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.
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.
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).* 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.* 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.* 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 services and applications that transform government processes and modes of interacting with businesses and citizens.* 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.* 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.* 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.* 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.
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.*
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.* As users have the ability to become co-creators of content* and as broadband user-led innovation is enabled* 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.* 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:
Components of Broadband Absorptive Capacity
- 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;
- The capacity of citizens to create and use broadband-enabled services and applications to increase their welfare; and
- 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.
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 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.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.
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).
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).
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 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-a-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.BOX 1.7.Technological Absorptive Capacity
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 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 1.8).* 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.* 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.* 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.* 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.
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,* 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.* 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.”*
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.* 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.* Module 2 further addresses these and other policy approaches to promoting the development of broadband.