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The world’s most influential telecom and media policy, regulatory affairs, and compliance journal May 2011 Volume 39 Issue 2

Deciphering the broadband plans of North America Africa: mobile partnerships Africa: distracting statistics? Digital dividend and digital divides in Europe The Twitter elites


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www.iicom.org May 2011 Volume 39 Issue 2

Debate key policy issues The International Institute of Communications Community

Contents Viewpoint, news and analysis Monetize, monetize - at a price Pricing digital media is even more difficult than everyone thought page 4 News brief pages 7, 38-39 Online security: a hacker Spring arrives IIC TMF Brussels 2011: Prospects for cloud computing

The INTERNATIONAL INSTITUTE of COMMUNICATIONS is an independent, non-profit, dynamically-engaged forum for industry, government and academia to analyse and debate trends in communications and their impact on society. Mission: to provide a global framework for dialogue and to promote access to communications for all peoples of the world. Intermedia editorial enquiries Please contact Stephen McClelland, Editor in Chief - s.mcclelland@iicom.org Subscription and membership enquiries Please contact Joanne Grimshaw, Project Executive - j.grimshaw@iicom.org

News analysis pages 8-11 Twitter: making elites who influence Can the social network now make sense of media consumption? Enter the Chinese digerati? Catching up fast

Broadband policy Rural broadband: lessons and strategies from North America page 12 The US and Canada are engaged in remarkably different policies to foster deployment

Mobile in Africa Innovative partnerships? A keystone of telecom competition policy analyzed page 20 Mobile telecom in Africa: an unforeseen success? page 26 In even an era of growth, statistics confuse

The Digital Dividend Why the Digital Dividend will not close the Digital Divide  page 32 The hope of policymakers may not be borne out by an economic and technical analysis

The Big Picture The making of a modern media mania metric  page 19 You can count it - or can you? Royal Wedding has a global new media impact

Contents © 2011 Authors and IIC Compilation of contents © 2011 IIC All rights reserved

The IIC website has many features and webinars linked to the above. See http://www.iicom.org for details

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IPTV Analyisis Issue Newscontents Analysis

Catching up fast: Page 10


www.iicom.org May 2011 Volume 39 Issue 2

by Stephen McClelland

Monetize, monetize - at a price Can anyone rationalize pricing and profits in digital media?

Monetization. A simple, contrived word remains digital media's most intractable problem of all. Fifteen years of Internet experimentation have taught the industry one rather basic fact: most consumers are disinclined to pay for what they get and given the choice would rather not pay for what they consume at all. It's an uncomfortable proposition, clearly out of sync with the need for many digital media startups large and small to find revenues and a business model that works. Valuations of social media networks still seem more art than science. Still more troubling is what many consider to be DotCom Boom 2 and in due course, coming to a theatre near you, DotCom Bust 2. Industry cycles apart, things are clearly different a decade on from the last meltdown. There are large Internet operations that do make money, but these tend not actually to be in the pure Internet space. Retailing of physical goods and related e-commerce online is big business. But the jury is still out on paying for digital media.

Raiders of the Lost Payee So, it's no surprise that media operations have begun to address this. Major newspapers have entered the frame and begun charging subscribers. A community that was rather shocked (at first) that service providers might actually want to charge their subscribers seems to have gradually gotten around to the view that they may need to do so. Spotify, the music streaming service, attracted widespread attention in April with plans to overhaul its business model as well. Still, most observers still believe that getting consumers to pay will be a hard slog. And this is an argument that goes well beyond the user pays-advertiser pays view of the world. Consul-

tants at Ernst and Young in a recent paper1 conclude: “When digital content first migrated online, many M&E companies made the strategic decision to make much, if not all, of their content free to consumers. They now face the difficulty, in some instances, of putting that ‘genie back in the bottle’. In a recent Nielsen survey, 85% of Internet users believed that online content that is currently free should remain free.”

Getting to free - (or cheap) That 85% is a worrying figure, enough - if accurate - to torpedo the future of many digital media startups. Of course, depending on what sector of the media constellation we look at, the picture might vary. Newspapers still have valuable off-line print portfolios and some business advantages including substantial barriers to entry and economies of scale. Elsewhere, that's not the case. Few businesses want to go down the route of the music industry which has seen its business model both forcibly unbundled (single tracks released from album compilations) and price-squeezed at the same time. For this industry, it is debatable that revenues have truly recovered even in the face of increasing demand (see figure opposite). Particularly worrying across the media landscape must be the standard retail music pricing models that have become the norm. The sub-dollar download fee that characterizes most music stores represents a must-do price that exerts a black-hole like gravitational pull on any new entrant to the industry. And in all probability no one in this industry really knows if the consumer would have been prepared to pay more for the same content. 1 Ernst and Young, 2010, Monetizing Digital Media: Creating value that consumers will buy http://www.ey.com

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www.iicom.org May 2011 Volume 39 Issue 2

12

2500

10

2000

8

1500

6 1000

4

500

Total end user spending

Units consumed (millions)

Did the music industry recover revenues in the download era? (Ernst and Young)

2 2006 2007 2008 2009 2010e 2011e 2012e 2013e

Digital music downloads (singles and albums)

Total end user spending (USD in billions)

Physical CD shipments (singles and albums)

Price elasticity generally in all these digital markets has been difficult to determine. At, or very near, the zero price point, price elasticity issues are at their most problematic and - in terms of predicting actual consumer demand most uncertain. This is not a trivial problem, as any entrepreneur - and venture capitalist involved will tell you. The economics of “free” digital media generation and distribution suggest, not merely new business models but, perhaps, their reinterpretation, and an end to the view that says we can simply extrapolate the popularity of "free" to "paid".

No price at all Free: The Future of a Radical Price2 is guru Chris Anderson's follow up to his Long Tail success. He quotes venture capitalist Josh Kopelman who sums up the entire digital media startup problem admirably: “Most entrepreneurs fall into the trap of assuming there is a consistent elasticity in price…the truth is scaling from USD5 million to USD50 million is not the toughest part of the venture…it is getting your users to pay you anything at all. The biggest gap in any venture is between a service that is free and one that costs a penny.”

In my view, pricing methodology in digital media is naturally different from that for physical goods. 2 Chris Anderson, Free: The Future of a Radical Price, Random House

Consequently, in a fully dis-intermediated digital media supply chain, even a very low price point may still be greatly in excess of distribution cost. Notwithstanding moans from entrepreneurs, the supplier should still retain most of the cash paid, and is theoretically allowed significant ongoing flexibility in setting prices. Profits are relatively insensitive to small variations in price points unless there is very deep discounting, where sensitivity increases. So micropayments could be key in all of this. But how are they going to work in this particular industry landscape. Are we now about to see a wave of Internet ventures cut back on their undoubted digital generosity? But themes embodied in Free seem to suggest that free is here to stay and the consumer is wedded to it. So reconciling these issues will be the big challenge. Industry structures could change. Ernst and Young expect this confusing constellation to unfold into a potential reintermediation of the eco-system around powerful media aggregation platforms - particularly the huge social networks like Facebook. This aggregation could certainly take over the customer-facing issues and provide them with many contextual on-demand benefits. The awkwardness is that the distributor shifts the

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IPTV Analyisis News Analysis Viewpoint

Here speaks the voice of truth, surely. For most of the time, assumptions about pricing and demand in digital media are simply that: assumptions. Still other commentators talk about the sheer effort of burdening the customer with “mental transaction costs” where paying anything regardless of absolute price level places the onus of thinking on him or her.

They do have different characteristics. In the real world, pricing has to cover awkward issues such as stock overruns, or shortages, and even the cost of free samples, which itself may be significant. Digital media, by definition, offer “limitless shelf space” without overrun or shortage and the cost of free samples remains negligible. Distribution costs, too, in digital media delivery are generally very low although this part of the value chain does not necessarily or generally exhibit significant economies of scale per se in the broadband world (at least from the content provider's point of view).


www.iicom.org May 2011 Volume 39 Issue 2

power balance towards himself and away from the content holder. The distribution issue is clearly one of the most difficult problems here, and causes some strange consequences, for the providers at least. The publishing industry for example frets over the discounts it gives Amazon.com because these discounts usually enable Amazon in turn to offer discounts to the consumer. But these discounts frequently end up undercutting the publishers own preferred prices and a chase-down price spiral is always possible. Pressures are likely to grow in the new ebook era. On the other hand, in "true" digital media land everyone seems to like the agency business relationship typified by the iTunes model, everyone that is, apart from competition authorities who detect that even at low prices, consumer prices are being kept higher than they think need be the case. Policymakers would seem to like just the chase-down spiral outlined above. So, the actual value chain and pricing propositions are deeply connected in the digital media world. In spite of the pressures for reintermediation, content providers may have to vigorously pursue their own value chain strategies, or at least, have multiple options, to protect themselves. But perhaps the main point of the entire exercise is not to start off with goods and services that are effectively priced at zero. This is, of course, easier said than done. On this score, a market entry price that is high enough to skim - recovering some costs in the meantime and retaining some flexibility in terms of setting future price points - would seem both rational and plausible (at least in my view) for providers to adopt. For many unique offerings in digital media, the consumer will lack obvious reference points for price comparison (this is in fact the case with ebooks in many markets). Of course, not all originators have the market reach or capability to accomplish this. An ever closer tying of the industry to the consumer seems the other inevitable conclusion. Ernst and Young point out: “In the digital world, however, survival depends on building relationships directly with customers in a directto consumer (D2C) model [requiring] an increasingly sophisticated and multidimensional understanding of the customer.” The customer, in short, is king. In the Internet world, this is a fact that remains abundantly clear - price or no price.

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Events Diary »May » 2011 »» 5th Annual Roaming World Congress 23-26 MAY Madrid, Spain www.iir-telecoms.com/event/roaming

»June » 2011 »» 6th Annual European Spectrum Management Conference 14-15 JUNE Brussels, Belgium http://www.eu-ems.com »» IIC Telecommunications and Media Forum 22-23 JUNE Rome, Italy http://www.iicom.org »» 3rd Annual Internet of Things Conference Europe 28-29 JUNE Brussels, Belgium http://www.eu-ems.com

»September » 2011 »» IBC 2011 8-13 SEPTEMBER Amsterdam, The Netherlands http://www.ibc.org »» Internet Governance Forum 27-30 SEPTEMBER Nairobi, Kenya http://www.intgovforum.org

»October » 2011 »» IIC International Regulators Forum 2011 1-2 OCTOBER Johannesburg, South Africa http://www.iicom.org »» IIC Annual Conference 2011 3-4 OCTOBER Johannesburg, South Africa http://www.iicom.org »» Mobile Video Industry Summit 18-19 OCTOBER London, UK http://mobile-videosummit.com/ »» ITU Telecom WORLD 24-28 OCTOBER Geneva, Switzerland http://www.itu.int


www.iicom.org May 2011 Volume 39 Issue 2

News brief Online security: a hacker Spring arrives? London -- The worldwide network security community seems permanently resigned to answering questions of the why-oh-why sort after data breaches hit the headlines. The trouble is: the data breaches and their consequences are both getting larger and more embarrassing but ever more difficult to assess. The community may be about to hit another unfortunate milestone after revealing two major hacks of the Sony PlayStation network which could potentially involve a data breach of more than 77 million online users. Sony has apologized for the data breaches and reportedly promises a partial resumption of the PlayStation network in early May along with some free use offers. Lawsuits however have already been filed and aggrieved law enforcement and government officials are demanding responses of the why-oh-why variety.

