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Bandwidth Driven Growth: Policy Essentials for Next Generation Development

Mark A. Jamison, Ph.D.Director

Outline

• Overview of Internet and broadband development

• Impacts of broadband on economic development

• Policy requirements for broadband development

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Overview of Internet and Broadband Development

• Distribution and development of the Internet

• Contrast Internet expansion with broadband

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Population and Internet Distribution, 2007

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World Population Proportions World Internet Proportions

Source: www.internetworldstats.com, 2008

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Sources: www.internetworldstats.com, 2008www.ipligence.com/worldmap, 2008

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Source: www.akamai.com, 2008

News site visits, 9 March 2008

Compelling news stories that caused peaks in past two years included sports (9), death/war (4), and politics (2).

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Source: www.akamai.com, 2008

Music site visits, 9 March 2008

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Source: www.akamai.com, 2008

Retail site visits, 9 March 2008

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Source: www.akamai.com, 2008

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Source: www.akamai.com, 2008

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Source: www.internetworldstats.com, 2008

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Source: www.internetworldstats.com, 2008

ObservationsOnly 12 countries make both lists

Those making both lists are• Asian (2)• European (8)• Islands (3)

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Top 20 Internet Top 20 BroadbandAntigua & Barbuda

AustraliaBelgiumBermudaCanada

Denmark DenmarkFalkland Islands

Faroe Islands Faroe IslandsFinlandFrance

GreenlandHong Kong Hong Kong

Iceland IcelandJapan

Korea, South Korea, SouthLiechtenstein

Luxembourg LuxembourgMonaco

Netherlands NetherlandsNew Zealand

Norway NorwayPortugal

SingaporeSweden Sweden

Switzerland SwitzerlandTaiwan

United Kingdom United KingdomUnited States United States

Source: www.internetworldstats.com, 2008

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Source: www.internetworldstats.com, 2008

OECD Growth in Broadband Connections

• OECD penetration rates: 2.9% in 2001 to 13.6% in 2005

• EU15: 1.6% to 14.2%

• Penetration highest in Scandinavian countries, South Korea, the Netherlands, and Switzerland

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Falch, 2008

Non-OECD Broadband

• Broadband available in 166 countries by April 2006, twice as many as 4 years earlier

• Broadband tariffs reduced 40% past two years

• In Beijing, 50% connected to Internet and 64% of those use broadband

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Falch, 2008

Summary of Internet and Broadband Development

• Developed nations dominate Internet, but developing countries in Asia are gaining

• Internet and broadband are not the same thing Many countries with extensive Internet do not

have much broadband, and visa versa Substitution effect

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Economic Development

• Examine how ICT contributes to economic development

• Examine how broadband is different from general ICT

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Economic Development

“The development and deployment of information technology is the foundation of the American growth resurgence.”

Dale Jorgenson, Harvard University (2001)Presidential address to the American Economic Association

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Röller and Waverman (2001)

• Telecommunications development causes economic growth Telecommunications development caused

about one-third of OECD economic growth, 1971-1990

About US$1700 per person per year 10% improvement in per capita GDP

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Röller and Waverman (2001)

• Reasons Adoption in one firm triggers adoption in

another Lower prices for consumers give additional

discretionary income• savings, investing, education, or other pursuits

• Benefits occur at nearly 100 percent penetration

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Waverman, Meschi, and Fuss (2005)

• Mobile phone significantly impacts economic growth (1996-2003)

• Impact for developing countries twice that for developed countries

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Waverman, Meschi, and Fuss (2005)

Success depends on “regulatory policies that favour competition and encourage the speediest possible rollout of mobile telephony.”

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Effects of Advanced ICT in the U.K., 1984-1996

Sector

Lower Prices from

Advanced ICT

Productivity Increase from Advanced ICT

Electricity, gas and water supply 4.3% 45%

Transport 10.8% 50%

Financial 27.3% 486%

Telecommunications 56.0% 13%

Total economy 14.1% 111%

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(Correa, 2006)

Economic Development

• Investment (largely IT) contributions to economic growth 1989-1995, four-fifths of the economic growth 1995-2000, three-fourths of economic growth 2000-2004, three-fifths of economic growth

Jorgenson and Vu (2005)

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Summary on economic development

• Declining ICT prices drive economic development Increased investment in ICT Substitution of efficient ICT for outdated

technologies Development of new ICT-based skills

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Relating ICT lessons to broadband

• What do we hang onto and what do we let go of?

• Roles of regulatory agencies Expert analyses Protect competition Provide incentives Limiting opportunism

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Expert Analysis

• Data gathering and reporting

• Seminars and workshops

• Staff research

• Collaborations with universities and research institutes

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Competition Improves Performance

• Waverman, Meschi, and Fuss (2005) Competition improves mobile penetration

• Gutiérrez (2003) Competition improves investment

• Wallsten (2004) Protecting incumbents hinders investment

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Competition Improves Performance

• Competition improves broadband penetration Aron and Burnstein (2003) Denni and Gruber (2005)

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Effects of Competition

• Improved efficiency

• Bailey (1986): Effects on AT&T Shed 6% of its work force Froze manager salaries Eliminated 35,000 positions

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Market Power

• Market power and market stability Barriers to entry, such as limited licenses,

rights of way, and radio spectrum

• Denni and Gruber (2005) Resale launches broadband competition

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Lee and Marcu (2007)

• Fixed broadband increased by Local loop unbundling Internet content Modem vs. DSL competition

• Mobile broadband increased by Standards competition

• Mobile and fixed do not compete (yet)

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Property Rights Protection• Insulating investment from politics

• Cubbin and Stern (2006) both regulatory law and higher quality

regulatory governance are positively and significantly associated with higher per capita investment

• Lyons (2006) Commitment increases investment

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Opportunism Limits Investment

• Gutiérrez (2003) “Sound regulatory governance in

telecommunications has a positive impact on network expansion and efficiency.”

• Cubbin and Stern (2006) Effective institutions essential to growth

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Maiorano and Stern (2007)

• The establishment of a separate regulator, especially in developing countries, results in the long-run in about 11 percent higher mobile penetration.

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Independent Agency

• Regulation under the law, independence, transparency, predict-ability, legitimacy, and credibility

• Henisz and Zelner (2001) Checks on executive discretion enhance rate

of telecommunications deployment

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Henisz and Zelner (2001)

• “the level of institutional support for private property rights in Thailand and the Philippines (was) considerably greater than that in Malaysia and Indonesia.”

• “Investors in Thailand and the Philippines fared considerably better than did investors in Malaysia and Indonesia.”

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Demand factors

• Digital divide in U.S. greater in computers than in broadband (Stanton, 2005) Education; e-government

• Later adopters more influenced by social factors than are early adopters (Rogers, 2003) Industry marketing

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Demand factors• Bundling and pricing options slow adoption.

So does desire to wait for next technology. (Adams, 2008) Industry marketing and research

• Multiple firm locations and presence of young and skilled workforce makes. (Colombo et al., 2008) Macro conditions for business

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Relating ICT lessons to broadband

“It is precisely because change is constant that our foundations must be strong.”

Peter Drucker

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