IV. RELIEVING INFRASTRUCTURE BOTTLENECKS, ENCOURAGING ISPs AND REDUCING ACCESS COSTS
IV. RELIEVING INFRASTRUCTURE BOTTLENECKS, ENCOURAGING ISPs AND REDUCING ACCESS COSTS
infrastructure, including narrow and broadband, and on costs of Internet access. The
quality and range of services available depends on the emergence of innovative Internet
service providers (ISPs). OECD experience strongly suggests that telecommunications
reform has been a major determining factor in the emergence of the so-called “new
economy” (OECD, 2000b). Faster and more reliable network infrastructure, associated
with new ways of pricing, both for consumers and for the leased lines used in B2B
transactions, have led to increased Internet connection in homes and businesses. Low
access costs are an important factor driving uptake, while competition among infrastructure
providers and among ISPs has led to innovative pricing structures.
In low-income developing countries, the first priority is rather obviously to attain greater
telecommunication penetration: there are just 14 million copper phone lines, for example,
serving Africa’s population of 800 million, whereas the United States has 169 million lines.
Approximately 80 per cent of the world’s population (almost all living in developing countries)
has no access to reliable telecommunications (Panos, 1998). Most of Africa’s telecom
coverage is concentrated in the regional and national capitals of the more developed
countries — and even there don’t count on getting a dial tone. Rural areas have especially
low telephone density, which complicates the provision of low-cost Internet access, since
it is difficult to provide node connections to rural Internet users for the price of a local
phone call.
Historically, a major reason for the slow pace of basic telecommunications network
expansion has been the unfavourable economics of connecting rural areas, especially
remote ones, in low-income countries. By one estimate, assuming capital costs of $1 000
per line, a telecom operator would need to generate revenues of $330-400 per line to be
profitable, above the average per capita income of quite a few poor countries
(Ernberg, 1998).
Telecommunications deregulation has been gaining momentum in the developing
world. More than 90 developing economies opened their telecommunications sector to
competition between 1990 and 1998, transferring to the private sector the operating or
construction risk, or both, of more than 500 projects, attracting investment commitments
of $214 billion27. Telecommunications reform can be a positive-sum game in which
customers, existing and new operators, employees, domestic and foreign investors, and
government all gain. Some rules that will enhance those benefits include sorting out
conflicting objectives early — especially the conflict between maximising revenue and
delivering more, better, and cheaper services; using market mechanisms rather than
individual negotiations to select partners for erstwhile the telecoms monopoly and determine
the right sale price for operating licenses; and establishing and following clearly defined
processes for sale of assets and regulation that are open to participation and review by all
interested parties, including the general public. Nonetheless, it is a well-known lesson
from almost two decades of regulatory reforms worldwide that, even while private
participation takes place in increasingly competitive market structures, poor performance
of regulatory agencies may limit the benefits of reform. Establishing a full-fledged regulatory agency may not be technically and financially feasible, calling for more pragmatic solutions
such as pre-packaging rules, locking in principles through international agreements, and
contracting out functions and creating multi-sectoral or regional agencies.
One of the most severe constraints on wider Internet use in low-income developing
countries is their limited access to international “bandwidth”, the high-capacity connections
needed to transmit the large quantities of digitised information required for full Internet
services28. Until this bottleneck can be removed, e-mail is likely to remain the dominant
use of the Internet in those countries. Developing regions can potentially leapfrog traditional
copper- and fiber-based land lines, and go directly to leading-edge wireless technologies
that blend voice and data over the same networks. Major recent wireless network projects
have been concluded in Shanghai and Fujian in China, Peru, Indonesia, and Ethiopia. A
small Ericsson partner, Ecuador-based Bismark, even founded a thriving business using
wireless data networks to manage remote alarm systems29. As for India, by some estimates
it has more cable television connections (about 30 million) than telephone lines (about
20 million)30.