Quick response? One has already gone public with a demand for answers from Sony. In a letter fired off to Jack Tretton, President and CEO of Sony Computer Entertainment America, dated 27 April, George Jepsen, Connecticut Attorney General, points out "the fact that sensitive information was apparently accessed without authorization makes me especially concerned about the possibility of financial fraud and targeted phishing scams...What is more troubling is Sony's apparent failure to promptly and adequately notify affected individuals of this largescale breach." Mr Jepsen says he wants responses to 13 questions covering the breach details and security measures by 11 May. So what has gone missing? Kaz Hirai, executive deputy president at Sony, confirmed in a Tokyo press conference at the end of April that account information was stolen. The first announced attack forced the suspension of Sony's PSN and Qriocity services for the last two weeks [in April]. According to Mash-

able.com, a major blog covering online media, Sony says that it was first alerted to the attack on April 20 and has been working with authorities and two security firms to investigate. An official blog post from Sony says that "name, address (city, state/province, zip or postal code), country, email address, birthdate, PlayStation Network/Qriocity passwords and login and handle/ PSN online ID...it is also possible that profile data, including purchase history and billing address (city, state, zip), and PlayStation Network/ Qriocity password security answers may have been obtained." At the beginning of May, the company announced another breach had already occurred. Observers say gaps remain in this list. Mashable.com points out: "The big question though is whether or not credit card data was stolen, a possibility that has raised questions from the US Congress. Hirai and two other Sony executives repeatedly asserted that they have found “no evidence” that credit card data or billing information has been stolen. Hirai wouldn’t rule out the possibility, however, which likely explains why Sony is asking customers to check their credit card statements just in case." The attacks come days after an US email service provider unconnected to the Sony incident admitted to a major data breach involving customer email addresses. - Stephen McClelland

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IPTV Analyisis News brief News Analysis

What apparently irks is a slow response to the crisis on the part of the company which (at the time of writing) has still not detailed the exact extent of the breaches. But more widely, it also highlights the problems of actually identifying breaches where they affect the data of millions of online users and potentially access to third party providers and networks. In turn, this impacts issues of corporate responsibility, and for many jurisdictions, the patchwork nature of investigation and enforcement provision for such a highly technical area.

Kotaku.com, a major news site covering the online games industry, suggests that US law enforcement agencies including the FBI cybercrimes unit have already become involved in the Sony case. Consumer protection officials at the FTC may also be involved. They are rapidly being joined by the attorney general offices of at least 22 US states.


www.iicom.org May 2011 Volume 39 Issue 2

Stephen McClelland

News analysis Twitter: the making of elites who influence Twitter, the microblogging service, has certainly taken the social networking world by storm. But less evaluated in detail are aggregate patterns of user behaviour, information flows and consumption. Now, in a recent study from a team from Yahoo! Research and Cornell University1, as well as other studies, interesting perspectives are beginning to emerge. For one, in such a network, information flows are far from egalitarian. Although many Twitter users conduct interpersonal communication, millions more follow elite groups.At the top of the list are ten celebrities. Twitter, in short, may be a good example of the new new media ecoystem, mxing aspects of mass and interpersonal forms of communications in strange and unexpected ways. Studying it may even enable us to answer questions relating to how communication and media flows interact with audiences, questions that have been puzzling media researchers for over half a century. And, of course, examining interactions in such networks - particularly in how user populations respond to opinion leaders - has significant potential for future viral marketing. 1 Who Says What to Whom on Twitter Shaomei Wu, Cornell University, USA sw475@cornell.edu, Jake M. Hofman Yahoo! Research, NY, USA, hofman@yahooinc.com, Winter A. Mason, Yahoo! Research, NY, USA, winteram@yahooinc.com, Duncan J. Watt, Yahoo! Research, NY, USA, djw@yahooinc.com, presented at the International World Wide Web Conference 2011, Hyderabad, India http://www.www2011india.com

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From the Yahoo!-Cornell study, the authors explain: "We exploit a recently introduced feature of Twitter known as Twitter lists to distinguish between elite users, by which we mean specifically celebrities, bloggers, and representatives of media outlets and other formal organizations, and ordinary users. Based on this classification, we found a striking concentration of attention on Twitter - roughly 50% of tweets consumed are generated by just 20K elite users [only about 0.05% of the Twitter user population] where the media produces the most information, but celebrities are the most followed."

because of limitations on monitoring. Many studies inevitably have reduced their scope to one-to-many mass media - observing behaviours where information flows from a single source to a large, relatively undifferentiated group of people, or to go to the other extreme of one-to-one, two-way, communication between small groups of individuals. Social media brings many more permutations of interaction, including rebroadcast activities, all of which can be examined in information flows. For many, seeing such largescale but detailed depiction is an intriguing experience in its own right - there's something fascinating, yet eerie, in watching these ephemeral information flows develop planetwide.

Some other findings emerge, too. For example, within categories, the researchers find celebrities listen to celebrities and bloggers listen to bloggers, although bloggers are also responsible for a significant amount of rebroadcasting, possible because of the way the Twitter network operates.

But do such flows really mean content has influence on its audience? It is a root question in communications with various hypotheses stretching over nearly a century. Some experts have suggested media has an immediate and powerful effect on its audience; others say it has a minimal effect. Still others talk of the ability of media not so much to influence directly but to set an agenda, whilst yet others talk in terms of a "two step flow" where opinion leaders - followed by an audience - represent an intermediate stage in the process of influence.

'Who says what to whom?' One overarching objective of media research - known as Lasswell's Maxim - has been in existence for 60 years and poses a fundamental question in the field: "Who says what to whom in what channel with what effect?" Researchers have had a hard time comprehensively answering this

Two predominant, but intersecting, trends in the nature of communication channels are now getting blurred in the Twitter era. On the one hand, many traditional mass


www.iicom.org May 2011 Volume 39 Issue 2

Table 1 Twitter's big users

media channels have become fragmented, on the other, interpersonal communications has been "amplified" by the blogging and related trends. Some experts argue - adding to the mix - an era of "masspersonal" communication has arrived.2

Is it really a social network? In fact, there is clearly a school of thought in the research community that suggests Twitter is less a "true" social network than an information sharing resource. This argument points out Twitter use is fundamentally skewed and there is much less reciprocity of connections between users than in other social network contexts. Moreover, some researchers have argued that, depending on how you measure influence (in terms of number of followers, number of retweets, and number of mentions), the most followed users did not necessarily score highly on the other mentions.3 The Yahoo!-Cornell work concentrates on information flows in Twitter, finding user populations are intriguingly varied. Whilst high profile celebrites represent the most

MEDIA

ORG

BLOG

aplusk (Ashton Kutchner)

cnnbrk

google

mashable

ladygaga (Lady Gaga)

nytimes

Starbucks

problogger

TheEllenShow(Ellen Degeneres)

asahi

twitter

kibeloco

taylorswft13 (Taylor Swift)

Breaking News

joinred

naosalvo

Oprah (Oprah Winfrey)

107

ollenkt

dooce

well-known of all users, there are significant groups of experts and commentators who blog and of course many individuals (Table 1). But there are also now significant numbers of media outlets and organizations that directly interface with the public. Perhaps unsurprising is the marked US tilt in these attractants: celebrities are US film, TV and music stars and Google and Starbucks, the New York Times, and CNN feature prominently. Entering however are Japanese (asahi), Korean (ollenkt) and Brazilian (kibeloco, naosalvo) constellations. But the researchers also point out that Twitter users are "receiving their information from many thousands of distinct sources, most of which are not traditional media organizations - even though media outlets are by far the most active users on Twitter, only about 15% of tweets received by ordinary users are received directly from the media."

Moreover, the research uncovers a surprising truth - the two-step intermediary driven activity seems alive and well in the age of Twitter. Many users receive their media information from trusted intermediaries who have performed a filtering and commentary action from the original sources. The population of these intermediaries is smaller than that of the users who rely on them - but "still surprisingly large, roughly 500 000," say the researchers. They point out almost half the information that originates from the media passes to the masses indirectly via a diffuse intermediate layer of opinion leaders. The most prominent intermediaries, perhaps unsurprisingly, are drawn from the elite users. Still, determining influence may be elusive. The final part of Harold Lasswell's Maxim - "with what effect?" - may have to wait a little longer for social media practitioners to answer. But at least, communication research seems set for a major reinvigoration in the era of social media. 9

IPTV News analysis NewsAnalyisis Analysis

2 J. B. Walther, C. T. Carr, S. S. W. Choi, D. C. DeAndrea, J. Kim, S. T. Tong, and B. Van Der Heide. Interaction of interpersonal, peer, and media influence sources online. In Z. Papacharissi, editor, A Networked Self: Identity, Community, and Culture on Social Network Sites, pages 17-38. Routledge, 2010. 3 M. Cha, H. Haddadi, F. Benevenuto, and K. P.Gummad. Measuring user inuence on Twitter: The million follower fallacy. In 4th Int'l AAAI Conferenceon Weblogs and Social Media, Washington, DC, 2010.

CELEBRITY


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By Alan Lau, Davis Lin, Jun He, Laxman Narasimhan, Yuval Atsmon

News analysis Enter the Chinese digerati? China could have as many as 750 million people online by 2015, up from 420 million today. Who are these Internet users? Which applications drive them online, and what makes them stay there? Which devices are they using, and how will that change over time? Marketers seeking to reach China’s swelling population need these details to make informed business decisions. A McKinsey report1 attempts to fill the information gap. In 2010, we surveyed more than 5,000 of these consumers in upward of 20 Chinese cities. In addition to collecting basic demographic data, we asked the respondents questions that helped us assess two critical dimensions of their digital personas. The first was how much time consumers spend on digital devices (such as mobile phones and smart phones, PCs, TVs, and game consoles) and how they allocate their time among various applications (e-mail, instant messaging, games). The second dimension was how much money consumers spend on digital devices and applications. Our research revealed seven consumer segments (see Table 1), with widely varying usage patterns and preferences for digital applications and devices. The largest segment, the “traditionalists,” comprises a whopping 125 million consumers, who still spend a large portion of their media time on traditional forms such as television and 1 Understanding China’s Digital Consumers, McKinsey, 2011

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are less likely to own, or want to own, other digital devices. They are less educated than the rest of the Internet users, and many live in smaller cities. Even the smallest segment, the “digital junkies,” has 25 million of the planet’s most intensive Internet users. They spend more than 34 hours a week with digital media, compared with an average of 15.8 hours for all users. People in this segment are young and always on the lookout for the latest gadget; more than 25 percent of them live in one of China’s four biggest cities.

