an evaluation of the supply and demand challenges that exist in a country (see section 2.2.3), the next step is developing the specific policies and strategies to address those challenges. This will entail setting concrete, measurable objectives for improving the supply of broadband through infrastructure build-out as well as promoting demand for broadband services and applications. Setting specific plans or policies will provide a clear sense of direction that will encourage investment, as well as provide a blueprint for long-term action. Many countries have already developed such plans, as shown in Practice Note 2.1. 13 Module 2. Policy Approaches to Promoting Broadband Development Practice Note 2.1. Broadband Plans around the World WB BBTK Broadband Plans and Strategies.docx A good plan should aim to promote efficiency and equity, facilitate demand and help to support the social and economic goals of the country. The most successful plans will start with a clear vision of what broadband development should be and contain well-articulated goals that can be used to develop specific strategies to achieve success. Such frameworks can launch or revise ambitious national broadband visions, including definitions of broadband, service goals (including national and rural coverage), transmission capacity, service quality, and demand-side issues such as education and skills development. The government of the Republic of Korea, for example, was one of the early broadband leaders. It has developed six plans since the mid-1980s that have helped shape broadband policy in the country. As the Korea example shows, policy approaches can effectively move beyond network rollout and include research, manufacturing promotion, user awareness and digital literacy. It also highlights the possibilities for sector growth to be based on long-term interventions focused predominantly on opportunity generation rather than direct public investment. For many countries, the development of an extensive national broadband plan or strategy is an important step towards elaborating more specific broadband development policies. The countries highlighted in Table 2.1 have national broadband strategies containing specific broadband development goals. Table 2.1. Publicly Stated Policy Goals for Broadband Service Delivery and Adoption Country Goal for Broadband Service Delivery, Access and Adoption Brazil By 2014, to have 30 million fixed broadband connections, including homes, businesses and co-operatives, plus 100 000 telecenters. Finland Legal right of all citizens to one Megabit per second (Mbit/s) access at affordable levels by 2010. By year end 2015, 99 percent of all permanent residences should have access, within two kilometers (km), to an optical fiber or cable network delivering 100 Mbit/s service. France By 2012, ubiquitous access to 512 kilobits per second (kbit/s) service at monthly rates at or below EUR 35. Germany 75 percent of households should have high speed broadband access with transmission rates of at least 50 Mbit/sec by 2014. Malaysia By end of 2011, it is expected that the penetration rate for total household broadband connections will reach 60 percent. Morocco One out of three households connected by 2013. South Africa Household broadband penetration should be at least 15 percent by 2019. Sweden By 2010, near ubiquitous access to two Mbit/s service. By 2015, 40 percent of households and businesses should have access to 100 Mbps. By 2020, 90 percent of households and businesses should have access to 100 Mbps. 14 Module 2. Policy Approaches to Promoting Broadband Development Country Goal for Broadband Service Delivery, Access and Adoption United Kingdom By 2012, two Mbit/s service to all households. United States By 2020, 100 million households with access to actual (not advertised) speeds of 100 Mbit/s, and universal connections with actual speeds of at least four Mbit/s download and one Mbit/s upload. Source: Rob Frieden for the World Bank and Telecommunications Management Group, Inc. As Table 2.1 shows, however, countries differ in their approach to setting targets and goals. Some focus on improving access, while others seek to set specific targets for data transfer speeds. Other countries have also sought to develop national broadband strategies as shown in Box 2.3. Box 2.3. Broadband Strategies in Middle-Income Countries Chile was the first Latin American country to announce a national broadband strategy. The strategy identifies ICT as a priority for economic development. Chile has also planned and implemented ICT policies from both the supply and demand sides. On the supply side, the government has authorized four Worldwide Interoperability for Microwave Access (WiMAX) operators as regional providers, and the regulator plans to award additional spectrum for a third generation (3G) operator to introduce a new operator. The demand-side strategy has included programs for e-literacy, e-government, and ICT diffusion. For example, almost all taxes are filed electronically, and government e-procurement more than doubled the volume of transactions processed between 2005 and 2008. The government has also promoted broadband use by municipalities. By 2008, almost all municipalities had Internet access, and 80 percent had websites. In May 2010, Chile’s wireline broadband penetration was 10.66 percent, while mobile broadband penetration was less than half that, but growing at a much faster rate. Chile’s goal is to provide Internet access to 3 million rural households by the end of 2011. By 2014, the country hopes that 100 percent of schools and 70 percent of households have broadband, and by 2018, 100 percent of households will be served by broadband. Turkey’s government recognizes the importance of a vibrant telecommunications market and is keen to promote the spread of broadband. For instance, many educational institutions have been given broadband access. The Information Society Strategy for 2006–2010 aims to develop regulation for effective competition and to expand broadband access. Targets include extending broadband coverage to 95 percent of the population by 2010 and reducing tariffs to 2 percent of per capita income. The regulator has also looked at issuing licenses for the operation of broadband fixed wireless access (BFWA) networks in the 2.4 GHz and 3.5 GHz bands. In June 2010, Turkey had penetration rates of nine percent for wireline broadband and 4 percent for mobile broadband. Malaysia developed its Information, Communications, and Multimedia Services (MyICMS) 886 strategy in 2006, setting a number of goals for broadband services. One was to increase broadband penetration to 25 percent of households by the end of 2006 and 75 percent by the end of 2010. Although these targets were not met, the results have been impressive—the household broadband penetration rate in the country topped 53 percent in October 2010. Now the government is focusing on WiMAX, 3G, and fiber to the home (FTTH) platforms to boost broadband adoption. To that end, the government is funding a fiber optic network that will connect about 2.2 million urban households by 2012. The network will be rolled out by Telekom Malaysia under a public-private partnership where the government will invest MYR 2.4 billion (USD 700 million) in the project over 10 years, with Telekom Malaysia covering the remaining costs. The partnership is expected to cost a total of MYR 11.3 billion (USD 3.28 billion). 15 Module 2. Policy Approaches to Promoting Broadband Development Sources: OECD, Directorate for Science, Technology And Industry, Committee for Information, Computer and Communications Policy, Working Party on Communication Infrastructures and Services Policy, National Broadband Plans, June 15, 2011, available at http://www.oecd.org/dataoecd/22/41/48459395.pdf; Yongsoo Kim, et al., Building Broadband: Strategies and Policies for the Developing World, World Bank, (June 2010). Cisco, Broadband Barometer for Chile (2011), available at http://newsroom.cisco.com/dlls/2011/prod_020811.html. Malaysian Insider, Broadband penetration target for 2010 exceeded, says Muhyiddin, (Oct. 27, 2010), available at http://www.themalaysianinsider.com/malaysia/article/broadband-penetration-target-for-2010-exceeded-says- muhyiddin/. Recognize that implementation of a plan will take time and persistence In many cases, the success of programs that have increased broadband adoption has simply been the result of longevity. Some countries prioritized broadband in the 1990s or early 2000s and have thus been working on promoting broadband for quite a number of years, thereby providing them with a meaningful head start over other countries. For example, in 2000 Sweden enacted its IT Bill, which established the pillars of its ICT strategy as competence, confidence, and access.18 Sustained, focused efforts with continual updates over a number of years contribute to the long-term success of any broadband strategy. Conversely, seeking a “one-shot” solution that can simply be achieved with minimal time and resources is not likely to produce a sustainable long-term outcome. Develop research mechanisms to track progress of plan As broadband technologies and applications evolve over time, the various segments of the broadband market will change as well. Further, notions of digital literacy and underserved populations will also be in flux. A number of agencies and organizations are already tracking various parts of the broadband equation. To keep up with this dynamic and ever-changing sector, governments may wish to create an ongoing, multi-year, broadband-specific research program that tracks population use, ongoing barriers and levels of digital literacy. This program could serve a complementary function to the ministry or regulator’s efforts to encourage the supply-side parameters of broadband (e.g., network build-out, speeds and capabilities). The program could be housed within the agency responsible for broadband development or could be run out of one of the existing government agencies that perform such research. The ongoing issues of measurement and assessment, including international benchmarking, are discussed in more detail in section 2.7. Pilot projects can play an important role in ongoing research and development (R&D) efforts related to broadband deployment. Such projects can help demonstrate the viability of a new technology or service, but more importantly may help to identify those policies and strategies that do not work very well. This may be a cost-effective approach to broadband development as it allows concepts, plans and methods to be tested on a small scale before committing larger amounts of resources. In the United Kingdom, for example, Broadband Delivery UK (BDUK), a unit of the government, gives out grants (supplemented with private funds) for pilot projects to build/upgrade broadband networks in rural areas. Once the upgrades are completed, Internet Service Providers (ISPs) will gain access to the infrastructure, which may use any technology, on a wholesale basis. Box 2.4 summarizes the elements governments should consider as they develop their broadband plans. Box 2.4. General Elements for Governments to Consider When Creating Policies and Strategies  Establish specific plans and policies that define broadband development and contain concrete, measurable objectives that can be used to develop specific strategies to achieve success.  Ensure that plans address mechanisms for improving the supply of broadband through infrastructure build-out as well as promoting demand for broadband services and applications. 16 Module 2. Policy Approaches to Promoting Broadband Development  Allow ample opportunity for stakeholder input in developing plan.  Be realistic when establishing objectives—recognize and take into account that implementation of a plan will take time and persistence.  Focus on long-term success by developing sustained, focused efforts (with continual updates) over a number of years.  Avoid seeking a “one-shot” solution that can simply be achieved with minimal time and resources as this is not likely to produce the best outcome.  Consider developing an ongoing, multi-year broadband-specific research program that would track population use, ongoing barriers, and levels of digital literacy to track progress of a plan and determine whether objectives are being met or modifications need to be made.  Develop one coordinating agency as responsible for implementation of the plan. Source: Telecommunications Management Group, Inc. 2.3.2 Provide a National Focal Point for Broadband and Develop Broadband Capacity To optimize the benefits of broadband, it is key to have a comprehensive national-level focus on promoting broadband use, a clearinghouse for successful projects, and a consistent evaluation of what works and what does not. An important part of establishing and maintaining that focus over time will be developing capacity-building programs for government officials to provide education on how broadband can provide benefits across many sectors of the economy. Such programs, in turn, can help to shape the development of effective broadband development strategies throughout all levels of government from local training programs to national network regulatory regimes. Numerous countries have established agencies or special offices specifically to oversee broadband development issues. In Sweden, for example, the IT Policy Strategy Group recommended the creation of an internal strategic coordination function to oversee holistic IT policy development and implementation. This internal coordination function was also envisioned to improve coordination between central government, local authorities, county councils and the business sector. The United Kingdom now has a Minister of Digital Inclusion. Brazil has appointed a Digital Inclusion Secretary housed within the Ministry of Communications that will be in charge of the National Broadband Plan, as well as of all digital inclusion projects that are currently being carried out by various branches of the federal government. Often, broadband development efforts are overseen by the ministry responsible for communications or the regulator. In many cases, this responsibility is exercised in conjunction with a comprehensive broadband development plan. In Singapore, for example, the government developed and is actively pursuing its Intelligent Nation 2015 (iN2015) master plan, which is designed to transform Singapore into “an intelligent nation and a global city, powered by info-communications.”19 As part of that plan, the Next Generation Nationwide Broadband Network (Next Gen NBN) is being developed to bring fiber to homes and businesses across the whole territory. A wireless broadband network is also part of the strategy. All these efforts are being overseen by the Infocomm Development Authority (IDA), which is providing the government leadership in the development of these networks. In India, the Ministry of Communications and Information Technology established an advisory group with members from telecommunications companies, industry associations and various government departments (including health, education and rural development) to help guide India’s plan for a national fiber network that is envisioned to reach all villages and towns with more than 500 people. India’s approach is particularly 17 Module 2. Policy Approaches to Promoting Broadband Development noteworthy because it not only recognizes the importance of a central focal point, but also the cross- cutting impact of broadband on various sectors of the economy and the need for a coordinated approach that involves all relevant agencies. The decision regarding whether to set up such an agency or office will depend on the local situation in each country, and will need to take into account existing laws and institutional responsibilities as well as the ability of the government to provide adequate funding for such an activity. For developing countries with limited financial and human resources, devoting a whole agency or branch of government to broadband development may seem ambitious. Nevertheless, given the importance of broadband development and its potential role as a general purpose technology (GPT) capable of supporting advances in many different sectors of any economy, developing such human resource capacities will be critically important. The issues surrounding the development of effective broadband policies are extremely complex and cover a wide range of disciplines, including engineering, law and economics, among others. This will require governments to build capacity so that trained, knowledgeable professionals can guide the implementation of a country’s broadband plan from concept through construction and adoption. Without such leadership, even the best laid plans may fail through inattention and neglect. 2.3.3 Consult with Stakeholders The development of broadband plans should involve the participation of all relevant stakeholders, both public and private. As such, governments should provide for a public consultation process that allows ample opportunities to obtain input from the private sector, consumers, and other relevant stakeholders. Given the complexity, varied issues and broad impact of broadband, these transparent discussions are an important part of bringing stakeholders to the table in an open, objective and neutral manner so as to maximize cooperation between the public and private sectors. A variety of mechanisms can be used to foster stakeholder input—presentation of filings by stakeholders, workshops, hearings, and inputs made through an online comment mechanism on regulatory website or blog. Benefits of Consultation Consultations are also important because investors will lose confidence if the government is seen as taking unilateral steps—even if such steps might have positive outcomes. If government initiatives are seen as damaging, they might undermine efforts to develop an enabling regulatory regime that supports investment and growth. Consultations and discussions are also proven mechanisms for regulators and ministries to understand the varying potential challenges and opportunities that are part of the policy development process. Opening discussions to all stakeholders and maintaining ongoing, clear communication make the process more effective. Transparency also ensures that regulatory reforms consider and satisfy public interests and that the process occurs without bias to any one segment of the market. Moreover, exchanging ideas in an open, transparent setting helps regulators develop effective relationships with stakeholders and increases their capacity and knowledge, making it easier to counter potential resistance. Box 2.5 below provides a summary of the benefits of transparent regulation. Box 2.5. Benefits of Transparent Regulation 1. Efficiency and Effectiveness: Open processes enhance consensus and create confidence in the regulator. Increased public participation promotes diverse ideas in decision-making and increases support for rules and policies, making implementation easier. In addition, transparency can lead to greater efficiency by ensuring that duplication of functions is avoided. 2. Certainty and Reliability: Regulatory credibility and legitimacy builds stability, essential for attracting 18 Module 2. Policy Approaches to Promoting Broadband Development investment. This is particularly important in newly liberalized markets, where potential entrants need to trust that their investments are protected from arbitrary action and that further commercial development will not be thwarted by sudden changes to “the rules of the game.” 3. Accountability and Independence: Openness promotes accountability and legitimacy, reinforcing regulatory independence and reducing political and industry interference. Stakeholders will have confidence that their views will be heard, without bias, by the regulator. Where regulatory actions are exposed to public view, regulators are more likely to engage in careful and reflective decision- making. 4. Continuity: A stable set of rules governing transparency will transcend political changes and outlast political appointments, ensuring a continuous regulatory record regardless of who is in charge of the regulatory agency or which political party is in office. Source: International Telecommunication Union, Trends in Telecommunication Reform 2002, Chapter 6. Principles of Effective Consultation The principles of good regulatory decision-making are universal: (a) transparency; (b) objectivity; (c) professionalism; (d) efficiency; and (e) independence.20 Although all of these principles are necessary for successful regulation, transparency is particularly critical, as it provides accountability and legitimacy to regulatory decisions. In the context of telecommunications regulation, transparency refers to the openness of the process of exercising regulatory power, which, in turn, ensures the fairness, accountability and credibility of the results.21 Although public consultation procedures can vary from country to country, minimum procedural safeguards are generally instituted to make sure that there is maximum participation in the decision- making process, such as: issuing public notice of consultations; allowing for a proper comment and reply comment period; publishing the comments and reply comments submitted by interested parties; and publishing the consultation results and final decisions. Box 2.6 describes the objectives that the government of Anguilla set out for its public consultation process. Box 2.6. Objectives of a Public Consultation  To obtain input, information and feedback from persons affected by the proposed decision, other stakeholders and the public so as to ensure that consumers have the best telecommunication services possible in terms of choice, quality and value for their money.  To acquire substantive information and knowledge from stakeholders, regulatory and industry professionals and other regulatory institutions so as to effect an orderly transition to a fully liberalized and competitive marketplace.  To ensure that the Commission has investigated all aspects of an issue; and  To ensure transparency of decisions of the Commission. Source: Anguilla, Administrative Procedures Regulation, 2004. Public consultations can take different forms depending on: the nature of the issue being consulted; the number of people that could be affected by the decision; the impact on the market; and whether a formal written consultation process is mandated by legislation. Public consultations can range from informal meetings to more formalized and structured written consultations (see Practice Note 2.2). Some of the forms of public consultations used by regulators are:22  Formal invitations for written submissions; 19 Module 2. Policy Approaches to Promoting Broadband Development  Individual meetings with one or more interested parties;  Meetings, seminars, and workshops with representative groups and other interested parties;  Issuing draft documents containing the preliminary view of the regulator and soliciting comments from the public at large before taking a final decision;  Public hearings;  Surveys;  Consultation with independent advisers; and  Discussions and consultation with regulatory professionals and regulatory institutions in other jurisdictions. Many regulators find the written consultation process to be the most efficient means of conducting a public consultation. The U.K. regulator, The Office of Communications (Ofcom), will usually engage in a formal consultation process to seek the written views of the public. However, recognizing that formal consultation has its limits in reaching smaller businesses or community groups or individuals who lack time and specialist skills, Ofcom supplements the formal written consultation with other methods of gathering information, such as having meetings across the country, holding open meetings, operating online bulletin boards, or organizing focused discussion groups.23 Application of these principles and processes for public input has been an essential element in the development of national broadband plans and strategies around the world. Typically, the level of engagement of stakeholders through consultation and open decision-making processes rises as a broadband plan becomes more detailed and ambitious. Australia, for example, developed its National Broadband Network (NBN) Plan in April 2009, beginning with a two-month public consultation entitled “National Broadband Network: Regulatory Reform for 21st Century Broadband.”24 The NBN consultation set out the proposed regulatory reforms for the roll-out of the NBN, as well as the consultations that will accompany each stage of the reform process, particularly regarding the facilitation of fiber network deployment and consumer protection safeguards, including universal access, retail price controls and enforcement of consumer protection rules. India also initiated its National Broadband Plan with a public consultation. On June 10, 2010, the Telecommunications Regulatory Authority of India (TRAI) released the “Consultation Paper on National Broadband Plan.”25 The consultation was originally open for approximately one month and was supposed to close on July 7 with the opportunity to present reply comments by July 15. However TRAI extended the consultation period to July 20 for initial comments and July 27 for reply comments due to stakeholders’ requests.26 With the extension, TRAI received over 71 initial comments and six reply comments from industry associations, consumer advocacy groups, service providers, equipment vendors, other companies such as Google, consultants and interested individuals, all of which TRAI published on its website.27 This open and transparent consultation process allowed TRAI to release its “Recommendations on the National Broadband Plan” in December 2010. These recommendations include the creation of a state-owned National Optical Fiber Agency (NOFA) that will build out a nationwide fiber network by 2013 with the help of State Optical Fiber Agencies (SOFAs).28 20 Module 2. Policy Approaches to Promoting Broadband Development Practice Note 2.2. The Public Consultation Process Public Consultation Process 2.3.4 Ensure Broadband Policies Support Other Sectoral Strategies As policymakers and regulators consider policies and strategies to promote broadband development in their countries, it will be important to consider the issues in the broader context of larger economic and social goals.29 Module 1 discusses how broadband applications and services are increasingly intersecting with virtually every other major sector of the economy—including education, health, banking, the environment and climate change, and cybersecurity. Tackling such cross-sector goals will require: (i) close coordination among various regulators so that policies and approaches support each other; (ii) policy approaches and regulatory frameworks that are broad enough for policymakers to consider the relevant interrelated issues; and (iii) a high degree of committed leadership at the most senior levels to ensure that all parts of government work together to promote the development of broadband as part of the more general goals of promoting social and economic growth. Despite increasing recognition of the importance of broadband and its impact on the policies and implementation of programs in other sectors, most countries’ laws do not typically address the jurisdictional issues related to other sectors of the economy vis-à-vis broadband. As a result, it will be increasingly important for governments to adopt provisions outlining the cooperative arrangements between the ICT/broadband regulator and other governmental agencies. For agencies not used to working together—and which come to the same issues with vastly different points of view—such guidelines or arrangements will be crucial to ensuring that policies and decisions are mutually supportive of both broadband development and sector-specific goals and programs. This section briefly describes how broadband development policies interact with policies in other key sectors of a country’s economy. Expanding the Regulator’s Mandate In most countries, the telecommunications/ICT regulator operates separately from the broadcasting and video content regulator. This stems from the past, when different technologies were used to deliver communications, broadcast and data services. In today’s converged world, however, where broadband networks are capable of delivering all of these services over one infrastructure, nearly 30 countries have established a converged regulator to better adapt and respond to an environment where distinctions based on services and networks are becoming blurred. These countries include Australia, Finland, Iraq, Italy, Japan, Kenya, Mali, Malaysia, South Africa, Singapore, Uganda, and the United Kingdom. In some of these countries, the jurisdiction of the telecommunications regulator has been expanded to include broadcasting, content (e.g., video programming) and Internet services. As such, converged regulators can provide “one stop” service for businesses and potential licensees and also give consumers a single agency for all matters relating to the communications sector. Although many countries see benefits in the converged approach, many countries still maintain some distinctions based on their specific circumstances and policy approaches. For example, most OECD countries still have separate regulators for broadcasting and telecommunications, and content regulation in many countries is typically addressed by a separate ministry or government authority (e.g., in India and Saudi Arabia) or by the broadcasting authority (e.g., in Botswana and Chile). In India, in fact, two entities are responsible for content regulation; the Ministry of Information and Broadcasting monitors content related to broadcasting and film while the Ministry of Information Technology regulates Internet content. 21 Module 2. Policy Approaches to Promoting Broadband Development In many countries a shift from ex ante regulation to an ex post approach is taking place in the ICT sector. With this dynamic comes a much greater focus on competition matters. Thus, one particular area that policymakers will have to address involves how the competition laws of the country will be developed and enforced. If a country has a set of general competition laws and a separate regulator to handle these issues, the ICT regulator may, or may not be granted jurisdiction over telecommunications matters. In such cases, the challenge is to establish clear rules that specify how jurisdiction will be shared and/or how overlapping issues will be handled in order to avoid conflicts between agencies. For countries without general competition laws, it is often the case that the ICT regulator gains additional authority to guard against unfair or anticompetitive conduct. In this case, new electronic communications laws or regulations are likely to expand the traditional mandate of the ICT regulatory authority. For many countries without a long-standing competition law framework, liberalization of the ICT sector has been the impetus for governments to expand the mandate of ICT regulators to include the regulation of competition matters related to the telecommunications market. Based on their expertise and experience with the sector, regulators receive expanded powers to resolve issues related to sector- specific competition laws when no overarching competition framework exists in the country. The Kingdom of Bahrain, for example, does not have any general competition laws, but one of the main responsibilities of the Telecommunications Regulatory Authority (TRA) under the Telecommunications Law is to “promote effective and fair competition among new and existing Licensed Operators.”30 Based on this mandate, the TRA has effectively introduced competition to the telecommunications markets, including local and long distance fixed services, international gateways, mobile services and Internet services. Conversely, in countries with general competition laws and agencies to govern these issues, the specific electronic communications or telecommunications law can still give authority to the telecommunications/ICT regulator to issue rules and decisions related to competition in the ICT sector. The challenge in such countries is to ensure that any jurisdictional overlap between different agencies does not result in conflicting rules or “forum shopping” by parties seeking the best outcome. Therefore, it is necessary that the country’s laws provide clear guidance on exactly what the boundaries are for each authority as well as outlining the procedures that will be followed where jurisdiction may be jointly held; in order to issue coherent, consistent and effective decisions. In some cases, competition and ICT authorities issue guidelines or publish memoranda of understanding on how they will work together on competition related matters in the ICT sector. This can be very helpful in avoiding duplication and inefficient use of public resources as well as giving all parties legal certainty as to what agency holds what responsibilities (see Box 2.7). In the United Kingdom, for example, the Office of Fair Trading (OFT) has general powers to enforce EU competition mandates and the country’s Competition Act, but it shares jurisdiction over electronic communications, with Ofcom, which was granted its competition powers under the 2003 amendment to the Communications Act. As a result, OFT then published a letter addressing the agencies’ concurrent jurisdiction and providing an initial overview of how they would work together, a process it expanded on in further guidance.31 Box 2.7. Relevant issues for coordinating competition and ICT authorities’ jurisdiction in the ICT sector Taking into account the specific provisions of the legal framework, the following lists some issues that should be considered when establishing guidelines on the exercise of concurrent powers over competition matters in the ICT sector: • Exchanging information to determine which authority has jurisdiction over a specific case; 22 Module 2. Policy Approaches to Promoting Broadband Development • Determining which authority is better suited to exercise the concurrent powers in relation to a specific case; • Resolving disputes as to which authority should exercise the concurrent powers in relation to a specific case; • Preventing the simultaneous exercise by more than one than one authority of concurrent powers in relation to a specific case; • Processes for transferring a case from one authority to another; and • Sharing of staff and resources between authorities. Source: Adapted from Office of Fair Trade (OFT) of the United Kingdom, Concurrent Application to Regulated Industries (December 2004). Some developing countries have pursued a similar approach. In Mauritius, for example, in March 2010 the Competition Commission (CCM) and the Information and Communication Technologies Authority (ICTA) signed a memorandum of understanding (MoU) governing their concurrent jurisdiction over the ICT sector.32 Where the two agencies have overlapping powers, the MoU establishes a set of guidelines to promote cooperation and coordination when dealing with cases of anti-competitive behavior. It also sets forth the responsibilities of both agencies in such matters; and establishes mechanisms for communication and sharing of information between CCM and ICTA with the aim of minimizing duplication of work and facilitating prompt and efficient resolution of cases. Cooperation with Sector-specific Agencies Despite increasing recognition of the importance of electronic communications laws and policies and their impact on the policies and implementation of programs in other sectors, most countries’ laws do not typically address the jurisdictional issues related to other sectors of the economy vis-à-vis broadband. As the influence of ICT and broadband policy continues to grow, it will be increasingly important for governments to adopt provisions outlining the cooperative arrangements between the ICT regulator and other governmental agencies. Since such cross-sector initiatives are still relatively new, it is unclear how successful they will be in the long term; can agencies develop the good working relations that will lead to effective policy outcomes? While there is great potential to capture high-level expertise from multiple agencies; these collaborative efforts are also likely to result in new challenges, such as jurisdictional conflicts or funding issues that will need to be addressed by executive leadership and/or further legislative guidance in the form of new laws. The following sections describe how the ICT regulator may need to work with a variety of other sector-specific ministries or agencies. Cooperation between ICT regulators and environmental agencies. Traditionally, limited overlap has existed between the environmental and ICT regulatory issues, with the possible exception of electromagnetic field (EMF) and radiofrequency field (RF) emissions from broadcasting and mobile communications towers or from handheld mobile devices. However, increasing concerns about climate change and the environmental impacts of ICTs, along with the growth of “green ICT” initiatives, will likely require new levels of cooperation between the ICT and environmental regulators. In February 2010, for example, Egypt implemented its Green ICT Strategy through a joint Memorandum of Understanding (MoU) signed by both the Ministry of Communications and Information Technology (MCIT) and the Ministry of Environmental Affairs (MEA).33 Other countries have begun similar coordination efforts in order to take a more comprehensive approach to meeting environmental and ICT policy objectives. In Singapore, for example, multiple 23 Module 2. Policy Approaches to Promoting Broadband Development agencies have begun to collaborate on new cross-sector initiatives. In November 2009, for example, the government launched of the “Intelligent Energy System,” a pilot project to test smart grid technologies.34 The project requires the cooperation of the ICT regulator and the regulators in charge of energy, the environment, economic development, science and technology research, and housing and development. More recently, the Singapore government established the Energy Efficiency Programme Office (E2PO), led by the National Environment Agency (NEA) and the Energy Market Authority (EMA), to promote the adoption of energy-efficient technologies, develop local expertise in energy management and support research and development in green ICTs.35 As shown in Figure 2.5, E2PO includes Singapore’s ICT regulator, IDA, as well as nine other agencies with responsibilities in various sectors. Figure 2.5. Ten Singapore agencies involved in the Energy Efficiency Programme Office, including ICT Regulator Source: IDA Singapore. Cooperation between ICT regulators and law enforcement agencies. The relationship between law enforcement agencies (LEAs) and telecommunications regulators goes back many years, based on the need for LEAs to lawfully intercept and access electronic communications (e.g., wiretapping) as part of their investigative processes. IP and broadband networks, however, pose new challenges to law enforcement and ICT regulators as the use of communication networks to commit crimes becomes more widespread and a more direct threat to a broader range of activities and users. As more business and personal activities and transactions have moved online, the number of crimes committed using communications networks, applications and services has grown, and is expected to continue to grow as broadband networks become more ubiquitous. Although ICT regulators have begun to play a stronger role with respect to consumer protection issues such as spam, these laws have traditionally required LEAs (or defense or security agencies) to take the lead due to public safety and national security interests in issues including interception of communications, data privacy, cyber theft and fraud. Against this backdrop, it is expected that increased cooperation and coordination between telecommunications/ICT regulators and LEAs will be necessary to combat increasingly common and sophisticated cybercriminals. In particular, the telecommunications/ICT regulator’s role in combating the various forms of cybercrime is likely to increase due to its technical expertise. This is likely to involve: 1) assisting LEAs in the technical/forensic investigation of cybercrimes; 2) coordination of various LEAs and national security agencies at local and national levels; and 3) assisting service providers and consumers in understanding their rights and obligations. As cybercrime has become an increasing concern, some countries have even given the ICT regulator the lead in implementing laws designed to prevent or prosecute cybercrimes. The recently passed digital piracy law in the United Kingdom, for example, assigns most of the implementation and enforcement powers with Ofcom, rather than a LEA (see Box 2.8). As with any type of potentially overlapping jurisdiction, the laws and enabling regulations should clearly define the roles of all parties, as well as provide adequate resources for enforcement. 24 Module 2. Policy Approaches to Promoting Broadband Development Box 2.8. Ofcom’s expanded role in enforcing digital piracy law in the United Kingdom  The Digital Economy Act of 2010 (DEA) assigned Ofcom new duties to create and implement obligations regarding online copyright infringement.  Ofcom, rather than a law enforcement agency, will enforce these obligations through a code of practice, which details a three-stage notification process for informing subscribers of infringements and requires ISPs to provide infringing subscribers’ IP addresses to the relevant copyright holders.  Ofcom’s powers include deciding upon the appropriate enforcement action against any person found to have breached the code, including imposition and collection of a financial penalty up to £250,000.  The DEA further requires Ofcom to establish an independent appeals tribunal for subscribers who have had copyright enforcement actions taken against them. Source: Ofcom, Consultation on Online Infringement of Copyright and the Digital Economy Act 2010: Draft Initial Obligations Code. Cooperation between ICT regulators and education sector authorities. Education is another area where the potential benefits of telecommunications have long been recognized. In many countries, so- called “distance learning” projects go back almost 30 years.36 Today, as the benefits of broadband for education have become clearer, regulators and education authorities are increasingly working together to ensure that schools and universities have access to broadband networks and can benefit from a growing array of e-learning and knowledge programs. As governments seek to encourage such programs, it will be critically important to forge alliances among private actors, donor agencies and non- governmental organizations to maximize the successful integration of broadband and education. The benefits of collaboration are clear. In Afghanistan, for example, the Ministry of Education (MoE) and the Ministry of Communication and Information Technology (MoCIT) are collaborating on a project to improve both the education and ICT sectors.37 Beginning in September 2008, the MoE and MoCIT launched a “One Laptop per Child” (OLPC) project in a public-private partnership with the United States Agency for International Development (USAID), Roshan, a mobile operator in Afghanistan, and Paiwastoon, a local information technology company. The MoE distributes the laptops to schools, and the MoCIT ensures the quality of the content, as well as maintaining the technology. By March 2010, more than 3,700 laptops had been distributed in Afghanistan through the OLPC project.38 Since extending connectivity often involves multiple players from the government, as well as private sector providers, the ITU toolkit also provides a useful checklist of issues for policymakers and regulators to consider as they work to develop a broadband and education initiative (see Box 2.9). Box 2.9. ITU School Connectivity Checklist The ITU has developed a checklist of issues that should be considered by policymakers and regulators when implementing school connectivity initiatives. In particular, the checklist highlights the need for good collaboration between the relevant stakeholders and tight coordination between school connectivity programs and the country’s national educational and ICT plans. Some of the other factors the checklist identifies are that:  School connectivity plans should be consistent with policies to promote overall ICT connectivity within the country;  School connectivity plans are best coordinated with policies, plans, strategies and programs for 25 Module 2. Policy Approaches to Promoting Broadband Development universal service, as well as broadband and digital and Information Society agendas;  Close coordination must exist between the ministry responsible for education, the ministry responsible for ICTs/broadband, and the telecommunications/ICT regulator, to ensure that universal service funds and obligations are formulated within a plan for school connectivity that concretely describes the roles of all parties; and  Private sector and non-governmental organizations (NGOs) can play key roles in advancing school connectivity, and they should be invited to participate in the development of school connectivity plans at an early stage. Source: International Telecommunication Union, Connect a School, Connect a Community, Module 1: Policies and Regulation to Promote School Connectivity (2009). Cooperation between ICT regulators and healthcare authorities. The benefits of broadband and ICTs for healthcare are a more recent development. One of the most important facets of effective and efficient healthcare is the timely collection and sharing of information among healthcare professionals. This includes, for example, real-time monitoring of patient data, long-term collection of routine examinations and tests, and time-critical diagnoses of conditions based on x-rays, MRIs, etc. For public health, the collection of data can help to identify outbreaks of infectious diseases and long term trends in the success or failure of public health initiatives. Broadband and ICTs are particularly well-suited to serving all these tasks with their ability to process and communicate large amounts of data quickly and efficiently. Because of these benefits, there are many areas in the medical field in which broadband networks and ICTs are being used to improve health outcomes. E-health initiatives include electronic records; long distance consultations and diagnoses via video conference; and patient monitoring using various mobile devices. As the number of applications grows, ICT regulators and health care authorities will find it useful to work together to improve both health outcomes and broadband development—as these often have mutually reinforcing objectives. In fact, governments and regulators are increasingly coming to realize the benefits of such collaboration. The U.S. Federal Communications Commission (FCC) National Broadband Plan, for example, dedicated an entire chapter to e-health and broadband, and specifically recommended greater cooperation with the U.S. Food and Drug Administration (FDA), to “clarify regulatory requirements and the approval process for converged communications and health care devices.”39 The effective use of broadband and ICTs for medical or e-health applications and programs will require coordination between multiple agencies and ministries, potentially including not only communications and health, but also science, education and finance. ICT regulators need to work closely with these other agencies to develop mechanisms to enable the healthcare sector to develop creative solutions to healthcare issues and effectively leverage the benefits of broadband connectivity. Such efforts should include not only doctors and hospitals, but also institutions that are less directly involved in health care implementation and administration, such as schools/universities, social service agencies and research facilities. Some of the important initiatives to be considered may include:  Subsidies or other financial support for communications networks to link key institutions, such as hospitals and universities;  Setting or identifying standards (a common e-health form, for example) to enable interconnection between various stakeholders; 26 Module 2. Policy Approaches to Promoting Broadband Development  Developing or updating service rules governing electronic services used to share medical data; and  Provisions regarding privacy of data transmitted via such services. Cooperation between ICT and banking regulators: m-banking. The financial services world is already one of the larger users of broadband and ICT services. Huge amounts of money are transferred electronically every day and all around the world. In the last decade, more and more financial services have moved on-line, allowing individuals and businesses to conduct their banking services without ever having to go to an actual bank. With the rise of mobile wireless services, customers have begun to demand that their financial services be available not only on computers or at banks, but on their mobile devices, so-called m-banking. The use of mobile networks for providing financial services can produce enormous benefits, particularly in those countries without a well-developed or widespread banking system. However, with these benefits also come challenges that the traditional banking world has not had to confront, especially in the areas of privacy and security of customer data. As a result, good coordination between the different agencies involved will be crucial to support a secure and effective m-banking environment. For example, although financial services are outside the purview of telecommunications regulations, regulators can encourage the development of the m- banking market by working with their counterparts in the finance ministry to develop policies that support new banking and business models and that also recognize the importance of privacy, security and trust in the new m-banking world. This is likely to require forging new relationships with the financial services authorities in order to develop a framework that is appropriate for m-Banking services.40 As they consider how to promote m-banking in the context of broadband development—and especially in considering how to bring both services to un- or underserved communities—ICT policymakers and regulators should seek to adopt policies that will increase investment and entry into the mobile broadband market. Development and expansion of mobile networks leading to increased penetration is a necessary condition to continue to expand on the success of m-banking services. Similarly, regulators should enact and enforce rules – directly or in cooperation with competition authorities – to ensure competitive mobile markets. This is particularly important since first mover advantages and specific technical/service conditions of m-banking (e.g., lack of interconnectivity of m-banking services41 or differentiated fees between on-network and off-network transactions) may allow dominant mobile providers to further strengthen their positions. For example, in August 2010, the Communications Commission of Kenya (CCK) raised concerns with the competitive effects of certain conditions associated with Safaricom’s successful M-Pesa service.42 The CCK found that mobile money transfer services have a significant impact on the competitive landscape in the telecommunications market in Kenya as they created a “club effect”—since higher rates are charged to non-registered users versus registered users, more consumers would be motivated to join the less-costly “club.” There are also other benefits to promoting m-banking since it may be the new operators, seeking to differentiate themselves from the existing or dominant operators, who may be more willing and able to develop new services quickly. On the financial side, banking regulators (e.g., central banks, finance ministries or banking regulatory authorities) will need to be flexible and creative to adapt traditional banking regulations to enable m- banking. For example, even defining who can be a “bank” (i.e., banks, mobile providers, and retailers) may need to be addressed so that new players can develop new services, while at the same time protecting the stability of the financial system as a whole, the integrity of transactions, and the safety of customers’ deposits.43 27 Module 2. Policy Approaches to Promoting Broadband Development Furthermore, the m-banking sector is still nascent; so there is as yet no common, accepted business model or set of best practices. In addition, since each country’s financial system is different (more or less well-developed), it is probably still too early for financial regulators to prescribe specific regulatory models.44 For example, financial regulators in Afghanistan, the Philippines, West Africa and the European Union have adopted regulations that enable a role for nonbanks, striking a balance between service availability and the need to mitigate the risks presented by the involvement of a service provider that is not subject to full banking regulation.45 On the other hand, a number of countries, such as Kenya and Cambodia, have not issued e-money regulations, but have nevertheless permitted such nonbank models on an ad hoc basis through “no objection” letters, conditional approvals or other means.46 2.3.5 Develop Policies for Both Sides of the Broadband Coin: Supply and Demand The experience in high-penetration countries shows that successful broadband diffusion requires that both supply- and demand-side factors be addressed (see Figure 2.6). While supply-side policies focus on promoting the build-out of the network infrastructure over which broadband applications and services can be delivered, the main goal of demand-side policies is to enhance the awareness and adoption of broadband services so that more people will make use of them. Figure 2.6. Framework for Government Intervention to Facilitate Broadband Development Source: Arab Republic of Egypt, Strategic Options for Broadband Development, World Bank Report (2010). The interaction of both supply- and demand-side factors is crucial to achieve the highest penetration and adoption of broadband. However, these factors do not always appear naturally as market failures may hinder their development. For instance, broadband diffusion can be limited if the market is not able to reach the required critical mass that leads to a sustainable growth cycle. More importantly, even if both types of factors (i.e., supply- and demand-side) are present in an economy, they will not reach their full potential if they are not coordinated, which may result in slow supply of broadband infrastructure or in poor demand and uptake once networks are available. For this reason, high broadband penetration countries have comprehensive broadband policies that coordinate both supply- and demand-side actions. In addition, most plans that have been introduced – both in developed and developing countries – incorporate both supply- and demand-side policies. Such complementary strategies have been defined in addition to market liberalization and regulatory initiatives aimed at 28 Module 2. Policy Approaches to Promoting Broadband Development promoting broadband in general, as well as focusing on universal access obligations or special conditions that favor projects in high-cost or low-income areas. Universal access obligations and financing are briefly addressed in section 2.6 below, and discussed in more detail in Module 5. In assessing the strategic options for improving broadband build-out and adoption (supply and demand), it is important to remember that many different factors are involved, and no two countries have followed identical routes. Nevertheless, it is possible to recognize certain common elements in national broadband success stories. In reality, most countries will use a mix of policies, with supply-side policies generally focusing on how to stimulate private sector investment in networks, especially in the early years, while demand-side policies may be more long-term and focused on how governments can help drive broadband demand and adoption. 2.3.6 Sequence Policies for Maximum Effectiveness Different policies are appropriate for different stages of a country’s broadband policy development. As part of the overall implementation strategy, it will be very important to ensure that individual strategies and programs begin at the appropriate time. For example, it will not make sense to establish digital literacy or Internet use programs before users have access to the services they need to learn about. Thus, policies and programs must be implemented in a step-wise, complementary fashion, based on the specific conditions in the country. This section will address how to sequence policies and programs so that they match the country’s needs and progress. Based on a 2010 World Bank study of countries that have pursued broadband development policies, Table 2.2 provides a conceptual summary of the key policies, regulatory, and programs that those countries used to develop their broadband ecosystems and the general stages in which these policies were introduced: promote, oversee and universalize.47 Table 2.2. Key policies and programs for building the broadband ecosystem Component Early stage: Promote Mass market: Oversee Universal service: Universalize  Networks  Develop an enabling  Consider infrastructure  Undertake, using environment sharing, including public/private partnerships, through policies and unbundling the local as appropriate deployment regulations that loop of open access broadband promote investment  Reallocate spectrum to networks in high-cost or and market entry increase bandwidth remote areas  Reduce  Coordinate access to rights administrative of way burdens and provide incentives and subsidies for R&D, pilots, and network rollout  Create certification systems for cyber buildings  Allocate and assign spectrum for wireless broadband services 29 Module 2. Policy Approaches to Promoting Broadband Development Component Early stage: Promote Mass market: Oversee Universal service: Universalize Services  Provide broadband  Create an enabling  Consider expanding networks to schools, environment for intra- universal service obligation government, etc. and intermodal to include broadband (government as an competition anchor tenant)  Ensure  Standardize and nondiscriminatory monitor service access for service, quality application, and content providers Applications  Undertake  Support secure, private,  Develop advanced e- government-led reliable e-commerce government programs demand aggregation transactions  Offer grants to community  Government  Implement intellectual champions and broadband agencies as early property protections demand aggregators adopters and innovators Provide e-government and education applications  Promote creation of digital content  Develop local content and hardware sector Users  Provide low-cost  Establish ethical  Expand universal service computers and other guidelines for programs to underserved user devices, for information use communities instance in  Create community access education centers  Develop digital  Subsidize user devices for literacy programs for poor households citizens Source: Yongsoo Kim, Tim Kelly, Siddhartha Raja, Building Broadband: Strategies and Policies for the Developing World, World Bank (June 2010) at 114. The policies and regulatory tools in Table 2.2 support the operation of a competitive, efficient market and seek to expand access to all. They also include demand-side policies and programs. Many of these measures would have little or no implications for government budgets. Some could be funded through contributions from the broadband industry, while others would be self-sustaining from service fees (as with e-government programs) or cost savings (as with infrastructure sharing). Most important, every country the World Bank surveyed—even those with state-led approaches—has sought to create an enabling environment for private investments and market mechanisms to develop broadband networks. The main variation is that some countries, such as Finland, France, the United Kingdom, and the United States, have let the market try its hand at building broadband first, while others, such as Australia, Japan, Korea, and Sweden, have used competition policy in combination with public-private partnerships and a more active role for the state early in the process. 30 Module 2. Policy Approaches to Promoting Broadband Development Today, though, all the countries surveyed have moved firmly toward spurring broadband growth through a combination of public and private initiatives. Countries such as the United Kingdom and United States that once shied away from developing national broadband strategies have developed them. Even Finland, which has long relied on the private sector to build broadband networks, has developed a USD 265 million broadband plan that includes USD 88 million in public funding. The government will support the construction of faster, more widespread networks. Promote: Jump-starting broadband development Many developing countries have low broadband penetration and are in the initial stage of market development. These countries may wish to focus initially on policies that promote the broadband market. Promotional policies can encourage the supply side, such as inducing investment in the broadband network, and the demand side, such as raising citizen awareness about broadband benefits and easing subscription barriers. Policies that focus on building, extending or upgrading broadband networks are often the first things policymakers consider when they have decided to promote broadband development. There are a number of initiatives that governments can take in order to spur broadband network development. Some of the most important policies are summarized here and are discussed in more detail in section 2.4.1:  Reduce entry regulations to facilitate competition.  Use spectrum frequency policies to facilitate wireless service.  Provide government support for national backbone construction.  Take aggressive steps to reduce providers’ investment costs. In conjunction with early policies to encourage the build out of broadband networks, policymakers may also see the need to raise the awareness of and stimulate demand for broadband services, particularly among those populations least likely to be broadband users. This can help to ensure that as broadband services are introduced, there are users willing and able to utilize them. Some of the most important demand stimulation policies are summarized here and discussed in more detail in section 2.5:  Promote digital literacy.  Distribute low-cost devices and terminals.  Have government serve as an anchor tenant.  Develop online content and local media.  Encourage small and medium-size enterprises (SMEs) to use broadband and e-commerce. Oversee: Facilitate competition-led growth through consistent oversight Once the basic broadband building blocks of supply and demand have been addressed, policy development may turn to ensuring that private investment and competition can continue to flourish and users’ rights are protected. In this stage, the basic aim of government intervention is to foster service development under a competitive market structure. Even countries with the least government market intervention have implemented competition policies and achieved broadband diffusion. This explains why policies that facilitate competition are the most important, and thus must be implemented consistently and compellingly from the initial to maturity stages of market development. Policies that may be pursued in this regard involve supporting as much as possible new entrants competing with the 31 Module 2. Policy Approaches to Promoting Broadband Development incumbent; encouraging both facility- and service-based competition and regulating unfair business practices with regard to both competitors and consumers. Such policies are described in more detail in section 2.4.1. Universalize: Focus on widespread diffusion as broadband market grows A goal for many countries is to “universalize” broadband; to make broadband services available to as many people as possible so as to maximize the economic and social benefits that broadband can bring. A farsighted policymaker would envision nationwide diffusion of broadband from the outset and pursue that goal through specific long-term plans. In many ways, policies to universalize broadband are often extensions of policies adopted earlier for telephony, but may require changes to national laws, regulations and funding, such as by defining broadband as part of a country’s universal service obligation. Such policies can seek to expand universal service programs to include broadband and provide financial support for network rollout in rural and underserved areas. Universalization policies can include digital inclusion programs that go beyond simply educating potential users by providing subsidies for low-income households to purchase broadband devices or even subscriptions, and building Internet access centers in remote areas and schools. Section 2.6.2 discusses these policies and how to fund them in more detail. 2.4 Building Infrastructure: Promoting the Supply of Broadband Most developing countries have not yet seen their broadband networks penetrate more than a few percent of their populations. Hence, governments can play a key role in promoting and accelerating the growth of the broadband market. Promoting the build-out of broadband networks throughout a country will likely require governments to pursue multiple strategies, depending on local circumstances. As each country has its own unique history, regulatory structure/framework, economic conditions, social goals/expectations and political processes, the path a country follows to improve broadband networks and services will necessarily have to reflect its specific advantages and disadvantages. This section addresses the issues that policymakers and developers may face in promoting broadband network development. It identifies the various components of a nationwide broadband network and identifies the issues and policy approaches to address the challenges associated with promoting the buildout of broadband networks and services. 2.4.1 Core Policies to Promote the Buildout of Broadband Networks As countries seek to build frameworks and strategies to support the development of broadband networks and services, it is important to identify the policies that can help drive the development process. Although the specific policies adopted in each country will differ depending on the unique circumstances each faces, some general policy approaches may be applicable across the world. This section describes these general policy approaches and identifies some of the specific policies previously used to promote broadband buildout in many countries. Section 2.4.2 describes specific policies that are applicable to the different levels of the broadband supply chain. As an overall consideration, it is generally accepted that the private sector should be the primary driver of broadband development in most cases. Particularly when government debt is high and resources are limited, sufficient public money may not be available for broadband infrastructure spending. Consequently, policymakers and regulators must consider how best to attract and encourage private sector involvement and investment in broadband. This, in turn, will require governments to do an honest evaluation of the extent to which their country represents—or can be made into—a profitable market opportunity for private sector investors and operators. Questions to be answered may include: 32 Module 2. Policy Approaches to Promoting Broadband Development Are companies willing to invest? If not, why not? Will such companies drive the broadband market forward on their own or will they need help? What government strategies, policies and regulations can foster and support private sector initiatives and what policies may hold back investment? This is the approach that many countries have taken; they have attempted to facilitate and, where possible, accelerate, broadband rollout through regulatory measures or policy changes rather than more direct forms of intervention such as investment. There will be instances, however, in which purely private sector-led approaches will not be sufficient for broadband to develop. In those cases—due to factors such as historical market structure, geography or low population density, for example—private sector players will be unwilling to invest capital where they perceive that they will get a low (or no) return on their investment. For these areas, it will be necessary for the government to develop policies and strategies designed to address competitive and investment challenges. Such intervention can take various forms as discussed below, and are summarized in Table 2.3. For a more comprehensive view of the various policies and programs for promoting the build-out and uptake of broadband, see Practice Note 2.3. Table 2.3. Checklist of Policies to Promote the Supply of Broadband Networks Promote competition and • Implement policies/regulations to create conditions to attract investment private investment in broadband networks • Implement technology and service neutral rules/policies giving operators greater flexibility • Promote effective competition for international gateways and possible policies for service-based competition for gateway operators to provide access to their facilities on wholesale non- discriminatory basis • Develop policies to facilitate inter-platform competition Encourage government • Coordination among countries can impact all levels of the coordination broadband supply chain by lowering costs through common technical standards and facilitating the development of international, regional and national backbones • Incorporate broadband planning into land use/city planning efforts Allocate and assign spectrum • Assign additional spectrum to allow new and existing companies to provide bandwidth-intensive broadband services • Allow operators to engage in spectrum trading Promote effective • Encourage multiple providers to share physical networks (wireline competition and encourage and wireless), which can be more efficient, especially in low-density investment areas Facilitate access to rights of • Facilitate access to public rights-of-way available for building way broadband networks. This can help ease construction of both long distance (backbone) and local connections • Develop policies that provide open access to government- sponsored and dominant operator networks enable greater competition in downstream markets Facilitate open access to • Develop policies that provide open access to government- sponsored and dominant operator networks enable greater 33 Module 2. Policy Approaches to Promoting Broadband Development critical infrastructure competition in downstream markets • Consider implementation of local loop unbundling if necessary to facilitate competition Source: Telecommunications Management Group, Inc. Practice Note 2.3. Policies and Programs for Promoting Broadband in Developing Countries Promoting Broadband in Developing Countries STEP 1: Reduce Barriers to Entry The first step in stimulating competition and encouraging the private sector to build out broadband networks is to reduce the barriers to entering the broadband market. Often legacy regulations can explicitly prevent new entrants or discourage investors by placing a complicated or onerous regulatory burden on them. Broadband development can be stimulated by lowering or removing such barriers and allowing greater competition to flourish. Civil works are the biggest fixed and sunk cost in broadband network construction. They account for more than two-thirds of the cost of fiber optic networks (see Figure 2.7)48 and wireless networks.49 They also play a major role in increasing the cost of network deployment for new service providers as well as incumbents. Such costs can thus be a major barrier to entry for potential new entrants. Figure 2.7. Typical cost components of a fiber optic network Fiber 6% Cabinets 2% Installation Civil works 3% 68% Others 9% Ethernet 12% Government policy support is essential for new market entrants to compete effectively with dominant incumbents. This is because economies of scale and network externalities play significant roles in the success of communications providers. Institutionalized consideration for new entrants will significantly increase their motivation. Korea illustrates the importance of direct and infrastructure-based competition in the development process. In contrast to the cautious deployment of broadband in a number of countries, the Korean government has encouraged intense competition between broadband providers. Thus Korea’s success can be attributed to the power of government direction and market competition working in parallel. In fact, the emergence of disruptive competitors was one of the key enablers of rapid broadband development in both Korea and Japan.50 Powerful competitors joining the initial stage of market development drastically increased broadband penetration, with affordable prices achieved through 34 Module 2. Policy Approaches to Promoting Broadband Development aggressive price cuts. Thus, it is crucial that government make the best of regulatory policies so that powerful competitors, even if not disruptive, can compete on a level playing field with the incumbent. Competition policy is ideal when networks and services compete with each other at full capacity. But due to practical limitations—such as limited investment, subscriber lock-in, and subscriber networks being bottleneck facilities—competition policy is likely to focus more on networks or services. Whether to focus on facility- or service-based competition depends on which is more appropriate for new providers to become and stay competitive in a short period. The decision may depend on country conditions, including the size of the communications network, the status of competition, and the structure of regulation. Another influential factor is whether alternative networks (cable broadband, wireless broadband, and so on) cover the entire country. Facility-based competition makes providers compete in the retail market while also constructing a network. It brings competition to network improvement by expanding investment. But it can also result in redundant investments. Service-based competition allows new providers to use the network of the dominant facilities operator. This cuts the time to market for new entrants and reduces upfront investment. But it can also depress long-term investments by the dominant facility operator and delay network upgrades. Furthermore, new providers might lack incentives to engage in network construction. But service-based competition can also create many opportunities if new providers enter the market smoothly, attract subscribers at the initial stage, and facilitate network investment with their profits. Comparing the experiences in Korea and France is instructive. In Korea, facility-based competition was intense from the initial stage of the broadband market due to deregulation and the development of cable TV networks, so services were diffused quickly. But by the time the market reached maturity, depending only on facility-based competition was considered insufficient, so service-based competition was adopted through local loop unbundling. In France, by contrast, cable TV network development was relatively weak due to the development of satellite broadcasting. Further, cable TV providers, also serving as communications service providers, had little desire to start broadband businesses. Hence, France adopted a service-based competition regime from the initial stage to facilitate the deployment of services. And the country has succeeded in encouraging service providers to increase investments, improve networks, and engage in facility-based competition. Constructing a backbone network covering the entire country is a top priority for many developing countries, especially where such networks are limited to urban centers or a few intercity routes. But deliberations are needed on which competition policy they should choose. For those without an alternative network covering the entire country, it is typically more effective to adopt both service- and facility-based competition rather than applying nationwide facility-based competition policies. However, in large cities with sufficient demand, facility-based competition in the subscriber network may be more effective. For areas facing economic challenges in constructing an alternative network, it is reasonable to implement aggressive service-based policies as well as facility-based policies that encourage construction of a wireless alternative network through the allocation and award of ample spectrum. For areas where even the dominant incumbent does not own a fixed line network, competition must be expanded through policies allowing nondiscriminatory entry of competitors for government-supported network construction. Governments can consider a number of reforms to address these issues as discussed in the sections below. 35 Module 2. Policy Approaches to Promoting Broadband Development Remove limits on the number of network licenses. In many countries that have nominally “liberalized” their network markets, there is a formal or informal limit on the number of licenses issued.51 There is little economic justification for such a limit, however, since many types of networks do not require scarce resources. This is particularly true for wireline networks, which do not use radio spectrum. Experience from around the world indicates that markets can successfully support multiple network operators in most cases. Experience also indicates that where multiple licenses have been issued, operators are willing to invest a substantial amount of financial resources in network infrastructure. Ease access to rights-of-way. Most of the cost of constructing wireline networks lies in the civil works. By lowering the barriers to and cost of accessing and the rights of way associated with public infrastructure and lands (e.g., roads, railways, pipelines, or electricity transmission lines), governments can significantly increase incentives for private investment in broadband networks at all levels of the supply chain. Such incentives can be achieved in several ways, but primarily by making rights-of-way readily available to network developers at low cost and simplifying the legal process and limiting the fees that can be charged by local authorities for granting rights-of-way. The United States, for example, has had a policy since 2004 that assists telecommunications providers seeking access to rights-of-way on federal lands.52 Facilitate access to government infrastructure. Networks are often built along existing infrastructure networks such as roads, railways, pipelines, or electricity transmission lines. Governments can provide direct access to existing infrastructure which it owns through state-owned enterprises. For example, the railway company could partner with one or more operators to build fiber-optic cable network along the railway lines. This approach was used very successfully around the world to develop extensive backbone networks at relatively low cost. In January 2011, for example, Serbian Railways and PTT Srbija agreed to jointly construct telecommunications infrastructure along Serbian Railway’s corridors, totaling 2,031 km.53 Governments can also specifically provide for network development in the design and construction of other types of infrastructure. For example, by pre-installing ducting when new roads are built and then leasing these ducts to operators wishing to lay networks, governments can significantly reduce telecommunications operators’ costs because adding communications equipment (such as cables) to other infrastructure projects is relatively inexpensive (see Figure 2.8). Figure 2.8. Average cost of infrastructure installation per kilometer (Index: Water=100) 100 35 26 15 4 2 2 2 Electricity Coaxial cable connections Water Copper wire Sewer Gas Fiber optic Wireless Source: OECD, Broadband Growth and Policies in OECD countries, 2008, p. 62. Including broadband in land use planning efforts may also promote build-out and reduce costs. For example, requiring all new housing and building developments to include broadband infrastructure, particularly fiber cables, alongside other utility requirements, including electricity and water can help to 36 Module 2. Policy Approaches to Promoting Broadband Development lower long-term costs by ensuring that broadband infrastructure is laid at the outset; as such, avoiding the higher costs associated with retrofitting. National connectivity can also be enhanced by allowing the owners of electricity transmission networks, pipelines, and railway networks to act as wholesale bandwidth providers. Such companies have a major cost advantage in the development of fiber-optic backbone networks, for example. In practice, many infrastructure companies have already laid fiber-optic cables as part of their internal communications systems, and many of these cables have substantial unused capacity. Kenya Power & Lighting Company Limited (KPLC), for example, an electrical utility, is leasing dark fiber running along its backbone to service providers.54 In Norway, the fiber backbone of Ventelo spans the entire railway infrastructure, covering 17,000 km. Ventelo is the second largest wholesale provider in Norway offering dark fiber and collocation services.55 By encouraging these (usually state-owned) networks to establish operating companies to run the fiber assets and by licensing them, they can be brought into the formal telecommunications market as providers of backbone capacity. This has been successful in some Sub- Saharan African countries, such as Uganda and Zambia, but not in others, such as Ghana. Whether infrastructure companies are successful in becoming commercial backbone network operators appears to depend on differences in the institutional environment (that is, whether the company is given sufficient political incentives and the regulatory freedom) and in managerial capacity, rather than on the technical characteristics of the networks. Promote open access to existing networks. Network operators and service providers wishing to enter the downstream market (that is, building access networks and offering services to customers) must either build their own backbone network or access the network of another operator. In many cases, potential new entrants and investors may see the costs of constructing an entirely new broadband infrastructure as prohibitive, and prefer to lease or otherwise use capacity on an existing network. In those cases, the terms under which operators can obtain access to the networks of other operators will have a significant impact on the success of their business and will influence whether effective competition in the downstream market develops. At the same time, the demand created by these downstream operators will affect the financial viability of the backbone networks, since they are the entities that generate traffic and revenues on the networks. By promoting effective competition in the downstream market, governments will help stimulate backbone network development. The role of the regulator is crucial, since the regulator often defines and enforces the terms of access. The decision about whether to directly regulate the terms of access to infrastructure has a major effect on the investment incentives. Under the traditional model of liberalization followed in Europe, in which the incumbent operator dominated the market, the priority for the regulator was to provide access to these operators’ networks for companies entering the markets since this was seen as being crucial to the development of competition. Subsequently, as competition has emerged, regulators have been required to develop systems for determining which operators should be regulated and how. In the European Union, this system is based on the framework of general competition regulation that set out how regulatory authorities determine whether or not competition is functioning effectively and what remedies should be applied where it is not. In the developing world (for example, most countries in Sub-Saharan Africa), such frameworks often do not exist. Regulators will therefore need to develop alternative sets of guidelines to govern how access to the infrastructure of private operators in competitive markets is regulated. This will involve a tradeoff between supporting the development of competition in the downstream market and maintaining the incentives to invest in upstream infrastructure. In areas of a country where public support is provided for backbone infrastructure, this tradeoff is relatively straightforward, since one of the conditions of public support will be the provision 37 Module 2. Policy Approaches to Promoting Broadband Development of wholesale services on regulated terms. In other areas of the country and in other parts of the infrastructure, the tradeoff may be more difficult to determine. Promote infrastructure sharing. Many governments have sought to promote greater deployment of both wireline and wireless networks by encouraging or even requiring competing providers to share infrastructure. In most cases, infrastructure sharing has been instituted in areas where it was concluded that competing physical infrastructures were not economically viable (such as in rural or remote areas) or where the construction of competing infrastructures could prove unacceptable for social or political reasons (too much civil works disruption or too many wireless towers at prime locations). Module 3 further addresses how countries are implementing infrastructure sharing policies for wireline broadband providers. Infrastructure sharing can be broken down into two categories: active and passive (see Figure 2.9). Figure 2.9. Passive and Active Infrastructure Sharing • Access to rights-of-way, poles, ducts, trenches, sewers and towers. • Benefits include reduced roll-out costs, deployment times and operating costs, as well as less environmental stress due to less digging or placement of antennas on Passive towers, buildings or poles. Sharing • Parts of the network (usually of the dominant/SMP operator) must be available to competitors at regulated or wholesale rates. Active • May include local loop unbundling, bitstream or wholesale access and/or resale. Sharing Source: ITU Infrastructure sharing has advantages for both wireline and wireless network operators. By sharing network infrastructure, builders of networks can significantly reduce costs and make investment in them more commercially viable. This is particularly relevant for fiber networks in urban areas where the cost of laying new fibers is high or in rural areas where the revenues generated by such networks are low. In some cases, operators have a commercial incentive to enter into these sharing arrangements. For example, in Nigeria, where there has been extensive fiber-optic cable network rollout, operators have entered into a variety of network-sharing agreements aimed at reducing costs and improving quality of supply. In addition, operators may also be required to install multiple fibers in their cables, even if they only need one. These additional “dark” (unused) fibers may not be used initially, but are held in reserve for future use by an existing operator or new entrant. This may be a very cost-efficient way to manage fiber networks because installation (and the associated civil works costs) only needs to be done once as opposed to multiple rounds of digging to install multiple fibers. With wireless networks, particularly in low-density areas where the economics may not support multiple competing infrastructures, carriers can share cell towers and some backhaul facilities as a way of reducing network build-out costs and bringing competition to such areas more quickly. Such arrangements have slowly been gaining acceptance in both developing and developed countries, particularly as carriers seek to manage costs when expanding their networks or upgrading their services to support higher speed broadband.56 For example, several countries in the European Union promote infrastructure sharing among mobile operators to reduce the cost and increase the coverage of mobile broadband networks. As a result, 38 Module 2. Policy Approaches to Promoting Broadband Development many operators in European countries have reached agreements to share 3G and 4G networks. For instance, Telefonica and Vodafone have agreed to share their mobile networks in four European countries, including Spain, Germany, Ireland, and the United Kingdom to improve their mobile broadband coverage in these countries.57 In Sweden, Tele2 and Telenor agreed to form a joint venture to deploy a nationwide 4G LTE (long-term evolution) network. The agreement includes the sharing of active network infrastructure, such as the RANs (radio access networks) and of spectrum in the 2600 MHz and 900 MHz bands.58 The operators expect to provide access to mobile broadband to 99 percent of the population at speeds of up to 80Mbps in rural areas and 150 Mbps in urban areas by 2013.59 In France, the regulator has taken a further step and required mobile operators to present a plan to share their mobile networks and provide coverage to 95 percent of the population. If the plan does not meet the regulators’ expectations, the regulator will mandate operators to share their mobile broadband infrastructure to achieve the coverage goal.60 The combination of different infrastructure-sharing obligations on the incumbent operator and the promotion of mobile broadband networks in countries such as Spain have resulted in significant increases in mobile broadband coverage and service adoption (see Practice Note 2.4). Practice Note 2.4. Infrastructure Sharing in Spain Infrastructure Sharing in Spain Despite the advantages of infrastructure sharing, governments should exercise a degree of caution when implementing such measures. One concern is that such arrangements are difficult to enforce if the parties are not willing to undertake enforcement on a commercial basis. Though requirements to share facilities are already included in many operators’ licenses, they are rarely implemented or enforced if the operators are unwilling to enter into the arrangements. In Bahrain, for example, the regulatory framework established when the market was liberalized, required the incumbent operator, Batelco, to share its surplus fiber and duct space with new entrants on regulated terms. Despite ongoing efforts by the regulator to enforce such arrangements, this policy has had limited success, and entrants have opted instead to develop their own wireless-based backbone infrastructure. The regulatory authority in Bahrain is now revisiting the legal and regulatory framework that provides competitors with access to Batelco’s infrastructure. It has also introduced more detailed rules on network sharing (see Box 2.10). Box 2.10. Network Sharing in Bahrain Article 3(c) 13 of the Telecommunications Law of The Kingdom of Bahrain gives the regulatory authority the right to require operators to share infrastructure. The details of this requirement are given in guidelines issued in 2008.Telecommunications operators in Bahrain are “required to adopt joint infrastructure installation methods when more than one provider wishes to lay telecommunications infrastructure at the same location and within a timeframe not exceeding one year” (Section 1.11 [a]). The operators are required to share the costs of such joint network construction on a pro rata basis. The article goes further in encouraging infrastructure sharing through the following provisions:  If operators are unable to reach a commercial agreement on a joint project, they are required to go to the regulatory body for “mediation and/or a binding decision.”  Operators are not permitted to undertake fiber network development in a particular area if a fiber network has been constructed in the same area within the past 12 months.  Operators are required to install at least 20 percent reserve area in their ducts for future use by other operators. 39 Module 2. Policy Approaches to Promoting Broadband Development  Operators are prevented from using spare ducts for themselves or blocking other operators from obtaining access to them. Source: Government of Bahrain 2008. Legislative Decree No. 48 of 2002 Promulgating the Telecommunications Law. A second reason for caution lies in the concern that facilities sharing may help sustain collusive agreements between competing operators. This has been a major issue in Europe, where mobile operators seeking to share mobile infrastructure faced resistance from the European Commission.61 The European Court of First Instance, however, subsequently ruled in favor of the operators.62 In many developing countries, with their increasingly competitive telecommunications markets, competition- related issues may be of less immediate concern, particularly when balanced against the need for new infrastructure investment. Policy makers may consider that the risk of collusion is outweighed by the benefits of infrastructure development in rural and otherwise unprofitable areas. Additionally, rules requiring active infrastructure sharing may curb incentives to invest in networks—incumbents may opt against network upgrades since they must share their infrastructure with competitors while new entrants may opt against deploying their own networks in order to continue reselling capacity from the incumbent. STEP 2: Facilitate Enhanced Competition and Investment In the context of a private sector-led approach to broadband development, it is recognized that allowing competition to flourish will usually lead to greater deployment and efficiencies in network build-out. Once policies have been established to encourage new players to enter the market, government policymakers must also ensure that laws and regulations support fair competition and continued investment. In fact, a key lesson from the countries surveyed in the World Bank’s Building Broadband report is that competition is critical to successful broadband market promotion.63 Each country studied used different mechanisms to spur competition and promote broadband market growth. Some focused primarily on facilities-based competition, while others focused more generally on increasing the level of competition at the service level. The presence of established, competitive telecommunications operators in many countries has also contributed to broadband market development. In the long-term, liberalization and promotion of competition among facilities is also the best way to guarantee lower costs. For example, the initiation of the Southern and East Africa Cable System (SEACOM) network that links Kenya, Madagascar, Mozambique, South Africa, and Tanzania resulted in Kenya Data Networks (KDN), a Kenyan data services provider, announcing that it would reduce its Internet prices by up to 90 percent.64 However, liberalization may be difficult in some developing countries, particularly those with small populations that are geographically isolated, or are small island developing states (SIDS)65 with limited access to multiple sources for connectivity. Module 7 discusses the challenges faced by these unique countries. Specific countries may exhibit features that make developing competitive markets in certain segments of the supply chain particularly difficult. For countries seeking to improve the competitive nature of their broadband markets, several strategies can help, as discussed below. Remove constraints on network providers. Some countries, for example in Sub-Saharan Africa, impose constraints on the activities of both backbone network operators and the users of those networks. Constraints include restrictions on the sale of network services and requirements to purchase backbone network services from specific operators, usually the state-owned incumbent operator. Removing these restrictions would allow operators to buy services from and sell services to whichever operator 40 Module 2. Policy Approaches to Promoting Broadband Development they wished. By doing so, traffic could be consolidated, providing an incentive to upgrade networks to fiber-optic cables and thereby reduce average costs and improve quality of service. From the moment a new service provider enters a market, the dominant incumbent usually devises strategies to maintain its dominance, while the entrant struggles to increase its market share as quickly as possible. As market volatility decreases and competition intensifies, traditional regulatory issues for fixed line telephony— such as interconnection, facilities access, and sharing of passive infrastructure— are likely to emerge in more complicated forms for broadband. In addition, broadband facilitation leads to the convergence of communications and broadcasting and blurs their borders, making regulatory issues even more complex. Thus special efforts are needed to enhance regulators’ ability to respond to such challenges. Improve the regulation of interconnecting networks. One of the key constraints on the development of network services in many developing countries is difficulty in enforcing contracts and service-level agreements. To address such issues, the regulatory authority could improve the situation by:  Establishing clear regulations on interconnection at the backbone level;  Amending licenses to increase the enforceability of such rules, if necessary;  Setting out effective quality controls and clear dispute resolution procedures; and  Collecting accurate quality of service information to facilitate market functionality and dispute resolution. Governments might, for example, reach a regional agreement on principles of open-access regulation or on the way in which a specific type of multi-country network is regulated. One example of this type of approach is the telecommunications-related commitments that countries make when joining the World Trade Organization. These commitments have introduced a limited degree of cross-country harmonization in the way in which the telecommunications sector is regulated. Further agreements of this type could be established at the regional level. By entering into a regional regulation agreement, governments may be able to provide additional assurance that investors will not face excessive political risk originating at the national level. However, regional approaches to the governance of the telecommunications sector have proven very difficult to implement in practice. Even in the European Union, where a strong move toward harmonization of sector regulation in the context of general economic and institutional integration has take place, telecommunications sector regulation remains the responsibility of national regulatory authorities, albeit within an overall regulatory framework defined at the European level. Because regional approaches to regulatory capacity building and technical assistance in dealing with backbone networks are likely to be easier to achieve than complete regional regulatory harmonization, they may be a more effective way of improving the quality of regulation. Examples of the former approach include developing regional benchmarking data on prices and quality of service for backbone network services, standardizing reference interconnection offers (RIOs), and standardizing license terms and conditions. Existing regional associations of regulatory authorities in Sub-Saharan Africa, for example, provide a potential basis for such regional approaches to regulating backbone networks. Provide regulatory certainty. Governments should seek to provide as much certainty as possible regarding their regulatory approaches to broadband buildout. This is particularly true with spectrum and licensing issues. Such certainty will give operators and investors confidence in making investments in wireless network infrastructure. The ministry and/or regulator will need to state clearly, for example, what their policies and plans are for identifying and reallocating spectrum for wireless broadband, 41 Module 2. Policy Approaches to Promoting Broadband Development establish clear technical and service rules that will govern the service and establish clear, transparent and equal license terms. Operators need to know that spectrum is available, in which bands, or when more is coming. In order to develop good business cases, they also need to know under what terms spectrum will be released, if there will be coverage or universal service obligations, etc. With a clear and fair framework in place, investment likely will flow into the marketplace. Conversely, it will be hard for investors and network operators to commit to a commercial deployment in those markets where the regulatory and licensing framework is not clear. Consider risk guarantees and insurance. Companies operating in a risky environment are likely to place a premium on scalability and reversibility in their network infrastructure investment decisions. Scalability means that network investments take place in small increments, rather than large one-off expenditures. Scalable investments allow operators to expand their networks as demand develops, hence reducing the risk that networks are over dimensioned. Reversibility reflects the ability of a network operator to reverse investments and sell or reuse capital equipment if necessary. Some types of network investments are more reversible than others. Microwave and satellite transmission equipment, for example, can be moved and used in another part of the network if necessary. The majority of the capital cost of a fiber network lies in civil works, such as construction of trenches and installation of ducts, which cannot be moved once built. Investment in such networks is largely irreversible (sometimes referred to as “sunk costs”). In uncertain political and regulatory environments, operators are likely to favor more flexible investment in wireless network technology over fiber-optic networks. The risk of investment in fiber-optic cable networks could be mitigated, however, through the use of financial instruments such as partial risk guarantees and political risk insurance.66 Reduce commercial risk through demand aggregation. Two key risks faced by entrants into any market are the risk that demand does not develop as anticipated and that the cost of obtaining customers turns out to be higher than anticipated. These risks can significantly raise the economic cost of an investment and create a disincentive for operators to invest in infrastructure, particularly in physical assets that may constitute a sunk cost. One way that governments can reduce these risks is to act as a central purchaser of services on behalf of all public institutions at all levels (including, for example, schools, health centers, and local government). By doing this, operators effectively deal with a single large customer rather than multiple smaller customers, hence reducing commercial risks. Such a strategy was undertaken on a large scale in the Republic of Korea, where the government promoted the rollout of high-speed backbone infrastructure by acting as a single purchaser of broadband connectivity on behalf of public institutions, hence reducing operators’ risk of investment. A comparable approach was adopted by the government of Ireland with respect to submarine fiber infrastructure. Both cases are described in Box 2.11. Box 2.11. Examples of Infrastructure Development through Demand Aggregation Republic of Korea The government of Korea provided financing for the development of the country’s broadband infrastructure in the form of a prepayment for the provision of broadband services to public institutions. Between 1995 and 1997, the government provided $0.2 billion toward the overall $2.2 billion cost of building an optical fiber network. The remaining funding was provided by the private sector, mainly Korea Telecom. The second phase, between 1998 and 2000, focused on the access network, and the government contributed $0.3 billion of the total required investment of $7.3 billion. The final phase, between 2001 and 2005, involved the upgrading of the entire network. In this phase, the government contributed $0.4 billion toward a total cost of $24 billion. In exchange for this upfront payment, operators were required to provide broadband services to public institutions for an extended period. 42 Module 2. Policy Approaches to Promoting Broadband Development The government’s financing was effectively a prepayment for services that, although representing only a small percentage of the total investment cost, provided the private sector with sufficient incentive to develop its networks. It is significant that the Korean initiative was done in the context of an overall policy promoting broadband that included full market liberalization to establish infrastructure competition among operators and demand-side stimulation through initiatives such as ICT literacy training, free broadband access to all schools, 11 e-government projects, and support for the provision of inexpensive personal computers for low-income households. The result of this combined policy has been an explosion of network investment and usage of broadband services. All cities, towns, and villages are now connected by high-speed networks and the cost of broadband services is low. Ireland In 1999, Ireland’s Industrial Development Authority, under the Ministry of Public Enterprise, entered into a public private partnership (PPP) with Global Crossing under which the latter would build a fiber- optic ring that would provide subsidized international connectivity to Ireland’s rapidly expanding telecommunications operators, ISPs, and ICT firms. Global Crossing developed, owned, and operated the infrastructure. The government purchased the capacity in bulk and resold it to all operators on an open-access and uniformly subsidized pricing structure. By acting as an “anchor tenant,” the government provided risk reduction sufficient enough to allow the private company to invest. At the same time, by on-selling the capacity at uniform and nondiscriminatory rates, this structure supported the development of the downstream market through ensuring that both small and large operators had access to inexpensive international capacity. Source: Mark Williams, Broadband for Africa: Policy for Promoting the Development of Backbone Networks, GICT, World Bank, August 2008, p. 43. Because companies in some developing countries have had difficulty in collecting revenues from public institutions for utility services such as water and electricity, an issue to consider in relation to commercial risk is the extent to which the credit risk associated with the public sector as a customer offsets the commercial advantages of bulk purchase of backbone services. Use of prepayment and escrow mechanisms can reduce this credit risk. Improve quality of service. One ongoing issue in the provision of local broadband access is the problem of quality of service. A significant difference often exists between advertised speeds and actual speeds achieved by users (see Figure 2.10) in both the wireline and wireless contexts. The problem is that the advertised speeds are usually based on the theoretical capability of the technology or standard. In reality, however, numerous factors make such speeds very difficult or even impossible to achieve, including network congestion or (for wireless networks) radio interference. 43 Module 2. Policy Approaches to Promoting Broadband Development Figure 2.10. Difference between Advertised and Actual Speeds, United Kingdom Source: Ofcom, The Communications Market 2010: UK, available at http://www.ofcom.org.uk/static/cmr- 10/UKCM-5.10.html. In an effort to manage network quality, many providers are moving away from unlimited broadband packages and adopting so-called “fair use policies” in order to control and regulate traffic. One practice is the use of data caps where providers establish a threshold on the amount of data that can be downloaded per month. Once the cap is exceeded, the subscriber either must purchase additional download volume, or the subscriber’s speed is reduced or in the worst scenario, service is terminated for that month. Some operators establish different caps for domestic and international traffic. Another practice is controlling the use of high-bandwidth applications or access to traffic-intensive sites through restrictions or degrading service. This practice has been banned in some countries as a violation of network neutrality. Providers have been known to “throttle” service by limiting the subscriber’s bandwidth when they have exceeded data caps or try to access traffic-intensive sites. These network management practices have been contentious since they are often co vered by the “small print” of customer contracts and many users are not aware of them. In an effort to alleviate consumer concerns about service quality, some governments monitor and compile reports on service quality. The Telecommunications Regulatory Authority (TRA) in Bahrain, for example, publishes data on wireline broadband performance.67 The TRA measures upload and download speeds for different broadband packages, DNS response (time taken in milliseconds to translate a domain name to its IP address) and ping (send an echo request to a server to test latency). In other countries, although governments do not publish quality of service reports, they offer sites consumers can go to in order to check their speeds.68 STEP 3: Address anti-competitive behavior Even if all the policies discussed above are implemented, it is still possible that competition can be stymied. In many cases, this is due to the presence of large, vertically integrated (often former monopoly) providers that are dominant across markets and use their power to thwart new entrants and suppress fair competition. In some cases, regulators have tried for years to curtail such behavior, but 44 Module 2. Policy Approaches to Promoting Broadband Development without success. In such extreme cases, governments must look beyond purely regulatory remedies to the underlying structure of such companies to see if they are distorting market forces. If so, policymakers may consider ways to break up the company to promote greater and fairer competition in the market. As detailed in Module 3, vertical integration refers to instances where a single firm controls multiple levels of the supply chain and is able to realize both greater economies of scale and lower costs of production. Although in a competitive market, vertical integration can result in lower retail prices and better, more varied services, it can create barriers to entry in markets where certain operators are dominant.69 Where needed, regulators may seek to impose various obligations on dominant operators in order to promote competition, including (see Module 3 for a detailed analysis on these obligations):  Accounting separation: Typically requires the dominant and vertically integrated operator to maintain separate records for its upstream and downstream costs and revenues in order to allow the regulator to set wholesale prices for the regulated upstream services. The records are typically subject to independent audit and may also be made publicly available. Although the operator must make its costs transparent, under this remedy it is able to continue benefiting from the operational efficiencies of vertical integration. This remedy is prevalent in many countries and less intrusive than functional or structural separation.  Functional separation: If accounting separation does not sufficiently curb anti-competitive behavior, a regulator may require the dominant provider to establish a new business division— separate from its other divisions—to manage the network and provide wholesale services to all retail service providers on a non-discrimination basis. In many cases, other regulatory obligations are used as a complement to functional separation, such as LLU and/or providing bitstream access. (See Box 2.12 for an overview of functional separation and broadband uptake in the United Kingdom.)  Structural separation: Involves full disaggregation of the vertically integrated operator’s wholesale and retail divisions into separate, individual companies, each with its own ownership and management structure. All benefits associated with vertical integration are eliminated.70 Structural separation is extremely difficult to reverse and can dramatically affect the market, such as by increasing regulatory uncertainty and impacting infrastructure investment. Additionally, it is difficult to allocate the separated firms’ assets and liabilities in order to ensure the ongoing viability of both entities.71 As a result, regulatory authorities rarely impose structural separation as a remedy, and only after other regulatory interventions have failed. Box 2.12. Functional separation and broadband uptake in the United Kingdom British Telecom (BT), the incumbent operator in the United Kingdom, proposed to the regulator to functionally separate its network division in 2005 after the regulator’s review of the market. The main obligations undertaken by BT were as follows: • Establish a new and operationally separated division (Openreach), staffed with British Telecom’s employees responsible for network operations. Management was to be completely independent from BT and the compensation system was to be based on the success of this division only; • Provide services under the obligation of equivalence of inputs. Therefore, the new division had to provide to competitors the same services and products it offers to British Telecom under the same conditions, including prices, and with the same information systems and processes provided to British Telecom; and • Create an independent body, the Equality of Access Board, to monitor compliance with these 45 Module 2. Policy Approaches to Promoting Broadband Development obligations. Since these undertakings were adopted and BT’s functional separation was implemented, competition in the broadband market boomed. In 2005, BT had 37 percent of market share. By 2008, its market share was reduced to 25 percent, with more than 20 operators offering broadband over Openreach services. Broadband uptake increased substantially, fuelled by competing operators using BT’s wholesale services. By 2008, more than half of broadband access was provided by competing operators over BT’s infrastructure (Figure 2.11). Figure 2.11. Broadband lines growth in the United Kingdom by infrastructure-type operator Source: European Commission (2009) The experience in the United Kingdom shows that functional separation is not a substitute for other regulatory obligations but a complement that is imposed in addition to other obligations. For instance, functional separation cannot succeed in eliminating the bottleneck in the domestic step of the supply chain without the simultaneous mandate of local loop unbundling (LLU) and bitstream obligations that help eliminate the bottleneck in the local connection step (see below for a further description of these obligations). Indeed, LLU and bitstream obligations are currently the most important source of competition in the United Kingdom. LLU and bitstream obligations existed before functional separation was in place but their use was limited due to British Telecom’s constraints (see Figure 2.12). It was only because functional separation eliminated both bottlenecks (domestic and local connection) simultaneously that broadband competition could be fostered in the United Kingdom’s market. Figure 2.12. LLU lines growth before and after functional separation is adopted in the United Kingdom 46 Module 2. Policy Approaches to Promoting Broadband Development Source: European Commission data Sources: Webb (2008) and Nohe (2009); ARCEP, Functional Separation: Pros and Cons, in La Lettre de lÁutorité, English Version, 55 (March-April 2007). 2.4.2 Enabling Policies to Eliminate Bottlenecks in the Broadband Supply Chain Broadband networks are not simple things; they consist of multiple components, all of which must work together in order for broadband services to be delivered to end users in the most efficient and effective way possible. For purposes of analysis and policy development, the broadband supply chain can be broken down into four discrete parts or levels: 1. International connectivity: The country’s connection to the rest of the world; provided by fiber optic (usually submarine) cable or satellite. 2. Domestic backbone: Traffic carried between fixed aggregation points within a network; provided by fiber optic cable, microwave or satellite. 3. Metropolitan and backhaul: Connection between the backbone and local networks or cell site to network; provided by fiber optic, microwave or cable. 4. Last mile: Link between the customer and the network; provided by fiber, xDSL, cable or wireless. The most common market failure on the supply side is the absence of competition due to the historic monopolist provision of telecommunications services. However, there can be other market failures, such as lack of economies of scale or threshold market failures that impede the deployment of broadband infrastructure in rural areas. In order to be most effective, competition must be present throughout the different levels of the broadband supply chain (see Box 2.13). If not, bottlenecks arise and the benefits of broadband diffusion are severely reduced. For instance, if domestic and local levels are competitive, but access to international connectivity is limited or too expensive because only one provider of submarine cable exists, broadband prices will remain high and diffusion will not achieve its potential. The same can happen if all other levels in the supply chain are competitive, but local connectivity is limited to one single operator. As such, it is important to develop enabling policies to eliminate bottlenecks across the broadband supply chain. 47 Module 2. Policy Approaches to Promoting Broadband Development Figure 2.13. Addressing Bottlenecks: Policies on the Supply Side SUPPLY CHAIN ADDRESSING ALL LEVELS OF THE SUPPLY CHAIN • International Coordination • Access to Landing Stations (e.g., Submarine Cable) • Inter-Platform Competition • Spectrum Availability • Infrastructure Sharing • Functional Separation • Subsidies/Incentives for Infrastructure Development /Direct Roll- Out (Open Access Model) • • Unbundling of Elimination of Barriers the Local Loop • Technology/Standard Neutrality Source: Adapted from Arab Republic of Egypt, Strategic Options for Broadband Development, World Bank Report, p. 56 (2010). High-penetration countries have been successful because they have addressed competition market failures throughout the supply chain. However, the particular conditions of each specific broadband market may give rise to different bottlenecks and thus require different policy approaches. Not all countries have identified the same bottlenecks in the supply chain, nor have they adopted the same competition policies to ensure competition. However, it is possible to identify two main approaches to competition policies: inter-platform competition and intra-platform competition. The first consists of ensuring competition among different network platforms with limited access to the incumbent’s infrastructure by alternative operators. The second one, intra-platform competition, consists of establishing access obligations on the incumbent’s network to allow alternative operators to gain economies of scale before incurring the high fixed costs of network deployment. Some countries, such as the United States, put the emphasis on inter-platform competition, whereas others, such as the European Union countries, stress intra-platform competition through unbundling of the local loop (LLU) and other obligations (see section 2.4.1).72 Nevertheless, the goal of both policy approaches is the same: to increase competitive conditions and achieve sustainable competition in the long term. Nor are the two approaches mutually exclusive. Most countries that have achieved high broadband diffusion, such as Canada, Denmark, Korea, the Netherlands, Norway, and Sweden, have combined both approaches throughout the supply chain. Multiple policy initiatives are needed to effectively create this enabling environment for infrastructure competition. They can be divided into four groups: (i) removing regulatory obstacles; (ii) reducing the cost of investment; (iii) removing political and commercial risks; and (iv) promoting effective competition in the downstream market. The following sections discuss each step in the broadband supply chain and policies that can help promote greater deployment of broadband networks at each step. 48 Module 2. Policy Approaches to Promoting Broadband Development Promoting International Connectivity In order to provide the physical connections between widely separated broadband resources and consumers, countries must establish international links (gateways) to connect to the world’s Internet and telephone networks. The technologies providing long haul transmission, such as fiber optic cable and satellites, typically have very high investment costs. While initial “sunk” costs are high, they have very low incremental costs to accommodate additional users. These technologies also enable carriers to activate additional capacity on an incremental, graduated basis as demand grows. As detailed in Module 5, the vast majority of international telecommunications traffic is carried by undersea cable systems—more than 95 percent according to some estimates.73 This reflects the advantages of fiber optic cable in terms of bandwidth and latency compared to satellite. Undersea fiber optic cables can transmit data at speeds measured in Tbit/s, while even the newest communications satellites offer speeds below 1 Gbit/s as well as higher latency. As of early 2011, there were more than 120 major submarine cable systems, with another 25 planned to enter service by 2015.74 Nevertheless, for many developing countries, international connectivity continues to be a bottleneck in the development of broadband connectivity. First, submarine cables are quite expensive to deploy, with costs that routinely reach into hundreds of millions of U.S. dollars. As such, many are financed by consortiums of operators rather than a single investor, such as the Eastern Africa Submarine Cable System (EASSy), which has landing points in nine countries and connects to several additional landlocked countries and is funded by 16 African and international shareholders, all of whom are telecommunications operators and service providers. These huge costs of deploying undersea fiber optic and satellite networks present a challenge for many developing countries, particularly land-locked countries that lack coastal regions to support a landing station for undersea cable. The transit costs to tap into undersea cables can be significant as national and regional fiber backbones may not be available to tap into the undersea cable (although this is becoming less of an issue over time as landlocked countries complete some type of fiber connection to the international cables through neighboring countries). Even where landlocked countries are able to negotiate a virtual coastline so that they own and operate a cable landing station in a neighboring country’s territory, they are dependent on the neighboring country to provide reliable and reasonable prices for transit. Many SIDS, mainly in the Pacific Ocean, face a connectivity challenge since they are distant from undersea fiber routes and facilities-based competition in the international connectivity markets may not be economically supportable, especially those that generate small amounts of traffic. Regulatory restrictions or high costs may restrict service providers from accessing undersea cables. As a result, such countries often have to rely on the use of alternative technologies, such as satellites that often carry a higher price premium. Second, capacity on these networks tends to be owned by a few carriers and wholesale arrangements are not always optimum for smaller players. Likewise, a few global IP carriers dominate wholesale access to the Internet and smaller ISPs are forced to pay one-way interconnection charges. Submarine cables connect to domestic backhaul networks at a cable termination station, which is—but may not be—the same facility as the cable landing station (i.e., where the cable makes landfall). Because all operators in a market, particularly new entrants, may not have the resources to own and operate a cable landing station, the owners of such stations, generally the incumbent operators in newly liberalized markets, may be required to provide access to the station, and therefore to the cable, on reasonable terms to competing service providers. Limited access to landing stations can have a chilling effect on the diffusion and take-up of broadband services. Conversely, limited opportunities or 49 Module 2. Policy Approaches to Promoting Broadband Development burdensome regulations related to cable landing can discourage interest in that market among cable operators, again creating a connectivity bottleneck. Despite the constraints, the most efficient way to lower costs and keep pace with demand is through liberalization and promotion of competition among facilities that provide international connectivity, in particular international gateways, submarine cables, and landing stations. As such, it is important to ensure that there is more than one international carrier and international gateway, and where possible, redundant international cables and other facilities linking a country to competitive global communication networks. For countries without a well-functioning international connectivity market, targeted ex ante regulation may be required to address market failure.75 Governments and regulators may need to implement competitive policies with respect to issues such as submarine cable landing stations, open access, and infrastructure sharing to eliminate such bottlenecks (see section 2.4.1). In addition, countries such as India76 and Colombia have adopted various obligations on international gateways, landing stations and submarine cable systems. In Colombia, for example, after conducting a review of wholesale inputs for broadband Internet access, the regulator found that cable landing stations constituted essential facilities and required landing station operators to provide access to their facilities on non-discriminatory terms and to publish a reference access offer.77 Self-regulation can also be a tool for reducing costs and increasing access to facilities required for international connectivity. Consortium agreements for submarine cable systems, for example, are progressively including non-discrimination and open access clauses whereby third parties are guaranteed access to facilities and capacity at comparable terms to those offered to the facilities’ owners or subsidiaries. For instance, the Eastern African Submarine Cable System (EASSy), which runs from South Africa to Sudan with connections to all countries along its route, includes such safeguards. Launched in 2010, EASSy allows any consortium member to sell capacity in any market in the region to licensed operators on non-discriminatory terms and conditions.78 Building a Domestic Backbone The second level of the broadband supply chain is the national backbone network, which is essential for broadband connectivity since it provides the link from international gateways to local markets, as well as domestic connectivity between major cities and towns. These links require large capacities because their function is to aggregate traffic from different areas of the country and then carry it on to the next node or city. Historically, such links were provided by satellite or microwave systems, but in the last decade, fiber-optic cables have come to provide the vast majority of backbone links due to significant improvements in capacity and reliability, coupled with lower long-term maintenance costs.79 Countries face several challenges in seeking to develop and promote national backbone networks. The first relates to technology. The choice of a national backbone strategy is highly dependent on a country’s size and topography, regulatory environment and broadband market size. Different technologies are used for backbone connectivity, such as fiber, satellite, and microwave (see Module 5 for more information on the individual technologies). In reviewing the different technologies it is important to bear in mind that the selection of the appropriate backbone connectivity option often depends on the distance to be covered and the forecasted capacity requirements. Fiber optic cable is typically perceived as the optimum solution for national backbone connectivity given its high capacity and upgradeability. As a result, different mixes of technologies will be employed and private investors and policymakers will need to examine the tradeoffs between bandwidth needs, CAPEX, operating expenses (OPEX), upgradeability and regulatory impacts, among others. Nevertheless, fiber optic cable is typically 50 Module 2. Policy Approaches to Promoting Broadband Development perceived as the optimum solution for national backbone connectivity given its high capacity and upgradeability. A second major consideration is cost. Building backbone networks is very capital intensive; requiring significant investments. In countries with large physical distances to cover (and/or low population densities in some parts of the country), this fixed cost may difficult for private companies to justify. Most of the cost of constructing wireline networks lies in the civil works. These costs represent a major fixed and sunk investment, and a real risk to network operators in the face of uncertain demand. Beyond the absolute cost, such networks also account for a significant portion of the costs of building a full-fledged broadband network. A key lesson from a World Bank study on backbone networks in Sub-Saharan Africa is that many countries do not provide incentives for private investment and competition in backbone networks.80 In many cases, in fact, there are direct disincentives against competition. In order to defray the costs of deploying and operating a backbone network, investors and operators seek to load as much traffic onto the backbone as possible. This is often accomplished by reselling capacity to downstream providers on a wholesale, non-discriminatory basis. This also helps to establish competition across multiple tiers of service.81 Approaches to promote backbone development Policymakers considering ways to build out broadband backbones will have to address many complex issues, but they also have a range of policy options available to them. From a policy perspective, promoting private investment in backbone networks, can help to reduce the overall financial burden on the public sector of ensuring widespread and affordable broadband availability. Encouraging investment in and effective competition among backbone networks also allows market forces to aggre- gate traffic onto higher-capacity networks, thus reducing costs and stimulating downstream investment and competition among ISPs sand other data users. The policy of promoting infrastructure competition to support the development of backbone networks is consistent with the experience of developed countries going back many years. For example, in a 2006 report, the Organisation for Economic Co- operation and Development (OECD) observed that “opening markets to facilities competition and the rapid development of technology [has] resulted in highly competitive backbone markets in most OECD countries. The development of geographically dispersed Internet exchange points (IXPs) in larger countries has further assisted the development of a competitive market.”82 In the same report, the OECD observed a similar effect in developing countries: “[t]he same competitive forces that have driven down the cost of telecommunication are now at work with broadband access to the Internet. From early 2004 to mid-2005, average broadband prices fell 75 [percent] in India. For example, a 256 [kilobits per second] xDSL connection with 400 [m]megabytes of data transfer included, is available from Bharat Sanchar Nigam Limited (BSNL) for less than USD 6 per month.”83 Governments with high broadband penetration and adoption have intervened in this section of the broadband supply chain mainly by subsidizing the construction of or connection to backhaul networks and by rolling out backbone networks to connect public institutions throughout the country. For instance, in Canada the government has subsidized the connection of rural areas to backhaul networks. Chile has financed the extension of broadband connectivity to rural and isolated areas through an ad hoc public fund to avoid distorting the market and to crowd-in private investment (see Box 2.13). In Iceland and Luxembourg, the government has built a network connecting public institutions, such as research centers and government offices. In Japan, the government promotes the roll-out of fiber optic networks to regions without broadband connectivity.84 51 Module 2. Policy Approaches to Promoting Broadband Development Box 2.13. Extending connectivity to rural and isolated areas in Chile Contrary to other countries, Chile did not establish a universal service fund to extend the coverage of telecommunications networks to underserved areas. Instead, it created an ad hoc fund, the Fondo de Desarrollo de las Telecomunicaciones (FDT), financed with public funds (from both the federal government and the regions). No specific contribution from operators is related to the funding of the FDT. Indeed, in Chile there is no universal service obligation for telecommunications operators. The rationale for this is not to distort the telecommunications market with a tax on an operator’s profits. The current fund was created for a 10-year period and is anchored in the Ministry of Transport and Telecommunications. Initially, the FDT was restricted to financing projects that extended public telephony in underserved rural and low-income areas. However, in 2001 the regulation of the FDT was modified to allow for funding a broader set of projects, including the extension of broadband connectivity and the use of ICTs among the population in target areas. The fund is administered by a board comprised of the representatives from several ministries (including the Ministry of Transport and Telecommunications, the Ministry of Economy, the Ministry of the Treasury, and the Ministry of Planning and Cooperation), as well as representatives of the Chilean regions. Projects of the FDT The initial mission of the FDT was to provide public telephony to 6,000 underserved localities. However, as this objective was achieved and Internet became more important to society, the FDT changed its focus to provide Internet access and other telecommunications services, including radio and television broadcasting, in underserved areas. Following the adoption of the 2007-2012 ICT national strategy, the FDT substantially increased its importance as a policy tool to expand broadband connectivity to isolated and rural areas. The fund increased its budget significantly, which allowed it to finance a larger number of projects and to set more ambitious goals, such as providing rural broadband connectivity to the entire rural population of the country. The FDT has been used to provide funding to private operators to develop connectivity and infocenters projects, among others. For all the projects, subsidies are distributed through competitive bidding (using a reverse auction model). Some of the projects related to broadband that have been funded by the FDT include:  Infocenters for rural areas (2002-2009). The FDT offered subsidies to install Internet centers (infocenters) in rural areas. Infocenters comprise several PCs and Internet connections. E- training sessions are also conducted in these centers. The purpose of the infocenters is both to increase access to the Internet in rural areas and to educate the population on the use of the Internet. From 2003 to 2004, the fund awarded subsidies of US$ 4.9 million for 294 Internet centers in rural areas. The FDT has continued providing funds for infocenter projects, awarding additional funds in 2007.  Extension of Internet connectivity to rural schools (2005). The FDT offered subsidies to connect 1,000 rural schools to the Internet. Subsidies amounted to US$6.5 million.  Deployment of fiber optic networks to connect isolated areas (2007). The FDT offered subsidies for more than US$4 billion to extend fiber-optic networks and provide broadband connectivity to isolated areas.  Broadband connectivity to the rural population (2008). FDT offered subsidies for USDS70 million to provide connectivity of at least 1 Mbps to 3 million people in rural areas (40 percent of the Chilean population) and boost ICT use among agrarian and touristic industries in those areas. 52 Module 2. Policy Approaches to Promoting Broadband Development Sources: Subsecretaria de Telecomunicaciones (Government of Chile), Fondo de Desarrollod e las Telecomunicaciones ; P. A. Stern and D. N. Townsend, Nuevos Modelos para el Acceso universal de los Servicios de Telecomunicaciones en América Latina. Informe de Países (REGULATEL, 2007). Governments also have other means to stimulate the deployment of backbone networks, including: borrowing from multi- and bi-lateral agencies; encouraging operator build-out; promoting open access and facilities sharing. These topics are discussed in more detail in Module 5. The backbone policy development process is discussed in more detail in the following section, but can be summarized in the policy “road map” shown in Figure 2.14. Figure 2.14. Roadmap for Backbone Network Policy Source: Mark Williams, Broadband for Africa: Policy for Promoting the Development of Backbone Networks, GICT, World Bank, August 2008, p. 59. Assess the Costs and Benefits of Support to the Development of Backbone Networks. A key step in implementing the backbone policy framework is an assessment of costs and benefits. Estimating the value of the benefits is challenging for two reasons. The first reason relates to defining the benefits of backbone networks. As one element of the broadband supply chain, backbone networks, on their own, do not deliver the final product (that is, broadband connectivity) to customers. If backbone policy is not placed within the overall context of broadband policy, it is unlikely to be effective in increasing connectivity to end users. However, by doing so, it is difficult to attribute causality directly to the 53 Module 2. Policy Approaches to Promoting Broadband Development backbone policy, since the benefits could be equally ascribed to policy actions taken on international connectivity or access networks. The second reason relates to uncertainty surrounding future broadband development in many developing countries. Since the economic benefits arise from lower prices and greater consumption of broadband connectivity, any attempt to estimate the benefits of backbone policy will require a forecast of broadband take-up following policy implementation. Notwithstanding these challenges, it is possible to undertake a basic analysis of the costs and benefits of an overall policy designed to boost broadband connectivity. The starting point of this analysis would be an assumption that the government undertakes a comprehensive approach, aimed at all the major potential bottlenecks in the broadband market. Potential benefits of this type of broadband policy lie in the additional consumer surplus that would be generated by meeting increased demand for broadband connectivity and the long-term boost to economic growth that might accrue from increased broadband connectivity. There are few robust estimates of the parameters required for such calculations so there would be a considerable margin of error surrounding any such estimate of the benefits. Estimating the costs of broadband policy initiatives, however, is likely to be more straightforward since these are based on defined actions by the government to which cost estimates can be attached. In practice, decisions on public expenditure are rarely based only on cost-benefit analysis, and political priorities often have a greater impact on the allocation of public resources. In such circumstances, or where an accurate estimate of the benefits of public support to broadband connectivity is not available, an analysis of the costs of the different policy options would still be useful, as it would allow policy makers to make decisions on the basis of information on the relative costs of each potential course of action. Determine the Institutional Implications of Backbone Network Policy Recommendations. An important issue to consider in designing the appropriate policy framework for promoting backbone networks is the implications for the institutions that govern the sector, typically the ministry responsible for of communications and the regulatory authority. The policy options outlined here vary both in the burden they place on these institutions and on the extent that their success depends on their being able to perform their functions. For example, issuing new licenses typically does not require institutional capacity beyond that which already exists in most countries. However, designing complex consortium structures with regulated terms of access places a much larger burden on a government or regulatory authority. Given the limited capacity of many regulatory institutions in some developing countries, the dependence of the success of the policy options on the regulatory authority is an important factor to take into account in designing the overall backbone policy framework. The challenges faced by regulators in implementing backbone network policies can be divided into three categories. The first relates to the technical difficulty associated with implementation of the policy. For example, defining standard quality of service criteria for backbone services in order to improve the functioning of the market is less technically demanding than developing complex consortia-based invest- ment projects. The second is an institutional challenge related to the capacity of public institutions to make and enforce decisions relating to the sector. This capacity is determined by a number of factors, such as the legal framework that defines the institution’s powers, the financial resources of the institution, and the availability of skilled staff in the institution. The third challenge relates to the political economy of the ICT sector. Some policy decisions may act directly counter to the interests of one or more parties in the market or the government. For example, in countries where backbone services are monopolized by an incumbent operator, liberalizing the wholesale market may adversely affect the profits of the incumbent, particularly in the short term. Liberalization may therefore meet significant institutional resistance, thus making other policy options easier to implement. 54 Module 2. Policy Approaches to Promoting Broadband Development Box 2.14. Wholesale Licensing to Promote Backbone Development One way of encouraging investment in backbone networks is to issue “carrier” (wholesale-only) licenses. Such licensees would be permitted to build backbone networks and then sell capacity to other operators, such as mobile operators or ISPs. The advantage of this approach is that it encourages investment and competition specifically in the backbone segment of the market. It also avoids problems of discrimination by the backbone network among retail operators. Such carrier networks are a common feature of backbone network markets in developed countries in which there are several companies that have built networks and provide services on a purely wholesale basis to other operators. The potential opportunity for these types of operators is shown in Kenya, where KDN has developed 1,900 kilometers of fiber network infrastructure, and in Nigeria, where there are more than 20 licensed fixed operators, including two national carriers and seven national long-distance operators developing high-capacity backbone networks. Source: Mark Williams, Broadband for Africa: Policy for Promoting the Development of Backbone Networks, GICT, World Bank, August 2008. “Middle Mile” and Metropolitan Connectivity The next level in the broadband supply chain consists of the links needed to connect smaller towns and villages to the backbone network and provide links in and around metropolitan areas. These links are often referred to as the “middle mile” because they exist between the backbone and the local access networks, and often serve to connect rural areas to the backbone networks. As with backbone networks, these links can be provided by a number of technologies, including satellite and microwave networks, but fiber optic lines are increasingly being used because of their higher capacity. This part of the broadband supply chain also includes so-called metropolitan area networks (MANs), which are often established in and around major cities to link high-traffic business users and the links used to transport traffic from wireless base stations to an aggregation point in the network, such as a mobile telephone switching office or other network node (also known as “backhaul). The middle mile can often be forgotten by policymakers, who may want to focus on backbone or last mile projects. But building out just those two levels of the network will be ineffective since a bottleneck will exist between the two that will either lead to slow speeds (too much capacity trying to fit onto too small bandwidth) or high costs (lack of competition on middle mile routes), or both. Hence, policies to address middle mile and backhaul problems, such as promotion of facilities-based competition or open access requirements, are just as important as they are for other parts of the network. Numerous governments have plans to provide broadband to rural areas through the stimulation of middle mile, regional networks or links. For instance, the Norwegian government has a program to subsidize the roll out of broadband infrastructures in areas with no existing infrastructure in place. The goal of the government is to connect 99 percent of the population through fixed broadband coverage.85 Similarly, Sweden has a national program that provides funds to municipalities to deploy broadband networks and connect these metropolitan networks with the national backbone network. Despite having almost a third of the population living in rural areas and being a very low population-density country, Sweden has achieved one of the highest broadband coverage rates in rural areas. More importantly, such coverage is mostly based on fiber networks, providing similar high speeds as those offered in urban areas (see Box 2.15). Developing countries are beginning to focus on backhaul networks as a means to increase broadband deployment. South Africa, for example, established a state-owned, fiber-based infrastructure provider, Broadband Infraco, to provide national backhaul connections on a wholesale basis.86 In Brazil, the government struck an agreement with five fixed-line operators to build out broadband backhaul 55 Module 2. Policy Approaches to Promoting Broadband Development networks to 3,439 unserved municipalities in exchange for being relieved of obligations to install 8,000 dial-up facilities.87 Numerous other governments have plans to provide broadband to rural areas. For instance, the Norwegian government has a program to subsidize the roll out of broadband infrastructures in areas with no existing infrastructure in place. The goal is to connect 99 percent of the population through fixed broadband coverage.88 Similarly, Sweden has a national program that provides funds to municipalities to deploy broadband networks and connect these metropolitan networks with the national backbone network. Despite having almost a third of the population living in rural areas and being a very low population-density country, Sweden has achieved one of the highest broadband coverage rates in rural areas (see Box 2.15). Box 2.15. Targeting the rural access gap in Sweden without distorting the market The Swedish government established as a goal in its national broadband strategy that all households and businesses should have access to broadband infrastructure. Indeed, Sweden considers broadband as an essential infrastructure for economic development. Although the government lets the private sector take the initiative on the expansion of the market, it believes that the ultimate responsibility to ensure access to broadband in all parts of the country rests with the State. The Swedish government established a program to fund the deployment of broadband networks in those areas where private investment was absent. The government regularly monitors broadband infrastructure and publishes maps with current infrastructure deployments. The purpose of the Swedish fund is to stimulate broadband infrastructure roll-out in rural areas, especially low populated areas, where private investment is not present because of economies of scale or threshold market failures. The plan provides funds for the different steps of the domestic supply chain where network infrastructure is needed: domestic backbone, regional network, local network and access network. The funds can be executed by local municipalities, which are allowed to build regional and local fiber networks. However, in order to ensure that private investment is not crowded out, the Swedish government established the following conditions:  The funds must be used in areas with no private operators present;  Municipalities must conduct a procurement process with open access to private investors in order to crowd in the private sector;  The network must be open-access for its lifetime with de facto structural separation between the infrastructure provider and the service provider (i.e., any private investor can use the infrastructure to provide broadband services); and  Fiber networks must be able to allow for high-capacity transmissions, including multimedia applications. As a result of these measures, Sweden has achieved one of the lowest urban/rural gaps in the European Union despite having one of the lowest population densities in the region. Indeed, as of 2008 only 1.6 percent of the population remained without broadband access. Moreover, the rural population has access to similar speed levels as the urban population do thanks to the emphasis on high-bandwidth infrastructure, such as fiber networks. Indeed, Sweden has the second highest penetration of FTTH of the OECD countries. Source: OECD, Broadband Growth and Policies in OECD Countries, (2008). From a policy perspective, the issues associated with promoting the development of the middle mile are often similar to those involved with backbone development, namely promoting buildout in areas that may not otherwise attract private sector investment or where competition is limited. Government 56 Module 2. Policy Approaches to Promoting Broadband Development initiatives related to the middle mile often revolve around connecting rural areas that are unserved or underserved and in which market forces have not been able to economically support broadband network development. In today’s fiscal environment, where government spending is constrained and private companies may be hesitant to make large investments, governments will have to balance the need to promote increased network coverage with the reality that multiple, competing infrastructures are not likely to be economically efficient in some areas. Other ways to drive availability—as a first step—must be considered. Recognizing the importance of backhaul for mobile broadband in India, for example, the Telecommunications Regulatory of India (TRAI) recommended to the Ministry of Communications that license conditions should be amended in order to allow service providers to share their backhaul links, noting that such sharing should be permitted using either wireless or fiber optic links.89 TRAI maintained that, particularly where traffic is low in rural and remote areas, backhaul sharing would boost coverage, reduce maintenance efforts, and lower costs. For a more detailed discussion of infrastructure sharing, see Module 3. Local Connectivity—the “Last Mile” Broadband local access networks, sometimes known at the “last mile” or “local loop” refer to the links between the network and the end user. This is the last link in the overall broadband supply chain, and is the most common bottleneck in that chain. As a result, local access issues have been the subject of much attention in recent years as countries have attempted to ensure that their citizens have access to broadband networks—largely through trying to eliminate unserved and underserved broadband areas. The issues in building out networks to end users largely mirror those at other points in the supply chain—promoting greater competition and addressing market failure/monopoly issues—but there are specific problems and challenges that policymakers and regulators must address as they attempt to promote greater broadband development at the local level. In addition, although there are some common elements, the challenges and solutions to local access issues are slightly different in a wireline as opposed to a wireless context. This is due to the economics of the technologies involved, their different technological bases as well as the different regulatory regimes they have traditionally operated under. The following sections discuss the policy issues associated with wireline and wireless access networks in detail. Wireline Access Technologies. A number of wireline and wireless broadband technologies are used today to support local access networks, including cable television, fiber, xDSL, wireless and/or satellite links (see Module 5 for a complete description of these technologies). DSL is the dominant means of broadband provision today, but cable broadband providers hold significant market share in some countries and FTTP is now being rolled out in many countries. In addition, certain other options are being used for wireline broadband access such as Ethernet-based Local Area Networks (LAN) and Broadband over Powerline (BPL). Although the availability of many different broadband access options increases consumer choice, stimulates inter-modal competition, enhances quality and innovation and is generally associated with lower retail prices; most areas will not be able to use all these options for historical, technical, economic, regulatory or financial reasons. As governments seek ways to promote broadband development, they will need to recognize the strengths and limitations that their existing level of infrastructure development and market situation provides—both for its upgrade possibilities as well as in developing appropriate incentive and/or competition policies. Policymakers seeking to promote the development of and enhance competition in the last mile face a series of challenges. First, local access networks in most countries were built by (former) monopoly incumbent providers, which were often state-owned. Market liberalization has taken place in many countries—which at least gives alternative providers the 57 Module 2. Policy Approaches to Promoting Broadband Development legal right to exist—but such efforts have been limited in their effectiveness in many cases because the historically dominant providers often exercise their incumbent power to stifle competition. This can take the form of drawn-out challenges to legal and regulatory frameworks as well as anti-competitive conduct designed to hobble new entrants’ ability to compete. Another significant problem for policymakers is that the local loop is the most costly and difficult part of the network to replicate by alternative operators. Civil works represent even a higher share of costs (from 50 percent to 80 percent) in the local part of the network than in backbone or middle mile applications. Wiring customer premises, especially at apartment buildings, is also a relevant cost for local network deployment.90 Together these issues create a market condition where the legal/regulatory situation may not be a “level playing field,” where investment costs are high and returns on investment not clear. Policymakers and regulators must tackle each of these issues if they wish to promote sustainable broadband development. Governments have adopted varying approaches to promoting competition in the local loop based on their own unique markets. As a result, the degree and extent of ex ante regulation of the access network, particularly on the wireline side, has varied significantly, ranging from a light-handed, deregulatory approach towards more extensive restrictions and obligations.91 Many countries, particularly in Europe for example, in an effort to prevent the large incumbent providers from leveraging their market power, have adopted ex ante regulations focused on preventing high prices and low quality of service. Such regulations may also include rules relating to “open access;” sharing of passive infrastructure or more intensive obligations requiring the sharing of active network elements, including sharing access node switches or unbundling the local loop.92 A wide range of both developed and developing countries have implemented such approaches, including Denmark, France, Japan, Korea (Rep.), the Netherlands, Nigeria, Norway, Saudi Arabia, Sweden, South Africa and the United Kingdom.93 Further, although such open access requirements began with legacy wireline networks (i.e., the old PSTN), they are now also being applied to fiber broadband networks in some countries. France, for example, has set up extensive regulations governing how fiber should be deployed in the country; defining different approaches for urban and non-urban areas.94 Other countries, however, are taking a different approach. Germany, for example, is pursuing a more ex post approach to last mile fiber regulation. The Federal Network Agency decided in January 2011 that in the future, only ex post controls would be imposed for new fiber loops from Telekom Deutschland GmbH.95 One of the main policies being used to promote retail competition in wireline networks is Local Loop Unbundling (LLU), as detailed in Module 3. Regulators may use LLU where facilities-based competition is limited or to induce price competition between facilities-based and services-based competitors. While LLU enables faster market entry by new competitors since they do not have to build out their own infrastructure, LLU can also discourage new infrastructure investment by the incumbent operator. Many countries have required the incumbent wireline operators (which are often the former monopoly providers) to provide wholesale access to its exchanges and the local loop network to enable existing competitors and new market entrants to resell these services to end users without having to build their own networks. LLU obligations generally involve full unbundling (incumbent must offer wholesale access to the entire copper local loop); line sharing (incumbent provides voice telephony over the copper local loop while competitors provide DSL over the same line); and/or bitstream access (incumbent sells DSL on a wholesale basis to competitors). Most European and some OECD Asian economies now have laws on LLU, with New Zealand and Switzerland both having put policies in place since 2008. Other countries, like the United States, have considered, but not mandated LLU or have not yet developed a policy, like Mexico. Where implemented, LLU obligations have proven quite effective at increasing competition and reducing prices, especially in countries where inter-platform competition (i.e., existing competing 58 Module 2. Policy Approaches to Promoting Broadband Development networks, such as cable) was not present or had limited coverage. Even in countries with existing competitive networks, LLU obligations have reduced prices and increased competition. On the other hand, countries where LLU obligations have not been implemented tend to have higher prices than those that have imposed such obligations. For instance, according to the OECD, the average price per Mbit/s in the United States is more than twice as high as in Japan, as of September 2011.96 The price of Mbit/s in Switzerland in 2006, before it established LLU obligations, was 19 times more expensive than in Japan and 5 times more expensive than in France.97 The combination of LLU obligations with other access obligations has also proven successful in increasing inter-platform competition through the ladder of investment (see Box 2.16). Box 2.16. Increasing competition through unbundling of the local loop and the ladder of investment LLU obligations are intended to facilitate competition among service providers. They are especially relevant where no infrastructure-based competition (e.g., competitive cable networks) exists because the local loop acts as a bottleneck for the development of competition. In the European Union, LLU is seen as part of what is called the “investment ladder”.98 The investment ladder allows for the introduction of competition in the broadband market through a set of obligations imposed on the incumbent’s network. Each of the obligations in this set is designed to be a “rung” of the investment ladder; imposing a higher level of investment for the alternative operator. As the operator increases its market share and generates economies of scale, it climbs the rungs of the ladder, extending its infrastructure and investment commitment. Ideally, the alternative operator “climbs up the ladder” and ultimately deploys an end-to-end network that allows for infrastructure- based competition in the market. France France has seen the effectiveness of the investment ladder approach. There was no competition to the wireline networks because there was little cable coverage (around 25 percent of population); therefore, LLU obligations were crucial to introducing competition in the broadband market.99 France established the three rungs of the ladder of investment, allowing alternative operators to use the incumbent operator’s network to gain market share. This resulted in a substantial increase in broadband competition, despite the lack of infrastructure-based competition. About half of broadband connections in France were achieved through the use of these obligations by alternative operators (Figure 2.15). Figure 2.15. Ladder of investment in wireline networks in France As the operators gained market share, they climbed the rungs of the ladder of investment, from resale to bitstream, and later, from bitstream to share unbundling and full unbundling. The last step was the deployment of end-to-end networks. As of today alternative operators, such as Iliad, are FTTH deployment in France; forcing the incumbent operator, France Telecom, to roll out its own FTTH network.100 This does not mean, however, that alternative operators will always deploy a full end-to-end 59 Module 2. Policy Approaches to Promoting Broadband Development network with national coverage. Usually, they climb the investment ladder regionally, and there are areas, such as rural areas, where low demand or profitability requires them to stay in the bitstream rung. The Netherlands LLU has even been successful in countries with effective inter-platform competition. For example, the Netherlands had extensive cable infrastructure in place when broadband surged, with cable operators leading the broadband market early on—in 2002, there were nearly one million cable lines, representing about 80 percent of the market. However, the national incumbent telecommunications operator, which could benefit from economies of scale, began leading the wireline broadband race. The introduction of LLU obligations allowed other DSL operators to enter the market and increase competitive conditions. By 2005, even though cable operators had reduced their market share to 40 percent, alternative operators using LLU had almost 16 percent of the market, containing the incumbent’s operator growth in market share.101 Indeed, a study conducted by the Dutch regulator OPTA concluded that if the Dutch market had only two infrastructure operators, it was unlikely that competition would be as effective as it had been so far.102 The combination of multi-platform competition of cable and DSL networks and intra-platform competition through LLU obligations has been very effective in reducing prices and increasing broadband penetration. By 2007, the Netherlands had one of the lowest prices of the OECD and its penetration was one of the highest in the world.103 Source: Telecommunications Management Group, Inc. Wireless Access Technologies. Wireless technologies have become the primary local access solution for many developing countries (see Module 1). Because the deployment of wireline access solutions has historically been quite slow in many countries, particularly in rural areas, mobile voice networks—largely funded by private investment—have been deployed to offer services to developing country users that had no access before. And now, because of advances in technology, this model appears set to be repeated in the broadband market. Technological innovations offer the near-term opportunity for widespread broadband wireless access to the Internet. As discussed in detail in Module 5, with the introduction of 3G and 4G technologies, wireless networks are expected to compete directly against, and be substitutes for, wireline broadband within the next decade. In Austria, in fact, the regulator (RTR) determined in 2009 that DSL, cable modem, and mobile broadband connections for residential consumers are substitutes at the retail level.104 A 3G technology called Long Term Evolution (LTE) is now being deployed around the world in several frequency bands. The first deployment was by TeliaSonera when it simultaneously launched networks in Stockholm, Sweden, and Oslo, Norway, at the end of 2009 using the 2.6 GHz frequency band. Verizon’s LTE network launch in the United States in December 2010 is noteworthy for using the 700 MHz frequency band. Going forward, the next generation of wireless access technologies (so-called 4G) promises even greater speed and broadband capability. The ITU has been working on standards for the next generation of wireless systems for a number of years. One of the most significant requirements is peak data rates of 100 Mbit/s for high mobility and 1 Gbit/s for low mobility. In January 2012, the ITU announced that two technologies met the requirements for IMT-Advanced: LTE-Advanced and WiMAX- Advanced. Deployment of these technologies is expected over the next several years. To their credit, policymakers and regulators around the world have embraced the potential for wireless to contribute to larger economic (growth) and social (universal access) goals through its ability to serve unserved areas and provide competition in the local access market. They have made spectrum 60 Module 2. Policy Approaches to Promoting Broadband Development available, authorized multiple licenses and generally provided the regulatory and investment conditions in which wireless was able to thrive. In fact, many countries have already identified wireless as an integral part of their national broadband initiatives (see Practice Note 2.5). Practice Note 2.5. Wireless Components of Broadband Plans Wireless National Broadband Plan_WB.doc As governments seek to promote broadband in the local access market, however, a number of challenges specific to wireless will need to be confronted, including lack of adequate spectrum resources to support broadband networks and inflexible regulatory regimes that limit service providers’ ability to offer new services or that restrain market forces. To increase the coverage of wireless broadband networks, governments have pursued numerous policies, the most important of which are: providing additional spectrum for wireless broadband networks, allowing a flexible use of the spectrum, and introducing spectrum trading. Some governments have also established obligations on wireless providers as part of the licensing process in order to speed deployment and ensure coverage of rural areas. The following sections explore some of the challenges governments face as they seek to promote wireless broadband and identify potential solutions that can speed wireless broadband development. Allocate Additional Spectrum. As policymakers and regulators consider ways to promote wireless broadband, it will be important for spectrum policies to consider the expected increases in data traffic that wireless services will generate, both as a result of increasing numbers of subscribers and the use of more data-intensive services and applications.105 With subscribers using wireless networks for more of their broadband needs, throughput requirements will increase significantly in the “last mile” wireless link (and also for backhaul and backbone connectivity). To support this expected increase in demand, more spectrum will likely be needed, especially in urban areas. To address this need, regulators are implementing policies that promote the most efficient and effective use of spectrum resources, including allocating unused spectrum for broadband use and freeing up underutilized spectrum bands. . Internationally, multiple bands have been allocated by the ITU for fixed and mobile use that could be used to provide broadband services. These international allocations are designed to promote harmonization to the greatest extent possible and encourage manufacturers to build equipment for these bands in order to promote economies of scale and scope. Governments looking to add spectrum for broadband uses can consult with the ITU and its Table of Frequency Allocations to help them identify those bands that might be most suitable in their countries. 61 Module 2. Policy Approaches to Promoting Broadband Development Figure 2.16. Spectrum Identified Internationally for International Mobile Telecommunications (IMT) Source: Telecommunications Management Group, Inc. Spectrum use varies from country to country, and so, the process of finding spectrum for broadband use will differ accordingly. In many developed countries, for example, the spectrum is often very intensively used. This makes finding spectrum for broadband uses particularly difficult, as oftentimes existing users must be moved out to clear the way for new uses (sometimes known as “refarming”). In many developing countries, by contrast, the spectrum may be less intensively used, making it easier to find available spectrum that can be repurposed for wireless broadband use. Most OECD countries have awarded spectrum for 3G and 4G services or are preparing to award it. In European countries, 3G bands were awarded in the early 2000s. Other countries, such as the United States, Canada, and numerous countries in Latin America did not auction 3G spectrum until much later, but permitted operators to use 2G spectrum for 3G services. Countries are also moving towards providing 4G spectrum, which allows higher broadband potential than 3G does. Following the transition to digital television, countries are looking at 700 MHz and 800 MHz as a potential band for 4G technologies. In addition, most countries have also awarded broadband wireless access (BWA) spectrum to provide WiMAX-type technologies, including Korea, France, Germany and Sweden.106 So, the first step in finding additional spectrum for wireless broadband use is to take stock of the existing spectrum situation in the country. This may be as simple as inventorying existing spectrum bands and identifying unused spectrum, or it may entail a much more difficult analysis of inventorying spectrum, determining how intensively various bands are being used, and making political/social/economic value judgments as to what spectrum could be most easily or effectively transferred to wireless broadband use. Such processes are often the subject of a public consultation, subject to any national security or defense interests, if government-used spectrum is involved. For many countries that have or are developing national broadband plans, a spectrum inventory process is often an important part in the overall plan. In the United States, for example, the executive branch made it a priority to find additional spectrum for broadband.107 As part of its national broadband plan, the FCC subsequently recommended identifying 500 MHz to be made available for advanced broadband uses.108 Other parts of the U.S. government, meanwhile, have begun a process to identify what spectrum might be transitioned to broadband use.109 62 Module 2. Policy Approaches to Promoting Broadband Development Of course, all of this takes time. From start to finish, the process will last many months at the fastest, but more realistically may take several years depending on how intensively a country’s spectrum is used, how many incumbent users might be displaced and the length of any public consultations or proceedings that are required. In addition, these efforts are often characterized by intense political pressure on regulators and policymakers from all sides—those not wishing to move or who want to be compensated, and those anxious to have access to the spectrum as soon as possible in order to build new networks or serve existing customers better. When government agencies are the current spectrum holders, this process can be even more politically-charged and challenging. Therefore, given the rapid diffusion of data-enabled mobile devices, the increasingly bandwidth-hungry nature of the services and applications being developed, and the rapid uptake of such devices and services by users across all socio-economic groups, the process of identifying and transitioning spectrum for broadband use should be started as soon as possible. An important consideration for spectrum policy is which frequencies should be allocated for broadband services and how. The critical choice is whether countries want to maximize their upfront earnings through spectrum sales but reduce potential investments, or if they want to shift maximum financial resources to investments that will expand the market and hence long-term revenues. In Japan, for example, the incumbent and market entrants did not pay for spectrum when securing licenses to provide wireless services—allowing the companies to maximize infrastructure investments. The move toward digital television is providing an opportunity to use the parts of the spectrum freed by this move for wireless broadband services. Digital television services are far more spectrally efficient than analog television systems, so the digital switchover frees up spectrum in those bands. This spectrum—the so-called digital dividend—could be used for a range of services, but broadband has been gaining wide support. The United States and Germany concluded the process to award digital dividend spectrum in the 700 and 800 MHz band in 2010.110 The United States saw initial deployments of wireless broadband services in this spectrum at the end of 2010.111 Sweden completed its 800 MHz auction of the digital dividend in March 2011 with three winners bidding a total of SEK 2.054 billion (USD 325 million).112 France held its combined 800 MHz and 2.6 GHz auction in December 2011, raising a total of EUR 2.64 billion (USD 3.45 billion).113 Other European countries are planning to award digital dividend spectrum within the next year, including Switzerland and the United Kingdom.114 Once spectrum is allocated, there are additional policy and regulatory considerations to consider. In general, these relate to overall spectrum policy and extend to specific requirements that may be placed on the terms and conditions of a license. For example, to encourage competition, some government impose spectrum “caps” on the total amount of spectrum an individual operator can have or the amount of spectrum that an operator may have in particular bands or the amount of spectrum it can acquire in a particular auction. These spectrum caps are designed to prevent the hoarding of spectrum by incumbent operators with greater resources and to promote competition by bringing new entrants into the market. These types of spectrum caps are not typically static and as services developed, and the needs associated with wireless broadband increase, such caps may be relaxed or lifted in order to allow existing carriers ability to obtain additional spectrum to provide advanced services. In Brazil, for example, the government relaxed its spectrum cap rules when it assigned 3G spectrum.115 In addition, it also set a band specific cap for 4G bands, specifically the 2.5 GHz band and the 3.5 GHz, recently.116 Flexible Allocations. A second major tool for promoting wireless broadband development is for governments to allow flexible use of spectrum. Depending on individual circumstance and timing, flexibility may be applied to both current and future commercial assignments, with the objective of facilitating technological evolution and promoting the development of advanced services. Flexibility in this context is often called technology and/or service neutrality. 63 Module 2. Policy Approaches to Promoting Broadband Development Around the world, spectrum management is moving away from traditional administration, which involved allocating spectrum to specific uses, toward more flexible, open spectrum management regimes. To optimize the performance of markets and establish a level playing field for all operators, spectrum management needs to increase the role of market forces in allocating spectrum among uses, assigning it to users, and pricing its use. That may involve a number of arrangements. Some economies use auctions as a market mechanism to assign spectrum (e.g., Germany, Hong Kong, China, Singapore, the United Kingdom, and the United States. At the same time, countries such as Australia and New Zealand are developing markets for tradable spectrum rights. Several countries are also opening parts of the spectrum to unlicensed use, an approach that has encouraged the growth of Wi-Fi networking worldwide. Furthermore, countries are allowing more flexibility in the use of the spectrum. In Europe, countries such as France, Spain, Italy, and Portugal eliminated technology restrictions for 2G spectrum.117 Countries such as Australia, Canada, the United States, and the United Kingdom allow secondary markets and plan to move forward towards spectrum trading.118 Earlier spectrum allocation defined one set of frequencies for one service (i.e., voice, data [including broadband], or broadcasting). Traditional classifications allowed regulators to levy different fees, use different assignment mechanisms, and impose different conditions on different types of spectrum licenses. For example, most countries have assigned broadcasting spectrum for free through administrative licensing, and since the 1990s have assigned telecommunications spectrum through market mechanisms. The terms and conditions associated with a specific service are often embedded in a service provider’s license. Now, however, new technologies enable multiple services to be provided over one network, or allow multiple services to be provided using the same spectrum. As a result, the old, very narrowly defined allocations of spectrum to specific uses is rapidly fading away; being replaced with more generic and flexible allocations that allow providers to best match their network and services to market demand.119 Wireless broadband extends this concept by expanding potential uses of spectrum—and changing the value of the resource and challenging assumptions about allocating spectrum for specific uses. If there is no longer any difference between these types of spectrum, the old regulatory asymmetries that defined very narrow services cannot stand.120 Instead, spectrum assignments will need to be—and are increasingly becoming—flexible. What does this mean for policymakers and regulators? Governments around the world adhere to general guidelines set out in the radio spectrum management frameworks such as those of the ITU. These guidelines provide member countries with some flexibility in allocating spectrum bands for one or more uses. Now, with broadband possible over wireless networks, it might be necessary for a review of these guidelines to align them with emerging technological and market developments. Such a review will ensure the continued benefits of global spectrum coordination and harmonization, while allowing greater flexibility and more efficient utilization. Technology neutrality. The move towards more flexible spectrum allocations reflects, and is derived from, advanced technologies that break down the historical barriers between telecommunications services. As policymakers and regulators consider how best to harness and exploit these new technologies to promote broadband growth, it will be very important not to overly constrain what the technology can do and operators can offer. Governments should seek to provide wireless operators as much flexibility as possible to meet the demands of the market. The first element in ensuring a flexible environment is to promote technology neutrality. Even as some countries have moved toward technology-neutral spectrum management, others continue to define which technologies service providers should use in a given band. In India, cellular networks must use either the global system for mobile (GSM) or the code division multiple access (CDMA) standard. Now, 64 Module 2. Policy Approaches to Promoting Broadband Development with advanced wireless systems such as 3G networks and broadband wireless, countries are defining specific broadband wireless or 3G technologies for use in specific bands, such as the 2.5 GHz band, where both of these technology families lay claim. However, the EU, by contrast, is making its spectrum more flexible. In 2009, it issued a Directive relaxing the requirement to use only GSM technology in the 900 MHz band.121 It will now be up to the individual EU governments to implement the directive. France, for example, has issued guidelines to its overseas markets on a framework to allow the use of UMTS not only in the 900 MHz band, but also in the 1.8 and 2.1 GHz bands.122 Now, advanced technologies can be deployed based on user demand and operator choice. This should make it much easier for operators to upgrade to new services as technology advances. Changes in technology are also important to consider when allocating new spectrum or considering how to promote greater flexibility in existing spectrum. One of the starkest examples relates to developments in 3G technology. Because 3G cellular systems appeared some years after second- generation (2G) systems, many countries gave them new bands in which to operate. The most common was the 2.1 GHz, and more recently the 2.5-2.6 GHz band. Many service providers spent a great deal of money to acquire this spectrum. But 3G technologies are now available for commercial deployment in the bands used by 2G systems. This development is creating debates about fairness in these countries. Service providers that paid large sums to acquire spectrum in the 2.1 GHz band for 3G services now have to devalue their spectrum holdings and face higher capital costs because lower 2G frequencies have better propagation characteristics. For instance, one Australian 2G operator estimates that it would reduce its capital costs by 40 percent by using the lower frequencies.123 The change in the valuation of 2.1 GHz spectrum is an important example of changes in the market and technology and their implications. The ITU’s 1992 World Radiocommunication Conference defined the 2.1 GHz band for 3G services. Eight years later, at the conference in 2000, the 800, 900, and 1,800 MHz bands were defined for 3G services, and by 2006 manufacturers were beginning to develop wideband code division multiple access (WCDMA) and code division multiple access, evolution, data-optimized (CDMA EV-DO) technology in these bands. Similarly, the 2.5 GHz band was originally marked for technologies including 3G and beyond. But the 2007 World Radiocommunication Conference added WiMAX to the list of 3G international mobile telecommunications-2000 (IMT-2000) technologies, thus allowing regulators to attempt to avoid tying spectrum bands to specific technologies. In fact, the ITU has dropped the term “IMT-2000” now in favor of the broader term “IMT,” which is now used in all ITU Recommendations. Regulatory symmetry requires that spectrum assignments be technology-neutral to promote investment and growth. Otherwise, countries might lose investments and lag behind in growth simply because of their spectrum regimes. For example, 3G services have yet to take off in China, partly because the country delayed spectrum assignment until its indigenous time division synchronous code division multiple access (TD-SDCMA) standard was finalized and ready for deployment. Service neutrality. In contrast to technology flexibility, which addresses only what technology an operator can use, service flexibility refers to exactly what services an operator may provide. In the past, as noted above, operators were limited to providing only the services that specifically defined in their license (e.g., voice or video, but not both). But with the transition to digital technology and better processing capabilities, advanced systems are now capable of transmitting all kinds of services. Thus, wireless operators can now provide voice, high-speed data services and video over their networks. Service and licensing terms now must be modified to allow the operators to realize the benefits of this flexibility. Spectrum management is moving towards more open, flexible models. The ideal situation for spectrum management would likely be one where regulators do not specify which services are offered over a 65 Module 2. Policy Approaches to Promoting Broadband Development specific band of spectrum or which technology is used to offer them. Instead, regulators focus on promoting competition and ensuring that spectrum users are following certain guidelines—such as noninterference in each others’ operations. Flexible-use rules are becoming increasingly common, particularly in the context of discussions about the digital dividend. Many countries are pursuing service- neutral spectrum allocations.124 For example, the U.S. FCC allows service providers to use the 700 MHz spectrum for: [F]lexible fixed, mobile, and broadcast uses, including fixed and mobile wireless commercial services (including FDD- and TDD-based services); fixed and mobile wireless uses for private, internal radio needs; and mobile and other digital new broadcast operations. These uses may 125 include two-way interactive, cellular, and mobile television broadcasting services. In the United Kingdom, Ofcom’s 2007 statement on the digital dividend outlined how the agency decided that it would give “users the freedom to decide how spectrum is used and clear incentives to use it efficiently.” 126 It envisions the uses of this spectrum to be wireless broadband, mobile television, digital terrestrial television, and local television, but does not limit its applications. Ofcom expects that this approach will enable the introduction of innovative technologies and services, increase competition, and provide “a significant contribution to the United Kingdom, as the overall benefit from the use of the digital dividend is estimated to be GBP 5 billion to GBP 10 billion (USD 9.8 to USD 19.6 billion equivalent) of added benefit to the economy over 20 years.”127 For the ultimate in flexibility, some regulators are actively organizing the spectrum as a “commons,” expanding on the idea and success of unlicensed spectrum. Supporters argue that a commons regime creates incentives to innovate and develop spectrally efficient technologies such as smart radios, which automatically detect and use vacant spectrum. Further, these efficient technologies reduce spectrum scarcity by creating more efficient systems such as mesh networks. Commons regimes do not place restrictions on the network bandwidth assigned to specific networks— allowing networks based on new ultra-wideband technologies, for instance, to provide high-speed connections not otherwise possible. Indeed, a similar mechanism has already worked in many countries with unlicensed bands in the 2.4 GHz and 5 GHz spectrums. Aside from simple rules limiting the maximum transmitter power or defining the rights and responsibilities of spectrum users in terms of interference, there are no technology or service limitations.128 This open band has been credited with spawning Wi-Fi technology. Wi-Fi was among the earliest wireless technologies supporting wireless triple play. Similar outcomes are possible in an open and flexible environment for spectrum use. Moving to these more flexible spectrum use regimes will enable broadband by supporting the development of new technologies, the entry of smaller or new service providers, and more efficient spectrum use. Efforts to link revisions to the spectrum management regime thus can be linked to moves toward a converged regulatory regime. Greater Use of Market Mechanisms Can Promote Broadband. Markets can usually act faster than governments to match supply and demand for spectrum services. As a result, governments are increasingly seeking to rely more on market forces to help them meet wireless (broadband) needs. The move to market mechanisms is evidenced by two important trends: assigning spectrum to operators using a competitive process and charging market-based prices for acquiring or using spectrum. Having a competitive, transparent means of assignment also gives service providers greater access to spectrum. In conjunction with a regime that allows flexible use of spectrum, such competitive assignment enables new models of service provision. Spectrum trading is another important development. Implemented in countries such as Australia and New Zealand, this approach allows later entrants to a market to purchase spectrum use rights from 66 Module 2. Policy Approaches to Promoting Broadband Development existing licensees, thereby reducing constraints on the timing of their market entry. In the absence of secondary market mechanisms through spectrum trading, new service providers would have to wait for government-administrated assignment, which may slow the rollout of new services and reduce the potential for competitive service provision. Despite the important advantages of moving toward more flexible arrangements for spectrum assignment and a greater role for market forces, there are also risks that in a poorly regulated environment, some firms could establish or reinforce market power by controlling key high-value spectrum bands. Thus, it is critical to ensure that the outcome of moving toward market mechanisms is an increase in market competition, supporting the introduction of new services and providers. Moving toward market-based assignment, pricing, and use will allow new service providers to access spectrum competitively, allowing them to provide innovative services over wireless networks.129 Coverage Obligations. Another way in which governments can promote wireless broadband availability throughout a country is to establish coverage obligations at the time of initial licensing. In fact, most licenses include specific coverage obligations in their terms and conditions. Denmark, for example, has established coverage requirements for the 800 MHz band digital dividend licenses to be auctioned in May 2012.130 The coverage obligation in Denmark is pursuant to the government’s objective of ensuring universal access to a broadband connection of at least 100Mbps by 2020. As such, the coverage obligation on 800MHz licenses carry will be aimed at providing mobile broadband to areas where broadband is not currently available. In such areas, licensees will be required to cover 99.8 percent of households and enterprises and provide 98 percent outdoor coverage (excluding forests) with a mobile broadband service of at least 10Mbps by the end of 2014. The coverage obligation can be met by using frequencies governed by the license or other frequencies available to the licensee. License requirements tied to coverage obligations, however, must be carefully considered. Requirements that are too easy to meet run the risk of not significantly expanding broadband coverage. Conversely, overly strict requirements are unlikely to be met, and could result in either no interest in a license (meaning nothing would get built) or lower payments if the license is awarded through an auction. 2.5 Encouraging Adoption: Promoting Demand for Broadband As discussed in Module 1, the broadband ecosystem involves more than just the physical networks; it also includes applications, services, and users. Policymakers have thus begun to realize that simply focusing on building networks may be necessary to promote broadband development, but it is not sufficient. As a result, demand stimulation is becoming an important part of broadband development strategies and policies across the world. Addressing demand-side issues is important because constructing networks and providing services entails significant costs and risks for investors, particularly if they are unsure if there is an audience for their products. To help reduce such risks, government may need to assist broadband development by raising public awareness of and stimulating demand for these services. In general terms, demand for broadband services, applications and content is thriving and may not appear to need a large amount of government effort to spur adoption by those who have broadband access. Broadband use is clearly growing quickly and is heavily driven by private sector content and, to a lesser but important extent, user-generated content. In 2010, for example, 40 percent of all consumer Internet traffic was video131 which was 1.6 times the video traffic of the previous year and mostly comprised of private sector-created or user-generated video.132 In addition, with the first availability of broadband services, demand (measured by subscriber growth, for example) may be initially very high— 67 Module 2. Policy Approaches to Promoting Broadband Development reflecting pent-up demand among users who previously had no broadband access. In such cases, governments may decide that there is no need for demand stimulation. In Kenya, for example, at the end of September 2010, broadband subscriptions increased to 84,726 subscribers from 18,626 in the previous quarter (a growth rate of over 450 percent) without any specific attempts by the government at demand-side stimulation.133 Nevertheless, in most high-penetration countries, governments have sought to complement supply-side policies that focus on building infrastructure with demand-side efforts that seek to drive demand for broadband access and services. Policies to promote demand will need to be tied to the development of the broadband market. In the early stages of broadband market development, policies may need to focus on educating population at large of the benefits of broadband and educating them in how to use it (digital literacy). As time passes, however, demand growth can be expected to slow as the potential pool of users evolves from motivated early adopters to potential users that do not necessarily understand all that broadband has to offer and may be concerned with the potential threats to privacy and data security. This is when government policies to stimulate demand may have the most beneficial impact by targeting potential users, such as elderly persons and those in disadvantaged groups, who may not be able to afford or are not aware of the benefits offered by broadband.134. By educating users through digital literacy programs, governments can help drive adoption to a broader user base and educate them at the same time. Such programs may become increasingly important in order to avoid the social and economic inequities associated with broadband “haves” and “have nots.” The role of government in stimulating demand will vary by country. In some countries, with more technically literate populations, there may be less need for direct government intervention. The appeal of social networking and video streaming as an entertainment source may be more self evident than more mundane uses such as e-government or multimedia mail. In such cases, demand will be driven by attractive offerings made available by private sector developers. In other cases, however, basic illiteracy, lack of understanding of what the Internet can do, or cost may require governments to step in to help fill out and aggregate demand particularly among at-risk groups. Policies to support digital inclusion will be an important leveler to ensure that broadband can bring benefits to all segments of the population. 2.5.1 A Model of Demand Facilitation Demand facilitation or stimulation refers to efforts to boost the adoption and use of broadband networks and services. Such efforts typically address three broad categories of issues: awareness, affordability, and attractiveness (see Figure 2.17). In order to drive broadband adoption and use, policies must address these three categories, especially targeting those populations that are generally less likely to adopt and use broadband Internet services. Mechanisms to address awareness include improving digital literacy, and encouraging the use of broadband in education and small and medium enterprises (SMEs), while affordability efforts focus on costs of both hardware and services, and attractiveness initiatives include promotion of services, applications and local content as well as delivery of government services over the Internet (e-government). E-literacy and e-skills, in particular, are vital for broadband diffusion to succeed. Recognizing this, governments with high penetration and adoption have been very active in trying to raise e-literacy. 68 Module 2. Policy Approaches to Promoting Broadband Development Figure 2.17. The Three Pillars of Facilitating Broadband Demand •Encourage use of education in schools to promote digital literacy Awareness •Encourage and train SMEs on benefits of broadband •Provide training on security and privacy •Support secure e-transactions •Lowering user terminal service costs by reducing import duties and other taxes or through targeted Affordability subsidies •Providing broadband equipment to educational institutions at cost or via subsidies •Supporting local, relevant Internet content in local languages Attractiveness •Creating e-government and other e-applications (such as for health, education, and agriculture) Source: Adapted from Yongsoo Kim, Building Broadband: Strategies and Policies for the Developing World, World Bank (June 2010). Demand facilitation strategies can be included in top-down national plans, can originate from grass- roots efforts or can involve the public and private sectors, as well as civil society.135 The scope of such strategies may be targeted at one particular obstacle to access, such as the high cost of connections or computer ownership, or may be broader, resulting in more comprehensive programs that attempt to address multiple barriers.136 The Dominican Republic, for example, established legislation to address not only the financing mechanisms needed to achieve broadband, but also the deployment of infrastructure and the acquisition and installation of terminal equipment such as computers, smartphones and other devices that enable consumers to use a broadband connection.137 Demand facilitation may also involve packaging broadband with applications that appeal to specific sectors of the economy or groups within society. These three main categories—or pillars—of facilitating broadband adoption are discussed below. 2.5.2 Awareness Awareness of the benefits of broadband is an important first step in building demand for broadband services. Despite relatively rapid deployment and uptake among some segments of the population, broadband is still unknown or not fully understood by many potential users, particularly in developing countries and particularly among specific populations in both developed and developing countries. Quite often, those lacking basic awareness of broadband tend to be those living in remote areas and/or members of a historically disadvantaged group, such as the elderly, women, people lacking formal education, people with disabilities, and the unemployed. These groups need to be included in plans to enhance digital literacy in order to allow them to benefit from broadband and broader ICT services and applications. Some of the reasons why people do not use broadband are discussed in section 2.2.3 of this module. As policymakers seek to extend the use of broadband to more users, they will need to consider the full range of barriers to adoption and use and develop appropriate policies to address them. Given the diversity of issues and the different needs of the different populations, it is likely that a range of 69 Module 2. Policy Approaches to Promoting Broadband Development programs and initiatives will need to be developed. This is particularly critical given that as the average level of broadband penetration in a country grows, the social and economic costs of being excluded from access also increase. In order for people to successfully use broadband, they must have the necessary interest and competency. This is sometimes referred to as digital literacy, which has been defined as “using digital technology, communications tools, and/or networks to access, manage, integrate, evaluate, and create information in order to function in a knowledge society.”138 Digital literacy ideally makes users aware of and capable of accessing broadband applications and services. This, in turn, widens the information available to them, provides new ways of learning and creates new employment opportunities. There are several challenges to improving digital literacy. First, some studies suggest that most people learn about ICTs informally through their own initiatives and assistance from friends, family and colleagues, rather than through formal education or training. As a result, motivating people to continue to learn on their own is essential in order for them to adapt to the constant evolution in broadband services and applications without having to always resort to more formal (and expensive) training. Second, although training is important, it does not necessarily build peoples’ understanding of how broadband and associated technologies can transform their lives. This risks the creation of a “value divide” in terms of the people who have broadband, but who widely diverge in their ability to derive value from it. Programs must find ways to show people how broadband can be integrated into, and improve, their personal and business lives. Finally, as broadband spreads to other platforms, particularly mobile phones in developing countries, the notion of digital literacy, which has typically been associated with learning on PCs, must be adapted to entail familiarity with using applications and services delivered via various mobile devices such as smartphones and tablets. As further detailed in Module 6, there are several elements to consider when adopting formal training initiatives:  Basic Digital Literacy: Basic digital literacy skills may be taught as part of general educational programs. The extent of such need varies depending on the level of sophistication of the ICT sector and overall educational background of a country’s inhabitants, but may encompass basic literacy (the ability to read and write); computer literacy (knowledge of how to use a computer keyboard and mouse); and online literacy (ability to use online resources and services). Basic (and some advanced) skills are increasingly offered to students as part of their regular education curriculum, while adults or other potential user groups can obtain skills through community learning centers or similar institutions. In addition, basic skills development may be needed by those who have been bypassed in the acquisition of ICT skills through formal primary and secondary education—either because they did not complete schooling or because ICT training was not available. See Module 6 for further details on promoting digital literacy through the education system, community access centers to enhance digital literacy and advanced training for broadband development.  Small and Medium Enterprises (SMEs): One particular group that governments may wish to focus on for purposes of demand stimulation is SMEs. Such companies may not have ICT expertise or knowledge of how broadband can benefit their business functions. An Internet presence supported by broadband can help SMEs by providing them with the ability to reach new customers, interact with a wider range of potential partners, and tap a wide range of resources to support their business. Concentrating on SMEs may also have important “pass through” effects, allowing governments to reach their employees at the same time. SMEs are also likely to find e-government programs particularly helpful in interacting more efficiently with the government, whether to apply for permits, file taxes or supply/obtain government services. To help SMEs use broadband networks and services most effectively, governments have 70 Module 2. Policy Approaches to Promoting Broadband Development adopted a variety of innovative outreach programs. See Module 6 for details on how countries have included SMEs in demand-side policies.  Privacy and Security: As policymakers and private sector service providers consider ways to increase broadband use and promote online participation in personal, professional and governmental activities, privacy and security concerns will have to be addressed. Many potential users may be afraid of using broadband services for reasons related to privacy, security or identity theft. While consumer privacy and data protection is not a novel subject, broadband diffusion and technology innovation compound the potential risks of the collection, use, protection, retention, and disposal of a wide range of personal information. Increased data processing and storage capabilities, advances in online profiling, and the aggregation of online and offline information are allowing a diverse set of entities to gather, maintain and share a wide array of consumer information and data. To address such issues, countries will likely need to revise their existing laws and regulations regarding privacy and data protection to ensure that they are relevant and applicable in the broadband context. This will require frameworks that strike the appropriate balance between the benefits to citizens and consumers of new and innovative technologies and the risks such technologies may create to their privacy and personal data. To date, two broad approaches towards personal data protection have been adopted around the world. Many countries, such as EU member states and many Latin American countries have opted for a rights-based approach to personal data protection. Under this system, personal data protection is regulated as a fundamental right139 that applies to all personal data, irrespective of the type of data.140 By contrast, countries such as the United States have mostly relied on “broad self-regulation and targeted sectoral legislation to provide consumers with data privacy protection.”141 Recent developments seem to be merging the two approaches, with the European Commission and the U.S. Federal Trade Commission proposing many common changes and upgrades to privacy protection in the wake of rapid technological developments associated with broadband services and the Internet.142 This includes placing emphasis on informed consent, increasing the transparency of data collection, raising awareness, and increasing responsibility of data controllers (i.e., privacy by design).143 See Module 6 for further information on how training efforts can promote demand for broadband by alleviating concerns over data privacy. 2.5.3 Affordability Another significant barrier to greater broadband use for many potential users is cost. In identifying demand-side barriers to broadband adoption, policymakers around the world have identified affordability as one of the main reasons that people do not use broadband services where they are available. The Pew Internet and American Life Project and the U.S. Department of Commerce, for example, have found that lack of affordability is one of the central reasons cited by those in the United States who do not subscribe to broadband at home.144 If a broadband access infrastructure is in place, users must be able to afford all costs associated with the broadband service. Two factors are important here: the ability to afford the hardware (e.g., personal computers, laptop/netbook computers, and smartphones) necessary to access the network, and the ability to pay for network access (e.g., recurring monthly service charges). The issue is that some users simply cannot afford either the upfront costs of equipment or the ongoing costs of broadband access plans.145 In many developing countries, as well as among the low income populations in developed nations, the costs associated with hardware and network access are often substantial relative to income levels. While potential users may have acquired the necessary digital literacy skills, they may be hampered from making effective use of broadband services without affordable connections, services 71 Module 2. Policy Approaches to Promoting Broadband Development and devices. In addition, issues of affordability are often more pronounced in developing countries than in more developed nations. Research by Ovum in 2010, for example, showed that prices for broadband services are up to three times higher in 15 emerging markets than in developed countries, despite lower wage levels in the emerging markets.146 Therefore, governments may opt to focus on providing support to consumers who cannot otherwise afford these costs, including through assistance to purchase broadband-enabled equipment (computers, smartphones, tablets, etc.), initial installation (up-front costs), or ongoing network access (subscription) fees. As described further in Module 6, such support may be provided in a number of ways, including by:  Subsidizing equipment and service providers, who in turn offer discounted prices to target population groups at less than prevailing prices;  Providing subsidies directly to target users for the specific purpose of helping them pay for broadband; and  Including broadband access in lump-sum income support to households.147 Equipment Affordability The realization that demand for communications services, including broadband, does not generally increase if citizens do not have access to a personal computer (PC) or other broadband-enabled device has spurred policymakers around the world to introduce measures to facilitate ownership of devices or computers. In fact, most policies that target affordability have focused on reducing the price of access devices. The range of broadband devices is expanding and includes more traditional means of access, such as PCs and laptops, as well as smartphones and tablets. There are numerous examples of innovative programs that have been successful in getting such devices into the hands of prospective users. As discussed in more detail in Module 6, countries have introduced a variety of programs to subsidize the purchase of broadband-enabled devices. Some countries provide tax breaks for individuals and businesses to purchase PCs by allowing pretax income to be used or establishing a tax rebate for these purchases. In France, for example, students receive a 50 percent tax refund for the costs of PCs, which has resulted in a surge of mobile broadband/netbook bundles offered to students by 3G mobile operators (see Box 2.17). As addressed in Module 6, some countries, such as Italy and Korea, have also subsidized broadband connections.148 In the case of Korea, subsidies focused on SMEs.149 However, for many people in developing countries, even discounted devices may be prohibitively expensive. 150 Box 2.17. Country examples to make broadband hardware more affordable  France: In France, the government offered a 50 percent tax refund to students buying a PC. Seeing a potential market untapped, mobile operators have been taking advantage of the government subsidy and have designed mobile broadband offerings to target students. For instance, Orange offers mobile broadband bundled with netbooks low-cost models to students with specific discounts. The addition of the government tax refund and other programs to facilitate PC access to students has made these offerings very attractive to the targeted group. For instance, Orange take up rate of the initial netbook bundle offering was above 50 percent.  Netherlands: The Dutch government enacted a similar tax break that effectively reduced the cost of buying personal computers by 40 percent. Under the program, which ran from 1997 through August 2004, Dutch workers could buy home PCs with pretax euros if the devices were also used for business. Employers deducted the purchase from pretax wages. The benefit could be claimed to buy a new computer every three years. 72 Module 2. Policy Approaches to Promoting Broadband Development  United Kingdom: The UK’s Home Access Programme addressed the needs of children in state- maintained education without online access at home. In February 2009, the government began a pilot across the regions of Oldham and Suffolk where local authorities began targeting families with children who could not afford home broadband access. Packages were offered that provided computers and one year of internet access. The program was so successful that it ran out of funding in May 2009. A national version of the program launched in late 2009, but was wound down as a result of budget cutbacks across the UK government in 2010. The final program applications were accepted in November 2010. At that time, the agency administering the program noted that more than 250,000 families had benefited from increased access to technology at home, and 8,000 children with disabilities received technology tailored to their specific needs. The town of Milton Keynes has an active subsidy program with a wide range of options for low-income residents.151 “Loaner” computers are available for ₤1.5/month and users can get a free laptop with a two-year subscription. Sources: Robert D. Atkinson, Daniel K. Correa, and Julie A. Hedlund, Explaining International Broadband Leadership, The Information Technology and Innovation Foundation (May 2008), available at http://www.itif.org/files/ExplainingBBLeadership.pdf.; World Bank, Facilitating Broadband Development: Funding Options, August 2010, available at http://www.itu.int/ITU- D/asp/CMS/Events/2010/ABBMN/S1A_Ms_Tenzin_Norbhu.pdf.; S. Grant and C. Laux, Mobile Broadband for the Masses (Cambridge, Mass.: Pyramid Research, 2009 Despite such initiatives, computers for personal use are still very rare throughout many developing countries. Mobile phones, however, have taken the world by storm, with an average global mobile penetration rate in 2011 of 87 percent, with 79 percent penetration in developing countries.152 In recent years, mobile service providers have begun to offer broadband services in addition to voice telephony and narrowband data services. It is also becoming increasingly common for operators to offer discounted up-front prices for smartphones and other mobile devices to customers who sign up for a one- or two-year mobile broadband service contract. The mobile phone subsidization business model is not without its detractors, and the practice is illegal in some countries due to concerns that consumers may be paying more for the device over the course of the contract than if the device were purchased up-front, as well as concerns that subscribers with an operator-subsidized device is “locked in” to that operator’s network and cannot easily switch service providers. Broadband Access Affordability In addition to the costs of purchasing a broadband-enabled device, lack of demand for broadband among low-income users is also often due to the recurring costs of the broadband access service. In order to make broadband access more affordable, many governments have opted to subsidize subscriptions for low-income households. See Module 6 for more information on country initiatives that provide reduced rates for broadband access services for targeted populations. Where it is not feasible to provide subsidies for broadband access, or in addition to such subsidies, governments may also consider using community centers to provide low- or no-cost access to broadband services. Establishing locations where users are able to share broadband access is an important tool to enable broadband adoption and drive demand for otherwise willing and skilled persons who lack the financial means to purchase devices or pay long term (contract) access charges. Module 6 further addresses how countries are incorporating publicly funded community centers and for-profit Internet cafes into plans to help drive broadband demand, as well as increase access to broadband services and applications. 73 Module 2. Policy Approaches to Promoting Broadband Development 2.5.4 Attractiveness Even after addressing the issues associated with awareness and affordability, barriers may still exist to greater broadband use. In order to generate demand for broadband, consumers must not only be aware of and able to afford broadband, but they must also see the relevance and attractiveness of it. Many people simply see no need for the Internet or broadband access, or do not use the Internet because of concerns over privacy or data security. Such issues must be addressed for broadband to be fully adopted throughout a country. Attractiveness is facilitated by ensuring that the market provides sufficient choice and diversity of services, applications and content to appeal to all consumers. Actions to boost broadband demand are generally aimed at both consumers and businesses to encourage them to produce and consume content, services and applications.153 This section identifies how governments and the private sector can encourage demand for broadband through the promotion of services, applications and content that people and businesses find compelling and valuable and want to use. Services to Drive Broadband Demand Services refer to the basic connectivity function of providing access to the Internet, as well as value- added features that broadband operators include with the broadband subscription and that meet specific quality guidelines. Within the broadband ecosystem, the availability of services is an important factor that can help drive demand. The success of policies that encourage the development of new services will, of course, be affected by the attractiveness and affordability of the service offerings. As further detailed in Module 6, there are a variety of services available that can help drive broadband demand, including:  Internet access: The way that a broadband Internet subscription is provided can impact attractiveness and will depend on the technology as well as regulatory and business considerations. This includes whether the broadband subscription can be purchased on its own or requires a subscription to an underlying transport technology. For example, in the case of digital DSL, a telephone line is required. Subscribers have typically been obligated to pay a monthly rental for the telephone line in addition to the broadband subscription even if they do not use the telephone line for anything else but broadband. This adds to costs and may require an extra bill, discouraging users from taking up the service. Some operators include the telephone line with the broadband subscription so there is no separate bill. In a few countries, the cost of the physical broadband connection is billed separately from Internet access. In other words, the user needs to pay one bill for a broadband connection and another bill to an ISP for Internet access. Other factors to consider are data or usage caps that limit the amount of data that a subscriber can use in a month. Some operators distinguish between domestic and international use by having no cap or a higher cap for traffic to domestic sites, and a low cap for access to sites hosted abroad. One issue with caps is that users often do not understand the relation between volume and their usage needs. Users can easily underestimate how much data they will use, particularly if they access a lot of video services or use peer-to-peer download services (some of which may run in the background). This makes it difficult for them to know which package to select when choosing amongst different data plans. Some operators cap usage through time rather than data volume, such as a monthly subscription of 20 hours.  Voice services: Voice telephony continues to be a popular service, if not the most popular service worldwide. A growing number of broadband operators offer Voice over Broadband (VoB) service, which is a managed service (unlike VoIP, which is generally considered an “over the top” application).154 VoB provides the same quality as a traditional fixed telephone and 74 Module 2. Policy Approaches to Promoting Broadband Development often provides other value-added features such as call waiting, voice mail and speed dialing, as well as the ability for users to monitor these features online via the provider’s web site. The price structure for VoB is often made attractive by including unlimited national calls for a flat rate or even including free national calls with the broadband service subscription. Since the service works through the broadband modem, users do not need to be connected to the Internet nor do they even need a separate Internet subscription.  Video services: IP-based routing allows video services to be provided over a variety of networks. This has allowed broadband operators to provide Internet protocol television (IPTV) or video on demand (VoD) services. These services allow end users to access Internet-only video programming, such as video clip sites or to select a favorite movie or show for viewing on demand. The ability to provide IPTV and/or VoD can make operators’ broadband services more attractive, especially when other features are included such as access to special programming not available elsewhere. However, there may be a number of regulatory considerations with these video services, such as requiring a specific type of IPTV license or adherence to copyright laws or other content regulations.155  Bundling multiple services: IP-based technology and digitization of information and media allow a single network to offer voice, data and video services in a single bundle, which often reduces the total cost of the service (that is, the bundled prices is less than the cost of buying the same services individually) and the benefit of receiving just one bill. Bundling should be encouraged due to these benefits, although regulators may want to ensure that consumers maintain the option to select only one service and not be obligated to purchase additional services. In order to enable service bundling, regulators should ensure that licensing rules permit service providers to offer a variety of services.  Government services: Aside from the more well-known commercial information and communications services available over the Internet, government services can also serve as a demand driver for broadband. Generally, such government services include: 1) making government information available online; 2) conducting online transactions with the government; and 3) participating in the political process online. Although these may not be the main drivers of broadband demand, government services can contribute to the overall usefulness of the Internet and make interacting with the government much easier.  Health services: E-health involves a variety of services and tools provided by both the public and private sectors, including electronic health records (EHRs) and telemedicine. Broadband healthcare services and applications have the potential to lower costs and lead to better health outcomes. For example, broadband capabilities are essential to medical evaluation and other medical applications that use imaging extensively. High-definition video consultations allow rural patients and immobile patients to be seen by specialists in a timely manner when urgent diagnosis is needed and a specialist is not able to travel to where the patients are located. Other e-health services and applications include digital patient records; remote monitoring, where caregivers monitor key vital signs from a remote location, such as for diabetes or congestive heart failure patients; and access to medical information materials and advice.156 With the explosion of mobile devices in low-income nations and the relative lack of wireline broadband penetration, mobile-health (m-health) is establishing a new frontier in health care in those countries.157  Financial services. Online banking has evolved considerably, with the Internet becoming an integral part of the delivery of banking services around the world. It is generally recognized that 75 Module 2. Policy Approaches to Promoting Broadband Development e-banking services can provide speedier, faster, and more reliable services to customers, and thus also improve relationships with customers. Although many types of Internet connections have online banking capabilities (for example, some m-banking transactions are conducted with narrowband SMS messages), high-speed connectivity is essential for more advanced e-banking activities. Delivering financial services to low-income users through e-banking can also offer the potential to dramatically decrease operational costs, improve the quality of financial information, allow for “video chats” with bank representatives and make banking for low- income users more profitable and less risky for mainstream financial institutions.158 For these markets in particular, mobile money services that allow users to make payments and remittances, access existing bank accounts, conduct financial transactions, engage in commerce, and transfer balances have proved to be of particular importance, including in Afghanistan, Bangladesh, Kenya, Indonesia, Pakistan, the Philippines, and South Africa.159 Applications to Drive Broadband Demand Applications are function-specific software programs that use a broadband connection to deliver content to users. As with services, broadband-enabled applications can spur adoption of broadband access by increasing the value of broadband. Applications add value to broadband, as they provide tools and services that are tangible and useful for both consumers and businesses. The range of new applications that has been developed over the last decade is tremendous. New and innovative applications improve business efficiency and productivity, as well as provide new ways to personally interact through social networking applications. The dynamic nature of application development is clear in the various “app stores” that have sprung up around the various mobile device platforms, which now have hundreds of thousands of “apps” with downloads that are already into the tens of billions only a few years after their inception. See Module 1 for details on various social media applications, as well as further understanding of their importance in promoting broadband uptake. Importantly, most of the development for applications has taken place in and been driven by the private sector. Given the success of such efforts, government action may not be necessary to promote the development of more innovative applications. However, countries may need to revise their laws and regulations regarding intellectual property and privacy, for example, to protect those who develop and use such applications. Other content-related issues may also appear in the application development context. Content to Drive Broadband Demand Content is linked to applications and services and generally refers to the information viewed, created and shared. Useful content is an essential underlying element of broadband adoption. In particular, the development of local content is important as broadband Internet access becomes more widely available in countries where there are relatively few websites offered in countries’ dominant or native language. Policymakers can play a key role in promoting local content, as well as digital content generally, as outlined below. For further details on creating compelling and local content, see Module 3 and Module 6. Promoting Local Content. Native English speakers currently account for the majority of Internet users around the world; thus, most web content is in English.160 Although English continues to dominate, the number of Internet users in China is quickly rising and is expected to exceed the number of English language users in the next five years.161 Despite this shift, a significant obstacle to Internet and broadband use by non-English speakers is the scarcity of content in their own languages. Policymakers are expected to increase efforts to ensure that local, relevant and interesting content is produced in order to increase the demand for broadband services in their countries. In addition to direct grants for 76 Module 2. Policy Approaches to Promoting Broadband Development the production of local content, governments can support the development of local content and applications in other ways, such as the development of standardized keyboards, character sets and character encoding. This type of indirect intervention would impact on the content available by enabling users to create content in their own languages.162 Additionally, translation and standardization of operating systems into local languages can help to facilitate the development of local applications that are relevant and comprehensible to local users.163 Governments can also play an important role in developing local content and local applications by directly creating local content and local applications in the form of e-government applications as described above. As policymakers seek to drive demand and enhance the development of (local) content, several legal and regulatory issues arise, generally around the issues of freedom of expression, content regulation and intellectual property rights. The laws and rules that regulate content in the offline world have been gradually applied to and adapted for online content, even as the pace of innovation online threatens to perpetually render them obsolete. Online content can be produced by traditional methods or generated collaboratively by the users themselves—it can be a song played by an Internet radio station, a viral video in an embedded YouTube clip, a blog post, or a news article published by a news website. The creativity that broadband services make possible will increasingly run up against a legal/regulatory regime that was developed in the days of printed books and film cameras—both of which are rapidly being superseded by their digital counterparts (e-readers and digital cameras). Policies to promote freedom of expression. One of the fundamental rights of persons is the right to freedom of opinion and expression, which includes freedom to hold opinions without interference and to seek, receive, and impart information and ideas through any media and regardless of frontiers.164 Content regulation, including surveillance and monitoring of Internet use, needs to take into account the standards set by international human rights law, and have regard to the unique nature of the Internet. A recent report by the Special Rapporteur on the Promotion and Protection of the Right to Freedom of Opinion and Expression of the United Nations’ Human Rights Council notes that any restriction by a state of the right to freedom of expression must meet the strict criteria under international human rights law.165 The report concludes that there should be as little restriction as possible to the flow of information via the Internet, except in few, exceptional, and limited circumstances prescribed by international human rights law. It also stresses that the full guarantee of the right to freedom of expression must be the norm, and any limitation considered as an exception, and that this principle should never be reversed.166 With faster speeds, and in particular faster upload speeds, broadband can facilitate collaboration as well as access to information. As more and more Internet users employ the web, not just to consume but also to share, the Internet can become a virtual town square for citizen participation. By the same token, restrictions on Internet use, the censorship of certain information or even restrictions on access posed by “net neutrality” concerns can cut off this vital avenue for citizen engagement. Governments will need to strike a balance between the legitimate need to restrict illegal content and the rights of users to participate freely and lawfully in cyberspace. Content Regulation. Countries have different social, cultural, and moral traditions. These traditions generally are enforced by legislation that prohibits the display or dissemination of certain types of content. Governments have legitimate reasons to regulate content: protection of minors, prevention of vices and national security, to name a few. There will inevitably be tensions as countries attempt to strike the right balance between the regulation of content on the Internet and the protection of fundamental rights, such as freedom of expression and information, which are strongly enabled by broadband. The widespread access to the world’s information and entertainment sources made possible by broadband-enabled Internet will make such restrictions more difficult to enforce. Rather 77 Module 2. Policy Approaches to Promoting Broadband Development than pursuing policies that could be seen as censorship, there are other options that achieve the goal of restricting certain types of content. For example, the movie and videogame industries, among others, voluntarily rate their content in order to help consumers identify content appropriate for themselves and their families. The Family Online Safety Institute (FOSI), an international nonprofit organization, administers a program whereby websites rate their content in terms of language, violence, sexual content, etc., in response to a standard questionnaire.167 In addition, commercial vendors have developed PC applications that employ keyword-based filtering to allow parents to control the kinds of websites their children can visit. Similarly, the development of industry codes of practice relating to online content may be another viable alternative to government regulation. However, a growing number of countries are implementing Internet controls of ever-increasing sophistication, including monitoring and filtering.168 Intellectual Property Rights (IPR). Compared to the limited bandwidth networks of the past, broadband’s inherent capacity to transmit large amounts of information has made it easier to share all types of copyrighted works, including songs, books, and videos. And as the software to find, copy and share such works has gotten better and easier to use, the problems associated with the illegal sharing and use of copyrighted works has become a major issue. IPR refer mainly to the rights of those persons or entities that hold copyrights, patents, or trademarks. Copyright holders successfully litigated against the first generation of filesharing networks, including services such as Napster that operated based on a centralized index. Victory in court meant taking down the central index, effectively shutting down the network. Users soon started sharing files using new peer-to-peer technologies such as BitTorrent, which because of their decentralized nature, are much harder to shut down than first-generation filesharing networks.169 Countries have sought to combat such new illegal filesharing applications through various regulatory tools, including so-called graduated response or “three-strike” laws that involve giving two warnings to online copyright infringers, resulting in loss of broadband Internet access with the third infringement, as well as the potential for fines or criminal prosecution. 2.6 Financing Broadband Development In the past 20 years, markets have liberalized, competition has increased and the private sector has been the primary vehicle for financing telecommunications projects, especially in profitable areas. Nonetheless, in many developing countries, there are still significant barriers to entry and legacy dominant carriers continue to control markets and distort competition. Thus, the government’s primary role has been two-fold: to develop policies that support and encourage private sector investment while also seeking more effective ways to regulate dominant carriers and promote competition. Today, most countries emphasize competition and a significant role for private sector investment to spur the growth of their broadband markets. In developed countries, and some developing countries, the majority of the private investment comes from within the country itself. In the least financially endowed countries, however, private investment may also come from foreign sources. Governments seeking to promote broadband development in their countries should bear in mind that investors and companies around the world may be looking for opportunities to invest in good projects wherever they are located. Thus, attracting foreign private investment—through appropriate incentives, a clear regulatory and legal environment, and a good development plan—may be important components for filling out a broadband strategy. Where governments choose to finance broadband networks, they should avoid replacing private investment or substituting for the normal operation of market mechanisms. Rather, governments should facilitate and support private sector investment and be capable of developing, promoting and 78 Module 2. Policy Approaches to Promoting Broadband Development implementing timely policies based on a thorough understanding of the market.170 Thus, an essential element in effectively deploying broadband is the ability to find an appropriate financing model in which government oversight and intervention is focused mainly on funding and financing only those initiatives targeted at actual or expected market failures in the availability of broadband network and driving the early adoption of broadband services. In addition to private sector investment and direct funding by governments, several other options exist for countries to finance broadband deployment, including government grants or subsidies to both private and public entities and partnerships where private funding is matched by government. The sections below briefly address the main ways governments can support the financing of broadband development. 