In terms of potential for early access in remote and poor communities, commonly
provided facilities such as telecentres probably hold the most promise. In Africa, for example,
about 10 per cent of the phone lines in Senegal are used by telecentres, pilot projects
have been established in Mozambique and Namibia, and South Africa has set up a Universal
Service Fund, so that all telecom operators are taxed to fund rural telecentres. In Latin
America, Peru has had a scheme of telecentres since May 1996, each providing a dedicated
line to the Internet31. In Suriname, two basic telecentres were established (in 1996 and
1997 respectively) to provide public phone, fax and computer services to remote
communities in the interior32. The telecom technology used is an inexpensive fixed cellular
communications system, linked to the national network by a digital microwave link built by
the pilot project. Equipment is solar powered, with batteries and a back-up diesel generator
that works during evenings and cloudy weather conditions. An October 1998 evaluation of
those experiments is not especially encouraging, however, with users of the centres well
below the target of 10 per cent of the population (Ernberg, 1998). The main use is telephony,
with a low fax traffic and very little PC use. The facilities are not commercially viable, and
funds could not be raised to extend the network of telecentres more widely. With fewer
nodes, the network benefits to existing users are that much smaller.
Net cafes and Internet shops are rapidly expanding across the developing world,
mostly in town and urban centres but, with the help of tourism, the phenomenon has
reached even to remote areas. In the Tibetan capital of Lhasa, Tsering Tashi opened the
only Tibetan-owned Internet bar as soon as Tibet established an ISP last year. Within
10 months, he recovered his original investment of almost $10 000. Still, nearly all of his
customers are tourists and in the off-season, October to February, he converts most of his
Internet cafe into a clothing store33.
Beyond the physical infrastructure, providing wide Internet access requires the
emergence of local Internet service providers (ISPs) and portals that can arrange a reliable,
low-cost connection to the Web, develop sites with useful, local language content, and
offer a range of other services demanded by local Internet users. Once telephone density
is sufficiently high, it should be possible to offer access to most users at local call rates.
This presumes that an ISP can lease a high-capacity line from a telecom service provider
at a competitive rate. At present the cost of such leased lines varies widely across countries,
but it is generally several times higher in developing countries than in the United States. In the latter, the annual charge would be around $3 800, while in Argentina, for example, the
ISP could expect to pay $180 000 to the monopoly operator (Panos, 1998). Just as in
telecoms services, competition needs to be fostered in the ISP market. A potential risk is
that a dominant position in the ISP market may be secured by a telecom operator or by
one of the conglomerates that control a large share of economic wealth in many emerging
and developing countries. In Turkey, for example, Superline, the biggest ISP with a 38 per
cent share of the market, is owned by Yapi Kredi, the second-largest private sector
commercial bank, and its parent, the Çukurova group, which also control Turkcell, Turkey’s
leading GSM provider34.
OECD DEVELOPMENT CENTRE
Working Paper No. 164
E-COMMERCE FOR DEVELOPMENT: PROSPECTS AND POLICY ISSUES
by
Andrea Goldstein and David O’Connor
IV RELIEVING INFRASTRUCTURE BOTTLENECKS ENCOURAGING ISPs AND REDUCING ACCESS COSTS - To learn more about this author, visit OECD Development Centre's Website.
Like this article? Share it with your friends
A country’s readiness for e-commerce depends fundamentally on network
infrastructure, including narrow and broadband, and on costs of Internet access. The
quality and range of services available depends on the emergence of innovative Internet
service providers (ISPs). OECD experience strongly suggests that telecommunications
reform has been a major determining factor in the emergence of the so-called “new
economy” (OECD, 2000b). Faster and more reliable network infrastructure, associated
with new ways of pricing, both for consumers and for the leased lines used in B2B
transactions, have led to increased Internet connection in homes and businesses. Low
access costs are an important factor driving uptake, while competition among infrastructure
providers and among ISPs has led to innovative pricing structures.