Closing the gap A relative late-comer to the Internet, China has in the space of just a few years rapidly narrowed the gap with developed markets such as the US. Overall US Internet users spend 93 hours a week on Internet-related activities, including communication, entertainment, and e-commerce. In China, digital consumers spend 40 hours online, indicating significant room for further growth. China's digital consumers share the same preference for video, music and gaming as their US counterparts. But US consumers enjoy these on a much larger scale: the typical US consumer spends 3 times more time on video than the average Chinese consumer, and 4 times more time downloading music. When it comes to gaming however, China is a very close second to the US, averaging 4-5 hours per week. As bandwidth limitations ease up

and more content is made available, Chinese users will likely close the gap. Chinese consumers also differ substantially from their US counterparts in their use of communication and connectivity applications. US consumers spend a disproportionately large amount of time reading and writing email, averaging 5.5 hours a week. By contrast, Chinese consumers spend just 20 minutes on email a week. The reverse is true for instant messaging - Chinese consumers dedicate 4 hours per week to IM, whereas US consumers only spend about 2.6 hours. US consumers spend over 6 hours communicating through voice over Inernet protocol (VoIP) applications such as Skype, whilst Chinese consumers rack up 2.7 hours per week. Despite these differences, we identified 4 segments in China that are broadly similar to those in the US: digital junkies, gamers, info-centrics, and traditionalists. Yet even within each segments there are some characteristics that mark digital consumers in one market from the other. For example, digital junkies in China are somewhat evenly split between men and women, whereas in the US, they are predominantly male. Gamers in China spend most of their time on PC games, whilst US gamers have a strong preference for console gaming. China's most intensive digital consumers already represent sizeable portions of the overall digital consumer population. But they still lag somewhat behind the US, indi-


www.iicom.org May 2011 Volume 39 Issue 2 Digital junkies

Table 1 China's seven digital consumer segments - percentage users

Basic users

Gamers Heavy users

6

17

9 Moderate users

Mobile mavens 8 25

Light users

17 Infocentrics 18 Traditionalists Online Traders

CATEGORY

FEATURES

Digital junkies

Spend more than twice as much time online as all other segments, are early adopters of high-tech gadgets

Gamers

Spend the most time on PC games, are heavy users of social networks

Mobile mavens

Are heavy mobile-Internet users, prefer listening to music and reading

Info-centrics

Look for information to increase productivity at work, prefer PCs

Online traders

Spend time online primarily tracking and trading stockst

Traditionalists

Are light users of Internet, have little interest in high-tech devices, spend more time watching TV

Basic users

Spend the least amount of time online, play games on mobile phones

cating tremendous potential future growth: digital junkies make up 6% of digital consumers in China, versus 12% in the US; 9% are gamers in China, 12% in the US; 8% are infocentrics in China, 15% in the US.

Trading frenzy

Basic users are unique in China because there's a large number of students that want to spend more time online but either can't afford to, or are hindered by under-developed Internet infrastructure. As basic users move into the workforce and earn more disposable income, and as devices because more affordable, we expect them to join one of the other segments.

models, no one size fits all in China. The substantial differences among the country’s digital consumers show that marketers must develop tailored offerings for them. The authors are with McKinsey. Reproduced with acknowledgement from McKinsey Quarterly.

IPTV News analysis NewsAnalyisis Analysis

Two segments are unique to China - online traders and basic users. Online traders reflect the aggressive day-trading culture that has sprouted up in China in line with the emergence of its stock markets. It also reflects the limited availability of investment vehicles: pensions,

mutual funds, and financial planning have yet to take off in China.

Whether it’s applications, digital devices, or e-commerce business 11


www.iicom.org May 2011 Volume 39 Issue 2

by Heather E Hudson

Rural broadband: Strategies and lessons from North America Are two countries moving in different directions?

The US and Canada lag behind several other OECD countries in broadband penetration (US ranking 15th and Canada ranking 11th);1 both countries also have significant rural and remote areas without broadband infrastructure or with limited Internet connectivity. Both countries have provided funding for capital investments in infrastructure through stimulus funds and other programs; both are currently reviewing universal service fund support mechanisms for operational subsidies to determine whether they should be revised to include broadband.

Access: Availability, Affordability, Adoption...and Sustainability Providing access to broadband requires sufficient incentives to invest in infrastructure (capital expenditure or capex) and sustainability to generate sufficient revenues for ongoing operating expenses (opex). Access from the providers’ perspective can be defined in terms of houses passed (for wireline technologies such as optical fiber and coax or hybrid fiber/coax or copper) and coverage for wireless technologies. However, from the users’ perspective access may be viewed differently. For example: »»Household access: with devices and connectivity in each dwelling; »»Personal access: using mobile phones, PDAs, laptops, netbooks, e-pads, etc.;

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»»Institutional access: for government agencies, public safety, health care facilities, etc.; »»Public access through a variety of sites such as post offices, telecenters, libraries, Internet cafés, other commercial shops, nonprofit organizations, community centers, etc.; »»Student access at schools, community colleges, distance education centers, etc.; »»Geographic access, i.e. within specified distance of access point; »»Specified jurisdictions as those with a certain administrative function (e.g. district centre, county seat), or minimum population, etc. These indicators refer primarily to availability. Yet access to broadband requires not only availability but also affordability, plus relevant applications and the skills to put them to use in order to achieve adoption. Each of these requirements has been addressed through various government policies and strategies. The stimulus funds for broadband in the US deal primarily with capex, with some projects also addressing community access and user skills. Canadian stimulus funds address capex exclusively. Sustainability for providers and affordability for users may be addressed through universal service policies. In the US these policies are under review as part of the proposed reforms in the National Broadband Plan. In Canada, the Canadian Radio Television Commission (CRTC) is re-examining defini-

tions of basic service and the need for service subsidies. More detailed analysis is given below.

Broadband and National Development Both the US and Canada have long recognized the importance of communications for social and economic development. The Canadian Department of Communications’ Instant World report heralded a new era of interconnected citizens and instantaneous access to information long before the Internet. Both countries invested in experimental communications satellites, and supported projects to explore their potential for telemedicine, distance education, and cultural exchanges. Commercial satellites were then launched to provide national television distribution, and voice and video services for remote areas, primarily in the North. In the 1990s, the US proposed a National Information Infrastructure (NII) initiative to connect Americans to the Internet. Canada proposed a national Information Highway that would link Canadians and provide access to new information services. Both countries recognized internal “digital divides” that left rural and remote communities and low income households cut off from these new opportunities, and both have adopted policy and funding strategies to attempt to bridge these gaps. Canadian federal initiatives have brought broadband to remote indigenous communities across


www.iicom.org May 2011 Volume 39 Issue 2

the Arctic and in remote regions of some Canadian provinces. The US has provided subsidies to provide broadband access to communities through schools and libraries, and grants and loans to rural carriers to upgrade their networks for Internet services. However, access can be expensive and quality of service inadequate in these remote areas. Also, there are still rural areas, typically with low population density, that do not have broadband access, or where broadband is only available via relatively expensive individual satellite installations. In 2010, the US and Canada announced initiatives intended to implement strategies that focus on broadband as a key driver of national social and economic development. The US National Broadband Plan examines the importance of competition and adequate spectrum to foster innovation and investment in the ICT sector. It identifies key “National Purposes” including health care, education, energy and the environment, economic opportunity, government performance, and civic engagement. It also devotes attention to “Digital Inclusion” including broadband availability, adoption, and utilization.2 Canada’s vision appears more limited and strategic. Industry Canada has announced a Digital Economy strategy with a consultation paper entitled Improving Canada’s Digital Advantage: Strategies for Sustainable Prosperity.3 Its main themes echo several in the US National Broadband Plan including innovation, building and extending “world-class” infrastructure, growing the ICT industry, and building digital skills.

US Infrastructure Initiatives In the US, two federal agencies provide funding for rural telecommunications infrastructure. Based in the Department of Agriculture, the Rural Utilities Service (RUS) offers low-cost loans to extend and

upgrade the infrastructure of rural utilities. Initially, its loans were for voice communications in unserved areas; it now lends to rural providers to upgrade their networks for broadband, and also supports facilities for rural telemedicine and distance education.4 In the Department of Commerce, the National Telecommunications and Information Administration (NTIA) has administered several grant programs that include support for rural broadcasting and telecommunications. In 2009, the US American Recovery and Reinvestment Act (Recovery Act or ARRA) appropriated USD7.2 billion “to begin the process of significantly expanding the reach and quality of broadband services.” Grants administered by NTIA were to be awarded for infrastructure, public computer centers, projects to foster sustainable broadband adoption, and for broadband data collection and mapping. The RUS received USD2.5 billion specifically for rural infrastructure projects. Other stimulus initiatives include funding for electronic health record systems, ICTs in education, “smart grids” to manage distribution and utilization of energy, and communication systems for public safety and security.5

Broadband Mapping For several years, US regulators and policy makers have been concerned that no detailed and current data were available on the location and quality of broadband services throughout the US. Accordingly, the Broadband Data Improvement Act (BDIA) mandated NTIA to improve data on the deployment and adoption of broadband service across the US,6 and the Recovery Act required NTIA to create and make available “a comprehensive, interactive, and searchable” national broadband map by February 17, 2011.7 The ARRA allocated USD350 million to fund one entity in each state to gather and verify data on the availability, speed, location, and technology type 13


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of broadband services. The data collected and compiled will also be used to develop publicly available state-wide broadband maps and to prepare the national broadband map.8 Ideally, the national broadband map would have been available to guide planners in identifying areas where connectivity is inadequate, and in developing a national broadband plan. However, the lack of funding before the Recovery Act and the lead times required to allocate funds and develop the maps resulted in stimulus grants being awarded and the National Broadband Plan being announced (as mandated) in 2010, while the initial map was not available until 2011.9

could be allocated to another category. Up to USD325 million was available as a national reserve fund. »»Funding mechanisms: Awards could be in the form of loans or a combination of grants and loans.10 As noted above, universal service fund reform is part of the process of implementing the US National Broadband Plan. The above features were retained in the FCC’s Sixth Report and Order on Schools and Libraries Universal Service Support Mechanism in September 2010.11