2.6.1 Government Support to Enhance Private Investment The 2004 Report of the Task Force on Financial Mechanisms for ICT for Development (ICT4D), notes that the engine of ICT development and finance over the past two decades has been private sector investment, including foreign direct investment (FDI) by an increasingly diverse and competitive array of multinational and regional ICT sector corporations.171 Such companies target and provide service to profitable, high revenue customers, neighborhoods, and regions, often to the detriment of those areas that are less commercially viable. This is the result of the tendency to see profitability and return on investment as drivers for investment in a private investment environment. In addition to the purely economic decisions involved, private investment also depends heavily on the regulatory climate. The government’s challenge is to put in place the necessary policy measures and regulatory framework to allow and encourage the deployment and financing of broadband networks as widely as possible, and thus ensure that not only high value users receive high quality services, but that the benefits of broadband can be spread throughout all populations and areas. The OECD, based on a survey of broadband policies in member states, identified particular policy initiatives that may promote broadband investments, including policies to: • Improve access to passive infrastructure (conduit, poles, and ducts) and to co-ordinate civil works as an effective means to encourage investment. • Ensure access to rights of way in a fair and non-discriminatory manner. • Encourage and promote the installation of open-access to passive infrastructure when public works are undertaken. • Allow municipalities or utilities to enter telecommunication markets. Where there are concerns about market distortion, policymakers could limit municipal participation to basic investments (e.g. the provision of dark fiber networks under open access rules). • Provide greater access to spectrum (which is a significant market barrier to wireless broadband provision) and to adopt more market mechanisms to promote more efficient spectrum use.172 These policies have been used by numerous countries to spur the build-out of broadband networks. In Korea (Rep.), for example, thanks to greater market liberalization over the past decade, a number of new service providers entered the telecommunications market and began to fund and deploy fiber- based networks. Many advanced broadband networks are now available and the country has an impressive number of users. In Africa, wireless broadband licenses have been granted by governments since 2004, allowing mobile operators to roll out networks capable of supporting high speed data. Although uptake was initially 79 Module 2. Policy Approaches to Promoting Broadband Development slow, several factors have led to a growing number of African operators boosting investments for 3G or 4G, including: (i) more affordable international and backhaul capacity; (ii) increasing competition in the mobile sector; (iii) greater demand for more advanced services (e.g., through the launch of e-health and e-education projects relying on mobile as well as other technologies); (iv) slower growth in voice subscribers and revenues; and (v) the lack of wireline networks on the continent.173 In some cases, private investors may also look to multilateral investment banks to assist in financing, particularly where potential investments are perceived as higher risk, or where difficult liquidity conditions and uncertain economic prospects are seen as additional risk factors. Such conditions decrease the possibility of solely private financing and/or raise the costs of financing. In such cases, investment banks have become involved in broadband projects. The European Investment Bank (EIB), for example, is already lending an average of EUR 2bn each year to support broadband projects. The EIB develops and finances pilot projects and innovative funding schemes. 2.6.2 Fiscal Support to Facilitate Broadband There will be cases where regulatory reform and private sector investment still do not permit a government to reach its broadband development goals. In those cases, policymakers may turn to fiscal support to fill broadband development gaps. Fiscal support comprises assistance provided by the government to a company or its customers in the form of cash subsidies, in-kind grants, tax breaks, capital contributions, risk bearing, or other fiscal resources.174 Economic Justification of Fiscal Support Fiscal resources are limited and face competing demands from many sectors. As a result, policymakers considering providing more direct support for broadband development must carefully analyze the expected costs and benefits of providing that support. First, a persuasive case must be made that the benefits of supporting broadband development are likely to outweigh the cost to be incurred by all participating private and public sector entities, as seen from the viewpoint of the economy as a whole. Fiscal support should not be provided for components of the broadband strategy that will leave the economy worse off than without it. Second, if a component is overall desirable for the economy, it must be determined how much fiscal support should be provided. Fiscal support often involves the direct use of government money. Subsidizing investment requires cash outlays up front that will never be recovered. Subsidizing broadband use may involve payments made over a long period of time, possibly for the lifetime of the strategy. Investing equity in PPPs involves cash contributions up front that may be recovered in the long run (e.g., as dividends) to the extent that the ventures are commercially successful. Long-term debt financing comprises cash outlays that may be recovered over the years, provided the beneficiaries do not default on repayment obligations. Fiscal support that does not involve direct use of government money also has a cost. Giving investors free use of spectrum for last mile access has an opportunity cost related to the revenues that the government could obtain from the sale of spectrum licenses for profitable business use. Preferential taxation (e.g., income tax holidays, custom duty exemptions) implies fiscal revenues foregone. On- lending international development loans and credits reduce funding available from these sources for other initiatives in the same country.175 Regulatory risk (e.g., changes in the pricing rules) can be mitigated through government guarantees, which create contingent liabilities. The government can pick up part of the commercial risk of an uncertain market outlook for new investments by committing to future purchases, which may result in obligations unrelated to actual need. 80 Module 2. Policy Approaches to Promoting Broadband Development Estimating costs and benefits In order to determine whether to move ahead with some form of fiscal support for broadband development, the costs and benefits must be determined. The economic costs and benefits of a component of the broadband strategy are valued to reflect real scarcities of goods and services. Financial analysis values costs and benefits at market prices. Both economic and financial analyses compare the situations with and without the component. Sunk costs are not taken into account. The principles for estimating economic and financial costs and benefits are well known, but applying these principles in practice is subject to assumptions on market and technology development. This can be a challenge, especially when some players (e.g. incumbent operators) have more detailed information and analytical capabilities than others (e.g. government authorities, new entrants). To some extent, this limitation can be overcome by using the calculus of costs and benefits to provide guidance on fiscal support but relying primarily on market mechanisms (e.g. minimum subsidy auctions) to reach the final decisions on support awards. When costs and benefits can be measured in monetary terms, economic costs and benefits can be derived from financial costs and benefits. Transfers from one part of the economy to another, such as sales taxes or custom duties, are excluded from the cost stream. Prices that are distorted by market interventions, such as unskilled labor, foreign exchange, capital, and the radio spectrum, are adjusted to reflect their real scarcity in the economy. External costs (e.g., business losses resulting from digging up streets to install fiber) should be quantified, to the greatest extent possible. Benefits can be harder to calculate. Starting from the financial analysis of network and service providers, economic benefits can be estimated by adding consumer and producer surpluses to the revenue streams. For example, U.S. consumers have been increasingly willing to spend more money for fixed broadband connectivity than they are actually paying. This resulted in a consumer surplus of about USD 32 billion in 2008, up 58 percent from about USD 20 billion in 2005. Higher speed is expected to add a further USD six billion to existing customers. The study underestimated the wider economic impact of broadband, as it excluded business users and wireless access.176 Comparing costs and benefits The net present value (NPV) of the expected benefits is the discounted monetary value of benefits minus costs over time. For the government, valuing costs and benefits to reflect real scarcities in the economy, an economic NPV>0 means the project would have a positive effect on the country's welfare. For a private company, valuing costs and benefits at market prices, NPV>0 means the project could be commercially viable. This analysis can be applied to the broadband strategy as a whole as well as to each major separable component. Projects that have negative economic NPV should not be supported. Projects that have positive financial NPV do not need support. Components that have positive economic NPV but negative financial NPV would be good for the economy, but are unlikely to be undertaken as a business. Fiscal support of these components would be justified, up to a maximum support equal to the absolute value of the (negative) financial NPV. This is the amount of support that would make the component just viable commercially. Support above this level would not be justified. Types of Fiscal Support Private investment should be protected Where government does decide on providing some type of fiscal support, the re-creation of monopolies with public support is a fundamental concern to many governments around the world, as is avoiding 81 Module 2. Policy Approaches to Promoting Broadband Development contributing to established carriers’ dominance and displacing private investment. The EU supports the construction of broadband infrastructure and Internet take-up through both rural development and structural funds, and has clarified the application of state aid rules on use of public funds for broadband deployment through EC’s Community Guidelines for the application of State aid rules in relation to rapid deployment of broadband network (“State Aid Guidelines”).177 The State Aid Guidelines were specifically drafted to address concerns relating to public support, and contain safeguards to ensure that any broadband infrastructure funded with public money does not favor existing operators, including provisions that a company receiving public monies must provide effective open access to its competitors to allow them to compete in an equal, non-discriminatory way. Although the State Aid Guidelines focus on the role of public authorities in fostering the deployment of such networks in unprofitable areas (i.e., areas where private operators do not have the commercial incentives to invest), they clearly note that state aid should not replace or “crowd out” private investment. Instead, public funds should complement private operators’ investments and thereby achieve higher and faster broadband coverage.178 Box 2.18 provides an overview of the EU experience with the State Aid Guidelines. Box 2.18. EU Experience with State Aid for Financing Broadband In the context of market reform, good practice in financing universal access projects using public financing other than funds in international jurisdictions includes the practice of setting out rules or guidelines on the provision of public funding for universal service and access. The EU State Aid Guidelines for funding broadband assist in bringing UAS through the presence of clear rules that:  Facilitate NGA and broadband investments from public funds in order to bring broadband connectivity to underserved areas.  Enable the rapid deployment of broadband and especially NGA networks, thus avoiding the creation of a new digital divide.  Due to the conditions laid down for the granting of state aid (such as open access, open tenders) allow the maintenance of competition, which will in turn contribute to ensuring better and more broadband services.  Although historically funding decisions could be made on a case by case basis in the EU, in light of the significant level of investments, it has been recognized that a level of certainty is required for all stakeholders, hence the need for the Guidelines. Source: EC/ITU, SADC Toolkit on Universal Access Funding and Universal Service fund Implementation (2011), available at http://www.itu.int/ITU-D/projects/ITU_EC_ACP/hipssa/events/2011/SA2.2.html. Direct Government Intervention Market-based investments should be the mainstay for broadband deployment, but some degree of direct government funding may be required to enable and complement the market, particularly in areas that are not considered economically viable by private operators. The form of this more direct intervention will vary from country to country. In many countries, subsidies are used to underpin private sector investment. Some governments have effectively used subsidies and other financial incentives to spur broadband deployment. Canada, Korea, Germany, Greece, Malaysia, Portugal, Singapore, the United Kingdom and the United States have all announced and are implementing substantial direct government funding for network infrastructure development. In some countries (e.g., the United States, United Kingdom, Canada, Germany, Portugal and Finland) measures to expand broadband access and to bolster connection speeds have been included in the country’s planned economic stimulus packages.179 In 82 Module 2. Policy Approaches to Promoting Broadband Development 2011, the European Commission announced a EUR 9.2 billion program to support investment in broadband networks and pan-European digital services. The plan will be backed by the selling of European “project bonds” under the “Connecting Europe Facility,” and is expected to stimulate additional private and public investment of up to EUR 50 billion in broadband network buildout.180 Most of these plans seek to speed up existing links to build faster wireline and wireless next generation networks. Countries are spending public funding for rolling out high-speed networks to areas that are underserved or unserved by commercial ISPs. In other countries, however, the debate over public financing is not over how much to contribute to broadband efforts, but rather how to cut budgets in line with the economic realities of 2011. In such a context, funding for broadband may assume lesser importance compared to other, more important, social and economic goals. Consequently, the focus on finding private sector-led solutions is likely to increase. The case of the United Kingdom is instructive. The government had set a goal in 2009 of ensuring 100 percent access to next generation broadband, and had planned to support the roll-out of fiber-based broadband and other next generation technologies via a tax on telephone lines.181 BT subsequently started initiatives to roll-out fiber broadband to most of the United Kingdom by 2015. However, BT has made clear that on its own, it will not push beyond 66 percent fiber coverage, and that public sector support of some form will be required to go beyond that, be it at a national level via a central government administered funding support mechanism or by regional funds and local partnerships to boost coverage in particular areas.182 Within this context, BT has announced it plans to roll-out superfast fiber broadband to unprofitable areas with the help of European funding. The European Regional Development Fund’s (ERDF) Convergence program is investing GBP 53.5m, or just over 40 percent of the total funding, with BT providing the remaining GBP 78.5 million.183 A few governments are pushing the build-out of broadband networks through direct investment by a government-backed company specifically tasked with building new networks. In most, if not all cases, these government-led efforts will deliver only wholesale services that service providers can then use to offer retail services. In April 2009, for example, the Australian government announced that it would commit AUD 43 billion (USD 30 billion) to building a National Broadband Network (NBN) across Australia, with wireline services reaching 93 percent of the population and the other 7 percent to be served by wireless or satellite broadband networks. In March 2011, Qatar announced a similar plan for a fiber-to-the-home network to reach 95 percent of the population by 2015, with a government-backed company focusing on supplying the passive infrastructure for the network.184 In Africa, a USD 7.7 million contract to build a wireless Internet facility was awarded to Korea Telecom in 2007 by the Rwandan government. This marked the entry of wireless broadband technology in Africa.185 In the next three years, the Rwandan government is aiming to provide access to high-speed Internet to more than four million Rwandans through the wireless Internet facility and the Kigali Metropolitan Network project. Subsidies as an Instrument of Fiscal Support As detailed in Module 4, subsidies are the most commonly used instrument to support universal broadband development, and are often used to ensure universal access in key sectors, including electricity, water supply and sanitation services.186 Since such services are generally considered essential to a productive, robust economy and society, subsidies are often used to target certain populations or areas where the costs of supplying the service are not fully recovered from the revenues raised by selling it. Subsidies may be financed by government budgets, user surcharges, international grants, and other sources. A central agency or financial institution, a specialized fund, or other mechanism may be used to collect and distribute the subsidies. 83 Module 2. Policy Approaches to Promoting Broadband Development Good subsidy practice entails creating well-designed funding mechanisms that are transparently managed and effectively target the desired beneficiaries. Such practices include ensuring that all participants—the government, operators and customers—contribute to financing the services. While the government subsidizes start-up costs, the service providers should also invest their own resources into infrastructure build-out and customers should pay for at least the basic maintenance costs of service. An increasingly popular way to support the build-out of broadband to unserved and underserved areas using the lowest subsidy possible is by requiring service providers to compete for funds (often referred to as “least-cost subsidies”). The use of a public tender process to award subsidies generally results in lower costs to the government, mobilization of substantial private investment, and enhanced transparency as compared with traditional public sector funding of infrastructure investments. However, competition among firms for subsidies is likely to succeed only when certain critical factors have been met related to demand, supply and the enabling environment. On the demand side, competition for subsidies to extend broadband is likely to work well only if users are willing to pay at least as much as is needed to keep the service running after initial investment and start-up. On the supply side, the main concern is whether there are enough qualified providers competing for the subsidies since the least-cost subsidy model works best when several firms compete for each subsidized project. An important aspect of creating an enabling environment is to ensure that subsidies are used to narrow gaps between the market and development needs and do not serve as a substitute for the market or to compensate for regulatory distortions of the market. As such, a transparent, stable and credible legal, regulatory and general business framework is needed for prospective service providers to make reasonable estimates of costs and revenues and assess the risks they are being asked to assume. The processes for successfully using least-cost subsidies to award funding for universal access broadband projects are addressed further in Module 4. Public Private Partnership (PPP) Models Apart from implementing policies and regulations to ensure competition (between networks or services), the public sector can promote broadband development by sharing financial, technical or operational risks with the private sector. Indeed, experience has shown that in some cases, purely private sector-led development, or direct government or subsidy funding may not be sufficient to reach certain areas, provide certain services or provide ongoing public funding, even with “smart subsidies.” 187 Within this context, many countries are now adopting approaches that combine public and private sector skills and resources, as well as combining public financing with some form of matching funding from private investors. This helps to reduce investment risk while also recognizing that market participation is essential to financial sustainability of projects. PPPs are also increasingly being considered as a solution for ICT development, including for broadband backbones and the supply of transmission bandwidth sufficient to catalyze advanced broadband applications. In Africa, for example, much attention has been given in recent years to the funding and financing of projects aimed at bringing more affordable broadband connectivity to the continent by means of submarine cables, regional fiber-optic backbones, and satellites. Such projects have generally been financed through a mixture of public and private sector funding. Alcatel-Lucent, for example, signed a turnkey contract in 2010 valued at over USD 500 million with Africa Coast to Europe (ACE), a newly formed consortium composed of 20 parties (operators and governments) linking Cape Town in South Africa to Penmarch in France via a submarine cable network.188 This new system, with 40 Gbit/s capability, will span over 17,000 km and will deliver broadband communications to and from the African continent and Europe. 84 Module 2. Policy Approaches to Promoting Broadband Development In Finland, the main objective of the December 2008 plan for 2009-2015 is to ensure that more than 99 percent of the population in permanent places of residence, as well as businesses and public administration offices, are no further than two km from a 100 Mbit/s fiber-optic or cable network. The government expects telecommunications operators to increase the rate of coverage to 94 percent by 2015, depending on market conditions, while public finances will be used to extend services to sparsely populated areas where commercial projects may not be viable, bringing coverage to the target of 99 percent. The plan stipulates that where public financial intervention is required, it should be in the form of public-private partnerships, with federal funding only being allocated to projects deemed not viable for 100 percent private investment. The plan limits such interventions, providing that the federal subsidy amount cannot exceed one-third of the total project cost, with additional EU and municipal support capped at another one-third, thereby requiring private participants to invest at least one-third of the cost.189 Spain has relied greatly on inputs from the private sector through PPPs.190 Of the public funds used, EUR 31 million were structural funds and EUR 53 million were in zero-interest public credits. Operators invested about EUR 280 million. The funded projects use Asymmetric DSL (ADSL), WiMAX, and satellite technologies depending on geography, roll-out dates and available technologies. The government set the minimum download speed at 256 kbit/s and prices were capped at a “reasonable fee.” Malaysia’s 2006 MyICMS strategy also set out a number of goals for broadband services, as well as strategies to achieve such goals.191 The government is funding a fiber optic network under a public- private partnership with Telekom Malaysia that is aimed at connecting about 2.2 million urban households by 2012. Under the terms of the Agreement, government committed to investing MYR 2.4 billion (USD 700 million) in the project over 10 years, with Telekom Malaysia committing to covering the remaining costs. In 2010 Telekom Malaysia (TM) launched its next-generation high-speed broadband service and included a relaunch of TM’s IPTV offering. Local efforts, bottom-up networks Broadband development financing is not limited to national or regional governments, however. There are also interesting examples of how local efforts have resulted in the financing of bottom-up broadband networks. The Universal Access and Service Module of the infoDev ICT Regulation Toolkit (Module 4), for example, notes that the emergence of municipal broadband networks provides an additional source of financing, from local governments, for ICT service development.192 The toolkit highlights the Pirai municipal network in Brazil as a successful initiative that was based on the needs of the municipal authority and included e-government, education and public access, with a range of application support and development activities. The project established numerous broadband access nodes that allowed all local government offices and most of the public schools, libraries, and general public access points to be connected. Initially, all financing was provided by the municipal government. A commercial enterprise was later established, but continues to be funded and supported by the municipality.193 Municipalities in some European countries (such as the Netherlands and Italy) have also taken the lead in orchestrating broadband initiatives in their region (see Box 2.19).194 A 2010 study argues that this has been due to the fact that incumbent cable and telecommunication carriers have been uncertain about the prospects of NGA networks in certain areas, that there is an increasing demand for broadband services, in particular double- and triple-play services as well as higher network capacity in both urban and rural areas, and that local (and national) governments perceive broadband networks as a means of reducing the digital divide and stimulating economic development of regions. This, the study claims, has led municipalities to become major investors in NGA networks.195 The French government, for 85 Module 2. Policy Approaches to Promoting Broadband Development example, has helped local authorities play a greater role in developing broadband infrastructure through the Caisse des Depots et Consignations (CDC, a government-owned bank), which provides concessional loans to municipalities for broadband development.196 Box 2.19. Municipal Broadband Initiatives In Italy, Terrecablate Siena is an example of a publicly owned carrier, which participated in the Terrecablate consortium (“Societá Terrecablate Reti e Servizi S.r.l.” was created in 2005 and comprised of the Province of Siena, 36 municipalities and three mountain communities of the Province of Siena). The project is funded with public money and aims at maximizing access to connectivity within rural areas. In the Netherlands, the Draadloos Groningen (Wireless Groningen) Foundation signed an agreement in 2009 with Unwired Holding to deploy and manage a citywide wireless broadband network. The business model used is the “anchor tenant” model whereby the anchor tenants (large organizations within a city) fund the network and use it for their own applications. The Foundation’s members are the municipality of Groningen, the Hanzehogeschool Groningen, the University of Groningen and the University Medical Center. These four members of the foundation are also the initial anchor tenants. Each of them are contributing EUR one million over a four-year period, which is aimed at guaranteeing financial support for the network in its start-up phase, and a commitment to use it for as many purposes as possible. Noorderpoort College and the Groningen police have also signed up to use the citywide network. Draadloos Groningen and Unwired Holding will begin selling access to the network to other governmental and commercial organizations, as well as to individuals. In the United Kingdom, the government is taking a new approach to delivering connectivity in rural and hard-to-reach areas where the market is unlikely to provide service. Where local authorities have superfast broadband as a development priority, Broadband Delivery UK (BDUK) will work with the local government to coordinate projects and financing. Such collaboration will be the foundation for the government’s USD 859 million investment commitment until 2015. Sources: Alberto Nucciarelli, et al., Emerging models of public-private interplay for European broadband access: Evidence from the Netherlands and Italy (2010); Esme Vos, Groningen, Netherlands deploys municipal wireless network, (Apr. 15, 2009), available at http://www.muniwireless.com/2009/04/15/groningen-deploys-muni- wireless-network; Department for Business, Innovation and Skills and Department for Culture, Media and Sport, “Britain’s Superfast Broadband Future,” (December 2010), available at http://www.culture.gov.uk/images/publications/10-1320-britains-superfast-broadband-future.pdf. Universal Access and Service Funds (UASF) for Broadband In the past, many countries defined their USFs in a way that gave priority to providing voice telephony (traditionally provided over wireline) services to unserved or underserved regions. Recently, however, a number of countries have revised their definitions and scope of the funds to include broadband, mobile telephony, or Internet access. For example, the EU and the United States are adding resources to existing rural development funds or USFs to accommodate broadband.197 Other countries are contracting commercial providers to build the network with service obligations through a competitive bidding process (e.g., France, Ireland, Japan and Singapore). In addition, according to a 2010 World Bank study, the availability of new, lower cost broadband-enabled technologies allows countries to adopt more ambitious UAS policies without necessarily incurring higher costs or continuous subsidies.198 Countries are increasingly considering turning broadband into a USO and reforming their universal service policies in order to expand broadband access to unserved areas. According to a 2011 ITU report, over 40 countries now include broadband in their universal service or universal access definitions.199 86 Module 2. Policy Approaches to Promoting Broadband Development Examples of countries that have revised their USO policies to include broadband are provided in Module 4. As addressed in Module 3, the financing of UAS has gone through various stages, ranging from cross- subsidies that finance non-profitable areas under a monopolistic scenario to the creation of UASFs financed by operator levies that support projects in more competitive markets. There is also a range of other solutions between these two points. Historically, first-generation funding projects have been primarily top-down (e.g., Colombia and Peru), with the fund defining the locations and requirements. However, in the last few years, bottom-up projects have been tried in Chile and other countries. In Sub- Saharan Africa, the tendency has been towards top-down projects, primarily allocated through competitive processes such as least-cost subsidy bids. The infoDev ICT Regulation Toolkit also illustrates how so-called “second generation” UASFs are today applying their resources to the financing of Internet Points of Presence (POPs) in rural districts, telecenters and cyber cafés, school connectivity and other ICT initiatives. Uganda is one of the first countries to establish a more comprehensive USF, and many of its latest initiatives are through technology-neutral competitions, which are increasingly being won by mobile operators. However, there are some legitimate and understandable concerns regarding UASF in many countries around the world, fuelled mostly by a few unfortunate examples of mismanagement and lack of transparency. Also, there have been concerns raised over the complexity of establishing and managing a UASF. Negotiating UAS contributions for all operators, which are viewed as equitable and accepted as fair, is not easy.200 Policymakers have also found that mechanisms need to be put in place to make funds accessible to a wider range of telecommunications service providers. Limiting access only to a specific category of licensee or to licensed operators, for example, can create barriers that continue to support existing conditions (i.e., the expansion of wireline networks to provide universal service/access) and discourage the implementation of new technologies to provide service in unserved or underserved areas. In addition, the development and presentation of project proposals for UASF consideration should not be restricted only to the fund authority or to telecommunications providers, but instead should be open to all entities with an interest in contributing to the fulfillment of universal service/access. A system where multiple parties can submit project proposals allows all interested parties to contribute to achieving USO objectives. Having multiple sources for project proposals can provide a more realistic vision of the needs and conditions of the market, such as what type of service is required by localities and which technology is best suited, and are more likely to result in creative and resourceful project solutions. This has become even more relevant in a broadband context as USO objectives expand to include deployment of a variety of advanced technologies and services that includes fixed line and wireless broadband, multi-service platforms permitting full access to all functions and features of telephony, Internet, data transmission, e-commerce, e-government, multimedia entertainment, and interactive communications. Comparing Alternative Instruments Not all fiscal support instruments are equally effective. They differ primarily in terms of accuracy, and also regarding transparency, targeting, cost, and sustainability.201 Figure 2.18 illustrates which instruments of fiscal support can help overcome each type of obstacles to broadband development (i.e., their effectiveness in addressing specific impediments to broadband development).202 For example, subsidizing investment is particularly effective at reducing investors’ costs and also can help overcome financial market failures. Alternatively, subsidizing use of broadband is an effective way to increase revenues by making service affordable to people that otherwise would not buy the service; however, it can also enhance competition among firms to provide the service and reduces commercial risk by 87 Module 2. Policy Approaches to Promoting Broadband Development building up demand that otherwise would materialize at some point in the future as incomes rise and costs decline. The choice of instrument can be further narrowed by considering the transparency of the instruments' cost and their ability to effectively target specified categories of beneficiaries.203 Figure 2.18. Accuracy of Fiscal Support for Broadband Development* Objective Subsidy Subsidy Rights of Preferential Equity Long- On-lending Partial risk of invest- use and way, taxation Investment term international guarantees ment devices spectrum loans loans Reduce costs Increase revenues Facilitate competition Improve business environment Address fin. market failures Reduce regul. and political risk Reduce commercial risk Source: Telecommunications Management Group Inc., adapted from Irwin, Timothy, 2003, Public Money for Private Infrastructure, World Bank Working Paper No. 10, The World Bank, Washington, DC. * The dark shading depicts areas where the instrument is particularly effective, while the light shading illustrates additional effects. Best Practices for Effectively Managing and Reviewing the Flow of Funds Whether funds flow through a UASF, or other public financing body such as PPPs or municipal-led projects, a number of key principles are applicable to ensure effective management of the flow of funds to projects aimed at achieving universal broadband access, as described in Module 4.  Effective management: Transparency, accountability and efficiency are the necessary elements to ensuring that the flow of funds is effectively managed. Transparency of procedures can be enhanced through a manual or handbook for recipients of public financing that detail rules related to procurement, accounting standards, project selection criteria and other procedures. Accountability seeks to ensure that operations are transparent and generally rely on periodic reporting by service providers, as well as annual independent audits and reports on the UASF, as applicable. Establishing an efficient management structure involves providing the fund manager with the flexibility and autonomy needed to respond quickly to market realities while ensuring that there is sufficient oversight, evaluation and review. 88 Module 2. Policy Approaches to Promoting Broadband Development  Review processes: UAS programs should be reviewed in terms of strategy and management on a regular basis by an independent entity (with relevant expertise in the fields of UAS, project finance, and operational management). Where public funds are used to subsidize broadband deployment, evaluations of UAS projects generally consider a number of elements including whether the specific targets in a UAS or NBP were met; identifying the impact that the projects have had on deployment and uptake of broadband services; whether the financial commitments needed to meet objectives were sufficient or whether additional funding is needed; and strategic options for future development of the UAS program to further meet UAS goals. 2.7 Measurement, Monitoring and Evaluation: Checking Progress 2.7.1 Why Measure Performance? A country that adopts a broadband strategy will do so to achieve certain objectives such as increasing the productivity of its economy through greater use of knowledge and accelerating economic growth by increasing the use of broadband applications and services. In relation to the overall development strategy, there will be an interest in ensuring that both government funds and private investment are utilized as efficiently as possible, and that negative effects such as exacerbation of the broadband divide are minimized. Policymakers seeking to promote broadband development need mechanisms to ensure that their objectives are being achieved and to identify if mid-term corrections and refinements to policies and programs are needed. Broadband indicators are also needed for analysis, for example to examine trends and the link between broadband adoption and social and economic development. They are also important for monitoring license compliance in areas such as coverage and quality. In short, they need to measure progress and identify successes and failures. This is not possible unless regular progress monitoring is conducted. Ideally, the indicators most appropriate for the selected objectives are built into the design of the programs from the beginning, and the necessary resources for data collection and analysis are allocated from the start. When indicators are an afterthought, they tend to be more difficult to collect and use. The objectives of broadband strategies adopted by different countries will differ. The conditions affecting the fit of the indicators will also differ from country to country. Therefore, the specific indicators appropriate for a particular country, the frequency of data collection and reporting, the geographical unit of analysis, etc. will differ from country to country as well. Consequently, this section provides a range of options rather than a single prescription. 2.7.2 What to Measure? This section identifies fixed and wireless broadband indicators that are likely to be of most interest to policy makers. It focuses on indicators related to users’ access to and adoption of broadband, rather than wholesale and backbone markets.204 The areas covered include availability, demand, quality and pricing (see Figure 2.19). The focus here is on key indicators, but there are additional measurements that could be useful for monitoring and analysis. These might include, for example, monetary-based statistics such as broadband revenues. The Partnership on Measuring ICTs for Development (Partnership)205, a coalition of intergovernmental agencies has produced a methodological manual identifying core ICT statistics including several broadband indicators.206 This provides a useful list of key broadband indicators based on definitions with international consensus. 89 Module 2. Policy Approaches to Promoting Broadband Development Figure 2.19. Categories of broadband indicators Availability Demand Quality Pricing Coverage Household Speed Wireline Connections Business Latency Wireless Source: Telecommunications Management Group, Inc. Availability (Supply) Availability refers to the ability to access wireline and wireless broadband networks and services. Different modes of providing broadband exist; therefore, different indicators of availability are needed for each of the modes. In the case of wireline systems, availability can be measured by the percentage of households passed. This is a conventional measure in the cable industry that can be extended to fiber and DSL as well. The indicator reflects the number of copper (telephone), coaxial (cable television) or fiber optic lines accessible by a premise, regardless of whether users actually subscribe to the broadband service.207 It may also be useful to distinguish between the type of technology, such as DSL, cable modem and fiber-to-the-premise (FTTP). This provides an idea of the relative importance of each to broadband development as well as the degree of intermodal competition between technologies. It may also be useful to provide a breakdown of subscriptions by speed ranges and geographic area. These considerations are becoming increasingly important as countries seek to deploy minimum speed broadband services to unserved and underserved populations. In the case of wireless, the obvious indicator of availability is signal coverage. This can be measured in terms of population or area. The ITU has developed a definition for wireless broadband coverage in the form of 3G/4G network coverage, though the data are not reported for most countries.208 Parallel definitions for fixed wireless, satellite and wireline coverage do not exist within the ITU definitions. However, several countries in the OECD report these data using definitions developed either by national governments or by industry organizations.209 They may be adapted by countries wishing to develop comprehensive coverage indicators. Adoption (Demand) While supply side indicators give a general idea of high-speed Internet availability, they do not reflect concrete adoption or usage. Thus, policymakers need to also find reliable ways to measure how many people and businesses are actually using the networks that have been put in place. Measuring the uptake/adoption of wireline and wireless technologies, however, is significantly more difficult than measuring the supply.210 While coverage measures the theoretical ability to access broadband services, the number of subscribed connections measures actual demand for the service. Subscriptions should be minimally broken down by wireline and wireless broadband and preferably additional categories to allow for deeper analysis. Measuring adoption rates is important because a number of countries have begun to use the percentage of households with broadband access as a key metric in their broadband goals (see Table 90 Module 2. Policy Approaches to Promoting Broadband Development 2.4. Without appropriate measurement programs, there is no way to judge if these goals are being met. As a result, and also to help them compare their progress to other countries, a growing number of countries are measuring broadband access by households and businesses through surveys typically carried out by the national statistical offices. These demand side surveys also typically include a number of indicators on use, which can illuminate factors contributing to broadband take-up. Table 2.4. National broadband plans: household targets Country Plan Indicator Brazil Um Plano Nacional Para 50 broadband accesses per 100 households Banda Larga Germany The Federal Government’s 75 percent of households should have high speed Broadband Strategy broadband access with transmission rates of at least 50 MB/sec by 2014 Malaysia The National Broadband By end of 2010, it is expected that the total Plan broadband connection will reach 75 percent penetration rate for household Morocco Maroc Numeric 1 out of 3 household connected by 2013 South Africa Broadband Policy for Household broadband penetration should be at least South Africa 15 percent by 2019 United States Connecting America: The 100 million U.S. homes should have … access to National Broadband Plan actual download speeds of at least 100 Mbps … by 2020. As a milestone, by 2015, 100 million U.S. homes should have affordable access to actual download speeds of 50 Mbps ... Source: Telecommunications Management Group, Inc. In measuring broadband adoption, it is important to recognize that there are a number of methodological limitations that can make comparisons between countries or with benchmarks difficult or misleading. Determining the number of wireless broadband subscriptions, in particular, presents several methodological challenges. First, different countries may define wireless broadband according to different speeds. Second, the line between fixed and mobile broadband is not always clear. For example, in some countries there is a legal rather than technical restraint on nationwide roaming for some wireless broadband networks. Even with this restriction, users can move with their mobile handset or data card within a limited area so the distinction between fixed and mobile is not so clear. A third consideration is that countries approach the use of wireless broadband on laptops via data cards differently than use via mobile handsets. Some countries only consider the former to be mobile broadband and consequently include it in their overall broadband counts, while smartphone broadband use can go uncounted, which could lead to undercounting of actual broadband use—especially with the advent of 4G technologies. Another major issue with measuring wireless broadband is that users may have the theoretical ability to access mobile broadband services if they have an appropriate device (and data payment plan), but they may not actually make use of the available services. Counting this theoretical availability can significantly overstate the take-up of wireless broadband services in a country. Therefore, it is important to distinguish between active and inactive data subscriptions. The OECD has defined active wireless subscriptions as access to the Internet in the previous three months or the use of a separate data subscription.211 However, even activity is a blurred concept since some countries count access to any high-speed service such as video chat, mobile television, etc. and users may not be accessing the Internet. 91 Module 2. Policy Approaches to Promoting Broadband Development Regulators in a number of countries publish broadband subscription data, highlighting trends and making comparisons. The Turkish Information Communications and Technology Authority, for example, contrasts the availability of different broadband subscriptions with the European Union and also provides a breakdown of speeds over ADSL, the most prevalent wireline broadband technology in the country (Figure 2.20). Figure 2.20. Wireline Broadband by Technologies and Speed (ADSL) in Turkey Percent, 2010 100 93.5 Breakdown of ADSL subscriptions by speed 90 > 8 Mbit/s 512 kbit/s & 79 5% less 80 2% 70 60 50 EU 1 Mbit/s 40 Turkey 26% 30 20 15.3 8 Mbit/s 64% 10 3.9 3.7 2 2.2 0.5 0 2 -4 Mbit/s DSL Cable Fibre Others 3% Note: Data for EU refer to January 2010. Source: ICTA, Annual Report 2010. Quality In order to use or fully utilize certain applications, certain performance parameters must be met by the broadband connection. Two of the most important are latency (the amount of time it takes for a packet to travel between sender and receiver) and speed, which can be monitored for both fixed and wireless networks. Other broadband performance metrics include signal quality, availability (“uptime”), complaint ratios and service activation and restoration times. Technical means exist to measure these aspects at various points in the link between the end user and the server providing the application. Such information is important to both policymakers—to ensure that the broadband networks and services being supplied are up to industry standards—and to consumers—who can use such information to decide which service will provide them with the highest quality. Many consumer complaints hinge on differences between advertised and actual speeds.212 In Bahrain, for example, the Telecommunications Regulatory Authority publishes quarterly reports measuring average download and upload speeds and DNS and latency times (Figure 2.21).213 In the absence of regular monitoring some regulators publish links on their web sites to third party applications for measuring speed and other quality aspects.214 92 Module 2. Policy Approaches to Promoting Broadband Development Figure 2.21. Average Download Speed (Two Mbit/s Packages) and Ping Time (Milliseconds), Bahrain, January-March 2011 Average download speed (Mbit/s) Ping time (milliseconds) Industry average Advertized speed 245 2.5 240 2.0 235 1.5 Mbit/s 230 1.0 225 0.5 220 0.0 215 00:00 02:00 04:00 06:00 08:00 10:00 12:00 14:00 16:00 18:00 20:00 22:00 Time of day Note: Ping time measures latency by taking the average round trip to servers located in Bahrain, Europe and the United States. Source: Telecommunications Authority of Bahrain. Overall quality can also be affected depending on how far apart the user is from the information being accessed. When a user is accessing ICT resources that are provided by their own ISP, service can be quite good since everything is on one network. If the information is located in a server on a different network in a different part of the country, however, there are more links that must be made, and hence more opportunities for quality to degrade. Finally, if a user is trying to access information on a server in a far-off country, quality can suffer further as more variables are introduced into the transmission link. Measuring for each of these cases yields diagnostic information useful for regulators, operators and consumers, and can help to identify weak links in the broadband supply chain. For example, the Info- communications Development Authority of Singapore establishes different latency parameters depending on whether Internet traffic is national or international.215 Pricing As noted in section 2.2.3, price impacts adoption rates; services (or devices) that are too expensive will not be subscribed to or used and adoption rates will suffer. Thus, governments have an incentive to try to ensure that prices are as affordable as possible and to track whether their efforts to keep costs down are succeeding. In particular, a government that launches a broadband initiative using public resources will want the service to be affordable to the intended beneficiaries. One could argue that prices need not be monitored in the case of purely private supply, where no public resources have been expended. However, when broadband is seen as an essential public utility, or where prices are high due to market failure, governments may want to monitor pricing. Concerns about this issue have prompted several countries, such as India and the United States, to include “affordable” broadband access as a key factor or goal in their broadband initiatives.216 Competitive broadband markets typically have multiple tariffs with varying levels of bandwidth, data download caps and discounts. This presents methodological challenges in terms of compiling comparative broadband tariff indicators across technologies. Baskets of monthly services are often used 93 Module 2. Policy Approaches to Promoting Broadband Development as a common measure of price trends that factor in caps and speeds. The key components include the monthly price of broadband service, the corresponding speed and if applicable, the cap and prices for exceeding the cap. Capped versus unlimited packages pose comparison problems, but can be mitigated somewhat by comparing price per advertised Mbit/s. Another issue is that some broadband technologies require an underlying subscription to the transport service. For example in the case of DSL, most operators require a subscription to a fixed telephone line, while some mobile broadband plans require an underlying voice subscription. Efforts to define pricing models that can fairly and effectively compare prices across countries are ongoing. The Partnership, for example, has defined a core indicator for wireline broadband prices. The core fixed broadband tariff indicator is based on entry-level prices for plans providing at least 256 kbit/s download speed. Mobile broadband pricing is a bit more difficult to compare since prices tend to vary by the volume of data downloaded per month (a “tiered” pricing scheme). In addition, comparisons can be complicated since some operators do not guarantee advertised speeds and apply various restrictions (capping data or reducing data speeds) or charge additional fees if the user exceeds his/her contracted data limits. An example comparing wireline and mobile broadband monthly prices for selected economies is shown in Table 2.5. The example illustrates the various ways of looking at broadband pricing and highlights comparability issues. One notable aspect is the differences between entry-level prices, speeds and affordability (in terms of price as a percentage of per capita income). For example, although an entry- level fixed broadband package in Turkey is almost twice as much as in Brazil, the Turkish tariff is a slightly better value since the download speed is twice as fast as in Brazil. Similarly, although the entry- level price for fixed broadband in Brazil is more than twice that of Vietnam, it is much more affordable in Brazil than Vietnam (although the value of the Vietnamese package is ten times more). Table 2.5. Wireline and Mobile Broadband Monthly Prices, Selected Countries, USD, 2011 Brazil Kenya Morocco Sri Lanka Turkey Vietnam Fixed broadband basket (unlimited) $16.99 $39.36 † $11.86 $14.18 $30.10 $7.93 Speed (Mbit/s) 0.512 0.256 1 0.512 1 2.56 $/Mbit/s $33 $154 $12 $28 $30 $3 % GDP per capita 1.9% 28.4% 4.4% 7.0% 3.5% 8.1% Mobile broadband basket (1 GB) $51.27 $26.24 $11.86 $4.34 $19.93 $6.34 Speed (Mbit/s) 1* 7.2** 1.8* 7.2** 7.2** 3.6* $/Mbit/s $51 $7 $1 $2 % GDP per capita 5.7% 18.9% 4.4% 2.1% 2.3% 6.5% AAER 2010 LCU/1US$ 1.7536 76.1926 8.3507 112.796 1.5054 18,919.10 GDP per capita $10,816 $1,662 $3,249 $2,435 $10,399 $1,174 Fixed broadband basket 1 GB, LCU 29.8 2,999 99 1,600 45.31 150,000 Mobile broadband basket 1 GB, LCU 89.9 1999 99 490 30 120,000 Note: LCU=Local currency unit. AAER=Annual average exchange rate. * Advertised download speed. ** Theoretical download speed. †=Includes 30 minutes of on-net calls. For fixed broadband, least expensive uncapped plan providing download speed of at least 256 kbps. For mobile broadband, least expensive plan offering 1 GB per month of download and download speed of at least 256 kbps. 94 Module 2. Policy Approaches to Promoting Broadband Development Source: Adapted from Telefonica, VIVO (Brazil); Orange, Safricom (Kenya); Maroc Telecom (Morocco); SLT, Dialog (Sri Lanka); TTNET, Turkcell (Turkey); VNN, MobiFone (Vietnam). Table 2.6 summarizes some of the important broadband indicators used by national and international organizations to track broadband availability and adoption. Table 2.6. Broadband Indicators Code Indicator Description Infrastructure and access A4 Fixed (wired) broadband Internet Fixed broadband Internet subscriptions refer to entities (e.g. subscriptions per 100 inhabitants businesses, individuals) subscribing to paid high-speed access to the public Internet (a TCP/IP connection). High-speed access is defined as being at least 256 kbit/s, in one or both directions. Fixed broadband Internet includes cable modem, DSL, fiber and other fixed broadband technology (such as satellite broadband Internet, Ethernet LANs, fixed wireless access, Wireless Local Area Network and WiMAX). Subscribers to data communications access (including the Internet) via mobile cellular networks are excluded. A5 Mobile broadband subscriptions per Mobile broadband subscriptions are subscriptions to mobile 100 inhabitants cellular networks with access to data communications (e.g. the Internet) at broadband speeds (defined as greater than or equal to 256 kbit/s in one or both directions) such as WCDMA, HSDPA, CDMA2000 1xEV-DO, WiMAX (IEEE 802.16e) and LTE. A8 Fixed broadband Internet access tariffs Fixed broadband Internet access tariffs represent the least per month expensive broadband entry plan converted to US$ for a minimum 256 kbit/s connection. Monthly charges do not include installation fees nor modem rentals. Affordability measure can be derived using the tariff as a percentage of monthly per capita income Access to and use of ICT by households and individuals HH7 Proportion of individuals who used the The proportion of individuals who used the Internet is Internet in the last 12 months calculated by dividing the number of in-scope individuals who used the Internet (from any location) in the last 12 months by the total number of in-scope individuals. HH1 Proportion of households with access This indicator is generally calculated as the proportion of in- 1 to the Internet by type of access scope households with Internet access that use each type of (Narrowband, Fixed broadband, access service, for instance, the proportion of households with Mobile broadband) Internet access that use a fixed broadband service as their means of access. However, it may also be useful to compare with the total population, for instance, the proportion of all households with mobile broadband. Use of ICT by businesses B9 Proportion of businesses using the This indicator is generally calculated as the proportion of in- Internet by type of access scope Internet-using businesses that use each type of access (Narrowband, Fixed broadband, service, for instance, the proportion of Internet-using Mobile broadband) businesses that use a fixed broadband service as their means of access. However, it may also be useful to compare with the total population, for instance, the proportion of all businesses with mobile broadband. NON-CORE Wireline broadband coverage (% of Percentage of households passed by a wired line capable of 95 Module 2. Policy Approaches to Promoting Broadband Development Code Indicator Description households) providing broadband access at download speeds of at least 256 kbit/s. Mobile broadband coverage (% of The percent of total population that are covered by a population) broadband mobile wireless network offering download speeds of at least 256 kbit/s. This indicator measures the percentage of inhabitants that are within range of a mobile broadband network signal, irrespective of whether or not they are subscribers. Percentage of localities with a public A locality refers to populated areas such as cities, towns and broadband Internet facility villages. A public broadband Internet facility refers to a location providing Internet access to the general public— either for free or by payment—over a broadband connection to the Internet. Fixed (wired) broadband by speed Wireline broadband Internet subscriptions broken down by ranges of advertised downstream speeds. Average download / upload speeds Average download / upload speeds from speed measurement surveys Mobile broadband Internet access Least expensive mobile broadband tariff per month tariffs per month (advertized speed at least 256 kbit/s) with at least 1 GB download Note: Core refers to fundamental indicators identified by the Partnership on Measuring ICT for Development. Source: Partnership on Measuring ICT for Development: Core ICT Indicators, ITU: Definitions of World Telecommunication/ICT Indicators and TMG, Inc. 2.7.3 How to Measure? An effective policy evaluation plan will specify not just the elements to be measured, but also how the data should be collected to ensure its integrity and validity. Government agencies responsible for broadband policy should consult internationally comparable indicators and identify those most suitable for monitoring and evaluation. Based on their mandate to regulate and monitor the sector, best practice suggests that national regulatory agencies should gather data (numbers of subscriptions, for example) directly from operators. Ideally, the regulator should consult and cooperate with national statistical agencies that have the technical skills to produce demand side statistics through household and enterprise surveys that may ask about broadband possession or use of different ICT services within households and businesses (or by individuals). Broadband operators play a key role, both as providers and consumers of the data. The entities best positioned to provide supply-side data are the network builders and owners. It is common for provisions mandating the reporting of data to the government or the regulatory agency to be included in statutes governing the industry or in licenses or concession contracts. Irrespective of legal provisions, the principal challenge will be to ensure the regular and timely reporting of the required indicators based on adherence to agreed-upon standard definitions and procedures. Most governments do not monitor their country’s broadband development in a vacuum. They typically need data from other countries to put their nation’s high-speed market evolution in perspective and benchmark it with other countries. Brazil for instance compared its broadband penetration and forecast evolution to Argentina, Chile, China, Mexico and Turkey (Figure 2.22). 96 Module 2. Policy Approaches to Promoting Broadband Development Figure 2.22. Broadband Access per 100 Households in Brazil, China, Mexico, Turkey and Chile, 2000- 2014 (est.) Source: Ministry of Communications (Brazil), Um Plano Nacional para Banda Larga - O Brasil em Alta Velocidade (2009). There are a number of international sources that harmonize and disseminate statistics for different countries. The ITU has been the traditional repository of supply-side data on telecommunications and now on ICTs, and also collects some demand-side data. Similarly, the OECD collects and disseminates a number of broadband indicators for its member countries as does EUROSTAT, the statistical arm of the European Union. All these organizations make the data available online (Table 2.7). The Economic and Social Commission for Latin America and the Caribbean (ECLAC) also recently launched a broadband indicator site for its members.217 In addition, several private sector entities publish broadband statistics on mobile broadband subscriptions218 as well as average download speeds and other quality metrics.219 Table 2.7. Sources of Official Broadband Statistics Organization Site Note Link ITU ICT Data and Statistics Worldwide scope. Fixed and http://www.itu.int/ITU- Division mobile broadband D/ict/statistics/ subscriptions; fixed broadband tariffs. EUROSTAT Information Society European Union members and http://epp.eurostat.ec.euro sometimes other countries. pa.eu/portal/page/portal/i Household and enterprise nformation_society/introdu broadband penetration. ction OECD Broadband Portal OECD member data. Includes http://www.oecd.org/docu broadband indicators covering ment/54/0,3746,en_2649_ penetration, usage, coverage 33703_38690102_1_1_1_1, prices, services and speeds. 00.html Source: Telecommunications Management Group, Inc. 97 Module 2. Policy Approaches to Promoting Broadband Development 2.7.4 How can measurement data be used? Collecting data is a crucial step in informing broadband development policy, but its real importance lies in how that data is then used to fine tune policies and strategies. All stakeholders must have access to, and be confident in, the data so that they can use it to inform their investment and policy/regulatory decisions. All projects and initiatives involve judgments and trade-offs made in conditions of imperfect information, so transparent, reliable feedback is essential. Not only does transparency enhance accountability, it also allows better information to flow through to decision makers, allowing them to improve policies and implementation through mid-course corrections. Transparency is particularly important when public funds, loans, credits or other (financial) incentives are involved. Public and stakeholder participation in policy formulation and implementation is critical for the long- term success of broadband development initiatives. Thus, for governments considering how to effectively build and refine their policies and strategies, getting the collected data into the hands of those stakeholders is critical. How can the data be made available? First, the data must be produced using proper procedures, standard definitions and in a timely manner, as discussed in section 2.7.2. Second, the data must be made widely available in formats that allow further analysis. A number of governments have made it a priority to make information available for use by the public, operators and academics. The government of the Republic of Korea, for example, has won wide recognition as an ICT development success story. There is a profusion of information made available by the Korean government, both through Statistics Korea,220 the national statistics office, and the Korea Communications Commission,221 the national regulatory agency. Officials responsible for measuring broadband development progress not only collect comprehensive data, they are also at the cutting-edge of discussions on the definition of indicators, the methodologies for their measurement, and interpretation.222 The United States FCC has developed a broadband coverage map, which is available online, that shows where (wired) broadband networks are available in the country.223 Germany has a similar mapping function that shows broadband speeds available across the country,224 and has also created an infrastructure “atlas” that shows the passive infrastructure (from telecommunications, electricity, water and gas line providers) that could be used to help further buildout broadband networks.225 Such efforts can help identify those areas where broadband development still lags and those resources that could be used to help close the broadband development gap. 98 Endnotes Endnotes 1 See, for example, OECD, Broadband and the Economy, Ministerial background report prepared for the OECD Ministerial Meeting on the Future of the Internet Economy, Seoul, 17-18 June 2009, available at http://www.oecd.org/dataoecd/62/7/40781696.pdf 2 Forbes.com, America’s Most Wired Cities, January 2008, http://www.forbes.com/2008/01/09/wired-cities-wifi- tech-wireless-cx_ew_0110wired.html 3 In a technical sense, public goods are non-rivalrous (i.e., one person’s use does not diminish another person’s ability to use it) and non-excludable (people cannot be stopped from using it). Examples include free over-the-air radio and television and national defense. However, some argue that broadband is not a pure public good as broadband access is excludable as demonstrated by the unevenness of broadband deployment, even within the same country. Some may also argue that broadband is not a public good since it is also rivalrous —one person’s use can diminish another’s use if the network is congested. Robert Atkinson, Network Policy and Economic, Paper Presented at the 2010 Telecommunications Policy Research Conference (TPRC) (Oct. 2010), available at www.itif.org/files/2010-network-policy.pdf. 4 This section is drawn from Janet Hernandez, Daniel Leza and Kari Ballot-Lena, Telecommunications Management Group, Inc., ICT Regulation in the Digital Economy, GSR Discussion Paper, at 5 (2010). 5 Telecompaper.com, YouTube reaches 2 bln views per day on 5th anniversary, 18 May 2010, available at www.telecompaper.com/news/article.aspx?cid=735195 (last visited February 3, 2011). According to YouTube, the average user spends 15 minutes a day on the website; 24 hours of video are uploaded to YouTube every minute; and 45 million daily homepage impressions. 6 TeleGeography Research, January 2010. 7 See, for example, Hanna Milad and Balaji Ramarao, Accenture, Cost Optimization for Transmission and Backhaul Technologies, (2006), available at http://www.accenture.com/SiteCollectionDocuments/PDF/acs_cost_opt_pov8.pdf. 8 It is worth noting that this is changing. The commercial success of mobile operators in Africa, the increase in traffic arising from a growing customer base, and the shift in strategy from an exclusive focus on voice to one that includes broadband mean that network operators are now considering investment in fiber-optic networks that once would have been considered too risky. 9 See Pew Internet and American Life project, available at http://www.pewinternet.org/Reports/2010/Home- Broadband-2010/Summary-of-Findings.aspx (last visited January 27, 2011). 10 See http://epp.eurostat.ec.europa.eu/statistics_explained/index.php/Information_society_statistics_at_regional_level #Publications (last visited January 19, 2011). 11 U.K. Department for Culture, Media and Sport and Department for Business, Innovation and Skills, Digital Britain Final Report at 32 (June 2009). 12 Hanne Shapiro, Knud Erik Hilding-Hamann and Kristian Pedersen, Danish Technological Institute Centre for Policy and Business Analysis, Final Report Topic report 4 Conclusions and recommendations based on reviews and findings at 5 (April 2009). 13 Janet Hernandez, Daniel Leza and Kari Ballot-Lena, ICT Regulation in the Digital Economy, GSR Discussion Paper, Telecommunications Management Group, Inc., p. 4 (2010), available at http://www.itu.int/ITU- D/treg/Events/Seminars/GSR/GSR10/documents/GSR10-ppt2.pdf. 14 Núcleo de Informação e Coordenação, Análise dos Resultados da TIC Domicílios, Gráfico 8, p. 14 (2009). The total percentage of respondents is more than 100 because some respondents provided more than one reason for non- adoption. FCC, Broadband Adoption and Use in America, p. 30 (November 2009). The total percentage of 99 Endnotes respondents is less than 100 because, for purposes of comparison, not all factors addressed in the study are included in this figure. 15 The experiences of the countries surveyed in the World Bank’s report, Building Broadband: Strategies and Policies for the Developing World, for example, may provide good approaches that could be adapted for use in many countries. Yongsoo Kim, Tim Kelly, and Siddhartha Raja, Building Broadband: Strategies and Policies for the Developing World, World Bank, (June 2010), available at http://www.infodev.org/en/Publication.1045.html. 16 OECD, Broadband Growth and Policies in OECD countries (July 2008), available at http://www.oecd.org/document/1/0,3343,en_2649_34223_40931201_1_1_1_1,00.html. Also see Christine Qiang, Broadband infrastructure investment in stimulus packages: relevance for developing countries, World Bank (2009), available at http://siteresources.worldbank.org/EXTINFORMATIONANDCOMMUNICATIONANDTECHNOLOGIES/Resources/2828 22-1208273252769/Broadband_Investment_in_Stimulus_Packages.pdf 17 Christine Qiang, Broadband infrastructure investment in stimulus packages: relevance for developing countries, World Bank (2009). 18 Ministry of Industry, Employment and Communications, An Information Society for All, The Government Bill 1999/2000:86, N.2000.018, March 2000, available at http://www.epractice.eu/files/media/media_410.pdf. 19 IDA, What is Next Gen NBN? (2009), available at http://www.ida.gov.sg/Infrastructure/20090717105113.aspx. 20 InfoDev,Telecommunications and International Telecommunication Union, ICT Regulation Handbook, Module I, Section 1.3 (2000), available at http://www.ictregulationtoolkit.org/en/index.html (last visited January 27, 2011). 21 International Telecommunication Union, Trends in Telecommunication Reform 2002: Effective Regulation , Chapter 6, (2002). 22 See Cayman Islands Information Communications Technology (ICT) Authority, The ICT Authority Public Consultation Process, May 12, 2003, available at http://www.icta.ky/docs/CD(2003)1a%20- %20Public%20Consultation.pdf, last visited January 26, 2011. See also Anguilla Administrative Procedures Regulation, R.A. 21/2004, Part II (2004) available at http://www.gov.ai/telecommunications/tel_policy.htm, last visited January 26, 2011. 23 Ofcom, How will Ofcom Consult? A guide to our consultation process, available on Ofcom’s website at http://stakeholders.ofcom.org.uk/consultations/how-will-ofcom-consult, last visited on January 26, 2011. 24 DBCDE, National Broadband Network: Regulatory Reform for 21st Century Broadband (Apr. 2009) at http://www.dbcde.gov.au/__data/assets/pdf_file/0006/110013/NBN_Regulatory_Reform_for_the_21st_Century_ Broadband_low_res_web.pdf. 25 TRAI, Consultation Paper on National Broadband Plan (June 10, 2010) at http://www.trai.gov.in/WriteReadData/trai/upload/ConsultationPapers/202/consultationon10june10.pdf. 26 TRAI, Extension of Last Date to receive comments on Consultation Paper on “National Broadband Plan” (July 2, 2010) at http://www.trai.gov.in/WriteReadData/trai/upload/ConsultationPapers/207/Extension.pdf. 27 TRAI, Comments received from Stakeholders on Consultation on “National Broadband Plan at http://www.trai.gov.in/ConsultationPapers_content.asp. 28 TRAI, Recommendations on National Broadband Plan (Dec. 8, 2010) at http://www.trai.gov.in/WriteReadData/trai/upload/Recommendations/124/Broadbandrecommendation08_12_10 final.pdf. 29 This section is drawn from Janet Hernandez, Daniel Leza and Kari Ballot-Lena, ICT Regulation in the Digital Economy, GSR Discussion Paper, Telecommunications Management Group, Inc., p. 4 (2010), available at http://www.itu.int/ITU-D/treg/Events/Seminars/GSR/GSR10/documents/GSR10-paper3.pdf. 100 Endnotes 30 Telecommunications Law of the Kingdom of Bahrain, Legislative Decree No. 48 of 2002, available at www.tra.org.bh/en/pdf/TelecommunicationsLaw-secondedition-English.pdf (last visited February 7, 2011). 31 Office of Fair Trading, Letter from the Office of Fair Trading (OFT) Setting Out OFT/Ofcom Concurrency Arrangements (December 2003), available at www.ofcom.org.uk/about/accoun/oft/#content (last visited February 7, 2011, and OFT, Concurrent Application to Regulated Industries (December 2004), available at www.oft.gov.uk/shared_oft/business_leaflets/ca98_guidelines/oft405.pdf (last visited February 7, 2011).. 32 Memorandum of Understanding between the Competition Commission of Mauritius (CCM) and the Information and Communication Technologies Authority (ICTA), (March 2010), available at www.ccm.mu/mouICTA.pdf (last visited on February 7, 2011). 33 Ministry of Communications and Information Technology, Dr. Kamel and Eng. George Sign Memorandum of Understanding on Green ICT Strategy, Press Release (9 February 2010), available at www.mcit.gov.eg/PressreleaseDetailes.aspx?id=soldypBGlXo (last visited February 7, 2011). 34 Energy Market Authority, Singapore’s Intelligent Energy System Pilot Project: First Step towards a Smarter Grid (November 2009) at www.ema.gov.sg/ema_cms/media/news_pdfs/1260266179IES%20Press%20Release%20_Final_%20web.pdf. 35 2 E Singapore, Energy Efficient Program Office at www.e2singapore.gov.sg/energy-efficiency-programme- office.html#. 36 For an early review of distance learning activities in the United States, for example, see U.S. Congress, Office of Technology Assessment, Linking for Learning: A New Course for Education, OTA-SET-430 (November 1989). 37 OPLC, One Laptop per Child in Afghanistan (April 2009), available at http://olpc.af/index.php/component/content/article/35-olpc-in-afghanistan-/8-olpc-in-afghanistan-.html. 38 OLPC, OLPC Breaks New Ground in Kandahar (March 2010) available at http://blog.laptop.org/2010/03/09/olpc-provides-children-of-afghanistan-access-to-a-modern-education/. 39 FCC, National Broadband Plan, Ch. 10 Health Care, available at www.broadband.gov/plan/10-healthcare/#r10-1 (last visited February 8, 2011). 40 Christopher P. Beshouri and Jon Gravråk, Capturing the Promise of Mobile Banking in Emerging Markets . 41 See James Bellis and Lasse Nagel, Interoperability of Mobile Money Services, GSMA Mobile Money for the Unbanked Annual Report 2009, at www.gsmworld.com/documents/mmu_2009_annual_report.pdf. 42 Sources: CCK, Interconnection Determination No.2 of 2010, Determination on interconnections rates for fixed and mobile telecommunications networks, infrastructure sharing and co-location; and broadband interconnection services in Kenya; Gunnar Camner, Caroline Pulver and Emil Sjöblom, What Makes a Successful Mobile Money Implementation? Learnings from M-PESA in Kenya and Tanzania, GSMA. Olga Morawczynski and Mark Pickens, Poor People Using Mobile Financial Services: Observations on Customer Usage and Impact from M-PESA, CGAP Brief (August 2009) at www.cgap.org/gm/document-1.9.36723/BR_Poor_People_Using_Mobile_Financial_Services.pdf. 43 Claire Alexandre, Ignacio Mas and Dan Radcliffe, Regulating New Banking Models that can Bring Financial Services to All, Bill & Melinda Gates Foundation (August 2010) at www.microfinancegateway.org/gm/document-1.9.46229/Regulating%20New%20Banking%20Models82010.pdf. 44 Ibid. 45 Michael Tarazi and Paul Breloff, Nonbank E-Money Issuers: Regulatory Approaches to Protecting Customer Funds, CGAP Focus Note No. 63 (July 2010) at www.cgap.org/gm/document-1.9.45715/FN63_Com.pdf. 46 Ibid. 101 Endnotes 47 Yongsoo Kim, Tim Kelly, and Siddhartha Raja, Building Broadband: Strategies and Policies for the Developing World, World Bank, (June 2010), available at http://www.infodev.org/en/Publication.1045.html. 48 FTTH Council, Regulatory Barriers For Fibre Deployment 2008. 49 Pyramid Research, The Next Billion: How Emerging Markets Are Shaping the Mobile Industry at 33 (October 2007). 50 Marin Fransman, Global Broadband Battles: Why the US and Europe Lag While Asia Leads ay 28-32. ‘Disruptive competitors’ means newly entered operators that are so aggressive with their pricing that they do not cover their costs and end up making short-run losses. 51 World Bank, Africa Infrastructure Country Diagnostic for Sub-Saharan Africa, (2008). 52 Memorandum for the Heads of Executive Departments and Agencies, Improving Rights-of-Way Management Across Federal Lands to Spur Greater Broadband Deployment , 40 Weekly Comp. Pres. Doc. 696 (Apr. 26, 2004). 53 Serbian Railways, PE Serbian Railways and PTT Serbia signed the contract on telecommunications infrastructure construction along the lines (Jan. 13, 2011) available at http://www.serbianrailways.com/system/en/home/newsplus/viewsingle/_params/newsplus_news_id/26885.html 54 Kenya Power & Lighting Co., Ltd., KDN leases KPLC dark fibres (Mar. 18, 2010), available at www.kplc.co.ke/fileadmin/user_upload/kplc09_files/UserFiles/File/Press%20Release%20- %20KDN%20leases%20KPLC%20dark%20fibres.pdf. 55 Ventelo, Capacity Product Line, available at www.ventelo.no/wholesale-english/capacity.html. 56 See, e.g., TeleGeography, Telia and Telenor share Danish networks ( June 11, 2011), available at www.telegeography.com/products/commsupdate/articles/2011/06/14/telia-and-telenor-share-danish-networks/ and TeleGeography, Safaricom and Telkom poised to ink tower sharing deal, (June 14, 2011), available at http://www.telegeography.com/products/commsupdate/articles/2011/06/14/safaricom-and-telkom-poised-to- ink-tower-sharing-deal/. 57 El Pais, Telefónica y Vodafone Cierran el Acuerdo Para Compartir Sus Redes móviles en España (March 23, 2009, online edition). 58 Obiodu, Ovum, Can Network Sharing Propel LTE? (2009). 59 Telenor Group, press release, Telenor and Tele2 to Build Joint LTE Network in Sweden (April 14, 2009). 60 ARCEP, L'Autorité prend un premiére décision sur le partage des réseaux de troiséme génération en métropole en application de l'article 119 de la loi de modernisation de l'économie , (April 14, 2009.) 61 European Commission, Commission Decision of 16 July 2003 relating to a proceeding under Article 81 of the EC Treaty and Article 53 of the EEA Agreement (Case COMP/38.369: T-Mobile Deutschland/O2 Germany: Network Sharing Rahmenvertrag), Official Journal of the European Union, L 75/32 (2004), avaialbe at http://eur- lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2004:075:0032:0058:EN:PDF, last visited January 27, 2011. 62 European Court of First Instance. Case T-328/03, O2 (Germany) & Co OHG vs. European Commission, (2006). 63 Yongsoo Kim, et al., Building Broadband: Strategies and Policies for the Developing World (June 2010). 64 Telecompaper, KDN cuts internet rates by 90 percent (Aug. 5, 2009), available at www.telecompaper.com/news/kenya-data-networks-cuts-internet-rates-by-90-percent. 65 For small island developing states (SIDS), obtaining submarine cable connectivity has been a mixture of geography, history and luck. Investment in a submarine cable depends on traffic which is itself a function of the number of people and the intensity of use. SIDS have very small populations and modest levels of teledensity and Internet usage making it challenging to obtain submarine cable connectivity. See Ewan Sutherland, Telecommunications in Small Island Developing States, 37th Research Conference On Communication, Information And Internet Policy, George Mason University School of Law, p. 8 (Sept. 2009). 102 Endnotes 66 World Bank, The World Bank Guarantees: Leveraging Private Finance for Emerging Markets (2002). 67 Telecommunications Regulatory Authority, Fixed Broadband Analysis Report 01 Oct 2010–31 Dec 2010 (2011), available at www.tra.org.bh/en/pdf/FixedBroadbandAnalysisReportQ42010.pdf. 68 FCC, Broadband.gov, About the Consumer Broadband Test (Beta), available at www.broadband.gov/qualitytest/about/. 69 Robert Crandall, Jeffrey Eisenbach and Robert Litan, Vertical Separation of Telecommunications Networks: Evidence from Five Countries, Federal Communications Law Journal, pp. 494-95 (June 2010). 70 infoDev, Structural Separation Explained and Applied , ICT Regulation Toolkit, available at http://www.ictregulationtoolkit.org/en/PracticeN ote.3149.html. 71 infoDev, Structural Separation Explained and Applied, ICT Regulation Toolkit. 72 Local loop unbundling (ULL) is the obligation imposed to the incumbent operator to provide access to the local loop or last mile of its network (i.e., the connecting network between the termination point of the subscriber premises and the main distribution framework of equivalent facility of the incumbent’s fixed network). LLU obligations can be full or shared. Full LLU allows the use of the full frequency spectrum of fixed network. Shared LLU only authorize access to the non-voice frequencies of the fixed network. 73 Kent Bressie, Eight Myths about Undersea Cables, Presented at the SubOptic2010 Conference (2010), available at www.wiltshiregrannis.com/siteFiles/News/0D12892E4C32D99099222C3A323EE38C.pdf?CFID=9388181&CFTOKEN =68748222. 74 TeleGeography, Submarine Cable Map (2011), available at www.telegeography.com/telecom-maps/submarine- cable-map/index.html. 75 Janet Hernandez, Daniel Leza and Kari Ballot-Lena, ICT Regulation in the Digital Economy, GSR-10 Discussion Paper (Nov. 2010), available at http://www.itu.int/ITU-D/treg/Events/Seminars/GSR/GSR10/documents/GSR10- paper3.pdf. 76 See TRAI, International Telecommunication Access to Essential Facilities at Cable Landing Stations Regulations (June 7, 2007). 77 CRC, Resolution No. 2065 (Feb. 27, 2009). 78 Mark Williams, Broadband for Africa: Policy for Promoting the Development of Backbone Networks , GICT, World Bank, p. 42 (Aug. 2008). 79 infoDev/ITU, ICT Regulation Toolkit, Backbone Network Enhancements at www.ictregulationtoolkit.org/en/Section.3188.html (last visited January 27, 2011). 80 Mark D. Williams, the International Bank for Reconstruction and Development/The World Bank, Broadband for Africa: Developing Backbone Communications Networks, 2010. 81 Mark Williams, World Bank, Broadband for Africa: Policy for Promoting the Development of Backbone Networks at 8 (August 2008). 82 OECD (Organisation for Economic Co-operation and Development), Internet Traffic Exchange: Market Developments and Measurement of Growth, (2006). 83 OECD (Organisation for Economic Co-operation and Development), Internet Traffic Exchange: Market Developments and Measurement of Growth, (2006). 84 OECD (Organisation for Economic Co-operation and Development), Internet Traffic Exchange: Market Developments and Measurement of Growth, (2006). 85 OECD, Broadband Growth and Policies in OECD Countries, (2008). 103 Endnotes 86 Broadband Infraco, http://www.infraco.co.za/SitePages/Home.aspx. 87 Mark Williams, World Bank, Broadband for Africa: Policy for Promoting the Development of Backbone Networks at 44 (August 2008). 88 OECD, Broadband Growth and Policies in OECD Countries, (2008). 89 TRAI, Recommendations on Infrastructure Sharing , pp. 19-20 (April 2007), available at http://www.ictregulationtoolkit.org/en/Publication.3632.html. 90 B. Wook Kwon, OECD, Public Rights of Way for Fibre Deployment to the Home , (2008). 91 Janet Hernandez, Daniel Leza and Kari Ballot-Lena, Telecommunications Management Group, Inc., ICT Regulation in the Digital Economy, GSR Discussion Paper, at 4 (2010). 92 See Next Generation Connectivity: A review of broadband Internet transitions and policy from around the world, The Berkman Center for Internet and Society at Harvard University (February 2010) at http://cyber.law.harvard.edu/publications/2010/Next_Generation_Connectivity (last visited January 27, 2011) and Dr. Tracy Cohen and Russell Southwood, Extending Open Access to National Fibre Backbones in Developing Countries, GSR08: Six Degrees of Sharing, Discussion Paper (November 2008) at www.itu.int/ITU- D/treg/Events/Seminars/GSR/GSR08/papers.html (last visited January 27, 2011). 93 See ITU/infoDev, ICT Regulation Toolkit, Module 6.6.5: Competition and Sharing at www.ictregulationtoolkit.org/en/Section.3486.html (last visited January 27, 2011). 94 The most recent rules can be accessed at the ARCEP website, available at http://www.arcep.fr/index.php?id=8571&L=1&tx_gsactualite_pi1[uid]=1350&tx_gsactualite_pi1[annee]=&tx_gsac tualite_pi1[theme]=&tx_gsactualite_pi1[motscle]=&tx_gsactualite_pi1[backID]=26&cHash=01032942d9 (last visited February 7, 2011). 95 The issue was sent for consultation to the European Commission and the decision is expected to be finalized by March 2011. Federal Network Agency, press release Bundesnetzagentur legt neue Regulierungsbedingungen für die "letzte Meile" zur Stellungnahme vor, (January 25, 2011), available at http://www.bundesnetzagentur.de/cln_1931/DE/Presse/Pressemitteilungen/pressemitteilungen_node.html (last visited January 28, 2011). 96 OECD Broadband Statistics, 4c Range of broadband prices per megabits per second of advertised speed, including line charge, September 2011 - USD PPP, http://www.oecd.org/document/54/0,3746,en_2649_34225_38690102_1_1_1_1,00.html. 97 OECD, Broadband Growth and Policies in OECD Countries. Both comparisons in PPP terms. 98 European Regulatory Group, Broadband Market Competition Report (2005). 99 IDATE Consulting & Research, Broadband Coverage in Europe (2007). 100 Soriano, European Prospective on Net Neutrality (Paris: ARCEP). 101 OPTA, 2006. 102 OPTA, 2006. 103 OECD, Broadband Growth and Policies in OECD Countries, (2008). 104 RTR, Abgrenzung des Marktes für Breitbandigen zugang auf Vorleistungsebene , November 2009. 105 Janet Hernandez, Daniel Leza and Kari Ballot-Lena, Telecommunications Management Group, Inc., ICT Regulation in the Digital Economy, GSR Discussion Paper, at 4 (2010). 106 T. Reynolds, T. Kelly, and J. Jin-Kyu, ITU, Ubiquitous Networks Societies: The Case of the Republic of Korea (2005); Bocarova, Cullen International, Regulatory Aspects of Broadband Wireless Access (2006). 104 Endnotes 107 Presidential Memorandum: Unleashing the Wireless Broadband Revolution, available at http://www.whitehouse.gov/the-press-office/presidential-memorandum-unleashing-wireless-broadband- revolution (last visited January 27, 2011). 108 FCC, National Broadband Plan at 75. 109 National Telecommunications and Information Administration, NTIA Fact Sheet on Spectrum Plan and Timetable, Fast Track Evaluation, available at http://www.ntia.doc.gov/reports/2010/SpectrumFactSheet_11152010.pdf (last visited January 27, 2011). 110 OECD, Broadband Growth and Policies in OECD Countries, (2008). 111 John Cox, Verizon confirms details of U.S. LTE deployment, available at http://www.networkworld.com/news/2009/021809-mwc-verizon.html (last visited January 27, 2011). 112 Sweden: PTS, The 800 MHz auction is closed - three bidders won licenses (Mar. 4, 2011) available at http://www.pts.se/en-gb/News/Press-releases/2011/Press-release/ 113 France: ARCEP, 4G Spectrum Allocation: ARCEP publishes the results of the allocation procedure for 4G mobile licences in the 800 MHz band (the digital dividend) (Dec. 22, 2011) at http://www.arcep.fr/index.php?id=8571&L=1&tx_gsactualite_pi1[uid]=1470&tx_gsactualite_pi1[backID]=1&cHash =80abfa005c. 114 Switzerland: ComCom, Continuation of the mobile spectrum tender (July 19, 2011) at http://www.comcom.admin.ch/aktuell/00429/00457/00560/index.html?lang=en&msg-id=40253; UK: Ofcom, Second consultation on assessment of future mobile competition and proposals for the award of 800 MHz and 2.6 GHz spectrum and related issues (Jan. 12, 2012) at http://stakeholders.ofcom.org.uk/consultations/award- 800mhz-2.6ghz/. 115 Article 2, §7 of the Annex to Resolution 454 of December 2006 on the Conditions of Usage of the 800 MHz, 900 MHz, 1800 MHz and 1900/2100 MHz. 116 Article 11, §1 of Resolution N. 544 of August 2010 on the Conditions of Usage of the 2500-2690 MHz band and Article 4, §2 of Resolution N. 537 of February 2010 on the Conditions of Usagage of the 3500 MHz band. 117 European Commission, 14th Report on the Implementation of the Telecommunications Regulatory Package 2008 (2009). 118 OECD, Broadband Growth and Policies in OECD Countries, (2008). 119 For example, the various specific mobile allocations, such as land mobile, have now given way to simply “mobile.” 120 Further, the provision of data or even voice over traditional or alternative wireless networks was not a major disruption. However, the trend around the world has been for regulators to see the provision of video services over wireless networks as a problem. The introduction of mobile television and video broadcasting over “telecommunications” networks, for example, has led to significant hand wringing among many regulators. The primary cause for this is the stricter control governments seek over media and broadcasting than telecommunications. Even many countries that have adopted multiple play-friendly regulations are still maintaining older distinctions. 121 The European Parliament and the Council of the European Union, Directive 2009/114/EC of the European Parliament And Of The Council of amending Council Directive 87/372/EEC on the frequency bands to be reserved for the coordinated introduction of public pan-European cellular digital land-based mobile communications in the Community, (September 16, 2009). 122 ARCEP, press release, Broadband and Ultra-fast Broadband in Overseas Markets (January 27, 2011), available at http://www.arcep.fr/index.php?id=8571&L=1&tx_gsactualite_pi1[uid]=1356&tx_gsactualite_pi1[annee]=&tx_gsac 105 Endnotes tualite_pi1[theme]=&tx_gsactualite_pi1[motscle]=&tx_gsactualite_pi1[backID]=26&cHash=a4d915cd36 , (last visited January 28, 2011). 123 Operators can upgrade CDMA2000 networks in the 800 MHz band to datacentric CDMA2000 EV-DO networks. This has happened in 28 countries (for example, Brazil, Cameroon, Indonesia, and Morocco) to date. Further, even the GSM evolution to 3G, WCDMA, is now available in the 900 MHz band. Australia, Finland, France, and the United Kingdom have plans to deploy (or have already deployed) WCDMA in this band. 124 For an in-depth study of spectrum management and reform in developing countries, see Bjorn Wellenius and I. Neto, World Bank Policy Research Working Paper, Managing the Radio Spectrum: Framework for Reform in Developing Countries, (2008). 125 FCC, Wireless Auctions: Information Page, available at http://wireless.fcc.gov/auctions/default.htm?job=auction_factsheet&id=73 (last visited January 27, 2011). 126 Ofcom, Choice, Competition, Innovation: Delivering the Benefits of the Digital Dividend , available at http://www.ofcom.org.uk/media/news/2007/12/nr_20071213a (last visited January 27, 2011). 127 Ofcom, Choice, Competition, Innovation: Delivering the Benefits of the Digital Dividend . 128 For example, the U.S. Federal Communication Commission’s Part 15 rules on how “intentional, unintentional, or incidental radiator may be operated without an individual license” states: “Emanations from the device shall be suppressed as much as practicable, but in no case shall the emanations exceed the levels specified in these rules... Parties responsible for equipment compliance should note that the limits specified in this Part will not prevent harmful interference under all circumstances.” As such, manufacturers and users of device s using the unlicensed spectrum have a responsibility to reduce their harmful emissions as much as possible and minimize the possibility of interference with other devices. On the other hand, users of the devices have no right to be protected from harmful interference from another device. See http://www.fcc.gov/oet/info/rules/ (last visited January 27, 2011). 129 For an in-depth study of spectrum management and reform in developing countries, see Bjon Wellenius and I. Neto, World Bank Policy Research Working Paper, Managing the Radio Spectrum: Framework for Reform in Developing Countries, (2008). 130 National IT and Telecom Agency, Public consultation over draft 800 MHz auction documents (Nov. 17, 2011) at http://en.itst.dk/spectrum-equipment/Auctions-and-calls-for-tenders/800-mhz/public-consultation-over-draft- 800-mhz-auction-documents. 131 Cisco, Visual Networking Index Global IP Traffic Forecast 2010-2015 (June 2011), available at http://www.cisco.com/en/US/netsol/ns827/networking_solutions_sub_solution.html#~forecast. 132 Id. 133 Communications Commission of Kenya (CCK), Quarterly Sector Statistics Report 1st Quarter July-Sept 2010/2011 (Jan. 2011). 134 Based on the Pew Research Center’s survey, almost half of the non-Internet adult users surveyed in the United States indicated that they did not use the Internet because they did not find it relevant (they are not interested, consider it a waste of time, are too busy, or do not feel it is something they want or need). Pew Internet & American Life Project, Home Broadband 2010 – Trends in broadband adoption (Aug. 2010), available at http://www.pewinternet.org/Reports/2010/Home-Broadband-2010/Part-1/Most-non-internet-users-have-limited- exposure-to-online-life.aspx. 135 Some examples of civil society organizations involved in making Internet and especially broadband services more available, accessible and attractive include Tribal Digital Village, working among Native American reservations in the United States (see http://www.sctdv.net), and CUWiN (Champaign-Urbana Community Wireless Network), developing community-based wireless mesh technologies in various communities in the United States, West Africa, and South Africa (see http://www.cuwin.net). 106 Endnotes 136 Janice Alane Hauge and James E. Prieger, Demand-Side Programs to Stimulate Adoption of Broadband: What Works? (Oct. 14, 2009), available at http://ssrn.com/abstract=1492342. 137 Edwin San Román, Bringing broadband access to rural areas: a step by step approach for regulators, policy makers and universal access program administrators: The experience of the Dominican Republic , International Telecommunication Union, Global Symposium for Regulators, Beirut, Lebanon (2009). 138 Educational Testing Service, Digital Transformation: A Framework for ICT Literacy (2002), available at http://www.ets.org/research/policy_research_reports/ict-report. 139 Treaty of Lisbon, Consolidated versions of The Treaty on European Union and The Treaty on the Functioning of the European Union, Charter of Fundamental Rights of the European Union, articles 16 and 8, respectively, available at http://europa.eu/lisbon_treaty/full_text/index_en.htm. See also the European Convention on Human Rights, adopted by states member of The Council of Europe, at article 8. 140 The central piece of legislation relating to data protection in the European Union is Directive 95/46/EC, on the protection of individuals with regard to the processing of personal data and on the free movement of such data. In addition, Directive 2002/58/EC, concerning the processing of personal data and the protection of privacy in the electronic communications sector (“e-Privacy Directive”), regulates areas which were not sufficiently covered by Directive 95/46/EC, such as confidentiality, billing and traffic data, rules on spam, etc. This Directive was subsequently amended by Directive 2009/136/EC of 25 November 2009 to, among other things, enhance privacy and data protection of Internet users. 141 See FTC, Solutions for Data Protection and Global Trade, Remarks of FTC Commissioner Mozelle W. Thompson before the EU Committee of AMCHAM (Dec 1998), available at http://www.ftc.gov/speeches/thompson/speech123.shtm. 142 See European Commission, Communication from the Commission to the European Parliament, the Council, the Economic and Social Committee and the Committee of the Regions: a comprehensive approach on personal data protection in the European Union (Nov. 2010), available at http://ec.europa.eu/justice/news/consulting_public/0006/com_2010_609_en.pdf . See also U.S. Federal Trade Commission, Protecting Consumer Privacy in an Era of rapid Change , Preliminary FTC Staff Report, p. 28 (Dec. 2010). 143 A data controller is a person (natural or legal) who alone or jointly with others determines the purposes and means of the processing of personal data. 144 Department of Commerce Economics and Statistics Administration (ESA) and National Telecommunications and Information Administration (NTIA), Exploring the Digital Nation: Home Broadband Internet Adoption in the United States (Nov. 2010), available at http://www.esa.doc.gov/sites/default/files/reports/documents/report.pdf; Janice Alane Hauge and James E. Prieger, Demand-Side Programs to Stimulate Adoption of Broadband: What Works? (Oct. 14, 2009), available at http://ssrn.com/abstract=1492342. 145 For example, according to the Digital Britain Report, at 33, in the UK, 30% of those without Internet service said that the main reason was cost or lack of computer ownership. 146 Ovum, Emerging markets paying three times more than rest of the world for broadband (Sept. 20, 2010), available at http://about.datamonitor.com/media/archives/4775. 147 Ministerio de Tecnologías de la Información y las Comunicaciones, Ecosistema Digital » Servicios, available at http://201.234.78.242/vivedigital/ecosistema_2_servicios.php. 148 European Commission, Connecting Europe at High Speed: National Broadband Strategies (2004). 149 T. Kelly, V. Gray, and M. Minges, ITU, Broadband Korea: Internet Case Study (2003). 150 For a further example, see the global non-profit organization One Economy Corporation, at: http://www.one- economy.com/who-we-are. International locations include Turkey, Jordan, Israel, Cameroon, Kenya, Nigeria, Rwanda, South Africa, and Mexico. 107 Endnotes 151 See www.connectmk.com (last visited January 27, 2011). 152 ITU, The World in 2011 — ICT Facts and Figures (2011) available at http://www.itu.int/ITU- D/ict/facts/2011/material/ICTFactsFigures2011.pdf. 153 Daniela Battisti, Broadband Policies, Focus on the Italian Government Action Plan, OECD, available at www.oecd.org/dataoecd/35/45/1936957.ppt. 154 “Voice over Broadband” (VoB) is a managed service using IP that provides the same quality as a traditional wireline telephone as well as providing users with their own number and a ringing telephone. In addition, VoB often provides other value-added features such as call waiting, voice mail, and speed dialing, as well as the ability for users to monitor these features online via the provider’s web site. 155 See BT, BT Vision, available at http://www.productsandservices.bt.com/consumerProducts/displayCategory.do;JSESSIONID_ecommerce=WWG1 Nf2LyzDZSCd20Z7Kwc8MqZQMj4ZFbcrChsfrTGbw2MRYPvv2!-229543251?categoryId=CON-TV-I. 156 Maintaining the security and privacy of patient health information and records is critical. More information on safeguards that have been developed can be found at: United States http://www.hhs.gov/ocr/privacy/, Canada http://www.ipc.on.ca/english/Home-Page/, United Nations http://www.hon.ch/home1.html. 157 telecomAfrica, mHealth – Pushing Frontiers of Health Care in Developing Countries (Feb. 16, 2011), available at http://telecomafrica.org/?p=780. 158 Charles Waterfield, Virtual Conference on Electronic Banking for the Poor, available at www.gdrc.org/icm/040412%20Ebanking%20Conference.doc. 159 Hernandez, et al., ICT Regulation in the Digital Economy, GSR Discussion Paper, Telecommunications Management Group, Inc., p. 106 (2010). 160 Daniel Pimienta, Daniel Prado and Álvaro Blanco, Twelve years of measuring linguistic diversity in the Internet: balance and perspectives, United Nations Educational, Scientific and Cultural Organization,, p. 35 (2009). This study compares the presence on the Internet of English with European languages. For every 100 pages in English on the Internet in 2007, there were eight in Spanish, 10 in French, six in Italian, three in Portuguese, and 13 in German. 161 Alex Wilhelm, Chinese: The New Dominant Language of the Internet , The Next Web (Dec. 21, 2010), available at http://thenextweb.com/asia/2010/12/21/chinese-the-new-dominant-language-of-the-internet-infographic/. 162 For example, there is no standardized keyboard layout for Pashto, an Indo-Iranian language spoken by about 25 million people in Afghanistan, India, Iran, Pakistan, Tajikistan, the UAE and the UK. There is a standard for Pashto text encoding, so some progress is seen. However, there is no standard interface terminology translation in Pashto, which makes achieving digital literacy more challenging. Samad Hussain, Nadir Durrani, and Sana Gul, Pan- Localization, Survey of Language Computing in Asia (2005), available at http://www.panl10n.net/english/outputs/Survey/Pashto.pdf. 163 Sri Lanka’s ICT Agency has a Local Languages Initiative to enable ICT in languages such as Sinhala or Tamil (http://www.icta.lk/en/programmes/pli-development/68-projects/557-local-languages-initiative-lli.html). 164 See Article 19 of the Universal Declaration of Human Rights and Article 19(3) of the International Covenant on Civil and Political Rights. 165 Any limitation to the right to freedom of expression must pass the following three-part, cumulative test: a) It must be provided by law, which is clear and accessible to everyone (principles of predictability and transparency); and (b) It must pursue one of the purposes set out in article 19, paragraph 3, of the International Covenant on Civil and Political Rights, namely (i) to protect the rights or reputations of others, or (ii) to protect national security or of public order, or of public health or morals (principle of legitimacy); and (c) It must be proven as necessary and the least restrictive means required to achieve the purported aim (principles of necessity and proportionality). See United Nations, Human Rights Council, Report of the Special Rapporteur on the promotion and protection of the 108 Endnotes right to freedom of opinion and expression, p. 8 (May 2011) available at http://www2.ohchr.org/english/bodies/hrcouncil/docs/17session/A.HRC.17.27_en.pdf. 166 Id. at p. 19. 167 FOSI, ICRA Tools, available at http://www.fosi.org/icra/. 168 See, e.g., OpenNet Initiative’s research at http://opennet.net/research/regions/asia. ISP filtering is also a key component of the Australian Government’s cyber-safety plan; see http://www.dbcde.gov.au/funding_and_programs/cybersafety_plan/internet_service_provider_isp_filtering. 169 Ben Sisario, U.S. Shuts Down Web Sites in Piracy Crackdown, New York Times (Nov. 26, 2010), available at http://www.nytimes.com/2010/11/27/technology/27torrent.html. 170 Yongsoo Kim, et al., Building Broadband: Strategies and Policies for the Developing World, p. 56 (June 2010). 171 Task Force on Financial Mechanisms for ICT for Development, A review of trends and an analysis of gaps and promising practices, p. 22 (Dec. 2004). 172 OECD, Broadband Growth and Policies in OECD Countries (2008). 173 Oxford Analytica, Connecting Africa: Continent-wide mobile broadband rollout intensifies (July 2010), available at http://www.forbes.com/2010/07/28/africa-mobile-broadband-business-oxford-analytica.html. 174 Timothy Irwin, Public Money for Private Infrastructure, World Bank Working Paper No. 10 (2003). 175 International development organizations, such as the World Bank and regional development banks, typically have an overall funding envelope for a particular country at a given time which involves tradeoffs among competing eligible initiatives. 176 Mark Dutz, Jonathan Orzag, and Robert Willig, The substantial consumer benefits of broadband connectivity for US households (2009), available at http://internetinnovation.org. 177 European Commission, Communication from the Commission: Community Guidelines for the application of State aid rules in relation to rapid deployment of broadband network, (Sep. 30, 2009), available at http://eur- lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:C:2009:235:0007:0025:EN:PDF. 178 European Commission, Communication from the Commission: Community Guidelines for the application of State aid rules in relation to rapid deployment of broadband network, (Sep. 30, 2009). 179 Christine Qiang, Broadband Infrastructure Investment in Stimulus Packages: Relevance for Developing Countries, World Bank, p. 1 (2009). 180 European Commission, ”Connecting Europe Facility: Commission adopts plan for €50 billion boost to European networks,” Press Release, October 19, 2011, available at: http://europa.eu/rapid/pressReleasesAction.do?reference=IP/11/1200&format=HTML&aged=0&language=EN&gu iLanguage=en. 181 Department for Business Innovation and Skills, Digital Britain, Final Report (2009), available at http://webarchive.nationalarchives.gov.uk/+/http://www.culture.gov.uk/images/publications/digitalbritain- finalreport-jun09.pdf 182 Natasha Lomas, BT: Fibre broadband coming to two-thirds of UK by 2015, silicon.com (May 13, 2010), available at www.silicon.com/technology/networks/2010/05/13/bt-fibre-broadband-coming-to-two-thirds-of-uk-by-2015- 39745802/. 183 Paul France, BT brings fibre to first Cornwall homes, cable.co.uk (Mar. 28, 2011), available at www.cable.co.uk/news/bt-brings-fibre-broadband-to-first-cornwall-homes-800478200/. 184 Zaywa, Qatar's Government Establishes Q.NBN to Accelerate Rollout of Nationwide Broadband Fiber to the Home (FTTH) Network, available at 109 Endnotes https://www.zawya.com/Story.cfm/sidZAWYA20110327102507/Q.NBN%20To%20Build%20Qatar%20National%20 Broadband%20Network . 185 Michael Malakata, Rwanda's mobile broadband is Africa's first, Computerworld (Dec. 2009), available at http://news.idg.no/cw/art.cfm?id=D6F3D422-1A64-67EA-E4FF70C29D8BDB9D. 186 The discussion of subsidies draws, including verbatim without quotes, from Björn Wellenius, Vivien Foster and Christina Malmberg Calvo, Private Provision of Rural Infrastructure Services: Competing for Subsidies, World Bank Policy Research Working Paper No. 3365 (2004). The examples are taken from the individual references noted. 187 infoDev, ICT Regulation Toolkit, Module 4: Universal Access and Service, Section 5.4.1 Public Private Partnerships, available athttp://www.ictregulationtoolkit.org/en/Section.3288.html 188 The consortium is headed by France Telecom-Orange, and includes: Baharicom Development Company; Benin Telecoms; Cable Consortium of Liberia; Orange Cameroun; Companhia Santomense de Telecomunicacoes; Cote d'Ivoire Telecom Expresso Telecom Group; Gambia Telecommunications Company; International Mauritania Telecom; Office Congolais des Postes et Telecommunication; Orange Guinea; Orange Mali; Orange Niger; PT Comunicacoes; the Republic of Equatorial Guinea; the Gabonese Republic; Sierra Leone Cable; Societe des Telecommunications de Guinee; and Sonatel.Alcatel Lucent, News Release on ACE Cable (June 2010), available at http://www.prnewswire.com/news-releases/20-operators-team-with-alcatel-lucent-to-bring-fast-lower-cost- broadband-connectivity-in-africa-with-a-new-17000-km-submarine-system-95852004.html 189 Yongsoo Kim, et al., Building Broadband: Strategies and Policies for the Developing World, World Bank, (June 2010). 190 OECD, Broadband Growth and Policies in OECD Countries, OECD Ministerial Meeting on the Growth of the Internet at 73 (2008), available at http://www.oecd.org/dataoecd/32/57/40629067.pdf. 191 Malaysia Communications and Multimedia Commission, MyICMS, available at http://www.skmm.gov.my/index.php?c=public&v=art_view&art_id=62 192 infoDev ICT Regulation Toolkit, Module 4: Universal Access and Service, Section 5.4.2 , available at http://www.ictregulationtoolkit.org/en/Section.3289.html 193 Id. 194 , available at http://cms.tm.tue.nl/Ecis/Files/papers/wp2010/wp1003.pdf. 195 Id. 196 Kim, et al., Building Broadband, Global Information and Communication Technologies (GICT) Department, World Bank at 29 (January 2010). 197 Christine Qiang, Broadband Infrastructure Investment in Stimulus Packages: Relevance for Developing Countries , World Bank, pp. 2-5 (2009). 198 Muente‐Kunigami, A., and Navas‐Sabater, J.., Options to Increase Access to Telecommunications Services in Rural and Low‐Income Areas, p. 7 (2010). 199 ITU, ITU Statshot (January 2011), available at http://www.itu.int/net/pressoffice/stats/2011/01/index.aspx. 200 Sofie Maddens, Trends in Universal Access and Service Policies, GSR-09 Background Paper, Beirut, Lebanon (November 10, 2009), available at http://www.itu.int/ITU-D/treg/Events/Seminars/GSR/GSR09/papers.html. 201 Irwin 2003, op. cit. 202 Some instruments can actually compound the obstacles. For example, granting tax holidays or custom duty exemptions weakens the business climate by discriminating among economic activities and increasing the cost of tax administration and compliance. 203 Irwin 2003, op. cit. 110 Endnotes 204 Although the deployment of national backbones are important goals of some broadband plans, the indicators to measure developments in these areas have not been identified or defined by the international statistical community and the data are not widely available. Nevertheless, perusal of plans from some countries can help to identify relevant indicators. For example India’s proposed broadband plan calls for the construction of a national fiber optic backbone throughout the country. This might be measured by indicators such as the number of localities served by the national fiber optic backbone and kilometers of fiber backbone in the network. See: “India’s national broadband policy to be sent for Cabinet approval shortly.” TeleGeography CommsUpdate. 31 March, 2011. http://www.telegeography.com/products/commsupdate/articles/2011/03/31/indias-national- broadband-policy-to-be-sent-for-cabinet-approval-shortly/ 205 The Partnership aims to develop further different initiatives regarding the availability and measurement of ICT indicators at the regional and international levels. It provides an open framework for developing a coherent and structured approach to advancing the development of ICT indicators globally, and in particular in developing countries. Partners include EUROSTAT, ITU, OECD, UNCTAD, UNESCO Institute for Statistics, the UN Regional Commissions (UNECLAC, UNESCWA, UNESCAP, and UNECA), United Nations Department of Economic and Social Affairs (UNDESA), and the World Bank. See: http://www.itu.int/ITU-D/ict/partnership/index.html 206 See: Partnership on Measuring ICT for Development. 2010. Core ICT Indicators. http://new.unctad.org/upload/docs/ICT_CORE-2010.pdf . In addition, the ITU has identified and defined other broadband-related statistics. See: ITU. 2010. Definitions of World Telecommunication/ICT Indicators. http://www.itu.int/ITU-D/ict/handbook.html 207 For more on issues relating to measuring broadband coverage, see OECD Committee for Information, Computer and Communication Policy, Indicators of broadband coverage. DSTI/ICCP/CISP(2009)3/FINAL (Dec. 10, 2009), available at http://www.oecd.org/dataoecd/41/39/44381795.pdf. 208 ITU, Definitions of world telecommunication/ICT indicators, ITU code 271G (Mar. 10, 2010). 209 OECD Committee for Information, Computer and Communication Policy, Indicators of broadband coverage. DSTI/ICCP/CISP(2009)3/FINAL (Dec. 10, 2009). 210 Subscription data, for example, are not precisely comparable across countries because household sizes can vary. In addition, there will be significant duplication if fixed and wireless broadband subscriptions are simply aggregated for an overall access figure, since some users may have a fixed and a wireless connection, or even more than one wireless connection (e.g., a phone and a data modem for a computer). 211 OECD.Wireless Broadband Indicator Methodology OECD Digital Economy Papers (169) (2010), available at www.oecd-ilibrary.org/science-and-technology/wireless-broadband-indicator-methodology_5kmh7b6sw2d4-en. 212 Ofcom, Average broadband speed is still less than half advertised speed, News (Mar. 2, 2011), available at http://media.ofcom.org.uk/2011/03/02/average-broadband-speed-is-still-less-than-half-advertised-speed/. 213 Telecommunications Regulatory Authority, Broadband Analysis Report (Apr. 2011), available at http://www.tra.org.bh/en/marketQuality.asp. 214 For example, the FCC in the United States has a consumer broadband webpage where tests can be run to test speed, latency and jitter. See http://www.broadband.gov/qualitytest/about/. 215 Info-communications Development Authority, Quality of Service, available at http://www.ida.gov.sg/Policies%20and%20Regulation/20060424141236.aspx. 216 FCC, National Broadband Plan, at 10; TRAI, Consultation Paper on National Broadband (2010). 217 ECLAC, ECLAC Launched Regional Broadband Observatory, Press Release (May 27, 2011). 218 GSMA, Market Data and Analysis, available at: http://www.gsmworld.com/newsroom/market- data/market_data_and_analysis.htm. 111 Endnotes 219 Ookla’s Net Index provides average download speeds for 170 economies (June 2011), available at http://www.netindex.com/download/allcountries/. Akamai compiles performance data for a number of economies. Also see Network Performance Comparison, available at http://www.akamai.com/html/technology/dataviz2.html. 220 http://kostat.go.kr/eng/ 221 http://eng.kcc.go.kr/user/ehpMain.do 222 http://unstats.un.org/unsd/economic_stat/ICT-Korea/Documents/1_Agenda.pdf 223 http://www.fcc.gov/maps/broadband-availability 224 http://www.zukunft-breitband.de/BBA/Navigation/Breitbandatlas/breitbandsuche.html 225 Federal Network Agency, Infrastrukturatlas, available at: http://www.bundesnetzagentur.de/cln_1931/DE/Sachgebiete/Telekommunikation/Infrastrukturatlas/infrastruktur atlas_node.html 112 LAW AND REGULATION FOR A BROADBAND WORLD MODULE THREE 3.1 Introduction The first experience of broadband by commercial and personal users was a telecommunications standard Integrated Services Digital Network-Broadband or simply ISDN-B. The standard was adopted by the CCITT (International Telegraph and Telephone Consultative Committee) of the ITU in 1988 for the transmission of voice, video, data and other network services at speeds up of 144Kbps. The peak sub-broadband speed of ISDN was 128Kbps. As mentioned in chapter one (http://broadbandtoolkit.org/1.2)“the term broadband is generally understood to mean a dedicated or “always-on” connection to the Internet with speeds faster than dial-up.” ISDN-B offered a digital subscriber line (DSL) service over the top of a baseband analogue signal, but from the late 1980s onwards higher speed DSL communication technologies became available. Asymmetric DSL (ADSL) seen as ideal for residential customers who were assumed to need more bandwidth for Internet download than upload, whereas Symmetric Digital Subscriber Line (SDSL) was seen as more suited to the symmetrical needs of large companies sending and receiving files a regular basis between their various office locations. By the late 1990s in some markets, personal telephone connections into the home using the digital subscriber line (DSL) standard had already reached 1.5Mbps, something that only a few years earlier had not been available outside of commercial enterprise markets such as the banking and financial sectors. (See Module 5.7.1 Wireline Access Technologies for a broader discussion.) By 2008 the ITU-R (International Telecommunications Union-Radio communications sector) had endorsed the 4G LTE (Long Term Evolution) mobile cellular standard named IMT- Advanced (International Mobile Telecommunications Advanced) with potential peak download speeds of 1Gbps for pedestrian usage and 100Mbps for use in moving vehicles. Using fibre-to-the-home 1Gbps is already available to households in numerous markets around the world. NGN Broadband The most advanced networks have already reached the next generation network (NGN) phase, meaning they are end-to-end IP high-speed broadband networks. Compared with 144Kbps the technology and the markets for broadband have changed beyond all recognition. Yet in the 1990s and 2000s there were very mixed views from within the industry to these developments. The first was a disbelief that anyone could want or need high-speed broadband at all. As speeds increased so did the upper limit of what many observers thought was necessary to download Internet TV programmes (IPTV), movies, upload videos and photographs, etc. As it turned out, markets proved the doubters wrong: Internet users who moved to higher speeds never went back. The idea that the demand for speed was dependent upon, or derived from, the demand for content and applications was 2 not quite right. Users wanted speed for its own sake, just as users want access to telephones even if they do not always use them. It shows that while technological advances can drive markets, so markets can drive technological advances. What economists call latent demand is often untapped and unrealized in markets where there is little competition because monopolists and dominant incumbent service providers have little incentive to invest in more modern technologies. This is a key issue for regulators wanting to see more broadband roll-out in developing economies. The second reaction came from the more traditional telecommunications community who doubted that Internet protocol, or simply IP, would ever be able to deliver the ‘carrier grade’ quality of service that was expected and demanded of telecoms companies. The digital workhorse of the 1990s was the ATM (Asymmetric Transfer Mode) switch which could easily handle digitalized traffic using many different packet-switched protocols, such as Frame Relay for commercial data users and X.25 for email users, over traditional telephone circuits. The reality turned out to be different. New releases of IP routing algorithms became more reliable and routing equipment better able to handle higher capacity traffic. This allowed new entrants into telecoms markets the option of adopting next generation network (NGN) architectures and technologies giving them much lower operating costs than incumbents. For example, in the US incumbent telecoms providers were forced into accelerating the depreciation of their ATMs and associated network equipment. For policy makers and regulators this has opened up an entirely new era of issues, because they have to decide upon whether and how to license these ‘disruptive’ new entrants—disruptive in the sense they are employing technologies that change the face of telecoms services and service delivery. This underscores the importance of the interconnectedness of technologies with markets and with policy/regulation. Figure 3.1 Critical Success Factors Form a Virtuous Loop Source: Author Interconnectedness 3 Equally important is the interconnectedness of networks, and probably of greater importance than the more familiar concept of convergence. Ever since the digitalization of telecoms the issue of convergence has arisen because different traffic streams, such as voice, video and data can be transmitted down the same transmission networks, known as multiplexing. However, when networks deployed IP, it meant that different traffic streams could cross between networks and that is fundamentally important from a commercial perspective because it gives rise to the possibility of by-pass. By-pass was a rising phenomenon in international telecommunications in the early 1990s as international carriers, striving to become more competitive, re-routed their overseas traffic from high- cost routes to lower-cost routes to arbitrage international accounting and settlement rates. Call-back was a related form of by-pass, again substituting or ‘arbitraging’ lower for higher cost routes. With the spread of the Internet and applications such as Skype, Yahoo Messenger, WhatsApp and many others, users can place phone calls, video calls, text messages and by-pass the incumbent carriers. These were the forerunners of Over-the-Top (OTT) applications, such as downloading content from third party access providers, for example TV shows over YouTube or movies from Bit Torrent. Interconnectedness of networks raises new challenges for policy-makers and regulators because it means a proliferation of the means of access to networks. In principle, any user can access any network from any other, but local carrier and content licensing conditions that were introduced many years ago may not be consistent with this growing reality. Often carriers which were granted exclusive licences to provide access or content services now find themselves by-passed. Their options are to adapt to the new market realities and compete aggressively or to partner with overseas service providers and provide the localization of content and distribution channels. Alternatively, they may decide to lobby for restrictions on these new entrants and if they are partly owned by government they may have powerful political support. For policy-makers there may be legal obligations involved and in some cases the best way forward may be to compensate a carrier for giving up its exclusive rights, for example over international telephony. Policymakers and regulators should always keep in mind the ultimate purpose of licensing and regulation: If policies and regulations encourage innovation and diversity of service options for users, the overall value of the market is likely to grow even if some segments, such as voice revenues, decline. A more competitive and diverse market is attractive to other sectors of the economy, such as new media, advertising, online retail, mobile payments and banking services, not to mention the market for user access devices such as smartphones and tablets. For many years the industry has talked of convergence to describe the above as information services (data), communication services (telecoms) and technologies (IT) come closer together as ICTs. However, it remains the case that just because these services can be delivered (multiplexed) down the same pipes does not necessarily imply there is commercial synergy between them as businesses. The skills required to run a telecoms network are 4 vastly different from those needed to create a successful TV station, and the financial profiles are totally different. Investment in telecoms is lumpy over time with long periods of revenue growth to be accumulated for the next round of investment. A TV station lives or dies by how fresh its programming is on a daily basis and the purchase of new content from the studios is a continuous process. Carriers will look to complement different services, such as telecoms and IPTV, and will leverage their subscriber and billing base to market these complementary services, but they are equally likely to run up against the problem of cannibalization. This arises when the marketing of one product or service comes at the expense of another. For example, rolling out broadband may cannibalize the leased line business, and offering bundled Internet services may cannibalize voice revenues. These are essentially commercial decisions for the carriers, not for the regulator, but often permission to do any of this requires new licences or regulatory approvals. It is the interconnectedness of networks that creates the competitive impetus for all of this. About this Module Interconnectedness is throwing up a number of issues that were previously beyond the domain of a telecoms regulator. Issues such as data privacy and cyber security, for example, have become concerns for policy-makers and often require coordinated approaches across different regulatory bodies. Where this includes telecoms and broadcasting a number of jurisdictions, including the UK, Hong Kong, Nigeria and Thailand have decided to merge the regulators. Whether convergence of technologies leads naturally to the convergence of regulation is a question to be examined further below. So this module deals not only with issues the telecoms regulator traditionally has to deal with, such as licensing and spectrum management, but also with related issues that arise due to the interconnectedness of networks. 5 Module Three: Law and Regulation for a Broadband World 3.2 Licensing and Authorization Frameworks1 Licensing is authorization to build a network and/or to offer services of different kinds over a network. The arguments behind licensing usually relate to the need to regulate the activities of operators and service providers for the public good, such as quality of service and customer care, protection against price gouging and unfair or anti-competitive practices. Licensing arrangements are a way to ration scarce resources, but in cases where resources are not scarce other mechanisms may be used, such as authorizations, class licences that cover a variety of services to different devices, or simple registration.2 For example, in the 1990s Hong Kong issued paging licences on-demand as long as there was spectrum available. An Adaptable Licensing Framework Needed In a pre-digital, pre-IP and pre-NGN era the costs of building and operating a network were very high giving rise to claims, not always justified, that a telecoms network was close to being a ‘natural monopoly’. A natural monopoly occurs when the unit or average costs of output fall as output rises across the entire market until all demand is satisfied. Under these circumstances, no new entrant could be more efficient at serving even a select portion of the market. In reality, there are almost always segments of the market where a specialized new entrant can serve more efficiently and in a more innovative way. In a world of digital telecommunications and IP networks new entrants can choose to come into the market using NGN systems with significantly lower operating costs. If there are any natural monopoly elements left they are likely to be found in long-distance traffic networks, but even here if non-telecom entities such as electricity utilities and rail networks are licensed to lease their long-haul cable or microwave capacity to new entrants, competition is possible. Licensing and authorization therefore need to take into account the changing economic realities that arise from new technology paradigms. An important first step policy-makers and regulators can take towards a competitive telecommunications market is to make the licensing regime responsive to the emergence of new technologies that make new entry commercially feasible. Responsiveness to change requires a flexible licensing regime. There have been several different approaches to reforming the licensing process. One approach is to separate telecom activities into a tiered stack with infrastructure at the bottom, service delivery in the middle and applications and content as the top layers of the stack and issue different classes of license for each layer. For 1 See also http://ppp.worldbank.org/public-private-partnership/sector/telecom/laws-regulations#sample 2 For a summary of regulations in different countries, see http://ppp.worldbank.org/public-private- partnership/sector/telecom/laws-regulations#sample 6 example, the Malaysian Communications and Multimedia Commission (MCMC) issues licences according to the following categories: Figure 3.2 In the case of neighbouring Singapore, facilities-based and services-based licences are also issued, but the third layer consists of individual licences and class licences. In Africa, Kenya has a similar approach (see Toolkit Broadband in Kenya Case Study) but with twelve licence categories embracing ancillary sectors such as contractors, vendors and even business process outsourcers under a Unified Licensing regime.3 One of the problems with this segmented approach is that the lines of delineation between networks, services, apps and content begin to crumble. For example, cloud computing service providers may offer Infrastructure-as-a-Platform (IaaP) with more and more content accessible through apps; the licensing framework ceases to reflect the way in which facilities and services are offered. An alternative approach to meet the needs of NGNs is the issuing of a multi-service general licence which enumerates the specific types of services the operator can provide. The most flexible form of general licence is a service and technology-neutral unified licence which permits entry to any field of service the operator wishes to invest in. This was an approach pioneered by India.4 The most radical approach is to replace licences altogether with registrations, but this may require codes of practice to ensure good behaviour by operators and service providers. Issuing Licences In some jurisdictions, licenses have to be approved by the legislature. While this process may ensure a thorough vetting of the application, it can also mean lengthy delays and the involvement of policy-makers who are not specialists in the field. It is also a process that lends itself to lobbying. A better option is to remove the specifics of licensing conditions as 3 http://www.cck.go.ke/licensing/telecoms/ULF_Register_Licensees__Nov_2012_updated.pdf 4 See ITU case study http://www.ictregulationtoolkit.org/en/practicenote.aspx?id=630 7 applied to each operator from the legislative process and place them in licences issued by the telecoms regulator, even if final approval or endorsement lies with a higher authority. Legislation can then focus upon the overall principles of licensing in the sense of creating a template which the regulator can use. Transparency and Investment What is fundamentally important is that the terms and conditions of any licence are absolutely transparent and, ideally, available for all to see on the regulator’s website. Both users and competitors should have the right to know what are the terms and conditions of service. Users need to know for the protection of consumer rights, and competitors need to know so every operator has equal access to commercially non-sensitive information. Where information is commercially sensitive, for example in the cost accounting data upon which a Reference Offer of Interconnection (ROI) is agreed by the incumbent operator, then the regulator needs to have a copy so that they can determine whether there is discrimination in case a dispute emerges between operators. Unfortunately not all licences are given out on a transparent basis. Where corruption or cronyism is involved licences are seen as rewards and favours, with the inevitable consequence being that users and the economy-as-a-whole are denied the full benefits of competition. This will make the economy less appealing to investors, especially to investors in carrier services who see the market as being rigged, but also to investors in sectors that are heavily reliant upon broadband communications networking such as financial institutions, trading companies, business process outsourcers, call centres, and other companies that are part of the global supply chain of multinationals. A World Bank study of investment in telecoms in the Asia Pacific region in 2004 found that regulatory uncertainty was the No.1 deterrent to investors in telecoms,5 while the availability of high quality and affordable telecommunications services is regularly cited as among the top three factors that attract overseas investment, along with the rule of law and good transportation systems. A good example from North Africa of transparent regulation was Morocco’s creation of an independent Agence Nationale de Réglementation des Télécommunications (ANRT) in 1998. (See Toolkit Broadband in Morocco Case Study. http://broadbandtoolkit.org/Case/ma/2) Ex-Ante, Ex-Post and Incentive Regulation In many cases the conditions of the licence as they apply to different operators will depend upon whether the operator in question has been designated as dominant in any given market, such as in voice termination or in leased circuits. Dominance is usually measured by market share of users or by the share of total revenues. A widely used measure, for example 5 See http://trpc.biz/wp-content/uploads/2004_07_Telecom_in_EAP_Telecom_Note.pdf 8 is the Hirschman-Herfindahl index (HHI) which is constructed by the sum of the squares of the market shares of each operator, so in an evenly competitive market of 4 players each with 25% of the market HHI = 252 +252 +252 +252 = 2,500. A number larger than this is indicative of a more concentrated market, but this is a rather static measure that in itself does not explain market behaviour.6 A more refined measure is significant market power or simply SMP. This estimates how far a single operator can increase profitability by changing the price it charges for its services. In a highly competitive market, it will lose customers when it hikes its prices, and if it lowers its prices competitors will match it. Traditionally, where an operator has been designated as dominant, some regulatory restrictions apply; for example, an incumbent operator could be required to submit proposals of tariff changes to the regulator for approval. This is regulation before the event or ex ante regulation. However, as competitors establish a firm foothold in the market there has been a change towards regulation after the event or ex post regulation. This is appropriate when it cannot be assumed that the dominant operator is abusing its market position. It is often referred to as ‘light-handed’ or ‘light-touch’ regulation. Just as the threat of competition may be sufficient to deter the dominant operator from acting in an anti-competitive manner, so the threat of regulation may achieve the same result. If it does not, then regulation is called for. A half-way house between ex-ante and ex-post regulation arises when competition has been introduced but is not yet well established. A good practice widely used in the US and in the UK in the 1980s came to be known as incentive regulation or economic regulation. The regulator would develop a formula to govern when and by how much the incumbent could change tariffs in a way that rewarded the operator for becoming more efficient. One such formula used in the UK was the price cap which allowed British Telecom (BT) to raise its prices by RPI-X, the retail price index minus X% where X is determined by the regulator. So if the rate of retail price inflation was 8% and X was set at 5%, the operator had an incentive to increase efficiency by over 3% to make more profit. The formula referenced a basket of services and within the basket there were individual sub-caps to allow BT to rebalance prices between services. X was adjusted every 3 to 5 years. This example is not to suggest that a price-cap formula is the best solution for all circumstances; it is simply a good solution if it works under local circumstances. The key point is that this was an inventive way to apply solid economic principles to a regulatory problem, combining longer-term regulatory flexibility with short term financial clarity for the investors. It is just one of several options. Maintaining a Competitive Market Competitive markets can become less competitive when companies exit the market and when mergers and acquisitions (M&A) reduce the number of network and service suppliers. 6 See ICT Strategy toolkit http://www.ictregulationtoolkit.org/en/toolkit/notes/practicenote/2880 9 It is therefore important that the regulator is given powers by the legislature to evaluate potential M&As. This means imposing a requirement on the companies concerned or on the acquiring company to notify the regulator and seek guidance. In some cases this function may be carried out by a separate competition or monopolies commission. A good practice is for the regulator to give advanced advice to the parties concerned to smooth the process. This avoids undue delays, but identifies early on any substantial issues that may need addressing. The regulator can either aim to avoid a company becoming dominant as a result of an M&A by imposing conditions such as the disposal of assets, or can require certain behavioural guarantees such as equal access to network facilities and directory databases in exchange for ex post regulatory oversight. These steps may require changes to the terms and conditions of the licence before the M&A is given the green light. 3.2.1 Technology and Service Neutral Section 3.2 emphasized the need for the licensing and authorization framework to keep pace with changes in the technological landscape because new technologies and standards can give rise to new market opportunities. The traditional problem is that licences issued many years previously may specify the technology or the standard to be used. This was often true by default in the case of wireless cellular telephony. If the CDMA standard was used then an allocation within the 800 MHz band was assigned by licence, and if the standard was GSM an allocation within the 900 MHz band was assigned, and so on. With 3G and 4G standards now available innovation in frequency usage enables mobile network operators (MNOs) to use a range of different spectrum bands including 900MHz, 1.8GHz, 2.1GHz, 2.5/2.6GHz, etc. Promising changes in spectrum use are arising from the so-called digital dividend as frequencies used by analogue radio and TV broadcasts in the VHF and UHF bands are freed up with the shift to digital radio and terrestrial TV or DTT. The 700MHz band especially is seen as having excellent propagation characteristics that could mean much wider area coverage by cellular and other wireless technologies for the same or less investment. This will pose a challenge and an opportunity for policy-makers and regulators. The challenge will be how to allocate these frequencies between the claims of competing services. The opportunity will be to assign these frequencies to new services and to meet the needs of populations in more remote and rural areas. This will be discussed further in section 3.3. The point at this stage is that although regulation through licensing may be needed to ration a scarce resource such as radio spectrum, if the licensing process itself is to become ‘f uture- proof’ it needs to take a step back from specifying exactly which technologies and standards are to be used. For example, allowing 3G services to be offered over 2G assigned frequencies—a process known as spectrum refarming—is a step in this direction. UMTS900 networks have already been deployed by AIS in Thailand, by Digitel in Venezuela and by DNA in Finland. 10 No amount of licensing or regulation can predict which technologies and standards will be successful in the market. Some will come and go quite quickly. Paging for example, is not used today but was a popular and conveniently cheap method of text communication in the 1990s, before it was pushed aside by lower cellphone prices. Some standards will enter the market but fail to gain widespread adoption. Local Multipoint Distribution Service microwave or LMDS was a case in point, and the WiMax (Worldwide Interoperability for Microwave Access) may be another. Licensing policies need to be adaptable to accommodate these market experiments because no amount of regulatory foresight can predict the outcomes and, as in the case of WiMax, although it may not be adopted in its mobile version it can nevertheless play a role as a substitute for digital subscriber line (DSL) in some markets. Also a new entrant choosing the standard is more likely to develop a sustainable business plan if the licensing conditions permit it to migrate to an alternative technology (DSL) or wireless standard (4G) as it discovers the market need. This is what is meant by technology neutral regulation: it leaves the choice up to the investor to test the market. Apps and Services So far neutrality has been discussed in terms of technology and standards, and in terms of medium, fixed or wireless. Ultimately neutrality is about different services requiring different media and technologies. For example, most standalone MNOs are required to lease backhaul from fixed-line carriers, but they would be in a much stronger competitive position if they could invest singly or jointly (through facilities sharing) in their own lines. If needs be, their license conditions could restrict the usage of those lines to their own business so they do not compete for the retail business of the fixed line carriers; however, even that solution may be considered second-best to outright competition. Certainly unified or converged carriers offering both fixed and mobile services (triple play, including Internet) have a cost advantage in this regard. An alternative solution is to licence independent broadband wholesalers which encourages more cost-effective competition at the retail level. A new dimension to technology and service-neutral regulation has arisen with the spread of web-based applications that can be accessed through a range of fixed line and wireless network devices, such as smartphones. As many of these apps are OTT and therefore potentially by-pass the tariffs of the licensed carriers’ networks, carriers are tempted to restrict the bandwidth made available to their download, either by throttling bandwidth, outright blocking or by levying additional charges on their users. This is the net neutrality issue which is also referenced in module 3.7. It is a point of argument whether regulation that tries to preserve equal access to services for consumers is straying too far into the commercial pricing decisions of operators. In Hong Kong, for example, the regulator took the view that while operators could introduce tiered pricing schemes for consumers to choose from, they could not discriminate against the supply of different apps or content. In 11 other words, once a consumer has established and paid for their chosen level of demand in terms of total broadband capacity they can use per month at the basic fee or in terms of bit rate speeds, they are entitled to access any apps and content up to their chosen limits. 3.2.2 New Authorization Options and Their Implications for Broadband Regulation of the media and regulation of telecommunications networks and services have traditionally been separate domains of government. The spread of broadband, the convergence of technologies and the search for business synergies between publishing, broadcasting, IPTV and the delivery of content over the Internet has prompted several countries to converge their telecoms and broadcast regulation agencies, although it should be noted that this does not imply that the regulations have fully converged. For example, the FCC in the US was created in 1934 and manages the regulation of both telecoms and broadcast in separate departments. A useful ‘Environment Scan’ conducted by the Canadian Radio-television and Telecommunications Commission (CRTC) in 2011 cited the Australian Communications and Media Authority (ACMA) as finding that: Even in converged legislative frameworks that adopt an industry-agnostic approach to carriage regulation, at this point in the evolution of converged regulatory models, when it comes to content, sector-specific media regulatory measures still generally apply.7 However, these changes are bound to impact upon the way in which new authorizations will be made. Modules 3.2 and 3.2.1 have highlighted the important development of technology-neutral and service-neutral licensing regimes and the challenge of keeping the licensing structures relevant to developments in the marketplace. The innovation of multiservice and general licensing was noted, but even these approaches can have their red tape. The multiservice approach, for example, may require different licences for different categories of service and cross-ownership rules may restrict the licences available. In an ideal world, all services would be open to all comers, but in reality markets often support only two or three profitable ventures,8 raising fears of dominance or, possibly, of collusion. For this reason, easing the licensing requirements for service providers and content distribution networks (CDNs) may prove an effective countervailing power within the market. 7 Cited in CRTC (2011) ‘Environmental Scan of Digital Media Convergence Trends: Disruptive Innovation, Regulatory Opportunities and Challenges’ http://www.crtc.gc.ca/eng/publications/reports/rp110929.htm#s1 8 In 1976 Bruce Henderson, the founder of Boston Consulting Group, argued empirical data seemed to show that as markets matured three companies would come to dominate in the ratio of approximately 4:2:1. The marginal company (number three or four) would be hard pressed to remain profitable. This very often seems to be the case in telecom markets. See ‘BCG Classics Revisited: The Rule of Three and Four’ https://www.bcgperspectives.com/content/articles/business_unit_strategy_the_rule_of_three_and_four_bcg _classics_revisited/ 12 Much of the content today is likely to come from overseas, through broadband, through the Internet and through CDNs. Policy-makers and regulators are therefore faced with additional decisions to make: should they confine licensing and regulation to domestic- based service providers and permit open access to external services? Or, should they attempt to impose domestic conditions upon external services? If so, how? For example, in some jurisdictions, overseas service providers are required to register an official presence in the country. Vietnam has proposed this, but only as a point of official contact and not, it seems, as a means to carry liability in the case of a dispute. The arguments for regulation usually relate to the need to screen out unacceptable apps and content. This is clearly a decision that has to be taken at the national level, but a good guideline is that if there are to be regulations and restrictions they should meet two conditions. Firstly, what is regulated and restricted should be a fair reflection of what is legal and illegal in local law, otherwise there is a danger of arbitrariness, lack of policy transparency and even of due process. Secondly, regulations and restrictions should be proportional to the threats or dangers involved. For example, content that glorifies or promotes hatred and violence is far more harmful than content that makes parody and criticism. An additional important element to consider is the intention of the content. For example, content that makes a damaging untrue statement about a person may be deliberate libel or it may be an unintended error. Proportionality in the application of law should be able to draw the distinction and apply that in the remedy, in this case an apology and/or a takedown rather than a prosecution. 3.2.3 Disputes Resolution Procedures Moving from an incumbent monopoly towards an open entry and free market in telecommunications is a process that from time to time inevitably generates disputes between the regulator and the operators, between different operators and between operators and customers.9 Disputes with regulators are most frequent when licensing conditions are being imposed such as steps to curb anti-competitive behaviour, the imposition of price controls, and the granting of permissions to market new services. Disputes between operators are more likely to centre around competition issues, such as discrimination in the cost of interconnection or in providing access to unbundled network elements (UNEs) – see Module 3.6 – and claims of misrepresentation arising during combative marketing campaigns. Billing, quality of service and waiting lists are the types of issues most likely to arise between customers and operators. 9 See infoDev/ITU ‘ICT regulation toolkit’ http://www.ictregulationtoolkit.org/en/section.2069.html and ITU/World Bank (2004) Dispute Resolution in the Telecommunications Sector: Current Practices and Future Directions, Discussion Paper by Robert R. Bruce and Rory Macmillan (Debevoise & Plimpton) and Timothy St. J. Ellam, Hank Intven, Theresa Miedema (McCarthy Tétrault LLP) http://www.itu.int/ITU- D/treg/publications/ITU_WB_Dispute_Res-E.pdf 13 Dispute resolution procedures usually take one of two forms: either official government channels such as the regulator, a statutory arbitration court, an appeal to a minister or to the Supreme Court, or through unofficial channels – also referred to as alternative disputes resolution (ADR) – involving a voluntary process and an arms-length arbitration panel. Consumer councils often play an important role representing user interests, but they do not always enjoy an official status. Sometimes, as in Thailand, the regulator’s office h elps to create a consumer protection agency. Where disputes arise over a regulator’s decision it is best practice to establish some kind of telecoms tribunal, in Hong Kong called the Telecoms Appeal Board,10 to ensure transparency. But the appeal will be confined to examining whether the regulator followed due process and not a challenge to the regulator’s statutory powers to make a judgement. Like many other jurisdictions, Hong Kong has also established an ADR mechanism called the Customer Complaint Settlement Scheme (CCSS) similar to Australia, New Zealand and the United Kingdom to help resolve disputes between operators and users.11 In 2013, Hong Kong’s six mobile virtual network operators (MVNOs) agreed to join the scheme which already covered fixed and mobile network operators.12 The importance of ADRs is they can provide fast and also less costly solutions to relatively small disputes without taking away the legal rights of the parties concerned. Other approaches to dispute resolution include judicial or semi-judicial tribunals that adopt court-like procedures. For example, India has placed the procedure in the hands of an independent Telecom Dispute Settlement and Appellate Tribunal (TDSAT) presided over by a retired high court judge. In his assessment of the dispute resolution in India and influences upon it from around the world, R.U.S.Prasad notes the importance of Malaysia’s ap proach, although in the latter case the tribunal’s chairman, also a retired high court judge, is subject to appointment and possible dismissal by the minister.13 In the US, where the role of litigation is more accepted as part of commercial life, the decisions of the Federal Communications Commission (FCC) are generally regarded as final. However, law judges are involved during hearings leading up the final decision of the Commissioner, and FCC rulings are frequently subject to Court of Appeal challenges. 10 http://www.cedb.gov.hk/ctb/eng/telecom/relevant2.htm 11 For Hong Kong see http://www.ofca.gov.hk/filemanager/ofca/en/content_793/ta_stmt_en.pdf; for Australia see http://www.tio.com.au/; for New Zealand see http://www.tdr.org.nz/; for the UK see http://consumers.ofcom.org.uk/tell-us/telecoms/adr/ 12 http://www.ofca.gov.hk/filemanager/ofca/en/content_793/press_release3.pdf 13 R.U.S. Prasad (2008) ‘Dispute Resolution Mechanisms in the Telecom Sector: Relating International Practices to Indian Experience’, Stanford Center for International Development: Working Paper No. 372 (September) http://www.stanford.edu/group/siepr/cgi-bin/siepr/?q=system/files/shared/pubs/papers/pdf/SCID372.pdf 14 The legal and commercial histories of countries differ widely, so different approaches to dispute resolution apply, but if there is one underlying principle that should be common to all is transparency. 15 Module Three: Law and Regulation for a Broadband World 3.3 Spectrum Management In the fixed line world the original ISDN-B definition of broadband was 144 Kbps; that is a bit rate or in other words the size (byte) over a period of one second of a video or audio stream download or upload. Modern broadband wireless access (BWA) networks and devices operate at bitrates that now run into Mbps and, under laboratory conditions, even Gbps. Bit Rates and Frequencies Although there is no direct relationship between bitrates and radio frequencies or Hertz (“wave cycles per second”) it is the case that higher frequencies with shorter wavelengths occupy broader bands of spectrum. So, for example, 1.8GHz is twice the spectrum of 900MHz. By allocating higher frequencies to services such as public land mobile networks (PLMN) there is additional spectrum available for more operators and therefore more competition in the market. Because they are broader and shorter, the higher frequencies, (above 1GHz) are well adapted for densely populated urban areas, but offer less coverage for wider suburban and rural areas. This can be an important commercial issue because it means that lower frequencies offer lower costs in terms of base stations, towers and backhaul coverage to operators who are looking at less densely populated markets. As a consequence in a spectrum auction mobile network operators (MNOs) may bid more for these lower band frequencies than for the higher ones, although historically the opposite has been true because MNOs first targeted urban markets. Ultimately, 10MHz, 15MHz or 20MHz of bandwidth is the same whatever the frequency; what really matters is the technical capacity of the network equipment and of the access devices operating at these frequencies. An example of this is the development of broadband satellite services for fast Internet access and HDTV. Policy Aims What are the aims of policy? This question has to be the first thing to consider from a regulator’s perspective when deciding the allocation and assignment of spectrum for broadband services. Different policy aims require different regulatory objectives. For example, if the policy aim is to stimulate service innovation, then the regulatory objective could be to increase the supply of unlicensed spectrum and/or to facilitate spectrum sharing. If the primary aim of policy is to ensure greater competition and consumer choice, then the regulatory objective will be to assign spectrum to new entrants and maybe to facilitate the entry of mobile virtual network operators (MVNO) – see Box 3.1. 16 Box 3.1 MVNOs A Mobile Network Operator (MNO) has market power by virtue of owning radio spectrum and a network. By contrast, a Mobile Virtual Network Operator (MVNO) is dependent upon an MNO for both to provide services such as voice, SMS and data to end-users.14 MVNOs do have full control over their branding, marketing, billing and customer care operations,15 and compete by providing flexible plans, tailored services, loyalty programs etc. With the advent of broadband and smartphones a new range of possibilities is opening up, including m- payment services and specialized apps and content for targeted markets. Broadband has encouraged MNOs to shift from charging high wholesale prices to MVNOs to selling ‘buckets’ of bandwidth. In some cases they take a revenue share from MNVOs who create new markets, such as the MNVO in the US that has started a retail portal that sells almost any brand of smartphone.16 In other cases the MVNO is an affiliated company operating in an overseas market – see below for the example of the Philippines. Basically, broadband is giving MVNOs a new lease of life. The first MVNO was launched in 1999 by Virgin Mobile (UK) and as of late 2012 there were over 630 licensed MVNOs worldwide. 17 PLDT and Remittances MVNOs tend to focus on customer maintenance rather than customer acquisition, bundling value-added services (VAS) with a suit of other product offerings such as remittance and e- commerce. The Philippine Long Distance Telephone Corporation (PLDT), which links its MNVO services overseas with other offerings catered to Filipino migrant workers, is a good example. These include a remittance service called Smart Pinoy Remit and an e-commerce website called Smart Pinoy Store. The Smart Pinoy store allows Filipinos working overseas to purchase groceries, gift cheques, flowers and other items online to be sent to their families back home or pay for their family’s PLDT landline or Smart post-paid bills. Through agreements with different MNOs, PLDT has been able to launch its MVNO services in Hong Kong, Singapore, Guam, Taiwan, Macau, Malaysia and the UK and has plans to launch in the Middle East, North America, Africa and other parts of Europe. Brazil and MVNO Regulation Brazil is a good illustration of how targeted regulation can open up a market for MVNO entry. Brazil is the largest mobile market in Latin America with more than 260 million subscriptions in 2011 of which 80% are pre-paid, and a penetration rate of over 130% as of 14 http://www.telecomspace.com/latesttrends-mvno.html 15 http://www.mobilein.com/what_is_a_mvno.htm 16 http://gigaom.com/2012/06/25/why-are-mvnos-so-hot-right-now-thank-the-carriers/ 17 http://www.mvnodirectory.com/overview.html 17 April 2013.18 The Brazil market is highly competitive with the four biggest mobile network operators (Vivo, TIM, Claro, and Oi) holding close to a quarter of the market each. 19 In 2010, the telecom regulator Anatel approved regulations that would create two types of MVNOs.20 The first is where an agent (‘credential’ model or credenciado de red virtual) of a mobile operator, with ANATEL’s approval, reaches a commercial agreement with an institutional customer such as a bank, a retail chain store or a football club. By falling outside the definition of a public telecommunications service this is an encouragement to non-telecom players. The second is the traditional MVNO (‘authorized’ model or autorizado de red virtual). The first two MVNOs, Porto Seguro Conecta and fixed-line operator Sermatel (Datora Telecom), were approved in 2011 and launched in 2012. Porto Seguro Conecta is operated by Porto Seguro, an insurance company. Its initial service offering focuses on Machine-to- Machine (M2M) communication providing vehicle tracking services owned by its insurance customers. The two MVNO licence holders have partnered with the TIM network.21 As of March 2013, Porto Seguro reported having 41,377 subscribers and Datora 1,000, while four more MVNOs have announced their entry and three more are in the planning process.22 Maybe not all will survive but by opening the market to MVNOs ANATEL has succeeded in stimulating investment in services competition and innovation. MVNOs and Regulators MNVOs offer regulators a way to increase competition at the retail level and innovative services that can cater for market minorities. They offer MNOs a way to raise more revenue from networks that have spare capacity. In China in 2012 the Ministry of Industry and Information Technology (MIIT) announced a two-year MVNO trial plan as a way to attract more private capital into its telecommunications market.23 Unlike MNO VANS (value-added network services) operators, VAS operators have little or no direct control over the network, its capabilities and performance. Therefore many of the regulations regarding QoS applying to MNOs are not necessarily applied to MVNOs. On the other hand, MVNOs do control their own billing systems, so regulations safeguarding consumers can apply. Although wholesale pricing is usually left to commercial negotiations, if the ministry wishes to positively encourage MVNO entry there may be a case for regulation, but care needs to be taken that it does not remove the incentive for the MNOs to share their networks. 18 http://www.teleco.com.br/ncel.asp 19 http://www.gsma.com/spectrum/wp-content/uploads/2012/10/gsma_brazil_obs_web_09_12-1.pdf 20 http://www.internationallawoffice.com/newsletters/detail.aspx?g=bffed9bb-67b7-46ce-85ee-6c14d779828f 21 http://www.rcrwireless.com/americas/20120827/carriers/brazils-porto-seguro-launched-first-mvno- operations-country-m2m-services/ 22 http://www.teleco.com.br/en/en_mvno_br.asp 23 http://www.zdnet.co/china-encouraging-private-investments-in-telecom-industry-2062305275/ 18 If the policy aim is to raise revenue for the treasury, then the regulatory objective will be to design an auction in a way that maximizes the bidding prices. If the policy aim seeks to achieve is mix of the two then the regulatory objective may be to reserve some of the spectrum to be auctioned for new entrants only. A successful auction will then allow a new entrant into the market but maybe at the expense of raising less revenue than if the entire spectrum were open to all bidders. The means of achieving regulatory objectives will vary. Auctions have become popular among regulators who look for market solutions, and are tending to replace the traditional ‘beauty contest’ approach by which regulators pick and choose the winners. One big disadvantage of the beauty contest approach is its lack of transparency, making it vulnerable to corrupt practices. But not all spectrum will be assigned by a market mechanism. Many public services, such as public protection and disaster risk (PPDR) services used by the police and first responders such as fire and ambulance services, are assigned spectrum by administrative means, also known as ‘command and control’. In many countries the armed services also control large swathes of spectrum, as do utility companies running facilities such as seaports, airports, electricity grids, roads and rail networks. Increasingly regulators are looking for ways to increase the efficiency with which these legacy assignments are used so they can free up spectrum for new broadband services. The use of ‘administrative spectrum pricing’ or ASP (sometimes called ‘administrative incentive spectrum pricing’) is one way to do this by assigning a price usually based upon some notion of the ‘opportunity cost’ of using the spectrum for some other purpose. Another way is to carry out an efficiency audit using radio engineers to make an assessment. Box 3.2 Hong Kong Approves Administered Incentive Pricing Statement published 19 June 2007: Executive Summary This Statement follows Ofcom’s consultation on the future pricing of spectrum used for terrestrial broadcasting. It sets out our intentions in respect of:  implementing charging for spectrum used for digital terrestrial broadcasting of television and radio; and  extending the current charging regime for analogue commercial sound broadcasting to the spectrum used by the BBC for its radio services. Ofcom’s decision In July 2006, we consulted on proposals to implement administered incentive pricing (AIP) for spectrum used for terrestrial broadcasting. We did so on the principle that one of the best ways of ensuring that the opportunity costs of spectrum are fully and accurately reflected by decision-makers is for those opportunity costs to be reflected in prices that have to be paid to hold spectrum. 19 The consultation produced a number of responses, which this Statement outlines and which we have considered fully. Our overall conclusions are that:  it is right that broadcasting use of spectrum should be subject to appropriate charges in future, in the same way as almost all other uses are or will be;  the right time to introduce charging for spectrum used for digital broadcasting – both television and radio – is the end of 2014;  the right time to extend the existing charging regime for commercial analogue radio spectrum to that used by the BBC is 2008;  before introducing any charges, we will consider carefully any potential effects on broadcasting output, and the right options to address or mitigate them.  Source: http://stakeholders.ofcom.org.uk/consultations/futurepricing/statement/ Preventing Radio Interference Given the new focus upon broadband wireless the starting point for all spectrum management policy making and regulation remains the recommendations of the ITU’s World Radiocommunications Conference (WRC), held every three to four years. The topics are set six years in advance and the final agenda around three years in advance. This gives time for the Study Groups and technical standards bodies to make their recommendations. Figure 3.3 ITU-R Sector Organization Source: http://www.itu.int/ITU-R/index.asp?category=information&rlink=sector- organization&lang=en SSD: Space Services Department; TSD: Terrestrial Services Department; SGD: Study Groups Department; IAP: Information, Administration and Publications Department 20 The only mandatory requirement for ITU membership is a commitment to avoid radio interference with neighbouring countries. All else is about the adoption by national regulatory authorities (NRAs) of WRC and ITU recommendations on policies, standards, etc. The avoidance of radio interference clearly should always be the number one consideration and in light of new ‘intelligent’ technologies, an interesting reaffirmation of this came in the US from the FCC’s 2012 Notice of Proposed Rulemaking (NPRM) for broadband satellite services. FCC Chairman Julius Genachowski explained: “We’re proposing to modernize, streamline, or eliminate hundreds of rules or subsections governing satellite services. Among the changes, this Notice includes a shift in the focus of the r ules from a ‘tell us how you built it’ approach to a ‘tell us how you will avoid interference’ approach. ” 24 Harmonization An issue of growing significance for NRAs are efforts to achieve harmonization of spectrum allocation across neighbouring countries to gain economies of scale in the equipment standards used across the region and to facilitate roaming. Roaming was previously a voice service on mobile phones, but that is changing as broadband data roaming services using smartphones, tablet computers, etc., become more popular. Important past initiatives by the ITU have included the ‘Harmonization of the ICT Policies in Sub-Sahara Africa’ (HIPSSA) with EU support25 and a joint programme with the Caribbean Community and Common Market (CARICOM) named ‘Enhancing Competitiveness in the Caribbean through the Harmonization of ICT Policies, Legislation and Regulatory Procedures’ (HIPCAR). 26 Both these programmes have now concluded. In Asia, the ASEAN group of nations is also working towards harmonization, including freeing up the spectrum in the VHF and UHF bands through the switch from analogue to digital terrestrial TV (DTT), known as the digital dividend. Asia somewhat lags behind other regions in making progress towards harmonization as the paper ‘The Digital Dividend in Asia’ explains.27 One of the most influential organizations in the region promoting a common approach towards the digital dividend is the Asia Pacific Telecommunity or APT based in Bangkok.28 However, as each ASEAN country has its own legacy of spectrum allocations which include military and government as well as commercial bands, harmonization is not easy to accomplish. ASEAN has its own general policy document for the harmonization of ICT developments within South East Asia—the 2010 Masterplan on ASEAN Connectivity: One Vision, One Identity, One Community (MPAC) 29—with a roadmap called the ASEAN ICT 24 http://hraunfoss.fcc.gov/edocs_public/attachmatch/FCC-12-117A2.pdf 25 http://www.itu.int/ITU-D/projects/ITU_EC_ACP/hipssa/ 26 http://www.itu.int/ITU-D/projects/ITU_EC_ACP/hipcar/ 27 http://trpc.biz/wp-content/uploads/2012-07-17_IICAsiaForum_DigitalDividend_BriefingPaper.pdf 28 http://www.aptsec.org/AWG-Spectrum 29 http://www.aseansec.org/documents/MPAC.pdf 21 Masterplan 2015.30 Both are discussed in ‘ASEAN ICT Masterplan 2015: IIC Asia Forum, April 2012’.31 Spectrum Scarcity Debate Alongside the rising demand for spectrum for broadband services there has been an accompanying debate over whether or not there is a spectrum supply shortage. The arguments consist of several different points. There is a straightforward view that demand has outstripped supply, especially with the rise of social media and video streaming, massive multiplayer online gaming (MMOG), etc. Equipment vendors and operators typically argue this point. There is another view that too many operators are not using their spectrum fully and efficiently and if they did so there would be little or no shortage. This view was put forward in a report by two CitiGroup researchers in 2011 who argued that in their estimation in the US only about 35.7% of spectrum set aside for wireless communications was being used for that purpose.32 Those with spare spectrum, they argued, lacked the capital to invest in networks, while those with networks lacked the additional spectrum to expand their services. Others have pointed out that at least some of the spectrum held in reserve by operators is not necessarily inefficient but rather good investment management, ready to take advantage of emerging new technologies and standards. It is also the case that under- used spectrum can be held by non-telecom bodies such as the armed forces, the emergency services, public utilities such as power and transportation companies, etc. In the US the FCC (Federal Communications Commission) takes the view that there will be a shortage as demand outpaces supply unless more spectrum is released as part of the 2010 National Broadband Plan. The FCC also considers that a lot of spectrum is being under- utilized and that smart regulation should find a market solution to this problem. The FCC “needs to create new incentives for incumbent licensees to yield to next-generation users”33 and proposes ‘incentive auctions’ as one way to do this. In an incentive auction the licensee who gives up the spectrum to the highest bidder either keeps the revenue and pays a commission to the FCC for running the auction, or shares the revenue with the FCC. The reason why incentive auctions may be necessary is because historically the cost and time of 30 http://www.scribd.com/doc/111870071/ASEAN-ICT-Masterplan-2015 31 http://trpc.biz/the-asean-ict-masterplan-2015/ 32 Jason Bazinet and Michael Rollins (2011) ‘Wireless Data: Supply and Demand Spectrum Control, Not Availability, Is the Real Constraint’ Citi Investment Research & Analysis 33 http://www.broadband.gov/download-plan/ chpt 5, p.11 22 clearing entire bands of spectrum from previous occupants and reallocating them are too high and takes too long, sometimes beyond 10 years.34 Allocating additional spectrum is one issue; how to assign it to users is another. The most valuable spectrum below 1GHz has been assigned by methods such as ‘command and control’, ‘beauty contest’ and increasingly through market auctions, but an alternative approach is to release spectrum for free as a public commons. This already happens in many frequency bands as unlicensed spectrum, but a public commons approach implies higher emissions and therefore the need for some form of regulation. These issues are discussed in the next modules. Conclusion Making judgements about the future supply and demand for radio spectrum is precisely that, a judgement, and one that will require continuous revisiting. On the supply side, new technologies are rapidly increasing the efficiency of frequency usage, yet which technologies will succeed in the marketplace can never be known with certainty. On the demand side, service innovations and changes in user preferences also happen quite quickly, especially over broadband wireless networks. Given this reality, regulation needs to become smarter, that is to say: it needs to mimic market incentives as far as possible; it needs to be transparent so that investors and users can plan ahead; and, it needs to become more flexible to take account of changing conditions and requirements. The rest of this section of module 3 will further explore these issues. 3.3.1 Spectrum Licensing Regimes The growing demand for spectrum for broadband covers a range of wireless technologies and standards. Each category lends itself to different regulatory approaches. Low-powered short-to-medium range communications The broadband era is seeing the coming of the ‘Internet of things’. Every object, whether it is a device such as a mobile phone, a TV or a refrigerator, a vehicle or even a piece of clothing, can be connected to the Internet or directly to another object by short-range radio using Internet Protocol. Different technologies, such as Bluetooth and Zigbee, have been developed to provide the communications standards. The spread of these machine-to- machine (M2M) communications will grow exponentially and are becoming the central component of smart cities. Already smart cars send system alerts to mobile phones and 34 http://www.broadband.gov/download-plan/ chpt 5, p.8 Exhibit 5-C. The National Telecommunication and Information Agency (NTIA) concluded it would take 10 years and cost US$18 billion to clear a 95 MHz band http://frankrayal.com/2012/08/26/exclusive-versus-shared-spectrum-scarcity-to-abundance/ 23 computers. Electronic Road Pricing (ERP) schemes, as used in Singapore, deduct payments from stored value cards displayed on vehicle windscreens each time the vehicle passes under a gantry. Hundreds of millions of electricity meters, water meters, early warning sensors ready to detect earth tremors or fires are operational; because the power emission from these devices is extremely low and radio interference is not an issue the frequencies do not need to be licensed. Along with these developments there will be an increasing level of innovation surrounding the ‘Internet of things’. New devices and new services will emerge and in some cases this may call for a raising of the limits on power emissions. In such cases, an alternative to licensing is to allow industry to adopt its own codes of conduct with respect to frequency sharing and frequency hopping, but the regulator needs to be reassured that this is technically possible and presents no risk to public health. It is important that regulators have access to the independent technical expertise necessary to make these judgements, for example, by establishing a Radio Advisory Committee or by bringing in a consultant. Mass wireless communications The licensing of MNOs (mobile network operators) to build PLMNs (public land mobile networks) has traditionally followed the contours of the technology standards being used, but this is starting to change. 2G standards typically used 800MHz (CDMA) and 900MHz (GSM) bands, while UMTS standards for 3G used a variety of bands for W-CDMA, notably 2100MHz (Band l) and 900MHz (Band Vlll) in most of Europe, Africa and Asia, 1900MHz (Band ll) and 850MHz (Band V) in the Americas, 1700MHz (Band lll) in the USA, etc., while WiMax, a different standard, is typically allocated 2.3 GHz, 2.5 GHz and 3.5 GHz frequencies and WiFi 2.4GHz. The equipment itself can be manufactured to be tuned into whatever frequencies are allocated, and licences were linked directly to these allocations. With the arrival of 4G LTE and LTE Advanced and Mobile WiMax a new stage has been reached in spectrum management. On the one hand, these standards are meeting the demands for greater bandwidth or frequency capacity driven by the growing demand for bandwidth-hungry applications. This puts regulators under pressure to find additional spectrum. On the other hand, the digital dividend which frees up large amounts of bandwidth from analogue radio and TV in the VHF and UHF bands offers regulators a once- in-a lifetime opportunity to re-allocate 150MHz or more spectrum. In addition, regulators are searching for spectrum that is either unused or under-used in other frequencies. The result is an opportunity for 4G MNOs to occupy and operate from a variety of frequencies as suits local circumstances and increasingly regulators are starting to look towards multi- frequency auctions called, somewhat clumsily, Combinatorial Clock Auctions or CCA 24 auctions where bidders can combine ranges of frequencies from different bands.35 Frequency aggregation techniques (discussed later) are an advanced method by which MNOs can use these frequencies in combination. With all these changes regulators need to revisit their licensing regimes to allow MNOs greater flexibility in their use of frequencies from different bands, because licensing that links an MNO’s network to a specific band simply will not work in this situation. This is discussed further under 3.3.3 Allocation and Assignment. Flexibility has arisen in another aspect of licensing of MNOs where they need to buy or build backhaul capacity to manage the growing demands of traffic across their cellular networks. Leasing backhaul capacity from a fixed-line incumbent can be very costly while the lack of such capacity threatens the quality of service that can be offered to the public. Regulators would seem to have at least six options to choose from to relieve this bottleneck problem. First, where the incumbent fixed line operator also has a licence to provide wireless mobile services a unified licence can be issued to replace the separate licences and thereby encourage greater network integration or fixed-mobile convergence. India was the first jurisdiction to introduce this innovation. However, this does not solve the problem if the incumbent is permitted to discriminate against competing MNOs. Equal access is an important part of maintaining free and fair competition. A second option is to licence MNOs to build their own fixed-line or microwave backhaul networks but limit the use either to own-services or to wholesale services; the latter of these options has the virtue of introducing greater competition into the wholesale market. A third option is to allow MNOs to share backhaul facilities such as towers, as well as to share cell sites and thereby spread the costs. A fourth option is to licence a separate wholesale network provider who can serve the entire market in competition with incumbent fixed-line operators. A fifth option is to licence non-telecom entities such as utility companies to lease their own fixed-line or microwave capacity to MNOs. A sixth option is to allocate spectrum to WiFi, which can be used to offload data traffic from congested cellular networks. In addition, public-private partnership (PPP) arrangements can sometimes help in each of these cases where there is a need to reduce operational and capital risk, but as one former finance minister warned there is a danger of them escaping “both the discipline of effective state (i.e. Treasury) control and the discipline of the marketplace.”36 PPP may be especially helpful in areas 35 See a discussion of the advantages of the combinatorial clock auction in the UK by OFCOM http://stakeholders.ofcom.org.uk/binaries/consultations/1452design/summary/1452design.pdf 36 Nigel Lawson ‘How flawed government policies and state backing for home loans led to disaster in the US th housing market’, Seeds of Subprime Review Article, 16 November 2012, The Financial: http://www.ft.com/intl/cms/s/2/b78369aa-2a8e-11e2-99bb-00144feabdc0.html 25 which are serving national policy interests such as providing access to rural and remote locations. Long-distance terrestrial backbone and backhaul microwave technologies Licensing non-telecom companies such as national rail and road systems and energy grids to lease their long-haul capacity is an obvious step towards greater capacity for MNOs and for competition in the wholesale market. Licensing to permit facilities sharing such as towers, ducts and leased circuits is another way to solve the bottleneck problem and is being adopted in many countries. Extra-terrestrial satellite microwave Broadband satellite services currently offer fast internet connections to many areas that are not served by terrestrial connections. They will become even more important in the coming era of ‘connected TVs’, television sets with Internet connectivity enabling viewers to download movies, watch live sports, view videos, play MMORPG, etc. In many low income countries these developments may seem an age away, but in the metropolitan centres of countries that are well integrated into the global economy these are the new consumer products of the present day. In many rural areas, mountainous landlocked countries and remote small island economies, satellite remains the only way to gain access. Traditionally, C-band satellites requiring receiver dishes several feet in diameter were used mostly for broadcast services, and as a back-up for telecom services. L-band is used for GPS and more and more devices use GPS. Ku-band satellites offer higher bandwidth and a narrower footprint and are widely used by Vsat transceivers to provide commercial access mainly to data services. Now Ka-band satellites, which operate at speeds 100 times faster than Ku-band, are offering high-speed broadband Internet access to areas previously unreachable, although attenuation problems often arise on these higher bands due to tropical rainfall. Many countries cannot afford a satellite of their own, but they can licence local service providers who lease satellite channels. Licences need the flexibility to take advantage of technologies such as dynamic frequency allocation that can supply different levels of service to different locations. Licensing and Innovation Flexible licensing policies can help unlock innovation. With the coming of the ‘Internet -of- things’ and the real possibility of smart cities that can, among other things, help address the issue of energy consumption, carbon emissions and climate change, the role of licensing has extended beyond its initial aims of imposing strict operational requirements upon service providers, and even beyond the aim of making competition work. It is now addressing the issue of how to stimulate and facilitate innovation in the use of spectrum and in the provision of new services. This affects the competitive advantage of an economy and helps 26 to create jobs and revenues: regulation, technologies and markets are all interconnected, each affecting the other. The demands of the market spur on technology innovations such as cognitive radio for spectrum sharing, intelligent antennae for better radio coverage, and spectrum aggregation techniques for a more efficient use of available spectrum. The changing role of licensing is therefore an important facilitator of this virtuous cycle and necessary to encourage investment in these new network services. (See also Kim, Kelly and Raja (2010) ‘Building Broadband: Strategies and Policies for the Developing World’ http://www.infodev.org/en/Article.454.html) 3.3.2 Flexible-Use Technical and Service Rules The management of radio spectrum is an area of policy and regulation that has greatly expanded in recent years. This module is focused upon broadband which, in the early years of wireless telecommunications, was more or less synonymous with the higher shorter frequencies. For example, 1GHz is a band of spectrum twice as broad as 500MHz. The disadvantage of the limited propagation characteristics of shorter frequencies was offset by the fact that broadband cellular services, notably 3G and beyond, were focused upon dense clusters of customers in urban areas. Dual-band handsets allowed handoff to lower frequencies when users roamed from urban to suburban and rural areas. In more recent years another dimension has become important, the vastly increased bitrates cellular and other wireless networks and devices can now handle. In addition to these two dimensions – the propagation effects that determine coverage and the uplink and downlink speeds that determine traffic loads – there have been a multitude of other technological advances. These include: cognitive radio (CR), which is software- defined radio (SDR) that allows devices to detect other users to avoid radio interference; intelligent antennae and the use of multiple antennae or MIMO (multiple-input and multiple-output), which give radio signals greater sight around obstructions; and, spectrum or frequency aggregation techniques, which allow service providers to operate across several different spectrum bands simultaneously. This increases the efficient use of under- utilized or isolated frequencies which may have resulted from an earlier fragmentation of frequency assignments. Figure 3.4 below illustrates the principle of spectrum aggregation. 27 Figure 3.4 Spectrum Aggregation Source: Dr Anil Shukla, Brian Willamson, John Burns, Eddie Burbidge, Alan Taylor, David Robinson (2006) ‘A Study for the Provision of Aggregation of Frequency to Provide Wider Bandwidth Services’ QINETIQ http://www.aegis-systems.co.uk/download/1722/aggregation.pdf Efficiency and Innovation Rapid technological advances in network capabilities and a growing demand for broadband access (network availability) and usage (network capacity) are starting to throw up major challenges for regulators. There is only so much spectrum available, so using it efficiently has become an issue of prime concern. Promoting innovation is one way to do this. It is also a way to raise the efficiency and competitiveness of the economy-in-general, create jobs and new services. The regulator’s job is becoming much broader in its scope than before. As the number of services that can be offered across BWA networks has multiplied, regulators often took to licensing networks and services separately in recognition that some services would be provided by MVNOs (mobile virtual network operators) or by third parties such as content aggregators and application service providers. This distinction is now more complex with the interconnectedness of the Internet because many services can be provided from outside the country OTT (over-the-top of the network). Technically, everything from making telephone calls to downloading movies to installing apps on a smartphone or a tablet can be done OTT without a licensing regime in sight. While these developments are more advanced in the most developed economies of the world, they are rapidly establishing themselves as global trends and they make many of the old regulations look outdated, which means they can become obstacles, or in some cases irrelevant, impossible to apply or enforce. A good example of innovation is the growing interest in ‘white space’ or ‘TV devices’. These are transceivers that either use SDR or cognitive radio, or consult a master database, to 28 detect frequencies that are not being used by others and are available for use to provide ‘white space’ service such as ‘super WiFi’ (also known as White-Fi and as the IEEE 802.22/IEEE 802.11af standard for Wireless Regional Area Network or WRAN). Their name comes from their use of the unused or ‘white spaces’ between TV channels in the UHF 700MHz frequency band and as and when analogue TV shifts to digital terrestrial TV broadcasting (DTT) these frequencies become available for re-allocation. However, to make unlicensed use of these frequencies there needs to be agreement with the regulator and a set of acceptable standards in place to ensure non-interference with primary users, namely radio and TV broadcasters. Box 3.3 TV Devices: White Spaces - Super WiFi IEEE 802.22/802.11af WiFi standards have a wide area range that can provide local community hotspots offering free Internet access far beyond ordinary WiFi. In addition, local operators could offer local apps and services but if business revenues are generated a licensing regime is likely to follow. In the US, the FCC has already allocated spectrum for white space ‘super WiFI’ services in the 700MHz “digital dividend” band. Although one way for white space devices to a void interference with other users of shared spectrum is to scan the frequencies with CR, the method remains in its early stages and the preference in the US is to license companies to run databases of users which can be scanned at regular intervals. As of 2013, trials have been ongoing in Canada, the UK, Ireland, the Netherlands, Japan, Korea, Philippines, Singapore, South Africa, Nigeria, Kenya and Tanzania with some trials commencing in South America. In South Africa, for example, in Cape Town Google is collaborating with a number of international wireless vendors and local educational research bodies to offer Internet access on a trial basis to 10 schools. Using white space radio devices across 400MHz of fragmented TV spectrum that supports up to 15 broadcast channels, the school furthest away from the transmitter (6 kilometers) is still able to receive 6Mbps when the signal is uncontested allowing the school for the first time to download computer programme and anti-virus upgrades. In the highly urbanized environment of Cape Town, Google is demonstrating the value of its database that instructs white space devices which frequencies are available without causing interference to TV broadcasting and other users. (http://gigaom.com/2013/07/03/inside-googles-innovative-african-broadband-trial/) In the northern and rural province of Limpopo, Microsoft in partnership with the Council for Scientific and Industrial Research, the University of Limpopo and a local network contractor, is demonstrating how WSDs can provide broadband coverage to a population thinly spread over a wide area. (http://www.microsoft.com/en-us/news/Press/2013/Jul13/07- 274AWhiteSpacesPR.aspx ) 29 Spectrum Markets The push towards market-oriented solutions is most evident in the use of auctions. Since the first auction in 1993 in the US they have become a frequently used instrument in the regulator’s toolkit. However, auctions do not always produce the desired resul ts. This is sometimes due to the way they are designed and conducted, sometimes to a lack of investor confidence in the market, and sometimes to the opposite, over-bidding by investors. General economic conditions play a large part in investor perceptions, and changes in markets and in coming technologies also have an impact. So just as regulation impacts upon technological innovation and markets, so they impact upon regulation and, in this case, one answer is to allow secondary markets to operate which have the advantage of allowing market conditions rather than regulation determine the most efficient use of the spectrum. Allowing spectrum trading can be less time consuming and less expensive of regulatory resources. Also secondary trading markets can be operated as online spectrum exchanges run by independent third party specialists, subject to regulatory oversight. Box 3.4 Spectrum Trading In 1989 New Zealand became the first country to introduce a property rights approach to spectrum by establishing a management rights regime, mainly for cellular and data line services. The radio licensing regime remained a ‘command and control’ system but spectrum mangers were given the right to privately negotiate between themselves trades in spectrum. The trades had to be centrally registered. In the US, the FCC has been experimenting with “flexible licences” since the 1990s. Markets thrive upon liquidity and volume which means spectrum trading has been most successful in public land mobile networks. Trades can take different forms. They can be geographical: http://spectrumbridge.blogspot.sg/2010/02/new-spectrum-solutions-allowed-by-fccs.html They can be outright transfers or leases or shared arrangements: 30 http://stakeholders.ofcom.org.uk/binaries/consultations/simplify/statement/statement.pdf The sharing could be a simultaneous joint use of network resources, for example an MVNO, or time-sharing: http://spectrumbridge.blogspot.sg/2010/02/new-spectrum-solutions-allowed-by-fccs.html Countries that are encouraging trading include Australia, New Zealand, Canada, US, Guatemala and El Salvador. All of the EU member states and Norway are required to enable spectrum trading under the Common Regulatory Framework (CRF). In Asia, Hong Kong is considering it, and India’s 12th Five-Year Plan (2012-17) also includes a provision for spectrum trading but there is a debate as to whether the market is mature enough. Globally, trading has been rather slow to take off. For example, in Australia where trading has been encouraged, between 1998-2009 on average less than 8% of licences to use spectrum were traded annually. There are a number of possible reasons. Initial assignments may have proven relatively efficient, or the incentives to hoard under-used spectrum may outweigh the gains from selling or leasing it, or possibly the transaction costs of engaging in secondary markets are be too high or there is insufficient access to information about spectrum for sale. The need to examine the reasons and look at new ways to facilitate trading is stated in the FCC’s 2010 National Broadband Plan.37 If spectrum trading is assigned by market forces, then an even more radical approach is spectrum liberalization or allocation by market forces. Liberalization means an operator who 37 http://www.broadband.gov/download-plan/ chpt 5, p.15 31 buys spectrum on a secondary market can change its use, for example, from BWA to digital TV. This may undermine harmonization of allocation across country borders and disrupt roaming services. The GSMA defines liberalization in a slightly narrower sense, as applying when different technologies are used to provide cellular mobile services in different frequency bands, such as “UMTS or HSPA could be deployed in spectrum bands where traditionally GSM, CDMA or TDMA has been used.”38 The main issue is radio interference that may require masking controls over emissions or protection for receivers. This interpretation of liberalization is virtually equivalent to a technology neutral approach. In practical terms a hybrid approach is being tried. In the EU a Radio Spectrum Policy Programme was agreed by the European Parliament in 201239 which requires all Member States within five years to allocate at least 1200MHz of spectrum to mobile services and to create harmonized bands within which liberalization in the use of technologies and the services offered can flourish. So, for example, advanced high-speed Internet mobile services can be offered in the same bands as first-generation IP mobile network services. Over time it may well be that intelligent systems using SDR, CR and spectrum hopping techniques will overcome many of the problems of radio interference and the boundaries of liberalization will spread across a wider range of bands. For unlicensed spectrum, liberalization is already a reality since anyone can use the spectrum for any innovative idea that they come up with. The white spaces example above is a case in point. 3.3.3 Allocation and Assignment The upcoming challenge facing all telecom regulators is the need to ensure sufficient spectrum for the exponential growth in demand for BWA services. An important part of the supply-issue will be to provide BWA to rural and remote areas where the costs of service provision may not be covered by customer revenues. The first part of the problem will be to find ways to increase the spectrum available. The second part will be to consider ways in which more flexible licensing of services to under-served areas can help in meeting demand. Finding sufficient spectrum is an allocation issue. Following the recommendations of the WRC is the first step towards providing BWA either as UMTS 3G services or IMTS-Advanced 4G services for two reasons. First, by adopting international and regional spectrum standards the cost of procuring network equipment and mobile devices is lowered. Second, it promotes mobile roaming services. The work of the ITU and other regional bodies in promoting cross-country harmonization of spectrum allocations is referenced in Module 3.3 above. 38 http://www.gsma.com/spectrum/band-overview/liberalisation 39 http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2012:081:0007:0017:EN:PDF 32 Finding the spectrum will possibly involve re-farming spectrum from earlier uses. For example, as 2G mobile services run down so frequencies can be re-allocated to 3G or even to 4G services. This is what the GSMA refers to as liberalization as discussed in Module 3.3.2. It may also involve reallocation of spectrum freed up by the digital dividend, also discussed in Module 3.3.2. It is also possible to reassign frequencies from under-used to in-demand services. The regulator can seek ways to encourage public and private entities such as utility companies, the armed forces and emergency services, government agencies, etc., to yield up some of their frequencies. One way is by a ‘command and control’ method, but this can be a blunt instrument leading to disputes over how to audit the efficient use of spectrum. Another way is to introduce some form of spectrum pricing which may encourage cost savings and the return of unused frequencies. In the US, the FCC is advancing a third way, which is an ‘incentive auction’ as described in Module 3.3. the FCC in 2013 is experimenting with a third way which is an ‘incentive auction’ as described in Module 3.3. A policy to bridge the digital divide and support universal BWA to people in rural and remote areas is taking universal access to the next level, a level appropriate to next generation ICTs. This is where the argument for allocating part of the digital dividend in the UHF 700MHz band becomes compelling. The propagation qualities of this band are ideally suited to providing wide-area coverage over more sparsely populated regions of a country. When accompanied by other measures, such as the liberal use of unlicensed spectrum for local initiatives such as super WiFi and with licence conditions that encourage the sharing of infrastructure and of spectrum, a new momentum towards interconnectedness can be created. Assignment by Auction Spectrum auctions are now a well-established part of the regulators’ toolkit. By the end of 2012, the only continent that had not organized an auction was Africa, although Ghana, Nigeria and South Africa each had plans to do so.40 In South America, auctions have either taken place, in Chile and Columbia, or are planned for BWA in most countries. In the Asia- Pacific region, Australia was the first to announce an auction in 1998 and since then more than 30 auctions have taken place or are planned in at least 9 countries. In Central Asia auctions have not yet been used. In Eastern and Western Europe the majority of countries have used auctions and plan to do so in the future. 40 Global Mobile Spectrum Auction Tracker http://telecomspectrumauction.blogspot.in/2012/08/africa- spectrum-auction-overview.html 33 Auctions of 2G and UMTS 3G licences were confined to single bands of frequencies but with IMT-Advanced 4G standards and the growing pressure upon regulators to find additional bands and to re-farm and reassign existing frequencies, auctions are tending towards multi- band. 4G operators are also pressurizing for wider bandwidths to be made available as contiguous blocks, for example 2x25MHz, to cater for the growth of data traffic. A further complication is the demand for FDD (frequency division duplexing) and TDD (time division duplexing) in markets where the TD-LTE and WiMax standards are being used such as Brazil, in much of Asia and the US. The danger of multi-band auctions is that some carriers may end up with stranded frequencies. There are different ways to overcome that problem. If a traditional simultaneous multiple round ascending auction (SMRA) is used, the frequencies can be arranged into contiguous bandwidths before the bidding begins. In an increasing number of cases the combinatorial clock auction (CCA) is being used, for example in Austria, Denmark, Ireland, the Netherlands, Switzerland and the UK, and as of 2013 Australia, Canada and Singapore had plans to use it . In the CCA auction one round of bidding determines how much spectrum is bid for by each contestant, and a final round determines which contiguous blocks of frequencies match those bids. The regulator makes the final decision based upon the combination that maximizes the sum of the bids, which may mean that some blocks do not go to the highest individual bidder as Table 3.1 illustrates. Table 3.1 Hypothetical Combinatorial Clock Auction (CCA) Bidder Lot A Lot B Lot C Highest Bid Highest Value 1 10 9 8 10 9 2 9 7 8 7 9 3 7 6 9 9 9 Value 26 27 Source: Author In this hypothetical case the regulator maximizes value (27) by assigning lot A not to the highest bidder 1 but to the second highest 2.41 But auctions may not always be appropriate and even where they are they require resources in terms of expertise to design and conduct the auction. For example, they are not appropriate for frequencies that are to be assigned to emergency services or essential government functions. Their outcomes are subject to many variables, including the current state of investor confidence in the economy, and unless spectrum caps are introduced or spectrum set aside for new entrants, the bidding can be dominated by powerful incumbents who may be motivated in part by hoarding. If excessive prices are bid and if subsequent 41 http://trpc.biz/wp-content/uploads/TRPC_BriefingPaper_SpectrumPolicy_Nov2012_v2.pdf 34 competition in the market is not sufficiently strong higher prices can hurt consumers, either through higher tariffs or by lack of investment in infrastructure. In theory spectrum trading should be able to correct any incorrect valuations that were bid in the auction, but trading has its own problems to resolve as seen in Module 3.3.2. In some cases, for example in Singapore, the regulator stipulates that trading will not be allowed until the bidders have met their performance targets, such as network coverage. This is to prevent speculative bidding for spectrum that the bidder has no intention of using but wants to resell later at a higher price. As a general rule, auctions have an important part to play if the aim of policy is to ensure transparency in the assignment of frequencies to competitive companies and to achieve an efficient use of spectrum. But the resources required by the regulator to ensure that the auction itself is efficient are often in scarce supply. An easier way to ensure competitive bidding is through a ‘beauty contest’ which can require bidders to state their non -monetary targets such as coverage, quality and scope of services, but this does less to guarantee efficiency and may end up as a windfall for the chosen winners. The simplest procedure is through administrative assignments, which are low cost and fast but also least transparent and still leave open to dispute what the price of spectrum should be. There are therefore two parameters to consider. The first is efficient spectrum pricing which is where the market is important. The second, which is the most important of all for the industry and consumers, is competition. Getting the second one right will tend to correct over time any mistakes made in the first one. 3.3.4 Licence Renewal Although granting licences in perpetuity is not unknown, most spectrum licences have a finite life, typically around 15 years in the case of mobile cellular licences. Many of the original 900MHz 2G cellular licences issued in the 1990s either have or are coming up for renewal, and the same will soon apply to many 1800MHz UMTS 3G licences and some in 2.1GHz. Commercial sector broadcast spectrum licences are another category where the issue of renewal often has substantial implications for investment, although whereas most of the investment in telecoms is in the network most of the investment in broadcasting is in the production and purchase of content. A number of important issues surround the question of how to renew licences. Where the performance of an MNO has proved satisfactory there is a strong case to renew. One indicator will be the number of subscribers on the network who will be inconvenienced if they have to change their operator, their billing details and their telephone numbers. As an MNO upgrades from 2G to variants of 3G and then on to 4G, substantial investments are put at risk, and uncertainty over renewal can remove the incentive to put in more money. Legally, if the original licences stipulated that there was no guarantee of automatic renewal 35 the regulator is probably safeguarded against appeals to the courts, but legal challenges have become part of the process. In the face of objections from incumbents, the regulator does have a legitimate responsibility to ensure a competitive market and to ensure that additional efficiencies are squeezed out of existing spectrum use and automatic renewal may not be consistent with that aim. In many cases, for example in the US, there is a “renewal expectancy” for cellular licences subject to the fulfillment of certain targets.42 Portugal and the UK have gone for renewal and it is the presumption in Canada. In Australia the regulator has taken the opposite view that all renewable spectrum will be auctioned. In Germany and France renewal has also been assured, but with the regulators taking back some of the spectrum for administrative reassignment to allow for new entrants and further competition. The Netherlands regulator extended the period for renewal by a few years and then committed the frequencies to auction with spectrum caps imposed to allow for new entrants. Under the EU’s Commo n Regulatory Framework (CRF) and its recent Radio Spectrum Policy Programme (RSPP) NRAs are required to include competition policy in their policy decisions, which means NRAs must at least consider the option of reassigning spectrum to new entrants, although not necessarily by auction. In New Zealand MNOs were given the opportunity to renew some of the spectrum if they agreed the regulator’s new administered incentive pricing (AIP) and if not all the spectrum would go to auction. Box 3.5 Administered Incentive Pricing Charging for unauctioned spectrum needs to use a form of ‘shadow pricing’ to mimic the market if it isn’t to be completely arbitrary. The ideal way is to find a measure of what price the spectrum would be worth in the next most profitable employment, known as the ‘opportunity cost’. If the AIP is significantly below that level then the incentive to use the spectrum more efficiently will be weak. One method is the Optimum Deprival Value (ODV) or ‘least cost alternative’ model which answers the question: if the present asset was removed what is the least cost system that could provide current level of service? Alternatively, if the MNO were denied the additional spectrum, what would be the additional cost of squeezing out the additional level of service from the existing spectrum or of adding more base stations? By awarding the additional spectrum these extra costs are avoided and therefore represent the value of the additional spectrum. The Best Alternative Use (BAU) method measures the value other users will place upon the spectrum based upon a modeling of their likely costs and revenues. Used in combination, BAU can be used to set the price within a lower and upper range approximated by ODV. 42 See http://www.wikinvest.com/stock/United_States_Cellular_%28USM%29/Licensing- commercial_Mobile_Radio_Service 36 The Hong Kong regulator adopted a hybrid approach in 2013 by offering to renew some of the spectrum and auction the rest with additional spectrum for new entrants, although this was hotly contested by the incumbents. As in Ireland and some other jurisdictions, Hong Kong also regularly imposes performance bonds when issuing new licences, related to geographical coverage within a specified timeframe, usually up to 3 years. When mergers and acquisitions (M&A) take place, if the regulator fears that competition will be reduced it is common practice to impose conditions such as surrendering some of the spectrum of one of the operators involved. This happens in the EU and in North America. Another method of encouraging competition is to encourage the merged operators to allow MNVOs into the market, although this is usually not specified in the conditions of the licence. [See Module 3.3] 3.3.5 Unlicensed Spectrum and a Spectrum Commons The rapid changes overtaking broadband wireless services affect both licensed and unlicensed spectrum, and a key component of this is the phenomenal rise in M2M communications. Until the Internet-of-things, unlicensed spectrum applications were mostly associated with microwave ovens, radio car keys, Bluetooth connections and various industrial uses. Now the Internet-of-things connects potentially all devices and has given rise to the concept of ‘smart’ as in smart cities, smartphones, smart networks, smartcards in devices, etc. What is smart? In this context it refers to the use of algorithmic-driven software applications, such as sensors and alarm systems that automatically connect alerts to command centres, electricity meters that automatically monitor and regulate consumption, vehicles that can be tracked-and-traced through GPS systems, public bus stops that are connected to oncoming buses to inform waiting passengers of times and routes, home appliances that can be switched on and off remotely. Some forecasts suggest cellular M2M connections may reach 300 million people? by 2015.43 In most cases these applications are used by businesses and utilities as a means of delivering a service and cutting costs and not to generate a revenue, and as such they are usually not subject to a licence. They may, however, require to be registered on a database of users if there is any likelihood of radio interference, excessive power emission or a sharing of spectrum with other users. This arises especially in the case of the white space/TV devices as discussed in Module 3.3.2 43 http://www.berginsight.com/ReportPDF/ProductSheet/bi-globalm2m3-ps.pdf 37 Spectrum Commons Unlicensed spectrum implies spectrum sharing among users. For short range devices this will not normally cause interference, but advocates of a spectrum commons argue that it is entirely possible to open up swathes of spectrum for common usage and manage the issues of interference and emission levels collectively. This view is the opposite of the view that all spectrum should be sold to property rights owners who can then own or trade spectrum as they do land according to market principles. There has been an extensive debate, especially in the US, as to what conditions may be required to make a public commons approach manageable in the future. Box 3.6 Public Commons Conditions Two diametrically opposed approaches to the spectrum management are the property rights or exclusive licence approach and the public commons approach. 44 They both stand in opposition to the traditional approach of ‘command and control’, but in practice most regulators use all three approaches for different parts of the spectrum. A paper in 2005 by William Lehr (MIT, USA) and Jon Crowcroft (Cambridge, UK) set out the following conditions that might be necessary to make the commons approach manageable:45 * No transmit-only devices – a receiver function provides a control loop * Power restrictions * Common channel signaling (and/or use of single out-of-band signaling channel) * Congestion rules * Rule enforcement mechanism * Rules consistent with security and privacy In contrast to the property rights approach, which is governed by market principles such as secondary trading, the commons approach needs to be governed by protocols or an etiquette. If the protocol fails this gives rise to selfish behaviour and an inefficient use of spectrum or what has been called the ‘Tragedy of the Commons’. Advocates of the commons approach point to the emergence of new technologies such as UWB, spread spectrum techniques, mesh networks, smart antennae, MIMO, CR and SDR which offer intelligent networking (including ‘ad hoc’ and PAN networks) and dynamic frequency 44 Two names that are famously associated with these opposing approaches are economist, the late Ronald H. Coase (University of Chicago) who advocated property-rights and Lawrence Lessig (Harvard University) who advocates a spectrum commons. See Coase (1959) ‘The Federal Communications Commission’ Journal of Literature and Economics, and Lessig (2001) The Future of Ideas: http://www.the-future-of- ideas.com/download/ 45 "Managing Access to a Spectrum Commons," with Jon Crowcroft, paper prepared for IEEE DySPAN Conference, Baltimore, MD, November 2005: http://people.csail.mit.edu/wlehr/Lehr- Papers_files/Lehr%20Role%20Unlicensed%20in%20Spectrum%20Reform.pdf 38 selection, and suggest that regulation could be ultimately distilled down to a minimum of certifying the conformity of equipment standards. Writing from the property rights perspective, a paper in 2007 by Jerry Brito (George Mason University, US) on the contrary reiterates the views of Ronald Coase that because the regulator has no direct knowledge of market costs and revenues there will be no incentive for the regulator to provide the same level of rule-making and rule-enforcement that private owners would undertake between themselves.46 Regulators need practical approaches that are suitable for different bands of spectrum. What is important is that regulators are fully conversant with the options that are available to them. Unlicensed Spectrum for Underserved Areas Besides the issues of interference and spectrum sharing, unlicensed spectrum has a role to play in addressing the issue of universal access in sparsely populated areas. There is often little commercial incentive for MNOs and ISPs to provide services to these areas, yet there may be community groups, NGOs, local enthusiasts and village entrepreneurs more than willing to put time, money and energy into building local networks based upon white space and other technologies. Licensing spectrum at a price may kill off these initiatives. This is another example of where regulation needs to be flexible to achieve the objectives of innovation in access and in services. 3.3.6 Re-farming and the Digital Dividend As the previous Modules have stressed, regulators today are facing the challenges of finding new spectrum from old uses. For BWA this is assisted in part by the expiry of many 2G licences issued in the 1990s, but if these networks still service many subscribers then the opportunity to refarm the spectrum is limited. One answer to this problem has been to set trigger points, so when 2G users fall below certain numbers part of the spectrum becomes available for refarming. The refarming in this context will usually imply the incumbent is allowed to migrate users to a UMTS standard and does not imply a reassignment of the spectrum to another MNO. By far the biggest opportunity for regulators, what has been called a once-in-a-lifetime opportunity is the digital dividend as reviewed in Module 3.3.2. In some cases as much as 150MHz or over could be available for reassignment as analogue TV switches off and digital TV switches on, but the transition period may take a decade to complete. The biggest hurdle 46 ‘ The Spectrum Commons in Theory and Practice’ Stanford Technology Law Review, 2007: http://stlr.stanford.edu/pdf/brito-commons.pdf 39 is the percentage of the population who are unable to change their TV sets to digital. Many families may not be able to afford the cost which means government has to make a decision whether to subsidize lower income groups and possibly provide assistance to broadcasters to switch over their transmission equipment. The cost of doing this would need to be weighed in the balance against the gains from auctioning swathes of 700MHz of frequencies. 40 Module Three: Law and Regulation for a Broadband World 3.4 IP-based Interconnection Interconnection for Internet traffic over IP networks operates according to a different set of rules from telephony. However an increasing proportion of telephone traffic is carried over IP-enabled carrier networks. There are now many different operators offering network capacity to send, transit and terminate traffic, ranging from traditional telecom carriers to third party vendors, from Internet Access Providers (retail) to Internet Backbone Access (wholesale) carriers, from content distribution networks (CDNs) to utilities with spare capacity to wholesale. The commercial terms and ways in which interconnection is offered varies considerable. For example, carriers traditionally interconnect at network Points of Interconnection (POIs) whereas CDNs and cloud computing service companies interconnect in data centres, and Internet Access Providers at Internet Exchanges. Nevertheless, despite its origins and the fact that Internet traffic was never subject to the same regulatory regime as telecoms, certain common practices have emerged. From its beginnings telecoms was a state-regulated industry, often part of a Post & Telecoms Department, later to be incorporated as a state-owned telecom enterprise (SOTE). Interconnection at the international level was mandated, and under ITU guidelines an accounting rate and a settlement rate system between international carriers was established. With market liberalization came competing networks and the need for interconnection. Often regulators required the incumbent to register a ROI (Reference Interconnection Offer) to ensure equal treatment among carriers. No such system has ever existed for Internet traffic. University research funding from the US Department of Defence in the 1950s and 1960s and early trials by universities to establish a network of peering devices using IP/TCP protocol matured in the 1980s and 1990s into the first commercial services by Internet companies. These early developments connected computer networks. These were later connected indirectly using capacity from carriers to transit traffic between IT devices such as computers and terminals. As Internet services, for example e-mail, became mass market products for business users and residential customers, access was increasingly over telecom systems. The spread of the World Wide Web in the 1990s created a platform for the exchange of documents and then for the development of down-loadable and up-loadable content and applications. The Internet had become big business, posing ever growing demands for network capacity on the telecom industry. This posed both a threat and an opportunity for carriers, and most of the dominant ISPs that emerged from the competition were subsidiaries of the carriers. Often by charging high wholesale prices to all ISPs, telecom companies could squeeze the 41 profit margins of independent ISPs without breaking any equal access regulations. The market power of the carriers lies in their ownership of the backbone networks over which IP packets have to travel irrespective of the route they take, and although the use of least-cost routing will save some money, that only works if there is a competitive wholesale market. ICAIS (International Charging Arrangements for Internet Services) It is slightly ironic that the big dispute over IP interconnection that arose in the 1990s, and which still echoes to this day, for example, it resurfaced at the 2012 ITU WCIT-12 in Dubai, was not between ISPs and telecom companies as such but largely between the telecom companies that own most of the ISPs. Overlaying the dispute was the fact that the Internet originated in the USA. In 1995, the US government decommissioned the US National Science Foundation Network (NSFNET) which had been the backbone for most IP traffic in the US and handed over interconnection to four Network Access Points (NAPs). Since then other entities have arisen, some serving academia as education and research networks, others commercial networks including specialist Internet Backbone Access providers. Academia peering arrangements are not difficult to agree, but for commercial service providers peering arrangements are all about market power. The basic rule is that smaller ISPs either cannot peer with larger ISPs in which case they have to find ways to aggregate their traffic to reach critical mass, or reach special agreements with carriers, or pay premium rates for interconnection. Internationally the same rules apply, but the larger ISPs have for historical reasons been in the USA, and later to a lesser extent in Europe. There is no accounting rate or settlement rate procedure for ISPs and the de facto position is that the major US carriers have always been free to charge the full cost of the international links to ISPs outside the US. In the 1990s there were intense arguments between carriers and even between states over this apparent inequality. For example, in 2000 Telstra’s Managing Director of Global Wholesale Business claimed that up to “70% of an Australian ISP’s costs are due to the international segment to the US.” 47 In reality the issue is an old one: regulated rates versus market rates. The way markets work is that imbalances between supply and demand will be reflected in prices, and high prices should act as an incentive to remove the supply bottlenecks. In this case the bottleneck was outside the USA where domestic IP traffic, in the absence of a local Internet Exchange Point (IXP), had no option but to route through the US. To justify the expense of a local IXP there needs be a critical volume of IP traffic. All markets thrive on liquidity, and in this case the liquidity in the Internet market means traffic volume. Unless there are structural impediments to the growth of local Internet traffic, such as a monopoly provider, the market mechanism should result in more local IXPs. This should result in more balanced flows of international traffic which in turn should allow more ISPs to enter into 47 Stewart Taggart, ‘Fed Up Down Under’, The Industry Standard No. 5, 260 (Feb. 14, 2000) 42 peering arrangements with their US and European corresponding networks. The spread of IXPs seems to be exactly what is happening as explored in section 3.4.1. 3.4.1 Internet Interconnection and IXPs in Developing Countries To be cost-effective, interconnection between circuit-switched TDM (Time-Division Multiplexing) telecom networks requires points of interconnection (POI) that minimise route distances. For price arbitrage reasons service providers may choose a more round-about routing of traffic, but technically the more direct the routing the more efficient it is and the less latency involved. In a packet-switched world of Internet Protocol (IP), a different set of principles operate. Because different packets of the same transmission are routed over different networks there is no single POI. ISPs do not always own their own networks and there is no guarantee of the quality of the networks over which the packets will route. So unless the network was ‘managed’ and its quality assured, Internet traffic from its earliest days was only ‘best effort’. Investment in broadband in recent years means network quality has generally improved and with more sophisticated routing algorithms ‘best effort’ is now often of very high quality. For example, over-the-top (OTT) voice and video services like Skype and Yahoo Messenger, Facebook and Google that are transmitted internationally over broadband networks can be crystal clear with minimal latency. In addition, a range of specialist managed Internet networks have arisen such as CDNs that guarantee quality of delivery. ISPs come in three tiers: Tier One ISPs are usually affiliated with a licensed carrier having direct access to an international network, although some of the larger Internet-based companies have begun to build their own networks. For example, Google is ranked third in the carriage of global traffic behind Level 3 and Global Crossing. Tier Two ISPs own or have direct access to local networks and may serve a regional market but require IP transit for international routing. Tier Three carriers have to lease lines and peer with larger ISPs, in some cases as paid peering, to achieve end-to-end delivery of traffic or IP transit. The larger ISPs also provide the connecting networks for IP transit which are known as Autonomous Systems (AS) and are assigned an Autonomous System Number (ASN). The ASN identifies them as using the appropriate routing protocol for IP transit traffic, also known as the Border Gateway Protocol (BGP). When using IP transit, ISPs provide and receive from each other routings to facilitate traffic to and from the customers of the ISPs involved. Unless the ISP is affiliated to a licenced carrier there is no guarantee of interconnection. Large carriers such as incumbents may reject interconnection with smaller providers for commercial reasons, not technical or regulatory reasons. Alternatively they may impose draconian interconnection charges or high prices for leased lines resulting in profits squeeze of independent ISPs. The lack of domestic interconnection forces ISPs to route their domestic traffic through Internet Exchange Points (IXPs) or to pay for peering to send traffic overseas. Their traffic becomes transit IP traffic which they have to ‘trombone’, that is send 43 over several different networks before it reaches its destination. Naturally, this adds to its cost and to the latency problem. Figure 3.5 Map of Active IXP Source: https://prefix.pch.net/applications/ixpdir/ In the 1990s, IXPs were typically in the US and it is still the case that many countries route much of their domestic traffic through the US. According to Packet Clearing House (PCH), as of May 2013, about half of the world’s 199 countries are without IXPs’48 By contrast, only four European countries are without IXPs, while in Asia Pacific the countries without IXPs are largely Pacific Islands. Most South American countries have IXPs, but there are fewer in Central America and the Caribbean islands. “At present only the British Virgin Islands, Haiti, Grenada, St Maarten, Curacao and Dominica have IXPs. In conjunction with the Caribbean Telecommunications Union, PCH is currently assisting several other Caribbean countries, including Barbados, Jamaica and St Kitts and Nevis in establishing local IXPs.” (See Toolkit Broadband in St Kitts and Nevis: Case Study. ) Mexico is the only OECD member country not to have an IXP.49 In Africa there are upwards of 20 or more countries with IXPs, but most are small and serve only very localized markets.50 According to one source, 85% of Africa’s 48 nd Packet Clearing House Report 2 May 2013 see https://prefix.pch.net/applications/ixpdir/summary/ 49 OECD (2013) ‘Broadband Networks and Open Access’ OECD Digital Economy Papers No.218 http://www.oecd-ilibrary.org/science-and-technology/broadband-networks-and-open-access_5k49qgz7crmr- en 50 Not all ISPs participate in local IXPs, for example only 5 of the 9 ISPs in Rwanda connect to RINEX – see http://www.rura.gov.rw/docs/Rwand_IXP_Positives_Steps.pdf 44 traffic routes through Europe and only 1% stays within the region.51 South Africa is the major hub, but at least 16 East African and Southern African countries also use the KIXP in Kenya. (See Box 3.7 and also the Toolkit Broadband in Kenya Case Study.) One report also suggests that Nigeria’s IXPN is preparing to provide peering for West African countries. 52 In North Africa and the Middle East, Egypt has three IXPs in Cairo, and others countries with IXPs include Lebanon, Israel, the United Arab Emirates (UAE), and a state-run IXP in Saudi Arabia. However, the region remains under-served as does Central Asia where, as of the first half of 2013, only Kazakhstan, Mongolia and Uzbekistan had established IXPs.53 Box 3.7 The Success of IXPs in Kenya Kenya has two IXPs: the first , known as Kenya IXP (KIXP), opened in Nairobi in 2000 and the second in Mombasa in 2010. They were set up with the assistance aid from CISCO and UNESCO, and are operated by the Telecommunications Service Providers Association of Kenya (TESPOK) which is a non-profit organization representing ISPs and telecom service providers.54 KIXP operates a Multi-Lateral Peering Agreement (MLPA) whereby ISPs are required to interconnect free of charge, but each pays a usage fee to KIXP. The success of these IXPs is in evidence from a number of measures. By April 2013, membership of KIXP had reached 30, up from 25 in April 2012 and included the mobile and fixed line operators, an educational network called KENET, the National Bank of Kenya, and government agencies such as the Kenyan Revenue Authority (KRA). Aggregate traffic throughput has jumped from 64kbit/s at opening in 2000 to over 1Gbit/s today. One estimate of the cost savings to Kenyan ISPs from not having to pay the cost of international transit and trombone is $1.44 million per year.55 ISPs from other African countries are starting to use Kenya’s IXPs; 56% of the ASNs routed through KIXP in the six months to January 2012 were from 16 foreign countries. Cache and the Digital Economy The most important step up in usage came after the installation of a Google Global Cache (GGC) in April 2011. Traffic volumes rose more than ten-fold within the year, the lion’s 51 Tim Kelly and Carlo Maria Rossotto (2012) Broadband Strategies Handbook World Bank, Korean Trust Fund, InfoDev, p.106 http://www.infodev.org/En/Publication.1118.html 52 AnalysysMason (2012) ‘Assessment of the Impact of Internet Exchange Points – empirical study of Kenya and Nigeria’ Report for the Internet Society http://www.internetsociety.org/ixpimpact 53 Wikipedia lists some countries not listed by Packet Clearing House, see http://en.wikipedia.org/wiki/List_of_Internet_exchange_points#Middle_East 54 http://www.tespok.co.ke/index.php/aboutus/members.html 55 Based upon an estimated $120 per Mbit/s for international transit. See Analysysmason/Internet Society (April 2012) ‘Assessment of the impact of internet Exchange Points – empirical study of Kenya and Nigeria’ http://www.internetsociety.org/ixpimpact 45 portion of it was streamed video, for example from YouTube, as latency dropped by 20% on top of the initial fall in latency when the KIXP was first opened from 1,200-2,000 milliseconds (via satellite) to 60-80 milliseconds. 56 The caching capability builds a foundation for local content generation and distribution at affordable prices. Improved latency also bolsters the IXPs capability to become the driver of growth in cloud computing in Kenya. Conditions for Success Despite the success of KIPX, it almost faltered in 2000 when it had to close business pending a decision by the Communications Commission of Kenya (CCK) to grant a licence to operate a telecommunication service. This followed a complaint by Telkom Kenya that its monopoly over international traffic was being violated.57 KIPX argued it only directly handled domestic traffic (see the Toolkit Kenya Case Study) and the decision to grant a licence has served Kenya well. 3.4.2 The Economics of IXPs and Wholesale Charging Having to trombone traffic adds to cost and to latency, from between 200 to 900 milliseconds in the case of African ISPs.58 In the early years the cost factor was the most important consideration for two reasons. Firstly, the cost of international circuits was high and US carriers in particular required overseas ISPs to pay for the full cost of the circuits. By contrast, among carriers transmitting telecom traffic, including packet data such as frame relay, the ITU-approved accounting rate system was used in splitting the costs 50:50 between transmitting and receiving carriers. The settlement rate system could vary the split ratio in certain cases; for example the split between Hong Kong and Mainland China before Hong Kong returned to Chinese sovereignty in 1997 favoured the Mainland. However, Internet traffic never became part of the accounting rate system, and in the US for regulatory purposes the Internet was defined as an information service rather than a telecommunications service. The second reason is that in the early years the main Internet service was email for which latency is less of a problem. By contrast, a service such as search is highly sensitive to delays. A study in 2009 found that a two second delay on Microsoft’s Bing search engine caused the 56 Google, cited Analysysmason (2011) ‘Overview of recent changes in the IP interconnection ecosystem’ pp.35-40 http://www.itu.int/ITU-D/finance/work-cost-tariffs/events/tariff-seminars/Indonesia- 12/pdf/Session5_Kende_IXP.pdf 57 Tim Kelly and Carlo Maria Rossotto (2012) Broadband Strategies Handbook World Bank, Korean Trust Fund, InfoDev, p.106 http://www.infodev.org/En/Publication.1118.html 58 Tim Kelly and Carlo Maria Rossotto (2012) Broadband Strategies Handbook World Bank, Korean Trust Fund, InfoDev, p.106 http://www.infodev.org/En/Publication.1118.html 46 number of queries to drop by 1.8% and revenue by 4.3%, and a 400 millisecond slowdown caused a fall of 0.59% of queries through Google.59 Since the collapse of the dot.com bubble in 2000, international circuit costs in submarine cables have dropped to a fraction of their former price, a trend that was reinforced as cable capacity soared following the recovery in financial markets in the mid-2000s. The trend was uneven. In some regions both cable capacity and satellite services remain limited and costs relatively high, such as in the Pacific Islands; in other regions the changes are more recent, as in Africa where new cables are now coming online.60 Reduced international prices have had a major impact upon the cost of Internet traffic. An OECD assessment of the voice- equivalent cost of Internet transit traffic in 2013 is “USD 0.0000008 per minute – five orders of magnitude lower than typical voice rates.”61 However, as the report also points out, local access charges levied by telecom companies consistently seem to account for between 30%- 40% of total international transit costs.62 At the same time, Internet businesses have undergone a complete transformation to create a digital economy, everything from search to e-commerce, from social media to e- Government, from online video content to online gaming. In 2011, it was estimated that the Internet-based digital economy contributed 3-4% GDP to the G-8 nations plus Brazil, China, India, South Korea and Sweden.63 If a flourishing local Internet can generate so much local economic activity and contribute so much to social welfare, for policy-makers and regulators these statistics are just too important to be ignored. The danger is that smaller ISPs can be easily hindered from reinvesting in their business due to high wholesale prices and profits squeeze and the local Internet economy will suffer. There may be a need for regulatory intervention if wholesale charges are clearly discriminatory against ISPs not affiliated to the telco. However, this can be a difficult policy to pursue because a telco may also squeeze its own ISP so that downstream margins are sacrificed to maintain upstream margins and market dominance. In fact most IXPs have not come about through regulatory intervention but by voluntarily market agreements. 59 See: http://perspectives.mvdirona.com/2009/10/31/TheCostOfLatency.aspx, cited in Analysysmason (2012) ‘Assessment of the Impact of Internet Exchange Points – empirical study of Kenya and Nigeria’ Report for the Internet Society fn. 8. http://www.internetsociety.org/ixpimpact 60 The The Eastern Africa Submarine Cable System (EASSy) for example now links South Africa with landing stations all the way up the East coast of Africa. 61 OECD (2013) ) ‘Internet Traffic Exchange’ OECD Digital Economy Papers No.207 http://www.oecd- ilibrary.org/science-and-technology/oecd-digital-economy-papers_20716826 62 Before NGN developments in recent years, it was a common observation within the industry that local loop costs always seemed to average out at around $1,500. 63 McKinsey Global Institute (2011) Internet Matters: The Net’s sweeping impact on growth, jobs and prosperity’ http://www.mckinsey.com/insights/high_tech_telecoms_internet/internet_matters 47 In some cases the state itself establishes an IXP, which can be motivated by the need to address market failure, but the motives could be more political. Much more often IXPs are established either as non-profit entities, sometimes by universities or NGOs or associations of ISPs, or as commercial businesses. Most IXPs in the US are commercial, most in Europe, Latin America and Africa are non-profit and there is more of a mix in Asia. For example most commercial IXPs are in Australia, China (including Hong Kong), Japan and Singapore and non-profit IXPs are mostly in India, Nepal and the Philippines. The commercial IXPs usually co-locate ISPs in data centres, with various charging schemes including charging for ports or capacity usage, rack space, connection fees and/or a range of management and security services. They can be carrier-related or carrier-neutral, co- location neutral or ISP-specific. The non-profit IXPs are usually dedicated operations which only charge cost-recovery fees and facilitate peering between members, likely to be at no charge between ISPs, although in some cases it can be paid peering if the balance of traffic is too one-sided. A study by the OECD covering 86% of the world’s Internet carriers in 96 countries found that 99.51% of peering agreements were made by “handshake”. 