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
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