Rural Utilities Service (RUS): Broadband Infrastructure Program (BIP) The Recovery Act allocated USD2.5 billion for rural infrastructure projects to the RUS, which is administering these funds through the Broadband Infrastructure Program (BIP). Key elements include: »»Projects are targeted at rural areas: At least 75 percent of the project area must be “in a rural area that lacks sufficient access to high speed broadband service to facilitate rural economic development.” »»Funding and project criteria: Approximately USD2.4 billion was made available, of which up to USD1.2 billion was for last mile projects. Of this funding, USD400 million was available for remote area projects, while the additional USD800 million could be used in remote or non-remote (but rural) areas. Up to USD800 million was available for middle mile projects. Unused funds in one category 14

NTIA: Broadband Telecommunications Opportunities Program (BTOP) The Recovery Act allocated USD4.7 billion to NTIA for broadband mapping, and for the projects supported through the Broadband Telecommunications Opportunities Program (BTOP). As of the funding deadline (September 30, 2010), NTIA had funded 233 projects which would: »»Fund the installation or upgrade of approximately 120,000 miles of broadband networks; »»Provide broadband access to approximately 24,000 community anchor institutions; »»Deploy middle mile infrastructure in areas with nearly 40

million households and 4 million businesses; »»Invest in more than 3,500 new or upgraded public computer centers; »»Invest in more than 35,000 new or upgraded public computer workstations. NTIA estimated that their investments would make computer center workstations and training available to more than 1 million new users.12

Canadian Stimulus Initiatives: Broadband Canada: Connecting Rural Canadians The Canadian federal government sponsored several innovative projects to extend broadband to rural and remote areas in the 1990s, such as BRAND (Broadband Access for Rural and Northern Development Pilot Program). However, no new funding was provided to continue or replace BRAND. The government has subsidized satellite service for remote northern communities through its Northern Satellite Initiative, which continues through 2011.13 Satellite broadband is also available throughout much of rural Canada, but at prices significantly higher than comparable service (on the same Anik satellite) in the US. In September 2009, Industry Canada announced Connecting Rural Canadians, a CAD225 million stimulus program to extend “essential infrastructure” in remote and rural areas.14 Like the US stimulus program, Connecting Rural Canadians was designed “to make broadband service available to as many unserved and underserved households as possible.” While similar in intent, the Canadian program differed in being


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exclusively rural and using a definition of broadband that is twice the speed adopted in the US for stimulus support. Further, it undertook preliminary mapping to identify service gaps before issuing its request for proposals, although greater detail (down to the block level) is required in the US maps that are to be ready in 2011. The Canadian program also allows for funding to public sector entities at the provincial/territorial level, and requires a higher match (50 percent vs. 20 percent) for grant support. (All support is in the form of grants, whereas the RUS component in the US includes loans.)

Policy and Regulatory Reform The US National Broadband Plan In March 2010, the FCC announced a National Broadband Plan. The plan’s goals included inter alia:

The Broadband Plan is to be implemented through numerous reviews and reforms involving universal service, spectrum allocations, carrier compensation, public safety coordination, monitoring of speed and quality of service, and other initiatives. The steps designed to achieve universal access to broadband include: »»Create a Connect America Fund to extend broadband service to unserved areas and to ensure affordable broadband service in high-cost areas. The goal is provision of affordable broadband with at least 4 Mbps actually download speed. (Note that this is a different target from the national goal above of 100 Mbps.) »»Create a Health Care Infrastructure Fund to support deployment of dedicated health care networks to underserved areas. »»Create a Mobility Fund to upgrade wireless coverage throughout the country to 3G or better. »»Carry out a “once-in-a-generation transformation” of the Universal Service Fund over the next ten years to support broadband service by converting existing subsidy mechanisms over time from “POTS” (plain old telephone service) to broadband, without increasing the size of the fund over current projections.

»»Upgrade the E-rate program (that subsidizes Internet connectivity for schools and libraries; see below), to benefit students and others across the country by making broadband more accessible (possibly by providing support for additional means of community access through schools or other local institutions). »»Reform and upgrade current rural health connectivity subsidies “to connect more public health facilities to high-speed Internet facilities and to foster telemedicine applications and services”.17

Canada’s Digital Economy Strategy Canada has no explicit national broadband policy or plan. However, in 2010, Industry Canada launched an online public consultation aimed at creating a digital economy strategy for Canada. It also published a consultation paper on Improving Canada’s Digital Advantage.18 The emphasis is on using digital technologies as part of a Canadian strategy to build competitive advantage in ICT industries and digital media and content. There is little reference to specific sectors such as health, education, and public safety.

Sustainability through Universal Service Funds US and Canadian Universal Service Reform Both countries recognize that one-time stimulus or other investment funding will not ensure access to broadband for all regions or customers. Universal service funds, as described below, are a major mechanism to provide for sustainability. The FCC has begun the process of reviewing universal service support programs as a key strategy to implementing the National Broadband Plan. As noted 15

Rural broadband in North America

»»At least 100 million US homes should have affordable access to actual download speeds of at least 100 megabits per second and actual upload speeds of at least 50 megabits per second. »»Every American should have affordable access to robust broadband service, and the means and skills to subscribe if they so choose. »»Every community should have affordable access to at least 1 Gbps broadband service to anchor institutions such as schools, hospitals and government buildings.15 »»The plan provides a detailed analysis of the steps the FCC has determined will be required to achieve these goals under four major headings: »»Establishing competition policies (including pricing, privacy, and transparency);

»»Ensuring efficient allocation and use of government owned and government-influenced assets (such as spectrum and rightsof-way); »»Creating incentives for universal availability and adoption of broadband; »»Updating policies, setting standards and aligning incentives to maximize use for national priorities (in fields such as health, education and public safety).16


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above, it intends to replace some existing support funds with a Connect America Fund. Some principles proposed for the new Connect America Fund (CAF) include: “CAF should only provide funding in geographic areas where there is no private sector business case to provide broadband and high-quality voice-grade service"; “There should be at most one subsidized provider of broadband per geographic area"; “The eligibility criteria for obtaining broadband support from CAF should be company- and technology-agnostic so long as the service provided meets the specifications set by the FCC". The National Broadband Plan concludes that private investment alone is unlikely to extend broadband in some areas of the country with low population density.19 The FCC first announced a Notice of Inquiry and Notice of Proposed Rulemaking on these universal service proposals on April 21, 2010.20 Steps toward implementation are underway through a series of FCC Notices on universal service topics including: »»High cost operator support mechanisms »»Low income customer support mechanisms (Lifeline and Link-Up programs) »»Subsidies for schools and libraries (the E-Rate program). »»Subsidies for connectivity for rural health care (telemedicine and telehealth).

programs for community Internet access. Examples of operating support include federally subsidized satellite service for northern communities through the Northern Satellite Initiative, which continues through 2011, but no follow-on support has been announced.21 Another federal initiative, the Community Access Program (CAP) has facilitated free community Internet access at more than 3,000 locations across Canada since 1994. The federal government announced severe cuts to the D14-milliona-year program that would have halted funding for 93 percent of the CAP sites in March 2010, but then rescinded the cuts, stating that funding would come from other sources (apparently Connecting Rural Canadians). It then announced funding of CAD28 million to extend affordable access to the Internet to Canadians in schools, community centers and libraries. This was appar-

These subsidies were designed to provide ongoing support to provide sustainable services for regions or customers unlikely to be able to cover costs of providing the services, as discussed in more detail below.

ently an interim strategy, as the Minister for Industry Canada noted: “We don’t want to get anybody left in the lurch by having the funding cut this year, while the broadband strategy to households is still rolling out.”22 However, the funding he refers to is for infrastructure (capex) and not ongoing operating subsidies (a contribution to opex).

Canada has not taken an integrated approach to broadband sustainability. Industry Canada has terminated or is phasing out sustainability

In addition, the CRTC initiated a consultation in 2010 to review and update its basic service definition and support mechanisms. 23 The

16

CRTC’s current basic service objective for local exchange carriers established in 1999 includes individual line local service with touchtone dialing provided by a digital switch with dial-up access to the Internet at local rates.24 If it were to change that definition to include broadband (using Industry Canada’s recommended minimum download criterion of 1.5 Mbps or greater), it would provide a de facto sustainability mechanism to support rural broadband. However, the CRTC in their recent decision (May 3, 2011) declined to include broadband as a basic service, but did set targets of 5 Mbps downstream and 1 mbps upstream actual speeds for all Canadians by 2015.30

Subsidizing Users: Institutional Access Some countries include support for institutions that make Internet services available to the public, such as post offices, libraries, and schools that extend extend access to the community.25 In the US, the E-rate (short for “education rate”) created by the Telecommunications Act of 1996 provides discounts on a wide variety of telecommunications, Internet access and internal connections for schools and libraries. The applicable discount rate is based on a school’s economic need and whether it is located in an urban or rural area. Up to USD2.25 billion worth of discounts can be made available each year. Schools and libraries are responsible for the remainder, and must demonstrate that they can cover their portion of the costs.26 Approved schools and libraries post their requirements online, where they are open for competitive bids. If no competitors respond during the designated time period, the school or library may contract with the local incumbent operator. The result in many small communities has been that the school


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has become an anchor tenant for Internet access. In Alaska, which has many remote villages similar to indigenous communities in the Canadian North, the E-Rate subsidy had brought Internet access to most village schools. One of the competitive providers concluded that the school subsidy was critical to its business case to bring broadband to the villages (primarily by satellite), and subsequently installed broadband wireless to cover the villages, with price for individual access not to exceed the price in Anchorage, the largest city.27

rural and remote regions. Reforms of universal service policies in both countries are needed to address the issues of sustainability for service providers in high cost regions. The US also includes user subsidies for schools and libraries, which in turn provide funding for operators to extend services to these anchor tenants in rural communities. Affordability is addressed in the US through subsidies for voice services

As noted above, universal service fund reform is part of the process of implementing the US National Broadband Plan. The key features of the E-rate were retained in the FCC’s Sixth Report and Order on Schools and Libraries Universal Service Support Mechanism in September 2010.28 for low income customers. The FCC is considering expanding the service offerings to include broadband. In Canada, consumers are advocating similar treatment,30 but there are no individual or institutional subscriber subsidies for any services.

Beyond Infrastructure: Lessons from North America

The next steps in closing the digital divide and deriving socio-economic value from infrastructure investments are to increase adoption and to develop and implement applications that address social and economic needs for information, e-services, access to markets, consultation with specialists, etc.