64 Peering arrangements can be single-hop, bilateral or multilateral, and occasionally the latter can be a condition of joining an IXP, as it is to join Kenya’s KIXP or in Chile where peering is mandatory.65 What is common to all of these arrangements is that, even where peering is mandatory, the terms and conditions are not. Regulators have seen the advantages in leaving developments to voluntary agreements between ISPs and other parts of the Internet ecosystem such as CDNs, major content producers, Internet search and social media companies, OTT service providers, etc. The over-riding reason why this has been the right way to do things is because these are all fast-moving and rapidly developing businesses with a need to innovate and experiment with what works best for them. Regulation that addresses market failure might justify mandatory peering if there is a real fear that the ISP attached to the incumbent can prevent new entrants from entering the market. There is little evidence to suggest that discrimination is sustainable as substitutes emerge for network connectivity and Internet access and for the delivery of apps and content. These substitutes include mobile networks, satellite networks, CDNs, WiFi networks, IP ‘connected’ TVs, etc. In a developing country where these substitutes may still be in a nascent stage, market failure could be a barrier to growth in the digital economy; the work-around market failure is to reform regulations to facilitate new entrants into the Internet ecosystem. 64 OECD (2013) ) ‘Internet Traffic Exchange’ OECD Digital Economy Papers No.207 p.9 http://www.oecd- ilibrary.org/science-and-technology/oecd-digital-economy-papers_20716826 65 Internet Society (2007) Report from the IGF Rio -Best Practices Session: Internet Traffic Exchange in Less Developed Internet Markets and the Role of Internet Exchange Points p.9 http://www.cabase.org.ar/backend/upload/File/igf-ixp-report-2007.pdf 48 3.4.3 Future Charging Arrangements and Developments of IXPs When Internet companies such as Yahoo! and Google and major content distribution networks (CDNs) such as Akamai, Amazon and Limelight invest in a local server to cache content from overseas the stimulus to the local IXPs is immediate.66 This is especially significant for developing countries where international connectivity remains a problem, because a cache connected to an IXP reduces latency and thereby encourages local demand and usage. In the example from Kenya (see Box 3.7) following the installation of a Google Global Cache in April 2011 traffic at the KIXP rose from just over 100 Megabits every second to well over 1 Gigabits every second in just over two months, most of this accounted for by YouTube downloads.67 This in turn can create a market and act as a stimulus to local developers of apps for entertainment and for practical use, such as financial and locational apps for use on mobile phones, and to producers of content. In this way a digital economy gets built up. As the digital economy grows, so will the number and type of parties connecting to IXPs. In Europe between 2008 and 2010 the percentage of connections to IXPs from content providers increased from 85% to 96.3%, by VoIP providers from 36.8% to 48.1%, by enterprises such as airlines and banks from 30% to 46.2%, by search engines from 25% to 48% and by governments from 50% to 77.8%.68 For developing countries, these are trends to take note of as IXPs have an important role in triggering and accelerating the local digital economy. P2P, OTT and Cloud While peering or P2P delivery of Internet traffic was the major growth trend of the late 1990s, it has been overtaken by direct download of apps and video content which comes OTT of the fixed and public land mobile networks (PLMNS). A particularly important part of this development is the growing use of cloud computing. Many email servers, for example, are now based in the cloud where emails are stored and retrieved by users instead of being downloaded and stored in computer hard drives. Cloud computing has given rise to a whole new generation of cloud-based services, such as Software-as-a-Service (SaaS), Platform-as-a- Service (PaaS), Application-as-a-Service (AaaS) and even Infrastructure-as-a-Service (IaaS). Specialist cloud service providers have joined CDNs, content creators, application service providers and others in locating in an ever increasing numbers of data centres and countries 66 A study by Atlas Internet Observatory in 2009 found that the top five ‘pure play’ CDNs accounted for nearly 10% of Internet traffic – see Labovitz, et al, Atlas Internet Observatory, 2009 Annual Report p.15 at www.nanog.org/meetings/nanog47/presentations/Monday/Labovitz_ObserveReport_N47_Mon.pdf. 67 AnalysysMason (2012) ‘Assessment of the Impact of Internet Exchange Points – empirical study of Kenya and Nigeria’ Report for the Internet Society http://www.internetsociety.org/ixpimpact 68 Stephanie Silvius (2011)’ Internet Exchange Points: A closer look at the differences between continental Europe and the Rest of the world.’ https://www.euro-ix.net/documents/894-ixp-research-pdf?download=yes 49 now directly compete with each other to host these data centres. Countries with reliable broadband infrastructures and appropriate personal privacy and data protection laws in place to safeguard the international transfer of commercially sensitive data between jurisdictions have a competitive advantage. Charging in an NGN Internet World More of all of these services are being accessed by mobile wireless devices such as smartphones and tablet computers over PLMNS and WiFi networks. These trends have important implications for the business models of the traditional telecom providers; their pricing models in particular are being redesigned. The idea of charging by-the-second or by- the-minute of usage does not work in an Internet world. Charging by capacity makes more sense and as voice traffic declines as a revenue earner, and as OTT substitutes such as social media chat services and texting become ever more popular, telecom companies are moving towards bundled voice and data services. Bundles are frequently offered at flat rate charges, sometimes with tiered flat rates: each tier with its own capacity ceiling. The old model of charging termination fees to networks for the delivery of their traffic also comes into question in an Internet environment, for two reasons. First, because there are now many ways for users to access the Internet. Second, as networks upgrade to broadband, telecom companies may be tempted to charge both sides of the market—the providers of services over the Internet and the users—in what is called a ‘two-sided market’. This goes the nub of the net neutrality issue. (See Module 3.7) In practice most carriers, fixed line and mobile wireless, will make the transition cautiously, not wanting to cannibalise their existing lines of business, such as call services, too early as long as they continue to generate revenues. But as they invest more in all-IP NGNs their billing arrangements are likely to come closer to the charging mechanisms between ISPs, which are mostly Sender-Keeps-All (SKA) – also called Bill-and-Keep (BAK). Where interconnection charges are levied, for example where the balance of traffic is very uneven, it is likely to be capacity-based charging as the marginal costs of sending a packet are very close to zero. 50 Module Three: Law and Regulation for a Broadband World 3.5 Regulation versus investment debate There are at least two reasons why regulators and policy makers are concerned about the source of investment necessary for broadband: universal access is needed to close the digital divide, and broadband is crucial to a digital economy. These two concepts combine into the over-arching concept of inclusive economic and social growth. There are four primary sources of investment funds. First, network investment by the incumbents; second, by new entrants including domestic and foreign service providers; third, public funding; and fourth, by financial investors using leveraged buyouts of poorly performing companies by venture capitalists. It is usual to view telecoms markets according to geographical segments, namely the local loop, the metropolitan area, national long distance and international. But a service-based typology might instead look at ‘basic’ fixed and mobile voice and text-related services, broadband and Internet related services, content and broadcast services such as IPTV, and enterprise managed network services. Box 3.8 Broadband in Japan During the time when Japan was working towards achieving its national target of eliminating all broadband zero areas (= make broadband service available to all the households nationwide) by the end of FY2010 (March 2011),69 the five types of role-sharing between private and public sectors were identified, based on builders and operators of broadband facilities. Type 1: Broadband facility is built and operated by the private sector. Since broadband should be deployed on a commercial basis in principle, this type 1 is the correct basic model. Type 2: This type 2 is the same as type 1 in that both building and operation are conducted by the private sector. There may be some areas where the operator is not sure if there exits enough demand and thus cannot make the business decision to start broadband service in the area. In this situation, neighborhood communities or local governments can prepare a list of potential broadband service subscribers and hand this over to the operator. 69 The national target was set in both (1) the New IT Reform Strategy, which was formed 2006 by IT Strategic Headquarters (headed by the Prime Minister) and (2) the Digital Divide Elimination Strategy, which was formed in 2008 by the Ministry of Internal Affairs. 51 Type 3: This type 3 is also the same as type 1 in that both building and operation are conducted by the private sector. However, central or local government partially subsidizes the broadband facilities installation cost and this makes much easier for the operator to start broadband service. Type 4: Local government builds broadband facilities, then a telecommunications operator provides broadband service. This means that the operator does not have to prepare initial investment of broadband facility. In many cases, local government rents the facilities to the operator on IRU contract (see page 51). Under the typical IRU, the operator can use the facility for 10 years for free of charge, but it has to provide the service for the period and maintain the facility at its expense. Type 5: Local government builds broadband facilities and operates them. In order to eliminate Broadband Zero Areas, Type 3 and Type 4 were important and the Government of Japan prepared several promotion schemes, which included grants/subsidies for local governments and interest aid, debt guarantees and tax breaks for telecom operators. Figure 3.6 Source: http://www.itu.int/ITU-D/asp/CMS/Events/2010/ITU-MIC/S5- 06_Mr_Atsushi_Ozu.pdf 52 3.5.1 Local, National and international Networks The Local Loop The major costs of building an extension to the traditional local loop arise less from the cost of the equipment and more from having to seek planning permission and the labour costs of road digging, ducting, wiring and cabling, installing distribution cabinets outside buildings and main distribution frames (MDFs) in the telecom rooms of multi-tenanted buildings. The local loop is therefore not easy to replicate using traditional methods, and for this reason regulators should examine ways to reduce the costs. Measures can include infrastructure sharing, simplify the procedures and lower the cost of issuing of permissions, review regulations governing rights of way and access to buildings. Over recent years, subscribers have been signing up in larger numbers to networks using broadband wireless known as fixed-wireless access (FWA) for the house and office telephone. FWA offers a means for non-fixed line service providers to enter the local market. Another technology standard that has been used in some markets, Indonesia and Malaysia for example, to provide fixed-wireless broadband access is WiMax. The most compelling competition for local loop providers has come from mobile network operators (MNOs) and the rapid deployment of 2.5G and 3G networks has spread broadband wireless access (BWA) to many metropolitan, smaller urban areas and many rural areas in most countries. As a result, in the world today there are many more mobile users than fixed line subscribers. This has changed the local landscape for regulation. When the fixed line phone was of paramount importance, regulators were faced with a choice of either supporting the continuation of a monopoly by the incumbent operator or unbundling the local loop. Unbundling was incorporated into the laws and regulations of the US, most of Europe, Australia and India among others. It is done by mandating the right of a new entrant to connect to the incumbent’s local access network at one of three places: at the roadside distribution point or MDF, on the customer-side of the MDF in the incumbent’s exchange building or central office, or on the network-side of the MDF. The last of these three is called co-location and minimizes the need for the new entrant to build their own local access network. Unbundling is always a hotly contested issue because unlike other forms of interconnection, it involves the incumbent surrendering the use of its own lines to a competitor. There is less controversy when the facility to be unbundled is an essential ‘unbundled network element’ (UNE)70 such as a bottleneck facility or an essential service, such as a numbers registry. The 70 Defined in the Telecommunications Act of 1996 of the USA 53 advantage of local loop unbundling is that it gives the new entrant an immediate footing in the market, but achieving long-term competition on a sustainable basis may require the new entrant to invest in their own network. One way to encourage this is to place a sunset clause on unbundling after which local loop interconnection becomes unregulated and subject to commercial agreement. This was done successfully in Hong Kong. Figure 3.7 illustrates pre-NGN architectural and commercial options for local loop unbundling. The first horizontal illustration shows a circuit from the customer to a subscriber line unit (SLU) which identifies the call as either voice or data, routing the first through the switched network and the latter to an Internet service provider (ISP1, ISP2 or ISP3 in the Figure) and out into the public Internet, or possibly via ISP3 to a private Intranet. In the second scenario, the new entrant has collocated their digital subscriber line access modem (DSLAM) and the call from the customer now transverses a splitter (S) which routes voice traffic to the old switch and data traffic to the digital ATM switch of either the incumbent (ATM 1) or the new entrant (ATM 2) according to the customer’s preferences. From the ATM data is passed to an ISP and then to the Internet or to an Intranet. 54 Figure 3.7 Local Loop Unbundling Options In the third scenario, the new entrant interconnects at or near the customer’s premises. In the figure it is assumed that voice traffic will still transit by way of the incumbent, but this need not be the case. Scenario 3 requires the new entrant to build a network out towards the edge of the local service area, so its total investment will be higher, but it becomes less dependent upon the incumbent carrier for the quality of network services. In the case of NGN networks unbundling, where this has arisen, poses a different set of issues .71 In part this is because the architecture is very different. An NGN uses an architecture of a dual fibre backbone ring, for example Metro-Ethernet, for broadband transmission of high speed data, and sub-loops of fibre to serve local buildings, running the fibre-to-the-Curb (FTTC) or fibre-to-the-building (FTTB). This does away with the need for many exchange buildings or central offices, while digital switches are replaced by Gigabit routers located at strategic nodes around the core network. Subscriber line electronics which identify the individual needs and preferences of subscribers, such as their choice of bandwidths and services such as IPTV, are moved to the edge of the network closer to end 71 For example, in the UK one study has found that unbundling the broadband local loop does not increase penetration rates but rather increases the quality of service. See Mattia Nardotto, Tommaso Valletti and Franck Verhoven (2102) ‘ Unbundling the incumbent: Evidence from UK broadband’ http://www.econ.kuleuven.be/public/ndbad83/frank/Papers/LLU%20first%20draft.pdf 55 users while still being controlled from the centre. Because optical fibre does not conduct electricity an NGN network operator must also invest in their own parallel power grid. At the subscriber end this means unlike the conventional PSTN telephone, a house or office telephone that works off the Internet needs to have its own source of power, which could of course be the telecom company if it is also a power company. Six out of 10 broadband lines in the USA were Digital Subscriber Lines (DSL) with fibre optic FTTx and FTTH accounting for 16.7% of the market in 2012.72 This tells us that fibre, and NGNs at the core, is establishing a foothold in the market, and many developing countries have an opportunity to leapfrog straight into it as a more efficient telecoms platform that supports the digital economy. Metropolitan Networks New entrants without any legacy networks can move straight to an NGN whereas an incumbent needs to shift over in phases, often using a hybrid of fibre cables and copper wiring. In many cases, the shift requires the write-down of fixed capital assets using accelerated depreciation accounting. For example, an ATM switch may have many years of service left in it, but to achieve a more competitive cost base the incumbent has to replace it. Instead of depreciating the ATM over a period of 15 or 20 years, depreciation will be compressed into maybe 3-5 years. This could cause a problem with regulatory estimates of costs used for financial assessments and price control measures because costs will appear to have increased and this may need to be reviewed by the regulator. The pressure to accelerate depreciation comes from competition. The arguments that competition will depress the revenues of the incumbent, making it more difficult to commit capital for investment, are not convincing. To become commercially successful on a sustainable basis incumbents have to go through a period of adjustment, even if that means issuing debt to finance change. Without competition, investment in new technology is bound to be slower and the benefits to the digital economy delayed. One of the conditions for effective competition in metropolitan areas is tariff rebalancing. Traditionally, tariffs for international and long distance traffic were high and often cross- subsidized local call charges. Competition and new ways to communicate, especially over the Internet, have brought long distance tariffs down but without much increasing local tariffs because competition for mobile operators has changed the landscape. The revenues for the future in any case will not be coming from traditional voice traffic, but rather from the demand for broadband access and broadband services such as IPTV, movies-on-demand, and in the corporate sector, cloud computing services. Once the process of competition begins it tends to take on its own momentum, but for markets still dominated by 72 Broadband Commission (2012) http://www.broadbandcommission.org/Documents/bb- annualreport2012.pdf 56 incumbents, regulators have to ask themselves what will make the market attractive to investment from new entrants and frame policies accordingly. When that happens, the local digital economy has a chance to grow. Closely associated with the growth of a digital economy is the spread of BWA which creates a demand for smartphones, tablet computers and other smart devices. This in turn creates an avalanche of data traffic that often networks cannot easily handle. Regulators can assist the industry and subscribers by placing sufficient radio spectrum on the market and by removing obstacles to lower prices for backhaul capacity. For example, MNOs should be allowed access to the capacity of the fixed line networks, some thought should be given to licensing MNOs to build their own backhaul networks and, following the regulations in India for example, to sharing facilities. National Long Distance For geographically large countries a domestic backbone network is an essential facility for linking centres of population and until it exists a country cannot effectively address issues of universal access and the digital divide. It should therefore be a priority objective of policy and regulation. A range of technologies are available, from landlines to satellite, from long-distance microwave to coastal submarine cables. Figure 3.8 Indonesia’s Submarine Cable System Source: http://www.itu.int/ITU- D/asp/CMS/Events/2009/PacMinForum/doc/POLY_WB_GeneralReport_v3%5B1%5D.0.pdf 57 For example, there is now more than 25,000 km of coastal cable now linking the 18,000 islands of the Indonesian archipelago.73 Figure 3.8 maps Indonesia’s Palapa ring. Although it may be difficult for new entrants to achieve the economies of scale enjoyed by the incumbent, the very act of connecting up towns and villages countrywide is the surest way to bring the benefits of a digital economy to these areas. That is an economic development issue, and development will generate traffic revenues for the future. It therefore makes good sense for regulators to remove as many barriers to entry as possible. There are well known ways to do this. Allowing utility companies to lease their spare network capacity to new telecom companies is one step. Promoting the sharing of facilities like telecom towers and power generators is another. Requiring incumbents to adopt open access policies is another, as well as regulating both their leased line and interconnection policies. Allowing unrestricted access to the Internet and to OTT services such as voice and text is yet another. The ultimate objective is to create national NGN high speed broadband networks that offer ubiquitous coverage. A typical core network transmission technology is GPON (Gigabit Passive Optical Network) which consists of dark fibres until they are lit using DWDM or dense wave division multiplexing. Economies of scale play a role here and governments often see advantages to the national economy of some public subsidy. In Australia, AUD43 billion has been set aside for a network to be built by Telstra on an open access basis. In Malaysia, Ringgit 2.4 billion will be used to subsidize Telekom Malaysia’s High Speed Broadband Network (HSBN) again on an open access basis. In Singapore, SGD1 billion of public funds are being invested in a consortium (NetCo) to build the GPON and an independent wholesaler (OpCo) to operate the network. The incumbent SingTel will retain the right to compete separately. Box 3.9 Dark Fibre Optical fibre that has not been lit is dark fibre. Originally this term applied to the unlit capacity of carriers but now it also applies to capacity that is leased to other parties who light it up for their own use. It is not uncommon in the US, for example, for local exchange carriers or LECs to swap capacity with carriers in other districts so as to extend their coverage to areas they previously could not reach. Utility companies, such as railways, road highway networks and electricity grids, will often have spare capacity in their long-distance fibre systems which can be leased out as dark fibre. On the demand side, besides carriers looking for the bandwidth there are multi-site corporate businesses, data centres, universities and government departments looking to lease fibre connections to form closed- user group wide area networks (WANs). For example, in Brazil the government-funded Rede 73 http://www.slideshare.net/mulimuljati/indonesia-domestic-fibre-optic 58 Nacional de Ensino e Pesquisa (RNP) colleges and universities network uses leased dark fibre.74 The quantity of dark fibre has grown exponentially, especially within oceanic submarine cable networks. The cost of laying of a cable on land or in the sea is literally a sunk cost which to all intents and purposes is invariant to the strands of fibre in the cable. Unlit fibre is cheap, so it makes economic sense to pack in many fibres. The expense arises when the electronic components are added and the fibre is lit. Increasingly DWDM or dense wavelength division multiplexing is used to transmit light signals along different frequencies or ‘colours’ of the spectrum, but because of the risk of interference between the light paths the dark fibre that is leased is often ‘managed’ in the sense that a ‘coarse’ WDW (CWDW) light path of 20nm (1 nanometre = one billionth of a metre) is maintained as a guard band. International Connectivity No sector of the market has seen a more dramatic increase in capacity and fall in prices than international submarine cables. This originally came about in the late 1990s as “irrational exuberance” in response to the dot.com bubble when the industry regularly over-estimated the rate of growth of Internet traffic.75 Investment became detached from the facts on the ground, or on the seabed, and gave rise to a number of online secondary capacity markets in the spirit of the Internet revolution. Prices collapsed following the bursting of the bubble from 2000 onwards and changed the landscape of the international carrier market. Some major players went into receivership, many global carriers partially withdrew from all but their most important regional markets, and when they ventured back in the late-2000s it was often to lease rather than buy or build their own capacity. From the mid-2000s new cables of terabit capacity began to appear. Some of these are consortium cables involving carriers from the countries with landing stations who buy ‘indefeasible rights of usage’ (IRUs) giving them the right to a certain capacity within the cable. Traditionally consortia were very conservative about IRUs but because of the supply overhang they have become more open to leasing to third parties. Part of this new wave of investment has come from carriers in developing countries, for example from Indian carriers Tata and Reliant in the Asia-Pacific. The bandwidths are humungous, but often less than 10 per cent of capacity is actually lit, but as CDNs spread throughout the world and data centres spring up with the rise of cloud computing the demand will grow.76 In areas previously underserved capacity is rising. In Africa it now stands at over 22 terabytes for the 74 http://www.ifi.unicamp.br/osa/telecom/Michael_Stanton.pdf 75 Andrew M. Odlyzko (2003) ‘Internet Traffic Growth: Sources and Implications’ http://www.dtc.umn.edu/~odlyzko/doc/itcom.internet.growth.pdf 76 See global view at http://www.samhamilton.co.uk/images/Equinix_Submarine_TGMap_MTS_15.pdf 59 East coast, 107 terabytes for the West coast and over 9 terabytes for the Mediterranean coast in the North.77 In the Caribbean, four major cable systems are now providing connectivity,78 while Latin America has been described as “the leading undersea market in 2013.”79 Most challenging economically is to bring submarine cable connectivity to small island developing states (SIDS) such as the Pacific Islands. Satellite services are relatively expensive, even when used on a shared capacity basis, and do not provide the bandwidth of a submarine cable. A World Bank study in 2009 analyses in detail the options for cables. Figure 3.9 Connectivity Across the Pacific Islands Source: World Bank80 77 http://manypossibilities.net/african-undersea-cables/ 78 An inter-active map of the world’s submarine cables is available from TeleGeography at http://www.submarinecablemap.com/ 79 http://www.lightwaveonline.com/articles/2013/02/new-submarine-cable-systems-target-latin-america.html 80 World Bank (2009) Regional telecoms backbone network assessment and implementation options study: For a better Pacific Connectivity http://www.itu.int/ITU- D/asp/CMS/Events/2009/PacMinForum/doc/POLY_WB_GeneralReport_v3%5B1%5D.0.pdf 60 The original drivers of demand used to be international voice calls and commercial data traffic. That has changed. Many voice calls now go by OTT voice, video and text services such as Skype and Yahoo Messenger and commercial data traffic by Extranets. The driver today is principally the resurgence of Internet traffic, notably media video streaming and data traffic in the cloud between data centres. For example, according to the Cisco Internet traffic forecast for 2012, “51% of all Internet traffic will cross content delivery networks in 2017 globally, up from 34% in 2012.” Other notable metrics from the Cisco forecast are that “IP traffic is growing fastest in the Middle East and Africa, followed by Asia Pacific. Traffic in the Middle East and Africa will grow at a CAGR of 38% between 2012 and 2017” and that “In 2017, global IP traffic will reach 1.4 zettabytes per year, or 120.6 exabytes per month. Global IP traffic will reach 1.0 zettabytes per year or 83.8 exabytes per month in 2015.”81 These figures, even if only partially accurate,82 spell the transformation of international telecommunications. Regulators have to be aware of them, have to prepare their markets to sustain the carriage of this data into and out of their jurisdictions. No one single landing station, satellite earth station or international gateway will be adequate to provide the quality of service and the redundancy required to make the economy competitive. Ways must be found to allow investment, competition and diversity into the market for international traffic. 81 http://www.cisco.com/en/US/solutions/collateral/ns341/ns525/ns537/ns705/ns827/white_paper_c11- 481360_ns827_Networking_Solutions_White_Paper.html 82 But note that Cisco’s forecasts are at the higher end of the scale of similar industry forecasts 61 Module Three: Law and Regulation for a Broadband World 3.6 Opening Vertically-Integrated Markets In vertically integrated companies, the management has upstream and downstream control of the procurement, production, distribution/marketing and sales processes. 3.6.1 Benefits and Costs of Vertical Integration Economic Theories Economists have different theories as to why firms vertically integrate. A common theme is economies of scale which can result in lower prices for the consumers. The Chicago School of thought argues that if management is rational then it will only choose vertical integration if the economic incentives support that way of doing business. This has been termed internalize complementary efficiencies, the implication being that most forms of regulation will simply distort the incentives and force the firm to operate at a sub-optimal level. They go on to point out that in technologically fast-changing industries, monopolies rarely survive for long. The New Institutional school, closely associated with the original work of Chicago economist Ronald Coase 83 and with University of California economist Oliver Williamson, suggests that vertical integration gives firms access to information along different points of the supply chain and across different markets that would otherwise not be easily available to them. The alternative would be incurring transactions costs of dealing with different suppliers, wholesalers or retailers. Vertical integration can save on these costs. By contrast, the older Institutional School takes its original inspiration from the work of nineteenth century American economist and sociologist Thorstein Veblen and later from the work of economist John Kenneth Galbraith. It points to the personal incentives and psychological motivations of managers preferring to manage larger than smaller corporations. In reality all these theories can be correct to some degree. For example, the Chicago School would see the case studies of the Institutional School as examples of managers not doing what is in the best interests of their companies. This would mean they are not acting rationally in terms of the firm, while on the other hand the Institutionalists would see them acting rationally in their own terms. What all these schools of thought have in common is that they do not just describe how firms come to be large and vertically integrated, but why 83 His seminal work The Nature of the Firm was publish in Economica, November 1937 when at the London School of Economics, see http://onlinelibrary.wiley.com/doi/10.1111/j.1468-0335.1937.tb00002.x/pdf 62 they do so, what motivates their management, and why they remain integrated or why they may choose not to. Regulators Why is this important to regulators? Two reasons. First, because regulators have to take into account the possibility that the firms are using their control of the supply chain to discriminate in terms of price, quality and timeliness of supply of upstream products and services to downstream competitors. This can result in ‘profits squeeze’ for competing retail service providers forcing them to withdraw from the market. If vertical integration undermines competition then investment, innovation and consumer welfare will suffer. Second, regulators need to understand how economic incentives influence the behaviour of the firm. Regulation that is poorly designed may do more damage than good. For example, policies that try to cap the profits of a dominant vertically-integrated company may simply result in that company shifting its investments from its regulated to its unregulated lines of business. Or, a price-cap that is linked to the rate of inflation and designed to encourage a firm to cut costs if it wants to boost profits (see Module 3.2) may result in the firm meeting its demand targets and then under-investing in efficiency-enhancing capital expenditure while it waits for the next round of price-cap adjustment. This example is given by Cave and Doyle who suggest the regulator “offer firms a menu of increasing investment levels, associated with progressively lower allowable rates of return.”84 The opposite problem of ‘gold-plating’ arises when rate-of-return regulation allows the firm the same rate-of-profit whatever its level of investment. This is also known as the Averch- Johnson effect.85 In the United States, where anti-trust rulings by the Federal Communications Commission (FCC) are regularly tested in the law courts, economic arguments have become compelling, or as Judge Richard Posner, a leading anti-trust economist and jurist put it “an economics-based approach has won in antitrust.”86 For this reason, regulators need to have a good understanding of what drives and motivates the companies under regulation. 84 Martin Cave and Chris Doyle (2007) ‘Network Separation and Investment Incentives in Telecommunications’ Warwick Business School, University of Warwick http://www.kigeit.org.pl/FTP/ap/sot/07_11_12_podzial_2.pdf 85 Averch, Harvey; Johnson, Leland L. (1962). "Behavior of the Firm Under Regulatory Constraint". American Economic Review v.52.5: pp.1052–1069. 86 Joseph Farrell and Philip J. Weiser (2003) ‘Modularity, Vertical Integration and Open Access Policies: Towards a Convergence of Antitrust and Regulation in the Internet Age’ Harvard Journal of Law & Technology V.17.1 Fall 2003: pp.116 http://papers.ssrn.com/sol3/papers.cfm?abstract_id=452220 63 3.6.2 Remedies to Anti-Competitive Conduct by a Vertically-Integrated Operator Anti-Competitive Behaviour Anti-competitive behaviour can arise from many different situations. Some example are collusion between equal competitors, or ‘price-leadership’ when unequal competitors prefer the easy life of living under the shadow of the incumbent who fixes the price. Different causes of anti-competitive behaviour call for different remedies. Anti-competitive behaviour that arises from an operator exploiting the advantages of vertical integration has many historical precedents. Remedies a regulator can use include the following:  Open the doors to new entrants and assist them in establishing a foothold in the market, for example, by unbundling the local loop, by regulating interconnection agreements, by allowing them to share facilities, by introducing number portability, etc.  Encourage the adopting of new technologies, including Internet-based services that can offer consumers a real choice  Require the regulated operator to offer equal access to competitors, if necessary along with incentives to comply  Enforce separations if other measures are ineffective, either accounting, functional or structure separation  Use a public subsidy for an independent network construction company and/or wholesale operator with an equal access obligation There is no question that competition from new entrants using the most up-to-date and cost-effective technologies associated with all-IP broadband NGNs is the most effective way to combat anti-competitive behaviour by vertically-integrated incumbents. The important caveat is that policy-makers must support competition, if necessary by revising the terms and conditions of the incumbent’s licence and the telecommunications laws under which it is issued. This process may require a compensation agreement to cover the loss of exclusive rights conveyed by the licence. Compensation can be in the form of cash, as was the case when the Hong Kong policy maker took back the exclusive international telecoms licence from Hong Kong Telecommunications to open up the market. Alternatively, the new licence can give the incumbent access to markets it could not previously enter. When AT&T in the US was broken up (‘divested’) through structural separation in 1980s into seven independent Regional Bell Operating Companies (RBOCs) otherwise known as Incumbent Local Exchange Carriers (ILECs), it was given the right for the first time to compete in call international markets. 64 Separations Separations are a radical step for a regulator to take. In the UK in the 1990s, British Telecom (BT) voluntarily agreed to a functional or operational separation of its various business units in order not to lose the economies of scale that come from sharing some of its overheads and investment in R&D, including vital strategic business information. The restructuring was approved on an ex post basis, meaning that regulator agreed to a light-handed touch to see how well the new structure worked. See Figure 3.10 for BT’s new structure. Figure 3.10 BT’s Functional Restructuring No one has more detailed information about operational costs, markets and investments than the operators themselves, and this places regulators in a difficult position. To be effective the regulator needs the full compliance and cooperation of the regulated operator. This cooperation can come at a cost if the regulated operator manages to ‘capture’ the regulator, meaning the regulator becomes beholden. If the incumbent operator has close ties with high-level policy makers, which is quite likely, then the issue of transparency becomes very important. Regulators who examine the case for separations need the cost accounting information of the operator to determine what would be the most cost-efficient means of separation. For example, if the wireless cellular operation is part of a competitive market but the fixed line PSTN is not, then the argument for an accounting or financial separation may be sufficient to ensure mobile prices are not cross-subsidized from fixed line rentals and usage charges. But that may not be sufficient if, for example, backhaul is provided to the mobile business unit but not for competitors on an equal basis, unless the competitors are also full service operators. 65 Box 3.10 Costs, Prices and Vertical Integration Vertical integration is not by its nature transparent. Even an incumbent operator may not know the true cost of its many activities simply because under the traditional regime of monopoly pricing it never needed to know them. The traditional way an incumbent set prices was to allocate or distribute costs across a range of services based upon what the market would bear. In more competitive markets, where the elasticity of demand will be higher, the prices would be lower, while in more captive markets where the elasticity of demand will be lower, the prices would be higher. This is also known as Ramsey pricing. The following Figure, from the World Bank’s Telecommunications Handbook summarises the different cost allocation methods available to operators and regulators alike. Figure 3.11 From the bottom-up the Figure illustrates the following: 1. Stand-alone costs when there is one output or service and all the costs must be covered in the sales price. 2. Fully Distributed/Allocated Costs (FDC/FAC): when there are two or more service outputs, for example local, long distance and international voice services, the costs of any of them consists of an apportionment of common costs, e.g., property taxes, and of joint costs, e.g., the cost of the switch used for both services, such that all common and joint costs are covered by each of the services in combination, plus the fixed costs 66 specific to that service, such as the costs of the cable landing station or satellite station, plus the incremental costs associated with that service, such as the total of marginal costs of switching or routing traffic. 3. Total Service Long-Run/Long-Run Average Incremental Cost (TSLRIC/LRAIC) with uniform mark-up: the same as FDC/FAC with two exceptions. Costs are forward-looking (not historical) based upon new technologies, and the allocation of common and joint costs is done on some defined proportionality basis, such as the percentage volumes of traffic or revenues. 4. Total Service Long-Run Incremental Cost (TSLRIC) with mark-up: the same as TSLRIC/LRAIC except mark-ups distinguish between common and joint costs shared by services, and residual costs that arise even at zero output, sometimes referred to as “keeping the lights on.” 5. Total Service Long-Run Incremental Cost (TSLRIC): the same as TSLRIC/LRAIC except that the allocation of common and joint costs only includes those that are genuinely common or joint costs of the services under consideration. 6. Total Service Long-Run/Long-Run Average Incremental Cost (TSLRIC/LRAIC): same forward-looking costs as above without the mark-up, so only incremental (variable) direct costs and a proportion of fixed costs are included. 7. Long-Run Incremental Cost (TSLRIC): only forward-looking incremental (variable) direct costs are involved. An example of regulatory costs accounting is the emphasis the FCC placed upon ‘modularity’ or open access following the Telecommunications Act of 1996. The FCC ruled that vertically-integrated RBOCs or Incumbent Local Exchange Carriers (ILECs) would be required to offer various ‘unbundled network elements’ (UNEs) as separate modules to local competitors at a cost-based price. For example, access to the registry of residential and business telephone numbers. This was to ensure that if the LECs offered interconnection to their competitors they did not force them to pay for network elements they did not need. The FCC used a methodology called total element long run incremental cost (TELRIC) to determine an appropriate price of UNEs.87 Going Vertical: Mergers & Acquisitions Vertical integration works well for firms with a relatively narrow-range of products, but as the range get wider the challenges of management coordination grow and the efficiencies get called into question. If the products and services are complimentary then the 87 http://www.techopedia.com/definition/26165/unbundled-network-element-une 67 advantages of becoming big probably outweigh the disadvantages. However, if the product range is diverse, includes substitutes or competing services, and results in the need for a variety of different investment and marketing strategies, then big can spell trouble. For example, the merger of a telecoms and a cable or IPTV business may seem to be a case of convergence, but the investment profiles and management skills required by each are entirely different. For these reasons, in some some industries mergers and acquisitions (M&As) may end up destroying more value than they create. In other cases, such as when an incumbent acquires an innovative start-up which has recently entered the market, the big question is whether what is being acquired are the inventors and innovators behind the start-up or just the intellectual property. Whether M&As add value or destroy value is something that can only be tested in the marketplace; for regulators that is not the issue, rather it is whether there is or is not a high probability competition, and therefore innovation and customer choice, will be reduced. This presents regulators with a range of issues. First, is a vertically integrated telecoms company dominant because it is efficient or because it is abusing its market power and discriminating against weaker competitors? Second, when an M&A is proposed, will it significantly reduce competition in the market, or will it increase efficiency and present consumers with better value services? Third, even without discriminatory behaviour, is the vertically-integrated company in any way ‘dominant’ and if so does it wield ‘significant market power’ (SMP) such that it can independently influence market prices for itself and its competitors? Dominance is only a measure of potential market power. Whether the company exploits that power in anti-competitive ways is a judgment call by the regulator who has to decide whether to regulate ex-ante (on the presumption of anti-competitive behaviour) or ex-post (on the basis of observation and assessment) – see module 3.2. These are essentially economic issues, but there are also issues of political power and social influence. Cross-ownership rules are designed to curtail the concentration of power in too few hands and are usually part of an M&A assessment process. There are further issues, such as a concentration of foreign ownership if a country identifies some of its telecom services as national economic or security concerns. But it is important that trade commitments made under the WTO are honoured to achieve the greatest possible benefits from investment in open markets. The telecoms regulator may not be the final arbiter on whether an M&A is allowed to proceed, but where the merged companies involved a telecoms operator the view of the regulator on the possible outcome is important. Vertical Value Chains Over recent decades in the supply chain for the fast-growing mobile sector of telecoms equipment there has been something of a tug-of-war between the vendors who manufacture the handsets and the operators who connect them to their networks. Although vendors may decide to sell their handsets through retail outlets the bulk of their sales is 68 often to the carriers. Through bulk purchases of handsets the carriers get important discounts which they can pass onto their subscribers, adding their own discounts to attract new customers in cases where the mobile services markets are highly competitive. But there is also competition between the vendors and the operators to determine which of them secures the larger share of the value along the supply chain. Branding, designs (‘form factors’) and operating systems have been the key areas of competing demands. Vendors want to their name as the band. As with other products, better known branded handsets sell at a premium over lesser brands. But equally, operators such as Vodafone and DoCoMo and Hutchison’s “3” benefit from name recognition if the handset carries their brand. Bulk-buying has sometimes swung the balance of branding power towards the carriers, especially those who won licences to pioneer the next generation of mobile services, such as 3G. With branding power (the logo on the phone) often went the power to dictate the designs or ‘form factor’ of the phones, such a flip -tops, slide phones, swivel phones, touch screens, their colours and shapes. But the power of operators tends to diminish as the carrier market itself becomes more competitive. Their power is further eroded if they are unable to dominate the market by ‘locking’ the handsets they connect to the network so that only their SIM cards can be used in those phones. This erosion can arise from regulation which outlaws the practice, or by customers shifting to the unlocked services of their competitors which may happen, for example, when cheaper phones are bought in increasing numbers by lower-income and often pre-paid users. Apple is a vendor that has traditionally locked its phones and made agreements with carriers to keep them locked. The iPhone, launched in 2008, is widely accepted to have been a game-changer for the industry. For the public its brand name and designs were major attractions, in particular its touch-screen features, but behind both was Apple’s innovative iOS operating system. Operating systems (OS) determine which apps can be run, their screen appearance as well how to navigation a phone’s many functions, which are themselves apps. Like the now defunct Symbian OS used by Nokia, Ericsson and others, they may be owned by a consortium of vendors, or like iOS they may be vendor-specific, or like Google’s Android OS they may be owned by one vendor but freely available to all. They constitute a vital part of the intellectual property of handset manufacturers and, where they are under a commercial licence, an important source of royalty revenue. The outstanding feature of the handset market today is how fast the technologies develop, the apps develop, the form factors change. This has resulted in market leaders of yesteryear falling behind or even exiting the market. It has resulted in component manufacturers and original engineering and manufacturing (OEM) companies entering into alliances with one or other of the major vendors, or in some cases, such as HTC vying to become a major vendor in its own right by selling direct to large carriers, for example, in China. This underscores how quickly the balance of market power can shift horizontally between 69 vendors and vertically between vendors and carriers. After the iPhone kick-started a radical shift towards smartphones, Apple held enormous market power, for a short time catapulting the company into being the largest in the world by value. Apple could more or less dictate terms to the carriers it selected to market the iPhone, with previously unheard of commercial agreements which included the carriers to guarantee a local subsidy to iPhone retail prices and even a revenue-sharing agreement. That power was derived from the strength of consumer demand for, and loyalty towards, each new iPhone release. 88 But the market has never ceased moving on, seeing new vendors including social networks like Facebook moving into the mobile market. In many ways it is appropriate that this is the case. The very last part of the traditional telecommunications market to face competition and to see innovation was the telephone receiver. Only in the 1980s was there widespread opening of the consumer premises equipment (CPE) markets, which began with non-black plastic telephone designs, and then telephones with additional functions such as stored numbers, call holding, recall, etc., which could be bought in supermarkets at low prices. The OS of mobile handsets has set new standards of innovation because they are linked to the Internet. For regulators, the issues raised are many, but they mostly revolve around competition and consumer protection issues to be with pricing, locking, blocking of apps and net neutrality. 88 See, for example, ‘Vertical Integration Works for Apple -- But It Won’t for Everyone’ http://knowledge.wharton.upenn.edu/article.cfm?articleid=2959 and Chantal Tode ’Can Apple’s vertical integration work for others in the mobile space?’ Mobile Commerce Daily, 9 July 2012 http://www.mobilemarketer.com/cms/news/manufacturers/13262.html 70 Module Three: Law and Regulation for a Broadband World 3.7 Net Neutrality The common understanding of net neutrality is a regulatory stance against any form of discrimination by telecom networks against users of the Internet, whether as suppliers of services and content or as consumers. On the supply side, this implies that Internet companies should not be charged for delivering their products to end users unless they have come to a commercial agreement with the network. For example, to act as a local billing agent or as a content distribution network (CDN). On the demand side, this implies that customers should not experience any blocking of sites that has not been sanctioned in law, nor any throttling or quality degradation of the bandwidth that they are entitled to, nor charged discriminatory fees. What is normally permitted is a layered tier of bandwidth prices for customers to choose from and each customer can choose their preferred package. It is relevant to note that when consumers buy access devices, such as tablet computers, they come at different prices according to the speed of the networks they can access, thus equality of consumer choice seems to be consistent with different price levels for different levels of service. On top of this, regulators usually recognize that telecom companies, most of whom are also Internet service providers (ISPs), have the right to manage their networks in the most cost- efficient manner to ensure quality of service obligations. The quality of service standards for available access to a network stands ideally stand at over 99%. For example, the Infocomm Development Agency (IDA) in Singapore requires 99.85% for the narrowband and 99.9% for broadband,89 while in Chile the standards for narrowband are set at 97% in urban areas and 90% in rural areas.90 By contrast, in the 1990s, Internet traffic was seen as ‘best effort’ unless it was sent over a public or private managed network. In the broadband era, the public expect consistently high access rates, although the speeds will differ widely from market to market. The quality of service is vital also to the success of the digital economy. The issues at stake are principally two-fold. First, whether the network operator is using the need for quality-of-service network management as a cover for bandwidth throttling or degradation of some services such as peer-to-peer communications. Second, whether they should have the right to charge fees to Internet companies for the use of their networks as a way, as they will argue, to raise the funds required to invest in new network capacity. To confront these issues regulators need to examine their own policy goals. 89 http://www.ida.gov.sg/Policies-and-Regulations/Industry-and-Licensees/Standards-and-Quality-of- Service/Quality-of-Service 90 http://www.itu.int/ITU-D/ict/newslog/CategoryView,category,Quality%2Bof%2Bservice.aspx 71 3.7.1 Goals of Net Neutrality In 2011, a study by the Body of European Regulators for Electronic Communications (BEREC) found that the blocking of voice-over-Internet protocol (VoIP) and peer-to-peer traffic by telecom operators and Internet service providers was a common practice. In 2013, the EU Commission announced it would proceed to require all telecom carriers to observe net neutrality, meaning no throttling, no degradation of Internet services and unrestricted access to Internet content providers by users without discrimination between low and high volume users. What is permitted is the practice of charging users different prices for different bandwidth packages. In many developing economies there are no effective regulations and the incumbent operator pretty much does as it pleases. For example, a study of the Union of the Comoros off the East Coast of Africa reveals that Comores Telecom (CT), which holds a monopoly in both fixed-lines and mobile telephony, and acts as the sole Internet Service Provider (ISP), is threatened with declining international call revenues from competing OTT voice services such as Skype and Viber.91 Its strategy has been to deliberately degrade the quality of the internet service it provides to its subscribers, on both fixed and mobile networks. By increasing the latency, or delay, in internet traffic, it makes VoIP effectively unusable. This has proved to be a highly controversial policy because it also affects other legal internet services, such as webmail or instant messaging used by Comorian citizens. Clearly, this is not a sustainable long-term solution for CT or for the Union of the Comoros. In the US, the Federal Communications Commission (FCC) accused cable TV operator and Internet service provider Comcast of selectively blocking connections to peer-to-peer (P2P) applications. Comcast was found guilty, but a ruling by the Court of Appeals in 2010 found that the Commission did not have legal jurisdiction over the Internet services of Comcast. Subsequently, the FCC published in 2010 an Open Internet Report & Order, guidelines to keep the free and open nature of the Internet, around the three basic principles of transparency, no blocking and no unreasonable discrimination. But beyond these guidelines there is no legislation or formal regulations for Internet neutrality. Besides the commercial interests of the carriers and the Internet companies involved, there are opposing camps of the ‘deregulationists’ including property rights advocates versus supporters of the ‘open access’ and ‘commons’ approach. For property rights advocates, carriers should retain a right to manage their networks to their own best advantage with minimal interference from regulators. This argument works best when there is well established competition for consumers to choose from. Consumer advocates of the ‘open 91 "ICT Sector policy note on Comoros", 2013, Tim Kelly and Clara Hervaz-Lezcano (unpublished World Bank policy note). 72 access’ approach point to the lack of competition that results from violations of net neutrality, and to the adverse effects this has upon investment in, and growth of, the digital economy.92 3.7.2 Regulatory Approaches The FCC, in considering the Comcast case, issued a consultation paper asking what were ISPs using traffic management techniques trying to achieve; was it to prioritize latency- sensitive applications, to avoid network congestion, to block unwanted traffic, to implement parental controls, or was to gain advantage over competitors. For regulators concerned that network management may be used as a pretext for discrimination against sources or users of services over the Internet, the devil lies in the detail. Network management tools can do blocking, traffic shaping and quality of service functions. Each can be used for discriminatory and non-discriminatory purposes. The question asked by the FCC was whether the network management in question was ‘reasonable’, although the definition of ‘reasonable’ is itself open to question. In other words, the concept of net neutrality in operational terms is often arrived at only after a judgement has been made on what actual network management practices are reasonable and unreasonable. There is a huge literature debating the finer points of net neutrality along these lines, and a useful approach, although not the only one, has been put forward by Scott Jordan and Arijit Ghosh of the University of California, Irvine.93 They start their analysis using the three-layered stack of the Internet as compared with the standard seven-layered stack ISO model traditionally used by telecom engineers. (See Figure 3.12). 92 For a short review of these positions and advocacy of a ‘nondiscriminationist’ middle approach, see Scott Jordan (2007) ‘A Layered Network Approach to Net Neutrality’ International Journal of Communication v.1 pp.427-460 http://ijoc.org/ojs/index.php/ijoc/article/view/168 93 Scott Jordsan and Arijit Gjosh (2009) ‘How to determine whether a traffic management practice is reasonable’ http://www.ics.uci.edu/~sjordan/papers/tprc09.pdf 73 Figure 3.12 A Layered Model Approach to Net Neutrality They suggest that four criteria could be used by regulators to judge whether or not network management practices raise red warning flags.  Where within the network are the network management tools applied: in typical Internet design it is assumed that management techniques are applied above the transport layer if possible. If they are applied in the transit between the different networks (source network and the carrier network) in the routers below the transport level this should raise a red flag.  What type of tool is applied: if network congestion is short or medium term (for example, less than one minute) then tools such as traffic shaping and queuing are effective, for example at endpoints in the network. The delay occurs at final delivery, but for congestion over one minute access control may be required. If this involves blocking or termination as opposed to quality of service degradation this should raise red flag.  Who decides which tool should be applied: it may be at the request of the Internet source or the end user, but if it is a unilateral decision of the ISP then this should raise a red flag.  When and on what basis is a tool applied: it may be applied to (i) an application, (ii) the source/destination, (iii) the service provider, and/or (iv) the payments processor. 74 Tools applied to traffic on the basis of (ii) or only to traffic based on (iii) should raise a red flag. What is useful about this framework is that it is not deterministic because the red flags are only alerts that can help regulators. However, this does focus attention on the fact that in an interconnected world the old distinctions between what were telecoms services and what are services over the Internet can no longer be a good guide to policy. For the ‘deregulationists’ these red flags will be redundant and for some advocates of ‘open access’ they may not go far enough, but regulators do need some practical points of reference going forward. 3.7.3 Net Neutrality and Wireless Networks Under the FCC’s Open Internet Report & Order (2010) “Fixed and mobile broadband providers must disclose the network management practices, performance characteristics, and terms and conditions of their broadband services” but excludes mobile from restrictions on blocking and “unreasonable discrimination”.94 Broadband wireless sector was exempted because it was seen as a young growth sector. Unlicensed spectrum services are not covered by the Order. As noted above, many wireless broadband devices place limits on what services can be received, for example, Apple’s iPhone does not download Adobe files and restricts the types of apps that can be downloaded, and certain devices will not stream YouTube. The device vendors often have partnerships with different telecom networks, with CDNs and even have their own networks. Mobile networks are often converged with fixed (FMC), and these crossovers do not lend themselves to universal net neutrality regulations. For regulators the important issue is to keep the mobile wireless market as competitive as possible so consumers always have choice. 3.7.4 Governance Issues Governance of the Internet is fundamental to its openness. The Internet began as an American creation that has now become part of the everyday life of the modern world. That means it also becomes part of every country’s national interest. It can only be hoped that a multi-stakeholder approach does not politicize the Internet which would be detrimental to the damage the digital economy. Good regulation should guard against that danger. Two issues in particular have featured significantly in recent debates, and they relate to the respective roles of states and other stakeholders in Internet governance. The first issue 94 http://www.fcc.gov/document/preserving-open-internet-broadband-industry-practices-1 75 concerns the rights of states within their own borders to govern the use of Internet domain names at the country level. The Domain Name System (DNS) evolved for technical reasons using Latin script for Top-Level Domain Names (TLDs) such as .cn for China and .com for company. Later it became possible to use non-Latin scripts such as Cyrillic, Hebrew, Korean, Thai, etc., which have been adopted by many countries for their country code TLDs or ccTLDs, also known as Internationalized Domain Names of IDNs.95 Over time search engines may adapt to these as well, but until they do searching for materials in non-Latin languages will remain an obstacle. For many states this raises both cultural and political concerns. The second issue concerns agency. Some Internet issues, such as the DNS and Internet engineering protocols are handled within internationally recognized bodies, such as Internet Corporation for Assigned Names and Numbers (ICANN) and the Internet Engineering Task Force (IETF) but as of 2013 there is no international agency that deals with other issues such as cyber-security over the Internet. Some states have suggested the ITU could extend its reach into the area, a suggestion quite vigorously opposed by others, including some other states and by many in the Internet community itself, who do not see an inter-governmental telecommunications organization as being the appropriate forum. Whatever the outcome of this debate, the issues it raises are very real and ways need to be found that are genuinely multi-stakeholder with no-one claiming to have all the answers. The Internet is a continuously evolving technology-based mode of communications which is having truly profound economic and social consequences, and the role of regulators is probably best described as two-fold: to regulate with a light touch in order to encourage continuing innovation and the benefits that brings, and encourage the active involvement of all stakeholders to address the various challenges the spread of the Internet has for society. 95 “For technical reasons, support for non-Latin scripts was treated as a design and deployment problem whose solution was intended to minimise change to the domain name resolution infrastructure. This was debated in the Internet Engineering Task Force more than once, but the general conclusion was always that requiring a change to every resolver and domain name server, rather than changes on the client side only, would inhibit deployment and utility. This led to the development of so-called ‘punycode’ that would map Unicode characters representing characters from many of the world’s scripts into a ASCII characters (and the reverse).” Vinton G.Cerf Foreword: EURid-UNESCO World report on Internationalised Domain http://www.eurid.eu/files/publ/insights_2012_idnreport.pdf Names deployment 2012 76 Module Three: Law and Regulation for a Broadband World 3.8 Security in Cyberspace All societies are vulnerable in cyberspace due to the growing interconnection of networks, of people through emails and social media, etc., and increasingly of ‘things’ such as machines, sensors and consumer goods, through the Internet using cables, Ultra Wideband (UWB) and other wireless technologies. The vulnerabilities exist at all levels. For analysis it is useful to think of three levels: high- level attacks on critical information infrastructure (CII) which can bring parts of a country to a standstill and are likely to come from a terrorist assault or political cyber-warfare; cybercrime which can range from industrial scale espionage of state or commercial secrets, to massive financial theft and fraud, and to so-called ‘white-collar’ crimes such as tax evasion moving online from offline; and third, crimes against persons such as child abuse, cyber-bullying, online defamation, etc. 3.8.1 Security of Critical Information Infrastructure At the highest level, the first recorded cyber-assault on a country’s entire infrastructure was in Estonia in April 2007 when websites of Parliament, ministries, newspapers, banks and others were brought to a standstill in distributed denial-of-service (DDOS) attacks. Even more insidious is the malicious use of web robots or ‘bots’. They are very useful in search engines for tasks such as web spidering, but they can also be used to take remote control of websites without the owners knowing it, read the files and implant malicious code. Like the rogue computer Hal in the movie ‘2001’ that takes control of the spaceship, this is a very power weapon in the wrong hands. Public utilities such as a telecoms and energy networks could be hijacked, traffic diverted, energy supplies cut off, causing untold economic loss and loss of life. CERTS and CTBEX Although it is not possible to assign precise levels of risk to cyber-security in terms of exact times and places, with sufficient data is it possible to assign degrees of risk to different areas of strategic importance and to possible timescales. Using past data on attacks and a strategic view of network vulnerabilities, some planning and preparation is possible, but success is entirely dependent upon good detection work based upon intelligence and information sharing between agencies. It is important, for example, that telecom operators and Internet service providers notify the regulator or cybercrime agencies of suspected or actual cyber-attacks. 77 It is equally important for these agencies to work in close collaboration and exchange of information, first at the national level, and second at the regional and international levels. To this end, the ITU has been involved in an initiative on cyber-security for telecom networks through the Cybersecurity Information Exchange Framework or CTBEX.96 It consists of a set of protocols and standards and a general framework which integrates different security domains, such as measures for protection, detection, remedies and legal as illustrated in the Figure 3.13 below. Figure 3.13 Source: http://www.jnsa.org/isog-j/output/2010/1013/2_Rutkowski.pdf Ministries and regulators need to be part of a national cyber strategy planning process. For example, the Ministry of Information and Communications in Mauritius with support from the African Development Bank has developed a holistic approach to cyber-security with a National Strategic Plan that was created for 2007-2011 and has been revised for 2011- 2014.97 This follows the creation of Police Cybercrime Unit in 2000 and a Computer Emergency Response Team (CERT-mu) in 2008. The Plan transparently identifies areas of 96 http://www.itu.int/dms_pub/itu-t/oth/06/48/T06480000010006PDFE.pdf 97 http://www.gov.mu/portal/goc/telecomit/file/ICTplan.pdf 78 cyber-security that need strengthening, which is the first step towards reducing risk. It also outlines the coordinating mechanisms required between agencies. The creation of CERT-mu is an important step and follows best practice for many countries; for example, US-CERT is the 24x7 operational arm of the Department of Homeland Security.98 In East Africa, the Cybersecurity Taskforce of the East African Communications Organizations (EACO) covering Burundi, Kenya, Rwanda, Tanzania and Uganda was formed in 2008. It tasked with setting up national CERTS in each member state. National expertise in cybercrime issues may reside in several different departments and law enforcement agencies and in private IT and telecom companies and it is therefore important that national strategic plans optimize on ways to share information on a timely basis. The following points can be used to assess how successful organizationally the setting up of cyber-crime agencies have been. 1. How many staff have been on cyber training 2. What outside expertise has been enlisted to grow the capacity of the agency 3. Has the agency developed its own training programme for use by other agencies 4. Has the agency developed a database coordinating details of known cyber-attacks from all other national sources 5. Has the agency developed plans to cover: preparedness and prevention; detection and response; mitigation and recovery; international cooperation; support both from and for the ICT sector Point 5 is from the EU Action Plan on CIIP.99 Other countries have their variants, for example, Morocco’s National Cybersecurity Management System has the following five domains: strategies and policies; implementation and organization; awareness and communication; compliance and coordination; monitoring and evaluation.100 Telecom and information ministries and regulators clearly have a major input to make into each of these domains and expertise in cyber-security is something all ICT agencies need to add to their domain capacity. 3.8.2 Cyber Crime The level of cybercrime is difficult to gauge with any precision, but a study in 2012 for the UK Ministry of Defence by Anderson et al., collates estimates of various cybercrime categories at the global level, collecting global data where it is available and otherwise extrapolating from UK data on the basis that UK GDP is 5% of global GDP. Their findings are summarized in Table 3.2. For the sake of brevity the table presents sub-totals as a 98 http://www.us-cert.gov/ 99 http://sta.jrc.ec.europa.eu/pdf/scni/ExperimentalPlatforms/1-CIIP_INFSO_WS%2020090619.pdf 100 http://www.itu.int/ITU-D/cyb/events/2009/tunis/docs/debbagh-morocco-cybersecurity-june-09.pdf 79 compromise with their caveat that “it is entirely misleading to provide totals lest they be quoted out of context, without all the caveats and cautions that we have provided.” 101 Table 3.2 Estimated Global Costs of Cybercrime, 2012 Cybercrime type Global Estimate ($ Notes millions) Cost of genuine cybercrime, such $2,457m + $1,000m = For the years 2007, 2008-2010, 2011; as scams, phishing, etc. $3,457m mostly considered under-estimates Cost of transitional cybercrime, $7,360m + $39,240m For the years 2009-2011; some such as online credit card fraud = $46,600m considered under-estimates Cost of cyber infrastructure, such $11,000m + $13,840m For the years 2010-2012; high degrees as antivirus costs, etc. + $24,840m of uncertainty Cost of traditional crimes $5,200m + $145,000m For the years 2010-2011; some becoming ‘cyber’, such as tax = $150,200m uncertainty fraud Source: Anderson et al. (2012) ‘Measuring the Costs of Cybercrime’; Notes: figures in boldface based upon available data, figures in non-boldface extrapolated from UK data based upon size of GDP; costs may include data on criminal revenues, direct losses, indirect losses and defence costs. These figures, as the notes accompanying the original table make clear, under-estimate the real costs to society. What can be said with certainty is that the risks and the costs will increase over time as societies become more connected, and it will pay society to devote more resources to reducing the risks, which include public sector assets, private sector assets and personal assets, from crime on an industrial and global scale. Since these criminal activities are carried over networks operated for the most part by telecom companies, there needs to be careful surveillance of suspicious traffic. But the reality is today that a lot of this activity is conducted from proxy servers and the origins of the criminals is unknown and could be from any country. The implication seems to be that detection is more likely of the crime than of the criminal, and although highly professional cyber detectives with access to cyber forensic laboratories can make progress these skills and facilities are not widely available in developing economies. This in turn implies that the focus of policy makers and regulators at the national level is best directed at limiting the damage through early detection, fast and efficient information sharing, and a focus on alerts and awareness. It is usually beyond the scope of regulators to track and trace the crimes to their origins, but regulators can play a vitally important role in creating the ecosystem of cyber-security. 101 Anderson et al. (2012) ‘Measuring the Costs of Cybercrime’ p.25 http://weis2012.econinfosec.org/papers/Anderson_WEIS2012.pdf 80 Law Enforcement and the Proportionality Principle When it comes to applying the law, regulators need to be cautious about the boundary between detection and law enforcement. The laws under which regulators work need to specify very clearly the limits of their responsibilities, such as the circumstances under which they can seek a search warrant for activities which are illegal under the telecoms laws. The enforcement of cyber laws is more likely to be the task of the police or customs and excise officials, and regulators need to avoid becoming embroiled in civil liberty issues. A good guideline for any regulator or law enforcement agency is proportionality, a judgement regarding the seriousness of the infringement, whether, for example, it is a major crime with wide social implications or a minor infraction with little social impact. Because cyberspace is a relatively new area of governance, and because it crosses jurisdictions, countries have often been struggling to make laws that are appropriate. And it must be said that often the law making process is not as well informed as it should be. It is therefore important for law makers, policy makers and regulators to bear in mind some simple principles.  In general, what is legal offline should be legal online, and what is a civil offence as opposed to a criminal offense offline should be treated similarly online.  Extra-jurisdictional applications of national laws need to be very carefully vetted. Often what is legal in one country may not be legal in another. For example, an Internet posting may be considered fair comment and free speech in one jurisdiction but regarded as illegal in another, and yet the posting is available globally. Proportionality would suggest that criminalizing behaviour may not be either good justice or a good use of legal resources.  Codes of practice – Intellectual property rights are becoming the subject of numerous bilateral and multilateral trade negotiations. The length and enforceability of copyright, for example, is often a controversial topic. With Internet hosting companies there is a question of who is liable for a posting that breaches copyright. The US Millennium Digital Copyright Act of 1998 provides one set of useful guidelines. It gives latitude to web hosts who abide by take-down notices in cases where someone unbeknownst to them has posted something that breaches copyright. The system is not perfect because identifying a particular posting on a site the size of Google or Yahoo! or Amazon or Twitter is not so easy, especially where it has gone viral, where others have shared it or added their own comments to it. Laws should be seen to be workable and proportionate and regulators should not be burdened with controversial applications of laws that are not well drafted. The regulator’s job is better to ensure the greatest level of transparency on the part of 81 companies that operate under a licence, and to promote a sensible, that is to say manageable, code of practice which offers incentives, such as immunity from prosecution, for doing the right thing alongside obligations to avoid doing the wrong thing. 3.8.3 Cyber-Strategies At the heart of cyber-security lies the issue of detection, that is detection of the event itself as well, ideally, detection of the offender. That can only come from sharing information, but there exists an asymmetry between private gains and social losses. As Tyler Moore has pointed out, by integrating part or all of their operations with the Internet in order to cut costs companies may substantially increase the risk of cyber-attacks but at the same time they may not choose to devote sufficient resources to the resulting insecurity. 102 For policy makers and regulators the recommendations are to be prepared to mandate the sharing of critical cyber information but look for ways to incentivize organizations so it is in their own interests to share. To take an example from the financial services sector, in markets where EMV ‘chip and pin’ credit cards are available, banks and bank customers are offered insurance against card fraud when banks issue and customers use the EMV standard, but that cover is no longer available for traditional magnetic strip cards. Persuading organizations to come clean about cyber-attacks on their systems can be more difficult, but if by sharing information they also gain information and witness risk reduction the incentive is created. There are numerous other ways in which ministries and regulators can encourage organizations to cooperate, including inviting them to be part of the CERT expert groups. A checklist might include the following:  Information sharing – many parties to cyber-attack do not wish to publicize the fact which makes detection and identification of vulnerabilities more difficult. There may be a case for mandatory reporting, even if this involves confidentiality issues. A telecoms regulator, for example, should be informed immediately of such breaches in security and be appraised of remedial measures to safeguard the facility.  Awareness sharing – many private companies, including vendors, have professional expertise in how to manage network security and also how to manage the managers. The weakest link may not be a piece of software coding, it may be the staff who open a malicious email or visit an entrapment website. Regulators may wish to set 102 “For instance, companies operating critical infrastructures have integrated control systems with the Internet to reduce near-term, measurable costs while raising the risk of catastrophic failure, whose loses will be primarily borne by society.” Tyler Moore (2010) ‘Introducing the Principle of Cybersecurity; Principles and Policy Options’ Harvard University: Proceedings of a Workshop on Deterring CyberAttacks http://cs.brown.edu/courses/csci1800/sources/lec27/Moore.pdf 82 up their own unit to encourage education campaigns, and create expert groups to advise on new threats and new responses.  Strategic Coordination – to be successful in anticipating and reducing the risk of cyber-attacks and cybercrimes national security agencies need to work closely on a multi-agency level with each other and with regulators from telecoms, from banking, and even from education ministries, etc., on permanent advisory and working group levels and with expert advice from the private sector.  Law enforcement – regulators have their own areas of law enforcement under legislation. In many cases they can initiate a legal process, but in the case of cyber- crime the role of the regulator is more likely to coordinate with law enforcement agencies. The best approach of a telecoms regulator is to broker information sharing between licenced companies and cyber security experts. 3.8.4 Securing E-Commerce and a Public Key Infrastructure (PKI) E-commerce is a vital part of the digital economy, not least for cross-border trade. To make it work, confidence is required that the person or company at the other end of the transaction is genuine, that the delivery of payment and of goods will take place in the way and time agreed, that the transaction cannot be repudiated once the contract is signed, and that the laws of the land will protect and safeguard rightful transactions. Public Key Infrastructure To meet this challenge the ITU-T (previously the CCITT) adopted the X.509 protocol proposed by the IEFT (Internet Engineering Task Force). X.509 is an authentication protocol consistent with IP/TCP and complements X.500, an earlier pre-Internet protocol of the ITU-T and the ISO (International Standards Organization) designed to allow access to directories of “distinguished names” meaning access to unique identifiers. The cryptology behind these standards is for an asymmetric exchange of keys (private and public keys) and symmetric opening of documents (the same document received as sent). The private key is used to lock a document and the public key, which is uniquely linked to the user’s private key, is used to unlock the document. In the public version both keys are issued by a trusted third party Certification Authority (CA) which provides certificates of authenticity of the link, of the signature and of the integrity of the document to show it has not been altered or tampered with in any way. The CA itself refers to a Registration Authority (RA) to validate the identity of the user and to a Validation Authority (VA) to validate the digital signature which is applied to the document by a hash key function. Private keys can be issued to individuals or to corporate bodies or linked to an email address. A root certificate is issued to govern all subsequent certificates issued on behalf of a given user. The certificates will include a unique serial number and other information, for example the range of dates during which the certificate is valid or a ceiling value for a transaction. 83 The recipient of an encrypted document gets the sender’s public key from the CA, and needs to check the certificate and also check a registry of revoked certificates. A list of the root certificates are stored on a user’s computer for easy search using Online Certificate Status Protocol or OCSP by which the browser dynamically checks the CA’s CRL (certificate revocation list) and updates the computer. Private PKI The most widely used private versions of PKI are “light” versions that have been developed by Internet companies, some of them based upon peering arrangements by-passing an independent CA. Netscape in the 1990s developed SSL (secure socket layer) protocol indicated by “https” whereby servers and clients exchange certificates for mutual authentication.103 Most modern browsers embed copies of root certificates from CAs in their software and are members of the CA Browser Forum (CABForum) along with the independent commercial CAs themselves. Applications of PKI There are many industrial applications that use variants of the PKI system, for example, M2M meter-reading systems to ensure authenticity of the reading and of the client. However as the technologies advance, security concerns advance with them and the behind-the-scenes fixes become more complex.104 Bogus companies managing to fool RAs and CAs into issuing of certificates is one such problem and it is the responsibility and liability of the user to browse certificates for reputable and genuine trading partners. Consumer Security At the consumer level, various security devices are available from banks, credit card companies and third party payment platforms to give confidence to making purchases online. None of them are perfect, especially over time as the technology advances which, when in the wrong hands can be used to decrypt encrypted documents, intercept text messages, hack into computers to steal passwords, etc. Despite efforts in some countries to promote PKI among the general public, for example the iGov Philippines project,105 consumers in general have shown little interest as the alternatives have fewer overheads for the scale and frequency of the transactions they usually undertake. A terminological issue is here worthy of note: e-government is an important way to serve the citizens of a country and as citizens people have to pay their taxes and claim their benefits, make appointments and applications, request personal health information, and generally have access to important public information. Citizens as consumers are engaged in 103 Other PKI standards are listed at http://en.wikipedia.org/wiki/X.509#PKI_standards_for_X.509 104 A useful review of complexity can be found at: http://resources.infosecinstitute.com/understanding-pki/ 105 http://i.gov.ph/services/?id=pki 84 strictly private activities and online businesses have developed their own security protocols which may or may not be compatible with PKI. Most governments also tend to follow these more consumer-friendly Internet compatible protocols but often add their own layer of security by requiring citizens to pre-register their identities. PKI Complexity and Mutually Recognized Electronic Identification Because public authorities have a responsibility to be transparent and protect taxpayers money they have been the ones to adopt a public key infrastructure. Private corporations often use other means to secure contracts and payments between themselves, but when they deal with public authorities they are often required to use PKI where large contracts are involved. The aims of a PKI system are to ensure at minimum:  Electronic identification (ID)  Authenticity of the ID link  Authenticity of the electronic signature  Integrity of the document  Certification of validation of the above  Legal acceptance of certificates for non-repudiation To achieve these aims across borders is particularly challenging. For example, private companies and citizens of the EU stand to benefit if cross-border transactions can use the same standards PKI system. This is noted in the preamble to the Regulation of the European Parliament and Council on electronic ID. For example, giving the opportunity for a student to enroll electronically in a university abroad, to a citizen to submit tax declaration online to another Member State or to a patient to access his or her health data online. If there is no such mutually recognized electronic identification means, a doctor will not be able to access the patient medical data needed to treat him or her and the medical and laboratory tests that the patient has already undertaken will have to be repeated.106 Establishing a strong legal environment through a digital signatures act or e-commerce legislation is therefore of vital important for commercial confidence, especially for foreign trade. One of the biggest challenges is establishing in which jurisdiction authority resides and which sets of laws and arbitration principles will apply in cases of disputes. Other major challenges are to harmonize standards, which is especially difficult when new standards are being adopted at regular intervals, and making sure new standards are backwards 106 http://ec.europa.eu/information_society/policy/esignature/docs/regulation/com_2012_2038_en.pdf p.4 85 compatible with older standards is a further challenge.107 PKI is therefore always going to be work-in-progress. 107 See for example issues with different revisions of X.509 http://www.ietf.org/rfc/rfc5280.txt 86 Module Three: Law and Regulation for a Broadband World 3.9 Privacy and Data Protection in an Interconnected Environment The right to privacy has been a long established principle in many countries, enshrined in laws and often in the Constitution of a country. For example, of many in Latin America,108 as habeas data or the right of a citizen to own their own data. The challenges arise from four major sources. First, in the case of habeas data, the right can only be exercised after the event when the information has already been made public. Second, the capacity of the legal system to uphold the rights of the individual and enforce the law is not always adequate. Third, the laws are often specific to particular sectors, such as telecommunications, the media, health services, legal services, government agencies and they do not lay down what lawyers call the general ‘principles of purpose’ that can be applied across the board. In the absence of such a generic law, regulations governing consumer protection provide some safeguards. Fourth, laws and regulations enacted before the Internet era need revision and updating. The question is how to apply personal data privacy principles to an interconnected digital world of the Internet. This is especially challenging when information can be gleaned from a whole range of digital sources such as social media, email servers, websites, blogs, online purchases, online inquiries, etc., by persons and companies who are often located outside the jurisdiction in which the citizen resides; when feeds to sites such as Facebook, Twitter and YouTube can go viral within minutes; when ‘Big Data’ and business analytics can be used to match and correlate people, ideas, actions, postings, etc., in both text form and in image. This means that laws prohibiting the identification of individuals may no longer work. New laws, regulations and codes of practice must aim to balance the interests of individuals who have a right to privacy with the social benefits of a growing digital economy. In an interconnected world anything online can be located anywhere on the planet, and with the rise of cloud computing and PaaS (Platform as a Service), SaaS (Software as a Service) and IaaS (Infrastructure as a Service) anything online can, in principle, be transferred between countries. This is not a by-product of the rise of a digital economy, it is the digital economy. 3.9.1 Date Protection and the Principles of Purpose A key principle of habeas data is the right to own or know and control what information is being gathered and stored about you and by whom and for what purpose. This right carries 108 Argentina, Brazil, Columbia, Ecuador, Honduras, Panama, Paraguay and Peru all have habeas data as a constitutional right. See International Law News, (Fall, 2012) v.41.4 http://www.americanbar.org/publications/international_law_news/2012/fall/data_protection_law_spain_lati n_america_survey_legal_approaches.html 87 the implication of the right to demand corrections or possibly even to delete the information, which is also known as the ‘right to be forgotten’. Personal information usu ally refers to information that can be used directly or indirectly to identify a ‘natural’ living person, although in a digital age there is very little that cannot be used to traced back to a living person. There is a further issue of who has the right of ownership, if anyone, over information of a deceased person. This means that the drafting of new laws or regulations or codes of practice needs to be flexible to changes in technologies and proportionate to the level of harm that can accrue from inaccurate information or lack of privacy. By 2013, over 90 countries had some sort of Freedom of Information legislation,109 the earliest dating back to 1766 in Sweden, but mostly these laws only apply to information held by the State, not the private sector. In that regard they do not fully enable the Universal Declaration of Human Rights adopted by the UN General Assembly in 1948 which states: No one shall be subjected to arbitrary interference with his privacy, family, home or correspondence, nor to attacks upon his honour and reputation. Everyone has the right to the protection of the law against such interference or attacks. More recently many countries have introduced personal data privacy legalisation which extends to the private sector. These laws go beyond existing laws on consumer protection that provide the right of customers to fair contract conditions rather than unreasonable tie- in contracts, return of impaired goods, protection against price gouging, the right to itemized billing, and so forth. Consumer protection of this sort has been particularly prevalent in the telecommunications sector. Under new data protection laws, the data ‘controller’ of the information (the agent of the company collecting the information) as opposed to the data ‘processor’ (the sub-contractor who may store, transfer or manage the data) is required to seek the ‘informed consent’ of the individual, either through an opt -in or an opt-out procedure, and a statement on how the data may be used is necessary, with the understanding that it cannot be retained once the original purpose for its collection has been fulfilled. Web-based enterprises are required to state their policy towards ‘cookies’ and offer the user a way to agree to accept them or to disable them. Balanced against these requirements to protect the individual are certain public safety requirements. For example, Internet access service providers such as Google and Yahoo! and social media companies may be required to retain email traffic and postings for up to two years or more to provide a trail of traceable evidence. Especially after the 9/11 attack on the World Trade Center in New York, law enforcement agencies have been much more concerned to have access to digital communications, but this will only be acceptable to the public if there are strong safeguards in place. This means the public must have faith in the quality and integrity of the legal process in their country. It also means that the 109 For a list, see http://home.broadpark.no/~wkeim/foi-list.htm 88 enforcement of such policies has to cross jurisdictional boundaries and that raises questions of which laws are enforceable on, for example, a company that has multiple global locations. The most common legal wrangles tend to be over tax liabilities, but take-down notices, defamation suits, compliance orders and other legal tussles add up to the need for international cooperation even when the laws of different countries are not in harmony with each other. This becomes especially important in cases of national security and serious crimes such as child abuse and trafficking. Data Protection Laws By 2013, some 89 countries had adopted privacy or data protection laws. The European Data Protection Directive of 1995 was the first pan-European policy document in which the concepts of personal data protection in a digital world were embodied in legislation. It was followed by the e-Privacy Directive of 2005, revised 2009, which deals with digital communications and issues such as the integrity of data traffic, giving users ways to reject spam and to control cookies. Under the 1995 Directive companies may not move personal data, for example store data, to jurisdictions that do not have legislation that conforms to the standards set by Europe. This becomes important with the rise of cloud computing which technically allows data of any kind to be stored, processed and retrieved from any Internet location in the world. A revised EU draft European Data Protection Regulation was proposed in 2012 which will extend applicability of the Directive to non-EU entities outside the EU when the data involved concerns EU citizens, will impose an ‘opt-in’ rather than an ‘opt-out’ requirement to ensure personal rights to data are fully protected, will allow for a ‘right of portability’ and a ‘right to be forgotten’ which will allow citizens to wipe out the history of their data, and strict conditions on notification of breaches in data protection and penalties for non- compliance. A further enhancement of citizen rights are anti-spam regulations, typically a Do-Not-Call (DNC) register which can also cover Do-Not-Send (DNS) in the case of phone text messaging, and a proposal in the US for a Do-Not-Track (DNT) web function as part of a wider package of consumer rights as proposed in the Consumer Privacy Bill of Rights brought before Congress in 2012.110 The US approach to data protection is generally less proscriptive. The Federal Trade Commission (FTC) has overall responsibility of supervising the enforcement of federal requirements on different sectors of the economy, such as the way information is collected and used about customers by telecom companies, confidentiality of health records, inland 110 According to a Consumer Insights survey by Ovum “an average of 66% of the Internet population across 11 countries would select a “do not track” (DNT) feature if it was easily available…” ‘Little Data: big data’s new battleground’ http://ovum.com/2013/01/29/little-data-big-datas-new-battleground/ 89 revenue data, etc., and to generally apply consumer protection regulations. But there is no prevention on the international transfer of data except tax records. The threat of disrupting cross-border trade from a mismatch between the EU rules-based approach the more voluntary approach to the private sector in the US was averted in 2000 when the EU approved the US seven ‘Safe Harbor Principles’111 which allow for company self-certification:  Notice - Individuals must be informed that their data is being collected and about how it will be used.  Choice - Individuals must have the ability to opt out of the collection and forward transfer of the data to third parties.  Onward Transfer - Transfers of data to third parties may only occur to other organizations that follow adequate data protection principles.  Security - Reasonable efforts must be made to prevent loss of collected information.  Data Integrity - Data must be relevant and reliable for the purpose it was collected for.  Access - Individuals must be able to access information held about them, and correct or delete it if it is inaccurate.  Enforcement - There must be effective means of enforcing these rules. However the emphasis in the US shifted significantly following the 9/11 terrorist attack towards greater state security and the need to assess and share information and the passing of the Patriot Act in 2001. This, together with some doubts about how effective self- certification really is, has kept the harmonization of approaches an open issue. 3.9.2 Cross-border data and cloud computing One of the earliest set of policy recommendations on cross-border transfers of data arising from the computerization of business transactions was the OECD 1980 Guidelines on the Protection of Privacy and Transborder Flows of Personal Information. 112 More recently, the rise of cloud computing has made it imperative that countries introduce updated personal data protection legislation that conforms to minimum safeguards, for example, to those enshrined in the EU Directive. For cloud computing to become a truly global means of data storage, retrieval, file sharing and data transfers under secure conditions there needs to be universally acceptable standards that at minimum allow for interoperability, otherwise the ‘clouds’ will remain constrained by economic and political boundaries. As a report from Cisco in 2009 pointed out “Special consideration must be given to using cloud comput ing to 111 The Federal Trade Commission (FTC) is responsible for monitoring certificates under the SHPs 112 http://www.oecd.org/internet/ieconomy/oecdguidelinesontheprotectionofprivacyandtransborderflowsofpers onaldata.htm 90 handle information that is vital to national security, to maintaining public trust and confidence in government, or to managing certain core government functions such as foreign relations, maintenance of property rights, law and order, and defense.” 113 There are two approaches to holding companies responsible for safeguarding confidentiality in cross-border data traffic. The EU approach is geographical, so data is allowed into countries that are deemed to meet the minimum standards set by the EU Directive. In reality, this has not stopped data crossing borders into some major economies such as China and Japan, despite the EU not having determined the adequacy of safeguards in either country. The alternative approach adopted by APEC and by Canada among others is based upon accountability. For example, Singapore’s Personal Data Protection Act of 2012 places accountability on the shoulders of the ‘data controller’ which is the company that authorizes the collection of the data even when the actual collection or handling of the data and the storage and retrieval of the data is undertaken by a subcontracted ‘data processor’. This can be seen as a more flexible approach that skirts around the country-profiling required by the EU and keeps the responsibility on the data controller wherever the data is transferred to and whoever handles it.114 The ultimate market test will be whether international companies and their clients are willing to trust locating data in countries with the accountability approach. Latin America The need to update and add flexibility to data protection laws is driving the shift in most Latin American countries from a habeas data approach to a legislative approach, mostly based upon the EU Directive but largely without the EU rules on data retention which suggests less of a priority given to cyber-security issues.115 Several factors may account for this, for example, a public wariness towards state surveillance, a lack of public awareness, a lack of cyber-crime experience by law enforcement agencies, and a slower pace of development of private cloud computing as much of the take-up has been e-government. But as the digital economy of Latin America grows with the spread of broadband access and traffic the need for more explicit data protection regulations and codes of practice will emerge. As of 2012, the only countries in Latin America not to have some form of over- riding personal data protection legislation were Bolivia, Cuba, Dominican Republic, El Salvador, Guatemala, Nicaragua and Venezuela. Progress towards such protection has being 113 Russell Craig et al. (2009) Cloud Computing in the Public Sector: Public Manager’s Guide to Evaluating and Adopting Cloud Computing http://www.cisco.com/web/about/ac79/docs/wp/ps/Cloud_Computing_112309_FINAL.pdf 114 See ITU Trends in Telecommunications Reform, 2013 chapter 7. 115 As of 2012 only Argentina’s approach has been recognized by the EU as meeting the minimum standards of the EU Directive, see Cloud Times, ‘Data Protection of Privacy Issues in Latin America’ 21 November 2012 http://cloudtimes.org/2012/11/21/data-protection-privacy-issues-latin-america/ 91 going on for more than a decade promoted by the Ibero-American Network of Data Protection (RIPD), created in 2003, and now has over 20 member states.116 Asia Pacific In countries of the Asia Pacific region the situation varies.117 APEC’s Cross Border Privacy Enforcement Arrangement 118 adopts the accountability approach rather than the geographical approach which perhaps reflects the emerging status of many of the economies involved and the need for a flexible regime of data protection to benefit from the rapid growth of cloud computing and data centre managed storage, retrieval, processing, security and transit business throughout the region.119 In Asia Pacific countries, such as Australia and New Zealand, Hong Kong and Singapore, and the Philippines clear cut data protection laws are in place. In Japan the Act on the Protection of Personal Information (APPI) provides a degree of protection covering data on employees, while ministries such as health, education and labour have issued non-legally binding sets of guidelines based upon APPI. The central administrative authority is the Consumer Affairs Agency. South Korea enacted the Personal Information Protection Act (PIPA) in 2011 under the authority of the Minister of Public Administration and Security (MOPAS) but also has legislation governing particular sectors, such as financial sector and the IT Network Act administered by the Korea Communications Commission (KCC). Taiwan revised the Computer Processed Personal Data Protection Law (CPPL) to become the Personal Data Protection Law (PDLP) effective from 2012, but no separate national data privacy authority has yet been established. Indonesia brought together different references to data protection and privacy under a Government Regulation No. 82 of 2012 regarding Provision of Electronic System and Transaction, and also has sector legislation, for example governing telecoms. Beyond these cases, other countries of the region have yet to pass general personal data privacy laws or to set up privacy commissions, relying upon legacy legislation governing telecoms, finance, health and other sectors. But the Ministry of Industry and Information Technologies (MIIT) in China in 2013 for the first time issued a public consultation of a non-binding code of practice. Africa and the Middle East Throughout Africa and the Middle East there is no country that has an all-embracing data protection policy. In most cases in Africa privacy is a constitutional right and in Malawi, Namibia, Tanzania and Zambia this includes the right to privacy of communications, but only 116 RIPD http://inicio.ifai.org.mx/English/6%20Background%20of%20the%20RIPD_English.pdf 117 DLA Piper Data Protection Laws of the World, March 2013 http://www.dlapiper.com/files/Uploads/Documents/Data_Protection_Laws_of_the_World_2013.pdf 118 http://www.apec.org/Groups/Committee-on-Trade-and-Investment/Electronic-Commerce-Steering- Group/Cross-border-Privacy-Enforcement-Arrangement.aspx 119 http://www.apec.org/Groups/Committee-on-Trade-and- Investment/~/media/Files/Groups/ECSG/05_ecsg_privacyframewk.ashx 92 Angola, Mauritius and Zimbabwe have enacted a separate data protection act and South Africa has one pending. In some cases, such as Mauritius, Namibia, South Africa and Zambia, privacy rights are included in their e-commerce legislation. Most countries in Africa do have a freedom of information act but none has an independent commission to oversee the privacy rights of individuals. In most cases there are regulations governing particular sectors, such as spamming provisions. An important aim of policy makers in Africa should be towards the harmonization of laws on data and personal privacy as a way of attracting investment in data centres and in cloud computing services by making it easier and safer to move data across borders. This was one of the objectives of the ITU’s programme ‘Harmonization of the ICT Policies in Sub-Sahara Africa’ 120 In the Middle East the situation is similar with few instances of separate personal data privacy laws. Two exceptions are laws governing the Dubai International Financial Centre and the Qatar Financial Centre which are modelled on the EU Directive. Qatar and Oman also have e-commerce laws including provisions for digital signatures based upon the UN’s UNCITRAL Model Law on Electronic Signatures.121 Historically, separate laws and regulations governing telecoms include provisions for the protection of customer data and prohibitions on the illegal interception of communications. Examples in the Middle East include Saudi Arabia, where the Telecommunications Act also covers Internet services, and Oman and the UAE where the telecom regulators have issued data privacy policy requirements including restrictions on unsolicited messaging. The electronic commerce law in Qatar does the same. But none of these countries have independent privacy commissions. Beyond the Gulf states, few other Middle Eastern countries have data protection laws. The privacy law in Lebanon, for example, covers individual persons but not the content of communications.122 It has been pointed out that the concept of privacy in Middle-Eastern countries is often more a cultural than a legal concept, referring to the privacy of women and the household rather than to individuals and information, and often the policy emphasis is more upon blocking access to information, especially information over the Internet, rather than on protecting personal data privacy. It is difficult to see how such policies can be consistent with the growth of a digital economy and transformative technologies such as cloud computing. 3.9.3 Awareness and Alertness As with cyber-security, so with personal data protection, in an interconnected world there are no guarantees of privacy. To reduce the risks of unauthorized leaks of personal data, or more seriously of identity theft, the number one and two issues are awareness and alertness. The former relies upon frequently available updated information about the 120 http://www.itu.int/ITU-D/projects/ITU_EC_ACP/hipssa/ 121 See UN Commission on International Trade Law http://www.uncitral.org/pdf/english/texts/electcom/ml- elecsig-e.pdf 122 http://isper.escwa.un.org/Portals/0/National%20Profiles/2011/English/Lebanon-11-E.pdf 93 dangers and risks involved and of the need for adequate protection, from laws and regulations (the ‘rights’) and from the practices used by data controllers (the potential for ‘wrongs’). A good example comes from the frequent changes in the privacy rules of social media sites and user reactions to them, which is often to switch to other social media. Where there is a real choice in the market, customers have real market power. Therefore, one of the aims of an information campaign should be to give meaning to the term ‘informed consent.’ Alertness calls for self-aware and sensible behaviour by users. Often this comes with experience as for example when a regular user of email has a sixth sense that an incoming email is malicious and should not be opened or replied to and a web-link should not be clicked on. On the other hand, fraud, sexual grooming, the release of passwords, all happen all too often on the Internet because users are not careful or not controlled enough. So both helpful information and education about sensible behaviour and etiquette on the Internet are topics that policy makers and regulators can be pro-active about, especially if they work closely with industry. Activities can include running safety and cyber-security workshops, seminars and competitions, school and college visits, webinars and websites, and recruitment of young volunteers to participate in peer-to-peer knowledge-sharing. Making ‘Safer Internet Day’ (SID) a big occasion will help. Regulators should also take steps to update themselves and keep abreast of fast-moving software developments, such as Privacy-Enhancing Technologies (PETs). As well as advising users about these advances, regulators can review the adoption of security measures by data centres and cloud computing service providers. In some industries, such as telecoms and finance, reporting on their use could be part of a code of practice. 3.9.4 International Enforcement and Policy Cooperation International cooperation and enforcement of privacy and data infringements can take place through various mechanisms, including bilateral and multilateral efforts, through more structured international organizations such as Interpol and through a mutual legal assistance treaty (MLAT) between countries for the purposes of exchanging data and information on legal and security issues.123 See the reference to MLAT above. Given the many different approaches and laws reviewed above, it has been suggested that using the EU Directive as a general guideline is a good way to ease data transfer issues, but even though this may bring recognition that cross-border data transfers are acceptable it will not solve all the problems. Law enforcement will still be necessary, especially when serious crime is involved. 123 For a list of MLATs see http://www.legislation.gov.hk/table3ti.htm 94 There are several global and regional privacy and data protection organizations in addition to law enforcement cooperation agencies such as Interpol. The Global Privacy Enforcement Network 124 was started in 2010 following the adoption in 2007 by the OECD Council of the Recommendation on Cross-border Cooperation in the Enforcement of Laws Protecting Privacy125 which provided that “[m]ember countries should foster the establishment of an informal network of Privacy Enforcement Authorities and other appropriate stakeholders to discuss the practical aspects of privacy law enforcement co-operation, share best practices in addressing cross-border challenges, work to develop shared enforcement priorities, and support joint enforcement initiatives and awareness raisin g campaigns.” By 2013, GPEN had 27 participating authorities, but none in Africa or the Middle East or Latin America, and only Australia, New Zealand and South Korea in the Asia Pacific. As with so many inter-government organizations, GPEN has a website that is restricted entry which rather misses the point that open access is the way to encourage participation in an interconnected world. However, countries who are members of the Asia Pacific Privacy Authorities (APPA) receive regular updates in GPEN activities,126 and invitations to the annual International Conference of Data Protection and Privacy Commissioners. Even where privacy commissioners and national agencies for data protection have not yet been established, policy makers and regulators should consider establishing liaison points to support national initiatives in this direction and regular attendance at these security forums. In other words, policy makers and regulators should themselves practice awareness and alertness to become more effective as catalysts in society and industry for greater personal and public safety. 124 https://www.privacyenforcement.net/public/activities 125 http://www.oecd.org/internet/ieconomy/38770483.pdf 126 http://www.appaforum.org/resources/communiques/38thforum.html 95 Module Three: Law and Regulation for a Broadband World 3.10 Content over Broadband The delivery of content, mostly as video, over broadband is one of the key drivers of demand for broadband over fixed lines and by wireless. The days of FMS (fixed-mobile- substitution) are already history as content can now be delivered to multiple devices, from Internet high definition ‘connected TVs’ to handheld mobile devices of all kinds. This is both a challenge and an opportunity for telecom companies who mostly own the networks. By caching content at vantage points within their networks they can become wholesale content distribution networks (CDNs) offering content service providers a guaranteed quality of service that may not be available over the Internet. Their billing relationship with customers and their knowledge of the local market are competitive advantages to them. They can also deliver their own content and applications, but content creation and applications innovation is not the traditional core competency of telecom companies. Regulators on the other hand face more of a challenge than an opportunity, apart from an opportunity to get it right. It is to be expected that telecom companies baulk at the idea of content service providers, independent CDNs or Internet access providers by-passing their networks by going Over-The-Top (OTT). The only gain for the telecom company is that this drives the demand for broadband and for higher speeds, for which they can charge customers a fee. But against that they fear to lose revenues, especially from traditional voice and SMS services for which OTT provide substitutes. How should regulators react to the lobbying of telecom companies wanting to preserve their traditional core business? The net neutrality debate in part already addresses this question, with the consensus of non- carrier content providers being predictably against the right of telecom companies to block or throttle or degrade content services which are not their own. This is also likely the position favoured by most consumers. The Challenge for Regulators The challenge for policy makers and regulators is really twofold. How to ensure that there will be sufficient investment in networks to maintain a steady level of innovation and upgrade in broadband for society, and what laws and regulations to apply. The first challenge is best addressed through opening the market to new entrants who are willing to invest in networks. The fear that network owners will not be able to earn a sufficient rate of return on their investment is really a fear that they will not be sufficiently adept and flexible in the market to find new business models that work. Protection of incumbents is the guaranteed way to make this fear real as rent seeking replaces competition. 96 The second challenge is actually the greater one. Pre-dating the Internet was cable TV as an alternative to free-to-air (FTA) and Pay-TV broadcasting. The problem for regulators was that cable was a wired-based medium and not a radio-based medium like broadcasting, so it was close to being a carrier, and indeed could be adapted to carry telephony and when upgraded to digital to providing Internet access. It also became a competitor to IPTV provided by carriers. In different jurisdictions it was handled in different ways. In the US, where cable, like the Internet, really started, the Communications Act of 1934 applied to carriers and broadcasters under different parts of the law leaning heavily on the fixed line and radio distinction, so the powers of the regulator over cable became a question of legal interpretation for the courts. The courts decided that the law gave the regulator “ancillary” powers to protect broadcasting and so cable regulations were mostly derived from the impact cable would have on broadcasting, for example, threatening its advertising revenues. In one case the court went further and upheld the FCC’s requirement that cable operators should contribute to local content production through “mandatory origination” to achieve public service goals not being adequately fulfilled by the broadcasters. A change of stance by the FCC in 1976 repealed this requirement and replaced it by a new “access” requirement whereby cable operators had to provide equal access to public, educational and government services and to lease capacity to unaffiliated third parties. After some legal wrangling, these conditions were embodied in the 1984 Cable Act.127 Box 3.11 Star TV in Hong Kong, SAR (China) As in the USA, protection of FTA broadcasters was the initial reaction of the regulator in Hong Kong to as independent new entrant to broadcasting. In 1988 a company was formed to launch Star TV, a regional satellite TV broadcasting service out of Hong Kong. Viewers could receive the signals through a C-band dish attached to a cable distribution system. Before a broadcasting licence could be issued Star TV was challenged by the Broadcasting Authority (BA) to prove that it would not compete directly with local free-to-air broadcasters ATV and TVB and would not diminish their share of the market and their advertising revenues. Star TV had to reassure the BA that its target market was regional, not Hong Kong, and it would not be broadcasting in Cantonese, the local majority Chinese language of Hong Kong. On this basis Star TV was allowed to start regional operations in 1991. The same line of reasoning was used in Hong Kong in the early 1990s as in the US with the regulation of cable TV. Government had licensed FTA broadcasters to provide programmes 127 Michael Botein (2013) ‘FCC Jurisdiction Over Internet and Broadband’ New York Law School Legal Studies, Research Paper Series 12/13 #66 http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2241621 97 for a mass public TV audience and regulations were designed to protect them. But technologies rapidly outdated this regulatory stance. First came a licence for Wharf Cable TV which, being a subscription service, was seen as less of a direct competitor to FTA. Then the incumbent carrier, Hong Kong Telecom (HKT) was permitted to launch a Video-on-Demand service again as a subscription service. This faltered, but was successfully resurrected in the 2000s as NOW TV, an IPTV service using DSL broadband. At the same time a new entrant Hong Kong Broadband was licensed to launch a web-based TV service. The 2000s then witnessed the rapid development of video content over broadband wireless access (BWA) using 3G and more recently 4G and WiFI to smartphones and tablets. The latest twist to the story is that with the shift to digital TV the FTA market is now being opened up, although not before an unsuccessful legal challenge by the larger of the two FTA broadcasters. The telecom and broadcasting regulators have been merged into the Office of the Communications Authority (OFCA) and the cross-overs between OTA and over cable, over broadband, over BWA and over the Web to multiple receiving devices have transformed the market out of all recognition. In just two decades the challenge of regulating content over broadband makes the policies and regulations of the early 1990s seem like another era altogether. As a consequence the Broadcasting Ordinance has been revised, with the distinctions between technology means of delivery fading into the background, the key distinctions now being whether the broadcast is free or subscription, and whether designed for a domestic or a non-domestic audience as these are the criteria that most closely reflect the impact of TV on Hong Kong society. Where the broadcast or the distribution originates in Hong Kong these services require a licence and the Ordinance tries to protect licensed services by outlawing a class of decoders designed to break the encryption of signals, but this is another area in which technologies make the law difficult to apply in a comprehensive manner. And with more OTT content becoming available, even decoders tend to become part of history. Other forms of regulatory oversight include ownership restrictions on disqualified persons or parties, cross-ownership restrictions to maintain competition and diversity of programming and opinion, separations accounting between affiliated companies, and codes of practice to restrict undesirable content or content at inappropriate times of broadcast. Licencees are prohibited from broadcasting content that is likely to “(a) incite hatred again st any group of persons, being a group defined by reference to colour, race, sex, religion, nationality or ethnic or national origins; (b) result in a general breakdown in law and order; or (c) gravely damage public health or morals.” (1) The Ordinance provides for an appeals process and the courts of law rather than the regulator to be the ultimate arbiter. 1. http://www.wipo.int/wipolex/en/details.jsp?id=6337 98 Broadband and the Internet now pose similar challenges to those thrown up by cable TV for the FCC. In the US the Internet had been treated by the FCC not as a carrier service but as an information service. However, in April 2010, in the case of Comcast Corp. v. FCC, the United States Court of Appeals for the District of Columbia decided that the FCC does not have ancillary jurisdiction over Comcast's Internet service under the language of the Communications Act of 1934, as amended. (See Module 3.7.1). The FCC has also traditionally defined other substitutes for carrier services, such as VoIP, as “enhanced” services and therefore not subject to the same regulations as “basic” services. But these definitions are really driven by their implications. A decision to encourage innovation and allow a new service to flourish is served when the service is treated as unregulated or regulated very lightly. The problem with defining according to traditional “basic” and “enhanced” or “value-added” is that all telecom services are “value-added” including voice, because without the transmission mechanism there would be no communication. And if it were not adding value then no one would pay for it. The shift in regulatory perspective in recent years has been away from these technologically-differentiated definitions, which really have no objective basis to them, and towards technology-neutral and economic regulation. As with cable TV, Internet-based services cut across the technological separations of carriers and broadcasters, including the fixed-wireless divide. But there is another separation that has become increasingly blurred, the one between apps and content. The spread of P2P communications using web-based applications, such as ‘torrents’, means for example, it is possible to download different parts of a movie or video from many different servers over a period of hours, or within minutes with fast enough broadband. Downloading a health check app similarly provides the user with health care content, or an education app allows a user to access education content and so on. Most of these apps and the content they provide access to are provided by third parties. They can be delivered by third parties. They are part of a vibrant digital economy. But they can represent a challenge to the social norms and culture of a society and sometimes a security risk. For example, in May 2013 an Internet posting in the USA provided a video of a gun made from plastic by a 3D printer which was rendered legal under the Undetectable Firearms Act of 1988 by having a piece of steel inserted into the body of the gun to make it evident to a metal detector.128 The State Department demanded temporary take-down due to a possible breach of the International Traffic in Arms Regulations, but this may not apply to the Internet if it is judged by the courts to be a “library” of information. 128 http://www.guardian.co.uk/world/2013/may/06/3-handgun-fired-cody-wilson 99 What Lessons? Whatever the outcome of this particular case it is a good illustration of the many new challenges to policy and regulation that content via the Internet throws up. So what lessons can be drawn? The first is that in an interconnected world in which content can go viral within minutes, and in which proxy servers can be used to by-pass national restrictions, the law may not be a very effective means to control content. The second is that, rather like the war on drugs, the most effective interventions are likely to be at the user end. At the benign end of the scale are awareness and alertness campaigns and the use of Internet filtering apps by parents and guardians to protect children. At the other end of the scale is the use of the law. For example, it may be impossible to prevent the uploading of child pornography somewhere in the world but cyber-detection and law enforcement can identify users and break-up the crime rings that supply them. However when the law is being used, the principle of proportionality is important and this is mostly to be judged in terms of two factors: whether the intent itself was criminal or not and the social impact of the infringements weighed against the rights of the individual of freedom of access to the Internet. 3.10.1 Freedom of Opinions and Expression In 2012 the United Nations General Assembly accepted a report from its Human Rights Council that, among other things, Affirms that the same rights that people have offline must also be protected online, in particular freedom of expression, which is applicable regardless of frontiers and through any media of one’s choice, in accordance with articles 19 of the Universal Declaration of Human Rights and the International Covenant on Civil and Political Rights; 129 The Universal Declaration of Human Rights is a statement of human design. Societies make choices, and the recognition of a ‘human right’ as a universal principle is an inhere nt part of a democratic tradition whatever form it takes. The idea of a ‘human right’ hinges on the fact that people will naturally demand it when they have the opportunity. While it cannot be said that everyone in the world agrees on democracy and human rights, what can be asserted with good reason is that global forces for change such as interconnected broadband and the Internet, which can do so much to alleviate poverty, illiteracy, poor 129 UN Human Rights Council (2012) ‘The promotion, protection and enjoyment of human rights on the Internet’ http://daccess-dds-ny.un.org/doc/UNDOC/LTD/G12/147/10/PDF/G1214710.pdf?OpenElement 100 health and other social ills and so much to improve the overall wellbeing of society, are not compatible with too many restrictions on the freedom of expression, and not at all with the efforts to restrict the freedom of thought. It is important to stress these points as a guideline, because the challenges are very real. Getting the balance right between freedom of expression and freedom to access and to use the Internet on the one hand, and protecting society from serious problems is never going to be an easy one to achieve, nor if achieved will it remain in balance forever. What the UN Declaration of Human Rights provides is a good reality check on proportionality, on what that balance should look like. No society can be absolutely safe, no society can be absolutely free, but every society can be resilient if the great majority of people are convinced of the goals. Different societies have different priorities, different needs, enjoy different cultural traditions, and the resilience of every society will be determined by how far they can adjust to these global changes. The role of the Internet in giving ordinary people a voice cannot be over-estimated and regulators have an important role to play one way or the other. Social media in particular represents a genuine opportunity for user-generated news and analysis and is having repercussions throughout the world. But there are clouds on the horizon as every action causes a reaction. At the highest levels there are serious debates about Internet governance and what should be the respective roles of governments and civil society. This has become a controversial issue among member states of the ITU for example, where some members argue a need for greater state involvement and others see this as a dangerous way to rein-in freedoms on the Internet. There are also pressures on social media organizations to exercise some degree of editorial control over what appears on their sites. In some cases this is really about content that may be considered extreme and harmful to society, such as the spreading of race or religious hatred or homophobia or gratuitous violence. In other cases it may be about clamping down on freedoms of expression and information. For example, at times in during the Arab Spring in some countries the regulator closed down mobile networks and occasionally the Internet also became unavailable. In emergencies such extreme actions might reduce the immediate likelihood of violence, or they might be an act in a political conflict that only exacerbates tension. The cost of such actions is to reduce transparency and the free flow of information. Policy makers and regulators should therefore bear two things in mind. First, what are the social consequences and implications of taking or not taking action and is this better left up to the courts of law. Second, are the actions being proposed designed to strengthen and safeguard social freedoms, or simply to serve and protect vested interests. 101 3.10.2 Regulating Specific Forms of Content As the case of Hong Kong illustrates, the old distinctions between content and content channels is breaking down. Under the traditional approach, regulators would rightly see FTA broadcasting as having the greatest social impact and therefore the regulation of content considered inappropriate was more strictly applied. Subscription channels reached smaller audiences of self-selected viewers, and in the early days of the Internet receiving content online was limited to highly specialised users. Those distinctions are rapidly losing their validity. People of all ages can access virtually any content over the Internet, some of it highly disturbing, using a mobile phone. In a sense, all channels are equal, it’s just that some are more equal than others. Most families have TVs, and most individuals have mobile devices. In some countries broadband is widely available, in others not, but it is only a question of time and the availability of high speed broadband is the driver of these content channels. The supply of content is also becoming diversified as never before, from the big movie makers and the TV in-house productions, to the professional and the amateur videos on You Tube, to local content providers trying to become a business, to content on social media networks, to downloaded P2P content. There are no all-embracing standards for rating this cornucopia of content. Some regulators, for example in Singapore, are suggesting a code of practice by which content providers such as Internet access providers like Yahoo! will not only commit to making local content but will rate it appropriately for audience guidance. This does inevitably raise the issue of a more libertarian approach to regulation. Exposure to family shows on TV which openly discuss issues of sexuality, mortality, and similar ‘adult’ themes has been a factor in changing social attitudes, and it may not be the attitudes of the young that are changing because their attitudes are already conditioned by the technologies and the social discourse of their peers around them. It is rather the attitudes of older generations that are being challenged to change with the times, the generations to which most policy makers and regulators themselves belong, and seeing things through futuristic eyes is not always easy. The point here is that it may become impossible, despite regulations, to shield society from exposure to all sorts of challenging content. Society itself has to adjust to this by becoming more resilient to these challenges, and more self-confident is meeting them. This starts with home and family and school and college environments, and regulators will perhaps need to shift their perspectives from trying to regulate what cannot be regulated to engaging more closely with all stakeholders, from providers to users, to support society in managing these challenges. Child Safety Of particular concern to all stakeholders of the Internet is the safety of children: in particular safety from inappropriate content, from child abuse and the dangers of sexual predators 102 and from trafficking. There are two aspects that should be noted with particular care: online behaviour and dangerous websites. In 2010 the ITU also launched a Child Online Protection (COP) initiative, including the allocation of number 116111 for help lines,130 and issued a Guideline for Policy Makers for Child Online Protection.131 The reality is that infants below the age of five can now readily use the Internet and laws and regulations will not prevent predators, nor prevent children being able to access unsuitable material,132 which means that at a large part of the focus must be on helping parents and guardians how to educate the children in their care to conduct and protect themselves online. Regulators also need to be aware, as ICANN has pointed out, of unscrupulous ‘fast flux hosting’ whereby “operators automate domain name service updates to hide the location of web sites where illegal activities – IP Piracy (music, videos, games), hosting of child pornography, hosting of phishing systems, sales of illegal pharmaceuticals, and execution of identity theft and fraud – are performed.”133 Children can very innocently find them themselves in a completely wrong environment. 3.10.3 Intellectual Property Rights Intellectual property (IP), copyright in particular, is always an issue for Internet companies, especially in an era of user-generated content and content going viral. For example, take- down notices are difficult to enforce. The World Intellectual Property Organization (WIPO) has put in place rules addressing interoperability, a key principle behind Internet neutrality, through the WIPO Copyright Treaty and the WIPO Performances and Phonograms Treaty. The guidelines are, however, only related and limited to the prohibition of the circumvention of certain technological measures to gain access to protected digital works.134 Regulators and Internet companies are grappling with appropriate and effective codes of practice with regard to safe use, copyright infringements, hate content, child pornography, libel, and so on. The only effective way forward is if there is industry agreement, but often the debate becomes infused with political, social, religious and cultural deliberations which can result in unrealistic solutions. IP issues always put policy-makers and regulators under pressure from lobby groups, and there exists a panoply of trade agreements that commit signatory countries to protect patents, trademarks, copyright, designs and geographical indicators for country of origin, 130 http://www.itu.int/osg/csd/cybersecurity/gca/cop/ 131 http://www.itu.int/osg/csd/cybersecurity/gca/cop/guidelines/Draft/POLICY%20MAKERS.pdf 132 See http://www.missingkids.com/KeyFacts for some data 133 http://www.icann.org/en/groups/ssac/projects 134 WIPO Copyright Treaty and the WIPO Performances and Phonograms Treaty http://www.wipo.int/export/sites/www/copyright/en/activities/wct_wppt/pdf/wct_wppt.pdf 103 ranging from the World Trade Agreement (WTO) which administers the Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS) under the auspices of the World Intellectual Property Organization (WIPO) to multilateral (MTAs) and bilateral treaty agreements (BTAs) and Free Trade Agreements (FTAs).135 These agreements need to take into account the very different stages of economic development and administrative capacity of the countries involved. For example, the context of the 2008 Economic Partnership Agreement between the CARIFORUM Latin American states and the European Community, given in Article 131 includes the sentence: [The Parties] recognize that the protection and enforcement of intellectual property plays a key role in fostering creativity, innovation and competitiveness, and are determined to ensure increasing levels of protection appropriate to their levels of development.136 The reference to “appropriate to their levels of development” is telling for a number of reasons. Take software piracy as an example. Although more and more countries are developing a capability in software development, the economies of scale that are required to make operating systems and utility programmes commercially valid act as a brake on less developed countries. Because the price of imported software can be high relative to personal incomes in these countries the incentive for many users is to use pirated copies. Although officially frowned upon it is nevertheless widely recognized that it can be a way to kick-start an ICT market in low-income country. It is interesting to note that as China has reached an advanced stage in writing software coding, Chinese developers are among the strongest advocates of IPRs within China.137 The same pattern of development can be expected in other countries and in other economic sectors. Policy makers and regulators are undoubtedly under pressure to enter trade agreements to gain access to major markets, and as further rounds of WTO negotiations have faltered in recent years an increasing number of FTAs and BTAs have emerged, including the Trans- Pacific Partnership (TPP) initiative led by the USA.138 Many contain IPR provisions which are controversial because the countries owning most IP are the wealthier nations, and economists are divided on how far IPR issues should be part of trade negotiations. These are, by definition, issues of political economy. The business of trade negotiators and policy makers is to find mutually-beneficial workable compromises, but it is important in market- oriented economies that regulators remain as far as possible neutral and honest brokers for the ICT industries under their authority. 135 For BTAs/FTAs entered into by the EU see http://ec.europa.eu/trade/policy/countries-and- regions/agreements/ and by the US http://www.ustr.gov/trade-agreements/free-trade-agreements 136 http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2008:289:0003:1955:EN:PDF 137 John Ure (2007) China Standards and IPRs (Working Paper for the EU-China Trade Project, April 2007) http://trpc.biz/wp-content/uploads/2007-04_TRP_ChinaStandardsIPRs_workingpaper.pdf.pdf 138 For a list of FTAs to 1H 2013 see http://en.wikipedia.org/wiki/List_of_free_trade_agreements 104 Regulation and IPRs In the ICT sector, as in other industries such as pharmaceuticals, IPRs have become a battle ground for companies in fierce competition with each other over issues such as ownership of algorithms to trade-mark designs. Whereas disputes between companies are usually civil law cases, under Article 61 of the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPs) signatory countries are required to establish criminal laws to cover cases of "willful trademark counterfeiting or copyright piracy on a commercial scale". However, often individuals can get caught up in criminal cases, and once again it is important for the sake of equity and practicality to exercise proportionality when applying the law. One approach to online copyright violations has been the “three strikes” approach whereby the regulator issues two warnings and then applies a penalty, such as broadband disconnection, a fine or referral to a law court. France introduced a “three strikes” law in 2010 and by September 2012 the High Authority for the Distribution of Works and Protection of Rights on the Internet (HADOPI) had issued over 1.1 million first warnings, of which 9% were followed by second warnings of which 0.3% (14 cases) were taken to court.139 In the first case to be heard the court imposed a fine. But critics see a danger of over-reaction to downloading when it is technologically difficult to stop, and complain that by making it a criminal rather than a civil offence public resources are used to protect private, mostly corporate, property rights. The counter-arguments include the economic impact copyright theft can have upon local content, such as a local movie industry, and theft is theft even though digital theft unlike physical theft may not deprive the owner of the original asset. As always, the arguments will be influenced by the questions of intent and proportionality and effectiveness.140 Other innovate approaches have been tried. For example, Google decided to offer copyright holders who could prove their content had been illegally posted on You Tube one of three options: to take down, to keep up with acknowledgement, to keep up and share in advertising revenue associated with visitors viewing the content. Needless to say, this last option has proved popular and in some cases profitable. Regulators might consider encouraging other win-win approaches. Regulation and Openness 139 http://www.techhive.com/article/262285/french_court_levies_first_fine_under_threestrikes_law_on_illegal_ downloads.html 140 Stealing an apple from a tree leaves behind other apples and the tree, whereas stealing a marrow that wins a prize for its size deprives the owner of a valuable asset and causes hurt. Both are theft, but the consequences differ. The law may determine liability for the action and determine punishment for the consequences. 105 The basis of accountability is transparency. This is true of government and of the private sector. One of many initiatives to improve the level of transparency and openness is the OECD-backed Global Privacy Enforcement Network ("GPEN"), a global network of privacy enforcement authorities working together to protect the privacy rights of individuals. In May 2013, for example, GPEB organized an Internet Privacy Sweep ("the Sweep") by 19 participating authorities. The capacity of regulators to carry out industry and market research of this nature is often limited in developing countries, but to develop such capacity is a move in the right direction as it can only lead to better informed public policy. Another good example of openness is the decision of UNESCO to make its digital publications free for anyone to download under a worldwide open license. 141 UNESCO was the first member of the United Nations to adopt such an Open Access policy for its publications. In 2010 The World Bank announced it will offer free access to more than 2,000 financial, business, health, economic and human development statistics that had mostly been available only to paying subscribers.142 This sets an important principle that publically- funded data collection, research and publication should be made freely-available, subject only to certain confidentiality rules. In lower income countries policy-makers and regulators will certainly benefit from having this added source available to make more informed decisions, and it follows an important trend in education by some of the world’s leading universities to place their course materials online free of charge.143 The World Bank is also supporting local open data Initiatives to make government data more open and online, for example the LGU Research Project in the Philippines.144 Regulators would do well to examine their own websites and databases to judge how transparent they are to their own public. A better informed public will be able to provide regulators with better informed feedback which in turn will make regulation more responsive and more effective. 141 http://www.unesco.org/new/en/media-services/single- view/news/unesco_to_make_its_publications_available_free_of_charge_as_part_of_a_new_open_access_pol icy/ 142 http://unstats.un.org/unsd/accsub/2010docs-CDQIO/Ses1-WorldBank.pdf 143 http://www.unesco.org/new/en/communication-and-information/access-to-knowledge/open-educational- resources/ 144 http://www.lguopendata.ph/. See also http://www.developmentgateway.org/ 106 107 BROADBAND STRATEGIES TOOLKIT: MODULE FOUR EXTENDING UNIVERSAL BROADBAND ACCESS AND USE October 2013 1 4.1 Introduction 4.1.1 A brief history of universal access Early developments in universal access and service policies targeted public and private access to copper based telephony services. By the start of the 21st century, fixed-line residential and fixed public payphone were included within most existing universal access and service definitions. National programs promoting expansion of copper line networks and telephony services were reflected through measures such as the establishment of public telephone access centres and provision of private telephone connections to homes and businesses. The development of cellular mobile services was also a key means of expanding the reach of telephony services. As universal coverage of basic voice telephony services became close to reality in many countries and with the growing recognition of internet, particularly broadband services, as a key means of achieving economic and social goals, governments have in recent years turned their focus towards securing affordable high speed broadband access. Initially using spare capacity in the telephone network, the internet is now the main driver of demand for network capacity. Growing innovation and technological advancements, especially with wireless and mobile products and their application, have enabled the rapid dispersion of broadband-capable services in areas that were previously inaccessible. These advancements, combined with market forces and a well-designed legislative framework, make broadband proliferation and penetration possible. 4.1.2 Legislative efforts to provide universal broadband access Private sector initiatives and investment are, and have proven to be, crucial to achieving widespread broadband access and use. But when market mechanisms alone do not meet the goals set for broadband access and use the important question that arises is what role should government play? Although policy makers generally aim to expand broadband service coverage as much as possible with minimal government intervention, some degree of intervention may be required to complement the market and overcome impediments to universal broadband. It is important for policymakers to remember that universal access policies should not be a policy substitute for regulatory reforms to make markets operate more efficiently.1 The objective of universality policies is to provide or maintain service to those who would not normally be served by market forces alone. In the context of broadband access, unserved or underserved groups include people living in rural areas or other high cost service areas, low income populations, and people with physical disabilities who may have difficulty using standard equipment. Gaps in availability, accessibility and affordability of broadband will typically remain between and within countries where government intervention is absent. 1 Arturo Muente‐Kunigami and Juan Navas‐Sabater, ‘Options to Increase Access to Telecommunications Services in Rural and Low‐Income Areas’ (World Bank Working Paper no. 178, 2010) page 3. 2 Countries have varied in the boldness of their goals and methods to secure universal access to broadband. National broadband plans and strategies often provide targets for broadband rollout to populations or priority groups and communities, and indicate a clear commitment by governments to support the establishment of advanced infrastructure. A number of countries have already moved to include broadband as a universal service, as in Australia and the United Kingdom, and some countries go even further – Finland made broadband a legal right for its citizens in 2010. Yet in 2010, of the 99 developing countries with a universal access or service definition only 49 included internet dial-up and only 36 included broadband within their definition.2 A table of data identifying the number of internet users per 100 people in countries with population over 50 million is can be found at Attachment A. As Next Generation Access (NGA) and national backhaul networks are rolled out across developed and developing nations there is a growing momentum towards ensuring access to these networks. This is being driven by the social and economic concerns of both policymakers and populations. This creates opportunities and challenges for governments. How can governments help facilitate access to networks, doing so in partnership with private enterprises? How can fair access to networks be balanced against the need for the networks to deliver a return on investment to those who build them? As a starting point, many governments have already adopted broadband plans setting out policy goals. Although the official definition of broadband is contentious, national governments have set their own target minimum speeds, typically reflecting expected future rates of usage. In Australia, the National Broadband Network Company (NBN Co) will provide superfast access at bit rates of up to 100 Mbps in order to meet anticipated future demand. A terraced approach also exists in a number of countries, such as in Malaysia where, under its High Speed Broadband (HSBB) service, designated high economic impact areas will receive access at 10 Mbps, with businesses receiving up to 1,000 Mbps (1 Gbps).3 This chapter will provide an overview of the policy mechanisms being utilised by governments to ensure that populations have access to broadband products and services, and outline what policymakers can do to define a broadband development strategy capable of addressing market failures, work towards achieving universal broadband service and address potential policy challenges. This chapter will discuss the different levels of intervention that a government strategy may pursue, the role of private-led competitive markets in achieving these objectives, the role of the government in narrowing or eliminating gaps between markets and a country’s development needs, and the design of effective government strategies to meet this challenge. Finally, this chapter will examine the use of fiscal resources to support private supply of broadband, including choice of policy instruments, the use of subsidies, and mechanisms to collect and disburse funds for subsidy. 2 The Broadband Commission for Digital Development, The State of Broadband 2012: Achieving Digital Inclusion For All (2012). Available at: http://www.broadbandcommission.org/Documents/bb- annualreport2012.pdf 3 HSBB, business wholesale products. Available at: http://www.tm.com.my/ap/business/wholesale/hsbb/Pages/whatshsbb.aspx 3 4.2 Universal Access Strategy and Broadband Development The concept of universal access to telecommunications must be extended from pure telephony to encompass broadband services. Technology adoption is recognized as a major contributing factor to development, and the economic and social differences in communities on each side of the ‘digital divide’ are pronounced. Access to broadband services is recognized as a driver of economic growth, promoting efficiency and overcoming geographic market restrictions.4 World Bank statistics indicate that a ten per cent increase in penetration of selected ICTs may increase Gross Domestic Product growth per capita by up to 1.38 percentage points.5 Beyond this, access to information and the ability to communicate opinions contribute to a country’s education and political systems. Public services such as remote health advice and disaster warning systems are improved through the construction of nationwide communication networks. As a result of these benefits, the World Bank and other international organizations are encouraging infrastructure development plans and governmental schemes to promote broadband use and accessibility in underserved areas. The United Nations’ Millennium Development project aims to achieve affordable and reliable access to broadband services for all by ensuring that all countries will have a national broadband plan in place or include broadband access in their national service definitions by 2015.6 Most countries have preferred the more proactive approach of implementing a national broadband plan.7 The approach adopted by a government depends on whether it seeks to intervene to drive or facilitate development, or whether it prefers to rely on market forces to increase coverage. A national broadband plan should set out desired outcomes, rather than to specify the technologies sought to be implemented. Box 4.1: CASE STUDY: Government approach to broadband in St Kitts and Nevis The government in St Kitts and Nevis has repeatedly stated its commitment to internet access and improved digital literacy for all citizens. As well as ushering in new telecommunications policies 4 The ITU analyses research on the impact of broadband penetration upon developing and developed economies in ‘The Impact of Broadband on the Economy: Research to Date and Policy Issues ’, April 2012. Overall the conclusion is that an increase in broadband penetration does lead to an increase in GDP growth. Pages 18 – 28 (Developed Countries), 29 – 57 (Developing Countries), 58 – 60 (Analysis of Case Study Results) refer. Available at: http://www.itu.int/ITU-D/treg/broadband/ITU-BB-Reports_Impact-of- Broadband-on-the-Economy.pdf. The correlation between productivity growth and broadband penetration is also observed in countries which are developed. Booz & Co analysed broadband penetration of 20 OECD st countries between 2002 and 2007 in ‘Digital Highways: The Role of Government in 21 -Century Infrastructure’ 2009. The study concluded that countries which were consistently in the top five for broadband penetration had an average annual GDP growth of 3.86 per cent, whilst in the countries with the bottom five broadband penetration, annual GDP growth was 1.67 per cent. Available at: http://www.booz.com/media/uploads/Digital_Highways_Role_of_Government.pdf. 5 World Bank, Information and Communication for Development: Extending Reach and Increasing Impact (2009). Available at: http://issuu.com/world.bank.publications/docs/9780821376058 6 th United Nations Millennium Development Goals, 8 goal. Available at: http://www.un.org/millenniumgoals/ 7 International telecommunications Union, Measuring the Information Society (2012). Available at: http://www.itu.int/ITU-D/ict/publications/idi/material/2012/MIS2012_without_Annex_4.pdf 4 and harmonising its approach to ICT with those of its Caribbean neighbours in order to achieved increased uptake of internet technologies, St Kitts and Nevis has entered into PPP arrangements with telecoms providers LIME and The Cable in order for schools to be provided with free internet access ensuring that the next generation is proficient with the use of broadband technologies. Providers have also supported government policies to train citizens in how to use broadband technologies by providing the equipment and internet access to community centres to run internet usage courses to teach basic online skills to the wider community. For greater analysis on broadband developments in St Kitts and Nevis see the case study provided by infoDev at: http://broadbandtoolkit.org/Custom/Core/Documents/kn.pdf As demonstrated in Malaysia, licensees providing service to rural areas under the High Speed Broadband Network plan have been given permission to use TD-LTE services, rather than WiMAX, as initially planned. Ensuring that major network backbones are suitably positioned to support a variety of technologies will allow flexibility to adapt last mile services to the best solution available at the relevant time. 4.2.1 Achieving Universal Access Universal access can be accomplished when either:  in response to demand for services, private entities decide independently to extend their network coverage;  regulatory measures are put in place to require private entities to extend their existing networks; or  governments fund infrastructure projects to increase network coverage. Governments can play a role in ensuring sufficient demand for paid broadband subscriptions by, if necessary, encouraging the use of the internet in a productive and enriching manner. A coherent and comprehensive national broadband plan is necessary to ensure that broadband development is successful across both steps and will create the intended benefits.8 The success of countries that have implemented holistic plans that incorporate both of these policy steps, including Korea, Japan and Canada, is testament to the efficacy of this approach. In each country unique hurdles will have to be overcome. Encouraging adoption of existing networks in the European Union, extension of service to isolated rural areas in Australia and subsidising access technology in Malaysia are good examples of tailored policy approaches to local conditions. 8 Rob Frieden, ‘Lessons from broadband development in Canada, Japan, Korea and the United States’ (2005) 29(8) Telecommunications Policy. 5 Box 4.2: CASE STUDY: Sri Lanka; overcoming socio-economic factors to stimulate broadband uptake The government of Sri Lanka acknowledged the growing information and opportunity divide between rich and poor and produced a roadmap to develop a more inclusive information society called e-Sri Lanka. Closing the information gap between rich and poor was achieved by a blended policy and regulatory approach of encouraging greater competition by the awarding of additional sector licences, coupled with early licencing of 3G spectrum. The presence of 4 telecommunications operators forced the telcos to move away from skimming profits from servicing only the rich and middle class consumers of Sri Lanka to a model which profits from high volumes of users who only spend a small amount of pre-paid disposable income on internet and data services, thus increasing universal access amongst poorer Sri Lankans. For greater analysis on broadband developments in Sri Lanka see the case study provided by infoDev at: http://broadbandtoolkit.org/Custom/Core/Documents/lk.pdf Figure 4.1: Average annual increase in internet users per 100 people across income groups9 6.00 5.00 High income countries 4.00 Upper middle income 3.00 countries Lower middle income 2.00 countries 1.00 Low income countries 0.00 2005 - 2006 - 2007 - 2008 - 2009 - 2010 - 2006 2007 2008 2009 2010 2011 4.2.1.1 Service Quality The purpose behind implementing a universal access plan must be reflected in the bit rate provided under the relevant broadband development scheme. Many of the functions that universal access seeks to provide, including telemedicine and tele-learning, require access at up to 100 Mbps, while standard applications such as email and web browsing can function speeds as low as 0.5 Mbps.10 High broadband upload rates facilitate a collaborative online environment by 9 International Telecommunications Union, ICT Statistics. Available at: http://www.itu.int/net4/itu-d/icteye/ 10 st Booz & Co, Digital Highways: The Role of Government in 21 Century Infrastructure (2009) page 5. Available at: http://www.booz.com/media/uploads/Digital_Highways_Role_of_Government.pdf 6 encouraging user contribution, while high download rates enhance the accessibility of content. High bit transfer rates enable interactive functions such as real time feedback and video calling. It is advisable that access to ‘high-speed broadband’ be specified in universal access models. Even where the headline rate is sufficient, frequently consumer experience of a broadband connection will be substantially less. Other factors, including throughput and latency must also be taken into account. For instance, the Ethernet port of an ADSL modem will report connectivity at its particular line rate while the actual connection rate is determined by the distance from the DSL access multiplexer in the exchange building and the quality of the copper lines. Similarly, a wireless connection rate will depend on the use of others on the same access network and the backhaul capacity from the relevant base station to the core network. In some instances there is an additional issue of service providers submitting false compliance reports on the quality of broadband services they offer. In India, the telecommunications regulator has addressed this by imposing fines on providers found to have made such statements.11 In South Korea, all buildings are to be designed to enable high-speed connections, and assigned ratings to communicate to potential residents the bit rate supported.12 Government spectrum allocation decisions impact wireless service quality, while fixed line services can be improved by upgrading the network quality and ensuring customers have access to sufficiently advanced modem technology. Countries at times adopt different target bit rates based on the forecasted use in different areas. This may particularly be the case where governments are required to fund or subsidize infrastructure or subscription costs. In Australia, the National Broadband Network that is currently under construction plans to provide broadband access at bit rates of up to 100 Mbps. Conversely, in the European Union the required base rate is to be 30 Mbps, although the Digital Agenda aims to encourage 50 per cent of subscribers to pay for access at over 100 Mbps. In Malaysia broadband and universal service policies are separate, and levels of access are terraced by region. Under the HSBB service, households under the designated high economic impact areas receive minimum of 10 Mbps, while businesses in these areas will receive up to 1000 Mbps. 4.2.2 Levels of Access The levels of access provided under a universal broadband access scheme may be assessed according to the proportion of the population that are able to access the internet and the locations from where access is achieved. Establishing individual fixed broadband connections for all households and businesses may not be a viable option in all areas due to the associated costs, lack of demand and geographical constraints. At times, governments must assess the underlying goals of their universal access strategy and prioritise the most cost effective means to achieve those. The extent to which existing systems can be upgraded as opposed to new systems having 11 Times of India ‘Telcos to be penalised for false compliance report’, 26 December 2012. Available at: http://articles.timesofindia.indiatimes.com/2012-12-26/telecom/36007036_1_parameter-for-subsequent- non-compliance-broadband-service-compliance-report 12 st Booz & Co, Digital Highways: The Role of Government in 21 Century Infrastructure (2009). Available at: http://www.booz.com/media/uploads/Digital_Highways_Role_of_Government.pdf 7 to be built, will likely inform outcomes. Part 4.2.2.1 discusses the benefits of establishing broadband connections to individual users and households, while Part 4.2.3 explores additional approaches to facilitating communal and institutional access. 4.2.2.1 Individual Users and Households Connecting individual users and households to a broadband network represents optimal service penetration. Household connections overcome restrictions to access in other settings such as age, employment situation or educational background.13 Broadband usage by households has increased as access costs become more affordable and service coverage extends.14 Household internet access in developed countries has consistently been higher than in the developing world.15 In 2011, 70.3 per cent of households in developed countries had internet access, compared with 20.5 per cent of developing countries.16 The Broadband Commission for Digital Development (Broadband Commission), a joint initiative of the International Telecommunication Union (ITU) and the United Nations Educational, Scientific and Cultural Organization (UNESCO), targets 40 per cent of houses in developing countries to have internet access by 2015.17 Studies in the United States found that home broadband users overwhelmingly valued the social aspects of internet use, citing the ease of communicating with family and friends and content sharing applications as the most important functions.18 Access to information, news and entertainment are also important, as is the ability to engage in e-commerce through shopping and selling goods online. The educational value of home internet access is frequently highlighted, as research has shown that children with internet access at home perform better in school.19 In many countries, the extension of direct fixed line service networks to individual homes is included in universal access targets. Governments have adopted a variety of strategies in order to attain such connections. 13 Tim Kelly, Victor Mulas, Siddhartha Raja, Christine Zhen-Wei Qiang and Mark Williams, World Bank, ‘What Role should Governments Play in Broadband Development?’ (Paper prepared for infoDev/OECD workshop on “Policy Coherence in ICT for Development”, Paris, 10-11 September 2009). Available at: http://www.infodev.org/en/Publication.732.html 14 Based on ITU statistics: Percentage decrease in fixed broadband costs in developed countries between 2008 and 2010 of 52.2%; for developing countries 35.4%. 15 ITU Statistics: In the developed world 70.3 per cent of households had internet access in 2011, whilst only 35 per cent had access in 2002. This increase is also visible in the developing world, where 9.6 per cent of households had access in 2002, compared with 20.5 per cent by 2011. 16 ITU Statistics. 17 Target 3, Broadband Commission for Digital Development, Broadband Targets for 2015. Available at: http://www.broadbandcommission.org/Documents/Broadband_Targets.pdf 18 John B. Horrigan, ‘Broadband Adoption and Use in America’ (OBI Working Paper Series No. 1, Federal Communications Commission’ (2010). Available at: http://online.wsj.com/public/resources/documents/FCCSurvey.pdf 19 Broadband Commission for Digital Development, The State of Broadband 2012: Achieving Digital Inclusion For All (2012). Available at: http://www.broadbandcommission.org/Documents/bb-annualreport2012.pdf 8 Box 4.3: CASE STUDY: Extending broadband networks through regulation Regulatory tools may be used to increase market entry and competition, while minimising the input governments are required to contribute. Models which have separate sources of supply at each “layer” tend to promote competition more effectively than vertically integrated supply. This drives policies which seek structural or functional separation between the elements of the network on the grounds that a vertically integrated approach may inhibit investment by competitors and new entrants. In Singapore this strategy was initially adopted, however it proved insufficient to extend coverage to a satisfactory level within the time limit this was required. In Finland, a regulatory approach was also adopted when the Finnish Communications Regulator required 26 designated telecommunications operators to provide connectivity of at least 1 Mbps for all consumers and businesses at their permanent place of residence. Finland is part of a growing global trend that identifies the communications and educational opportunities afforded by broadband as so basic a foundation for adequate functioning in modern society and accessing opportunities that it has become a fundamental right of all human beings that governments must protect. Spain has taken a similar approach to the rollout of basic broadband speeds and there is strong political support in Estonia that broadband is essential for modern society, which led to a massive investment in Estonia of broadband facilities in rural areas. Legal challenges have also confirmed that broadband access is gaining recognition as a basic human right. A 2010 Supreme Court ruling in Costa Rica confirmed that internet access is so essential to modern day communication and expression and was a tool to access other rights such as participation in society and self-government that the Court held that internet access itself was a human right. Similarly, in France the Constitutional Court delivered a judgment striking down a French law which proposed to cut internet access to people who were considered to be guilty of illegally downloading content. The French court argued that broadband was essential to access information and give free expression to ideas and political dialogue. Although Finland is one of the forerunners of this rights based regulatory approach, it is likely many other sttes will follow suit. Regulatory intervention may not be appropriate in all circumstances. In the United States attempts to regulate the telecommunications market have been met with protracted litigation from incumbent local exchange carriers.20 When constructing the National Broadband Plan in 2010, the United States Federal Communications Commission specifically referred to the possibility State governments might intervene to provide infrastructure and broadband services to individual premises in areas where private enterprises do not. This approach was more palatable than imposing regulations requiring extension of coverage into non-profitable regions, while still working towards the universal access goal of connecting 100 million Americans to broadband services. 20 Charles H. Ferguson, Brookings Institute, ‘The U.S. Broadband Problem’ (Brookings Policy Brief Series 105 of 186, July 2002). Available at: http://www.brookings.edu/research/papers/2002/07/technology-ferguson 9 Box 4.4: CASE STUDY: Infrastructure development to extend broadband networks Investment in network infrastructure reduces the initial capital investment for market entrants, encouraging pricing competition, and also extends coverage to areas where this may not otherwise have been commercially viable. In Australia the government-funded National Broadband Network Company will construct a high-speed wholesale broadband network that serves every home through a combination of fibre, fixed wireless and satellite services. Although this is a far more substantial task than only providing connections in areas where they are not currently available, this model allows the higher costs of rural rollout to be offset against the lower costs of connections in urban areas. In Canada the government has also funded infrastructure development, but restricts this to areas where private coverage is not sufficient. In 2009 a $225 million (US$217 million) subsidy was allocated to extend access to around 3 million people who did not have access to broadband services, including the high-profile projects to provide satellites to the remote Far North Nunavut and Northern Territories. A major benefit of the single wholesale provider model is that in addition to regulating price, a single national infrastructure may also ensure that sufficient backbone services and long haul data transmission are provided. 4.2.2.2 Demand Creation It is particularly important in countries which extend networks to individual and households that customers exhibit sufficient demand for broadband services. In situations where broadband networks grow organically without regulatory intervention, broadband take-up and coverage figures should follow a similar trajectory, as providers will improve upon the service they offer in order to meet demand. Where universal service capacity is achieved through government encouragement, individual users must take up paid subscriptions with service providers in order for models to remain sustainable. A United States Federal Communications Commission Report on home broadband use cited cost, lack of digital literacy and a feeling access was irrelevant to a person’s life as reasons for not taking up available broadband services available.21 Cost is addressed below in Part 4.2.4.2, while this section will explore examples of the measures adopted by governments to increase the relevance of broadband services to people’s lives and improve digital literacy. There is a direct correlation between high household broadband use and areas in which a holistic universal service strategy has been implemented.22 While a recent OECD report has suggested that governments need to play more than a ‘push’ role of providing ICT infrastructure and 21 United States Federal Communications Commission Report on home broadband use in 2010 concluded that of the 35 per cent of Americans who did not have home broadband access, 36 per cent stated this was due to the cost, 22 per cent lacked the requisite digital literacy to make use of broadband, and 19 per cent claimed it was irrelevant to their lives. John B. Horrigan, ‘Broadband Adoption and Use in America’ (OBI Working Paper Series No. 1, Federal Communications Commission’ (2010). Available at: http://online.wsj.com/public/resources/documents/FCCSurvey.pdf 22 ITU Statistics: in 2012, 70.9 per cent of households in Europe, 51.1 per cent in The Americas, 37.3 per cent in the Commonwealth of Independent States (ie former Soviet Republics) 25.7 per cent in Arab States, 24.5 per cent in Asia Pacific, and 4.1 per cent of Households in Africa had internet access. 10 development of a domestic ICT sector,23 it is also important that they adopt ‘pull’ strategies aimed at promoting digital literacy, establishing an appropriate legal framework surrounding internet use and fostering the development of local content. Box 4.5: CASE STUDY: ‘Pull’ strategies in the European Union and South Korea The European Union’s Digital Agenda provides a good example of a ‘pull’ strategy focused on facilitating certain uses of a broadband connection. By 2011 the whole of Europe had achieved universal broadband coverage by satellite and around 95 per cent coverage by fixed line. However, this coverage did not translate automatically into broadband subscriptions. The European Commission’s Digital Agenda Scoreboard demonstrates that the percentage of households with a broadband connection has increased dramatically from 14.9 per cent in 2004 to 67.3 per cent in 2011. The Digital Agenda aims to increase take up of broadband subscriptions and to encourage particular uses of broadband services supported by a secure high-speed connection. Targets include 50 per cent of the population buying products online and 50 per cent of the population using e-Government. In pursuance of its goals, digital ‘to-do’ lists are published annually, detailing the measures required to encourage adoption of these new use habits. In addition, digital education is encouraged in order to enable EU citizens to take full advantage of the benefits of broadband, with the aim of reducing the population that have never used the internet before to 15 per cent. The success of the policy can be seen in OECD statistics that suggest the European Union has some of the highest household broadband access rates in the developed world.24 A similar project was undertaken in South Korea. The Korean government’s broadband strategy envisioned a ‘knowledge-based economy’ in which every citizen would have access to a personal computer and government would expedite development of an information infrastructure. Several initiatives were put in place, including regulatory efforts to encourage infrastructure investment by incumbents and market entrants, subsidies for low income citizens to purchase computers, and free digital literacy programs encouraging internet use as a means of obtaining information, providing entertainment, and accessing government services. South Korea further stimulated demand by targeting much of this training to homemakers, who are typically married women not in the workforce but who have a large amount of discretion in the organisation of household finances. The theory was that by convincing homemakers of the benefits of broadband, demand would be stimulated for household uptake and ensure the next generation of South Koreans would have access to broadband as their parents accessed such services. The targeted training was a successful approach to driving broadband uptake as the proportion of South Korean women who utilise broadband is much higher than their counterparts in Singapore, China, Taiwan and the 23 Tim Kelly, Victor Mulas, Siddhartha Raja, Christine Zhen-Wei Qiang and Mark Williams, World Bank, ‘What Role should Governments Play in Broadband Development?’ (Paper prepared for i nfoDev/OECD workshop on “Policy Coherence in ICT for Development”, Paris, 10-11 September 2009). Available at: http://www.infodev.org/en/Publication.732.html 24 OECD Broadband Portal Statistics, Household usage chart 2010. Available at: http://www.oecd.org/internet/broadbandandtelecom/oecdbroadbandportal.htm 11 rest of the region.25 In this way, top down and bottom up approaches were combined so that incentives to improve service to citizens would be met by increased demand for services. South Korea now leads the developing world in household internet connections. By June 2011, 97.2 per cent of households in South Korea were connected to the internet.26 Other governments have implemented regulation to directly create demand:  in Japan it was mandated that all administrative agencies must buy their broadband services from the Next Generation National Broadband Network;  in Sweden, companies that purchase PCs for their employees receive subsidies and household that install broadband can receive tax deductions for the costs of installation up to approximately US$650. Computer ownership and the cost of hardware and software upgrades have been found to be a factor contributing to lower broadband uptake27 ;  In Denmark broadband can be offered to employees as a tax-free fringe benefit which was a tailored demand creation mechanisms which took into account the relatively high income tax rates in Denmark and found that providing broadband as a form of employment benefit would be more effective at stimulating uptake28; and  in Bahrain, the government has a policy of encouraging the use of the internet to deliver government services and involve citizens in decision-making. Over 200 services are offered online, including payment of utility bills and traffic fines, tourist visa applications, driver’s licence renewals and student exam result delivery. 25 Janice Haugue and James Prieger, ‘Demand-Side Programs to Stimulate Adoption of Broadband: What Works?’ Review of Network Economics (2009) page 11-12. Available at: http://prodnet.www.neca.org/wawatch/wwpdf/priegerreport.pdf 26 ITU ICT Indicators Database, table compiled by the Broadband Commission for Digital Development, The State of Broadband 2012: Achieving Digital Inclusion For All (2012). Available at: http://www.broadbandcommission.org/Documents/bb-annualreport2012.pdf 27 Janice Haugue and James Prieger, ‘Demand-Side Programs to Stimulate Adoption of Broadband: What Works?’ Review of Network Economics (2009) page 11-12. Available at: http://prodnet.www.neca.org/wawatch/wwpdf/priegerreport.pdf 28 Janice Haugue and James Prieger, ‘Demand-Side Programs to Stimulate Adoption of Broadband: What Works?’ Review of Network Economics (2009) page 7. Available at: http://prodnet.www.neca.org/wawatch/wwpdf/priegerreport.pdf 12 Figure 4.2 Internet users per 100 people in countries with population over 50 million 2005 – 201129 Explanatory Note: Weight of lines demonstrates relative wealth of the country. Solid lines are high income, large dashes are upper middle income, smaller dashes are lower middle income, and dots are low income countries. The internet usage includes both mobile and fixed sources. 90.0 France Italy 80.0 Japan 70.0 United Kingdom United States 60.0 Brazil China 50.0 Iran, Islamic Rep. 40.0 Mexico Russian 30.0 Federation South Africa 20.0 Thailand Egypt, Arab 10.0 Rep. India 0.0 Indonesia 2005 2006 2007 2008 2009 2010 2011 29 ITU, Statistics. Available at: http://www.itu.int/en/ITU-D/Statistics/Pages/stat/default.aspx 13 4.2.2.3 Mobile Access While household access is simpler to measure, individual access figures incorporating the access of individual household members may be a more relevant developmental indicator. Many governments include mobile broadband penetration in assessments of whether universal service is available.30 Individuals with mobile subscriptions may not have access to a household connection, yet still have access to broadband services. In many areas across all stages of development, mobile broadband subscriptions have overtaken fixed line ones. By the end of 2011, the United Nations estimated that 45 per cent of the world’s population was covered by a high-speed (3G) mobile broadband service.31 Mobile technology can overcome major infrastructure barriers to internet access, and access devices are cheaper and more portable than computers. However, capacity, quality and data transfer rate can remain problematic. The expansion of mobile broadband subscriptions needs to be coupled with adequate investment in robust backbone networks, as well as a careful spectrum allocation plan. The broadband capabilities of mobile devices should also be examined. Some functions, like reading and constructing long documents, may be sufficiently necessary to achieving universal access goals to warrant computer broadband connection being included in a country’s definition of universal access. 4.2.2.4 Smartphone Adoption Continued growth in smartphone adoption poses a challenge to extending universal broadband access and use as a number of previous studies have shown that an increase in the number of smartphones leads to a decrease in fixed telecommunications lines.32 The relatively recent advent of smartphones which utilise 3G broadband technology poses the question as to whether a similar substitutability of access methods will occur, leading to a decrease in fixed connections. Put another way, the question is will consumers choose to access broadband simply from 3G smartphones rather than from computer broadband connections? There is a paucity of hard evidence as to whether this is the case although some industry analysts have predicted that smartphones will come to be utilised in a complimentary way to computer-based broadband connections.33 ] Arguably there is still a need for fixed broadband that is not met by 3G broadband, particularly for increasingly popular content services and business functions which still remain challenging to access on smartphone technology. Fixed broadband connected to adequate backhaul networks is better able to cope with large volumes of data traffic which is a challenge for 30 Broadband Commission for Digital Development, The State of Broadband 2012: Achieving Digital Inclusion For All (2012). Available at: http://www.broadbandcommission.org/Documents/bb-annualreport2012.pdf 31 United Nations, Millennium Development Goals Report (2012). Available at: http://www.un.org/en/development/desa/publications/mdg-report-2012.html 32 Gwangjae Jung, The Impact of Smartphone Adoption on Consumers’ Switching Behaviour in Broadband Services, Pacific Telecommunications Council PTC’13 Conference, 2013, page 4. Available at: http://www.ptc.org/ptc13/images/papers/upload/PTC13_GwangJae_Jung_Paper.pdf 33 P Sriuan,Srinuan C and E Bohlin, ‘Fixed and mobile broadband substitution in Sweden. Telecommunications Policy 36(3) 2012. 14 mobile technology and fixed access is better able to service business clients with increasingly complex applications to run. Table 4.1: Fixed and mobile broadband subscriptions per capita by region34 Country Mobile broadband subscriptions per Fixed-line broadband subscriptions 100 inhabitants (2011) per 100 inhabitants (2011) Europe 26.50 24.8 CIS 31.33 9.3 The Americas 29.70 15.4 Arab States 11.73 2.1 Asia & Pacific 10.75 6.4 Africa 3.26 0.2 4.2.3 Communal and Institutional Access Universal access to broadband does not require direct service to individual premises. In some national broadband strategies access in businesses, educational and government premises is prioritised. This may be due to prohibitively high costs of internet-enabled devices, paying subscription fees and financing last mile connections. In addition, while many national broadband schemes may be subsidised or supported by governments, ultimately the aim is to create systems that support themselves through charging for use. If individual subscribers are unable or unwilling to pay for broadband, institutional or community provision may be a more appropriate solution, at least in the interim while demand for individual fixed lines is being promoted. Community centres and institutional access may also help to supplement mobile phone use of broadband services in situations where a larger computer is required. For example, basic searching and email may be carried out by mobile phone, whereas creating complicated documents requires a larger device such as a tablet, laptop or desktop. 4.2.3.1 Community Access Centres Community access centres allow individuals to access internet services either free of charge or at an appropriate rate. The size and frequency of these centres can be adjusted according to the requirements of individual communities. Computer education programs can be run from the same centres, teaching people to draw optimal benefit from their internet access and creating demand for broadband connections in homes. Demand can later be met by the expansion of national broadband networks to homes or through private financing of last mile connections from the access centre node. 34 ITU Statistics. Available at: http://www.itu.int/ITU-D/ict/statistics/ 15 Box 4.6: CASE STUDY: Community Access Centres In Malaysia, in addition to the national broadband rollout scheme, universal access has been brought to rural areas by creating 3100 ‘wireless villages’ and 796 ‘telecenters’. Wireless villages have at least three Wi-Fi spots in them to deliver data at 2 – 4 Mbps, and operate in conjunction with a system of distributing 1 million netbooks to poor students. Telecenters each contain 5 – 20 personal computers for community use. Similarly in India the Universal Service Obligation Fund provides kiosks connected to rural fixed line broadband exchanges. Kiosk workstations provide internet browsing and other broadband applications, such as video calling, access to online education and health services at subsidised rates. The benefit of this strategy is that any interested community member may become involved. There are some difficulties associated with community access centres that need to be overcome. In South Africa theft of computer equipment has been a problem, while in the Dominican Republic the national telecommunications operator INDOTEL provided the technical infrastructure to run community access centres but did not remain involved to ensure that centres were well-managed. Measures should be taken to ensure that access centre assets are adequately protected and that centres are maintained. However, in theory the community access approach strikes an attractive balance between universal access and cost-reduction. 4.2.3.2 Institutional Access Some countries prioritise access in educational and governmental institutions. Broadband services open access to a large network of sources of information, including multimedia sources and online tutorials. These are seen to smooth out inherent disadvantages of some learning environments by allowing learners access to the same resources and ‘teachers’ from anywhere with a broadband connection.35 Institutional access may also be material in increasing content available in certain languages, a factor which has been recognised as important to stimulating demand for broadband services.36 Box 4.7: CASE STUDY: Institutional Access Strategies prioritising institutional access vary. In the United States the National Broadband Plan provides anchor institutions, including schools, hospitals and government buildings at rates of at least 1 Gbps compared to 100 Mbps for home access. By contrast in Canada the only publically funded broadband network is the CANARIE network, which connects research, industry and educational bodies through long-haul fibre optic cables, with last mile connections provided by users. The network can operate at bit rates as high at 100 Gbps, allowing the transmission of large amounts of data with an ease and swiftness unavailable to virtually any other internet users. Both 35 Charles M. Davidson and Michael J. Santorelli, ‘The Impact of Broadband on Education: A Study Commissioned by the U.S. Chamber of Commerce’ (2010). Available at: http://www.nyls.edu/user_files/1/3/4/30/83/Davidson%20&%20Santorelli%20- %20The%20Impact%20of%20Broadband%20in%20Education%20-%20December%202010%20(FINAL).pdf 36 The Broadband Commission for Digital Development, The State of Broadband 2012: Achieving Digital Inclusion For All (2012). Available at: http://www.broadbandcommission.org/Documents/bb- annualreport2012.pdf 16 the United States and Canadian models operate to give superior service to certain institutions on the basis that other users will still have access to broadband services. 4.2.4 Universal Broadband Targets within the Broadband Strategy National broadband strategies should aim to facilitate universal access and target areas in which additional support is required to achieve this. Certain groups may face further barriers to access that cannot be addressed through a singular national policy. Inherent inequalities in position may be reduced, among other things, by funding infrastructure in less-populated areas and providing computer equipment to certain groups. In addition, strategies to improve access affordability may be included in universal broadband targets. 4.2.4.1 Regional Access In regional areas some form of external involvement is frequently required to ensure that adequate service is provided. The high costs of establishing a network and small pool of potential subscribers make expansion into these regions an unattractive business prospect. However, once network infrastructure is established, service providers need only pay maintenance and operational costs. This substantially reduces the investment required from service providers to enter new markets. In regional areas the costs associated with rolling out and maintaining a network will differ according to the technology used. Policymakers should consider factors like the expected life span of technology deployed and potential for that technology to be upgraded or progressively replaced as technology developments and demand for broadband increases. The relative location of broadband connections to access nodes and the major network backbone should play a pivotal role in the choice of telecommunications infrastructure deployed, as this will significantly affect the quality of broadband access. Box 4.8: CASE STUDY: Regional Access in Chile A government scheme was established to extend high-speed broadband access into some remote mountain regions of Chile. Public and private investments of nearly US$110 million funded a combination or fibre and wireless network to provide broadband access at data transfer rates and prices similar to those available in larger cities. The goal of this project was to remove the disadvantage of distance from economic centres and encourage competition and efficiency across Chile. The benefitted localities were selected on the basis of their involvement with other national developmental goals, including agriculture and tourism. These selections reflect the Chilean Information Society Universal Access Policy, which seeks to enable rural communities with productive potential to participate more effectively in the economy. Although this particular project did not benefit all rural communities, its purpose was linked to the wider policy goal of ensuring increased broadband use contributed towards a more cohesive and efficient Chilean economy. 17 4.2.4.2 Broadband Pricing Service availability is the primary concern for achieving universal broadband access, but cost is also relevant. Pricing may also impact the rate of household internet use, which is frequently prioritised below business and institutional access. Studies of dial-up users on lower incomes found that cost was a major factor influencing the decision not to switch to broadband and that increasing household income led to increased demand for broadband technologies.37 In developing countries, broadband access costs can account for 60 – 80 per cent of the total costs of owning a computer.38 By contrast, the United Nations estimates that entry-level broadband services in developing countries should cost less than five per cent of the average monthly income in order to be considered affordable and to drive uptake.39 There has been some progress towards meeting this target, as access prices have fallen in over 120 countries in 2008-2009 and policymakers in developing countries have signalled their intent to make affordable pricing a key policy issue in order to drive broadband uptake.40 Once universal service is established, it is more likely service provider competition and related pricing and service levels will gain prominence in access debates. Box 4.9: CASE STUDY: Broadband pricing strategies The Broadband Commission has suggested substituting a prepaid package system for a monthly quota system.41 This approach has been adopted by the Intel World Ahead Program.42 Inspired by the success of prepaid mobile telephones in developing countries, the Intel World Ahead Program provides PCs and prepaid data download packages at low rates. For example, in Vietnam Intel has partnered with the major telcos Viettel and VNPT to provide 700 MB of data prepaid for $2. This result has increased the percentage of citizens who can afford broadband access from 12 to 70 per cent. In Brazil the approach has been to institute an affordable fixed line access cap of BRL$35 (around US$20) per month. It is hoped that this will enable fixed line service providers to compete with the popular 3G mobile services, which are comparatively slow and expensive. For a more 37 Janice Haugue and James Prieger, ‘Demand-Side Programs to Stimulate Adoption of Broadband: What Works?’ Review of Network Economics (2009) page 11-12. Available at: http://prodnet.www.neca.org/wawatch/wwpdf/priegerreport.pdf 38 John Davies, Vice-President Intel World Ahead Program. At page 56, the Broadband Commission for Digital Development, The State of Broadband 2012: Achieving Digital Inclusion For All (2012). Available at: http://www.broadbandcommission.org/Documents/bb-annualreport2012.pdf 39 Broadband Commission, State of Broadband 2012: achieving digital inclusion for all, September 2012, page 42. Available at: http://www.broadbandcommission.org/Documents/bb-annualreport2012.pdf 40 Broadband Commission, State of Broadband 2012: achieving digital inclusion for all, September 2012, page 42. Available at: http://www.broadbandcommission.org/Documents/bb-annualreport2012.pdf 41 The Broadband Commission for Digital Development, The State of Broadband 2012: Achieving Digital Inclusion For All (2012). Available at: http://www.broadbandcommission.org/Documents/bb- annualreport2012.pdf 42 John Davies, Vice-President Intel World Ahead Program. At p 56, Broadband Commission ‘The State of Broadband 2012: Achieving Digital Inclusion for All’ September 2012. Available at: http://www.broadbandcommission.org/Documents/bb-annualreport2012.pdf 18 extensive analysis, the broadband toolkit chapter on Brazil is available at: http://broadbandtoolkit.org/Case/br Box 4.10: CASE STUDY: Broadband pricing in Kenya Retail broadband prices in Kenya initially dropped following an 80% reduction in wholesale pricing. For example, a monthly E1 link charge fell from US$ 7,5000 to US$ 1,290 in 2007 and retail prices followed suit, with Telekom Kenya’s 256Kbps DSL monthly service falling from KES 16,008 to KES 2,999 (US$ 182 to US$34). However, there has been a lack of further price reductions, with operators preferring instead to compete on broadband speeds and additional features. Mobile internet services are popular in Kenya as operators have developed pre-paid data products which cater to the lower socio-economic end of the market. For example Safaricom offers as little as 5 MB a month for KES 5 (US$0.07) per day. For a more extensive analysis, the ICT toolkit chapter on Kenya is available at: http://broadbandtoolkit.org/Case/ke/ 4.2.4.3 Device Distribution Depending on levels of computer and internet penetration in a country, a computer-distribution program may either reduce disadvantages to certain groups where a large part of the population has access, or to provide an advantage to students where the general population does not have access. The ‘Home Access’ scheme, introduced in the United Kingdom in 2010, gave 270,000 low- income families a free computer and broadband access for one year. Box 4.11: CASE STUDY: One laptop per child in Rwanda As part of its objective to transform Rwanda into a knowledge-based society, the universal service fund which has been in operation since 2004 is being used to provide a One Laptop Per Child program in Rwanda’s primary schools coupled with internet access in educational institutions. As of 2012, the initiative has provided over 200,000 laptops for children currently in the educational system and also aims to provide training to teachers on how to prepare classes in digital format and troubleshoot software and hardware problems with the laptops. However, there are over 2.5 million children in the educational system and the program has only delivered 200,000 laptops in the 4 years it has been in existence and has to contend with an educational system where most of the schools are not linked up to the national electricity grid.43 43 GSMA, Universal Service Fund Study, April 2013. Available at: http://www.gsma.com/publicpolicy/wp- content/uploads/2013/04/GSMA-USF-Main-report-final.pdf and Gitura Mwaura, ‘What Kenya could learn from Rwanda on One Laptop per Child’, New Times, 18 April 2013. Available at: http://www.newtimes.co.rw/news/index.php?i=15331&a=66047 19 Box 4.12: CASE STUDY: Armenia’s Computer for All Program Armenia’s attempt to boost digital literacy resulted in the Computer for All Program a public- private partnership with the Enterprise Incubator Foundation and Hewlett Packard, which aimed to ensure access to new computers and lap for all citizens via a reduced pricing model and financing and subsidisation schemes. The program objectives stipulate that 10,000 computers should be distributed each year utilising government lines of credit to end users. The project has a budget of US$3.5 million and also aims to provide technical support and broad training programs to the population on how to use computer systems. For a more detailed analysis please see: http://documents.worldbank.org/curated/en/2010/10/13049591/armenia-e-society-innovation- competitiveness-project 20 4.3 Mechanisms 4.3.1 Government Intervention Governments have an important role to play in the development of broadband infrastructure, given the centrality of access to this technology to economic and social development. Not only do broadband networks make national economies more efficient, they can assist government agencies with the delivery of important services like healthcare and education. Governments are also aware of the risks of being left behind, with decisions about international business investment increasingly dependent on ready access to broadband networks. In this context, over the past decade governments have tended to re-engage in the development of telecommunications infrastructure, reversing the trend of diminishing government involvement in the sector following the trend to privatisation in the 1990s.44 The manner in which governments have engaged in the provision of broadband infrastructure has been diverse, reflecting the needs and limitations of different jurisdictions and markets. While each government is likely to tailor their intervention in the market to local conditions, there can be significant benefits to policymakers in studying the successes and failures of other government interventions. Box 4.13: CASE STUDY: South African municipalities in race to provide free Wi-Fi Municipal authorities in the South African cities of Cape Town, Tshwane and Stellenbosch have proceeded to roll out free Wi-Fi with a particular focus on low-income suburbs. Authorities in Tshwane have stated that increased opportunities to utilise broadband are seen as a priority tool to tackle systemic educational and employment problems. Free Wi-Fi is expected to be delivered by November 2013 in 5 locations across Tshwane including community centres, University grounds and the main city square in a bid to ensure internet access is available to as many residents as possible.45 Tshwane has a roadmap to deliver Wi-Fi in all schools and educational institutions by 2016.46 Stellenbosch’s CBD now has activated free Wi-Fi with the project moving into its second phase to extend the network coverage to the outer suburbs of the town. The free Wi-Fi does not support large downloads but otherwise allows for normal internet surfing and related activities. The 44 Morten Falch and Anders Henten, ‘Public private partnerships as a tool for stimulating investments in broadband’ (2010) 34(9) Telecommunications Policy 496, 497. 45 Duncan Alfreds, 24 Hour News, Tshwane to roll out free Wi-Fi, 15 August 2013. Available at: http://www.news24.com/Technology/News/Tshwane-to-roll-out-free-Wi-Fi-20130815 46 ITU, Internet for all: South Africa towns’ race for free public Wi-fi, 29 August 2013. Available at: http://www.itu.int/ITU- D/sis/newslog/2013/08/29/InternetForAllSouthAfricaTownsRaceForFreePublicWifi.aspx 21 initiative is seen as a vital tool in promoting entrepreneurship in the area as well as aiding in the alleviation of local unemployment.47 Government intervention to improve broadband access can focus on reforms to regulation, market interventions or on the provision of infrastructure. Some governments may choose to intervene at each of these levels, while others may choose to narrow the focus of their intervention. The types of intervention that could be undertaken at each of these levels are set out in the table below. Table 4.2: Options for Government Intervention Level of intervention Possible government interventions: Anticipated effect of intervention Regulatory reforms  governments may allowing for open access to Improving the economic broadband supporting infrastructure like pits efficiency of broadband and pipes, towers, points of interconnection, service delivery and and international gateways; increasing competition. Both of these will likely  governments could consider structural lead to lower consumer separation of telecommunications providers, prices for services and between wholesale and retail arms; and/or higher user take-up.  governments could implement fair and competitive spectrum sharing arrangements. Market intervention  governments may intervene to stimulate Stimulating demand will demand in an emerging broadband market make private sector by loaning or subsidising computer hardware investments in the purchase by individuals or businesses. broadband market more attractive and therefore more likely to be delivered. Infrastructure  governments may choose to build broadband Government intervention provision infrastructure itself; will mean that broadband infrastructure  governments may choose to offer incentives is built in places where to the private sector to build broadband the market would not infrastructure in certain areas; and/or build it otherwise.  governments may require the private sector to roll out broadband coverage in certain areas as a licence condition, or other similar requirement. Facilitation of  governments can contribute part of the initial Infrastructure will be public/private investment in an infrastructure project; and deployed in areas which would not otherwise 47 Ralph Muller, ‘Free Wi-Fi for Stellenbosch, My Broadband, 21 February 2012. Available at: http://mybroadband.co.za/news/broadband/43829-free-wi-fi-for-stellenbosch.html 22 Level of intervention Possible government interventions: Anticipated effect of intervention partnerships  Government can offer other incentives or receive it due to favourable operating conditions to private perceived unprofitability entities. but at lower cost to government and lower risk to private entities than would otherwise be the case. In developing broadband policy plans, policymakers may consider the approaches outlined above. Some policy interventions may prove more successful in one environment or another, giving policymakers the flexibility to shift resources to the interventions that are proving successful. Box 4.14: CASE STUDY: New Zealand’s multipronged approach to broadband rollout New Zealand has adopted an integrated approach to broadband infrastructure construction and operation. On the supply side, the government-owned Crown Fibre Holdings is contracting directly with four companies that will build and operate the broadband network. This is supplemented by grant programs like the Rural Broadband Initiative that specifically support broadband rollout in rural areas. The New Zealand Government is also involved in demand-side initiatives that support network expansion by stimulating use and application of the network service. Examples of these demand-side programs include subsidising computer hardware, broadband access and the provision of digital literacy programs. 4.3.2 Improving the Legal, Regulatory and Business Environments Universal access can be driven by a combination of demand stimulation and various policy and legislative mechanisms to attract investment in and uptake of such services. Efforts to improve the legal, regulatory and business environments can provide a cost-minimising approach to extending service, by encouraging private sector expansion where market forces have not achieved this naturally. In particular, rolling out broadband services in remote regions can be incentivised through improved tax statuses and eased license conditions. 4.3.2.1 Address Universal Access and Service Challenges through Policy and Regulatory Solutions Governments can strategically adopt policies and take regulatory actions to encourage private service providers to increase the broadband coverage they offer. This approach entails mutual benefits for governments and service providers. Private providers are encouraged to invest in increasing their coverage as factors impeding their progress are identified and addressed. In turn, governments incur minimum cost as they are able to target their financial input specifically at 23 those areas which do not attract private providers in the first place. Potential solutions include sponsoring programs to increase demand for broadband services, financing network infrastructure and removing barriers restricting competition within the marketplace. Where a traditional framework would impose positive universal service obligations upon designated operators, this approach is less direct and encourages private initiatives. Rural areas are a common example of unserved or underserved regions, as the costs of constructing the requisite infrastructure are high and the potential customer base is low. However, an entirely government-funded broadband infrastructure rollout may be prohibitively expensive and not necessary to persuade providers to increase their coverage. Where viable, one of the advantages of a national broadband solution over targeted regional projects is that high costs of rural rollout may cross-subsidised by savings made on lower cost urban rollout. This strategy, adopted by the Australian National Broadband Network, allows wholesale broadband access to be provided at the same price, regardless of the area served. This further reduces disincentives to rural providers, and promotes equality amongst access seekers. Box 4.15: CASE STUDY: Brazil’s policy and regulatory solutions to achieve broadband development Broadband access rates are directly linked with population density and wealth. In Brazil, high levels of wealth disparity and a vast populated land area have meant that broadband penetration is lower than in other countries of equivalent income and development levels. There is limited fixed national telecommunications infrastructure for long haul data transmission and a lack of middle mile infrastructure to connect all municipalities to national backbones. Competition in the fixed line sector is low, although there is more competition between 3G mobile networks. In addition, where service coverage is available the costs of access equipment are high due to import duties, and many of the poor depend on cybercafés and mobile 3G connections. Universal service goals incorporated in telecommunications licensing schemes in Brazil currently do not include broadband services. However, revenues are collected from public telecommunication providers and deposited in a Universal Service Fund which creates infrastructure which can be used to support broadband services. In order to address the issues impeding access, governments at a national, regional, state and municipal level have implemented a range of strategies designed to promote network expansion and improve affordability. Examples include:  a National Broadband Plan (PNBL) with a budget of R$1 billion (US$437 million) per year was implemented in 2010 with the aim of tripling uptake by 2014. This will bring access to at least 40 million homes (serving 68 per cent of the population) at a bit rate of at least 1 Mbps;  the dormant former state-owned monopoly operator Telecomunicacoes Brasileiras (Telebras) has been tasked with implementing the required network expansion under the PNBL. Deficiencies in existing backbones will be addressed by bringing oil and electricity operators’ fibre networks on board to fill gaps; 24  the PNBL has established a monthly pricing target of R$35 (US$15) based on research that 70 per cent of Brazilians who are still offline would be willing to pay this amount for a connection;  the national telecommunications regulator, Anatel, has proposed that service providers with more than 50,000 connections be required to guarantee delivery of connections at least at 60 per cent of the headline rate, raising this to 70 then 80 per cent over the two subsequent years. Currently, operators on the Telebras network are only required to provide a minimum of 20 per cent of customers access at the target bit rate, meaning that many connections operate at significantly less than the stated rate;  in 2011 Anatel also implemented a General Plan for Competition (PGMC) which will compel large telecommunications providers to share network infrastructure with smaller players, who must be offered wholesale pricing lower than retail service pricing;  radio spectrum has been freed up to allow mobile 3G and fixed wireless services to be expanded. These solutions are particularly well-suited to meet the requirements of isolated areas where cable connections to individual premises and users may be expensive;  licence fees have been reduced and duplications across overlapping government areas simplified to encourage market entry;  public access facilities are being expanded under the national government’s digital inclusion strategy. The Serpro program, for instance, has rolled out over 8000 telecenters since 2003 and provides free broadband access across 98 per cent of municipalities. In addition, the Brazil Digital Network Database is being created to integrate telecenter management and form a database of digital inclusion initiatives in order to help shape government policies; and  a Broadband in Schools and a One Laptop Per Student program also work to facilitate access linked with education. For a more extensive analysis, the broadband toolkit chapter on Brazil is available at: http://broadbandtoolkit.org/Case/br A balance of incentives and regulatory requirements may be sufficient to persuade private sector investment. This attitude of quid pro quo is also demonstrated in Sweden, where government policies require recipients of public funds to operate open-access networks in a non- discriminatory manner. Similarly, in the Czech Republic, legislation has been implemented to enable the government to set aside 1 per cent of the proceeds of the privatisation of Český Telecom to co-finance infrastructure projects. Those receiving funds will be required to operate open-access networks. 25 4.3.2.2 Revise the Scope of Universal Access and Service to Include Broadband Most global telecommunications laws provide for universal service obligations to be imposed on a telecommunications provider to ensure citizens’ access to services. These initially focused upon basic telephony services, but have recently been expanded to include broadband services. The United Nations aims to ensure that all countries at least include broadband access in their national service definitions by 2015.48 Unlike a national broadband plan, a universal service definition will generally establish technology-neutral aspirational service levels, costs and coverage. This allows those called upon to provide universal service to adjust their delivery strategies in a manner appropriate to their business. Universal access and service does not necessarily demand connections to individual premises, but instead may encompass institutional or communal access, where appropriate. Table 4.3: Number of economies with plans to adopt a national policy to promote broadband, 201149 Region Total countries National policy to No national policy, No national policy, included surveyed promote broadband but plans to adopt no plans to adopt in place one one Africa 33 23 6 4 Arab States 13 5 7 1 Asia and Pacific 30 24 2 4 CIS 7 3 2 2 Europe 39 37 0 2 The Americas 30 20 4 6 Other 1 (Hong Kong) 1 0 0 The following are examples of countries that have revised the scope of their universal service and access policies and universal service funds to include broadband services:  as set out in Part 4.1.2, in Finland access to broadband is a legal right. Since July 2010, every person in Finland has a guaranteed right to a one Mbps broadband connection;50 48 Target 1, Broadband Commission for Digital Development, Broadband Targets for 2015. Available at: http://www.broadbandcommission.org/Documents/Broadband_Targets.pdf 49 Broadband Commission Survey on Broadband Policies Worldwide (Selected Countries report, 2011). Available at: http://www.broadbandcommission.org/Documents/NationalBBPolicies_2012.pdf 26  India was one of the first countries to include broadband in the Universal Service Access Fund (UASF) in 2006. The UASF allows for the support of broadband connectivity and mobile services in rural and remote areas of the country;  in Morocco, the priorities of the Universal Service Fund (USF) were expanded through a revision of the law in 2004 to include rural public telephony, installation of community internet centres, and an increase in broadband capacity through various programs;51  in Switzerland, the government decided that, beginning in January 1, 2008, universal service providers must provide a broadband connection to the whole population, via digital subscriber line (DSL), satellite, or other technologies. Connections must offer bit rates of at least 600 kbps downstream and 100 kbps upstream, and the monthly subscription cannot be more than SWF69 (US$85); and  the United States aims, as part of the universal service objective, to provide access to broadband services to all people at an initial rate of 4 Mbps downstream and 1 Mbps upstream by 2020.52 A number of countries, including Korea, Japan, the United Kingdom and Australia, have chosen to develop plans or strategies to ensure that broadband is available to all through other universal service policies. Since 2009, Australia has been committed to the roll out of the National Broadband Network (NBN), a wholesale-only, open access network delivering broadband to all Australian premises. Some countries have also opted to not support broadband through inclusion in universal service obligations or other commitments to provide broadband for all. Countries in this group include Denmark, Norway, Germany, the Netherlands and Ireland.53 Box 4.16: CASE STUDY: Universal Service Obligations and National Broadband Network in Australia The Telecommunications (Consumer Protection and Service Standards) Act 1999 creates a Universal Service Obligation (USO) in Australia. The USO obliges certain Universal Service Providers (USPs) to ensure that all people in Australia have reasonable access on an equitable basis to standard telephone services, payphones and prescribed carriage services. In 2011 the Australian Government reached an agreement with the incumbent telecommunications provider, Telstra, for the ongoing delivery of voice and payphone services 50 ‘Finland: Broadband Access Made Legal Right in Landmark Law” Huffington Post (USA), March 2010. Available at: http://www.huffingtonpost.com/2009/10/14/finland-broadband-access_n_320481.html 51 Law no. 55-01, adopted in November 2004, made important modifications in the setup of universal service in Morocco. The universal service definition was extended to include the supply of value added services, including internet. A new approach relating to the operator’s contribution to the mission of universal service was also introduced, including regional development obligations and the introduction of the “pay or play” mechanism. 52 The United States of America’s National Broadband Plan. Available at: http://www.broadband.gov/ 53 Angela Calvo, ‘Universal Service Policies in the Context of National Broadband Plans’ (OECD Digital Economy Papers, No. 203) (2012). Available at: http://dx.doi.org/10.1787/5k94gz19flq4-en 27 under the USO while the telecommunications industry transitions to the National Broadband Network. In March 2012 universal service reform legislation was passed to establish the Telecommunications Universal Service Management Agency (TUSMA). TUSMA manages the agreement with Telstra and grants to ensure that universal service obligations are met. TUSMA’s current grants include:  the agreement with Telstra to deliver the Universal Service Obligation (value: approximately A$230 million (US$213 million));  the agreement with Telstra to provide public payphones which are reasonably accessible to all Australians (contract value up to A$40 million per year);  the agreement with Telstra to provide emergency call services (contract value up to A$20 million per year);  the agreement with the Australian Communication Exchange to deliver a National Relay Service; and  the agreement with Telstra to extend the zones where local calls are untimed to cover larger rural and regional areas. Currently, the government business enterprise NBN Co is in the process of rolling out a new national broadband network. The NBN is a wholesale-only, open access network delivering high quality broadband to all Australian premises. The network will connect 93 per cent of Australian premises with fibre cables, while the remaining 7 per cent will receive broadband by fixed wireless or satellite service, and be completed by 2020. As the network rollout progresses, voice customer contracts within the fibre footprint will be migrated from the existing copper and HFC networks to the NBN fibre networks. The Telstra Structural Separation Undertaking (SSU) and Migration Plan require Telstra to progressively disconnect its copper and hybrid-fibre coaxial (HFC) networks as the NBN fibre network is rolled out. Similarly, the Definitive Agreements between Telstra and NBN Co require Telstra to progressively disconnect its copper and HFC networks when they fall within the fibre footprint. As a result, in order to meet its USO and other obligations Telstra must provide customers with voice services over the fibre network, where it is present, or otherwise maintain its existing network services. Although plans to provide universal broadband access are not included in the USO, the national broadband network will connect all homes and businesses. While the National Broadband Network is being rolled out, NBN Co must provide interim satellite service to eligible users in rural and remote areas who will be served by the NBN Co fixed wireless and satellite services, when they are completed. When the NBN is completed, it will be the responsibility of TUSMA to distribute universal service funds to ensure that both voice and broadband services are provided on a retail basis as NBN Co’s network is only supplied on a wholesale basis. 28 Box 4.17: CASE STUDY: Malaysian High Speed Broadband Network In September 2008, the Malaysian government announced an agreement with the incumbent fixed-line operator, Telekom Malaysia for a high-speed broadband network. Under the terms of the agreement, Telekom Malaysia is required to rollout an access network to provide a High Speed Broadband (HSBB) service to households and businesses in certain high economic impact areas. The access network uses three technologies: Fibre-to-the-home (FTTH), Ethernet-to-the-home and Very High Speed Digital Subscriber Line (VDSL2). The Public Private Partnership (PPP) is phased over ten years, with phase 1 (providing HSBB access to over 1.3 million premises) ending in 2012. The residential HSBB service will have a minimum speed of 10 Mbps, with options available up to 100 Mbps. Services to business customers are up to 1 Gbps. The expected investment costs were split between the government and Telekom Malaysia in a PPP. The government and Telekom Malaysia committed to investing RM2.4 billion (US$780 million) and RM8.9 billion (US$2.9 billion) respectively. Certain services provided over the HSBB network are subject to access regulation through the Access List under the Communications and Multimedia Act 1998. Specifically, the Malaysian Communications and Multimedia Commission has defined two layer 2 access services (one with quality of service selected by the access seeker, the other provided on a best efforts basis) specific to the HSBB, which Telekom Malaysia must supply to access seekers on reasonable terms and conditions. The Access List also contains backhaul transmission services. 4.3.3 Support Private Sector Network Build-Out: Supply Governments may adopt a range of instruments to accelerate the supply of broadband ahead of or beyond the market. These can include subsidies for investment, equity in PPPs, facilitated access to rights-of-way, preferential tax treatment, long-term loans for investment in local currency, on-lending loans, credits or grants from international development organizations, and guarantees to offset regulatory or political risk. Implementation of such policies can encourage operators to focus on deploying networks and services in unserved areas since they will be able to earn a higher rate of return on their investments over the long-term. The most common practice is for the government to contribute money when needed to ensure that important investments in rural development are commercially viable. Governments provide one-off subsidies for investment and start-up, focusing on unserved and underserved areas. The New Zealand government, for example, will provide approximately NZ$300 million (US$245 million) towards the cost of the Rural Broadband Initiative, which aims to deliver faster broadband to rural households and schools: 97 per cent of rural households and enterprises 29 receiving at least 5 Mbps, with the remainder receiving at least 1 Mbps, and 97 per cent of rural schools receiving at least 100 Mbps (fibre), with the remainder receiving at least 10 Mbps.54 Alternatively, governments can contribute equity to PPPs with similar objectives. For example, the government can help to build broadband backbone networks that are then made accessible in equal terms to all interested downstream providers. When well designed, these practices can mobilize substantial private sector investment, enable large projects that otherwise would not materialize, contain the cost and risk borne by the government, and jump-start sustainable markets from which the government can exit quickly. PPPs used in broadband projects include the following examples:  in Ireland, the government has funded the development of publicly owned, privately operated Metropolitan Area Networks (MANs). The MANs provide wholesale access to networks of ducting, subducting and high capacity fibre optic cable in urban areas. The MANs operate on an open-access basis;  in the Netherlands, Amsterdam’s open-access, wholesale FTTH network was developed as a PPP between the local municipality, housing corporations and private sector investors. Each group invested €6 million for a one-third stake in Glasvezelnet Amsterdam (GNA), the company delivering the project;  New Zealand features a PPP agreement between CFH and Chorus, the structurally-separated network business which emerged from the voluntary demerger of Telecom New Zealand. The agreement provides for a 50/50 debt- equity instrument (with an investment by CFH of up to NZ$929 million) as the mechanism for Crown funding of Chorus’ fibre network rollout;  Qatar’s National Broadband Network (QNBN) is a government-funded project that aims to accelerate the deployment of a FTTH network nationally. QNBN provides equal, non-discriminatory access to the FTTH network, enabling any operator to use the infrastructure to deliver services. QNBN is also part of a number of initiatives introduced to stimulate the take-up of FTTH services, notably Qatar National Vision 2030 and Qatar ICT Strategy 2025;55 and  Saudi Arabia’s Universal Service Project provides grants for operators to provide voice and broadband access to unserved and underserved locations using wireless technology, as part of the universal access/universal service policy established in 2006.56 54 New Zealand Ministry of Business, Innovation and Employment: Rural broadband initiative. Available at: http://www.med.govt.nz/sectors-industries/technology-communication/fast-broadband/rural-broadband- initiative 55 Qatar National Broadband Network, ‘Delivering on the vision’ September 2012. Available at: http://qnbn.qa/qnbn_article/delivering-on-the-vision/ 56 Saudi Arabia’s Communication and Information Technology Commission, Press Release: Universal Service Fund Provides Services to 482 Towns and Villages in its Pilot Project , March 2012. Available at: http://www.citc.gov.sa/English/MediaCenter/PressReleases/Pages/PR_PRE_064.aspx 30 It may be possible to reduce the cost of broadband development by giving investors access to rights-of-way along railways or roads, on rooftops, and on other public property. Absent alternative uses for these rights-of-way, their opportunity cost to the public is negligible, and if they are made equally available to all interested parties, their use will not distort competition. Therefore, granting rights-of-way may help to reduce the total investment cost of broadband development. One of the most significant obstacles in rolling out new communications infrastructure can be the myriad of consents and approvals that an operator needs to obtain from central and local government. In some countries such as India, government is facilitating and fast-tracking these consents and approvals to speed up the deployment of broadband networks. Box 4.18: CASE STUDY: Right of way permissions in India In India, obtaining right of way (RoW) permission is regarded as a major hurdle in rolling out new telecommunications infrastructure. Service providers have noted that local authorities take a long time to grant permission. Permission requirements also give rise to additional cost as service providers must pay for the cost to local government and/or agencies granting a RoW permission. This is recognised in the 2012 National Telecom Policy, which notes the need to review and simplify policies for RoW processes to facilitate smooth coordination between service providers and the relevant government agency.57 Granting exceptional tax treatment is another tool policymakers may be able to use. Good tax practice in general suggests that a particular economic activity should not be singled out for tax conditions that do not apply to all like activities throughout the economy. This means that taxes or duties that apply only to broadband should be phased out and, conversely, that exemptions from generally applicable obligations should be avoided. The Hungarian government, for example, took efforts to institute tax incentives to further the build-out of broadband. Specifically, Hungary’s government grants a tax reduction of 50 per cent on profits as a way to support the construction of broadband infrastructure. The concessions are available only to telecommunications companies if their expected profits exceed Ft50 million (US$250,000) and if they have invested at least Ft100 million (US$500,000). The tax allowance cannot be applied to Internet Service Providers (ISPs) if the infrastructure is built in areas where internet service is already provided or where the investment does not contribute to the growth of infrastructure. Malaysia is another example of a government using fiscal measures to encourage private investment in broadband. The Malaysian government has introduced tax allowances on ‘last mile’ broadband equipment, which includes giving ‘last mile’ network facilities providers an investment allowance on capital expenditure spent on broadband. In addition to tax allowances, import duty and sales tax exemptions are available on broadband equipment and consumer access devices.58 57 India: National Telecom Policy (2012). Available at: http://www.dot.gov.in/ntp/NTP-06.06.2012-final.pdf 58 Malaysian Communications and Multimedia Commission, ‘National Broadband Initiatives’ .myconvergence (Special Edition, March 2010) page 35. Available at: http://www.myconvergence.com.my/main/images/stories/SpecialEdition/pdf/MYcon_special_ALL_low.pdf 31 Investment in new open and competitive networks, including broadband networks, can also be supported by the actions of national and local authorities in lowering costs. The European Commission’s 2009 Guidelines on the Application of State Aid Rules (the 2009 Guidelines), for example, lay down the conditions for public financial support on nonmarket terms for broadband deployment in commercially unattractive or unviable areas. The main objective of the 2009 Guidelines is to assist the actions of national and local authorities. The 2009 Guidelines are presented as part of the broadband package, together with the two other broadband commitments made by the Commission in the Digital Agenda for fast and ultra- fast internet:  the Next-Generation Access (NGA) Recommendation to provide regulatory guidance to national regulators; and  the Radio Spectrum Policy Program to improve the coordination and management of spectrum and facilitate, among other things, the growth of wireless broadband. In the 2009 Guidelines, the European Commission recognises that broadband networks tend to cover only part of the population since they are generally more profitable to roll out where potential demand is higher and concentrated (that is, in densely populated areas) rather than in areas with less population, specifically because of the high fixed costs of investment and high unit costs. The European Commission distinguishes acceptability of state intervention among:  areas where no broadband infrastructure exists or is unlikely to be developed in the near term. Here, support is considered to likely promote territorial, social and economic cohesion, and address market failures (so-called white areas);  areas where market failure or a lack of cohesion may exist despite the existence of a network operator, thus requiring a more detailed analysis and careful compatibility assessment prior to allowing state intervention; and  so-called black zones, which are defined as a given geographic zone where at least two broadband network providers are present and broadband services are provided under competitive conditions (facilities-based competition). In these black zones, the commission does not consider that there is a market failure, so there is little scope for state intervention. In the absence of a clearly demonstrated market failure, state funding for the rollout of an additional broadband infrastructure is not available. 32 4.4 Instruments of Fiscal Support for Universal Broadband Access Subsidies are a common form of direct government intervention in telecommunications markets. Subsidies are likely to exist whenever the final price paid for a good or service is less than the cost of providing that good or service. Companies may, for a time, cross-subside one set of customers with the profits from another – however the more common form of subsidy involved a direct government contribution making up the difference between the cost of private provision of a service, and the price consumers pay for it. This section considers how subsidies can be used to improve broadband access. In particular, it focuses on the considerations policymakers should give to subsidy design to ensure that subsidies are spent appropriately. 4.4.1 Subsidies as an instrument of Fiscal Support Policymakers should approach subsidies with a degree of caution. The literature of economic literature has, for some time, warned of the dangers of direct government intervention in markets and the distortions such interventions can cause.59 Further, the fiscal pressure imposed by subsidies is not likely to be counterbalanced by the benefits they deliver, particularly in the short- term. In addition to this, most countries have bilateral and multilateral obligations to other nations that often involve commitments that limit or exclude the provision of government subsidies to national industries or discrimination in the provision of such subsidies. Policymakers should examine each of these factors before considering whether subsidies could, or should, form part of broadband infrastructure policies and plans. Having considered these factors, policymakers may consider the use of subsidies as a tool of policy, particularly in already highly regulated industries like the supply of telecommunications, water or electrical services. In certain circumstances subsidies may prove effective in mitigating or removing the effects of market failures in these sectors. Subsidies are a medium-intervention strategy.60 Although subsidies require investment of fewer resources than direct infrastructure construction or ownership by government, subsidies represent a significant commitment to market involvement. If implemented prudently, subsidies help to deliver services to groups who would otherwise miss out in an efficient manner. However, 59 Ludwig von Mises, Interventionism: An Economic Analysis (1940). Edited edition available at: http://oll.libertyfund.org/?option=com_staticxt&staticfile=show.php%3Ftitle=2394&chapter=226184&layo ut=html&Itemid=27 60 François Jeanjean, ‘Subsidising the next generation infrastructures. Consumer -side or supply-side?’ (2010) 12(6) Info, pages 95-120. 