In low-income developing countries, the first priority is rather obviously to attain greater
telecommunication penetration: there are just 14 million copper phone lines, for example,
serving Africa’s population of 800 million, whereas the United States has 169 million lines.
Approximately 80 per cent of the world’s population (almost all living in developing countries)
has no access to reliable telecommunications (Panos, 1998). Most of Africa’s telecom
coverage is concentrated in the regional and national capitals of the more developed
countries — and even there don’t count on getting a dial tone. Rural areas have especially
low telephone density, which complicates the provision of low-cost Internet access, since
it is difficult to provide node connections to rural Internet users for the price of a local
phone call.
Historically, a major reason for the slow pace of basic telecommunications network
expansion has been the unfavourable economics of connecting rural areas, especially
remote ones, in low-income countries. By one estimate, assuming capital costs of $1 000
per line, a telecom operator would need to generate revenues of $330-400 per line to be
profitable, above the average per capita income of quite a few poor countries
(Ernberg, 1998).
Telecommunications deregulation has been gaining momentum in the developing
world. More than 90 developing economies opened their telecommunications sector to
competition between 1990 and 1998, transferring to the private sector the operating or
construction risk, or both, of more than 500 projects, attracting investment commitments
of $214 billion27. Telecommunications reform can be a positive-sum game in which
customers, existing and new operators, employees, domestic and foreign investors, and
government all gain. Some rules that will enhance those benefits include sorting out
conflicting objectives early — especially the conflict between maximising revenue and
delivering more, better, and cheaper services; using market mechanisms rather than
individual negotiations to select partners for erstwhile the telecoms monopoly and determine
the right sale price for operating licenses; and establishing and following clearly defined
processes for sale of assets and regulation that are open to participation and review by all
interested parties, including the general public. Nonetheless, it is a well-known lesson
from almost two decades of regulatory reforms worldwide that, even while private
participation takes place in increasingly competitive market structures, poor performance
of regulatory agencies may limit the benefits of reform. Establishing a full-fledged regulatory agency may not be technically and financially feasible, calling for more pragmatic solutions
such as pre-packaging rules, locking in principles through international agreements, and
contracting out functions and creating multi-sectoral or regional agencies.
One of the most severe constraints on wider Internet use in low-income developing
countries is their limited access to international “bandwidth”, the high-capacity connections
needed to transmit the large quantities of digitised information required for full Internet
services28. Until this bottleneck can be removed, e-mail is likely to remain the dominant
use of the Internet in those countries. Developing regions can potentially leapfrog traditional
copper- and fiber-based land lines, and go directly to leading-edge wireless technologies
that blend voice and data over the same networks. Major recent wireless network projects
have been concluded in Shanghai and Fujian in China, Peru, Indonesia, and Ethiopia. A
small Ericsson partner, Ecuador-based Bismark, even founded a thriving business using
wireless data networks to manage remote alarm systems29. As for India, by some estimates
it has more cable television connections (about 30 million) than telephone lines (about
20 million)30.
In terms of potential for early access in remote and poor communities, commonly
provided facilities such as telecentres probably hold the most promise. In Africa, for example,
about 10 per cent of the phone lines in Senegal are used by telecentres, pilot projects
have been established in Mozambique and Namibia, and South Africa has set up a Universal
Service Fund, so that all telecom operators are taxed to fund rural telecentres. In Latin
America, Peru has had a scheme of telecentres since May 1996, each providing a dedicated
line to the Internet31. In Suriname, two basic telecentres were established (in 1996 and
1997 respectively) to provide public phone, fax and computer services to remote
communities in the interior32. The telecom technology used is an inexpensive fixed cellular
communications system, linked to the national network by a digital microwave link built by
the pilot project. Equipment is solar powered, with batteries and a back-up diesel generator
that works during evenings and cloudy weather conditions. An October 1998 evaluation of
those experiments is not especially encouraging, however, with users of the centres well
below the target of 10 per cent of the population (Ernberg, 1998). The main use is telephony,
with a low fax traffic and very little PC use. The facilities are not commercially viable, and
funds could not be raised to extend the network of telecentres more widely. With fewer
nodes, the network benefits to existing users are that much smaller.