Access to broadband involves three critical components: availability, affordability, and sustainability. Broadband policies need to address all of these requirements. Stimulus projects and other initiatives to invest in infrastructure address only one element of access. Policymakers need to address sustainability requirements for rural and remote areas, and affordability for low income populations or high cost regions. The stimulus programs in the US and Canada are aimed at increasing availability, through funding infrastructure investments primarily in

From Access to Adoption

National data in the US shows lower levels of broadband adoption among lower income, rural, and some minority populations. Among nonadopters, lack of relevance is cited as main reason for not having broadband at home.31 Research is needed in each country or region to increase understanding of reasons for non-

Metrics and Mapping It is important to have reliable and updatable data on location of facilities, actual connection speed, reliability, pricing and other relevant variables. In the US, the lack of comprehensive and granular data was the reason for the inclusion of funds for broadband mapping in the Recovery Act. Ideally the maps would have been prepared before the funding process, and used to identify regions requiring support. Fairly detailed maps were already prepared in Canada before its stimulus funds were announced. In any jurisdiction the data should be regularly checked and updated, and GIS-bases created. Such maps can be combined with other data such as demographics, locations of schools, clinics, public safety facilities, etc.

Economic Impact Stimulus projects are typically intended to create jobs quickly – and to support projects that are “shovel ready.” Yet these may be no more than short term jobs shoveling trenches for optical fiber or erecting towers for wireless coverage. Long term employment and economic impact requires more time, an understanding of the economic needs and goals of the country, and training to impart necessary ICT skills. Context can be important: Canada’s Digital Economy strategy focuses on perceived advantage in some sectors of the high tech industry and digital content. The US National Broadband Plan has a broader vision, and a specific mandate to tie in with other federal government 17

Rural broadband in North America

Connectivity for rural health services is also supported from universal service funds in the US In Alaska, the AFHCAN (Alaska Federal Health Care Access Network) program relies on this subsidy to connect more than 250 sites including links between more than 150 village clinics and regional hospitals.29

adoption, to develop strategies to encourage adoption, and to identify or develop relevant applications for users with limited ICT or language skills.


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goals in improving efficiency and effectiveness of government services. Each country needs to determine how broadband investments could support its development goals.

Evaluation Government investments in infrastructure and support for broadband services are based on the premise that use of broadband can contribute to goals such as social, cultural, and economic development, improved or extended delivery of public services, support for various sectors and other priorities. Broadband infrastructure initiatives should therefore be evaluated not only to determine whether the funds resulted in the intended broadband deployment, but to assess impacts of increased access on availability and effectiveness of health services, education and training, government programs and services, new or increased economic activities, etc. It is thus important to budget for evaluation of such initiatives including collection of baseline data before projects are implemented, collection of usage data, and collection and analysis of other data required to determine the impact of these investments. Neither the US nor Canada provided any funds for such research in their stimulus allocations. Yet without such research, governments and citizens will not know whether or how their investments contributed to local, regional, or national development. Heather E Hudson is Professor and Director, Institute of Social and Economic Research (ISER)University of Alaska Anchorage. Contact: hehudson@ uaa.alaska.edu or heatherehudson@ gmail.com. This research was initiated while the author held a Fulbright Visiting Research Chair at Carleton University in Ottawa in fall 2009, and updated as of April 2011.

18

References 1 “OECD Broadband Statistics” December 2009. See www.oecd.org/sti/ict/broadband . 2 Federal Communications Commission. Connecting America: The National Broadband Plan. Washington, DC, March 2010. 3 “Improving Canada’s Digital Advantage: Strategies for Sustainable Prosperity.” Consultation Paper on a Digital Economy Strategy for Canada. Ottawa: Industry Canada, July 2010. 4 See www.usda.gov/rus/telecom/index.htm 5 American Recovery and Reinvestment Act of 2009, (Pub.Law. 111-5). See www.recovery.gov. 6 Broadband Data Improvement Act (BDIA), Title I of Public Law 110–385, 122 Stat. 4096 (Oct. 10, 2008)7 American Recovery and Reinvestment Act of 2009 (Recovery Act), Public Law 111–5 (Feb.17, 2009). 8 National Telecommunications and Information Administration State Broadband Data andDevelopment Grant Program Notice of Funds Availability, July 8, 2009. 9 See www.broadbandmap.gov 10 See www.rurdev.usda.gov/utp_bip.html 11 Federal Communications Commission. “In the Matter of Schools and Libraries Universal Service Support Mechanism: A National Broadband Plan For Our Future.” Sixth Report and Order. Adopted September 23, 2010. 12 “Secretary Locke Announces Recovery Act Investments To Expand Broadband Internet Access And Spur Economic Growth” September 27, 2010. See www2.ntia.doc.gov/ 13 Industry Canada. “Government of Canada Announces Broadband Access Via Satellite for 52 Remote Communities.” Ottawa: May 20, 2004. See http://www.ic.gc.ca/eic/site/ic1.nsf/ eng/02381.html 14 Industry Canada. “Broadband Canada. Connecting Rural Canadians.” See www.ic.gc. ca/eic/site/719.nsf/eng/home 15 Federal Communications Commission. National Broadband Plan, March 16, 2010. See http://download.broadband.gov/plan/nationalbroadband-plan.pdf 16 Federal Communications Commission. Connecting America: The National Broadband Plan. Washington, DC, March 2010. 17 Federal Communications Commission. “FCC Announces Broadband Action Agenda.” Press Release. Washington, DC, April 8, 2010. 18 See http://de-en.gc.ca/en/home/ 19 Federal Communications Commission. Connecting America: The National Broadband Plan. Washington, DC, March 2010.

20 Federal Communications Commission. Notice of Inquiry and Proposed Rulemaking: “In the Matter of Connect America Fund; A National Broadband Plan for Our Future; HighCost Universal Service Support.” Washington, DC, April 21, 2010. 21 Industry Canada. “Government of Canada Announces Broadband Access Via Satellite for 52 Remote Communities.” Ottawa: May 20, 2004. See http://www.ic.gc.ca/eic/site/ic1.nsf/ eng/02381.html 22 Quoted in the Globe and Mail, March 17, 2010. See www.theglobeandmail.com/ news/politics/industry-minister-announcesreprieve-for-library-Internet-access-program/ article1503146/ 23 Telecom Notice of Consultation CRTC 2010-43, Proceeding to review access to basic telecommunications services and other matters. See www.crtc.gc.ca/eng/ archive/2010/2010-43.htm 24 CRTC. Notice of Consultation and Hearing: Proceeding to review access to basic telecommunications services and other matters, announced January 28, 2010.See www.crtc. gc.ca/eng/archive/2010/2010-43.htm 25 See Hudson, Heather E. “Defining Universal Service Funds: Are They Accelerators or Anachronisms?” Intermedia, Vol. 38, Issue. 1, March 2010. See www.iicom.org 26 Hudson, Heather E. “The Future of the E-Rate: US Universal Service Fund Support for Public Access and Social Services”in Schejter, Amit, ed., … and Communications for All: An Agenda for a New Administration. Lanham, MD: Lexington Books, 2009. 27 Hudson, Heather E. From Rural Village to Global Village. New York: Routledge, 2006. 28 Federal Communications Commission. “In the Matter of Schools and Libraries Universal Service Support Mechanism: A National Broadband Plan For Our Future.” Sixth Report and Order. Adopted September 23, 2010. 29 See www.afhcan.org and Hudson, Heather E. From Rural Village to Global Village. New York: Routledge, 2006.30 Hudson, Heather E. Testimony submitted on behalf of the Public Interest Advocacy Centre, CRTC Consultation 2010-43: Proceeding to Review Access to Basic Telecommunications Services and Other Matters. Ottawa: CRTC, April 2010.31 FCC. Presentation at September Commission Meeting, September 29, 2009. See http://reboot.fcc.gov/open-meetings/2009/ september 30. http://www.crtc.gc.ca/eng/ archive/2011/2011-291.htm


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The Big Picture The making of a modern media mania metric? A handful of global events - such as the British Royal Wedding on 29 April 2011 - stimulate, for a short time, astonishing levels of global media use. But accurate measurements are elusive. Whilst individual network systems and platforms can gauge traffic on the Internet, estimating the true global terrestrial TV broadcast audience is difficult. Internet blurs viewing habits as people mix devices and access methods. The event received great advance buzz (see Figure) but to some criticism, pre-event estimates1 by UK minister 1 http://www.pressassociation.com/component/ pafeeds/2011/04/06/2bn_expected_to_watch_royal_ wedding?camefrom=royalwedding

Jeremy Hunt of 2 billion TV audience have been accepted by many commentators and media outlets as unquestioned fact. Undoubtedly, the Royal Wedding created major web interest (although apparently less so than events such as the World Cup). Even so, web performance monitoring groups reported some degradation of performance with extended response times at several major sites, including media outlets and mobile streaming due to extreme demand. But the web is in a constant state of change: within 72 hours of the Wedding, the killing of Osama Bin Laden reportedly created greater instantaneous traffic peaks still - and record Twitter activity..

The Buzz Page views peaked at 5.4 million per minute [World Cup 2010 had 10.4 million per minute]...Global web traffic "39% higher than normal" but "no firm evidence that this was due to Royal Wedding" - Akamai Technologies, bbc. co.uk

0.35% UK USA Australia

- Nielsen

Views

Share of news coverage about the Royal Wedding

November 2010

April 2011

TV

Estimated global TV audience

Topics

800m

Funeral of Princess Diana (1997)

2.5bn

Live Aid (1985)

1.5bn

- Press Association

Facebook: 684,399 status updates mentioned the royal wedding over a four hour period - roughly 47 per second - bbc.co.uk, Facebook Livestream — which delivered video to sites such as The Associated Press, UK Press Association, CBS and Entertainment Tonight — hit a peak of 300,000 concurrent

Video

live streams. Yahoo saw its largest live video traffic ever, up 21% from Michael Jackson’s live funeral broadcast. -venturebeat.com

19

IPTV Analyisis The Big Picture News Analysis

Twitter top "trending topics" globally were all royal-themed: RoyalWedding, #rw11, casamentoreal (Spanish for Royal wedding), QILF (best not to ask!), William and Kate, Sarah Burton (dress designer), Grace Kelly (Princess Grace of Monaco), Westminster Abbey, Rutter (John Rutter - composer), Anglican, Royal channel - bbc.co.uk

Prince of Wales Wedding (1981)


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by Laura Hosman and Elizabeth Fife

Innovative partnerships? Creating the right conditions for mobile growth in Africa

For at least the past decade, political leaders and policymakers have stressed the paramount importance for Africa to harness technology in order to join the information society and take part in the global knowledge economy.1 Many have speculated that due both to the absence of land-line infrastructure in Africa and to the new wireless technologies available for ICT connectivity, the continent may be able to leapfrog the traditional development trajectory, adopting the newest, cutting edge, high-speed technologies that would usher in the ICT revolution.2 These predictions have been partially correct: Africa is indeed experiencing skyrocketing mobile phone sales, and currently is the world’s fastest-growing wireless phone market—a boom that has exceeded all expectations. This explosion is unquestionably good news for the continent: as people are able to communicate as never before, quality of life and economic development should both improve. There is an undeniably important role for mobiles in the context of African development, and a great deal of creativity has been exhibited in the creation of applications that take advantage of the mobile phone’s capabilities. However, the predictions that foresaw millions of computers and laptops across Africa connected to satellite-provided Internet at low prices, contributing to a continent racing towards the 20

information age, have not come to pass.3 Focusing on Africa’s amazing mobile growth rates and the promise of mobile phone usage alone in fact sheds little light on effective policy formulation to promote overall ICT-related growth, or on methods to effectively confront development challenges in a holistic way. This article brings to light some of the breakthroughs and development possibilities promoted through mobile phone use, while arguing that partnerships, and particularly those that are top-down-meetsbottom-up in nature, are an important area for future development activity. Such partnerships can foster essential feedback loops between needs identification and technological expertise.