33 without adequate levels of transparency, probity and fairness subsidy programs may present significant economic and political risks.61 Subsidies can be financed directly from domestic government budgets or from international development assistance. They can also be a policy mechanism used by UASFs to distribute funds collected from a universal serve obligation or a levy. 4.4.1.1 The rationale for subsidies The economic rationale for subsidies is demonstrated at the economy-wide level. Subsidies cover the difference between the costs of providing a service and the revenues that are then recovered from selling that service. Without a subsidy, investments in broadband infrastructure in certain areas would not return economic profit to firms, so those investments are unlikely to be made. The rationale for government providing a subsidy to make particular investments worthwhile for private businesses is that the overall benefit of increased broadband coverage is both socially and economically beneficial. The economic impact of government investment in broadband infrastructure, through mechanisms like the provision of subsidies, can provide both immediate and long-term positive economic effects. Recent econometric analysis measured growth in 120 countries between 1980 and 2006. This analysis demonstrated that for every 10 per cent increase in penetration of broadband services across an economy the economy grew by 1.3 per cent, on average.62 A particular benefit to subsidies is the fact that they provide a leveraged benefit. In providing a subsidy that covers the difference between a marginal project and a commercially profitable one, governments can induce significant commercial investment for a fraction of the cost of that investment. Rather than having to pay for the whole cost of the infrastructure, as the government would do if they built it themselves, a subsidy can deliver the benefit of the infrastructure provision for a fraction of its cost. Broadband investments delivered through subsidies are more likely to be fiscally sound than other policy alternatives, as the market-led nature of the investments is likely to deliver greater value for money than other approaches.63 Private sector firms are likely to have advantages like skilled staff, a deep understanding of technological options and the ‘reach-back’ into the corporate knowledge of international parent companies that should contribute to the efficiency and effectiveness of market-led programs. 61 Susan Rose-Ackerman, ‘The Political Economy of Corruption—Causes and Consequences’ (1996) Public Policy for the Private Sector (The World Bank Note no 74). Available at: http://rru.worldbank.org/documents/publicpolicyjournal/074ackerm.pdf 62 Christine Zhen-Wei Qiang, ‘Telecommunications and Economic Growth’ Unpublished paper, World Bank, Washington, DC (2009). 63 Christine Zhen-Wei Qiang, ’Broadband infrastructure investment in stimulus packages: relevance for developing countries’ (2010) 12(2) Info, pages 41-56. 34 Box 4.19: CASE STUDY: Japan - ICT Grant and Collaboration with Local Governments 1. ICT Grant Japan's New IT Reform Strategy (IT Strategic Headquarters, 2006) and Digital Divide Elimination Strategy [MIC], 2008) both set FY2010 (March 2011) as the national target for eliminating all of its Broadband Zero Areas. A Broadband Zero Area is a region where broadband service is not available, even to households in the region that wish to subscribe. Eliminating all Broadband Zero Areas means making broadband service available to every household nationwide. While Japan was working to meet its goal by the end of FY 2010, MIC prepared several kinds of promotion schemes, targeting both local government and telecommunications operators, in order to support broadband deployment. Promotion schemes included grants, interest aid, debt guarantees, and tax breaks. Figure 4.3. Promotion Schemes for Nationwide Broadband Deployment (1) One such promotional scheme was the ICT Grant, a grant available to local governments for building broadband facilities to address the digital divide. Under the ICT Grant, a local government submitted its proposal to MIC and if approved, MIC paid one third of the total broadband facility installation cost. In many cases, targeted areas were also depopulated. Thus the ICT Grant could be combined with a Depopulated Area Development Bond, a local government bond providing even further reimbursement. If this bond was available, a local government would be responsible for only 20% of the total cost. 35 Figure 4.4. Promotion Schemes for Nationwide Broadband Deployment (2) ICT Grant Once these broadband facilities were built, the local governments often formed long-term contracts (Indefeasible Right of User: IRU) with telecommunications operators, under which the local government let telecommunications operator use the facilities in exchange for providing broadband service to the community. In this situation, the operators did not have to pay broadband facility installation costs. The ICT grant was technology neutral. It was up to local governments to decide which broadband type to choose based on their needs. 36 Figure 4.5. Broadband Type Comparison The ICT grant was also telecommunications operator neutral. In many cases, local governments made contract with telecommunications operators through open bidding. The ICT Grant played a key role in ensuring that Japan reached its goal of eliminating all Broadband Zero Areas by the end of FY 2010. As of March 2009, it was estimated that about 640,000 households did not have access to broadband. This is about 1% of households in Japan. At the time of the FY2009 Supplementary Budget, MIC contacted all local governments that still had Broadband Zero Areas within their territories. About 340 proposals were submitted by the local governments, and MIC approved all them all in the early fall of 2009. The total project cost was about JPY 230 billion and about 340,000 households were expected to gain access to broadband. As for the approximately 300,000 households remaining, many of them were expected to gain access to broadband due to telecommunications operators’ service area expansion. For those areas where local governments did not submit a proposal and that still remained uncovered (about 10,000 households), they were to be provided service by satellite broadband. 37 Figure 4.6. Efforts for Nationwide Broadband Deployment 2. Collaboration with Local Governments While Japan was working on accomplishing its national target to make broadband available each household nationwide by the end of FY 2010 (March 2011), the Japanese Ministry of Internal Affairs and Communications (MIC) encouraged local governments to actively participate in this initiative. In Japan there are 47 prefectures and about 1,800 municipalities, and as of March 2009 about 640,000 households were living in Broadband Zero Areas (areas where broadband service is not available). There were several reasons for these Broadband Zero Areas. For example, about 60% of Japan’s land areas is mountainous, and there exist hundreds of inhabited islands. Also, Japan is facing an aging and shrinking population problem, which is especially manifest in rural areas. Small rural villages are on the fringe of extinction due to aging and the migration of the younger generations to urban areas. Because of these factors, there exist certain areas where telecommunications operators cannot make a profit and thus do not provide broadband services. Since Broadband Zero Areas create a potential digital divide, it was necessary for the national government together with local governments to work towards eliminating them. Here are two examples how the central Japanese government worked with local governments: (a) 11 Local Broadband Promotion Committees 38 MIC has 11 Branch Offices nationwide. Each branch office organized a Broadband Deployment Committee to discuss how to best deploy broadband. Each Committee was comprised of MIC’s Local Branch Office, local governments (prefectures and municipalities), and telecommunications operators. Based on their input, MIC regularly updated the Prefecture Broadband Availability Maps. These maps illustrated what kind of broadband service was available. (Note: the map shown below is an early example). Figure 4.7. Broadband Availability Map (b) Prefecture Roadmap for Broadband Nationwide Development In 2007 the Association for Promotion of Public Local Information and Communication (APPLIC) formed the Broadband Nationwide Deployment Promotion Working Group in order to reach the national target. Members included scholars, prefectural representatives, telecommunications operators, and manufactures. MIC participated in this initiative as an observer. The WG held meetings regularly to share best practices and discuss common problems. Also, based on the input from all 47 prefectures, the WG every year updated Prefecture Roadmap for Broadband Nationwide Deployment, which illustrated each prefecture’s plan to eliminate Broadband Zero Areas. 39 4.4.1.2 Good subsidy practice A World Bank research working paper published in 2004 set out three elements of good subsidy practice,64 when a subsidy is being used to deliver infrastructure to rural communities:  service providers invest their own resources to set up facilities and provide services, at their own risk;  government provides subsidies to help service providers meet start-up costs, assist customers connect to services, and cover customer’s costs like installation and connection charges or the cost of in-premises equipment; and  customers pay for the service, at least at the level required to cover network maintenance and operating costs. Customers are also required to pay at least a part of the cost of the connection of the network to their premises, to confirm their demand for the service. Subsidies should ideally be limited to only the small amounts of the service which are necessary with the customer paying for the rest of their consumption. The rationale behind these principles is that subsidies should be directed at providing access to services, with as minimal impact on market processes as possible. Subsidies can be helpful in encouraging the building of infrastructure and the connection of customers to it. 4.4.1.3 Competition for subsidies Another crucial element of good subsidies practice is competitive selection processes. When determining which private sector enterprises government will partner with in the subsidised provision of broadband infrastructure, policymakers should consider the tangible benefits provided for by competition:  competitive subsidy provision is likely to deliver significant savings to governments, as it ensures that the enterprises with the best business models, technological solutions and market acumen are selected to receive the subsidies;  regular competitive processes are likely to reduce the risk of corruption or waste in government subsidy programs; and  the level of the subsidy is determined by the market, rather than by policymakers. A least-cost subsidy auction is a proven mechanism for introducing competition into the provision of subsidies. This approach has been used successfully by governments in their partnerships with the private sector that have delivered a range of services, particularly telecommunications, to areas beyond the current reach of the market. A least-cost subsidy auction is likely to involve the following stages: 64 Björn Wellenius, Vivien Foster, Christina Malmberg-Calvo, ‘Private Provision of Rural Infrastructure Services: Competing for Subsidies’ (2004) World Bank Policy Research Working Paper 3365, page 3. 40  government outlines the scope of the program and its objectives: service levels, population coverage, geographic reach and the maximum level of subsidy on offer;  government communicates these goals to industry through a Request for Proposals process. Key terms of the subsidy offer are also likely to be communicated at this stage, including the length of the program and any special requirements government may have;  private firms prepare bids in response to the request. If firms have specific questions about the project objectives and auction process government answers them, but information is shared between all potential tendering parties – through mechanisms such as a project extranet;  private firms are free to develop their own business strategies, technological solutions and pricing structures. They communicate these plans to Government through responses to the Request of Proposals;  proposals are analysed in a fair and transparent manner. Government selects the proposal that delivers the best value for money;  government enters into an agreement with the successful private sector firm and pays subsidies in full or in instalments, linked to milestone performance;  service providers own all facilities and carry legal and financial risks associated with the delivery of the service; and  government monitors project progress and performance – tracking the effectiveness of subsidies to feed back into later subsidy design processes.65 Box 4.20: CASE STUDY: The Mobility Fund competitive auction in the United States of America On 3 October 2012, the Federal Communications Commission (FCC) announced the successful bids for the Mobility Fund Phase I auction. The fund will distribute $300 million in one-time subsidies, in exchange for the winning carriers to build either 3G or 4G networks across previously unserved areas over the next two to three years. The FCC has not previously utilised a competitive auction mechanism to distribute funds from their Universal Service Fund. The Mobility Fund auction enabled any licensed, eligible wireless carrier to submit bids to build wireless broadband networks in areas deemed to be without such service. The program resulted in an expansion of mobile broadband networks across more than 83,494 presently unserved miles in 31 states in the United States over the subsequent two to three years. How the Mobility Fund Auction was held 65 Arturo Muente‐Kunigami and Juan Navas‐Sabater, ‘Options to Increase Access to Telecommunications Services in Rural and Low‐Income Areas’ (World Bank Working Paper no. 178, 2010) pages 36-7. 41 In November 2011, the FCC announced plans for the Connect America Fund, to precede the current $4.5 billion annual universal voice subsidy program. The Connect America Fund, supporting the deployment of broadband services, would consist of three fundamental components:  a set of subsidies that would ensure the universal availability of fixed broadband service at speeds of 4 Mbps download/1 Mbps upload;  a Remote Areas Fund that would address additional connectivity needs of the most costly areas to serve; and  a Mobility Fund that would support the universal availability of mobile broadband service. Phase I of the Mobility Fund was administered by a reverse auction of subsidies with the objective to expand mobile broadband networks to currently unserved areas. The process of the auction involved:  the FCC identified and established census blocks currently without mobile broadband service;  all eligible and licensed wireless telecommunications carriers were permitted to submit their bids for a subsidy to enable access to 3G or 4G services in those areas;  bids submitted by providers were based on the amount of a one-time subsidy they were willing to accept in exchange for providing mobile broadband to these unserved areas. Such bids were submitted on a census block basis; and  the lowest subsidy request per currently unserved road mile was awarded as the successful bid by the FCC. Overall the reverse auction proved to be successful as 38 wireless companies and subsidiaries participated, submitting a combined total of 894 bids. Of these bids, the FCC accepted 795 bids in 31 different states and territories in the US. Each successful provider will receive their subsidy from the FCC once deployment of the 3G or 4G service is complete. Table 4.4: Summary of Results by State or Territory State or territory Total Qualifying Total Road Miles Total Winning Bids Average Subsidy Bid “Unserved” Road Across Winning Bids Per Road Mile Miles Alaska 16,881 119 $3,242,067 $27,137 Alabama 6,499 1,570 $10,237,375 $6,522 Arkansas 4,678 n/a n/a n/a American Samoa 37 n/a n/a n/a Arizona 23,827 n/a n/a n/a 42 State or territory Total Qualifying Total Road Miles Total Winning Bids Average Subsidy Bid “Unserved” Road Across Winning Bids Per Road Mile Miles California 30,947 n/a n/a n/a Colorado 17,445 3,985 $23,649,205 $8,193 Connecticut 33 n/a n/a n/a District of Columbia n/a n/a n/a n/a Delaware 1 n/a n/a n/a Florida 2,086 n/a n/a n/a Georgia 6,217 784 $4,309,153 $5,495 Guam 2 n/a n/a n/a Hawaii 719 n/a n/a n/a Iowa 614 52 $1,638,497 $31,619 Idaho 41,847 2,697 $32,840,434 $12,177 Illinois 1,343 251 $3,581,761 $14,298 Indiana 1,035 n/a n/a n/a Kansas 624 n/a n/a n/a Kentucky 12,791 1,414 $6,999,375 $4,952 Louisiana 5,187 2,128 $3,356,350 $1,577 Massachusetts 739 n/a n/a n/a Maryland 176 n/a n/a n/a Maine 9,296 101 $1,419,381 $14,085 Michigan 15,418 n/a n/a n/a Minnesota 5,456 n/a n/a n/a Missouri 7,840 n/a n/a n/a Northern Mariana Islands 332 332 $1,264,939 $3,813 Mississippi 3,374 254 $1,829,212 $7,204 Montana 47,551 505 $2,165,109 $4,284 North Carolina 5,834 972 $26,108,602 $26,854 North Dakota 3,817 1,166 $2,572,437 $2,206 Nebraska 8,711 8,255 $8,791,998 $1,065 New Hampshire 2,161 n/a n/a n/a 43 State or territory Total Qualifying Total Road Miles Total Winning Bids Average Subsidy Bid “Unserved” Road Across Winning Bids Per Road Mile Miles New Jersey 6 n/a n/a n/a New Mexico 46,312 17,920 $17,895,266 $999 Nevada 30,553 2,776 $21,060,478 $7,585 New York 10,128 n/a n/a n/a Ohio 6,805 367 $3,879,887 $10,561 Oklahoma 2,725 1,339 $10,376,072 $7,748 Oregon 56,107 947 $123,081 $130 Pennsylvania 14,569 913 $8,504,101 $9,313 Puerto Rico 36 n/a n/a n/a Rhode Island 1 n/a n/a n/a South Carolina 2,306 647 $4,666,409 $7,216 South Dakota 2,880 784 $2,268,246 $2,892 Tennessee 4,341 97 $2,207,413 $22,818 Texas 59,970 14,364 $24,916,904 $1,735 Utah 22,716 n/a n/a n/a Virginia 10,183 753 $12,414,554 $16,477 Virgin Islands n/a n/a n/a n/a Vermont 1,149 941 $2,055,840 $2,184 Washington 37,102 2,964 $10,139,521 $3,421 Wisconsin 7,556 175 $3,041,825 $17,359 West Virginia 24,558 344 $10,611,162 $30,812 Wyoming 26,874 13,577 $22,831,980 $1,682 Total 650,393 83,494 $299,998,632 $3,593 Source: Connected Nation, Mobility Fund Phase I Auction Results.66 Governments often deploy policies to stimulate broadband demand to compliment supply-side programs. Introduction of online services and information by the government itself is a demonstrative example of the beneficial effects broadband can provide both citizens and 66 Connected Nation, Policy briefing, 10 October 2012. Available at: http://www.connectednation.org/sites/default/files/bb_pp/cn_policy_brief_- _mobility_fund_phase_i_final.pdf 44 businesses. Incentives for the adoption of broadband services can also include the provision of increased access to broadband services at public stations such as libraries or schools. 4.4.1.4 Public Private Partnerships In some geographic areas broadband rollout is considerably less viable than in others. In these, hardest to reach places, specialised government and industry partnerships are often required. A strategy that has been utilised to provision services in disadvantaged or commercially non-viable areas are PPPs. The concept involves the cooperation of a government and at least one private sector firm, carrying out projects that are in the public benefit but deliver a return on investment to the private sector. The EU Green Paper on Public Private Partnership characterises a PPP by the following:  a long-term relationship between public and private partners;  funding includes at least some private participation;  the role of the public sector is mainly to define objectives and monitoring, while implementation is left to the private sectors; and  the private sectors assume at least part of the financial risk.67 The World Bank has approved approximately US$1.2 billion in technical and financial support for connectivity initiatives a significant amount of which relied on PPP structures.68 In high-risk markets such as rural telecommunications markets PPP initiatives create a ‘win-win’ situation with the government better able to allocate scarce public resources while still ensuring a customer oriented end product delivered with industry skill which encourages private sector investment.69 Below is a table summarising the main categories of PPPs: Table 4.5: Models of Public Private Partnerships70 Model Description Examples Cooperative All sector operators (MNOs, ISPs) unite to form a private company Burundi national (special-purpose vehicle) for the purpose of building, owning, and backbone project, operating the national backbone as a wholesale operator. The 2007 government contributes a subsidy with no related ownership to ensure national coverage, including rural access points, open access, nondiscrimination, and low-cost pricing. Equity Similar to the cooperative model except that the government obtains The Gambia, equity and shareholding ownership rights in exchange for its Guinea, Liberia, 67 European Union: European Commission, Commission Green Paper on Public-Private Partnerships and Community Law on Public Contracts and Concessions, (2004). Available at: http://eur- lex.europa.eu/LexUriServ/site/en/com/2004/com2004_0327en01.pdf 68 Doyle Gallegos, Partnerships for Broadband: Innovative public private partnerships will support the expansion of broadband networks, Information and Communication and Technology, Note 02, June 2012, pages 1-2. 69 Ibid. 70 Doyle Gallegos, Partnerships for Broadband: Innovative public private partnerships will support the expansion of broadband networks, Information and Communication and Technology, Note 02, June 2012, page 3, Table 1. 45 Model Description Examples contribution. Generally, government divestiture mechanisms are built in. São Tomé and Príncipe, Sierra Leone Concession Traditional build-operate-transfer approach, whereby the government issues a public tender to select a private sector operator to build and operate the national backbone or specific national and cross-border links. The agreement is in the form of a long-term concession (15–25 years) that requires the transfer of the networks back to the government at the end of the concession. Bulk capacity The government, acting as an “anchor client,” issues a public tender for purchase the long-term (10–15 years) supply of bulk capacity (+ 1 gigabit) bandwidth. This model stimulates investment by the private sector through the aggregation of demand. In this case, the partnership is governed by a PPP agreement or supplier contract that establishes the rights and obligation of each party. Management Standard management contract agreement whereby the government contract issues a public tender to select a private operator to build, operate, and commercialize the national backbone (or specific national or cross-border links) for a fee. Passive Build-out of the Next Generation National Broadband Network (NGNBN) Singapore (being segmented into three components. BOO model. SingTel (incumbent) unwound) outsources first layer (passive) to OpenNet, second layer (wholesale) to Nucleus Connect, retail to retail service providers (RSPs). Wholesale / Build-out of the Qatar National Broadband Network (Q.NBN) as the FTTH Qatar Passive carrier. Q.NBN (100% owned SPV) to provide wholesale and passive infrastructure to retail operators Own use / Rwanda: build-out of national backbone network. Government Rwanda – passive ownership with outsourcing of operation, maintenance, deployed commercialization to private sector (KT). Four ducts: one for government Madagascar – in use and three available for private sector use. Madagascar: government process to subsidize build-our of passive infrastructure (towers and renewable energy) open access to private sector. A public-private partnership can be implemented through a contractual agreement between the public and private parties, or alternatively by creating a new legal entity with allocated ownership. Such an entity can house assets that were formally publicly owned and the scope for external stakeholder contribution is also apparent. Investment contributions from the public sector may enable the development of communications infrastructure in commercially disadvantaged areas, or areas considered unprofitable for private investors. Implementation of a PPP strategy may be required in areas where the provision of a simple subsidy would not be enough to attract private sector investment in a project. The viability of PPP investments is made more difficult in times of lower liquidity, when the capital raising costs of private firms may make their participation in PPP less viable. The inability of a private sector to finance its originally agreed contribution may disrupt the foundation for future growth in output, employment and productivity.71 Furthermore, it is often necessary for the 71 Christine Zhen-Wei Qiang, “Broadband infrastructure investment in stimulus packages: relevance for developing countries’ (2010) 12(2) Info, pages 41-56. 46 government to implement legislation or policies which both enable the PPP project to take place but which also create a regulatory environment attractive to private sector investors.72 Box 4.21: CASE STUDY: public private partnerships in Romania broadband access Romania’s poorest rural communities which were previously under serviced in terms of broadband access have begun to enjoy the benefits of broadband as a public private partnership called the “knowledge based economy” has begun to connect community libraries, schools and town halls to broadband infrastructure. “Knowledge disadvantaged communities were identified and targeted for broadband rollout subsidised by the government in partnership with private telecoms operators.73 4.4.2 Sources of Funds to Support Broadband Development 4.4.2.1 Government Programs When markets fail to deliver broadband to areas of lower profitability or higher technical difficulty, governments have an important role in financing this important infrastructure. The benefits of this infrastructure can be social, economic and even cultural; making it an attractive investment opportunity for all levels of government. The following case studies consider two models of successful government involvement in the provision of broadband infrastructure. Box 4.22: CASE STUDY: Extending Broadband Coverage in Rural Canada With around one in five Canadians living in rural areas, extending broadband access in rural areas has been a priority for the Canadian central Government for some time. In its recent Economic Action Plan, the Canadian Government invested $C225 (US $217) in a rural broadband extension strategy, with more than half of this funding directed into the Connecting Rural Canadians program. The purpose of this program was to provide government grants to encourage private development of broadband infrastructure in areas the market had not yet extended to. This program began with an extensive mapping exercise, conducted by the Industry Canada department, to determine geographic areas that were unserved or underserved by broadened coverage. This was followed by a competitive call for nominations for private telecommunications 72 Doyle Gallegos, Partnerships for Broadband: Innovative public private partnerships will support the expansion of broadband networks, Information and Communication and Technology, Note 02, June 2012, page 4. 73 Broadband Commission, ‘Strategies for the promotion of broadband services and infrastructure: a case Study on Romania (2012) Available at: http://www.itu.int/ITU- D/treg/broadband/BB_MDG_Romania_BBCOM.pdf 47 providers to rollout infrastructure to these areas. Applicants could receive funding of up to 50 per cent of eligible costs for projects in these areas. In some First Nation communities, funding of up to 100 per cent of project costs was available. Between June 2009 and April 2012 a total of 84 projects received funding. The project extended broadband coverage to 218,000 Canadian households that did not previously have broadband access. Each of the projects was tailored to the needs of the locality it set to serve, deploying the most appropriate technology in each area. The range of technologies deployed included: fixed wireless, satellite, wireline, DSL and mobile wireless. Following the success of the program, the Canadian Government has announced its future plans to extend broadband coverage, taking a different policy approach. In 2013 and 2014 the Canadian Government intends to auction spectrum in the 700 MHz and 2.5 GHz bands with rollout obligations attached as conditions of these auction sales. Companies that buy more than one block of the 700 MHz band will be required to rollout services to 90 per cent of the population in their coverage area within five years of the spectrum auction, and to 97 per cent of the coverage area within seven years. This policy approach will not require direct investment of government funds in broadband extension; rather, it pushes the incentive to rollout services onto the companies competing for spectrum licences. Box 4.23:CASE STUDY: Extending Broadband to Rural Municipalities in France In the early 2000s the French government financial organisation, the Caisse des Dépôts, began offering attractively priced loans to local French government authorities to improve broadband access in their areas. These loans were primarily used to finance backhaul loops that connected local areas to the national fibre backbone. This investment was coupled with significant regulatory reform. Over the past decade France has been progressively implementing the EU directive to unbundle local loops, allowing further competition on local networks. As at the middle of 2012, approximately 6,257 exchanges have been unbundled, representing more than 85 per cent of the existing lines.74 A good learning from the French experience has been to take a technology neutral approach to government incentivised investment. In 2006, the French telecommunications regulator called for an application for wireless local loop licences in the 3.4 – 3.6 GHz band. The intention was to enable telecommunications providers to use the spectrum to provide broadband access using WiMAX technology. Although spectrum take-up was high, roll out has been slow – with strong 74 Autorité de régulation des communications électroniques et des postes, ‘ Press Release: Electronic communications market observatory (broadband and ultra-fast broadband wireline and wireless services) in France in Q2 2012: healthy market momentum' (September 2012). Available at: http://www.arcep.fr/index.php?id=8571&L=1&tx_gsactualite_pi1%5Buid%5D=1538&tx_gsactualite_pi1%5 Bannee%5D=&tx_gsactualite_pi1%5Btheme%5D=&tx_gsactualite_pi1%5Bmotscle%5D=&tx_gsactualite_pi1 %5BbackID%5D=26&cHash=9c769b2585037e5bd1334167baebd429 48 competition from other technologies like copper pair, optical fibre, satellite, and local Wi-Fi networks.75 Governments cannot always accurately predict what technologies will best suit market and community needs. So, in structuring government programs, technology neutrality should be an important design feature. Such an approach allows the private sector to select and deploy the most appropriate technological solution in each situation. 4.4.2.2 Mandatory Contributions Financing broadband projects through direct investments from government budgets is not without risks. Government priorities change, competing fiscal demands emerge and external shocks can all rapidly alter the budget resources available for broadband projects. An attractive alternative for policymakers, that avoids these risks, is to raise the funds for broadband projects from mandatory contributions by telecommunications operators. These funds are generally placed in a Universal Service and Access Fund (UASF), which sits outside the government budget and is assigned to be used exclusively for broadband investments. Telecommunications operators are generally willing to contribute reasonable amounts to UASFs, provided certain conditions are in place: the funds are managed transparently, the money in the funds is distributed to worthy projects, and operators are eligible to work on the projects funded from UASF resources. Box 4.24: CASE STUDY: Jamaica’s broadband funded by UASF Jamaica’s Prime Minister announced in 2011 that the island nation would invest half a billion Jamaican dollars (US$490 million) in a high speed broadband backbone network funded from the Universal Access and Service Fund. It was acknowledged by the government that private entities had a tendency to favour investments in densely populated areas which in the past had left rural areas of Jamaica without adequate internet services and that the government had to promote universal access directly.76 Commentators have noted that the Jamaican Universal Service and Access Fund has accrued J$7.8 billion since levies were first introduced in 2005 which is also being used to fund Jamaica’s e- learning project which aims to ensure all high school educational facilities and teacher training colleges have internet access. 77 Critiques of UASF schemes point to the inefficiency of spending and outcomes in UASF projects, along with the potential for public infrastructure to ‘crowd out’ private investment. However 75 Autorité de régulation des communications électroniques et d es postes, ‘Press Release: ARCEP gives wireless local loop (WLL) projects one last chance' (November 2012). Available at: http://www.arcep.fr/index.php?id=8571&L=1&tx_gsactualite_pi1[uid]=1567&tx_gsactualite_pi1[backID]=1 &cHash=3a2db2f35087c9e0fbd88e41ee5e36f7 76 Jamaica Information Service, Government to Roll out Island wide Broadband Network, 22 March 2013. Available at: http://www.jis.gov.jm/opm-news/33315-govt-to-roll-out-islandwide-broadband-network 77 The Jamaican Gleaner, ‘Half-Billion Broadband Project under Way’ 10 July 2011. Available at: http://jamaica-gleaner.com/gleaner/20110710/business/business7.html 49 some level of inefficiency is unavoidable, as the purpose of the funds is to delivery services that the market had deemed to be inefficient in the first place. Inefficiencies and delivery challenges can be managed through attentive and adaptive program delivery. Implementation challenge: calculating the levies to be charged Determining the level of the levy and the manner in which it is calculated are important elements in the development of a UASF policy. The global trend has been to calculate UASF levies as a set percentage of gross revenue, applied to all firms in a sector. There are two weaknesses with this approach. First, a levy as a set percentage of revenue operates is an inefficient tax. When a levy is imposed on all carriers it is likely to be passed through directly to consumers in the form of higher prices for telecommunications services. The higher prices will mean that some consumers who would otherwise have purchased telecommunications services would not enter the market. If the levy is set too high, private investment in telecommunications infrastructure may be discouraged, making the challenge of extending universal service even harder for governments. These effects, described as ‘deadweight losses’, ultimately run counter to the purposes of a UASF. The second weakness to a set percentage levy approach is that there is no relationship between the quantum of funds flowing in, and the quantum of funds required to be paid out. This could result in the fund either collecting more than what is required to deliver universal service, or less than what is required. To overcome these challenges, a best practice UASF levy needs considerably greater flexibility than a set percentage levy approach. The diagram below sets out the structure of a dynamic levy model, which involves the following policy design features:  government defines the success metrics for the UASF. It sets out the coverage, penetration and uptake levels that it considers to be the baseline that the UASF will provide;  the telecommunications industry makes contributions through a flexible levy mechanism, set year-to-year and apportioned across market participants on the basis of an equitable method;  the funds that flow into the UASF support projects to deliver access in accordance with the defined goals. These projects are delivered by the telecommunications industry, on the basis of a competitive process like a least-cost subsidy auction; and  the success of the projects is measured, with the levy adjusted to account for the anticipated future needs of the UASF to deliver its defined metrics. 50 Figure 4.8 Define UASF Telecommunications Industry success metrics Measure UASF Flexible Levy Rate UASF Access project success Projects UASF If necessary, change levy rate Flow of funds ($) Decision making process 4.4.2.3 International Loans, Credits, and Grants A range of international organizations support the development of communication services, particularly in developing countries. The table below considers the focus of each of the main organisations in this sector, but is not an exhaustive list of all agencies providing assistance in this area. Table 4.6: Summary of Results by State or Territory Organisation Description Links International The ITU is the United Nations specialized agency http://www.itu.int/en/Pages/default.as Telecommunications Union for information and communications px (ITU) technologies. In addition to 193 Member States, ITU membership includes ICT regulators, leading academic institutions and around 700 private companies. The ITU’s Telecommunication Development Sector works to ensure that the benefits of ICTs are shared by all of the world’s inhabitants. World Bank (infoDev) infoDev is a global partnership program within http://www.infodev.org/en/Index.html the World Bank Group which works at the intersection of innovation, technology, and entrepreneurship to create opportunities for 51 Organisation Description Links inclusive growth, job creation and poverty reduction. infoDev assists governments and technology- focused small and medium sized enterprises (SMEs) to grow jobs, improve capacity and skills, increase access to capital and markets, ensure that the appropriate policy and regulatory environment are in place for business to flourish, and test out innovative solutions in developing country markets. The World Bank The World Bank provides loans and grants for http://www.worldbank.org/ development projects which have the ultimate aim of reducing global poverty. European Bank for The EBRD provides project financing tailored to http://www.ebrd.com Reconstruction and the specific economic and social context and Development needs of each particular country. The EBRD usually provides up to 35% of the project finance needed for a given undertaking. Regional development banks African Development Bank http://www.afdb.org/en/ for Africa, Asia, Europe, and Latin America Asian Development Bank www.adb.org/ Council of Europe Development Bank http://www.coebank.org/ Inter-American Development Bank www.iadb.org/ Islamic Development Bank http://www.isdb.org/ U.S. Agency for International National aid organisations fund projects to www.usaid.gov/ Development improve broadband coverage in the developing world. The U.K. Department for www.dfid.gov.uk/ International Development www.jica.go.jp/english/ Japan International Cooperation Agency Swedish International SIDA administers almost half of Sweden’s http://www.sida.se/English/ Development and development aid budget and is active in 78 Cooperation agency (SIDA) communications development projects. CIDA’s goal is to promote sustainable growth in http://www.acdi-cida.gc.ca/acdi- Canadian International developing countries to eliminate poverty and it cida/acdi-cida.nsf/eng/home Development and Cooperation Agency (CIDA) has been active in the ICT sphere. 78 Alan Greenberg, SIDA’s Support to Information and Communications Technologies (ICT) for Development (2008). Available at: http://www.oecd.org/derec/sweden/41445473.pdf 52 4.4.3 Universal Access and Service Funds for Broadband Development While UASFs can be effective in ensuring the availability of proper funding for broadband projects, implementation of these funds in developing countries presents a number of specific challenges. The first of these challenges is putting in place appropriate transparency and accountability protocols. This can be difficult for governments that do not already have in place appropriate financial management and accountability mechanisms. In such contexts, it may be more appropriate for the fund to be established independent of government and overseen by a board and staff of appropriately qualified individuals. Accountability mechanisms, like public disclosure requirements and parliamentary oversight, could assist to ensure the transparent operation of this type of organisation. In a handful of cases, there have been reports of USAFs which had highly over-regulated and complex decision-making, governance and review structures, with Nigeria and Peru noted by the GSMA as examples of this particular challenge.79 A second challenge faced by all governments operating UASFs is calculating the level and types of payments which should be made from funds. Elements of these difficult decisions include determining the types of equipment to include in cost estimates, the redemption periods and depreciation schedules for this equipment and the process for determining geographical service areas. The European Commission has developed practical advice to its member states, which can assist all states, in developing policies to encourage the rapid deployment of Next Generation Access broadband networks. The types of conditions the guidelines set out are good policy safeguards that, if implemented, can help to encourage competition and avoid the 'crowding out' of private investment.80 Adopting these policy elements will help governments ensure that appropriate payments are made from the funds, and they are at the right level, to ensure broadband networks are rolled-out without unnecessary market distortion. Box 4.25: CASE STUDY: Uganda’s Universal Service Fund and its effect on competition While Uganda’s Universal Service Fund, the Rural Communications Development Fund (RCDF) is often cited as an excellent example of management of USAFs in emerging economies, it has often exclusively partnered with the telecoms provider MTN to deliver its projects to rural parts of Uganda. MTN holds approximately 60% of the Ugandan mobile market while the fixed line market is dominated by the state-owned fixed line incumbent Telekom Uganda Limited. While competitive bidding processes are now a feature of the RCDF’s distribution of funds, the reality of the matter is that there are only two operators who can effectively bid for RCDF projects, a situation which had the potential to further ingrain MTN’s strong position in the market.81 79 GSMA, ‘Survey of universal Service funds – Key Findings, April 2013. Available at: http://www.gsma.com/publicpolicy/wp-content/uploads/2013/04/GSMA-USF-Key-findings-final.pdf 80 The guidelines can be accessed at: http://eur- lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:C:2009:235:0007:01:EN:HTML 81 GSMA, ‘Survey of universal Service Funds’, April 2013. Pages 137-138. Available at: http://www.gsma.com/publicpolicy/wp-content/uploads/2013/04/GSMA-USF-Main-report-final.pdf 53 A third challenge faced by governments in administering Universal Access and Service Funds is determining what types of equipment to include in the cost estimates lodged by potential project bidders an to set the redemption periods and depreciation schedules for this equipment. Defining the success metrics for UASF projects is an important first step, so regulators can these baselines to check the capability of the technology proposed against its baseline service goals. In this way regulators can identify ‘gold plating’ behaviour from firms, which may seek to deliver more expensive technological solutions than are necessary. These types of behaviours can be discouraged through competitive processes for awarding work contracts, like lowest-cost subsidy auctions. Once a telecommunications company has been selected to do the work, policymakers should carefully select the terms on which this work is done. A redemption period is the period of time the infrastructure remains owned by a party, be it the government or a telecommunications provider, before the ownership of that assets transfers to the other party. In determining this period, policymakers should consider the effective life of the asset or system, the commercial viability of its usage and the likely future demand for the service it provides. Determining the depreciation schedule for the asset, the manner in which its value can be written down by its owner, policymakers should also have due regard for the commercial circumstances of prospective owners and operators. It may be appropriate to combine both accounting and economic method of depreciation, taking into account the weighted average cost of capital borne by the telecommunications provider, in establishing the arrangements for how the assets can be written down. 4.4.4 Best Practice for Effective Management of Flow of Funds Any best practice scheme for proper management of funds will centre around three core principles; transparency, efficiency and accountability. The centrality of these principles to any UASF is a crucial factor to the legitimacy and success of the fund. Efficiency requires a fundamental understanding of the market as it currently operates, as well as accounting and review mechanisms. Efficient programs maximise the impact of the resources invested in them, ensuring that the maximum possible outcomes are achieved. One way government can incentivise project efficiency is to structure contracts with market participants that share risk and rewards. For example, a contract may be structured to allow a contractor to keep half of the funds saved on a project delivered under budget; while imposing penalties payments for projects that slip over time or budget. This structure allows government to benefit from market knowledge and expertise, and also achieve a saving, through properly aligning contractual incentives. Accountability requires reporting and monitoring mechanisms, as well as a clear authority structure. These structures may already exist within governments; however, in partnering with market participants through UASF projects, structures may need to be adapted. Governments should regularly audit projects and ensure project milestones are met, and tested against, before incremental project payments are made. Furthermore there should be detailed dispute resolution 54 procedures made available with adequate safeguards to ensure that in the event of an aberration or discrepancy in reporting there is an impartial and objective method for determining the outcome of the dispute. One way government can assist industry participants in this respect is to provide for the protection of information which is legitimately ‘commercial-in-confidence’. Giving companies certainty that ‘commercial-in-confidence’ information will be handled appropriately, will make them more likely to share such information with government. Conversely, if companies fear that sharing information with government will lead to its wider distribution, information may not be as readily provided. Transparency requires appropriate awareness about project goals, progress and outcomes across the range of stakeholders involved in the program. It may require ensuring that project bidders receive the same information and access to discussion, providing information about the recipients of government funding to the wider community, and ensuring that government oversight bodies like appropriately vetted and transparently selected parliamentary committees are able to review into the program and recommend improvements. Most Parliamentary systems require Members to register their business interests such as their shareholdings, interests in real estate and any companies that they have been officers or directors of. In order to ensure they do not suffer from a conflict of interest when sitting on such committees82 Documentation of project rules and processes is another important element to transparency. Manuals or handbooks for project participants can be a useful tool, to ensure that project participants understand their obligations and commitments through the program. Box 4.26: CASE STUDY: Columbia’s UASF success story Columbia’s USAF has gone from strength to strength achieving the goals laid down in its mission statement with admirable success. The fund is under the authority of the appropriate ministry, but is legally and financial autonomous, with strict progress and financial reporting requirements on an annual timescale. The fund is further split into three separate arms, each with different goals; one focuses on online governance, another, Compartel, focuses on telecommunications penetration in remote and rural areas while the last arm aims to improve the competitiveness of small and medium Columbian enterprises through digital initiatives and access. Compartel has installed 12,797 rural community telephony lines/access points using 9,745 sites built into rural locations and has begun a fibre optic project to ensure that the poorest three million Columbians have access to fibre.83 82 Australian Parliament- House of Representatives, Statements of Members interests, Available at: http://www.aph.gov.au/parliamentary_business/committees/house_of_representatives_committees?url=p mi/declarations.htm 83 GSMA, ‘Survey of universal Service Funds’, April 2013. Pages200-203. Available at: http://www.gsma.com/publicpolicy/wp-content/uploads/2013/04/GSMA-USF-Main-report-final.pdf 55 4.4.5 Reviewing the Flow of Funds To ensure that a UASF is being used for the purposes it was created for, governments should establish strict mechanisms to review the flow of funds out of the UASF. At a fundamental level, this involved appropriate accounting practices with a focus on disbursements. Matching payments to progress, through a structure of milestone payments, is one way to ensure this. However, this approach has the disadvantage of placing cash-flow constraints on the business undertaking the project work. Regulators must also make important decisions about when to accept information provided by fund recipients, and when they independently test and verify that information. A balanced approach to this verification process is most likely to achieve the best results. If regulators spend too much time evaluating information they run the risk of wasting valuable project resources, though if too few checks are made the projects suffer from lack of oversight. A schedule of random checking may be appropriate, to signal to contractors that the information they provide may be checked, without imposing an onerous burden on regulators. Another challenge is to ensure that money actually flows out of the UASF and into access programs. This has been a major challenge for several universal obligation funds, particularly in developing countries. Box 4.27: CASE STUDY: the struggle to spend funds collected by India and Pakistan’s funds The Indian Universal Service Obligation Fund (USOF) was established in 2002. In the past decade it has collected over US$8 billion from the telecommunications industry through imposing a levy of 5 per cent of the Adjusted Gross Revenue of telecommunications providers. Less than US$3 billion from the fund has, to date, been spent on projects.84 A similar problem also exists in Pakistan, where the Universal Service Fund (USF) had collected almost $7 billion in 2009, but only spent around $1.5 billion.85 An important effect of reviewing the flow of funds can be the identification of unusual or disingenuous directions of funds. These can be caused by fraud or corruption, but can also be the result of adverse impacts of political processes on decision-making. A good example of this can be seen in the politically influenced direction of funding to telecommunications projects in the Australian state of Tasmania. Box 4.28: CASE STUDY: disproportionate public telecommunications funding to the Australian state of Tasmania In order to pass legislation to privatise Australia’s government -owned telecommunications provider Telstra in 1997, the Australian government needed to secure the support of a non- 84 Indian Ministry of Communications and Information Technology, USOF Fund Status (2012). Available at: http://www.usof.gov.in/usof-cms/usof_fundstatus.htm 85 Universal Service Fund Annual Report 2008-09. Available at: http://www.usf.org.pk/FCKeditor/editor/filemanager/connectors/aspx/UserFiles/resources/newsletters/an nual%20report%202008-09.pdf 56 Government Senator from the state of Tasmania, Senator Brian Harradine. The bill was passed, and the company was privatised, on the condition that $250 million (approximately US$232 million) from the initial sale would be allocated to the Networking the Nation program. More than one fifth of the funds from the first iteration of the Networking the Nation program were directed to Tasmania, the home state of Senator Harradine. Despite being Australia smallest state, both on the basis of geography and population, it received the largest share of the funds under the program.86 Senator Harradine would later claim that he secured a total of $353 million for Tasmania from the Telstra sales processes.87 While these funds were not from a UASF, they demonstrate the problem with legislators ‘earmarking’ funds from telecommunications programs to their own constituencies. A process of project approval that is independent from policy makers, or improved probity procedures is necessary to avoid such distortions. 86 Jock Given, ‘Knowledge nation, states and the pork barrel’ (2005) Griffith Review 3. Available at: https://griffithreview.com/images/stories/edition_articles/ed3_pdfs/givened3.pdf 87 Margo Kingston, ‘Brian Harradine, man of honour’, Sydney Morning Herald (Australia), June 29, 2004. Available at: http://www.smh.com.au/articles/2004/06/29/1088392648667.html 57 Attachment A The following table compares internet users per 100 people in countries in selected countries in the years 2005-2011. The data includes both fixed and wireless internet usage.88 The colour coding identifies the income level of the countries.89 Almost all countries show an increase in internet users over the 6 years period. Table 4.7: Internet users per 100 people in selected countries 2005 – 2011 (In order of most users)90 Country 2005 2006 2007 2008 2009 2010 2011 Afghanistan 1.1 1.9 1.8 1.7 3.2 3.7 4.6 Algeria 5.8 7.4 9.5 10.2 11.2 12.5 14.0 Angola 1.1 1.9 3.2 4.6 6.0 10.0 14.8 Argentina 17.7 20.9 25.9 28.1 34.0 40.0 47.7 Australia 63.0 66.1 69.6 71.7 74.1 75.9 78.9 Austria 58.0 63.6 69.4 72.9 73.5 75.2 79.7 Azerbaijan 8.2 12.3 14.9 17.4 27.8 46.7 50.8 Bangladesh 0.2 1.0 1.8 2.5 3.1 3.7 5.0 Belarus 16.3 19.8 23.2 27.8 32.2 40.0 Belgium 55.5 59.3 63.9 65.3 69.1 73.7 76.2 Benin 1.3 1.5 1.8 1.9 2.2 3.1 3.5 Bolivia 5.2 6.2 10.5 12.5 16.8 22.4 30.0 Brazil 21.0 28.2 30.9 33.8 39.2 40.7 45.0 Bulgaria 20.0 27.1 33.6 39.5 44.7 46.0 50.8 Burkina Faso 0.5 0.6 0.8 0.9 1.1 2.4 3.0 Burundi 0.5 0.7 0.7 0.8 0.9 1.0 1.1 88 World Bank, Internet User (per 100 people) Development indicators. Available at: http://databank.worldbank.org/data/views/reports/tableview.aspx (in the related metadata section). 89 Purple represents high-income countries; orange represents mid-to-high-income countries; green represents low-to-mid-income countries; and blue represents low-income countries. 90 World Bank, Internet Users (per 100 people) (2012). Available at: http://data.worldbank.org/indicator/IT.NET.USER.P2 58 Country 2005 2006 2007 2008 2009 2010 2011 Cambodia 0.3 0.5 0.5 0.5 0.5 1.3 3.1 Cameroon 1.4 2.0 2.9 3.4 3.8 4.3 5.0 Canada 71.6 72.5 73.3 76.7 80.2 80.0 82.7 Central African Republic 0.3 0.3 0.4 1.0 1.8 2.0 2.2 Chad 0.4 0.6 0.8 1.2 1.5 1.7 1.9 Chile 31.2 34.5 35.9 37.3 38.8 45.0 53.9 China 8.5 10.6 16.0 22.7 29.0 34.4 38.4 Colombia 11.0 15.3 21.8 25.6 30.0 36.5 40.4 Congo, Rep. 1.5 2.0 2.8 4.3 4.5 5.0 5.6 Congo, Dem. Rep. 0.2 0.3 0.4 0.4 0.6 0.7 1.2 Costa Rica 22.1 25.1 28.4 32.3 34.3 36.5 42.1 Cote d'Ivoire 1.0 1.5 1.8 1.9 2.0 2.1 2.2 Croatia 33.1 37.9 41.3 50.4 56.0 60.1 70.5 Cuba 9.7 11.2 11.7 12.9 14.3 15.9 23.2 Czech Republic 35.2 47.9 51.8 62.7 64.1 68.6 72.9 Denmark 82.7 86.7 85.1 85.1 86.9 88.8 90.0 Dominican Republic 11.5 14.8 17.7 20.8 27.7 31.4 35.5 Ecuador 6.0 7.2 10.8 18.8 24.6 29.0 31.4 Egypt, Arab Rep. 11.7 12.6 16.1 18.0 24.3 30.2 35.6 El Salvador 4.2 5.5 6.1 10.1 12.1 15.9 17.7 Eritrea 1.8 2.2 2.5 4.1 4.9 5.4 6.2 Ethiopia 0.2 0.3 0.4 0.5 0.5 0.8 1.1 Finland 74.5 79.7 80.8 83.7 82.5 86.9 89.3 France 41.4 45.2 63.7 68.2 69.1 77.3 76.8 59 Country 2005 2006 2007 2008 2009 2010 2011 Georgia 6.2 7.6 8.3 10.0 19.9 26.3 35.3 Germany 68.8 72.3 75.4 78.3 79.5 82.5 83.4 Ghana 1.8 2.7 3.9 4.3 5.4 9.6 14.1 Greece 24.2 32.5 36.1 38.4 42.6 44.6 53.4 Guatemala 5.7 6.5 7.3 8.3 9.3 10.5 11.7 Guinea 0.5 0.6 0.8 0.9 0.9 1.0 1.3 Haiti 6.4 6.8 7.2 7.6 8.1 8.4 Honduras 6.5 7.8 9.4 9.6 9.8 11.1 15.9 Hong Kong SAR, China 56.9 60.6 64.3 66.2 69.2 71.9 75.0 Hungary 39.0 47.0 53.2 55.9 47.9 52.9 59.0 India 2.4 2.8 4.0 4.4 5.1 7.5 10.1 Indonesia 3.6 4.8 5.8 7.9 6.9 10.9 18.0 Iran, Islamic Rep. 8.1 8.8 9.5 10.2 11.1 16.0 21.0 Iraq 0.9 0.9 0.9 1.0 1.0 2.5 5.0 Ireland 41.6 54.4 59.6 64.3 66.7 69.8 77.5 Israel 24.0 26.7 46.4 57.6 61.2 65.7 68.2 Italy 35.0 38.1 40.9 44.6 48.9 53.7 56.8 Japan 66.2 68.0 73.6 74.7 77.4 77.6 78.7 Jordan 12.8 13.8 20.0 23.2 26.5 27.8 35.7 Kazakhstan 3.0 3.3 4.0 11.0 17.9 31.0 44.0 Kenya 3.1 7.5 8.0 8.7 10.0 14.0 28.0 Korea, Dem. Rep. 0.0 0.0 0.0 0.0 0.0 Korea, Rep. 71.8 76.3 77.0 79.0 79.6 81.6 81.5 Kyrgyz Republic 10.3 12.0 13.7 15.4 16.6 18.0 19.6 60 Country 2005 2006 2007 2008 2009 2010 2011 Lao PDR 0.9 1.2 1.6 3.6 6.0 7.0 9.0 Lebanon 10.1 15.0 18.7 22.5 30.1 43.7 52.0 Liberia 0.6 0.5 0.5 2.3 3.0 Libya 3.9 4.3 4.7 9.0 10.8 14.0 17.0 Lithuania 36.2 43.9 50.0 55.2 59.8 62.8 67.2 Madagascar 0.6 0.6 0.7 1.7 1.6 1.7 1.9 Malawi 0.4 0.4 1.0 0.7 1.1 2.3 3.3 Malaysia 48.6 51.6 55.7 55.8 55.9 56.3 61.0 Mali 0.5 0.7 0.8 1.6 1.8 1.9 2.0 Mexico 17.2 19.5 20.8 21.7 26.3 31.1 36.2 Morocco 15.1 19.8 21.5 33.1 41.3 49.0 51.0 Mozambique 0.9 0.8 0.9 1.6 2.7 4.2 4.3 Myanmar 0.1 0.2 0.2 0.2 0.2 0.3 1.0 Nepal 0.8 1.1 1.4 1.7 2.0 7.9 9.0 Netherlands 80.9 83.9 86.1 87.7 89.8 90.7 92.1 New Zealand 62.7 69.0 69.8 72.2 79.8 83.0 86.2 Nicaragua 2.6 2.8 3.9 5.3 7.3 10.0 10.6 Niger 0.2 0.3 0.4 0.7 0.8 0.8 1.3 Nigeria 3.5 5.5 6.8 15.9 20.0 24.0 28.4 Norway 82.0 82.7 87.2 90.8 92.2 93.3 93.5 Pakistan 6.3 6.5 6.8 7.0 7.5 8.0 9.0 Papua New Guinea 1.7 1.8 1.8 1.2 1.6 1.3 2.0 Paraguay 7.9 8.0 11.2 14.3 18.9 19.8 23.9 Peru 17.1 20.7 25.2 30.6 31.4 34.8 36.5 Philippines 5.4 5.7 6.0 6.2 9.0 25.0 29.0 61 Country 2005 2006 2007 2008 2009 2010 2011 Poland 38.8 44.6 48.7 53.3 59.1 62.5 65.0 Portugal 35.0 38.0 39.6 41.9 46.6 51.3 55.6 Romania 21.6 24.8 28.4 32.5 36.7 40.0 44.1 Russian Federation 15.3 18.2 24.9 27.1 29.2 43.3 49.3 Rwanda 0.6 2.1 4.5 7.7 8.0 7.0 Saudi Arabia 12.7 19.5 30.0 36.0 38.0 41.0 47.5 Senegal 4.8 5.6 7.7 10.6 14.5 16.0 17.5 Serbia 28.7 29.7 36.4 39.3 42.2 45.6 47.2 Sierra Leone 0.2 0.2 0.2 0.3 0.3 Singapore 61.0 59.1 67.9 68.0 68.4 71.1 75.1 Slovak Republic 55.5 56.4 62.2 66.5 70.4 76.2 74.9 Somalia 1.1 1.1 1.1 1.1 1.2 - 1.3 South Africa 7.6 7.7 8.2 8.5 10.1 18.1 20.9 Spain 47.9 50.3 54.8 59.1 62.0 65.8 67.9 Sri Lanka 1.8 2.6 3.9 5.9 8.9 12.1 15.1 Sudan 1.3 8.1 8.7 10.2 Sweden 84.8 87.9 82.1 90.2 91.1 90.0 90.9 Switzerland 69.9 75.5 76.9 78.4 80.0 82.2 83.0 Syrian Arab Republic 5.6 7.9 14.0 17.3 20.7 22.4 Tajikistan 0.3 3.8 7.2 8.8 10.1 11.6 13.0 Tanzania 4.3 5.8 7.2 9.0 10.0 11.0 12.0 Thailand 15.0 17.2 20.0 18.2 20.1 22.4 23.7 Timor-Leste 0.1 0.1 0.1 0.2 0.2 0.2 0.9 Tunisia 9.5 12.8 16.9 27.3 33.8 36.6 38.8 Turkey 15.5 18.2 28.6 34.4 36.4 39.8 42.1 62 Country 2005 2006 2007 2008 2009 2010 2011 Turkmenistan 1.0 1.3 1.4 1.8 2.0 3.0 5.0 Uganda 1.7 2.5 3.7 7.9 9.8 12.5 13.0 Ukraine 3.7 4.5 6.5 10.9 17.8 23.1 30.3 United Arab Emirates 40.0 52.0 61.0 63.0 64.0 68.0 70.0 United Kingdom 70.0 68.8 75.0 78.2 77.8 77.8 81.7 United States 68.3 69.2 75.3 74.2 71.2 74.2 78.2 Uzbekistan 3.3 6.3 7.4 8.9 16.7 19.2 28.6 Venezuela, RB 12.6 15.3 20.9 26.0 32.9 37.6 40.4 Vietnam 12.9 17.4 20.9 24.2 26.8 31.0 35.5 Yemen, Rep. 1.0 1.2 5.0 6.9 10.0 12.4 14.9 Zambia 2.9 4.2 4.9 5.6 6.3 10.1 11.5 Zimbabwe 8.0 9.8 10.9 11.4 11.4 11.5 15.7 63 Bibliography  Alfreds, D, 24 Hour News, Tshwane to roll out free Wi-Fi, 15 August 2013.  Australian Parliament- House of Representatives, Statements of Members interests,  Autorité de régulation des communications électroniques et des postes, ‘Press Release: ARCEP gives wireless local loop (WLL) projects one last chance' (November 2012)  Autorité de régulation des communications électroniques et des postes, ‘Press Release: Electronic communications market observatory (broadband and ultra-fast broadband wireline and wireless services) in France in Q2 2012: healthy market momentum' (September 2012)  Booz & Co, Digital Highways: The Role of Government in 21st-Century Infrastructure, 2009  Broadband Commission for Digital Development, The State of Broadband 2012: Achieving Digital Inclusion For All (2012)  Broadband Commission Survey on Broadband Policies Worldwide (Selected Countries report, 2011)  Broadband Commission for Digital Development, Broadband Targets for 2015  Broadband Commission for Digital Development, The State of Broadband 2012: Achieving Digital Inclusion For All (2012)  Broadband Commission, ‘Strategies for the promotion of broadband services and infrastructure: a Case Study on Romania (2012) < http://www.itu.int/ITU- D/treg/broadband/BB_MDG_Romania_BBCOM.pdf>  Calvo, A ‘Universal Service Policies in the Context of National Broadband Plans’ (OECD Digital Economy Papers, No. 203), (2012)  Connected Nation, ‘Mobility Fund Phase I Auction Results: 83,000 Road Miles Nationwide Will Receive Mobile Broadband Upgrades, Policy Briefing, 10 October 2012  Davidson, C.M. and Santorelli, M. 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High speed wired and wireless networks can transmit digital bits making it even possible for instantaneous delivery of capacity intensive applications such as full motion video like that seen on broadcast, cable and satellite television channels. Prior generations of narrowband networks could not deliver such content, because they had available limited amount of channel capacity, also known as bandwidth. Such narrowband channels only could handle slow speed services, such as electronic mail, because of limited available radio spectrum, or closed circuit capacity, typically measured in cycles per second, or Hertz (“Hz”). Attempts to use narrowband networks for services requiring high bandwidth resulted in user frustration as the desired content could not arrive fast enough to deliver a clear and constantly changing video image, or even a high fidelity signal for reliable voice and music delivery. Narrowband lines created a backup of traffic commonly termed a bottleneck. The inability to provide timely delivery of traffic resulted in congestion. Broadband technologies, like those used to support the Internet 1 offer the promise of faster, better, smarter, more versatile, personalized, cheaper and more convenient access to a wealth of ICE services. Few users of available broadband networks would give up these benefits for the slower, but cheaper option of using older technologies, such as conventional, dial up telephone networks. With retrofitting existing wired and wireless telephone networks can combine analog, voice services, with digital, data services. Likewise cable television networks can add data and telephone services to existing video offerings. Subscribers of these broadband services enjoy reliable and user friendly access to a broad array of services. Most subscribers of broadband networks readily can learn how to use them, but few acquire much insights of how the networks operate. In most instances failing to acquire such “digital literacy” imposes no significant burden. However, having even a basic understanding of how broadband networks work can provide a foundation for achieving more effective and possibly cheaper use of broadband technology. Understanding how these networks operate can provide policy makers, regulators and users with a better sense of the strengths, vulnerabilities, opportunities and threats generated by the evolving migration from several different analog networks into a single, consolidated medium commonly referred to as the Internet, or World Wide Web. 2 The promise of a single Internet medium for access to most content confirms that technological innovations have promoted a convergence of ICE markets. Previously separate, stand alone media provided a specific subset of the services represented by this now convergent ICE marketplace. Broadcasters delivered radio and television content to specific receivers, i.e., radio and television sets. Telecommunications companies provided voice connections between subscribers using wired and wireless telephones. Publishers of printed content, such as newspapers and magazines, delivered their “hard copy” products through physical distribution channels having nothing to do with electronic media. 5 Converging telecommunications and information technologies now make it possible for the Internet to provide a single medium for delivery of content to several devices in both fixed and mobile locations. While television broadcasters transmitted content for reception by one type of screen, Internet-mediated video content also can reach television sets, but also computer monitors, tablets and smartphone screens. Delivery to multiple devices and screens can occur, because content carried via broadband networks have been converted from their native analog state, to digital bitstreams. source: Government of Japan, Ministry of Internal Affairs and Communications, available at: http://www.itu.int/ITU-D/asp/CMS/Events/2010/ITU-MIC/S5-06_Mr_Atsushi_Ozu.pdf. Once digitized all forms of content appear as a sequence of data capable of carriage via the broadband networks that make up the Internet. The standards that organize the Internet provide common formats for identifying, addressing, labeling, switching, routing and managing traffic. In particular, the Transmission Control Protocol and Internet Protocol, 3 provide standards for managing content broken up into small units of capacity known as packets for transmission via any available network interconnected with other networks that collectively comprise the Internet. The Internet Protocol provides an addressing system much like the numbering system used by telephone companies. 6 Telecommunications and Information Processing via the Same Network The technologies that support innovation in telecommunications also provide new ways to deliver, process, manipulate and add value to information. Policy makers and regulators working in the telecommunications sector increasingly face issues involving the combination of legacy services, such as broadcasting and video program delivery, with new services that use telecommunications as the transport medium for information processing. The expanding use of the Internet as a primary medium for delivering most information, communications and entertainment (“ICE”) services shows how convergence in markets and technologies will impact assumptions about how the ICE ecosystem operates. For example, increasing reliance on the Internet to deliver content to retail users means that previously stand alone technologies will converge so that one cannot segregate—and apply separate regulatory and market impact assumptions—about the print, radio, television, cable television, wired and wireless telecommunications and Internet media. One way to appreciate the impact of converging technologies is to combine them in a vertical array ranging from the physical transmission media at the base and rising to the most sophisticated software, applications and content deliverable to consumers. The Open System Interconnection (“OSI”) model provides a vertical view of the elements that combine to offer ICE services via new media such as the Internet. This model layers the Internet’s architecture into seven increasingly sophisticated and specialized components: physical, data link, network, transport, session, presentation and application. The model calls for the independent operation of the layers, but also supports the interaction of various applications and equipment designed to use the features represented by each layer. At the physical layer various media provide a wired or wireless conduit for the transmission of ICE content. It provides the hardware used to send and receive data on a carrier, including defining aspects of the physical medium used. At the data link layer traffic is encoded and decoded into bits that are collected in units called packets. This layer includes the traffic management rules used in the Internet’s Transmission Control Protocol to control the flow of traffic and its synchronization as occurs in the routing of content via Ethernet, Asynchronous Transfer Mode and Frame Relay networks. The Network layer provides switching and routing technologies that create temporary pathways for traffic to move toward the desired final destination. This layer, in conjunction with the Transport and Session layers above it, handles the use of the Internet Protocol addressing system for identifying the source and destination of traffic, plus error handling, congestion control, packet sequencing and the setup and break down of the temporary pathways. The Presentation layer defines the format of the data exchanged (e.g., text, graphic), followed by the Application layer that defines how applications communicate with each other over the network (e.g., e-mail) using various protocols. 4 7 Source: Escotol.com, available at: http://www.escotal.com/osilayer.html. Looking at the OSI Layered model, one might consider telecommunications infrastructure concerns as limited to the lower layers that more directly focus on the physical connections contained in information and communications technology (“ICT”) networks. However the integrated and convergent nature of all seven levels requires an appreciation by all stakeholders. For example, when retail subscribers experience congested or inoperative service, they may not know which of several ventures should bear the blame. They simply want service to return to normal without regard to which layer of service became dysfunctional and which, if any, regulator has jurisdiction. Analog Humans and Digital Networks Broadband networks provide the medium for digital bitstreams, having converted analog traffic. This conversion takes content created by and for humans and makes it possible for carriage by computers and digital networks. Humans have several analog body parts used to see, hear, feel and communicate. Air held in our lungs provides a carrier for signals created (modulated) by our larynx, also known as the voice box. We receive sound via our ears where 8 the modulated signals are replicated by ear drums and converted into weak electrical signals useable by our brains. Our eyes concentrate light and color at the optic nerve which also converts the signals into electrical impulses. While the human body retains its analog characteristics, ICTs mostly have migrated to digital transmission and processing formats. The digitization of networks promotes more efficient use of spectrum such as the ability to compress a signal so that it uses less bandwidth. Digitization also makes it possible to for a single network to handle different types of traffic generated from many sources, by subdividing the content into small units, called packets, and switching these packets via available transmission capacity offered by possibly many network operators. When coupled with improvements in content storage and the speed of broadband network transmission, digitization supports fast transmission, switching, processing and delivery of content. Consumers can more readily access, transmit, share, copy and store digitized content. Digitization operates as a key driver for making broadband networks capable of providing faster, better, smarter, more versatile, cheaper and more convenient services. Digital networks can transmit content faster than narrowband networks thanks to the availability of wider transmission channels (more bandwidth) and larger allocations of radio spectrum to create more channels having larger capacity. Transmitting signals within larger channels can increase the bit transmission speed which in turn reduces the time it takes for content to arrive at the desired destination. The term bitrate refers to the speed by which a carrier can transmit and deliver content. Broadband networks can transmit digital bitstreams at a rate of between less than one million bits per second, i.e., 1 Megabit per second (1 “Mbps”) and more than one billion bits per second, i.e., 1 Gigabit per second (1 “Gbps”). Narrow strands of glass fibers provide a much faster transmission medium than available via copper networks. Another measurement of broadband networks’ comparative advantages to analog predecessors lies in their ability to transmit bandwidth intensive content without triggering congestion that would cause a backup in the delivery of bits. Broadband networks can deliver content so quickly that users can download, process and view full motion video content in the same manner as reception via conventional broadcast, cable and satellite media. The term throughput refers to the amount of content, measured in bytes, represented by a file, or other source of content. Narrowband networks could only make timely delivery of small files containing a few kilobytes of content. Larger files, such as those containing full motion video content, including images in high definition, constitute many megabytes of content. This type of content requires that networks operate at fast transmission speeds having the ability to deliver large megabyte files on a timely basis. For so called streaming content, the network must transmit bits that immediately will be processed and converted into pictures and sound, as occurs when the Internet serves a medium for “simulcasting” live television content, or for the immediate decoding and display of video files as occurs when consumers download and simultaneously view content like a movie or television program received via the Internet. 9 In addition to operating at vastly higher transmission speed, digital networks also promote the likelihood that content will arrive without significant degradation in quality. Digital networks offer high data integrity, because they convert content into a coded sequence that travels easily through digital transmission links. Should any portion of the data sequence get lost, dropped or delivered too late for timely conversion back into usable content, digital network can resend it. Consumers welcome the ability to send and receive perfect copies of content, but National Regulatory Authorities, policy makers and courts should appreciate that fast network transmission of perfect copies makes it much easier for piracy of copyrighted content. Previously analog networks could not transmit high capacity files corresponding to video content. While these networks could handle smaller music files, the delivery process took significant time with the potential for noise and other factors to degrade the quality of illegal copies. Digital transmission through broadband networks also promotes the proliferation of new services that requires two-way interactivity between users. Even with a narrower and possibly slower uploading capability, broadband network users now can create and share content as they interact with others. For example, many social networking sites allow subscribers to upload content, such as photographs, and for selected “friends” to comment on the shared material. Broadband is the Common Thread in a Network of Networks Reliable and high quality access to the complete range of services available via broadband networks requires that every participating carrier operate with generally the same speed and efficiency. Consumers of broadband services typically rely on several carriers, commonly referred to as Internet Service Providers (“ISPs”) to provide a portion of the complete, two-way (“duplex”) link from and to sources of content. The Internet has been characterized as a “network of networks” 5 and a cloud 6 to emphasize how many different carriers must cooperate with each other by interconnecting their networks using common operating standards so that subscribers have easy, reliable and uninterrupted access to services and content located anywhere. Because many services require broadband connections for each leg that combine to form the complete link, any gap or reduction in service quality will degrade the total performance of the network as perceived by end users, i.e., final recipients of content and services. The concept of cloud computing emphasizes the integrated and interconnected nature of broadband networks, but inside the cloud are specific networks containing the telecommunications lines, and data traffic routers that link consumers with the content they desire. The information and communications technology (“ICT”) ecosystem seamlessly combines the basic building blocks of telecommunications transmission capacity with software and other forms of information processing. Much of the content and network enhancements are located at the edges of networks where content is originally transmitted and eventually received. However the networks transmitting such content must have sufficient intelligence to identify the location of source material as well as its destination. Data networks use intelligent switches and routers to make decisions how to route traffic in the fastest and most efficient way at the time of the decision. 10 Visualizing the Internet as a Cloud and Network of Networks source: The Opte Project, available at: http://www.opte.org/maps/tests/ 11 The Broadband Communications Supply Chain source: The World Bank, Mark D.J. Williams, Broadband for Africa Developing Backbone Communications Networks, p. 4 (2010); available at: http://elibrary.worldbank.org/content/book/9780821381724. When broadband subscribers experience inferior service they may not readily know the cause, because they lack the diagnostic tools to identify the worst performing device or transmission link in the group of participating ISPs. Additionally packet switching of content constantly changes which carriers participate as cloud computing and data networking typically use any available network transmission capacity offered by many different carriers. You can get a sense of how multiple carriers participate in broadband networking by launching a simple tracking tool known as traceroute. This software program transmits and tracks a small amount of data sent from your location, or an origination point you designate, to a destination you also specify. You receive a line-by-line report on which carrier networks participated in the carriage of your traffic to the final designation. The traceroute report identifies the networks used to route your traffic. Using multiple tracereoutes over time, you can see how the routing can change as the then current availability of networks changes. Traceroute tools also provide a report on the length of time it took to traverse a network from one geographical point to another. 12 Example of a Traceroute from Denver, Colorado United States to Sydney, Australia 1 veserv1 (66.17.141.110) 0.172 ms 0.096 ms 0.062 ms 2 66.54.149.69 (66.54.149.69) 1.902 ms 6.314 ms 1.311 ms 3 ge-6-24-515.car1.Denver1.Level3.net (63.211.250.17) 1.305 ms 1.556 ms 1.842 ms 4 ae-31-51.ebr1.Denver1.Level3.net (4.68.107.30) 6.402 ms 2.217 ms 13.363 ms 5 ae-2-2.ebr2.Dallas1.Level3.net (4.69.132.106) 23.835 ms 17.447 ms 17.972 ms 6 ae-1-60.edge2.Dallas3.Level3.net (4.69.145.12) 17.510 ms 20.658 ms 18.097 ms 7 ex-3-1-0.er1.dfw2.us.above.net (64.125.12.73) 17.328 ms 17.148 ms abovenet-levle3- xe.dallas3.level3.net (4.68.63.38) 57.938 ms 8 ge-2-1-0.mpr1.dfw2.us.above.net (64.125.27.73) 17.128 ms 19.487 ms 18.245 ms MPLS Label=448742 CoS=6 TTL=1 S=0 9 xe-1-2-0.cr1.iah1.us.above.net (64.125.26.130) 23.410 ms 22.282 ms 21.876 ms MPLS Label=633529 CoS=6 TTL=1 S=0 10 xe-1-3-0.er1.lax9.us.above.net (64.125.26.122) 66.848 ms 47.634 ms 47.212 ms MPLS Label=391497 CoS=6 TTL=1 S=0 11 ge-2-0-0.mpr3.lax9.us.above.net (64.125.31.90) 47.524 ms 46.298 ms 45.649 ms MPLS Label=774617 CoS=6 TTL=1 S=0 12 so-0-0-0.mpr4.lax9.us.above.net (64.125.26.146) 100.005 ms 45.132 ms 49.471 ms 13 64.124.200.234.allocated.above.net (64.124.200.234) 46.608 ms 50.029 ms 45.204 ms 14 so-4-0-0.bb1.b.syd.aarnet.net.au (202.158.194.157) 197.119 ms 196.145 ms 195.272 ms 15 ge-1-1-8.bb1.a.syd.aarnet.net.au (202.158.202.41) 191.984 ms 192.289 ms 193.792 ms 16 gigabitethernet0.er1.usyd.cpe.aarnet.net.au (202.158.202.194) 232.429 ms 194.210 ms 191.807 ms 17 gw1.er1.usyd.cpe.aarnet.net.au (202.158.202.202) 192.326 ms 200.158 ms 195.941 ms 18 vlan3166.brc-h69-1.gw.usyd.edu.au (129.78.253.77) 193.937 ms 214.900 ms 195.490 ms 19 vlan3072.nx7-s01-2.gw.usyd.edu.au (129.78.254.206) 199.189 ms 193.544 ms 193.193 ms 20 solo-rproxy.ucc.usyd.edu.au (129.78.155.111) 201.936 ms 193.163 ms 195.268 ms 13 Higher Stakes for Developing Countries Consumer demand for broadband network delivered services raises the stakes for timely and effective deployment of ICT. Nations that do not have widespread access to affordable broadband service risk losing comparative advantages in global markets, particularly for information intensive applications. Lesser developed countries (“LDCs”) which may not have achieved ubiquitous access to narrowband, voice services, now face the task of adding broadband access to a universal service mission. The added broadband burden may raise the total cost of network development, but technological innovations can help LDCs possibly avoid having to retrofit legacy networks and instead concentrate on installing next generation networks (“NGNs”) that can “leapfrog” prior generations and vintages of technologies. These cutting edge technologies exploit technological convergence making it possible to provide both voice and data services via a single Internet link. Broadband technologies can expedite a nation’s access to digital networks configured to transmit data bitstreams combining voice, text, data, video, graphics and other content. In many LDCs the opportunity to install and operate best in class technologies may lie in wireless networks that already may provide widespread geographical coverage for narrowband voice telephone service. Third and fourth generation wireless networks provide faster data services, possibly reaching parity with some current generation wired broadband options. However, the use of radio spectrum may constrain the ability to scale services to a large subscriber population if National Regulatory Authorities do not authorize access to more bandwidth. Likewise developing countries may not have achieved the same pace in migrating from second generation wireless technologies to third and fourth generations that offer more bandwidth and data transmission capabilities. Additionally consumers in developing countries may not have the opportunity to select from two or more broadband distribution technologies as occurs in many developed countries where both cable television, telephone and possibly electric companies offer broadband services. The lack of so-called intermodal competition from two facilities-based carriers using two different broadband technologies, may limit the degree of competition and consumer choice. Similarly the lack of more than one carrier using the same technology may limit intramodal competition as occurs when a nation has more than one wireless telephone company. Because broadband networks can achieve significant improvements in many types of personal and commercial transactions, nations increasingly recognize the importance of making broadband access widely available and affordable. The Finish legislature enacted a law that recognizes the right of all residents to access affordable broadband, while many other nations have integrated broadband access into existing universal service programs that subsidize access and provide other financial incentives to operating carriers. 7 Other nations, have added access to affordable and widely available broadband service as a policy goal worthy of government funding and subsidies previously used only to promote access to voice telephone service. 14 5.1.1 Managing the Transition from Narrowband to Broadband Despite the allure of broadband technologies and the obvious market demand for it, incumbent carriers cannot simply execute a strategy of quickly replacing all existing plant that use “legacy” technologies such as narrowband copper wire used to provide conventional public switched telecommunications services (“PSTN”). Both carriers and National Regulatory Authorities (“NRAs”) have to manage the transition with caution to ensure that subscribers do not face substantial and immediate hikes in service rates resulting when carriers seek to “write off” substantial plant investments, i.e., to recoup all PSTN investment in a short period of time. Additionally complex regulatory issues will arise including the valuation of the rights of way used for replacement broadband services, the potential for a reduction in the geographical scope of access to broadband services and the need for subscribers to acquire additional equipment such as computers and terminal adapters to make it possible to use existing telephones over a Voice over the Internet Protocol (“VoIP”) network. NRAs will need to reform universal service policies to achieve progress in access to both voice and data services. Broadband technologies require carriers to invest substantially in new plant at the very same time as these ventures have high capital expenditures in expanding the range and upgrading the services of both wired and wireless networks. While the Internet can provide a single medium for virtually all types of services, now provided via separate networks, the carriers must manage an incremental conversion that squeezes out as much value as possible from embedded plant for as long as possible. For example, carriers providing wired voice telephone service can retrofit the PSTN to provide some types of broadband services at a relatively low additional investment per line. This Digital Subscriber Line (“DSL”) service cannot match the versatility and transmission speed of fiber optic glass networks, or even the latest generation of wireless service, commonly referred to as 4G. But as a transition technology, DSL can provide a more quickly installed broadband service without the need for carriers to replace the copper wire network with a completely new wired or wireless distribution network. Both developing and developed nations will have consumers keen on accessing the most recent services and technologies available. Both broadband carriers and NRAs may struggle to satisfy such demand. Carriers will need to upgrade even recently installed networks, so that they can offer even higher bit transmission speeds. NRAs may need to find additional radio spectrum to accommodate demand for wireless broadband service. Video will serve as a key driver for faster broadband networks with ever improving content delivery capabilities. Initially improvements in image resolution could occur using the same amount of radio spectrum and wired capacity through the use of compression techniques that help conserve bandwidth. In many areas of the world, broadcast, satellite and cable television operators have successfully migrated from delivering standard definition television to high definition television. However engineers have devised even higher resolution video images that will double or even quadruple the number of columns and lines that must be reproduced thirty times a second. So-called ultra high definition television, delivered via wired and wireless 15 broadband networks, will require more bandwidth and the implementation of more effective conservation techniques. 5.1.2 Reference Documents and Case Notes Traceroute and the Network of Networks You can receive a line by line report on the networks used to send a small amount of data. Traceroute software provides a graphical summary of how the Internet operates as a Network of Networks providing users with seamless connectivity via the networks of many interconnected carriers. Here are some Traceroute World Wide Web sites: http://www.traceroute.org/; http://network-tools.com/; http://www.geektools.com/traceroute.php; http://tracert.com/trace_exe.html. Visualizing the Internet Cloud The traceroute and other network diagnostic tools provide a visualization of how the Internet functions through the physical interconnection of networks at various locations around the world. Many telecommunications lines, routers, servers and other equipment provide service in a such user friendly, seamless way that the Internet can be analogized to a cloud. The following sites provide a visual depiction of the networks that form this cloud: http://mappa.mundi.net/maps/maps_020/walrus.html; http://www.infovark.com/blog/wp-content/uploads/2008/03/internet_map2.jpg; See also Visualizing Global Internet Performance with Akamai, World Wide Web site; available at: http://www.akamai.com/html/technology/visualizing_akamai.html; Bredan’s Blog, Visualizing the Cloud; available at: http://dtrace.org/blogs/brendan/2011/10/04/visualizing-the-cloud/; The Internet Map; available at: http://internet-map.net/. 16 Packet Switching Most Internet traffic is subdivided into small units of capacity called packets. The Transmission Control Protocol (“TCP”) used by ISPs offers traffic management procedures for the transmission and delivery of these packets to the intended recipient using the network capacity of two or more participating carriers. Each separate packet traverses the network facilities of any participating ISP with available transmission and switching capacity. TCP usually provides for “best efforts” routing of packets meaning that first arriving packets at a router are the first to be delivered to recipients, or carried onward toward the final destination. The following sites offer a tutorial on how packet switching works: Oregon Public Broadcasting, Packet Switching Demo http://www.pbs.org/opb/nerds2.0.1/geek_glossary/packet_switching_flash.html; Virginia Tech, Online Course; available at: http://courses.iddl.vt.edu/CS1604/15-Lesson_14/03-Packet_Switching.php. Internet Addressing One can access a desired Internet site by keying in an easily remembered name into a World Wide Web browser such as Internet Explorer and Mozilla Firefox. The Internet Protocol establishes a series of rules for the creation of an address and a governance system operates for the registration of the names and the resolution of disputes. The addressing system combines a name with a top level domain designation such as .com, .edu and .gov representing commercial ventures, educational institutions and government organizations respectively. For background on the Internet addressing system see: Modular Software Corp., An IP Primer; available at: http://coyote.easyco.com/ip-prim.htm; Bagwell Marketing, Domain Name Primer: Everything You Need to Know about Domain Names; available at: http://www.bagwellinternet.com/report-domain-names.html; Microsoft Corp., Understanding TCP/IP addressing and subnetting basics, available at: http://support.microsoft.com/kb/164015. 17 5.2 Overview of Broadband Networks Characterizing the Internet as a cloud and a network of networks emphasizes how users benefit from the seamless integration of many different carrier facilities located throughout the world. The Internet design emphasizes convenience and simplicity even as complex network interconnections take place between equipment of different vintage and manufacturer. By agreeing to use a common set of operating standards, all ISPs have the ability to interconnect the equipment needed to transmit, switch, identify, label and deliver traffic. This means that users can access content located anywhere within the Internet cloud by using a universally agreed upon addressing system that uses easily remembered words, e.g., www.worldbank.org. These domain names translate into a sequences of numbers used by devices called routers to identify the origin and destination of traffic as well as the next network that will deliver traffic closer to its intended destination, or to the final destination. The Internet addresses of senders and recipients of traffic are located in the header portion of packets. Content is located in a separate portion of each packet commonly referred to as the payload. Broadband networks combine high capacity transmission lines with devices such as routers that coordinate the delivery of traffic. By analogy think of the telecommunications lines as high capacity highways, or pipelines and routers as the traffic lights that manage the intersection of lines, i.e., their interconnection, and the routing of traffic that typically involves a switch from one transmission line to another, i.e., a handoff from one carrier’s network onto the network of another carrier. The Internet offers fast and reliable management of high capacity traffic bitstreams thanks to the reciprocal agreements among ISPs to share transmission, switching and routing duties. Peering refers to an agreement between two ISPs to exchange Internet traffic typically with no payment if the traffic handed off to the other ISP roughly equals the volume received from the other ISP. 8 For instances where ISPs exchange unequal traffic volumes, the carrier generating more traffic volume typically has to pay the other carrier for its comparatively greater traffic carriage, a financial transaction commonly referred to as transiting. 18 Peering and Transit Agreements source: George Ou, The Internet Society (Nov. 10, 2009); available at: http://www.digitalsociety.org/2009/11/fcc-nprm-ban-on-paid-peering-harms-new-innovators/. Internet traffic can quickly and seamlessly maneuver through the cloud using the networks of many ISPs. ISPs agree to interconnect their networks and have both technological means and financial incentives to secure a complete link from an end user upstream via his or her retail ISP and many other interconnected ISPs all the way to the source of desired content and back. The specific networks use at any time during the connection can change, because carriers subdivide Internet traffic into packets and the decision on which carrier network to use for each packet is made “on the fly,” i.e., as the packets are presented to a router. Routers typically use operating standards that switch individual packets on a “best efforts” basis that identifies which of possibly several networks are available and which individual network is most likely to deliver traffic quickly onward to another ISP, or to the retail ISP serving the end user requesting the content. 19 Hierarchical Structure of the Internet The Internet ecosystem divides into a number of separate network elements that combine to provide users with a complete link to and from sources of content. A retail ISP serving end users provides the first connection that originates an upstream traffic flow used by subscribers to initiate a request for content, e.g., a query submitted to a search such as Google, or to upload their own content, e.g., uplinking a photograph to a social networking site such as Facebook. More than one retail ISP may offer broadband links to individual subscribers, but generally end users opt to subscribe to only one carrier for all uplinking and downlinking services. In many locales consumers have a choice of technological options that include broadband provided by a telephone company that has retrofitted its voice network to provide data services, a cable television company that has reassigned a portion of its video content delivery capacity for data services, one or more terrestrial and satellite wireless carriers and possibly the electric power company. These carriers have limited opportunities to aggregate traffic and achieve operational efficiencies for the first and last kilometer link, 9 because eventually they must identify and deliver or receive traffic from each and every subscriber on an individualized basis. However, retail ISPs can aggregate traffic for upstream delivery to other carriers and receive such aggregated traffic from these carriers. The ability or inability to aggregate traffic has great significance on how much operational efficiency and cost savings an ISP can generate. As traffic moves upstream from a retail ISP the carriers providing intercontinental and transoceanic transmission have the greatest ability to combine traffic onto the fastest and highest capacity transmission links available. This traffic aggregation function makes it possible for such carriers to accrue best possible scale efficiency and to become a part of the largest class of operators known as Tier-1 ISPs. 10 These ISPs provide long haul traffic delivery and typically only interconnect directly with other similarly-sized Tier-1 ISPs, on zero cost, peering terms. Smaller ISPs may also enter into peering agreements, but typically have to pay transit fees to Tier-1 ISPs for access to their long haul services. The Internet ecosystem can be visualized as a hierarchical pyramid with many comparatively small ISPs serving individual localities and regions, with fewer ISPs operating upstream as Tier-2 and Tier 1 carriers. 20 Hierarchy of ISPs source: Geoff Huston; available at: http://www.potaroo.net/ispcol/2000-11/2000-11-peering.html Internet traffic also has characteristics that affect how ISPs configure their networks. Because most subscribers download more content than they upload Internet networks have to handle more downstream traffic. This asymmetrical traffic volume requires some ISPs, particular retail carriers, to allocate more capacity for downstream transmissions than for upstream flows. Similarly ISPs have to configure networks that can handle and quickly respond to significant variation in the total volume of traffic demand made by individual subscribers. Most Internet subscribers have “bursty” traffic requirements as they will require fast, high capacity downloading capability for a period of time after which they may impose no significant demands whatsoever. ISPs need to have the ability to accommodate high throughput demand, e.g., downloading a very large file containing video content, but also to reassign network resources when one subscriber completes a bursty demand for transmission capacity and starts to watch the downloaded content. The Internet ecosystem will constantly change as new types of content and uses emerge. Current developing trends include increasing reliance on wireless broadband networks, the proliferation of applications designed for use of these networks and the rapid inclusion of Internet connected sensors to monitor the health and performance of both people and devices. These trends will have a substantial impact on how planners design and configure future networks. With increasing reliance on wireless networks ISPs will need to convince government regulators to reallocate and assign more radio spectrum for Internet access. A growing “Internet of Things” 11 means that our understanding of what the Internet can do will expand into an even larger ecosystem of people, devices and monitors. Another developing Internet trend reduces the hierarchical nature of interconnections and increases the number of financial compensation arrangements available. When the Internet started only a few carriers participated and they generally had roughly equal volumes of traffic to exchange. Additionally these carriers did not have to pay close attention to traffic volumes, 21 because governments typically subsidized their operations. Most governments have stopped or reduced subsidizing Internet development thereby prompting ISPs to pay closer attention to capital and operating costs, including whether an interconnecting carriers generates more traffic than it receives. ISPs generating more traffic for carriage by another carrier now have to pay for such access. Faced with significantly higher interconnection costs, these carriers have explored new ways to interconnect networks. For example many smaller Tier-2 ISPs have agreed to interconnect directly rather than rely solely on higher capacity Tier-1 carrier networks. Additionally ISPs of all sizes increasingly opt to interconnect and to store content at a centralized location commonly referred to as an Internet Exchange. Such co-location makes it possible for many ISPs to interconnect in the same building. This promotes operational efficiency and reduce interconnection costs. Very large suppliers or repositories of content also consider alternatives to relying on one or more ISPs to manage delivery. These ventures, such as Google, Facebook, and Youtube can secure and manage their own network routings closer to end users. Some content providers have registered to secure an Autonomous System identifier that specifies routing options as though the content source operated as an ISP. In the alternative Netflix has under consideration the installation of high capacity storage units on subscriber premises that will contain hundreds of the most popular content thereby reducing the aggregate subscriber demand for immediately downloaded content. 5.2.1 The Broadband Supply Chain While many components parts make up the broadband supply chain, they split into two basic categories: conduit and content. Conduit refers to the technological means by which geographically separated users of the Internet can connect with equally dispersed sources of content. The Internet seamlessly combines the conduit function with content so that end users can readily access desired content simply by keying in easily remembered names, or Web addresses, or clicking on an icon, a small image that launches an application and accesses content. While willing to pay directly for specific content, applications and software, consumers generally consider their broadband subscription as entitling them to expect their retail ISP to make all necessary arrangements to provide consistently reliable broadband links to all content sources. Accordingly while a complete understanding of broadband supply chain necessitates examination of each component part, consumers generally consider Internet access a single transaction regardless of how many ISPs and diverse telecommunications network facilities participate in the complete routing and management of the links between end users and sources of content. A variety of ISPs participate in the transmission, switching, routing, storage and data base interrogation that are necessary for making complete links between end users and content sources. The transmission element refers to broadband transmission technologies that use closed 22 circuit media, such as copper wire and fiber optic cables, as well as radio spectrum to provide a wideband conduit for content to travel to and from end users. These telecommunications links constitute the core carrier functions for which National Regulatory Authorities have direct jurisdiction to ensure that consumers have widespread access on reasonable terms and conditions. In subsequent sections, this Module will explain how each broadband transmission technology operates. To achieve global connectivity, broadband networks need robust and flexible telecommunications line switching and routing functions. Routers manage the selection of which telecommunications network will deliver traffic for each of possibly many legs in a complete link up. As identified in a traceroute report, the networks participating in the provision of service are accessed by routers that switch between available networks on the basis of available capacity and the destination of the traffic. Routers inject intelligence into the switching and routing process, because they make network selection decisions based on an analysis of network capabilities immediately available as well as interrogation of data bases to identify the source of content and its intended final destination. Because routers need to look up the identity of traffic sources and recipients, network operators create data bases, located in computers with high storage capacity known as servers. Just as routers have to select the next telecommunications link to transmit traffic onward toward its final destination, these devices also have to interrogate servers containing information about the identity of network users. Servers responding to this “look up” function may be located at a distance from the router, but a very fast lookup of Internet Protocol addresses must occur before the router can decide onto which network to switch the traffic. Based on traffic conditions and the location of the destination for a particular bitstream routers then coordinate the hand off from one network, the initial source of traffic, onto another network possibly operated by a different ISP. 5.2.2 The Transition to All-IP Networks Technological and marketplace convergence favor increasing reliance on a single Internet-based network to provide most information, communications and entertainment (“ICE”) services. Current and next generation networks 12 use uniform Internet standards, formats and protocols making it possible for them to deliver globally just about any type of content, including that previously available only from one specific type of medium, e.g., broadcast radio and television, via wireless point-to-multipoint technology. With increasing reliance on the Internet as a single source of content, previous medium-specific media may become less important. The Internet is becoming a single conduit for all types of content, because it can switch, route, sort and store digital bitstreams. All types of content can be converted into digital bits and subsequently organized into packets. Packet switching technology can send bitreams representing many different types of content, e.g., voice, music video, text, photographs, etc. generated by different sources via shared networks that combine to form the Internet. 23 One can analogize packet switching with the older legacy delivery of mail by postal carriers. Much of the traffic handled comes to a post office in two parts: 1) an exterior envelope containing information about the source and destination of the communication; and 2) an interior space for content, such as a letter. Packet switching uses the same two part structure: packet headers contain routing information including the IP addresses of sender and intended recipient and the payload containing content. One can anticipate the transition to an ICE marketplace served primarily by the Internet as a “one stop shop” for most content thanks to digitization and standard operating protocols. Consolidation by the Internet can trigger a migration by consumers from several standalone and mutually exclusive networks. Instead of using a separate network for telephone calls, watching video programming and web browsing consumers increasingly can rely on a single, versatile 24 Internet available via several wired and wireless transmission technologies, each using the same Internet formats. The term all-IP network refers to the ability of networks using the same standard formats to offer many different types of services that previously were available only via separate, single purpose networks. By consolidating the number of networks needed to deliver all forms of ICE, all IP-networks can reduce or eliminate the need to have separate networks for radio, television, cable television, telephone service, data and even other physical delivery systems used to reach consumers of print media such as newspapers and magazines. Migration to an all IP-network will enhance the value of broadband Internet access for both network providers and consumers. Having digitized their networks and replaced many different operating standards for the single, now preferred Transmission Control Protocol/Internet Protocol combination, network operators can market Internet access as a single, preferred medium for any and all ICE services. Consumers can benefit when previously separate demand for content can be aggregated and delivered via a single, more versatile and convenient conduit. 5.2.3 Cloud Computing and Enterprise Networking Even as carriers in developed and developing nations strive to extend broadband services to residential and small business users, the more sophisticated requirements of large business users also require accommodation. High volume users increasingly want telecommunications and Internet carriers to combine telecommunications and information technologies to offer customized services. Carriers now have the ability to provide managed networks using software to configure a temporary, “virtual” network designed to meet the specific requirements of one large volume broadband user. A technique known as Multiprotocol Labeling Switching (“MPLS”) enables carriers to insert routing instructions as labels that preclude the need to inspect packet headers and to look up the location of the source and destination of traffic. MPLS and other techniques work to make it possible for an entire corporate network, spanning many countries and continents, to operate much like a local area network which provides campus-wide Ethernet connections to many computers. The integration of information and telecommunications technologies may have started at the multinational corporate level, but increasingly sophisticated individual users also have diversifying network requirements. With a broadband connection employees and sole proprietors have the means to maintain a Web presence 24 hours a day, 7 days a week. The line between work and leisure can become fuzzy when one can respond to work demand at home and at other off site, remote locations at any time. Additionally employees have a preference to use personal handsets and privately owned home computers to handle work-related requirements. It appears quite possible that high level ICT applications designed for corporate users may extend to employees as they work from home and other remote locales. 25 5.2.3.1 Reference Documents and Case Notes An IP-Centric Ecosystem The Internet’s versatility and ease of use makes it plausible to suggest that it will operate as the primary medium for delivering most of the information, communications and entertainment service consumers want. Viewing the Internet as a single source for all forms of content promotes efficiency and scale, but risks the formation of very powerful ventures having significant control over the Internet marketplace. Competition need not be threatened, or eliminated simply because all network operators choose to use the same transmission, routing and switching protocols. However, reliance on a single medium for all types of content means that previously separate and stand alone networks may consolidate and converge into one massively large and powerful medium. For background on an IP-centric network environment see: Brian S. Mitchell, Drexel University, The TCP/IP Data Communications Protocol; available at: https://www.cs.drexel.edu/~bmitchel/course/mcs721/tcpip.pdf; Nokia Siemens Networks, Smart Connectivity A Vision of Tomorrow’s Connected World available at: http://www.nokiasiemensnetworks.com/sites/default/files/document/WPSmartConnectivityV1.p df. 5.3 Basic Technologies for Broadband Connectivity This section will provide a tutorial on the many different transmission technologies used to provide broadband services. Because wireless broadband technologies likely will become an increasingly significant option, this section will also provide an introduction to basic radio spectrum management. Additional background on spectrum management is available in the ICT Regulation Toolkit, Module 5, Section 2.2; available at: http://www.ictregulationtoolkit.org/en/Section.3513.html. 5.3.1 Spectrum Management While key wire-based technologies operate using closed circuit copper or glass conduits, wireless broadband transmission technologies use radio spectrum, a shared resource with physical characteristics that require attention to the potential for excess demand and interfering uses. Typically governments manage the allocation and assignment of spectrum with an eye toward reducing the likelihood of both interfering use of the same frequency and insufficient capacity to meet current and future demand for specific services, such as wireless broadband. 26 Governments manage this shared public resource by acting as a “traffic cop of the airwaves” who determines what uses can be made for specific blocs of spectrum and who can use specifically assigned frequencies through licensing. These potentially intrusive management strategies originated when spectrum users had limited technological means to avoid causing interference to other users of the same frequency. Rather than risk the potential for harmful interference, governments typically identify a specific use for a range of frequencies and assign specific frequencies solely to one user. When multiple users receive authorization to use the same frequency from a National Regulatory Authority, the potential for interference is deemed minimal primarily based on the geographical separation of the licensed users. This allocation of spectrum blocs by service and assignment by specific user has occurred in both intergovernmental forums such as the International Telecommunication Union (“ITU”), and unilaterally in specific national spectrum policies. For example, the ITU, a specialized agency of the United Nations, decided long ago which frequencies nations should use for commercial radio and television broadcasting. Individual governments have a sovereign right to determine whether to accept the global consensus on such spectrum allocations and how to assign usage rights. Generally nations implement the consensus spectrum allocations decisions made at the ITU, but they can vary the terms and conditions under which operators secure spectrum usage rights. Even as many nations support commercial use of broadcast spectrum by private operators some nations, including developed nations such as the United Kingdom, continue to have government entities as the sole national broadcaster, or as a subsidized alternative to commercial broadcasting. 27 Spectrum Allocations in Blocs source: United States National Telecommunications and Information Administration, United States Frequency Allocation Chart (2011); available at: http://www.ntia.doc.gov/files/ntia/publications/spectrum_wall_chart_aug2011.pdf. Wireless Broadband Spectrum Management Wireless broadband operators need large amounts of spectrum so that they can provide very fast transmission of feature rich content, such as full motion video, to ever increasing numbers of subscribers with growing demand for service. Because all useable spectrum already has a specified use, governments can accommodate growing demand for wireless broadband spectrum only by reallocating blocks of spectrum with already specified uses. This means that existing or prospective users of spectrum authorized to use specific frequency bands, may lose that right, or face the need to share access, a process that requires coordination based on location of the spectrum use, or the implementation of techniques designed to support multiple, non- interfering use by two or more nearby operators. High bandwidth requirements and rising demand for wireless broadband combine to 28 support the use of radio spectrum at very high frequencies. These frequencies, measured in the billions of cycles per second, termed GigaHertz (“GHz”), only recently have become available as scientists invent ways use spectrum that increasingly has characteristics of visible light energy. Useable radio spectrum lies on a continuum with sound energy at the low end and infrared and light waves at the high end. Low radio frequencies have some characteristics like sound such as the ability to penetrate walls and other obstructions. Very high frequencies have some of the characteristics of light such as the ability to bounce off obstructions. Having only recently made allocations of the highest usable frequencies, governments can more easily accommodate the vast demand for wireless spectrum at these high frequencies in light of the possibility that at least some frequency bands have few current government and commercial users. Very high spectrum also has transmission characteristics, known as propagation, which supports many broadband uses. For example, these frequencies, like light, lose power quickly and on a predictable and measureable basis. Wireless broadband operators can use the same frequencies at nearby locations without interference thereby making it possible to accommodate lots of simultaneous uses in the same region. This efficient frequency reuse can occur, because very high frequencies do not travel long distances, a characteristic much more likely to occur at lower frequencies. At lower frequencies signals with the same transmission power travel farther and thereby have the potential to interfere with more users operating on the same frequency over a larger expanse of terrain. The likely growing demand for wireless broadband service can generate a shortage, unless governments respond by reallocating additional spectrum. Candidates for such reallocation generally represent underused spectrum that results from an initial overly generous allocation, or because usage patterns have changed. Spectrum reallocation decisions typically generate conflicts, because no incumbent user group will welcome the need to operate more efficiently, possibly having to satisfy all requirements with a net reduction in available spectrum capacity. Governmental spectrum users will invoke national security and cost concerns over any loss of available spectrum, while incumbent private users also will complain about incurring higher costs and inconvenience. All spectrum has value, but that triggering the greatest demand logically also has the greatest value. Governments may try to extract some of this value by auctioning off the most desirable spectrum designated for the most attractive services that include wireless broadband. While some spectrum auctions have accrued limited returns, ones allocating mobile radiotelephone service and next generation broadband networks have generated up to several billions of dollars for national governments. Spectrum Conservation 29 Because spectrum scarcity is all but inevitable for broadband applications, governments likely will try to reallocate additional spectrum by forcing some users to make do with less. This freeing up of spectrum can occur when new digital technologies make it possible for operators to: send signals using less total bandwidth; carry multiple calls and data sessions over the same channel; compress signals so that content can travel using narrower channels; increase the speed by which traffic reaches an end user; and use new techniques that avoid causing interference even by users in close proximity using the same frequency. The so-called Digital Dividend 13 provides an example of how digital transmission techniques make it possible to accommodate incumbent operators’ bandwidth requirements using less total spectrum. When broadcast television operators convert from analog to digital transmission, governments typically can “refarm” portions of the frequency band allocated by reassigning all incumbent users into a smaller range of usable channels thereby freeing up spectrum for new uses. 14 Digital transmissions reduce the potential for harmful interference between the signals of two or more television broadcasters, because the signal weakens (attenuates) quickly after serving a predictable geographical area. Analog signals on the other hand degrade more slowly making it possible for signal reception and interference to occur over farther distances from the transmitter. By relocating all broadcasters onto more closely aligned channels governments can free up spectrum and reallocate it for wireless broadband use. Spectrum conservation also can take place through the use of transmission formats that facilitate shared use by several simultaneous users of the same frequency channel. By using smart transmitters and receivers, equipped with digital signal processing technology, many nearby operators can identify unused spectrum and operate at very low power. Before transmitting, smart radios can identify actual existing users nearby, or consult a data base of known users. Additionally governments can permit use of allocated, but sparsely used spectrum thereby permitting unlicensed uses in these geographically dispersed “white spaces.” 15 NRAs typically allow white space use only if it does not cause interference with licensed operators, and other users having a higher access priority. Governments also can identify spectrum for shared use by unlicensed, low powered devices such as Wi-Fi routers that provide wireless access to broadband services. However excessive use of unlicensed spectrum leads to what economists call “the tragedy of the commons” 16 when no one can productively use a shared resource due to overuse that becomes apparent when users encounter congestion and interference. 30 Because governments cannot typically remedy all types of existing or anticipated spectrum scarcity, carriers have to employ many types of spectrum conservation techniques. Section 5.7.2 will identify many strategies used by wireless broadband carriers. 5.3.1.1 Reference Documents and Case Notes Spectrum Management Radio spectrum has different value based on the specific amount of bandwidth available, propagation characteristics, allocated uses and demand. For example, spectrum allocated for wireless mobile services such as cellular radio and broadband, can generate billions of dollars in a competitive auction. On the other hand some spectrum has little value, because of limited demand, or because a legislature or National Regulatory Authority has decided that the public should have access on a free and unlicensed basis as is the case for Wi-Fi spectrum. Spectrum scarcity occurs when demand exceeds supply and a government cannot quickly add to the inventory of available spectrum allocated for a specific use. For background on the value of spectrum and its management see: International Telecommunication Union, Telecommunications Development Sector, Exploring the Value and Economic Valuation of Spectrum (April, 2012); available at: http://www.itu.int/ITU-D/treg/broadband/ITU-BB-Reports_SpectrumValue.pdf; United States Department of Commerce, National Telecommunications and Information Administration, Some Basic Elements of Spectrum Management; available at: http://www.ntia.doc.gov/book-page/basic-elements-spectrum-management; The World Bank, InfoDev, ICT Regulation Toolkit, 1.1 Introduction to Spectrum Management Overview; available at: http://www.ictregulationtoolkit.org/en/Section.2656.html; New America Foundation, The Citizen’s Guide to the Airwaves (2003); available at: http://www.newamerica.net/files/airwaves.pdf; New America Foundation, J.H. Snider, The Cartoon Guide to Federal Spectrum Policy (2005); available at: http://www.newamerica.net/files/archive/Pub_File_1555_1.pdf. 5.3.2 Fiber Optic 31 Increasingly widespread installation of flexible, fiber optic cables as thin as one strand of hair constitutes one of the major telecommunications transmission media for broadband networking. Glass strands coated (“doped”) with trace amounts of rare earth elements such as erbium provide a medium that can guide extremely fast pulses of laser light beams across significant distances without the need for reamplification (“regeneration”) of the signal. Very narrow, high frequency light energy can travel great distances, because this type signal can “refract” or bounce from one edge of a glass cable to the other without quickly degrading or weakening as happens when electrons travel through copper wires. While a copper medium generates friction and resistance to the conduction and transmission of electrons, the glass medium offers far less obstruction to the transmission of laser signals. Carriers using fiber optic cables can transmit vast amounts of broadband traffic, not only because single strands have wideband capacity and fast transmission speeds, but also because many pairs of cable (for two-way, simultaneous upstream and downstream “duplex” traffic) can be bundled together and then encapsulated with plastic and metal cladding for structural support. Dense Wave Division Multiplexing makes it possible for multiple laser beam (“optical carrier”) transmissions to take place via a single cable strand using different, non-interfering lightwave frequencies. While the technology of fiber optic cable refraction and transmission involves complex science, the use of lasers in compact disk (“CD”) and digital video disk (“DVD”) players can provide insights on how the cables operate. If you were to examine the operation of CD and DVD players, you would see an apparently constant illuminating red or blue light, which you should examine only from a distance and at an angle. The light source actually turns on and off in very quick succession matching the on and off sequence of data transmissions which can be reduced to a series of ones and zeros. CD and DVD players use the laser beams to “read” the digital signal streams imbedded in the disk. The concept of different operating frequencies are represented by the red laser beam used by lower frequency and lower capacity CD and first generation DVD players, as well as the higher frequency and higher capacity “blue ray” laser frequency used by current generation DVD players. The substantial capital expenditures required to install fiber optic cables support their use primarily for high capacity transmission projects often covering long distances. Operators seek to spread the cost to acquire rights of way and install wires within ductwork over a large pool of users. While the services provided via fiber optic cables may be priced on an average cost basis, the installation costs of such facilities are distance sensitive, i.e., the total cost increases incrementally as the length of the cable installment grows. However, once installed fiber optic cables provide great opportunities to scale up and increase overall transmission capacity simply by activating additional cable pairs, or by using multiple frequencies of light in each cable. Except for instances where operators cannot economically justify the cost of installing cables most long haul carriage of broadband traffic takes place via fiber optic facilities. Fiber Optic Cable Elements 32 source: United States Dept. of Transportation, Highway Administration. Fundamentals of Telecommunications; available at: http://ops.fhwa.dot.gov/publications/telecomm_handbook/chapter2_01.htm. 5.3.2.1 Reference Documents and Case Notes For a primer on how fiber optic cable operate see: Matt Burns, Techcrunch.com, A Clever Video Primer On Fiber Optic Cables; available at: http://techcrunch.com/2011/06/22/a-clever-video-primer-on-fiber-optic-cables/; Youtube videos; available at: http://www.youtube.com/watch?v=llI8Mf_faVo; and Tutor Vista, Optical Fibres; available at:http://www.youtube.com/watch?v=aqazAcE19vw; Australian Broadcasting Corp., How Optical Fibre Works; available at: http://www.abc.net.au/news/2011-05-31/how-optical-fibre-works/2737088; Fiber-to-the-Home Council, Advantages of Optical Access; available at: http://www.broadbandproperties.com/2007issues/feb07issues/ftthprimer_feb.pdf; OECD , Fibre Access: Network Developments in the OECD Area”, OECD Digital Economy Papers, No. 182, OECD Publishing (2011); available at: http://dx.doi.org/10.1787/5kg9sqzz9mlx-en. For background on how Dense Wave Division Multiplexing works see: 33 Columbia University, High Performance Communication Networks (EC/TC), Dense Wave Division Multiplexing; available at: http://www.ee.columbia.edu/~bbathula/courses/HPCN/chap04_part-3.pdf; Gerald P. Ryan, The Applied Technologies Group, Dense Wavelength Division Multiplexing; available at: https://aresu.dsi.cnrs.fr/IMG/pdf/dwdm_ciena.pdf; Fiberoptic.com, DWDM - Dense Wavelength Division Multiplexing, DWDM systems available at: http://www.fiberoptic.com/adt_dwdm.htm. Kansas City Gigabit Test and Demonstration Project After inviting localities throughout the United States to submit proposals Google selected Kansas City, in the states of Missouri and Kansas to serve as the first site for the construction of a metropolitan wide broadband network operating at speeds in excess of 1 Gigabit per second (“Gbs”). Goggle hopes that this test and demonstration project will show how the private and public sector can partner to expedite widespread access to next generation networks capable of delivering service at bitrates well in excess of what the fastest networks currently can provide. For background on the Google Fiber—Kansas City Gigabit Test and Demonstration Project see: http://fiber.google.com/about/; http://www.youtube.com/watch?v=6uZVqPuq81c; Geek.com, How Google Fiber Will Work; available at: http://www.geek.com/articles/chips/how-google-fiber-will-work-20120726/ The Australian National Broadband Network Determining that it should expedite the availability of affordable and ubiquitous broadband service, the Government of Australia has underwritten the development of a wholesale broadband network with the goal of serving every resident in the country. The venture will provide direct fiber connections to 93 percent of the population at speeds of up to 100 megabits per second (“Mbps”) with the most remote residents served by terrestrial wireless and satellite technology providing bit transmission rates of up to 12 Mbps. The network will provide business with up to 1 Gbps downstream and 400 Mbps upstream service. For background on Australia’s National Broadband Network see: 34 NBN Co. World Wide Web site; available at: http://www.nbnco.com.au/; Government of Australia, Department of Broadband, Digital Communications and the Digital Economy, National Broadband Network World Wide Web site; available at: http://www.dbcde.gov.au/broadband/national_broadband_network; The Coalition’s Plan for Fast Broadband and an Affordable NBN (April, 2013) (proposing modifications that will reduce the cost of the NBN); available at: http://www.malcolmturnbull.com.au/wp-content/uploads/2013/04/Broadband.pdf; Background Papers, available at: http://www.malcolmturnbull.com.au/wp- content/uploads/2013/04/Background.pdf; International Telecommunication Union, Case Study, Toward Universal Broadband Access in Australia; available at: http://www.itu.int/ITU-D/asp/CMS/Docs/Australia_broadband_case.pdf; Carnegie Mellon Heinz College, Max Booker, ed., An Analysis of the national Broadband Network (April, 2012); available at: http://www.heinz.cmu.edu/download.aspx?id=3164. 5.3.3 Satellite Satellites perform a vital role in the broadband ecosystem, particularly for nations located far from coastal connections to transoceanic fiber optic cables and major population centers served by them. From a vantage point located 22,300 miles above earth communications satellites can provide a signal relay service covering as much as one third of the earth’s surface. By operating as a “bent pipe” satellites can receive “uplinked” signals from earth and relay (“downlink”) them back down to locations within a large “footprint,” or signal contour. Satellite technology has made a reality to something envisioned by science fiction author Sir Arthur C. Clarke. He predicted the use of an artificial satellite located at a specific orbital location where the speed of the satellite relative to the earth’s orbital speed made the satellite appear motionless. Communications Satellites Operate as “Bent Pipe” 35 source: Viterbi Voices Blog site (July 18, 2012); available at: http://viterbivoices.usc.edu/emily/summer-at- boeing/. These geostationary satellites are located in a narrow orbital arc where the earth’s gravitation pull is offset by the centrifugal force created when the satellite was launched. Because communications satellites primarily are subject to the earth’s gravitation pull, they are termed geosynchronous. Communications satellites also operate in a geostationary mode when their orbital speed matches that of the earth and the satellites operate above the equator. At this location satellites appear to hover, motionless thereby eliminating the need for receiving dish antennas on earth to track a moving target. Such earth station equipment costs less when they can “lock in” on a satellite operating in a single location. Signal transmissions from satellites travel long distances and generate a large footprint on the surface of the earth. An unconcentrated satellite signal can cover as much as one-third of the earth’s surface making it possible for a single source of content to reach many receivers located within the footprint. This point-to-multipoint capability makes satellites well suited for content delivery targeted for access by many simultaneous users, e.g., video and television relay, but the distance from earth results in some negative factors when used for Internet access by individuals and for point-to-point communications between two people as occurs in telephone calls. The time it takes to send and receive traffic from distant satellites results in comparatively more delay than what occurs using terrestrial options. Such latency can present problems for traffic that frequently switches between sender and receiver, videogames. Also without increasing signal strength by narrowing the size of the footprint, or using higher powered transmitters satellites require large earth station dish antennas and other equipment having significant bulk and expense1. Satellite Point-to-Multipoint Service 1 There are technologies to address latency. See http://www.vsat- systems.com/Education/Satellite-Internet-Explained/Performance/Protocols-and-applications/ 36 source: Deha Telekom, available at: http://www.deha.net.tr/satellite_vpn.html. Despite their limitations, satellites perform a vital role in extending the geographical scope and reach of broadband access to areas where a business case does not support private venture investment in very high capacity fiber optic cable, or terrestrial wireless services. Satellites may provide the only viable, “gap-filling” broadband distribution technology to the most remote and least populated locations in the world. Additionally networks using many small, low cost satellite earth stations can serve users located in remote areas as well as places where the terrain makes terrestrial services comparatively more expensive, or infeasible, e.g., a chain of islands, and communities situated in remote desserts, mountaintops and valleys. Users in these remote areas can access broadband satellites using Very Small Aperture Antenna (“VSAT”) earth stations operating as a geographically dispersed network. A star topology VSAT network combines a central hub earth station with many smaller terminals. A mesh network eliminates the need for a central hub. Another broadband network access option in remote areas combines the use of VSATs with a terrestrial network such as wi-fi or Wi-MAX. Block Diagram of VSAT Hub and Other Earth Stations HUB 37 Non-Hub Earth Station Source: SKY Perfect JSAT Corporation In light of ever-increasing consumer demand for high speed, high capacity broadband service, satellite operators have begun to launch satellites with much more available bandwidth optimized for data services. These High Throughput Satellites (“HTS”) have greater size and overall transmission power than previous satellite generations. They also use many small and steerable, “spot beam” transmitting antennas that can concentrate signals to cover a smaller portion of earth thereby making it possible to use receiving dishes with a diameter of 1-3 meters. Satellites have significant disadvantages compared to fiber optic cables rendering them a more expensive option for point-to-point broadband transmission services. Satellites only can offer a fixed amount of bandwidth while a few fiber optic cable pairs can transmit the total capacity of all available communications satellites. Satellites have a usable life of about fifteen years and cannot easily be repaired should a malfunction occur. On average one out of every ten communications satellite launches fails and a single satellite typically costs $300 million or more to construct, insure, launch and track. Additionally the large distance between satellites and users results in longer transmission time (latency) than what it takes to send and receive via a terrestrial network. For two way traffic, such as voice and some kinds of Internet traffic that involve frequent changes in who transmits and who receives, such latency can present a problem. 38 Despite these cost disadvantages, satellites offer comparatively greater cost savings for point-to-multipoint applications, such a video content distribution, because activating an additional receiving point within the satellite footprint has low costs, primarily the installation of a relatively inexpensive receiving antenna and associated electronics. Basic Technical Elements of Satellites Satellites provide a broadband signal relay function requiring them to have onboard all the electronics needed to receive content and resend it back to earth. The receiver/transmitter (“transceiver”) function requires radios, tuned to satellite frequencies—typically at the very high GigaHertz (“GHz”) range—and capable of both receiving and transmitting content. To power these radios, satellites need a constant source of electrical power. The primary source comes from solar energy collected by panels that cover much of the satellite’s exterior. However, because the moon occasionally blocks access to solar energy in an eclipse, satellites also must have rechargeable batteries onboard. Satellites operate in a number of extremely high frequency bands for two primary reasons. Because of the distance between earth-based users and satellites (ranging from a few hundred to 22,300 miles) transmissions must use very narrow signals to achieve a direct line of sight link to a tiny, distant target. For downlinking from the satellite even a very narrow beam expands as the signal travels down toward earth. Extremely high frequencies transmit with very narrow amplitude and therefore have the desired propagational characteristics. Also satellites require substantial blocs of radio spectrum. National Regulatory Authorities could identify new previously unused extremely high frequency bands for which satellites could make the first practical use. Multinational and national spectrum managers use alphabetical letters to identify the frequency bands allocated for satellite use. The C-band and Ku-band represent the major frequency band used by most communications satellites, with the later used Ka-band offering more spectrum for data and broadband service. Satellite frequency bands typically have different allocations for spectrum used to “up-link” to a satellite and for spectrum used to “down- link” from the satellite. Generally the uplinking bands operate at higher frequencies than the downlinking bands. For example the C-band uplinking frequencies range from 5.925 GHz to 6.425 GHz with the downlinking frequencies at 3.7 to 4.2 GHz. The lettered satellite spectrum also identifies frequency bands that support different types of service, in part based on signal propagation characteristics. The L-band offers spectrum at the lowest frequencies now used by satellites. These lower frequencies make it possible to for consumers to use very small, lightweight handsets to communicate with satellites. Satellites operating in low earth orbit (“LEO”), only a few hundred miles above earth, can receive comparatively weaker signals than ones operating in geostationary orbit 22, 300 miles above earth. Mobile satellite service ventures, such as Iridium and Globalstar operate in the L-band. Other L-band services include satellites used primarily for maritime, aeronautical and mobile applications like that offered by Inmarsat. Additionally global positioning satellite (“GPS”) services operate in the L-band. These satellites operate in Middle Earth Orbit (“MEO”), about 39 12,500 miles above earth, and transmit with at high power making it possible for mobile handset manufacturers to install a very small module capable of receiving GPS signals. The S-band and X-band generally provide spectrum for government satellites including frequencies used for defense, intelligence and some remote sensing applications. S-Band is also used for satellite phone and TV broadcasting in some countries. The Ka-band provides and increasingly used frequency band for the latest generation of communications satellites, particularly ones providing broadband access such as High Throughput Satellites. At Ka-band frequencies (17.3-30 GHz) satellite operates need to consider the potential for rain, fog and smog to weaken and interfere with signals. Ka-band satellite operators can increase the transmission signal strength. Alternatively some Ka-band operators, e.g., o3B, use MEO orbiting satellites that can combine high transmission power with shorter distances to earth to ensure reliable service. Satellite Frequencies Rain Size of Wave Available Information Band Frequency Attenu Example satellite Earth Application length Bandwidth Rate ation station 1.215GHz - GPS, L Long Narrow Small GPS,INMARSAT Small Small 1.71GHz Inmarsat telephone MTSAT, S 1.71GHz - 2.7GHz MBSAT, Small Small Mobile satellite phone JCSAT Broadcasting 3.4GHz - INTELSAT, C Large Large VSAT 7.075GHz JCSAT Mobile backhaul 7.075GHz - X Large Large Military 8.5GHz Broadcasting 10.6GHz - INTELSAT, Ku Middle Large VSAT 15.7GHz JCSAT Mobile backhaul 17.3GHz - Superbird, Ka Short Wide Large Small Large VSAT 30.0GHz WINDS Source: SKY Perfect JSAT Corporation 40 Potential for Signal Attenuation From Rain Source: SKY Perfect JSAT Corporation The frequency range of transceivers is limited by the amount of total weight the satellite can support. Typically satellites have several hundred MegaHertz (“MHz”) of bandwidth which is measured in terms of transponders each having about 36 MHz of capacity. Satellites double their transponder capacity through the process of polarizing signals, in the same manner as coated sunglasses block certain solar frequencies while allowing other frequencies through. Satellite receivers and transmitters are able to use signals polarized horizontally and vertically using the same frequency without significant interference. Operating at such a great distance from earth, satellites need to amplify both received and transmitted signals. A two step process provides the necessary amplification (“gain”). First satellites use parabolic antennas that collect received signals from all angles of the curved circular surface. Similarly they aggregate transmitted signals across the same surface when transmitted back to earth. The collection and aggregation of signal strength provides a natural, non-electronic amplification in much the same way as ears and eyes collect and concentrate sound and light respectively. Satellites collect both received and transmitted signals at a single focal point known as the feed horn. Additional signal amplification takes place electronically in both receivers and transmitters. Satellites also need systems to manage the steep variation in temperature caused by direct exposure to the sun and the absence of such exposure. Heat sinks are used to draw away heat and reduce the temperature of sensitive electronic components. Satellites also need onboard ways to keep the satellite in its proper orbit (“on station”) and properly pointed down toward earth (proper “azimuth setting).” To achieve ongoing stability, including the elimination of vibration to antennas and other sensitive components, satellites use internal motors or gyroscopes that spin internally, or at external locations lacking proximity to sensitive components. So called spin-stabilized satellites combine internal gyroscopes and exterior spinning to achieve stabilization. One way to visualize this process is to examine washing machines that have an 41 interior basin that spins at high speeds to draw away water from cleaned clothing in what is commonly called the spin cycle. As the interior basin spins the exterior vibrates less. For spin stabilized satellites the external spinning and interior gyroscope spinning makes it possible for other parts of the satellite to operate without vibration and instability. source: Samsung; available at: http://www.samsung.com/latin_en/consumer/home-appliances/washers- dryers/washing-machine/WA11V5WDP/XAP. 42 Spin-stabilized Satellite source: Astronautix.com; available at: http://www.astronautix.com/craft/hs376.htm The now dominant satellite design uses long wings and an interior spinning motor to control the three major axis of flight: yawl, pitch and roll. Satellites of this type are termed three-axis stabilized. Satellite carriers prefer this design, because it can provide more bandwidth using a much larger payload than spin stabilized spacecraft. 43 Three-axis Stabilized Satellite source: Astronautix.com; available at: http://www.astronautix.com/craft/hs376.htm available at: http://www.astronautix.com/craft/hs601.htm Satellites also need the ability to rise to geostationary orbit from a lower, temporary position reached by using large capacity thrusters attached to the rocket launcher. Satellites also may have to change orbital parking places (“slots”) and to make minor adjustments in their location and earth pointing orientation or attitude. Small thrusters located on the satellite provide short bursts of propulsion to place and return a satellite to its proper location and orientation relative to earth. Most satellites use a gas fuel known as hydrazine to control their position or attitude. Because satellites have only a fixed amount of fuel on board, often station keeping is the first operational element of a satellite to fail. Such satellites tend to wobble in orbit and can continue to provide service, albeit less reliable. New generations of satellites will use electric propulsion instead of gas power thereby reducing their weight and extending useable life. Satellites also have on board processors to receive and respond to instructions issued from earth and to send down information about their current health and operating conditions (“telemetry”). 44 Satellite Components source: University of Texas, TOPEX/Poseidon; available at: http://www.tsgc.utexas.edu/spacecraft/topex/compo.html. Basic Technical Elements of Satellite Receivers Satellite receivers (“earth stations”) combine many of the same elements contained in satellites to process and convert signals into useable content. Outdoors a parabolic antenna (“dish”) must have an unobstructed “line of sight” to the desired satellite downlink transmission. Most communications satellites hover 22,300 miles above the equator so earth stations located north must point south and earth stations south of the equator must point north. Dish antennas located close to the equator have a more advantageous “look angle” toward the satellite, because the signal from the satellite will traverse less of the earth’s atmosphere, as it points upward at a more direct angle. Likewise the dish can avoid more obstructions, because it can be pointed well above the horizon pointing upward instead of across the horizon. A satellite antenna located on the equator would point straight upward while dishes near the north and south pole have to point only a few degrees above the horizon. In the immediate vicinity of the antenna satellite earth stations have electronic components that process and amplify the weak signal that has traversed 22,300 miles and been 45 concentrated at the feed horn located above the center of the parabola. The GigaHertz frequencies used to transmit content are converted to lower frequencies so that cheaper and more effective amplification can take place. A device known as a block converter/low noise amplifier performs the frequency conversion and amplification process. The signal subsequently travels via a closed circuit low loss wire and is attached to the antenna terminal of a receiver. Inside the receiver the signal may undergo additional frequency conversions and filtering. Additionally the desired content is detached from the radio frequency carrier, a process known as demodulation. The now stripped off content is delivered to a proper device for consumption, e.g., a computer terminal, radio receiver, or television set. Satellite Receiver Components source: DAE Notes; available at: http://www.daenotes.com/electronics/communication-system/satellite- communication#axzz2Gdng89bH. Satellite Orbits and Footprints Satellites operate in several orbital locations, based on their function and target audience. as does the size of the transmission contour (“footprint”) received on earth. For maximum coverage and connectivity communications satellites operate in the geostationary orbital arc and use unconcentrated “global beams.” By concentrating the downlink beam size, satellite operators can increase the strength of the received signal available in a smaller geographical area. Satellites operating in geostationary orbit typically have global beams for maximum coverage, plus concentrated beams, having a smaller footprint, but making it possible for users within the smaller coverage area to install smaller receiving antennas. As a satellite footprint decreases in size the strength of the received signal increases making it possible to use smaller antennas. Concentrated footprints of geostationary satellites can cover an entire hemisphere, with about half the coverage as a global beam, a zone within one hemisphere, with about one quarter the coverage of a global beam, or as small a coverage area as a single metropolitan area (a “spot beam”). Geostationary orbiting satellites can more readily provide broadband services 46 using spot beams, because the higher signal strength supports the needed wideband link and users can transmit and receive content using the smallest possible earth stations. Satellites operating in orbits closer to earth are better equipped to provide broadband services, because of the lower signal delay and the ability to generate adequate signals for use by small, even handheld devices. Satellites located closer to earth than 22,300 miles lose their geostationary orbital status. This means that they become moving targets orbiting in known locations that must be tracked and monitored from earth. Several existing and planned broadband satellite venture have designed a network using satellites in middle earth orbit (“MEO”), a location where satellites can still operate without the risk of being pulled back to earth by gravity. MEO broadband networks require more operating satellites, because the closer proximity to earth reduces the footprint size. However this closer location makes it possible for subscribers to communicate with these satellites using small, lightweight devices. Three Major Types of Satellite Earth Orbits source: U.S. Army Information Systems Engineering Command, Automated Information Systems (AIS) Design Guidance Long-Haul Transmission Systems; available at: http://www.fas.org/spp/military/docops/army/lhaul/Lhfinweb.htm 47 Satellite Footprint Map source: Google Maps Mania, Satellite Coverage Map; available at: http://googlemapsmania.blogspot.com/2008/07/satellite-coverage-map.html. 48 Coordinating Satellite Use Because of the potential for interference and the duty to share scarce resources, nations using satellites must coordinate their use of both satellite orbital locations and frequencies. The International Telecommunications Union (“ITU”) provides a multinational forum for conflict avoidance through the process of registering future uses and conflict resolution by providing a forum for parties to negotiate ways to avoid actual or anticipated interference. Invariably conflicts will occur, because only a relatively small number of satellites can share the geostationary orbital arc and demand for satellite services continues to grow. Nations generally coordinate the use of satellite orbital slots through an ITU notification process that favors the first filed registration. This process may create incentives for prospective satellite operators to register uses prematurely and to increase the anticipated number of orbital slots required. The ITU has sought to reduce such “paper satellite” registrations and to impose deadlines for operators to launch and operate a satellite. http://www.boeing.com/defense-space/space/bss/launch/980031_001.pdf 49 5.3.3.1 Reference Documents and Case Notes For a primer on how satellites work see:  Boeing, Corp. What Is A Satellite? available at: http://www.boeing.com/defense- space/space/bss/about/What_is_a_Satellite_2006.pdf;  Bruce A. Henoch, Satellite Technology Basics; available at: http://www.sia.org/Stratos- Henoch-SatelliteBasicsIWCE2007.pdf;  INTELSAT, A Practical Introductory Guide on Using Satellite Technology for Communications (2010); available at: http://www.intelsat.com/wp- content/uploads/2013/01/5941-SatellitePrimer-2010.pdf. For background on the satellite industry and its market segments see:  State of the Satellite Industry; available at: http://www.sia.org/wp- content/uploads/2012/05/FINAL-2012-State-of-Satellite-Industry-Report-20120522.pdf. Geostationary Orbiting Satellites International Telecommunications Satellite Organization INTELSAT was established by national governments in 1965 to operate the world’s first global communications system. The organization first operated as a cooperative, but later privatized into a commercial venture. INTELSAT operates geostationary orbiting satellites, including ones 22,300 miles above the equator in slots located between continents to maximize geographical coverage and connectivity. For background on INTELSAT see: http://www.intelsat.com/. International Maritime Organization Inmarsat was organized in 1979 to provide service to maritime users. This organization operated as a cooperative using spectrum allocated specifically for maritime applications. Nations participating in Inmarsat subsequently amended the treaty level management document to authorize the organization to serve aviation (“aeronautical”) and land-based users. Inmarsat subsequently privatized and now provides broadband services via geostationary satellites. For background on Inmarsat see: http://www.inmarsat.com/index.htm. Middle Earth Orbiting Satellites O3b O3b proposes to use Medium Earth Orbit (“MEO”) satellites, located approximately 8,000km away from Earth to provide voice and data service primarily to users in lesser developed nations situated near the Equator. The network will use Ka frequencies (20-30 GHz) in an orbital constellation that emphasizes service to users located 45 degrees north and south of the Equator. The venture’s name refers to the other three billion people on earth who lack access to advanced telecommunications services due to geography, political instability and economics. 50 For background on the o3b network see:  http://www.o3bnetworks.com/; and  http://www.sspi.com.br/portal/images/stories/pdfs/spectrumday2010/spectrum-day-2010- o3b.pdf. Low Earth Orbiting Satellites Iridium The Iridium satellite networks uses 66 low earth orbiting satellites to provide voice and data service primarily to users in locations where reliable terrestrial service does not exist. Because the Iridium satellites operate close to earth their footprints are small thereby requiring a larger number in the constellation of satellites to provide global coverage. Iridium satellites are interconnected and cross-linked so they can communicate with nearby satellites in adjacent orbits. For background on the Iridium network see: http://www.iridium.com/About/IridiumGlobalNetwork/SatelliteConstellation.aspx. Using Satellites for Broadband Service While satellites lack the capacity of terrestrial networks such as fiber optic cables, their large geographical coverage makes it possible to provide broadband service to users in many widely dispersed locations that may never qualify for terrestrial broadband network service. Recently launched satellites in the Ka-band (20-30 GHz) offer high power and large bandwidth making it possible for offer broadband service at speeds exceeding 10 megabits per second. For background on satellite broadband services see: International Telecommunications Union, Telecommunications Development Sector, Regulation of Global broadband Satellite Communications (April 2012); available at:http://www.itu.int/ITU-D/treg/broadband/ITU-BB- Reports_RegulationBroadbandSatellite.pdf. For background on High Throughput Satellite (“HTS”) see:  Steve Schuster, High Throughput Satellites Benefit Military and Medicine, Via Satellite magazine web site (May 24, 2013); available at: http://www.satellitetoday.com/publications/st/feature/2013/05/24/high-throughput- satellites-benefit-military-and-medicine/;  Intelsat General Corp., Defining High Throughput Satellites (HTS) (March 26, 2013); available at: http://www.intelsatgeneral.com/blog/defining-high-throughput-satellites-hts;  Harris Caprock: http://www.kafactcheck.com/hts.php;  Via-Sat web site: http://www.viasat.com/;  iDirect site: http://www.idirect.net/; and http://www.digital-brochure.org/idirectX7/  HNS site HN and HX system description: http://www.hughes.com/technologies/satellite- systems  Gilat SkyEdge system description: http://www.gilat.com/SkyEdge-II 51 Satellite Industry Reports and Forecasts For a comprehensive report and forecast on the commercial satellite industry, see United States Federal Aviation Administration, 2012 COMMERCIAL SPACE TRANSPORTATION FORECASTS (May, 2012); available at: http://www.faa.gov/about/office_org/headquarters_offices/ast/media/2012_Forecasts.pdf. For a complete list of satellites and their transmission footprint, see http://www.satbeams.com/footprints 5.3.4 Microwave Microwave technology offers low cost solutions to broadband requirements mostly for non-residential applications. For many decades it provides point-to-point analog services using very high frequencies 17 that can provide first and last kilometer services for local and long distance telephone companies, as well as business users. Microwave radio offers long haul transmission using a chain of repeater transmitters, each transmitting over a distance of up to 50 kilometers. Microwave transmissions have proved quite reliable and cost effective service, largely because ample spectrum makes it possible to transmit a large volume of traffic over such networks. Operators can achieve efficient scale which makes it possible to spread the costs of constructing towers and installing the necessary electronics over a large user base. While microwave frequencies operate in bands that favor line of sight, directional transmissions, they also can provide point-to-multipoint services spanning an entire contour of 360 degrees. Recent examples of such “omni-directional” service include wireless fidelity (“Wi- Fi”) that provides short range broadband access to multiple portable devices and Worldwide Interoperability for Microwave Access (“WiMAX”) service offering broadband access with signal contours extending out for up to 15-20 kilometers. Microwave radio networks use parabolic antennas, much like that installed for satellite communications. However the antennas are pointed across the horizon in the direction of a transmitting antenna located on a tower or rooftop installation some distance away. Like satellite communications microwave radio transmitters need an unobstructed “line of sight” link to the next transmitting antenna in a network chain. Microwave networks contain a relatively simple combination of receivers and transmitters typically located at high vantage points to avoid obstruction by buildings and terrain. Transmitters contain a number of subsystems that include multiplexing, the combining of many different channels of traffic, encoding and modulating signals, alignment of traffic onto the proper transmitting frequency, signal amplification and filtering for spectrum control. Receiver functions include filtering, down-conversion of frequencies for easier processing and amplification, demodulation, decoding, and demultiplexing. 52 Microwave radio can provide a cost-effective, land-based solution particularly for terrain not favoring inexpensive underground ductwork installations, e.g., swampy, rocky and sandy locations. Similarly microwave radio can operate in urban locales, including the central business district, where tall buildings provide an ideal vantage point for line of sight transmission and reception above all obstructions. Because microwave networks do not require the installation of below ground ducts, or closely spaced above ground poles, installation can occur on a relatively short timetable. Placing transmitting and receiving antennas at high vantage points also prevents most service disruptions, like that caused by cuts in wires. On the other hand microwave network operators need to coordinate their use with other operators to avoid congestion and interference, especially in urban locales. Additionally some equipment, located in remote and hard to reach places, will need maintenance and a source of electric power that may not be generally available in the area. Operators also need to consider propagation factors including the potential for rain and snow to cause signal fading and weakening. Microwave Point-to-Point Communications source: TEMS Investigation, Wireless Networking, Part Five; available at: http://pathloss40.blogspot.com/2010/11/wireless-networking-part-5.html Microwave Backhaul and Middle Mile Services Microwave radio networks can provide long, medium and short haul carriage of broadband traffic. Long haul applications typically substitute for fiber optic and copper based 53 networks, because hostile terrain conditions necessitate wireless tower-based operation instead of transmissions underground, or via closely spaced poles. Short haul carriage includes the first and last kilometer access to private networks, such as a dedicated network for retailers, banks and other financial service providers, manufacturers, etc. Recently some stock market traders have installed dedicated, private microwave networks, because they can provide slightly faster opportunities (lower “latency”) to receive the latest share price information and to execute trades. For medium distances microwave radio networks provide essential links between facilities of users and network operators. So-called middle mile services provide a link between the geographically separate factories and other installations of users within a region. A single business venture may have the need to link many different factories, office building, warehouses, and campuses within a region. Each facility can communicate with all others via the short haul first and last kilometer microwave radio facilities interconnected with other microwave facilities designed to transmit at farther distances. Microwave radio also provides essential “backhaul” functions for networks including satellite and terrestrial wireless networks. Many traffic receiving facilities are situated in remote locales that must be interconnected with network management facilities typically located at a central point, often in a city or suburb. Microwave backhaul networks receive and deliver traffic originating at remote tower sites like those providing cellular radio telephone service. The towers that provide service to cellphones and smartphone also contain parabolic antennas to send voice and broadband data traffic to a central facility, commonly referred to as the Mobile Telephone Switching Office (“MTSO”) for onward delivery to other networks, including the Internet “cloud.” Wireless Backhaul source: New Tech Observer, Wireless Backhaul Technology Improves by Ten Fold (April 9, 2012); available 54 at: http://www.newtechobserver.com/2012/04/wireless-backhaul-technology-improves.html. Middle Mile Routing source: Mobile Backhaul Blog site, Wireless backhaul technologies (April 9, 2012); available at: http://mobilebackhaul.blog.com/2012/09/04/new-generation-of-mobile-backhaul-technology-rising/ 5.3.4.1 Reference Documents and Case Notes For background on microwave backhaul see: http://digital.olivesoftware.com/Olive/ODE/MissionCritical/Default.aspx?href=MCR%2F2012% 2F11%2F01&pageno=30&view=document. For a comparison of microwave and. fiber optic cable backhaul see: http://www.ceragon.com/files/Mobile%20Backhaul%20Fiber%20Microwave%20- %20White%20Paper.pdf. For an analysis of fixed and mobile network technology options see: 55 OECD, Fixed and Mobile Networks Substitution, Complementarity and Convergence, available at: http://dx.doi.org/10.1787/5k91d4jwzg7b-en. For background on the design of wireless networks see: Book chapter from Wireless Networking in the Developing World, a free book about designing, implementing, and maintaining low-cost wireless networks http://wndw.net/pdf/wndw2-en/ch11-casestudies.pdf. 5.3.5 Copper Copper metal has provided a closed circuit medium for telecommunications since the onset of telegraph and telephone service in the late 1800s. Wireline communications exploit the electron conductivity of copper and its historically moderate price. While far from ubiquitous wireline copper networks typically serve all areas with high and moderate population density and many more remote areas have qualified for universal service subsidies that extend the geographical reach of service. Copper has provided a cost-effective way to route voice, data, and video traffic via above-ground wires attached to poles and through underground ductwork. Wireline service costs increase with the distance served by a network, but carriers may average costs. For many years copper wireline networks have provided both first and last kilometer service as well has long haul transmission. The conventional wireline Public Switched Telephone Network (“PSTN”) uses narrow gauge copper wire pairs to form a “local loop” connection between individual subscribers and a nearby telephone company switching facility. Telephone companies provide highly reliable service using direct current to power the local loop at short distances not requiring electronic amplification. For onward delivery from the initial switching facility, commonly referred to as the End Office or Central Office, telephone companies aggregate traffic by multiplexing so that larger capacity trunk line and inter-office channels handle many simultaneous calls. Telephone networks have evolved over time to incorporate digital transmission technologies and increasingly efficient routing and multiplexing of traffic. Copper wires of higher thickness (“gauge”) and more insulation and support (“cladding”) can provide a closed circuit medium for the delivery of video content. Cable television networks use coaxial cables to offer many channels of video content through a locality or metropolitan area. Cable television operators provided the first truly broadband, two-way networking capability to residences. They started offering one way retransmission of a few broadcast stations, so called Master or Community Antenna Television. Cable operators later expanded the bandwidth available from the coaxial cable to provide many additional channels, installed an upstream channel and provided each subscriber with an address so that individual subscribers could request and receive specialized content, e.g., pay per view, video on demand, premium programming. 56 Both the PSTN and cable television networks have been retrofitted so that they can provide broadband, Internet access. While next generation networks primarily will use wireless and fiber optic connections, currently most residential broadband access comes from two copper- based networks: 1) Digital Subscriber Line (“DSL”) service provided by telephone companies and 2) cable modem service provided via cable television networks discussed in Section 5.7.1. 5.4 International Connectivity Broadband access to the Internet requires the seamless interconnection and coordination of many networks operated by different carriers. People refer to the Internet as a “network of networks,” because users simply “call up” web sites by keying in easily remembered domain names such as www.worldbank.org. Behind the scenes, a series of universally agreed to operating standards support the integration of the several links needed to connect consumers of content with sources. Carriers interconnect their telecommunications lines using common protocols that make it possible to identify and link users and sources of content. Many users also refer to Internet access as “cloud computing,” because the various interconnected networks appear invisible as though they operated in a cloud. We can penetrate the obscurities of the Internet cloud to identify each and every network used for any particular link. Traceroute software and Internet web sites offer an easy way to generate a report on the specific networks used to reach a user-identified destination. To achieve global accessibility and connectivity, several different types of carriers participate. These carriers have transmission and routing equipment in identifiable locations, even though users generally do not think of the Internet in terms of the locations of specific devices and equipment. Internet access starts with a query or request generated by an individual, machine or sensor located in a specific location. A “retail” Internet Service Provider (“ISP”), which has 57 installed wired or wireless facilities, provides the first leg of this Internet routing. The first link is often described as the first kilometer or mile, but the actual length may span vast distances via a satellite earth station instead of other local options such as DSL, cable modem, microwave and cellular radio. The retail ISP connects upstream with one or more ISPs that may not provide service to residential users, or other “end users” including small and medium sized businesses. Many of these ISPs provide “wholesale” service in the sense that they concentrate on providing service to large volume users, such as multinational corporations and governments. Most of these ISPs own and operate lines with extremely large transmission capacity that provides long haul service across vast distances including transcontinental and transoceanic coverage. The ISPs may connect directly with content providers, or with a retail ISP that provides the so-called first and last kilometer service to and from the content source. International connectivity among ISPs operates in a hierarchical fashion with comparatively many retail ISPs, and fewer ISPs that offer long haul services to subscribers in a diverse geographical area. Among long haul ISPs the hierarchy continues and becomes more exclusive with very few operating as so-called Tier-1 ISPs and more operating as Tier-2 ISPs. Tier-1 ISPs represent the largest carriers having the most extensive and highest capacity networks. These carriers also carry the most traffic and typically qualify for interconnection with other carriers on a zero cost, “sender keep all” basis, i.e., no funds are transferred between two ISPs largely because a roughly equal amount of traffic originates from one carrier for onward delivery by the other carrier. The term peering 18 refers to the zero cost interconnection arrangements Tier-1 ISPs negotiate. Smaller ISPs typically secure access to Tier-1 carrier networks on a paid basis commonly termed transit, or paid peering. As the Internet matures and more ISPs enter the marketplace, new hybrid arrangements have evolved that deviate from the peering/transiting dichotomy. For example, some Tier-1 ISPs have opted for “private peering” where they interconnect directly with another ISP, outside of Internet Exchanges. 19 Some ISPs now agree to “multilateral peering” where more than two carriers interconnect on common terms and conditions at an Internet Exchange. 5.4.1 International Links Fiber optic submarine cables and communications satellites provide the vast majority of broadband international links. For nations bordering on a coast submarine fiber optic cables provide the most cost-effective option as a cable installation can combine several cable strands, each capable of transmitting at a rate of several Gigabits per second (“Gbps”). For example the recently installed TAT-14 cable linking the United States with several points in Europe has a baseline capacity of 10 Gigabits per second that carriers subdivide into three service offerings: Synchronous Transport Module 1 (“STM-1”), approximately 155.520 Mbps; STM-4 , approximately 622.080 Mbps and STM-16, approximately 2.5 Gbps. The cable system has four fiber pairs configured for 47 channels each with about 10 Gbps in capacity, making the total design capacity of the cable system 3.2 Terabits per second. 58 Satellites cannot match fiber optic cables in the terms of overall capacity and bit transmission speed. However satellites can provide a cost-effective way to distribute broadband Internet traffic to many locations within a footprint as compared to the single point-to-point design for submarine cables. Satellites have the ability to transmit broadband Internet traffic at rates exceeding 15 Mbps, but more affordable retail offerings typically offer somewhat slower service, particularly for uploading content to the satellite. 20 Transoceanic Fiber Optic Cables source: Telegeography, Submarine Cable Map; available at: http://www.submarinecablemap.com/ 5.4.2 Internet Links Having made the near complete conversion from analog to digital networks carriers have great flexibility in the manner in which they load traffic onto available transmission capacity. Technological convergence makes it possible for both domestic and international transmission facilities to combine voice and data traffic rather than use specific links for Internet traffic separate from conventional voice traffic lines. Instead, Internet links use transmission, switching and routing protocols optimized for data traffic, but also capable of handling voice traffic configured for transmission via Internet links. Put another way carriers no longer configure networks with an eye toward allocating transmission capacity for specific types of service. With traffic converted into packets of digital bits, both international and domestic links can handle bitstreams that subsequently will be converted into voice, data, video, text and other types of traffic. 59 Technological convergence means that a reference to Internet links has less to do with the nature of the traffic carried and more to do with the operating standards used by the carrier as well as the terms and conditions established for the complete delivery of the traffic. 21 This means that carriers are less likely to identify the nature of the traffic, e.g., telephone call versus video link, or to use legacy measures of the traffic, e.g., minutes of use. Instead the traffic will be identified in terms of the capacity and speed of the transmission link as well as the interconnection arrangements established for that link. When carriers establish interconnection terms and conditions for Internet links, they increasingly refrain from applying the longstanding financial terms and conditions used in telecommunications and telephone service in particular. These legacy arrangements characterized interconnection as a “settlement” based on usage, such as voice minutes. Carriers handing off more traffic than they received from a specific carrier had to transfer funds to the “terminating” carrier. Carriers providing long distance telephone service negotiated a compensation arrangement, commonly referred to as an accounting rate, applicable to every minute of usage. For Internet links carriers are less apt to meter traffic in terms of time. Instead they will interconnect based on the capacity of the network links used and an estimate of overall traffic volume handled. For Internet links carriers substitute a measurement of minutes used with a determination of the bandwidth and bit transmission speed made available for the carriage of traffic originated by another carrier and routed onward to the final destination, or to the network of another carrier located closer to the final destination. ISPs use different vocabulary and transmission measures when they interconnect Internet links. Also they generally use commercial negotiations to establish agreements, rather than rely on government forums, or regulated terms and conditions contained in a public contract known as a tariff. The largest Tier-1 ISPs, providing the longest links with the highest capacity, typically choose to interconnect directly with other similarly large and important carriers. Based on the assumption that Tier-1 ISPs typically have the same amount of transmission capacity available in different geographical regions, these carriers initiate interconnection negotiations with the expectation that they probably will not need to transfer funds. If two ISPs generate the same amount of traffic for each other to handle, then no money transfer should occur, because ISP A hands off to ISP B roughly the same volume of traffic that ISP B handed off to ISP A to handle. Such equivalency allows the carriers to “bill and keep” all funds generated from service. ISPs use the term peering to refer to interconnection arrangements based on traffic equivalency. When two ISPs do not have roughly equivalent traffic volumes, the carrier generating more traffic that it receives incurs an obligation to compensate the other ISP. The term transit refers to negotiated terms and conditions when interconnected traffic volumes are unequal and a transfer of funds has to take place. The Internet links available to consumers combine peering and transiting capacity seamlessly so that in the vast majority of instances Internet access is available to any site, typically via more than one carrier and route. Only in rare instances have ISPs refused to maintain an existing arrangement, or come up with acceptable replacement terms and conditions. When a dispute cannot get resolved two ISPs no longer will interconnect their Internet links. However, consumers usually do not experience 60 service outages, because carriers typically negotiate several interconnection arrangements, covering two or more alternative routing arrangements, commonly referred as multi-homing. Except in instances where only one carrier provides “single homing” access to and from a content source and destination, one carrier’s decision to “de-peer” and not interconnect usually does not result in the inability to have Internet traffic routed to and from any source or recipient of content. Global Internet Map Source: Telegeography, Global Internet Map 2012; available at: http://www.telegeography.com/telecom- resources/map-gallery/global-internet-map-2012/index.html. 5.4.3 Implementation Issues for International Connectivity Thanks to a common set of operating protocols carriers can interconnect their broadband networking with ease. For Internet traffic the Transmission Control Protocol (“TCP”) provides a widely used standard for traffic switching, routing and transmission. TCP helps support economic efficiency in the production of equipment, such as routers, by establishing a common standard useable by all manufacturers. While many devices are available and later vintages incorporate newly available features, the TCP supports high volume production of routers and 61 other equipment produced based on the ability to sell them to all carriers and other users throughout the world. Put more simply the TCP establishes a standard “traffic cop” management function that most Internet equipment uses. Additional enhancement of international connectivity results from the use of a common Internet addressing system, the Internet Protocol (“IP”) by both consumers and carriers. Having a common addressing system means that consumers need only remember the names attributed to desired Internet sites, e.g., InfoDev.org. Carriers install devices, such as routers, that can read IP addresses and convert them to a larger sequence of numbers that corresponds to a specific installed device, e.g., the computer and the network used to originate a request for service as well as the name of the designated source of the requested service, or content. The IP provides the basis for a universally supported addressing system that can establish order and promote ease in use by subscribers. While behind the scenes, ISP use routers to look up identities and locations of service requesters and providers from special servers containing such registrations, requesters only need to key in a single IP address. End users do not even have to know the procedures for assigning IP addresses and the method for organizing them. So called Top Level Domains refer to the type of organization housing the computer that originates a service request and the server that delivers requested content. For example .edu identifies an educational institution and follows its name or acronym. The complete address for the Pennsylvania State University in the United States combines www, to identify the part of the Internet providing Internet World Wide Web sites, the acronym psu followed by edu. Other top level domains include .com, .org, .mil., .co. and net representing in sequence commercial ventures, inter-governmental, multilateral and nongovernmental organizations, militaries, companies and networks. Additionally an IP address can specify the country location attributed to the IP address, e.g., www.bbc.co.uk for the United Kingdom based British Broadcasting Corporation. While operating protocols promote international connectivity other factors have the potential to hamper progress and impose higher costs, particularly for users and operators least able to afford them. Maximum international connectivity requires the existence of networks for each and every link in the pathway between content server and recipient. Ideally each network should be in place and readily accessible either because one venture owns and operates each link, or because multiple ventures use common operating protocols and have agreed to mutually beneficial interconnection terms and conditions. In the multiple carrier scenario consumers can benefit by having access to more than one routing option as well as the potential that carriers will compete for both the long haul links and the first and last kilometer links. On the other hand consumers may incur higher costs and inferior service if multiple carriers cannot easily interconnect their networks, or when few if any carriers are available to provide service. The weakest link—in terms of competitiveness and ease of interconnection— can have the most significant impact on the quality, convenience and affordability of service. For example, if the lack of network options forces a carrier to resort to indirect and circuitous traffic routing, both the carrier and its subscribers will suffer in terms of higher costs and inferior quality of service, including higher latency. The Internet’s operating protocols are designed to 62 secure a complete link from the network capacity that is both immediately available to a specific ISP and represents one of the possibly many options for which the ISP has secured interconnection rights. If no such link exists, the ISP and the TCP/IP will search for alternative, indirect options. ISPs and their subscribers in developing countries face the greatest possibility that they may not have access to the most direct and efficient routing, at the least cost. Direct network interconnection may not exist. The lack of competition might make a direct link prohibitively expensive. ISPs that might want to interconnect networks may lack an efficient and low cost way to do so. When direct interconnection cannot take place, indirect options have to suffice even though they add time, distance and cost to a link. For example, until nations in Africa had local or regional interconnection facilities, ISPs had to secure interconnection at distant facilities, some located many thousands of kilometers away. The term thromboning refers to the need to use circuitous routing to achieve interconnection that optimally could have occurred at a more convenient, nearby location. Even for ISPs in relatively close proximity to each other, if direct interconnection cannot take place, a short link between countries would have to be replaced with two longer links to a third nation having ample interconnection facilities, e.g., nations in Europe. For example consider a still plausible scenario where African ISP-1, receiving a request to contact nearby African ISP-2 might not have a direct interconnection option. Instead African ISP-1 must route the traffic to a European ISP with which it has a transit agreement. African ISP-1 and its European transit service provider might interconnect at an Internet Exchange located in Europe. The African carrier would incur the costs to carry the traffic to Europe as well as the transit costs incurred when the transit providing European ISP routes the traffic to African ISP-2. The European ISP might provide the return path from Europe to Africa by itself, or via interconnection with one or more other ISPs with which it peers or transits, for onward carriage to African ISP-2’s network. Years ago African ISPs might have identified ways to secure routing of their traffic via other generous carriers who might agree to provide transit services at low prices. The term hot potato routing refers to a strategy of handing off traffic as quickly as possible so that other carriers incur more of the total cost to secure a complete link. Because all ISPs now pay close attention to traffic volumes and the flow of traffic, ISPs cannot easily find inexpensive hot potato routing opportunities. ISPs bear the obligation to build or lease the facilities necessary to handle traffic without premature handoffs. However even if an ISP in a developing country did not want to handoff traffic to avoid network costs, having to do so now triggers higher routing costs. ISPs not keen on exploiting hot potato routing opportunities need to have networks available to route local and regional traffic as well as the ability to interconnect with all needed networks. Because even the largest Tier-1 ISP does not own or least all the network capacity needed to reach any and all sites throughout the world, all ISPs need to have access to a facility that operates as a hub and interconnection point for many ISPs. These Internet Exchanges (examined in Section 5.5.2) provide the physical means for achieving local, regional and international connectivity by serving as the agreed to “meeting point” for all ISPs operating in the vicinity as well as those ISPs equipped to provide long haul transmission to other continents. 63 Internet Exchanges provide seamless interconnection between local operators providing first and last kilometer service with other ISPs operating international links. 5.5 Domestic Backbone When broadband service is characterized as an “information superhighway” the domestic and international links used for medium and long haul carriage aggregate traffic from many individual users. First and last kilometer links may serve only one subscriber, or a small group in close proximity, but so called backbone networks use very high capacity transmission facilities that carry the traffic of many subscribers. Carriers can maximize network efficiency by collecting traffic and injecting it onto high capacity transmission lines for carriage over long distances. Multiplexing provides the traffic loading process whereby the traffic of many individual subscribers is combined for carriage by high capacity cables and wireless links onward toward the final destination. Demultiplexing unloads and disaggregates inbound traffic so that the ISP can route content to the appropriate end user. Domestic backbone networks use the same transmission technologies as international backbones with the same goal of providing full connectivity. However there exists a likelihood that domestic backbones may not reach remote and hinterland locations, particularly in developing countries. Even if two distant cities share access to a domestic backbone, localities situated between these two hubs typically do not have the traffic and financial resources to persuade network operators to install branches off the backbone trunk. International connectivity has become certain thanks to sufficient demand and the competitive necessity of having to offer widespread network access throughout the world. Such certainty does not exist for domestic connectivity even in developed nations, because both private and public carriers may have determined that they cannot generate sufficient revenues and profits when serving remote locales. Accordingly domestic backbone networks may link different urban centers, including ones separated from more closely situated cities. For example, Perth, in Western Australia has reliable, high speed broadband connections to all of the other Australian cities located a significant distance to the east. However, some localities far closer to Perth than Perth is to the other major Australian cities currently lack access to similar domestic connectivity. Domestic backbone networks can be analogized to the multi-lane long haul national highways that traverse great distances. For subscribers close to these networks access is a relatively easy and inexpensive undertaking, far cheaper than the cost of installing a new highway interchange. Both copper and fiber optic networks can be spliced to add short haul branches. But for subscribers located farther away, a carrier may not consider the necessary branch link an affordable investment based on the distance sensitivity of the investment, i.e., the cost rises in direct relationship to distance from the backbone. As the branch line increases in length the population of prospective and actual subscribers may not increase sufficiently to offset the higher costs. Put another way, the cost of backbone construction, operation and maintenance requires a degree of population density sufficient to generate adequate subscribership and 64 revenues for the carrier to recoup costs and accrue a reasonable profit. Many ISPs seek to offset the high cost of serving remotely located subscribers by averaging the total cost of network operation. Cost averaging makes it possible for ISPs to offer a single monthly subscription rate not based on an individual subscriber’s actual distance from a backbone and ISP switching facility, or the distance between the subscriber and sources of content. Cost averaging creates the impression that Internet access is “distance insensitive,” i.e., that the cost of providing service does not vary with the distance between subscribers and ISP facilities and between subscribers and the source of content they seek. Internet carriage of traffic does cost more as distance increases, but ISPs willingly have averaged costs to offset and mask the difference. Subscribers pay the same monthly rate regardless whether they seek content from far away sources, or from nearby ones. ISPs may offer tiered service at different prices, based on the total volume of content downloaded and uploaded, but without reference to the overall distance traveled by the content. ISPs operating domestic backbone networks also incur the cost of having diverse and redundant routing options for each link. To provide high quality of service, ISPs need to design, install, operate and maintain two or more links, so that all routes have an alternative routing option in the event the main link becomes congested or inoperative, e.g., from a cut in the cable. Routing diversity refers to having two or more physically separate, but interconnected networks, typically operating in a ring, so that an indirect and more circuitous option exists during an outage and congestion in the more direct route. Redundancy refers to the ability of a network operator to offer subscribers more reliable service, perhaps backed up by a quality of service guarantee. The TCP traffic management standard supports near instantaneous traffic re-routing from the main line to alternatives in the event of an outage or congestion. 65 Australia’s National Broadband Backbone source: ARN, NBN adds 300,000 premises to fibre footprint, releases details of full coverage (July 30, 2010); available at: http://www.arnnet.com.au/article/355196/nbn_adds_300_000_premises_fibre_footprint_releases_details_full_ coverage/. 66 Source: Robert James and John de Ridder, “Fixed broadband – Australia’s next utility”, Communications Policy Research Forum (Sep. 2008); available at: http://deridder.com.au/files/Fixed%20Broadband%20is%20the%20Next%20Utility%20Final.pdf Backbone Networks in Botswana 67 Source: The World Bank 5.5.1 National Links National links refer to domestic backbone networks as well as other facilities that provide high capacity and fast bit rate connections to backbone networks. Such non-backbone networks include branch lines or “backhaul” facilities that link specific localities, users and widely dispersed facilities, such as wireless radio tower sites, to a backbone network. Additionally national links provide so-called middle mile services that provide transmission services between first and last kilometer facilities, which originate and terminate Internet traffic, and long haul networks, including domestic and international backbone networks. Carriers may price national links on a distance and usage sensitive basis, resulting in far higher total and per unit of capacity rates than what backbone carriers charge. Comparisons to first and last kilometer costs are difficult, because at the retail level, such subscriptions cover Internet access which factors in both the cost of conduit access and arguably includes a contribution to defray the cost of the content made available. An end user Internet access subscription also includes the local ISPs’ peering and transiting costs for securing access 68 upstream to other ISPs that participate in the set up of multiple network links to achieve a complete connection from end user to content source, regardless of location. Middle mile and backhaul markets tend to have less competition resulting in fewer redundant and diverse routing options. ISPs typically first concentrate on installing domestic and international backbone facilities so that the largest volume users, typically located in urban locales, have access to the rest of the world as well as at least one high quality, reliable link between domestic urban centers. ISPs extend the geographical reach of facilities that access backbone networks, perhaps with more emphasis on geographical coverage as opposed to accommodation of the middle mile and backhaul needs of specific users. In many instances, for different reasons, broadband users in both developed and developing nations, may incur steep charges for access to national links. National broadband plans typically address how to stimulate private investment in facilities that extend broadband networks into remote, hinterland locations. Many nations emphasize private-public partnerships that combine government and private sector resources. Governments can create financial incentives, but also contribute to projects by offering rights of way for the installation of ducts and towers used by transmission facilities. Governments also can facilitate sharing in the cost and use of networking infrastructure by rewarding carriers that work conscientiously to pool resources without conspiring not to compete, or to fix prices. Given the high costs in broadband infrastructure construction, competing carriers should not always have to build separate telecommunications lines and switching facilities. Where existing conduits and rights of way are available, governments can promote shared use. Many of the competing long haul telecommunications networks in developing countries started by using existing rights of ways secured long ago by railroads, electric utilities and gas pipelines. 22 5.5.2 Internet Exchanges Internet exchanges provide a much needed interconnection point for ISPs providing local, regional, national and international service. Because no single ISP typically owns or leases all the networks needed to achieve a complete every link between end user and content source, ISPs agree to interconnect their networks, often at a single facility where multiple interconnections can take place between and among many ISPs. Internet exchanges centralize and economize the network facility interconnection process, by making it possible for several ISPs to share in the cost of installing, operating and maintaining the site. Many Internet Exchanges are jointly owned by the carriers that interconnect networks. Other commercial sites are owned by real estate developers, or ventures unaffiliated with the carriers. A hybrid model combines public and private partners, much like arrangements made for airports, seaports, exhibition halls and sports facilities. A non commercial alternative uses a cooperative, or not for profit model to stimulate use of a facility and the benefits accruing to nearby service subscribers. The lack of Internet exchanges in lesser developed regions has exacerbated the so called 69 Digital Divide. 23 The lack of international and domestic backbones, branch lines, middle mile options, backhaul routes and direct links with end users surely contribute. However, once various networks get built by different ISPs, collectively all carriers need convenient and nearby access to Internet Exchanges to facilitate the interconnection and exchange of traffic. Without these facilities interconnection cannot take place within the region where traffic originated, or eventually will terminate. Instead ISPs must resort to lengthy and circuitous routing of traffic at distant Internet Exchanges. Such “thromboning” of traffic, representative of the long tubing in the musical instrument, increases the time it takes for traffic to reach its final destination as well as the cost. The operator of Ghana’s Internet Exchange summarizes the benefits of having an in- country facility: “The value of an IXP is clear to governments, regulators, industry experts, and industry members for good reason: it usually heralds significant development and opportunities for new revenue in the local ICT industry. It is because of this eventual national pay-off that IXPs are usually financed by donations from individuals, organizations, corporations, governments, etc. One point of failure for Exchanges is attempting to finance them by means other than donations or sponsorship. “The cost of the Exchange is minimal compared with the benefits. Exchange points have two benefits (short and long term) that directly address two obstacles to ICT growth (international bandwidth costs and network latency). The short-term benefit happens overnight. Once ISPs are connected to the Exchange, they will no longer pay international bandwidth costs for local, Ghanaian traffic. This cost savings, however, is not the only value of an IXP. “The long-term benefits far outweigh the short-term. Once the ISPs are connected to the GIX, latency or transit time of traffic becomes a fraction of what it was since it stays within the same network. As a result of this increased speed and reliability, additional ‘value-added’ services become possible on the national network. Exchange Points make web content hosting, audio and video streaming, E-commerce, E-governance, etc. possible. Right now ISPs and local businesses often go outside of Ghana for advanced Internet solutions such as the above, taking revenue elsewhere. With the GIX, all of that business and the revenue that comes with it can come to Ghana creating more entrepreneurial opportunities, jobs, and options for investment. “In Ghana the cost of Internet bandwidth and connectivity is highest compared to the rest of the competitive world. In one sense the cost of sending a local destined email is equal to the cost of sending an internationally destined email. To overcome this anomaly, connecting to a local or National exchange in this case GIX ensures that the cost of sending a locally destined email is at a lower cost. With the offsetting of the local traffic to the exchange point, the upgrading of International links of operators can be postponed for an additional period. Therefore translating to saving on the International link capacity. These savings can further be extended to the operators customers.” 24 70 Internet Exchange Interconnections Source: Internet Society, available at: https://nsrc.org/workshops/2008/sanog12/day1/netmanage/tokyo- xpconf.png. Internet Exchange Governance By design Internet Exchanges require the joint investment and participation of multiple carriers. The more carriers that agree to fund an Exchange, the lower their shared costs and the more routing and interconnection opportunities become available to both carriers and consumers. Because Internet Exchanges involve multiple carriers, the management and governance of these facilities may require scrutiny by governments to ensure that no single carrier, or group of carriers can dominate in ways that reduce the benefits to other carriers and Internet users. National Regulatory Authorities may require transparency in the terms and conditions for 71 affiliation with an Internet Exchange to ensure that carriers do not collude to raise prices to consumers, or to handicap other carriers, including ones that do not have an ownership interest in the facility. Internet Exchanges typically contribute to the integration and interconnection of local, national, regional and international routing options and carrier choices. However without adequate safeguards they can help bolster the market power of a dominant carrier, or a small group of carriers. Internet Exchange governance documents should provide clear and fair terms for financial, technical and operational terms for membership by new carriers as well as their interconnection rights. Carriers should cooperate in the operation of Internet Exchanges without such collaboration leading to a reduction in competition for traffic and subscriptions. Best practices in the operation of Internet Exchanges include assurances that whoever manages the facility (government agency, university, non-profit association, carrier consortium, etc.) the Exchange operates in the spirit of neutrality and openness. Internet Exchanges should secure competitive bids for the construction of the facility with benchmarks in the contract for timely and cost-effective performance. The parties should agree to locate the facility in close proximity to where existing and prospective network facilities are located. The facility should have the ability to increase in size (“scalability”) on an incremental basis. Governance of the facility should ensure fiscally sound stewardship. 5.5.2.1 Reference Documents and Case Notes 60 Hudson Street, Lower Manhattan One of the largest and most important Internet Exchange is located in New York City. An instructive video about this facility, Ben Mendelsohn, Bundled, Buried & Behind Closed Doors is available at: http://vimeo.com/30642376. 72 African Internet Exchanges The very large continent of Africa remains underserved both in terms of Internet access and the number of essential interconnect and traffic exchange points. However several nations have achieved progress with the recent installation of an Internet Exchange. List of Internet Exchanges in Africa Name Established URL City Location http://www.an AIXP 2006 Luanda Angola gola-ixp.ao/ http://www.bi nx.org.bw/ BINX 2006 http://www.inf Gaborone Botswana o.bw/bispa/bin x.html http://www.is pa- Democratic Republic of the KINIX 2002 Kinshasa drc.cd/kinix.ht Congo m http://www.ns rc.org/db/look up/operation=l ookup- CR-IX 2002 Cairo Egypt report/ID=110 0200161570:4 88991867/fro mPage=EG http://www.ca CAIX 2004 Cairo Egypt ix.net.eg/ http://www.ns rc.org/db/look up/report.php? GIXP 2005 id=8&fromIS Accra Ghana O=GH http://www.gi xa.org.gh/ CI-IXP Jun 2007 http://nsrc.org/ Abidjan Ivory Coast AFRICA/CI/R 73 Name Established URL City Location eport-IXP-CI- 2007.pdf http://www.tes MSIXP / KIXP- pok.co.ke/inde 2010 Mombasa Kenya MSA x.php/msixp.h tml http://www.ki KIXP Nov 2000 Nairobi Kenya xp.or.ke/ Aug 26, LIXP Maseru Lesotho 2011 http://www.mi MIX Dec 2008 spa.org.mw/m Blantyre Malawi ix.html http://www.go v.mu/portal/sit Quatre MIXP Jun 2006 Mauritius es/mixp/index. Bornes htm http://www.m Moz-IX May 2002 Maputo Mozambique ozix.org.mz/ http://www.ni IXPN Jul 2011 Abuja Nigeria xp.net/ http://www.ni IXPN 2006 Lagos Nigeria xp.net/ http://www.ni Port IXPN-PH July 2012 Nigeria xp.net/ Harcourt http://www.rin RINEX Jul 2004 Kigali Rwanda ex.org.rw/ http://www.sli SLIX 2009 Freetown Sierra Leone x.sl/ http://ispa.org. za/inx/cinx- Cape CINX 2009 ? information/ South Africa Town http://stats.cin x.net.za/ NeutrINX Sep 2011 Centurion South Africa http://www.ne 74 Name Established URL City Location utrinx.org.za/ http://stats.din DINX Sep 2012 Durban South Africa x.net.za/ http://ginx.org Grahamst GINX Mar 2005 South Africa .za/ own http://www.jin Johannesb JINX Dec.1996 South Africa x.net.za/ urg SIXP 2011 http://sixp.sd/ Khartoum Sudan http://www.ns rc.org/db/look up/operation=l ookup- SZIXP Jun 2004 Mbabane Swaziland report/ID=109 0612703142:4 88719200/fro mPage=SZ http://www.ai AIXP 2007 Arusha Tanzania xp.or.tz/ http://www.tix Dar es TIX Jan 2004 Tanzania .or.tz/ Salaam http://www.ui UIXP May 2003 Kampala Uganda xp.co.ug/ http://ispa.org. ZAIXP Jun 2006 Lusaka Zambia zm/ 75 Name Established URL City Location http://www.zis ZINX July 2001 pa.org.zw/zinx Harare Zimbabwe .html Source: Network Startup Resource Center, Internet eXxchange Points in Africa; available at: https://nsrc.org/AFRICA/ixp/. A global map of Internet Exchanges is available at: Data Center Map, Internet Exchange Points, http://www.datacentermap.com/ixps.html and The Packet Clearing House, Internet Exchange Directory, available at: https://prefix.pch.net/applications/ixpdir/. A video explaining the role of Internet Exchanges is available at: http://www.internetsociety.org/what-we-do/issues/internet-exchange-points-ixps. Several best practices handbooks and case studies now offer guidance on the planning, installation, operation and management of these facilities: Internet Society, Promoting the Use of Internet Exchange Points: A Guide to Policy, Management, and Technical Issues; Internet Exchange Points: Collaborating for the Greater Good, available at: http://www.internetsociety.org/ixpimpact; see also, African Peering and Interconnection Forum (AfPIF); available at: http://www.internetsociety.org/events/afpif; African Union, Division on Information Society, African Internet Exchange System, available at: http://pages.au.int/infosoc/pages/african-internet-exchange-system?q=infosoc/pages/african- internet-exchange-system; Michael Kende, Analysys Mason, Terrestrial Capacity: From Cape Town to Cairo – Reality or Illusion (Aug. 23, 2012); available at: http://www.internetsociety.org/sites/default/files/images/Analysys%20Mason%20Cross- Border%20data.pdf. 5.5.3 Implementation Issues for Domestic Backbone Networks Domestic backbone networks provide the essential connection between urban networks as well as the necessary extension of broadband access beyond central business districts to suburban, exurban and rural localities. These networks bridge the Digital Divide by providing broadband access to users located in regions having less than ideal demographic and demand characteristics. The first Internet access opportunities typically become available to business 76 users in close proximity to each other in a nation’s central business district and to switching facilities, commonly referred to as Internet Exchanges, where Internet Service Providers (“ISPs”) interconnect with each other and access cross-border links. Domestic backbone construction can provide a cost-effective way to expand the geographical reach of broadband access as well as the total population served. However the capital intensive nature of broadband network construction presents numerous financial challenges, coupled with many managerial and logistical issues in implementing a business plan to build or extend a domestic backbone network. Backbone planning requires consideration of ways to maximize geographical reach and market penetration as well as strategies for economizing through the pooling of investment and sharing of costs among multiple network operators. Backbone networks generate substantial upfront costs well before carriers can deliver service to paying customers. As a threshold matter a single carrier or consortium of carriers must agree on the technology to be used as well as the routing of the network. Backbone networks typically use high capacity, point-to-point microwave links, or fiber optic cable. While the former may have less initial costs, because carriers can install towers at intervals of up to 50 kilometers, it offers less initial broadband capacity and does not have the capability of increasing bandwidth (“scalability”) as available from multi-strand, fiber optic cable installations. Most domestic backbone networks use fiber optic networking technologies, because of their initial and scalable capacity. However such terrestrial networks require a dedicated pathway for the installation of the cables, known as a right of way, and ductwork used to house and protect the cables. Backbone operators have incentives to install high capacity networks whose bandwidth capacity can increase in response to growing demand by activating additional “dark,” “unlit” capacity. Because significant funds and effort typically are needed to secure all necessary rights of way and operational authority, operators install ample capacity with an eye toward spreading the costs over the largest possible amount of bandwidth use. Many nations have licensing and permitting authority shared between a National Regulatory Authority and other administrative entities having jurisdiction over a state, province, country, or even a smaller region. Domestic backbone operators in both developed and developing nations need to identify opportunities for cost sharing without making it possible for competing carriers to fix prices and otherwise pursue collusive and market disrupting arrangements. Just as competing carriers can cooperate in the construction, operation and management of a single Internet Exchange, they also can share the costs of a single domestic backbone, particularly the infrastructure that can be shared efficiently. There are several components in broadband networking that are passive in the sense that individual carriers do not have to design, install and manage the technology. For example, competing wireless carriers can share in the cost of installing and maintaining a tower onto which they install their own electronic devices such as transmitters, receivers and antennas. The carriers can divide up the cost of designing, constructing and operating the tower including the cost of supplying or bringing power to the site. For terrestrial 77 networks carriers can share in the cost of acquiring rights of way to install ductwork and cables on private or public property. 5.6 Metropolitan Connectivity Broadband network planning requires stakeholders to design optimal ways for accessing the Internet cloud and for engineering accessibility throughout a nation. Planners start by securing access to major regional and international telecommunications links and by installing a domestic Internet Exchange. Subsequently they extend the geographical scope of Internet access by constructing a domestic backbone network that provides a broadband connection between urban centers and eventually extends broadband access into the hinterland. As planners increase the penetration of broadband access into less densely populated areas, they also should pay attention to a less obvious requirement: ensuring connectivity between and among users within a metropolitan area. As urban regions spread out the tasks of ensuring metropolitan connectivity becomes increasingly challenging. Metropolitan connectivity constitutes a possibly underappreciated goal, because users require both access to the Internet cloud and the rest of the world, but also access between and among various points within a sprawling metropolitan region. The “anchor tenants” of broadband networks typically have very large demand for bandwidth and access requirements in many different locations. For example, a multi-national corporation involved in the extraction, processing and export of natural resources typically would have broadband access requirements in remote areas, where the resources are situated, as well as other locations that process and refine the material plus regional headquarters and locations handling administrative functions. Additionally such an important user might have several facilities within a metropolitan area housing management staff who typically have broadband requirements both for interacting with other corporate personnel as well as the various organizations that support the business, e.g., bankers, attorneys, consultants, and engineering firms. Metropolitan connectivity provides both the first and last kilometer access to the Internet cloud as well as the so-called middle mile access that links various outposts of both affiliated and unaffiliated ventures located at many dispersed locations within a country. Because not all of these users are physically near existing domestic backbone networks, carriers will need to devise ways to provide similar broadband functionality even though possibly far fewer users will require access. In light of the fact that demand may not be as robust as that for direct access to the domestic backbone, network operators cannot achieve the same scale economies and accordingly will have to charge higher rates on a per unit of capacity basis. Middle mile access typically costs more to provide thereby resulting in a commensurately higher cost to users. Users of metropolitan broadband networks have the same “mission critical” traffic as customers located at or near a domestic backbone. As a threshold matter, they will need to assess whether to seek authority to construct and operate their own dedicated network, to rely on an existing operator to lease existing capacity, or to build new facilities to accommodate the user’s specific requirements. This “make/buy” decision depends on many factors including the 78 price of available capacity, as well as dedicated new facilities and the ease or difficulty in securing regulatory authority to construct private facilities and to interconnect them with equipment and lines operated by incumbent carriers. If a National Regulatory Authority will not allow installation of private facilities, or imposes unreasonable terms and conditions, users with specific metropolitan broadband service requirements will have little bargaining power when resorting to negotiations with an incumbent carrier. While some users are functionally “captive” to the terms and conditions imposed by a single incumbent carrier, others can leverage the ability to relocate elsewhere to secure fair rates. Metropolitan network negotiations may generate high rates for users particularly when carriers cannot anticipate that other nearby users would require similar services thereby helping the carrier offset the high, initial costs incurred to accommodate the needs of one user. Network operators have to provide the same sort of service quality and reliability as available from public networks even though doing so generates higher costs when as few as one user leases capacity. Backbone operators routinely install redundant, back up capacity as well as two or more different routing options so that they can continue to provide essential service even when congestion or an outage occurs. Middle mile users have the same requirements for redundant and diverse traffic routing options. In addition to middle mile service, metropolitan connectivity includes “backhaul” options, particularly for wireless carriers. Backhaul service provides links from remote locations, e.g., a rural cellphone tower, back to an urban location where the wireless carrier would route calls to intended call recipients including ones using the city’s wireline network. Not all wireless carriers install both the towers needed to provide service throughout a region and the backhaul capability needed to route rural traffic to urban switching facilities and call recipients. To conserve capital and to expedite the availability of service, wireless carriers may concentrate on the installation of tower sites without the fiber optic cable or microwave radio backhaul links needed to route traffic from and to remote tower sites. Incumbent domestic wireline carriers may be expected to accommodate the back haul requirements of cellphone companies. In many nations incumbent operators are classified as common carriers having the obligation to satisfy the reasonable service requirements of end users and even other carriers. This classification typically obligates incumbent carriers to provide service even if doing so would require the installation of facilities likely to be used only by few, if any customers other than the cellphone carrier that initiated the request for service. 5.6.1 Regional Metropolitan Links Broadband network planners typically use a blend of wired and wireless technologies to meet the demand for middle mile and backhaul services by end users and carriers. Because the total demand for any specific link may not generate a substantial volume of traffic, network operators will need to use comparatively less expensive technologies than that used for high demand links. Wireless microwave services can provide a cost-effective solution to these lower volume “sparse route” requirements. These wireless technologies provide service to users in fixed locations, rather than the more familiar mobile services such as cellular radiotelephone 79 service. Regional metropolitan links provide an example of how two broadband technologies can combine to solve specific end user requirements. For broadband users in remote locations a single technology solution would prove too expensive. A network operator could not make a business case to extend the fiber optic domestic backbone to the remote customer, or even to install a dedicated branch unit off the backbone. Instead the carrier routes traffic via existing broadband facilities to the point closest to the remote user with sufficient population density and demand and then installs lower capacity broadband, wireless facilities to link “off network,” remote users with the backbone. Because of the distance from the backbone such branches are not considered first and last kilometer services. 5.6.2 Implementation Issues for Metropolitan Connectivity Metropolitan connectivity presents network planners with many challenges, because of the number of routes needed and the lack of readily available options. The importance of the domestic backbone and a possibly large rural footprint makes it more likely that carriers can quickly and economically secure the rights to install facilities. Incumbent carriers typically have a legal status that authorizes them as public utilities to demand property easement access based on “eminent domain” which favors the public interest claims of the carrier over the property rights of individual land owners. Additionally network operators may choose to locate backbone networks along existing rights or way such as that used or abandoned by railroads, electric utilities, pipeline operators and highways. Middle mile and backhaul routing in more densely populated areas may trigger more difficult and time consuming rights of way acquisitions. Because much of the route may cover still densely populate terrain, the carrier cannot claim to be extending first time broadband access and the carrier may not qualify for the option of invoking eminent domain. Land owners located near a proposed tower site or conduit installation may not want the disruption and possible division of a single tract of property. In developed nations property owners have banded together to oppose network facility installations. The phrase Not in my Back Yard (“NIMBY”) refers to the typical displeasure property owners have toward rights of way requests of public utilities and telecommunications carriers. 5.7 Local Connectivity Local connectivity refers to the first and last link used by broadband users to receive (“download”) and transmit (“upload”) the various forms of content, software and applications available via the Internet cloud. Local connectivity constitutes only one part of the multiple links to and from the Internet cloud, but broadband subscribers may consider it “Internet access,” because they pay a monthly subscription to the retail ISP providing the first and last link. This subscription also defrays the costs incurred by the retail ISP for accessing links farther upstream needed to complete a connection between an end user and a source of content. 80 The emphasis on local connectivity is justified for a number of reasons. First, a nation may have ample broadband backbone capacity, but satisfying individual subscribers’ needs requires broadband connections to and from a backbone. For the first and last kilometer of this route the carrier typically has to install a line dedicated for the sole use of one subscriber. Measures of broadband market penetration and subscriptions typically identify the total number of actual subscribers, the upload and download transmission rates available to them and the cost of service. Second, local connectivity completes the interconnected and integrated links needed to provide what consumers consider Internet access. Put another way the Internet as a “network of networks” cannot provide seamless access to the content unless and until consumers have broadband options available at their homes, small businesses and other sites. Third, concerns about the viability, affordability and competitiveness of local connectivity dominate public policy and regulatory discussions. In many developing countries—and even some developed ones—local connectivity options may be limited both in terms of the number of technological options available (“intermodal competition”) and the number of competitors using the same technology (“intramodal competition”). Fourth, local connectivity, marketed as Internet access, constitutes one of the core services that carriers combine to offer a desirable and discounted “bundle” of services. Consumers accrue savings and carriers generate higher revenues with a “Triple Play” bundle of access to the Internet, video programming and voice telephone service. The Internet cloud and network of networks concepts exemplify the hierarchical nature of Internet access. One can consider the transmission, switching and routing technologies that make up the Internet as numerous and geographically dispersed at the base of the pyramid. Moving up the number of ISPs and the geographical coverage concentrates. Retail ISPs provide dedicated broadband links to users: a one to one ratio of service. At the actual first and last few feet or meters of service a wireline ISP has to install a physical medium that serves just one subscriber. Wireless ISPs use a single carrier to serve the traffic origination and termination needs of retail subscribers. Upstream from the retail last kilometer link, ISPs aggregate traffic onto higher capacity cables and wireless links so that a single conduit carries the traffic of very many subscribers simultaneously. Upstream ISPs offer very high capacity limited to specific routes, typically between cities and across great distances. 5.7.1 Wireline Access Technologies Currently the primary local broadband technologies use upgraded and modified copper wire conduits already installed by telephone and cable television companies. Incumbent carriers have determined that they first should “retrofit” existing wire-based technologies, because doing so conserves capital and extends the useable life of plant already installed. While replacing copper conduit with fiber optic cable offers consumers much faster bit transmission speed, incumbent carriers have determined that few localities currently have the population density and willingness to pay for a fiber optic broadband delivery networks to specific end users. In the interim, incumbent carriers have identified ways to reconfigure existing networks so that they can provide a combination of voice, data and video services. 81 Telephone companies offer a transitional, copper-based technology that upgrades the available bandwidth sufficient to provide a carrier just barely wide enough to provide broadband, telephone and on-demand access to a single video channel. Cable television companies have more available bandwidth making it possible to reassign one or more television channels for broadband access. For many locations, broadband carriers eventually will replace the copper conduit with fiber optic cables, perhaps initially with a hybrid network that combines the two media. For example, the term Hybrid Fiber/Coax refers to the installation of new fiber optic cables from traffic management headquarters to a point closer to end users, whose access to that midway point continues to rely on existing copper lines. Digital Subscriber Line Service Telephone companies can provide broadband Digital Subscriber Line (“DSL”) service by expanding the bandwidth available from the narrow gauge copper wires used to provide the first and last kilometer of telephone service. In essence DSL constitutes a transitional technology upgrade or retrofit using already installed copper wire. This wire uses a narrowband carrier to deliver voice telephone calls. The bandwidth generated by the narrowband voice carrier is only 3000-4000 cycles per second, also known as Hertz. A 3-4 kiloHertz (“kHz”) channel can provide only a low fidelity signal, but that is sufficient for the transmission of voice conversations. Broadband signal transmission requires more bandwidth so that the signal can carry the higher volume of information contained in the Internet cloud. Instead of narrowband delivery of a telephone call, broadband channels must offer both the capability of carrying lots more information, e.g., full motion video content, and to do so on a timely basis so that the content does not freeze, blur, or become unavailable. Put another way broadband networks need to have the bandwidth capacity capable of delivering high throughput, i.e., lots of information typically measured in bytes. Bandwidth intensive applications, like video, require fast, broadband networks having the capability of delivering content on an immediate, “real time” basis. Telephone companies can expand the bandwidth available from the narrow gauge, pair of twisted copper wire from 3-4 kHz to as much as 1500 kHz that also can be stated as 1.5 MegaHertz (“MHz”). With this expanded carrier, telephone companies can offer broadband service typically at transmission speeds averaging 1.5 million bits per second (1.5 “Mbps”) with high transmission speeds available to subscribers located near the telephony company switching facility. The highest transmission speed available, termed Very High DSL (“VDSL”) can offer speeds reaching 55 Mbps over a distance of 1000 feet from a telephone company switching office, or an Optical Network Unit installed to serve a specific neighborhood or real estate subdivision. DSL subscribers located relatively close to a telephone company switching facility can receive higher bit transmission speeds, but subscribers located more than 5 kilometers typically cannot receive any DSL service at all. Because telephone companies use unamplified copper wire as the medium for service, signals weaken (“attenuate”) as the distance increases between subscriber and telephone company switching office. 82 source: Tony H. Grubesica and Alan T. Murray, Geographies of imperfection in telecommunication analysis, 29(1) Telecommunications Policy, 69-94 (Feb. 2005). DSL technology offers relatively slow bit transmission rates, compared to that available from cable television and fiber optic networks. To maximize the effectiveness of DSL networks, carriers configure the service to make more transmission capacity available for downloading than for uploading of content. This lack of symmetry between uploading and downloading responds to the fact that most broadband subscribers download more capacity than they upload. The term Asymmetric Digital Subscriber Line (“ADSL”) refers to a DSL service configured with more downloading capacity. DSL service that has equal downloading and uploading capacity is called Symmetric DSL. Asymmetric Digital Subscriber Line Bandwidth Allocation 83 Red area is the frequency range used by normal voice telephony (PSTN), the green (upstream) and blue (downstream) areas are used for ADSL. Source: Wikipedia 84 Many Types of DSL Service Data Rate DSL Distance Description Downstream; Application Type Limit Upstream Similar to the ISDN 18,000 feet ISDN Digital BRI service but data IDSL 128 Kbps on 24 gauge Subscriber Line only (no voice on the wire same line) The standard ADSL; From 1.544 Mbps to 6 DSL Lite "Splitterless" 18,000 feet sacrifices speed for not Mbps downstream, (same as DSL without on 24 gauge having to install a depending on the G.Lite) the "truck roll" wire splitter at the user's subscribed service home or business T1/E1 service between 1.544 Mbps duplex on server and phone High bit-rate 12,000 feet two twisted-pair lines; company or within a HDSL Digital on 24 gauge 2.048 Mbps duplex on company; Subscriber Line wire three twisted-pair lines WAN, LAN, server access 1.544 Mbps duplex (U.S. and Canada); 12,000 feet Same as for HDSL but Symmetric 2.048 Mbps (Europe) on SDSL on 24 gauge requiring only one line DSL a single duplex line wire of twisted-pair downstream and upstream 1.544 Mbps at 18,000 feet; 2.048 Mbps Used for Internet and 1.544 to 6.1 Mbps Asymmetric at 16,000 Web access, motion downstream; ADSL Digital feet; video, video on 16 to 640 Kbps Subscriber Line 6.312 Mbps demand, remote LAN upstream at 12,000 access feet; 8.448 Mbps at 9,000 feet 12.9 to 52.8 Mbps 4,500 feet at downstream; 12.96 Mbps; Very high ATM networks; 1.5 to 2.3 Mbps 3,000 feet at VDSL Digital Fiber to the upstream; 25.82 Mbps; Subscriber Line Neighborhood 1.6 Mbps to 2.3 Mbps 1,000 feet at downstream 51.84 Mbps 85 DSL Bitrate Varies with the Distance from the Telephone Company Switch source: Mark Jackson, ISP Review (Sep. 20, 2010); available at: http://www.ispreview.co.uk/articles/10_UK_Rural_Broadband_Solutions/. Telephone companies also have an operational reason to provide ADSL instead of symmetrical service that offers equal bandwidth for uploading and downloading. When subscribers upload content the most likely place where data traffic may interfere with voice traffic occurs at the telephone company switching facility handling both types of traffic in close proximity to each other. Uploaded data arrives at the telephone company switching facility with the weakest signal. Because data starting at the telephone company switching facility has the strongest signal the telephone company can spread the signal over wider bandwidth and thereby transmit content at a higher bit rate. At the telephone company offices closest to subscribers, certain upgrades are needed to provide DSL service. Carriers need to separate “legacy” voice telephone traffic from the new data traffic. They achieve this separation by using a frequency splitter to divide the frequencies used for voice service from the newly available bandwidth made available for DSL service. The voice traffic continues to route to the Central Office for the customary switching and routing along a hierarchy of facilities that multiplex traffic onto very high capacity, long haul transmission lines. Separately Central Offices, equipped to provide DSL service, receive the data traffic and route it to a separate traffic aggregator, commonly known as the Digital Subscriber Line Access Multiplexer (“DSLAM”). This device aggregates Internet traffic for onward delivery via long haul Internet traffic transmission lines and disaggregates it for delivery 86 to the intended recipient. At residences DSL subscribers must use filters to block the data frequencies at jacks used for voice telephone service. DSL subscribers also need to install a device that modulates and demodulates Internet, data traffic thereby differentiating it from conventional voice traffic. This modem device connects to a conventional telephone service jack and also to a computer, or wireless router serving one or more portable devices. DSL Network Configuration at Telephone Company Premises source: The Progress and Freedom Foundation, available at: http://www.pff.org/issues- pubs/pops/pop6.13regulatoryoverkill.html 87 DSL Configuration on User Premises source: Kingpin Internet Café Blog site, Home Networking; available at: http://wbrowser04.blogspot.com/2010_06_01_archive.html. DSL service offers slow, but cheaper broadband service as compared to what cable television operators offer. Additionally the need for subscribers to be located no farther than 5 kilometers from a telephone company switching facility further reduces the market size of potential subscribers. Similarly telephone companies do not serve all locations within the 5 kilometer potential service area. Localities with the greatest population density and most favorable demographic characteristics, e.g, high income, typically attract the first company investment in the retrofitting needed to provide service. Cable Modem Service Cable television operators also can retrofit their existing networks to provide broadband service starting with the conversion of as little as one 6 MHz television channel into an Internet access link. By partitioning (“diplexing”) this bandwidth, cable operators can designate the frequencies represented by this channel as available only for uploading and downloading Internet traffic. A modem similar to that used for DSL service can tune solely to the bandwidth now designated for Internet access and modulate and demodulate data traffic through that channel. Because the cable television distribution grid operates with amplifiers located throughout, cable modem service can be offered everywhere the company previously offered video service. Additionally cable modem service can operate at bit delivery speeds well in excess of what DSL can provide. Cable operators can further increase delivery speeds by adding more bandwidth in 6 MHz increments, a process known as cable bonding. 88 Cable modem service costs subscribers significantly more than DSL service, but the cost may offer a better rate on a per Mbps basis. For example, DSL service typically costs between $18-$30 USD per month, while cable modem service typically costs between $20-$75 per month. A $30 rate for 1.5 Mbps would cost more on a per megabit delivery speed if a cable operator offered 6 Mbps service for anything less than $120 per month. Increasingly broadband subscribers require bit transmission speeds well in excess of 1.5 Mbps to receive such bandwidth intensive content as high definition television on an instantaneous, “streaming” basis. Cable modem service represents a third major upgrade in service. In the first generation cable television operators simply imported broadcast television signals to places too far away to receive signals “off air” using the two small telescoping antennas supplied with the set (“rabbit ears”) and possibly even if one installed a rooftop antenna. In the second generation, cable operators increased the inventory of content to include networks that did not broadcast their content. Instead of serving as a community antenna for broadcast content only, cable television operators used satellites and microwave networks to distribute additional content. In this second generation cable operators expanded the available bandwidth for television and also created a small upstream link from subscribers so that they could be identified by address for billing and content delivery purposes. In the third generation cable operators expand the range of service available to include telephone and Internet access in addition to video content. The cable television distribution grid becomes the functional equivalent to a Local or Metropolitan Area Network (“LAN” or “MAN”) capable of providing high speed data transmissions both downstream and upstream to all subscribers. LANs initially provided data networking within an office building or throughout a college, or corporate campus. Now cable operators offer the same functionality in the third generation of cable television network development. Cable Modem Configuration on Operator Premises 89 source: Lillian Goleniewski, Telecommunications Essentials, p. 73; available at: http://flylib.com/books/en/2.566.1.73/1/. Cable Modem Configuration on User Premises source: Knology of Kansas, Connecting Your Cable Modem; available at: http://kansas.knology.com/help/internet/setup.html Broadband Over Powerline The nearly ubiquitous electric power grid offers a potential third wire capable of providing broadband into residences and businesses. Broadband over powerline (“BPL”) uses the transmission power of the electricity delivery to carry signals using much higher frequencies. While an electrical conduit generates a quite noisy and inhospitable environment for other types of transmissions, advances in digital signal processing makes it possible to differentiate a high frequency data signal from the predominant, lower frequency electrical current. BPL uses lines in the electrical grid operating at several thousand volts instead of the highest powered lines that operate with tens of thousands of volts. The greatest challenge in making BPL commercially viable lies in solving two problems: 1) ensuring that the data signal can pass through transformers near retail subscribers that lower (“step down”) the transmitted voltage to the 110-220 volt level used by consumers; and 2) convincing National Regulatory Authorities that the data signals, typically operating between 1.7 and 80 MHz, will not leak out of the grid and interfere with wireless radio users. BPL injects and extracts broadband data signals onto the electrical grid. An inductive coupler transfers the data signal onto the power line by wrapping around the line, without 90 directly connecting to the line. The extraction process decouples the data signal and sends it to a on premises modem for demodulating inbound traffic and modulating outbound traffic in the same manner as DSL and cable modems. source: Migsmobile Blog site; available at: http://www.migsmobile.net/2009/03/13/the-state-of-broadband- over-power-lines/. For nations where a transformer provides individual premises with the final voltage conversion to 110-220 volts, the extraction process can fail, because the signal has become unrecoverable. A solution to this problem relies on a wireless router, operating on a pole or above a conduit, to handle the first and last few meters outside of the transformer. 