Net cafes and Internet shops are rapidly expanding across the developing world,
mostly in town and urban centres but, with the help of tourism, the phenomenon has
reached even to remote areas. In the Tibetan capital of Lhasa, Tsering Tashi opened the
only Tibetan-owned Internet bar as soon as Tibet established an ISP last year. Within
10 months, he recovered his original investment of almost $10 000. Still, nearly all of his
customers are tourists and in the off-season, October to February, he converts most of his
Internet cafe into a clothing store33.
Beyond the physical infrastructure, providing wide Internet access requires the
emergence of local Internet service providers (ISPs) and portals that can arrange a reliable,
low-cost connection to the Web, develop sites with useful, local language content, and
offer a range of other services demanded by local Internet users. Once telephone density
is sufficiently high, it should be possible to offer access to most users at local call rates.
This presumes that an ISP can lease a high-capacity line from a telecom service provider
at a competitive rate. At present the cost of such leased lines varies widely across countries,
but it is generally several times higher in developing countries than in the United States. In the latter, the annual charge would be around $3 800, while in Argentina, for example, the
ISP could expect to pay $180 000 to the monopoly operator (Panos, 1998). Just as in
telecoms services, competition needs to be fostered in the ISP market. A potential risk is
that a dominant position in the ISP market may be secured by a telecom operator or by
one of the conglomerates that control a large share of economic wealth in many emerging
and developing countries. In Turkey, for example, Superline, the biggest ISP with a 38 per
cent share of the market, is owned by Yapi Kredi, the second-largest private sector
commercial bank, and its parent, the Çukurova group, which also control Turkcell, Turkey’s
leading GSM provider34.
OECD DEVELOPMENT CENTRE
Working Paper No. 164
E-COMMERCE FOR DEVELOPMENT: PROSPECTS AND POLICY ISSUES
by
Andrea Goldstein and David O’Connor
IV RELIEVING INFRASTRUCTURE BOTTLENECKS ENCOURAGING ISPs AND REDUCING ACCESS COSTS - To learn more about this author, visit OECD Development Centre's Website.
Like this article? Share it with your friends
 | |
 |
No article feedback found. |
| |
Leave Your Feedback |
 | |
| |||
|
To learn more about the Evan Elite Author Program please contact us. |
 | |
|  |
Subscribe to OECD's articles
 | |
|
|  |
 | |
|
| |
 | |||||||
|
 | ||
 |
||
 |
||
 |
||
|
| ||
 |
| Have you written articles that would be of value to entrepreneurs? Become an expert on our site by publishing them! Expose yourself to a wide audience, drive more traffic to your website and get more sales! Click Here for details. |
|
|
 |
| Modeling the Masters: Learn the true secrets behind Walt Disney's business success factors & grow your company! Video produced by Phanta Media |
|
|
 |
"Learn straight from Evan how you can Make a Full Time Income (And More) from a Website"
Click Here To Learn More |
|
|
|
|
Get advice & tips from famous business owners, new articles by entrepreneur experts, my latest website updates, & special sneak peaks at what's to come!
|
|
|
 Make It Happen Human Resources Checklist Trainning Template Valley of Death Business Plan Sample |
|
 | ||
 |
The Top 10 Guy Kawasaki Posts
Best Posts for Entrepreneurs | |
 |
Top 50 Geek Business Blogs
Top 50 Geek Business Blogs | |
| ||
 | ||||
| ||||
|
| ||||
| ||||
|
|
|
|
|
||||||||||||
|
Email us your ideas on how to make our website more valuable! Thank you Sharon from Toronto Salsa Lessons / Classes for your suggestions to make the newsletter look like the website and profile younger entrepreneurs like Jennifer Lopez and Sean Combs!
|
|
|
| ||||||||||||
| ||||||||||||
|
|
||||||||||||