Mobile telephony in Africa Africa’s average annual growth rate in mobile subscriptions is the highest in the world. The International Telecommunication Union reported at the end of 2007 there were 280 million active mobile phone subscribers.4 By the end of 2010, that number had increased to over 500 million.5 This staggering growth has been the catalyst for numerous mobile-focused development proclamations6 as well as initiatives such as Ericsson’s launch of a Mobile Innovation Centre in Africa.

Even so, macro-level statistics can be misleading because they do not reflect the disparity between urban and rural connectivity, or the widely varying rates of service and uptake across countries. The vast majority of connectivity is in the major/ capital cities across the continent. In rural areas, where the majority of sub-Saharan Africa’s residents live, connectivity is still extremely limited. Different countries are not equally serviced, either. Scholars broadly agree that the adoption and use of mobile telephony in developing countries has positive economic effects.7 In fact, as mobile phones are the primary communication method in developing countries with few fixed lines, the potential growth impact there may be twice as great as for developed countries. Scholars estimate that a 1% increase in access to mobile networks results in a 0.5% increase in real per capita GDP in African WTO-member nations.8 Mobile telephony can lead to economic growth both directly and indirectly. The telecom sector itself generates construction, infrastructure and service-related employment, as well as a gray sector of workers who sell top-up cards along roadsides. The use of mobile phones to conduct business reduces costs and increases speed and efficiency of transactions. In African nations, the micro-entrepreneur stands to gain the most from use of the mobile phone.9 Unfortunately, one


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of ICT used across Africa. Thus this article explores how mobile technology can be maximized for social and economic benefit across Africa, which policy approaches show promise, and how partnerships can contribute to this goal.

Policy Approaches

reason this is the case is because across the continent there is an underdeveloped Small and Medium Enterprise Sector—a phenomenon known as the “missing middle,”10 describing an economy comprised of micro- and macro-sized participants, often dominated by foreignbased multinationals.

If technology is to be adopted, this will require a long-term investment on the part of governments and all

Still, it will remain essential for all nations across the continent to continue promoting and enabling ICT adoption within their borders, and the presence of mobile phones has already provided inspiration for the creative and thoughtful development of a multitude of relevant applications that allow people to enhance their political, social, and economic capabilities through the use of these technologies. While we recognize its limitations, in the short to medium term, mobile telephony is expected to be the main form

Most African countries had, by 2007, created national ICT policies. While this is undoubtedly a step forward, Infodev (within the World Bank) also finds a large disconnect between policy formulation and its translation into reality, underscoring the fact that there are numerous challenges ahead as African nations attempt to move from policy proclamations to action. As of late 2006, more than onethird of Africa’s state-run telecommunications companies had been privatized, with several more set to undergo privatization in the near future. While it is generally agreed that liberalization of this sector is a positive development, there are those who express concerns, rightly pointing out that divestiture itself does not cultivate competition, and that liberalization can be detrimental to the interests of the citizens of a state if it precedes the establishment of an independent regulator.14 State regulation of the telecom sector must be independent, effective, and transpar21

IPTV NewsAnalyisis Analysis Mobile in Africa

The Missing Middle points up a more complex issue regarding mobile phones and development: Although optimism is warranted regarding the growth rate of mobile phone adoption and increased communications capabilities across the continent, there is simply no reason to be content to stop with mobile phones, for they—as well as technology itself—represent incomplete solutions to greater development challenges. The history of economic growth is a story of technological innovation and adoption.11 The simple provision of and access to technology is necessary, but far from sufficient. ICT’s impact on economic growth and socio-political development depends not only on its own level, but also on the level of other complementary factors, including the level of human skills and capabilities required to make use of the new technologies.

participants and shareholders, first in human capacity building, and second, in the technology projects themselves. There are numerous other areas in which governments must actively assist in realizing these development goals. Developing an economy populated with a workforce that is able to access, adopt, and create technology for its own advancement is a worthwhile goal, but it will take an honest, circumspect evaluation of whether and how technology can enable, empower, and enhance existing experiences, and a rejection of the too-simplistic notion that technology alone is the answer that will change everything.12 Focusing on mobiles alone and relying on them to lead the African continent to economic growth is not a satisfactory endpoint.

We have argued that relying on technology alone to provide development solutions is an incomplete answer, and that governments have an essential role to play in the development process. At the same time, we acknowledge that “most states in Africa can be described as states that generally fail to meet the basic needs of their people”.13 Much work remains to be done by many African governments in terms of governmental development itself, in building institutional capacity, and in reducing corruption and repression.


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ently managed, in order to inspire investor confidence and fair competition that will benefit consumers. In addition, governments must not be too hasty to make concessions to foreign investors, but must also contractually ensure that profits will remain or be reinvested in the country, or must prioritize local investors. If they do not do this, they risk allowing telecom investment to be yet another form of neocolonialism, as Western multinationals rush in to take advantage of the high profits from extraordinary growth rates, and then ultimately repatriate these profits abroad. Governments also risk leaving behind rural areas unless they require the provision of services to these areas in order for a company to be awarded an operating license. Appropriate regulation will promote market growth and a visibly open, transparent, and even-handedly run telecom industry will have a spillover effect—some claim a multiplier effect—on other sectors across the economy in two ways: it will encourage technology transfer as other industries take advantage of telecommunications for business operations, and the government’s efforts at effectiveness and transparency in the telecom sector will be rewarded with investor interest and confidence in other sectors.15 Deregulation in the telecom sector must also address compatibility and interoperability issues. In many sub-Saharan countries, rival telecom companies do not allow customers to place calls to competitors’ networks; thus many people find it necessary to carry multiple phones on separate networks, which is highly inefficient and unnecessarily expensive for consumers. This could easily be changed with regulation. Governments can also regulate lower roaming fees and tax rates—both of which in Africa are among the highest in the world.

22

Doing so would promote economic activity. African governments can look to Kenya, Tanzania, and Uganda, where Celtel has provided the world’s first borderless mobile phone network, which serves a region experiencing a high degree of border-crossing for work-related activities. The extraordinarily high tax rates on mobile phone services in subSaharan Africa are extremely shortsighted, economically. Deloitte calculated that by cutting taxes on mobile phone services, governments would see their overall economies grow at a higher rate in the long term, and that as a result, their overall tax receipts would actually rise in the medium- to longer term. In other words, consumers, private enterprise, and governments would all benefit from a cut in mobilespecific taxes, as indirect benefits to the entire economy from affordable telecom access far outweigh any short-term benefits to government coffers.16 One unique aspect of the telecom industry is that it enables other industries to perform their own functions more efficiently, promoting growth and productivity in nearly all sectors—yet across Africa, businesses are not yet taking advantage of this aspect of telecom services. Fewer than 10 percent of the region’s businesses provide mobile phones for their employees, and over 80 percent of mobile phones purchased in sub-Saharan countries are for personal—not business—use.17 Governments are understandably eager to tout the rising employment rates and incomes experienced by those working within the telecom sector and in complementary service jobs. Yet, much more could be done to promote telecom-related development in other sectors and encourage disposable income savings made possible by increased

wages from the telecom boom. As it stands, most street vendors and others operating in the grey economy still live at subsistence levels. There is very little opportunity for saving money across Africa, either on the individual level, or for funds that could contribute to establishing a business. There are initiatives that are targeting the unbanked through the use of mobile phones, and these should be encouraged, as should policies that promote the development of a small and medium enterprise sector in the economy. A further strategy that governments can either pursue or allow to happen comes in the form of partnerships. These are often public-private in nature, yet there is no one-size-fits-all approach to forming them. Even so, best practices are emerging, and they must be pursued intelligently.

Rethinking the Top-Down Strategy C.K. Prahalad’s seminal work forced a major rethinking by many Western corporations toward recognition of a huge, untapped market of billions of consumers at the “bottom of the (economic) pyramid”.18 Multinational corporations are now eager to expand their reach to include it. However, Iqbal Quadir challenges the top-down-only strategy: treating the poor simply as consumers does not increase incomes or purchasing capacity, nor stimulate entrepreneurship.19 Thus, given the large number of “early mover” (mainly top-down) initiatives that have failed20 there is also a growing comprehension that reaching this group and realizing successful ventures requires a new business strategy. By understanding what the technology recipients in the developing world truly want and need—what their pressure and pain points are,


www.iicom.org May 2011 Volume 39 Issue 2

as well as what their unique societal concerns may be—projects are more likely to address existing needs and thus stand a better chance of succeeding than those thought up by a research and development team in a far-off locale with the aim of selling a product that their company already makes. One method for corporations to understand the needs of the poor is to engage directly with them. Nokia, for example, sends “user anthropologists” around the world to engage directly with the poor to uncover what they value in a mobile phone.21 Nokia has used observation and innovation from the bottom to become the handset leader in the developing world. Another method is to engage in partnerships. Such partnerships may help corporations radically redefine their role in the developing world, in terms of not taking a technologycentric approach nor even a profitoriented approach in their attempts to find the best solutions to a given challenge. There are signs that corporations are open to adopting such an approach: in a recent interview, Bill Gates indicated that Microsoft is open to such a “creative capitalism” approach.22

Innovative Bottom-Up and Top-Down Mobile Phone Usage in the African Context

The level of innovation demonstrated from the bottom has been impressive, to the point where global companies have started to

“Bottom-Up” Meeting “TopDown” Initiatives When ICT-related development projects are well thought out, technologically appropriate, and designed with long term sustainability and the empowerment of the localities in mind, they can bring about real socio-economic benefit.24 Yet, the question remains how to address effectively all of the above conditions. Discovering the true needs and demands of the poor requires their input and involvement. Determining whether these needs can be met through technology and then establishing how to do so may best be done by those with pre-existing technological expertise. The challenge is to establish a feedback loop between the top and bottom, in order to understand local communities’ needs and, if called for, develop appropriate technology-based projects. Collaborative partnerships between universities, governments, nongovernmental organizations and

communities have been identified as a promising approach for creating community-empowering projects25. Another aspect of top-down meeting bottom-up empowerment is the growing emphasis on capacity building and training locals to become producers, not merely consumers, of technology. This takes the concepts of sustainability and empowerment one step further, as it promotes locally-driven development solutions.