91 Home Configuration of BPL source: Multiple-Wireless Solutions; available at: http://www.multiplewireless.com/broadband.over.power.line.html. 5.7.1.1 Reference Documents and Case Studies For background on how Digital Subscriber Line service works see: Andrew C. Schneider, Digital Subscriber Line Technology; available at: http://www.telebyteusa.com/dslprimer/dslprimer.htm; Cisco Documentation, Digital Subscriber Line; available at: http://docwiki.cisco.com/wiki/Internetworking_Technology_Handbook; Peter Macaulay, DSL Standards Update; available at: http://www.dslreports.com/forum/remark,12089082. For background on how cable modems operate see: Rolf V. Ostergaard, Cable Modem Tutorial; available at: www.todoprogramas.com/manuales/ficheros/2008/7.8200.6431.pdf; 92 Cable-Modem.net, Cable Modem Primer; available at: http://www.cable- modem.net/topics/cable_modem_primer.html; Hyun- Cheol Chung, Developments in Cable Broadband Networks”, OECD Digital Economy Papers, No. 170, OECD Publishing, available at: http://dx.doi.org/10.1787/5kmh7b0s68g5-en. For a brief assessment of the advantages and disadvantages of DSL and cable modem service see: About.com Video, High-Speed Internet - Cable Versus DSL; available at: http://video.about.com/compnetworking/Cable-Versus-DSL.htm. For background on how broadband over powerline operates see: BPL - Broadband over Powerline; available at: http://www.infocellar.com/networks/new-tech/BPL/BPL.htm; State of New Jersey, Office of the Ratepayer Advocate, Broadband Over Power Lines A White Paper; available at: http://www.state.nj.us/rpa/BPLwhitepaper.pdf; Chano Gómez, Convergence in Home Networking: Broadband over Powerline and Other Wireline Technologies, powerpoint presentation (Nov. 11, 2009); available at: http://www.ewh.ieee.org/r6/scv/comsoc/Talk_021109_Powerline.pdf; Byung-Wook Kwon, Broadband over Power Lines (BPL): Developments and Policy Issues (2009); OECD Digital Economy, Papers, No. 157; available at: http://dx.doi.org/10.1787/222266878856. 5.7.2 Wireless Access Technologies Because many nations lack ubiquitous access to new or transitional broadband wireline technologies, wireless options can provide telecommunications access into remote localities. Developing countries typically have the most areas unserved, or underserved by incumbent carriers. Ironically this lack of service can make it possible for the installation of cutting edge wireless broadband technologies that can help developing countries expedite broadband access even in remote areas. Just as wireless technologies made it possible for developing nations to accelerate the availability of voice telephone services into even the most remote and sparsely populated areas, they also can help these nations accelerate broadband deployment, an outcome referred to as “leap forging.” Wireless technologies have the potential to offer faster, cheaper and more widespread installation of broadband services. Using microwave frequencies and an antenna that transmits a 360 degree, “omnidirectional” signal, wireless carriers can cover a contour or circle of land area 93 spanning over 100 kilometers. Wireless network operators do not have to install ducts, conduits and wires to serve each and every subscriber. Instead the omnidirectional signal from a single tower can deliver voice and data traffic to any user within the transmission contour and also any user can communicate with the tower using a small, lightweight handset. Wireless telecommunications technologies have significant initial costs, which are incurred before revenues accrue from service, but the incremental cost of adding a subscriber is low and ongoing operating expenses may be low as well. This means that even with substantial, startup costs, many types of telecommunications and information networks can succeed in the marketplace if additional subscribers do not trigger even higher capital investment and carriers incur relatively low costs in maintaining their network. The economic term positive network externality refers to the ability of networks to increase in value as more subscribers join. With relatively low incremental costs, carriers and service providers can offer free or inexpensive subscriptions that become more valuable as subscribership grows. Positive network externalities create incentives for more and more users to “join the bandwagon” as evidenced by the success of social networking, auction and ecommerce sites. Wireless technologies can provide both mobile and fixed services. Cellphone users appreciate the benefits of thetherless mobility, i.e., the enhanced productivity and efficiency made possible by having telephone access anytime and almost anywhere. But for many broadband applications, much of the benefits accrue from access to the Internet cloud regardless whether the user is moving, or at a fixed location. Wireless services use leapfrogging technology in the sense that remote localities lacking any Internet access can secure roughly the same quality of service, previously available only to urban users. Cellular Radiotelephone Service Before we examine wireless broadband technologies, some fundamental aspects of how wireless technologies work can offer helpful perspective. Wireless technology made a huge leap in the early 1980s with the introduction of cellular radiotelephone service. Before that time few users of wireless service existed, because the technology was quite expensive, capacity constrained and unable to provide uninterrupted service for more than a few minutes. Before carriers offered cellular service, they used single transmitters that did not connect with other towers to provide continuous service to users moving out of range from the first tower and into range of another one. This meant that a mobile user could only carry on a conversation for a few minutes before losing contact with the tower containing facilities for linking the user with the wireline telephone network. Carriers installed only a few towers operating with limited amount of bandwidth. Cellular radio uses more bandwidth and has the capability of reusing high frequencies to support many more simultaneous telephone calls. It also has the ability to hand off calls from one tower to another making it possible for a mobile subscriber to maintain a conversation as the call can be forwarded from tower to tower as the user moves out of range from one and into range of another. Frequency reuse and the ability of manage the hand off of calls from tower to 94 tower makes it possible for cellphone networks to serve many more users, to offer vastly lower rates, given large scale operations, and the ability to provide reliable service for calls running more than a few minutes. The use of the term cellular refers to the ability of wireless carriers to transmit from overlapping signal contours generated by transmitters on adjacent towers. Cellphone service has been visualized as using the tightly connected hexagonal honeycombs of a beehive to emphasize continuous service achieved through frequency reuse of overlapping cells. In reality the cell contours are circular, but the concept of signal contour integration offering continuous service constitutes an essential component to reliable mobile wireless service. Frequency reuse makes it possible for carriers to have nearby towers operating on the same frequency without generating harmful interference that would prevent callers and call recipients from hearing each other. Because cellphone networks use very high microwave frequencies, the signals weaken (“attenuate”) very quickly and managers can track the geographical coverage of reliable service. At the point whether a single tower service contour starts to deteriorate rapidly a second tower is installed having a slightly overlapping signal contour. At a small distance from the first tower, the cellphone operator can install another tower using the very same frequencies as the first tower, but because of the sharp “rolloff” in signal the transmissions of the first tower do not interfere with a later built tower operating on the same frequencies. Cellular networks can provide service continuity by using technologies that manage the conversion of frequencies when mobile users move from one tower signal contour to another. The Mobile Telephone Switching Office (“MTSO”) constantly monitors the strength of signals from towers to handsets and vice versa. When the signals start to attenuate, due to a user moving away from a tower, the MTSO orders the user’s handset to change to the transmitting and receiving frequencies of the adjacent tower. This handoff requires an immediate change in radio frequency and tower communication, sometimes resulting in a “dropped call” when the change does not take place on time. 95 Frequency Reuse source: GSM Favorites.com, Introduction to Cellular Communications; available at: http://www.gsmfavorites.com/documents/introduction/gsm/ Cellular networks can provide service to vastly more subscribers than previous technologies thanks to more available spectrum allocated by National Regulatory Authorities, frequency reuse and several types of spectrum conservation technologies that make it possible for several users to share the same channel. Cellphone service initially used generously large channels of spectrum available for use by a single subscriber. Over several generations of service cellular networks have increased spectrum efficiency by using transmission technologies that make it possible for multiple subscribers to share the same frequency channel. Time Division Multiple Access (“TDMA”) allocates a shared channel among multiple users by assigning very short slots of time. Code Division Multiple Access (“CDMA”) allocates a shared channel by assigning users different code sequences. These advanced technologies require handsets that not only can quickly change the frequencies they use (“frequency agility”), but also operate using complex transmission formats that require well calibrated synchronization of use within an assigned time slot, or code sequence. 96 Handsets have evolved from serving as a radio transmitter and receiver (“transceiver”) to the functional equivalent of a powerful, lightweight and radio equipped computer. Smartphones offer a wide versatility of services including the ability to display video content, play music, take pictures and operate as an Internet browser. These devices offer users the option to discontinue or not await wireline telephone service, as well as the opportunity to access most of the Internet cloud content previously available only to full sized computers. Frequency, Time and Code Division Multiple Access 97 source: Kyle Bryson, Alison Chen, and Allen Wan, Rice University, FDMA vs TDMA vs CDMA: What's the difference?; available at: http://www.clear.rice.edu/elec301/Projects01/cdma/compare.html. Four Generations of Cellular Service Sine the middle 1980s, wireless radiotelephone service has evolved in four distinct generations. In the first generation, spanning the middle and late 1980s, cellular radio used analog transmission formats to provide wireless telephony only. Urban subscribers benefitted from efficiency and productivity enhancements, while subscribers in rural and remote areas, many not having any existing telephone service option, enjoyed the benefits of access to the Public Switched Telephone Network. First generation service used spectrum in the Ultra High Frequency band (400-900 MHz), including frequencies previously allocated for television service. Handsets were heavy and service was expensive. Early adopters of cellular service included users with high incomes, such as doctors, attorneys and bankers, but also service technicians, such as plumbers and electricians who benefitted from the ability to schedule appointments and receive directions without having to stop and look for a wireline payphone. The second generation of cellphone service (early 1990s) introduced digital transmission technologies and the first spectrum conservation techniques. In the second generation, new spectrum allocations increased available bandwidth in the 1-2 GigaHertz range. At these higher frequencies operators had to install more towers, because of shorter signal range, but the greater frequency reuse opportunities promoted scale in light of the ability to handle many more simultaneous telephone calls. In the second generation cellphone operators started to introduce new services, such as texting, which retrofitted the existing signal strength monitoring and handset polling function of the MTSO which tracks the location of every operational handset. Whenever a handset is on, it regularly sends a short sequence of numbers and letters to the nearest tower which forwards these identifying sequences to the MTSO so that it can route an inbound telephone call to the proper subscriber and also provide dial tone for one requesting service. Cellphone operators 98 created an extremely low cost and vastly profitable texting service by providing subscribers with the opportunity to key in letters and numbers corresponding to a message instead of a cellphone identification sequence. Texting is limited to about 160 letters and numbers, because that corresponds to the amount of bandwidth and time allocated to each passing opportunity for a handset to send its identification code sequence. In the third generation (early 2000s) cellular networks acquired the first ability to handle data traffic. Because all types of software, applications and content can get subdivided into small digital units of capacity, wireless networks became a slow speed option for accessing Internet –based content. In the third generation wireless operators retrofitted their networks to handle data traffic commingled with voice calls. Subscribers soon started to rely on so-called 3G networks for Internet access, but they often grew frustrated with the speed at which they could download and upload content that required high bandwidth, e.g., full motion video. 3G networks could readily handle the real time, “streaming” of music and the distribution of web pages, but not the streaming of full motion video and other more bandwidth intensive applications such as some forms of video gaming. The fourth generation of wireless service has started to offer dedicated high speed data service at bit transmission speeds exceeding what terrestrial DSL offers and rivaling that from some cable modem services. 4G service makes it possible to consider wireless a competitive alternative to many terrestrial, wireline services. The proliferation of handsets, including tablets and lightweight computers, coupled with ever increasing content and software options has stimulated increasing demand for wireless spectrum. Experts disagree on whether and how 4G networks can handle all of the demand for service, particularly if wireline telephone companies opt to discontinue some or all terrestrial wireline services thereby migrating more and more subscribers to wireless options. 5.7.2.1 Traffic Offloading and Other Spectrum Conservation Techniques In light of extraordinary growth in the demand for mobile services—especially broadband—National Regulatory Authorities cannot readily solve all existing or potential spectrum shortages simply by reallocating more bandwidth. Wireless operators have to come up with strategies for conserving spectrum including ways to offload traffic from their congested towers onto less heavily used frequencies, or higher capacity wireline options. Additionally carriers can treat voice and data traffic differently so that two parallel networks can be optimized to handle each type of traffic. An alternative view anticipates an Internet-driven network where all traffic functions as data, including voice traffic that can be digitized and subdivided into voice packets for processing like other forms of data traffic. For first and last kilometer local connectivity, wireless carriers have offered retail subscribers the option of installing a device known as a femtocell that operates as a miniature cellphone tower. This device extends the in-building signal penetration of a wireless network, and also can change the frequencies used and even take traffic off the wireless network and place it onto a wired broadband connection. However these devices need to coordinate service with an adjacent tower and the potential exists for interference with other units, as well as dropped calls 99 and lost data packets. Ironically most wireless carriers initially refused to allow subscribers the option of using their handsets to access alternative networks such as Wi-Fi and competing Voice over the Internet Protocol services. The carriers considered these technologies as depriving them of traffic and network minutes of use. Now that some carriers have offered unmetered service and have experienced network congestion they gladly support the offloading of traffic onto other networks. The use of femtocells provides an example of how a series of overlapping wireless signals, provided by multiple carriers and transmitters, will cover most locations. Satellites provide the largest service contours covering up to one-third of the earth’s surface. Terrestrial wireless networks offer megacells and macrocells covering many kilometers in rural locations, but also microcells serving only a as little as one kilometer in the central business district of a city. Smaller picocell service will cover less than one kilometer with femtocells, Wi-Fi, Bluetooth and sensors covering a few meters, often within a building. Intelligent devices and networks integrate access to multiple networks in a seamless manner offering high quality and reliability. These integrated network are compatible for human interaction, computer to computer communications and an “Internet of Things” incorporating billions of sensors able to monitor the real time condition of people, places, and the environment. Overlapping Cells With Different Service Contours Cell Type Deployment Coverage Area Estimated Unit Cost Scenario (sq. miles) Capacity (bit per second per Hz per sq. mi. Mega-cell On mountain top 2000-3000 .001-.0025 $300-500k Macro-cell On towers or 10-30 .10-.25 $100-300k rooftops; 50-200 ft. Micro-cell One street poles; .005-.01 100-200 $10-30k 20-30 ft. Pico-cell In building with .001-.005 1000-5000 $50-200k distributed antennas Femto-cell In building with .002 5000-20000 $50-200 single low power antenna Source: Tolaga Research, Fixing the Follies of Femtocells (Aug. 2010); available at: http://www.tolaga.com/pdfReports/femtoReport0810.pdf. 100 Wi-Fi Wireless Fidelity (“Wi-Fi”) extends access to a wired or wireless broadband service to multiple users within a small distance. This technology offers an extension of an existing broadband service, such as DSL and cable modem service. In essence Wi-Fi constitutes an “access to access” service, because it extends the accessibility of a usually fixed wireline broadband service to wireless and mobile users within a closed and limited area, e.g., a home or coffee shop. Wi-Fi service typically requires the installation of a wireless router operating on unlicensed microwave spectrum at low transmission power. Computers equipped to transmit and receive Wi-Fi frequencies can communicate with the Wi-Fi router serving as an interface for downloading traffic from the Internet cloud and receiving traffic for uploading to the cloud. Few business or residential users of Wi-Fi know that they are using microwave radio transceivers, typically operating in the 2.4 and 5 GigaHertz (“GHz”) frequency bands, to connect their mobile handsets, tablets and computers to a wired broadband service (Digital Subscriber Line and cable modem) or a wireless broadband service (cellular radio, or possible another microwave network such as Wi-MAX). Wi-Fi provides a very low power, omnidirectional broadband signal that can deliver and receive content originating in the Internet cloud, or playback devices such as a DVD and Compact Disk player. Wi-Fi is a microwave radio technology that provides a wireless link to various devices that combine with another broadband link for receiving content and for issuing instructions to receive more content, or to upload content. A Wi-Fi receiver and transmitter is typically housed in a device called a router that consumers use to receive and send content. Routers take content previously received from the Internet and forward it onward to untethered devices. Routers also can receive instructions from these wireless devices and forward them to a broadband Internet connection for uplinking to an Internet-based server containing desired content. Wi-Fi routers typically cost less than $100 USD in part because manufacturers and other stakeholders agreed to use a common set of transmission and operating standards, including the radio frequencies Wi-Fi uses and how signals are formatted. The Institute of Electrical and Electronics Engineers (“IEEE”) has created a number of operating standards for wired and wireless Local Area Networks that include Wi-Fi. The Wi-Fi standards are numbered 802.11 and then have several different letters representing succeeding generations of standards typically representing an increase in transmission bitrate. The most recent standard or protocol 802.11n refers to Wi-Fi networks operating in the 2.4 and 5 GHz frequency bands having bit transmission speeds of up to 150 Mbps. 101 Wi-Fi Network, Milwaukee, Wisconsin source: City of Milwaukee, Diagram of WiFi Network; available at: http://city.milwaukee.gov/WiFiDiagram2827.htm Wi-MAX Network Configuration Wi-MAX stands for World Wide Interoperability for Microwave Access and it refers to another standards-based (IEEE 802.16) microwave technology, typically operating at 2.5-3.5 GHz frequencies. Wi-MAX can provide backhaul and first and last kilometer broadband service at speeds of up to 30-40 Mbps. The higher bit transmission speed combined with greater signal reach has prompted some observers to deem Wi-MAX “Wi-Fi on steroids.” Wi-MAX promoters had expectations that it would provide a competitive alternative to cellular radio services including next generation network standards that also promise vast improvements in bitrate. However, it appears that so-called 4th Generation cellular radio standard Long Term Evolution (“LTE”) has overtaken Wi-MAX as the preferred option for extremely high speed, cutting edge wireless broadband service. Wi-MAX provides the ability to extend Wi-Fi type access over a larger transmission contour and in some instances on a commercial basis using licensed spectrum. However as is the case with Wi-Fi when Wi-MAX network demand grows and as users move farther from a 102 transmitter, actual achieved bit rate speeds decline. In operation Wi-MAX networks typically deliver broadband services ranging from 1-15 Mbps. Wi-MAX Network Configuration source: Mechanical Engineering Blog site, What is WiMAX | Worldwide Interoperability for Microwave Access | Next Generation 4G Wireless Technology; available at: http://www.mechanicalengineeringblog.com/947-what-is-wimax-worldwide-interoperability-for-microwave- access-next-generation-4g-wireless-technology/. 5.7.2.2 Reference Documents and Case Notes For background on how cellular radio telephone service works see: Indian Institute of Technology, The cellular concept - System Design issues; available at: http://www.youtube.com/watch?v=whYljse4Abc&feature=related. The concept of frequency reuse is explained at: http://www.youtube.com/watch?v=q2NcUQW4qEY. Background on the 4th Generation wireless standard known as Long Term Evolution is available at: http://www.youtube.com/watch?v=NjNf-6zxMPA; http://www.youtube.com/watch?v=lNQcSgKVhSk; and http://www.youtube.com/watch?v=XkBDTxn0D-U. 103 Background on Wi-Max technology is available at: IEEE 802.16 WMAN Resource Center, What is Wi-MAX: http://www.palowireless.com/i802_16/wimax.asp. Background next generation Ultra Wideband networks is available at: Intel, Ultra- Wideband (UWB Technology) Enabling high-speed wireless personal area networks, http://www.intel.com/technology/comms/uwb/download/ultra-wideband.pdf; Ben DuPont, Wireless Mesh Networks: An Introduction; InformationWeek Analytics; download from: http://reports.informationweek.com/abstract/20/7396/Network-Systems- Management/fundamentals-wireless-mesh-networks.html. Case Studies of Rural Wireless Internet Service Via Wi-Fi and Wi-MAX Keokuk, Iowa; http://www.youtube.com/watch?v=W3QoYURCvAo. KwaZulu-Natal, South Africa: http://www.howwemadeitinafrica.com/case-study-connecting- rural-africa-to-the-internet/15624/. Rural Alberta, Canada: http://www.itu.int/ITU-D/study_groups/SGP_2006- 2010/events/Case_Library_old/americas/CANADA-WiMAX-presentation.pdf. Rural United Kingdom: http://www.youtube.com/watch?v=Q2OgFMUPsRQ. Malaysia: http://p1.com.my/. Africa: http://www.columbia.edu/itc/sipa/nelson/newmediadev/WiMax%20And%20Africa.html. Sri Lanka: http://www.broadband-toolkit.org/; and http://www.itu.int/ITU-D/treg/publications/BB_MDG_SriLanka_Final.pdf. Background on the cost of installing and operating a Wi-MAX network is available at: http://www.wimaxforum.org/sites/wimaxforum.org/files/document_library/appnote_wimaxbusin ess.pdf. 5.7.3 Implementation Issues for Local Connectivity Most local connectivity projects present challenges in terms of coordination, logistics, access to capital and availability of necessary supporting components such as electricity. In developing nations the challenges may be more significant, because planners may seek to install broadband before other infrastructure projects such as electricity, sanitation and water. For wireless projects in remote locales, spectrum shortages may not present a problem, but the anticipated frequencies must be cleared with National Regulatory Authorities so that no potential interference will occur. 104 Local wired and wireless broadband project planners do not have to “reinvent the wheel.” The World Bank and other organizations have identified best practices with an eye toward providing a template for new projects. For example, in the Dominican Republic the national regulatory authority INDOTEL undertook a multi-phased implementation of broadband connectivity projects requiring first that administrative and legal underpinnings for the project, the nature of the license to be awarded and the contract to be signed are well understood. 25 It also required a number of practical steps be undertaken to ensure successful completion of the project, including assessing demand, running an economic model to determine the maximum subsidy to be offered, implementing a transparent and thorough tender procedure, close supervision of projects, development of dedicated web pages and raising awareness among prospective users. The Dominican Republic already had enacted laws governing the basis by which INDOTEL would establish regulatory authority, transparent rules on government-sponsored procurements and a universal service funding program. For each prospective project INDOTEL undertook economic analysis of broadband demand as well as a cash flow analysis to determine the net present value (“NPV”) and the internal rate of return (“IRR”) of the project. INDOTEL’s demand analysis had four categories of review: 1) Collect and analyze secondary data and information such as demographics, the economic situation of households and individuals, geography, traffic and tariffs; 2.) Collect, compile and analyze primary micro‐economic data on individual customers, households, companies, institutions, and others by means of questionnaires, interviews and other information gathering tools; 3) Use econometric modeling techniques to determine the demand functions, establish the accuracy of the estimates, and calculate elasticity and other parameters needed to quantify demand. These techniques are used for each type of service, each geographic area, each period of time, for incoming and outgoing calls, payment types, and for different socioeconomic levels; and 4) Evaluate and present the results, including an assessment of their relevance for the aspirations and objectives of the companies and/or institutions that required the demand estimates INDOTEL also estimated the revenue generating potential of proposed broadband projects with an eye toward identifying how much of a subsidy the government should contribute to make the project viable in light of a projected negative net present value. 26 This process requires estimates of capital investments, recurring operating expenses and maintenance costs. For each project INDOTEL calculated an output based aid (“OBA”) subsidy, a direct payment, “to support investments, for example, in rural areas where the cost of construction and service provision combined with limited revenue potential makes the project commercially unfeasible. A 105 key requirement for a one‐time OBA‐type subsidy is that it results in the establishment of an operation and service provision that should ultimately be self‐sustaining and commercially viable.” 27 Governments can decide to provide subsidies based in part on an assessment whether a project only needs preliminary funding to become commercially viable, or whether recurring subsidies are needed. In the latter case, governments typically establish service milestones and conduct audits of operators to ensure that a project meets specified benchmarks and will provide adequate service. 106 5.8 Practice Notes African Internet Exchange System Following adoption of the African Regional Action Plan on the Knowledge Economy (“ARAPKE”) framework, the Second Ordinary Session of the African Union Conference of Ministers in charge of Communication and Information Technologies (“CITMC”) requested the African Union Commission and the United Nations Economic Commission for Africa to accelerate the implementation of the flagship projects including the development of Internet Exchange Points (“IXPs”). IXPs, also referred to as Internet Exchanges, provide the opportunity for many Internet Service Providers (“ISPs”) to hand off and receive traffic at a convenient regional facility instead of having to establish several direct interconnections, or using costly interconnection and traffic management services of other carriers. The African Internet Exchange System (“AXIS”) project aims to create a robust Africa- wide internet system by installing IXPs in nations lacking any such facility, along with five regional internet hubs to serve as many African ISPs as possible. The African Union Commission has received funding from the Luxembourg Agency for Development Cooperation and the EU-Africa Infrastructure Fund. The Internet Society, a non-governmental organization with expertise in the Internet technology, logistics and coordination will assist the African Union to use the funds efficiently. Senegal, Burkina Faso, Burundi, Niger, Namibia and Guinea have been selected as the first countries to benefit from the project. The Internet Society’s Africa Interconnection and Traffic Exchange program aims to have 80 percent of local Internet traffic exchanged within Africa by 2020. Implementation of the AXIS project involves several phases. Before actual construction of facilities representatives of the Information Society visit candidate nations for an IXP with an eye toward explaining the benefits of the facility and how it would operate. These community mobilization and technology training workshops can help explain the cost savings, efficiency enhancing and consumer benefits accruing from having an in-country IXP. IXPs can reduce yearly operating expenses for ISPs, including transiting costs imposed by other carriers. Additionally multiple ISPs can share IXP infrastructure costs reduces . Broadband subscribers benefit by the possibility of lower rates as well as the likelihood of faster service and less latency (delay) in accessing content, particularly that available from regional carriers. For background on African IXPs and best practices in developing IXPs see: Michael Kende and Charles Hurpy, Assessment of the impact of Internet Exchange Points – empirical study of Kenya and Nigeria (April 2012); available at: http://www.internetsociety.org/ixpimpact; TeleGeography, Internet Exchange Map; available at: http://www.internetexchangemap.com/; 107 Internet Society, African Peering and Interconnection Forum (AfPIF); available at: http://www.internetsociety.org/events/afpif; 2012 conference web site: http://www.internetsociety.org/events/afpif-2012/programme; Moses Bayingana, Implementation of the African Regional Action Plan on the Knowledge Economy (2012); available at: http://euroafrica-ict.org/wp-content/plugins/alcyonis-event- agenda//files/Implementation-of-ARAPKE.pdf; Mike Jensen, Promoting the Use of Internet Exchange Points: A Guide to Policy, Management, and Technical Issues (2009); available at: http://www.internetsociety.org/sites/default/files/promote-ixp-guide_0.pdf; March 2012 update, available at: http://www.internetsociety.org/sites/default/files/Promoting%20the%20use%20of%20IXPs.pdf; EACO Task Force on EAIXP, Report of the Task Force Meeting on East Africa Internet Exchange Points (EAIXPS) Connectivity (May, 2012); available at: http://www.eaco.int/docs/Reports/Report_EAIXP_Connectivity_TaskForce.pdf. 108 Broadband Decision Tree Both private and public network planners need to identify which of many broadband technological options best match specific requirements in a particular region or locality, taking into consideration such factors as the terrain, expanse of desired land coverage, population density, level of existing interest in broadband, ability to pay for service and distance from existing service options. Using these and other locality-specific factors, planners can begin to identify which broadband technologies constitute candidates for providing services. Having identified viable technological options, planners subsequently need to assess which one option provides the most cost-effective and efficient solution, taking into consideration whether grants and subsidies are available for projects identified as commercially unviable and unsustainable without one-time, or continuing subsidization. Broadband network planners can begin to develop a decision tree based on experience gleaned from projects occurring in similarly situated areas. The decision tree below can provide a baseline template. Preliminary Assessments Map Existing and Planned Narrowband and Broadband Plant Before assessing which of many broadband technologies can optimally serve a specific geographical area, planners should map existing and planned infrastructure. Such documentation can help identify specific areas lacking broadband service and also start the process of determining which technological options are feasible and efficient. Broadband mapping also should identify the location of Internet Exchanges, telephone company switching locations, cable television headends, wireless carrier tower sites and existing broadband network locations. In addition to mapping existing and prospective broadband assets, mapping projects also can identify the population density of locations having some forms of broadband access as well as those areas currently lacking any option. In the unserved areas, population density and geographical terrain will have a substantial impact on what broadband option is both technologically feasible and affordable. For example, in mapping existing broadband backbone network lines, planners can assess whether adjacent areas have sufficient population density to support either extending the backbone, building lower capacity branches, or using wireless networks. Similarly maps that identify the locations of telephone company switching facilities and cable television headends can provide planners with locations possibly served by retrofits of existing plant, e.g., Digital Subscriber Line broadband service to areas having sufficient population density and close proximity to a telephone company switch. 109 Identify the terrain of the targeted locality or region. If the terrain has swamps, deserts, mountains and other obstacles, technologies requiring the installation of ducts, poles and towers typically become cost prohibitive. Wireless options— particularly satellite earth stations—will offer the best option based on this criterion. If the terrain supports installation of comparatively low cost ducts, poles and towers wireline options may offer the best option, including construction of a branch, or back haul link to an existing broadband network facility. Identify the desired terrain coverage area and conduct an analysis of population density demographics and interest in broadband. Network planners should specify the locality and region targeted for broadband access. The size of the desired broadband footprint and its population density have a significant impact on which technologies can provide the most cost-effective solution. Most targeted locations will have sparsely populations, but some may have the population comparatively more concentrated in villages than others. Generally the more concentrated the population, the greater the likelihood that broadband options can include access from individual residences, or at least multiple facilities, instead of a single access point such as a telecentre or kiosk. Planners should use surveys to assess interest in broadband and willingness to pay for service. Inventory the nearest wireline and wireless broadband options and estimate the cost to extend them to the targeted locality or region. While network planners may have to construct “islands” of broadband access, typically using satellite option, they first should determine the distance from the targeted locality to the closest existing broadband access options. Planners should assess whether and how existing networks can extend to the targeted locations. Some technologies, such as DSL, are distance constrained meaning they cannot penetrate farther into the hinterland. Others have no technological limitations, but planners will need to calculate whether a business case can be made for an extension, on an unsubsidized basis, with a one-time infusion of capital, such as a grant, or only with ongoing subsidization. Broadband Options in Relation to Terrain and Population Density Broadband planners cannot readily erect a flow chart that specifies which technology to install based solely on population density levels and terrain. However, several basic “rules of thumb” can provide a baseline for analysis of particular circumstances. 110 Telephone and Cable Television Network Retrofits Typically Offer Timely and Lowest Cost per Prospective Subscriber Passed Broadband planners wisely opt to retrofit existing telecommunications plant whenever possible. This strategy helps extend the useable life of existing, “sunk investment” and helps conserve capital by reducing the amount of capital expenditures needed to offer a broadband option. Areas already served by terrestrial, narrowband telephone service can include broadband Digital Subscriber Line service with an investment of as few as a few hundred dollars per home passed. Of course the cost of a network retrofit will vary as a function of population density. Also one should appreciate that many remote locations may have wireline telephone service thanks to universal service subsidies and not because the location and population density supported the network installation free of government mandated financial support. Wireless Options May Offer Cost-effective Service to Locales Lacking Terrestrial Wireline Options Areas currently lacking cable television or wireline telephone service can be prime candidates for terrestrial wireless network installations. The ongoing buildout of cellular radiotelephone service well into the hinterland corroborates this point. Once a wireless voice network has extended into a specific geographical region, carriers may voluntarily make the additional investment to support broadband options. Targeted government subsidies and other universal service financial incentives can expedite the timetable. Satellites May Offer the Carrier of Last Resort Option Even now many geographical areas lack terrestrial broadband access, because the population density, terrain and proximity to existing broadband network assets do not support buildout farther into the hinterland. For these least populated, most remote locations satellite broadband access may constitute the only feasible option. Typically satellite broadband costs more than terrestrial options and may offer comparatively slow bit transmission speeds. Subscribers to satellite service must acquire and install an antenna, receiver and possibly other devices such as a modem. This equipment has become less expensive and smaller over several generations of innovation, but they do add costs typically not incurred by wireline subscribers. Because the satellite option may constitute the best and only solution for people in quite remote areas, ICT development specialists have devoted much effort at finding innovative ways to economize and to maximize access. For example, rather than install a very small antenna for each subscriber, some communities have installed a somewhat larger satellite antenna capable of serving many users at the same time. The term very small aperture terminal (“VSAT”) refers to these satellite dishes that facilitate shared use. A single VSAT antenna linked with a terrestrial wireless delivery medium, such as Wi-Fi or WiMAX can serve an entire village. 111 Many residents, in remote communities also have limited discretionary income thereby necessitating the search for ICT development grants and subsidies. Typically “community champions” help identify and aggregate demand for broadband with an eye toward demonstrating the viability of a satellite project to private, public and non-governmental organizations with grant money available. For background on broadband network planning see: Ole Brun Madsen and Tahir M. Riaz, Aalborg University, Department of Control Engineering, Center for Network Planning Planning Broadband Network Infrastructure; available at: http://vbn.aau.dk/files/16623182/Planning_broadband_infrastructure_-_a_reference_model.pdf; Arizona Telecommunications and Information Council, Community Broadband Planning Workshop, powerpoint presentation (Nov. 13, 2012); available at: http://www.slideshare.net/markgirc/atic-summit-community-broadband-workshop-111312. For case studies on broadband projects see: International Telecommunication Union and United Nations Educational, Scientific and Cultural Organization, Broadband Commission for Digital Development, Case studies on broadband and MDGs; available at: http://www.broadbandcommission.org/work/documents/case-studies.aspx; International Telecommunication Union and United Nations Educational, Scientific and Cultural Organization, Broadband Commission for Digital Development, The State of Broadband 2012: Achieving Digital Inclusion for All (Sep. 2012); available at http://www.ericsson.com/res/docs/2012/the-state-of-broadband-2012.pdf; Dr. Roger Steele, International Telecommunication Union, Strategies for the deployment of NGN and NGA in a broadband environment – regulatory and economic aspect (Dec. 2012); available at: http://www.itu.int/ITU- D/finance/Studies/NGN%20deployment%20strategies-en.pdf; Yurok Tribe Information Services Department, A Rural Broadband Model, A simplified guide to rural broadband deployment (2011); available at: http://www.yuroktribe.org/departments/infoservices/documents/A_Rural_Broadband_Model.pdf. Blandin Foundation, Municipal Options for Fiber Deployment, available at: http://www.blandinfoundation.org/_uls/resources/Municipal_Options_final.pdf; ITU, Country Case Studies, Country Case Studies by Region and Topic; available at: http://www.itu.int/osg/spu/casestudies/; 112 Oxford Internet Inst., Development and Broadband Internet Access in East Africa (March 2010); available at: http://www.oii.ox.ac.uk/research/projects/?id=59; Mike Jensen, infoDev, Broadband in Brazil: A multipronged public sector approach to digital inclusion (2011); available at: http://www.infodev.org/en/Publication.1128.html; InfoDev, Municipal Broadband Networks, Local Open Access Networks For Communities and Municipalities; available at: http://infodev.caudillweb.com/en/Project.85.html; Broadband Commission for International Development, Case studies on broadband and MDGs (2012); available at: http://www.broadbandcommission.org/work/documents/case-studies.aspx. For broadband decision tree templates see: Blandin Foundation, The Community Broadband Development Process; available at: http://www.blandinfoundation.org/_uls/resources/Community_Decision_Tree.pdf; International Telecommunication Union, ITU News, Drawing up a broadband plan (Sep. 2011); available at: http://www.itu.int/net/itunews/issues/2011/07/22.aspx. 113 Broadband Mapping Mapping existing geographical availability of broadband networks constitutes one of the first steps undertaken in formulating a strategic development plan. This inventorying process may seem straightforward, but one should not underestimate the cost and complexity involved in acquiring an accurate assessment of existing installed physical plant. For example the United States federal government allocated $240 million to develop a comprehensive national broadband map as well as maps of individual states. See National Telecommunications and Information Administration, National Broadband Mapping Program, available at: http://www.ntia.doc.gov/legacy/broadbandgrants/broadbandmapping.html. Best practices include on site and road tests to confirm reported availability as well as the solicitation of reports from end users using in person interviews, online surveys and informal self-reporting, sometimes referred to as crowdsourcing. See Sam Knows, Join our broadband campaign…Sign up with us today to accurately measure your broadband performance, web site, available at: http://www.samknows.com/broadband/signup. Additionally formal reporting requirements of facilities-based carriers can promote mapping accuracy. Map creators should make their findings readily available and provide consumers with both the opportunity to see what options exist and to provide corrections and updates to incorrect data. Interactive maps can provide information about broadband access opportunities from businesses and residences as well as information about which community anchor institutions exist in a neighborhood, or locality. Maps also should provide contact information for broadband providers as well as informational about any programs designed to stimulate and subsidize access. For background on broadband mapping see: United States National Broadband Map, How connected is my community? available at: http://www.broadbandmap.gov/; Zachary Bastian and Michael Byrne, Importance of mapping: The National Broadband Map (2012); available at: http://www.wilsoncenter.org/sites/default/files/National%20Broadband%20Map%20Wilson%20 Center%20Case%20Study.pdf; United Kingdom Ofcom, Fixed Broadband Map, available at http://maps.ofcom.org.uk/broadband/; New Zealand Broadband Map, available at: http://koordinates.com/maps/BroadbandMap/sets/; 114 Government of South Africa, Ministry of Communications, Broadband Presentation, Nov. 6, 2012; available at: http://www.doc.gov.za/index.php?option=com_docman&task=doc_download&gid=173&Itemid =104; National Broadband Map Blog; available at: http://www.broadbandmap.gov/blog/; Telegeography, Global Internet Map; available at: http://www.telegeography.com/telecom- maps/global-internet-map/; European Commission, Broadband coverage in Europe in 2011, Mapping progress towards the coverage objectives of the Digital Agenda (Nov. 6, 2012); available at: http://ec.europa.eu/information_society/newsroom/cf/dae/document.cfm?action=display&doc_id =1102; State Broadband Programs, available at: http://www.broadbandmap.gov/about/state-broadband- programs. 115 Conversion from Analog to Digital Television and the Digital Dividend The delivery of broadcast, satellite and cable television has migrated, or soon will migrate from analog to digital transmission. While this conversion will impose costs on both operators and viewers significant benefits will accrue including the ability to view a higher quality image and the opportunity for nations to reallocate a significant portion of broadcast television spectrum for other uses including wireless broadband. Because digital television offers a more efficient and higher quality transmission, containing as much as six times more content for display, broadcasters can offer more than one video signal still using a 6 MegaHertz channel. National Regulatory Authorities can group all broadcasters within a smaller range of frequencies thereby freeing up broadcast television spectrum for reallocation. Digital television will require consumers to replace their existing television sets, or install a device that receives digital signals and converts them back to analog for viewing. New digital television sets can display a higher quality image that increases the number of columns and lines of pixels, the individual and tiny squares of color that combine to form an image. High Definition Television (“HDTV”) is typically classified by the number of pixel lines and whether the video image is created in one line-by-line sequence, called progressive scanning, or by the sequencing of even lines in one scan followed by another scan of the odd lines, called interlacing. While standard definition, analog television generated about as few as 350 visible lines of resolution, HDTV offers 1080 lines. HDTV also presents video signals in a ratio of length to width like that occurring in movie theaters. This aspect ratio also makes it possible to reproduce entire movie images when broadcast on television. Previously movie images were cut from a 16 x 9 aspect ratio to 4x3. The migration from analog to digital television will generate what some call a Digital Dividend, because freed up broadcast television spectrum can expand the amount bandwidth available for current and future broadband wireless networks. In many nations wireless carriers providing broadband services have expressed concerns about a scarcity of available spectrum, particularly for Next Generation Network (“NGN”) services that require lots of bandwidth to transmit content, such as full motion video, at bit transmission speeds comparable to wired networks. The reallocated broadcast spectrum offers superior signal transmission characteristics, known as propagation, because of its frequencies are lower than that previously allocated in many nations for wireless mobile services. For more information on digital television and the Digital Dividend see: Public Broadcasting Service, Digital TV: A Cringely Crash Course; available at: http://www.pbs.org/opb/crashcourse/; TV Without Borders, An Introduction To Digital TV Technology; available at: http://www.interactivetvweb.org/tutorials/dtv_intro/dtv_intro; 116 International Telecommunication Union, Digital Dividend Insights for spectrum decisions (August 2012); available at: http://www.itu.int/ITU-D/tech/digital_broadcasting/Reports/DigitalDividend.pdf; InfoDev, ICT Regulation Toolkit, Practice Note, Digital Dividend Spectrum; available at: http://www.ictregulationtoolkit.org/en/PracticeNote.3279.html; International Telecommunication Union, Telecom 2011, Ministerial Roundtable: The Transition to Digital Television and the Digital Dividend; available at: http://www.youtube.com/watch?v=vzAPqX3m-nc; Australian Government, Department of Broadband Communications, Communications and the Digital Economy, Achieving the Digital Dividend - Channel Changes available at: http://www.dbcde.gov.au/television/achieving_the_digital_dividend_-_restack; Gérard Pogorel, Open Society Foundations, Mapping Digital Media: The Digital Dividend (April, 2011); available at: http://www.opensocietyfoundations.org/sites/default/files/mapping-digital-media-digital- dividend-20110823.pdf; 4G Americas, The Benefits of the Digital Dividend (Sep. 2012); available at: http://www.4gamericas.org/documents/4G%20Americas- Benefits%20of%20Digital%20Dividend-September_2012.pdf; Chris Cheah, Digital Dividend and Spectrum Refarming (2012); available at: http://www.itu.int/ITUD/asp/CMS/Events/2012/ITP2012/Chris_Cheah_Spectrum_Refarming.pd f; Mohsen Ghommam Malek, Spectrum Arrangement and Digital Dividend (March, 2012); available at: http://www.itu.int/ITU-D/arb/COE/2012/DTV/documents/doc5.pdf; International Telecommunication Union, Broadcasting: Events; available at: http://www.itu.int/ITU-D/tech/digital_broadcasting/DB_Events.html. 117 Deep Packet Inspection As the Internet evolves subscribers will have diversifying network requirements that place different demands on broadband networks. For example, viewers of full motion video will need high bit transmission speeds with little tolerance for delays in delivering such “mission critical” content. On the other hand broadband networks can handle content with less time sensitivity in ways that conserve bandwidth and use network capacity during off peak times. Internet Service Providers (“ISPs”) increasingly use technologies that can identify the nature of subscribers’ service requirements by inspecting labeling information contained in packets as well as the actual content being transmitted. Deep Packet Inspection (“DPI”) provides ISPs with tools to identify subscribers’ bandwidth requirements, to prioritize traffic and to prevent piracy by implementing restrictions on copying content . Some consider this technology controversial, because it equips ISPs with the means to offer different levels of service and to charge for higher quality of service. On one hand offering “better than best efforts” routing can enhance the user experience for subscribers requiring high quality service that conventional “best efforts” routing will not achieve. On the other hand DPI can provide ISPs will many ways to avoid operating as neutral conduits leading some to express concerns that the Internet will become less open and receptive to improvements and innovations. DPI provides real time monitoring of packets as they travel through an ISP’s network. The technology can inspect header information that typically provides information about the source and destination of the traffic. Additionally DPI can examine packet payloads and identify the nature and type of traffic being transmitted. This capability will make it possible to identify “mission critical” content can provide superior service, possibly at a premium rate. However ISPs can also use this technology to prioritize, degrade, or block traffic, not because of network conditions, such as congestion, or even at the request of a subscriber. Under a worst case scenario DPI can provide ISPs with ways to identify traffic so that it can be subject to inferior service with the goal of forcing subscribers or content sources to pay more to achieve a basic level of acceptable service. DPI also raises questions about privacy as ISP and even third parties can use the technology to track and profile online usage. For more information on deep packet inspection see: Office of the Privacy Commissioner of Canada, What is Deep Packet Inspection; available at: http://www.priv.gc.ca/information/research-recherche/dpi_intro_e.asp; Syracuse University, , Social Science Research on Deep Packet Inspection; available at: http://dpi.ischool.syr.edu/Home.html; Dr. Milton Mueller, DPI Technology from the standpoint of Internet governance studies: An introduction (Oct. 21, 2011); available at: http://dpi.ischool.syr.edu/Technology_files/WhatisDPI-2.pdf; 118 Duncan Geere, Wired.Co.Uk, How deep packet inspection works (April 27, 2012); available at: http://www.wired.co.uk/news/archive/2012-04/27/how-deep-packet-inspection-works; Christian Fuchs, Centre for Science, Society & Citizenship and Uppsala University - Department of Informatics and Media, Implications of Deep Packet Inspection (DPI) Internet Surveillance for Society (July, 2012); available at: http://www.projectpact.eu/documents- 1/%231_Privacy_and_Security_Research_Paper_Series.pdf. 119 Featurephones Smartphones and Tablets As wireless networks become more sophisticated and able to handle data applications at high speeds, the nature, type and number of useable handsets also will expand. The handsets that transmit and receive wireless signals now range from simple devices designed primarily to provide telephone calls to ones that operate much like portable computers. Generally the cost of handsets increases as the number of functions and available services rises. For wireless subscribers interested primarily in voice communications, as well as the ability to send and receive text messages and photographs, a variety of “featurephones” are available at low cost. These handsets lack many of the news features and either lack the capability, or offer less than optimal access to Internet-based, data services. Some recent vintage feature phones also offer additional features such as personal digital assistant note taking and scheduling, a media player, a touchscreen, Global Positing Satellite GPS navigation and Wi-Fi access. Currently a majority of consumers use feature phones, but near term migration to smartphones will reduce market share, particularly in developed nations. Smartphones offer far more use options, because manufacturers have installed an operating system with data access in mind. Most smartphones use a mobile operating system created by Google, Apple, Nokia, Research in Motion, and Microsoft. These devices use high performing computer chips and typically have larger screen capable of displaying high definition content, including full motion video. Some smartphone users rely on their wireless connection exclusively for broadband data services, while others continue to maintain subscriptions to both wireless and wireline broadband services. Other smartphone users may never have acquired a personal computer, or laptop before resorting to smartphone access to the Internet. Tablets offer users an even larger screen and more computer processing power coupled with wireless access that may include both Wi-Fi and mobile radio frequencies. Tablets still offer voice and text communications options, but their size and power favor data communications. Many content providers now offer services optimized for access via tablets and smartphones. These so-called applications accommodate the smaller screen sizes of smartphones and tablets as compared to tablets. Applications also offer fast access to a specific service or function as compared to the possibly larger options available from a world wide web site containing many pages of content. 120 Feature Phones source: Floridasportsfishing.com; available at: http://floridasportfishing.com/magazine/pros-tips/01-using-a- mobile-phone-aboard-your-boat.html. Smartphones source: New York Times, Bits Blog site; available at: http://bits.blogs.nytimes.com/2011/03/29/smartphone- market-expected-to-soar-in-2011/. 121 Hybrid Broadband Using a Combination of Copper and Fiber Optic Cables Carriers providing terrestrial broadband services typically attempt to upgrade and retrofit existing networks facilities, rather than replace them entirely with costly new technologies such as fiber optic cables. A combination of newly installed glass fiber optic cables and already installed copper wire cables provides an opportunity to extend the usefulness of existing plant and also to reduce the amount of capital investment needed to provide next generation network services. The word hybrid is used to identify networks that combine older “legacy” facilities with newly installed plant. As some future date these hybrid combinations will get replaced with entirely new equipment that can offer even better transmission speeds and capacity. However in the interim time period carriers have found ways to expedite the introduction of networks offering improvements to an all copper wire medium. Companies providing both basic wireline telephone service and cable television service have devised ways to combine fiber optic cable connections with existing copper wire. The replacement process typically starts between carrier facilities with the last wire replacement occurring for the wire providing the first and last link to individual subscribers. The term Hybrid Fiber Coax (“FTC”) identifies a network that combines fiber optic and copper coaxial cables. The terms Fiber to the Pedestal (“FTTP”) and Fiber to the Curb (“FTTC”) identify the location where copper wires continue to provide the network delivery. The retained copper wire is located at the point where a network connects directly to an end user, on the curb near a street, or at a frame, called a pedestal, where the wire linking a residence is connected with another copper or fiber optic wire. For residential subscribers the “drop line” leading to and from a residence is located on the property of the subscriber, but typically along a right of way or easement at the edge of the property. The drop line may connect with another copper line, or to the first of many fiber optic links. At the location where copper and fiber optic cables are connected, the carrier must also install equipment that can convert the transmitted signals from an optical carrier to a copper wire based carrier and vice versa. Telephone companies can extend the reach of their broadband services and increase the transmission speed and capacity by replacing the copper local loop with fiber optic cables also extending close to subscribers. The term Fiber to the Node refers to the installation of fiber optic cables to a switching facility in a neighborhood serving as many as 500 residences. Fiber to the Premises refers to the installation of fiber optic cables all the way to a pedestal serving one subscriber. 122 Coaxial Cable Pedestal Located on the Edge of a Residential Subscriber’s Property source: Dave Whitmore's Home Page; available at: http://davewhitmore.net/images/field.htm. Fiber to the Pedestal Installation source: OSP Magazine; available at: http://www.ospmag.com/issue/article/fiber-right. 123 Hybrid Fiber-Cable Distribution source: Wikipedia; available at: http://en.wikipedia.org/wiki/File:HFC_Network_Diagram.svg . For background on hybrid fiber optic-copper cable networking see: Corning, Broadband Technology Overview (June, 2005); available at: http://www.corning.com/docs/opticalfiber/wp6321.pdf; Preethi Ramkumar, Hybrid Fiber Coaxial; available at: http://www.birds-eye.net/definition/h/hfc-hybrid_fiber_coaxial.shtml; Amitkumar Mahadevan and Laurent Hendrichs, Turning Copper Into Gold; available at: http://www.ospmag.com/issue/article/Turning-Copper-Into-Gold; OECD, Directorate for Science, Technology and Industry Committee for Information, Computer and Communications Policy, Working Party on Communication Infrastructures and Services Policy, Developments in Fibre Technologies and Investment (April 3, 2008): available at: http://www.oecd.org/internet/broadband/40390735.pdf; Richard N. Clarke, FTTn/VDSL2 Broadband Networks Capabilities and Economics (2007); available at: http://www.oecd.org/sti/broadband/40460750.pdf. 124 Infrastructure Sharing Broadband service providers can share the cost of installing and maintaining infrastructure in ways that promote competition, operating efficiency and universal service. When multiple operators can spread the investment costs over a larger base of users, they can achieve scale economies represented by lower per unit costs of essential elements of service. Additionally consumers can benefit when infrastructure sharing helps expand the coverage area that carriers can afford to serve. Infrastructure costs are comprised of capital expenditures in the physical plant needed to provide service, operating expenditures needed for ongoing service and the interest and other expenses operators incur when they borrow funds to invest in new infrastructure. Infrastructure costs also divide into passive and active elements. Operators can share passive elements without affecting their ability to differentiate service and market their offerings as superior. Passive elements constitute the civil engineering and non-electronic elements of infrastructure including: physical sites, poles and ducts, power supplies, trenches, towers and masts, splitters, shelters, air conditioning equipment, diesel and other forms of backup power generators including batteries, and the premises easements and other authorizations to own or lease property. Because passive elements do not directly transmit content shared management of these resources does not impact coverage or capacity of a broadband network. When operators share active elements they cooperate in the use and cost recovery of 125 components such as spectrum, copper wire and fiber optic lines. Such sharing raises more difficult coordination and cost sharing issues and may also trigger regulatory matters such as who shall serve as the holder of any required license, how will that licensee represent the interests of all parties before the regulatory agency and how to ensure that a dominant carrier does not use sharing to handicap smaller competitors. For more background on infrastructure sharing see: Ashish Narayan, Infrastructure Sharing: Need, Scope and Regulation. powerpoint presentation at ITU Asia Pacific Centres of Excellence Training Course On Infrastructure Sharing, Aug. 31, 2010 Hotel Pullman, Bangkok, Thailand; available at: http://www.itu.int/ITU-D/asp/CMS/ASP- CoE/2010/InfraSharing/S1.pdf; The World Bank, InfoDev, ICT Regulation Toolkit, 3.5 Infrastructure Sharing and Colocation; available at: http://www.ictregulationtoolkit.org/en/Section.3563.html; see also, 6.6 Infrastructure Sharing; available at: http://www.ictregulationtoolkit.org/en/Section.3587.html; International Telecommunication Union, Global Symposium for Regulators 2008 (GSR08), Best Practice Guidelines on innovative infrastructure sharing strategies to promote affordable access for all; available at: http://www.itu.int/ITU- D/treg/Events/Seminars/GSR/GSR08/consultation.html; see also, 8th GSR: Six Degrees of Sharing, discussion papers; available at: http://www.itu.int/ITU- D/treg/Events/Seminars/GSR/GSR08/papers.html; KPMG, Passive Infrastructure Sharing in Telecommunications (2011); available at: http://www.kpmg.com/BE/en/IssuesAndInsights/ArticlesPublications/Documents/Passive- Infrastructure-Sharing-in-Telecommunications.pdf; Allen and Overy, Passive infrastructure sharing (2012); available at: http://www.allenovery.com/SiteCollectionDocuments/Passive%20Infrastructure%20Sharing.pdf; Ghassan Hasbani, Bahjat El-Darwiche, Mohamad Mourad and Louay Abou Chanab, Booz and Co., Telecom Infrastructure Sharing Regulatory Enablers and Economic Benefits (2007); available at: http://www.booz.com/media/uploads/Telecom-Infrastructure-Sharing.pdf; Surinder S. Chaudhry, Telecom Regulatory Authority of India New Delhi, Infrastructure Sharing in Telecom Networks –Indian Perspective; available at: http://www.itu.int/ITU-D/afr/events/FTRA/Nairobi- 2007/Documents/Presentations/Session5/Infrastructure_Sharing_in_India_Chaudhry.pdf; see also, TRAI, Infrastructure Sharing: An Indian Experience available at: http://www.itu.int/wsis/c2/docs/2008-May-19/mdocs/C6-session3-Gupta.pdf; Asia Pacific Economic Cooperation Group, APEC Telecommunications and Information Working Group, Survey Report on Infrastructure Sharing and Broadband Development in APEC Region, (Sep. 2011); available at: http://publications.apec.org/file- 126 download.php?filename=2011_tel_Survey_Report_on_Infrastructure_Sharing_in_APEC_Regio n.pdf&id=1184. 127 Integrating Femtocell and Wi-Fi Coverage in Residences and Beyond Currently some residential broadband subscribers have the option of using two separate wireless devices to extend the range and accessibility of their service. A Wi-Fi router provides access to more than one computer, tablet and smartphone by sharing a single broadband subscription available to any device equipped with a small receiver and transmitter operating on Wi-Fi frequencies, typically 2.4 GHz and 5 GHz. Wi-Fi routers assign addresses to each computing device to avoid data stream collisions. To avoid interference between computing devices, which might operate in close proximity to each other, these routers also assign different frequency channels to each device. At residences wireless broadband subscribers also might install a small femtocell that operates as a low-powered base station to improve network accessibility. Mobile wireless broadband services operate on very high frequencies that partially bounce off walls and other obstructions instead of penetrating them. To improve in-building signal penetration some wireless carriers offer subscribers the option of installing a device that receives weak incoming wireless signals, amplifies them and retransmits them inside a building. Subscribers with mobile radio handsets communicate with the nearby femtocell instead of the closest available network tower that might have a location far from the residence. Integrating the femtocell and Wi-Fi devices with a subscriber’s wired broadband service has the potential to generate benefits to both carriers and their subscribers. Wireless carriers can install a specific type of femtocell designed to interconnect with their subscribers’ wireline broadband service that might be offered by an affiliate of the wireless carrier, or by another carrier. By connecting the femtocell with a wired broadband connection, the wireless carriers can offload subscriber traffic that otherwise would travel through the femtocell and onto the wireless carrier’s network. The wireless carrier can reduce its volume of traffic and the potential for network congestion by routing traffic originating and terminating at residences via an available wireline broadband connection instead of the wireless connection. Subscribers benefit by having a more reliable service capable of delivering high bandwidth intensive applications such as full motion video. In the future manufacturers will combine the femotocell coverage extension function with the Wi-Fi ability to offload data from wireless to wireline networks and perhaps more importantly from one type of wireless network to another. This device also will provide the necessary modem function so that both wireless and wireline routing options are available depending on current network conditions. Additionally wireless operators may plan on combining their 4G networks with small cell configurations using Wi-Fi frequencies. Rather than offload broadband traffic onto a wired carrier’s network the wireless carrier can assign traffic to either its 4G network, or localized Wi- Fi small cells based on the nature of the traffic to be delivered and the potential for congestion. Carriers might install the small cell option in places where high demand and the potential for congestion is likely, such as shopping malls, stadiums, university campuses and public transportation like airports and train stations. 128 source: Pradeep De Almeida, How Wi-Fi and Femtocells Complement One Another To Optimize Coverage and Capacity (May, 2012); available at: http://www.slideshare.net/zahidtg/how-wifi-and-femtocells- complement-one-another-to-optimise-coverage-and-capacity. For more information on femtocell-Wi-Fi integration see: Cisco, Architecture for Mobile Data Offload over Wi-Fi Access Networks (2012); available at: http://www.cisco.com/en/US/solutions/collateral/ns341/ns524/ns673/white_paper_c11- 701018.pdf; 4G Portal.com, Mobile data offloading: Femtocell vs. WiFi – tutorial (Nov. 27, 2012); available at: http://4g-portal.com/mobile-data-offloading-femtocell-vs-wifi-tutorial; 129 OECD, Directorate for Science, Technology and Industry, Committee for Information, Computer and Communications Policy, Working Party on Communication Infrastructures and Services Policy, Fixed and Mobile Networks: Substitution, Complementarity and Convergence (Oct. 8, 2012); available at: http://search.oecd.org/officialdocuments/publicdisplaydocumentpdf/?cote=DSTI/ICCP/CISP(20 11)11/FINAL&docLanguage=En; Pr. Sami Tabbane, Wireless Broadband Network Planning & Carrier WiFi and 3G Data Offload (September 2012); available at: http://academy.itu.int/moodle/pluginfile.php/38891/mod_resource/content/1/Wireless_Broadban d_Network_planning_Wifi_offload_v4_ST.pdf. 130 Internet of Things Currently the Internet provides a medium for the transmission and processing of information created and used by humans. Computers, servers and other devices store, switch and transmit the information, but human involvement must occur in one or more instances. The Internet of Things refers to the prospect for the creation of data by devices, such as sensors, that do not involve humans in the collection, processing, storage and even interpretation of the information: [T]he predictable pathways of information are changing: the physical world itself is becoming a type of information system. In what’s called the Internet of Things, sensors and actuators embedded in physical objects— from roadways to pacemakers—are linked through wired and wireless networks, often using the same Internet Protocol (IP) that connects the Internet. These networks churn out huge volumes of data that flow to computers for analysis. When objects can both sense the environment and communicate, they become tools for understanding complexity and responding to it swiftly. What’s revolutionary in all this is that these physical information systems are now beginning to be deployed, and some of them even work largely without human intervention. 2 The Internet of Things requires physical objects to have the ability to identify themselves and regularly transmit data measurements via the Internet. Tiny measurement devices, commonly referred to as sensors, can operate in a variety of hostile, mobile and other environments where ongoing human monitoring would be impossible or too expensive. For example, monitors can be installed under or on the skin of people so that medical data, such as heart rate, blood pressure and glucose levels, can be transmitted on an ongoing basis. So long at the reported data does not fall above or below a prescribed level the receiving computer would collect the data and do nothing more with it. However should the reported data exceed set parameters the computer could have programmed instructions to issue and alert triggering human intervention. Device miniaturization, wider and cheaper Internet access and drastic drops in the cost of data storage make it possible for computer and network intelligence to become part of new networks serving households and businesses. Significant operating efficiency gains can occur, because regular monitoring can occur automatically and frequently without human intervention. For example, a utility company can measure power demand on an immediate, “real time” basis, rather than send meter readers to make monthly on-site visits to each subscriber. With immediate power demand information, utility management and programmed computers can use price changes to stimulate or retard demand and better avoid outages. 2 Michael Chui, Markus Löffler, and Roger Roberts, McKinsey Quarterly (March, 2010); available at: http://www.mckinseyquarterly.com/The_Internet_of_Things_2538. 131 132 source: Beecham Research; available at: http://blogs.cisco.com/wp- content/uploads/beecham_research_internet_of_things.jpg. For more information see: Internet of Things Europe, Web site; available at: http://www.internet-of-things.eu/; Dave Evans, The Internet of Things How the Next Evolution of the Internet Is Changing Everything (April, 2011); available at: http://www.cisco.com/web/about/ac79/docs/innov/IoT_IBSG_0411FINAL.pdf; Keller Easterling, An Internet of Things, e-flux; available at: http://www.e- flux.com/journal/an-internet-of-things/; Cisco, Internet of Things, available at: http://www.cisco.com/en/US/solutions/ns1168/internet_of_things.html; International Telecommunication Union, ITU-T Technology Watch Report 4, Ubiquitous Sensor Networks, (Feb. 2008); available at: 133 http://www.itu.int/dms_pub/itu-t/oth/23/01/T23010000040002PDFE.pdf; OECD, Machine-to-Machine Communications: Connecting Billions of Devices , OECD Digital Economy Papers, No. 192, OECD Publishing; available at: 10.1787/5k9gsh2gp043-en; Intel, Postscapes, Tracking the Internet of Things, Infographic: Intel Internet of Things; available at: http://postscapes.com/infographic-intel-internet-of-things; Joel Young, Simplifying the Internet of Things (Jan. 31, 2013); available at: http://www.youtube.com/watch?v=W_T0ZQlpoBg; Web of Things Blog site; available at: http://www.webofthings.org/. OECD , Building Blocks for Smart Networks, OECD Digital Economy Papers, No. 215, OECD Publishing; available at: 10.1787/5k4dkhvnzv35-en; Yong-Woon Kim, A standardization initiative on Sensor Networks in JTC 1 SC 6 - including Visions for Ubiquitous Sensor Network (Aug. 4, 2008); available at: http://www.itu.int/dms_pub/itu-t/oth/15/05/T15050000010005PDFE.pdf; Google Glass, Worldwide web site; available at: http://www.google.com/glass/start/. 134 New African Submarine Cables As never before, residents throughout the continent of Africa have access to high speed fiber optic cables including several submarine cables that link Africa with other transoceanic cables traversing the world. African submarine capacity divides between west and east coast systems. On the west coast the SAT-2 cable provided the first available bandwidth in 1993 followed by the SAT-3/SAFE cable in 2002. Between 2010 and 2012 four new systems began service: Glo-1 and Main One Main Street Technologies in 2010 and Africa Coast to Europe (“ACE”) and the West Africa Cable System (“WACS”) in 2012. WACS offers a 14,000 kilometer route from South Africa to Portugal and the United Kingdom with a total bit transmission speed of 5.12 Terabits per second. The ACE cable follows a serving 21 landing points in Africa. On the east coast of Africa the East Africa Marine System delivered the first fiber optic submarine cable capacity in 2009. The Seacom cable, launched in 2009, provides connectivity between the east coast of Africa onward to Europe and India. The key markets served are: Tanzania, Kenya, Uganda, Mozambique, South Africa and Rwanda. The East Africa Submarine Cable System (“EASSy”) started operations in July 2010, providing a 10,800 kilometer fiber optic pathway running from Sudan to South Africa. This $263 million project has a total capacity of 3.84 Terabits per second divided into lines currently offering up to 30 Gigabits per second transmission speed. There are nine landing stations in South Africa, Madagascar, Mozambique, Comoros Islands, Tanzania, Kenya, Somalia, Djibouti and Sudan. 135 Existing and Planned Submarine Cables in Africa 136 Number of Submarine Cables Available by African Nation source: Analysys-Mason; available at: http://www.oafrica.com/uploads/analysys-mason-submarine- cables.jpg. For background on African submarine cable projects see: Michael Kende, Terrestrial Capacity: From Cape Town to Cairo – Reality or Illusion (Aug. 23, 2012); available at: http://www.internetsociety.org/sites/default/files/images/Analysys%20Mason%20Cross- Border%20data.pdf; Mike Last, EASSy: a status report (2010); available at: http://ei-africa.eu/wp-content/plugins/alcyonis-event- agenda//files/EASSy_(the_East_African_Submarine_Cable_System)_- _Eastern_Africa_Future_Digital.pdf; Hamilton Research, Africa Bandwidth Maps; available at: http://www.africabandwidthmaps.com/?page_id=958; Aidan Baigrie, The Role Submarine Cables can play in the Interconnection of Africa's Internet, (Aug. 2012); available at: http://www.internetsociety.org/sites/default/files/images/AfPIF%20August%202012%20v3.0%2 0%28AB%2021%20Aug%2012%29.pdf; 137 Eric M. K. Osiakwan, State of Fiber Infrastructure in Africa (2012); available at: http://euroafrica-ict.org/wp-content/plugins/alcyonis-event- agenda//files/State_of_fiber_infrastructure_in_Africa.pdf. 138 Powering Remote Broadband Access Access to broadband facilities in remote areas often requires consideration on how to install and maintain other necessary infrastructure such as a reliable source of electrical power. A major challenge to rural connectivity lies in the lack of a “last mile” infrastructure providing a link to a regional or national backbone network. Telecenters and broadband kiosks may not have a direct link to the power grid and therefore must have a sustainable, self-contained direct source. Power options include rechargeable batteries, solar power, diesel/gas generators, micro- hydroelectric dams and small windmills. Solar-powered charging station at the Jokko Telecenter, Senegal. Source: Joko Initiative Blog site (October 12, 2010); available at: http://jokkoinitiative.blogspot.com/2010/10/soon-to-be-implemented-in-south-senegal.html. For background on rural power generation options see: Dean L. Mulozi, Rural Access: Options and Challenges for Connectivity and Energy in Zambia, International Institute for Communication and Development, Zambia Association for Advancement of Information and Communication Technology (Jan. 2008); available at: http://www.iicd.org/files/Zambia-Rural-Access-Report.pdf; 139 Barbara Fillip and Dennis Foote, Making the Connection: Scaling Telecenters for Development, Chapter 6: Identifying Appropriate Technologies, 6.2. Technology Packages, Academy for Educational Development (March, 2007); available at: http://connection.aed.org/main.htm; Rio Tapajós (Brazil) Telecenter Installation Project Web site; available at: http://endruralpoverty.org/what-we-do/projects/pastprojects/brazil-telecenter-project-; SolarCubed and the Solar-Computer-Lab-in-a-Box, Blog entry at ICT4D Views from the Field (June 24, 2012); available at: http://ict4dviewsfromthefield.wordpress.com/2012/06/24/introducing-solarcubed-and-the-solar- computer-lab-in-a-box/; PISCES Project Provides Solar Powered Wifi to Remote Islands, Blog entry at ICT4D Views from the Field (August 4, 2012); available at: http://ict4dviewsfromthefield.wordpress.com/2012/08/04/pisces-project-provides-solar-powered- wifi-to-remote-islands/. Satellite Backhaul Satellites provide broadband network access to and from local distribution facilities located in the most remote areas as well as locations where topography restricts connection to backbone networks and when emergency telecommunications is needed. The satellite option typically triggers high operating costs with comparatively slower transmission speeds and problems with latency, transmission delays due to the length of time it takes to transmit and receive signals to and from satellite operating as far as 22,300 miles from earth. Despite their limitations satellites may provide the only viable means for users in the remote locations to access the Internet cloud. Best practices in satellite backhaul address how to build and maintain facilities in a timely and efficient manner, taking into consideration particular site requirements such as the need for a reliable power source where no installed grid access option exists. Recent developments in satellite backhaul include the installation of smaller sized satellite dishes that operate in the 20-30 GigaHertz, Ka-band. These “[s]atellites can use more spot beams. Rather than broadcast the same signal across their whole footprint, the satellites can reuse the spectrum many times over because they have been fitted with a number of small spot beam antennas for specific geographic coverage. The same spectrum can be reused in every second spot beam. This greatly increases the overall system capacity and total throughput available.” 3 3 Interview with Richard Deasington, iDirect, on the changing face of satellite backhaul for small cells (Feb. 13, 2013); available at: http://www.thinksmallcell.com/Femtocell- 140 “The second major advance has been the change from using dedicated bandwidth to packet switched architecture. - The older fixed capacity allocation method [Single Channel per Carrier] left bandwidth unused, wasting system capacity that could have been used elsewhere. Allocating bandwidth on demand means that statistical multiplexing gains can increase total system capacity by anything from 30 to 80%. - Rather than pay for a fixed bandwidth link, regardless of how much of it is being used, satellite operators can be more creative in their tariff plans, and for example, they can charge on usage rather than on a fixed capacity basis. - For small cells, where there are potentially thousands of sites to be connected, it doesn't make economic sense to use dedicated bandwidth, so solutions that can centrally manage bandwidth will be used.” 4 For background on satellite backhaul see: Asia-Pacific Satellite Communications Council, Newsletter, Second Quarter 2012; available at: http://www.apscc.or.kr/upload/pdf/Q2%202012.pdf; Comtech EF Data Corporation, Challenges & Opportunities for 3G Backhaul over Satellite (May 2011); available at: http://www.comtechefdata.com/files/articles_papers/WP-Challenges- Opportunities-for-3G-Backhaul-over-Satellite.pdf; Julian Bright and Dimitris Mavrakis, Satellite backhaul for rural small cells (2012); available at: http://www.informatandm.com/wp-content/uploads/2012/04/iDirect-White-Paper_online.pdf. Interview/interview-with-richard-deasington-idirect-on-the-changing-face-of-satellite-backhaul- for-small-cells.html. 4 Id. 141 Types of 4G Wireless Service The latest generation of wireless networking offers the promise of bit transmission speeds that rival what wired terrestrial systems can offer. So-called 4G networks represent the fourth major technological change in wireless networking with dedicated bandwidth for data services and transmission formats conducive to very fast broadband service. The preceding generations did not offer networks optimized for data services and accordingly offered significantly slower transmission speeds. 1G service offered analog voice services and no data. 2G services offered a digital transmission format, but no special accommodation for data services. In the third generation, wireless carriers retrofitted their voice networks to handle data services, but the bit transmission rate rarely exceeded 200-400 kilobits per second. While the 4G networks currently in operations do not fully comply with the transmission speeds identified in international standards, these networks, providing Long Term Evolution (“LTE”) regularly offer speeds between 5 and 12 megabits per second (“Mbps”). The International Telecommunication Union official standard for 4G, the International Mobile Telecommunications Advanced (IMT-Advanced) specification, establishes a peak transmission speed standard for 4G service at 100 Mbps for high mobility communication (such as from trains and cars) and 1 gigabit per second (“Gbps”) for low mobility communication (such as pedestrians and stationary users). The IMT-Advanced 4G specification establishes a number of operating standards including the use of Internet Protocol, packet switching instead of formats primarily suited for voice communications. Networks must efficiently use available bandwidth both in terms of supporting shared use of the same channel by multiple users and the ability to scale up the use of allocated bandwidth as demand grows. Carriers use Orthogonal Frequency-Division Multiple Access (“OFDMA”) technology that divides available bandwidth into many channels and also multiplexes data streams into multiple pieces, each of which is modulated onto a separate carrier which are later combined. Another spectrum efficiency requirement imposes a minimum rate of how many bits can be transmitted per channel and by each individual transmission cell. The standard also requires that all network operators can handle the traffic of other carriers thereby eliminating format incompatibility as exists between 3G networks that operate on the same spectrum, but use different transmission formats, e.g., Time Division Multiple Access versus Code Division Multiple Access. 4G carriers also have to provide subscribers with the ability to transmit and receive data that represents full motion video and high fidelity sound. It appears that the LTE format for 4G service has become the consensus standard in light of the decision by many carriers to purchase and install 4G equipment. Previous a significant number of formats competed for adoption including: High Speed Packet Access, Wi-MAX, WCDMA, Edge and EV-DO. 142 For background on 4G wireless service, see: Priya Ganapati , Wired Explains: Everything You Need to Know About 4G Wireless (June 4, 2010); available at: http://www.wired.com/gadgetlab/2010/06/wired-explains-4g/; 4G Trends web site, available at: http://www.4gtrends.com/; infoDEV, IC4D 2012: Maximizing Mobile (2012); available at: http://www.infodev.org/en/Publication.1179.html; ITU/BDT Arab Regional Workshop on “4G Wireless Systems,” Tunis-Tunisia, 27-29 (January 2010); available at: http://www.itu.int/ITU-D/arb/COE/2010/4G/ListofDocs-Tn.doc; Sungho Jo, LTE and Network Evolution (July, 2011); available at: http://www.itu.int/dms_pub/itu-t/oth/06/4D/T064D0000020072PDFE.pdf. 143 Ultra High Definition Television The next generation of high definition television sets will have even more resolution than currently available. Video screen resolution is measured in terms of the number of columns and lines as well as the total number of pixels, the smallest unit of video display. The current best standard for high definition television combines 1920 vertical columns with 1080 horizontal lines. Multiplying the number of columns by lines identifies the total number of pixels displayed. Ultra high definition television doubles or quadruples the number of columns and lines. So-called 4K Ultra High Definition contains 2160 lines of resolution and 8K 4320 lines. Ultra high definition video resolution will make it possible for television manufacturers to offer larger sets with screens exceeding 84 inches as measured diagonally. Ultra High Definition video will likely generate even greater consumer demand for faster broadband transmission speeds to accommodate the increased amount of content delivered per video frame. Terrestrial broadcasters and cable operators can repurpose some bandwidth by eliminating analog transmissions. However, Internet Service Providers, as operators of a fully digital medium, will have no ability to repurpose bandwidth to accommodate rising demand. For more information on ultra high definition television see: James Rivington , Ultra HD and 4K: Everything you need to know, techradar AV (June 4, 2013); available at: http://www.techradar.com/us/news/home-cinema/high-definition/ultra-hd- everything-you-need-to-know-about-4k-tv-1048954; Ty Pendlebury, What is 4K? Next-generation resolution explained, Cnet (Jan. 23, 2012); available at: http://reviews.cnet.com/8301-33199_7-57364224-221/what-is-4k-next-generation- resolution-explained/; Ultra HDTV: What is Ultra High Definition?, Ultra HDTV magazine; available at: http://www.ultrahdtv.net/what-is-ultra-hdtv/. 144 Ultra Wideband Networks Next generation network options use even higher spectrum to satisfy the ever increasing demand for wireless broadband service. So called Ultra Wideband (“UWB”) networks provide very high speed bit transmission using a wide range of extremely high frequencies, at or above the 2.4 GHz band currently used for Wi-Fi service. UWB transfers large amounts of data wirelessly over short distances, typically less than ten meters. Unlike other wireless systems, which are limited to relative narrow allocation of spectrum, UWB operates by transmitting signals over a very wide range of spectrum, but at very low power. UWB networks can satisfy individual short broadband requirements and provide a wireless alternative to possibly inconvenient wire-based services. So-called Personal Area Networks will provide broadband connectivity like that currently served by Bluetooth applications that can link mobile phones, portable computers, cars, stereo headsets, and MP3 players with sources of content. The low power and short range of these technologies supports unlicensed use. In light the proliferation of sensors, which typically need to transmit over very short distances, UWB technologies can power an Internet of Things. UWB can avoid causing interference with current narrowband and wideband radio services and between unlicensed users. It can operate in hostile environments and has been miniaturized so that it can be embedded in chip sets attached to other devices. 145 An Internet of Overlapping Networks source: ERCIM News; available at: http://www.ercim.eu/publication/Ercim_News/enw64/hirt.html. For more information on Ultra Wideband Networks see: Radio Electronics.com, Ultra wide band (UWB) development and applications; available at: http://www.webcitation.org/66KYowUce; Track IT Systems, UWB, available at: http://www.thetrackit.com/library/UWB%20Defin.pdf; Asia Pacific Telecommunity, Ultra Wide Band (UWB), No. APT/AWG/REP-01(Rev.1) ( September 2012); available at: http://www.apt.int/AWF-RECREP; Philippe Tristant, Ultra Wide Band (UWB) and Short-Range Devices (SRD) technologies (2009); available at: http://www.itu.int/md/R09-SEM.WMO-C-0021/en; Australian Communications Authority, Ultra Wideband (UWB) A Background Brief (May, 2003); available at: http://www.acma.gov.au/webwr/radcomm/frequency_planning/spps/0307spp.pdf; 146 New Zealand Ministry of Economic Development, Spectrum Allocations for Ultra Wide Band Communication Devices, A Discussion Paper (April 2008); available at: http://www.rsm.govt.nz/cms/pdf-library/policy-and-planning/radio-spectrum/spectrum- allocations-for-ultra-wide-band-communication-devices/ultra-wide-band-commnunication- devices-discussion-paper-232-kb-pdf. 147 White Spaces Explained White spaces refer to radio spectrum allocated for a specific use, but available for other uses in many locations where such secondary uses will not cause interference to the primary, authorized users. Historically the International Telecommunication Union on an international, multilateral basis and individual nations on a domestic basis typically allocate spectrum for a single, specific use. This results in many instances where no primary spectrum user operates, but administrative rules prevent other uses. Put another way concerns about the potential for interference have motivated spectrum allocation decisions that result in inefficient use, because significant amounts of bandwidth remain unused even though many uses can occur without causing harmful interference. For example, most nations have allocated a large amount of spectrum for radio and television stations, typically on an exclusive basis. Such exclusivity ensures that the broadcast signal encounters no interference, but there are many locations where spectrum use of broadcaster assigned frequencies have no potential to interfere with actual broadcast transmissions. White spaces refers to the geographic areas where there exists no potential for interference, because actual users are located at great distances away and in some instances there may be no actual users whatsoever. The broadcast television band constitutes a likely candidate for identifying white spaces, because national regulatory authorities created a very large frequency band for this service and often substantial distances separate actual users of any specific broadcast channel. “White spaces exist primarily because analog television receivers were highly susceptible to interference, requiring the FCC to create frequency ‘guard bands’ between television channels in order to prevent interference. For example, in a given viewing market, if channel 9 is licensed, channel 8 and 10 will be vacant, as will channel 9 in any neighboring viewing market.” 5 With the conversion from analog to digital television broadcasting in many locations the amount of white spaces increases significantly. Some nations have identified spectrum for reallocation to other services such as wireless broadband. In some instance nations auction the newly available spectrum and accrue a substantial monetary infusion into the national treasury, a so-called Digital Dividend. Even for nations reallocating some of the freed up spectrum, the expanded availability of white spaces has resulted in changes in policies allowing non-interfering uses. 5 Sascha D. Meinrath and Michael Calabrese, “White Space Devices” and the Myths of Harmful Interference, 11 LEGISLATION AND PUBLIC POLICY, 495, 497 (2008). 148 White Spaces Interference Avoidance The opportunity to use white spaces for broadband access depends on the ability of secondary users to apply techniques that ensure the ability of primary users to continue operating without interference. For broadcast television white spaces this means that even unlicensed broadband applications must use sophisticated techniques that can sense other uses and change frequencies to avoid causing interference. Technologies such as software-defined and cognitive radio offer such frequency agility. They have sensing capabilities that can identify frequencies where TV channels exist and can find and quickly move transmissions to open spectrum. This means that instead of simply tuning into a specific frequency, white spaces devices must have built in intelligence for detecting other spectrum users and quickly finding other frequencies on which to operate. In addition to using receivers to sense whether a specific frequency has an existing user, white space devices can interrogate data bases that map and identify preexisting registered uses for specific locations. In light of inexpensive access to the very accurate Global Positioning Satellite service, white spaces transmitters can employ geo-location procedures to assess the interference potential before operating. Additionally white spaces devices can operate at very low power to provide location specific broadband access in much the same way as Wi-Fi operates. With low power Wi-Fi devices can reduce interference even for other users in close proximity. Also Wi-Fi devices can change channels once interference is sensed. In addition to operating at low power and having the ability to change transmitting frequencies, white spaces devices have sensing capabilities that trigger a change in frequency to avoid causing interference in the first place. For more background on white spaces interference avoidance techniques see: LS Research, Understanding TV White Spaces (Feb. 1, 2011): available at: http://www.lsr.com/news/understanding-tv-white-spaces; Maziar Nekove, A Survey of Cognitive Radio Access to TV White Spaces, International Journal of Digital Multimedia Broadcasting, (2010); available at: http://www.hindawi.com/journals/ijdmb/2010/236568/; Michael Fitch, Maziar Nekovee, Santosh Kawade, Keith Briggs, and Richard MacKenzie, Wireless Service Provision in TV White Space with Cognitive Radio Technology: A Telecom Operator’s Perspective and Experience, IEEE Communications Magazine, 64-73 (March 2011). 149 White Spaces Test and Demonstration Project source: Google Africa Blog, Announcing a new TV White Spaces trial in South Africa (March 25, 2013); available at: http://google-africa.blogspot.co.uk/2013/03/announcing-new-tv-white-spaces-trial-in.html. For background on how nations have allowed the use of white spaces see: Openspectrum.eu, White Space Devices; available at: http://www.openspectrum.eu/drupal6/node/23; Lei Shi, Availability Assessment for Secondary Access in TV White Space (2012); available at: http://urn.kb.se/resolve?urn=urn:nbn:se:kth:diva-104420; Digital Terrestrial Television Action Group, Using Spectrum ‘White Spaces’ in Europe (Nov. 2012); available at: http://www.digitag.org/WebLetters/2012/External-Nov2012.html; White Spaces Ireland, Innovation Through Action available at: http://whitespacesireland.wordpress.com/white-space-ireland/; COgnitive radio systems for efficient sharing of TV white spaces in EUropean context, European TV White Spaces Analysis and COGEU use-cases (2010); available at: http://www.ict- cogeu.eu/pdf/COGEU_D2_1%20(ICT_248560).pdf; 150 Albert Domingo, Boris Bellalta and Miquel Oliver, White Spaces in UHF band: Catalonia case study and impact of the Digital Dividend; available at: http://www.dtic.upf.edu/~bbellalt/TVWhiteSpaces_Catalonia.pdf; Fiona Graham, TV's white spaces connecting rural Africa, BBC News, Business (Feb. 13, 2013); available at: http://www.bbc.co.uk/news/business-21298008; ArsTechnica, Solar power, white spaces bring 16Mbps broadband to towns without electricity (March 26, 20130: available at: http://arstechnica.com/information-technology/2013/03/solar- power-and-white-spaces-bring-internet-to-towns-without-electricity/; Tertiary Education and Research Network of South Africa, The Cape Town TV White Spaces Trial web site; available at: http://www.tenet.ac.za/about-us/the-cape-town-tv-white-spaces-trial. Michael Calabrese, Some Spectrum Basics (May 3, 2012); available at: http://wirelessfuture.newamerica.net/sites/newamerica.net/files/profiles/attachments/Calabrese_ ColumbiaACCESSconf_Slides_Spectrum101_050312.pdf; United States Federal Communications Commission, White Space web site; available at: http://www.fcc.gov/topic/white-space; Spectrum Bridge, TV White Spaces Powering Smart City Services - The First Database Driven TV White Spaces “Smart City;” available at: http://www.spectrumbridge.com/ProductsServices/WhiteSpacesSolutions/success- stories/wilmington.aspx. 151 Wireless Device Tethering Tethering refers to the ability to link two devices so that they can share a function such as wireless access to the Internet. Cellphone users might want to use personal computers and tablets for accessing the Internet instead of their phones which may not have a sufficiently large screen or the capability of accessing the World Wide Web. Some personal computers and tablets can achieve direct wireless access using installed electronics or with the insertion of a dongle into an interface such as a Universal Service Bus (“USB”) jack. Devices lacking direct access capability can tether to a cellphone for indirect access. Currently many areas in the world have cellular radio access, but lack a local broadband access options such as Wi-Fi. For locations one can tether a personal computer or tablet to the cellphone thereby securing the Internet access available via the cellphone. Note that the cellphone must have software supporting tethering and the wireless carrier may impose a surcharge for this feature, or prohibit the option. Example of a Dongle Providing Wireless Access to a Peronal Computer or Tablet source: Pete’s Tech Ramblings, The $50 wireless tethering solution (May 9, 2009); available at: http://petetek.blogspot.com/2009/05/50-wireless-tethering-solution.html. 152 Cellphone Tethering source: Toolbox.com, Cell Phone Tethering: Secure or just another hole in the wall? (July 29, 2009); available at: http://it.toolbox.com/blogs/adventuresinsecurity/cell-phone-tethering-secure-or-just-another-hole-in-the- wall-33152. 153 Creating Your Own Mobile Wi-Fi Hotspot In areas where Wi-Fi broadband access does not exist, subscribers to a broadband service can create a limited, short range alternative. So called mobile Wi-Fi hotspots use a portable wireless router to provide shared access to a broadband service such as 4G wireless data. This small, battery powered device offers a portable hotspot that taps into wireless data services, just like a smartphone does, and then wirelessly shares its data connection with other nearby Wi-Fi- enabled devices such as a personal computer or handset. Several users can share the single Wi- Fi connection and encryption techniques provide a password authentication process to prevent unauthorized access. A Portable Mobile Wi-Fi Hotspot Router source: The Cool Gadgets, MiFi 4510L: Novatel Wireless Mobile Hotspot – Introduced For Verizon Wireless Network; available at: http://thecoolgadgets.com/mifi-4510l-novatel-wireless-mobile-hotspot-introduced-for- verizon-wireless-network/. 154 Wireless Mesh Networking Wireless mesh networks provide broadband access through the coordination and interconnection of nodes that have can receive and retransmit traffic. In much the same way as the Internet provides a managed, “best efforts” routing of traffic, the software configured management of nodes achieves the same “dynamic routing” based on intelligent selection of which node can help move traffic to the final destination or closer to that destination. Wireless mesh networking requires at least one broadband connection to the Internet, e.g., a cable modem or DSL link. Access to that links can be shared over many geographically separated users who can secure a link to the broadband connection via one or more intermediary nodes. The geographical range of the mesh network extends with increases in the number of installed nodes. Wireless mesh networking can provide a low cost way to extend the reach of a broadband connection. However its open and shared networking characteristics does create security risks, particularly when nodes are installed in a variety of locations not under the control of a single manager. Nevertheless wireless mesh networks can offer a quickly installed and inexpensive way to share broadband access, particularly on an unlicensed and noncommercial basis. Wireless Mesh Networking Internet Access via Many Nodes a Few Gateways source: Wireless Networking in the Developing World, Mesh networking; available at: http://www.booki.cc/wireless-networking-in-the-developing-world/mesh-networking/. 155 For more information on mesh networking see: Ben DuPont, Wireless Mesh Networks: An Introduction; InformationWeek Analytics; available at: http://reports.informationweek.com/abstract/20/7396/Network-Systems- Management/fundamentals-wireless-mesh-networks.html; Samir R. Das, Wireless Mesh Networking; available at: http://www.ieee.li/pdf/viewgraphs/wireless_mesh_networking.pdf; Emergent by Design; 16+ Projects & Initiatives Building Ad-Hoc Wireless Mesh Networks (Feb. 11, 2011); available at: http://emergentbydesign.com/2011/02/11/16-projects-initiatives- building-ad-hoc-wireless-mesh-networks/; David Johnson, Karel Matthee, Dare Sokoya, Lawrence Mboweni, Ajay Makan, and Henk Kotze, Wireless Africa, Meraka Institute, Building a Rural Wireless Mesh Network A do-it-yourself guide to planning and building a Freifunk based mesh network (Oct. 30, 2007); available at: http://emergentbydesign.com/2011/02/11/16-projects-initiatives-building-ad-hoc- wireless-mesh-networks/; Lee M.S. Bash, Christophe Jelger and Christian Tschudin, A case study in designing an autonomic wireless mesh network (2007); available at: http://cn.cs.unibas.ch/pub/doc/2007- adhoc.pdf; Andreas J. Kassler, ICTP-ITU/BDT School on Sustainable Wireless ICT Solutions 2012 Introduction to Wireless Mesh Networks (2012); available at: http://wireless.ictp.it/wp- content/uploads/2012/02/school_Triestse_2012_Intro_v1.pdf. 156 ENDNOTES 1 For background on the history of Internet development see Barry M. Leiner, Vinton G. Cerf, David D. Clark, Robert E. Kahn, Leonard Kleinrock, Daniel C. Lynch, Jon Postel, Larry G. Roberts and Stephen Wolff, Internet Society, A Brief History of the Internet (2003); available at: http://www.isoc.org/internet/history/brief.shtml. 2 “The World Wide Web (known as "WWW', "Web" or "W3") is the universe of network- accessible information, the embodiment of human knowledge. The World Wide Web began as a networked information project at CERN, where Tim Berners-Lee, now Director of the World Wide Web Consortium [W3C], developed a vision of the project. The Web has a body of software, and a set of protocols and conventions. Through the use hypertext and multimedia techniques, the web is easy for anyone to roam, browse, and contribute to.” World Wide Web Consortium, About The World Wide Web available at: http://www.w3.org/WWW/. 3 The Internet is a vast network of individual computers and computer networks that communicate with each other using the same communications language, Transmission Control Protocol/Internet Protocol (TCP/IP). The Internet consists of approximately more than 100 million computers around the world using TCP/IP protocols. Along with the development of TCP/IP, the open network architecture of the Internet has the following characteristics or parameters: 1. Each distinct network stands on its own with its own specific environment and user requirements, notwithstanding the use of TCP/IP to connect to other parts of the Internet. Communications are not directed in a unilateral fashion. Rather, communications are routed throughout the Internet on a best efforts basis in which some packets of information may go through one series of computer networks and other packets of information go through a different permutation or combination of computer networks, with all of these information packets eventually arriving at their intended destination. 2. Black boxes, for lack of a better term, connect the various networks; these boxes are called ‘gateways’ and ‘routers.’ The gateways and routers do not retain information but merely provide access and flow for the packets being transmitted. There is no global control of the Internet.” Konrad L. Trope, Voice Over Internet Protocol: The Revolution in America’s Telecommunications Infrastructure, 22 COMPUTER AND INTERNET LAW, No.12, 1,4 (Dec. 2005). 4 See Communications Assistance for Law Enforcement Act and Broadband Access and Services, 19 F.C.C.R. 15676 n.181 ( 2004). See also Joshua L. Mindel & Douglas C. Sicker, Leveraging the EU Regulatory Framework to Improve a Layered Policy Model for US Telecommunications Markets, 30 TELECOMMUNICATIONS POLICY, 136, 137 (2006); Douglas C. Sicker & Lisa Blumensaadt, Misunderstanding the Layered Model(s), 4 JOURNAL ON TELECOMMUNICATIONS AND HIGH TECHNOLOGY LAW, 299 (2006); David P. Reed, Critiquing the Layered Regulatory Model, 4 JOURNAL ON TELECOMMUNICATIONS AND 157 HIGH TECHNOLOGY LAW, 281 (2006); Lawrence B. Solum & Minn Chung, The Layers Principle: Internet Architecture and the Law, 79 NOTRE DAME LAW REV. 815 (2004); Richard S. Whitt, A Horizontal Leap Forward: Formulating a New Communications Public Policy Framework Based on the Network Layers Model, 56 FEDERAL COMMUNICATIONS LAW JOURNAL 587 (2004). 5 “The idea of a computer network intended to allow general communication between users of various computers has developed through a large number of stages. The melting pot of developments brought together the network of networks that we know as the Internet.” Wikipedia, History of the Internet; available at: http://en.wikipedia.org/wiki/History_of_the_Internet. 6 The Internet cloud refers to the vast array of interconnected networks that make up the Internet and provide users with seamless connectivity to these networks and the content available via these networks. “The increasing functionality of the Internet is decreasing the role of the personal computer. This shift is being led by the growth of “cloud computing”--the ability to run applications and store data on a service provider's computers over the Internet, rather than on a person's desktop computer.” William Jeremy Robison, Free at What Cost?: Cloud Computing Privacy Under The Stored Communications Act, 98 GEORGETOWN LAW JOURNAL 1195, 1199 (April, 2010). 7 See Government of Finland, Ministry of Transport and Communications, Press release, Access to a minimum of 1 Mbit Internet connection available to everyone in Finland by July 2010 Oct. 16, 2009); available at: http://www.lvm.fi/web/en/pressreleases/view/920100. 8 For background on how peering developed see Scott Marcus, Global Traffic Exchange among Internet Service Providers, OECD Briefing (2001); available at: http://www.oecd.org/dataoecd/45/9/1894955.pdf; William B. Norton, Interconnection Strategies for ISPs, Document v.2.0; available at: http://pharos.equinix.com/pdf/whitepapers/ISPInterconnectionStrategies2.pdf; Joe Waz, Comcast Voices, How Internet Peering Works, available at: http://www.youtube.com/watch?v=sKBGDocS_Yg; William B Norton, Peering Tutorial, presented at the APRICOT 2012 Peering Forum, New Delhi, India (Jan 28, 2012); available at: http://www.apricot.net/apricot2012/__data/assets/pdf_file/0010/45586/peering-tutorial.pdf; Anna-Maria Kovacs, Internet Peering and Transit (April 4, 2012); available at: http://www.techpolicyinstitute.org/files/amkinternetpeeringandtransit.pdf 9 The first and last kilometer refers to the link, of any length, provided by a retail ISP to subscribers so they can download and receive content from the Internet cloud and also upload and content and instructions. 10 For a list of the global ISPs, see The Cooperative Association for Internet Data Analysis, Ranking of Autonomous Systems (AS); available at: http://as-rank.caida.org/; Russ Haynal's ISP 158 Page, Major Internet Backbone MAPs, available at: http://navigators.com/isp.html. 11 See OECD, Smart Sensor Networks: Technologies and Applications for Green Growth, OECD Digital Economy Papers, No. 167, OECD Publishing (2009); available at: http://dx.doi.org/10.1787/5kml6x0m5vkh-en; The Internet of Things Council, World Wide Web Page, http://www.theinternetofthings.eu/; Eric Savitz, How The Internet Of Things Will Change Almost Everything, Forbes (Dec. 17, 2012); available at: http://www.forbes.com/sites/ciocentral/2012/12/17/how-the-internet-of-things-will-change- almost-everything/. 12 For an assessment of what Next Generation Networks will offer and how they will operate see OECD, Next Generation Access Networks and Market Structure, OECD Digital Economy Papers, No. 183, OECD Publishing (2011); available at: http://dx.doi.org/10.1787/5kg9qgnr866g-en. 13 “The amount of spectrum in the VHF and UHF bands that is above that nominally required to accommodate existing analogue programmes, and that might be thus potentially freed up in the switchover from analogue to digital television, is defined as the digital dividend.” International Telecommunication Union, ITU News, The Digital Dividend Opportunities and Challenges (Jan.-Feb. 2010); available at: http://www.itu.int/net/itunews/issues/2010/01/27.aspx; See also, Government of Australia, Department of Broadband, Communications and the Digital Economy, Digital Dividend; available at: http://www.dbcde.gov.au/radio/radiofrequency_spectrum/digital_dividend; International Telecommunication Union, Telecommunications Development Sector, Digital Dividend: Insights for Spectrum Decisions (Aug. 2012); available at: http://www.itu.int/ITU- D/tech/digital_broadcasting/Reports/DigitalDividend.pdf. 14 See The World Bank, infoDev, ICT Regulation Toolkit, Practice Note, Refarming of Spectrum Resources; available at: http://www.ictregulationtoolkit.org/en/PracticeNote.aspx?id=2320. 15 “Television stations often operate on the same or adjacent channels. However, to avoid interference between each other, television stations are often operated in geographically separate areas. Further, there are areas of the country where, because of population density, not all television channels are utilized. This unused spectrum between TV stations -- called white spaces -- represents a valuable opportunity for our changing wireless mobile landscape. This block of spectrum is ripe for innovation and experimental use, holding rich potential for expanding broadband capacity and improving access for many users, and for developing technologies that can expand this type of spectrum access to other frequencies and services in order to greatly increase our ability to utilize spectrum.” Government of the United States of America, Federal Communications Commission, White Space, http://www.fcc.gov/topic/white- space; Open Spectrum Alliance, Television White Spaces Spectrum in Africa Workshop, World Wide Web site; available at: http://www.openspectrum.org.za/schedule/; Government of the 159 United Kingdom, Ofcom, TV White Spaces; available at: http://stakeholders.ofcom.org.uk/consultations/whitespaces/; Dr Joe Butler, Technology Director for Radio Spectrum Policy, Ofcom, TV White Space Devices ...and beyond! (Oct. 2011); available at: http://www.oecd.org/sti/broadbandandtelecom/49435354.pdf. 16 For background on unlicensed spectrum management issues and the problem of excessive and inefficient use, see Phil Weiser and Dale Hatfield, Policing the Spectrum Commons, 74 FORDHAM LAW REVIEW 663 (2005); available at: http://ir.lawnet.fordham.edu/cgi/viewcontent.cgi?article=4111&context=flr; Philip J. Weiser & Dale Hatfield, Spectrum Policy Reform and the Next Frontier of Property Rights, 15 GEORGE MASON LAW REVIEW, 549 (2008); Kevin Werbach, Supercommons: Toward a Unified Theory of Wireless Communication, 82 TEXAS LAW REVIEW 863 (2004); Thomas W. Hazlett, Spectrum Tragedies, 22 YALE JOURNAL ON REGULATION 242 (2005). 17 Microwave refers to the extremely small size of the transmitted waveform. 18 “Currently, agreements for the exchange of Internet traffic are unregulated and left solely to commercial negotiation between Internet backbone providers. Agreements for the exchange of traffic between operators are called ‘peering agreements’ and depending on the balance of traffic, it may be either free or paid. Other arrangements provide that one network will carry traffic without exchanging traffic on that network link. This will involve payment, and such service is called ‘transit.’” Daniel L. Brenner and Winston Maxwell, The Network Neutrality and the Netflix Dispute: Upcoming Challenges for Content Providers in Europe and the United States, 23 INTELLECTUAL PROPERTY AND TECHNOLOGY LAW JOURNAL 3,5 (March 2011). 19 For background on the Internet Exchange market and policy challenges, see Dennis Weller and Bill Woodcock, Internet Traffic Exchange, Market Developments and Policy Challenges OECD Digital Economy Papers, No. 207, OECD Publishing (2012); available at: http://dx.doi.org/10.1787/5k918gpt130q-en. 20 For example, the Exede service available in the United States offers 12 Mbps downloads and 3 Mbps uploads for $50-100 USD monthly depending on the amount of capacity used (10-25 Gigabyte tiers). See http://www.exede.com/internet-packages-pricing. 21 For example the distinction between services to fixed and mobile users has become blurred by the convergence of previously discrete and mutually exclusive services. See, e.g., OECD, Fixed and Mobile Networks: Substitution, Complementarity and Convergence, Digital Economy Papers, No. 206, OECD Publishing (2012); available at: http://dx.doi.org/10.1787/5k91d4jwzg7b-en. 22 For background on rural broadband backbone networks, see Seán Ó Siochrú, Rural Broadband Backbone: A case study of different approaches and potential; available at: http://www.apc.org/en/system/files/APCProPoorKit_PolicyAndRegulation_CaseStudyRural_EN 160 .pdf; Eric Blantz and Bruce Baikie, Case Study: The Haiti Rural Broadband Initiative Toward a New Model for Broadband Access in Haiti and Beyond (2012); https://www.usenix.org/conference/nsdr12/case-study-haiti-rural-broadband-initiative; Bruce Baikie, Innovative approach for rural broadband delivery Haiti Rural Broadband Initiative (2012); available at: http://www.canto.org/canto2012/index.php/en/presentations/45- presentations-monday-23th-of-july. 23 “So, as we start seeing digital divides closing around Internet access and mobile phone ownership, a new broadband divide is growing. This is already – and will continuingly – require a strategic response which, if not led, must at the least be coordinated by government. As and where this happens, the development results will be impressive. Broadband uptake is associated at the macro level with growth in indicators such as employment and GDP, and at the micro level there are many new employment- and productivity-enhancing opportunities.” Richard Heeks, The ICT4D 2.0 Manifesto: Where Next for ICTs and International Development, Development Informatics Group, Institute for Development Policy and Management, University of Manchester, OECD Development Informatics Working Paper Series No. 42, p.7 (2009), available at: http://www.oecd.org/ict/4d/43602651.pdf. 24 Ghana Internet eXxchange Association, World Wide Web site; available at: http://www.gixa.org.gh/. 25 See Edwin San Roman, “Bringing Broadband Access to Rural Areas: A Step‐By‐Step Approach for Regulators, Policy Makers and Universal Access Program Administrators The Experience of the Dominican Republic, paper presented at the 9th Global Symposium for Regulators (GSR); available at: http://www.itu.int/ITU- D/treg/Events/Seminars/GSR/GSR09/doc/GSR09_Backgound-paper_UAS-broadband-DR- web.pdf. 26 “A negative NPV means that the project is not profitable. To get companies to invest the rate of return of a project has to be equal or greater than what can be achieved elsewhere. This happens when the NPV is equal to zero or, in other words, when the IRR equals the discount rate. Therefore, a subsidy that makes NPV equal to zero has to be offered to make the rural project attractive for current operators and potential new entrants.” Id at 61. 27 Id. at 63. BROADBAND STRATEGIES TOOLKIT: DRIVING DEMAND FOR BROADBAND NETWORKS AND SERVICES May 2013 TABLE OF CONTENTS 6.1. INTRODUCTION 6.2. ASSESSING THE BROADBAND DEMAND GAP 6.2.1. Measuring the broadband demand gap 6.2.1.1. The fixed broadband demand gap 6.2.1.2. The mobile broadband demand gap 6.2.1.3. Demand gap and the interrelationship between fixed and mobile broadband 6.2.2. Understanding the residential broadband demand gap 6.2.2.1. The affordability barrier 6.2.2.2. Limited digital literacy 6.2.2.3. Lack of content relevance or interest 6.2.2.4. Broadband diffusion cycles and the importance of adoption structural factors 6.2.3. Understanding the enterprise broadband demand gap 6.2.3.1. The economic barrier 6.2.3.2. Limited technology training 6.2.3.3. Slow assimilation of broadband 6.2.4. Broadband demand gap diagnostic 6.3. CREATING AWARENESS 6.3.1. Developing basic digital literacy 6.3.1.1. Digital literacy through formal education programs 6.3.1.2. Targeted digital literacy programs 6.3.2. Community access centers 6.3.2.1. Types of shared or community access centers 6.3.2.2. Economics of shared public access centers 6.3.2.3. Ancillary access centers 6.3.2.4. Stand-alone public access centers 6.3.3. Advanced ICT training 6.3.4. Small and medium enterprises (SMEs) 6.3.4.1. Training for SMEs 6.3.4.2. Consulting services for SMEs 6.3.4.3. Broadband and new firm formation 6.3.5. Sponsorship structures of awareness programs 6.3.5.1. Public programs 6.3.5.2. Multilateral and public donors 6.3.5.3. Public-private associations 6.3.5.4. Private efforts 6.4. ACHIEVING AFFORDABILITY 6.4.1. Economics of broadband adoption 6.4.2. Broadband service pricing as a barrier to adoption 6.4.2.1 Cross-country comparisons of fixed and mobile broadband pricing 6.4.2.2 Broadband price elasticity 2 6.4.2.3 The effect of competition on broadband pricing 6.4.2.4 Policy initiatives aimed at reducing the cost of broadband service 6.4.3. Device ownership as a barrier to adoption 6.4.3.1 Programs to reduce the cost of purchasing Personal Computers, Laptops and Netbooks 6.4.3.2 Programs to reduce the cost of purchasing mobile devices, smartphones, and tablets 6.4.4. Taxation as a barrier to adoption 6.4.4.1 Programs aimed at reducing taxation on access devices 6.5. DEVELOPING APPLICATIONS TO DRIVE BROADBAND DEMAND 6.5.1. The multiple dimensions of content relevance 6.5.2. Network effects applications driving broadband demand 6.5.2.1. Social media platforms 6.5.2.2. Games and gamification 6.5.2.3. Mobile broadband applications 6.5.3. Broadband-enabled services with high social and welfare impact 6.5.3.1. E-Government services 6.5.3.2. E-Health services 6.5.3.3. Broadband-enabled financial services 6.5.4. Content to drive broadband demand 6.5.4.1. Local content promotion policies 6.5.4.2. Digital content promotion policies 6.6. LAUNCHING SERVICES TO DRIVE BROADBAND DEMAND 6.6.1. Internet 6.6.2. Voice 6.6.3. Video 6.6.4. Bundling 6.7. BROADBAND, FIRMS AND EMPLOYMENT 6.7.1. Broadband and job creation 6.7.1.1. Job creation through network construction 6.7.1.2. Broadband spillovers on business expansion and innovation 6.7.1.3. Broadband and employment in developing countries 6.7.2. Broadband, productivity and firm efficiency 6.7.3. Industrial sectors most impacted by broadband 6.7.4. Broadband and enterprise relocation 6.7.5. Broadband and entrepreneurship 6.7.6. Broadband as an impact on employment structure and distribution on a global scale 6.7.7. Potential negative impact of broadband on employment and management strategies 6.8. STRATEGIES TO PROMOTE BROADBAND DEMAND 6.8.1. Determining adoption targets in National Broadband Plans 6.8.2. Identifying and managing demand stimulation programs 3 6.1 INTRODUCTION Module 6 of the Broadband Strategies Toolkit focuses on the strategies for stimulating broadband demand. The debate around the digital divide has been, so far, driven by statistics based on the number of households that have a broadband connection and a computer and individuals that have a wireless broadband device, such as a smartphone. Along these lines, policy emphasis has been made, to a large degree, to increase the deployment of broadband networks. While the causality between network deployment and broadband penetration certainly exists, it is important to consider that a substantial portion of the digital divide is also explained by the demand gap, the reasons for which will be discussed in depth throughout this paper. While the supply gap measures the portion of the population of a given country that cannot access broadband because of lack of service, the demand gap focuses on the potential users that could buy broadband service (since operators offer it in their territory) but do not (see figure 6.1). Figure 6.1. Relationship between Supply and Demand Gap # of  households where BB supply is not available gap (bb)  # of # of  households households that do demand # of (aa) not subscribe BB gap households where BB is (dd)  available # of (cc) households that subscribe BB (ee) Network deployment rate: cc/aa Broadband penetration rate: ee/aa (or ee/cc Digital divide: bb+dd Tackling the demand gap is critical for policy makers. The research on the social and economic impact of broadband indicates increasing returns to scale derived from enhanced adoption. In other words, higher broadband and ICT penetration benefits the country’s population as a whole. In that sense, stimulating broadband access and usage is critical for social development, economic performance, and overall welfare. The ideal situation for a broadband market is one in which broadband is deployed and service provided by operators on a commercial basis and that can be subscribed on a voluntary basis. Because broadband is a basic element of societal infrastructure, it is desirable for operators’ business to be sound. Operators will continue to provide broadband service in the long term if they are able to achieve a proper profit under sound market mechanisms that can be achieved by government’s proper supervision. In order to achieve this win-win relationship between stakeholders of users, operators and government, an adequate amount of demand has to exist in the market. Thus it is necessary for policy-makers to enhance demand with the purpose of maintaining the win-win relationship, without distorting market competition. Also, there may be certain areas in which operators cannot make a profit and do not provide their service. 4 This creates a potential digital divide. It is necessary for policy-makers to support those areas. This module introduces readers to the benefits of higher adoption rates; it examines the progress made so far by countries in the developed and emerging worlds in stimulating broadband demand. It provides an explanation of concepts, such as a supply and demand gap, broadband price elasticity, and demand promotion. In doing so, it also explains differences between fixed and mobile broadband demand gap, introducing the notions of substitution and complementarity between both platforms. Building on these concepts, the toolkit provides a set of recommendations of best practices and potential strategies aimed at promoting broadband demand. Readers should use this module in close connection with the other modules of the Broadband Strategies Toolkit. In particular, Module 2 – Policy Approaches to promoting Broadband Development, Module 3 – Law and Regulation for a Broadband World, and Module 4 – Extending Universal Broadband Access and Use are all useful inputs to demand stimulation. For example, stimulating demand by breaking the economic barrier and offering low-priced broadband service and addressing needs of rural and isolated populations should be considered tools for stimulating demand and achieving universal adoption (covered in module 3). Similarly, references to the role of government and price regulation will be found not only in this module but also in Modules 2 – Policy Approaches to promoting Broadband Development and 3 - Law and Regulation for a Broadband World. To reiterate, the focus here is not the supply gap, but rather the obstacles for adoption on the demand side. A supply gap is found in places where broadband infrastructure is rudimentary or exhibits limited deployment. This access gap may indeed derive from regulatory policies, but can also come from a lack of interest from investors and telecom operators. Addressing this gap and identifying the common parameters behind it is critical for most national broadband strategies. It is one of the primary themes of Module 4 - Extending Universal Broadband Access and Use. On the other hand, this module focuses heavily on strategies to affect the behavior of subscribers, whether they are residential users or Small and Medium Enterprises. In this sense, it is less focused on the technological aspects (the subject of Module 5), or even on specific regulatory approaches such as network neutrality (covered in Module 3). Building on the structure of Chapter 6 of the Broadband Strategies Handbook, evidence and best practices from past projects, and ongoing work in the field of broadband demand stimulation will be described and analyzed to provide a holistic tool and guide regulators and policy-makers. In line with constantly updated information resources, the module has direct links to the sources of information. 5 6.2 ASSESSING THE BROADBAND DEMAND GAP Before implementing specific demand stimulation strategies, policy-makers must conduct a diagnostic that allows them to determine the size and sources of the demand gap. This process begins by measuring the demand gap: what percentage of the population can purchase broadband yet still do not? Once this gap is quantified, it is necessary to understand the drivers of this so called “market failure.” Is it because a portion of the population cannot afford to purchase a subscription at current prices? Or is it because they lack the necessary digital literacy that allows them to access the Internet? It could also be the case that while potential users have a computer (or comparable device), they cannot find any online content, applications, or services that would motivate them to purchase broadband service. This section explains the different concepts and provides examples of methodologies for measuring the demand gap and constructing a diagnostic of structural factors affecting adoption. It would set the stage to explaining a variety of approaches and policy solutions to meet the adoption targets. 6.2.1. Measuring the broadband demand gap: Measuring the demand gap is the first step in the development of a diagnostic that will lead to the formulation of demand stimulation policies. Given the interrelationship of fixed and mobile broadband leading to complementarity and/or substitution scenarios, this exercise is not trivial. Moreover, measuring demand gaps in the aggregate for a whole country is not necessarily a suitable approach for the development of targeted policies. Therefore, any attempt at measuring the broadband demand gap has to be conducted at a disaggregated level (county, department). This section first addresses how to measure the demand gap in fixed broadband, then moves to the mobile broadband gap, and finally discusses the interrelationship between both domains. 6.2.1.1. The fixed broadband demand gap: Demand gap is defined as the difference between either households or individuals that could have access to broadband but do not acquire the service. This is not a statistic that is being tracked by either regulators or made public by operators. In recent years, however, policy makers, driven by the need to develop national broadband strategies and plans, have in some instances been able to estimate this metric. While most countries have fairly accurate estimates of broadband subscribers, they lack a solid grasp of network coverage, defined as the proportion of the population of a given country that is “served” by broadband technology. This metric (and the supporting coverage maps) should be calculated both for fixed and mobile broadband. In the case of fixed broadband, coverage needs to be estimated in terms of the number of households that are served by broadband providers (i.e. where residents have the option to purchase service from telecommunications carriers or cable TV operators). Even this number can be sometimes difficult to estimate. For example, the development of the United States’ National Broadband Plan introduced the notion of the “underserved” household. “Underserved” means that the resident can get access to 6 broadband, but at a download speed below the target stipulated by the broadband plan (in this case, 2 Mbps). Therefore, a first level assessment should consider three categories of fixed broadband coverage: “served,” “underserved” (download speeds lower than the target), and “unserved” (no service at all). The problem with the “underserved” category is that in emerging countries, a large portion of households can gain access to service speeds much lower than those speeds stipulated in a broadband plan (for example, 256 kbps). Given the hurdle to improving the level of service to the “underserved” population, the general consensus is that, at least in emerging countries attempting to reach mass-deployment levels of broadband, this category should not be considered as part of the estimation of the broadband demand gap. Another difficulty in assessing fixed broadband coverage resides in the interpretation of operator-provided information. As the Technology Strategies Module reviews, broadband deployment, in its most basic mode, is fulfilled by introducing certain modifications to existing telecommunications and cable TV networks. In the case of telecommunications copper networks, xDSL service requires the installation of equipment at the central office, while in the case of cable TV, cable modem service requires the upgrading of its networks to bi-directional 750 MHz capacity. The implication of this situation is that a residence could have either wireline telephony or cable TV coverage, but the infrastructure is not upgraded to the point where it may have the capability of handling a subscriber’s request for service. The question of interpretation, then, is whether that residence should be considered “served” or “unserved”? It is generally accepted that, in the case of emerging countries, if the customer is served by either a telecommunications fixed network or a cable TV system, he/she should be included in the “served population” category. With these two caveats in mind, the demand gap can be calculated by using a standard coverage metric estimation. For example, table 6.1 presents data on the fixed broadband demand gap for select developed countries. Table 6.1. Developed Countries: Fixed Broadband Demand Gap (2011) Country Households Households Demand Covered Connected Gap Australia 89 % 69 % 20 % Denmark 96 % 76 % 20 % France 100 % 77 % 23 % Germany 98 % 58 % 40 % Israel 100 % 83 % 17 % Italy 95 % 55 % 40 % Korea, Rep. 100 % 93 % 7% Spain 93 % 61 % 32 % Sweden 100 % 89 % 11 % United Kingdom 100 % 68 % 32 % United States 96 % 64 % 32 % Sources: Katz and Galperin (2012) based on ITU data As shown, the broadband demand gap is not only an emerging market phenomenon. In certain developed countries (such as Germany, Spain, Italy, the United Kingdom, 7 and the United States), an important portion of households lack broadband connectivity for reasons other than service availability. In the United States, for example, 96% of households are served by cable modem technology, while 82% can acquire broadband service from the telecommunications operator. However, as indicated in the statistics of table 6.1, only 64% of households purchase service. Therefore, 32% of households could have access to broadband services, but choose not to acquire a subscription. As expected, the demand gap in this country varies by state as shown in Figure 6.2. Figure 6.2. United States: Supply and Demand Gap for States with Lowest Broadband Penetration (percent of households) 100 90 80 70 60 50 40 30 20 10 0 as as ia a o ne a a na a a a nn s ka a a ia t V pi L ky ni ic ot ot am in an om w TA ip in rg ns ns ai uc ta ex Io So ylva ol ak ak P e br a ss irg di eo TO M ab on ah ka Ka ar nt M In D D si G C Ke e M Al kl s Ar is th h ew N O es ut M h or ut N W N So Coverage Penetration Sources: FCC (table 14 of HSPD1201); US Census Bureau As figure 6.2 indicates, the broadband demand gap is larger in less-developed states. In Mississippi, for example, it is 60%, while the supply gap (non-served households) is 9%. In a more developed state such as Georgia, where service penetration is higher, the supply gap is 8%, while the demand gap is 34%. In a European country such as Germany, according to the National Broadband Strategy published in February of 2009, 98% of all households (39,700,00) can access broadband service. Of these, 37,600,000 can be served by xDSL, 22,000,000 are served by cable TV (and therefore could buy broadband via cable modem), and 730,000 can access broadband via fixed wireless or satellite. However, despite the near-complete coverage, only 58% of households have purchased broadband, signifying a demand gap of 40%. The fixed broadband demand gap is, as expected, a more serious problem in emerging countries. Table 6.2 presents statistics for coverage and demand for Latin America countries. 8 Table 6.2. Latin American Countries: Fixed Broadband Demand Gap (2011) Country Coverage Household Demand Penetration Gap Argentina 96% 39% 57% Bolivia 40% 3% 37% Brazil 94% 29% 65% Chile 78% 44% 34% Colombia 81% 27% 54% Costa Rica 95% 32% 63% Ecuador 87% 20% 67% Mexico 62% 47% 15% Peru 59% 16% 43% Average 77% 29% 48% Sources: Katz and Galperin (2012) Latin America displays an average demand gap of 48%, which means that less than half of covered households are purchasing broadband subscriptions. As table 6.2 indicates, more extensive coverage results in a higher demand gap. These metrics, typical of emerging countries, indicate that supply in Latin America does not appear to be the dominant hurdle to increasing broadband penetration. They demonstrate, rather, the criticality of demand stimulation strategies targeting either the affordability or the awareness structural factors. 6.2.1.2. The mobile broadband demand gap: Measuring the demand gap in mobile broadband presents methodological problems as in the case of fixed broadband networks. First, it is generally agreed that policy makers should consider 3G networks to be the technology benchmark when measuring mobile broadband coverage. While 3.5G, HSPA, or LTE networks are the obvious platforms to provide a relatively smooth Internet access experience, in emerging country contexts, it is advisable to measure coverage once again at a slightly lower speed, such as the one comprised by the whole WCDMA family1. Secondly, the analogue concept to the “underserved” category in fixed broadband exists in the case of mobile broadband as well: in this case, it is labeled the “gray” zones. These represent the areas covered by wireless networks affected by either capacity or signal propagation limitations. Again, while some national broadband plans have been very emphatic about measuring these zones (see Germany’s National Broadband Strategy), in the case of emerging countries, it might be convenient to set this measurement aside for the next few years. Thirdly, mobile broadband adoption needs to consider the device utilized to access the Internet. The first category of devices includes, quite naturally, all modems that can be relied upon to access the Internet from a PC, a laptop, or a netbook. These devices include dongles, USB modems, and air cards. The integrated devices such as tablets, and smartphones that provide adequate screen formats and interface to surf the web, respond to emails, and access common web platforms such as Google, 1For example, when Japan implemented its (1) New IT Reform Strategy which was set in 2006 by IT Strategic Headquarters (headed by the Prime Minister) and (2) Digital Divide Elimination Strategy which was set in 2008 by the Ministry of Internal Affairs – both of which aimed to eliminate all broadband zero areas by the end of FY2010 (March 2011), 3.5G was considered as broadband 9 YouTube, or Facebook comprise the second category. This category would exclude feature phones, which, by virtue of small screen formats and keyboards, have limited broadband access ability. Horrigan’s (2012) pioneering work on the value of mobile broadband to close the digital divide in the state of Illinois focuses on smartphone adoption. In light of these issues, how should mobile broadband coverage and adopters be measured? Beyond shipment statistics and installed base for selected operators, the number of subscribers that own an Internet suitable device connected to a 3G or higher performance network is not readily accessible. On the other hand, the number of 3G and 4G subscribers is easier to access. Therefore, it would be advisable to gather those statistics to measure the mobile broadband demand gap. Mobile broadband coverage should be measured in terms of 3G coverage, a metric provided by the ITU or Wireless Intelligence. However, the estimates provided by these sites are only presented at the national level, preventing a detailed regional analysis. Table 6.3 presents statistics on mobile broadband demand gap for selected developed countries. Table 6.3. Developed Countries: Mobile Broadband Demand Gap (2011) Country Population Population Demand Covered Connected Gap Australia 97 % 89.10 % 7.9 % Denmark 97 % 57.51 % 39.49 % France 98.20 % 32.86 % 65.34 % Germany 86 % 34.76 % 51.24 % Israel 99 % 54.36 % 44.64 % Italy 91.86 % 48.19 % 43.70 % Korea, Rep. 99 % 97.13 % 1.87 % Spain 90.60 % 36.68 % 53.92 % Sweden 99 % 85.10 % 13.90 % United Kingdom 95 % 42.56 % 52.44 % United States 98.50 % 71.91 % 26.59 % Sources: Katz and Galperin (2012) As the table 6.3 indicates, with a few exceptions (Australia, Republic of Korea, United States), the mobile broadband demand gap of countries studied is higher than the fixed broadband demand gap. These numbers should be interpreted with the caveat that the latter measures the household gap while the former measures population. In the case of emerging countries such as those of the Latin America region, the mobile broadband demand gap is even higher (see table 6.4). 10 Table 6.4. Latin American Countries: Mobile Broadband Demand Gap (2011) Country Population Population Demand Covered Connected Gap Argentina 92% 19% 73% Bolivia 29% 3% 26% Brazil 84% 21% 63% Chile 72% 17% 65% Colombia 96% 9% 87% Costa Rica 93% 11% 82% Ecuador 66% 11% 55% Mexico 77% 14% 63% Peru 63% 9% 54% Average 73% 12% 63% Fuentes: Katz and Galperin (2012) As table 6.4 indicates, the average demand gap in mobile broadband is 63%, which means that 63% of the Latin American population could purchase a mobile broadband connection but do not. This difference requires an analysis of the obstacles faced by users to acquire broadband service. An understanding of such factors will allow policy makers to deploy the relevant initiatives to tackle these obstacles. This is addressed in sections 6.3, 6.4, and 6.5 below. 6.2.1.3. Demand gap and the interrelationship between fixed and mobile broadband: Until now, we have treated the demand gap within fixed and mobile broadband as two independent phenomena. This treatment is somewhat artificial since both technologies are offered within adopters’ same universe. Naturally, each platform meets specific requirements. Mobile broadband adds the mobility premium to the Internet access experience. At the same time, at least for now, due to given technology and shared resource limitations, mobile broadband networks are not the most suitable platform to fulfill certain applications, like downloading movies or playing massive parallel games. This factor notwithstanding, it is generally assumed that, given their ease of deployment, mobile broadband networks are very appropriate to fulfill coverage requirements in emerging countries. If that were to be the case, how should policy makers think about the interplay between both platforms? At the initial steps of diffusion processes, mobile broadband technology represents a complementary technology to fixed broadband. The early adopter of mobile broadband is, most likely, already a subscriber of fixed broadband. In this situation, mobile broadband complements fixed broadband by providing the added value of mobility. An example of this situation is that of Mexico (see figure 6.3.). 11 Figure 6.3. Mexico: Penetration of Fixed versus Mobile Broadband (2006-2012) 25% 20% 15% 10% 5% 0% 1Q06 3Q06 1Q07 3Q07 1Q08 3Q08 1Q09 3Q09 1Q10 3Q10 1Q11 3Q11 1Q12 Fixed Broadband Mobile Broadband Source: Katz (2012) As the Mexican example indicates, mobile broadband subscribers through the end of 2010 were likely already fixed broadband customers belonging to high socio- demographic segments for which mobile broadband represented an added value proposition to meet their Internet connectivity needs. However, the complementarity consumption pattern is not the only trend. In many cases, especially in emerging countries, mobile broadband represents a substitute to fixed broadband. This occurs under three situations: 1) when the fixed broadband service is not being offered in the area where the customer resides, 2) when the quality of fixed service is at a disadvantage with respect to the mobile offering (for example, in terms of speed), 3) when the user decides to consolidate services to reduce expenditures and acquires the mobile service that provides both connectivity and mobility. It is important to mention that the last situation can occur in the context where the applications and services to be accessed are interchangeable between the two platforms. While this is possible, as it was mentioned above, there are services that are better suited to the fixed technology and cannot be fully accessed by mobile broadband. Additionally, a limiting factor of mobile broadband’s substitution power is the prevalent pricing plans that institute caps on the amount of data subscribers can download on a monthly basis. The case of Bolivia is a good example of substitution of fixed broadband (see Figure 6.4). 12 Figure 6.4. Bolivia: Penetration of Fixed versus Mobile Broadband (2006-2012) 7% 6% 5% 4% 3% 2% 1% 0% 1Q06 3Q06 1Q07 3Q07 1Q08 3Q08 1Q09 3Q09 1Q10 3Q10 1Q11 3Q11 1Q12 Fixed Broadband Mobile Broadband Source: Katz (2012) Bolivia is a country that arrived fairly late to the Internet revolution. At the outset of mobile broadband in the country, the adoption of the fixed platform had not reached 1%, a common scenario in many emerging countries. Not surprisingly, the high price of the offering contributed to this limited adoption. At the second quarter of 2010, the least expensive plan for a 2.5 Mbps download speed cost the equivalent of US$ 325. That year, a wireless service providing broadband connectivity to a PC via a USB modem was priced at the equivalent of US$ 16.38. The cross-elasticity of both offerings resulted in a decline in the number of fixed broadband lines and a dramatic increase in mobile broadband accesses, a classic case of substitution. The Bolivian example could be quite applicable to the experience of other emerging countries. In considering the substitution scenario to understand the broadband demand gap, it is important to include in the broadband subscribers numbers those users who purchase only mobile broadband service and add them to the customers who have acquired fixed broadband. Therefore, the broadband demand gap that considers mobile broadband subscriptions has to be quantified according to the following formula: Broadband Demand Gap = Broadband Coverage (C) – Broadband Subscriptions (S) C = Population covered by fixed and mobile broadband + Population covered only by fixed broadband + Population covered only by mobile broadband S = Subscribers of fixed and mobile broadband (complementarity) + Subscribers of only fixed broadband + Subscribers of only mobile broadband (substitution) According to this formula, the precise estimation of the broadband demand gap requires a solid understanding of parameters such as the degree of complementarity of fixed and mobile platforms, to avoid double counting of mobile and fixed subscribers. Unfortunately, this type of statistic does not exist for the time being, which obliges the policy maker to continue relying on demand gap assessment by technology. Some 13 countries are currently conducting field research aimed at evaluating the degree to which both technologies complement or substitute each other. As was discussed above, the answer will depend on geography and socio-demographic segment. The first results of such a research are being generated primarily in developed countries. Horrigan (2012) recently published the results of survey research conducted in the state of Illinois testing the hypothesis of mobile broadband contributing to closing the digital divide. The results indicated the existence of only a small portion of households accessing the Internet through mobile platforms: of 86% of at-home broadband subscribers, 53% had fixed broadband and smartphones, 26% had only fixed broadband, and only 7% had only smartphones. The interesting finding is that the 7% of subscribers that accessed the Internet only through smartphones tended to have a low income (below $20,000), lower education than the general population and lived in rural areas. While the activities these users conduct on the Internet are less intense than those that have both fixed and mobile broadband, one could argue that the latter contributes to some extent to close the digital divide. A similar conclusion was formulated by Bohlin (2011), who estimated in his study of Sweden broadband that the probability of using mobile broadband tends to increase if the respondent is aged 35 years or less, and has low income. The primary caveat is that both studies were conducted in an environment of widely diffused fixed broadband. In emerging country settings, with less fixed broadband coverage, the substitution power of mobile broadband could be much larger. 6.2.2. Understanding the residential broadband demand gap: Once the broadband demand gap is quantified, policy makers need to understand the factors driving that gap. In this section, the obstacles and drivers of the residential demand gap will be first reviewed. At its conclusion, the same approach will be followed for the enterprise side, focusing primarily on small and medium enterprises. To reiterate, the primary topic in this section is the adoption gap. An adoption gap is found in places where broadband infrastructure is in place but often underutilized. This is a typical low demand case that reflects a low desirability for the services offered or a relatively high cost of ownership. The broadband demand gap can be the result of multiple factors. In fact, the obstacles could be different by region of the country, and by socio-demographic group. Research on the variables affecting broadband diffusion is quite extensive. For example, Hauge and Prieger (2010) point out that income, educational level of the head of household, and household age composition are the main predictors of broadband adoption. Other studies mention variables that are more specific to countries or regions. Navarro and Sanchez (2011) indicate that, ceteris paribus, gender is a strong predictor in Latin America, where females are 6% less likely to adopt broadband. In the United States, several studies underscore the importance of factors such as ethnicity and mastery of the English language (Ono and Zavodny, 2008; NTIA, 2011). Other factors such as the location of potential subscribers (rural versus urban), the presence of school children in the household, and the penetration of broadband in the location where the potential adopter resides are also important 14 factors driving Internet adoption (see Chaudhuri and Flamm, 2005; Vicente and Lopez, 2006; Grazzi and Vergara, 2011). At the highest level of analysis, the residential broadband demand gap is the result of three obstacles:  Limited affordability: certain portions of the population either cannot acquire a device or purchase the subscription needed to access the Internet  Limited awareness of the potential of the service or lack of digital literacy  Lack of relevance or interest: the value proposition of applications, services, and content does not fulfill a need of the adopting population Each of these three obstacles are driven by one or a combination of four structural variables:  Income levels: the socio-demographic group, measured by income, does not only influence the affordability barrier, but is also correlated with limited awareness and lack of relevance  Education levels: the education attained by the potential user influences the degree of digital literacy and is related to interest in accessing the Internet  Age: similarly, the age variable is inversely related to digital literacy and content relevance  Ethnicity: as a result of linguistic and/or cultural structural factors, ethnic group belonging can impact the level of interest in accessing the Internet These relationships have been depicted in figure 6.5. Figure 6.5. Broadband Adoption Structural Factors STRUCTURAL FACTORS ADOPTION OBSTACLES Education Limited digital Literacy and awareness Age Limited Income Affordability Lack of relevance and Ethnic attractiveness The research literature has also studied the role played by other structural variables, such as gender. For example, a gender gap was detected in some countries (see Universidad Alberto Hurtado, 2009 for Chile; INEI, 2012 for Peru; and Rectoria de Telecomunicaciones, 2011 for Costa Rica). However, research by Hilbert (2011) has indicated that the gender gap disappears when control variables such as income and 15 education are included in the analysis. Furthermore, research conducted in Asia by the Korea Network Information Center (KANIC) show that the gender composition of Internet users has shifted toward equality from 33% female in 1999 to 45% female in 2002. In consequence, the gender variable has been excluded from the following analysis. This does not exclude the viability of gender-based policy initiatives for having a positive contribution to stimulating adoption (these will be reviewed in section 6.3.12)2. The following section will explain each of the three obstacles - affordability, awareness, and relevance – and link them back to the structural variables. In each section, studies and data regarding the obstacles and driving variables in developed and emerging countries are presented. 6.2.2.1. The affordability barrier: The economic barrier remains a key factor in limiting broadband adoption. However, it would seem that in developed countries with higher household incomes, the economic barrier takes second seat to either low digital literacy or cultural inadequacy. In the United States, broadband non-adopters amount to 22% of households (34.6 million). Within this group, the head of household is older than 65 years old (30%), has not completed high school studies, belongs to a household with less than US$ 30,000 income (41%), and has a limited understanding the English language (Pew Center, 2012). In a study by the National Telecommunications and Information Agency (NTIA, 2011) researching the reasons of non-adoption, 24% of respondents mentioned affordability of either devices or service. If the household already had a PC, 37% of respondents mentioned broadband affordability as a barrier. Conversely, the households that did not have either a PC or broadband amounted to 21%. Consequently, in the United States, if a household already has a computer, broadband affordability becomes an important adoption barrier. In a statistic close to that of the United States, a 2009 survey among Australia’s non-adopters showed cost to be the most common deterrent cited amongst Australian non-adopters: 26% of respondents reported that it was too expensive (Australian Government Information Management Office, 2009). In Spain, another developed country, a study (ONTSI, 2011) indicated that of the 7 million non-adopting households, 42% indicated affordability as a primary barrier to adoption. The distribution of this population is, not surprisingly, tilted towards households of the lower socio-demographic segments. For example, 52% of households with income of less than 1,100 Euros mention affordability as a primary barrier; that percentage decreases to 16% among households with incomes higher than 2,700 Euros. In the United Kingdom, of the 24% of non-adopting households, only 16% mentioned the affordability barrier, while 66% mentioned lack of perceived content relevance. In a similar study conducted in 2010, the percentage citing cost as an obstacle to 2
 While the gender issue is negligible as one of the structural variables within this analysis, the gender divide still needs to be addressed. Please see "Digital literacy for Women" section (currently, Page 65 of the World development Report). 16 adoption was 23%. This statistic suggests that as prices decrease, digital literacy and relevance structural factors (to be discussed in the next section) have more of an impact. Moving now to emerging countries, the importance of affordability increases among the reasons mentioned for non-adoption. For example, in a household ICT survey conducted in Brazil, 48% of non-adopters of broadband mentioned cost as being the dominant reason (CGI, 2012). In research conducted as part of the National Household Survey, 60% of Mexican households with no computer and no broadband connection mentioned cost of access as the dominant reason (INEGI, 2010). In Chile, the number was slightly less: 37% (Subtel, 2009), while in Costa Rica, it was 60% (MINAET, 2011). The percentage mentioning affordability as the dominant reason in Chile was quite close to households surveyed in Colombia: 39.9% (MITIC, 2010). In Puerto Rico, 16% of non-adopters mentioned price as being too high (Puerto Rico Broadband Task Force, 2012). Research conducted in Sub-Saharan Africa indicates that while availability does play a role in this difference in uptake, the cost of broadband services in the region is prohibitively high. In 2006, the average price for basic broadband in Sub-Saharan Africa was US$ 366 per month, when in India the average rate ran from $6 - $44 per month (Williams, 2010).3 In much of Europe, these rates ranged from $12 - $40 per month. Not surprisingly, a 2011 study demonstrated that many of the countries with low broadband adoption rates were the same countries with the highest annual costs for broadband per gross national income (Point Topic, 2011). 4 This list of countries included Kenya, where the average annual cost for broadband amounted to 79.25% of gross national income. In comparison, the cost of broadband access in Switzerland – which ranks amongst the top 10 countries in the world in terms of broadband penetration – amounted to a mere .07% of gross national income. A compilation of all the statistics reviewed above indicates that affordability remains a preeminent variable in explaining the non-adoption of broadband, particularly in emerging countries (see table 6.5). 3https://openknowledge.worldbank.org/bitstream/handle/10986/2422/536430PUB0Broa101 Official0Use0Only1.pdf?sequence=1 4 http://broadband.about.com/od/barrierstoadoption/a/Affordability-As-A-Barrier-To- Broadband-Adoption.htm 17 Table 6.5. Percentage of Households mentioning affordability as reason for not purchasing broadband Country Percentage Source United States 24% NTIA (2011) United Kingdom 16% OFCOM (2011) Spain 42% ONTSI (2011) Australia 26 % AGIMO (2009) Chile 37 % Subtel (2009) Brazil 48 % CGI (2011) Colombia 40% MITIC (2010) Costa Rica 60 % MINAET (2011) Mexico 60 % INEGI (2010) Puerto Rico 16% PRBT (2012) As the data in table 6.5 suggests, the lower the level of disposable income, the higher the importance of the affordability barrier becomes. This conclusion is supported as well by the penetration of broadband by decile of the socio-demographic pyramid. Table 6.6. Broadband Penetration at Bottom 3 Deciles vs. Top 3 Deciles of Socio- Demographic Pyramid Broadband Broadband Broadband Broadband Penetration Penetration Penetration Penetration COUNTRIES COUNTRIES (Bottom 3 (TOP 3 (Bottom 3 (TOP 3 deciles) deciles) deciles) deciles) Algeria 0.37 12.90 France 33.60 80.83 Argentina 4.43 41.73 Georgia 0.67 7.43 Australia 50.23 91.67 Germany 39.23 91.83 Austria 37.27 83.40 Greece 15.20 65.90 Azerbaijan 0.17 3.63 Guatemala 0.70 5.47 Bahrain 16.67 79.10 Hong Kong, China 46.93 97.87 Belarus 3.50 45.67 Hungary 24.70 75.27 Belgium 39.77 92.57 India 0.33 12.67 Bolivia 1.13 21.83 Indonesia 0.07 4.60 Bosnia and Herz. 5.47 18.83 Iran 1.80 17.47 Brazil 4.63 50.07 Ireland 29.93 76.97 Bulgaria 7.70 47.77 Israel 29.73 72.67 Cameroon 0.13 2.33 Italy 22.13 72.57 Canada 47.03 91.03 Japan 57.10 65.93 Chile 12.73 41.27 Jordan 4.27 17.53 China 7.87 40.20 Kazakhstan 0.13 13.53 Colombia 4.37 26.47 Kenya 0.20 4.70 Costa Rica 5.83 39.17 Korea, Rep. 92.03 100.00 Croatia 14.97 76.17 Kuwait 11.87 60.00 Czech Republic 17.80 84.23 Latvia 27.33 73.43 Denmark 65.47 89.83 Lithuania 28.87 70.83 18 Broadband Broadband Broadband Broadband Penetration Penetration Penetration Penetration COUNTRIES COUNTRIES (Bottom 3 (TOP 3 (Bottom 3 (TOP 3 deciles) deciles) deciles) deciles) Dominican Rep. 1.37 11.13 Macedonia 4.57 35.13 Ecuador 0.67 21.37 Malaysia 9.77 45.43 Egypt, Arab Rep. 0.70 11.77 Mexico 4.33 46.10 Estonia 30.63 88.20 Montenegro 7.00 40.87 Finland 51.80 98.13 Morocco 1.33 15.43 Netherlands 71.60 86.17 Norway 74.40 89.47 New Zealand 36.43 91.23 Pakistan 0.10 3.43 Nigeria 0.10 12.23 Peru 0.63 25.07 Poland 25.97 83.20 Switzerland 53.37 94.03 Portugal 21.53 73.57 Thailand 0.87 25.00 Qatar 25.80 100.00 Tunisia 0.47 8.37 Romania 6.27 38.97 Turkey 13.57 54.27 Russia 10.10 46.37 Turkmenistan 0.00 0.63 Saudi Arabia 18.43 63.83 Ukraine 1.40 21.57 Serbia 8.17 48.47 United Arab Emirat. 29.03 100.00 Singapore 60.57 96.80 United Kingdom 41.10 97.10 Slovak Republic 17.97 73.93 United States 49.57 83.17 Slovenia 31.53 85.93 Uruguay 4.10 38.60 South Africa 0.57 11.97 Uzbekistan 0.00 4.33 Spain 30.30 80.60 Venezuela 5.47 45.37 Sweden 62.20 95.77 Vietnam 0.30 20.50 Source: Euromonitor (2012) The statistics of table 6.6 confirm the disparity regarding broadband adoption between the top three deciles and the three bottom deciles of the socio-demographic pyramid. While the difference between the bottom and top of the socio-demographic pyramid is smaller in emerging countries, that is due to the overall lower penetration of broadband in these economies (see table 6.7.). 19 Table 6.7. Weighted Average penetration in the Bottom 3 Deciles vs. Top 3 Deciles of Socio-Demographic Pyramid Broadband Broadband Difference Penetration Penetration (Bottom 3 deciles) (Top 3 deciles) Developed Countries 38.83 84.60 45.77 Emerging Countries 4.80 27.81 23.01 Mean 19.39 52.15 32.76 This conclusion for emerging economies is further supported in studies conducted at the country level. For example, in research conducted by the Costa Rican government, in households with a monthly income higher than 750,000 Colones (local currency), computer and fixed broadband adoption exceeds 80%; in households with incomes lower than 750,000 Colones, the adoption of both technologies decreases to 60% and under (see figure 6.6). Figure 6.6. Costa Rica: Household Computer and Fixed Broadband Access by Income (2010) 120% 100% 80% 60% 40% 20% 0% <250,000 250,000-<750,000 750,000-1,500,000 >1,500,000 Fixed Broadband Computer Source: Costa Rica. Rectoria de Telecomunicaciones In another study conducted in Chile, broadband adoption in the highest quintile reached 73% in 2009, while within the lowest quintile, adoption is 10% (see figure 6.7.). 20 Figure 6.7. Chile: Household Computer and Broadband Access by Socio- Demographic Quintile (2009) 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% V I II III IV Computer Broadband Source: Universidad Alberto Hurtado Similar results were obtained in a research conducted in Colombia, where broadband penetration in top social stratum was 83%, while adoption in the bottom was only 2% (see figure 6.8). Figure 6.8. Colombia: Household Computer and Broadband Access by Socio- Demographic Stratum (2010) 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% I II III V-VI IV Computer Broadband Source: SUI; National Department of Statistics Since the penetration in the bottom of the socio-demographic pyramid is highly correlated with the average household income and the GDP per capita of a given country, it is expected that nations that undergo rapid economic growth or implement poverty-reduction programs would witness a reduction in the broadband affordability gap. Brazil is a clear example of this effect (see figure 6.9). 21 Figure 6.9. Brazil: Household adoption of Broadband Internet (by socio- economic segment) (2008-2011) 120 96 100 91 90 90 76 80 65 64 58 60 35 40 21 24 16 20 5 1 3 3 0 2008 2009 2010 2011 NSE A NSE B NSE C NSE D/E Source: CGI Household Survey. While figure 6.9 confirms the wide disparity between socio-economic level A and the lower segments D and E, it also depicts the emergence of the middle class (segment C), which has more than doubled broadband adoption in four years from 16% to 35%. However, if the economy does not grow or no poverty reduction programs have been actively implemented, the affordability broadband gap tends to increase. For example, in Mexico the increase in broadband penetration has been significant within the higher deciles (VIII to X) between 2008 and 2010 while rates stagnated amongst the lower tiers, therefore accentuating the socio-demographic digital divide (see figure 6.10). Figure 6.10. Mexico: Household Internet Adoption (by income decile) (2008- 2010) Source: INEGI (2010). 22 In conclusion, the evidence collected both at the aggregate and country level confirms the importance of the affordability variable in explaining a substantial portion of the broadband demand gap. In this context, two policy levers are particularly relevant to affect this dimension of the digital divide. At a macro-economic level, all programs aimed at reducing poverty levels (such as the ones implemented in many countries of Latin America, such as Argentina, Brazil, and Venezuela) will, without doubt, have an impact in reducing the demand gap. At the ICT sector level, policies aimed at reducing the pricing of services will necessarily stimulate adoption. The types of programs that could be put in place and their expected impact will be reviewed in Section 6.4. 6.2.2.2. Limited digital literacy Beyond the affordability barrier, lack of digital literacy can explain a portion of the demand gap. Digital literacy is the ability to navigate, evaluate, and create information effectively and critically using a range of digital technologies. Digital literacy encompasses all devices, such as computer hardware, software, the Internet, and cellphones. Research around digital literacy is concerned not just with being literate at using a computer, but also with wider aspects associated with learning how to find, use, summarize, evaluate, create, and communicate information effectively while using digital technologies. Digital literacy does not replace traditional forms of literacy; it builds upon the foundation of traditional forms of literacy. The digital literacy barrier has been identified in numerous surveys attempting to explain broadband non-adoption. For example, in the United States (Horrigan, 2009), 13% of non-adopting households mentioned difficulty of use as a major barrier for adopting broadband. This answer comprised different reasons for difficulty (lack of training, age, physical handicap such as being visually impaired). In Spain, digital illiteracy amounted to 29% of the broadband non-adopting households (ONTSI, 2012). This number is close to the one reported by non-adopters in Puerto Rico (31%), which explained their behavior by saying that “they do not need broadband or the Internet” (PRBT, 2012). In the United Kingdom, lack of digital ability was only cited by 4% of non-adopting households (OFCOM, 2012). This metric is close to the results of a comparable Australian survey, where 7% of non-adopters found “the Internet to be too complicated” (AGIMO, 2009). In the Colombian research cited above, 8.6% of households surveyed responded that they did not know how to use computers as an explanation for not adopting broadband (MTIC, 2010). As indicated in the figure 6.4 above, limited digital literacy is determined primarily by two structural variables: education level and age. In addition, income level (as correlated with education level) remains a contributing factor. However, digital illiteracy could be particularly high in certain socio-demographic groups, such as the elderly, the unemployed, the disabled, certain female groups, etc. Broadband, digital literacy, and education: The first indication that educational level and broadband adoption were intrinsically linked was found when comparing country broadband demand gap and household education across countries. For example, the Republic of Korea has one of the lowest broadband demand gaps in the world: 93% of households have adopted broadband, which would indicate an adoption gap of 7% (given the 100% coverage level). On 23 average, Korean citizens complete an additional year of education compared to citizens in Japan and the United States. Additionally, Korean households have 50% more aggregate years of education than households in the United States. This statistic would suggest a correlation between education and broadband adoption. Further research confirmed this initial evidence. For example, in Costa Rica, broadband adoption doubles when the head of household has completed high school (see figure 6.11). Figure 6.11. Costa Rica: Household Computer and Broadband Adoption by Level of Education of Head of Household (2010) 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% None Completed Completed Completed Incomplete Incomplete Incomplete Post-graduate Secondary Secondary Primary Tertiary Primary Tertiary Fixed Broadband Compouter Source: Costa Rica. Rectoria de Telecomunicaciones As figure 6.11 indicates, while computer ownership increases substantially after the head of household completes primary schooling, broadband adoption jumps after some years of secondary schooling have been fulfilled. This fact would indicate that, beyond the general influence of the education level variable, affordability plays a stronger role (considering that schooling and income are correlated) in the case of broadband subscription than in terms of purchasing a computer. The combined impact of household income and level of education in the Costa Rican study can be clearly visualized in figure 6.12. 24 Figure 6.12. Costa Rica: Household broadband penetration by income decile and Education (2010) 60% 50% 40% 30% 20% 10% 0% V IX X I II III VI VII VIII IV Primary or less Secondary Tertiary Source: Costa Rica. Rectoria de Telecomunicaciones As the data in figure 6.12 indicate, the overall direct relationship between household income and fixed broadband adoption is clear. One exception to this trend is seen in second decile households where the head has a tertiary education: in this case, adoption is significantly higher than households below the eighth decile. This anomaly could be explained by the existence of households where the head is a recent university graduate who has not yet been able to earn an income commensurate to his or her educational achievement. Beyond the direct relationship between income and broadband adoption, the influence of education is quite relevant. Particularly, above the sixth decile (where affordability represents less of a barrier), education becomes a determining factor. The higher the educational achievement of the head of household, the higher broadband adoption is. The importance of education in explaining broadband adoption has also been detected in a study in Chile (see figure 6.13). 25 Figure 6.13. Chile: Computer and Fixed Broadband Adoption by Education level of Head of Household (2009) 120% 100% 80% 60% 40% 20% 0% Completed Completed Completed Incomplete Incomplete Incomplete Secondary Secondary University University Primary Primary Fixed Broadband Computer Source: Universidad Alberto Hurtado (2009) A similar finding was produced by a study in Puerto Rico conducted in the context of the state’s broadband strategy development (figure 6.14). Figure 6.14. Puerto Rico: Computer and Fixed Broadband Adoption by Education level of Head of Household (2011) 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Incomplete Completed Incomplete tertiary Tertiary Postgraduate Secondary Secondary Fixed Broadband Computer Source: PRBT (2012) The study of the education variable reveals the complex interrelationship it has with the affordability factor. At lower income levels, the affordability variable is stronger than the educational in predicting adoption. On the other hand, at income levels higher than the sixth decile, demand is less elastic to income, and educational achievement becomes preeminent. Again, from a policy perspective, despite the importance of sector specific initiatives such as digital literacy programs, classical education programs will ultimately have a contribution to stimulating broadband demand. 26 Broadband, digital literacy, and age: Studies conducted in the developed world have all pointed out the existence of a generation gap linked to limited digital literacy. In the United Kingdom and the United States, the average age of a non-adopting household is over 65 years old (OFCOM, 2012). Research in the emerging world suggests the existence of a threshold of 30 years old, after which Internet use tends to decline significantly. For example, in Chile the percentage of non-adopters doubles after 30 years old (Universidad Alberto Hurtado, 2009). In Peru, the percentage of Internet users within the 19 to 24-age bracket is 61%, compared to 37% amongst the 25-40 cohort (INEI, 2012). In Brazil, the percentage of Internet adopters 24 years old or younger is 81%, compared to 48% amongst the 35-44 age group. In Costa Rica, the adoption of fixed broadband tends to decline significantly after 45 years old (see figure 6.15). Figure 6.15. Costa Rica: Household Fixed Broadband and Computer Adoption by Age Cohort (2010) 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 15-24 25-34 35-44 45-54 >55 Broadband Computer Source: Costa Rica. Rectoria de telecomunicaciones (2011) The difference between the 30-year threshold for Internet usage and persisting broadband penetration at the 35-44 bracket is explained by the presence of children in the household. Children tend to act as change agents in a household, stimulating Internet usage and sustaining broadband adoption. This indirect influence cancels some of the generational gap identified in numerous studies. In the case of Chile, the presence of children in the household increases the probability of acquiring a broadband subscription from 39% to 43% (Universidad Alberto Hurtado, 2009). In Peru, the probability increases from 43% to 57% (INEI, 2012). In Costa Rica, the effect was not general across ages, but when controlling for income and education, the presence of children as a stimulus for adoption becomes very strong in households where the head has a low level of education. In Puerto Rico, survey data confirms this trend. Broadband adoption drops 14 percentage points after 54 years old (see figure 6.16). 27 Figure 6.16. Costa Rica: Household Fixed Broadband and Computer Adoption by Age Cohort (2010) 80% 70% 60% 50% 40% 30% 20% 10% 0% 18-34 35-44 45-54 55-64 >65 Broadband Computer Source: PRBT (2012) The digital literacy generational gap poses more serious problems for some countries than others. Asian countries like Hong Kong, Japan, and Singapore, for instance, have some of the world’s fastest growing aging populations. Even in these countries, seniors appear resistant to broadband use and adoption. Research suggests that governments and institutions could potentially change this trend by focusing on the socialization of technology to make it more widespread throughout this demographic (Computer Supported Cooperative Work, 2011).5 6.2.2.3. Lack of content relevance or interest: Since broadband is a platform used to access Internet content, applications, and services, the relevance of such content offers an incentive to purchase a subscription. Conversely, the lack of cultural relevance could serve as a barrier to adoption. Cultural relevance could be conceptualized either in terms of content suited to the interests of the adopting population or in terms of language used for interacting with applications/services or consuming content. The relevance dimension has been identified in several studies in the developed world. For example, Horrigan (2009) estimated that, according to his survey, 50% of non-broadband households linked non-adoption to “lack of relevance/interest.” In the survey, lack of relevance was driven by “no interest”, “busy conducting other tasks”, or other unspecified reasons. Interestingly enough, the percentage of non-adopting households citing lack of relevance (50%) was higher than the percentage citing affordability (35%). In a study conducted in 2011, the non-broadband adopting households that provided the “lack of relevance” explanation only decreased to 47%, while affordability dropped to 24% (NTIA, 2011). When disaggregating non- broadband households between those that have or do not own a computer, “lack of relevance” jumps to 52%, and affordability drops to 21%. 5 https://sites.google.com/site/technologyamongseniors/ 28 “Lack of relevance” consistently outranks affordability structural factors in most studies conducted in developed nations. For example, in a study conducted in the United Kingdom in 2011 (OFCOM, 2012), 66% of non-adopting households said “lack of relevance” explained their decision not to purchase a broadband service. Again, this percentage was substantially less than those households that alluded to the affordability barrier (16%). Interestingly enough, in a similar study conducted in 2010 (OFCOM, 2011), the affordability barrier was mentioned by 23% of households surveyed. This suggests that, as prices for broadband service decline, the cultural relevance factor gains in importance. In other words, from a policy standpoint, once the economic obstacles are tackled and affordability becomes less of an explanatory factor of non-adoption, the lack of relevance or interest variable gains weight. In the case of Australia, affordability (26%) was somewhat more important than lack of relevance (19%) (AGIMO, 2009). As expected, lack of relevance as a barrier in developed countries is prevalent in very circumscribed socio-demographic categories. In the United Kingdom, the non- broadband households that cite lack of relevance tend to be lower income households with people over 65 years old. In a study conducted in Spain (ONTSI, 2012), lack of relevance of Internet content is inversely proportional to income levels (see figure 6.17). Figure 6.17. Spain: Lack of Relevance as Reason for Non Adoption by Income (2011) 80% 70% 67% 65% 60% 50% 48% 42% 40% 30% 20% 10% 0% <1,100 Euros 1,100-1,800 Euros 1,800-2,700 Euros >2,700 Euros Source: INE (2011) In at least one study conducted in a developed country, the linguistic factor contributed to the lack of relevance. That was identified in the United States among the Hispanic population that had recently immigrated to the country. It is important to consider, however, that, as in the United States, the linguistic barrier is strongly correlated with economic and educational factors. Therefore, it is still difficult to tease out the socio-demographic variables in order to isolate the linguistic factors. The language barrier has been identified in the emerging world as well. For example, in Peru, only 8% of those individuals whose first language was not Spanish are Internet users. That percentage increased to 40% amongst native Spanish-speakers. In the Middle East North Africa (MENA) region, the relatively low availability of 29 native-language content is cited as a major challenge to broadband demand (Broadband Strategies Toolkit Chapter 7). Focusing on the development of local- language digital content may be the key to increasing the uptake of broadband in these instances. This issue will be discussed at length in chapter 6.6. Beyond language, lack of content relevance remains a strong variable influencing non-adoption. For example, in Colombia, 20% of non-broadband households justified their behavior explaining that they did not view the Internet “as being necessary”. (MITIC, 2010). The lack of relevance variable presents some complexity in terms of its understanding. Two interpretation options are open to policy makers. One option is that the consumer has evaluated the offerings in terms of applications, services and content and has not found them relevant to his/her needs. Under this premise, policy initiatives should be oriented towards increasing the perceived value of broadband by expanding the range and utility of offerings (these are called “demand pull” policies). The second option is that the consumer does not have enough information to make a decision of adopting broadband. The policy implication in this case is that the consumer needs to be made aware of the potential of the technology (called “awareness” policies). 6.2.2.4. Broadband diffusion cycles and the importance of adoption structural factors The importance and weight of each of the three residential demand structural factors – affordability, awareness and relevance – is not homogeneous across the broadband diffusion cycle. Some are more important than others, depending on the level of adoption of the technology. This is a critical concept that needs to be understood before deploying stimulation policies. The studies of both fixed and wireless broadband adoption in developed countries would indicate that residential broadband adoption tends to proceed along three clearly defined stages (see table 6.8). Table 6.8. Stages of Broadband Adoption Stage 1 Stage 2 Stage 3 Ownership of access Low adoption Medium adoption High adoption devices (computers, smartphones) Availability of web  Very low  Limited  High applications and services Factors driving non-  Service coverage  Affordability  Digital Literacy adoption  Cultural relevance Source: Developed by the author In stage 1, at lower levels of adoption, the factor constraining penetration is supply- driven. Price does not play a significant role because the first group of adopters is relatively price insensitive. In his research on broadband adoption, Varian (2002) found that the first group of subscribers is fairly price insensitive, while the next generation exhibits an elasticity of demand between -1.3 and -3.1. The second 30 variable affecting broadband adoption is device availability. For example, Chinn and Fairlie (2004) found in their study of Internet usage in 161 countries between 1999 and 2001 that the main factors affecting adoption are possession of a computer and awareness of benefits. That finding is confirmed by Ono and Zavodny (2007) who found, by relying on microdata for United States from 1997 to 2003, that the possession of a computer to use Internet remains the main barrier. Vicente & Lopez (2006) obtained a similar result for Europe using data for 15 countries in 2002. In stage 2, beyond a coverage tipping point, the most important, variable driving penetration is affordability. When Chinn and Fairlie (2006) extended their study up to 2004, they found that the price of the service started to be relevant in the explanation of the levels of Internet adoption. When affordability becomes a more important barrier, elasticity coefficients increase dramatically. For example, using survey data from 100,000 households in the United States, Goolsbee (2002) found that in areas where service is available to a majority of households, a decline in broadband prices of 10% yields an increase in penetration ranging between 21.50% and 37.60% (with a mean value of 26.50%). A similar price reduction in areas where the service is not available to a majority of consumers would result in an increase in penetration ranging between 15% and 30%. There are three reasons why elasticity is higher in areas with full service coverage. First, in areas with partial coverage, early adopters are less sensitive to prices and therefore, demand is inelastic. Second, in areas with full coverage, consumers have the opportunity of observing the benefit broadband generates, and they are willing to engage in cost/benefit analysis, whereby any reduction in pricing would increase the consumer surplus. Third, in areas with full broadband coverage, another dimension to be factored in the cost/benefit analysis consumers conduct is the one related to network effects. The importance of the affordability barrier in Stage 2 is also confirmed by Rappoport et al. (2002). In a survey of 5,225 urban households in the United States, the authors determined that a 10% price reduction of broadband would yield an increment of 14.91% in service adoption. Extending the analysis to the OECD countries between 2003 and 2008, Lee et al. (2011) found that 10% price reduction of broadband results in a 15.80% increase in penetration. In this last research, the impact of price reduction begins to diminish relative to earlier studies, anticipating the transition to next stage. In Stage 3, at higher penetration levels, price elasticity coefficients start to diminish. In their study of price elasticity in the United States between 2005 and 2008, Dutz et al. (2009) observed that coefficients declined from -1.53 in 2005 to -0.69 in 2008. Coincidently, Cadman and Dineen (2008) estimated elasticity coefficients for OECD countries in 2007 to be -0.43. This could be due to a shift in consumers perceptions as to the value of broadband (and consequently willingness to pay) from “luxury” to “necessity”. On the other hand, because of diminishing importance in the affordability barrier to adoption, as reviewed in the survey data above, structural factors related to limited digital literacy and cultural relevance take precedence. Consequently, according to the research conducted up to now, the evidence regarding broadband adoption structural factors is conceptualized as follows (see figure 6.18). Figure 6.18. Relative Importance of Broadband Adoption Structural Factors in Reaching Advanced Stages of Broadband Penetration 31 HIGH MEDIUM LOW Stage 1 Stage 2 Stage 3 Supply Barrier Affordability Barrier Digital Literacy and Cultural relevance Barrier Source: Developed by the author In Stage 1, the primary lever to foster adoption is service coverage. In Stage 2, affordability becomes the most important barrier, although digital literacy and cultural relevance begin to assume greater prevalence. In Stage 3, at higher penetration levels, price sensitivity becomes secondary, and the most important adoption barrier remains digital literacy and cultural relevance. Moving to emerging countries, initial evidence produced by Galperin and Ruzzier (2011) confirms that regions whose penetration is within stage 2 (3%-20%) exhibit high elasticity. OECD countries, with an average penetration of 27.48% have a price elasticity of -0.53, while Latin American countries (average penetration of 7.66% in 2011) have an elasticity of -1.88. While there is still not evidence available, two factors could change the sequential pattern of adoption structural factors outlined above. First, as a result of the increasing adoption of mobile broadband enabled devices and the deployment of 3G and 4G networks, the structural factors of Stage 1 could shorten up significantly, rapidly putting countries in the need to tackle the affordability barrier. Secondly, the increasing availability of applications and services could enhance the willingness to pay of consumers, thereby altering the consumer surplus equation and reducing the elasticity coefficients. This could be an important factor in many emerging countries. A final note should be made that, while the generic evolution model presented above is one follow by a large number of countries, in some contexts residential broadband adoption may skip Stage 1 and start directly from Stage 2 or skip Stage 1 & 2 and start directly from Stage 3. For example, in Japan, when DSL service started from scratch in areas only with dial-up connection, some ISPs experienced a jump-start in penetration rate of between 10 and 20%. 6.2.3. Understanding the enterprise broadband demand gap The structural factors and adoption obstacles of broadband among enterprises are different than those variables constraining diffusion among individual consumers. Notwithstanding the fact that broadband technology is a production factor with a 32 positive contribution to the efficiency of business operations, small and medium businesses (especially microenterprises) in emerging economies have faced some broadband adoption impediments. Kotelnikov (2007) has defined four stages of ICT adoption within the small and medium business universe. Those stages are depicted in table 6.9. Table 6.9. Stages of ICT adoption in SMEs Basic Basic Advanced Advanced Communications Information Communications Information Technology Technology Telecommunications  Wireline  Email  Wireless  Broadband  Facsimile  Videoconferencing  File sharing  E-Commerce  VoIP Information  Personal  Data base technology computer management  Basic software  ERP (spreadsheet,  Inventory word management processing)  CRM Source: Kotelnikov (2007) These four stages should not be considered in a static fashion, particularly in light of technological progress and pricing reductions. Nevertheless, data would support the notion that, particularly in emerging markets, these four stages remain a fairly common development path. This is illustrated by the still limited adoption of broadband within SMEs. Furthermore, while in many cases small businesses rely on the Internet, they do so in shared facilities as opposed to on their own business premises (see table 6.10). Table 6.10. ICT adoption among SMEs Country Personal Internet Broadband Year Computers 33 Argentina 43 % 97 % 75 % 2007 Brazil 69 % 54 % 9% 2009 Canada 94% 81% 2006 Chile 74 % 66 % 60 % 2006 Colombia 16 % … 9% 2010 Ecuador … 47 % … 2005 El Salvador 47 % 36 % 50 % 2005 Guatemala 32 % 15 % 16 % 2005 Mexico 87 % 73 % 45 % 2005 Nicaragua 39 % 15 % 11 % 2005 Peru 27 % 23 % 60 % 2009 Puerto Rico … … 74% 2011 United States … … 75% 2010 Venezuela 5% 12 % 3% Average 46 % 48 % 30 % Sources:  Argentina: Indec; Prince & Cook  Brasil: SEBRAE  Canada: Net Impact Canada  Chile: http://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&cad=rja&ved=0 CC8QFjAA&url=http%3A%2F%2Fwww.cnc.cl%2FCharla%2520PYMES%2520Mayo- 08.ppt&ei=waiiUI77GY- 88wTP84CgDQ&usg=AFQjCNGa00NabrVh3VzGOF2FSp5421_efg&sig2=Sxn1GM5GmynC RvKAS1J0sA  Colombia: National Department of Statistics  Ecuador: FENAPI  gí ”  gí ”  Mexico: Select  N g gí ”  Peru: http://gestion.pe/noticia/304158/conectividad-pymes-banda-ancha-creceria-10-este- ano  Puerto Rico: Puerto Rico Broadband Task Force (2012)  United States: Connected Nation (2010) Puerto Rico: Puerto Rico Broadband Task Force (2012)  Venezuela: Microsoft Note: Due to the fact that the sources and methodologies for estimating these statistics are not consistent, data in this chart should not be compared across countries. At the outset, the nature of the business of SMEs, especially micro-enterprises, explains the lack of broadband adoption. Katz (2009) argues that SMEs can be grouped in three categories, each of which has a different need for broadband services:  “International” SMEs: regardless of their size, these units need broadband to gain access to international markets, deal with their supply chain, and support their logistics 34  SMEs supplying large enterprises: as part of the supply chain of large firms, these SMEs require broadband to receive orders, process payments, and provide delivery information6  SMEs operating in low value added industry sectors, primarily services: these firms have a low compelling need to purchase broadband since the nature of their business does not require the type of transactions mentioned in the other two categories. Considering that the last category comprises a large portion of the SME population in emerging economies, it is natural to expect a delay in the adoption of broadband among small enterprises. However, beyond this structural factor, other reasons explain the low level of broadband adoption, including limited access to investment capital, comparatively high technology costs, and lack of training. Regarding capital investment and monthly service costs, it is important to note that a significant proportion of SMEs do not receive fixed monthly income because they operate outside of the formal economy of emerging countries. Their income is generally daily or weekly and is dependent upon the type of labor performed; thus they cannot borrow long-term or purchase products that require a fixed monthly payment such as PCs, servers or Internet access. These enterprises are generally forced to use prepaid wireless, Internet booths, or cybercafés, and rented PCs. Secondly, many of the entrepreneurs that run SMEs (which are primarily microenterprises in emerging countries) have a very limited level of technological training. A large number of SME owners in these economies face a generational gap by not receiving Internet technology exposure growing up. Therefore, they lack the necessary training to operate a computer or use broadband to improve business efficiency. This lack of education translates into the anxiety of using technology and ignorance of its capability to create economic value. Another related obstacle facing SMEs is the limited availability and retention of skilled ICT workforce, particularly in emerging markets. Because of the systemic shortage of technical personnel, large companies offer wages to graduates of higher education that SMEs cannot match. Even when SMEs manage to hire graduates, retention rates are very low. Broadband adoption by SMEs is also limited by the lag required to make the necessary organizational and business process changes to assimilate broadband and data transmission technologies. In general terms, SMEs (particularly in emerging countries) tend to restrict the use of ICT to accounting and finance, while neglecting its application to production processes. A survey by the Chilean Ministry of Economy found that only 2.6% of Chilean companies used ICT to increase the efficiency of business processes other than accounting and finance. Yet, the survey made an even more worrisome observation: 80% of companies reported they did not implement ICT in areas other than finance and accounting because they lacked the technological expertise necessary to understand its benefits. 6 A particular case of SMNEs refers to start-ups initiated by an incubator program. See below in section 6.3.4.3. 35 In sum, beyond the composition of the SME sector, which might structurally constrain the need to adopt broadband, the enterprise broadband demand gap is the result of three obstacles:  Limited affordability: certain portions of the SME space either cannot acquire a device or purchase the subscription needed to access the Internet  Limited technology training constrains the ability to purchase and effectively introduce broadband in the firm  The assimilation of broadband to render efficiency gains in the small business requires the introduction of changes in organization, business processes and even use of IT, all tasks that are well beyond the scope of expertise of small business management These relationships have been depicted in figure 6.19. Figure 6.19. Broadband Adoption Structural factors within enterprises STRUCTURAL FACTORS ADOPTION OBSTACLES Limited Affordability Structure of Limited technology SME sector training Slow assimilation of broadband in business processes Recognizing the benefits broadband holds for SMEs will have additional positive macro-level effects on the country beyond just penetration rates. Indian SMEs, for instance, spent a combined US$ 9.9 million on the IT sector in 2009 alone, and this spending was attributed to the increased demand for high speed Internet and broadband (Access Markets International, 2010)7. Many of the firms also invested in hiring more employees to utilize this technology and industries such as e-commerce boomed. The following section will explain each of the three obstacles - affordability, training, and assimilation. Each section presents studies and data regarding the obstacles and driving variables in developed and emerging countries alike. 6.2.3.1. The economic barrier: 7http://news.indiamart.com/story/india-smbs-recover-economic-downturn-and-move-ahead- 12259.html 36 As mentioned above, the affordability barrier is not only important for individual consumers but also relevant in the case of SMEs, although this variable tends to be more important in the case of microenterprises. In a survey conducted in Colombia among SMEs, 12.9% of surveyed firms indicated that they did not have the economic means to pay for broadband service, while 9.3% would like to buy broadband because of its utility, but found the service pricing to be too high. While the research does not break down the answers by size of firm, broadband adoption numbers help determine that most of the firms mentioning affordability as a barrier are concentrated among microenterprises: broadband penetration among firms with 11-50 employees is 79%, while adoption among firms with less than 11 employees is only 7% (National Department of Statistics, 2010). 6.2.3.2 Limited technology training: The difficulties encountered in recruiting staff with technical skills to select, purchase, and operate ICT infrastructure serves as a critical limitation for adopting broadband. This factor was measured in a survey regarding the difficulty to recruit ICT trained personnel conducted among SME managers in Latin America (see figure 6.20). Figure 6.20. Latin America: Difficulty to recruit ICT trained personnel 1% 2% 2% 1% 13% 22% 26% 26% 25% 49% 36% 12% 26% 18% 19% 17% 62% 56% 56% 51% 49% 32% Total Argentina Brazil Mexico Costa Rica Domninican Republic No Difficulty Some difficulties Considerable difficulties No Answer Source: UPS Business Monitor (2007) As figure 6.20 indicates, the recruiting constraint is particularly acute in Argentina and Brazil. Katz (2009) also identified the problem in field research conducted in other countries such as Uruguay and Chile. The constraint in recruiting technical personnel is due to the fact that the educational system does not generate enough graduates in ICT-related disciplines. In that context, salary inflation “prices out” SMEs when it comes to attracting graduates, which end up working for large enterprises. In developing countries, the problem is not exclusive to smaller businesses. South Africa faces a similar situation. In 2012, the country reported an unemployment rate of 25%, with more than 4.2 million adult citizens actively searching for employment to no avail. While the government attempted to address the situation by “creating 37 jobs,” a more in-depth analysis demonstrated that a lack of qualified workers contributed more to the problem than did a lack of available jobs. In fact, the country’s organizations reported more than 800,000 vacant positions, the majority of which were found in high-skilled industries such as information technology, engineering, and finance. A 2012 survey of Malaysian CIOs concluded that the low digital literacy skills of organization executives negatively impacted business capabilities (Vanson Bourne, 2012).8 The CIOs “feared senior-level digital illiteracy is causing a lack of market responsiveness, missed business and investment opportunities, poor competitiveness and slower time to market.” This sentiment was felt across many Asian markets, where business leaders appeared to fall behind their peers in more developed economies. 6.2.3.3 Slow assimilation of broadband: In order to increase efficiency and output, the adoption of information and communication technologies by enterprises requires the introduction of a number of processes and organizational changes. These changes, as well as training and other cultural factors (such as entrepreneurial spirit, willingness to take risks in an organizational transformation), are referred to as the “accumulation of intangible capital.”9 Broadband alone does not have an economic impact. It rather enables the adoption of e-business processes that result in increased efficiency (such as streamlined access to raw materials and management of the supply chain, or better market access). Intangible capital accumulation and the adoption of e-business processes delay the full economic impact of broadband. This gradual process of technology adoption and assimilation can be studied in the aggregate for economies as a whole. Certain companies, by virtue of the innovativeness of their management and their willingness to transform their enterprises, are the leaders that will initially reap the benefits of ICT. The second wave of adoption is concentrated on industrial sectors whose structure and value chains tend to generate higher transaction costs. These network-oriented industries offer financial services, transportation, or retail distribution. In these industries, complexity costs are so high that, in addition to increasing the number of information workers, they need to adopt technology to improve their productivity. This wave represents a move from firm-related adoption drivers to industry structure and economics. It is only in those economies that Jorgenson calls “IT intensive”, where the concentration of industrial sectors more prone to adopt ICT is higher, that we can see the macro-impact of ICT on productivity. Small and medium enterprises tend to adopt broadband in the third wave, after they have been able to make the necessary process and organizational changes needed to assimilate broadband-enabled applications. In light of this effect, these firms will naturally lag in the assimilation of broadband technology. The public policy implications of this effect cannot be understated. To achieve full economic benefit of 8 http://www.cio-asia.com/resource/management-and-careers/leaders-low-digital-literacy- may-hamper-business-growth-malaysian-study/ 9 Basu & Fernald, 2006 38 broadband deployment, governments need to emphasize the implementation of training programs and, in the case of SMEs, offer consulting services that help firms capture the full benefit of the technology. 6.2.4 Broadband Demand Gap Diagnostic A diagnostic of broadband demand obstacles needs to precede the formulation of suitable policies. Building on the concepts presented above, the development of broadband demand stimulation policies needs to begin by conducting a diagnostic of the demand gap. This should follow a structured methodology tackling the following questions:  Quantification of the residential demand gap o What is the coverage of fixed and mobile broadband services (portion of the population served or unserved)? o What is the percentage of the population served by both fixed and mobile platforms? o What portion of the population by administrative unit (such as departments or counties) purchases both fixed and mobile services (complementarity effect)? o What portion of the population purchases only mobile broadband services (PC connectivity devices, smartphones) (substitution effect)? o What portion of the population is served by fixed broadband and do not acquire a subscription? o What portion of the population is served by mobile broadband exclusively and do not acquire a broadband plan?  Socio-demographic analysis of the residential demand gap o What is the profile of non adopters (by age, income level, education, gender, ethnic group) o Disaggregation of non-adopting population by region and administrative unit  Quantification of the enterprise demand gap o What is the percentage of enterprises (primarily SMEs served by both fixed and mobile platforms? o What portion of the enterprises by administrative unit (such as departments or counties) purchases both fixed and mobile services (complementarity effect)? o What portion of the enterprises purchases only mobile broadband services (PC connectivity devices, smartphones)? o What portion of the enterprises is served by fixed broadband and do not acquire a subscription? o What portion of the enterprises is served by mobile broadband exclusively and does not acquire a broadband plan?  Firm level analysis of the residential demand gap o What is the profile of non adopting enterprises (by size, and industrial sector) o Disaggregation of non-adopting enterprises by region 39 By answering these questions, policy makers will be able to develop a diagnostic of the broadband demand gap. With this diagnostic, policy makers need to start devising appropriate demand stimulation policies. The different examples of policy initiatives are reviewed in the following sections. 6.3. CREATING AWARENESS 40 In section 6.2 the structural factors constraining broadband adoption were reviewed for both the residential and enterprise spaces. This section first focuses on a specific adoption obstacle for residential subscribers: limited digital literacy. Addressing this obstacle requires the implementation of programs that build an understanding of the service offerings. However, building awareness requires building user confidence, explaining the benefits of use, and understanding security and privacy constraints as well. As a result, four types of initiatives, targeting digital literacy impediments will be reviewed (see figure 6.21). Figure 6.21. Awareness Promotion Initiatives in Residential Broadband  Digital literacy through education programs entail the inclusion of specific programs at all levels of the formal education system, requiring also the implementation of training programs for teachers  Targeted digital literacy interventions comprise the implementation of programs addressed to specific segments of the population, such as the elderly, the disadvantaged or the rural population  Deployment of community access centers allows supplying non-adopting population with devices and access points to the Internet; in addition, the access centers can become points of delivery of training programs and user support  The privacy and security training programs allow building the levels of trust from consumers in order to foster adoption of broadband As mentioned in section 6.2, beyond digital literacy programs focused on residential subscribers, building awareness has also an enterprise focus, primarily targeting small and medium enterprises. In this case, the awareness emphasis comprises initiatives in training and the promotion of broadband assimilation (see figure 6.22). 41 Figure 6.22. Awareness Promotion Initiatives in Enterprise Broadband  Advanced ICT training is aimed at supplementing the formal education system with training of technical personnel that will facilitate the introduction and assimilation of broadband-enabled applications in small and medium enterprises  In addition to generic advanced programs, training for SMEs is specifically targeted for management and personnel working in those firms  Consulting services provided to SMEs allow for those firms to deploy and efficiently integrate broadband-enabled applications in their businesses  As a specific case of broadband impact, some initiatives should focus on how to build broadband-enabled businesses, thereby stimulating new firm formation This section will explore all these potential approaches oriented toward raising awareness of broadband services. In doing so, cases and practices from both developed and emerging countries will be described and assessed. 6.3.1. Developing basic digital literacy In section 6.2.2.2 it was explained that up to 29% of broadband non-adopters in certain countries cited limited digital literacy as a reason from not acquiring service. Again, digital literacy is defined as the “ability to use digital technology, communication tools or networks to locate, evaluate, use and create information” (Hauge and Prier, 2010). Evidence from section 6.2.2.2 also showed that, when the affordability barrier is lowered through price reductions or state fostered policies, digital literacy remains the dominant impediment. Finally, research also shows that limited digital literacy is intrinsically linked to level of education, age, and ethnic affiliation. In light of this evidence, initiatives aimed at building digital literacy need to involve both embedding programs in the formal education system and targeting non-formal initiatives to specific segments of the population (elderly, handicapped, rural poor, etc.). The structuring of digital literacy efforts should be conducted after concluding the basic diagnostic of demand gap. 6.3.1.1. Digital Literacy through Formal Education Programs 42 Programs oriented to fostering digital literacy through formal education consist in embedding ICT training in curricula at the primary and secondary school level complemented with targeted programs focused on teachers. This section addresses the need to introduce fundamental changes in the formal educational system in order to enhance the level of digital literacy. Digital literacy programs embedded in the formal educational system should be, by definition, large scale and centrally driven, generally hosted within ministries of education. While providing access infrastructure (both devices and broadband), programs tend to generally focus on improving usability. As expected, the initiatives are less focused on delivering standard computer courses, emphasizing the use of IT and broadband access within course material by leveraging e-learning platforms and social networking. Primary school programs Primary school digital literacy programs are critically important in building broadband awareness for numerous reasons. In the first place, a large portion of the population in many emerging nations only benefit from only a primary school education (see table 6.11). Table 6.11. School Enrollment by Region of the World (2010) (Percent of population) North Latin MENA Eastern European East Asia World America America & Europe Union & Pacific Caribbean & Central Asia Primary 100.2 % 113.9 % 104.4 % 102.3 % 104.1 % 110.3 % 106.0 % Secondary 98.7 % 89.6 % 77.1 % 97.1 % 104.6 % 80.3 % 70.4 % Tertiary 67.7 % 40.6 % 30.6 % 58.3 % 61.4 % 29.0 % 29.2 % Source: World Bank http://data.worldbank.org/indicator/SE.SEC.ENRR?display=graph NOTE: These numbers can exceed 100 because they include students who fall above or below the typical age range for that level of education. As such, primary schooling represents their only opportunity to get access to digital literacy training. Moreover, research has shown that students that gain access to broadband in school are more likely to use it later in their life (Goldfarb, 2006). This appeared to be particularly true among low-income households. Secondly, and as a corollary from the first point (and shown in section 6.2.2.2), a large portion of the broadband non-adopting population has only a primary school education. In that sense, limited digital literacy and low levels of educational attainment are linked. A digital literacy program focused on primary schools would help lowering the educational barrier. 43 Thirdly, as shown in section 6.2.2.2, children tend to act as change agents in a household, bringing all the positive influence that stimulates Internet usage and sustains broadband adoption. By introducing intensive digital literacy programs in primary education, the initiative consists in training residential change agents that will promote literacy within low-income households. Belo and Ferreira (2012) found in researching the impact of broadband in schools in Portugal that broadband use in schools leads to higher levels of adoption in the surrounding region, and that the spillover effect is mediated by children. According to the authors school broadband use increase the probability of adopting high-speed Internet access by 20% in households with children. This translates into an increase of 5% in the penetration of residential broadband within the whole country. Spill-over effects have also been pointed at by Goolsbee and Klenow (2002), while the positive influence of children on residential broadband adoption was identified by research by OFCOM (2005) and Katz (2011). As the examples below will show, successful digital literacy programs in primary education tend to focus holistically on the provision of computers to students, the subsidization of broadband service both for students via Wi-Fi and for schools via fixed facilities, and the intense embedding of ICT programs in the formal curriculum. In many cases, successful initiatives in this domain are associated to partnerships between the public and private sectors. Box 6.3.1: “Plan Ceibal” (Uruguay) Also known as The Educational Connectivity of Basic Information for Online Learning Program, Plan Ceibal aims to provide every primary school student in the nation with a computer as part of the One Laptop Per Child (OLPC) initiative. Following its initial success, the plan now includes secondary school students. Plan Ceibal also brings Internet to the schools and incorporates IT training into the curriculum. Plan Ceibal came into existence in 2006 during the Vázquez presidency in an effort to address the country’s digital divide. By providing students with laptops that they can take home, ICT access increases not only amongst the students, but also within their families as well. In an indirect way, the provision of laptops also addresses digital literacy within the country, assuming that as students become familiar with the technology in the classroom, they then share this knowledge with family members, which then spreads to other members of the community. By 2011, the total investment in the program amounted to approximately US$ 100 mn, or the equivalent of 0.25% of the country’s GDP and 8% of its education-related expenditures. This figure covers the US$ 250 spent per student, derived from the US$188 cost of the laptop and the US$60 in maintenance and Wi-Fi connection fees over four years. By mid-2012, nearly 600,000 Uruguayan students owned personal computers and 99% of the nation’s 4,375 primary and secondary schools had Internet access. Sources: Prusa, Anna, and Elizabeth Plotts. "Uruguay's Plan Ceibal: Can Laptops in the Hands of Primary School Students Reduce the Digital Divide, Improve Education, and Increase Competitiveness?" Capstone Project. George Washington University, 26 Apr. 2011. http://elliott.gwu.edu/assets/docs/acad/lahs/uruguay-potts-prusa-2011.pdf 44 "Uruguay: Plan Ceibal Ends Digital Gap in Public Schools." InfoSur Hoy. N.p., 10 Apr. 2010. Web. http://infosurhoy.com/cocoon/saii/xhtml/en_GB/features/saii/features/society/2012/04/10/feat ure-02 Box 6.3.2: Fusion Universal Project (Tanzania) Tanzania’s Ministry of Education has long recognized the importance of digital literacy and the inclusion of ICT training into its formal curriculum, as evidenced in policies such as Teknolojia ya Habari na Mawasiliano (TEHAMA) and the Primary Education and Development Plan. These goals saw limited success until a private corporation offered its assistance. In 2011, Fusion Universal, a London-based corporate solutions provider, partnered with UhuruOne Tanzania, a local ISP, to offer Internet access to students and homes in select areas within the country. As part of the program, Fusion worked with the Tanzanian government to develop further its education policies, emphasizing the need for IT instruction. To this end, Fusion developed its own 5-year ICT curriculum for students as well as a video-based toolkit for teachers and adult learners covering topics ranging from basic computer use to software application instruction. More than 300,000 learners across the African continent now follow this curriculum. Fusion chooses its locations based on need, in line with its goal of “improving the lives of the world's poorest billion people through the use of learning technology.” As part of the program, in 2011, Fusion brought computers and training to a free library in Moshi – known as Jifundishe or “teach yourself” – emphasizing ICT training for school aged children. As the children became more comfortable using the computers, they became more interested in additional workshops and in teaching themselves computer skills. In addition to this program, the organization also plans to run evening classes for adults in rural locations in conjunction with the Tanzania Postal Corporation, which purchased 300 laptops to implement the curriculum. Furthermore, Fusion stated its goal of working with USAID, the United States public development donor, to build ICT labs within 600 primary schools and 40 teacher-training colleges to promote digital literacy in the country further. Sources: "ICT Policy for Basic Education." United Republic of Tanzania MoEVT. N.p., Aug. 2007. Web. http://planipolis.iiep.unesco.org/upload/Tanzania%20UR/Tanzania_ICT_Policy_for_BasicEd ucation_2007.pdf "What's Happened to Date." Fusion Universal. N.p., 2011. Web. http://www.fusion- universal.com/social_enterprise/social-news-updates.php "Uhuruone Ltd., Fusion Universal, and Tanzania Posts Corporation's PostaNet Project Launch Online E-Learning Zone." Fusion Universal. N.p., May 2011. Web. http://www.fusion-universal.com/blog/2011/05/uhuruone-ltd-fusion-universal-and-tanzania- posts-corporation%E2%80%99s-postanet-project-launch-online-e-learning-zone-2/ Box 6.3.3: Education Modernization Program (Russia) 45 The Russian government has included ICT training in its education system since 1986, though until recently this training focused on secondary and higher education. In 2006, the government connected all public schools to the Internet, and with this push to increase access to technology came the introduction of ICT training to primary school classrooms. The Federal Education Agency of Russia recommended that schools develop a formal computer curriculum, encouraging the use of ICT as part of the curriculum from Grade 2 – or age seven – onward. Beyond simply increasing the presence of ICT in the classroom, the Russian government partnered with the World Bank’s Russia office in 2004 to implement the “Education Modernization Program,” which supported the improvement of ICT skills and competencies through e-learning. While the program covered all levels of education and government services, it specified that 20% of resources must be used toward ICT at the primary school level. The program was developed to address the disparities in ICT access and competency throughout the country. As Russia transitioned to a market economy, many regions inherited failing education systems and did not receive adequate funding to provide students with marketable skills for employment. Per the 2000 OECD PISA assessment, Russian students ranked 27th of 31 countries. The government concluded that ICT competency would improve the quality of the workforce, and that ICT could enhance the access and quality of its education system. Once the government provided schools with basic computers and Internet connections the three phases of the 4-year e-learning project included: “(i) development of new learning materials; (ii) support for both pre-service and in-service teacher training in the introduction of ICT into teaching and learning; and (iii) establishing not less than 200 resource centers to improve access to ICT enhanced education opportunities and to disseminate new teaching practices.” Additionally, by the end of 2007, all schools had broadband connections. The entire cost of the project totaled US$ 145 mn, broken into US$ 35 mn on learning materials, US$ 43 mn on teacher training, US$ 63 mn on resource centers, and US$ 4 mn on project management. To measure efficacy, the program incorporated a series of 18 indicators, including: teacher competency in Internet education, the incorporation of digital resources into the classroom, and the creation of open access textbooks. The program met or exceeded each of these goals. By completion, the number of students enrolled in distance learning had increased by 75%, with the number of rural students accessing online education multiplied by 5. Further, ICT competency levels improved and the availability of e-resources grew. Sources: "Education Transformation in Russia." Intel. N.p., 2009. Web. . "E-Learning Support Project." Education. The World Bank, 30 Dec. 2008. Web. . "Implementation and Completion Results Report." The World Bank, 30 Dec. 2008. Web. . 46 Box 6.3.4: National ICT Literacy Assessment (Australia) In 2008, Australia introduced measures to assess students’ digital literacy skills and comprehension. Students in years 6 and 10 (ages 12 and 16 on average) sat for standardized tests, which ranked digital literacy comprehension on a 6-point scale. The lowest level, Level 1, designated a basic understanding of how to use a computer and software. The highest level, Level 6, was reserved for students who could use advanced software features to organize information, synthesize data, and complete information products. Prior to this assessment, the country had testing in place to identify areas of weakness in its traditional literacy and numeracy education, but not in its ICT curriculum. To develop the test, Australia’s Ministerial Council for Education, Employment, Training and Youth Affairs (MCEETYA) partnered in 2005 with the Australian Council for Educational Research (ACER). The independent non-profit organization produced the National Sample Assessment of ICT literacy, the first of its kind. The initial trial tested 620 Australian students and evaluated students’ analytical skills rather than simply their software know -how. Per the results of the 2008 testing, more than 40% of year 6 students tested at a Level 3 or higher, meaning that they could conduct simple Internet searches and identify the best source. Almost half of all year 10 students tested at a Level 4 or higher, meaning that they could conduct more complex searches and use the information they found to generate new content. In 2011, the OECD released its results from the Electronic Reading Assessment (ERA) component of the 2009 OECD Program for International Student Assessment (PISA). The overall PISA examination tests high school students’ readiness to enter and contribute positively to society following the end of their compulsory education. The exam places high value on the ability to address “real world” situations rather than on specific curriculum items. Within this context, the ERA specifically looks at students’ abilit y to navigate through electronic text, as developed through exposure to ICT. Of the 19 countries surveyed, Australia ranked second in terms of the ERA. Sources: "Broadband Strategies Handbook." Ed. Tim Kelly and Carlo M. Rossotto. The World Bank, 2012. Web. . Ainley, John. "Measuring Australian Students' ICT Literacy." Research Developments 14.5 (2005). ACER. Web. . "OECD Programme for International Student Assessment (PISA)." ACER, 2012. Web. . Secondary school programs While secondary schools do address basic digital literacy skills, they tend to provide students with a more advanced knowledge than they would gain during their primary school years. Viewing digital literacy as a life skill can explain its application in a student’s life well beyond the classroom. As the global economy shifts from the manufacturing of goods to the provision of services, workers and countries require more high-level skills to stay competitive. Particularly in instances where students move directly from secondary or vocational school to the workforce, the exposure they have to ICT training via the education system has the potential to shape the trajectory of their future careers and the strength of the national economy. Employers increasingly require digital competence, and workers with this type of training also 47 tend to acquire other on-the-job skills more easily. Further, the ICT industry tends to offer more high paying, lucrative jobs, adding financial incentive to the benefits of obtaining advanced digital literacy. By incorporating digital literacy training into the secondary school system, policy makers can effectively bridge the digital divide, thus creating more equal workforce opportunity amongst the population. Further, employees comfortable with using the technology at work are more likely to see its value within the household. Given that most countries now require secondary school attendance, this environment seems to serve as the ideal setting in which to introduce citizens to basic and advanced ICT training. Training cannot come to fruition, however, without the necessary technology. In addition to developing effective and applicable lesson plans, educators and policy makers must also consider the provision of personal computers coupled with broadband connectivity. To this end, an increasing number of government initiatives have focused on distributing laptops to secondary students and faculty members. Some governments, such as North Carolina in the United States, require students to pass an ICT competence exam in the seventh or eighth grade to receive a high school diploma. As is the case with primary school digital literacy programs, educators should have some form of measurement or standardization in place to promote the efficacy of such initiatives. Successful examples have included testing, certification programs, and partnerships with international organizations. As in the case of primary school programs, successful initiatives are also based on public and private partnerships. Box 6.3.5: Conectar Igualdad and Educ.ar (Argentina) In an effort to promote digital literacy in the country, in 2010 Argentina established its national Conectar Igualdad program. The first phase of the program targeted the country’s secondary schools, promising equal ICT access to all students in urban and in rural areas alike. While Conectar Igualdad aimed to distribute 3 million laptops to secondary students and teachers, it recognized that access alone would not increase digital literacy. Beyond laptop distribution, the initiative also included Internet access and internal networks within the schools, the creation of digital content, and a standardized program to train teachers on how to incorporate ICT use into the classroom. To this end, Conectar Igualdad complemented the country’s Educ.ar platform, which was designed to assist teachers in the development of an ICT curriculum by creating a standard set of materials for use throughout all schools. In developing Conectar Igualdad, the Argentine Republic Ministry of Education partnered with other sectors of the government - the Social Security National Administration, the Ministry for Federal Planning and Public Investment and Services, and the National Executive Cabinet’s Head. By incorporating these high-level agencies, the program promoted centralization and discouraged an uneven distribution of resources. By purchasing computers on such a large scale, each unit costs approximately US$ 350 (as opposed to the average US$ 506). While the government covers the connectivity and training costs, Educ.ar operates as a private enterprise and relies on pro-bono support from educational institutes and corporations. 48 By May 2012, Conectar Igualdad had so far distributed 1.8 million laptops and Educ.ar had created more than 20,000 pieces of material specific to the secondary school curriculum. Together, through increased ICT access and formal training, Conectar Igualdad and Educ.ar effectively promoted digital literacy throughout Argentina’s secondary schools. Sources: Finquelievich, Susana, Patricio Feldman, and Celina Fischnaller. "Public Policies on Media and Information Literacy and Education in Latin America: Overview and Proposals." Proc. of Media and Information Literacy in Knowledge Societies, Atlas Park Hotel, Moscow. N.p., 28 June 2012. Web. . "Conectar Igualdad." La Presidenta Anuncio La Adjudicacion De 1,5 Millones De Netbooks. N.p., 18 Feb. 2011. Web. . Giangola, Norissa. "What Works: Educ.ar's Strategy for a Nation Connected and Learning." World Resources Institute, July 2001. Web. . Box 6.3.6: ICDL Accreditation (Senegal) Designed to serve as an international standard for computer competency, the International Computer Driving License (ICDL) certification program was initially developed for use in European nations by the Council of European Professional Informatics Societies (CEPIS). Its success spread, however, and citizens in 48 countries now have access to the program. In order to receive the license, candidates must pass a series of tests on modules covering various ICT-related subjects ranging from word processing to web browsing. In preparation, individuals typically take a training course before sitting for the 45-minute exam. In 2010, Senegal’s Ministry of Vocational and Technical Training established a formal partnership with ICDL – Africa and USAID to ensure a standardization of digital literacy training within the country’s schools. The project introduced the certification program to students in the country’s middle schools with the goal of certifying all students within four years. When announcing the program, the minister of Vocational and Technical Training emphasized the potential for ICT skills to impact national development and close the socio- economic divide by potentially empowering otherwise disadvantaged groups. By partnering with ICDL, the Ministry can ensure effective quality digital literacy training. All holders of the certification have demonstrated an ICT and digital literacy competency. With the support of national governments, private corporations, and international organizations, it is now internationally recognized and available in 148 countries. To date, there are more than 11 million global candidates, making the ICDL the world’s largest end-user computer skills certification program. The first step in implementation in Senegal involved a pilot testing of 100 students, which led to the accreditation of select institutions to serve as official training and exam centers. Following this initial phase, universities and other educational facilities joined and the program eventually expanded to include partnerships with corporations to assist with publicity and funding. Within a year, 113 middle schools registered to participate. As written into the program, local citizens run all management and training. 49 In the event that students cannot attend class, they have the option to download the ICDL syllabus free of charge. The examination requires a “small cost,” and supplemental training courses cost extra. While the program itself does not yet offer scholarships, corporate sponsors may do so in the future. Sources: "ECDL Foundation." European Computer Driving Licence Foundation. N.p., n.d. Web. . "ICDL Africa." N.p., n.d. Web. . http://www.elearning-africa.com/eLA_Newsportal/licence-to-skill/ Box 6.3.7 – GILAS (Philippines) Gearing up Internet Literacy and Access for Students, or GILAS for short, provides public secondary schools in the Philippines with computer labs, complete with Internet connections, software, basic hardware, and Internet training. The initiative, which began in 2005, is a partnership between 26 corporations and non-profit institutions that recognize the limitations of the government’s education budget. Per the GILAS website, the project aims to deliver:  Internet access for schools with computer labs  Servers or routers, LAN cards, cables  Provision of connectivity and unlimited free Internet usage for the first year  10 computers and Internet access for schools without computer equipment  Basic training  Training for teachers and administrators on networking and resource mobilization  Formulation of basic curriculum and year-long lesson plan  Maintenance By providing Internet access to schools, sponsors of the project see it as a means of bridging the digital divide among public high school students. Only a small number of Filipino students attend college, largely due to the prohibitive costs of higher education in the country. Beyond a college education, many employers see Internet literacy as a hiring requisite, though this skill is typically reserved for wealthier students whose families can afford household computers and Internet connections. Without computer access or the ability to afford a college education, many students have few opportunities awaiting them at graduation. By increasing computer access and digital literacy within the school system, the GILAS project aims to produce a more qualified and highly skilled workforce. To support the initiative, GILAS matched donations from local and foreign companies, local governments, and legislators. Per the most recently released annual report, the public sector 2009 contribution added up to approximately US$ 500,860 in addition to the private sector’s US$ 598,470 contribution. Overseas Filipino expatriates also made donations, mainly through the Ayala Foundation USA, that totaled US$ 175,980. In total, donations that year equaled US$ 1.3 million. In 2010, the country’s Department of Education initiated its DepEd Internet Connectivity Project (DICP) with the intention of connecting all public high schools to the Internet while providing relevant monitoring through an annual allocation of US$ 1200 per school. The initiative complemented the GILAS program and leaders of both projects worked together to 50 reach their shared goal. DICP focused more on financing schools’ Internet connections while GILAS looked more at the initial investment in the provision of ICT tools and training. Within four years of its 2005 inception, the GILAS program connected 39% of the Philippines’ public high schools. As a result, more than 2 million students accessed the Internet and 11,621 teachers received training. By late 2012, the program had reached a total of 3,349 schools, with 3,811 remaining. Sources: GILAS: Gearing up Internet Literacy and Access for Students, n.d. Web. . 2009 Annual Report: On the Way to Sustainability. Rep. GILAS: Gearing up Internet Literacy and Access for Students, 2010. Web. . "DICP." DepEd Division of Malaybalay City. N.p., n.d. Web. . Distance learning programs The introduction of technology in education changes the scale in the delivery of the educational product, both in terms of resource availability as well as regarding the training of teachers and professors. In addition, by its nature, technology has the potential to break the distance barrier, becoming a fundamental tool to meet the needs of population in remote areas. The use of ICT in education can generate a significant contribution in four areas:  Learning support to students in quantitative subjects such as geometry, basic algebra and hard sciences;  Teaching support in regions where achievement tests yield results that are lower than the national average, whereby they might be linked to socio- economic, ethnic, or gender gap;  Contribution to address shortfalls in adolescent students that exhibit reading and comprehension difficulties;  Resource support for teachers; Finally, ICT also appears to have a potential, indirectly through some of the effects mentioned above, or directly, to reduce student attrition, particularly in areas where rates approach 30%. Having said that, the return on the technology investment in education in remote areas depends on three factors: the contents delivered through technology have to be adapted to the technology format, the processes and principles guiding the teaching experience have to be redesigned in order to incorporate the technology input, and finally, teachers and professors have to be trained on the utilization of technology. These three requirements are of paramount importance in order to ensure that the technology investment in remote areas yields the expected results. In the first condition, research indicates that educational contents need to be adapted to the new teaching formats, rather than being merely copied and digitized. Under the second requirement, the teaching process has to be transformed in order to render the use of technology within a new context of enhanced learning that blends the classroom experience with the technology support. Finally, teachers and 51 professors need to be trained so they can not only familiarize themselves with the technology but also learn how to use it effectively in the classroom. In light of these conditions, technology plays a very important role in the transformation of the educational institution located in remote areas. In the first place, the technology platform becomes a learning tool inserted within a learning experience that is student- focused. Secondly, technology becomes a vehicle for delivering resources and teacher support. Third, technology becomes an enabler to facilitate the transition of students in an information society. There are several broadband-enabled technology platforms that can contribute in terms of the benefits pointed above:  Video programs distributed through broadband: there is considerable research supporting the educational value of distance learning through television as a complementary resource to the classroom. With the introduction of broadband and the use of computers, the development of "learning objects", which constitute small video segments that can be easily integrated with mathematics, history and geography curricula, have become commonplace. These programs have also started to be modified in order to be able to be distributed through smartphone screen formats;  Interactive whiteboards: despite being a new technology, these tools can play a very positive role with regards to the use of methods promoting student engagement, that can be easily adapted to different learning styles;  Portable terminals, such as personal computers, tablets and smartphones can address limitations in terms of access to content, promoting student independence in those educational settings that have a small number of teachers (such as schools with a single teacher in remote areas). However, this effect can be fulfilled if content is adapted to the different screen formats, which in some cases, can be fairly small;  Virtual learning platforms: these technologies comprise traditional audiovisual tools, such as videoconferencing, or more o advanced based on the Internet, with a capability of operating in real time with an upstream channel. These types of tools can very useful in teaching semantics and conceptual mapping (such as story lines, and roadmaps to structure the writing of essays), geometry and hard sciences. 
