7.3

Bottlenecks & Opportunities

Broadband Bottlenecks and Oppportunities in Developing Regions

This section highlights some of the particular obstacles that developing countries face in deploying broadband and highlights possible solutions.

  • 7.3.1 Infrastructure Considerations for Developing Countries

    Wireline broadband requires an underlying physical 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, cable television and fiber optic infrastructures are expensive to create from scratch due to the significant investment that is required to install the cables.

    Given the relatively high installation costs, the wireless broadband route may make more sense for many developing nations, especially in rural areas or where population density is low. There is already a larger base of mobile subscriptions compared to fixed telephone or cable television throughout the world. However, upgrading mobile networks to broadband readiness requires investment for spectrum and equipment by operators and the purchase of new devices by users, and although the deployment costs of mobile broadband are less than fixed, they are still significant. In addition to mobile broadband, other wireless options include fixed wireless solutions such as WiMAX, which also requires an investment in spectrum and equipment if they are not able to leverage the existing infrastructure of mobile operators in terms of towers and backbone networks. Satellite broadband is also an option, particularly for remote locations, but is more costly than other solutions for mass deployment.

    Choosing the most efficient and effective technology approach for deploying broadband is not easy. Economic, social and political/regulatory 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, but only in select areas. The challenge in such countries is to create incentives so that existing networks can be upgraded to offer broadband services. In other countries, where infrastructure is less well developed, the challenge is building broadband-capable networks from scratch.

  • 7.3.2 Fostering Broadband Development Through Greater Competition

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    FIGURE 4
    Broadband connections relative to underlying infrastructure

    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).

    In either case, promoting competition is a key solution to resolving existing bottleneck situations. For those countries with existing infrastructure, 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 cable television connections for cable broadband, and just over ten percent of mobile subscriptions were broadband (Figure 4). Similarly, in countries with only one legacy (telephone) network, it may be possible to improve competition, at least in some areas, by granting additional licenses and providing incentives for new networks to be built. For example, growth in some of the more successful developed economy broadband markets has been triggered by the entry of new operators that tend to be the third player entering the market. (See Box 1). Finally for those countries with little existing infrastructure, building out broadband networks may require an open access or shared infrastructure model—to spread costs among a greater number of providers while still preserving efficient competition. Module 2 covers these issues in more detail.

    Growth in some of the more successful developed economy broadband markets has been triggered by the entry of new 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 a fifth of the broadband market by 2010.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 11 percent share of the broadband market in 2010, 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.”*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 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 25 percent share of the wireline broadband market by 2010.

    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 22% of the French wireline broadband market in 2010.
    • 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 wireline broadband market at the end of 2010.

    Market disruptive operators are also 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 2010 Starnet had captured one quarter of the wireline 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.

    BOX 1.4.
    The Third Man: Encouraging disruption in broadband markets

    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.

  • 7.3.3 Fostering Broadband Development Through Demand Policies

    In addition to promoting network upgrades and construction, broadband development is also dependent on demand side aspects such as accessibility to broadband services, being able to afford broadband and awareness of its benefits. Services, applications and content are key drivers: they need to be interesting, in the local language and locally relevant. 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.

    Policymakers seeking to address demand-side issues have several areas to focus on. A country’s level of income, for example, directly impacts the ability to pay for broadband services, while education levels affect awareness and the ability to use the technologies effectively. These factors directly impact broadband penetration as evidenced by Figure 5 which illustrates the significant relationship between broadband take-up and the UNDP Human Development Index.

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    FIGURE 5.46
    Broadband and human development

    Source: Adapted from UNDP, http://hdr.undp.org/en/statistics/.

    Source: World Bank (GNI per capita), UNDP (years of schooling).

    Despite such challenges, developing nations represent some of the fastest growing markets in the world, and offer great potential as ICT uptake and broadband deployments grow. According to Point-Topic, a broadband market analyst company, the countries ranked as the top ten fastest growing broadband markets are all emerging economies, and all saw over 20 percent growth in the number of broadband subscriptions in 2010 (see Figure 6). According to Cisco’s Visual Networking Index, developing regions such as Latin America and the Middle East and Africa are forecast to have the largest increases in global IP traffic between 2010-2015.*

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    FIGURE 6
    Growth in wireline broadband subscriptions, top countries, percent, 2010