Some examples of topdown/bottom-up initiatives include the following: EPROM (entrepreneurial programming and research on mobiles) forms part of the MIT Design Laboratory. Over the past two years, they have taught mobile phone programming within the computer science departments of six East African Universities. This training gives students proficiency in mobile-based codes, software, and general programming, to be able to design their own applications with African users’ needs in mind. There is also a pilot program underway teaching entrepreneurs how to develop, market, and launch their own mobile phone application, in order to promote their commercial ventures (information from EPROM website). Kiwanja.net is a website/database/ information clearinghouse/NGO supporter. All of kiwanja’s activities are related to mobiles and development. They have proposed to continue and expand the efforts begun by EPROM, both by developing software and tools so that mobile phone programming can be done on phones rather than computers, and by placing this training and education online, so that it may be taught on a much wider scale than just in universities (mobility.kiwanja.net).

23

Mobile in Africa

Bottom-up innovations tend to be driven by the very tight budgets of those occupying the “bottom of the pyramid,” while top-down innovations are created by those trying to discover how best to make money from (or provide services to) these same poor people. Interaction between the top and bottom does exist when deliberately managed.

talk about applications “trickling up” from developing to developed world markets.23 Ironically, the developed world may be behind in adopting some of the newest technologies, because technologies obsolesce slower than they can be invented. This can mean that the latest technologies may be deployed in the developing world, because of the very cost savings enabled by the new inventions. As a result, VoIP and long-distance wireless technologies are currently being deployed in remote and rural locations around the world. These projects were unimaginable just a few years back, but the cost savings realized by technological breakthroughs have now made them feasible. It also means that numerous multinational corporations are pioneering their new products and even locating facilities in the developing world, as they try to figure out how to do business there.


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Stanford University has partnered with Makerere University, Mweka College of African Wildlife Management and University of the Western Cape, to conduct classes via cell phones. Ericsson and Sony Ericsson collaborated to provide mobile smart phones equipped with video cameras, audio recorders, and Internet capability, as well as technical and other support for the pilot version of this course. The TIER research group at the University of California, Berkeley, has projects in multiple locations and in areas including education, health, and power. In one project, the AMITA telemedicine organization was formed so that rural healthcare workers in many African nations can contact city hospitals in emergencies, or for diagnosis assistance. In certain locations across the continent, smartphones are being used to assist with surveytaking and record-keeping, as well as for sending photographs, emails, and written or verbal descriptions of maladies and for assistance with diagnoses. This assistance is obtained from experts across the continent, and around the world, through a diasporic expatriate network (tier.cs.berkeley.edu) Though their efforts are not strictly mobile-oriented, Inveneo, a nonprofit company based in San Francisco, provides innovative ICT solutions to those in rural and remote locations, mainly in Africa. Inveneo creates ICT devices that spring from a consideration of external environmental conditions, energy supply (or lack thereof), and longterm energy costs facing a client. Their solutions are ultra low-power or solar-powered computers and servers, and they make use of Wi-Fi and VoIP to take advantage of available and affordable technologies. Inveneo also recruits, trains, and certifies local ICT professionals, so that these small- and medium-sized business entrepreneurs perform

24

the installation, maintenance, and support for the projects. This not only keeps costs down for the projects, it also promotes sustainability by building local expertise and abilities, which benefits the local economy. It is, of course, difficult to identify where innovative initiatives originate: where the bottom-up and top-down meet. These examples illustrate innovation of all kinds, and when feedback loops are established between top-down and bottom-up insight and expertise, all of those involved will benefit.

Socio-Political Development Potential vis-à-vis Mobile Phones Not all development is economic in nature, of course. Social and political issues are equally important, and must be factored in to development considerations. Some research—though not a great deal—has considered the social impact of mobile telephony in the developing world. The “social” use of mobile phones must not be considered frivolous—increased security, efficiency, and communications abilities all contribute to increased quality of life. There are also important advances being made in the realms of health and education across the African continent, and a few of these initiatives have been mentioned above, yet there is still a great deal of room for additional initiatives and adoption of mobile technology in these areas. There is also an important role for mobiles in the political process. In theory, mobiles can facilitate democratic processes by enhancing communications abilities toward political and community ends, increasing the possibility for people to make their voices heard by government and to reduce their reliance on government-controlled media as the source of their infor-

mation. Even so, though there are examples of mobiles being used successfully to ensure fair voting conditions (as in Senegal), there are also examples where attempts failed (as in Nigeria), or worse, where the ruling parties made use of mobile technology to spread false information or even incite violence (as in Zimbabwe and Kenya). The theory that mobile phones and increased information lead to greater levels of government accountability and democracy is widely held. However, to our knowledge, it has not been subjected to rigorous empirical testing, and the examples above demonstrate that, at a minimum, there will be bumps along the road. Nonetheless, increased information and open societies where free speech is allowed are generally viewed in a positive light.

Conclusion There is great cause for optimism regarding the staggering level of mobile phone diffusion across Africa. Those concerned with development have recognized that since so many people now have access to phones, applications should be designed that empower them to take advantage of their newfound connectivity. This is a positive development and should continue, however, the creativity exhibited in the use of mobile phones across the developing world and particularly in Africa underscores the fact that needs are not being met. We also recognize that mobile phones are an incomplete answer to the greater issue of underdevelopment, and the push for complementary development areas, such as human capacity building, must continue for technology to be adopted in a meaningful way. Much work remains for African governments in terms of making their laws and regulations amenable


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for ICT adoption. We have argued that meeting basic needs and pursuing technological advancement need not be mutually exclusive endeavors: where appropriate, technology can be employed in the pursuit of meeting development challenges. Yet supplying technology alone will not create a need for its use nor will it solve underlying problems. Long-term human capacity building must be recognized as paramount for the adoption of ICT, while a realistic assessment of the ways in which technology can complement and amplify current capabilities is in order before further resources are invested in the ever-increasing number of ICT-related projects with the aim of development. In the shorter term however, development efforts that target the mobile phone have demonstrated both creativity and the possibility for quality of life improvement. There is great potential for increased partnerships that focus on the nexus of bottom-up and top-down development, to cultivate a productive feedback loop between the various actors involved, in order to conjoin needs identification with technological expertise, so that these partnerships can potentially address sustainability and funding issues, and create relevant applications that meet real needs. These partnerships can focus on local skills-development and capacitybuilding, which support greater innovative self-sufficiency.

References

C. (2006) Telecoms regulation in developing countries: Attracting investment into the sector: Ghana—A case study. Journal of World Trade, 39. 3, 527-558. 16 Deloitte (2007) Taxation and the Growth of Mobile in East Africa. GSM Association. 17 Mbarika, V. & Mbarika, I. (2006) Africa Calling. IEEE Spectrum. pp. 56-60. 18 Prahalad, C.K. (2004) The Fortune at the Bottom of the Pyramid, New Jersey: Wharton School Publishing 19 Quadir, I. and Morse, G. (2003) Bottomup economics. Harvard Business Review, Aug. 1, pp. 18-20. 20 London, T., & Hart, S.L. (2004) Reinventing strategies for emerging markets: beyond the transnational model. Journal of International Business Studies, 35, 350-370. 21 Corbett, S. (2008, April 13) Can the cellphone help end global poverty? New York Times Magazine. Retrieved Apr. 13, 2008 from http://www.nytimes.com/2008/04/13/ magazine/13anthropology-t.html 22 Kinsey, M. (2008, June 28) Creative Capitalism: A conversation. Accessed July 26, 2008 from http://creativecapitalism. typepad.com/creative_capitalism/2008/06/ bill-gates-and.html 23 Kahn, J. (2008, January 20) Third World first. The Boston Globe. Retrieved July 8, 2008 from www.boston.com/bostonglobe/ ideas/articles/2008/01/20/third_world_first 24 Hosman, L., Fife, E. (2008) Improving the prospects for sustainable ICT projects in the developing world. International Journal of Media and Cultural Politics, 4, 1, 51-70 25 Marshall, S. and Taylor, W. (2005) Facilitating the use of ICT for community development through collaborative partnerships between universities, governments and communities. International Journal of Education and Development using Information Communications Technology, 1, 1.

Laura Hosman is at the Illinois Institute of Technology and Elizabeth Fife is at the University of Southern California

IPTV Mobile in Africa NewsAnalyisis Analysis

1 Farrell, G. and Isaacs, S. (2007) Survey of ICT and Education in Africa: A Summary Report, Based on 53 Country Surveys. Washington, DC: infoDev/World Bank. 2 Jensen, M. (1998) Internet opens new markets for Africa. Africa Recovery Online, A United Nations Publication, 12, 3. Accessed March 7, 2008, at http://www.un.org/ ecosocdev/geninfo/afrec/vol12no3/internt1. htm