 The contribution of technology in education remote areas covers numerous applications domains from distance learning to the utilization of portable terminals and computer-based tools. In the case of distance learning, research shows that students in remote areas whose primary vehicle of instruction is the technology platform tend to perform at an equivalent level that those students learning in traditional classrooms (Hudson; 2006). The studies of Witherspoon et al. (1993) show that, despite the distance and physical separation from the teacher, the students undergoing a distance learning program tend to be more motivated to learn, and are more mature. On the other hand, the design of educational material tends to be more systematic and oriented toward making the learning process more efficient. Finally, Hudson indicates that distance-learning programs combined with tutoring delivered via satellite tend to reduce school absenteeism (Hudson, 1990). 52 Another important effect of technology in education is the impact of the Internet. While the extent of its contribution is highly dependent on the quality of equipment and the telecommunications access, when those factors are controlled in study settings, the Internet can compensate for variables such as low training of teachers or lack of educational material (Puma et al., 2002). Social networks, which citizens access over broadband, can deliver education to students in remote areas. Box 6.3.8 – Aprendaris.cl (Chile) Aprendaris.cl is a web portal developed in Chile with the purpose of creating collaborative social networks in support of learning and knowledge search focused on educational institutions. The project, conducted by the Universidad Tecnica Federico Santa Maria in 2008, was funded by the Chilean government at a cost of US $130.000. The portal provides several technology tools that help build online learning communities, comprised of teachers and students. At the end of 2008, the system counted 1,600 users, of which 960 were teachers and 640 students. Aprendaris.cl is a third generation web- based application based on two principles: promote user participation in the flow of information by means of offering user- friendly tools and use of semantic tools, capable of understanding context of searches and automatically generating the content that is most suited to the user. Sources: Katz, Raul L. The Contribution of Technologies to Meet Education and Health Care Needs in Isolated Regions. Rep. N.p., n.d. Web. . Box 6.3.9 – MOOCs: Coursera and EdX (United States and international) In 2008, researchers and professors from the National Research Council of Canada and the University of Manitoba launched a course on learning theory, and opened it to 25 university students (who were paying tuition) as well as to 2300 members of the public (who were not paying tuition), who could take the course online. This course was soon dubbed a “massive open online course,” or MOOC, a term that is used today to describe countless free web - based classes that are designed to reach a large audience. These classes can vary in format in terms of length, structure, level of interaction, or requirements. They all, however, stress convenience and individual learning pace. At present, two large American ventures dominate the MOOC environment – Coursera and edX. Founded by two Stanford University computer professors in 2012, the education company Coursera has grown into a partnership with 33 global universities, offering 222 free online courses and drawing nearly 3 million students within less than a year of its inception. Courses cover a range of subject matter from education to business to foreign language. As described by Coursera co-founder Andrew Ng, this project can “bring higher education to places where access is limited, and … give established educational institutions opportunities to raise their impact both on and off campus.” Founded and governed by the Massachusetts Institute of Technology (MIT) and Harvard University (both also in the United States) in May 2012, the non-profit EdX has expanded to include 12 university partners, although more than 200 institutions expressed interest in collaborating in its first year. The program started when one professor offered his electrical engineering course online and now has approximately 25 courses designed specifically for interactive online learning. By 2014, EdX will likely offer 50 – 100 courses. MIT and Harvard will also use these courses as an opportunity to study further the impact of technology on both on-campus and distance learning. EdX aims to eliminate traditional 53 barriers to quality education access for students all over the world, including age, income, nationality, and location. With more than 900,000 course enrollments in its first year, by 2025, EdX expects to have worked with one billion students across the world. From their inception, both Coursera and EdX have seen a large international student presence, and their emerging partnerships with international universities will likely only increase this trend and demand for online university services. While the programs will continue to offer their online courses for free, they are both pushing a new model that will offer students formal college accreditation, but at a fee. To do so, they will soon incorporate such tools as identity-verified certificates, proctored exams, and recommendations from the American Council on Education, all of which many universities look for when considering transfer credit. Sources: Tamburri, Rosanna. "All about MOOCs." University Affairs. N.p., 7 Nov. 2012. Web. . "Mooc Definition." Financial Times Lexicon. N.p., n.d. Web. . Lewin, Tamar. "Universities Abroad Join Partnerships on the Web." New York Times. N.p., 20 Feb. 2013. Web. . "About Coursera." Coursera. N.p., n.d. Web. . "About EdX." EdX. N.p., n.d. Web. . The benefit of technology in education can materialize when its introduction is coupled by teacher training with the purpose of breaking down adoption structural constraints. In a similar fashion, technology training has to be extended beyond teachers into the mid-level functionaries of ministries of education, where the impetus for the introduction of technology tools often reside. Ultimately, one of the most important challenges in this domain is transforming the culture and resistance to technology in educational institutions and ministries of education. Box 6.3.10: KorPhil (Korea / Philippines) The Korea-Philippines Information Technology Center (KorPhil) serves as an advanced ICT training center for the Asia-Pacific region and was inaugurated by Korean President Roh Moo Hyn and Filipino President Gloria Macapagal Arroyo in 2005. As part of its model, KorPhil offers distance-training modules for students in other regions as well as for local governments. The center aims to provide students with professional digital skills and ICT- related training relevant to the demands of the Filipino economy. While doing so, it has developed an ICT community of industry partners and individual experts and evolved into a research and development facility. By producing high skilled IT workers throughout the Philippines, the institute aims to increase the country’s competitiveness in the international market. The institute features high-speed broadband access and satellite facilities to support web- based courses and virtual education across the country. With the ability to transmit 54 curriculum to even the most rural regions of the Philippines, KorPhil is the only facility of its kind in the country capable of developing distance-learning modules for other institutions. To support this endeavor, KorPhil also offers training programs and enhanced curriculum development in conjunction with other ICT schools and industry experts. As part of a government grant-in-aid initiative, the Korea International Cooperation Agency (KOICA) granted the Philippines’ Technical Education and Skills Development Authority (TESDA) US$ 4.3 mn to facilitate the development of KorPhil. The Quezon City Polytechnic University and the Quezon City Local Government operate and manage the facility. "About Us." KorPhil. N.p., n.d. Web. . "KorPhil IT Training Centers." KOICA Philippine Office. N.p., n.d. Web. . Box 6.3.11: Center for E-Learning and Distance Education (Saudi Arabia) Recognizing the need for more equal educational opportunities for its students, Saudi Arabia created a taskforce dedicated to the preparation of an e-learning and distance education model. Distance education addresses such barriers as physical location and time constraints and creates opportunities for all members of society regardless of their age, gender, or lifestyle. As education quality and availability improves, so too should the country’s labor market. In 2006, the Ministry of Higher Education contracted the Malaysian consortium METEOR to begin the first stage in the creation of the center for a cost of US$ 12.5 mn. At the time, METEOR was comprised of 14 universities and offered distance-learning programs to more than 50,000 students globally. The Center now serves as the hub for university e-learning and distance education programs, providing the resources and training necessary to create a more accessible education program while addressing the country’s shortage of qualified professors. The center also sets the standards for the design and production of materials while coordinating with international higher education institutions. In the past five years, the Center has undertaken various initiatives, including the creation of an educational portal that facilitates the exchange of e-learning education-related experiences. The portal includes a forum where users can discuss their experiences and share their expertise in the field as well as a news section for a compilation of all information pertaining to the Center and the field of distance education. The portal also houses all digital courses and resources, which are developed by university faculty members. Because the materials are all developed as open source, students can easily access and share them. Similarly, the Center also established the Saudi Digital Library, which now offers nearly 100,000 digital books to all university students and faculty. In Saudi Arabia, culture has likely impacted the low ICT adoption rates more so than the cost or availability of physical hardware. Beyond distance education’s direct benefits, initiatives such as the Center for e-Learning produce positive externalities, raising awareness of the importance of ICT use and understanding. As the perception of technology changes and it comes to the forefront of Saudi educational policy, teachers are more likely to introduce ICT instruction into the curriculum. Sources: E-Learning and Distance Education. Publication. Ministry of Higher Education, 2011. Web. . 55 Digital literacy for teachers Digital literacy programs focusing on teachers represent a critical component of formal education changes. Any change in the formal curriculum in primary and/or secondary education that is not complemented with teacher retraining has a high failure rate. At best, given the digital awareness of young cohorts, these situations can result in the syndrome known as “digital children/analogue teachers,” whereby teachers are not capable of providing the necessary training and/or interacting with children on the basis of ICT usage. Many of these initiatives go beyond increasing teachers’ digital literacy, offering resources and instruction on the incorporation of ICT training into the classroom. Naturally, the heightened exposure to these tools makes teachers more comfortable with the technology and more aware of its benefits in and out of the formal education system. Aside from schooling students to use computers and the Internet effectively, many teachers also introduce online learning supplements – such as games, assessments, and e-books – that require interaction and fast speeds to enhance the education of their students. As students become more engaged and technology use becomes second nature, they bring these skills home with them, unknowingly passing their knowledge along to other members of their families and communities. As is the case with primary and secondary school digital literacy initiatives, the training of teachers requires an investment not only in the instruction but also in the relevant technology. Without access to computers, related software, and broadband, these programs would have little to no value or application. Various initiatives address this issue differently, though many successful programs tend to provide both students and teachers with laptop computers. Local and national government partnerships with international corporations, NGOs, and multilaterals offer both funding and quality instruction and resources that incorporate the best experiences of past projects. The implementation of teacher training varies, but the cost efficient “train the trainer” model appears to have the best results. In this instance, project leaders work with select teachers – through online training courses, intensive workshops, or certification programs – who then train other teachers and faculty members. Some programs start with urban schools and then expand to rural schools, while others target schools with the most need. Others still selectively choose schools based on their geographic proximity to other schools and resources. Ultimately, an investment in teachers is an investment in human capital. High-skilled teachers produce high-skilled students, which lead to large-scale and long-term sustainable economic growth. Box 6.3.12. – Microsoft IT Academy (Nigeria) The Microsoft IT Academy Program – which to date consists of 10,000 members in more than 160 countries worldwide – is designed to provide students with the ICT training necessary to stay competitive in the workforce. Beyond courses and certifications for students, it also offers resources for teachers and faculty members that include training, lesson plans, E-learning, student projects, and assessments. By providing such tools, teachers 56 can more easily incorporate new technology into their classroom curricula and effectively use them to create specialized age appropriate lesson plans. The Academy allows educators to access to its e-reference libraries as well as its database of resources designed specifically for educators and students looking for advanced IT-training. In the summer of 2010, Microsoft Nigeria partnered with the Lagos State Government to bring the IT Academy to local secondary schools in Agidingbi as part of its efforts to modernize public education. As part of this pilot, Deux Project Limited - a Nigerian company providing construction and consulting services - worked with Microsoft to provide Microsoft software-equipped laptops to the schools. The partnership was recognized as means to address the country’s lack of quality training and a resource for teachers looking to supplement their course plans with online learning tools. Deux Project Limited managed the academy while working closely with Microsoft to ensure the fulfillment of its requirements. The Academy offered students more than 175 e-learning courses and email addresses while increasing faculty access to online resources. In January 2012, the Microsoft IT Academy concluded the pilot phase of its teacher-training program, Digital Literacy Curriculum for School Teachers. During this 2-week training, teachers learned how to utilize ICT to teach their students to do the same. This initial pilot drew 83 teachers, which in turn led to the classification of their schools as “Certified Microsoft IT Academies.” Sources: "IT Academy Program Overview." Microsoft IT Academy Program. Microsoft, 2012. Web. . "Microsoft, Lagos Partner on IT Academy Programme." Nigeria News. N.p., 15 June 2010. Web. . "Pilot Training in Digital Literacy Curriculum Concluded in Lagos State." Lagos Indicator. N.p., 29 Jan. 2012. Web. . Box 6.3.13 – Intel Teach Program (Sri Lanka) Since 1999, the international Intel Teach Program has trained over 10 million teachers in 70 countries. The training focuses on providing teachers with the professional development needed to integrate technology into their classrooms and improve their curricula. Intel developed its education model through partnerships with governments, NGOs, multilateral organizations, and educators and research spanning more than a decade. Ultimately, it created a program emphasizing five main facets: policy reform, curriculum and assessment, teacher profession development, ICT, and research and development. Based on these five components, Intel structures its programs to address each country’s specific education needs. In 2006, Intel signed a Memorandum of Understanding with Sri Lanka’s M inistry of Education to implement a teacher development program designed specifically for the needs of the Sri Lanka education system at no cost to the government. The project introduced a variety of tools including “skoool Sri Lanka,” an interactive web-based program promoting math and science learning. Skoool offers students practice exams and instruction tailored to their individual areas of difficulty. In order to use the program, classrooms must have access to a PC with Internet capabilities. The Intel Teach Elements website offers Sri Lankan teachers lesson modules that promote Project-Based Learning. When teachers log in, they receive help in organizing their curricula to encourage training relevant to the demands of the 21st century. 57 One year after its inception, Sri Lanka organized the “South Asia Intel Teach Program Forum” for policy makers from the country as well as from India and Pakistan to promote classroom ICT integration in the region. In November 2008, the Ministry of Education hosted an awards ceremony to recognize the first 100 “Master Teachers” who had completed the Intel Teach training program. By December 2011, the program had reached 1,500 schools and 800,000 students in the country. Sources: "Intel Teach Program Worldwide." Intel. N.p., n.d. Web. . "About Skoool." Skoool Sri Lanka. N.p., n.d. Web. . "Intel Teach Elements: Project-Based Approaches." Intel Education Initiative, Sri Lanka. Intel, n.d. Web. . Box 6.3.14. – Regional ICT Training and Research Center (Rwanda) In 2004, Rwanda’s Regional ICT Training and Research Center (RICT) was established to strengthen the population’s ICT skills to support sustainable economic growth. The center provides students with basic training as well as the skillset needed to enter the IT industry. This emphasis on computer literacy fell in line with the Ministry of Finance and Economic Planning’s “Vision 2020,” which included initiatives to prepare the country for a transition to a knowledge-based economy by 2020. Amongst other facets, Vision 2020 addressed the need to support ICT skills aimed at public sector, private sector, and civil society as well as the development of ICT network infrastructure. In 2009, RITC announced plans to ensure computer literacy amongst all Rwandan teachers by 2010, with an emphasis on hands-on computer skills building. Phase one targeted 5,000 primary school teachers and the second phase reached secondary school teachers. While the project initially focused on teachers in urban schools, it later expanded to reach the needs of the rural teachers. The plan also included the distribution of 100,000 XO computers to schools. Prior to this push, Microsoft Partners in Learning (PIL) worked with RITC to provide 3,000 secondary school teachers with basic ICT skills. The project took place in 2005 and received funding from the Ministry of Education. The following year, RICT conducted an in-depth ICT training project for 1,000 secondary school teachers using the same model. Both projects followed a “trainer-of-trainers” model, whereby two teachers from each school received higher-level instruction to then train other teachers and act as troubleshooters. This project had a budget of US$ 129,540. Microsoft PIL pledged an initial US$ 37,900 and the Microsoft Emerging Markets Team contributed an additional US$25,000. RITC contributed US$ 15,750, with the Ministry of Education covering the remaining US$50,890. Sources: Regional ICT Training and Research Centre, 2008. RITC Prospectus 2008. Kigali: RITC "Rwanda Vision 2020." MINECOFIN, n.d. Web. . 58 Farrell, Glen. ICT in Education in Rwanda. Rep. InfoDev, Apr. 2007. Web. . ICT in Education Support Initiatives. Rep. Ministry of Education, Science, Technology, and Scientific Research, n.d. Web. . Box 6.3.15 – Enlaces (Chile) Established in 1992 by the Ministry of Education, Chile’s Enlaces program addresses the country’s digital divide and introduces new technologies to public schools. Participating schools receive computers for the creation of computer labs, related software, and ICT training for teachers. Schools also have access to technical assistance and training from 24 universities and special educational content via the state educational portal, educarchile. When implementing the program, educators first identify which schools could benefit most from an increase in ICT access. The project then targets teachers, recognizing their need for content relevant to the curriculum with an emphasis on collaboration, projects, and self-paced learning. The teachers have access to networks that enable online collaboration with other education professionals regardless of their physical location. They can then participate in Internet-based training courses related to e-learning and utilize resources such as lesson planning tools and educational portals and software. Beyond training teachers directly, Enlaces also assists in school management and leadership from the classroom level up through ministries. As an example, the program offers tools for teachers to track student progress and retain records, support systems for principals, and technology for policy makers to disseminate information more efficiently. In 2004, Enlaces established the Funds for Broadband program, providing primary and secondary schools with funding for subsidized broadband. In 2008, the program awarded 2,644 schools broadband funding with an additional US$ 200 mn allocated for an investment in infrastructure – including Internet connections and computers – through 2010. By 2008, 87% of Chilean students had access to ICT, which amounted to an 11:1 student- teacher ratio. 75% of all schools boasted Internet connections – 67% of which had broadband connections - and the country reported a reduction of its digital divide. Further, studies demonstrated an increase in digital literacy amongst teachers following the implementation of Enlaces, as well as a raised awareness of the value of ICT use in the classroom and more highly skilled high school graduates. Sources: "Enlaces Program, the Experience of Informatics Education in Chile." Enlaces. Ministerio de Educacion, n.d. Web. . "3.6.1 Government." Connect a School, Connect a Community. ITU, n.d. Web. . 6.3.1.2. Targeted digital literacy programs While digital literacy embedded in formal education processes are conducted in school institutions, closely linked to curricula, targeted programs entail group-specific 59 training in the use of computers and broadband typically delivered through a range of public access centers. This section reviews the major categories of targeted programs. Targeted digital literacy programs are of a wide variety, potentially addressing a number of objectives, not all necessarily consistent. In designing such programs, policy makers need to consider what are the goals of the program, since these goals will frame the methods of intervention. Among the goals to be considered in designing a digital literacy program, the following issues need to be considered:  What is the overall objective of the program? Digital literacy, conceived as a skill, represents the means to achieve a varying set of goals, such as improvement of quality of life, develop citizenship and promote democratic participation, or social inclusion. By outlining the ultimate objective, policy makers will help framing the program. As expected, digital literacy programs could have more than one objective, partly driven by the population being targeted. For example, if targeting the rural poor, the purpose of the digital literacy program could include providing access to broadband, improving quality of life to prevent rural exodus to cities, and promoting social inclusion. As Hilding-Hamann et al. (2009) mention in their report to the European Commission, that differences in program objectives could “reflect different policy domains” (e.g. education, economic development, social welfare). Program objectives could also be driven by the potentially different constituencies sponsoring the program.  What is the target group? Targeted digital literacy programs take different shapes according to the population they will address. As an example, the type of content to be emphasized in program delivery will change significantly if the program aims to target the elderly (email for social inclusion and fostering of social and family ties) versus adults (applications to build employability skills). It is often the case that even needs within a single targeted group might be of different types. For example, some digital literacy programs that target the elderly have focused on helping users working with devices, while others have focused on basic operations and routines of operating systems.  Usability versus accessibility? Some digital literacy programs emphasize training and skills transmission, while others complement this with infrastructure for public broadband access. This represents a critical policy choice since access does not necessarily equate to the capability to use broadband in a productive and beneficial manner. In fact, if the primary objective is usability, experience indicates that tailored courses, complemented with intense coaching, are the more appropriate approach. As expected, if the target of the digital literacy program is the rural poor, accessibility will be a dominant objective. A combination of both objectives – use and access- can be provided by community access centers, which will be reviewed later. Nevertheless, best practices indicate that accessibility and usability are not that easy to combine in digital literacy programs. As such, the two objectives are frequently addressed sequentially, first providing access, followed by training. 60  Formal versus informal delivery mode? Formal digital literacy training entails structured programs based on established curricula, learning tools, and certification. Informal training is not delivered in specific training environments, lacking a structured pedagogical process. While it might not be intuitively appropriate for targeted programs, the emergence of new Internet platforms might lead to the adoption of informal approaches.  Scale of implementation? This question addresses whether programs will be focused on a particular region, or deployed on a national scale. In Hilding- Hamann et al. (2009) view, “national programs are rooted in centralized policies at the national level and (…) seen as strategically linked to government objectives”, such as building an information society. In general terms, local programs, while having a more limited impact across targeted populations, tend to experience a large sustainability success rate due to more limited funding requirements. Nevertheless, Hilding-Hamann et al. (2009) did not find a relation between size of the program and sustainability. Sustainability is a primary concern of targeted digital literacy programs. In their review of 464 programs, Hilding-Hamann et al. (2009) estimated that 22% of them had been discontinued. Furthermore, they found that program sustainability is generally linked to the number of stakeholders (“more than half of the (ongoing) initiatives have been delivered by three or more implementers”).  Device focus: Until now, the great majority of digital literacy programs have focused on personal computers connected to broadband technology. However, with the growing importance of wireless broadband and smartphones, the need to make decisions on what kind of device the digital literacy program focuses on will become very important. In the ten year period between 1998 and 2008, the number of domestic IT jobs in the United States increased 26%, compared to just 6% of overall employment growth. Nearly all Americans (96%) now use ICT daily, and the majority (62%) uses the Internet as part of their jobs. Further, these skills allow citizens to search and apply for these jobs and promote access to other valuable resources such as online college courses and government services. Digital literacy ultimately improves not only the employment opportunities for individual citizens, but the country’s competitiveness and economy as well. In the United States, for instance, Internet-related jobs in the country added US$ 300 billion in economic activity to its GDP in 200910. Other developed countries experience the same need for employees with digital know how. In the UK, for instance, 90% of jobs require “some level of IT competency.” With more than 10 million Internet users in the country, those citizens without access 10 "Fact Sheet: Digital Literacy." United States Department of Commerce. N.p., 13 May 2011. Web. 08 Mar. 2013. . 61 or digital literacy skills will soon find themselves “even more isolated and disadvantaged,” particularly as every day services move online. As such, the larger education system and national initiatives should focus on the provision of digital literacy training at all levels. Students must leave the classroom ready to enter a world requiring IT skills, while adults must have access to necessary instruction to keep pace with the skill-biased technological change. Incorporating such programs into the education system ensures sustainability and funding. As a basic skill – much like traditional literacy and numeracy – digital literacy ought to be included in all areas of the formal curriculum. Further, numerous studies have shown a link between digital literacy and excellence in other academic areas, concluding that technology use in the classroom contributes not only to digital literacy, but also to improvements in mathematics, science, and “learning motivation.” In 2007, the UNESCO Education Council identified 16 core indicators of education and training, many of which directly related to digital literacy and emphasized digital competence11. The framework developed stressed the importance of integrating ICT skills into the education system and establishing professional development for educators through e-learning courses. Subsequent UNESCO reports recognize, however, the difficulties school systems face in developing this integration, and continue to stress the importance of teacher digital competency. Not only must teachers know how to use ICT themselves, but they must also be well versed in methods to utilize ICT to deliver educational instruction. Beyond acting as a “gateway” for employment, digital literacy skills affect citizens’ ability to develop other skillsets. Access to online courses, for instance, can offer both academic and real world instruction, while social and professional networking sites can improve and expand an applicant’s job search. As an example, the site LinkedIn now boasts more than 200 million worldwide users, and the majority of its job listings look for future employees in the IT, financial services, and management consulting fields – industries typically offering higher-paying jobs. Without universal digital literacy and the knowledge necessary to navigate through such sites, opportunity stratification will only continue to increase. Adult education programs Adult education programs are focused on upgrading the skills of the workforce, therefore preparing it to fulfill a productive role in the digital economy. They can be structured around conventional continuing education courses, as extension programs of universities, or organized under economic development efforts focused on specific regions of a country. As Hilding-Hamann et al. (2009) concluded in their extensive review of digital literacy programs, a large portion of these programs are targeted to the unemployed, with the objective of increasing their employability. In this context, these programs tend to provide a certification (such as EDCL reviewed above) to provide a proof of 11 "Digital Literacy in Education." Policy Brief. UNESCO Institute for Information Technologies in Education, May 2011. Web. 11 Mar. 2013. . 62 skill. On the other hand, digital literacy programs focused on adults with a low education level represent an opportunity to provide a second chance instruction, thereby enhancing their personal development. Some of the best practices captured in the assessment of adult digital literacy programs include the following:  Consider delivering courses in mobile settings (e.g. trucks equipped with computers, servers, and mobile broadband) to make it easier for people to participate in different geographies, thus enlarging the reach of the program; the mobile unit and instructors can arrive in one town, install the equipment in a library, a city hall or any community center, offer the five day courses, and then move on to the next location  Allow participants to borrow equipment and take it home to continue practicing after the training sessions (although this could face some logistical difficulties)  The formal course should last approximately five days and be delivered to groups not larger than 12 individuals, so each of them gets proper attention  After completion of the formal course, users can enroll in a web-based program  Waive enrollment fee for unemployed adults, but consider charging for others In this context, certification (proof that the appropriate training was delivered and received) becomes critical. In 2008, Cisco commissioned Forrester Consulting to determine the importance of formal certifications in hiring decisions. By surveying IT hiring managers across the world, the resulting study concluded that “certifications were second only to a college degree to qualify for jobs and the top criteria used in determining ability to perform the job,” because they serve to “validate the skills required for computer support technicians and for careers in IT networking.”12 As an example, the Microsoft IT Academy Program13 focuses on technology career training. Upon completing the program, students receive certification demonstrating that they have acquired “21st century technology skills.” Academy membership offers educators professional development opportunities, technology-centric curriculum and lesson plans, E-learning, student projects, and assessments. At present, Microsoft has more than 10,000 IT Academy members in more than 160 countries. The program stresses formal certification through the “alignment of academic and vocational standards and courses.” The academies provide educators with curriculum mapping to ensure that instruction properly prepares students to receive Microsoft certifications. The mappings pair curriculum and certifications including: 12 "Courses and Certifications." Cisco. N.p., n.d. Web. 06 Mar. 2013. . 13 "Microsoft Innovation Center Activities." Microsoft. N.p., n.d. Web. 07 Mar. 2013. . and, "IT Academy Program Overview." Microsoft IT Academy Program. N.p., n.d. Web. 07 Mar. 2013. . 63  Microsoft Digital Literacy Curriculum (MDLC)  Microsoft Office Specialist (version independent and including MCAS)  Microsoft Technology Associate (MTA)  Microsoft Technical Certifications  Microsoft IT Academy learning resources, including E-Learning and MOAC content Box 6.3.16. – VOX (Norway) The Norwegian Ministry of Education and Research promotes workforce competency development through its Agency for Lifelong Learning, known as VOX, which it founded in 2001. VOX offers adult education that goes beyond basic skill instruction. It also focuses on digital competence and ICT skills in an effort to improve the age group’s employability and involvement in the education system. While the agency offers a vast range of courses, it does have more specialized programs that target certain groups such as senior citizens, prisoners, and adult immigrants. The agency also conducts research and analysis, producing reports and compiling statistical data related to the field of adult learning. In order to stimulate national economic growth, employability, and competitiveness, the government recognizes that it must foster an environment that promotes competency and skill development amongst its citizens. To this degree, rapid advances in technology and a growing involvement in international markets have created a demand for a new type of skillset. Per its research, more than 400,000 adults in the country are considered “at risk” in terms of their employable skill levels. VOX aims to create a more valuable workforce through the promotion of basic skill instruction as well as digital and ICT training. Because adults have different needs than younger learners, Vox established a Framework for Basic Skills for adults, emphasizing employable skills and flexibility. One such initiative, “InterAct,” promotes on-the-job problem solving through a web-based platform. The activity lasts approximately 5 weeks and targets employees who lack pre-existing ICT skills. Users log in to the website and partake in role-playing activities where they are given scripts related to a particular industry that force them to interact and make decisions with other users. Other programs, like “ABC pc,” target adults in need of basic ICT training and addresses tasks ranging from the use of the keyboard to using the Internet and email. To cover the operational costs associated the study centers, distance learning institutions, and study associations, the agency administers governmental subsidies and offers financial support. In 2010, Vox reported that the Ministry of Education and Research spent US$ 7.9 mn on adult learning and education. ** Vox works closely with the European Commission in the development of its adult learning policies and this partnership has allowed the agency to share and learn from the experiences of its neighbors. ** Per a UNESCO report filed by VOX, the national government expenditure was 45,131 Norwegian Krone and the sub-national government expenditure was 68,736. Sources: "Vox in English." N.p., n.d. Web. . Government of Norway. Reporting Template for National Progress Reports in Preparation of the Global Report on Adult Learning and Education (GRALE) and the End of the United Nations Literacy Decade. Rep. UNESCO, 26 Apr. 2012. Web. 64 . Box 6.3.17 – Technological Specialization Courses (Portugal) In 1999, Portuguese legislation established technological specialization courses (CETs) to train its adult population and provide them with the vocational qualifications necessary for employment. CETs emphasize scientific and technological knowledge, workplace-relevant skills, occupational placement, and also offer a continuation of studies. Courses typically account for 1400 hours, including one year of classroom education plus additional internships or work experience. All students must have a secondary education, though those students in their final year may enroll in CETs. In addition to the CETs, the government also partnered with industry leaders such as Microsoft, Cisco, and Sun Microsystems to bring ICT Academies to polytechnics and universities across the country. These academies offer students the opportunity to receive professional training from professionals while completing their education. In 2006, three American universities – MIT, Carnegie Mellon, and University of Texas, Austin – partnered with the Portugal Program to add engineering systems, Internet technologies, and digital content to its curriculum. Portugal also implemented the New Opportunities Program, which targeted adults who did not have a full education. The program offered courses at community centers and local enterprises, all of which involved some degree of ICT skill building. As part of the program, more than 200,000 laptops were distributed. The country recognized the need for training to address the market for skilled workers. CETs were developed to address Portugal’s drop out rates as well as the high proportion of both young workers and mid-level staff lacking the qualifications necessary to succeed in the workforce. The development of the courses focused on the provision of training specific to real-world professional environments. By 2009, Portugal boasted 119 CETs specializing in ICT-related skillsets offered in 38 institutions across 30 towns. Such courses included multimedia development, information systems installment, and computer programming. Sources: Vilhena Nunes Da Costa, Nilza M., Ana R. Simões, Giselia A. Pereira, and Lúcia Pombo. "Technological Specialisation Courses in Portugal: Description and Suggested Improvements." European Journal of Vocational Training 46.1 (2009): n. pag. Web. . Magalhães, Luis. "Multi-Program Approach to Foster ESkills." Proc. of WCIT, Amsterdam. UMIC Knowledge Society Agency, 26 May 2010. Web. . Digital literacy for disadvantaged/underprivileged population Current research points to the fact that one of the largest pockets of broadband demand gap is focused on the disadvantaged/underprivileged segments of the population. However, explanatory variables of this phenomenon are not only economic (addressed below in the affordability section), but also cultural and 65 educational. In this context, any policy oriented to reduce the economic barrier needs to be complemented with digital literacy programs oriented at developing a familiarity with broadband technology. Given the modern day economic shift away from low-skilled manufacturing jobs to high-skilled services jobs, lack of workplace opportunity is particularly heightened as a result of the digital divide. Additionally, economic, educational, and geographic disparities tend to impact ICT exposure, further exacerbating this cycle. Thus, successful digital literacy programs many times target the following disadvantaged groups that are less likely to have prior knowledge of computers or the Internet and face more hurdles as a result:  The unemployed  Older citizens  Welfare recipients  Rural populaces Training can be provided in a variety of ways, so long as it is offered in an easily accessible, affordable manner to encourage participation. Many training sessions, for example, are offered at local community access centers or schools, where citizens already feel comfortable, while others are offered online. Sessions can cover a variety of topics, but tend to focus on the development of ICT skills with “real world” application, including, but not limited to:  Email  Internet inquiry  Job search  CV creation Many programs also offer certification options, providing participants with tangible evidence of their acquired skillset. Further, as training programs become more popular, they create more economic opportunity through the demand for citizens to serve as trainers or project managers. Box 6.3.18 – IT Mentor Program (Hungary) In 2003, the Hungarian Ministry of Informatics and Telecommunications established the IT Mentor Program as an answer to its national strategy, which addressed the significant digital divide within the country. The program offered digital literacy training for those disadvantaged members of society who had difficulty entering or re-entering the labor force, such as unemployed and disabled citizens and those citizens over age 45. After receiving formal certification, the mentors of the program served as social workers, providing training and consultation services as they related to e-knowledge. Such training incorporated basic digital literacy skills as well as awareness; mentors instructed participants not only on basic computer functions but also promoted an understanding of the advantages of such online features as e-Government services and job searches. Beyond addressing the digital divide, the program in essence also created “local champions” and strengthened the role of IT trainers in the workforce by offering them government accreditation and support. 66 The program recognized that these members of society did not have the same access to the digital information and its benefits that could otherwise advance the country’s economy as other groups in society. By creating equal opportunities to bridge the digital divide, the program promoted societal and economical development and modernization. As a public policy, the IT Mentor Program received its funding from the government and was managed by the former Ministry of Informatics and Telecommunications. By 2006, more than 5,000 IT mentors across the country worked with citizens at 20 locations, typically community computer and Internet access points. By encouraging digital literacy training and awareness of the capabilities of the Internet while also providing public access points, Hungary’s IT Mentor Program addressed the three pillars of demand stimulation: awareness, affordability, and attractiveness. As a result of the program, “IT Mentor” became an official profession in the country, allowing employers to search specifically for potential hires with this skill set. In anticipation, an IT Mentor university certification program was established, training 300 mentors in the first year. Since then, various government projects – such as the implementation of an online tax filing system – have formally incorporated IT Mentors to promote citizen awareness and serve as troubleshooters. Sources: OECD E-government Studies: Hungary. Paris: OECD, 2007. E-Inclusion Public Policies in Europe. Rep. European Commission, 2009. Web. . Box 6.3.19 – e-Diriya Program (Sri Lanka) In November 2011, Sri Lanka’s Ministry of Telecommunication and Information Technology and the Hambonthota district inaugurated the country’s national ICT initiative, the e -Diriya program. E-Diriya targets Samurdhi (welfare) recipients, many of whom have never before touched a computer. The initiative aims not only to create more than 50,000 computer literate citizens and enhance ICT infrastructure, but also to raise ICT awareness. The program’s four-hour training workshops – which are held in public schools and IT centers across 19 districts - teach basic computer skills to participants with no prior knowledge of computers or the Internet. All centers come equipped with computers and Internet connections. The second-longest segment, which lasts 70 minutes, covers word processing software, functions, formatting, and outputs. The longest segment, which lasts 90 minutes, deals strictly with Internet and email, emphasizing the benefits of the Internet, the components required for a connection, and how to utilize a web browser and email address. The other two segments include a basic introduction to ICT and a “getting started” portion that acquaints participants with the hardware, software, and operating system of a computer. Following completion of the workshop, participants are better prepared to enter the global e- community. As part of the e-Sri Lanka Initiative, e-Diriya uses ICT to “develop the economy of Sri Lanka, reduce poverty, and improve the quality of life of the people.” The program aims to reduce the digital divide, thereby creating an equal distribution of opportunity and information. The Information and Communication Technology Agency (ICTA) manages e-Diriya with the full support of the Sri Lanka Samurdhi Authority and the Ministry of Education. The 67 government fully funds the Samurdhi Program, which covers approximately one-third of Sri Lanka’s population, or 1.2 million families. The program encourages poverty reduction by providing disadvantaged groups with training, decision-making activities, and employment opportunities. While the ICTA lists its financials in its 2010 Annual Report (the most recent report released), it does not include a breakdown of expenditures by project. Following its November inception, e-Diriya saw 50,000 participants in December 2011 alone, including 23,000 women in the Samurdhi Program. Sources: Yapa, Seu. "Digital Literacy for 23,000 Rural Sri Lankan Women." Telecentre.org Foundation. N.p., 2 July 2012. Web. . "‘e-Diriya’ the National ICT Literacy Initiative Officially Inaugurated in Kegalle." ICTA. N.p., 25 Nov. 2011. Web. . "ESri Lanka." ICTA, n.d. Web. . "Sri Lanka Case Study Samurdhi Program." Community-based Food and Nutrition Programmes. Food and Agriculture Organization of the United Nations, 2003. Web. . Box 6.3.20. – e-Ciudadano (Colombia) In 2008, 200,000 Colombians completed the European Computer Driving License (ECDL) Foundation’s global computer literacy survey, as administered by ICDL Colombia. Analysis of the survey demonstrated the large social and economic divide between Colombians with ICT access and understanding and those citizens who lacked ICT exposure. In response to these findings, the Colombian Ministry for Information and Communications Technology (MITIC) and the National Learning Service (SENA) partnered with ICDL Colombia to increase digital literacy and encourage use of online services such as e-government and banking amongst marginalized sectors of the population. This partnership led to the creation of the e-Ciudadano project. The project expects to provide 75,000 Colombians with basic ICT training and falls under the Colombian national ICT plan Vive Digital, which aims to connect all citizens to the Internet by 2019. Following the training, participants take a certification exam, which serves as quantifiable evidence of their skills as well as the success of the program. E-Ciudadano established 88 testing centers throughout Bogota’s two main urban areas and training was available at facilities where the target group typically congregated, such as public libraries and community centers. The program also featured e-learning courses so that citizens could also participate online. Implementation of the project was divided into three parts. The first two parts focused heavily on marketing e-Ciudadano; part one addressed participant recruitment while the second worked toward the utilization pre-existing public and private infrastructure to deliver the training. The campaign initially targeted organizations via mail correspondence and phone conversations, at which point senior-level members were directed to www.e- ciudadano.org.co, the website created to serve as a central administrative hub. The last phase of the project examined the candidate certification process. 68 The training portion of the e-Ciudadano program was provided at no cost to all participants and the first 25,000 candidates took the certification exam free of charge. These costs were covered in part by the Colombian government and also through the support of Fundación Telefónica, Telefónica’s branch responsible for promoting educational, social, and cultural growth through increased access to ICTs. The ECDL Foundation and Webscience A.I., an automated test developer, provided funding for the management and maintenance of the testing centers while volunteers conducted the training. Initial analysis of the e-Ciudadano program demonstrated that successful candidates displayed an increased awareness of the benefits of the Internet access, with many seeking additional ICT training upon completion of the course. Further, participants demonstrated higher confidence and reported less social exclusion than many of their peers in the same social group. Sources: "Colombian E-Citizen." ECDL, n.d. Web. . "Colombian E-Citizen - Bringing Access to Technology and ICT Skills to All Colombians." ECDL Foundation, n.d. Web. . Digital literacy for women Digital divide based on gender differences has been studied in the emerging world with a varying set of evidence about its level of importance. While explanatory variables of this situation tend to be focused on socio-economic and occupational factors, digital literacy programs with a women focus could act as a contributor to addressing some of the gender barriers. Most of the digital literacy programs targeted to women have as primary objectives, reduce the digital divide, promote social inclusion and improve the employability profile of women. Alternatively, the program can be focused on educating homemakers (married women no in the labor force) under the assumption that, as principal decision maker regarding household finances, the path to broadband adoption in the home is led through women. Such as the case of the Ten Million People Internet Education project in Korea. According to Hilding-Hamann et al. (2009), there is no consistent content structure of women digital literacy programs: some involve standard computer courses while others entail courses tailored to specific users’ needs. This lack of standardization of program content is because it is common to find users in this group that have strong skills in very narrow ICT areas (e.g. social networking, text messaging), while being weak in others (e.g. conducting Internet queries). In fact, it is very common to find situations where the household already has a computer and broadband access, but due to limited digital literacy on the part of women, the technology is only accessible to the children or their father. In general, the target of digital literacy programs focused on women comprises the unemployed, low income, low schooling, at home with small or ill children, living in settlements, belonging to marginalized ethnic groups, and the elderly. In many cases, the pressure to be included in the digital society is increasing for mothers of children 69 in school since teaching institutions often use broadband for communicating with parents. The following best practices in this kind of programs have been identified:  All instructors should be females with experience in teaching computer skills; students appreciate the notion of “women teaching women”, addressing not only a skills gap but providing a remedy to unequal opportunities in the workplace  Additionally, the instructors could be unemployed women with prior computer experience; as a result, the program could also become a vehicle for reintegrating unemployed women in the workforce  Include a mentoring process in the program, which is based on younger peers or attendees to prior sessions  Advertise programs in order to promote enrollment at places such as nurseries, schools, playgrounds, and markets  Alternatively, kindergartens and schools could become places for recruiting program participants  Provide flexibility in course delivery to allow for occasional absences  Structure lessons as “learner-centric” rather than “curriculum-centric”, building the program around what attendees say they want to learn (e.g. use online search of job opportunities)  Consider partnering in delivery of the program with associations or non- governmental organizations focused on advancing women welfare and/or enhancing the social inclusion of women by means of technology  If focusing on women belonging to a specific ethnic group, tailor the material to be delivered in suitable language, and customize it to the cultural idiosyncrasies of the targeted group  In some cases, it could be very productive to involve the whole family in learning ICT skills in order to motivate mothers to participate Box 6.3.21. – Telecentre Women: Digital Literacy Campaign (global) Partnering with the International Telecommunication Union (ITU) and its 192 Member States and 700 Sector Members, the Telecentre.org Foundation announced in April 2011 the commencement of its global Women’s Digital Literacy Campaign. The Philippines-based NGO will utilize its 100,000 worldwide telecenters to provide one million disadvantaged women with basic ICT training by the end of 2012. Over 300 organizations and 200,000 individuals power the telecenters. The program addresses two types of women: a) the women who will gain employment serving as trainers and managers at the telecenters and b) the women who lack formal education and literacy and will benefit from basic ICT skills. According to the United Nations, 60% of women in developing countries serve as unpaid workers in their family homes. This program asserts that basic digital literacy will connect women to the technological revolution, offering the opportunity to participate in the global economy. Female agricultural workers, for instance, can use new technology to find market information and better gauge the prices they charge for their products and pay for supplies. Women who stay at home with their children can utilize the Internet to become “homepreneurs” or find Internet-based income opportunities. Per ITU Secretary-General Dr. Hamadoun Touré, “With technology now widely recognized as a critical enabler for socio- economic development, this campaign will further reinforce ITU’s global efforts to promote 70 the digital inclusion of women, and will be a key element in achieving Millennium Development Goal 3 on gender equality.” The total budget for the campaign is US$ 149 mn. The largest expenditure comes from the US$ 110 mn investment in the development of community ICT centers. Facility rentals will cost an additional US$ 12.5 mn and trainers’ salaries will total US$ 25 mn. Project management and the creation of training materials will account for the remaining US$ 1.5 mn. The ITU and the Telecentre.org Foundation will encourage national governments, private corporations, and international organizations to contribute to the campaign by offering the telecenters such resources as digital curricula in local languages and trainers. The ITU’s Telecommunication Development Bureau (BDT) will also supply digital literacy training materials and curricula, much of which was developed for use in community centers and telecenters. The ITU will also offer its distance-learning platform. Trainers receive training through the telecentre.org Foundation network, offered at academies, universities, and other training centers. To ensure quality standards, the Foundation will monitor all training and track progress on a joint ITU-telecenter.org website. By September 2012, the telecentre.org website reported that the program had trained 384,062 women, though countless additional women have likely benefitted from the campaign. The program is built on the “Train the Trainer” model, which encourages participants to then train their peers. Sources: "ITU Launches Global Digital Literacy Campaign for Women." Newsroom. International Telecommunication Union, 7 Apr. 2011. Web. . "Telecentre Women: Digital Literacy Campaign." Telecentre.org Foundation, n.d. Web. . Box 6.3.22. – eHomemakers (Malaysia) Between 1998 and 2000, the Malaysian grassroots organization “Mothers for Mothers” held six conferences, all of which featured the stories of successful women “homepreneurs.” The events allowed like-minded women to network and pool resources, sharing their experiences with home-based work. As the demand for additional conferences continued to grow, a small group of volunteers created the “mom4mom.com” website to provide mothers and homemakers with the platform to network and access information without attending the physical conferences. Unfortunately, many women in the country did not have access to computers and Internet. Even amongst those women who did have access, few possessed the technological savvy to access the portal and employ the Internet’s benefits productively in their work. Without this access, women faced even fewer employment opportunities than their male counterparts. In response, Mothers for Mothers submitted a proposal in 2001 for the eHomemakers grassroots community to the Ministry of Science, Technology, and Environment. The ministry subsequently awarded the organization with the Demonstrator Application Grant (DAG). With this funding, mom4mom.com evolved into the website ehomemakers.net, which links homeworkers into an e-community and, at the time, employed more than 60 full- time workers at its virtual office. 71 Among other services, the website offers interactive tools and chat rooms. More than 7,000 members receive its monthly e-newsletters. eHomemakers has evolved into an e-network connecting more than 15,000 Malaysian women that promotes the use of ICT such as mobile phones, the Internet, and the Distributed Work Management Application (DWMA) web-to- hand platform. DWMA relies on ADSL, Internet access, and mobile SMS to connect the women to the larger network. With this technology, the women can then participate in the economy as homeworkers, tele-workers, or business owners. Members of the community also receive – and assist in – the training, mentorship, and counseling that encourages self- sufficiency. The majority of members is located in urban areas and is in the 30 – 50 year age range and has grown to include grandmothers, unmarried women, and even some men who work from home. While the Malaysian government provided the initial funding through the one-year DAG grant, eHomemakers has generated additional revenue through advertisements on the website and consultancy fees and private contributions have come from corporate sponsorships and member donations. As a social enterprise, it supports itself by providing services for a social purpose. Source: "Welcome to EHomemakers." EHomemakers. N.p., n.d. Web. . Chong, Sheau C., and Audrey Desiderato. "Empowering Women through Home-Based Income-earning Opportunities in Malaysia." Poverty Reduction That Works: Experience of Scaling up Development Success. By Paul Steele, Neil Fernando, and Maneka Veddikkara. London: Earthscan, 2008. N. pag. Print. Box 6.3.23. – DigiGirlz Day (United Arab Emirates) At DigiGirlz Day, a one-day conference held at multiple locations around the world, high school girls interact with Microsoft employees to learn about the technology industry. Girls also receive career planning assistance and information about technology positions and attend Microsoft product demonstrations. In its mission to encourage girls to consider working in the industry, DigiGirls also hosts its High Tech Camps, offering girls a glimpse into the high- tech product development process. Beyond the conferences and camps, the program also offers online courses with instruction on how to build websites with HTML or create podcasts. In April 2009, Microsoft partnered with the UAE Ministry of Education and the Center for Women and Technology for the Arab Region (CWTAR) to host the Gulf Region’s first ever DigiGirlz Day at Dubai Women’s College. 200 girls from 25 Dubai high schools attended the event, where they each participated in one of five product workshops: Microsoft Research AutoCollage, Windows Movie Maker, Windows LiveTM, PopFlyTM, blogging, and Microsoft Expression® Web. Many of the girls admitted that they rarely used computers, and that the program raised their awareness of computer-based services and technology-related career opportunities. The girls all had the option to take the Microsoft Digital Literacy Certificate Test at one of 10 proctored testing stations. 30 questions covering basic computing skills comprised the exam, and those girls who passed it received a Microsoft Digital Literacy Certificate. Of the 200 girls in attendance, 50 took the exam but very few scored high enough to receive the certificate. 72 Following the success of DigiGirlz Days Dubai, Microsoft planned an additional five conferences throughout the region. The low scores on the certification exam signaled a lack of quality digital literacy education, and in response, Microsoft included testing stations at future DigiGirlz Days events. Sources: "DigiGirlz Day." Microsoft, n.d. Web. . Microsoft. Microsoft Learning. Microsoft Digital Literacy Inspires High School Girls at DigiGirlz Dubai. N.p., May 2009. Web. . Digital literacy programs in rural isolated areas Programs focused on rural isolated areas represent a particular case of the examples presented above. As such, they address the complexities of delivering training in underserved regions of a country. The primary foci of these programs is bridging the digital divide and enhancing the employability profile of the targeted population. In this case, the initiatives tend to be large scale and centrally managed and focus on accessibility. While the central government plays a prominent role in program management, it is not unusual to find private sector participants or NGOs. In many countries, the rural population faces multiple disadvantages over its urban counterparts: higher unemployment rates and fewer employment opportunities, lower literacy rates, and a larger proportion of citizens living below the poverty line. To make matters more complicated, these regions have been traditionally underserved in terms of ICT and reflect lower broadband penetration rates. At the same time, broadband connections could potentially reduce these disparities and the digital divide. Unlike voice services, it has become increasingly less expensive to communicate and stay in touch over broadband as well. Connectivity offers access to services that may otherwise be inaccessible due to geographical limitations, opening the opportunity to such tools as e-health, e- government, and e-education. Further, it allows residents to stay connected with friends and family and informed of current events. Connectivity also means more employment opportunity, offering the means for citizens to search for and apply to jobs. Without a perfunctory knowledge of how to use computers and broadband, however, the advantages of these tools are lost. While government involvement may spur the development of infrastructure in many instances – particularly as the private sector sees less financial incentive to invest in areas with more geographical barriers and less disposable income – successful rural training programs many times require assistance from corporations or organizations. The corporations can offer financial support and the benefit of experience, while grassroots organizations may have more success in engaging the people. 73 As many rural communities may not “be commercially viable on their own,” broadband access can afford the utilization of a variety of tools to promote development and sustainability. Rural farmers, for instance, can access weather reports and market information while utilizing agriculture software to improve their business production. Similar examples have been seen for fishermen, basket weavers, health care workers, and the like. Access is key, as this population cannot easily utilize the physical resources found in urban areas. To this degree, successful programs have:  Offered online training  Built local access centers or cybercafés in areas with limited ICT  Implemented initiatives in public schools or safe houses  Partnered with local governments  Deployed trainers to rural areas Rural broadband training programs bridge the digital divide, ultimately reducing the disparities between the urban-rural populations. Box 6.3.24 – Intel Easy Steps Program (Philippines) The Intel Easy Steps Program offers basic digital literacy training to adults with very little computer exposure. Topics focus on everyday computer use, from Internet searches to word processing to email. As a result, participants leave the program with the necessary skillset to communicate with friends and family and also to research and apply for jobs, draft resumes, and create presentations. With an increasing number of positions requiring ICT skills, this knowledge increases citizens’ employability and self-sufficiency while enhancing the country’s economic competitiveness in the international market. Intel provides the program free of charge to governments and NGOs, which then implement it on a local basis. In November 2010, at the 6th Knowledge Exchange Conference on Community eCenters in the Philippines, the country’s Commission on Information and Communications Technology (CICT) signed a memorandum of understanding with Intel Microelectronics Philippines to deploy the initiative. This agreement followed Intel’s push to address the lack of digital literacy of the region’s government employees and adults in rural communities. Instruction is offered in a variety of environments, from vocational training centers, to shared-access centers, to the workplace. Intel identified 1,000 community eCenters across the country to host the training and the program considered additional locations for new centers. The small countryside town of Tanuan, for instance, partnered with Intel to create its Community e-Center (CeC), using the Easy Steps program to bring basic digital literacy instruction to its citizens. The manager of the center reported that, since the program’s inception, the town saw a rise in the number digitally literate farmers, fishermen, and health workers. For those citizens unable to attend a workshop in person, Intel Philippines now offers practical digital literacy training through 10 Intel Easy Steps Facebook applications. Each application simulates a real world situation – such as the behavior of a word processor or spreadsheet – allowing users to create such products as resumes and budget plans via the social media website. They can then post their progress as a status message to track accomplishments and share with friends. 74 The country’s Technical Education and Skills Development Authority (TESDA) – responsible for the vocational programs in thousands of institutions across the country - partnered with Intel to expand the reach of the program and improve the digital literacy skills of its students. By December 2011, TESDA trainers worked with a total of 3,300 grassroots users hailing from 17 regional training centers. Sources: "Intel Easy Steps Program." Intel. N.p., n.d. Web. . "News From the Field." Intel Easy Steps Program. FIT-ED, 2012. Web. . Box 6.3.25 – Grameenphone Community Information Centers (Bangladesh) In late 2009, Grameenphone - Bangladesh’s largest mobile operator – partnered with Microsoft to implement a digital literacy program developed specifically for the country’s rural students. As a joint venture between international telecommunications provider Telenor and the non-profit Grameen Telecom Corporation, which is affiliated with the micro-finance pioneer Grameen Bank, Grameenphone has a history of promoting affordable telecom services throughout the country. This partnership took Microsoft’s well-established international digital literacy curriculum and first reproduced it in Bengali and then targeted the country’s rural students, unemployed youth, and women. The module focuses on basic IT skills such as Internet access, applications to increase workplace productivity, and computer security. Beyond coursework and training, the program also offers related resources for further learning and self- assessment exercises. Each section concludes with an examination, and students who successfully pass receive a certificate. Citizens can access the curriculum through other Grameenphone projects such as school cyclone shelters, Information Boats, and education institutions as well as through the more than 500 authorized Grameenphone Community Information Centers (GPCICs). Since 2006, GPCICs have provided the rural population of Bangladesh with access to Internet, voice, and video conferencing services. Each center houses at least a computer, a printer, a scanner, a web cam, and an EDGE-enabled modem that allows for Internet connections. While the centers receive technical support from the GSM Association, local entrepreneurs manage and run them like small businesses. Grameenphone provides these managers with training and support. The vast majority of the country lives in rural areas; by targeting this sector and providing them with ITC access, the program effectively reduces the geographical digital divide. In turn, the GPCICs aim to alleviate poverty, bring education to the underprivileged, create employment opportunities for the youth, and promote local entrepreneurship. Grameen has worked with many international corporations, organizations, and multilaterals in support of this mission. Microsoft provides citizens with the digital literacy curriculum and the examination free of charge. In the partnership, Grameen is the licensee, Microsoft the licensor, and the GPCICs and other Grameen centers the authorized centers. Sources: "Grameenphone - Microsoft Digital Literacy Programme." Telenor. N.p., 16 Apr. 2012. Web. . 75 "About Us." GPCIC: Grameenphone Community Information Center. N.p., 2007. Web. . "Grameenphone Partners with Microsoft." Grameenphone. N.p., 4 Nov. 2009. Web. . Box 6.3.26. – Ford-Rotary Digital Literacy Program (India) In 2010, Tamil Nadu’s Ministry of Information Technology commenced its digital literacy program targeting the state’s rural population. The program – a partnership between Ford Business Services and Rotary International – provides beneficiary institutions with the hardware and software necessary to provide digital literacy training. Through the alliance, Ford Business Services - a subsidiary of US-owned Ford Motor Company - initially donated 150 computers to 11 partner groups. The groups included organizations that focused on women empowerment, underprivileged youth, and rural communities as well as vocational training institutions. Computer novices can now access the 20-hour training online through any of the participating institutions. The curriculum includes six modules and uses the digital literacy CD “Know It,” designed to train citizens in basic computer functions, such as the use of the Microsoft suite, Internet, and email. Users interact with the CD’s step-by-step online teaching tool that also offers practice quizzes and activities. All software was locally developed with rural users in mind. The State of Tamil Nadu has demonstrated a commitment to enhancing ICT access and understanding throughout the region, recognizing the potential for this technology to bridge the digital divide. Prior to this initiative, it had already created an IT plan and an e-waste policy while investigating ways to increase e-government services. While Tamil Nadu is one of India’s most urbanized states, its rural village population is marked by lower levels of literacy and fewer employment opportunities, both of which affect economic development in the region. Since the program’s inception, Ford has donated more than 700 computers and connected with nearly 10,000 people in the state. In September 2012, Ford India inaugurated the Ford- Rotary Digital Literacy Center. The center provides the underprivileged population with the computer literacy training necessary to enhance their employment options. The center offers multiple courses throughout the day, instructing participants on basic computer use. Sources: "Digital Literacy Programme to Empower Rural Population." The Hindu. N.p., 17 Aug. 2010. Web. . "Ford-Rotary Partnership Helps Bridge Digital Divide in India." @FordOnline. N.p., 8 Oct. 2012. Web. . India. Tamil Nadu. 11. Rural Development. N.p., n.d. Web. . Digital literacy for persons with disabilities 76 Recent literature has highlighted the need to deploy digital literacy programs targeted to persons with disabilities (e.g. visually impaired, hearing impaired, etc.). Most of these programs respond to the need of improving the quality of life and promoting social inclusion of the disabled population. Their focus is to build broadband and Internet usage capabilities. Courses are tailored to the specific needs of the disadvantaged population. While most of these programs are implemented at the national scale, it is not uncommon to observe the participation of non-government organizations (e.g. interest groups, community organizations) as program stakeholders. Their participation is structured around partnerships with public agencies. The advantage of including these types of organizations in the structuring and delivery of digital literacy programs is that they tend to have a better understanding of the needs of the group being targeted. While most programs of this type have been deployed in the industrialized world (Hilding-Hamann et al. (2009) surveyed 95 such programs in their review of EU initiatives), the examples provided below are used to demonstrate the benefits of extending these initiatives in emerging countries. Among the best practices in the deployment of digital literacy for persons with disabilities, the following have been highlighted:  Organize the digital literacy programs in centers already focused in helping disabled citizens  If physical facilities focused on the disabled do not pre-exist, ensure that new centers are handicap friendly, equipped with special tables, with plenty of room allowed for wheel chairs. Computer should also be designed to fit the needs of the disabled  From an equipment perspective, special customized hardware should include voice output devices, special large-surface keyboards, trackballs, voice activated devices, etc.  The centers and digital literacy training should be opened to people with all kinds of disabilities: physical, psychosocial, hearing impaired, cognitive difficulties like dyspraxia, dyslexia, dysorthography, intellectual disabilities, etc.  Training should be adapted to each disabled situation, resulting in the development of special training materials  However, start-up training modules should include internet access, word processing, spreadsheet usage, e-mailing, digital presentations, information search, and web-banking  Try to enroll professionals trained to work with people with disabilities (e.g. special needs teachers, occupational therapists, social workers, etc.); these professionals should be trained to deliver ICT literacy programs  Be prepared to handle individualized coaching  Consider distributing used computers donated by private companies that participants could take for use in their homes and workplaces  While computers are provided free of charge, consider charging a nominal fee for course attendance to create an incentive for ongoing participation 77  Conduct on-going monitoring of the latest development of technologies to support people with disabilities  Structure a feedback mechanism, where participants fill out feedback forms to improve training and adapt it to the needs of attendees; this could be complemented with random follow-up calls to former participants  Consider organizing a placement function to help participants find jobs; the placement function could organize a portal to link up with companies interesting in providing employment opportunities to disabled individuals  Funding could be organized with contributions from the private sector (a telecommunications company provides broadband access, a software company provides the training modules, one-time contribution for hardware acquisition) and the educational system (universities could supply technical support and pro bono training staff); this could allow programs to be set up without any dependence upon government funding Box 6.3.27. – DICOMP-S.NET Project (Europe) The Digital Competence Screenreader Network – or DICOMP.S-NET - project ran from January 2007 through June 2008, focusing on increasing digital literacy within Europe’s blind and visually impaired population. The project targeted the blind after acknowledging that this sector faced educational and professional discrimination as a result of their disability. Similarly, they could not benefit from many of the other digital literacy training initiatives across the region that would potentially increase their opportunities for economic advancement. To address this issue, the project provided participants with a screen reader designed for the blind and visually impaired free of charge. The screen reader was compatible with the Microsoft suite to promote the utilization of technology applicable to every day life. To offer ICT use instruction and support, the program recruited blind and visually impaired tutors and provided them with training so that they could in turn assist participants with implementation of the screen reader and demonstrate its functions. Tutors were trained using an e-learning application. The product dissemination phase of the project took considerable planning, and first began by distributing the screen readers to partner groups in supporting countries, which then conducted pilots and testing to suggest necessary adaptations for their specific populations. All content, such as texts and tools, was translated into the most relevant language of the country so as to reach and appeal to the largest possible group. The European Commission funded the project in part and partners included training institutions and non-profit organizations across Europe. Berufsförderungsinstitut Steiermark (Vocational Promotion Institute) took ownership of the project. Founded and owned by the Austrian Federation of Trade Unions and the Chamber of Labor, the non-profit has offered vocational training and adult education for more than 50 years and the European Union has commissioned many of its projects. While specific financial data was not released, the approximate implementation costs fell in the €300,000 – €499,000 range. The economic impact was valued in the €49,000 - €299,000 range. Per an assessment by the European Union, the program produced the following results:  Creation of a free screen reader in all partner languages, including all accompanying documents (menu navigation, help texts, manuals);  Tutor training for blind and visually impaired people for the screen reader, partially via an e-learning application 78  Dissemination through national information campaigns  National road - shows for the screen reader  International conference and symposium This assessment concluded that the successful training of tutors had the most significant impact on the DICOMP.S-NET project. Sources: "Digital Competence Screenreader Network." Dicomp-S.net. N.p., n.d. Web. . "Digital COMPetence Screenreader NETwork." EPractice.eu. European Union, n.d. Web. . Box 6.3.28. – National Deaf-Blind Equipment Distribution Program (United States) In October 2010, President Barack Obama signed the 21st Century Communication and Video Accessibility Act (CVAA), ensuring that the visually and hearing impaired population had access to communication technology such as “video, voice, text, and other capabilities of smartphones, digital television, and internet-based video programming.” The Act serves as an extension of the 1990 Americans with Disabilities Act (ADA), which addressed discrimination in a variety of sectors, including telecommunications. The ADA resulted in, among other requirements, closed captioning for television programming and hearing aid compatibility for telephones. As the means of communication continue to change rapidly, the CVAA addresses such technology as VoIP, Internet streaming, and smartphones. The same requirements for televisions and telephones will now apply to cell phones, smartphones, and IP-enabled phones as well as specified communications devices. Manufacturers must now also create devices with the needs of the disabled population in mind, incorporating, for instance, means for the visually impaired to view Internet pages and emails. The act also targets video programming, including digital television, set-top boxes, DVR devices, and streaming Internet, though it does not place requirements on user-generated programming sites like YouTube. All devices that receive or play video programming must have closed-captioning and video description capabilities and provide access to emergency information. The Federal Communications Commission (FCC) manages the multi-year implementation of the CVAA, creating advisory committees to oversee the progress and reporting to Congress. In 2012, the agency established the National Deaf-Blind Equipment Distribution Program (NDBEDP) as part of the CVAA. In partnership with the Helen Keller National Center and the Perkins School for the Blind, the program provides the necessary equipment and training to help the low-income blind-deaf population connect with the community through the use of ICT. Equipment can include hardware, software, and applications so long as it is designed to address telecommunications accessibility. The FCC began the program’s pilot by designating one certified entity in each state plus the District of Columbia, Puerto Rico, and the Virgin Islands (53 in total) to distribute the equipment. Certified programs may also provide training on how to use the equipment as needed. The iCanConnect campaign provides outreach, assessments, telecommunications technology, and training free of charge to individuals who qualify for the NDBEDP. Only low-income deaf-blind individuals may participate in the program; the Helen Keller National Center Act and the Federal Poverty Guidelines determine these qualifications. 79 The CVAA permits the FCC to spend up to US$ 10 mn per year from the Telecommunications Relay Service Fund to support the program. The pilot program allocated a minimum US$ 50,000 to each certified distribution entity with additional funding commensurate with state population size. The Perkins School for the Blind will also receive US$ 500,000 annually to coordinate and promote the program. The program will run from July 2012 through July 2014 with the potential for extension. Sources: Pike, George H. "President Obama Signs the 21st Century Communications and Video Accessibility Act." President Obama Signs the 21st Century Communications and Video Accessibility Act. Information Today, Inc., 11 Oct. 2010. Web. . "Guide." National Deaf-Blind Equipment Distribution Program. FCC, n.d. Web. . "ICanConnect." ICC. National Deaf-Blind Equipment Distribution Program, n.d. Web. . Digital literacy for the elderly Generational differences represent another major barrier to broadband adoption. Typical age cohort where adoption starts declining dramatically in emerging countries is 40 years old (when controlling for income). In that sense, digital literacy programs conceived as extension of either universities or secondary schools have proven to be very valuable in bridging the generational gap. The overall long-term goal of these programs is to improve social inclusion of the elderly population. The primary content delivered in this type of programs are standard computer courses, in some cases tailored specifically to the needs of the elderly (e.g. email to communicate with the family, photo sharing, use financial applications, purchasing tickets online, etc.). However, in addition, digital literacy courses for the elderly give seniors an opportunity to meet people and develop a social network. The advantage of including non-government organizations in the case of programs for the handicapped population discussed above is also applicable to initiatives focused on the elderly. Among the best practices in the deployment of digital literacy for the elderly, the following have been highlighted:  Carefully determine needs of targeted population given the different requirements that have been observed across the segment  Create a website supporting the program, which would include self-study course modules for use on an ad-hoc fashion in community centers  Self-study programs should comprise online courses, complemented with traditional printed materials  Include an entertainment section (media, music) in the website to enhance attractiveness 80  Strive to coordinate the program with cultural organizations that are part of the user community (for example, they can act as advertising vehicles for digital literacy programs)  Equip program with self-contained units that could be used via touch screens and a simple menu system  If program is offered at a community center, ensure continuous presence of host instructors that can answer inquiries, take registrations, and be responsible for all technical logistics  Make sure that instructors stay after classes to act as tutors for the seniors that stay in the center working on the computers  Provide an environment where users can share their experiences in dealing with technical issues with peers, which constitutes an important retention mechanism  Digital literacy programs for the elderly attain better results when they are delivered in an environment that provides the opportunity to meet other people and break their social isolation  It is sometimes useful to involve students of upper secondary schools in the role of volunteer “digital facilitators” to teach internet browsing and e-mail use to the elders; the one-to-one relationship between the young tutor and the trainee (a concept called “intergenerational learning”) improves the learning experience  Focus on teaching material that is immediately transferable and applicable to the senior everyday life Box 6.3.29. – Senior-Info-Mobile (Germany) In 1996, the German federal government established a task force to promote the inclusion of various sectors of the population into the growing information society. Under this task force emerged the “Older People in the Information Society” working group, which brought to light senior citizens’ lack of exposure to ICT otherwise found in an educational or professional context. To address the disparity, members of the committee proposed the Senior-Info-Mobile project, which came to fruition in 1998. By establishing a mobile Internet café, the project served to bring the technology to people. Offering exhibits and training inside the “café” further raised awareness of the capabilities of ICT. Most of the tutors involved in the project were also senior citizens, which resulted in little resistance to the training on the part of participants. The group-oriented instruction also created a more comfortable environment in which to learn about and adapt to the new technology. Many of the senior citizens who participated in the program reported that prior to Senior-Info-Mobile, they had never before used a computer or the Internet. A study revealed that, following the project, 50% of participants had interest in learning more about the Internet. Many respondents said that they would have more of an inclination to invest in their own computers if they could access customer service when needed. 70% of visitors to the bus were over age 60, and more than 20% were at least 70 years old. The Federal Ministry of Economic Affairs provided financial support for Senior-Info-Mobile. Partners IBM Germany and German Telecom donated the two-level omnibus and telephone connections, respectively, while T-Online sponsored the Internet accounts. The bus was re- designed and equipped with a Local Area Network (LAN) and six Internet terminals. It also featured a PC designed specially for blind and visually impaired people. An additional PC and AV equipment allowed tutors to host presentations. 81 Additional multi-sector private sponsors funded and managed promotion campaigns, public relations, and volunteer coordination. As a result of much media attention and advertisement, more than two million citizens over age 50 heard of the program through television or radio. Nearby European countries requested that the bus travel to their countries following this push in advertising. Despite its success, at the end of the program, the Federal Ministry of Economic Affairs reduced its funding. The program attempted to refinance its costs by requiring fees from local municipalities, but many of these regions had tight budgets and could not afford to offer assistance. In the first three years of the project, the mobile café traveled to more than 60 German municipalities, with over 60,000 citizens between the ages of 50 and 96 visiting the Senior- Info-Mobile bus and taking part in trainings and demonstrations. Beyond directly impacting participants who visited the bus and took part in the demonstrations and training, the project inspired organizations to incorporate senior ICT training into their work plans. Despite the long reach of the program, many rural areas expressed disappointment that the bus did not reach their citizens. Some cities where Senior-Info-Mobile saw a high demand subsequently designed Internet cafes and ICT training programs with the older population in mind. Sources: Senior-Info-Mobil: A German Awareness Rising Campaign on IST Targeting Older Citizens. Rep. SeniorWatch, 28 Dec. 2001. Web. . Box 6.3.30. – SeniorWeb (Netherlands) In the 1990s, the Netherlands’ Ministry of Economic Affairs partnered with the Ministry of Health, Welfare, and Sport to finance a program that would promote ICT use amongst its older population. Along with other suggestions on how to address this goal while at the same time providing digital literacy training came the SeniorWeb portal, which offered activities and campaigns designed with senior citizens in mind. Launched in 1996, the website seniorweb.nl now serves as a home page for citizens in the Netherlands over age 50, offering information, advice, and links to Internet-related websites. It emphasizes user interaction, encouraging members to place advertisements or take part in activities like photo sharing contests. On their own, users have developed chat rooms, discussion lists, and “web families.” Seniors can customize their individual experiences by choosing to utilize different features ranging from the helpdesk to email listservs that connect members with similar hobbies and online courses. Membership includes digital literacy training courses conducted by SeniorWeb “ambassadors.” The ambassadors are all volunteer senior citizens who understand the needs of this age group. They not only teach the lessons, but also organize the courses and make arrangements with local educational institutions or Internet cafes while offering technical support as needed. The face-to-face lessons are especially valuable for those senior citizens with low education and literacy levels who may otherwise not benefit from on-screen instruction requiring considerable reading comprehension skills. The ultimate goal of the program is to promote online participation amongst senior citizens. The project recognizes that the older population may require additional training to increase ICT awareness amongst the older population, which did not grow up using computers or benefit from digital literacy courses in the education system. The government sees the elderly as a high priority, as the country will have over four million citizens over the age of 65 by the 82 year 2030, amounting to nearly one-quarter of the population. In comparison, only 14% of the population was over age 65 in 2005. To join SeniorWeb, each member pays an annual 24 Euro (US$ 31) fee. The fee includes access to all areas of the website as well as a subscription to the quarterly magazine, Enter, and an annual CD-Rom. Partner organizations offer discounts on their products to members. SeniorWeb’s network now includes 2,500 ambassadors and 110,000 members and the site sees more than 20,000 visitors per day. Research and analysis of the program indicates that the program has increased digital literacy amongst an even higher share of the population as members informally share their learned knowledge with their families, friends, and members of the community. The program has expanded to reach the 50+ population in Germany, Austria, and Switzerland. Sources: "SeniorWeb." SENIORWEB. N.p., n.d. Web. . "EInclusion Factsheet - Netherlands." EPractice.eu. European Union, 4 Jan. 2011. Web. . "Crossing the Bridge between Functional and Digital Literacy." N.p., n.d. Web. . Box 6.3.31. – Senior Connects (United States) The Senior Connects Corporation has offered digital literacy services to senior citizens since 2003, increasing their computer access and ICT skills by working with senior centers, retirement apartments, and independent living facilities. High school student-volunteers teach basic computer and Internet courses and in some instances, their schools provide the computers and broadband access necessary for the training. The program is based on the “train the trainer” premise; volunteers first receive training before working with participants. Participants do not pay to take the classes, which typically only have one or two students per tutor. The program is customized to fit the needs of the participants - who may have little or no experience with computers – using the pre-established Senior Connects Methodology. Starting a Senior Connects program at a living facility, senior center, or senior apartment complex does not require any cost. Ideally, the chosen facilities will already have computers and Internet access. If the facility does not have such capabilities, Senior Connects offers resources for individuals or organizations looking for funding. While Senior Connects operates as a 501(c)(3) not-for-profit corporation and does accept donations, it does not permit volunteers to ask for compensation from participants in the program. The Senior Connects website offers instructions for potential volunteers, with topics ranging from establishing contact with senior centers to interacting with students to conducting the actual training. It also provides detailed surveys and lesson plans that the volunteers can use as well as information on college scholarships, whitepapers, and useful resources. In the first year alone, the Senior Connects program worked with more than 11,000 residents and this number exceeded 50,000 in 2010. By 2008, the program had provided computers to more than 100 senior citizen facilities. Senior Connects now operates as part of the Net 83 Literacy project, a larger initiative that came to fruition as Senior Connects offered more services to other sectors of the population. Studies of Senior Connects found that not all citizens had the same needs or experienced the same rewards from the program. Participants living in independent living facilities tended to be a) older and b) more likely to have some sort of physical or mental impairment as compared with their counterparts living in retirement apartments. As a result of these factors, residents of independent living facilities typically entered the program with less technology know-how and tended to be more technophobic. The program plans to use these findings to modify its program to train this sector more efficiently. In general, however, the study demonstrated the achievements of Senior Connects. 80% of participants had never before used a computer prior to the program, but one year following the course, 93 – 96% of senior students reported using the Internet more than twice a month. The study attributed the following factors, amongst others, to the Senior Connects’ success: one-on-one training, training provided free of charge, building computer labs where seniors already lived, modifiable training materials, and emphasizing the value of Internet use in connecting with friends and family. Sources: "What Is Senior Connects?" Senior Connects. Net Literacy, n.d. Web. . 6.3.2. Community Access Centers Deployment of community access centers can assume different forms. In some cases, broadband access centers are installed in existing facilities as a complement of activities already performed at those locations (e.g. public libraries). Other practices point to the creation of stand-alone access centers exclusively focused in providing free access to broadband services. This section will review the different options, paid or free, for providing broadband access. The objective is to enhance Internet access in contexts where affordability represents an insurmountable barrier to adoption. 6.3.2.1. Types of shared or community access centers Digital Community Centers Digital community centers represent the most common approach to providing public access to broadband, while organizing technology awareness and education programs. The deployment of community centers combines a top-down and bottom-up governance framework, whereby a public policy initiative triggers the involvement of communities in the management of each unit. The sum of grass-root community organizations dedicated to managing each center is coordinated by a steering committee, who works with each center to develop plans for extending broadband service, and providing technology awareness and training programs. In some cases, the steering committee works with a dedicated staff that acts as a resource. In that sense, the central dedicated staff becomes an enabler of the community-based effort rather than an implementer. 84 By virtue of their decentralized governance framework, centers become independent from contributions of the national government, with all funding support being provided by either local governments or the private sector. This structure appears to be also scalable across regions of a given country. Digital Community Centers have become highly suited to tackle technology and economic development programs within rural contexts. The following best practices have identified in this domain:  Establish a permanent channel of communication between the community and the managers of the community access center, involving the community directly and encouraging to take ownership of the activities of the center  Community involvement could entail nominating local technology champions, who assemble community support, lead technology needs assessment and planning efforts, and work to introduce technology initiatives to meet community needs  Construct digital community centers as a technology and entrepreneurship hubs within communities; as such, the centers provide free broadband access to the public, and, at the same time, a variety of fee-based business and technology services to local non-profits and businesses  Among the entrepreneurship services that the digital centers can provide are employee training, modern office space, technology expertise and business consulting  Put in place a full technical service team that ensures that all equipment is always working properly  Besides hosting IT courses and provide access, make sure that the center functions as venues where people can meet and enjoy other cultural activities and entertainment  In terms of advertising and promotional activities, the center should post monthly newsletters on its website, addressing issues for small businesses, such as fundraising opportunities, or dealing with foreign worker authorization permits  Consider outsourcing some of the center functions Box 6.3.32. – Pontos de Cultura (Brazil) As part of the Brazilian Ministry of Culture’s larger program, Cultura Viva, the Pontos de Cultura initiative is a socio-digital inclusion program that develops public digital spaces throughout the country to encourage citizens to create digital culture. By providing citizens with free, open-source software and broadband access at these telecenters, the initiative promotes technology as a tool to spur the spread and creation of digital culture, thereby affirming Brazil’s cultural identity. Individual communities take charge of their ponto’s financial matters, managing the center autonomously, although they all have access to a network over which they can work together to share ideas and problem solve. The pontos have the potential to generate income for these communities, which can customize the services of the centers to fit the needs of their residents. Once the Ministry of Culture deems it an official Ponto de Cultura, the center receives a digital multimedia kit, which guarantees users broadband access so that they can share their work. It also includes a multimedia studio complete with professional-grade audio, 85 video, software development, text, and imaging technology. Equipe Cultura Digital and local grassroots organizations offer training on how to use these tools and also on the benefits of broadband in transmitting their ideas. As part of the program, the Cultura Digitale Equipe (digital culture team) hosts workshops that focus on educating the community on how to use new technology to best suit their needs. The pontos de cultura receive a monthly stipend of €1000 for the first two years, at whi ch point they should sustain themselves. The GESAC Program of the Ministry of Communications provides this funding as part of the aforementioned media kit. While the centers are run autonomously and funding lasts for two years, the pontos must continually report their progress to the Ministry of Culture to ensure that they stay on track and align with the Ministry’s overall mission of promoting digital culture. The program has faced criticism for not establishing qualitative indicators by which to judge its efficacy. There are currently 1,000 pontos de cultura throughout the country, but the government plans on building an additional 9,000 within the next two years. Sources: Bria, Francesca, and Oriana Persica. "Synergies between Pontos De Cultura and Ecosystems." Digital Ecosystems. By Matilde Ferraro. N.p.: n.p., n.d. 4.5.1-.5.8. Web. . "Ministério Da Cultura." Study Tour Brazil. N.p., n.d. Web. . Box 6.3.33. – Puntos de Acceso (Venezuela) Venezuela’s Puntos de Acceso program marked the country’s first step toward the provision of universal telecom services. Each punto de acceso provides citizens with access to ICT services and training, which focuses on building ICT skills that enhance users’ educational, cultural, and economic activities while encouraging information exchange and increased communication. Each center is designed with the needs of various members of the community in mind – from workers, to students, to professionals – and also makes provisions for the people with handicaps or special needs. Universal access is expected to decrease the social divide by allowing all citizens – regardless of their geographical location on socio-economic situation – equal access to information and telecommunications. To do so, the plan must work to provide the necessary infrastructure while also incorporating the proper training and education as it relates to ICT. The Puntos de Acceso project specifically aims to bring fixed-line and Internet services to the general public while ensuring that proper training accompanies these services. Proper training, the plan follows, will allow citizens to use ICT effectively and ultimately increase productivity and improve their quality of life. Per the Venezuelan regulator, CONATEL, the sectors of the population who do not have access to ICT services also tend to suffer from social exclusion, economic insufficiency, and a lack of basic essentials like food, shelter, and education. These struggles manifest in high unemployment rates, lack of infrastructure and public services, and sanitary deficiencies. The population groups most likely to face these issues include ethnic minorities, handicapped persons, the elderly, and communities in disaster zones or geographically isolated regions. CONATEL sees the Puntos de Acceso project as a means to providing telecom access to these groups. 86 In order to ensure that the disadvantaged members of society realize the maximum potential of increased ICT access, the project offers ICT training and technical qualification courses. Workshops and seminars are available to teachers and professors, who can in turn share this instruction with their students. Prior to implementation, the project first examined the demographics of the country as well as its existing ICT infrastructure, electricity supply, and potential demand. The Puntos de Acceso initiative then targeted four states within the country based on these factors, strategically choosing locations equidistant from areas void of ICT services. The proposal for the project does not list costs specifically, as the cost of the infrastructure and operation vary by operator. Per the Telecommunication Statutory Law (LOTEL), the country’s Universal Service Fund will subsidize the project’s infrastructure expenditures while promoting market competition. The law requires telecom operators doing business in the country to contribute 1% of their gross income to the fund in order to finances these costs. The fund, established in 2000, serves to “offer minimum penetration, access, quality, and economic accessibility standards, regardless of geographical location” throughout Venezuela. CONATEL sets the standards for quality and technical requirements. Venezuelan legislation considers Internet access a necessary factor for development. To fulfill the obligations of the Universal Service project, Puntos de Acceso addresses: international standards, functionality, scalability, adaptability, and facility of administration. Each punto must provide a two-way traffic IP to assure accessibility. For the purpose of the project, CONATEL made available the following frequency bands: 2300–2400MHz, 5725– 5850MHz, 10,27–10,30GHz, and 10,62–10,65GHz. The program also makes provisions for a Social Management Program (SMP) to serve as a methodological tool to stimulate new projects and oversee qualitative evaluation. Sources: Puntos De Acceso: First Telecommunications Universal Services Obligation in Venezuela. Rep. CONATEL, n.d. Web. . Box 6.3.34 – Argentina Conectada (Argentina) In October 2010, Argentina’s president Cristina Fernandez de Kirchner announced a five - year plan – and an initial investment of US$ 1.7 bn – for its “Plan Nacional de Telecomunicacion,” also known as “Argentina Conectada.” Backed by public investment, the plan covers the deployment of necessary equipment, infrastructure, and services to provide ICT equipment and training to public school students, extend connectivity to remote areas, and establish public access ICT centers. Through this initiative, the government dictates the promotion of broadband growth and the equitable distribution of such services. The first phase of Argentina Conectada deployed 28 knowledge access centers – known as Nucleos de Acceso al Conocimiento, or NACs – in public areas throughout the country. Each NAC provides ICT access and training as well as entertainment and cultural applications. The training increases skill development while promoting engagement in community affairs. Through the NACs, users have access to WiFi Internet, personal computers, audio-visual equipment, and gaming consoles. The plan developed the NACs not only to provide Internet access, but also to promote e-inclusion and community participation. They offer educational tools and technology and serve as a point of contact between citizens and their government. Once this first phase of Argentina Conectada reaches completion, the country will see a total of 250 NACs. 87 By the end of 2010, the total number of broadband connections in the country rose to 5.22 million, up from 4.26 million one year prior. Residential connections accounted for 4.51 million of the connections while business broadband connections contributed an additional 715,955. In 2012, Argentina now boasts one of the most developed broadband markets in the region coupled with some of the fastest and least expensive plans. Sources: "Argentina Govt Deploys 28 Knowledge Access Centers." Telecompaper. N.p., 2 Aug. 2012. Web. . "Nucleos De Acceso Al Conocimiento." Argentina Conectada. N.p., n.d. Web. . Box 6.3.35 - Case Study: Thaicom Digital Communities (Thailand) In 2009, the satellite provider Thaicom launched its Kids Thaicom Project, donating satellite dish televisions throughout schools in Thailand’s remote regions. Deemed an example of “innovative corporate social responsibility,” the program not only focuses on the provision of the equipment, but on fostering an understanding of the benefits of technology amongst the country’s students by connecting them with worldwide mentors, teachers, and leaders. As the president of the corporation explained to the children, “They are tools f or you too. Not just city kids with money.” Prior to the project, Thailand identified 10,000 rural schools with an inadequate teacher : student ratio. By virtue of their location, these schools did not have the means to benefit from the technological advances of the 21st century and its resources. Thaicom then selected 999 schools based on the below criteria, per its website: • Elementary or secondary school with at least 80-100 students • Ratio of students per teacher of 20 to 1 • Located in the remote areas and far from the city center • Does not have a satellite dish to receive educational programs The participating schools each received a Thaicom satellite dish, DTV receiver, and a TV. The equipment was installed by both providers hired by Thaicom and by the corporation’s more than 300 volunteers who donated their time to work with the schools. Thaicom also covered the connection costs and offered ongoing training and technical support as needed. Once connected, the schools could access the Internet and educational programs, while having the freedom to incorporate the technology into the curriculum as they saw fit. Within a year and a half of the project’s implementation, the project had connected more than 759 schools. By mid-2011, Thaicom expanded the program to use the connected schools as “sustainable knowledge centers,” utilizing the tools to develop vocational training and small businesses in rural areas. The project recognized that providing the schools with the technology not only improved the education of the students, but also raised community awareness of its benefits. 88 The project selected 2 of the schools to serve as sustainable knowledge center pilot schools, encouraging the school directors, teachers, and community leaders to work together to develop a digital community most relevant to local needs. One of the schools, for instance, considered incorporating such topics as herb processing and mushroom growing. The involvement of local volunteers and Thaicom employees is credited with the program’s success, creating a sense of pride amongst the community. Sources: Zacharilla, Louis. "The Future of Thailand -- 999 Schools beneath the Enlightened Footprint." Digital Communities. N.p., 25 Mar. 2011. Web. 19 Nov. 2012. . "Corporate Social Responsibility." Thaicom. N.p., n.d. Web. . Box 6.3.36 - Case Study: e-Mexico National System (Mexico) In 2003, under the direction of President Vicente Fox, Mexico launched its “e-Mexico” initiative, developing 10,000 “Digital Community Centers” in an attempt to connect 90% of the country to the Internet. From the outset, e-Mexico projected that it would increase the number of Internet users within the country from 4.5 million to 60 million users. The project integrated the below objectives: • Develop the e-México National System as a technological system with social content to have a profound impact on the society development. • Eliminate access barriers to information and services, and reduce the Mexicans digital divide between them and with the rest of the world, that through the voice, images and data transfer, allow the access to the information delivering, related with education, culture, health, government, commerce and other services. • Achieve the integration of the more isolated communities with the rest of the country, by making accessible to all population the use of new Information and Communication Technologies in their multiple purposes increasing their development. • Integrate efforts with the different government levels, social and private sectors as well as telecommunications network operators of the country • Encourage digital connectivity services penetration and promote the use of information and communication technologies, and computers industry among the population, especially in the localities with less development level and where more attention to their impulse is required and integrate them to the new economy. • Accelerate the historical tendencies in the services penetration in telecommunication and informatics with the objective to guaranty the social services and contents coverage of the e-México National System and to be present in all the national territory and at the reach of population. The project was developed to reduce the country’s digital divide, making Internet access universal regardless of location or socio-economic factors. President Fox recognized the benefits of connecting citizens to the Internet, including increased development opportunities, a more informed and political populace, enhanced competitiveness, and a higher quality of life. 89 E-Mexico focused on three overarching themes: connectivity, content, and systems. It not only offered the provision of physical centers where citizens could access the Internet, but also promoted its application through e-government, e-health, e-economy, and e-learning services. It also encouraged knowledge sharing through increased connectivity. Nearly three- quarters of all center activity was based on some form of digital literacy training or learning service. The project did not have a specified budget, but rather focused on developing partnerships with various sectors to achieve the most cost-efficient deployment as possible. Mexico’s ministries and foundations collaborating on this project included the Public Education Ministry, the Latin American Institute of Educational Computing, the Health Ministry, the National Federalism Institute, the Education for Life and Job National Council, and Adults Education National Institute. Within a matter of months, the project had completed the installation of more than 3,000 sites, mainly within schools, libraries, medical clinics, and post offices. The second phase of the project installed an additional 4000 network access points, and by the end of 2004, the project had brought a total of 7200 CCDs to the country. E-Mexico reached its goal of 10,000 CCDs by 2006. Its interactive portal was featured at 7500 sites and saw more than 5 million monthly visitors. Sources: "Intelligent Community Visionary of the Year." Intelligent Community Forum (ICF). N.p., 2012. Web. . "E-México: Mexico’s Digital Community Centers." N.p., n.d. Web. . "E-Mexico National System." Proc. of Wireless Internet Society North America Digital Cities Convention, Houston. N.p., 2 Mar. 2006. Web. . Box 6.3.37 - Case Study: Hewlett-Packard Digital Community Centers (Hungary) Over the course of four years, Hewlett-Packard implemented Digital Community Centers in twelve countries throughout the Europe and MENA region as part of its commitment to provide underserved communities around the world with the necessary tools and infrastructure for learning and development. The centers provide low-income communities with basic computer, Internet, and business skills to help its citizens find employment. The project typically targets teachers, health care providers, students, and the unemployed. Participating communities were selected based on the capacity of ICT to further their development as well as “their capacity to execute and sustain their vision and plans.” Hewlett Packard’s presence in the region also contributed to the selection process, as did its relationship with local organizations and businesses, many of which contributed to the project. December 2002 marked the launch of the Hungarian Digital Center in the city of Miskolc at the country’s Petroleum and Gas Institute. The DCC offered the country’s first multimedia center of its kind to train teachers and students on how to implement online training within the environmental industry. In 2005, the center launched its “Envirotrainer” program, a distance-learning program designed to train secondary school teachers on the implementation 90 of environmental technology into the classroom. Program topics include water and waste management, technology, and innovation. While Hewlett-Packard provides the initial funding and is actively involved with each center for three years, it keeps long-term sustainability in mind, collaborating with local governments and agencies to ensure additional ongoing funding. Like many other successful initiatives, it promotes the “train the trainer” model, involving local IT experts to work with members of the community to enhance digital literacy and also serve as role models. Sources: "HP Digital Community Centres." Hewlett-Packard Development Company, Feb. 2006. Web. . Cybercafés Cyber cafes remain a very important public Internet access point around the world, particularly in emerging countries. A database tracking cyber cafes deployment compiles data on 3,959 facilities14 broken down as follows (see table 6.12): Table 6.12. Cybercafes by Continent and Region (2012) Continent Number Percent Asia 1,091 27.5 % Africa 176 4.4 % Latin America and Caribbean 320 8.1 % Europe 1,577 39.8 % North America 600 15.2 % Oceania 195 4.9 % Total 3,959 Source: cybercafes While incomplete in terms of the total population, the statistics in table 6.12 are important in terms of pointing out that even in countries with high broadband penetration, cybercafés remain quite popular. For example, the database includes 308 cybercafes in the United Kingdom and 149 in France alone. Local Area Network Houses In developed and developing countries alike, privately owned local area network (LAN) houses not only promote broadband access, but also foster a community of online gamers who can connect and compete with each other. Many centers now offer digital training and other services as well, but in the least, they promote the social aspect of high-speed Internet use and increase the demand for such services. LAN houses typically consist of a network of connected computers where users can congregate to play the games, though many have expanded to offer additional services. 14Cybercafes compiles only advertising locations, which means that it underestimates considerably the total population. Nevertheless, it provides a sense of the popularity of the access medium. 91 In some instances, they serve as the only point of access for many citizens, while in others they supplement household broadband access, serving a more social function. Most LAN houses charge users an hourly fee and the popularity of the houses keeps the prices down as owners compete with each other to attract more customers and drive business. They have been credited with driving digital inclusion, particularly important in countries with little public investment in broadband access and low penetration rates. Box 6.3.38 - Case Study: LAN Houses (Brazil) Throughout Brazil, citizens access the Internet at Local Area Network (LAN) Houses, a concept that has taken the country by storm since 1998. As the name implies, each house consists of a network of computers assembled together. Previously found exclusively in wealthy communities, the LAN houses are now most popular in poor, rural regions where computers and broadband are not easily accessible. Beyond offering ICT tools, the houses also serve as social meeting points. While the houses were originally designed to support multi-player video gaming, and nearly half of all users report going to the LAN houses to play video games, an equal amount also use the services to access social networks, stay informed, and conduct job searches or work on school projects. The LAN Houses serve to reduce the country’s digital divide, offering affordable ICT and broadband access to Brazil’s citizens regardless of their location or socio-economic status. They have been attributed to increased sociability, and serve as a means to promote such tools as e-governance and e-education. Many also offer computer training courses and help with creating resumes and searching for jobs. While owners choose their own pricing strategies, LAN houses typically charge between US$ 0.40 and US$ 1.50 per hour. Some neighborhoods have more than 100 LAN houses, many of which stand side by side and still have lines of residents waiting to use computers throughout the day. The LAN houses came about in part as a result of the federal government’s Computers for All development project, which created credit lines allowing low-income families to purchase computers in small monthly installments. In some instances, citizens would purchase a computer and charge people to use it. As they accrued profits, they would purchase more computers and broadband access. By 2008, the country held more than 90,000 LAN houses, accounting for half of all Internet access in Brazil and 79% of all Internet access amongst the two poorest classes. For many of these citizens, the LAN houses were their only means of accessing the Internet. By 2010, an estimated 35 million citizens utilized LAN houses, a number slightly below previous years due to increased mobile phone penetration. Sources: Góes, Paula. "Brazil: Socio-digital Inclusion through the LAN House Revolution." Global Voices. N.p., 28 Sept. 2009. Web. . Lemos, Ronaldo, and Paula Martini. "LAN Houses: A New Wave of Digital Inclusion in Brazil." Information Technologies & International Development 6 (2010): 31-35. Web. . 92 Box 6.3.39 - Case Study: PC Bangs (Korea) The Korean model of PC Bangs inspired the Brazilian LAN Houses. These LAN gaming centers allow multiple users to play video games simultaneously for a low fee. Unlike the typical notion of a cyber café, PC Bangs do not merely offer Internet access, but rather foster online and offline social gaming communities. When the centers were first established, they were described as being similar to a quiet library, but have since evolved into an “ope n, frenetic coin-operated setting” that also offers food and beverages. By 2008, Seoul alone housed more than 22,000 PC bangs. Even as household broadband penetration rates in the country increase, the popularity of the PC bang remains stable. The PC Bangs are especially popular amongst the country’s youth population, with many students spending their afternoons playing online games with their friends after school before homework and evening family obligations. The rates of play – typically between US$ 0.40 and US$ 2.00 - are targeted for this age group, with many PC bangs offering rates that get incrementally lower with usage. That said, because PC Bangs are typically open 24 hours a day, the demographics change based on the time of the day. The average user in the mornings, for instance, is a male between the ages of 30 and 50. Many of these users also come to the room to day trade or search for jobs. Korea saw its first Internet connections in 1994, and within a year, Internet cafes emerged to offer individuals the high-speed access previously afforded only by universities and research institutions. In 1997, the government ended the monopoly of the country’s only telco, Korea Telecom, which gave birth to competitors like Hanaro Telecom, which built its business on broadband connections. At the same time, software developer Blizzard Entertainment released its game StarCraft for Microsoft Windows, and many users felt that they could not play the game adequately without a broadband connection, thus increasing the demand for such services and giving rise to the PC Bangs. To drive demand further, many of the bangs also offered StarCraft competitions and events. Because the popularity of games drives the demand for the PC Bangs and vice versa, it is not uncommon to see partnerships between manufacturers and PC Bangs. Many rooms have contracts with the gaming distributors to offer select games on their machines and prohibit users from downloading other games. To keep rent low, most rooms are located on the second or third floors of commercial buildings, where real estate is typically cheaper than more valuable first-floor or top-floor space, although high-rise building space is typically not available in rural areas. Sources: Huhh, Jung-Sok. "Culture and Business of PC Bangs in Korea." Games and Culture 3.1 (2008): 26-37. Sage Journals. Web. . "The PC Room Culture." Play as Life. N.p., 8 July 2010. Web. . "About Us." WebJunction. N.p., n.d. Web. . "Our Mission." Connect2Compete. N.p., n.d. Web. . 6.3.2.4. Stand-alone public access centers Complementing the review of ancillary access centers, the experience of stand-alone community access units will be reviewed, focusing on some of the “do’s and don’ts’s” that will enhance their success rate. In general, some of the practices for access centers:  Ensure that centers issue annual or semi-annual reports informing about activities being held, courses, results, topics taught, number of participants, etc.  Conduct internal evaluations of access centers every six months, measuring and comparing indicators such as number of visits per month, number of users per month, indicating gender, age, email accounts, blogs, and websites being created, etc.  Make sure that qualified personnel design the training activities and train the users Some of these stand-alone mobile facilities take the form of an “Internet bus” which goes to the neighborhoods to provide training upon request. An effective measure of ownership is when a group neighbors, a club or an association make a reservation for the bus to come to their community. Among best practices in the case of mobile access centers:  Hold training sessions in small groups in a non-formal atmosphere  Faculty to student ratio should be 1:5, for sessions of no more than 10 attendees  Courses are typically held for two hours and entail 5 sessions  Courses should follow a basic frame, that can be modified based on the knowledge level of participants  It is advisable to manage mobile programs in coordination with a community library services which, in many cases, already operate library buses and stationary internet access centers Box 6.3.41 – Community Technology Access Centers (Rwanda) 96 In 2009, the United Nations Refugee Agency (UNHCR) launched its Community Technology Access (CTA) project to give refugees and displaced individuals access to computers. The goal is to increase educational opportunities for this disadvantaged group, particularly women and girls. The access centers offer formal education, basic digital literacy course, long- distance learning programs, vocational training, and assistance with job applications. Further, access to Internet enables refugees to stay in contact with their family by way of email. In many ways, access to ICT tools will return some degree of stability to the refugee’s lives. Following training, refugees and members of the local community have the opportunity to work with the CTA as facility managers, technicians, and trainers. The program focuses on long-term sustainability, and hopes to create a design that will allow for seamless replication and scaling. The project piloted in 2009 in Rwanda’s Kiziba camp, where refugees fleeing the Democratic Republic of Congo had lived for more than 12 years at that time. Within the camp, refugees had very little access to educational opportunities and many had never seen – let alone used – a computer. With little likelihood of returning to their home countries, the refugees required the tools and skillsets necessary for self-sustainability, which came with increased access to and understanding of ICT. The partnership between the UNHCR and corporate sponsors makes the program possible. As a proponent of renewable energy, UNHCR provides rural CTAs with solar power as necessary. Microsoft offers expert advice for the project and donates software while Hewlett Packard donates computers and hardware. PricewaterhouseCoopers offers pro bono staff and project management consulting and the Motorola Foundation provided the funding for the centers in Rwanda and Bangladesh. UNHCR did not release information regarding the exact financial cost of the project, but its 2011 budget for all projects within Rwanda totaled US$ 35.2 million. Since the success of the initial 2009 pilot, the CTA program has expanded to include 31 centers in 13 countries: Azerbaijan, Armenia, Argentina, Bangladesh, Bulgaria, Georgia, Kenya, Mauritania, Nepal, Rwanda, Uganda, Sudan and Yemen. Sources: "Computer Gateways to Self-Sufficiency." Community Technology Access. UNHCR, n.d. Web. . UNHCR-Microsoft Partnership Applying ICT to Support Refugee. Rep. UNHCR. Microsoft., June 2009. Web. 6.3.3. Advanced ICT Training As a complement to the digital literacy programs examined above, this section will review initiatives regarding advanced ICT training, focusing on workforce development, development of capabilities of SME personnel, and creating awareness of the potential of broadband among government employees. Beyond fomenting perfunctory skills, advanced ICT training can allow individuals to establish a career in the ICT industry, which typically offers higher quality and higher paying job opportunities. As such, this type of training ultimately allows a country to shift away from an economy dependent on manufacturing to one based on high value 97 skills. Further, advanced ICT skills can permeate other industries, improving business practices in, for example, the healthcare and finance segments. One of the most obvious targets for this type of training is colleges, universities, and select vocational institutions. Depending on the level of training, programs can be offered as college majors geared toward employment in the IT sector or incorporated into a more general curriculum. Other programs may work with employees within a corporation or government workers. Given that many students or participants are likely older or already employed, advanced ICT training programs need to emphasize flexibility and convenience. While face-to-face training may work best in some instances, distance training and online programs may better suit other individuals. Apart from programs integrated into the education curriculum, successful initiatives have included arrangements with government bodies, corporations, and international organizations. Emerging markets in particular have benefited from the leadership and direction of such organizations and partnerships with more advanced countries. While basic skills should remain a standard part of any ICT training program, more advanced courses may also include topics most relevant to the national economy. Box 6.3.42.– APCICT (Asia) In June 2006, the United Nations Economic and Social Commission for Asia and the Pacific (ESCAP) inaugurated its United Nations Asian and Pacific Training Centre for Information and Communication Technology for Development (UN-APCICT/ESCAP). Located in Incheon, Republic of Korea, the Center aims to encourage member countries’ efforts to increase ICT use. To do so, it promotes human and institutional capacity building by focusing on three key areas: training, research, and advisory services. The region’s developing countries suffer from lower ICT penetration rates than many of their developed counterparts. These rates, however, are not so much reflective of lack of access and connectivity or insufficient infrastructure, but rather of the fact that most countries do not have the technical human capital necessary to utilize these tools. The program, therefore, concentrates its efforts on advancing digital literacy to promote ICT use and understanding. Launched in 2008, the APCICT Academy – APCICT’s flagship training program - targets government leaders through its modular training program, promoting a higher understanding of the role ICT can play in development areas such as governance, education, health, business, and trade, amongst others. The Virtual Academy serves as its distance-learning platform and was established to maximize access to the academy’s course materi als and presentation. It also offers learning management tools and certifications. Users can access and download all Academy materials and course trainers can customize them to fit the needs of their training sessions. One module awards an e-certificate of completion to users who answer more than 80% of final module quiz questions correctly. Print certificates are awarded to users who complete the final quizzes of all eight modules in the Academy of ICT Essentials for Government Leaders Program. Beyond training programs, APCICT published its Knowledge Sharing Series (KSS), which offers case studies and best practices research to raise awareness of and spread ideas related to ICT for development (ICTD). It also launched its online Communities of Practice (CoP), a portal facilitating knowledge sharing amongst experts, field practitioners, and students. To support its socio-economic development goals, APCICT engages with other UN bodies, government and non-government organizations, private sector corporations, and training 98 institutions. These partnerships all work toward increasing national ICT capacity and providing government leaders with the ICT understanding and know-how necessary to reach their development objectives. Since 2006, APCICT has rolled out capacity building programs in 29 countries throughout the region as well as additional programs in Africa with plans to extend to the Middle East. The Center’s efforts have reached nearly 12,000 individuals through face-to-face and online trainings and it has worked with more than 80 national and regional partners from government, civil society, academia, and private sector institutions. APCICT has also published or contributed to over 90 ICTD resources. Sources: "About Us." UN-APCICT. United Nations ESCAP, n.d. Web. . 6.3.4. Small and Medium Enterprises (SMEs) Building digital literacy among SMEs is directly linked to the improvement of a nation’s economic performance. As reviewed by Katz (2012), broadband adoption contributes to economic growth. Considering that SMEs represent the majority of establishments in any given country, and the size of their participation in the national product, programs that target SMEs should have a significant economic return. Broadband and ICT awareness development among SMEs is based on two distinct types of efforts: training of both personnel and management, and the provision of consulting services to facilitate broadband adoption. 6.3.4.1. Training for SMEs By its own definition, SMEs tend to be later adopters of broadband and ICT in general in the enterprise universe. In this context, the potential training initiatives focused on SMEs will be reviewed, ranging from efforts conducted within economic development units to industrial promotion administrations. Examples will be provided of types of programs and curricula that have proven to be particularly effective. Because of its economic rationale, training on IT and broadband focused on SMEs is typically linked to large-scale national or regional initiatives. Some initiatives could entail formal certification of skills acquired, although others provide informal training on computer and Internet use. SME training programs are primarily focused on improving usability of the technology. As such, they tend to comprise standard computer courses and, in some cases, applications that fit onto existing enterprise work processes. Given that these types of initiatives are economically focused, it might be pertinent to consider whether the programs should be offered free of charge or require some payment. In general, while training is provided for free, there are programs where users are asked to pay a symbolic fee, or even contribute to program expenses by acquiring training material (which in some cases could be reduced through a subsidy). SME training programs should address the following concerns: 99  Skill development: training should emphasize skills relevant to the workplace  Target audience: to the above point, the skills emphasized should focus on local relevancy (e.g. as they would relate to textile or coffee production in the case of a small village in Africa) rather than standard ICT skills  Convenience: offer trainings in areas that are easily accessible to the largest segment of the population; beyond physical workshops, consider the transmission of training through websites or video distribution to reach a larger audience that may not be able to attend the training due to time or location constraints  Purpose: while these trainings will ideally create a workforce capable of integrating ICT tools into the workplace, these trainings must also effectively raise awareness of their benefits As SME training programs have similar objectives to basic digital literacy programs, it may make sense to incorporate the two, with SME trainings acting as extensions of more basic programs that are tailored to the needs of business owners and employees. By enhancing the ICT awareness and capability of SMEs, successful initiatives can enhance competiveness and productivity while allowing SMEs to compete with larger MNCs that have the staff and resources to utilize ICT and broadband. Box 6.3.43. – District Business Information Centers (Uganda) As a technical cooperation agency, UNIDO’s activities fall into three categories: poverty reduction through productive activities, trade capacity building, and environment and energy. By introducing productive activities to countries, the organization in turn allows their citizens to find a path out of poverty. Customized services to this end include – amongst others - industrial policy advice, technology diffusion, and SME development. By 2008, many African countries had not yet reached their Millennium Development Goals (MDGs) despite the approaching 2015 deadline. The organization found that these countries relied on the success of SMEs to strengthen their economies and reduce the socio-economic divide. UNIDO argued that in order to enhance their productivity and competitiveness, SMEs must see increased ICT access. In 2006, UNIDO and Microsoft signed a Memorandum of Understanding that led to the development of the District Business Information Center (DBIC) program in Uganda. For its part, Microsoft developed ICT-related services, training, and awareness for the rural business community through its Digital Literacy program and SME training curriculum. The program focuses on providing the DBICs with the tools and skillset necessary for entrepreneurship development and sustainability. UNIDO trains two staff members per center - a business information officer and an ICT trainer – in technology and entrepreneurship, allowing them to access information on markets, customers, and technologies and open doors for business development. The project was financed by UNIDO and a grant from the Austrian Development Agency. In 2007, the DBIC project received the Africa Investor Award in the “Best Initiative in Support of Small and Medium Enterprise Development” category. Since the project’s implementation, UNIDO has cited the following benefits:  Improved decision making through tailor-made business information 100  Relevant ICT training, entrepreneurial advice and ICT support  Unprecedented access to new markets, technologies and services  Increased competitiveness and productivity As of 2008, the initiative had developed eight DBICs throughout the country, training 315 men and 226 women across industries such as food processing, textile, and coffee. Sources: Unido.org. N.p., n.d. Web. . Promoting Public-Private Partnerships. Rep. UNIDO, Microsoft, Dec. 2008. Web. . "UNIDO: District Business Information Centres in Uganda." Microsoft, n.d. Web. . Real Impact for Better Development. Rep. UNIDO, Microsoft, 2011. Web. Box 6.3.44. – Ecaustria and TELEFIT (Austria) Established by the Federal Ministry for Economy and Labor and the Austrian Chamber of Commerce, Ecaustria serves as an online information and communication platform. It falls under the Federal Ministry’s larger “Let’s e-biz” initiative, which aims to promote and support e-business. The interactive ecaustria.at website offers users news pertaining to the e- business sector as well as best practice case studies, information on starting a new e-business, and an annual awards section recognizing the best e-business and multimedia products in the country. It also provides e-learning and IT-training courses. The government created the website in an effort to transform Austria into one of the world’s Information Age leaders. This initiative has two main objectives: raise awareness and provide effective training. These resources demonstrate how an Internet connection can assist businesses in establishing relationships with both customers and suppliers and in entering the global marketplace. At the time of the project’s inception, many large companies already conducted business over the Internet, with small and medium-sized enterprises acting as their suppliers. By learning how to use this tool effectively, SMEs could more easily connect with these businesses and also become more competitive in the market. Further, Ecaustria places high value on user interaction and best practices examples. The unrealistic expectations and propaganda on the part of the Information Technology community proved detrimental to the economy in the Internet’s early stages, and the website served to convince SMEs of the benefits of e-businesses. To develop the Ecaustria platform, planners spent six months working with more than 300 experts from business, science, and administration industries. This consultation resulted in specialized services covering all topics relevant to e-business, such as e-content, e- employment, e-location, etc. The success of the project has been attributed to its sophisticated marketing techniques, which include traditional advertising, Internet and event marketing, and extensive public relations targeting the business-to-business segment. In 2002, the European Commission nominated Ecaustria for its exemplary project award. Complementing the “Let’s e-biz” platform, TELEFIT also serves as an information platform. The initiative targets SMEs in remote regions, offering videotaped trainings of its live “e- 101 business road show,” which takes place in urban areas and highlights best practices and guidelines to encourage SMEs to take advantage of the e-economy. TELEFIT aims to prepare SMEs for the changes in telecommunications by providing the necessary tools and knowledge to profit from this new technology. The program addresses the specific needs of SMEs and also offers financial support as necessary. TELEFIT’s services are delivered through the Institute of Economic Promotion’s network. The European Funds for Regional Development (EFRE) works with the Federal Ministry of Economic Affairs and the Economic Chamber of Austria to fund the project. Each event costs approximately EUR 11,000. When TELEFIT first began, approximately 30% of SMEs in the country operated online. Within three years, this number had increased to 80%. In four years’ time, the TELEFIT roadshow made 70 stops, connecting directly with 40,000 SMEs and providing more than 300,000 with relevant information. Sources: Benchmarking National and Regional E-business Policies for SMEs. Rep. European Commission, 12 June 2002. OECD SME and Entrepreneurship Outlook 2005. Paris: OECD, 2005. Print. Box 6.3.45. – SVEA (Sweden) Established in 2000 by the Swedish Alliance for Electronic Commerce (GEA), the SVEA program aims to raise awareness of the benefits of e-commerce for SMEs. Targeting those businesses with little IT knowledge and no prior e-business experience, SVEA focuses more on the evolving business processes than the actual technology. By demonstrating the commercial advantages of engaging in e-business, the project encourages these companies to join the digital economy. To achieve this goal, SVEA utilizes best practice research to demonstrate specific uses of e- commerce for companies in all sectors and regions. Within each SME, SVEA works with select “ambassadors” who can then train and educate other employees in their respective companies. By utilizing the train-the-trainer model, the benefits of the trainings are more easily diffused across organizations to reach a larger number of employees, who can then benefit from expertise in e-business application. Further, any member of the SME can access the SVEA database, which serves as a knowledge exchange tool and also offers analysis of the company’s day-to-day operations and case histories. The program also utilizes conferences and seminars and works with IT solutions providers to demonstrate how e- business can positively impact SME operations. Beyond these mechanisms, SVEA offers interactive, informal training over existing URLs that cover such topics as billing, exports, and logistics. Business associations, local consultants, partner companies, and research firms work with the program to offer these services and such partnerships allow SVEA to adapt more readily to the various demands of different SMEs. Funding for the project comes from private sector partners that have an interest in supporting SMEs. This partnership also serves to enhance the reputation of SVEA. The initial two-year budget for the SVEA project was EUR 1.8 mn total, with an additional EUR 400,000 set aside for the third year. When the program first began, it aimed to educate 100,000 SMEs on the benefits of e- business and to see 30,000 utilizing this tool. In the first two years, the e-business increased 102 from 26% to 54%. The number of SMEs utilizing the Internet to purchase supplies reached 41%, and nearly one-quarter of SMEs sold their products and services online. Sources: Benchmarking National and Regional E-business Policies for SMEs. Rep. European Commission, 12 June 2002. 6.3.4.2. Consulting services for SMEs Complementing SME training, the provision of subsidized consulting services to SMEs has proven to be a powerful tool to increase awareness and promote adoption of broadband services and ICT, in general. Consulting can be provided by different entities: government-sponsored units, university students supervised by faculty (for practical training purposes), and pro-bono private sector firms. As opposed to the aforementioned training programs, however, consulting services tend to go beyond overarching basic training and awareness raising, focusing more on the implementation of ICT into individual SME business. In many instances, this implementation not only affords higher levels of productivity and competency, but also allows SMEs to enter the e-commerce arena. These types of programs are especially popular in the European Union, which, by 2000, housed nearly 19 million SMEs. Examination of such programs has yielded the below recommendations:  Employ independent consultants who can offer their unbiased opinions and bring their professional experience to the table  Programs that deploy consultants to individual SMEs should work to establish an overarching standardization to ensure quality and equity of service  Establish local centers in convenient locations where SME owners can seek tailored advice  Incorporate some degree of flexibility into the budget; as SME consultancy programs grow and more SMEs seek their services, expenditures tend to increase  To finance the project, partnerships with private entities (e.g. financial institutions or consulting firms) may take some strain off government resources  Programs should also offer to SMEs such resources as databases of best practices information, online support staff, and a means for SMEs to communicate with and learn from each other An important aspect of consultancy programs is the ability to provide customized, tailored support to SMEs. Such services may include the establishment of a long-term business model based on the integration of ICT while others should target the needs of each SME to integrate such technology as necessary. These services should consider such factors as an SME’s available resources, limitations, and future goals. Box 6.3.46. – eASKEL (Finland) 103 The Finnish Ministry of Trade and Industry developed the eASKEL program to enhance SME e-business development by increasing management competency, implementing profitable e-business opportunities, identifying core e-business needs, and producing a development program for participating companies. The service trains private-sector consultants specifically for this project, who then work with SMEs who have little IT or e- business experience. The consultants spend 2 – 5 days with their clients to develop an e- analysis and offer advice on how to integrate new technology into their operations. This method allows consultants to design a strategic plan based on the individual needs and resources of each SME. For instance, if a company only has one computer, a CRM solution would not be the most appropriate option. Employing independent consultants allows the SMEs to benefit from professionals with extensive IT and e-business knowledge, who can also use their prior experience with other organizations in formulating their analyses. As a “Branded Expert Service,” the program’s standardized format ensures accountability and quality for all participating SMEs. Prior to eASKEL, Finland’s Ministry of Trade and Industry partnered with the Ministry of Agriculture and Forestry and the Ministry of Labor to create regional Employment and Economic Development Centers (T&E Centers). These fifteen centers located throughout the country offer businesses and individuals advice and development services. After the T&E centers reported that SMEs needed more support in utilizing e-business tools, the eASKEL program was piloted. The project’s budget depends on the number of participating companies, with EUR 320,000 allocated for every 500 companies, the annual target. Each company pays approximately 35% of the consultants’ fees and the remainder is funded by the government’s T&E Centers, which have a budget specifically for consultation services. The government ultimately subsidizes 85% of the consulting fees associated with the project. Sources: Benchmarking National and Regional E-business Policies for SMEs. Rep. European Commission, 12 June 2002. Box 6.3.47. – b-online (Germany) The government of the German state Lower Saxony implemented the “b-online – Lower Saxony supports e-commerce” initiative in 2000 to encourage SMEs to take advantage of the Internet and e-commerce capabilities. At the time of the project’s inception, the region had a very high number of SMEs, yet very few used the Internet to its full capabilities. The network consists of seven local centers – known as “b-online-junctions” – throughout Lower Saxony that are each built and managed locally. Each center employs b-online consultants to offer SMEs assistance in utilizing Internet and ICT tools and implementing e- commerce strategies. The consultants also raise awareness and conduct ICT skill-building training for SMEs through local workshops, special events, and demonstration projects. The project’s annual “e-commerce in Lower Saxony” roadshow brings to light the best practices at each center and the annual “e-business Prize Lower Saxony” recognizes innovative e- business projects. To encourage SMEs to use e-commerce services, b-online first focuses on raising awareness of the advantages of Internet use for these businesses. Consultation is available for businesses on a walk-in basis or through scheduled appointments. This consultation allows SMEs to benefit from tailored information, which can cover all topics related to e-commerce, particularly legal and security matters. For those businesses that have already begun to use 104 these tools, the consultants can provide industry-specific advice and encourage cross-sector e- business applications. The project also encourages businesses to network together to share their experiences and best practices. The b-online centers work with Federal Government competence centers to offer a central database of service providers, which is accessible by all affiliated organizations. The project also serves as a filter of all available e-commerce related information so that SMEs can better utilize the resources most relevant to their individual needs. The project is supported by the Lower Saxony Chambers of Commerce and Trade and the Technology Agency of Lower Saxony (NATI). The chamber of commerce deals with the content aspect of the project while NATI handles all PR and administrative matters. The project was funded by a government contribution of EUR 2.15 mn, which was divided between the chambers of commerce and NATI. While the b-online project was projected to take place for two years, it was continued for an additional year. In its first two years, b-online organized 337 events and training workshops that reached more than 14,000 SMEs. The project initiated 600 consulting projects that focused specifically on those small enterprises with less than 20 employees. Sources: Benchmarking National and Regional E-business Policies for SMEs. Rep. European Commission, 12 June 2002. Box 6.3.48. – Opportunity Wales (United Kingdom) With a focus on access, usability, quality of service, and cost, the Opportunity Wales program promotes SME support networks by providing e-commerce consulting and implementation. The Wales Trades Union Congress partnered with British Telecom and HSBC Bank in 1999 to address the attitudes toward e-commerce in Wales while raising awareness of the tangible benefits it can offer businesses. The project offers SMEs customized support based on each enterprise’s individual needs. The advisor works with the company to develop the necessary steps to introduce e-commerce into its business. The initiative emphasizes the importance of offering businesses one-to-one support by advisors with proper training and experience in implementing e-commerce models. Advisors’ consultation services utilize the research and lessons learned from the replication and feedback of similar projects in other parts of the region. Prior to the commencement of the initiative, advisors and planners conducted in-depth consultation to ensure the incorporation of these lessons. The e-commerce Innovation Center provides formal standardized training and accreditation to the advisors and also makes available relevant resources and knowledge. A contact center and 24-hour Internet portal provide a guide to best practices and Better Business Wales serves to offer advice as needed. Opportunity Wales recognizes that as SMEs become more comfortable with e-commerce, they will experience increased sales and higher levels of efficiency. In turn, the region will benefit from prosperity and increased employment opportunities. Research conducted by the nationally recognized survey organization, National Opinion Polls, in 2000 demonstrated that while businesses in Wales knew about e-commerce, few had actually utilized it. In-depth analysis showed little knowledge when it came to the implementation process, and the low Internet penetration rates in the region further hindered e-commerce uptake. 105 The National Assembly for Wales provided the initial funding for the project, though the partnership grew to include additional private sector, government, and university partners. The project first applied for funding from the European Union in 2000 and received approval from the Wales European Funding Office (WEFO) in 2001. WEFO supplied EUR 17 mn of the EUR 33 mn budget, with the remainder coming from partner organizations and the National Assembly. The majority of the budget went toward face-to-face SME consultation services and implementation support, with a very marginal amount left over for grant aid. Opportunity Wales aimed to train 130 advisors and directly reach 35,000 companies within the first three years. Sources: Benchmarking National and Regional E-business Policies for SMEs. Rep. European Commission, 12 June 2002. 6.3.4.3. Broadband and new firm formation: Broadband technology is a contributor to economic growth at several levels. First, the deployment of broadband technology across business enterprises improves productivity by facilitating the adoption of more efficient business processes (e.g., marketing, inventory optimization, and streamlining of supply chains). Second, extensive deployment of broadband accelerates innovation by introducing new consumer applications and services (e.g., new forms of commerce and financial intermediation). Third, broadband leads to a more efficient functional deployment of enterprises by maximizing their reach to labor pools, access to raw materials, and consumers, (e.g., outsourcing of services, virtual call centers.). The study of the impact of broadband on economic growth covers numerous aspects, ranging from its aggregate impact on GDP growth, to the differential impact of broadband by industrial sector, the increase of exports, and changes in intermediate demand and import substitution. In the area of productivity enhancements, it is logical to assume that productivity of information workers, defined as the portion of the economically active population whose working function is to process information (administrative employees, managers, teachers, journalists) depends directly on the investment in ICT capital (and particularly broadband). The studies conducted by this author 15 have, in fact, concluded that the larger the per cent of the workforce dedicated to information generation and processing is, the higher the proportion of capital stocks invested in the acquisition of ICT infrastructure (see Figure 6.23). 15 See Katz, 2009b. 106 Figure 6.23. Relationship between Information Workforce and IT Capital 40% IT Capital as a Percentage of Total Info workers = 0.6123 IT capital - 0.0733 35% 2 R = 0.6403 30% Fixed capital 25% 20% 15% 10% 5% 0% 0% 10% 20% 30% 40% 50% 60% 70% Information Workers as a percent of the economically active population Note: Data for information workforce was derived from ILO statistics while IT capital was sourced from Kaplan (2011) Source: Adapted from Katz (2009) Figure 6.23 and the corresponding regression coefficient indicate the existence of a direct relationship existing between the amount of information workers and IT capital investment in a given economy: as expected, the larger the proportion of information workers in a given the economy, the more capital is invested in information technology. How can one theoretically explain the relationship between ICT and productivity? In his economics dissertation at Harvard University (1982), Charles Jonscher raised the hypothesis that if we can measure the micro-economic impact of ICT on firm productivity, then we should also be able to link the growth in informational occupations and the adoption of technology to improve their productivity at the macroeconomic level. According to Jonscher, economic growth logically leads to increasing complex production processes. In turn, complexity in production processes results in increasing the functional complexity within firms (e.g. more inputs to be combined, more steps to be scheduled in a timely manner, more interactions occurring with suppliers of raw materials and with buyers of the end product). The first response of economic organizations to this effect is the creation of “information workers”—workers whose primary function is the manipulation of information for purposes of organizing the production of goods. At some point, however, information-processing workers become a bottleneck in the economic system. They cannot grow forever because this process reduces the overall availability of resources in other occupations. Furthermore, when information workers become a large proportion of the workforce, the complexity of information processing becomes a bottleneck itself. In other words, there is a limit to the possibility of manually storing, transferring and processing the growing amounts of information. This is where information and communication technologies come in. Their development and adoption is aimed at increasing the productivity of information workers and addressing this bottleneck. The availability of computing and communications allows firms (and their information workers) to be more productive in their manipulation of 107 information. Broadband is a specific component performing this important productivity enhancement. For example, research on the impact of broadband on productivity has successfully identified positive effects. For example, Waverman et al. (2009) determined the economic effect of broadband on the GDP of 15 OECD nations for the time period of 1980 to 2007. These included 14 European countries and the United States. By relying on an augmented production function derived from Waverman et al. (2005), the authors specified two models: a production function and a hedonic function for ICT capital stocks. Broadband impact on the productivity of the more developed nations in the sample was found to be 0.0013 and was statistically significant at the 5 per cent level 16 . In other words, Waverman estimated that for every 1 per cent increase in broadband penetration in high and medium impact income countries, productivity grows by 0.13 per cent. In another document, the authors commented upon the productivity effect in the countries of their sample with relatively low ICT penetration (Greece, Italy, Portugal, Spain and Belgium.). They found that broadband impact on productivity was nil, which indicated the high adoption costs, and critical mass thresholds17. In other words, for broadband to have an impact on productivity, the ICT eco-system has to be sufficiently developed18. It would appear, therefore, that in developed countries with high broadband penetration, the technology has an impact on aggregate productivity levels. Evidence that broadband facilitates entrepreneurship Beyond the employment and output impact of network construction, researchers have also studied the impact of network externalities on employment, derived from firm formation. This has been variously categorized as “innovation”, or “network effects”19. The study of network externalities resulting from broadband penetration has led to the identification of numerous innovation effects:  New and innovative applications and services, such as telemedicine, Internet search, e-commerce, online education and social networking20.  New forms of commerce and financial intermediation21.  Mass customization of products22.  Reduction of excess inventories and optimization of supply chains 23.  Business revenue growth24. 16 The original regression yielded a coefficient of 0.0027 for the 2/3 more developed countries in the sample and negative effect for the lower third. A negative effect did not make sense so the authors constrained the effect for the lower third to zero. At that point the coefficient for the full sample moved to 0.0013. 17 See Waverman, 2009. 18 For example, Waverman et al. estimated that in the United States broadband penetration contributed approximately to 0.26% per annum to productivity growth, resulting in 11 additional cents per hour worked (or USD 29 billion per year). 19 See Atkinson et al., 2009. 20 Op. cit. 21 Op. cit. 22 Op. cit. 23 Op. cit. 24 See Varian et al., 2002; Gillett et al., 2006. 108  Growth in service industries25 Most of the research regarding the impact of broadband externalities on employment has been conducted using US data. There are two types of studies of these effects: regression analyses and top down multipliers. The first ones attempt to identify the macro-economic variables that can impact employment 26, while the second ones rely on top-down network effect multipliers. Among the econometric studies of employment impact, are Gillett et al. (2006), Crandall et al. (2007), Shideler et al. (2007) and Thompson and Garbacz (2008). The evidence regarding broadband employment externalities appears to be quite conclusive (see Table 6.12). Table 6.12. Research results of broadband impact on employment in the United States Authors – Institution Data Effect Crandall et al. (2007) – 48 states for the period For every 1% point increase in Brookings Institution 2003-2005 broadband penetration in a state, employment is projected to increase by 0.2 to 0.3% per year “assuming the economy is not already at 'full employment'” Thompson and Garbacz 46 states during the Positive employment generation effect (2009) – Ohio University period 2001-2005 varying by industry Gillett et al. (2006) – Zip codes for the Broadband availability increases MIT period 1999-2002 employment by 1.5% Shideler et al. (2007) – Disaggregated county An increase in broadband penetration Connected Nation data for state of of 1% contributes to total employment Kentucky for 2003-4 growth ranging from 0.14% to 5.32% depending on the industry Source: Author. Again, the impact of broadband on employment creation appears to be positive. However, as the data indicates, the impact on employment growth varies widely, from 0.2 per cent to 5.32 per cent for every increase in 1 per cent of penetration. There are several explanations for this variance. As Crandall indicated, the overestimation of employment creation in his study is due to employment and migratory trends, which existed at the time and biased the sample data. In the case of Gillett et al. (2006), researchers should be careful about analyzing local effects because zip codes are small enough areas that cross-zip code commuting might throw off estimates on the effect of broadband. For example, increased wages from broadband adoption in one zip code would probably raise rent levels in neighboring zip codes prompting some migration effects. Finally, the wide range of effects in the 25 See Crandall et al. (2007). 26 In general, studies based on regression analysis do not differentiate between construction and spill-over effects. 109 case of Shideler et al. (2007) is explained by the divergent effects among industry sectors. Beyond regression studies, “network effect” multipliers have been used to assess the impact of broadband on job creation in a top down fashion. Within this group, key studies are Pociask (2002), Atkinson et al. (2009) and Liebenau et al. (2009). Pociask (2002) and Atkinson et al. (2009) studies relied on an estimated “network effect” multiplier, which is applied to the network construction employment estimates. For example, Pociask relied on two multiplier estimates (an IT multiplier of 1.5 to 2.0 attributed to a think tank and another multiplier of 6.7, attributed to Microsoft) and calculated an average of 4.1. Similarly, Atkinson et al. (2009) derived a multiplier of 1.17 from Crandall et al. (2003). Though the top-down approach allows estimation of the broadband impact, it does not have a strong theoretical basis. Network effects are not built on interrelationships between sectors. They refer to the impact of the technology on productivity, employment and innovation by industrial sector. The methodological implications of these studies are that in order to properly measure the contribution of broadband to job creation, it is advisable to have datasets that include time series for employment level, broadband penetration, and related human capital statistics at a disaggregated level, such as counties, departments, or administrative district27. Like the relationship between broadband and GDP growth, the contribution of broadband to employment is also conditioned by a number of special effects. Studies have particularly focused on two specific questions:  Does the impact on employment differ according to industry sector?  Is there a decreasing return in employment generation linked to broadband penetration? As with GDP, the spill-over employment effects of broadband are not uniform across sectors. According to Crandall et al. (2007), the job creation impact of broadband tends to be concentrated in service industries, (e.g., financial services, education, health care, etc.) although the authors also identified a positive effect in manufacturing. In another study, Shideler et al. (2007) found that, for the state of Kentucky, county employment was positively related to broadband adoption in the following sectors. The only sector where a negative relationship was found with the deployment of broadband (0.34% – 39.68%) was the accommodations and food services industry. This may result from a particularly strong capital/labor substitution process taking place, whereby productivity gains from broadband adoption yields reduced employment. Similarly, Thompson and Garbacz (2008) conclude that, for certain industries, “there may be a substitution effect between broadband and employment” 28 . It should therefore be considered that the productivity impact of broadband can cause capital-labor substitution and may result in a net reduction in employment. 27 See examples in Katz (2010) 28 This effect was also mentioned by Gillett et al. (2006). 110 In summary, research is starting to pinpoint different employment effects by industry sector. Broadband may simultaneously cause labor creation triggered by innovation in services and a productivity effect in labor-intensive sectors. However, given that the sectoral composition varies by regional economies, the deployment of broadband should not have a uniform impact across a national territory. However, for this to materialize, resources coming from business incubation programs set up by local governments, development agencies or multinational corporations are required. For example, mLab business incubators provide the following services29:  physical workspace  business training  tech training  testing and certification  business mentoring  market intelligence  competitions  funding  professional services  tech outsourcing  code repository Virtual business incubation The current conditions of digital innovation, particularly in emerging markets, reflect four shortfalls:  Low liquidity (e.g. low depth of the market) flowing to innovation driven companies  Low volume of innovation companies  Lack of interest from domestic and foreign investors due to the market risk  Low turnover of companies in terms of launching and decantation of the number of start-ups At the highest level, business innovation in emerging markets faces supply side and demand side inefficiencies. Supply side inefficiencies comprise limited availability of inputs. For example, start- ups are confronted with limited access to capital, due to the low availability of venture capital, and angel investors. As a result, small digital projects are difficult and costly to finance individually. In addition, start-ups might experience limited access to technology infrastructure, and human capital. These supply-side innovation “failures” are of three types: 29 MLab Business Plan. Rep. InfoDev, Mar. 2011. Web. 12 Mar. 2013. . 111  Externalities in the innovation process: this means that it is common for a potential investor not to know the potential opportunities that might exist among innovative digital start-ups  Information asymmetries: These work two ways o For liquidity, in a replication of the adverse selection and moral hazard problems highlighted in financial services, the lack of full information makes it hard for outside investors to evaluate the quality of the new ventures o For inputs, even when the infrastructure or inputs exist, innovative start-ups do not have information on their existence, which prevents them from making the right decisions to access the required development tools or infrastructure  Coordination failures: limited access to inputs of other firms that would yield productivity enhancements  Most importantly, how to commercialize products/solutions/applications developed from innovation, how to ensure delivery (distribution channels) and actual utilization by citizens Demand side inefficiencies revolve around the limited size of the domestic market. For example, the domestic market is not large enough to provide the necessary scale to affront the development of a technology firm. In this context, demand side inefficiencies can be overcome by export-oriented policies targeting outside markets. India and Malaysia address the technology demand gap by focusing on international software, IT outsourcing and technology markets, while Ireland and Israel solve the size of the market inefficiency in software products by focusing on international markets (Ireland addressing MNCs, Israel targeting primarily the US). Building a vibrant innovation-prone environment requires addressing these two types of gaps (see figure 6.24). Figure 6.24. Addressing Innovation Supply-Side and demand Side Inefficiencies Production Digital Demand for Factors Technology digital goods Firms • Capital • Demand production • Consumers • Human capital factors (capital, labor, • Enterprises • Technology technology) • Government infrastructure • Supply digital goods SUPPLY SIDE DEMAND SIDE INEFFICIENCIES INEFFICIENCIES FRAMEWORK FRAMEWORK FOR FOR ADDRESSING ADDRESSING THE SUPPLY THE DEMAND GAP GAP Source: Developed by the author 112 Broadband can have beneficial impact in the process known as virtual business incubation. As defined by Stam et al. (2011), virtual business incubators provide services beyond the confines of a physical building. This allows a start-up to use the services of an incubator, without actually being located at the incubator site, for instance through extension workers, online tools and off-site advisory services. They can also serve a much larger number of companies over an extended geographical area. Virtual business incubation services, comprising business development support (training, mentoring), access to business networks and funding sources can be delivered through a variety of services:  On-site virtual services: group training, workshops, presentations and events at which start-ups can participate  Websites and E-learning: provide online training materials and information  One-on-One exchange: traditional (E-mail, SMS, phone, Skype, and online collaboration tools)  On-line staff recruiting: recruitment of mentors, staff, interns, investors  Virtual communities and events: communities and online platforms where entrepreneurs meet, exchange knowledge and information and build collaboration networks  Crowdsourcing and crowd-funding: support start-ups by mobilizing large numbers of knowledge and funding sources Broadband is a critical enabling platform that will facilitate delivery of these services. In fact, Stam et al. (2011) study of virtual incubators point out that unlimited supply of fixed and mobile broadband represents a critical component of these services. For example, a number of virtual incubators (Sofstart, BTI) have developed broadband connected satellite offices that can offer remote training or assistance to events to start-ups that are located in other geographies. Similarly, The Business Links website of the UK government offers a wealth of online information, including checklists, training materials and online instruction videos on practical issues, like business registration, hiring a new employee, or assessing and improving business cash flow. Online mentoring for startups A particular example of virtual incubation is the provision of online mentoring. In addition to access to finance and production inputs, start-ups are in great need of mentoring that helps them address the development and scaling up challenges. Typical scaling up challenges encountered by start-ups include the aggressive growth of the customer base, assembling capabilities to support growth, modifying communications and decision making processes, functionalizing roles, and building cross-functional teams and processes. Given the limited experience often prevalent in start-up firms, mentoring becomes a critical requirement. Sources of mentoring are relatively scarce: experienced serial innovators, financiers, technology, and business executives. Mentoring includes counseling support in areas such as recruiting, organizational design, and professional development. 113 In this context, broadband can allow start-ups, particularly those based in remote locations, to gain access to the much-needed mentoring. Mentoring provided through on-on-one interaction tools saves time and travel costs and speeds up the provision of counseling, which can be critical in some contexts. For example, the Founder Institute – a global network of start-ups and mentors – offers a four-month training program. Mentoring is provided through a global network of over 400 mentors, who are normally the CEO or founder of a successful start-up. The mentors are accessible both during the sessions and via email. Graduates can present their companies at so-called Founder Showcase Events in order to attract investors. Similarly, ParqueTec in Costa Rica has deployed a mentoring approach for remote (rural) incubates one-on-one, based on regular face-to-face interactions combined with phone, SMS, E-mail and Skype contact. 6.3.5. Sponsorship structures of awareness programs Having reviewed the different awareness programs, this section will present the different sponsorship options regarding implementation and funding. The review of each option will include an examination of advantages and disadvantages, as well as observed best practices. Digital literacy program sponsorship is a critical component of its success. Research conducted by Hilding-Hamann et al. (2009) found a direct relation between the sustainability of a digital literacy program and the sponsors involved. Sponsorship, as a term, entails more dimensions than funding. It addresses the parties to be involved as stakeholders in the program. In general terms, they may include public organizations, educational institutions, private industry (both domestic firms and multinationals), non-governmental organizations, and local interest associations. The sponsorship structure defines the contributions to be made by each stakeholder, and, in particular, the financing structure of the program. Key decisions to be made in this domain comprise the relative contribution of public and private funds, the in-kind (e.g. equipment) contributions, whether users should pay for participating in the program, and volunteer contributions. As mentioned above, the larger the group of stakeholders involved, the more likely is the project to remain sustainable. Partly, this results from financial support provided by private parties, which ensures long term funding being less subject to the vagaries of government budgeting processes. 6.3.5.1 Public programs: These efforts and sponsored and funded directly by governments and/or other public entities. 6.3.5.2. Multilateral and public donors: Efforts sponsored by multilateral aid and/or public donors. Box 6.3.49. – mEducation Alliance (International) Comprised of 15 international organizations, foundations, and development banks, the Mobiles for Education Alliance works with multilateral and bilateral donors to improve 114 formal and informal learning while making it more accessible, particularly in developing countries. The alliance reduces the barriers to education by promoting the use of low-cost mobile technology. To this end, the Alliance projects identify useful mobile applications that can address literacy, educational content, accessibility, educator development, and workforce training. To support and advocate for m-education practices, the Alliance aims to do the following, per its website: - Improve research, for example in the areas of mobiles for reading and content mastery via mobile delivery - Perform a catalytic function by leveraging the Alliance’s brand to promote and advocate for coordinated support of the effective use of mobiles in the administration and delivery of education - Spread knowledge and awareness of the broad spectrum of available, accessible and affordable mobile technology tools available which can and/or have a proven positive impact on education outcomes - Serve a convening function for practitioners, funders and leaders of the public and private sectors, to promote cooperation and coordination of efforts and knowledge in order to spur the innovation, affordability, and accessibility of mobile technologies for improved learning outcomes - Explore opportunities to jointly fund specific activities of shared interests (e.g. evaluations of pilot projects, additional events focused on particular areas, etc.). The Alliance also sponsors and backs a number of organizations and events that work toward its goal of improving education through mobile technology. Such funding may go toward international workshops and symposia, research roundtables, monthly seminars, and working groups. The mEducation Alliance website feature information about these events and related resources. Many developing countries suffer from a lack of resources that in turn impact the availability of quality education. As mobile devices – including phones, e-readers, tablets, and projectors - become more prevalent, they create an opportunity to support education initiatives and reach citizens who may otherwise not have access to quality learning material. Sources: "MEducation Alliance." MEducation Alliance. N.p., n.d. Web. . Box 6.3.50. – Asian Development Bank (Uzbekistan) In 2005, the Asian Development Bank (ADB) approved a regional technical assistance grant (RETA) targeting ICT investment in basic education within Central Asian countries. As part of this grant, the bank approved a US$ 600,000 budget for project implementation in Uzbekistan. Through this grant, a team created an ICT in education development strategy for the country, focusing on the introduction of ICT into lesson plans. The project addressed not only digital literacy, but also the potential for ICT to improve the overall quality of the education system. The first step of the plan raised awareness of the benefits of – and barriers to – bringing ICT into the classroom and its potential to reduce the country’s digital divide. In this process, it also considered potential partnerships between the public and private sectors and international organizations. Ultimately, by improving Uzbekistan’s education system, the project aimed to increase the country’s competitiveness in the global, knowledge-based economy. 115 At the time of implementation, Uzbekistan boasted high net enrollment rates – 99% - but its basic education lacked quality and relevance. In 2002, the country established a national ICT strategy with the intention of increasing the computer student ratio from 1:110 to 1:20 and to bring Internet access to 63% of all schools by 2010. This strategy recognized that other countries that had increased ICT use in the classroom boosted students’ test scores and increased education access for those students located in rural areas. The ADB grant followed the United Nations Development Program’s (UNDP) finding that Uzbekistan lacked sophisticated ICT development. The program’s research demonstrated that over 80% of the nation’s ICT infrastructure was outdated and that the country did not have enough computers to host computer classes, let alone to integrate this new technology into the curriculum. Only half of all schools in the country offered computer classes, and many did not have access to any computers. In addition to the ADP’s US$ 600,000 grant, the government of Uzbekistan contributed US$ 150,000 toward the initiative. The Ministry of Education managed the project, which took place from March 2005 through February 2006. Beginning in 2006, the Government of Uzbekistan’s National Program for Basic Education Development began another phase of introducing ICT into the education system, with this push focusing on Internet deployment in classrooms. ADB funded US$30 million of the US$43 mn budget. The first round of the project brought computers to 300 “cluster” schools , with an additional 560 schools receiving computers in 2010. These schools were chosen to serve as resource centers for surrounding schools within a 30km radius. Each of these schools offered two separate computer classes: one designed for students and the other for teachers. Teachers from nearby schools could utilize cluster schools’ resources while benefitting from shared training and collaboration. In developing this initiative, the Ministry of Public Education conducted consultations and meetings with more than 60 schools and 180 focus groups comprised of local teachers, parents, and students. This process concluded that the project must strengthen teacher development, establish management support, and develop e-learning materials to achieve success. The ministry produced educational software and Internet-based learning materials. The cluster schools also received ICT and AV equipment. By 2010, more than 540,000 students directly benefited from the program. 90,000 teachers and staff from the cluster schools and select non-cluster schools received specialized training in the introduction of ICT into the curriculum. This round of the project paid particular attention to disadvantaged students, with an estimated 165,000 students from poor and rural areas in grades five through nine benefiting directly. 70% of the cluster leader schools were located in these areas. The initiative also served as a test in tackling Internet connections in rural classrooms through the use of mobile and wireless technology. The schools served as community ICT facilities, with 25% of schools making the technology available to the public. Sources: "Planned Project to Integrate ICT into Basic Education in Uzbekistan." Asian Development Bank, 10 Mar. 2005. Web. . "High Tech for Young Minds." Asian Development Bank, 7 June 2010. Web. . 6.3.5.3. Public-private associations: 116 These efforts comprise partnerships between public and private sector parties. In setting up these associations, it is very useful to attract private parties, whose contribution is related to the core business of the participant. For example, in the Digital Communities Program in Dublin, Ireland, Hewlett Packard provides computer hardware, Eircom (the telecommunications carrier) provisions broadband connectivity, Microsoft supplies software and training support, the Dublin Institute of technology supplies staff, premises and administrative facilities, the Dublin Inner City Partnership contributes funding for salaries, and the Dublin City Council provides the premises for all the centers. Best practices for managing public-private partnerships include:  Set up an overseeing structure, such as a Management Board that meets regularly to discuss and manage progress of the program. The Board should comprise a senior executive from each of the partner’s organizations, plus a representative from the community  Additionally, the community should have a coordinator from each center, all of whom meet regularly to discuss issues faced in running their centers Box 6.3.51. – Pasha Centers (Kenya) In response to the World Bank’s Regional Communications Infrastructure Project (RCIP), the Government of Kenya developed a program in 2007 to create “digital villages” that would connect rural areas to the Internet. To make this program a reality, the Kenya ICT Board (KICTB) partnered with the Cisco Internet Business Solutions Group (IBSG) to develop an understanding of the issues involved. Throughout the course of two years, this team established a briefing of the key challenges and the solutions and tools needed to address them that it presented to the government. Through this work and the lessons learned, Cisco established a toolkit that it now uses to implement digital villages in other emerging markets. As part of the RCIP, the World Bank suggested that Kenya serve as a “proof-of-concept” country to determine the feasibility of and justification for digital villages in similar regions of the world. This decision came as a result of plans to construct submarine fiber-optic cables, which would bring broadband connectivity to the country. Once the first of the submarine cables was complete, in 2008, the assessment of the project began. While the government had developed the plan on its own, it ultimately turned to Cisco for assistance in large part because of the pressure the KICTB felt to construct the digital villages as quickly and cost efficiently as possible. As the first phase, Cisco identified key questions that the assessment should ask and answer:  Which services did villagers want or need most?  How would villagers use these services?  How much capability did each village require?  Which service model would be most successful in Kenya’s culture and environment?  How would each digital village be set up and manned? While Kenya experienced a great deal of private-sector interest in investing in these villages, Cisco recommended that the KICTB should first run a pilot program to understand fully the implications of the project. The board agreed that rolling out digital villages prior to testing the initial concepts could prove disastrous. Thus, the “Pilot Pasha Centers” (PPCs) – the Swahili word meaning “to inform” – were launched in January 2009. The committee selected 117 5 cyber cafes in rural areas across the country to serve as a test bed for the research that would build the model for large-scale deployment. By April 2010, these 5 PPCs featured 512K connectivity, Cisco WebEx online conferencing, surge protectors, and various ICT equipment. Cisco also provided content from its Connected Knowledge Centers program. Following an initial third-party evaluation, the KICTB identified the factors necessary in ensuring Pasha Center success:  Physical infrastructure such as reliable power supply and connectivity  Auxiliary services  Marketing for awareness and education  Entrepreneurial initiative in customer service and experience  Innovative new uses of the Internet for business collaboration and “edutainment”  Training accreditation for various vocational e-learning courses In response to these findings, Cisco developed tools to establish a business-planning model. To break even, Pasha Centers could generate an income of US$ 550 per month by offering the use of five computers for eight hours a day and charging one cent per minute of use. When looking at the cost of broadband, salaries, rent, etc., however, the US$ 12 balance was determined to be unsustainable and other options for income generation grew to include the selling of airtime, printing, binding, etc. and then expanded to incorporate services such as computer training, CD burning, and photocopying. Following the PPC program, Cisco developed a toolkit for Pasha Center managers and used the knowledge gained to scale and roll out a larger digital villages program. Part of the toolkit offers recommendations in establishing public and private sector partnerships to support the mission. Kenya’s Ministry of ICT announced in March 2010 that service providers “Safaricom, Telkom Kenya, Zain Kenya, and Essar telecoms would be required to roll out the five digital villages each per constituency,” totaling 4,200 centers throughout the country. In 2012, the KICTB set aside a US$ 315,000 loan for 26 entrepreneurs looking to build pasha centers. In the first six months of that year alone, Kenya saw the creation of 63 new pasha centers, which provide approximately 30% of the country’s total ICT coverage. In order to qualify for the loan, entrepreneurs must undergo a training certification program. Sources: Drury, Peter. K y ’ h D f Dg V g . Rep. Cisco, Jan. 2011. Web. . Gichane, Charles. "Kenya: ICT Board Loans Sh27 Million for Pasha Centres." AllAfrica. N.p., 11 July 2012. Web. . Box 6.3.52. – Computer Literacy and Training Program (India) In recent years, India’s economy has transformed as a result of the rapid growth seen in its IT sector. Paradoxically, by 2004, many of its citizens still lacked access to this technology, in large part due to geographic barriers. The nation’s rural villages, for instance, tended not to have basic telecommunications infrastructure. At this point, IBM partnered with Department of Information Technology (DIT) in West Bengal – an agriculture-dependent state in Eastern India with just under 100 million inhabitants – to implement the same IT workforce-training programs that the corporation had deployed in countries such as Venezuela, China, and Egypt. At this point in time, the DIT already made commitments to increasing IT access and training within its education system at the middle school and high school levels to prepare students to 118 enter the workforce with the skills necessary for IT-related careers. The initiative, known as the Computer Literacy and Training Program, was credited with the region’s s ector growth and highest IT revenues in the country, but economists feared that the availability of skilled labor would not match the demand for such services for much longer. By investing in the training of all students, the government hoped to narrow the digital divide and also create the workforce supply necessary to strengthen its high-tech outsourcing economy. To enhance the program, IBM Learning Solutions brought IT infrastructure, support, and management as well as education services to 400 schools in the state, which then aimed to reach more than 150,000 students within the first 3 years. Within each school, select teachers received IT training and certification so that they could act as instructors for students and other faculty members. Each school received 10 computers equipped with Intel processor servers and Red Hat Linux 8.0. Those students interested in more high-level careers had access to advanced IT training. All instruction took place face-to-face in the local language across multiple platforms. Students took part in annual assessments and received formal completion certificates. IBM also offered orientation sessions for teachers who could continue the program following the end of the corporation’s contract with the Government of West Bengal. The program was sustained by charging students US$ 0.75 per month. IBM mangers keep the project on track through mechanisms such as delivery milestones, user satisfaction, and performance parameters while ensuring an adherence to class schedules, machine uptimes, and annual exams. The managers also take responsibility for keeping the government informed through reports and briefs. By 2009, the program trained nearly 6,200 teachers in 330 private and public schools across 19 districts and enrolled 160,000 students. Evaluations have attributed an increase not only in IT skills amongst students, but also in overall academic performance as well to the program. Sources: "Government of West Bengal Conquers Digital Divide with Help from IBM." IBM Learning Solutions, Dec. 2004. Web. . Survey of ICTs for Education in India and South Asia, Case Studies. Rep. PricewaterhouseCoopers, 2010. Web. . 6.3.5.4. Private efforts: While awareness efforts promoted by public sector are critical, they do not ensure automatic success. Administrations change due to electoral cycles and what could have been important for one party is not for another. Furthermore, public sector support does not necessarily mean unlimited funding. Finally, sometimes central governments are far removed from special groups to be targeted and, therefore, lack proper understanding of their specific needs. In that context, support from the private sector might prove beneficial to improve sustainability of demand stimulation programs. For example, ZeroDivide is a philanthropic organization that seeks to increase digital inclusion in low income, mostly non-white communities in the United States. The program comprises a number of projects, such as training community members in the use of technology, 119 increase household computer ownership through the provision of free or low-cost equipment, and develop community-focused content. The projects also included deploying Wi-Fi broadband networks and a community technology center for training and Internet access. The Digital Inclusion project is a similar program. In this case the private non-profit organization partners with community organizations to distribute low-income households an ultra-portable laptop, high-speed broadband access, couple with digital literacy training, and content aimed at low-income households. There are two types of benefits potentially derived from private efforts in broadband awareness. First, local companies can provide not only funding but also a good understanding of the needs of local groups. Secondly, multinational corporations can provide funding but also the possibility of cross-fertilizing experiences from one country to another in terms of “what works and what doesn’t”. Box 6.3.53 – Google ‘Good to Know’ Campaign (United States) In early 2012, Google launched its “Good to Know” campaign focusing on educating consumers about web-related privacy issues and the ways they can make the experience safer and more secure. Topics include privacy and security tips, such as how to use two-step verification, the way to lock a public computer, and how to make sure website connections are secure. Google not only published a Good to Know book on its website, but also ran ads – all of which are accessible for download on the website - in newspapers and magazines, websites, and subway cars in the New York and Washington, D.C. metro areas. The website covers four main: “Stay safe online,” “Your data on the web,” “Your data on Google,” and “Manage your data.” It also features sections that focus on online safety for the family and offer resources such as explanations of technical jargon, links to related Google services, and a list of organizations dedicated to providing help and advice online. While informative, the ads are written in an entertaining, light-hearted manner, but with enough condescension to make readers realize that they need to pay more attention to how they use the Internet. Google’s director of privacy described the campaign’s target audience – the casual Internet user who may not be as savvy when it comes to online safety as he or she should be - in a corporate blog post. “Does this person sound familiar?” she asked. “ He can't be bothered to type a password into his phone every time he wants to play a game of Angry Birds. When he does need a password, maybe for his email or bank Website, he chooses one that's easy to remember like his sister's name-and he uses the same one for each Website he visits. For him, cookies come from the bakery, IP addresses are the locations of Intellectual Property and a correct Google search result is basically magic.” Prior to its launch in the United States, Google first debuted the multi-million campaign in October 2011 in the United Kingdom through its partnership with the Citizens Advice Bureau. Sources: Boulton, Clint. "Google 'Good to Know' Campaign Touts Web Privacy, Security." EWeek. N.p., 17 Jan. 2012. Web. . "The Good to Know Campaign." Google. N.p., n.d. Web. . "Broadband Internet Access Worldwide." Encyclopedia. NationMaster, 2006. Web. . Prescott, Roberta. "Uruguay's Antel Eyes Mobile Broadband Opportunities with LTE." RCR Wireless News Americas. N.p., 20 Apr. 2012. Web. . Box 6.4.3 – Plan ABA de CANTV (Venezuela) In May 2008, state-controlled incumbent fixed-line operator CANTV launched its prepaid broadband Internet access plan known as Plan ABA. The plan targeted Venezuela’s lower - income population and those citizens who did not already have the technology, offering “social rates” to make broadband more affordable and accessible. The plan not only served to increase subscribers for CANTV, but to improve the provider’s image as “a company belonging to the state of Venezuela” with the goal of reducing the digital divide. The operator began focusing more of its attention on the provision of more affordable basic services following its 2007 renationalization. Customers can pay for and manage their broadband usage through CANTV’s prepaid calling card, known as the Un1ca card. Launched in 2001, the card offers access to fixed, wireless, and public telephony and Internet services without the obligation of upfront payments or commitments. The card was credited with providing Venezuela citizens with one-stop access to a wide range of services and products, acting as a “communications passport.” Basic services – which included a 256 kpbs connection and a 100 Mb download limit- cost US$ 9.31 monthly, but users could increase capacity for an additional US$ 0.08 per Mb. Users were also supposed to pay the US$ 30 Aba subscription fee, which included a modem, but the operator waived the fee. The plan is aimed at prepaid customers; postpaid broadband customers will also require an Un1ca card and must purchase or rent their own modems in order to use the service. Sources: "Cantv Launches Prepaid Broadband." Telecom. Business News Americas, 6 May 2008. Web. . Annual Report 2001. Rep. CANTV, 2001. Web. . Agreement reached by private operators 135 In this case, government policy makers negotiate with private broadband providers the offering of a low-priced plan. This can be achieved in the context of the formulation of a national broadband plan. Such has been the case of the Brazilian National Broadband Plan, which triggered a negotiation leading to the launch of the “Banda Larga Popular”, offered by several operators. Another option to reach such an agreement could be to attach the offering of a low- priced plan as a sine qua non condition for providing regulatory approval of an incumbent plan. Such was the case in the United States, where the government determined that Comcast should offer a low-priced broadband service if it were to receive approval for acquiring NBC Universal. This triggered a process that led all other major cable TV operators to join in the initiative. A slight variance of this option entails a move by an incumbent wireline operator to offer a low priced plan and create good will in order to pre-empt a threatening government regulatory move. Box 6.4.4 - Internet Essentials (United States) In September 2011, cable giant Comcast launched its “Internet Essentials” plan to offer broadband to as many as 2.5 million low-income families for a monthly rate of US$ 9.99. The plan came as part of the approval process in its acquisition of the media and entertainment company, NBC Universal. Beyond the 1.5 Mbps Internet connection, eligible customers will also qualify for $150 refurbished computers, which will come with software donated by Microsoft. Comcast will also offer digital literacy training to these users free of charge. To qualify for the plan, households must a) not yet have a broadband connection and b) have a child enrolled in a school lunch program. The US$ 9.99 monthly rate lasts for two years, at which point customers will likely have the option to renew at a higher – but still discounted – price. Because the US$ 9.99 covers the companies’ overhead costs, providers will likely not experience a significant loss in earnings nor will the government need to provide supplemental funding. In late 2011, the United States Federal Communications Commission (FCC) announced that most of the country’s major cable companies partnered to join the initiative. These companies included Time Warner, Cox, and Charter, though AT&T and Verizon chose not to participate. The low prices will likely attract new subscribers who previously could not afford the cost of an Internet connection. Morgan Stanley is working with the cablecos to develop a microcredit program while partnering employment and education companies will offer specialized content to make Internet access more attractive to these users. The FCC said that it supported the partnership as a means to increase the country’s broadband penetration, particularly amongst this otherwise underserved segment of the population, and praised its potential to guarantee digital literacy amongst the country’s students. It hopes that by increasing Internet access and digital literacy, high school graduates will be more hirable, as even entry-level jobs typically require basic ICT skills, which also help employees in the online job search. Sources: Anderson, Nate. "Comcast’s $9.99 Internet For Low-Income Families Goes Nationwide." Wired. Conde Nast Digital, 21 Sept. 2011. Web. . 136 "Cable Companies To Offer Broadband To Low-Income Households For $9.99/Month." Deadline Hollywood. N.p., 8 Nov. 2011. Web. . Box 6.4.5. Banda Larga Popular (Brazil) In 2009, only one-third of households within the Brazilian state of São Paulo had access to a broadband connection. Of the remaining two-thirds, nearly 60% blamed that the high cost of Internet services. That year, the governments of São Paulo, Pará, and Distrito Federal partnered together to offer low-income citizens in these districts affordable broadband. The social inclusion program, dubbed Banda Larga Popular, provided Internet connections for US$ 17 per month (35 reals, or 29 reals in those states where ICMS taxes do not apply). The Ministry of Communications oversees all monitoring and compliance while the operators are in charge of the provision of broadband and the promotion of such services. Inked in 2011, the initiative falls under the umbrella of Brazil’s National Broadband Plan (PNBL) and will run through 2014. Telefónica Brasil delivered the service, which reached speeds up to 256kbps using wi-mesh technology. To ensure that the telco could cover its costs while charging such a low price, the government waived the 25% ICMS tax. While the government invited other telcos to participate, only Telefónica chose to do so. Within São Paulo, the project target low-income households that already owned a computer but did not have an Internet connection. Initial analysis estimated that this criterion would include approximately 2.5 million households. In December 2010, Cisco announced the results of its Broadband Barometer study, showing that Brazil had reached 16.2 million broadband connections earlier in the year. This number reflected an increase of 7.9% over the previous half year and 18.1% over 2009. The study credited the growth in home computers with the rise in broadband subscribers, which it said came as a result of lower tax rates on ICT equipment and by the increase in low-cost broadband plans available to new users. Cisco directly cited the success of the Banda Larga Popular initiative. Sources: Cisco. Brazil Achieves More Than 16 Million Broadband Connections. The Network. N.p., 9 Dec. 2010. Web. . "Telefonica Brasil SA (VIV)." Reuters. Thomson Reuters, n.d. Web. . "São Paulo Government Introduces Low-costing Broadband." Business News Americas. N.p., 15 Oct. 2009. Web. Negotiation of low priced service for public administration facilities (health care centers, schools, libraries) In this case, the offering is negotiated but only for providing broadband access at a reduced price to public entities charged with providing social services. 137 Box 6.4.6 - Projecto Banda Larga nas Escolas Publicas Urbanas (Brazil) The government of Brazil launched its initiative Projeto Banda Larga nas Escolas Públicas Urbanas (PBLE) in 2008, committing to the provision of free broadband connections to a minimum of 90% of urban schools. The communications ministry established the project as a partnership with the ministry of education and the telecom regulator, Anatel. The Brazilian telcos signed concession agreements with the government agreeing to support the program as a term of rolling out their broadband backhaul infrastructure. As part of the agreement, the operators are required to provide the broadband, an agreement that critics argue forces customers to bear the costs. Per the country’s communications ministry, by year -end 2010, 91.6% of urban public schools (or 57,586 institutions) received free Internet connections. The project targeted the remaining 5,278 urban schools in 2011 and by October 2012, a total of 63,394 public primary and secondary schools offered broadband access to students. Of these schools, 37,773 are municipal, 25,363 are state-owned, and 258 are federal. In 2012, the project connected an average of 17 schools per day. It will likely continue through 2025 to impact a total of 70,000 schools and update connection speeds, which at present are between 2 Mbps and 10 Mbps. Sources: "All Urban Public Schools to Have Broadband by Year-end." Telecom. Business News Americas, 2 Feb. 2011. Web. . "More than 63,000 Public Schools in Brazil Have Broadband." Internet. Telecompaper, 11 Oct. 2012. Web. . National Broadband Plans. Rep. Organization for Economic Co-operation and Development, 11 June 2011. Web. . "Popular Broadband Has Already Reached More than 1,800 Brazilian Cities." Porta Brasil. N.p., 6 Sept. 2012. Web. Free Wi-Fi access points The provision of free WiFi Internet access is being conceived as one of the building blocks needed to build a city’s international competitiveness. There are several features and options of a free WiFi program:  Coverage of public spaces: squares and parks, public transportation, including metros, public libraries  Type of service: amount of time provided for free access (1hr. limit while commuting, open unlimited access)  Type of service provider: under contract with telcos or other broadband player, offered by the city administration 138  Quality of service: basic 128 kbps, video streaming quality  Business model: free provision based on a singular event, then moving to a pre-paid offering, potentially including customized interactive digital advertising Box 6.4.7 - Free Underground and Overground Internet (London) The government agency overseeing all forms of public transportation in the city, Transport for London has increasingly demonstrated a commitment to providing IT services throughout the system. The Summer 2012 Olympic Games only heightened this focus. Beyond using advanced technology to improve its own operations, the agency stressed the importance of data access to allow commuters to “make better travel choices.” Implemented innovations included open standards, sensor networks, and “ubiquitous connectivity.” In March 2012 – just months before the kickoff of the Summer Olympic Games in the city – Transport for London announced that it awarded a contract to Virgin Media for the provision of free WiFi within the London Underground. A similar contract was awarded two weeks later to the Internet Services Provider Cloud for the London Overground. The project provided commuters with one hour of free WiFi access per day to the more than 200,000 daily commuters. The providers promised speeds fast enough to stream video without delay, but access was only available at the stations and not on the actual trains in the case of the Underground due to technical reasons. Virgin’s contract alone covered 120 London stations, 80 of which were wired in time for the Olympics. The remaining 40 stations had WiFi access by the end of 2012. While the contract stated that Virgin must supply the WiFi free of charge during the Olympic games, the provider continued to offer the service for free through year-end 2012. Beginning in 2013, Virgin Media customers will continue to access the network at no additional cost; all other users will pre-pay by the minute. Access to online commuting information will remain free. Neither the government nor the operators disclosed the financial arrangements beyond stating that the contract covered the cost of deployment. The project spurred interest from global advertising firms, which explored the potential to display interactive ads and landing pages. At some locations, Nokia fully funded the project as a way to market the launch of its Windows smartphone. This investment allowed the Finnish ICT company to monitor users’ browsing trends throughout London and also helped providers to gauge the best locations for future free WiFi hot spots. The trend in advertiser investment will likely continue. In late July 2012 Telefónica Europe’s subsidiary, O2, completed the deployment of hotspots throughout the city to complement the London Underground and London Overground WiFi networks. While the provider required users to register, they could continue to access the network free of charge even once the Olympics ended. In order to justify this investment, O2 targeted local businesses for advertising revenue, with department store House of Fraser immediately participating in the plan. The provider envisions customized advertising, allowing restaurants and retailers to reach potential customers with discounts and information based on their geographic location. Sources: Ungerleider, Neal. "London Underground, Overground Get Free WiFi." Fast Company. N.p., 27 Mar. 2012. Web. . 139 Rasmussen, Paul. "Nokia Funds Free WiFi in London for Windows Phone Marketing Campaign." FierceWirelessEurope. N.p., 2 Nov. 2011. Web. . "Transport for London." CIO 100. CIO UK Magazine, 2012. Web. . Ray, Bill. "Virgin Media Snags London Underground WiFi Monopoly." The Register. N.p., 15 Mar. 2012. Web. . Box 6.4.8. - Public WiFi (France and Greece) In 2006, Parisian mayor Bertrand Delanoe announced that free public access WiFi “is a decisive tool for international competition.” One year later, the city launched its WiFi network with access points in public parks, squares, and libraries. As part of a contract with the mayor’s office, Alcatel-Lucent and wireless operator SFR partnered to build and manage the network, which included more than 400 free public hotspots. Paris and the Ile-de-France regions funded the project, which totaled approximately 2 million EUR plus an additional 500,000 EUR annually for maintenance. SFR won the contract through a public tender, but France Telecom sued the city, citing “unfair competition,” despite its participation in the tender. This initiative was not the first of its kind in Europe. With more than 2 million residents of Paris proper and more than 11 million residents in the Parisian suburbs, however, it perhaps had the largest reach. In 2005, the Greek town of Trikala launched its 80 million EUR E- Trikala initiative, which included the installation of the town’s first 10 free public WiFi points. In its first year alone, it attracted 3,500 users. In 2007, the second phase of the project went live, with Swedish telecom manufacturer Ericsson contracted to deploy the more expansive infrastructure and improve service. E-Trikala also partnered with Cisco to build a 15-kilometer metro optical network linking city buildings and connecting additional hotspots. By mid-2007, the number of registered users had doubled since year-end 2005, reaching more than 6,000 users. Following this project, seven additional Greek municipalities announced plans for similar initiatives. These cities and towns signed an agreement to connect with each other to create “the first digital community in Greece.” Sweden saw a similar model, whereby more than 150 individual towns built their own networks and connected through a shared IP backbone. Sources: Vos, Esme. "Free Wi-Fi Service in Public Areas in Paris." MuniWireless. N.p., 29 Sept. 2007. Web. . Le Maistre, Ray. "Public WiFi Comes to Paris." Light Reading. UBM Tech, 2 Mar. 2007. Web. . Box 6.4.9. - GovWiFi (Hong Kong) In 2008, Hong Kong finalized its revision of the 1998 Digital 21 Strategy, stating the following objectives:  Facilitating a digital economy; 140  Promoting advanced technology and innovation;  Developing Hong Kong as a hub for technological cooperation and trade;  Enabling the next generation of public services; and  Building an inclusive, knowledge-based society. The strategy recognized the importance of investing in information infrastructure to promote economic growth. Already boasting some of the world’s highest broadband penetration rates, Hong Kong looked for additional ways to encourage Internet access. Incorporated into the Digital 21 Strategy, the Government WiFi Program – known as GovWiFi – installed Wi-Fi hotspots in government locations to offer free broadband access. Later that year, the program began the installation process throughout all 18 districts. Locations included public libraries, public enquiry service centers, sports venues, cultural and recreational centers, cooked food markets and cooked food centers, job centers, community halls, major parks, government buildings and offices Per its website, through GovWiFi:  People can surf the web freely for business, study, leisure or accessing government services whenever they visit the designated Government premises  Business organizations can extend their services to a wireless platform to reach and connect with their clients.  ICT industry players can make use of this new wireless platform to develop and provide more Wi-Fi applications, products and supporting services to their clients, and open up more new business opportunities.  Foreign visitors can enjoy Internet access at the designated tourist spots By mid-2012, the program offered services at more than 400 locations. Its website allows users to search for locations and also offers security tips and addresses the WiFi-related health concerns that have been raised. To encourage use of the WiFi spots, the program periodically holds events, contests, and promotion campaigns. Sources: "Programme Overview." GovWiFi. GovHK, May 2012. Web. . "2008 Digital 21 Strategy." N.p., 22 Apr. 2008. Web. . Box 6.4.10 - Google’s “Free WiFi” Project (Brazil, India) In December 2012, Google announced its partnership with Enox, the Brazilian advertising firm, to launch its “Free WiFi” project, allowing users to access the Internet from their personal smartphones, tablets, or computers in bars throughout seven cities in the southern region of the country. Google Brazil stated that, “"The number of people with smartphones in Brazil is greater than in Germany, France and Australia, and most of them use their devices every day to read news, watch video clips and connect with their friends. By means of this project, we're sure that the Brazilians will be able to enjoy better their friends when they are at the pub, besides creating and registering memories of their moments.” 141 The connection utilized a WiFi or fiber optic connection depending on the bar, offering connections between 10 Mbps and 30 Mbps. Users did not face time limitations or browsing restrictions. Beyond offering citizens free Internet services, the project also promoted the Google brand. When users activated the WiFi, their devices automatically launched the Google home page, which displayed the company’s products and download suggestions. Free WiFi ran for 90 days during the Brazilian summer. The multinational Internet company had experimented with a similar project in India in January 2012, when it partnered with O-Zone Networks to offer free WiFi in an attempt to increase the user base of its social network, Google+, and the video site YouTube, which it acquired in late 2006. While Internet use in Brazil was unlimited and unrestricted, users in India had to pay to access any sites beyond Google+ (unlimited) or YouTube (10 minutes per week for free). The partnership between Google and O-Zone also lasted 3 months. While critics of the program saw the initiative as a marketing ploy to promote Google’s own projects in India, proponents saw its potential for increasing Internet access in a country with less than 10% Internet penetration. Prior to the launch of this project, Google cited that 40% of Internet searches and 67% of e-commerce came from mobile Internet use and that free WiFi access would only further encourage this trend of accessing the Internet from portable devices. This project bears similarity to Google’s collaboration with Boingo Wireless in the United States, when it sponsored free and discounted WiFi throughout New York City hot zones and subway stations. Following its initial success, the offering expanded to reach Internet users in other metropolitan areas, including Chicago, Houston, Los Angeles, New York, Seattle, and the District of Columbia. Sources: "Google Offers Free Wi-Fi in 150 Bars in Brazil." Telecompaper. N.p., 14 Dec. 2012. Web. 06 Mar. 2013. . Parker, Tammy. "Google Sponsoring Free Summer Wi-Fi in Brazilian Bars." FierceBroadbandWireless. N.p., 14 Dec. 2012. Web. 06 Mar. 2013. . Chan, Alice. "Google Offers Free Wi-Fi In India To Access Social Networks." PSFK. N.p., 11 Jan. 2012. Web. 06 Mar. 2013. . Box 6.4.11 - Free Public WiFi (Thailand) In January 2013, Thailand’s regulator, the National Broadcasting and Telecommunications Commission (NBTC), announced that it had awarded a grant of US$ 32 million from its Universal Service Obligation (USO) budget to the ICT Ministry to further its free public WiFi project. The project aims to create 40,000 public WiFi spots by the year’s end, with 250,000 spots slated for 2018. The initial locations will include public universities and hospitals, city halls, and major tourist destinations. The installation of 150,000 access points will include five access points per location with speeds of 2Mbps per second. Each access point can accommodate 15 users at 20 minutes per access. 142 CAT Telecom (the state-owned telecom infrastructure company) and TOT Corporation (the state-owned telco) will provide the service. The project represents collaboration between the ICT Ministry and service providers, focusing on the country’s large cities and the “last-mile areas” that currently lack fiber optic networks. Per the ministry, the expansion of the Free WiFi project will accelerate the Smart Thailand project, which falls under the national ICT framework. Known as “ICT2020,” it serves as a development strategy highlighting the government’s commitment to ICT infrastructure and services. To ensure its success, ICT2020 emphasizes universal Internet access and device affordability as well as government organization collaboration and support. Under Smart Thailand, the government has committed to offering broadband coverage to 80% of the population by 2016 and 95% of the population by 2020. In early 2012, only one-third of the population had access. Ultimately, the initiative aims to increase Thailand’s gl obal competitiveness by improving education and business sectors and encouraging investment. The first phase of Smart Thailand, which runs until 2015, will upgrade the existing telecom networks to cover the aforementioned 80% of the population. The second phase, which runs from 2015 to 2020, incorporates broadband network installation in regions not yet covered by a fiber optic network. The National Broadband Network Company (NBN Co) will operate the nationwide network as part of a joint venture between existing private and public sector operators. The venture will reduce investment duplication and separate the installation and service provision functions. Combined, the two phases will likely total US$ 2.7 billion. Sources: Kunakornpaiboonsiri, Thanya. "Thailand to Create 300,000 More Free Wi-Fi Spots." FutureGov Asia. N.p., 25 Jan. 2013. Web. 06 Mar. 2013. Sambandaraksa, Don. "Thailand Issues Funds for Free Public WiFi." Telecom Asia. N.p., 17 Jan. 2013. Web. 06 Mar. 2013. . Pornwasin, Asina. "Smart Thailand Project on Track." The Nation. N.p., 28 Feb. 2012. Web. 06 Mar. 2013. . Box 6.4.12 - Public WiFi (Estonia) By 2008, nearly all of Estonia – a country that spans 45,000 square-kilometers and has a per capita GDP of just $14,300 - had WiFi access following a nationwide push to install access points throughout the country. Colloquially known as “E-stonia,” by this point 1.4 million residents – 50% of whom resided in rural areas – were connected to wireless Internet and 70% of the population conducted personal banking transactions online. Beginning in 2002, volunteers with the WiFe.ee organization lobbied for local cafes, hotels, hospitals, parks, and so on to offer Internet access, working with them to design and implement the necessary networks. WiFi.ee stressed the importance of working with locals in the deployment process, as they feared outsiders would not understand the needs of the people nor the geographic or political issues that could potentially cause roadblocks. In fact, once established, nearly all wireless connections were managed by local business owners who recognized that not having WiFi was akin to encouraging customers to go elsewhere. 143 With few exceptions, access came at no cost to the user. Further, with the exception of public schools and libraries, the entire network deployment was made possible without government assistance. Local businesses took responsibility for the creation of the more than 1100 hotspots throughout Estonia. Additionally, by 2005, nearly all schools had Internet access. From their home computers and mobile phones, students could access their schools’ servers and connect to national libraries. In 2010, Veljo Haamer, the creator of WiFi.ee estimated that his organization had set up the WiFi found in 75% of the bars and cafes in Estonia’s capital, Tallinn. WiFi.ee charges local business owners between US$ 300 and $500 for the connection setup and maintenance. As more businesses adopted the model of offering free Internet services to customers, other businesses had to follow suit to remain competitive. As the service became more ubiquitous, even train and bus lines began offering WiFi connections. Sources: Borland, John. "Estonia Sets Shining Wi-Fi Example - CNET News." CNET News. CBS Interactive, 5 Nov. 2008. Web. . Basu, Indrajit. "Estonia Becomes E-stonia." Government Technology. N.p., 9 Apr. 2008. Web. . Boyd, Clark. "Estonia's 'Johnny Appleseed' of Free Wi-Fi." DiscoveryNews. Discovery Communications, 11 July 2010. Web. . Box 6.4.13 – Fon (Spain and international) Created in Madrid in 2005, where it is headquartered, Fon Wireless is now incorporated and registered in the United Kingdom with offices in both Spain and the United Kingdom as well as in the United States, Brazil, France, Germany, and Japan. Its investors include such names as Google and Skype. Described as “crowdsourced WiFi,” Fon allows its members to access free roaming through Fon WiFi Spots by sharing their own home WiFi. In essence, these access points combine to create a “network where everyone who contributes connects for free.” At present, Fon has more than 5 million “Fon Spots” around the world. Accessing Fon WiFi requires either a Fon WiFi router with a broadband connection or membership with one of Fon’s telco partners, which have Fon integrated into their CPE devices and offer customers DSL/Cable modems with the pre-installed Fon feature. Non- members can also access a Fon Spot by purchasing an access pass once connected to the WiFi signal. The passes are only available on the login page of each individual hotspot. Each Fon Spot consists of two separate, dedicated WiFi signals, one for the home user and the other for other members and visitors of the network. The home traffic is prioritized so as not to slow down home Internet use. Further, to guarantee security, a firewall separates the home signal from the guest signal. Fon also encrypts user login information. While Fon began as a small startup in Spain, it has since grown into a service accessed around the world and now with large-scale broadband providers in several countries. In 2007, for instance, it formed a partnership with British Telecom (BT), giving the telco’s three million broadband customers the option to join the network, which had nearly 200,000 global WiFi hotspots - the largest network of WiFi hotspots in the world at the time. Prior to BT, 144 Fon also secured partnerships with such providers as the United States’ Time Warner Cable and France’s Neuf. While some Internet Service Providers continue to prevent their customers from sharing broadband, others recognize that including access to free WiFi hotspots outside of the home makes broadband packages more appealing to potential customers. BT, for example, boasts that its subscribers don’t just get a broadband connection in their house, but also access “from a park bench in New York, to a bus stop in London, to an apartment in Tokyo.” Sources: "What Is Fon?" British Telecom. N.p., n.d. Web. . "How It Works." FON. N.p., n.d. Web. . Schonfeld, Erick. "Fon Inks Deal With British Telecom." TechCrunch. N.p., 4 Oct. 2007. Web. . Service subsidization Under service subsidization policies, the government offers a refund on the cost of broadband access. Box 6.4.14 - Education Tax Refund (Australia) The Australian Government’s Education Tax Refund (ETR) offers parents, caregivers, legal guardians, and independent students refunds on the education expenses of primary and secondary school children. These costs can include computers and Internet connections, as well as such items as educational software, textbooks, and school supplies. Recipients for this tax refund qualify based on their Family Tax Benefit (FTB) eligibility. Beneficiaries of FTB must demonstrate that they:  Have a dependent child under 16 years of age
 or  Have a dependent child between the ages of 16-20 years who has completed a Year 12 or equivalent qualification, or who is undertaking full-time education or training leading to a Year 12 or equivalent qualification, or who is exempt from this requirement, or  Have a dependent full-time student 21–24 years of age, 
 and  Have care of the child for at least 35 per cent of the time, 
 and  Meet the income test, 
 and  Be an Australian resident, or a special category visa holder residing in Australia, or the holder of a certain type of temporary visa. Claimants of the ETR must demonstrate that they have qualifying education expenses and received FTB. In order to receive the refund, eligible candidates must keep their receipts, which serve as proof of their claims. Before claiming the refund, individuals must first have their FTB Part A claim approved. They can then either submit the claim with their individual tax filings or complete a separate ETR request form. Per the ETR website, the refund covers the expenses of the following items, many of which encourage students’ home computer use:  Home computers and laptops  Computer-related equipment such as printers, USB flash drives, and disability 145 aids to assist in the use of computer equipment for students with special needs  Computer repairs  Home internet connections  Computer software for educational use  School textbooks and other printed learning material, including prescribed textbooks, associated learning materials, study guides and stationery, and  Prescribed trade tools for secondary school trade courses. While the website provides an ETR calculator, it also offers guidelines in terms of what items can be claimed and the amount of the deduction. A full-time caregiver, for instance, can claim 50% of eligible education expenses up to $794 (to receive $397) for each primary school child and $1,588 (to receive $794) for each secondary school child. The same amounts apply to individuals who share the care of a child. In 2011, the program cost approximately $4.4 billion and reached 1.3 million Australian families. The government used television, print, radio, and online advertising to target eligible families. The 2012 Budget introduced the new Schoolkids Bonus, which will replace the Education Tax Refund. Through this new item, eligible families will automatically receive annual payments of $410 for each primary school child and $820 for each secondary school child. Sources: "Education Tax Refund." Australian Government, n.d. Web. 14 Dec. 2012. Gillard, Julia. "Helping Australian Families with Back-to-school Expenses." Australian Labor News. N.p., 6 Jan. 2011. Web. . 6.4.3. Device Ownership as a barrier to adoption In the introduction of this chapter, it was indicated that broadband access requires devices capable of accessing the Internet, ranging from computers supplemented with a modem (called USB modem, dongle, or air card) to smartphones, netbooks, and tablets. Beyond service pricing, broadband economic adoption obstacles are linked to device prices. This section reviews the trends in device pricing and presents policy initiatives aimed at reducing the purchasing cost. It focuses on two areas: personal computers and mobile devices. Before reviewing the policies that could be potentially implemented for reducing the access cost of devices, it is important to mention that device pricing has been consistently declining driven by a reduction of production costs (manufacturing economies of scale and component costs) and increasing demand. The decline has been even more abrupt if quality and performance improvements are factored in. For example, Kopecky (2008) compared the personal computer price index with its quality index between 1977 and 2004, and pointed to a 25% per year decline in quality-adjusted prices with an equal rise in demand (see figure 6.28). 146 Figure 6.29. Price and quantity Indices for Personal Computers (1977-2004) Source: Kopecky (2008) Retail pricing of personal computers ranges currently between US$ 275 and US$ 1,600, a decline from US$ 800-US$ 2,50037. Moreover, prices for refurbished devices can reach between US$50 and US$ 100. The decline in smartphone prices has been significant, if not more dramatic than in the case of personal computers. Table 6.21 presents pricing and performance data for the different generations of the popular Apple iPhone. 37The introductory price of an Apple Macintosh 128K was US$2,495 (8MHz CPU speed, 128K DRAM, 64K Rom) 147 Table 6.21. Price Performance of the Apple iPhone (by Model) Date Model Price Memory Features June iPhone $499, $599 4GB, 8GB Multi-touch screen, up to 16 GB of storage, 2007 (only through 620 MHz processor, 2-megapixel camera for contract with ATT) still images, USB dock July iPhone 3G $199, $299 8GB, Assisted GPS; 2008 (“iPhone ($599, $699 16GB 2”) without contract) June iPhone $199, $299 16 GB, Up to 32 GB of storage, 833 MHz processor, 2009 3GS ($599, $699 32GB 3.0-megapixal camera that included video without contract) recording, digital compass, voice control, Nike+ June iPhone 4 $199, $299 16GB, Bigger battery, 1 GHz processor, 5.0- 2010 ($599, $699 32GB megapixel camera with LED flash, HD video without contract) recording October iPhone 4S $199, $299, $39938 16GB, Intelligent voice recognition; an A5 processor; 2011 32GB, an 8-megapixel camera; dual antennas so that 64GB it can be used almost anywhere in the world Septemb iPhone 5 $199, $299, $399 16GB, 20 percent lighter than the iPhone 4S; an A6 er 2012 32GB, processor, a new dock connector, LTE data 64GB connection, a boosted audio system, 8- megapixel FaceTime HD; longer battery life, improved graphics. Source: http://abcnews.go.com/Technology/iphone-features-apple-smartphone-evolved-introduction- 2007/story?id=17226964#3 While introductory subsidized price of the first iPhone model was US$499 (with 4 GB of memory), the current model (iPhone 5) starts at US$199 (with a minimum of 16GB and a wide range of features. Even if the iPhone is targeted at higher income segments in the emerging world, manufacturers such as Huawei and Nokia are offering low-priced smartphones. For example, Huawei in partnership with Safaricom launched an US$ 80 Android phone in Kenya. Still, carriers in the emerging world consider that $50 is a suitable price point for a smartphone. In late-2012, the Samsung Galaxy overtook the iPhone as the world’s best selling smartphone, a reflection of its efforts to target a larger user base though phones with a broad range of features at various price points. Apple has released 6 models of the iPhone since 2007, with each version seen as a successor to the previous model. In contrast, since 2009 Samsung has released more than 20 versions of the Galaxy with models and prices varying for targeted demographics. Much of the success of the phone has been credited with its ability to simultaneously market the high-end models in developed economies while pushing cheaper models to capture key markets like India, China, and Brazil39. 38 The 16 GB is now available for $99 with a new carrier contract. 39 http://readwrite.com/2012/04/26/a-brief-history-of-the-samsung- galaxy?&_suid=136300979298706035604705102742, and http://www.intomobile.com/2012/02/17/npd-lowcost-android-smartphones-seize-80- emerging-markets/ 148 The iPhone operates on the iPhone Operating System (iOS), but all Galaxy phones feature the Android operating system and thus compete with other Android smartphones. Considering that certain Internet access devices still remain out of reach of disadvantaged segments of the population in the emerging world, governments have at their disposal a range of policy models aimed at tackling the device affordability barrier. The following sections review first programs aimed at reducing the purchasing cost of computers, and then present initiatives focused on handsets, primarily smartphones. 6.4.3.1 Programs to reduce the cost of purchasing Personal Computers, Laptops, and Netbooks Three types of programs have been implemented to overcome the personal computer ownership barrier. The first one focuses on the provision of subsidies to reduce the acquisition price of devices. The target in this case could be either households at the lower end of the socio-demographic pyramid, students all the way from primary school to university, and SMEs, especially micro-enterprises. The second program is typically targeted at students in primary education, with governments distributing “one Computer per Child”. In this case, computers are provided free of charge to students in public schools. The third type of initiative entails a reduction of the access price by eliminating or decreasing taxes paid at time of purchasing. Levies affected by this measure could range from sales tax, import duties, and even sector-specific levies. Targeted subsidies While tax reduction could be an indirect subsidy, this section will address initiatives such as vouchers or the provision of lower priced devices for qualifying segments of the population (e.g. students). Box 6.4.15 – Computer Subsidies (China) In 2009, more than half of China’s population lived in the rural parts of the country, where the average per capita annual income was a mere US$ 700 (approximately 25% the average income of urban residents), broadband penetration rates were lower than in the urban areas, and the region’s personal computer market was nearly untapped. During this time, on a global level, PC shipments had decreased and both company and consumer spending had dropped. In China, however, 40 million PCs were sold annually and it remained the world’s second largest computer market behind the United States, a trend the Chinese government hoped to continue to prevent the country from falling into a recession. As layoffs became more of a reality, the government feared that further economic downturn could lead to social unrest. To support economic growth and stimulate spending in rural areas, the Chinese government announced a subsidy program offering a 13% rebate to rural residents buying select products. The subsidies were designed to help domestic and multinational PC manufacturers alike increase their sales to the country’s under-developed regions, particularly after national computer demand fell in the last quarter of 2008. Forecasters had initially predicted a 9% growth for 2009, but subsequently lowered that figure to 3%. The rural computer subsidy project came as part of a larger US$ 586 billion subsidy program to increase demand for 149 home electronics, known as the Home Appliance Subsidy Program. Beyond directly impacting the manufacturers, the component makers and retailers also felt the benefits of the stimulus. The government identified 14 vendors that could participate in the program and sell low- priced PCs in rural China, which would not only make computers more affordable but would also spur competition in the industry. The winning bidders included four large multinational and ten local PC vendors. The tender was valid for one year in thirteen provinces. Manufacturers created products specifically designed for the project in order to qualify and two-thirds of the computer models offered were priced under US$ 500, with all models ranging in price from US$ 290 to US$ 510. Lenovo, China’s largest PC maker, for instance, offered 15 computer models beginning at US$ 365 and announced plans to expand its sales network to 320,000 villages by 2012 as a result of the program. Competitor Hewlett-Packard also offered 15 eligible desktop and laptop computers equipped with agricultural and educational software. In the rural market, vendors must tailor their advertising and products accordingly to meet region specific demands. The PCs are built, for instance, with potential variations in power supply voltage – a frequent problem in rural areas – in mind. The computers many times also come with special software for farmers, like inventory management programs. Analysts say that in order to see success in China’s smaller cities, PC vendors must ensure physical proximity to their customers. Rarely will citizens in rural areas have the means or the desire to drive for hours to buy a computer. To catch potential consumers’ attention, Hewlett - Packard sponsors variety shows and film screenings and offers product demonstrations in small towns. It also sent buses equipped with its products to elementary schools to advertise and to train students on how to use their technology. Competitor Lenovo began marketing its computers as luxury wedding gifts, employing the slogan, “Buy a Lenovo PC, Be a Happy Bride,” and delivering them in large, conspicuous boxes. The company also has a flashy showroom with a section of the store devoted to products designed specifically for rural use. Nearly 60% of all rural residents – or 200 million households - qualified for a subsidy. Initial estimates expected the program to generate the sales of 800,000 computers. Sources: Chao, Loretta. "PC Makers Cultivate Buyers in Rural China." Tech Journal. Wall Street Journal, 24 Sept. 2009. Web. . Lemon, Sumner, and Owen Fletcher. "China Offers Computer Subsidy for Farmers." Desktops. PCWorld, 5 Mar. 2009. Web. . He, Helen, and Simon Ye. "Rural China PC Program Will Increase PC Shipments in 2009 | 909330." Gartner, 10 Mar. 2009. Web. . Box 6.4.16 – Kenniswijk Project (Netherlands) The Dutch General Directorate of Telecommunication and Post (DGTP) partnered with the Ministry of Economics to develop the Kenniswijk Project in 2001. Creating an experimental environment, the project provided residents of Eindhoven, Helmond, and Nuenen with innovative computers, mobile, and Internet products two years ahead of the rest of the country free of charge, resulting in a “consumer market of the future.” Providers would offer innovative ICT infrastructure and services while consumers had the opportunity to use them and enjoy their benefits. 150 Deemed “a vision of the broadband future,” this experiment allowed the ministry to examine the social and economic effects of increased ICT and broadband access within a community as researchers closely monitored the impact digital service had on households. By understanding the impact of broadband, this analysis of the project served as a best practices guide and shaped the development of future technology. It also promoted a synergy between infrastructure deployment and service provision. Ultimately, the government hoped that such a project would increase the Netherlands’ international competitiveness and attracts business from international ICT firms. The Kenniswijk.nl foundation organized the project. By 2002, however, Kenniswijk BV, a public-private organization that coordinates broadband services and infrastructures though subsidies for companies and consumers took control of the implementation of the Kenniswijk Project. Kenniswijk BV encouraged companies and institutions to make use of the subsidies, and the project ultimately grew into collaboration between 27 private and public parties. The organization oversaw the facilitation, motivation, and support of the involved organizations. Participants in the project received triple-play broadband services, including TV/video, telephony, and Internet. This physical network was open to multiple services providers, which in turn stimulated competition and encouraged innovation, particularly in areas such as e-health and distance learning. The technology also enabled citizens to change their services to meet their individual needs without involving a third party. In its part, the government allocated a total US$ 40.5 mn toward the project. Roughly US$ 11 mn went toward infrastructure development subsidies, which included a US$ 700 discount per user and allowed for more than 15,000 connections. The national subsidies included US$ 31,000 for “small services” and US$ 356,000 for “large services.” Regional subsidies covered up to US$ 35,600. Participants in the program received a free 10 Mbps Internet subscription for the first year and were not charged additional connection costs. The 10,000 subscribers received newsletters every 2 – 4 weeks and had access to the project’s website and helpdesk. Volunteer organizations and visitor centers were also encouraged to take advantage of subsidies to put the technology to use. In total, the endeavor spurred approximately 1000 new project ideas, 300 of which were turned into concrete project plans and subsidy requests. 135 were ultimately approved. Admittedly, the unstable economy in 2001 – 2002 resulted in delayed market investments, initially hurting the project’s uptake. Prior to 2004, the project saw a low amount of services, connections, and subsidy requests. Engagement with the private sector and the inclusion of OnsNet Nuenen into the Kenniswijk project spurred the number of requests and connections and contributed to growth. The project ended in October 2005, resulting in a total 15,000 FTTH connections and 135 services in Kenniswijk. Through this experiment, policy makers learned a great deal regarding motivating companies to install infrastructure and users to subscribe to a service. Even once the project ended, more than 80% of households continued to use the fiber connection. Following the success of this project, nearby towns implemented similar programs based on the same approach. Sources: "Dutch National Project for Broadband Innovation Selects PacketFront for Its next Generation FTTH Platform." PacketFront, 10 Nov. 2004. Web. . Kramer, René, Alex Lopez, and Ton Koonen. "Municipal Broadband Access Networks in the Netherlands." Proc. of AccessNets, Athens. Breath, 4 Sept. 2006. Web. 151 . Distribution of free devices These programs are more prevalent with regards to computer distribution, although they could be extended to other broadband access devices such as smartphones. Box 6.4.17 – SchoolNet Project (Namibia) Established in 2000 to offer sustainable, low-cost ICT and Internet services to all Namibian schools, the not-for-profit organization SchoolNet Namibia also provided training and support to empower youth through these tools. In partnership with local telcos and international development agencies, it brought affordable computers and solar-power computer labs to schools while promoting free and open source software solutions, Creative Commons licensed educational content, and discounted flat-rate wireless Internet services. Using free and open source software offered cost-reduction and scalability advantages and made sharing and adaptation easier for local communities. Two years after its founding, SchoolNet created its own ISP, XNet, allowing schools to access the Internet through dial-up or wireless (spread-spectrum WIFI in the ISM 2.4GHz band and 2.6GHz band) connections. Following the success of the program, SchoolNet took an active role in advising Namibian policy makers on ICT matters. The national government recognized SchoolNet as a major force in promoting ICT rollout and its role in job creation, all in line with the country’s National Development Plans for 2000 – 2010. The organization also served as an example for subsequent sustainable ICT in education projects undertaken in regions across Africa. On a higher level, the initiative focused on digital inclusion and creating an effective ICT program that could be easily replicated. The Swedish International Development Cooperation Agency offered ongoing financial assistance, which totaled nearly US$ 3 mn. Funding also came from other government aid agencies, including Canada’s International Development Research Center (IDRC) and the United States Agency for International Development (USAID). Telecom Namibia, the country’s incumbent telco, formed the aforementioned ISP, offering schools a flat -rate Internet package for US$ 25 per month. The provider also brought free dial-up access to schools for a discounted rate. Those schools that could not afford services qualified for cross- subsidies from schools with more resources. ICT volunteers assisted in basic ICT and support. Each of the labs held five computers - many of which were refurbished and came equipped with the Open Source Linux 7 operating system – that were connected to a server and a printer. In just five years, the project afforded 300 schools the opportunity to set up computer labs and connect to the SchoolNet ISP. The network also connected additional libraries, teacher resource centers, and NGOs. By the end of the project, the ISP boasted more than 180,000 regular Internet users, compared to the 11,000 users of the next largest commercial provider. The program ultimately dissolved in 2009 amidst criticism from the Ministry of Education. Sources: "SchoolNet Namibia." Panafrican Research Agenda on the Pedagogical Integration of ICTs. ERNWACA, 28 Feb. 2009. Web. . 152 "Broadband Strategies Handbook." Ed. Tim Kelly and Carlo M. Rossotto. The World Bank, 2012. Web. . "The Case of SchoolNet Namibia." WikiEducator. N.p., 9 Oct. 2010. Web. . Du Buisson, Uys, and Chris Morris. "Schoolnet Namibia." First Mile First Inch. N.p., Mar. 2005. Web. . Box 6.4.18 - Federal Computers for Learning Program (United States) In 1996, United States President Bill Clinton signed the Executive Order 12999 “to ensure that American children have the skills they need to succeed in the information-intensive 21st century.” This order led to the enactment of the Federal Computers for Learning Program, which donated “retired” federal government computers and ICT equipment to eligible schools and education-related nonprofit organizations free of charge. The program targeted pre- kindergarten (age 4) through high school (age 18) students located within the pre-determined “federal rural empowerment zones” that consistently suffered from high poverty and unemployment rates. In doing so, the program aimed to promote sustainability and economic development in otherwise disadvantaged communities. The program benefits the schools, many of which face shrinking budgets and cannot otherwise afford computers to keep up-to-date with the changing environment of modern technology. At the same time, the federal government disposes of approximately 10,000 computers – many of which are only three years old – every week. As such, it also supports current President Barack Obama’s commitment to “zero waste in government,” ensuring that this equipment is put to use. When the program first began, most schools received basic IBM-compatible personal computers, though Pentium-based systems and occasional Apple computers were donated as well. Beyond computers, the government agencies also donated modems, routers, services, ICT equipment, and research technology. While the agencies also offered software to some schools, these donations were contingent on licensing and permits. The schools and organizations did not pay for the computers or the equipment, but did pay the shipping and handling costs as well as the refurbishing costs when applicable. The United States General Services Administration (GSA) facilitates and sponsors the program, but schools must be proactive and register for the program themselves. To participate in the program, qualifying schools applied through the Computers for Learning website. Once registered, the website offered tools and resources that enabled schools to:  Create an overall plan for addressing computer needs  Assess the suitability of different types of available computer equipment  Request donated Federal computers  Contact a member of the Computers for Learning Partnership for free shipping  Find assistance if computers require upgrading  Find National Tech Corps volunteers, and  View other registrants' registration information The CLP website offers a “Success Stories” section, where schools can write in to share the impact the computers have had. One 9th grade teacher from Maryland wrote that after spending just five minutes registering on the site, the school received 252 computers, equipping every classroom with a computer and allowing teachers to incorporate the 153 technology into their lesson plans. Other teachers commented on the quality of the computers, noting that not one required repair or lacked sufficient speed or memory capacity. By mid-2012, the program donated nearly 360,000 computers and equipment – worth more than US$ 317 million – to thousands of schools and organizations throughout the country. Sources: Longley, Robert. "Surplus Computers: Free for Schools." US Government Info. About.com, n.d. Web. . Computers For Learning. U.S. General Services Administration, n.d. Web. . "Computers for Learning Puts Information Technology in Classrooms." U.S. General Services Administration, 12 June 2012. Web. . Box 6.4.19 - Smartphones to the homeless (Republic of Korea) In 2011, the Seoul government launched its “Smart Seoul 2015” program, expressing its commitment to “making Seoul the ‘best smart technology’ city in the world by 2015.” The program addresses infrastructure expansion and information security as well as ICT services and e-government programs. To promote e-government services, for example, it focuses on communication with citizens, convenience, and a campaign against the negative aspects of increased information access. At the time, Seoul’s e-government had already ranked first place amongst the World’s 100 Cities for four consecutive years, serving as “a benchmark for countries and cities around the world.” With an emphasis on ICT and smartphone use amongst all segments of the population - regardless of factors such as age or income – Smart Seoul 2015 incorporated programs to distribute technology to disadvantaged groups. For instance, the city provides Braille terminals and magnifying devices to the disabled and the visually impaired. The program also offers PC repair, Internet addiction projects, and training courses. In August 2012, the government announced that it would provide homeless shelters with free smartphones and wireless Internet services. The provision of ICT falls under the government’s larger Social Networking Service Education Program, which focuses on training and skill building amongst the city’s homeless population. The smartphones will not only allow these citizens to search for employment opportunities from any location, but also to reconnect with their families and friends and interact with other members of the community. Citizens of Seoul can donate their used smartphones to the Seoul Metropolitan Government, which then distributes the devices to the residents of the shelters. The government also offers workshops at the shelters, which residents must complete prior to receiving the phone. The training encourages utilization of social networking services and mobile applications. Each smartphone comes with a US$ 20 credit, but the phones will still work in free Wi-Fi areas once all credit is used. Sources: Africa, Clarice. "Seoul to Provide Homeless Residents with Smartphones and WiFi." FutureGov, 31 Aug. 2012. Web. . 154 Sung-Mi, Kim. "Seoul Proves Value of Advanced E-Government." Korea IT Times, 9 Jan. 2012. Web. . Box 6.4.20 - Reaching the Third Billion: Bringing the Prepaid Miracle to Broadband The Intel World Ahead Program, inspired to enable more first time users online, and by the low cost pre-paid mobile broadband programs in Sri Lanka and Vietnam, recognized the opportunity for an affordable solution that includes connectivity, a computing device, and beneficial content, to address all of the demand side gaps that consumers face. In fact, through initial research, it was discovered that in the total cost of ownership, the largest affordability gap was actually the cost of the broadband subscription, when compared over a 4-year period. In fast-growing developing countries (such as Brazil, China, Indonesia, Malaysia, Mexico and Russia), broadband access can account for 60-80% of the total cost of ownership of a PC. Often, only about 20% of citizens could afford the monthly plans. Piloting the program in early 2011, working with service providers, equipment providers, content providers, and governments, new low cost solutions were created, including entry- level notebooks, compelling content, and prepaid broadband, accompanied by exciting advertising, branding and marketing, to enable and encourage first time users to get online. The pilot results were impressive, and by the end of 2011, all eight pilots were complete, enabling more than one million people with entry level PCs, content, plus prepaid broadband packages. These programs also encouraged the PC industry to aggressively lower prices to as low as $200, and encouraged content providers to create exciting new content. In one example in Vietnam, the telecom companies, Viettel and VNPT, offered 700MB of data download for just $2 prepaid. At that price, broadband affordability surged from 12% to 70% of citizens. Early results from the program also showed that stimulating demand is more than just price; it’s also about delivering meaningful content and applications. For example in Kenya, Safaricom package include not only entry-level netbooks, and pre-paid broadband but valuable content, including British Council ‘Learn English’ software, Education applications such as Intel® Skoool and Encyclopedia Britannica, as well as McAfee safety applications. In addition, they come with 1.5GB of free data download. This is a very compelling offer that enhances education and learning, and runs far better on a PC than over a phone or tablet. Today, successful programs are running in over 45 countries worldwide, and have enabled over 15 million new users to get online. With the Total Cost of Ownership (TCO) often reduced to 2/3 of the previous cost (see Table), over one billion people can now afford to enjoy technology benefits for the first time. Sources: The state of Broadband 2012: Achieving Digital Inclusion For All, Broadband Commission Report, September, 2012 http://www.broadbandcommission.org/Documents/bb- annualreport2012.pdf "Intel World Ahead Program: Connectivity." Intel. N.p., n.d. Web. . 6.4.3.2. Programs to reduce the cost of purchasing mobile devices, smartphones, and tablets This section addresses issues similar to that of computer devices but for mobile access equipment. 155 Box 6.4.21. – Free Devices (South Africa) Every year, South African mobile phone subscribers on contract plans receive free or heavily discounted top of the line devices from the country’s three main service providers, which offer the perk in an effort to stay competitive in the market. Initially, this subsidy attracted new users – particularly among the country’s lower classes - and encouraged contract plans, but now that the market is well-established and South African mobile phone penetration rates exceed 100%, providers are reconsidering this strategy. At this stage, the subsidies also pose a problem for new entrants that may not have the financial backing necessary to give away handsets to attract customers the way MTN and Vodacom can. When Cell C entered the market in 2001, for instance, it had no choice but to offer handset subsidies, negatively impacting the operator’s early earnings. By the time operators recouped enough money to justify the subsidy, the contract was up and customers expected a new phone. Further, rather than working to improve technology access amongst potential low-income customers, the subsidies are more often used to attract high-end subscribers, particularly as average revenue per user decreases with increased penetration amongst all socio-economic classes. Lower end, prepay customers also have access to the originally subsidized phones through the second hand market. As providers expand their operations into other regions in Africa that typically come with high business risks, they are forced to accrue large debts and thus cannot afford to lose money in the relatively more lucrative South African market. With such a large proportion of their earnings going straight to the bank to pay off interest loans, the operators must find a balance in the cost of acquiring new customers. To this extent, while the device subsidies may have initially increased mobile phone penetration in South Africa, these same subsidies may now be responsible for holding back market growth in neighboring regions. Additionally, as governments impose taxes, tariffs, and duties, the operators must continue to focus on cutting costs. Ultimately, at this stage, profitability trumps subscriber numbers. In the meantime, however, subsidized phones may soon lead to higher profit margins in South Africa as operators push customers to utilize high value services like mobile broadband and applications. These services will require smartphones, which most consumers cannot afford without a discount. In many African countries, disposable income serves as the largest barrier to broadband uptake. If providers continue to subsidize devices, particularly smartphones, they could in turn increase Internet and broadband access in this region. If these subsidies prove too costly to justify, providers could experiment with different pricing packages or partner with the government to make the devices more affordable. MTN, Vodacom, Cell C and others have invested heavily in their high-speed networks to increase capacity and both meet and encourage the demand for high-speed broadband. Declining prices – and incentives like device subsidies – are expected to contribute to a growing broadband market. Sources: "SA's Mobile Companies May Reconsider Cellphone Subsidies." Issue No 174. Balancing Act, 12 Jan. 2012. Web. . Mobile in South Africa – Contributing to Improved Economic and Social Outcomes. Rep. Indepen (for Vodacom), 8 Sept. 2005. Web. . 156 Mochiko, Thabiso. "African Numbers Driven by Rise in Mobile Voice, Internet Services." Business Day Live. N.p., 10 Oct. 2012. Web. . Box 6.4.22 – Device Subsidies (United States) In an effort to make broadband contract plans more appealing to consumers, many telcos go beyond mobile phones, also subsidizing modems, computers, and tablet devices with high- data contract agreements. With these contracts, subscribers may qualify for devices with no up-front charge in exchange for committing to long-term plans that promote the use of high- value services like Internet access. The revenue generated by these services justifies the cost of the equipment for the providers, and contracts usually have high early termination fees to guarantee that they can recoup the cost. In 2008, for instance, AT&T Mobility began subsidizing laptops. As a result, data revenue in the fourth quarter of that year rose 51.2% when compared to 2007’s fourth quarter results. To do so, AT&T partnered with Lenovo to offer customers laptops with embedded 3G modems for US$ 150 off when signing a two-year mobile data plan. To qualify for this offer, users signed up for AT&T’s $60 / month service, “DataConnect.” The embedded modems could handle download speeds up to 1.7 Mbps and uplink speeds up to 1.2 Mbps, but only worked with DataConnect. As part of the contract, users could terminate the agreement early for $175. By 2012, however, this practice no longer produced the same returns, largely due to the saturation of the market. While the subsidization of smartphones continues to make sense, the practice does not hold for the tablet market, where consumers tend to buy models designed for Wi-Fi and not cellular use. In August, AT&T announced that it would no longer subsidize tablets. AT&T continues to sell tablets, however, but at non-subsidized prices. As a result, the cellco’s tablet data plans do not have a built-in commitment and are slightly cheaper than previous offers. The price point increases based on data; 3GB plans cost consumers $30 per month while 5GB plans run for $50 per month. Shared data plans run for $10 / month plan. Competitor Verizon has also faced recent financial challenges as a result of device subsidies. In July 2012, the operator announced that it would no longer offer unlimited data plans to new customers. While the operator insisted that subscribers would benefit from shared data plans, amidst criticism, it reversed this decision. To compensate, subscribers who received subsidized plans will no longer have the option for an unlimited plan. Sources: "Broadband Strategies Handbook." Ed. Tim Kelly and Carlo M. Rossotto. The World Bank, 2012. Web. . Chacos, Brad. "AT&T Stops Offering Subsidized Tablets." LAPTOP. N.p., 20 Aug. 2012. Web. . Reardon, Marguerite. "Verizon: You Can Have Unlimited Data... Just No Device Subsidies." CNET News. CBS Interactive, 17 May 2012. Web. . Perez, Marin. "AT&T, Lenovo Offer Subsidized Laptops." Information week. N.p., 30 Oct. 2008. Web. . 157 Box 6.4.23 – Operator Partnerships (Uganda) In an effort to increase their subscriber base, service providers and operators in Uganda have entered into partnerships with each other to offer lower-priced devices and services. By making such tools more affordable, cost of broadband becomes less prohibitive, in turn boosting the country’s overall uptake of the technology. International semiconductor manufacturer Intel introduced in 2012 a new sales model within its developing market territories, working with telcos to offer high-speed broadband and affordable computers. This strategy is expected to reduce the broadband and high speed Internet divide and strengthen these countries’ economies. In some instances, the model replicates the prepaid model that has boosted the demand for mobile phones, attracting first- time buyers who can only pay for services they can afford at the time. As part of this strategy, Intel partnered with Orange Uganda in May 2012 to offer subscribers a variety of lower-priced personal computers and high-speed broadband packages – all available at Orange retail stores. The arrangement benefits both the corporation and the telco; Intel will experience growth opportunities in the computing sector while Orange will more easily reach new users and increase subscriptions. As a result of increased access to ICT and consumer spending, Uganda will likely see a rise in GDP and digital literacy as well as integration of ICT into the education system. Further, as the populace becomes more comfortable with this technology and access and skills increase, the country will become more competitive in the global knowledge economy. This model is not the first time Uganda has seen partnerships between service providers that led to increased broadband affordability and adoption. In 2006, four of the country’s Internet Service Providers (ISPs) – Bushnet, SpaceNet, Africaonline and One2Net, all members of the Uganda ISP association – worked together to consolidate their purchase of bandwidth. This consolidation led to a 25% reduction in cost, which enabled them to reduce the rates of bandwidth purchased from them by schools by 75%. Prior to this partnership, each ISP had acquired approximately 5 – 6 Mbps per month for $5,000 - $6,000. When working together, they together acquired 50 Mbps at a wholesale price for buying in bulk. The providers could then pass these savings along to potential customers. One2Net, for example, had previously charged a flat rate of $600 per month for 64K speeds. Following the consolidated purchase, it reduced the price to $150 for individuals and $250 for businesses and offered higher speeds. At the time, the price of Internet to average individual users was prohibitively high and blamed for the country’s low broadband penetration rates. Users faced charges of approximately 14 cents per minute as a result of expensive bandwidth, which the ISPs also said hurt their business. Sources: "Intel Partners with Orange Uganda to Increase Access to "broadband PCs"" CIO East Africa. N.p., 9 May 2012. Web. . "Uganda ISPs Join Forces to Purchase Cheaper Bandwidth." Issue 315. Balancing Act, 2006. Web. . 158 6.4.4. Taxation as a barrier to adoption The total cost of ownership of broadband is impacted by numerous taxes. On the services side, three exist:  Value added tax: most countries impose some form of value-added tax, a general sales tax or similar consumption tax as a percent of the total bill  Telecom specific taxes: some countries charge an additional special communications tax as a percent of the service bill  Fixed taxes: in addition to the tax as a percentage of usage, some countries charge a fixed tax that could be either driven by general communications usage or wireless usage In addition to service-based taxes, other levies can be imposed on access equipment:  Value-added tax: these represent the taxes paid directly by the consumer at time of purchasing a personal computer or purchasing and/or exchanging a smartphone  Customs duty: this tax on imported equipment is already included in the retail price of the computer or the smartphone  Other taxes: telecommunications specific taxes on smartphones or computers (e.g. royalties calculated on the cost of the equipment)  Fixed taxes: special fixed duties on smartphones, such as ownership fees Countries do not follow a uniform approach to mobile services taxation. While all countries tax both services and equipment, the type of taxes selected and their amount vary significantly, with the consequential varying impact on total cost of ownership of a broadband device. A scan of service taxation approaches across countries yields four categories:  Universalization of service: Reduce taxes as much as possible to stimulate broadband adoption  Direct taxation without sector discrimination: high VAT while recognizing the distortion effect of sector-specific taxes  Direct taxation and sector specific taxes: combine VAT with a sector specific levy  Service tax revenue maximization: leverage broadband communications as a source of direct taxation, by combining high VAT, high sector specific taxes and/or a fixed levy While most developed and some developing nations reduce service taxes to promote universalization of broadband service, the pattern is not consistent across emerging countries. For example, the Africa and Asia Pacific continents comprise numerous nations with taxation approaches aimed at universalizing mobile services, while this approach is significantly less prevalent in Latin America (see table 6.22). 159 Table 6.22. Service Taxation Approaches by Country Continent Universalization of Direct taxation without Direct taxation Service tax service sector discrimination and sector revenue specific taxes maximization Africa Angola Botswana, Cameroon, Chad, Cote Burkina Fasso, Kenya, Lesotho, S. Leone, d'Ivoire, DR Congo, Ghana, Nigeria, Madagascar, Swaziland. Egypt, Etiopia, Gabon, Rep. Congo, Senegal, Gambia, Guinea, Guinea Tunisia Tanzania, Bissau, Malawi, Uganda, Zambia Mauritania, Mauritius, Morocco, Mozambique, Rwanda, Seychelles, S. Africa, Zimbabwe Middle East Syria, Yemen Iran, Jordan Turkey Asia Pacific Bhutan, China, India, Philippines, Samoa Cambodia, Sri Bangladesh, Indonesia, Lao, Lanka Nepal, Pakistan Malaysia, Myanmar, P. N. Guinea, Thailand, Vietnam Latin Paraguay Bolivia, Chile,, Argentina, Brazil, Dominican America Guatemala, Nicaragua, Colombia , Republic, Peru, Trinidad & Tobago Mexico Ecuador, Venezuela Eastern Azerbaijan, Georgia, Albania, Ukraine Europe Kazkhstan, Russia, Uzbekistan Western Austria, Bulgaria, Greece Europe Cyprus, Czech Rep., Denmark, Estonia, France, Finland, Germany, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden, UK Source: Telecom Advisory Services, LLC. The impact of Taxation on the development of the Mobile Broadband Sector. London: GSMA, 2010. Moving now to equipment (personal computers, smartphones) taxation approaches, four types can be identified, partly driven by the existence or not of import duty:  Sector discrimination based on moderate import duty: VAT combined with low import duty  Sector discrimination based on high import duty but no telecom tax: high import duty and VAT but no sector specific taxes on handsets 160  Sector discrimination based on high VAT and import duty but low handset specific tax: combine high VAT with a sector specific levy  Equipment tax revenue maximization: leverage broadband communications as a source of direct taxation, by combining high VAT, high customs duty and a high sector specific levy, or low import duty and high sector specific tax The most prevalent equipment taxation model around the world is based on VAT and, in some cases, low sector discrimination through moderate import duty (see table 6.23). Figure 6.23. Handset Taxation Approaches by Country Continent Sector discrimination based on Sector Sector discrimination Handset moderate import duty discrimination based on high VAT and revenue based on high import duty but low maximization import duty handset specific tax Africa Angola, Egypt, Ethiopia, Gabon, Cameroon, Botswana, Burkina Ghana, Guinea-Bissau, Kenya, Chad, DR Fasso, Cote d'Ivoire, Nigeria, Mauritania, Mauritius, Morocco, Congo, Gambia, Madagascar, Lesotho Seychelles, S. Leone, S. Africa, Guinea, Malawi, Mozambique, Senegal, Swaziland, Tanzania, Uganda, rep. Congo, Tunisia Zambia, Zimbabwe Rwanda Middle East Jordan Turkey, Yemen Syria Asia Pacific Cambodia, Lao, Malaysia, Bhutan, China, India, Nepal Bangladesh Myanmar, P. N. Guinea, Pakistan, Indonesia, Philippines, Thailand, Vietnam Samoa, Sri Lanka Latin Bolivia, Chile, Colombia, D. Argentina, Brazil America Republic, Ecuador, Guatemala, Trinidad & Nicaragua, Paraguay, Peru, Tobago, México Venezuela Eastern Albania, Kazakhstan, Russia, Azerbaijan, Europe Ukraine, Uzbekistan Georgia Western Austria, Bulgaria, Cyprus, Czech Europe Rep., Denmark, Estonia, France, Finland, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden, UK Source: Telecom Advisory Services, LLC. The impact of Taxation on the development of the Mobile Broadband Sector. London: GSMA, 2010. The combination of service and equipment taxation approaches yield four distinct models:  Universalization and protectionism: this approach aims at reducing levies with the purpose of decreasing total cost of ownership and stimulating broadband adoption; it can include an equipment import duty 161 and a sector specific tax (which is relatively low and therefore has minimum distortion potential)  Protectionism: this approach is similar to the one above, except that high value-added taxes on service increase substantially the total cost of ownership  Sector distortion: this approach introduces sector specific service taxes with the objective of increasing government revenues but, in doing so, plays an economically distortion role by emphasizing taxes on the telecommunications sector  Tax maximization and sector distortion: sector specific taxes are introduced not only on broadband services but also on equipment with the purpose of maximizing government revenues, with the consequent distortion impact As pointed out before, prevalent taxation models tend to differ by region. As expected, most developed countries have adopted universalization and protectionism tax approaches given that they do not need to rely on the telecommunications industry to increase revenues for the treasury. In addition, there are a number of emerging countries, which have chosen a Universalization and Protectionism approach in order to stimulate telecommunications service adoption. Notable examples in this category are China, Angola and Malaysia. In the next category of taxation approach -protectionism- emerging countries that have adopted pro-active ICT development strategies: India, Rwanda, Egypt, Chile and Kazakhstan can be identified. In other words, the first two taxation categories are associated with technology development objectives. At the other end of the spectrum there are also some significantly large emerging countries - Mexico, Argentina, Brazil, Venezuela, Nigeria, Bangladesh, Pakistan - where the taxation approach runs counter to maximizing broadband adoption. 162 Table 6.24. Overarching Taxation Approach by Country Universalization and Protectionism Sector distortion Tax maximization protectionism and sector distortion Africa Angola, Botswana, Cameroon, Chad, Cote Kenya, Tanzania, Burkina Faso, Lesotho, S. Leone, d’Ivoire, DR Congo, Uganda, Zambia Ghana, Madagascar, Swaziland Egypt, Ethiopia, Gabon, Nigeria, Senegal, Gambia, Guinea, Guinea- Tunisia Bissau, Madagascar, Mauritania, Mauritius, Morocco, Mozambique, Rwanda, Seychelles, S. Africa, Zimbabwe Middle Syria, Yemen Jordan Iran, Turkey East Asia Bhutan, China, India, Philippines, Samoa Cambodia Bangladesh, Nepal, Pacific Indonesia, Lao, Pakistan, Sri Lanka Malaysia, Myanmar, P. New Guinea, Thailand, Vietnam Latin Paraguay Dominican Rep., Argentina, Brazil, America Bolivia, Chile, Colombia, Ecuador, Mexico Venezuela Guatemala, Nicaragua, Peru, Trinidad & Tobago Eastern Azerbaijan, Georgia, Albania, Ukraine Europe Kazakhstan, Russia, Uzbekistan Western Austria, Bulgaria, Greece Europe Cyprus, Czech Rep., Denmark, Estonia, France, Finland, Germany, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden, UK Source: Telecom Advisory Services, LLC. The impact of Taxation on the development of the Mobile Broadband Sector. London: GSMA, 2010. In this context, taxation could have a detrimental effect on the public policy strategy aimed at deploying broadband. The impact of these different taxation approaches on total cost of ownership of broadband service varies widely. For example, in Mexico the impact of taxes on total cost of ownership of mobile broadband is 18.4%, in South Africa it is 15.2 %, in Brazil it reaches 29.8 %, while in Bangladesh it is 54.8%. On 163 the other hand, in Malaysia, the effect of taxes on mobile broadband cost of ownership amounts to only 6.1%. Taxation appears to have an impact on the deployment of mobile broadband. For example, ceteris paribus, there may be some association between the very high level of taxes in Brazil and its very low penetration level of 3G handsets. On the other hand, Malaysia shows a low level of taxes and a high 3G penetration rate. Similarly, an inverse relationship appears to exist between tax burden and adoption of data services when measured by wireless data as percent of service revenues (see figure 6.30). Figure 6.30. Taxation vs. Adoption of Data Services Bolivia Peru R. Dominicana Nicaragua Chile Brasil Venezuela Argentina Colombia Ecuador Source: Katz et al. (2008); Wireless Intelligence; TAS analysis If taxes limit adoption of wireless broadband, it is relevant to ask what the ultimate impact of reduced penetration might have on economic growth. A reduction of taxation on broadband devices, equipment and services could have a significant economic benefit (see figure 6.31). 164 Figure 6.31. Virtuous Circle of Tax Reduction on Broadband Devices, Equipment and Services Source: Developed by the author As figure 6.31 indicates a reduction of taxes on devices and service has a positive impact on broadband penetration as a result of the elasticities of demand (as discussed in section 6.4.3). The increase in broadband penetration improves the number of households connected per households served (in fixed broadband) and the number of mobile broadband subscribers per infrastructure deployed. This increase in penetration enhances the return on the network capital invested. A higher return on capital allows the broadband service provider to lower prices, which in turn has a positive impact on penetration. At the same time, an increase in broadband penetration has direct and indirect effects. On the direct side, it means an improvement in the revenues of broadband operators and ISPs. On the indirect side, it enhances the contribution of broadband to economic growth and employment. Both effects increase the taxable base, which in turn grows the collected taxes beyond the amount foregone by reducing taxes on broadband devices and services. This effect yields higher welfare benefits. 6.4.4.1. Programs aimed at reducing taxation on access devices: Some countries have reached the conclusion that while foregoing tax collections in the short run, a tax reduction strategy can result in additional adoption of devices and broadband usage, and consequently enhanced economic benefits in the long run. Box 6.4.24– Tax Rebate Program (Sweden) 165 In 1998, the Swedish government enacted its tax rebate program, which encouraged employers to purchase home computers for their employees. The price of the computer was deducted from employees’ salaries as monthly repayments over a three -year period and employers received a tax credit for the purchase. The program was credited in part with the country’s rise in home computer penetration, which reached 90% by 2006. Amidst criticism, the government began scaling back in the program in 2004. It asserted that the mission was to increase computer use that would in turn increase productivity, not to give citizens top-of-the-line tax-free computers on which they could watch videos and play games. From this point forward, employees could no longer deduct more than US$ 1500 for the computers leased for them by their employers. As a result, employers then faced limits in the amount of VAT they could deduct. In December 2006, however, parliament sided with the government’s budget plan and eliminated the deductions all together. At this point, computers were valued at approximately US$ 360 and were considered an employee perk not a right, meaning that they had to pay tax on the assessed value. Sources: "Broadband Strategies Handbook." Ed. Tim Kelly and Carlo M. Rossotto. The World Bank, 2012. Web. . "Sweden Tax Country Briefing." Economist Intelligence Unit, n.d. Web. . Box 6.4.25 - Computer Purchase Program (Pakistan) To promote economic growth and sustainability within its country, the government of Pakistan committed to increasing ICT and broadband access through a universal service policy. The policy, which launched in 2007 and reflects a partnership with public and private companies, stressed affordable voice and data services, increased broadband access, and the development of telecenters. Funding comes through operator revenues, access promotion charges for mobile networks, and proceeds from spectrum auctions. Amongst other projects enacted through the fund, the computer purchase program made the home computers more affordable for students, government employees, and military personnel. For instance, all members of the Pakistani military receive automatic approval for a reduced-rate loan when purchasing a PC per a program established by Intel and the Ministry of Defense. Government employees and citizens requiring a computer for educational purposes qualify for a similar purchase program. The Allama Iqbal Open University aims to foster a 1:1 e-learning environment. In doing so, it launched a computer purchase program offering all of its 700,000 students – including its many remote distance-learning students – below-market-rate loans for Intel-based laptop computers. The program, which was created by the Higher Education Commission and Intel, works with local banks to finance the loans. In 2011, Intel partnered with Meezan, an Islamic bank in Pakistan, to launch “Laptop Ease.” In its first four months alone, the program, which offers a “large-scale hire-purchase scheme for personal computers,” provided 400 laptops to citizens with a 3 – 24 month repayment schedule. By 2012, the program aimed to increase this number to 250 laptops per month. Sources: 166 Pakistan Expands Broadband Connectivity and ICT Services to Bridge the Digital Divide. Rep. N.p.: Intel World Ahead, 2008. Print. "Intel Offers Laptop Loans in Pakistan." Reuters, 19 Oct. 2011. Web. . Box 6.4.26 - Broadband Tax Relief (Malaysia) In January 2010, the government of Malaysia began offering a 100% capital expenditure tax allowance to operators investing in last-mile broadband equipment. This equipment and consumer access devices also qualified for import duty and sales tax exemptions. Further, the government offered an incentive to consumers, who received tax relief on the broadband subscription fee up to US$ 165. The country’s Inland Revenue Board (IRB) announced in 2011 that these tax benefits extended to smartphone broadband use as well. While the actual devices did not qualify for the additional personal computer tax incentive, tablets such as the iPad did. The Malaysian Income Tax Act 1967 states that the cost of a personal computer – up to US$ 1,000 – is deductible. The broadband relief plan, which ran from 2010 – 2012, was an attempt by the Malaysian government to match the broadband use of neighboring countries in the region. At the time of its enactment, for instance, Singapore and Korea boasted respective penetration rates of 88% and 95%, while Malaysia’s hovered at 26%. The plan also made broadband access more affordable for 100,000 local university students, who qualified for a laptop with free broadband for US$ 16 per month for 2 years. This package was made possible by Telekom Malaysia. Sources: Chung, Yee Sye. Malaysia Broadband: A Leverage To National Growth. Rep. SKMM, n.d. Web. . "Broadband Users Relieved over RM500 Tax Relief." The Star Online. N.p., 24 Oct. 2009. Web. . 167 6.5. DEVELOPING APPLICATIONS TO DRIVE BROADBAND DEMAND This chapter focuses on how to overcome one of the three dominant adoption obstacles to broadband diffusion among residential subscribers: lack of relevance. The research reviewed in section 6.2 indicated that, at higher penetration levels of broadband (beyond 20%), price elasticity coefficients start to decline, signaling that affordability plays a smaller role in constraining diffusion. At that point, lack of relevant content remains the final obstacle to achieving mass adoption. While content relevance may also influence adoption at penetration rates below 20%, price plays a stronger role in that situation. Beyond pricing, demand stimulation also centers on enhancing broadband’s value proposition. This is contingent upon offering applications and content that enhance service attractiveness. This chapter will review all potential initiatives to increase service attractiveness. The first section of this chapter will present the multiple dimensions of content relevance, ranging from the linguistic to the cultural and applications dimensions. Once the context is established, the chapter will review options to tackle the content relevance obstacle (see figure 6.32). Figure 6.32. Content Relevance Policy Initiatives in Residential Broadband The second section will present recommendations regarding the introduction of applications capable of building network effects, which could potentially stimulate broadband demand through viral diffusion processes. As expected, social networks, games, and other mobile-oriented applications have shown to be a powerful stimuli in promoting broadband adoption. The third section will review the launch of applications with high social and welfare impact, such as e-Government services, e-Health services and financial services. 168 Preliminary studies appear to indicate that, in addition to enhancing social inclusion, these applications provide additional stimuli to broadband adoption. The fourth section deals with the introduction of applications and content generated within the local cultural context of the targeted population. Local customization can include linguistic characteristics as well as common cultural parameters. 6.5.1 The multiple dimensions of content relevance: Lack of interest or relevance appears consistently as one of the reasons cited by non- Internet users, regardless of their digital skills or income. This factor does not represent a barrier as such, and is linked to preferences and incentives that vary by community and from person to person. This represents a challenge for the development of public initiatives to address this aspect of the demand gap, since no single solution can act as broadband demand stimuli across the board. However, Internet adoption studies reveal diverse mechanisms that come into play in the adoption decisions made by potential users, from which several possible public policy tools can be adopted. Internet access in itself is of little value in the absence of so-called complementary goods that confer value to such access. A complementary good is one whose use is interrelated with the use of an associated or paired product (for example, DVD players and DVDs, computer hardware and software)40. Examples of complementary dynamics in broadband adoption include applications and content that users value, and therefore should be attractive enough to encourage the purchase of the service. While early broadband adopters have the capability of rapidly identifying complementary products, late adopters (in other words, the target population of demand stimulation programs) require some help in exposing them to applications, services, and content whose complementary character adds value to the adoption of broadband. Three dimensions of complementary goods exist for broadband. In the first place, the value of some applications increases as the number of users grows because of the use of the application to communicate or share information. This phenomenon is known as network effects or network externalities. At their most basic level, network effects exist in a service where its value to a user depends on the number of other users. Value is defined as the willingness to pay (or maximum amount that a consumer would pay for a product) for acquiring the product. In general terms, willingness to pay in applications with network effects tends to increase as an “S” shaped function of number of users (see figure 6.33). 40 While complementary goods are generally assessed in terms of its negative cross-elasticity (e.g. a reduction in the price of one leads to an increase in demand of the other), the concept is here used in terms of increased satisfaction derived from the consumption of the two products jointly (e.g. complements in consumption). 169 Figure 6.33. Network Effects Growth User base Use base reaches stabilizes maximum Willingness to Pay penetration User base reaches critical mass Initial network effects Number of adopters Source: Developed by the author Research on broadband adoption indicates that network effects serve as a very powerful incentive to stimulate adoption. As mentioned above, applications designed for communication purposes between users have strong network effects. Four types of communications applications have these characteristics: point-to-point communications applications (e.g. email), social networking, content sharing platforms, and matching networks (e.g. eBay). In point-to-point communications, access to a network facilitating communications is extremely valuable for users looking to communicate with friends, family, and members of a community they belong to. Social networking adds the value of self-representation to a community to the basic communications functionality. For example, Facebook allows users to communicate to network members via its Connect facility while presenting a personalized profile to the entire community. Content sharing platforms allow users to share either social (for example, pictures in Instagram) or business content (for example, documents in Dropbox). Finally, matching networks provide the capability to link participants with idiosyncratic needs and offers (for example, eBay matches sellers and buyers of products, or Monster.com links job seekers and companies offering employment). Each of these communications applications is powered by strong single-side or two-sided network effects. The net result is that the willingness to pay increases as a result of the application network effects and broadband prices decline. The combined effect becomes a stimuli for broadband adoption increases. However, evidence also indicates that for certain groups of users, communication network effects may not offer enough incentive to purchase broadband services. In other words, for some consumers, the ability to communicate with friends, family and community beyond voice telecommunications has little or no value. In this case, public initiatives should aim to provide high value-added applications, demonstrating tangible benefits to potential users in terms of saving time or money, or increasing 170 welfare. Such is the case of the various e-government applications designed to help optimize the interaction of citizens with government, representing tangible benefits in terms of user access to different government services (health care, public administration, etc.). In addition to the network effects and high social and welfare impact, a third driver of content relevance is embodied by language and cultural customization. This dimension is highly important in the case of users that belong to ethnic groups that communicate in languages not highly prevalent in the Internet or that do not find in the platform content more suited to their cultural background. The following sections will provide examples of applications targeting each of these three relevance dimensions and review evidence of their impact in stimulating broadband demand. 6.5.2 Network effects applications driving broadband demand This section will review applications that stimulate broadband adoption by accelerating network effects. In each case, a description of the mechanisms linking network effect applications to broadband adoption is provided. To drive home the point, case studies of applications are introduced as examples. 6.5.2.1 Social Media Platforms A social network serves as an Internet-based platform to articulate and make visible the users’ current or past physical networks. In this sense, the platform allows users to construct a public profile within a bounded system, articulate a list of users with whom they share a connection, and view as well as navigate the user’s list of connections and those made by others in the system. The design of a social network follows a series of architectural choices. First, user profiles can be built around structured or flexible layouts and based on word descriptors or multimedia content. Second, the visibility of the profile can be open or user restricted. Third, the confirmation of network links (e.g. invitations) can be bidirectional or not. Fourth, the display of connections can be open or closed. Finally, the network can provide additional functionality, such as content sharing (e.g. pictures), built-in blogging, and mobile interface. Social networks are the fastest growing Internet platform, with time spent having surpassed that of portals (see figure 6.34). 171 Figure 6.34. USA: Monthly Time Spent, Portals vs. Social Networking Sites, 6/08 – 7/11 120 Portals Social Networking Sites June 2011 Time Spent Monthly Time Spent (Bs of Minutes) 100 Social Networking > Portals 80 60 40 20 0 6/08 9/08 12/08 3/09 6/09 9/09 12/09 3/10 6/10 9/10 12/10 3/11 6/11 Source: ComScore Media Metrix USA panel-only data Social networks’ initial value proposition was sharing user-generated content (web links, news stories, blog posts, notes, photos, videos, events). However, very rapidly, they expanded into applications hosting platforms where developers would publish/upload applications, thereby enhancing allegiance to the site. For example, Facebook Platform comprises over 1 million developers who have uploaded over 350,000 applications. Games represent the largest category (over 13,000 applications being accessed by 418 million monthly active users) followed by the very distant lifestyle applications (4,800 applications), utilities (4,600 applications) and education (2,279 applications). Beyond user generated content and applications hosting, social networks have also become a communications utility among platform users. The network becomes the vehicle by which point-to-point communications is conducted through services like Facebook Connect or Linkedin Message. To these three dimensions (user-generated content, applications hosting and communications), social networks have in the past two years added the mobility dimension, which allows for “always-on” site connectivity. Social networks are a worldwide phenomenon, in terms of their country of origin (see table 6.25). 172 Table 6.25. Major Worldwide Social Networks (12/2012) Network Country HQ Users (millions) Facebook US 937 Twitter US 500 Qzone China 480 Google+ US 400 Sina Welbo China 300 Habbo Finland 268 Renren China 160 LinkedIn US 160 Vkontakte Russia 124 Bebo US 117 Tagged US 100 Source: http://en.wikipedia.org/wiki/List_of_social_networking_websites As table 6.25 shows, beyond the platforms launched in the United States, China has become a leader in social network development. Beyond the diversification of countries developing platforms, social networks initially developed within one particular country have grown into multinational platforms with a larger member base outside the country of origin. This is the case of Facebook, which has currently only 20% of its members in North America, but a total of 26% in Europe, 25% in Asia, and 19% in Latin America (see table 6.26). Table 6. 26. Facebook: Breakdown of User Base by Country Region Number of Monthly Percentage of Active Users Total User Base (million) Europe 243.2 26 Asia 236.0 25 North America 184.2 20 South America 134.6 14 Africa 48.3 5 Central America / Mexico 47.0 5 Middle East 22.8 2 Oceania / Australia 14.6 2 Caribbean 6.7 1 Total 937.4 100 Source: Internet World Stats 3Q2012 Report http://www.internetworldstats.com/facebook.htm This deployment has been achieved through a sequence of internationalization and customization decisions: 173  July 2004: Facebook launches in the United States  January 2005: Facebook began to add international school networks  December 2006: Facebook reaches nearly 2 million users in Canada and 1 million users in the United Kingdom  January 2007: Facebook reaches 50 million active users worldwide  January 2008: Facebook launches translated versions of the site in Spanish, French, German, and releases a translations application allowing users to translate the site into any language  July 2008: Site reaches 90 million active users globally; users have begun to translate Facebook into dozens of languages Social networks act as a powerful stimulus for broadband adoption. In general terms, countries appear to follow a sequential adoption process, whereby social network diffusion acts as an incentive for signing up on an Internet account through a ISP, lending itself over time to an increase in broadband adoption. The following three figures compile penetration time series for Facebook, Internet usage, fixed broadband and PCs for three emerging countries: Malaysia, Argentina and South Africa (see figure 6.35). Figure 6.35. Comparative penetration of Social Network, Internet Usage and Fixed Broadband Malaysia Argentina 70 60 60 50 50 40 40 30 30 20 20 10 10 0 0 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 South Africa 18 16 14 12 10 8 6 4 2 0 1980 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 Facebook Penetration Internet Users Fixed Broadband PCs Sources: Facebook statistics; World Bank; ITU; Telecom Advisory Services analysis In all three countries, the powerful network effects of social networks can be appreciated by witnessing the significant growth rate in Facebook penetration. Moreover, as mentioned above, the growth in Facebook penetration precedes by approximately one year the increase in fixed broadband adoption. This supports the notion that social networks act as a powerful incentive to adopt broadband. It should 174 be mentioned that the growth in fixed broadband penetration is mitigated by the fact that a portion of the Facebook “stimulating effect” is absorbed by mobile rather than fixed broadband. In many emerging markets, carriers offer data plans, but with limitations. As a result, both Facebook and mobile carriers have begun experimenting with ways of offering free access to the social networking site. In 2010, Facebook announced the launch of Facebook Zero, a service designed specifically for mobile phone use. Mainly targeting developing countries, the service promotes mobile Facebook access without data charges. When users go the Facebook Zero URL on their devices, they find a text-only version of the site, which carriers can offer free of charge. This “trimmed down” Facebook eliminates such data - intensive features as photos, but when users switch to the multimedia version of the site, they will then incur regular data use charges. Table 6.27 lists the countries and carriers that partnered with Facebook for its initial Zero rollout41. Table 6.27 Facebook Zero: Countries and Carrier roll-out Source: Hopkins 2010 41 Wauters, Robin. "Facebook Launches Zero, A Text-Only Mobile Site For Carriers." TechCrunch. N.p., 16 Feb. 2010. Web. 11 Mar. 2013. http://techcrunch.com/2010/02/16/facebook-launches-zero-a- text-only-mobile-site-for-carriers/, and Hopkins, Curt. "Facebook Zero Gives Free Access to Developing Countries - and Austria." ReadWrite. N.p., 18 May 2010. Web. 11 Mar. 2013. . 175 In other instances, carriers offer their own Facebook incentives to promote data use. As an example, Etisalat Egypt offers “Facebook+,” granting unlimited Facebook access as part of its “Save More” mobile Internet plans42. Table 6.28. Etisalat Egypt: Facebook+ offer for Prepaid customers MB MB After Extra included reaching Usage MB Speed Plan Name Fees with the fair usage- Facebook+ Type charges reset fees maximum Throttled (L.E) speed speed Light Save more 7 LE/ 7 LE/50 usage/ 50 MB Weekly week MB Irregular FREE Medium Save more 20 LE/ Unlimited Free 20 LE/110 110 MB Unlimited user Monthly 20 month MB Save more 50 LE/ 50 LE/500 High usage 500 MB Monthly 50 month MB Source: Etisalat In Nigeria, Etisalat offered a Facebook promotion that allowed subscribers to download and use the mobile app for 90 days free of charge. Through the Etisalat Facebook Service, Facebook users could update statuses, post on walls, and upload photos by sending SMS messages to a specified number at a cost of N20 (US$ 0.13) per text. In addition to major private sector sites acting as broadband demand stimuli (Facebook, Linkedin, Twitter, etc.), social networks can also be created ad-hoc to fulfill specific purposes or solidify links across certain communities. For example, Ushahidi is a social platform developed in Haiti to facilitate networking among earthquake disaster victims. In other situations, existing platforms can be utilized to build links within a specific segment of a population. Such is the case in Russia, where the government utilizes Twitter to facilitate communication with its citizens. In these cases, ad-hoc government sponsored networks can also play a role in stimulating broadband adoption. Box 6.5.1 – Ushahidi (Haiti) Meaning “testimony” in Swahili, the non-profit tech company Ushahidi specializes in the development of free and open source software for information collection, visualization, and interactive mapping. Initially designed in 2008 as a website for citizen journalists to map reports of violence and peace efforts via their computers or mobile devices following Kenya’s election fallout, the website reached 45,000 users in Kenya alone. The project subsequently grew from a small group of volunteers and into a global organization comprised of 42 "Mobile Internet." Etisalat. N.p., n.d. Web. 11 Mar. 2013. . "Etisalat Now Offers Free Access To Facebook For 90 Days." TechLoy. N.p., 5 Aug. 2011. Web. 11 Mar. 2013. . 176 individuals ranging from human rights workers to software developers. The platform operates on the fundamental belief that the collection of crisis information from citizens offers a real- time and real-life glimpse into the situation, both raising awareness and allowing for more efficient assistance and emergency deployment. In 2010, a 7.0 magnitude earthquake caused the destruction in Haiti that resulted in more than 230,000 deaths and devastation in some of the country’s most populous areas. In response, the international community rallied to offer search and rescue missions and emergency assistance. Unfortunately, Haiti’s system of information dissemination lacked the sophistication needed to aggregate and prioritize data effectively. Ushahidi allowed victims and volunteers to coordinate through social media sites like blogs, Twitter, and Facebook as well as through mobile phone messages. Reports submitted to Ushahidi included information about “about trapped persons, medic al emergencies, and specific needs, such as food, water, and shelter” and were received and updated by volunteers in real time as well as by anyone who had an Internet connection regardless of their geographic location. Ushahidi deployed its platform within two hours of the earthquake, but quickly realized that it did not have the manpower to support the need for its services. In response, Ushahidi’s Director of Crises Mapping, Matrick Meier, reached out to volunteers at Tufts University to continue mapping the crisis live. The initial group of volunteers – all located in Meier’s living room – covered Twitter, Facebook, and blogs to identify the information that needed to reach first responders on the ground. Utilizing Google Earth and OpenStreetMap, they tagged information based on GPS coordinates to upload it on the publicly accessible website Haiti.ushahidi.com. People from all over the world logged into the site to contribute information they received via email or phone from relatives in Haiti. Just days later, a volunteer team at Tulane collaborated with Frontlines MS, the United States State Department, and Digicel to create a system allowing Haitians to submit alerts via SMS text messages on their mobile phones to the number 4636. At the time, 85% of Haitians had access to mobile phones and while many of the towers were destroyed, most were repaired prior to the launch of 4636. The service was publicized over Twitter, radio announcements, and physical posters. Nearly immediately, the number received 1,000 to 2,000 SMS texts per day, but with a team of volunteers located in the U.S. and Canada, the system saw the messages conveyed to responders within 10 minutes. Volunteers translated more than 25,000 messages, emails, and social media communications, creating nearly 3,600 reports mapped on Ushahidi. In response, United States Secretary of State Hillary Clinton discussed the power of crisis mapping and the importance of Internet access, stating, “The technology community has set up interactive maps to help us identify needs and target resources… [today] a seven -year-old girl and two women were pulled from the rubble of a collapsed supermarket by an American search-and-rescue team after they sent a text message calling for help.” An analyst from the U.S. Marine Corps echoed her praise, ““In this postmodern age, open-source intelligence outperforms traditional intel…The notion of crisis mapping demonstrates the intense power of open- source intelligence… [W]hen compared side by side, Ushahidi reporting and other open sources vastly outperformed ‘traditional intel’ [after the Haiti earthquake].” Researchers concluded that the Ushahidi-Haiti project demonstrated the role crowdsourcing can play in disaster response, recommending that it serve as a model for the international community. They emphasized the importance of leveraging local knowledge and collaboration with community and grassroots organizations while integrating a variety of platforms such as mobile devices or other communication technology. 177 Sources: "About Us." Ushahidi. N.p., n.d. Web. . Heinzelman, Jessica, and Carol Waters. Crowdsourcing Crisis Information in Disaster- Affected Haiti. Rep. United States Institute of Peace, Oct. 2010. Web. . Box 6.5.2 - Twitter (Russia) In October 2010, the global media and ICT analytics firm ComScore released the results of the study it conducted earlier in the year, revealing that Russia ranks number one in terms of the world’s heaviest social network usage. At this point in time, three -quarters of all Russians – or 34.5 million people – visited at least one social networking site in a one-month period. With the average user spending just shy of 10 hours a month on such sites, Russians spend nearly twice as much time using social media than their global counterparts. Throughout the study, the top-ranked site, Vkontakte.ru, had 28 million visitors, though the number of Facebook users in the country grew 376% in 2010. To keep up with his constituents, then-president Dmitri Medvedev visited the San Francisco- based headquarters of Twitter, a global social networking and microblogging site. While there, he joined the site and sent out his first Tweet under the handle, KremlinRussia. From Russian, this message translated to “Hello everyone. I am now in Twitter, and this is my first message,” but he also established an English-language version of KremlinRussia. This Tweet emphasized Medvedev’s larger strategy of enhancing ICT innovation and investment back home and also demonstrated his push for a more transparent government. Within one year, Medvedev had created four verified accounts that attracted more than half a million followers. Beyond showing his commitment to the aforementioned objectives, Medvedev and the Russian government have used Twitter not only to share updates with the public, but also to “humanize” the president. The government’s social media use now also includes other sites, such as i-Russia.ru, which the Presidential Commission for Modernization and Technological Development of Russia's Economy created for citizens to post comments and link government resources to their social network accounts. Further, the Commission also has its own mobile app. In mid-2012, as part of its “Open Government” project, the Kremlin announced plans to create its own social network to mimic Facebook, whereby citizens would create personal accounts to which they could upload content, create groups, and connect with their peers. The government also noted that the site would foster an environment where Russians could openly voice their concerns and criticism surrounding local public officials. Sources: Sniderman, Zachary. "How Governments Are Using Social Media for Better & for Worse." Mashable. N.p., 25 July 2011. Web.Block, Berit. "Russia Has Most Engaged Social Networking Audience Worldwide." ComScore, 20 Oct. 2010. Web. "Dmitry Medvedev Visits Twitter HQ and Tweets." The Telegraph. N.p., 24 June 2010. Web. . 178 Jagannathan, Malavika. "Russian Government Latest to Propose State-sponsored Social Network." Herdict Blog. Berkman Center for Internet and Society at Harvard University, 12 July 2012. Web. . Box 6.5.3 - Muloqot (Uzbekistan) On September 1, 2011, the government of Uzbekistan launched its own alternative to Facebook in partnership with the state telecom monopoly. The social networking site, known as Muloqot, translates to “dialog” or “conversation” in English and went live to coincide with the country’s 20th anniversary of its independence from the Soviet Union. Government officials in Uzbekistan promoted the launch, saying that Muloqot would “ create conditions...for the formation of high morals, for creation of spurs to successful development of modern knowledge and achievements of technical progress, with objective of realization of the idea of the comprehensively developed person.” At the time of the launch, 85,000 Uzbeks had Facebook accounts, and as many as 400,000 Uzbek citizens used the Russian social network, Odnoklassniki, daily. Skeptics of Muloqot saw it as a way for the government to cut down on the opposition found on Facebook. By offering services in the Uzbek language and requiring a local Uzbek mobile phone number, it effectively created a site with less foreign influence. The organization Radio Free Europe / Radio Liberty, which works to promote uncensored news throughout the world, tested the openness of the site, posting its own content on Muloqot’s public wall. While the information was initially published, their profiles were deleted within 15 minutes. The accounts of users posting pro-government posts, however, remained active. At the time, more than half of the country’s 7.7 million Internet users connected via their mobile phones, so developers designed the site with this platform in mind. Within one week, Muloqot had 1,700 users. Muloqot users will likely benefit from the site’s backing from the state telco, which can offer free services such as faster connections, free email storage, and media downloads. Though censorship issues may pose a concern, the site will likely serve as an effective means by which to disseminate pertinent government information to a generation that likely pays little attention to traditional news outlets. By late-2011, however, the site did not seem to reach the popularity the government had anticipated. In response, it launched another social networking site, YouFace, which looks nearly identical to Facebook. Authorities insist that these networks are not designed to discourage opposition, but rather to promote “national platforms” and reduce citizens’ reliance on foreign-based social networking sites. The owner of the site, Uzbek national Ayubhon Abdullaev, stated that he designed YouFace to ““boost patriotism among young people in Uzbekistan.” The homepage features a quote from President Islam Karimov, “Our children must be stronger, smarter, and happier than we are.” Sources: "Uzbekistan Launches Its Own Facebook, Except It's Not For Everyone." RadioFreeEurope/RadioLiberty. N.p., 26 Aug. 2011. Web. . "Uzbekistan: ‘National' Social Network Not Quite a Facebook Clone." Global Voices. N.p., 10 July 2012. Web. . 179 6.5.2.2 Games and gamification Internet-based games, particularly the category known as social games, are applications strongly interlinked with social networking. As mentioned above, games represent the highest application category in Facebook Platform. The importance of the games and social networking link is substantiated by the former’s implicit value as a socialization tool. Research indicates that games allow users to overcome socialization obstacles by interacting with friends. Social games provide users with an opportunity to socialize when they lack content to post on their profiles. As such, they provide a structured way of interacting and keeping in touch with people. Additionally, the social game provides an excuse to re-engage with Facebook friends that are not that close to the user initiating contact. For example, some of the more popular Internet-based games, such as Cityville or Farmville, present players with obstacles to build a business. Players can tackle obstacles by asking friends for help through a messaging system, or posting on their Facebook wall. Friends can reciprocate for help by sending free virtual gifts. Along these lines, most social games tend to run inside social network platforms. This leads to a sequence of adoption processes leading to broadband: social game acts as an accelerator of social network usage, which, in turn, leads to broadband adoption. An extension of game mechanics in non-game contexts is known as “gamification”. Gamification is an approach utilized to enhance user engagement in internet-based applications. Initial gamification techniques entailed providing reward points to users who share experiences on location-based platforms. For example, Foursquare, a location-based platform rewards members with achievement badges to those users that become more active “checking in” with the platform. A more common “gamification” technique entails displaying in a platform a progress bar or other type of visual meter to indicate how close the user is to completing a task the platform operator is trying to encourage (e.g. a survey, a social network profile, a higher status in a loyalty program). Gamification techniques can be utilized in applications such as employee-training programs, primary education, wellness programs, and market research. When it comes to utilizing gamification techniques in stimulating broadband demand, the best application could be through social media. Sequential causation would work as follows: gamification acts as an incentive of user engagement in social network platforms, which in turn, become a driver of broadband service acquisition. Box 6.5.4- SuperBetter (United States) At the TED Global 2012 conference, Jane McGonigal presented her findings on online gaming, a talk that was viewed online by an audience of nearly 1.5 million people from around the world. In the talk, McGonigal displayed statistics on the power of online gaming, insisting that it “can be more effective than pharmaceuticals in treating clinical depression and that just 30 minutes a day is correlated with significant increases in happiness.” She went on to insist that online games can help people who are healing from injuries, and that these same games can also be used to address such global problems as obesity and climate change. 180 In a similar talk from 2010 – which reached an audience of more than 2.7 million viewers – she stated, “My goal for the next decade is to try to make it as easy to save the world in real life as it is to save the world in online games.” Following a severe concussion in 2009 that left McGonigal bedridden for months, she found that viewing her pain as a game was the only way for her to get through the ordeal, which led to her development of the online game SuperBetter. The game incorporates activities “designed to boost physical, mental, emotional and social resilience,” which she said ultimately helped to alleviate her depression and anxiety. Working with doctors, psychologists, scientists, and medical researchers, she eventually made the game public, reaching users all over the world including cancer patients and sufferers of chronic pain. The game encourages positive emotions as well as a social connection, two contributing factors to physical and emotional health. As is true with most games, participants learn that facing and overcoming obstacles makes them stronger, not weaker. McGonigal cites the “post-traumatic growth” theory, whereby positive changes in one’s life can occur through the exposure to challenges – which can include illness or depression. SuperBetter, which – according to its website – is not easy, forces users to dedicate themselves to reaching various goals and milestones. It also offers a way to build physical, mental, emotional, and social strength and is customizable to each user. Users can access the game on their web browsers and also through the SuperBetter mobile application designed for iPhones and iPads. Beyond the actual game, the SuperBetter website offers tips for users to keep a positive attitude and stick to their commitments. A user ultimately “wins” the game by achieving the “Epic Win,” a real-life goal set by the user before beginning the game. Once achieved, the user can choose a new goal to begin a new game. In late 2011, Ohio State University Medical Research Center began conducting trials for the game to determine its effectiveness. Sources: "Jane McGonigal: The Game That Can Give You 10 Extra Years of Life." TED: Ideas worth Spreading. N.p., July 2012. Web. . SuperBetter. Web. . Kanani, Rahim. "Gaming for Social Change: An In-depth Interview with Jane McGonigal." Forbes. Forbes Magazine, 19 Sept. 2011. Web. . Box 6.5.5 - EVOKE (Africa) In 2010, the World Bank Institute launched its online game, EVOKE, to serve as a “ten -week crash course in changing the world.” Designed for users around the globe, it particularly targeted the youth population in Africa. Ultimately, the game encourages users to tackle pressing social issues while providing them with the real-world skills necessary for social innovation. Anyone – regardless of age or location – can play EVOKE for free. Set in the year 2020, users follow “the efforts of a mysterious network of Africa’s best problem-solvers.” Players discover clues to solve the mystery each week while developing their own networks and work together to develop solutions to development challenges. 181 The game first began in March 2010 and ran until May 2010. This first round saw more than 4,000 players from over 120 countries. Players who successfully completed all ten challenges within the ten weeks were recognized as World Bank Institute Social Innovators – Class of 2010. The top players also qualified for mentorships with social innovators and business leaders as well as for scholarships to attend the EVOKE Summit, held in Washington, D.C. In that sense, winning the game translates into real-life rewards. Per Robert Hawkins, a Senior Education Specialist at the World Bank Institute and the Executive Producer of the game, “EVOKE helps players learn 21st century skills to become h wh h h f .” Explaining the game’s name, Creative Director Jane McGonigal – who has made it her mission to create online games with social purpose – says, “"When we evoke, we look for creative solutions and learn how to tackle the world's toughest problems with creativity, courage, resourcefulness and collaboration." The World Bank Institute – the World Bank division that focuses on learning – developed the game, which InfoDev and the Korean Trust Fund on ICT4D sponsored. Sources: World Bank. World Bank Institute Launches Online Game EVOKE, a Crash Course in Changing the World. World Bank News & Broadcast. N.p., 3 Mar. 2010. Web. Box 6.5.6 - Spent (United States) Developed in early 2011 through a partnership with ad agency McKinney and Urban Ministries of Durham, the online game Spent shows users what it is like to live on only $1,000 a month in America. The game exposes the average player to real-life challenges, who must make the same decisions about money and resources that families across the country also face. When a player first logs in to the http://playspent.org website, he is greeted with a message: ““Urban Ministries of Durham serves over 6,000 people every year. But you’d never need help, right?” Below this message is a link, where users can “Prove It” and accept the challenge. Once accepting the challenge, users are greeted by this question: “Over 14 million Americans are unemployed. Now imagine you’re one of them. Your savings are gone. Can you survive? You’ve lost your house. You’re a single parent. And you’re down to your last $1,000. Can you make it through the month?” He can then choose “Find a Job” or “Exit.” Once the game begins, players can choose from a selection of jobs, at which point the game breaks down the weekly take-home pay after deducting such expenses as taxes and the cost of supplies or uniforms. They then are faced with such decisions as whether they can afford health insurance or whether they should live in the city or the suburbs, taking into account the cost of housing and transportation. Other issues include the costs of childcare, the decision to join a union, and when to see a doctor. If a player hits a point where the only option to avoid homelessness is to seek help from a friend, he is directed to Facebook, where he can share the Spent link. At the end of the game, a player can also choose to donate to UMD. By August 2011, users had played the game more than 1 million times in nearly 200 countries around the world. As a result of the game, users have gained a better understanding of poverty and homeless, which has led to an increase in the global dialog surrounding such issues. The creators of Spent have received feedback from people and organizations all over the world, each contributing a different anecdote to support the mission. As McKinney Chief Creative Officer Jonathan Cude states, the game shows and the feedback supports the idea that “poverty and homelessness can happen to anyone.” 182 The Urban Ministries of Durham has used the game as an exercise to drive this point home to the community. McKinney and UMD also partnered to launch a petition to the U.S. Congress, asking “men and women of Congress to take 10 minutes from their debating to experience for themselves the challenges that more than 14 million Americans are facing” by playing the game. Sources: Urban Ministries of Durham. Spent, The Online Game About Surviving Poverty and Homelessness, Reaches Its Millionth Play and Invites Congress to Accept The Challenge. N.p., 31 Aug. 2011. Web. 6.5.2.3 Mobile broadband applications The accelerated diffusion of broadband access mobile devices has significantly increased the impact of mobile applications. In many cases, especially in emerging countries, mobile broadband may represent a substitute for fixed services in three types of situations: 1) the fixed service is not offered in the area where the user lives; 2) the quality of fixed services (for example, low speed) is less advantageous (or at least comparable to) than the available mobile service; or, 3) for economic or convenience reasons, the user opts to consolidate services and acquire only mobile broadband, which provides connectivity combined with mobility. In the case of mobile applications, the adoption sequence is different from social media and games. In the prior two network effect groups, applications adoption precedes the purchase of a broadband subscription. Along those lines, the user becomes aware of the applications, begins using them, leading to an increase in the willingness to pay, which results in acquiring broadband services for home or individual access. In the case of mobile applications, the migration from an early generation (typically 2G feature phone access) to a 3G or 4G smartphone based device, which is an implicit adoption of broadband service, allows the user to gain access to mobile applications of which he/she was not previously aware. In sum, while in social network and games, the applications use may precede fixed broadband adoption, in mobile broadband adoption service purchasing precedes applications use. In this context, mobile broadband users represent a “captive” market, ready to adopt mobile applications that enhance the value derived from wireless broadband. The installed base of wireless broadband users has been growing significantly, reaching a 73.20% penetration in the developed world and 17.57% in developing countries (see table 6.29). 183 Table 6.29. World: Penetration of Mobile Broadband (2007-2012) (*) 2007 2008 2009 2010 2011 2012 Africa 0.1% 0.6% 0.9% 1.49% 2.7% 4.8% North America 15.7% 24.6% 35.2% 51.5% 67.7% 76.3% South America 0.6% 1.2% 3.0% 6.9% 14.4% 25.4% Asia 1.2% 1.8% 3.0% 5.8% 10.6% 16.7% Western Europe 3.1% 8.1% 15.5% 25.0% 40.0% 59.3% Eastern Europe 0.4% 1.3% 4.8% 8.5% 14.0% 23.2% Oceania 11.3% 21.7% 33.3% 47.9% 60.7% 72.3% World 1.8% 3.2% 5.3% 9.0% 14.6% 21.4% Developed 10.7% 17.7% 26.9% 39.9% 56.9% 73.2% Developing 0.1% 0.3% 1.1% 3.0% 6.6% 17.6% (*) Mobile broadband is defined as total subscribers of the following technologies: CDMA2000 1x EV-DO, CDMA2000 1x EV-DO rev. A, CDMA 2000 1x EV-DO rev. B, WCDMA HSPA, LTE, TD- LTE, AXGP, Wimax, LTE advanced, TD-LTE advanced, Wimax 2 Source: Wireless Intelligence It should be considered, however, that, only a portion of this base corresponds to smartphones, devices whose screen format and keyboard are particularly suited to conduct Internet-based transactions. Nevertheless, the installed base of smartphones and data-only devices (USB modems, dongles) is also growing at a fairly rapid rate. In 2011, the most advanced regions in terms of shift to 3G and 3.5G smartphones are Western Europe ( 50% of 3G and 3.5G base) and North America (49% of base). In terms of the total installed base, North America has the highest smartphone share (40.3%) followed by Western Europe (22.9%). The rest of the world exhibits a smartphone share of 3G and 3.5G devices around 20%. By 2015, smartphones in North America and Western Europe will reach 65% and 47%, of mobile connections, followed by Eastern Europe (11.7%), Latin America (13.1%) and Asia Pacific (12.4%)43. In the context of explosive adoption of broadband enabled devices, mobile applications serve to reinforce the awareness of broadband services. Governments can play a role in promoting the development of mobile broadband applications. Such is the experience of Canada, the United Kingdom and Singapore, reviewed below. Box 6.5.7 - Travel Smart (Canada) In November 2012, Canada’s Minister of State for Foreign Affairs announced the launch of its website, travel.gc.ca, which serves as a reference for international travel information and is fully accessible on mobile devices. In addition to the website, the federal government also released the free travel-related mobile app, Travel Smart, available for download on Blackberry, Android, and iPhone smartphones and tablets. The app addresses such issues as airline restrictions, security checkpoint wait times, passport and visa requirements, and letters of consent for travelling minors. All of this information is placed in one easily accessible portal. Travel Smart connects with travellers through platforms like Twitter, Facebook, and SMS messages. It funnels information from 12 other federal agencies ranging from the Canada 43Telecom Advisory Services. Assessing the Worldwide Migration to Broadband Enabled Smartphones: a report to the ITU, New York: November 23, 2011. 184 Revenue Agency to the Canadian Food Inspection Agency to the Public Health Agency of Canada. The app is also designed for Canadians traveling outside the country who need to access safety information, learn about local laws and customs, and check on health conditions. They can register to the site before traveling so that the government will know where Canadian citizens are in the event of an earthquake or uprising abroad. Subscribers to the website’s Twitter and Facebook feeds will receive travel updates and crisis information. Beyond serving as a means for Canadians to access pertinent information more easily and quickly, such services allow the government to cut back on some of its more tangible expenditures. As the Department of Foreign Affairs cuts spending, it is closing international consulates and domestic trade offices. At the same time, the number of Canadians living abroad continues to increase year after year and citizens made 56 million trips out of the country in 2010 alone. An additional 2.8 million Canadians live abroad. As such, despite the need for cost cutting, there is also an increased need for available resources. In response, the government issued a statement saying that it must “find alternative and less costly ways to deliver routine services through the better use of technology.” Sources: MacKinnon, Leslie. "Government Touts New Mobile App for Smoother Foreign Travel." CBC News. N.p., 23 Nov. 2012. Web. . Box 6.5.8 - Gov.sg Mobile App (Singapore) Singapore’s Ministry of Information, Communication and the Arts (MICA) released a mobile app in June 2010 to serve as a supplement to its website, Gov.sg. The “user friendly” app allows smartphone users on the go to access government-related news stories and services such as event calendars, directories, and feedback forms. It serves as a seamless, one-stop platform for citizens to receive pertinent information from various agencies in a single integrated location. At the time, Singapore boasted some of the world’s highest smartphone penetration rates in the world, in large part a result of its broadband and mobile infrastructure. With a 141% mobile penetration rate, many citizens already had 3G and WiFi access, and this connectivity offered an “opportunity for the government to extend its range of services to better reach out to the people.” Prior to the Gov.sg app, the government already utilized more than 300 mobile services. The ministry initially launched the app for iPhones, but followed with an app designed for Android phones in November 2010 to meet the growing popularity of Google-based devices. With this second launch came an updated app design for the iPhone OS 4 that emphasized multi-tasking and built in a user-friendly interface. Prior to the launch of the Android app, the Gov.sig iPhone app was downloaded 14,000 times in the first four months following its release. In its first week alone, the app ranked amongst the top three most popular App Store downloads in the “News / Free application” category. While the Singapore Government has already demonstrated its commitment to online government services, it hopes to encourage participation amongst the younger population through the development of mobile apps. 185 One year later, Infocomm Development Authority of Singapore partnered with NTUC’s Employment and Employability Institute, SPRING Singapore and the Singapore Tourism Board to invest US$ 12 million to develop mobile applications for the service sectors. In response, the Ministry for Information, Communication, and the Arts stated that it “wants to harness opportunities presented by the mobile space and to develop mobile solutions for businesses.” The development fund hopes to encourage growth in the mobile commerce and wireless sectors. Sources: Singapore. Ministry of Information, Communications and the Arts. Singapore Government Connects through New Mobile Application. By Medha Lim. N.p., 29 Nov. 2010. Web. . "Singapore Government Sets aside S$15 Million Fund for Mobile App Development." Infocomm Investments. N.p., 27 June 2011. Web. . Box 6.5.9 - Government-developed Mobile Apps (United Kingdom) By 2010, the British government had developed and released dozens of mobile applications for its citizens. These apps served a wide range of purposes, ranging from helping users quit smoking, to teaching them how to change a tire, to calculating mileage. One app, Jobcentre Plus, allowed users to search for open job listings across England, Scotland, and Wales. Following a 2010 Freedom of Information request, the government revealed that it had spent between US$ 15,000 - $61,000 on the development of each app. At the same time, it spent US$ 143 million on website development and maintenance and an additional US$ 52 million to support the necessary staff. The rollout of mobile apps could cut down on the website expenditures. In 2012, multiple government agencies and service providers launched their own apps. The Socionical Crowd Sourcing app, for instance, was developed through a partnership between the London School of Economics and the UK police. The app – which is available for download through the Apple App Store - allows users in London to download police-related information and offers notifications of catastrophic incidences. Unique to other police apps, the Socionical Crowd Sourcing app allows police to monitor the movement of crowds through real time crowd sourcing technology. The development of this particular app came through funding from the EU and at no cost to the Force. Another government-launched mobile app now offers citizens a free online tax calculator to total the amount they owe and see how the government spends it. The app works on iPhones, iPads, and Android phones and is downloadable at the App Store and the HMRC website. The development of the app followed a report that revealed that more than half of taxpayers did not know the amount they paid in taxes. The government hoped that this new service will make the system more transparent. By late-2012, Britain continued to push for the development of apps for government-related services. In November 2012, Prime Minister David Cameron announced that he was testing an app to aid in decision-making and day-to-day government affairs. The app has allowed Mr. Cameron to keep track of data as it pertains to areas such as jobs and housing in real time while monitoring political polling and social media. Following his approval, more government officials will have access to the app. 186 Sources: Schroeder, Stan. "UK Government Spends Thousands Developing IPhone Apps." Mashable. N.p., 6 July 2010. Web. . Lee, Dave. "David Cameron Testing App to Aid Government Decisions." BBC News. N.p., 7 Nov. 2012. Web. . Townsend, Christine. "City of London, UK Police Launches Smartphone App." ConnectedCOPS. N.p., 15 Aug. 2012. Web. . "Government Launches New Tax App." Government Computing Network. N.p., 29 May 2012. Web. . 6.5.3. Broadband-enabled services with high social and welfare impact: Beyond applications with high network effects, some services with capability of having high social impact can act as an additional incentive to promote awareness of broadband’s potential and further stimulate adoption. First, E-government services delivered via broadband can enhance citizen welfare by facilitating the conduct of transactions with public entities and providing access to government information. Secondly, broadband-enabled E-health services have the potential of enhancing the quality and reach of health care to citizens in isolated areas. Finally, financial services delivered via telecommunications, including broadband services, represent a powerful tool to promote financial inclusion of underprivileged segments of the population. Each category of services will be reviewed in turn, their potential to stimulate broadband adoption will be discussed, and examples of applications will be presented. 6.5.3.1. E-Government services Governments can enhance broadband demand by providing access to government services and broadband content online. A 2008 study by the Organization for Economic Co-operation and Development (OECD) notes the growing popularity of policy initiatives that foster more sophisticated online government services (OECD 2008). These initiatives include expanding secure government networks, putting administrative processes and documents online, supplying firms and citizens with more cost-effective ways to deal with the government (including once-only submission of data), and assigning firms and citizens a single number or identifier to conduct their relations with government. Government information available online in various countries includes legislation, regulations, litigation documents, reports, proposals, weather data, traffic reports, economic statistics, census reports, hearing schedules, applications for licenses and registrations, and even feeds from surveillance cameras. Some OECD countries even offer one-stop platforms for government procurement, bidding information, and so forth. E-services that improve openness and access to democratic institutions are also becoming feasible as a result of increases in broadband transmission capacity. Examples include Internet broadcasts of parliamentary debates and agency meetings. 187 Such applications allow citizens greater participation in the governance process. Applications for polling, voting, campaigning, and interacting with government officials can increase the demand for broadband services. In the United States, for example, two models of e-government citizen participation are emerging. One is a deliberative model where online dialogue helps to inform policy making by encouraging citizens to scrutinize, discuss, and weigh competing values and policy options. The other is a consultative model that uses the speed and immediacy of broadband networks to enable citizens to share their opinions with the government in order to improve policy and administration. Actions to encourage citizen participation through e-government include the following: • Connecting citizens to interactive government websites that encourage citizen feedback and participation in policy making, design, and innovation • Encouraging citizens to participate in online dialogue on topics such as health care and the economy • Participating in government experiments with a variety of tools, including “wiki government,” where citizens participate in peer review • Educating citizens about their civic role and providing opportunities for them to interact with government agencies and officials using tools that fit individual or specific community needs • Partnering with government officials and citizens to facilitate well- informed and productive discussions online • Providing citizens the ability to create “my e-government” so they can personalize their interaction with government agencies and officials • Creating “online town halls” to promote e-democracy for agenda setting and discussion of public issues as well as to promote accountability in the provision of public services. 
 A major goal of developing such services is to make government information more readily available as well as to increase transparency of government activities. The Netherlands is a leader in creating digital content and offering it via online government services (Atkinson, Correa, and Hedlund 2008, 39). In 2006, in an effort to support the development of broadband, the Dutch government decided to give all citizens a personalized web-page—the personal Internet page—where they could access their government documents and social security information as well as apply for grants and licenses. In the United States, the U.S. government embraced e- government as an educational tool, particularly in providing online education programs for new immigrants seeking citizenship and for school support programs within the Department of Education. In Colombia, the 2010 Plan Vive Digital aspires to create a digital ecosystem by 2014 that would achieve several demand- related goals. Types of e-Government applications that drive demand This section will examine the different types of broadband enabled e-government applications that have been launched in different countries. Government services and applications fall into the following broad categories: (a) making government information available, (b) conducting transactions with the government, and (c) participating in the political process. 188 In some cases, governments chose to implement discrete initiatives. Turkey’s Land Registration and Cadaster Modernization Project serves as an example of the implementation of a discrete application to facilitate conducting transactions with the government. In other cases, governments opted to formulate holistic e-government policies and plans, such as the e-Government Act of the United States, the e- Governance Tools in the Netherlands, and the program Vive Digital in Colombia. Box 6.5.10 – Land Registration and Cadaster Modernization Project (Turkey) An example of the Turkish government’s expansion of e-government applications, the Cadaster Modernization Project was designed to make the land registry process more effective and efficient. To do so, the project took responsibility for the following items, per a report released by the World Bank:  Renovating and updating cadaster maps to support digital cadaster and land registry information  Making the digital land registry and cadaster information available to public and private entities  Improving customer services in land registry and cadaster offices  Improving human resources in the Turkish Land Registry and Cadaster Agency (TKGM)  Developing policies and capacity to introduce in Turkey best international practices in property valuation. While the land registration process will benefit from the initiative, it is the government’s ultimate intent to improve its services while providing relevant information to the public and private sectors. In effect, it will raise awareness of the benefits of using online services for government-related matters, thus increasing the demand for broadband. The project received funding approval in 2008 with an expected completion date of 2013. In total, it is expected to cost US$ 210 million, US$ 203 million to be loaned by the World Bank. Turkey’s General Department of Cadaster and Registration oversaw its implementation. Based on the World Bank’s progress matrix, the project looks to reach many of its goals and commitments by the 2013 deadline. The reduction in time for registrants to receive a response, for instance, decreased from 1 week to 2 hours as a result of the online services. The number of agencies with online access to the services increased from 0 to 35 and the website processed approximately 6.5 million requests in 2012. Additional provisions were included to address such issues as technology training and policy drafting. Sources: "Turkey Land Registration and Cadastre Modernization Project." Projects & Operations. The World Bank, n.d. Web. . Box 6.5.11 – The e-Government Act of 2002 (United States) The United States’ E-Government Act of 2002 worked with its Office of Management and Budget (OMB) to create an Office of Electronic Government within the department and establish IT polices and guidelines to promote online government services and capabilities. It designated a Federal Chief Information Officers Council to take responsibility for “improving 189 agency practices related to the design, acquisition, development, modernization, use, operation, sharing, and performance of federal information resources.” To ensure efficiency, the agency must submit an annual report to Congress and conduct Privacy Impact Assessments. As a part of the Act, the Federal Information Security Management Act (FISMA) worked with OMB to “link information security with enterprise architecture.” Amongst other responsibilities, it developed IT security standards, policies, and training for all agencies while reporting to various Congressional committees. The act defines e-government as “the use by the government of the Internet and other information technologies, together with the processes and people needed to implement them, to enhance the delivery of information and services to the public and others to make improvements in government operations.” Thus, the act aims to promote the effectiveness, efficiency, and quality of government service through online services. The E-Government Act of 2002 also allowed state and local governments to purchase updated technology approved by the General Services Administration (GSA). As one of the largest purchasers of technology, the government could benefit from reduced prices on IT hardware, software, and services, saving millions of dollars annually. In 2007, the GSA signed a US$ 68 billion contract to provide 135 federal agencies in 191 countries with telecommunications services for 10 years at a price discounted up to 40%. Prior to the act, the federal government lagged behind the IT advances of the private sector due to “poor management of technology investments.” The Office of E-Government aimed to achieve the same technological standards as the top performing private sector organizations. To do so, the Office developed Internet-based government services, encouraging interaction of citizens and businesses with the federal government. Ultimately, these services were designed to increase participation while promoting government transparency and improving its efficiency. The act budgeted US$ 345 million for 2003 – 2006 and, to ensure compliance, stipulated that federal agencies report into the OMB regarding their progress in enhancing public participation and developing electronic services. That said, the office did not always require such reporting, saying that the time and resources required to develop the reports took away from the efforts spent toward the end goal. In its 2012 Annual Report, The Government Accountability Office addressed concerns voiced by Congress, recommending a plan for the future and also highlighting its initiatives over the prior 10 years. Such noteworthy accomplishments included:  A framework for electronic signatures  A federal Internet portal to provide a consolidated point of public access to government information  Availability of government information and services to individuals with diminished access to the Internet and those with disabilities  A website to provide the public with information and the ability to comment on proposed federal regulations  Steps to improve the accessibility, usability, and preservation of government information through, for example, organizing website content and electronic records management  Policies on protecting the privacy of individuals’ personal information on government websites. The report concluded by praising the significant integration of e-government into agency business and the resulting increased public participation, recognizing OMB’s role in 190 providing implementation leadership, raising awareness, and disseminating information. It did, however, concede that it needs to require more detailed reporting from the agencies in the future and should focus on reducing the burdens of this process. As the title of the report suggests, “Agencies Have Implemented Most Provisions, but Key Areas of Attention Remain.” Sources: Connecting America: The National Broadband Plan. Rep. Federal Communications Commission, n.d. Web. . "E-Government Act of 2002." U.S. Department of Education, 23 Aug. 2003. Web. . United States. Government Accountability Office. Electronic Government Act: Agencies Have Implemented Most Provisions, but Key Areas of Attention Remain. N.p., Sept. 2012. Web. Box 6.5.12 – e-Governance Tools (Netherlands) Recognized as an international leader and innovator in terms of e-government, the Netherlands recognized early on the power of ICT tools to ease the administrative and bureaucratic burdens and improve the government services available to its citizens. The country placed high priority on citizen inclusion and participation, relying on extensive consultation when developing online programs and activities to ensure demand of such services. In 2011, the government announced “i-NUP,” an extension of the National Implementation Program (NUP), clearly stating its plan to introduce further e-Governance measures through 2015. Prior to this point, many of the country’s ministries had already gone online, publishing pertinent information on their websites, archiving digital documents, and allowing citizens to book appointments with elected officials. The i-NUP program ultimately aims to create “a more accessible government,” providing basic e-Services for citizens and creating e-Business opportunities. The NUP, which ran until year-end 2010, represented a partnership between municipal and provincial governments, water boards, and the central government. Together they established the basic requisites for e-Government, promoting e-Access, e-Authentications, and e- Information. As a result, citizens can now perform such tasks as applying for permits, registering for unemployment, accessing social security information, and working with various departments. By the end of the program, more than 8 million citizens could reach their municipal government. Responsible for the development of e-Government policy, the Ministry of the Interior and Kingdom Relations coordinates initiatives with various levels of government and works closely with the Government ICT Unit (ICTU) and the Government Shared Services for ICT (Logius). The Ministry of Economic Affairs, Agriculture, and Innovation oversees e- Government initiatives as they pertain to businesses. The project includes many portals, including the “Rijksoverheid.nl” citizens’ portal. Accessible through a personal DigiD login, the portal offers every citizen access to e- governance services including personal data and tracking. The portal also offers relevant government information and news. 191 Sources: "OECD E-Government Studies: Netherlands." Public Sector Innovation and E-government. Organization for Economic Co-operation and Development, 2007. Web. . "EGovernment in the Netherlands." EGovernment Fact Sheets. European Commission, Nov. 2011. Web. . Box 6.5.13 – Plan Vive Digital (Colombia) The Colombian government’s Vive Digital, which aims to connect all citizens to the Internet by 2019, incorporates a nationally recognized plan to develop a digital ecosystem through projects that focus on infrastructure, services, applications, and user experience. By making more services available online, the plan promotes efficiency and transparency at all government levels while curbing corruption and encouraging citizen participation. To generate demand, Vive Digital projects allow citizens to conduct transactions and access emergency services and value-added services online. It also incorporates such applications as an online Congress, tele-working, and government intranet while aiming for “zero paper” in the central administration. By bringing more everyday services online, the government hopes to make broadband more attractive. Various ministries offer individualized services online. The Ministry of Finance, for instance, will offer mobile banking services while the Ministry of Education promotes ICT awareness amongst schools, teachers, and students. The Social Protection Ministry has taken ownership of e-health programs and rights verification services. Cultural initiatives are also supported through a National Digital Library and the Ministry of Defense has taken a role in ramping up cyber security and cyber defense mechanisms. Between 2010 and 2014, Vive Digital has a budget of US$ 12.5 billion in ICT investment, with US$ 2.2 billion provided by the central government. The program is recognized as an integral component of the larger “Prosperity for All” plan. As a result of Vive Digital, Colombia currently ranks #1 in the Latin America region in terms of both e-government and citizen participation. By 2014, the set deadline for the project, 100% of all national entities and 50% of all local entities will offer online services. The plan will continue to utilize modern ICT technology to promote the development of affordable, online services and foster an environment to make broadband relevant to everyday life. Ultimately, it aims to increase national productivity and improve the standard of living in the country. Sources: Colombia. Ministry of Information and Communication Technologies. Vive Digital. N.p., 2011. Web. . Expected impact of E-Government services on broadband demand This section will provide evidence of the impact e-government applications have on broadband adoption. As in the case of network effects applications, e-Government services have also been found to stimulate broadband adoption. In a recent study conducted for the Colombia government, Katz and Callorda (2011) researched the causality linking e-Government services introduced by the program Vive Digital and 192 broadband penetration. The researchers found that both variables were linked through a bi-directional causality (in other words, e-Government stimulates broadband adoption, but broadband adoption also acts as a stimuli of usage of e-Government services (see figure 6.34). Figure 6.34. Interrelationship between Broadband and e-Government Services According to Effect I, the deployment of e-Government services acts as a complementary service to broadband, enhancing the consumer surplus and, therefore, the willingness to adopt broadband. On the other hand, broadband adoption due to ancillary network effect applications (e.g. social networking) leads to the identification of e-Government services to be adopted. The authors built two econometric models to test both relationships (see table 6.30). Table 6.30. Relationship between Broadband and e-Government Services Effect I: e-Government Stimulates Effect II: Broadband Broadband Adoption Adoption Stimulates e-Government Services usage Dependent Variable: Broadband Penetration 2008-10 Dependent Variable: Use of e-Government Independent variables: e-Government use, Employment Independent variables: Broadband rate Penetration, Employment rate Total Total e-Government use (% of Internet use) 0.555*** Broadband penetration 0.099 ** (0.2990396) (0.0561522) Employment Rate 0.003 *** Employment rate -0.0003 (0.0006617) (0.0003668) R^2 adjusted 0.2654 R^2 adjusted 0.0549 Number of observations 69 Number of observations 69 Note: ***, **, and * indicate statistical significance at 5%, 10% and 15% Source: Katz and Callorda (2011) According to the regression measuring Effect I, an increase of 1 percentage point of e-Government users yields an increase of 0.55 percentage points in broadband 193 penetration. This finding would imply that e-Government services represent a strong incentive to purchase broadband subscription for home usage. The results of Effect II also indicate a positive inverse relationship between both variables. An increase of broadband penetration of 1 percentage point increases the use of e-Government services in 0.10 percentage points. This means that, when controlling for employment rate, growth in broadband penetration reduces the cost to access e-Government from the home, yielding an increase in growth. 6.5.3.2 e-Health services Broadband also contributes in an important way to the delivery of health care services. E-health involves a variety of services and tools provided by both the public and private sectors, including electronic health records and telemedicine. The communication technology is useful in tackling the economic challenges derived from delivering quality services, particularly in handling the relationship with patients, the provision of clinical care, and administration. In general terms, three priority areas can be identified where broadband can contribute to increase the efficiency of health care delivery. In the first place, the administration of health care information can be significantly improved on the basis of hospital information systems, digital archives of clinical histories, and treatments and digital libraries containing diagnostic images and records. Secondly, patient-doctor/nurse communication can be conducted more efficiently by installing on-line registration, telemedicine (in areas such as tele-psychiatry, tele- cardiology, tele-radiology and tele-surgery), remote monitoring, and the creation of community and social networks linking patients and health care professionals. The application of these technologies in the processes of both primary and specialized care has a positive impact not only on the quality of delivery but also on its flexibility and adaptation to patient needs. Hernandez, Leza, and Ballot-Lena (2010) argue that citizens in rural areas, as well as those with limited mobility, may use e-health to access specialized care previously unavailable to them. For example, broadband capabilities are essential to medical evaluation and other medical applications that use imaging extensively. High-definition video consultations allow rural patients and immobile patients (for example, incarcerated individuals or nursing home residents) to be seen by specialists in a timely manner when urgent diagnosis is needed and the specialists are not able to travel to where the patients are located. Thirdly, the communication among health care professionals through the deployment of social networks, distance learning programs, and video-conferencing leads to an improvement in skill level and the delivery of up-to-date information. In this way, health care professionals residing in remote areas can continue their training and updating by means of eLearning platforms. The contribution of these applications is far reaching. On a social dimension, research has identified an improvement in the quality of health care delivery, a decrease in time required for delivery of services, an increase in service quality, coupled with higher efficiency in the information exchange among professionals and the benefit of their continuing education. From an economic standpoint, the contribution of information and communication technologies to the health care sector results in better 194 management of material and human resources, a reduction of care delivery and patient transportation costs, and the consequent reduction in information handling costs. With the increased adoption of smartphones in low-income nations and the relative lack of wireline broadband penetration, mobile health (m-health) is establishing a new frontier in health care in those countries. Although basic voice and data connections are useful in improving health and medical care, broadband connectivity is necessary to realize the full potential of e-health and m-health services, particularly in rural communities. On the other hand, broadband availability renders possible the development of new services as improvements in telemedicine and other e-health initiatives will rely on increasing bandwidth capacity, more storage and processing capabilities, and higher levels of security to protect patient information. As an example, Cape Verde has exploited growing broadband connectivity by connecting two of its hospitals to the Pediatric Hospital of Coimbra, Portugal (Favaro, Melhem, and Winter 2008). The telemedicine system supports remote consultations through video conferencing. One goal is to reduce the number of Cape Verdeans who must travel to Portugal for medical service. In addition to the Cape Verdean hospitals, two Angolan hospitals also are connected to the network and over 10,000 remote consultations have been carried out (CVTelecom 2010). Types of e-Health applications that drive demand This section will examine the different types of broadband enabled e-health applications that have been launched in different countries. There are three types of broadband-enabled e-Health applications: 1) transmission and remote access of patient information, 2) patient-professional and inter-professional communications, and 3) mobile e-Health (adding the mobility functionality to the prior two applications categories). The three case studies reviewed below illustrate examples of all three categories. The Cape Verde experience illustrates categories 1 and 2, while the Indian and Ghana experience are examples of category 3. A study published in 2011 by the World Health Organization (based on 2009 survey information) developed six categories of mHealth interactions. These initiatives included not only established mHealth programs, but also informal programs that used mobile technology for health-related communications and pilot programs undergoing evaluation. 195 Table 6.31. World Health Organization. mHealth Inititives Category Description Communication between individuals and - Health call centers / health care health services telephone help line - Emergency toll-free telephone services Communication between health services - Treatment compliance and individuals - Appointment reminders - Community mobilization - Awareness raising over health issues Consultation between health care - Mobile telemedicine professionals Intersectoral communication in - Emergencies emergencies Health monitoring and surveillance - Surveys via mobile phone - Surveillance - Patient Monitoring Access to information for health care - Information and decision support professionals at point of care systems - Patient records Source: MHealth: New Horizons for Health through Mobile Technologies. Rep. World Health Organization, 2011. Web. 12 Mar. 2013. . At the global level, the study found the most common initiatives to be:  health call centers/health- care telephone help lines (59%)  emergency toll-free telephone services (55%)  emergencies (54%)  mobile telemedicine (49%) These four initiatives primarily rely on the voice feature of the phone. The occurrence of other functions of mobile health – such as raising awareness and downloading health information - will likely increase with increased access to mobile devices offering Internet connections and data storage capacities. The adoption of specific mHealth initiatives also varied by country income (as measured by World Bank). The high-income countries reported a larger and more diverse range of initiatives, although all income groups reported that the health call center / help lines were the most frequently seen examples. High-income countries tended to utilize mobile devices to remind patients of appointments nearly twice as often as their low-income counterparts. The majority of these initiatives utilized voice, SMS, and Internet features of the phone. The service benefits not only individual patients and health care providers, but also the larger industry and economy. The United Kingdom and Northern Ireland, for instance, estimated that missed outpatient hospital appointments cost an annual US$ 1.2 billion. In recent years, low and lower-middle income countries have looked to capitalize on the surge in mobile phone ownership to increase access to health care information. In doing so, they have addressed such issues as lack of quality health care professionals, high costs, and unreliable information. In the past, health call centers were limited to the high-income countries, where they have existed for decades. The present day 196 ubiquity of mobile phones has closed this gap. In some instances, governments partner with local telcos to complement pre-existing health care services. In others, citizens pay a flat rate (e.g. $5 per month in Mexico) that allows for call center access and offers discounted physician services in instances that cannot be resolved over the phone. Box 6.5.14 – Integrated Telemedicine and e-Health Program (Cape Verde) Developed in late 2011 by the International Trust Fund (ITF) and the International Virtual e- Hospital (IVeH) Foundation, the Integrated Telemedicine and e-Health Program in Cape Verde (ITEHP-CV) focuses on the provision of health-related online services. IVeH “is a non-profit organization that was created to assist in rebuilding the public healthcare system in developing countries by introducing and implementing telemedicine, telehealth, and virtual educational programs through the concept of the IVeH Network.” The project aims to create a sustainable system of telemedicine in Cape Verde that will extend beyond its 2014 deadline. In cooperation with the Ministry of Health of the Republic of Cape Verde, the program will establish one telemedicine center with 9 local centers in pre-existing hospitals across the country. Beyond the infrastructure and equipment installations, the creation of the centers will also include the training of medical professionals who are competent in telemedicine as well as an electronic medical library. In doing so, the project will “improve treatment outcomes, increase patient satisfaction, provide physicians’ and other experts continuous education, reduce health care costs, and induce revolutionary transformation of the healthcare system in Cape Verde.” As citizens utilize these online services more frequently and see the value they add to their hospitals and healthcare system, they are more likely to recognize the value of high speed Internet as it pertains to their everyday lives. The program falls under the larger Development Cooperation Program, an agreement between the Cape Verde and Slovenia governments. The ITF was initially established by Slovenia to assist Bosnia and Herzegovina with mining-related funding, but has since expanded to include general humanitarian projects. The Fund partnered with Slovenia’s Ministry of Foreign Affairs to offer a US$ 29,000 research grant that would lead to future implementation. This research focused on the country’s medical sector, identifying the potential for the development of telemedicine and potential obstacles to the project’s success. Together, ITF and IVeH finalized a proposal and plan for project deployment. In a matter of months, two of the country’s hospitals were linked to Portugal’s Pediatri c Hospital of Coimbra via a broadband connection. Because this service offers video conferencing and consultations, fewer citizens need to travel outside of the country for medical services. Sources: "Broadband Strategies Handbook." Ed. Tim Kelly and Carlo M. Rossotto. The World Bank, 2012. Web. . "International Virtual E-Hospital Foundation Begins Cape Verde Telemedicine Project with ITF Enhancing Human Security." International Virtual E-Hospital Foundation. N.p., n.d. Web. . "Republic of Slovenia Supported Needs Assessment Mission in Cape Verde." ITF, 27 Sept. 2011. Web. . Box 6.5.15 – Remote Telemedicine Services (India) In 2008, telecommunications company Ericsson signed a Memorandum of Understanding with Apollo Telemedicine Networking Foundation (ATNF) to establish an e-health program. The program offers instant telemedicine services remotely over applications run on broadband networks. In doing so, it decreases the costs of healthcare while improving its quality and making it more available, particularly in the case of the rural population. While Ericsson provides the necessary equipment, ATNF delivers its telemedicine expertise through the creation of applications that transmit medical advice instantly and remotely. The HSPA network and mobile technology allows for increased access to quality healthcare and related services. Beyond the actual services provided, a key component focuses on training citizens to use the technology while also publicizing its availability and benefits. The declining costs of ICT and mobile technology make it easier and more cost effective to provide telemedicine services to a larger portion of the population. As more citizens benefit from the services, they will likely realize and appreciate the value of broadband. In India alone, more than one million citizens – particularly women and children – die as a result of limited healthcare. An additional 700 million rural citizens cannot access specialized services, as nearly all specialists reside in urban areas. As ICT improves and becomes more widespread, it can allow healthcare to permeate additional regions regardless of geographical boundaries, resulting in more accessible and higher quality services that do not require the same time and financial expenditures. Prior to this agreement, Ericsson received a special license in 2007 to use 3G spectrum to demonstrate the impact it could have on e-governance, e-education, e-entertainment, and m- health through a pilot project known as “Gramjyoti.” To address the m-health component, ATNF worked with Ericsson to show the ways in which 3G can be utilized to improve the transmission process of health information. Consultants at Apollo Group hospitals worked with patients in remote villages via text, audio, and video technology to “examine” patients with a web-based camera. This examination coupled with the patient’s medical history and information such as blood pressure allowed doctors to make a diagnosis for 240 patients across 18 villages and 15 towns in remote areas of the country. Both doctors and patients reported high satisfaction. Apollo hospitals conducted a similar pilot, this time using EDGE technology to offer tele- consultations to a small village in the state of Tamil Nadu. Utilizing the group’s Hospital -on- Wheels (HoW) bus, volunteers took x-rays of patients, which they then developed on board. After uploading the images to a laptop computer, software compressed the images and emailed them to doctors at the hospital. Doctors also conducted ultrasound examinations of female patients, but at the time, live video streaming could not take place due to bandwidth constraints. In this instance, volunteers took videos of the ultrasound and then emailed them via the wireless network to the hospital where internists could utilize the web cam to finish the exam. These pilots have demonstrated the power of broadband to transform healthcare in India, but they have also shown the barriers to this progress, namely the lack of pre-existing infrastructure and the mindset of citizens in the targeted areas. Policy makers must focus on raising the awareness of telemedicine programs and their benefits in order to stimulate demand for broadband and additional e-health services. Sources: 198 Bollineni, Raja. Apollo Telemedicine Networking Foundation (ATNF). Rep. ACCESS Health International, 2011. Web. . Ericsson. Press Releases. Ericsson and Apollo Hospitals to Bring Healthcare Access to Rural India. N.p., 5 June 2008. Web. . Box 6.5.16 – Mobile Technology for Community Health (Ghana) In 2009, Grameen Foundation launched its Mobile Technology for Community Health (MOTECH) initiative, focusing on the reduction of infant and maternal mortality rates through the utilization of mobile phone technology. Healthcare providers use their mobile devices in a variety of ways to address the issue, beginning, for instance, with the collection of patient information that they then upload to a centralized database. Mobile technology is also used to communicate with pregnant women, providing them with healthcare information and encouraging them to visit local medical centers for prenatal care and to assist community healthcare workers in targeting women and newborns that could need their care, offering an automated service to track patients. The Ghanaian government launched its Community-based Health Planning and Services (CHPS) Initiative in 2000, relocating urban clinic nurses to rural communities and encouraging volunteers and social workers to assist them. While ambitious, the program ultimately did not take off because many of the women who needed healthcare could not access the village clinics and did not receive the necessary care because the nurses were not equipped with the necessary knowledge and information to offer their services on a door-to- door basis. Building on this initial program, MOTECH delivers relevant information to the nurses via mobile phones while pregnant women register for care by providing their phone numbers, location, and due dates. Once registered, they then receive SMS and / or voicemail updates relating to prenatal care, the location of clinics, and treatment recommendations. Some messages are personalized based on a woman’s medical records and may, for instance, suggest certain vaccinations for her and her newborn child. In other cases, patients may send SMS questions to the nurses. In collaboration with Columbia University’s Mailman School of Public Health and the Ghana Health Service, MOTECH is made possible with a grant from the Bill & Melinda Gates Foundation. Johnson & Johnson, USAID, and the Norwegian government also provide project-specific funding. The MOTECH Suite is an extension of the project, representing the collaboration between international mHealth implementers, open-source solution providers, and funders to develop relevant software and establish best practices to guide future endeavors. The program keeps costs low by running on the low cost mobile devices that citizens already own. The Gates Foundation covers the cost of messages. The country already boasts high mobile phone ownership and penetration, so device distribution and the associated costs associated are unnecessary. The project began in 2009 with small-scale field tests and was not officially deployed until June 2010. In the pilots, the low literacy levels and variety of spoken languages posed the largest barrier. To overcome this challenge, MOTECH delivered either pre-recorded voicemails or standard SMS messages in the local language based on patient preference. Sources: 199 "Mobile Technology for Community Health (MOTECH)." Grameen Foundation. N.p., n.d. Web. . "MoTeCH: A Mobile Approach to Maternal Health Care." MobileActive. N.p., 10 Feb. 2010. Web. . 6.5.3.3 Broadband enabled financial services Online banking has evolved considerably, with the Internet becoming an integral part of the delivery of banking services around the world. It is generally recognized that e- banking services can provide speedier, faster, and more reliable services to customers and thus also improve relationships with them. Although many types of Internet connections have the capability to support online banking (for example, some m- banking transactions are conducted with narrowband short message service, SMS, messages), high-speed broadband is essential for effective e-banking. Broadband enabled financial services have become prevalent in the industrialized world. A 2007 study, for example, found that in the United States, banking online was performed by 66 percent of households with a home broadband connection compared to 39 percent of households with a narrowband connection (DuBravac 2007, 9). This phenomenon is also prevalent in the developing world. Standard Charter Bank (India), for instance, now reports that an estimated 50% of banking transactions in the country now take place online. Moreover, delivering financial services to low-income users or populations of isolated areas through e-banking can also offer the potential to decrease operational costs dramatically, but more importantly, facilitate financial inclusion. Adoption of financial services in the developing world remains fairly limited. As of December 2010, over 2.7 billion people across the world did not have access to financial services. In Africa in particular, only 20% of families have bank accounts,44 leaving the vast majority of the continent “unbanked” with few prospects of ever creating viable savings. The vast majority of this demographic live in rural areas, beyond the growing urban sprawl of capitals and large towns leaving them with little exposure to the banking industry. Traditional banks have had very little interest in involving this lower income population in financial services. Beyond the usual fees required to open a bank account in most sub-Saharan countries, which most of the population cannot afford anyway, minimum deposit requirements can be as high as 50% of per capita GDP.45 This problem is not limited to developing countries. For example, one in four U.S. households are defined as “unbanked” (not having a traditional checking account) or “underbanked” (forced to rely on other methods of money payment and management)46. Additionally, FDIC studies in the United States show that amongst the 25% of households that are underbanked or unbanked, the majority comes from a minority background. These households still need a method of paying bills and storing funds. In the past, when something needs to be paid for, cash was the first option. Traditionally, when cash couldn’t be used money orders and money transfers 44 Efam Dovi, 2008 ‘Booting Domestic Savings in Africa’, Vol.22, No.3 45 Ondiege. 46 FDIC, “Survey of Unbanked and Underbanked Households”, 2009 200 were the solution for these individuals. However, today these methods are becoming more cumbersome and less generally accepted. Credit and debit cards are being used for more and more transactions, and online shopping is becoming the cheapest and most efficient way of procuring goods. For these markets in particular, mobile money services have proved to be of particular importance. In countries such as Afghanistan, Bangladesh, Kenya, Indonesia, Pakistan, the Philippines, and South Africa, various forms of m-banking services are expanding the financial services frontier. These services allow users to make payments and remittances, access existing bank accounts, conduct financial transactions, engage in commerce, and transfer balances. A number of diverse financial transactions are broadly referred to as “mobile payments”. It is important to understand that these various transaction types, however, possess very different characteristics and are often at significantly different levels of technological maturity and adoption. Below is a summary overview of the key categories in the mobile payments market. Table 6.32. Categories of Transactions in Mobile Payments Category Description Comments Pre-paid Top- Buying credits for pre-paid Growth prospects high in Ups cards and phone service using developing countries mobile devices Money Peer-to-peer money transfers While accounting for only 21% of Transfers using proximity technology mobile transactions, money NFC (Near-Field transfers comprise 75% of volume Communications) or over the in the mobile payments market web (due to higher dollar values vs. top-ups) Merchandise Use of mobile phones as Early days of adoption in Purchase payment devices at the point- developed countries (Japan and of-sale in retail locations South Korea) utilizing NFC technology Ticketing Mobile phones used as Market growing at nearly 100% payment/proof-of-purchase at annually through 2014 and is mass transit and public expected to reach $3 billion in transport hubs (subways, payments in 2014. Generally the taxis). Also includes sporting lowest average transaction sizes events, etc. vs. other mobile payment categories Bill Pay Mobile payments submitted One of the highest adoption rates via cell phone apps or via the in developed markets given web consumer familiarity with web- based bill payment Source: Oreizy (2011) Types of applications that drive demand This section will examine the different types of broadband enabled financial services applications that have been launched in different countries. There are three models for mobile payment that have been either discussed or implemented in various countries: 201 • Cellular provider serves as intermediary in transaction and stores the value as seen in the M- Pesa model (Kenya) • Cell phones serve as a mobile wallet and allow the user to use existing accounts, or to consolidate charges made onto the cell phone bill or an internal credit card account (DoCoMo in Japan) • Cell phones serve as mobile wallet but require a credit card / debit card to remit payments to (current US ISIS model) Box 6.5.17 – M-Pesa (Kenya) In 2007, Vodafone’s Kenyan subsidiary Safaricom developed and launched the M-PESA system - derived using “M” for mobile and the Swahili word for money, Pesa - allowing customers to conduct electronic payments over their mobile phones. To use the service, customers register at authorized M-PESA retail stores, where they then receive their own electronic money accounts linked to their phone numbers and SIM cards. The retail stores serve as a point of cash transfer, converting customers’ cash into an electronic value up to US$ 500, which can be used to pay bills, purchase mobile airtime credit, and transfer funds. Safaricom compensates the retailers for each transaction. The global growth in popularity of mobile phones largely contributed to the success of the program. In the five years prior to the launch of M-PESA, mobile phone penetration grew from just 3% to 48%, and is expected to reach 72% by 2014. Kenya in particular demonstrated certain qualities that are also attributed to the program’s takeoff, including its “strong latent demand for domestic remittances, poor quality of available financial services, a banking regulator which permitted Safaricom to experiment with different business models and distribution channels, and a mobile communications market characterized by Safaricom’s dominant market position and low commissions on airtime sales.” Unlike many other banking services, customer registration and deposits are completely free. Customers must pay a US$ 0.40 flat fee for transfers and bill payments, US$ 0.33 for withdrawals, and US$ 0.01 for balance inquiries. Vodafone manages a server with all customer account information, but Safaricom manages these accounts. M-PESA accounts do not offer interest payments to customers, instead depositing this interest into Safaricom’s not - for-profit trust fund. Safaricom deserves credit for its strong promotion of M-PESA, a service that, at the time, was an entirely new concept in a market with very little exposure to a formal financial system. The provider aimed to reach 1 million customers – or 17% of its customer base at the time – within the first year. Before the nationwide launch, M-PESA underwent small pilots across the country and Safaricom ensured that 750 stores across all 69 districts of the country were capable of handling the transactions. The emphasis on seamless customer service and brand recognition also contributed to the popularity of the system, which outpaced the initial 1 million-customer goal. M-PESA demonstrated the power of mobile phone technology to impact the availability of financial services, particularly to the unbanked poor segment of the population. Because many of these citizens already owned and knew how to use mobile phones, this technology allowed the system to come to fruition without extensive infrastructure deployment or training costs. Further, by designing a usage-based revenue model, M-PESA offers incentives for users, financial institutions, and mobile providers, eliminating the inherent discrimination as banks and providers targeted the more profitable customers. By connecting to this e- payment system, citizens now have access to a variety of financial services; creating the opportunity to save money in savings accounts, for instance, and receive welfare disbursements and send payments for services. 202 While not the first mobile banking model, M-PESA has grown globally to become the largest and most successful program of its kind. By 2010, more than half of Kenya’s population had used the service; by its fifth birthday in 2012, the number of retailers outnumbered the country’s bank branches. Kenya alone reported 15 million M-PESA accounts. Other developing countries have seen success of similar models. MTN, Africa’s largest wireless provider, rolled out the service across the continent while central banks in countries like Brazil have experimented with their own version of the program in an effort to expand their reach to the poor and rural population. The Indian government has also shown an interest in developing a mobile banking system to increase financial inclusion, which shows particular promise given the country’s preexisting IT infrastructure and dense population. Sources: Mas, Ignacio, and Dan Radcliffe. "Mobile Payments Go Viral: M-PESA in Kenya." Microfinance Gateway. World Bank, Aug. 2010. Web. . O'Sullivan, Olivia. "The Invisible Bank: How Kenya Has Beaten the World in Mobile Money." National Geographic Emerging Explorer. National Geographic, 4 July 2012. Web. . Box 6.5.18 – M-Paisa (Afghanistan) In 2008, Telco Roshan launched its mobile money transfer program, modeled after the successful M-Pesa service first seen in Kenya and known as M-Paisa in Afghanistan, in partnership with Vodafone Global Services. The two companies agreed to share profits, utilizing Vodafone’s platform developed for M-Pesa. The word “paisa” means cash in Afghanistan’s local languages, Dari and Pashto. In 2010, in conjunction with the Ministry of the Interior, the National Police in Afghanistan began receiving their salaries through the M-Paisa system rather than in cash. Once the program was initiated, many of the policemen thought they had received a raise; in some instances the difference in pay equaled an increase of more than 33% once higher-ranking officials could no longer take cuts for themselves from the cash payments. Beyond curbing corruption within the system, the M-Paisa also discouraged policemen from defecting to the Taliban, who could previously offer higher payments for their services and loyalty. The funds are delivered to the policemen via an SMS and IVR system. The IVR system is particularly important given than 70% of the country cannot read; these voicemails are available in Dari, Pashto, and English. The Roshan mobile network that powers the program covers 3.5 million subscribers in 230 cities in all 34 provinces across Afghanistan. The Aga Khan Fund for Economic Development (AKFED), Monaco Telecom International (MTI), and TeliaSonera back the provider. The Bill & Melinda Gates Foundation provides additional funding to M-Paisa through the US$ 12.5 mn grant it awarded to the GSMA trade association to provide mobile banking services to 20 million global citizens by 2012. The program has received praise for the contribution it has made in boosting Afghanistan’s economy by curbing corruption and enabling small businesses and the Afghan people who previously had to deal with the risks associated with cash-only transactions. Beyond salary transfers, M-Paisa also enables “national remittance, salary disbursements, airtime purchase, bill payment and merchant services.” The program has particular potential to impact Afghanistan’s economy, as less than 3% of the population is banked and the financial sector 203 is virtually non-existent, in large part due to the past 20 years of conflict. The high need for microfinance systems in the country drives the demand for such services and the Central Bank of Afghanistan has supported the development of M-Paisa. Sources: Munford, Monty. "M-Paisa: Ending Afghan Corruption, One Text at A Time." TechCrunch. N.p., 17 Oct. 2010. Web. . M-Money Channel Distribution Case – Afghanistan. Rep. International Finance Corporation, 2010. Web. Box 6.5.19 - Splash Mobile Money (Sierra Leone) In 2011, Splash Mobile Money Limited partnered with MoreMagic Solutions and the Guaranty Trust Bank to launch Sierra Leone’s first mobile money service, Splash. Designed to address the flaws in the country’s inadequate banking system, Splash lets consumers use their mobile devices for financial transactions, eliminating problems such as high transaction costs, security, and limited transparency. More than 150 agents throughout the country are certified to register new users in the program, converting their cash to “splash cash” credit on their phones. The users can then send or receive electronic funds, make purchases at participating retail vendors, or buy prepaid airtime through a text message. After receiving splash cash, a customer can go to any certified agent to convert the electronic money to cash. At the time of Splash’s launch, a mere 6% of the Sierra Leone population had access to traditional banking services, making citizens more reliant on cash-only transactions. Beyond the aforementioned benefits of removing cash from the equation, Splash also greatly impacts rural citizens by eliminating the burden of traveling long distances to a physical bank only to wait in line. The company targets individuals and organizations alike. While every day citizens take advantage of the services, so too do businesses. Splash allows Sierra Leone’s largest microfinance institution, for instance, to send loan disbursements and repayments. The country’s largest satellite television provider uses Splash to accept payments from customers. Splash received its initial financing by way of equity funding from Manocap, the Soros Economic Development Fund, and through a grant from the Africa Enterprise Challenge Fund. When getting off the ground, one of the largest challenges to the organization’s business model was the reluctance of citizens – who were so reliant on cash transactions – to trust electronic money. Similarly, the transparency of mobile-money transactions revealed the flaws and corruption in the traditional banking system, and this exposure resulted in resistance. Further, the low literacy rates posed a problem to the SMS platform. Within the next five years, the company hopes to expand beyond Sierra Leone and into at least five additional West African countries. As part of its growth plan, it aims to increase the number of agents as well as the opportunities for micro-franchising. It also plans to target the region’s rural areas, thus bringing financial services to the unbanked population. Sources: Rudd, Melissa. "Making a Splash in Sierra Leone." African Business Review, 2 Nov. 2011. Web. "From Harvard to Sierra Leone -CEO of Splash Mobile Money Finds His Path." The AWP 204 Network. N.p., 28 Nov. 2012. Web. . 6.5.20 – NTT DoCoMo DCMX Service (Japan) In 2004, NTT DoCoMo and its eight regional subsidiaries launched the i-Mode Felica mobile wallet application, designed for use on its i-mode smart-card 2G and 3G handsets. The company designed the devices to serve as train passes, debit cards, credit cards, and personal identifications. At the time of launch, customers could purchase the handsets – which came equipped with Sony’s Edy e-money system - at 9,000 shops throughout the country. 39 mobile providers offered m-wallet functions through the Felica service, available for download on the providers’ websites. In 2006, DoCoMo launched the “DCMX” consumer credit services through iD, its brand of mobile credit cards. The company offered its Felica phone users two different plans from which to choose based on their credit and purchasing behavior. The first plan, known as DCMX mini, offered a monthly credit line of US$ 100. Use of the service did not require a membership fee and allowed customers to use their phones to purchase goods without requiring a separate identification or signature. The payments were applied directly to the monthly phone bill. The other plan began at US$ 2000 and offered cash advances, requiring a four-digit password for purchases over US$ 100 to enhance security. To encourage use, this plan came with a US$ 13 fee when the card wasn’t used within 12 months and offered customers the opportunity to earn points redeemable for products and services offered by DoCoMo and its partners. Customers also received a Visa or MasterCard plastic credit card for use in stores that did not have readers or when making purchases overseas. By 2009, more than 30 million DoCoMo customers had purchased the Felica-enabled handsets, available for use on more than 420,000 readers through the country’s retailers, restaurants, convenience stores, and taxis. Of these customers, 10 million regularly used the credit card service, reflecting the world’s largest mobile payment market. In 2011, the company announced plans that the new models would support not only the FeliCa technology, but also the international standard N.F.C. While mobile payments are a very specific sector within the company’s business in Japan, analysts feel that it could lead the way to increased mobile phone demand and adoption. They liken the initial hesitation of customers to use mobile payment to banks’ early struggle to encourage customers to use ATM machines. Sources: NTT DoCoMo. NTT DoCoMo to Launch Revolutionary Mobile Wallet Service Useable with New I-mode Smart-Card Handsets. N.p., 16 June 2004. Web. . Kolesnikov-Jessop, Sonia. "Mobile Wallet Gaining Currency." New York Times. N.p., 6 Sept. 2011. Web. . "NTT DoCoMo to Launch DCMX Mobile Credit Services." Wireless Watch Japan. N.p., 4 Apr. 2006. Web. . White, Peter. "NTT DoCoMo Hits 10m Mobile Wallet Accounts." Rethink Wireless. N.p., 25 Aug. 2009. Web. . 205 Expected impact on broadband demand There is some initial evidence that successful communications-enabled financial services act as a powerful incentive for communications adoption. The example of M- Pesa is quite illustrative. Research by Jack and Suri (2010) conducted among M-Pesa non-adopters indicated that the primary reason indicated for non-usage was lack of access (either lack of agents or cellular coverage) (21%), while other factors (safety, ease, cost, confidentiality) scored significantly lower. This would indicate that, once the network is in place, adoption would greatly increase. 6.5.4 Content to drive broadband demand As discussed above, users purchase broadband services and devices in order to gain access to the complementary services and content. In fact, for the population at large, the network infrastructure is less important on a day-to-day basis than the availability of relevant and useful online services and applications that allow them to access, create, and share content. This section will present different policies that could be formulated to stimulate the development of broadband-enabled applications and services in local languages, leveraging local content. Examples will be provided of the more successful applications, and details regarding ways of stimulating local development will be included. 6.5.4.1. Local content promotion policies: In order to increase demand for broadband services, citizens must first view the service as relevant. Without resources, information, and applications designed with local communities in mind, the demand for such services will only come from the segment of the population for whom the Internet was first developed – native English speakers. Even with the rise in Internet users in countries where English is not the first language, comparatively fewer websites written in other languages and characters exist. Further, the defining characteristics of a culture – such as “geographic location, religion, ethnicity, and area of interest” - shape an individual’s interest in available content. The Internet has offered citizens the chance to create and distribute their own content more quickly and cost-efficiently than ever before. As discussed in prior sections, it has also allowed them to come together in such instances as crowd-sourcing or mass broadcasting. At the same time, however, lack of access further stratifies various segments of the population. Lack of access is only exacerbated by lack of local content, but in recent years, many developing countries have taken charge of the promotion and development of such resources. These efforts have commenced both to increase access and also to build a new industry of digital content. In Kenya, for instance, the government allocated a budget of nearly US$ 4 million in an effort to increase locally relevant digital content and software. By working directly with developers, it hopes not only to increase demand for broadband services, but 206 also to increase revenue within the industry. In the case of Egypt, governments have worked to digitize pre-existing cultural content, in turn encouraging Internet use while also allowing more people to benefit from its resources. In the Middle East, the UAE and Qatar have both developed industries centered on the distribution of digital content within the region. In many instances, the governments turn to international corporations and organizations for both implementation and financial assistance in these endeavors. Much of this help allows these initiatives to benefit from pre-developed best practices while also establishing international support for the budding industries. Increasing content in areas such as education and technology training will also serve to strengthen the countries’ economies. In addition to direct grants for the production of local content, governments can support the development of local content and applications in other ways, such as the development of standardized keyboards, character sets, and character encoding. This type of indirect intervention would affect the content available by enabling users to create content in their own languages. Additionally, translation and standardization of operating systems into local languages can help to facilitate the development of local applications that are relevant and comprehensible to local users. Governments can also play an important role in developing local content and local applications by directly creating local content and local applications in the form of e-government applications, as described above. Some forms of user-generated content, such as YouTube videos, face fewer barriers to expression, as the speaker is recorded directly in his or her own language. YouTube has launched a localization system, where YouTube is available in 31 local versions as well as a worldwide version. This helps to overcome some of the barriers to content reaching a possible community of interest, but not entirely, as content generated in languages other than those used in the 31 local versions or the worldwide version may encounter barriers to reaching an audience. It is likely that greater amounts of local content will continue to become available in the near term. For example, a website called d1g.com is a platform in Arabic for sharing videos, photos, and audio, a forum, and a question and answer facility. Launched in 2007, d1g.com is one of the Arab world’s fastest-growing social media and content-sharing web- sites, with more than 13 million users and 4.8 million unique monthly visitors. It has 15 million videos and streams an extensive amount of Arabic videos—600 terabytes of data per month. Notably, nearly 100 percent of d1g. com’s content is user generated, with a small amount produced in-house. d1g.com became the most popular Arab social media site (after Facebook and Twitter) when a user created the “Egyptstreet” diwan during the Egyptian revolution. During that time, unique visitors rose from 3 million to 5 million per month, and visits per month grew from 6 million to 13 million. Box 6.5.22 – Tandaa Local Digital Content (Kenya) Operating within the Kenyan ICT Board, Tandaa “promotes the creation and distribution of locally relevant digital content through the Tandaa Symposium and [through the distribution of] seed money to ICT entrepreneurs.” Tandaa defines digital content as “any content that can be consumed from an electronic device,” such as a personal computer, digital television, or 207 mobile phone, and is distributed through the Internet. The Tandaa website offers users the option to stay connected through Facebook and Twitter and also houses resources that focus on the protection of intellectual property rights. In 2010, the ICT Board designated US$ 3.7 million for Tandaa’s endeavors. Tandaa-sponsored activities range from digital training to research to the digitization of content. In 2010, for instance, the Company Registry of State Law saw all of its records digitized, with more than 20 million pages and records from 1936 to 2010 scanned and made available for online searches. This project was carried out by the private company, DPH, that won the tender offered by the ICT Board. The task involved 215 staff members working 24 hours a day to scan 450,000 pages daily. Later in the year, the Board awarded its Digital Content and Software Application Grant to various firms in the three categories of: Government Information Portal, Private Sector (Individuals), and Private Sector (firms). Grant winners were chosen based on their plans to introduce such resources as an HIV and AIDS in the workplace e-Learning Course, a teacher’s portal, and a digital museum. In 2011, the Tandaa team hosted four workshops around the country to promote the second round of the Digital Content Grant. At each workshop, attendees learned about intellectual property rights and the confidential, secure nature of the application process. They also learned how to submit a proposal that would appeal to reviewers. The number of applications rose by 68% from the year prior and nearly half of all applications came from outside of Nairobi, attributed in part to the workshops and also to the redesigned easy online application process. Following the submission of proposals, the top applicants – as chosen by a team of consultants – attended a business plan training session at Strathmore University. In early 2011, the ministry created the Creative Content Task Force to promote Kenya’s Visual Effects sector, which at the time was hindered by its fragmentation. Beyond connecting the various sub-sectors – such as animation, performing arts, and cultural expression – the task force, per the ministry’s website, also worked to:  Seek input from sector players towards the enhancement of the creative industry  Establish a formal classification of the creative industry  Catalyze trade opportunities for the creative industry  Accelerate and facilitate access to creative industry knowledge In 2012, the IBM Service Corp Team developed a roadmap for the industry, meeting with representatives from UNCTAD-identified industry sectors. The roadmap identified the segments with “high levels of innovation and thriving economic activity” that the government should target. These sectors included new media, publishing, and visual arts industries. The work also demonstrated that such issues as lack of recognition, insufficient education and training, and government policy issues held back the development of some segments. These issues also included intellectual property rights and a limited use of ICT within the country. As a result of these findings, the roadmap established the following six main themes:  Raise the profile and increase recognition of the creative industries  Implement policies that support creative industry growth and its measurement  Reinstate arts in the education system and increase creative industry training opportunities to raise quality standards  Implement programs and policies to enhance general business and marketing skills of creative practitioners to promote brand Kenya  Implement changes to address current intellectual property issues 208  Gain further leverage through new technologies to facilitate growth Ultimately, per its mission statement, the roadmap identifies “how the creative industry can contribute 
 10% of Kenya’s GDP by 2017.” Sources: "Tandaa Kenya." N.p., 2012. Web. . Box 6.5.23 – Center for Documentation of Cultural and Natural Heritage (Egypt) As the name implies, Egypt’s Center for Documentation of Cultural and Natural Heritage (CULTNAT) oversees the documentation of Egypt’s cultural and natural heritage and the dissemination and promotion of such resources. Topics range from archaeology, to national history, to music and folklore. Such projects have included:  implementing the national plan of action’s documentation program, making use of the most up-to-date information technology in collaboration with the national and international specialized organizations;  increasing public awareness of cultural and natural heritage using all available media; and  Capacity-building for professionals in the fields of conservation and documentation of cultural and natural heritage. The Center emphasizes the importance of placing resources online using the latest digitization technologies, allowing the world to view and benefit from them regardless of their geographic location. To promote access to the Eternal Egypt project, for instance, CULTNAT partnered with IBM to develop an interactive, multimedia website where users can take guided tours of the country’s pyramids in English, French, Arabic, Italian, or Spanish. The website utilizes “interactive technologies, high -resolution imagery, animations, virtual environments, remote cameras, three-dimensional models and more.” CULTNAT also offers public exhibitions and projections that are available in print and CD formats, such as the atlas series that features maps, locations, and descriptions of the country’s archaeological sites. Other initiatives include the world’s first nine-screen interactive projective system, CULTURAMA. The center is located in Cairo and falls under the direction of Egypt’s Ministry of Communication and Information Technology. Much of the outside financial support comes from UNESCO, though project-by-project partnerships with the international private sector also offer a source of funding. CULTNAT’s work has not gone unnoticed by the international community. In 2003, the center received a Special Mention at the World Summit Award (WSA) for its work in the e- Culture category. In 2010, CULTANT won the WSA in the m-Tourism category as a result of its mobile-app, CULTMOB, which offers a tool for locating archaeological sites via 2.5G and 3G mobile devices. Its “Archeological Map of Egypt” program received the Stockholm Challenge Award in 2003/4 and an award from the Arab Federation for Libraries and Information for the digitization of the country’s National Historical Archives project. China’s AVICOM International Committee for Audiovisual and New Image and Sound Technologies recognized CULTNAT’s work in producing educational films. Sources: 209 "The Center for Documentation of Cultural and Natural Heritage (CULTNAT)." Bibliotheca Alexandrina. N.p., n.d. Web. . "WSA-mobile Outstanding Regional Achievement Awards 2010." World Summit Award. N.p., 2010. Web. . "CULTNAT." The Center for Documentation of Cultural and Natural Heritage. N.p., n.d. Web. . Box 6.5.24 – TwoFour54 (United Arab Emirates) The Abu Dhabi Government published a long-term plan in 2007 that detailed its strategy for diversifying its economy away from its dependence on fossil fuels. Known as the “Abu Dhabi Economic Vision 2030,” it emphasized, among other factors, the importance of a strong private sector, a knowledge-based economy, and a transparent regulatory environment while also detailing plans for the development of certain industrial sectors. The media and entertainment industry received special attention, largely due to the projection that its regional growth would exceed 19% annually. With comparatively low broadband penetration rates that were expected to grow at 12%, the government also saw this investment as a way to boost connectivity while taking advantage of the region’s 3G mobile take-up and rise in popularity of social media. Further, the publishing industry in the MENA region – unlike in the rest of the world – continued to see positive growth in revenues and demand. Named for the geographic coordinates of Abu Dhabi - 24°north by 54°east – twofour54 promotes the development of Arabic-language media and entertainment. Launched in 2008, the initiative serves to place Abu Dhabi at the forefront of the media content industry, covering such segments as film, broadcast, music, digital media, gaming, and publishing. The project’s campus includes three main segments: a training academy (Tadreeb), state of the art production facilities (Intaj), and support (Ibitkar). Tadreeb, the training academy, offers 200 bilingual, international-standard courses through three of the project’s partners, BBC, Thomson Reuters, and the Thomson Foundation. The courses reflect market demands and are offered either on campus or at client offices. Intaj offers such services as state-of-the-art HD production, post-production, media asset management and broadcast facilities to international production companies, producers, and broadcasters. Ibitkar supports ventures for Arab entrepreneurs and businesses needing funding for the start- up phase, business development, or operational support. Ibitkar’s creative lab offers grants to Arabs in need of seed funding or development assistance. These three pillars are supported by tawasol, which looks after organizations and individuals looking to join the twofour54 community. Encouraging education, investment, collaboration, and partnership, the project provides Arabic companies and organizations with the tools, support, and infrastructure necessary to create high quality content. It also works to establish a seamless licensing process while working with intellectual property concerns. Twofour54 boasts an impressive roster of media business partners. Many of these partners – like CNN, HarperCollins, and National Geographic – hail from all over the world and are leaders in the media, television, and publishing industries. Because the campus is a free trade zone, companies working with twofour54 enjoy the benefits of a tax-free environment with 100% foreign ownership. The project has helped many of these organizations to expand their business to include the Middle East region, a virtue of both its geographic location and its understanding of the Arabic culture and market. 210 Sources: "Twofour54 Abu Dhabi." Abu Dhabi Media Zone Authority, n.d. Web. . Box 6.5.25 – Digital Content Incubation Center (Qatar) Qatar’s Supreme Council of Information & Communication Technology (ictQATAR) offers incubation services to new services, encouraging digital content innovation and the use of ICT. The Council ultimately envisions these companies contributing to the availability of Arabic digital content. Its Digital Content Cluster (DCC) offers resources such as innovative platforms, access to international partners, business development services, training, and office space. The entrepreneurs, start-ups, and small online businesses with which DCC works have access to conference facilities, IT services, government resources, coaching services, and accounting and legal services. They also receive support from multinational organizations like IBM, SAP, and Houghton Mifflin Harcourt. This project is one of the Qatari government’s many initiatives designed to support a knowledge-based economy with less dependence on hydrocarbon revenues. Investment in the ICT industry is expected to lead to the economic transformation that will drive sustainable development. Recent ICT projects have included the implementation of ultra-fast networks, international submarine cables, and satellite technology. More than 360 government e- services are now available online and the telecom sector now has a second mobile and fixed line operator. These innovations and the country’s growing youth population and high purchasing power have led to an increase in demand for ICT services, and much of the growth in available services has come as a result of private sector investment. To work with the incubation center, aspiring entrepreneurs must first pass through three phases - the eligibility phase, the admission phase, and the business phase - prior to admission. Once admitted, qualifying individuals will have access to the aforementioned resource for a specified tenure period and will eventually “graduate.” Companies working with the center have addressed such topics as gaming, e-commerce, and women’s issues. Sources: "About the Digital Content Incubation Center." QITCOM 2012. N.p., 2011. Web. Safla, Scheherazade. "A Call for Arabic Digital Content." TFOURME. N.p., 18 Nov. 2012. Web. . 6.5.4.2. Digital content promotion policies: “Digital content” is defined as the myriad of websites, applications, and services available to broadband users. It can be based on text, audio, video, or a combination. Much of the content available on websites today can be divided into three broad categories: (a) user generated, (b) proprietary or commercial, and (c) open source. User-generated content is produced within Internet-based platforms where users function both as consumers and as producers of content. Along these lines, consumers interact with one another instead of only dealing with site operators in a top-down fashion. User-generated content includes blogs, wikis, podcasts, Twitter updates, You-Tube videos, and Flickr photos. They can be produced within social and 211 professional networks, as well as reputational systems. For example, in the last three months of 2011, Facebook users collectively uploaded more than 250 million photos per day. This number broke down to approximately 7.5 billion monthly photos, or 3,000 photos every second. The social media site stores more than 100 petabytes, or 100 million gigabytes of photos and videos alone47These forms of social media help to drive broadband demand by engaging users and ensuring the local and personal relevance of content. Due to the “bottom-up” nature of social media, policy makers can support the development of such content by taking a more hands-off approach in regulating it. They can also promote such services by becoming active users of such applications and services; more and more government agencies and even politicians are realizing the value of such tools in reaching out to citizens (see the example of Twitter usage in Russia). As opposed to copyrighted materials, open-source content is available free-of-charge. In addition, the source code is also freely available to allow anyone wanting to incorporate the content or application into new forms of media, such as in mashups. Open-source content has led to the creation of property rights systems that encourage collaboration by publishing source code and allowing other users to extend those applications and develop them further, with the provision that the result should also be governed by the same open-source property rights. Box 6.5.20 – Digital Content Policy (Colombia) In 2011, Colombia’s ICT Ministry developed its Digital Content Policy, which aimed to increase its domestic sales from US$ 70 million to US$ 200 million by 2014. By encouraging the development of such products as smart phone applications, video games, and digital animations, policy makers hope that the country’s digital industry will serve as the regional leader in this area and attract higher levels of foreign investment. To enhance the resources available to the country’s professionals, entr epreneurs, and digital producers, MINTIC hosted Colombia 3.0, a non-profit initiative spanning three days. The conference aimed to gather industry leaders together to network, participate in conferences and workshops, and exchange ideas. In 2012, the ministry hosted Colombia 3.0 v.2, placing higher emphasis on technological innovation and the development of an interactive community while placing Colombia 3.0 in a position to serve as a single point of convergence amongst the international digital industry. In doing so, the conference will likely promote the industry and encourage outside investment while fostering an environment conducive to tech startups. The table bellow shows conference attendance in 2011and in 2012: 47 http://www.popphoto.com/news/2012/02/people-upload-average-250-million-photos-day-to- facebook 212 Sources: "Colombia 3.0, First National Summit of Entrepreneurs and Representatives of the Digital Content Industry in Colombia." Ministerio De Tecnologias De La Informacion y Las Comunicaciones, 30 Aug. 2011. Web. . "Colombia 3.0." N.p., n.d. Web. . Box 6.5.21 – Two Trillion and Twin Star Program (Taiwan) By 2001, Taiwan became one of the world’s largest producers of semiconductors and LCD technology. In an attempt to encourage the growth of this sector, in 2002, the Taiwanese government launched its Two Trillion and Twin Star program, investing in the country’s semiconductor industry as well as in the digital content industry. As a “rising star” industry, the government hoped that, in the future, digital would contribute an annual production value of more than US$ 30 billion. While the “Two Trillion” part of the plan referred to the growth of the semiconductor industry, the “Two Stars” part promoted the di gital content industry by encouraging Taiwanese companies to develop Chinese-language software and digital content. While the industry had the potential to grow and contribute positively to the country’s economy, policy makers feared that without additional investment to enhance infrastructure and R&D, China’s manufacturing and electronics sector could surpass Taiwan’s progress. This program spurred several digital content initiatives, many of which represented a partnership between government agencies and the private sector. The National Science Council sponsored 9 initiatives beginning in 2002, including the five-year National Digital Archives Program (NDAP). The program aimed to digitize collections from the country’s museums, libraries, and universities, covering such themes as anthropology, painting, Chinese classics, and maps. For instance, the project created a database of the collections featuring 60,000 digitized artifacts, calligraphic works, and paintings as well as 190,000 archived documents from the internationally renowned National Palace Museum. The public could then access this content online from anywhere in the world. The Two Trillion and Twin Star program also strived to “build both real and virtual industrial parks to promote the digital content industry, establish digital content colleges … and train new digital talents,” all of which were governed under the Digital Content Promotion Office. The government also established the Challenge 2008 National Development Plan, under which the Creative Industries Promotion Office designated 13 areas of interest, including digital games and entertainment, focusing on their potential to increase employment in the country. Similarly, the Development Fund Investment Plan for Digital Content, Software, and Cultural Creative Industries was established by the Executive Yuan to provide financial support for digital content projects. The fund totaled US$ 3 billion, 40% of which came from 213 the government. As part of the Two Trillion and Twin Star program, the Executive Yuan also offered tax breaks and incentives for digital content producers. Taiwan’s electronic publication and digital archives output value grew 45.23% from 2010 to 2011, reaching US$ 2.5 billion, and the digital content industry as a whole is expected to create new job opportunities, employing more than 70,000 citizens. The industry’s output value reached US$ 18 billion in 2010, and grew to US$ 20 billion in 2011. This figure is expected to top US$ 26 billion in 2013, in large part due to Taiwa n’s presence in the global mobile application industry. Many of these mobile apps work with electronic learning, entertainment, and gaming content. In 2011, the Industrial Development Bureau established the App Incubation Center, working with domestic companies to encourage development. The government hopes that such an initiative will bring the country to the head of the Chinese-language app creation industry, producing 20,000 apps a year. Sources: "Taiwan's Two Trillion, Twin Star (T3S) Plan." GLOCOM Platform. Japanese Institute of Global Communications, 6 Sept. 2002. Web. . Liu, Yu-li, and Eunice H. Wang. ".tw Taiwan." Digital Review of Asia Pacific 2007-2008. Ed. Felix Librero and Patricia B. Arinto. New Delhi, India: SAGE Publications, 2008. 304- 31. Print. "Taiwan's Digital Content Industry to Grow Larger on Mobile Apps." China Post. N.p., 17 July 2012. Web. . 214 6.6. LAUNCHING SERVICES TO DRIVE BROADBAND DEMAND As discussed above in chapter 6.4, broadband in itself is of little value in the absence of so-called complementary goods that confer value to such access. Examples of complementary dynamics in broadband adoption include applications and content that users value, and therefore should be attractive enough to encourage the purchase of the service. However, beyond applications and content, complementarity also exists with the services that enable access to the Internet as well as value added features that broadband operators include with the broadband subscription and that meet specific quality guidelines. The availability of such services is an important factor that influences and possibly drives demand. This level of demand, of course, will be affected, as discussed above, by the attractiveness and affordability of the service offerings. 6.6.1. Internet A broadband subscription provides a high-speed connection to the Internet. The way the subscription is provided can affect attractiveness and will depend on the technology and regulatory or business considerations. This includes whether the broadband subscription can be purchased on its own or requires a subscription to an underlying transport technology. For example, in the case of a digital subscriber line (DSL) broadband connection, a telephone line is required. Subscribers have typically been obligated to pay a monthly rental for the telephone line in addition to the broadband subscription even if they do not use the telephone line for anything else but broadband. This adds to costs and may require an extra bill, discouraging users from taking up the service. Some operators include the telephone line with the broadband subscription, so there is no separate bill. In a few countries, the cost of the physical broadband connection is billed separately from Internet access. In other words, the user needs to pay one bill for a broad- band connection and another bill for Internet access. Several factors make a broadband subscription more or less attractive to potential users. One important factor is speed. Although some consider all “always -on” subscriptions of at least 256 kilobits per second (Kbps) to be broadband, in practice, speeds must be above a certain threshold to use desirable applications such as video viewing or gaming. It is important to establish that download speed has a direct impact on the user experience. Table 6.33 presents the times required to download different types of content. Table 6.33. Time required to download content at different service speeds Content 56 kbps 256 kbps 2 Mbps 40 Mbps 100 Mbps Google home page 23 seconds 5 seconds 0,64 seconds 0.03 seconds 0.01 seconds 5 Mb Song 12 minutes 3 minutes 20 seconds 1 seconds 0.4 seconds 20 Mb video clip 48 minutes 10 minutes 1 minute 4 seconds 1.6 seconds CD 28 hrs. 6 hrs. 47 minutes 2 minutes 56 seconds DVD 1 week 36 hrs. 4.5 hrs. 13 minutes 5 minutes Source: Broadband Commission Report, June 2011 However, it is important to consider not all broadband users require fast download speeds. While a minimum speed is certainly desirable for all users to have a good 215 experience, beyond a certain point, desired download speeds depend on the content being downloaded. In study conducted by the United States Federal Communications Commission, broadband users were segmented into four categories according to the content being downloaded (see figure 6.37). Figure 6.37. Type of user (segmented by download speed) in 2009 8.0 7.0 7.0 6.0 5.0 4.0 3.0 4.0 2.0 0.8 1.0 0.5 1.0 0.8 0.8 0.3 0.3 0.0 0.2 0.2 0.2 0.5 Basic Multimedia Audiovisual Advanced content Email Browsing YouTube video Hulu Video-conference Source: Adapted from the FCC Report B b f OB h N .4” As the figure shows, a user that relies on email and accesses the Internet via a search engine would rarely require more than 512 Kbps. However, once the user begins to download audiovisual content (such as You Tube video clips), it might require 1 Mbps. In case downloading includes TV shows, the download speed required to have an appropriate experience increases to 4 Mbps. Obviously, if the user needs reach the levels od advanced videoconferencing, download speeds will reach 7 Mbps. In a typical developing country, one might observe that only 25% of users could be characterized as “multimedia”, thereby requiring only 1 Mbps. The problem is that the segmentation presented above is nothing but static. In fact, when assessing user behavior in terms of broadband consumption, one can observe that with more applications and content being available on the Internet, the higher the need for speed to confer an adequate experience. Furthermore, the faster speeds are offered, the more content is being downloaded. The same study conducted in the United States that segmented users by download speed observed the correlation between speed and content (see figure 6.38). 216 Figure 6.38. United States: Download speeds and content volume in 2009 14 Monthly Consump on (Average GB per 12 10 8 month) 6 4 2 0 0 2 4 6 8 10 12 14 Real download speeds (Mbps) Source: adapted from the FCC report B b f OB h N .4” In summary, a variety of offers with different speeds provides more choice to the user. Other factors to consider are restrictions that the broadband providers may impose on capacity (for example, data or usage caps). Some operators distinguish between domestic and international use by having no cap or a higher cap for traffic to national sites and a low cap for access to sites hosted abroad. One issue with caps is that users often do not understand the relation between volume and their usage needs. Users can easily underestimate how much data they will use, particularly if they access a lot of video services or use peer-to-peer download services (some of which may run in the background). This makes it difficult for them to know which package to select when packages vary by data caps. Some operators cap usage through time rather than data volume (for example, monthly subscription of 20 hours). These practices are more prevalent in mobile services, where “unlimited” offers (no download cap) are almost non-existent. Increasingly, governments are responding to data caps and “throttling” practices by requiring service providers to disclose their network management practices clearly, in order to protect consumers and improve the overall broadband. Regulators have also instituted other measures, such as monitoring quality of service and alerting users to sites where they can test their broadband connection for speed or throttling. 6.6.2. Voice Voice telephony continues to be a popular service, although it represents a declining share of revenue for public telecommunication operators. A growing number of broadband operators offer voice over broadband (VoB) service, which is a managed service (unlike voice over Internet Protocol, VoIP, which is generally considered as an application running “over the top” of the public Internet and not directly managed 217 by the network operator). VoB provides the same quality as a traditional fixed telephone and often provides other value added features such as call waiting, voice mail, and speed dialing as well as the ability for users to monitor these features online via the provider’s website. The price structure for VoB is often made attractive by including unlimited national calls for a flat rate or even including free national calls with the broadband service subscription. Since the service works through the broadband modem, users do not need to be connected to the Internet and do not even need a separate Internet subscription. Several regulatory issues are related to VoB. The most basic is whether or not a country’s laws and regulations allow it. Where VoB is legal, other regulatory considerations are often driven by the requirements placed on legacy wireline telephone networks. One is the requirement for users to be able to make emergency calls. Other regulatory requirements relating to consumers can include access for persons with disabilities and number portability. The latter can be influential in encouraging users to switch from traditional telephone services to VoB. 6.6.3. Video IP networks allow video services to be provided over a variety of networks. This has allowed broadband operators to provide Internet Protocol television (IPTV) or video on demand (VoD) services. The ability to provide IPTV, VoD, or both can make operators’ broadband services more attractive, especially when other features are included, such as access to special programming not available elsewhere. Television as a managed offering with a broadband subscription takes many forms. Some operators require IPTV to be bundled along with the broadband subscription, while others offer IPTV on a stand-alone basis. Others have developed more extensive video service offerings, including BT in the United Kingdom, which offers its Vision service, which seamlessly integrates free-to- air digital television programs with a digital recorder and VoD feature. Some operators provide additional features such as radio programming and the ability to watch programming on computers, tablets, and mobile phones in addition to the traditional television set. The ability to bundle television with broadband Internet service is often subject to technical and regulatory considerations. In the case of IPTV, users need to have a minimum bandwidth to use the service. Some countries require companies that provide television service to obtain permission or a specific type of license. Sometimes permission is required from local authorities. Conditions vary, but in general, television service is subject to a higher level of regulatory oversight than broadband service. Regulatory limitations have sometimes meant that operators can only provide delayed service rather than live programming, making their offer less attractive. 6.6.4. Bundling IP-based technology and digitalization of media allow a single network to provide a variety of voice, data, and video services. The ability to offer multiple services has led operators to bundle services together. This often includes a price reduction in the 218 total cost of the service (that is, the bundled prices is less than the cost of buying the same services individually) and the benefit of receiving just one bill. “Double play” refers to a combination of broadband Internet and some other service, “triple play” refers to the ability to provide three services, whereas “quadruple play” also includes mobile service. Bundling offers can be attractive to consumers because of their lower costs and a single invoice. However, some consumers may only want one service from a provider and therefore need to have an “a la carte” option and not be obligated to purchase additional services. In any case, a service provider that is only allowed to provide Internet access is at a disadvantage versus converged operators since consumers are increasingly interested in receiving multiple types of communication services offered through bundles. Service bundles are currently offered as a promotion to limit customer disconnects through temporary discounts. 219 6.7. BROADBAND, FIRMS AND EMPLOYMENT In the last few years, spurred by the economic crisis, many governments around the world have implemented programs aimed at deploying broadband in order to stimulate employment growth (see table 6.34). Table 6.34. Counter-cyclical government programs Country Broadband Focus United Launched the $7.2 billion Broadband Stimulus program focused on providing and States improving service to unserved and underserved areas Australia Government plans to spend A$ 11 billion of total A$ 43 billion required for construction of the National Broadband Network. Aims “to deliver broadband at speed of 100 Mbps to 90% of Australian homes, schools and business through fiber-optic cables connected directly to buildings.” The remaining 10% “would get a wireless upgrade.” Germany Government has announced a National Broadband Strategy with the objective to have nationwide capable broadband access (1 Mbps) no later than the end of 2010 and provide 75 percent of German households access to a broadband connection of at least 50Mbps by 2014 (estimated investment: Euros 36 billion) Sweden Broadband government promotion provides financial incentives to municipalities to fund 2/3 of total NGN investment (Euros 864 million) Colombia $ 290 million ($160 m for universal telephony, $50 m for ICT education, $30 m for Broadcasting, $30 m for computing education and $20 m for e-government) Portugal Government announced an 800-million-euro credit line for the rollout of NGAN. This is part of an the first step in a 2.18-billion-euro plan to boost the country's economy. The investment should allow country to reach 50% home broadband penetration by 2010. Aims to connect up to 1.5 mn homes and businesses to the new fiber networks and improve high-speed Internet, television, and voice services. The government will invest 322 million in a National Broadband Scheme aimed Ireland at completing country coverage Canada Has relied on four programs to promote broadband development resulting in an overall investment of C$ 300 million. Focus on extension of broadband coverage to all underserved communities. Finland Government funds one-third of the NGN project cost (S$ 130.73 m). The 7-year plan will “provide ultrafast speeds of at least one Mbps by 2010, with a ramp up to 100 Mbps by 2016. Includes households in rural areas.” New Government funds S$ 458,12m investment to boost fiber over the next five years Zealand France Estimated 10-year investment of US$ 13 billion. The plan will create 400 cyber bases in schools by 2012 and modernize schools that already have access. 4 million households will have ultra broadband through FTTH access. By the end of 2010, affordable broadband Internet will be available throughout the country. Japan Approximate US$ 370 million project. “Broadband infrastructure rollout plan for 220 the rural areas, in order to address the digital divide, and to enable broadband access for use by cable TV, telecenters, disaster prevention programs, etc.” Singapore The government announced a US$ 14.5 bn (6% of GDP) stimulus plan in 2009, with US$ 650 mn dedicated to funding the Intelligent Nation Masterplan, which includes NGN initiative. Aims a) to connect homes and offices to the country‘s ultra high- speed and pervasive Next Generation National Broadband Network by 2013 and b) for 60% of homes and offices to have access to this all-fiber network in 2 years. Republic of Won US$ 25 bn, US$940 mn from government. “High-speed Internet services to Korea be upgraded to 1 Gbps by 2012; existing communications networks to be enhanced to Internet Protocol (IP)-based systems; subscriber capacity on 3G broadband services to be increased to 40 million.” Expected to create 120,000 jobs. Spain US$ 118 mn to be spent on infrastructure measures. Aims to expand broadband in rural and isolated areas by focusing on centers with dispersed populations and extending the reach of trunk fiber-optics networks. Source: Compiled by the author, and Qiang, Christine Z. Broadband Infrastructure Investment in Stimulus Packages: Relevance for Developing Countries. Rep. N.p., 2010. Web. 12 Mar. 2013. . How should one assess broadband effect on employment? Should it be considered an infrastructure development project necessary to build a platform to foster long-term economic growth? Or, alternatively, should it be conceived as a short-term job- creation policy with only a speculative belief in its future employment multiplier effect? Obviously, either answer may be true. Nevertheless, it might be useful to understand how many jobs can be created by a broadband stimulus program, both in the short run (as a result of laying down fiber optics and erecting towers) and in the long run (as result of the potential innovations triggered by the deployment of a broadband highway that reaches all corners of the nation). In this context, it is important to differentiate between the two types of impact that broadband has on employment: jobs created to deploy the infrastructure, and network externalities that generate employment resulting from spill-overs. This chapter will review the evidence regarding the impact of broadband in terms of job creation. Differences will be made between the research focused on measuring the impact of broadband deployment programs (e.g. counter-cyclical impact of broadband network construction) and the spill-over effect that broadband can have in terms of generating employment across the economy once it is being deployed. 6.7.1. Broadband and job creation Broadband contribution to employment can be estimated both in terms of the direct impact resulting from network deployment (e.g. construction effect) and in terms of the indirect positive externalities derived from additional network coverage (e.g. network externalities). Each type of effect is comprised of three specific impacts (see table 6.35). 221 Table 6.35. Impact of broadband on employment Macro Specific Description Sectoral impact effects impact Direct jobs • Employment generated in the • Telecommunications short term in the course of technicians deployment of network • Construction workers facilities • Civil and RF engineers Indirect jobs • Employment generated in the • Metal products workers Construction short term in industries • Electrical equipment workers Effects supplying inputs to network • Professional Services deployment sectors • Induced jobs Employment created by • Consumer durables household spending based on • Retail trade the income earned from the • Consumer services direct and indirect effects Productivity • Improvement of productivity • Marketing of excess inventories as a result of the adoption of • Optimization of supply chains more efficient business processes enabled by broadband Innovation • Acceleration of innovation • New applications and services Network resulting from the (telemedicine, Internet search, e- Externalities introduction of new commerce, online education, broadband-enabled VOD and social networking) applications and services • New forms of commerce and financial intermediation Outsourcing • Attract employment from • Outsourcing of services other regions as a result of the • Virtual call centers ability to process information • Core economic development and provide services remotely clusters The following section will review the research conducted to date in assessing each type of effect. In addition, the section will present evidence of these specific effects in the context of developing nations. 6.7.1.1. Job creation through network construction Broadband network construction affects employment in three ways. In the first place, network construction requires the creation of direct jobs (such as telecommunications technicians, construction workers, and manufacturers of the required telecommunications equipment) to build the wireline and wireless network facilities. In addition, the deployment of broadband networks has an impact on indirect employment triggered by upstream buying of inputs required for broadband network construction (which creates employment in, for example, metal and electrical equipment manufacturing sectors). Finally, the household spending based on the income generated from the direct and indirect jobs created by network deployment induces employment throughout the economy. Input-output tables help calculating the direct, indirect, and induced effects of broadband network construction on employment. The interrelationship of these three effects can be measured through multipliers, which estimate how one unit change on 222 the input side (e.g. investment in network deployment) affects total employment change throughout the economy. Figure 6.39. Structure of Input-output table Output side (use side) Sector Input side Input-Output table End Gross domestic product (each column demand of the input-output matrix Volume of Goods reports the monetary value of an Broadband Employment and Goods/Sector industry's inputs and each row + = - = Investments Households stimulus represents the value of an production effects Imports Exports industry's output). Inputs plan State Inputs + Value added = Gross production + Imports = Volume of goods Source: Adapted from Katz (2008b) According to input-output economics, multipliers are of two types. Type I multipliers measure the direct and indirect effects (direct plus indirect divided by the direct effect), while Type II multipliers measure Type I effects plus induced effects (direct plus indirect plus induced divided by the direct effect). Six national studies have estimated the impact of network construction on job creation: Crandall et al. (2003), Katz et al. (2008b), Atkinson et al. (2009), Liebenau et al. (2009), Katz et al. (2009), and Katz et al. (2010). They all relied on input-output matrices and assumed a given amount of capital investment:  United States: US $ 63 billion needed to reach ubiquitous broadband service in this country (Crandall et al., 2003)  Switzerland: CHF 13 billion to build a national multi-fiber network for Switzerland (Katz et al. (2008b)  United States: US $ 10 billion invested in broadband as a counter-cyclical stimulus (Atkinson et al. (2009)  United States: US$ 6.4 billion invested in broadband as part of the Recovery Act voted by the US Congress in 2009 (Katz et al., 2009)  United Kingdom: US $ 7.5 billion for needed to complete broadband deployment in the United Kingdom (Liebenau et al. (2009)  Germany: 35.4 billion Euros to implement Germany’s National Broadband Strategy as well as an Ultra-broadband Scenario targeted for 2020 (Katz et al., 2010) Each study will be reviewed in turn. In 2003 Crandall et al. relied on the multiplier effects calculated by the Bureau of Economic Analysis, and concluded that US $63.6 billion of capital expenditures in broadband in the United States would trigger the creation of 61,000 jobs per annum. In addition, if investments were assigned to more advanced broadband platforms 223 (such as VDSL, or FTTx), the cumulative effect of current and new generation of broadband would result in an increase of 140,000 new jobs per year. By adding both effects, the authors concluded that universal broadband adoption would trigger the creation of 1.2 million jobs, (546,000 in network deployment and 665,000 generated in upstream industries.) In a similar vein, a study by Katz et al. (2008) estimated the impact of the deployment of a national FTTH network in Switzerland at a cost of CHF 13 Billion. Using national input-output tables from Eurostat, the authors estimated that deployment of such a network could generate 114,000 jobs, 83,000 in direct and 31,000 in indirect employment. The study did not estimate induced employment. Atkinson et al. (2009) also relied on input-output tables from the US Bureau of Economic Analysis to assess the employment impact of a $ 10 Billion investment in broadband infrastructure aimed at tackling the 2008 economic crisis. Their conclusion was that such an investment could create 64,000 direct jobs and 166,000 indirect and induced jobs. In a replication of Atkinson et al. (2009), Katz et al. (2009) estimated the jobs that could be generated as a result of the grants to be disbursed by the broadband provisions of the American Recovery and Reinvestment Act, published in February 13, 2009. The study differentiated between jobs generated through capital spending in the form of grants allocated to unserved/underserved areas, and employment created as a result of network externalities caused by the deployment of such an infrastructure. Using input-output analysis to estimate the direct, indirect and induced impact on jobs, the study found that approximately 127,000 jobs could be created over a four-year period from network construction. According to the analysis, the investment of $6.390 billion48 would generate 37,300 direct jobs over the course of the stimulus program (estimated to be four years). In addition, based on a Type I employment multiplier of 1.83, the bill could generate 31,000 indirect jobs. The split across sectors is presented in table 6.36. 48An estimate of funds dedicated primarily to broadband deployment, as opposed to ancillary activities such as broadband mapping. 224 Table 6.36. United States: Type I employment effects of Broadband Stimulus Bill Sectors Employment Electronic equipment 4,242 Direct Employment Construction 26,218 Communications 6,823 Subtotal 37,283 Distribution 9,167 Indirect Employment Other market/non-market 8,841 services Transportation 1,536 Electronic engineering 959 Metal products 1,839 Other 8,704 Subtotal 31,046 Total Type I Employment 68,329 Type I multiplier (Direct+Indirect)/direct 1.87 Source: Adapted from Katz et al. (2009a) Once the Type I employment was calculated, the Type II effect was estimated. As mentioned above, the Type II effect refers to employment generated as a result of household spending derived from the Type I one. In this case, the Type II multiplier (direct + indirect + induced jobs/direct jobs) was 3.42. The combination of direct (37,300), indirect (31,000) and induced jobs (59,500) yielded a total employment impact of 127,800 jobs over a four-year period. The average annual employment generation effect was estimated at 31,950 jobs per year. The investment multipliers for the United States broadband investment has been fairly consistent across research studies (see table 6.37). Table 6.37. United States: Comparative Investment Multipliers Katz et al. Atkinson Crandall (2009) et al. et al. (2009) (2003) Estimated Investment (all $ numbers in millions) $ 6,390 $ 10,000 $ 63,600 Network Employment Direct Jobs in equipment mfr, 37,300 63,660 546,000 construction effect construction and telecoms Indirect Jobs in other industries 31,000 effect caused by direct spending 165,815 665,000 Induced Jobs in all industries 59,500 effects Total jobs Type I and II 127,800 229,475 1,211,000 Multipliers Type I (Direct + indirect) /direct 1.83 multiplier Type II (Direct + indirect + 3.42 3.60 2.17 multiplier induced) / direct Source: Adapted from Katz et al. (2009a) 225 In other words, all three studies conducted to assess the employment contribution of a broadband construction program in the United States coincided in the magnitude of job creation. Differences only remained in the amount of capital to be invested. In a similar approach to the US studies, Liebenau et al. (2009) calculated the labor impact of implementing the "Digital Britain Plan” in the United Kingdom. According to this study, the investment required to implement such a program would be US $ 7.5 billion, which could generate 211,000 jobs (comprising 76,500 direct and 134,500 indirect and induced). Finally, Katz et al. (2010) estimated the employment impact of fulfilling the broadband deployment targets of Germany’s National Broadband Strategy and an assumed Ultra-broadband Plan to be implemented by 2020. The estimated 35 billion Euros would generate 304,000 jobs over five years. The primary sector benefited in terms of job creation would be construction with 125,000, followed by telecommunications (28,400) and electronics equipment manufacturing (4,700). Total indirect jobs generated by sector interrelationships measured in the input/output matrix would be 71,000. The key sectors benefited from the indirect effects are distribution (10,700), other services (17,000) and metal products (3,200). Finally, household spending generated directly and indirectly, will result in 75,000 induced jobs. Based on these estimates, the Type I multiplier for employment would be 1.45 while the Type II would be 1.92. Additionally, the implementation of the expected ultra-broadband evolution would generate 237,000 incremental jobs between 2015 and 2020. Similar to the breakdown reviewed above, this figure would comprise 123,000 in direct jobs, 55,000 indirect jobs and 59,000 in induced jobs. Table 6.38. Germany: Total Employment impact of Broadband Network Construction Type of Impact 2014 National 2020 Ultra Total Broadband Strategy broadband Direct effect 158,000 123,000 281,000 Indirect effect 71,000 55,000 126,000 Induced effect 75,000 59,000 134,000 Total 304,000 237,000 541,000 Type I multiplier 1.45 1.45 Type II multiplier 1.92 1.93 Source: Katz et al. (2010) As in the other studies, the German case concluded that the labor intensive nature of broadband deployment determines that the construction jobs to be created are significant and, despite the high technology nature of the ultimate product, broadband is to be seen as economically meaningful as conventional infrastructure investment such as roads and bridges. To summarize, all studies that have relied on input-output analysis have calculated multipliers, which measure the total employment change throughout the economy resulting from the deployment of a broadband network. Beyond network construction (direct employment), broadband construction has two additional employment effects. Network deployment will result in indirect job creation (incremental employment 226 generated by businesses selling to the sectors that are directly involved in network construction) and induced job creation (additional employment induced by household spending of the income earned from the direct and indirect effects) (see table 6.39). Table 6.38. Broadband Construction Impact on Job Creation Country Study Objective Results Crandall Estimate the employment impact  Creation of 140,000 jobs per year et al. of broadband deployment aimed at over ten years (2003) increasing household adoption  Total jobs: 1.2 million (including United from 60% to 95%, requiring an 546,000 for construction and 665,000 States investment of US $ 63.6 billion indirect) Atkinson Estimate the impact of a US $10  Total jobs: 180,000 (including et al. billion investment in broadband 64,000 direct and 116,000 indirect (2009) deployment and induced Katz et al. Estimate the impact of US$ 6.4  Total jobs: 127,000 jobs (2009) billion invested in broadband as (comprising 37,300 direct and part of the Recovery Act voted by 31,000 indirect jobs) the US Congress in 2009 Katz et al. Estimate the impact of deploying a  Total jobs: 114,000 over four (2008b) national broadband network years (including 83,000 direct and Switzerland requiring an investment of CHF 13 31,000 indirect) billion United Liebenau Estimate the impact of investing  Total jobs: 211,000 (including et al. US $ 7.5 billion to achieve the 76,500 direct and 134,500 indirect Kingdom (2009) target of the "Digital Britain" Plan and induced) Katz et al. Estimate the impact of investing  Total jobs: 541,000 (comprising (2010) 35.4 billion Euros to implement 281,000 direct, 126,000 indirect, Germany Germany’s National Broadband and 134,000 induced jobs Strategy as well as an Ultra broadband Scenario targeted for 2020 Source: compiled by the author Cognizant that multipliers from one geographic region cannot be applied to another, it is useful to observe the summary results for the multipliers of the four input-output studies. 227 Table 6.40. Employment Multiplier Effects of Studies relying on Input-Output Analysis Country Study Type I Type II Crandall et al. (2003) N.A. 2.17 EE.UU. Atkinson et al. (2009) N.A. 3.60 Katz et al. (2009) 1.83 3.42 Switzerland Katz et al. (2008) 1.38 N.A. United Kingdom Liebenau et al. (2009) N.A. 2.76 Germany Katz et al. (2009) 1.45 1.93 Note: Crandall et al. (2003) and Atkinson et al. (2009) do not differentiate between indirect and induced effects, therefore we cannot calculate Type I multipliers; Katz el (2008b) did not calculate Type II multiplier because induced effects were not estimated . Source: Adapted from Katz (2009a) As mentioned above, according to the sector interrelationships depicted above, a European economy appears to have lower indirect effects than the US. Furthermore, the decomposition also indicates that a relatively important job creation effect occurs as a result of household spending based on the income earned from the direct and indirect effects. The induced effects are very large. While input-output tables are reliable tools for predicting investment impact, two words of caution need to be given. First, input-output tables are static models reflecting the interrelationship between economic sectors at a certain point in time. Since those interactions may change, the matrices may lead us to overestimate or underestimate the impact of network construction. For example, if the electronic equipment industry is outsourcing jobs overseas at a fast pace, the employment impact of broadband deployment will diminish over time and part of the counter- cyclical investment will "leak" overseas. Second, it is critical to break down employment effects at the three levels estimated by the input-output table in order to gauge the true direct impact of broadband deployment. Having said that, all these effects have been codified and therefore, with the caveat of the static nature of input- output tables, we believe that the results are quite reliable. These studies have provided the theoretical framework and tools to estimate the overall job impact of broadband-enabled counter-cyclical programs. For example, In 2010, Australia embarked on the construction of a National Broadband Network with a total funding estimated at AUD40.9 billion over 8 years to build and operate a new open access wholesale network. The plan will support up to 25,000 jobs over the life of the project. Funding will initially come from government, which will contribute equity of AUD27.5 billion, with other funding expected to come from operational earnings and private debt. In 2015, the wholesale network provider (NBN Co) will begin raising funds through capital markets, with an estimated AUD13.4 billion expected to be needed to finance the project. 6.7.1.2. Broadband spillovers on business expansion and innovation Beyond the employment impact of network construction, researchers have also studied the impact of network externalities on job creation variously categorized as 228 "innovation", or "network effects"49. Once deployed extensively, broadband becomes a “general purpose technology” with the power to facilitate growth and innovation throughout the economy. The study of network externalities resulting from broadband penetration has led to the identification of numerous effects:  New and innovative applications and services, such as telemedicine, Internet search, e-commerce, online education and social networking50  New forms of commerce and financial intermediation51  Mass customization of products52  Marketing of excess inventories and optimization of supply chains53  Business revenue growth54  Growth in service industries55 The results of microeconomic research have been utilized to estimate the impact of broadband on job creation. For example, Fornefeld et al., (2008) identified three ways that broadband impacts employment: first, the introduction of new applications and services causes acceleration of innovation in terms of creation of new ventures and natural business expansion requiring additional workers; second, the adoption of more efficient business processes enabled by broadband increases productivity, which in term, tends to reduce employment; and third, the ability to process information and provide services remotely makes it possible to attract (or loose) employment from other regions through outsourcing. According to Fornefeld et al. (2008), these three effects act simultaneously, whereby the productivity effect and potential loss of jobs due to outsourcing are neutralized by the innovation effect and gain of outsourced jobs from other regions. Figure 6.38. Network effects of broadband on employment e-business + Macro- impact on firm economic - + productivity productivity Incremental + Enhanced + Impact on broadband + innovation employment penetration + -/+ Outsourcing of Displacement to services service sector + Note: This causality chain was adapted from a model originally developed by Fornefeld et al., 2008 in a report for the European Commission. 49 Atkinson et al., 2009 50 Op. cit. 51 Op. cit. 52 Op. cit. 53 Op. cit. 54 Varian et al., 2002); Gillett et al, 2005 55 Crandall et al. (2007) 229 Thus, according to the authors, the negative effect of broadband productivity is compensated by the increase in the rate of innovation and services, thereby resulting in the creation of new jobs. The third effect may induce two countervailing trends. On the one hand, a region that increases its broadband penetration can attract employment displaced from other regions by leveraging the ability to relocate functions remotely. On the other hand, by increasing broadband penetration, the same region can lose jobs by virtue of the outsourcing effect. While we are gaining a better understanding of these combined "network effects", the research is still at its initial stages of quantifying the combined impact. The study by Fornefeld et al. (2008) is probably the first attempt to build a causality chain. It applies ratios derived from micro-economic research to estimate the combined impact of all effects, rather than conducting aggregate econometric analysis of historical data. Most of the research regarding the impact of broadband externalities on employment has been conducted using US data. There are two types of studies of these effects: regression analyses and top down multipliers. The first ones attempt to identify the macro-economic variables that can impact employment 56, while the second ones rely on top-down network effect multipliers. Among the econometric studies of employment impact, are Gillett et al. (2006), Crandall et al. (2007), Shideler et al. (2007) and Thompson and Garbacz (2008). Relying on standard regression analysis, a team of MIT and Carnegie Mellon researchers57 conducted a study that sought to measure the impact of broadband on a number of economic indicators including employment. Initially, the study tried to estimate the relationship between broadband and employment at the state-level. However, it concluded that data at this level of aggregation did not permit observation of any measurable impact. It was only when they turned to the zip code level that a positive impact of broadband was observed: the availability of residential broadband added over 1.5% to the employment growth rate in a typical community58. Crandall et al. (2007) relied on the same methodology to conduct a study focused on the effects of broadband on output and employment for the 48 US states. The conclusion of their multivariate regression analysis was that "for every one percentage point increase in broadband penetration in a state, employment is projected to increase by 0.2 to 0.3 percent a year (…) (an increase of about 300,000 jobs, assuming the economy is not already at "full employment"). Shideler et al. (2007) analyzed the relationship between broadband saturation and employment growth in counties of the US state of Kentucky. The authors found that the coefficient on broadband saturation is positive and statistically significant on aggregate county employment in several industrial sectors (details below). It ranged from 0.14% to 5.32% for each 1% incremental broadband penetration. Finally, Thompson and Garbacz (2008) employed a stochastic-frontier production function to measure the direct and indirect impact of broadband penetration on the 56 In general, studies based on regression analysis do not differentiate between construction and spill-over effects. 57 Gillett, et al., 2006 58 Because of their approach, the researchers did not differentiate between job effects (network construction vs. utilization). 230 GDP 48 US states. While they found that employment in certain industrial sectors tends to grow with broadband penetration, they also pointed that broadband deployment may cause a substitution effect between capital and labor. To sum up, after examining the conclusions of the regression studies, the evidence regarding broadband employment externalities appears to be quite conclusive (see table 6.41). Table 6.41. Research results of Broadband Impact on Employment in the United States Study Data Effect Crandall et al. 48 States of US for For every 1 % point increase in broadband (2007) the period 2003-2005 penetration in a state, employment is projected to increase by 0.2 to 0.3 percent per year "assuming the economy is not already at 'full employment'" Thompson and 46 US States during Positive employment generation effect Garbacz (2009) the period 2001-2005 varying by industry Gillett et al. Zip codes for the US Broadband availability increases (2006) for the period 1999- employment by 1.5% 2002 Shideler et al. Disaggregated county An increase in broadband penetration of 1% (2007) data for state of contributes to total employment growth Kentucky for 2003-4 ranging from 0.14% to 5.32% depending on the industry Source: Compiled by the author According to this research, the impact of broadband on employment creation appears to be positive. However, as the data indicates, the impact on employment growth varies widely, from 0.2 % to 5.32 % for every increase in 1% of penetration. There are several explanations for this variance. As Crandall indicated, the overestimation of employment creation in his study is due to employment and migratory trends, which existed at the time and biased the sample data. In the case of Gillett et al. (2006), researchers should be careful about analyzing local effects because zip codes are small enough areas that cross-zip code commuting might throw off estimates on the effect of broadband. For example, increased wages from broadband adoption in one zip code would probably raise rent levels in neighboring zip codes prompting some migration effects. Finally, the wide range of effects in the Shideler et al. (2007) study is explained by the divergent effects among industry sectors (see below). Beyond regression studies, "network effect" multipliers have been used to assess the impact of broadband on job creation in a top down fashion. Within this group, key studies are Pociask (2002), Atkinson et al. (2009) and Liebenau et al. (2009). Pociask (2002) and Atkinson et al. (2009) studies relied on an estimated "network effect" multiplier, which is applied to the network construction employment estimates. For example, Pociask relied on two multiplier estimates (an IT multiplier of 1.5 to 2.0 attributed to a think tank and another multiplier of 6.7, attributed to Microsoft) and calculated an average of 4.1. Similarly, Atkinson et al. (2009) derived a multiplier of 1.17 from Crandall et al. (2003). Though the top-down approach allows estimation of the broadband impact, it does not have a strong theoretical basis. Network effects are 231 not built on interrelationships between sectors. They refer to the impact of the technology on productivity, employment and innovation by industrial sector. Beyond aggregate estimates indicating positive externalities of broadband, disaggregated effects are more complex. For example, a study by Katz et al. (2010) on the broadband externalities of Germany’s National Broadband Strategy found that, while the positive effects on employment and economic output resulting from enhanced productivity, innovation and value chain decomposition are significant throughout Germany; the job impact of broadband tends to vary over time and by region. By splitting the German territory into two groups, counties with 2008 average broadband penetration of 31 % of population and counties with average broadband penetration of 24.8 %, the analysis determined that the type and pattern of network effects of broadband varies by region. In high broadband penetrated counties the short-term impact of the technology is very high both on GDP and employment, but it declines over time. This "supply shock" is believed to occur because the economy can immediately utilize the new deployed technology. Furthermore, the fact that employment and GDP grow in parallel indicates that broadband has a significant impact on innovation and business growth, thereby overcoming any employment reduction resulting from capital/labor substitution effects. On the other hand, in counties with low broadband penetration the impact of broadband on employment is slightly negative in the initial years. Negative initial employment growth appears to indicate that the productivity increase resulting from the introduction of new technology is the most important network effect to begin with. However, once the economy develops, the other network effects (innovation and value chain recomposition) start to play a more important role, resulting in job creation 59 . Therefore broadband deployment in low penetrated areas will likely generate high stable economic growth ("catch up" effect) combined capital/labor substitution, which initially limits employment growth ("productivity" effect). Figure 6.41 presents in conceptual fashion a comparison of impact in both regions. 59 This said, the available data sets do not enable us to test this last point at this time. 232 Figure 6.41. Conceptual view of comparative broadband regional effects60 High Broadband Penetration Landkreise Low Broadband Penetration Landkreise HI GDP HI GDP Economic Impact Economic Impact Employment Employment LO LO T+1 T+2 T+3 T+4 Increase in T+1 T+2 T+3 T+4 BB Increase in penetration BB penetration • High economic growth initially, • High stable economic growth (“catch diminishing over time (“supply shock” up” effect) effect) •Capital/labor substitution limits • New Economic Growth (innovation, employment growth (“productivity new services) effect”) Source: Adapted from Katz et al. (2010a) The finding conceptualized in figure 6.39 is consistent with Lehr et al. (2005) and Thompson et al. (2005) finding that there is a short-term negative impact of broadband on employment due to process optimization and capital-labor substitution. However, the German evidence appears to point out that the short-term negative effect is limited to low broadband penetration geographies. These differentiated effects are critical in generating evidence regarding job creation of broadband in rural areas. The results of the research appear to be mixed in this regard. In the first place, in response to the argument that broadband deployment in rural areas stimulates the relocation of establishments to those areas and therefore create jobs, evidence indicates that relocation as a result of broadband tends to occur to the suburban peripheries of metropolitan areas rather than the strictly rural geographies (Katz et al., 2011). Furthermore, research also indicates that the jobs created in the periphery are jobs lost in metropolitan areas (“job cannibalization” effect), which means that no additional jobs are created. For example, Lehr et al. (2005) assessed a district-level (zip-code) panel of data on broadband deployment in the United States and concluded that zip codes with broadband experienced faster job growth rate (1% to 1.4%) between 1998 and 2002, experienced faster growth in business establishments (0.5% to 2.2%), and a favorable shift in the mix of business toward higher value-added ICT intensive sectors (0.3% to 0.6%). In response to this finding, some economists argue that, “job cannibalization” resulting from firm relocation triggered by broadband technology yields equilibrium in labor markets (and therefore has a positive contribution). Secondly, research indicates that job effects of broadband in rural areas are highly dependent on industrial sectors. As we will show below, job creation effect in metropolitan peripheries is present in wholesale trade and financial services, while 60 Only effects up to t + 3 are estimated. 233 broadband-induced employment growth in rural areas is only significant in retail trade, and health services. In sum, the employment impact of broadband by geography appears to indicate the existence of multiple effects at work (see figure 6.42). Figure 6.42. Geographic impact of employment triggered by broadband deployment 6.7.1.3. Broadband and employment in developing countries Beyond the studies conducted in mature economies, the aggregate impact of broadband on employment has begun to be studied in emerging countries as well. For example, Katz (2012) constructed a cross-sectional sample for the 27 Brazilian states similar to that one utilized by Katz et al (2010a) for Germany, where the dependent variable was the rate of change of unemployment: Table 6.42. Brazil: Variables utilized to estimate the impact of broadband on job creation Variable Series Source Observations Change of Change in IBGE Dependent variable unemployment rate unemployment rate (2006-7) Control for level of GDP per capita IBGE Variable to determine the point development (2003) of departure of state economic growth Growth in household Growth rate in Household Independent variable broadband penetration broadband penetration survey (2005-6) (IBGE) Control for human Years of schooling IBGE Variable to differentiate the level capital of human capital by state Control for population Population growth IBGE Variable to differentiate the level growth (2006-7) of population growth by state Source: Adapted from Katz (2010b) 234 The results of the model are as follows (see table 6.43) Table 6.43. Brazil: Impact of Broadband on Job creation Unemployment Rate Coefficient Standard T-statistic P>[t] error Control for level of state -.0449 .0259 -1.73 0.098 economic development Growth in household -.0069 .0036 -1.94 0.066 broadband penetration Control for human capital .1095 .0940 1.17 0.256 Control for population growth .2009 .1213 1.66 0.112 Constant -.1925 .5035 -0.38 0.706 Number of 27 observations F(4,22) 3.76 Prob>F 0.0178 R2 0.4058 Root MSE 0.27016 Source: Adapted from Katz (2010b) However, the relationship between the rate of change of unemployment rate and the rate of change in broadband penetration is significant and with the expected negative sign. According to the model results, a change of 10% in broadband penetration could reduce the unemployment rate by 0.06 percentage points. On the other hand, it is counterintuitive that the difference in schooling years and population growth are not statistically significant in explaining the differences in the level of unemployment across regions. The availability of an extensive database of quarterly data for Chile allowed the development of a panel of time series data for each of Chile's administrative regions. This database was constructed by compiling data for each of Chile's regions (except for the Metropolitan Region due to the lack of quarterly data) from 2001 until the fourth quarter of 2009. The dataset contains the following information: 235 Table 6.44. Chile: Variables used to estimate the broadband impact on job creation Variable Series Source Observations Employment Quarterly employment Regional Institutes of Dependent rate (2002-9) Statistics variable Control for level Quarterly Index of Regional Institutes of of economic economic activity (2001- Statistics activity by region 9) Growth in Quarterly growth in Subtel Independent broadband broadband penetration variable penetration (2002-9) Human Capital Schooling Years Employment Survey, Independent (population 15 years old INE variable and older) Dominant Contribution of the Central Bank of Chile Variable to control Sectors mining and financial for regional sector to regional GDP specialization in (2002-2008) dominant economic activities Dynamic Sectors Contribution of the Central bank of Chile Variable to control agricultural and trade for regional sector to regional GDP specialization in (2002-2008) dynamic economic activities Source: Katz (2010) A model including level of economic activity and broadband penetration was specified. In addition, an alternative model was proposed aimed to study possible effects of human capital and specialization on the level of employment. According to the methodology used, other specific characteristics of each region that could have an impact on the labor market are controlled by the fixed effects of the panel data. Thus, the model results are as follows (see table 6.45). Table 6.45. Chile: Broadband impact on job creation Employment Model 1 Model 2 rate Coefficient t-statistic Coefficient t-statistic Level of economic 0.0003 5.90 0.0003 5.72 activity by region Growth in broadband 0.1812 3.85 0.1774 2.56 penetration Human Capital -0.0042 -1.87 Dominant Sectors -0.0013 -1.66 Dynamic Sectors 0.0017 1.27 Constant 0.8682 109.03 0.9138 25.95 236 Model 1 Model 2 number of 324 number of 276 observations observations F(2,310) 60.89 F(5,259) 20.78 Prob>F 0.0000 Prob>F 0.0000 R2 0.2820 R2 0.2863 F(11,310) 33.89 F(11,259) 24.41 Prob>F 0.0000 Prob >F 0.0000 Source: Katz (2010) The economic activity variable remained unaltered between the two specifications; in both cases it was significant and positive. The coefficient of broadband penetration is significant61 and positive in both specifications. The small variation between the two specifications suggests that the contribution of 1 percentage point in broadband penetration would contribute nearly 0.18 percentage points to the employment rate. An interesting result on the second specification was the coefficient of human capital, which resulted significant at the 10% level and with a negative sign. Contreras at al (2008) argues that this result is mostly explained by the impressive increment in the years of schooling of the population in one generation and the entrance of women to the labor force.62 A model similar to one constructed for Germany was developed by Katz et al. 92011) for Colombia. In this case, growth of the employment rate was studied in relation to the increase in broadband access lines, controlling for population growth and economic development. The model was specified both for the whole country and for departments with high and low broadband penetration. 61 It was significant at the 1% level on the first specification and at the 5% level on the second one. 62 According to Contreras, et al (2008), women were educated but were not part of the labor force. As more women entered the labor force the average schooling years of the population increased but also increased the number of women unemployed looking for jobs. 237 Table 6.46. Colombia: Impact of increase in broadband penetration on job creation Growth of employment rate (%) Dependent variable: growth of employment rate (2006-10) Independent variables: growth in broadband connections (2006-2010), population growth (2006-2010), GDP 2003 Total Low Penetration High Penetration Growth in broadband connections (%) 0,0003 *** 0,0003 ** 0,0006572 (0,0001359) (0,0001547) (0,0005495) Population growth (2006-2010) (%) 0,0160 -0,2539 0,5937073 * (0,5114836) (0,7899623) (0,3761862) GDP 2003 (in million pesos) 0,0053 -0,1085 0,0003309 (0,0077051) (0,1308956 ) (0,0090124) 2 R adjusted 0,0110 0,0318 0,0338 Prob > F 0,0730 0,0321 0,4351 Number of observations 132 64 68 Note: Low penetration departments refers to administrative districts whose broadband penetration is lower than the country mean, while high penetration refers to departments whose broadband penetration is higher than the country mean. Source: Katz y Callorda (2011). Symbols ***, ** and * indicate statistical signifance at 5%, 10%, and 15% respectively .- In these models, the broadband contribution to job creation is significant at the national level and for the low penetrated departments; in the highly penetrated departments, statistical significance is only 24%. On the other hand, population growth appears to have an effect only in high penetration departments (with a positive coefficient). This could be explained by the fact that in highly penetrated departments it is easier to be placed in the labor market, according to the innovation effect reviewed above. Finally, Katz (2012) conducted a study on job creation in the Dominican Republic, relying on panel data for the country’s 32 provinces. Contrary to the Chilean and Colombian models, the objective in this case was to study broadband contribution to the reduction of unemployment. The results in this case exhibit high impact. An increase in broadband penetration of 1% reduces unemployment in 0.29 percentage points. The other variables affecting unemployment in an indirect fashion are, as expected, the change in the number of industrial establishments, and the growing importance of the construction sector. 238 Table 6.47. Dominican Republic: Impact of Growth in Broadband penetration on unemployment reduction Unemployment Coefficient Standard T- P>t 95% Confidence Growth error statistic interval Population growth 0,7244 0,24939 2,90 0,0070 0,21180 1,23704 Change in Broadband –0,2953 0,13290 –2,22 0,0350 –0,56846 –0,02211 penetration Change in number of –0,1496 0,04728 –3,16 0,0040 –0,24678 –0,05241 establishments Value of construction 0,6946 0,14588 4,76 0,0000 0,39469 0,99443 sector 2009 Change in value of –0,6430 0,12787 –5,03 0,0000 –0,90583 –0,38015 construction 2008-9 Constant 0,7432 0,37360 1,99 0,0570 –0,02477 1,51111 Number of observations 32 F(5,26) 12,70 Prob>F 0,0000 R2 0,4175 Source: Katz (2012) According to Table 6.44, an increase in broadband penetration of 1 per cent would diminish unemployment in 0.29 percentage points. For example, if the unemployment rate were to be 14 per cent, an increase of 1 per cent in broadband penetration would contribute to a reduction of unemployment to 13.71 per cent. The other variables that indirectly affect unemployment are, as expected, number of establishments between 2008 and 2009, and the intensity of the construction sector in a specific area in 2009. Therefore, a combination of increase in the number of establishment, investment in construction and broadband yields a positive effect in terms of job creation. It is considered that the contribution of broadband relative to the other two variables is too high. Part of this is due to the fact that the largest increase in broadband has taken place in Santo Domingo, the capital, and Altagracia, a tourism hub. Ideally, to refine the impact of broadband it would be necessary to include in the model specification a variable related to the intensity of the tourism sector. However, while data exists for three regions, Altagracia, Puerto Plata and Cibao Norte, data for the rest of the country is not captured. Therefore, it is impossible to introduce a variable measuring the intensity of tourism. As a result, the case confirms the contribution of broadband to job creation, although the range of impact might be overestimated. The results of the analyses also lead to validate the positive contribution of broadband to employment creation for less developed countries and regions. The following chart compiles the results of the existing literature (see table 6.48). 239 Table 6.48. Comparative estimate of broadband impact on employment growth Study Region Impact on job creation for Observations / Country each incremental 1% in rate of growth of broadband penetration Employment Unemployment Katz (2012) Brazil -.00691  Statistically significant coefficient (t-statistic=-1.94)  27 observations Katz (2010) Chile .00181  Statistically significant coefficient (t-statistic=3.85)  324 observations Katz and Callorda Colombia .00030  Satistically significant (2011) coefficient  132 observations Katz (2012) Dominican -0.29529  Statistically significant Republic coefficient (t-statistic=-2.22)  32 observations Source: Author In this case, all prior research and as well as the results of this study coincide that broadband has a positive impact on job creation. In particular, the Chilean and the Colombian cases, which are based on an extensive datasets, yield statistically significant positive coefficients. The other cases (Brazil and Dominican Republic) have also yielded statistically significant coefficients for the explanatory variable (broadband penetration) with sensible signs—positive when the independent variable is employment and negative when it is unemployment. While these studies are country-specific and cannot be applied directly to other nations, they provide an estimate of the potential employment gains that could result from effective broadband development. The positive relationship between broadband development and job growth is not in question. However, the magnitude of the impact should be the subject of further analysis, as the present studies are compiled using different methodologies and data samples. Coincident with these empirical studies, governments in the emerging world have begun to estimate the employment impact of broadband development programs. For example, the Malaysian Communications and Multimedia Commission (MCMC) estimated in 2008 that achieving 50 percent broadband penetration by 2010 could create 135,000 new jobs in the country. The MCMC further projected that the number of jobs created would reach 329,000 by 2022, based on 50 percent broadband penetration rate. 6.7.2. Broadband, productivity and firm efficiency Converging with the aggregate macro-economic research, the microeconomic analysis of the impact of broadband has helped understand the multiple effects that the technology has on firm performance. For example, several studies have been conducted to determine the relationship between broadband and productivity. Atrostic and Nguyen (2006) analyzed the productivity of 25,000 manufacturing plants according to data compiled by the US Census Bureau. They found a correlation in the range of 3.85 % and 6.07 % between intense use of business processes enabled by the 240 introduction of broadband and labor productivity. A similar methodology was applied by Rincón-Aznar et al. (2006). The authors relied upon a database of enterprises using e-Business, which was compiled by the UK National Institute of Economics and Social Research. They found that the average impact of such processes (enabled by broadband access) resulted in 90% of firms in the service sector improving their productivity by 9.8%. The researchers also found that productivity improvement tends to be higher in certain segments of the service sector. These results are consistent with the analysis of the e-Business watch survey, which determined that e-Business productivity gains depend on the industrial sector. The variable found to better explain the amount of broadband impact is the level of information-intensity of business functions. Based on this conclusion, Fornefeld et al. (2008) in a study commissioned by the European Commission estimate that broadband increases productivity of information-intensive firms by 20%. To summarize, microeconomic research has yielded the following estimates of firm productivity enhancement (see table 6.49). Table 6.49. Broadband-induced Productivity Improvement Industrial Study E Business Share of Informational Sector Impact on Firm activities that involve Productivity external parties Manufacturing Atrostic and ~5 % ~25 % Nguyen (2006) Services Rincón-Aznar et ~ 10 % ~50 % al. (2006) Information Fornefeld et al. ~ 20 % 100% (2008) Source: Fornefeld et al. (2008) In addition to the impact on productivity, other microeconomic studies have focused on the impact of broadband technology on business expansion, product innovation and new business creation. With regards to business expansion, Clarke (2008) studied the impact of broadband access on exports of manufacturing and service firms. The analysis was performed for countries of medium and low levels of development in Eastern Europe and central Asia. The study controlled for variables such as firm size, industrial sector, foreign ownership, firm performance, level of domestic competition, international trade organization affiliation, progress in privatization, and telecommunications infrastructure. The author found that in the manufacturing sector firms with Internet access enabled by broadband generate 6% more foreign sales than the rest. In the service sector, broadband enabled firms generate between 7.5 % and 10 % more sales. In addition to increasing exports, broadband has been found to have a positive impact on the development of new businesses. This results from the network effects of connectivity. When a large enough number of households are connected to broadband, the incentive to develop new businesses around information search, advertising and electronic commerce increases. For example, Crandall et al. (2007) estimate that the network effects of universal broadband access can have a multiplier of 1.17 on the investment in infrastructure. As a result of 40% lower broadband 241 penetration in the United Kingdom, Liebenau et al. (2009) estimate the multiplier to be somewhat lower (0.33) for the British economy 6.7.3. Industrial sectors most impacted by broadband As with output, the spill-over employment effects of broadband are not uniform across sectors. Two studies have identified differential levels of impact. According to Crandall et al. (2007), the job creation impact of broadband tends to be concentrated in service industries, (e.g., financial services, education, health care, etc.) although the authors also identified a positive effect in manufacturing (see table 6.50). Table 6.50. United States. Coefficient of Broadband Penetration in Employment Growth by Sector (with significance at the 5% and 1% confidence level) Sector Employment 2005-4 Employment 2005-3 Coefficient t-statistic Coefficient t-statistic Manufacturing 0.371 2.46 0.789 2.59 Educational Services 2.741 2.73 4.054 3.25 Health Care 3.369 2.50 0.656 2.51 Accommodation and Food Services 0.284 2.12 N.A. Finance and Insurance N.A. 1.043 3.09 N.A. Statistically not significant Source: Crandall et al. (2007) In another study, Shideler et al. (2007) found that, for the state of Kentucky, county employment was positively related to broadband adoption in the following sectors (see table 6.51). Table 6.51. Kentucky: Differential impact of broadband by Industry sector Sector 95% Confidence Interval Aggregate 0.14 5 - 5.32 % Construction 0.62 % - 21.76 % Information 25.27 % - 87.07 % Administrative 23.74 % - 84.56 % Source: Shideler et al. (2007) The only sector where a negative relationship was found with the deployment of broadband (0.34 % - 39.68 %) was the accommodations and food services industry. This may result from a particularly strong capital/labor substitution process-taking place, whereby productivity gains from broadband adoption yields reduced employment. Crandall et al. (2007) also found a negative relationship for the Arts, Entertainment & Recreation sector, although it was not statistically significant. Similarly, Thompson and Garbacz (2008) concluded that, for certain industries, "there may be a substitution effect between broadband and employment" 63 . It should therefore be considered that the productivity impact of broadband can cause capital- labor substitution and may result in a net reduction in employment. 63 This effect was also mentioned by Gillett et al. (2006). 242 In summary, research is starting to pinpoint different employment effects by industry sector. Broadband may simultaneously cause labor creation triggered by innovation in services and a productivity effect in labor-intensive sectors. However, we still lack a robust explanation of the precise effects by sector and the specific drivers in each case. However, given that the sectoral composition varies by regional economies, the deployment of broadband should not have a uniform impact across a national territory. 6.7.4. Broadband and enterprise relocation Enterprise geographic strategies are determined by several objectives, not all consistent. At the most basic level, firms define their location as a function of a market they want to serve. Closeness to the target market allows better understanding of customer needs and faster responsiveness to environmental changes. At the same time, firms need to consider in their location strategy an optimal approach to accessing a valuable resource (labor, raw materials). Closeness to the supply input builds competitive advantage (also called static arbitraging). Finally, firms tend to cluster in certain geography as a way of lowering transaction costs. While counterintuitive (since competitors in a common cluster might fight for inputs and talent), the need to trade among themselves for inputs, and attracting the investment of suppliers makes it highly convenient to collocate. Meeting all three locational requirements might not be easy. If a firm prioritizes the lowering of transaction costs, that might put it far away from its customers. Alternatively, closeness to the market might run against static arbitraging (gaining access to valuable inputs). In this context, broadband technology represents a powerful tool to help defining a geographic strategy that maximizes all three conditions. First, broadband reduces the communication costs that buyers and sellers incur to complete a transaction. In that sense, closeness to the market might not be such a strong imperative. Second, broadband can reduce the search costs for a particular input, rendering static arbitraging not as advantageous at least for all inputs. At the same time, broadband allows companies to relocate to places that are attractive, with the implication that good quality of life helps attracting talent. In sum, broadband allows firms to define their locational strategy by prioritizing one of the three geographic constraints without a concern of losing to its competitors. There are several examples of enterprises that succeed despite the fact they are not collocated within a given industrial cluster: Microsoft in Washington State, not in Silicon Valley, Berkshire Hathaway in Omaha, Nebraska, rather than Wall Street are two examples. In addition to enabling a decision to move geographically, broadband fulfills another important function. When considering a company’s value chain, broadband enables the firm to relocate certain functions to meet some locational requirements without necessary increasing its coordination costs. Along those lines, manufacturing could be located close to the source of inputs to reduce cost and optimize the supply chain, while sales and marketing are located close to the markets being served. Before the Internet, these geographic strategies could be the source of increasing complexity, such as problems in the interface between marketing, product design, and 243 manufacturing. This was one of the key advantages Matsushita had over Phillips by collocating all its primary functions in Osaka, Japan. Broadband-enabled systems allow now to geographically fragmenting the firm’s value chain without incurring higher complexity costs. Examples of this approach range from companies like Nike footwear (manufacturing in Asia while design is located in the United States) to the Indian systems integrators (serving the European and North American markets with talent from India). 6.7.5. Broadband and entrepreneurship If, as pointed above, broadband is causally linked to innovation, it would stand to reason that the technology would have an impact on entrepreneurship, defined as the incentive to launch a new business. The causality would operate at two levels. On the one hand, broadband adoption opens new market reach opportunities to the development of new service offerings (such as Internet based businesses). As such, Venkataraman (2004) argues that broadband infrastructure is a prerequisite for high tech venture growth. In addition, broadband remains a necessary infrastructure supporting development teams that are at the center of new business incubation. For example, Audretsch (1998) argues that information flows necessary to incubate new businesses are accelerated by broadband infrastructure. Finally, broadband can generate savings in start-up costs for the entrepreneur. According to the Internet Innovation Alliance (IIA) and the Small Business and Entrepreneurship Council, start-up savings generated by broadband could amount to over $16,000, comprising accounting services, printing, telecommunications, web design and hosting, and other applications (Kerrigan et al., 2012). Along these three lines of reasoning, it would appear that broadband deployment would foster innovation and entrepreneurship, with a positive contribution on economic growth. The study of the relationship linking broadband and entrepreneurship has begun only recently. The evidence generated so far is relatively sparse, particularly in light of considerable data challenges. For example, in a study cited above, Gillett et al. (2006) found that broadband access tends to reduce the share of small business establishments by 1.3-1.6%, which would imply a negative correlation. However, the study authors also acknowledged that given the limited availability of data, “methodological challenges inherent in disentangling causality” remain. Similarly, Heger et al. (2011) used county-level data for Germany and found that broadband infrastructure does not have an impact on the overall level of entrepreneurial activities after controlling for regional characteristics. The only exception to this general finding was in high-tech industries (software and technology-intensive sectors), where higher broadband adoption was correlated with new business creation. A likely explanation of this trend is that the high-technology sector is quite dependent on efficient transfer of knowledge, which is naturally facilitated by broadband networks. In a recent study, Carlsen et al. (2012) analyzed OECD data through a set of econometric techniques aimed at controlling for reverse causality and found that “a one percentage point increase in broadband penetration, ceteris paribus, results in an additional 0.086 new business registered per 1000 inhabitants of working age, a proxy for entrepreneurship. Such an increase in broadband penetration is in line with the average percentage point increase between 2008 and 2009 for the 23 OECD countries. For the average OECD country in our sample, this corresponds to 1,625 244 new firms. In Sweden, the estimated number of new firms is equivalent to 523, an increase of 2.2%”. 6.7.6. Broadband as an impact on employment structure and distribution on a global scale In addition to its impact on job creation, broadband also affects the global job distribution and the structure of employment. As broadband is facilitating the globalization of service provisions in highly value-added services such as accounting and IT related services as well as lower-skill services such as back-office functions and call center activities, jobs are migrating from high cost to low cost countries in these service sectors. In fact, the role of broadband in the international restructuring of job market in the service sector is increasing as more and more services can be traded as bandwidth increases. However, as Fornefeld et al. (2008) point out broadband-enabled outsourcing can benefit emerging regions benefitting from low cost labor and mature economies that leverage high-skilled workers. For example, industrialized countries, such as the United States have been developing virtual call centers, which rely on home-based agents to complement/replace traditional call centers from emerging markets. This concept, enabled by home-based information technology and broadband infrastructure, has a number of distinctive advantages. It avoids overhead related to traditional contact centers, including real estate and utilities, as well as up-front investment/capital expenditures– particularly for rapid-growth companies. It lowers staff turnover due to work from home and flexible schedules, and improves service level and/or labor utilization due to flexible staffing – management of time of day and seasonal peaks. Finally, it provides greater responsiveness to unforeseen changes in demand and lowers labor factor cost by being able to attract talent at lower wages and benefits. From an economic standpoint, a virtual call center located in an industrialized country offers 15%-30% cost advantage over the traditional centralized model (see figure 6.43). 245 Figure 6.43. Traditional vs. Virtual Contact Center Cost Structure, Cost per Call $4.50 $3.87 ($0.55) $4.00 $3.50 ($0.11) +$0.02 +$0.00 $0.74 savings ($0.06) +$0.00 +$0.00 $3.37 or 19% $3.00 Cost per Call $2.50 10% vs. 30% turnover Reduced $2.00 10% vs. 20% paid recruiting and shrinkage training Home based $1.50 Lower benefits due expense agents only use Cost of call to part-time labor facilities for center furniture & Assumes same $1.00 training equipment off-set Assumes no agent/ improvement in supervisor ratio by cost of setting $0.50 utilization or up home-based productivity(1) (2) agents $0.00 Traditional Telecom IT Virtual Other labor cost operations Capital charge Line staff Facilities costs Center Cost Element (1) Flexible staffing model can allow for 15%+ reduction in agent FTE over model using 8 hour shifts (2) Interviews indicate improvement in productivity from home-based agents Note: based on financial services case with 80% service level, 45 sec ASA, 272 AHT, 3 million rep calls per year Source: Booz Allen analysis With this cost differential, in addition to the capability of staffing native English speakers, the virtual model represents a broadband approach to reverse the emerging market outsourcing trend (see figure 6.44). Figure 6.44. Number of Customer Service, Technical Support and Telemarketing Agents in the U.S. and India, 2000 - 2008 2,892,350 U.S. India 2,789,990 2,547,000 1,600,000 115,000 8,600 2000 2003 2008 Source: U.S. Department of Labor, India’s NASSCOM, In addition to the outsourcing trend, the growth of broadband has also affected the internal employment structure of both, mature and emerging economies through the increase of self-employment by creating environment for individuals to deliver their services directly to customers through broadband. For example, according to the Small and Medium Business Administration (SMBA) of South Korea, the nation's self-employed reached 235,000 in 2010, up 15.7 percent from the preceding year, and 246 the number now accounts for about 1 percent of the economically active population. In the United States, 15.3 million workers (or 10.9% of the economically active population) are self-employed. Of these, 28.2% are in services such as information, financial activities, professional and business and education and health, all professions dependent to a large degree on broadband technology. In addition to self-employment, broadband also assists with working from home. According to the Global Workplace Analytics, regular telecommuting in the United States grew by 73% between 2005 and 2011 (3.1 million) compared to only 4.3% growth of the overall workforce (not including the self-employed). In addition to the multiple benefits ranging from reduced carbon emissions to a reduction in real estate costs, tele-commuting opens up the labor market to those who might be disadvantaged, for instance by disability or by living in a rural location. Broadband also enables many more part-time opportunities, for instance trading on eBay as a form of supplementary income, but not a full-time job. In fact, according to the July 2005 e-Bay survey, more than 724,000 Americans reported that eBay was their primary or secondary source of income. In addition to these professional eBay sellers, another 1.5 million individuals said they supplement their income by selling on eBay, Another example of the impact of broadband on the job market is the emergence of the “virtual economy”, revenue generating opportunities, conducted in an informal, decentralized setting, in new emerging areas like micro-work, “gold farming” and gaming. The virtual economy is growing fast and contributes new job creations. As reported by Minn and Rossotto (2012), every year, about ten million people, half in the US, and the other half mainly in South Asia, earn an income from the micro-work platform Amazon Turk, launched over 15 years ago. Micro-work enables the division of a task into multiple “micro-tasks” and the micro-work platform enables a client to ask a crowd of “micro-workers” to respond to the task. The Non-Governmental Organization (NGO) Samasource has extended the concept of micro-work to highly distressed countries, including Southern Sudan. According to Samasource, each micro-worker in Sudan has been able to earn as much as $1,000 a year doing micro- work, with a quality similar to the Amazon Turk worker. 6.7.7. Potential negative impact of broadband on employment and management strategies As mentioned throughout this chapter, some researchers have found situations where broadband has a negative and/or decreasing impact of broadband on employment. In addition to job losses in some rural areas, Gillett et al. (2005) observed that, while the magnitude of impact of broadband on employment increases over time, they also found that the positive impact of broadband on employment tends to diminish as penetration increases. This finding may support the existence of a saturation effect. Coincidentally, Shideler et al. (2007) also found a negative statistically significant relationship between broadband saturation and employment generation. This indicates diminishing marginal returns. In this context, it is useful to consider a set of additional policies to be put in place at the same time a broadband deployment program is executed: 247 1. Coordinate broadband deployment with job creation and retention programs: Network effects resulting from broadband programs can be sizable. However, their fulfillment is driven by success in implementing job creation and retention programs in parallel with network deployment. As an example, State and Local Governments in the targeted areas need to work with private sector companies in using this new infrastructure for employment generation. Also governments need to work with businesses to discourage job relocation as a result of broadband deployment. In addition, it is critical to deploy initiatives aimed at the creation of jobs enabled by broadband technology. Following on the example mentioned above, governments should stimulate the development of rural virtual call centers as a way to bring jobs that were outsourced overseas. 2. Rethink criteria for selecting areas to develop broadband: Consider deployment not only on unserved and underserved areas but also in regions where the possibility of developing regional growth, in coordination with broadband deployment, could act as a magnet to stimulate relocation, firm creation, and, consequently, jobs. While it is possible that private operators have already targeted such areas, it is reasonable to consider that opportunities for regional core development could be found. The experience of Germany, Sweden and the Netherlands could be very instructive in this regard. 3. Centralize program evaluation and grant allocation: As a corollary to the first recommendation, given that the ability to generate jobs as a result of network externalities is dependent on the regions being targeted, it would be advisable to centralize the process of allocating funds for network deployment and rely on a common framework for evaluating requests focused on economic growth and job creation. In this context, it is critical to enhance the government's ability to monitor spending and results, especially if the stimulus program is largely mandated like an earmark as opposed to some other methods that have more controls. 4. Develop a systematic test based on social and economic criteria to evaluate the return of the investment: All submissions for grants/loans should be backed up with analysis of the social and economic returns supported by a common set of tools and benchmarks. 5. Evaluate the economic impact of NGAN: This study has not quantified the effect of faster access speeds resulting from FTTx and/or DOCSIS 3.0. Given that no research has been conducted to date in this area, it is important to launch some analysis in this area. 248 6.8. STRATEGIES TO PROMOTE BROADBAND DEMAND The purpose of this chapter is to provide guidelines on how to introduce demand stimulation targets and policies in national broadband plans and national ICT planning in general. Some of the terms presented in this chapter are closely linked to concepts introduced in modules 1 - Policy Approaches to promoting Broadband Development and 3 - Law and Regulation for a Broadband World. 6.8.1. Determining adoption targets in National Broadband Plans Reflecting the shift in emphasis from supply to demand, many national broadband plans now prioritize demand stimulation over infrastructure deployment. In general, this shift is more prevalent in developed nations, where the broadband coverage challenge has been addressed to a large degree. Table 6.52. National Broadband targets Country Targets By 2021, the National Broadband Network will cover 100% of premises, 93% of Australia homes, schools and businesses at up to 100 Mbps over fiber, with the remainder at up to 12 Mbps over next generation wireless and satellite Austria By 2013, 100% of population will be provided with access speeds of at least 25 Mbps By 2015, 90% of families to have broadband and 50% of residents to be using the Belgium mobile Internet. By 2014, to have 30 million fixed broadband connections, including homes, Brazil businesses and co-operatives, plus 100 000 telecentres. By 2011, to provide Internet access to 3 million rural households.
 By 2014, 100% of Chile school and 70% of households to have broadband. By 2018, 100% of households. China By 2014, to raise broadband accessibility to 45% of the population. Colombia Costa Rica By 2013, in all populated localities a minimum of 2 Mbps and in cities a minimum of Czech Rep. 10 Mbps.
 By 2015, rural areas to have at least one half of the average speed in cities and 30% of premises in cities to have access to at least 30 Mbps. Denmark By 2020 100% of households and businesses to have access to 100 Mbps. Ecuador By 2010, every permanent residence and permanent office of business or public administration body must have access to a fixed or wireless subscriber connection with an average downstream rate of at least 1 Mbit/s. By 2015 more than 99% of Finland population permanent residences and permanent offices of businesses or public administration bodies will be no more than two kilometers from an optical fiber or cable network permitting 100 Mbps connections. By 2012, 100% of the population to have access to broadband.
 By 2025 100% of France home to have access to very high speed broadband. Germany By 2014, 75% of households will have download speeds of 50 Mbps. Greece By 2017, 100 Mbps to all homes. By 2013, broadband coverage will be 100%, and average speed will be 2 Mbps, with Hungary a target for 2020 of 30 Mbps. Iceland 2007: All Icelanders who so desire should have access to a high-speed connection. India By 2010, to have 20 million broadband connections. 249 October 2010: in areas where there was no broadband a mobile service (using Ireland HSPA), was required to be in place with a minimum download speed of 1.2 Mbps and a minimum upload speed of 200 kbps. Israel Broadband included in universal service. Italy By 2012, all Italians to have access to the Internet at between 2 and 20 Mbps. By 2015, fiber optic highways will be completed enabling every household to enjoy a Japan broadband service By 2010, to provide broadband multi-media services to 12 million households and 23 Korea million wireless subscribers.
 By 2012 to raise average speeds to 10 Mbps with a maximum of 1 Gbps. Luxembourg By 2015, FTTH to every household. By 2020 1, Gbps to every household. Mexico By 2012, 22% broadband penetration. By 2019, ultra fast broadband to 75% of New Zealanders where they live, work and New Zealand study.
 By 2015, 80% of rural households to have speeds of at least 5Mbps, with the remainder to achieve speeds of at least 1Mbps. Norway By 2007, all citizens to be offered high-speed broadband. By 2013, 23% of population to have access to broadband.
 A citizen who has no Poland computer may use one of the numerous points of access to digital services, which are located in public institutions. By 2012, 100% of municipalities covered by fixed NGN. By 2015, 100% national Portugal coverage by LTE. By 2010, to have 15 lines per 100 population. By 2015, to have 35 lines per 100 Russia population. Slovak By 2013, 100% of population to have a minimum speed of 1 Mbps.
 By 2020, to Republic provide access to high speed broadband of at least 30 Mbps. South Africa By 2014, to have 5% broadband penetration (min. 256 kbps). By 2011, minimum speed of 1 Mbps broadband access available to 100% of Spain population. By 2015, 100 Mbps broadband available to 50% of population. By 2015 40 per cent of households and businesses should have access to 100 Mbps. Sweden By 2020 90 per cent of households and businesses should have access to 100 Mbps. Switzerland Since 2008 a universal service obligation of 600 Kbps. By 2015, to bring “superfast broadband” to all parts of the UK and to create the “best United broadband network” in Europe. To provide everyone with at least 2 Mbps and Kingdom superfast broadband to be available to 90% of people. By 2010, at least 100 million homes should have affordable access to actual download speeds of at least 100 Mbps and actual upload speeds of at least 50 United States Mbps.
 By 2020, every household should have access to actual download speeds of 4 Mbps and actual upload speeds of 1 Mbps. Source: OECD. National Broadband Plans The differences in targets can, in many cases, be related to the lack of rigor in setting them up. It is critical that countries follow a consistent an structured approach to defining targets. The first area to be addressed regarding demand stimulation in national broadband plans pertains to the stipulation of adoption targets, which should complement the supply side (e.g. coverage of service) targets. These will have to be categorized in terms of residential, social (educational and health delivery institutions), enterprises (particularly SMEs), and public administrations. Furthermore, targets will have to be specified for both fixed and mobile broadband. 250 In order to highlight broadband demand stimulation targets, it is advisable to structure goals on the basis of the following matrix (see table 6.52). Table 6.52. Matrix for defining National Broadband Planning Targets Type of Target Supply Demand Speed of service (objective; (objective: (objective: Mbps network broadband of download) coverage) adoption) Residential Percentage of Percentage of X Mbps of 64 (objective: population population minimum download universal service speed for universal service Social (objective: Percentage of Percentage of X Mbps of social inclusion) educational, educational, download speed per cultural, health cultural, health establishment Perspective and scientific and scientific establishments establishments Enterprises Percentage of Percentage of X Mbps of (objective: industrial large, medium, download speed per maximization of establishments small and micro establishment and economic enterprises industrial sector impact) Public Percentage of Percentage of X Mbps of administration public public download speed per (objective: administration administration public maximization of units (offices) units (offices) administration unit efficiency) Supply targets: The first step in setting up broadband targets is to define the network coverage objective. This should be conducted for wireline and wireless networks. To a large degree, the social and residential coverage objectives have an impact on those of enterprises and the public administration sector, since population and economic and administrative units tend to overlap. Accordingly, if the objective is to cover 100% of the population, it is highly likely that this goal will address 100% of firms and public institutions. In general term, coverage target setting is conducted a priori on the basis of social policy imperatives. The notion that broadband is a public service that needs to be provided to the whole population of a given country is gaining currency. Forty countries have so far stipulated in their policies and regulatory frameworks the need 64 Targets for supply and demand should be defined not only by the unit of population but also by the unit of household. Given that in many cases targets could be defined from a technology neutral position, broadband deployment can be achieved with either wired or wireless broadband. In that sense, measuring targets in terms of both metrics allows for better measurement and tracking. I think wired broadband can be chosen in several situations, such as urban area 251 to provide universal access to broadband services (among them, Brazil, China and Spain). Some countries go even further declaring broadband a human right (e.g. Finland, Estonia). Broadband plans of developed countries tend to define coverage targets for 100% of population, while many emerging countries propose reaching 75%. Residential demand targets: Once coverage is established, demand targets need to be defined. This requires implementing different approaches for residential, social, enterprise and public administration. In the case of residential demand targets, four methodologies could be used:  Extrapolation of historical growth in penetration rates: this approach allows grounding residential target setting on a realistic base; however, it is important to consider potential saturation points when implementing this approach. For example, due to its late start, mobile broadband has been growing quite significantly in the past two years. Consequently, an extrapolation of penetration growth rate of this technology could overestimate future adoption (see example in figure 6.45) Figure 6.45. Ecuador: Historical and extrapolated broadband penetration 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Fixed Broadband Penetration Mobile Broadband Penetration  Correlation between economic development and broadband penetration: this methodology is based on a simple approach of determining whether the country under analysis is falling behind in broadband penetration when considering its level of economic development; target setting is defined in terms of penetration to be achieved in order to reach the level expected by its economic development level (see example in figure 6.46). 252 Figure 6.46. Latin America: Economic development and Broadband penetration Corea Japon EEUU Sources: World Bank; ITU; Telecom Advisory Services analysis  Comparison with neighboring nations: this approach, while risking under- estimated the target, a target that aligns the nation under consideration to regional penetration levels (“catch up approach”)  Country vision: an alternative approach to residential demand target setting stipulates that, based on broadband economic impact, the target should aim to grow its penetration in order to maximize its economic impact; this could be modeled by relying on econometric models of economic impact and assuming alternative impact scenarios. In other words, this methodology would establish a residential penetration target if the objective is to contributes by x% to growth of the GDP (see figure 6.47). 253 Figure 6.47. Latin America: Economic development and Broadband penetration 50% Fixed and mobile Broadband penetration 45% Brasil Uruguay 40% Costa Rica Chile Argentina 35% Venezuela México 30% 25% Ecuador 20% Perú Colombia Panamá 15% Nicaragua El Salvador 10% Guatemala Rep. Dominicana Paraguay 5% Bolivia 0% $0 $2,000 $4,000 $6,000 $8,000 $10,000 $12,000 $14,000 $16,000 $18,000 GDP PPP per capita (USD, 2011) Sources: Wireless Intelligence; ITU; World Bank; TAS analysis These four methodologies allow defining, by triangulation and validation, a consensus residential target. Social demand targets: the determination of targets for educational, cultural, research and health institutions can be conducted by relying on the recommendations set up by International Telecommunication Union (see table 6.54). Table 6.54. Specific Broadband Penetration Targets for Social Institutions Type of Institution Type of Target Targets Universities, Percentage of Universities connected to high speed 100 % Secondary and broadband Primary Schools Percentage of secondary schools connected to high speed 100 % broadband Percentage of primary schools connected to high speed 100 % broadband ICT enabled Percentage of research centers connected to high speed 100 % scientific research broadband centers Deployment of a national ultra-broadband network in Yes support of scientific research Percentage of universities connected to national ultra- 100 % broadband network Percentage of scientific research centers connected to the 100 % national ultra-broadband network Libraries and Percentage of public libraries with access to the Internet 100 % 254 cultural centers Percentage of cultural centers with access to broadband 80 % equipped with ICT Hospitals and Percentage of hospitals connected to ultra-broadband 100 % health centers Percentage of health centers connected to broadband 80 % Enterprise demand targets: the determination of broadband targets in the enterprise sector requires segmenting the sector by size of company and industrial sector. This segmentation is particularly relevant in the SME sector since there are firms that, despite their small size, are ICT intensive and require good broadband connectivity to fulfill their objectives. On the other hand, there are others that, due to their position in low-value added domestic segments, are not necessarily in need of broadband. This differentiation leads to the determination of different adoption targets by firm size and industrial sector. Download speed targets: download speed targets have to define by segment. While the minimum speed for universal residential broadband is one target, goals for social and enterprise applications will need to be differentiated by segment. For example, the targeted speeds for social institutions are driven by the broadband applications and their bandwidth intensity (see table 6.55). Table 6.55. Target speeds for Social Institutions Segments Download Speed Universities 20 Mbps-100 Mbps symmetrical Primary schools 6 Mbps-20 Mbps download Research centers 20 Mbps-100 Mbps symmetrical Public Libraries 6 Mbps-20 Mbps download Cultural Centers 6 Mbps-20 Mbps download Hospitals 20 Mbps-100 Mbps symmetrical Health Centers 6 Mbps-20 Mbps download In the case of enterprises, it is useful to segment speed requirements by SME segment (see table 6.56). 255 Table 6.56. Target speeds for SMEs 20 Mbps symmetrical 2 Mbps download speed ● SMEs with capacity to access domestic ● SMEs opeating autonomously in low- and international markets, based on the ICT intensive sectors (retail trade, supply of high value-added products or foodstuffs, chemical products, etc.) on the leveraging of a significant ● Microenterprises in labor intensive competitive advantage sectors with low value added ● SMEs with a position in the value chain that leads them to supply inputs to large corporations After defining all targets, national broadband plans could construct a matrix such as the one below, developed for Ecuador’s National Broadband Plan (see table 6.57). Table 6.57. Ecuador: National Broadband Plan Targets Metas Supply Demand Service speed (in Mbps) (objetive: (objective: network technology coverage) adoption)  100% of  Fixed Broadband  Fixed Broadband: population (% population):  2 Mbps download Residential (2016)  11% (2015) (2014) (objective:  20% (2017) universal service  Mobile Broadband (% population):  38% (2015)  63% (2017)  100%  100% educational,  6 Mbps-20 Mbps educational, cultural, research download (primary Social (objective: cultural, and health schools, public libraries, Perspective social inclusion) research and establishments and health centers) health (2015)  20 Mbps-100 Mbps establishments symmetrical (hospitals, (2015) universities, and research centers)  100%  100% large and  20 Mbps symmetrical Enterprises enterprises medium (large, medium (objective: (2015) enterprises (2013) enterprises and SMEs in maximization of  100% of ICT strategic sectors) economic intensive SMEs  2 Mbps download for impact) (2015) microenterprises (2014) 256 6.8.2. Identifying and managing demand stimulation programs: Once targets are determined, national broadband plans have to identify specific policies to stimulate demand and bridge the gap. Whether explicit or implicit, there appears to be a link between broadband demand stimulation programs and national strategies focused on broadband or digitization. A large portion of regional European Union digital literacy initiatives can be traced back to national strategies, such as the United Kingdom’s “Empowering Citizens, Connecting Communities,” or “Implementing the Information Society in Ireland,” as well as regional plans, like the Lisbon Agenda and the Riga Declaration. A classical country case in point is that of Finland, where the document “Finland – Towards an Information Society – A National Outline 1995-2000” served as a framework to defining a host of digital literacy initiatives. In addition, other policy initiatives formulated at a later date, such as the “Governmental Information Society program, 2003-2007” put additional emphasis on the deployment of initiatives aimed at promoting usability, inclusion and quality of life. In the linkage between demand stimulation initiatives and national broadband plans, two differing philosophies exist. Some countries tend to deploy national and regional initiatives that are centrally managed and that have been defined in the national plans. In general, national centrally managed demand stimulation initiatives tend to originate within either the Ministry of Education or the Ministry/Secretariat for ICT/Communication. In their review of digital literacy initiatives, Hannan et al. (2009) conclude that most initiatives, especially those led by public organizations, are generally driven by centralized policies at the national or regional level and are seen as strategically linked to government objectives. In particular, many initiatives and the rationales behind them can be traced back to either the economic or the social ramifications of a developing information society and government’s priorities in response to these changing circumstances. A critical advantage of national centralized programs is that they can tackle potential synergies and overlaps among demand stimulation initiatives. In other nations, it is common for some initiatives to emerge at the local level, once the guidelines have been formulated nationally. Local initiatives are initiated at sub- sovereign levels (province, department, district, and even, municipalities). These local initiatives have an active participation of non-governmental organizations and community interest groups. In that regard, the key advantage of locally driven programs has to do with their closeness with the communities being targeted. This feature allows the program to carefully tailor content and implementation dynamics to the needs of the targeted population. As a counter-example, a digital literacy program targeting SMEs in rural Canada was criticized for emphasizing training in presentation (e.g. powerpoint) applications, not necessarily a critical need of participants. A critical element in defining a successful demand stimulation program has to do with its long-term sustainability. In fact, according to Hannan et al. (2009) sustainability remains a big concern, since according to their study of 464 programs across 32 countries, only 40% have been identified as still running, transferred or expanded beyond the initial timeframe. Similar concerns were raised in the 257 implementation a municipal WiFi program in Brazil, where once the hardware was installed, financing difficulties emerged in covering the ongoing operating costs of the facility. This has to do with the ability to implement the initiative until its objectives are accomplished. Hannan et al. (2009) have identified five factors that are critical in driving program sustainability:  Composition of stakeholders involved: the findings in this regard are quite clear. Digital literacy programs with higher chance of sustainability are either sponsored by a private company, the partnership of an NGO and a private company, a public-private partnership, or a public-private partnership including an NGO; on the other hand, if a project is exclusively sponsored by the public sector, chances are that it will not be sustainable. An obvious explanation of the linkage between private sponsorship and sustainability is the financial and infrastructure support, although a non-intuitive factor is that the private entity provides more focus in achieving the program objectives. In addition, in demand programs that are centrally managed but locally implemented, the number of stakeholders increases substantially, thereby raising the likelihood of program sustainability. Finally, the reliance on NGOs (local associations, community groups, voluntary organizations) drastically raises the probability of long term sustainability because of the intrinsic interest of such entities in improving the livelihood of the population that lacks broadband access  Level of implementation: national programs, driven by a country policy or strategy appear to have a higher likelihood of sustainability (although the difference with regional and local programs is not that significant)  Whether the initiative requires payment or not by the user: 60% of analyzed digital literacy campaigns are free of charge to the users.  Whether the initiative is being evaluated as part of a larger project: while being a positive contributor to the program success, research indicates that evaluation is only conducted in the context of large-scale national initiatives. 258 World Bank Broadband Strategy Toolkit Module 3 Module 7 - Global Footprints: Stories from and for the Developing World 1 Broadband and global goals for developing countries ............................................................. 3 2 Broadband bottlenecks in developing regions ......................................................................... 6 3 Regional developments............................................................................................................. 9 3.1 East Asia and the Pacific..................................................................................................... 9 3.2 Europe and Central Asia................................................................................................... 11 3.3 Latin America & the Caribbean ........................................................................................ 13 3.4 Middle East and North Africa ........................................................................................... 15 3.5 South Asia ........................................................................................................................ 17 3.6 Sub-Saharan Africa ........................................................................................................... 19 4 Countries in special circumstances ......................................................................................... 22 4.1 Least Developed Countries (LDCs) ................................................................................... 22 4.2 Landlocked developing countries (LLDCs)........................................................................ 23 4.3 Small Island Developing States (SIDS) .............................................................................. 24 4.4 Post-conflict countries ..................................................................................................... 25 5 Broadband country case studies ............................................................................................. 26 5.1 Brazil................................................................................................................................. 26 5.2 Kenya: Build it and they will come ................................................................................... 27 5.3 Morocco ........................................................................................................................... 28 5.4 Saint Kitts and Nevis: Strength in Depth .......................................................................... 29 5.5 Sri Lanka: Glass half full or half empty? ........................................................................... 30 5.6 Turkey .............................................................................................................................. 31 5.7 Vietnam ............................................................................................................................ 32 6 Crafting a broadband development strategy for a particular country environment ............. 33 6.1 Broadband as an ecosystem ............................................................................................ 33 1 World Bank Broadband Strategy Toolkit Module 3 Tables Table 1. UNECE classification of regional ICT development .......................................................... 11 Table 2. eLAC2015 universal broadband access goals ................................................................. 13 Table 3. Challenges hindering broadband deployment in MENA and suggested recommendations to overcome them ................................................................................................................. 15 Table 4. Broadband plans and policies in selected South Asian nations....................................... 18 Table 5. Policies and programs for promoting broadband in developing countries ..................... 37 Table 6. Regional examples of policies and programs for broadband development.................... 49 Figures Figure 1. Fixed broadband subscribers per 100 inhabitants .......................................................... 3 Figure 2. The 8 Millennium Development Goals (MDGs) ............................................................... 4 Figure 3. The 10 WSIS targets ......................................................................................................... 5 Figure 4. Global Broadband Subscriptions, Fixed and Wireless, September 2009 ........................ 6 Figure 5. Distribution of fixed broadband subscriptions, world, 2005 and Sep. 2010 ................... 7 Figure 6. Broadband connections relative to underlying infrastructure ........................................ 8 Figure 7. Demand side indicators ................................................................................................... 9 Figure 8. LDCs ................................................................................................................................ 22 Figure 9. LLDCs............................................................................................................................... 23 Figure 10. SIDS ............................................................................................................................... 24 Figure 11. The Broadband Ecosystem ........................................................................................... 34 Figure 12. Broadband supply factors............................................................................................. 35 Figure 13. Broadband demand factors .......................................................................................... 35 Boxes Box 1. Impact of improved access to international connectivity: The case of Moldova............... 12 Box 2. The Third Man: Encouraging disruption in broadband markets ....................................... 20 Box 3. Broadband gap: Stages of broadband development .......................................................... 36 2 World Bank Broadband Strategy Toolkit Module 3 Developing nations face a number of broadband demand and supply side barriers compared to developed countries. These include a shortage of fixed infrastructure, constrained inter- and intra-modal competition, low income, and awareness. As a result, they typically lag developed countries in broadband penetration (Figure 1), although there are exceptions such as some nations in the Caribbean or the Gulf States. Figure 1. Fixed broadband subscribers per 100 inhabitants Source: World Bank (http://data.worldbank.org/indicator/IT.NET.BBND.P2/countries?display=map). A number of studies show that broadband increases economic growth (See Chapter 1). Broadband is also a platform for innovation, an enabler of Small and Medium Enterprise (SME) growth and a facilitator of new firm foundation. This is particularly relevant for countries facing the challenge of development and looking to raise the standard of living of their citizens. In that regard, it is useful to look at international objectives for promoting development and examine how broadband fits in. 1 Broadband and global goals for developing countries Broadband has taken on increased relevance within the development community because of its potential to reduce poverty and better enable countries to participate in the global information society. International agreements on development and ICTs provide a context for the significance of broadband in developing countries. 3 World Bank Broadband Strategy Toolkit Module 3 In September 2000, governments adopted the Millennium Declaration, committing their nations to reducing poverty monitored through measurable targets (Figure 2). The targets have a 2015 deadline and are known as the Millennium Development Goals (MDGs).1 Several reports have illustrated how ICTs can help to achieve the MDGs.2 Broadband can specifically help to achieve the MDGs in numerous ways. For example, one of the barriers to achieving Goal 2 on universal primary education is the lack of primary school teachers. Broadband can facilitate fast track teacher training through distance education and e-learning. Three of the MDGs are related to health; high-speed networks can have an impact through applications such as telemedicine. Figure 2. The 8 Millennium Development Goals (MDGs) Source: United Nations MDG Monitor. The World Summit on the Information Society (WSIS) was held in two phases, in 2003 in Geneva and in 2005 in Tunis.3 The Declaration of Principles identifies ICTs as an “essential foundation for the information society” noting that “[a] well-developed information and communication network infrastructure and applications, adapted to regional, national and local conditions, easily-accessible and affordable, and making greater use of broadband and other innovative technologies where possible, can accelerate the social and economic progress of countries, and the well-being of all individuals, communities and peoples.” WSIS adopted ten targets addressing connectivity across different sectors (Figure 3). The International Telecommunication 1 http://www.un.org/millenniumgoals/ 2 For example see: ITU. 2003. “ICTs and the Millennium Development Goals.” In World Telecommunication Development Report 2003 and Broadband Commission. 2010. “Broadband and the Interlinked and Interdependent MDG Agenda”. In The Future Built on Broadband. 3 http://www.itu.int/wsis/index.html 4 World Bank Broadband Strategy Toolkit Module 3 Union (ITU) has reviewed progress towards the WSIS targets and emphasized that most should be considered as having a broadband component: “It is widely recognized that ICTs are increasingly important for economic and social development. Indeed, today the Internet is considered as a general- purpose technology and access to broadband is regarded as a basic infrastructure, in the same way as electricity or roads. … Such developments need to be taken into consideration when reviewing the WSIS targets and their achievement, and appropriate adjustments to the targets need to be made, 4 especially to include broadband Internet.” Figure 3. The 10 WSIS targets Source: WSIS Plan of Action (http://www.itu.int/wsis/docs/geneva/official/poa.html). Taken together, the MDGs and WSIS targets provide a global roadmap for developing country policymakers. Broadband can help achieve the MDGs and thus place high-speed networks within the context of overall national development goals while the WSIS targets monitor broadband deployment across different sectors. 4 ITU. 2010. World Telecommunication Development Report: Monitoring the WSIS Targets. 5 World Bank Broadband Strategy Toolkit Module 3 2 Broadband bottlenecks in developing regions There is a wide broadband gap around the world. Three out of every five people in the European Union and North America have a broadband subscription compared to less than one in a hundred in South Asia (Figure 4). Figure 4. Global Broadband Subscriptions, Fixed and Wireless, September 2009 North America 62.5 European Union 60.5 East Asia and Pacific 17.8 World 15.6 Eastern Europe and Central Asia 12.4 Latin America and the Caribbean 9.2 Middle East and North Africa 7.6 Sub-Saharan Africa 1.9 South Asia 0.6 0 10 20 30 40 50 60 70 Source: World Bank analysis based on data from TeleGeography’s GlobalComms database and from the Wireless Intelligence database. Note: Table covers subscribers using fiber-optic, DSL (digital subscriber line), cable television, CDMA2000 (Code Division Multiple Access 2000) 1xEV-DO (Evolution Data Optimized), CDMA2000 1xEV-DO Rev. A, W-CDMA (Wideband Code Division Multiple Access), W-CDMA HSPA (high-speed packet access), WiMAX (worldwide interoperability for microwave access), and TD-SCDMA (Time Division–Synchronous Code Division Multiple Access) networks. Improving access to broadband networks requires addressing supply and demand side bottlenecks. On the supply side, there are two broadband routes with different characteristics and market developments: fixed and wireless. The three main fixed broadband technologies in use are Digital Subscriber Line (DSL), cable modem and fiber to the premise (FTTP) (Figure 5). DSL is the predominant technology accounting for almost two thirds of fixed broadband subscriptions in September 2010. Broadband access over cable television networks was used by one in five subscriptions around the world. FTTP accounted for just 16% of global fixed broadband in September 2010 but its share has grown since 2005 while DSL and cable modem have dropped. 6 World Bank Broadband Strategy Toolkit Module 3 Figure 5. Distribution of fixed broadband subscriptions, world, 2005 and Sep. 2010 2005 Sep. 2010 FTTP FTTP 9% 16% Cable modem 24% DSL Cable DSL 67% modem 64% 20% Source: Point-Topic. Fixed broadband requires an underlying wired infrastructure. In the case of DSL, these are the copper lines used to connect subscribers to the telephone network. In the case of cable modem, the supporting transport media is the coaxial cable used to provide television access to subscribers. Fiber optic broadband uses fiber optic cables running directly to the home or building. Fixed telephone and cable television infrastructures are expensive to create from scratch and thus hard to replicate if a country is not already endowed with them. In the case of fiber optic, significant investment is required to install the cables. Given the above-mentioned constraints, the wireless broadband route appears more promising for developing nations. There is a larger base of mobile subscriptions compared to fixed telephone or cable television throughout the world. However, converting mobile networks to broadband readiness requires investment for spectrum and equipment by operators and the purchase of new devices by users. Although the deployment costs of mobile broadband are less than fixed, they are still significant. Other wireless options include fixed wireless such as WiMAX and satellite. Like mobile broadband, fixed wireless also requires investment in spectrum and equipment and it may not be able to leverage the existing infrastructure of mobile subscriptions in terms of towers and backbone networks. Satellite broadband is an option, particularly for remote locations but is more costly than other solutions for mass deployment. Conditions vary across the developing world, and each country is endowed with differing levels of communication networks. Some, such as Costa Rica or Croatia, have a relatively well- developed fixed telephone network that could support broadband deployment, while others, such as China and Romania, have widely spread cable TV networks that are able to provide a measure of facilities-based competition. The challenge is to create incentives so that existing networks can be used to offer broadband services. In other countries, the challenge is to rollout broadband-capable networks from scratch. Diversity in broadband infrastructure creates a higher degree of inter-modal competition. Therefore, countries should consider how they could leverage existing infrastructures to create greater competition in the broadband market. In 2009, the world was only using a little over one fifth of telephone lines for DSL, around a third of 7 World Bank Broadband Strategy Toolkit Module 3 cable television connections for cable broadband, and just over ten percent of mobile subscriptions were broadband (Figure 6). Figure 6. Broadband connections relative to underlying infrastructure 80 69 70 60 North America 55 European Union 50 47 East Asia & Pacific 40 34 Europe & Central Asia 32 29 Latin America & Caribbean 30 22 22 22 Middle East & North Africa 18 20 14 13 13 12 South Asia 9 11 10 7 7 7 Sub-Saharan Africa 5 4 010 22 0 World 0 DSL/Total Cable 3G/Total wireless mainlines modem/Total cable TV Source: Data for DSL from TeleGeography’s GlobalComms database (2008), data for 3G from Wireless Intelligence (2008) and data for cable broadband from ictDATA.org (2009). Broadband is also dependent on demand side aspects such as accessibility to broadband services, being able to afford broadband and awareness of its benefits. If these demand side issues are not tackled, a country risks creating a mismatch between supply and demand and will not be able to fulfill its broadband potential. A country’s level of income impacts the ability to pay for broadband services while education levels affect awareness. Figure 7 illustrates demand side indicators for different developing regions in terms of per capita income and years of schooling. 8 World Bank Broadband Strategy Toolkit Module 3 Figure 7. Demand side indicators Gross national income per capita 2009, PPP Mean years of schooling, 2009 Europe & Central Asia Europe & Central Asia World Latin America & Caribbean Latin America & Caribbean World Middle East & North Africa East Asia & Pacific East Asia & Pacific Middle East & North Africa South Asia South Asia Sub-Saharan Africa Sub-Saharan Africa ,0 5,000 10,000 15,000 0 2 4 6 8 10 Source: World Bank (GNI per capita), UNDP (years of schooling). The next section summarizes the broadband status of developing regions and regional and national policies for boosting broadband penetration. Section 4 identifies groups of countries that face specific income, geographic or other limiting conditions. Section 5 provides case studies of broadband in selected countries and Section 6 outlines best practice principles. 3 Regional developments This section highlights broadband status in different developing regions.5 3.1 East Asia and the Pacific The region is home to world broadband leaders such as the Republic of Korea, Hong Kong, China and Japan where super high-speed access is increasingly becoming the norm. However, a huge broadband divide distinguishes “the mostly high-income countries that are broadband leaders from the mostly middle- and low-income countries that are broadband challenged.” 6 A number of developing countries in the region have deployed telephone and cable television network infrastructure but often they are not adequately upgraded for fixed broadband access. For example, the region’s developed economies such as Japan, the Republic of Korea and Singapore have been successful in developing broadband access through cable television network infrastructure. This is not the case in the region’s developing nations. Despite large cable television markets in some countries such as China, the Philippines and Thailand, broadband competition from cable television providers is generally low. One reason is that many networks in developing economies have not been upgraded to support broadband access 5 This chapter classifies developing economies into geographic groups according to the World Bank regional classifications at: http://data.worldbank.org/about/country-classifications/country-and-lending-groups. 6 ESCAP. 2010. Broadband development in Asia and the Pacific. August 13. http://www.unescap.org/idd/events/cict- 2010/CICT2_INF5.pdf. 9 World Bank Broadband Strategy Toolkit Module 3 via cable modem. Take China; despite having the world’s largest cable television market with almost 175 million subscribers in 2009, it has relatively few cable modem subscriptions and only about a quarter of its subscriptions are digital. This is likely to change with China’s new “Triple Network Project” announced in 2010.7 The project aims to enhance convergence among telecommunications, Internet and broadcast networks by reducing barriers so that each market segment can provide any broadband service. Mobile broadband is beginning to make inroads. Most of the East Asian nations have awarded mobile broadband spectrum and in a number of the region’s developing nations, mobile broadband subscriptions exceed fixed. Take Indonesia where in September 2010 there were 6.7 million mobile broadband subscriptions using data cards compared to only 1.9 million fixed broadband subscriptions.8 Mobile broadband coverage needs to be extended throughout the region from mainly urban areas to rural zones. Malaysia is a regional example of a country that has set broadband goals.9 It developed its Information, Communications, and Multimedia Services (MICMS) 886 strategy in 2006, setting a number of goals for broadband services. One was to increase broadband penetration to 25 percent of households by the end of 2006 and 75 percent by the end of 2010. But despite impressive growth, the target for 2006 has not been met. The government is now focusing on WiMAX, 3G, and FTTH platforms to boost broadband adoption. To that end, the government is funding a fiber optic network that will connect about 2.2 million urban households by 2012. The network will be rolled out by Telekom Malaysia under a public private partnership. Under the partnership, the government will invest MYR 2.4 billion (US$ 700 million) in the project over 10 years, with Telekom Malaysia covering the remaining costs. The total cost of the project is expected to be MYR 11.3 billion (US$ 3.28 billion). Connecting the Pacific region with broadband is a major challenge. But it is critical that Pacific economies gain access to adequate bandwidth essential for supporting broadband development. Many of the island nations are widely dispersed and backbone networks are limited. Most countries rely on high-cost, limited capacity satellites and only a few economies have access to fiber optic submarine cables. The sub-region has been slow to develop mobile broadband, a consequence of previously limited competition in mobile markets. However, a number of countries now have competitive mobile markets that should spur deployment of high-speed wireless networks.10 Vietnam has made impressive strides in boosting international high-speed connectivity and broadband use. The case of Vietnam is highlighted in a case study (see Section 5.7). 7 “Triple network project launched.” People's Daily Online, July 2, 2010. http://english.peopledaily.com.cn/90001/90778/90860/7050112.html. 8 Telkom Indonesia. n.d. Info Memo - Third Quarter 2010 Results (Unaudited). http://www.telkom.co.id/investor- relation/reports/info-memo/. 9 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. 10 Howes, Stephen, and Matt Morris. 2008. Pacific Economic Survey 2008: Connecting the Region. Canberra: Australian Agency for International Development. http://www.ausaid.gov.au/publications/pdf/pacific_economic_survey08.pdf. 10 World Bank Broadband Strategy Toolkit Module 3 3.2 Europe and Central Asia The region is relatively well endowed with characteristics to encourage broadband take-up: significant fixed and cable television networks and relatively high incomes and levels of education compared to other developing regions. However, it is highly diverse in terms of broadband potential. This diversity is reflected in the United Nations Economic Commission for Europe (UNECE) four-stage classification of European and Central Asian members’ ICT development11 (Table 1). The UNECE describes strategies as ranging from accelerating and deepening usage in the more advanced economies of the region to raising awareness and establishing community access in those countries in the lowest level. Table 1. UNECE classification of regional ICT development ICT Level Countries Main Focus Advanced Western European and To accelerate effective usage of ICT and the Northern European countries Internet by businesses and consumers and mainly deepen the Internet Upper Some Baltic, Central and Extending the Internet outreach horizontally medium Southern European countries and vertically by means of e-governance, e- education and targeted e-Inclusion program Lower Some Central, Eastern, Horizontal extension of the ICT and Internet medium Southern European and Balkan physical infrastructure, furthering and countries, including Kazakhstan, improving the institutional regime, digitization Ukraine, Belarus and the of public agencies and services, and investing in Russian Federation ICT education and research facilities Lowest Most of the Central Asian Raising awareness of ICT and the Internet, level countries establishing an enabling institutional environment, and widening the access to the Internet by means of Public Internet Access Points Source: UNECE. Despite having deployed fixed infrastructure relatively well, wired broadband growth has been hampered because consumers are content with using Internet dial-up. One reason is that telephone charges have historically been low in the region and not all Internet subscribers see the benefits of switching to more expensive higher speed connections. Mobile broadband has been launched in most countries in the region although the timing has differed. Most Eastern and Southern European countries launched mobile broadband before the Central European and Central Asian nations. This provided Eastern and Southern European countries with a head start in both deployment and migration to higher speeds. For example, Romania launched 3G in 2006 and had over 2.5 million active mobile broadband subscribers at the end of 2009 accounting for almost half of all broadband subscriptions; mobile broadband speeds up to 21.6Mb/s are available in the Romanian market. 11 Kapitsa, Larissa. 2008. “Towards a Knowledge-based Economy – Europe and Central Asia: Internet Development and Governance.” UNECE Discussion Papers. UNECE. http://www.unece.org/oes/disc_papers/disc_papers.htm. 11 World Bank Broadband Strategy Toolkit Module 3 A number of the medium and upper medium countries in the region adopted broadband strategies within the framework of national ICT plans. Most of the country’s plans were launched in the early to mid-2000s and coincided with significant increases in broadband penetration. For example Moldova adopted its information society strategy in 2005 that incorporated a number of tracking indicators to monitor the impact of policies and programs for improving broadband access.12 Broadband penetration in Moldovan households rose from less than one percent in 2003 to 17 percent by 2009.13 International bandwidth rose significantly in the landlocked country following an optical fiber connection to Romania (Box 1). Box 1. Impact of improved access to international connectivity: The case of Moldova Until April 2010, Moldova’s international connectivity market was entirely controlled by state - owned incumbent Moldtelecom. Due to this and because it is a landlocked country, Moldova’s private firms did not have direct access to the Internet. At that time, the Government reformed policy and procedures to open the market to competition. By July 2010, three companies, mobile telephony provider Orange and Internet service providers Starnet and Norma, successfully applied to construct and operate cross border fiber optic cables and gain direct access to carriers via Romania. The benefit of liberalization on availability, prices, and quality was immediate. International Internet bandwidth available in Moldova went from 13 Gbps in December 2009 to over 50 Gbps in July 2010. In response, Moldtelecom dropped the prices for wholesale connectivity by a third over that same time, with some of this drop coming in anticipation of the liberalization in late 2009. And retail subscribers in some parts of the country have already seen their available bandwidth double while subscription rates have remained the same. As a country looking to establish its position as an ICT hub in Eurasia, this move marks the first step towards connecting Moldova’s fledging IT based services to global markets. Improved connectivity will allow SMEs to connect with new markets at lower prices and enhance their competitiveness. Source: World Bank analysis, TeleGeography Global Bandwidth Research Service data for 200914 Some of the countries in the region have translated broadband deployment into high bandwidth and rank among the top countries in the world in average download speeds. This includes Moldova, a landlocked country. On the other hand, landlocked countries in Central Asia face the challenge of ensuring that regional broadband backbones keep up with the region’s growing ICT needs. Within that context, the Economic and Social Commission for Asia and the Pacific (ESCAP) undertook a feasibility study in four countries: Kazakhstan, Kyrgyzstan, Tajikistan, and 12 Government of Moldova. 2005. National Strategy on Building Information Society –“e-Moldova”. http://en.e- moldova.md/Sites/emoldova_en/Uploads/strat_ENG.36370AF841D74D74B3969D0FA3FBE6D2.pdf 13 ANRCETI. 2010. Report on Activity and Evolution of Electronic Communications Markets in 2009. http://en.anrceti.md/news20042010_2 14 Broadband competitiveness in Eastern Europe and Central Asia. August 25, 2010. www.infodev.org/en/Document.960.pdf. 12 World Bank Broadband Strategy Toolkit Module 3 Uzbekistan.15 The study recommended closer regional cooperation to spur development of backbone networks. Turkey’s government recognizes the importance of a vibrant telecommunications market and is keen to promote the spread of broadband. For instance, many educational institutions now have broadband access. The Information Society Strategy for 2006–2010 aims to develop regulation for effective competition and to expand broadband access. Targets include extending broadband coverage to 95 percent of the population by 2010 and reducing tariffs to 2 percent of per capita income. The regulator has also looked at issuing licenses for the operation of broadband fixed wireless access (BFWA) networks in the 2.4GHz and 3.5GHz bands. In June 2009, Turkey had penetration rates of 9 percent for fixed broadband and 4 percent for mobile broadband. The case of Turkey is highlighted in a case study (see Section 5.6). 3.3 Latin America & the Caribbean In November 2010, ministers at the Third Ministerial Conference on the Information Society of Latin America and the Caribbean (LAC) adopted eLAC2015, a regional roadmap for the information society. eLAC2015 considers broadband pivotal noting: “For the countries of Latin America and the Caribbean, the universalization of broadband access in the twenty-first century is as important for growth and equality as were electric power and road infrastructures in the twentieth century. Broadband is an essential service for the economic and social development of the countries of the region, and it is indispensable for progress, equality and democracy. That is why the strategic goal is for broadband Internet access to be available to all of the citizens of Latin America and the 16 Caribbean.” Six goals were highlighted for universal broadband access in the region: Table 2. eLAC2015 universal broadband access goals Goal 1: Increase direct investment in broadband connectivity to make it available in all public establishments. Goal 2: Advance towards universal availability of affordably priced broadband connectivity in homes, enterprises and public access centres to ensure that, by 2015, at least 50% of the Latin American and Caribbean population have access to multiple convergent interactive and interoperable services. Goal 3: Coordinate efforts to bring down the costs of international links by means of a larger and more efficient regional and subregional broadband infrastructure, the inclusion of (at least) the necessary ducts for fibre-optic cables in regional infrastructure projects; the creation of Internet exchange points; the promotion of innovation and local content production; and the attraction of contents suppliers 15 ESCAP. 2009. Broadband for Central Asia and the road ahead. http://www.unescap.org/idd/working%20papers/IDD_TP_09_05_of_WP_7_2_909.pdf. 16 Plan of Action for the Information and Knowledge Society in Latin America and the Caribbean (eLAC2015). ECLAC, November 2010. http://www.eclac.cl/cgi- bin/getProd.asp?xml=/socinfo/noticias/documentosdetrabajo/5/41775/P41775.xml&xsl=/socinfo/tpl- i/p38f.xsl&base=/socinfo/tpl/top-bottom.xsl. 13 World Bank Broadband Strategy Toolkit Module 3 and distributors. Goal 4: Collaborate and coordinate with all regional stakeholders including academia and business, the technical community and organizations working in the field, such as the Latin American and Caribbean Internet Addresses Registry (LACNIC) and the Internet Society (ISOC), to ensure that Internet Protocol version 6 (IPv6) is broadly deployed in the region by 2015; and implement, as soon as possible, national plans to make government public services portals in Latin America and the Caribbean accessible over IPv6 and to make public sector networks native IPv6 capable. Goal 5: Harmonize indicators which provide an overview of the situation of broadband in the region, in terms of both penetration and uses of applications, in accordance with international standards. Goal 6: Promote ICT access and use by persons with disabilities, with emphasis on the development of applications that take into account standards and criteria on inclusion and accessibility. In this connection, promote compliance by all government web portals with the web accessibility standards established by the World Wide Web Consortium (W3C). Source: eLAC2015. LAC has a relatively high number of fixed telephone lines and cable television subscribers compared to other regions. Cable broadband has been particularly successful with over half of the subscribers enjoying a broadband subscription. The number of telephone lines being used for broadband using DSL is relatively low, a consequence of the high costs of entering the fixed telephone market and the lack of effective local loop unbundling policies in the region. Mobile broadband development has lagged compared to other regions. One factor has been delays in the award of spectrum used specifically for 3G services. However, this has been mitigated somewhat by widespread policies throughout the region allowing operators to use their existing 850/900 MHz spectrum, originally allocated for voice, for high-speed mobile data services. These frequencies also support wider coverage with fewer base stations so that investment costs are lower and a larger number of people can gain access.17 On the demand side, LAC fares favorably compared to other developing regions. Education levels are relatively high and the existence of common languages throughout many countries— Spanish in Latin America and English in much of the Caribbean—results in a high level of content, spurring demand. Despite relatively high per capita income for a developing region, incomes are highly skewed in the region and affordability remains an issue. For example over half of Mexican households reported that they did not have Internet access in 2009 because they could not afford it.18 Chile was the first Latin American country to announce a national broadband strategy. The strategy identified ICT as a priority for economic development. Chile has also planned and 17 Roetter, Martyn. 2009. Mobile Broadband, Competition and Spectrum Caps. http://www.gsmworld.com/documents/Spectrum_Caps_Report_Jan09.pdf. 18 Instituto Nacional de Estadística y Geografía. 2009. Disponibilidad y Uso de las Tecnologías de la Información en los Hogares. http://www.inegi.org.mx/prod_serv/contenidos/espanol/bvinegi/productos/encuestas/especiales/endutih/ENDUTIH _2009.pdf. 14 World Bank Broadband Strategy Toolkit Module 3 implemented ICT policies from both the supply and demand sides. The demand-side strategy has included programs for e-literacy, e-government, and ICT diffusion. For example, almost all taxes are filed electronically, and government e-procurement more than doubled the volume of transactions processed between 2005 and 2008. The government has also promoted broadband use by municipalities. By 2008, almost all municipalities had Internet access, and 80 percent had websites. In June 2009, Chile’s fixed broadband penetration was 10 percent, while mobile broadband penetration was 2 percent. In order to reach the objectives of a digital Chile, the government’s broadband goal is to double broadband connections and complete nationwide coverage by 2012. Brazil is one of the few countries in the region with a specific broadband plan. St. Kitts and Nevis has the highest broadband penetration in the region. The cases of Brazil and St. Kitts and Nevis are highlighted in case studies (see Sections 5.1 and 5.4). 3.4 Middle East and North Africa The region is relatively well endowed with fixed line telephony for a developing region and most fixed broadband is primarily via ADSL. Nonetheless, prospects for fixed broadband are constrained. Few alternative operators have deployed copper line infrastructure, local loop unbundling, for the most part, is not available across the region, the development of inter- modal competition through cable television is inhibited by the popularity of satellite television, and most new entrants have adopted wireless strategies. Mobile broadband, on the other hand, has had greater success. Many but not all of the countries have awarded spectrum for mobile broadband services. Morocco was one of the first countries to award 3G spectrum in the region. It did so through a beauty contest, which lowered spectrum costs for operators. Some of the spectrum was awarded to a new operator, shaking up the existing duopoly and triggering intense competition in the mobile broadband market (Box 2). As a result, mobile broadband subscriptions in Morocco have surpassed fixed connections. The country has adopted the Maroc Numerique 2013 strategy with targets providing broadband to all schools and one third of households by 2013.19 Morocco is highlighted in a case study (see Section 5.3). A report analyzing the main factors affecting broadband demand in many of the countries in the region identified challenges hindering broadband deployment and suggested recommendations to overcome them (Table 3).20 The report’s overarching conclusion was the requirement for convergence—through bundled offers and transition to IP-based networks—would trigger mass broadband adoption. Table 3. Challenges hindering broadband deployment in MENA and suggested recommendations to overcome them Challenge Recommendation 19 Government of Morocco. N.d. Maroc Numerique. http://www.egov.ma/Documents/Maroc%20Numeric%202013.pdf 20 ESCWA. 2007. Broadband for Development in the ESCWA Region. http://www.alcatel- lucent.com/wps/portal/!ut/p/kcxml/04_Sj9SPykssy0xPLMnMz0vM0Y_QjzKLd4w3MfQFSYGYRq6m- pEoYgbxjgiRIH1vfV- P_NxU_QD9gtzQiHJHR0UAAD_zXg!!/delta/base64xml/L0lJayEvUUd3QndJQSEvNElVRkNBISEvNl9BXzRDUi9lbl93dw!!?L MSG_CABINET=Docs_and_Resource_Ctr&LMSG_CONTENT_FILE=News_Releases_2007/News_Article_000148. 15 World Bank Broadband Strategy Toolkit Module 3 Challenge Recommendation 1. High prices and low market maturity Bundled services, whereby broadband is provided with other services like telephony and TV content, constitute a key enabler for price reduction and economies of scale for service providers. 2. Regional and international connectivity to The improvement of regional connectivity the Internet is both complex (no regional and peering, as well as the emergence of backbones) and costly in many countries. powerful regional service providers capable of negotiating better interconnection prices with the main Internet backbones, would drastically reduce underlying costs. 3. Lack of a service culture and insufficient The promotion of a service culture and quality of telephony copper (especially for DSL transparency as regards copper quality are deployment) are factors hindering the mass needed. Wireless local loop technologies deployment of broadband. constitute an alternative to copper lines, provided that the availability of the frequency spectrum required is ensured by governments and regulatory bodies. 4. Mass broadband adoption is the result of The development of digital Arabic content and the availability of content and applications the lifting of restrictions on Internet access that are relevant to users in their native allow the Internet to become the main language, and contributes in turn to the medium for the exchange of knowledge promotion of improved productivity in the between people in the envisaged knowledge economy as a result of this mass adoption. society. Both factors are lacking in the region. 5. The region is characterized by a “relatively– Low–cost PCs and community centers– for low” to “fair” penetration of PCs. collective access when individual purchase of PCs is not economically feasible– would substantially increase access to the benefits of broadband. 6. In the region, the scope of Universal Access An extended scope for Universal Access, is confined to basic, conventional ICT services, which includes broadband, should be clearly and Universal Access to broadband remains an articulated in national ICT policies, with an unstated priority in national policies. increase in investments for upgrading operators’ access networks. Associated regulatory mechanisms are needed to ensure effective competition while bridging the digital divide between urban and rural areas. 7. The development of a competitive and World-wide, local loop unbundling of the fixed dynamic broadband market is definitely telephony infrastructure is becoming an lagging in the region. essential pre–requisite for such a market; hence regulators should enforce it and avoid restrictions on the provision of other services. 16 World Bank Broadband Strategy Toolkit Module 3 Challenge Recommendation In the long term, incumbent operators will benefit from such competitive markets by becoming multi–service operators themselves. Source: Broadband for Development in the ESCWA Region. Most countries in the region share a common language facilitating collaboration on developing digital Arab content to improve demand for broadband.21 The Jordanian Minister of Information and Communications Technology has outlined the importance of the content industry as a main driver of Internet penetration, especially as it relates to local and Arabic content. The digital content industry in Jordan received a boost in 2009, when chipmaker Intel announced an investment in two digital content companies: Jeeran and ShooFeeTV.22 The funding will be used to help both companies pursue regional growth as well as extend their product offerings. Jeeran (http://www.jeeran.com/) is the largest user-generated content site in the Arab world, reaching one million members and seven million unique visitors per month. ShooFeeTV (http://www.shoofeetv.com) provides online information for more than 120 Arab satellite channel including listings, programming information, celebrity news, pictures and video clips. 3.5 South Asia South Asia faces severe supply and demand side constraints in promoting broadband access. Fixed infrastructure is limited. Nonetheless in absolute terms there is a significant base of fixed telephone lines and cable subscribers. But the number of telephone lines and cable television connections for broadband services is relatively low. Some countries have yet to award mobile broadband spectrum that would trigger inter-modal mobile broadband competition. On the demand side, the region is the second poorest developing region after Sub-Saharan Africa and levels of education are relatively low. India was the first country in the region to adopt a broadband policy in 2004.23 However, it has not achieved the goals set. The country published a consultative document24 on a new broadband policy and in December 2010, the Telecommunications Regulatory Authority of India issued broadband recommendations.25 A key strategy is to develop an open access national fiber optic backbone network connecting all localities with more than 500 inhabitants by 2013. Pakistan published a broadband policy in 2004.26 But broadband deployment has not lived up to expectations — the number of broadband subscribers in 2007 was only half of the level targeted 21 See: “Final Meeting of the Project on ‘Promotion of the Digital Arabic Content Industry through Incubation’” at http://www.escwa.un.org/divisions/projects/dac/index.asp 22 “Intel Capital to invest in two digital content companies in Jordan. ” Press Release, May 17, 2009. http://www.intel.com/capital/news/releases/090519.htm. 23 Government of India. Broadband Policy 2004. http://www.dot.gov.in/ntp/broadbandpolicy2004.htm. 24 Telecom Regulatory Authority of India. 2010. Consultation Paper on National Broadband Plan. http://www.trai.gov.in 25 “TRAI issues Recommendations on ‘National Broadband Plan’.” Press Release. December 8, 2010. http://www.trai.gov.in 26 See: Government of Pakistan. 2004. Broadband Policy. http://www.pta.gov.pk/media/bbp.pdf and Ministry of IT. N.d. Broadband Penetration in Pakistan. http://202.83.164.27/wps/portal/Moit/!ut/p/c0/04_SB8K8xLLM9MSSzPy8xBz9CP0os3h_Nx9_SzcPIwN3d3MDAyNzf0t 17 World Bank Broadband Strategy Toolkit Module 3 for that year and well short of the half million target for 2010. In an effort to accelerate broadband take-up, the Universal Service Fund is being used to subsidize the deployment of broadband throughout the country.27 Other South Asian nations have also adopted or are developing broadband plans.28 But programs that would address demand side affordability issues are limited (Table 4). Table 4. Broadband plans and policies in selected South Asian nations Country National Universal service Are there other Are there social broadband plan? includes financing tariffs for broadband? mechanisms for broadband broadband? subscribers? Afghanistan Under No TDF Fund No development Bangladesh Yes No, but foreseen No No in the National Broadband Policy Bhutan Yes No No No Maldives No No No Yes for education Nepal Under Yes in rural Tax exemption No development areas. USO for telecom imposed on the equipment incumbent fixed imported for line operator, rural services and financed through USF Fund and interconnection charges Source: ITU. 2010. Stimulating Universal Access to Broadband in Afghanistan, Bangladesh, Bhutan, Maldives and Nepal. Sri Lanka, which was one of the first countries in South Asia to award 3G spectrum has the second highest penetration, the lowest tariffs and fastest mobile broadband speeds in the region. Sri Lanka’s broadband experience is highlighted in a case study (see Section 5.5). Ld3cXA4sgY_2CbEdFAED6W7U!/?WCM_GLOBAL_CONTEXT=/wps/wcm/connect/MoittCL/ministry/highlights/study+u ndertaken+by+moit+regarding+broadband+penetration+in+pakistan 27 See “Broadband Programme” on the Universal Service Fund web site at: http://www.usf.org.pk/Broadband- Programme.aspx. 28 ITU. 2010. Stimulating Universal Access to Broadband in Afghanistan, Bangladesh, Bhutan, Maldives and Nepal . http://www.itu.int/pub/D-HDB-UNIVERSA;-2010. 18 World Bank Broadband Strategy Toolkit Module 3 3.6 Sub-Saharan Africa The Sub-Saharan Africa region faces tremendous barriers in broadening broadband. It starts from a very low base, with limited fixed telephone networks and practically no cable television networks on the supply side, coupled with demand side bottlenecks with the lowest per capita income and years of schooling of all developing regions. Over the past decade, a large amount of private investment, driven by sector liberalization and competition and major advances in cellular technology, has brought mobile services within the reach of the majority of Africa’s population. Increasing competition is making services more affordable and putting pressure on operating margins. Operators are responding by expanding their networks beyond towns and cities into rural areas, and tailoring services to the needs of the lower-income tiers of the population. Sub-Saharan Africa, however, has been largely left behind in the shift to broadband. Increasing the availability and affordability of broadband services is thus high on the agenda for policy makers. Conducive policy environments, investment in network infrastructure, access to radio spectrum, and availability of affordable international bandwidth will all play key roles in the delivery of low-cost broadband to the region. The region’s focus, thus far, on mobile networks to address an immediate service need has left backbone networks underdeveloped. This has created a major bottleneck in the rollout of high- bandwidth services and in the upgrading of cellular networks to provide value-added services.29 Overcoming this infrastructure hurdle is an important element in shaping the structure and policy framework of the telecommunications services sector. Without it, broadband will remain expensive and limited to businesses and high-income customers. The backbone deficit has been acutely felt in international bandwidth. Due to limited content and a shortage of national Internet exchanges, a significant amount of Internet traffic is routed abroad from Sub-Saharan Africa. A lack of international high-speed fiber optic capacity has meant that even where countries have been able to deploy broadband last mile infrastructure, performance is affected by slow international connectivity. Where connectivity exists, cable theft continues to be a major problem for reliability. Until 2009, SAT3/SAFE was the only major regional submarine optic cable serving the content. Other countries had to use more costly and slower satellite links. This has changed dramatically since the arrival of several new undersea cable systems (i.e., TEAMS, SEACOM, EASSy) including the first serving the region’s east coast (i.e., TEAMS). Total capacity rose by a factor of 8.5 in 2009 and additional planned cables are expected to increase undersea capacity to over 20 Tb/s by 2012.30 International connectivity is just part of the supply chain. Countries in the African region also need to ensure that the bandwidth gets disbursed throughout the country and, in the case of the region’s landlocked countries that national backbones are in place to connect to neighboring countries. This will require public private partnerships to generate the investment needed and to ensure an effective and open access operating arrangement. The Kenyan government has supported open access to backbone infrastructure in various ways. It encouraged operators to 29 Parts of this section adapted from: Williams, Mark. 2009. Broadband for Africa policy for promoting the development of backbone networks. Washington DC: World Bank. http://www.infodev.org/en/Publication.526.html. 30 See “African Undersea Cables” at: http://manypossibilities.net/african-undersea-cables/ 19 World Bank Broadband Strategy Toolkit Module 3 participate in the TEAMS undersea cable and has also pursued public private partnerships for national backbone construction. It is now contemplating the same for the construction of broadband wireless networks using LTE technology. See the Kenya case study in Section 5.2. At the local access level, mobile broadband holds great promise. However outside of a few countries, the region has yet to exploit this on a significant scale. Around two dozen Sub- Saharan African countries had commercially deployed 3G networks at the end of 2010 with around nine million subscriptions. Few African countries have elaborated a specific broadband policy. If mentioned at all, broadband is touched upon in overall sector strategies. One exception is South Africa. The Broadband Policy for South Africa prepared by the Department of Communications was published on 13 July 2010.31 Defining broadband as speeds of at least 256 kbps, the government has identified two targets for 2019: all inhabitants to be within two kilometers of a public broadband access point and a household broadband penetration of 15%. Box 2. The Third Man: Encouraging disruption in broadband markets Growth in some of the more successful developed economy broadband markets has been triggered by the entry of brand new disruptive operators. These new service providers tend to be the third player entering the market, shaking up duopolies of DSL and cable broadband operators or a dominant incumbent and a major wireless operator. This is the case in the developed East Asian economies of the Republic of Korea, Japan and Hong Kong, China where new operators entered the broadband market with innovative business plans and models, unsettling the market and triggering a beneficial stimulus to broadband growth.  Hanaro entered the market in 1999 as a facilities-based telephone operator in competition with the incumbent Korea Telecom. Soon after entry, Hanaro began offering broadband ADSL services resulting in intensive competition, a major factor in the Republic of Korea’s rise as a top ranked broadband country. Hanaro had captured almost a quarter of the broadband market at the end of 2009.  SOFTBANK entered the Japanese broadband market in 2001 by leasing unbundled local loop lines from the incumbent telephone operators and in 2004, it obtained a facilities license and began deploying its own infrastructure. It acquired Japan’s third largest mobile operator in 2006 allowing SOFTBANK to enter the mobile broadband market. Marketing its service as Yahoo!BB, SOFTBANK had a 14 percent share of the broadband market in 2009 and over a third of its subscribers were getting speeds of 50 Mbps. According to the company: “It is not an exaggeration to say that the fixed-line broadband service in Japan was created by the SOFTBANK Group.”32  Hong Kong Broadband Network (HKBN) entered the market in 2000 after it was awarded a fixed wireless license. The city’s compact high-rise building environment shaped HKBN’s technological strategy of installing in-building wiring; communications between buildings and HKBN’s routers and switches were carried out using wireless transmission through rooftop antennas. HKBN was able to penetrate the market quickly 31 Department of Communications. 2010. Broadband Policy for South Africa. http://www.info.gov.za/view/DownloadFileAction?id=127922 32 Softbank. 2007. Annual Report 2007. http://www.softbank.co.jp/en/irinfo/library/annual_reports/ 20 World Bank Broadband Strategy Toolkit Module 3 and shook up the quasi-duopoly between the incumbent fixed line operator and cable television company for broadband provision. HKBN later acquired a fixed line license and once again is shaking up the market by deploying fiber optic to the home. It had a 20 percent share of the fixed broadband market by 2009. The process of disruption has also occurred in some European markets where alternative operators initially entered using the infrastructure of incumbent operators and then having established a foothold, began investing in their own infrastructure. This is the case in France and Italy:  Free started as dial-up operator in France in 1999 and began providing broadband services in 2002 using ADSL over France Telecom’s Unbundled Local Loop (ULL). In 2006, it began rolling out its own FTTH network and intends to cover four million homes by 2012, representing an investment of about €1 billion. Free has been providing triple play services since December 2003. Its IPTV service offers over 300 channels and Free’s broadband speeds range between 22-28 Mbps. In 2009, it was awarded the country’s fourth 3G license. Free had 23% of the French fixed broadband market in 2009.  In Italy, FASTWEB started by deploying a fiber optic network in Milan. In 2001 it began providing triple-play services using DSL over Telecom Italia’s infrastructure. The company has partnered with other operators in a “Fiber for Italy” project where they will pool resources to provide FTTH in Italy’s 15 largest cities, an investment expected to cost €2.5 billion. Meanwhile, FASTWEB has also been building its own FTTH network that passes nearly two million homes, offering speeds of up to 100 Mbps. FASTWEB had 13% of the fixed broadband market at the end of 2009. Market disruptive operators are spreading to emerging and developing economies:  Starnet entered the Moldovan market in 2003 providing ADSL over the incumbent’s telephone network. In 2006, Starnet began providing voice over broadband and also started the construction of its fiber optic network. In 2009, IPTV was added to its portfolio and by end of the year Starnet had captured 16% of the fixed broadband market.  In Morocco, Wana was awarded wireless broadband spectrum in 2006. A company owned by national investors, it launched services in 2007 using high-speed EV-DO technology. This resulted in intense competition with the existing mobile operators and led to rapid adoption of 3G services that soon passed fixed broadband subscriptions. By the end of 2010, there were 1.4 million 3G subscribers in Morocco, almost three times the number of fixed broadband connections. Wana had 41% of the mobile broadband market. The lesson for developing countries is that while it is critical to open broadband markets to competition, it is just as important to introduce brand new operators. Setting aside spectrum for a new operator and lowering other market entry barriers, particularly those relating to the ability to provide convergent services, can encourage this. Sources: ITU. 2008. Asia-Pacific Telecommunication Indicators - Broadband in Asia-Pacific: Too much, too little?, operating reports of companies discussed and regulatory authorities for broadband market shares. 21 World Bank Broadband Strategy Toolkit Module 3 4 Countries in special circumstances In addition to regional groups, countries are also classified by particular economic, geographic and political situations. This section identifies several groupings relevant to the international development community and how the specific characteristics of that group can affect broadband development. 4.1 Least Developed Countries (LDCs) The UN created the Least Developed Countries (LDCs) category in 1971 to recognize the existence of a group of countries with severe poverty and weak economic, institutional and human resources.33 This group consists of 49 countries with a combined population of 815 million in 2008 (Figure 8). Most are in Africa, almost a third are in Asia and the Pacific and one is in Latin America. Around half are either small islands states or landlocked. The LDCs face tremendous supply and demand side challenges in deploying broadband networks. The existing level of fixed infrastructure is low as are demand side indicators such as incomes and educational levels. The capacity for developing effective broadband strategies and policies is also limited due to institutional weaknesses and insufficient human resources in ministries and regulators. Figure 8. LDCs Source: UN-OHRLLS. New technologies such as broadband can help LDCs overcome development challenges and can move LDC economies away from their dependence on primary commodities and low-skill manufacturing.34 There is some urgency to deploy broadband networks in order to mitigate LDCs falling further behind technologically and becoming even more marginalized in the world economy.35 The development of international and national backbones is a main priority that will 33 LDCs are identified through three criteria: income per capita, human capital and economic vulnerability. For the methodology see: http://www.unohrlls.org/en/ldc/related/59/. For the list of LDCs see: http://www.unohrlls.org/en/ldc/related/62/ 34 UNCTAD. 2010. The Least Developed Countries Report 2010. New York: United Nations. http://www.unctad.org/templates/webflyer.asp?docid=14129&intItemID=5737&lang=1&mode=downloads 35 UNCTAD. 2007. The Least Developed Countries Report 2007. New York: United Nations. http://www.unctad.org/en/docs/ldc2007_en.pdf 22 World Bank Broadband Strategy Toolkit Module 3 require innovative public private partnerships. Wireless broadband holds great promise given the significant increase in mobile networks in the LDCs and the lower costs of deploying mobile broadband. In order to achieve this, LDCs will need to introduce greater competition and allocate spectrum for wireless broadband services. 4.2 Landlocked developing countries (LLDCs) Landlocked developing countries (LLDCs),36 predominantly located in Sub-Saharan Africa and Asia, “face severe challenges to growth and development due to a wide range of factors, including: a poor physical infrastructure, weak institutional and productive capacities, small domestic markets, remoteness from world markets, and a high vulnerability to external shocks.”37 There are 31 LLDCs with a total population of 370 million in 2008 (Figure 9). Figure 9. LLDCs Source: UN-OHRLLS. One of the main barriers LLDCs face is distance from key ports causing high transaction costs and reducing international competitiveness. Broadband can help to overcome these limitations, since it is not distance sensitive. However, geographical conditions pose a supply side challenge for LLDCs in terms of global connectivity through high-speed fiber networks. “Virtual coastlines” can be created for LLDCs through the connection of national backbones to countries directly linked to undersea cables. This connectivity can then be brought to “virtual landing stations” in the LLDC where all ISPs gain cost-based access to international bandwidth. Rwanda has created a virtual landing station where optic fiber cables from undersea landing stations in Kenya and Tanzania (Rwanda’s “virtual coastline”) are terminated.38 Access to high-speed international bandwidth will require regional cooperation and public private partnerships to spur investment in national backbones and ensure their onward connectivity to neighboring countries with undersea fiber optic cable. According to an ESCAP study on Central Asia countries must cooperate to expedite and ensure effective regional connectivity.39 A broadband backbone infrastructure transcending borders requires 36 For a list of LLDCs see: http://www.unohrlls.org/en/lldc/39/ 37 See “UN recognition of the problems of land-locked developing countries” on the UNCTAD web site at http://www.unctad.org/Templates/Page.asp?intItemID=3619&lang=1 38 David Kanamugire. n.d. “The Role of Governmental Institutions in fostering ICT research capacity.” http://euroafrica-ict.org.sigma-orionis.com/downloads/rwanda/Kanamugire.pdf 39 ESCAP. 2009. Broadband for Central Asia and the road ahead. http://www.unescap.org/idd/working%20papers/IDD_TP_09_05_of_WP_7_2_909.pdf. 23 World Bank Broadband Strategy Toolkit Module 3 interconnection and along with management and maintenance, this affects all the countries benefiting from the network. 4.3 Small Island Developing States (SIDS) The United Nations has recognized the particular problems of Small Island Developing States (SIDS) since 1994.40 According to UNCTAD, SIDS face “… a greater risk of marginalization from the global economy than many other developing countries…” due to their small size, remoteness and vulnerability to external shocks.41 They are also susceptible to natural disasters such as tsunamis and damaging environmental changes such as sea level rise. There are 38 UN Members classified as SIDS with a population of 55 million in 2008 (Figure 10). Over one quarter are also LDCs. Figure 10. SIDS Facts and Figures 38 UN Members: 16 in Caribbean 16 in Asia & Pacific 6 in Africa Total Population 2008: 55 million Source: Adapted from UN-OHRLLS, FAO, IMF. Broadband connectivity can help overcome these challenges in several ways such as economic diversification through establishment of IT-enabled industries, creating a virtual closeness to the rest of the world and real-time weather modeling and monitoring. The SIDS are geographically diverse with different broadband supply and demand challenges. On the demand side, many SIDS have relatively small populations that may deter investment. However, the small size makes it easier and cheaper to quickly deploy networks with a high degree of coverage and a growing number of SIDS are achieving universal mobile service.42 On the supply side, most of the Caribbean SIDS are located in a condensed area, crisscrossed by a number undersea fiber optic cable networks. Pacific SIDS tend to be more spread out. Since there are far fewer options for access to undersea fiber optic cables, most Pacific SIDS are dependent on more expensive satellite solutions. Some Pacific SIDS such as Fiji are served by undersea cables and therefore are in a position of being a potential fiber hub to neighbors.43 Most of the Caribbean SIDS introduced competition in telecommunications networks a number of years ago whereas the Pacific ones have done so only recently. Mobile broadband has yet to 40 For a list of SIDS see: http://www.unohrlls.org/en/sids/44/ 41 See: “UN recognition of the problems of small island developing States” at: http://www.unctad.org/Templates/Page.asp?intItemID=3620&lang=1 42 See “Samoa Mobilized” at: http://www.ictdata.org/2010/09/samoa-mobilized.html 43 World Bank. 2009. Regional telecoms backbone network assessment and implementation options study . http://www.itu.int/ITU-D/asp/CMS/Events/2009/PacMinForum/doc/POLY_WB_GeneralReport_v3%5B1%5D.0.pdf. 24 World Bank Broadband Strategy Toolkit Module 3 have a significant impact in most SIDS to date due to a lack of spectrum allocation and uncertain demand. The Eastern Caribbean Telecommunications Authority (ECTEL) was established as a regional regulator for countries in that sub-region. ECTEL overcomes human resource limitations of each country staffing their own full-fledged regulatory institution and harmonizes sub-regional policies. ECTEL recently moved to make high-speed Internet more accessible by designating the 700 MHz Band for broadband wireless services such as WiMAX.44 Saint Kitts and Nevis, a Caribbean SIDS, is profiled in a broadband country case study (see Section 5.4). 4.4 Post-conflict countries Post-conflict countries refer to nations where war and civil strife leads to the destruction of institutions and economic facilities. There is no official definition of a post-conflict economy. They are often locations where civil conflicts have necessitated the intervention of peacekeeping troops.45 ICTs can play in beneficial role in helping to reconstruct these countries by attracting foreign investment, generating employment, enhancing education prospects and creating linkages to the global economy.46 Given the often poor or destroyed telecommunication infrastructure, post-conflict countries can leapfrog to state-of-the-art next generation networks. However, this will require a liberalized telecommunication regime that encourages convergence and investment in Internet Protocol networks. In Afghanistan years of civil strife destroyed much of the economy, shutting down most government institutions including schools. A NATO sponsored project has installed broadband access in universities using satellite technology.47 This has overcome shortages of learning materials and teachers since professors and students can download teaching information and use on-line learning tools. In East Timor, the Australian government has been assisting with the development of the new country’s media sector by providing journalists with the ability to upload and research news through the establishment of broadband centers.48 The case of Sri Lanka, a country emerging from a decades long civil conflict, is highlighted in a broadband study (see Section 5.5). 44 ECTEL. 2009. Policy on the Allocation and Assignment of Frequencies in the 700 MHz Band. http://www.ectel.int/pdf/consultations/2010/700%20Mhz%20Band%20Plan%20and%20Policy.pdf 45 There is no official definition of a post-conflict economy. They are often locations where civil conflicts have necessitated the intervention of peacekeeping troops. For a list of locations where UN peacekeeping troops are stationed, see: http://www.un.org/en/peacekeeping/ 46 The World Bank financed e-Sri Lanka project argues that “ICT can promote peace efforts by providing connectivity and electronic delivery of much needed information and public services, bridging space, time and promoting understanding between the North and East and the rest of the country.” See: Sri Lanka - E-Lanka Development Project. December 1, 2003. http://go.worldbank.org/567ZZUWMD0. 47 “Broadband for Afghanistan.” The NATO Chronicles. Episode 2. March 2010. http://www.natochronicles.org/#/en/episode2 48 See “Governance Activities: East Timor” on the AusAID web site at: http://www.ausaid.gov.au/country/east- timor/governance.cfm. 25 World Bank Broadband Strategy Toolkit Module 3 5 Broadband country case studies This section summarizes the results of broadband case studies commissioned for the toolkit. The countries studied cover a range of regions and development status. 5.1 Brazil 26 World Bank Broadband Strategy Toolkit Module 3 5.2 Kenya: Build it and they will come The study considers the case of broadband in Kenya and the manner in which the country has tackled its capacity challenges. Kenya has a natural geographic advantage being strategically positioned on the East Coast of Africa. Its government-led “build it and they will come” approach to broadband development has leveraged the country’s geographic location and played a major role in dramatically increasing fiber optic backbone capacity. Many of Kenya’s milestones have been realized in less than five years. Connections were made to three fiber optic submarine cables by the end of 2010 changing the face of the broadband market. The country has gone from relying on satellite for international capacity, to having access to almost four terabits over fiber. Although the landing of the cables is merely a first step, it has already resulted in an 80 percent decrease in wholesale bandwidth costs (although reliability is sometimes a problem). Lower prices and greater availability are expected to increase access to the Internet as well as to promote the continued spread of sophisticated mobile applications and services and consequently improve opportunities for the creation of and access to information and knowledge. Affordable broadband is expected to increase Kenya’s competitiveness, particularly in the Business Process Outsourcing (BPO) industry, and to encourage entrepreneurship and innovation. With an estimated fixed and mobile broadband penetration rate of 2 subscriptions per 100 people in 2010, Kenya still has significant progress to make with respect to broadband uptake. Stimulating demand and usage by citizens and the public and private sector remains a challenge. Kenya, largely through the government, has taken an innovative and pro-active approach to putting the user at the center and addressing the other elements of the broadband ecosystem, such as education, literacy, applications and content. This has been done through progressive regulation, the promotion of polices relating to ICT in education, the subsidization of relevant content and application projects, and facilitating creative Public Private Partnerships (PPPs). Much of Kenya’s success seems attributed to four important factors: (1) A clear national approach of how broadband fits into its Vision 2030 development goals; (2) Strong leadership and direction; (3) A credible regulatory, policy and institutional framework, and (4) Leveraging the strength of the public and private sectors through PPPs. The initiatives discussed in the study possess elements of these traits across all aspects of the broadband ecosystem. The Kenyan experience is inspiring, although there have been a few hiccups in terms of the pace of implementation and overlaps in the policy and institutional framework. These are discussed in the study to provide a proper context for the Kenyan broadband story and to enable countries to learn from its experiences. 27 World Bank Broadband Strategy Toolkit Module 3 5.3 Morocco 28 World Bank Broadband Strategy Toolkit Module 3 5.4 Saint Kitts and Nevis: Strength in Depth The study focuses on the broadband Internet sector in St. Kitts and Nevis, specifically the approach the island has taken in developing the sector, to the extent that at the end of 2010 fixed broadband subscription rates stood at almost 30 percent, the highest rate among all independent countries of the Latin America and Caribbean region. This achievement in broadband 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 information and communication technology policy initiatives. Among the Caribbean islands, however, ‘smallness’ is certainly not unique. The study therefore explores other factors that may have contributed to this achievement. 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 deep commitment to nurturing the foundational components of the broadband ecosystem. Promotion of basic education and digital literacy, building technology awareness, facilitating access to basic technologies, and encouragement of a healthy competitive telecommunications environment are but a few examples of where the country has developed its core strengths. Key strengths of the St. Kitts and Nevis broadband ecosystem identified in the study can be grouped under one of the following areas: (a) Competitive environment – through efficient legislation and regulation; (b) Regional coordination – particularly for design of effective policy frameworks; (c) Government as facilitator – strong leadership in the ICT sector; (d) Government as leader – promoting service demand through content provision; (e) Universal service – for broadening access to technologies; and (f) Public private partnerships - to catalyze and strengthen broadband initiatives. The implementation of a second submarine fiber network in 2006 offering up to 1.3 terabits, has introduced competition in the international backbone capacity that should further serve to enhance the broadband sector. However, as in any ecosystem, sustainability and growth can be threatened by internal weaknesses. Some of these weaknesses have served as lessons learnt and adjusted to at the national level; others continue to pose a challenge to the islands. Cost prohibitive services, an unstable power supply, quality of service issues, and deficiencies in the availability of local content and applications that create network value for citizens, are some of the challenges for future growth of the broadband sector in St. Kitts and Nevis. In general, the two islands have been successful in promoting uptake of broadband Internet through a number of measured approaches; approaches that can be of relevance to discussions on broadband strategies pertaining to developing countries, based upon identified strengths and weaknesses within this study. 29 World Bank Broadband Strategy Toolkit Module 3 5.5 Sri Lanka: Glass half full or half empty? Sri Lanka, an island nation located in the Indian Ocean just south of India, has lately experienced an explosion in the availability and use of mobile broadband services. Key trends in the Sri Lankan ecosystem include: Innovative business models for making services accessible to all: The increase in mobile broadband rides on the wave of extremely high mobile voice growth. Intense competition forced operators to innovate in such a way as to be able to profitably serve even the poorest consumers. Network costs were reduced drastically by sharing passive and active infrastructure and outsourcing key parts of the operation. Distribution costs were minimized through e-reloads, eliminating the need to print and distribute top-up cards for pre-paid users. Small top-up values attracted consumers with low and variable incomes to the market. This “budget telecom model” enabled operators to make positive margins even though ARPU was low. This model is now being applied to mobile broadband in Sri Lanka. By enabling pre-paid, very low value re-charge and promotional discounts for students, the youth have been brought into the mobile broadband market. These early adopters have spread interest in mobile broadband. 3G spectrum availability: 3G frequency was made available as far back as 2003 for testing and in 2005 commercial 3G services were launched. Early access to spectrum enabled operators to gain experience and constantly innovate to stay competitive. As a result, Sri Lanka has fastest mobile broadband technologies in the region. Government’s e-development agenda motivating investment: e-Sri Lanka is a cross- sector ICT-enabled development program for the whole country. A series of comprehensive supply and demand side projects (for example, setting up a network of nearly 500 rural telecenters, plans for a least-cost subsidy scheme to build and operate a fiber backbone in rural areas and a comprehensive e-government program) helped create awareness about broadband in the country. Operators were motivated to invest in the network infrastructure in light of upcoming demand. The ethnic conflict and impact on demand for broadband: Since the early 1980s, Sri Lanka was plagued by a violent ethnic conflict. One of the negative results was that it forced a large portion of the minority Tamil population to leave Sri Lanka and seek refuge in other countries. This large migrant population generated high demand for Internet services in order to communicate with relatives remaining in Sri Lanka. Demand for Internet telephony was unusually high in conflict zones with Internet cafes catering to this demand for VoIP. International connectivity hampering quality: The downside of budget telecommunications models is that price is sometimes sacrificed for quality. Compared with the developed world, Sri Lankan consumers get less broadband value for the money they spend. Part of the reason is advertising broadband speeds that are theoretically possible, but not in reality. Another bottleneck is international connectivity. A significant portion of Internet traffic is routed outside of the country and wholesale international connectivity prices are relatively high making Internet capacity a sought after resource. 30 World Bank Broadband Strategy Toolkit Module 3 5.6 Turkey 31 World Bank Broadband Strategy Toolkit Module 3 5.7 Vietnam 32 World Bank Broadband Strategy Toolkit Module 3 6 Crafting a broadband development strategy for a particular country environment49 6.1 Broadband as an ecosystem Across the developing world, countries are looking to increase access to and use of broadband. It is useful to conceptualize broadband as an ecosystem consisting of infrastructure networks, the services that the networks carry, the applications and content delivered over the networks, and the users that utilize applications and content (Figure 11):  Infrastructure-Refers to the networks that support high-speed data communication (e.g., telephone networks, broadcast networks, computer networks using copper wires, coaxial cable, fiber optic cable and other transmission media)  Services-Refers to the services these networks provide (e.g., broadband access to the Internet)  Applications and Content-Refers to the programs and information provided by services (e.g., Voice over Broadband (e.g., Skype), social media (e.g., Facebook), video (e.g., YouTube), search engines (e.g., Google), etc.)  Users-Refers to citizens and businesses who respond to the affordability of the services and relevance of the applications and content. The broadband ecosystem is a virtuous circle with each component leveraging on another. Investments and user demand expand the reach of high-speed networks. These networks increase the availability of high-quality services to both users and application providers. Users then grow in number and sophistication, demanding and driving greater investments in networks. Viewing broadband as an ecosystem helps define the likely roles that governments will need to play in using broadband as a tool in ICT for development (ICT4D). Broadband is more than the supply of access to networks and services, and thus represents a significant shift away from the models used with telephones. To foster broadband markets, governments will have to move beyond their traditional “push” role focused on supply-side growth in ICT infrastructure and development of the ICT sector. They also need to stimulate demand for broadband. 49 Parts of this section are adapted from: 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. 33 World Bank Broadband Strategy Toolkit Module 3 Figure 11. The Broadband Ecosystem Defining broadband to include both the supply and demand sides of the market leads to a rethinking of approaches to spur broadband access and use. It is critical to create an enabling environment for supply-side growth in terms of access to networks and services—but is also important to facilitate demand for and adoption of broadband. There are two kinds of blockage that inhibit the natural development of broadband deployment and use. On the supply side, these relate to blockages at the various levels of infrastructure that are necessary for a broadband network (Figure 12). 34 World Bank Broadband Strategy Toolkit Module 3 Figure 12. Broadband supply factors International connectivity Domestic backbone • Metropolitan rings, Internet exchanges Local access Access device On the demand side, barriers that affect usage of broadband are access, attraction, affordability and assurance (Figure 13). Figure 13. Broadband demand factors Access • Having broadband access within reach (e.g., at home, work, school or public facility or covered by high-speed wireless network) Affordability • Ability to pay for broadband services and devices. Influenced by payment mode (post or prepaid) and price structure (unlimited or capped) as well as availability of devices and taxes. Attraction •Reasons to compel usage such as relevant services, content & applications Assurance •Environment that creates trust in using broadband services and applications 35 World Bank Broadband Strategy Toolkit Module 3 Box 3. Broadband gap: Stages of broadband development Broadband markets pass through three stages—promotion when the market is incipient, oversight as competition begins to drive growth, and universalization as the market matures. Most countries are in the early stage (household broadband penetration less than 10%, Figure 4). Around 40 economies are in the mass-market stage (penetration ≥ 10% and less than 50%) and three dozen are in the universalization stage (penetration > 50%). Figure Box 3 . Stages of broadband development Source: TMG Analysis based on data from regulators. Broadband development strategies are implemented using policies, regulations, and programs. The policies and regulatory tools support the operation of a competitive, efficient market and seek to expand access to all. They also include demand-side policies and programs. Many of these measures would have little or no implications for government budgets. Some could be funded through contributions from the broadband industry, and others would be self-sustaining from service fees (as with e-government programs) or cost savings (as with infrastructure sharing). Descriptions and examples of the policies and programs are provided in Table 5. This is next related to a country’s geographic placement with reference to examples from different regions (Table 6). 36 World Bank Broadband Strategy Toolkit Module 3 Table 5. Policies and programs for promoting broadband in developing countries INFRASTRUCTURE Policy / Program: Promote investment and market entry Supply & Demand impacts: Supply: All levels; Demand: Access, affordability Description: The first step of broadband policy implementation is to foster competition with minimal market entry barriers. Lowering or removing entry barriers into broadband markets drives competition. A key consideration is technological neutrality. The rapid development and diffusion of broadband is largely due to competition between technologies such as DSL, cable modem, fiber optics, and wireless. To enjoy the full benefits of such competition, governments should not influence the technological choices of providers without good reason. Example: The Thai government considers that international connectivity could be a bottleneck and for that reason issues automatic licenses for international gateway services.50 Policy / Program: International coordination Supply & Demand impacts: Supply: All levels Description: Coordination among countries can impact all levels of the broadband supply chain by lowering costs through common technical standards and facilitating the development of international, regional and national backbones. There already exists a high-level of global and regional cooperation in areas such as equipment standards and frequency coordination. Regional harmonization in broadband regulatory approaches can help to reduce uncertainty and attract investment. Example: The Eastern Caribbean Telecommunications Authority (ECTEL) is a regulatory body for its five member states. It coordinates policy in a number of areas including aspects related to broadband such as frequencies for broadband wireless access, wholesale access to networks and quality of service.51 Policy / Program: Reduce administrative burdens and provide incentives for R&D, pilots, and network rollout Supply & Demand impacts: Supply: All levels; Demand: Access, Affordability Description: High license fees, taxes and burdensome administrative processes can discourage investment in the broadband sector, especially when the market is nascent and the returns uncertain. Measures such as providing investors 50 National Telecommunications Commission, Thailand. Enabling Open Networks. 2010 Global Symposium for Regulators. Dakar, 10 to 12 November 2010. http://www.itu.int/ITU-D/treg/Events/Seminars/GSR/GSR10/consultation/contributions/Thailand.pdf 51 See the ECTEL web site at: http://www.ectel.int 37 World Bank Broadband Strategy Toolkit Module 3 with tax benefits and low-interest, long-term loans can promote investment in network development. Likewise allowing operators to use broadband spectrum for pilots prior to formal allocation provides an opportunity to test feasibility of different frequencies and gain valuable experience. Example: In order to encourage broadband connectivity India removed licensing requirements for use of Wi-Fi and WiMAX in the 2.4 GHz-2.4835 GHz band. 52 Policy / Program: Allocate and assign spectrum Supply & Demand impacts: Supply: Domestic backbone, local access; Demand: Access Description: Allocating the appropriate spectrum can significantly alter the business case and usefulness of wireless broadband. Furthermore, governments should manage their radio spectrum appropriately to reduce entry barriers, promote competition, and enable the introduction of innovative technologies. An important consideration for spectrum policy is which frequencies should be allocated for broadband services and how. The critical choice is whether countries want to maximize their up-front earnings through spectrum sales but reduce potential new market entrants. The move toward digital television is providing an opportunity to use the parts of the spectrum freed by the move for wireless broadband services. Given the rapid development of wireless broadband technologies, governments should allow providers to obtain new frequencies by expanding available frequency bands. They should implement management policies that are based on market principles, encourage efficient use, and shift spectrum from low-value uses to services such as broadband. Spectrum managers should also keep in mind the effect of their spectrum allocations on business economics: higher bands make mobile communication more difficult and more expensive. In addition, spectrum managers should look toward newer management models—such as the spectrum-as commons approach that has been a key factor in the success of Wi-Fi networking—to encourage spectrum sharing and innovation. Spectrum should be assigned on a technology- and service-neutral basis. This approach is critical to enabling all the different types of applications of broadband services: voice, video, and data can all be provided by wireless broadband technologies. If spectrum authorizations limit what applications can be provided, they will diminish the utility of the broadband service and undermine the business case for the service provider. Finally operators should be allowed to use their existing spectrum for mobile broadband services. Example: Widespread policies throughout Latin America allow operators to use their existing 850/900 MHz spectrum, originally allocated for voice, to be used for high-speed mobile data services. These frequencies also support 52 See “Indian Telecom Sector” on the DOT web site at: http://www.dot.gov.in/osp/Brochure/Brochure.htm 38 World Bank Broadband Strategy Toolkit Module 3 wider coverage with fewer base stations so that investment costs are lower and a larger number of people can gain access.53 Policy / Program: Infrastructure sharing Supply & Demand impacts: Supply: International connectivity, domestic backbone, local access; Demand: Access, Affordability Description: Civil works (for example, trenches, ducts, and cables) are the biggest fixed and sunk cost in broadband network construction in both the access and the backbone segments of fiber-optic networks. They also play a major role in increasing the cost of network deployment for new service providers as well as incumbents. The costs of backbone network construction can be cut by establishing legal grounds for open access to the passive infrastructure (conduits, ducts, and poles) of other services (roads, railways, and power supply facilities). This approach can significantly lower the cost of rolling out telecommunications networks, because adding communications equipment (such as cables) to other infrastructure projects is relatively cheap. Similarly, when contractors construct other types of new infrastructure, the government can require them to build passive infrastructure that communications service providers can access on a nondiscriminatory basis. Another option is to require the installation of basic infrastructure, such as ducts, when homes and offices are constructed or renovated. Facilities should be granted on an impartial basis to all providers. Finally, governments can permit or facilitate joint construction of backbone and subscriber networks among providers. Example: In Thailand, operators signed a Memorandum of Understanding on infrastructure and network sharing in November 2010 in support of the country’s National Broadband Policy.54 According to the government, the MoU will lead to more efficient use of networks. Policy / Program: Internet exchange Supply & Demand impacts: Supply: International connectivity; Demand: Affordability Description: There are many advantages to local routing of Internet traffic via a common exchange point: • Substantial cost-savings are made by eliminating the need to put all traffic through the more expensive long- distance links to the rest of the world. • More bandwidth becomes available for local users because of the lower costs of local capacity. • Local links are often up to 10 times faster because of the reduced latency in traffic, which makes fewer hops to get to its destination. 53 Roetter, Martyn. 2009. Mobile Broadband, Competition and Spectrum Caps. http://www.gsmworld.com/documents/Spectrum_Caps_Report_Jan09.pdf. 54 Prasert Aphiphunya. 2010. Broadband Development in Thailand. http://www.unescap.org/idd/events/cict-2010/Mr-Prasert-NTC.pdf 39 World Bank Broadband Strategy Toolkit Module 3 • New local content providers and services, which rely on high-speed low-cost connections, become available, further benefiting from the broader user-base available via the IXP. • More choices for Internet providers become available on which to send upstream traffic to the rest of the Internet—contributing to a smoother and more competitive wholesale transit market. Example: The case of Mongolia demonstrates that a combination of ISP cooperation and tacit support from governmental authorities can lead to the rapid and successful establishment of an IXP in a developing country. In January 2001, a group of leading Mongolian network operators met in Ulaanbaatar to explore the creation of a national IXP. At the time, all Mongolian ISPs were interconnected via providers in the United States or Hong Kong. Satellite latencies amounted to a minimum of 650 milliseconds (over half a second) for each packet of data in each direction. Costs were high and very few Mongolian Internet business services were hosted within Mongolia. Mongolia’s three leading Internet providers completed planning for an independent exchange within three months. By March 2002, MIX had six ISP members and steadily increasing traffic between them. Today, local latency is less than 10 milliseconds per transaction and an average of 377 gigabytes of data are transferred domestically each day among MIX’s members. Moreover, each domestically exchanged transaction frees up an equal amount of international bandwidth, thereby improving connection speeds and reducing latency over Mongolia’s international links. 55 Policy / Program: Public/private partnerships (PPPs) for deployment of open access broadband networks Supply & Demand impacts: Supply: International connectivity / Domestic backbone Description: Network construction is the highest entry barrier in the communications industry, requiring significant financial resources. Construction of domestic and international backbone networks is essential to ensure that high- quality, low-cost connectivity is available. Businesses might initially avoid investing in backbone networks because they are unsure of the returns on their investments. Governments can partner with the private sector to provide up-front support in order to reduce risks or act as an anchor tenant to induce investment. Example: The Kenyan government has been aggressively promoting the development of broadband backbones through public-private partnerships (PPPs). It took an active role in The East African Marine System (TEAMS), an undersea fiber optic cable linking Mombasa, Kenya and Fujairah in the United Arab Emirates (UAE). The government encouraged operators in Kenya to join it in taking an 85% stake in the cable, which was launched in 2009. More than ten operators have an ownership interest in TEAMS guaranteeing them access at wholesale 55 Mike Jensen. 2009. “Promoting the Use of Internet Exchange Points: A Guide to Policy, Management, and Technical Issues.” Internet Society Reports. http://www.isoc.org/internet/issues/docs/promote-ixp-guide.pdf 40 World Bank Broadband Strategy Toolkit Module 3 rates. Kenya also encouraged PPPs for building the national fiber backbone and is considering the same for LTE networks. 56 Policy / Program: Coordinate access to rights of way Supply & Demand impacts: Supply: Domestic backbone, Local access; Demand: Affordability Description: Obtaining the rights of way necessary to deploy broadband infrastructure can be a complex process adding to costs and delaying deployment. Example: Canada’s Telecommunications Act includes provisions to facilitate operators’ access to public property.57 Policy / Program: Facilitate open access to critical infrastructure Supply & Demand impacts: Supply: International connectivity, Domestic backbone, Local access; Demand: Affordability Description: Critical infrastructure is essential network elements or services that are typically owned by a single or small number of suppliers. These include facilities such as international and national fiber optic backbones and fixed local access networks that cannot easily be replicated. Facilitating open access to these facilities through options such as an obligation for providers to provide wholesale access offers or structural separation of wholesale and retail activities can stimulate competition and lower retail broadband prices. Example: The European Commission’s requires incumbent operators to offer unbundled access to their fixed telephone networks.58 SERVICES Policy / Program: Connect schools to broadband networks Supply & Demand impacts: Supply: Domestic backbone, local access; Demand: Access, Affordability, Awareness, Assurance Description: School connectivity provides many benefits including access to an ever-growing volume of educational information, opportunities for collaboration and the use of on-line applications. It provides students and teachers hands-on experience for developing ICT skills. Schools can also be leveraged to provide connectivity in off-hours to the rest of the community. Example: In Chile, the Center for Education and Technology within the Ministry of Education administers Enlaces, the country’s initiative to improve education in subsidized state schools using ICTs.59 Enlaces provides access to the 56 World Bank. 2011. Kenya Broadband Case Study (forthcoming). 57 See “Sharing rights of way” on the ICT Regulation Toolkit at: http://www.ictregulationtoolkit.org/en/PracticeNote.aspx?id=3245 58 “REGULATION (EC) No 2887/2000 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 18 December 2000 on unbundled access to the local loop.” Official Journal of the European Communities. December 30, 2000. http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2000:336:0004:0004:EN:PDF 41 World Bank Broadband Strategy Toolkit Module 3 Internet to approximately 75 per cent of students in schools that are enrolled in the project, 67 per cent of which have a broadband connection. Policy / Program: Government as an anchor tenant Supply & Demand impacts: Supply: Domestic backbone, Local access; Demand: Access Description: One of biggest expenses in providing broadband connectivity in rural areas is the “middle mile,” or the portion connecting a town to the Internet backbone. Once the backbone connection is established to government institutions, it can be leveraged to provide retail broadband services to local residences and businesses. Broadband connected government institutions thus become “anchor points” from which broadband connectivity can be shared with the surrounding community. Example: The United States has recommended that broadband connectivity in federal offices located around the country should be used to extend broadband access to unserved and underserved communities.60 Policy / Program: Monitor service quality Supply & Demand impacts: Demand: Assurance Description: Broadband service providers often advertise broadband speeds that are higher than the bandwidths actually experienced by the user. Differences between advertised and actual speed can impact users’ confidence in the quality of broadband services. This can be overcome through regular reporting of service quality levels. Example: The Telecommunications Regulatory Authority of Bahrain publishes quarterly results of its broadband quality of service monitoring.61 It carries out a predefined set of tests around the clock. The results are stored in a centralized database. Actual versus advertized speeds for different ISPs are tested based on access to local and international web sites. The measurements supplement information already available to consumers in respect to prices and advertized speeds. Policy / Program: Create an enabling environment for intermodal competition Supply & Demand impacts: Supply: Local access; Demand: Attraction Description: Convergence allows for the provision of voice, data and broadcast services over telephone, broadcast, mobile and Internet networks. Governments should allow any type of network to offer any type of broadband service in order to intensify competition. This includes the legalization of voice over broadband and television over 59 See the “Connect a School, Connect a Community” web site at: http://connectaschool.org/en/schools/connectivity/regulation/Section_6.1_Chile_case_study 60 See “Government Performance” at: http://www.broadband.gov/plan/14-government-performance/#r14-1 61 Telecommunications Regulatory Authority. January 2011. Broadband Quality of Service Report. http://www.tra.org.bh/en/marketQuality.asp 42 World Bank Broadband Strategy Toolkit Module 3 Internet Protocol services. Example: Chile allows telecom and television operators to provide voice, data and video services. Cable television operators account for almost half of broadband lines and around one fifth of voice subscriptions.62 Policy / Program: Ensure nondiscriminatory access for service, application, and content providers Supply & Demand impacts: Demand: Attraction Description: It is critical to ensure that all broadband providers of services, applications and content have fair access to broadband networks. “Network neutrality” helps to achieve this by preventing broadband operators from blocking or degrading access to specific content except when requested by user. Example: Chile’s Internet and Network Neutrality Law prohibits operators from blocking applications or content unless requested by the user. Intensive users would be required to subscribe to a broadband plan that reflects the cost of their usage.63 Policy / Program: Consider expanding universal service obligation to include broadband Supply & Demand impacts: Supply: Local Access; Demand: Access, Affordability Description: In a number of countries, the type and quality of telecommunication services that must be made available to subscribers is defined in laws. The inclusion of broadband in such definitions would require operators to make broadband available on demand. Example: In July 2010, the Communications Market Act in Finland was revised to include a reasonably priced Internet connection in the definition of universal service. According to the Ministry of Transport and Communications: “Telecom operators defined as universal service providers must be able to provide every permanent residence and business office with access to a reasonably priced and high-quality connection with a downstream rate of at least 1 Mbit/s.”64 The industry regulator will carry out monitoring of the provision as well as reviewing price and quality (including delivery time). The connection can be either fixed or wireless. APPLICATIONS & CONTENT Policy / Program: Undertake government-led demand aggregation, with government agencies as early adopters and innovators 62 See: “Información Estadística” on SUBTEL’s web site at: http://www.subtel.cl/prontus_subtel/site/artic/20070212/pags/20070212182348.html 63 SUBTEL. “REGLAMENTO DE NEUTRALIDAD RECOGE TODOS LOS BENEFICIOS Y DERECHOS DE LOS USUARIOS CONSAGRADOS EN LA LEY DE INTERNET.” Press Release. January 20, 2011. http://www.subtel.cl/prontus_subtel/site/artic/20110117/pags/20110117093211.html 64 Ministry of Transport and Communications. “1 Mbit Internet access a universal service in Finland from the beginning of July.” Press Release. June 29, 2010. http://www.mintc.fi/web/en/pressreleases/view/1169259 43 World Bank Broadband Strategy Toolkit Module 3 Supply & Demand impacts: Supply: Domestic backbone, Local access; Demand: Access Description: In many countries there exists pockets of broadband demand that are too small to obtain adequate broadband service at favorable prices. By pooling that demand together, a larger market can be created providing incentives for broadband operators to supply the market. Example: In Italy an agency of the Ministry of Treasury has aggregated government demand for broadband leading to a sharp reduction in the prices paid.65 Policy / Program: Provide e-government applications Supply & Demand impacts: Demand: Attraction Description: Computerizing public information and providing e-government services through broadband networks are essential. E-government encourages citizens to subscribe to broadband services. Example: In Colombia, all municipalities have a web site, the first Latin American country to accomplish this. The Colombian e-government portal is linked to some 3,000 web sites, with information about around 3,000 administrative processes of which 541 could be accomplished completely online in December 2009. Citizen use of e-government services doubled in 2009 to over half a million visits per month.66 Policy / Program: Promote adoption by industry Supply & Demand impacts: Supply: International connectivity, Local access; Demand: Affordability, Awareness Description: Support for broadband-related industries increases demand for supply side components enhancing infrastructure investment and helps to create long-term sustainable demand for broadband services. Providing training and incentives for Small and Medium Sized enterprises can help them get broadband connected to improve their productivity and widen their market opportunities Example: In Vietnam the government supports software parks through development of basic infrastructure and incubation and securing domestic and foreign investment for tenants.67 Policy / Program: Promote creation of digital content Supply & Demand impacts: Demand: Attraction 65 Daniela Battisti. “Demand aggregation to encourage infrastructure rollout to under-served regions.” WPIE/OECD Public Sector Broadband Procurement Workshop. Paris, 4 December 2002. http://www.oecd.org/dataoecd/41/60/2491219.pdf 66 Ministry of ICT. “Así marcha el Programa.” Noticias. May 10, 2010. http://programa.gobiernoenlinea.gov.co/noticias.shtml?apc=e1c1--&x=2480 67 See: “LEADERS OF HIGH-TECH PARKS FROM THE ASIAN SCIENCE PARK ASSOCIATION (ASPA) GATHERED IN HA NOI ” at: http://www.hhtp.gov.vn/69d40b41_c573_4726_b03c_4f86b90969e1_cms_204.hhtp 44 World Bank Broadband Strategy Toolkit Module 3 Description: Support for content creation relevant to local needs and in national languages can help attract people to use broadband. Example: The Jordanian government has facilitated foreign investment in the digital creation industry. In 2009, chipmaker Intel announced an investment in two Jordanian digital content companies: Jeeran and ShooFeeTV.68 The funding will be used to help both companies pursue regional growth as well as extend their product offerings. Policy / Program: Support secure e-transactions Supply & Demand impacts: Demand: Assurance Description: Online transactions are an important part of the broadband environment. Transactions must be secure and legal to encourage the development of two-way interactive e-commerce, e-government and telemedicine applications. This means that legal systems need to recognize electronic signatures and transactions. Information security such as encryption technologies and anti-hacking software, are also critical for a stable and safe broadband atmosphere. Example: The Association of South East Asian Nations (ASEAN) published a reference framework for e-commerce back in 2001 and has since guided the creation and harmonization of e-commerce laws in the region. By April 2008, eight of its ten members had enacted e-commerce legislation enabling the legal recognition of online transactions to support applications such as online retailing and Internet banking.69 ASEAN is the first developing region in the world to implement a harmonized e-commerce legal framework throughout member countries. Policy / Program: Implement reasonable intellectual property protections Supply & Demand impacts: Demand: Assurance Description: One enabler of content and media development is the creation of an intellectual property rights (IPR) regime that protects creators’ interests while enabling others to use and improve those creations. Such rights need to balance the interests of creators with the larger goals of enabling knowledge sharing, fair use, and adaptation. This is particularly relevant for the development of e-learning and distance education applications. Example: Creative Commons licenses allow creators to specify which rights they wish to reserve, thereby allowing a range of possibilities between full copyright and the public domain. 70 USERS 68 “Intel Capital to invest in two digital content companies in Jordan.” Press Release. May 17, 2009. http://www.intel.com/capital/news/releases/090519.htm 69 Galexia. “Harmonisation of E-Commerce Legal Infrastructure in ASEAN” April 2008. http://www.galexia.com/public/research/articles/research_articles-art53.html 70 See the Creative Commons web site at: http://creativecommons.org/ 45 World Bank Broadband Strategy Toolkit Module 3 Policy / Program: Provide low-cost user devices in education Supply & Demand impacts: Supply: Access device; Demand: Affordability, awareness Description: The spread low-cost computers in schools typically include an ecosystem for operating and maintaining the devices, which often involves providing broadband access in schools in order to download software and support the Wi-Fi capability of the devices. The provision of low-cost educational computers also develops ICT skills at an early age helping to grow demand for broadband. Example: Uruguay has supplied Wi-Fi enabled laptops to all primary school children. 71 One of the goals of the Uruguayan plan was to boost overall household computer ownership by leveraging the students taking the laptops home after school. This has resulted in 220,000 new homes with computers including 110,000 in the lowest income families. Policy / Program: Develop digital literacy programs for citizens Supply & Demand impacts: Demand: Awareness Description: To raise public awareness of the benefits of broadband services and promote their use, governments should provide training on how to use computers and the Internet. This training can contribute to the rapid and widespread penetration of broadband. In the short run, such training generates demand. It can also be a step toward universal service when the program targets underserved groups. ICT training for children and students can change their learning behavior and interests and, by extension, alter their parents’ views of ICT and broadband. Example: In Colombia, the Compartel program within the Ministry of ICT devoted around $153 billion pesos in 2009 for teaching free computer literacy courses at some 1,670 Internet centers around the country. The courses were provided to around 200,000 people where they learn about basic computer tools, Internet navigation, email, search engines, chat and ICT applications. In addition, teachers use virtual training and video conferencing at the centers to offer courses in other subjects. The centers are often located in educational institutions with access provided to the local community for training during non-school hours.72 Policy / Program: Address content and security concerns Supply & Demand impacts: Demand: Assurance 71 Miguel Brechner. “Plan Ceibal: One Laptop per Child and per Teacher.” Presented at Reinventing the Classroom, Inter-American Development Bank, Washington D.C. September 15, 2009. http://events.iadb.org/calendar/eventDetail.aspx?lang=en&id=1444& 72 See “Más de 200 mil alfabetizados digitalmente en los “Nuevos Telecentros Compartel”” on the Compartel web site at: http://archivo.mintic.gov.co/mincom/faces/index.jsp?id=19037 46 World Bank Broadband Strategy Toolkit Module 3 Description: Many users are leery of broadband Internet access because of objectionable content and security concerns. This concern can be alleviated through programs that educate users about perceived risks, child online protection and how to use the Internet safely. Example: The regulator in Qatar has created a site for children, teenagers, teachers and parents providing tips for safe online surfing.73 Policy / Program: Expand access to underserved communities with USF support Supply & Demand impacts: Supply: National backbone, local access; Demand: Access Description: Universal Service Funds (USF)—typically financed by contributions from telecom operators—were initially created to facilitate the development of telephone infrastructure in rural and other underserved localities. Given that broadband connectivity can provide many beneficial services in addition to voice telephony countries should consider the scope of USF to cover broadband deployment in underserved areas. Example: Pakistan’s USF is funded by a 1.5% levy on telecom operator revenues. Broadband projects are eligible for funding and include the connection of schools through broadband computer labs and extending domestic fiber optic backbones to rural areas.74 Policy / Program: Construct community access centers Supply & Demand impacts: Supply: Local access; Demand: Affordability, Awareness, Access, Assurance Description: Citizens in underserved communities do not use broadband because they have no access, cannot afford it or are not aware of its benefits. Creating facilities for public broadband use can alleviate these barriers by establishing a place of access, offering free or low cost tariffs and including training. Example: In Malaysia, the Government established Community Broadband Centers (CBC) to provide collective high-speed Internet to underserved areas identified under the Universal Service Provision (USP) program.75 The CBC is outfitted with computers connected to broadband. Training is also provided at each CBC. Policy / Program: Facilitate affordability of broadband devices Supply & Demand impacts: Supply: Devices; Demand: Affordability Description: Computers, mobile phones and data cards for broadband use are expensive for many citizens of developing 73 See ictQATAR’s “Stay Safe Online at: http://www.safespace.qa/csk/en/home.aspx. 74 See “Company Profile” on the Pakistan Universal Service Fund web site at: http://www.usf.org.pk/Company.aspx 75 See “COMMUNITY BROADBAND CENTRES” on the Malaysian Communications and Multimedia Commission web site at: http://www.skmm.gov.my/index.php?c=public&v=art_view&art_id=34 47 World Bank Broadband Strategy Toolkit Module 3 countries. Countries could consider developing policies and programs that make user devices more affordable for people who want to buy them but lack the means to do so. This includes reducing or eliminating taxes on broadband-enabled devices and subsidizing or offering low or zero interest loans for their purchase. Example: In March 2009, China announced that it had selected 14 PC vendors to offer low-priced PCs in rural areas. All the PCs in the winning bid are priced from $290 to $510. This approach is part of the National Home Appliance Subsidy Program for rural areas. About 57 percent of the rural population—about 200 million households—will be eligible for a 13 percent subsidy if they purchase one of those PCs.76 76 He, Eileen, and Simon Ye. 2009. “Rural China PC Program Will Increase PC Shipments in 2009.” Gartner, Stamford, CT. http://www.gartner.com/DisplayDocument?id=909330 . 48 World Bank Broadband Strategy Toolkit Module 3 Table 6. Regional examples of policies and programs for broadband development Component East Asia & the Pacific Europe & Central Asia Latin America & the Middle East & North South Asia Sub-Saharan Africa (Vietnam) (Turkey) Caribbean (St. Kitts) Africa (Morocco) (Sri Lanka) (Kenya) Lower-middle-income Upper-middle-income Upper-middle-income Lower-middle-income Lower-middle-income Low-income economy economy economy economy economy economy Infrastructure A number of fixed and Requires incumbent to Licensed cable TV & Granted license to new Sri Lanka was among Kenyan government mobile broadband provide wholesale fixed wireless operators operator Wana who is the first in the region to encouraged local nd operators have been broadband access to its to provide broadband now the 2 largest award mobile operators to participate licensed fixed telephone services in competition broadband operator broadband spectrum in undersea TEAMS network with incumbent and has lowest prices cable through PPP and highest speeds Services Installation of a Broadcast firms allowed VoIP services such as The Genie program is The regulator compiles VoIP legal since 2006 broadband network to provide broadband Vonage, MagicJack, and installing broadband broadband quality of with liberal licensing for connecting over 1,000 and incumbent allowed Skype extensively used multimedia computer service showing ISPs educational to provide IPTV by residential labs in all schools difference between institutions in Ho Chi consumers impacting 6 million advertized and actual Minh City students. speeds Applications Several plans and Share of government Government The Idarati (e- The e-Sri Lanka program Judiciary Telepresence programs for services provided online encourages local portals government) program has resulted in 112 on- project connects judges promoting software to total public services developed by led to 97% of line services and some 4 and courts and digital content reached to 66% in 2010 entrepreneurs; administrative units million people industries SKNVibes gets 2 million having a web site with conducting transactions hits a month some 200 services on- with government online line Users Support procurement 1,850 Public Internet Students in the final Subsidizes laptops for The Easy Seva project The Kenya ICT Board of digital information Access Points (PIAP) to grade of high school engineering students used PPPs to install over establishes and funds devices for provide ICT access and provided with laptops. and teachers 50 public Internet Pasha Digital Villages households with ICT competency to Operators bid on facilities in rural areas with broadband access financial difficulties citizens, have been providing Internet connected with mobile for communities through USF & provided by the access to these students broadband spectrum auction government on a pay-as-you-go basis proceeds Source: Adapted from World Bank Broadband Country Case Studies. 49