3 Fleming, J. (1996) Poor nations leapfrog to future via new technologies. Christian Science Monitor, International Section, May 22, p.1. 4 Afripol (2010) Africa’s cell phone subscribers more than half-billion. November 12. Accessed April 16, 2011 from http://www.afripol.org/stevie-c-chiakwelu/ item/186-africa%E2%80%99s-cell-phonesubscribers-more-than-half-billion.html 5 ITU (2008) ICT Statistics Database. International Telecommunication Union. Retrieved July 9, 2008 from http://www.itu. int/ITU-D/icteye/Indicators/Indicators.aspx# 6 Gray, V. (2006) The un-wired continent: Africa’s mobile success story. Accessed April 16, 2011 from http://www.itu.int/ITU-D/ict/ statistics/at_glance/Africa_EE2006_e.pdf 7 Waverman, L. Meschi, M. & Fuss, M. (2005) The impact of telecoms on economic growth in developing countries. Retrieved November 6, 2007 from: http://web. si.umich.edu/tprc/articles/2005/450/L%20 Waverman-%20Telecoms%20Growth%20 in%20Dev.%20Countries.pdf 8 Keck, A. and Djiofack-Zebaze, C. (2006) Telecommunications services in Africa. WTO Staff Working Article No. ERSD-2006-10. 9 UNCTAD. (2007) UNCTAD Information Economy Report 2007-2008: Science and Technology for Development: the new paradigm of ICT. United Nations. 10 Kauffmann, C. (2005) Financing SMEs in Africa. Policy Insights 7. Retrieved 6 June, 2008, from www.oecd.org/ dataoecd/57/59/34908457.pdf 11 Easterlin, R. (1996) Growth Triumphant: The Twenty-first Century in Historical Perspective. Ann Arbor: The University of Michigan Press. 12 Adelman, I. (2001) Fallacies in development theory and their implications for policy. In Meier, G. & Stiglitz, J, (Eds.), Frontiers of Development Economics: The Future in Perspective. Washington DC: World Bank. 13 Agbese, P.O. (2007) The Political Economy of the African State. In Kieh, G. K. Jr. (Ed.), Beyond State Failure and Collapse: Making the State Relevant in Africa, Lanham, MD: Lexington Books. 14 McCormick, P.K. (2002) Internet access in Africa: A critical review of public policy issues. Comparative Studies of South Asia, Africa, and the Middle East, 22, 1-2, 140-144. 15 Bodammer, I., Pirie, M.F., & Addy-Nayo,

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by Ewan Sutherland

Mobile telecom in Africa: unforeseen success? Statistics mislead and distract from the real imperatives

The “digital divide” between Africa and developed countries is sometimes inverted into a more optimistic “digital opportunity”, raising difficult questions as to who might grasp those opportunities and in what circumstances they might succeed. The answers have increasingly been multi-national manufacturers and operator groups based in Europe, China, India and the Persian Gulf. In 2001 only 1 African in 35 had a mobile phone, by the end of 2009 that figure was said to be 1 person in 3, a jump that was unexpected, somewhat overstated and inadequately explained. The poorer performing countries and operators have often been glossed over, with commentators eschewing criticism and playing down the significant challenges of providing services in remote areas and for the poor in urban areas. Techno-optimism about the transition to 3G and the road on to 4G/LTE has obscured the lack of business models that will pay for the investments needed to upgrade radio networks and the backhaul needed to link the base stations and switches. A quite unexpected phenomenon has been the emergence of a group of trans-national operators.1 Until the 1990s there were only stateowned direct service providers, mostly on a very small scale. Today, 1 Ewan Sutherland (2007) The scramble for Africa. 35th Telecommunications Policy Research Conference, held at George Mason University, Arlington, on 28 to 30 September 2007. http://papers.ssrn.com/abstract=1469190

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Figure 1 The growth of mobile telephony in non-Arab Africa

35 Mobile cellular subscriptions Internet users

30

Fixed telephone lines

25

Mobile broadband subscriptions Fixed broadband subcriptions

20 15 10 5 0 2000

2001

2002

2003

a handful of companies each with a vast geographic footprint dominates the continent (see Table 1). They have achieved economies of scale and have balanced political and regulatory risks across a range of countries, knowing that most will be stable, even if one is temporarily in crisis. There are some other groups, such as Adenuga’s Glocom, Masiyiwa’s Econet, the Saudi Arabian HITS Group, the Egyptian-Russian Orascom-Vimpelcom Group and the Libyan LAP Green Network.2 Some countries have tried to force the large groups to accept local investors, pushing them to float shares in subsidiaries on national stock exchanges. In the case of South Africa it has rather been schemes of 2 At the time of writing the assets of LAP Green should have been frozen under UN Security Council Resolutions S/RES/1970 (2011) and S/RES/1973 (2011).

2004

2005

2006

2007

2008

Broad-Based Black Economic Empowerment (BBBEE), which have been criticised for transferring assets to cronies of the ruling political party.3

The growth of mobile telephony The International Telecommunication Union (ITU) has recorded the remarkable growth in the number of customers of mobile networks in Africa, which has far outstripped fixed telephone networks (see Figure 1).4 Mobile has also outgrown electricity networks, requiring diesel generators and fleets of trucks to power many of the base stations and 3 Okechukwu Iheduru (2004) “Black economic power and nation-building in postapartheid South Africa”Journal of Modern African Studies 42 (1) 1-30. 4 ITU (2009) Information society statistical profiles 2009 – Africa. Geneva: International Telecommunication Union. http://www.itu. int/ITU-D/ict/material/ISSP09-AFR_final-en.pdf


www.iicom.org May 2011 Volume 39 Issue 2 Table 1 Major telecommunications operators (as of March 2011)

Turnover (USD Bn)

Countries

Non-African activities

Notes

341

DRC, Egypt, Ghana, Kenya, Lesotho, Mozambique, South Africa, Tanzania

Europe, North America, Australia and Asia

Took full control of Vodacom in 2005 and owns 40% of Safaricom

65.9

210

Botswana, Cameroon, Central African Republic, Egypt, Equatorial Guinea, Guinea Bissau, Guinea Conakry, Ivory Coast, Kenya, Madagascar, Mali, Morocco, Mauritius, Niger, Senegal, Tunisia, Uganda

America, Asia, Europe, Oceania

France Telecom Group

Bharti Airtel (India)

3.5

200

Burkina Faso, Chad, DRC, Congo Brazaville, Gabon, Ghana, Kenya, Madagascar, Malawi, Niger, Nigeria, Seychelles, Sierra Leone, Tanzania, Uganda, Zambia

22 “circles” in India, Sri Lanka and Bangladesh

Acquired from Zain (previously Celtel and MSI)

MTN (South Africa)

17.0

142

Benin, Botswana, Cameroon, Congo Brazaville, Ghana, Guinea Bissau, Guinea Conakry, Ivory Coast, Liberia, Nigeria, Rwanda, South Africa, Sudan, Swaziland, Uganda, Zambia

Cyprus, Iran, Syria and Yemen

Etisalat (UAE)

8.4

107

Benin, Central Africa Republic, Egypt, Gabon, Ivory Coast, Niger, Nigeria, Sudan, Tanzania, Togo

UAE, KSA, Pakistan, Afghanistan, Sri Lanka

Acquired Atlantique Telecom which trades as Moov

Millicom

3.0

39

Chad, DRC, Ghana, Senegal, Tanzania

Central and South America

Trading as Tigo

Portugal Telecom (Portugal)

5.4

22

Angola, Namibia, Cape Verde Islands , São Tomé & Principe

Portugal, Brazil, Macao, East Timor

Helios Investment Partners LLC has 22% of PT’s Africa Holding

Company

Vodafone (UK)

Orange (France)

72.4

Customers (millions)

relays. Although the presence of a second mobile operator increases teledensity, including spurring the first operator to respond, where a mobile operator is owned by the fixed incumbent operator this has had the reverse effect.5,6 The ITU’s Secretary-General, a Soviet trained engineer from Mali, has been loud in proclaiming the marketbased success: Africa has also witnessed the highest growth rates of any region, and ITU estimates that over the 2004 to 2009 period, the number of mobile cellular subscriptions increased by an average of 42 per cent per year. The success of this highly liberalized and competitive

Yet, despite this growth, Africa continues to lag behind other developing countries in mobile telephony and fares very poorly in Internet access8 as depicted in Figure 2.9 Reality diverges from the statistics, provided by the mobile operators, by 7 Hamadoun Touré (2010) “Digital convergence and innovation – driving positive change” 8th Annual Digital Africa Summit, 9 March 2010, Kampala. http://www.itu.int/en/ osg/speeches/pages/2010-03-09.aspx 8 The ITU defines Africa to exclude the members of the League of Arab States, effectively it is Sub-Saharan Africa, as defined by the United Nations, with the omission of Djibouti, Somalia, Sudan and the British and French overseas territories. 9 Chart 10.6 in ITU (2010) World Telecommunication/ICT Development Report 2010: Monitoring the WSIS Targets: A mid-term review. Geneva: International Telecommunication Union

way of national governments, whose interests are all in conveying a positive message. Many Africans carry several mobile phones or SIM cards in order to overcome market and regulatory failures, such as inflated charges to call rival networks, the absence of interconnection between operators and inadequate network coverage.10 Informa used a factor of 1.24 to reduce mobile “subscriptions” to distinct individuals, which would make an average of 26 not 33 mobile phones per 100 Africans in 2008.11 This factor was forecast to rise to 1.47 by 2014, because the problems were becoming more widespread, rather than being solved. Voice and SMS are now more accessible, but neither to everyone nor all 10 Ewan Sutherland (2009) “Counting customers, subscribers and mobile phone numbers” info 11 (2) 6-23. 11 Informa (2010) Africa’s mobile telecoms market: A guide to the changing competitive landscape. London: Informa Telecoms & Media.

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IPTV NewsAnalyisis Analysis Mobile in Africa

5 Frew Amare Gebreab (2002) Getting connected: competition and diffusion in African mobile telecommunications markets. Washington DC: World Bank. Policy Research Working Paper Series No. 2863. 6 Charts 1.1 and 1.2 in ITU (2009) Information Society Statistical Profiles 2009 – Africa. Geneva: International Telecommunication Union.

mobile market suggests that the right regulatory environment and a combination of African and foreign investment have been able to address the region’s communications needs.7


www.iicom.org May 2011 Volume 39 Issue 2 Figure 2 Internet users per 100 inhabitants in 2009

are conducted infrequently. As more devices on mobile networks can be used for Internet access, the indicators will need to be adjusted.

60

Figure 3 shows the wide variations in a cross-section through Africa and, in particular, the weaknesses in Internet access.15 20

0 Non-Arab Africa

Asia-Pacific

Arab States

of the time. According to household surveys: … the divide between those able to access the Internet and the range of enhanced services that have become necessary for effective citizenry and consumer participation, and those not able, has widened. This is not only as a result of limited access but also due to the high cost of communications that not only inhibits access but also constrains individual communication and inflates the input cost to business.12 In 2006 GSM coverage reached 16.7 per cent of the continent and 54.5 per cent of its population, up from only 2.7 and 9.1 per cent in early 1999.13 However, the distribution was very uneven, between and within countries — it was no longer a simple divide. The factors affecting the presence of network coverage depends on demand factors such as the population and 12 Alison Gillwald & Christoph Stork (2008) Towards evidence-based ICT policy and regulation: ICT access and usage in Africa. Johannesburg: Research ICT Africa. http://www.researchictafrica.net/new/images/uploads/ria-policy-paper_ict-access-andusage-2008.pdf 13 Piet Buys, Susmita Dasgupta, Timothy S. Thomas and David Wheeler (2009) “Determinants of a digital divide in Sub-Saharan Africa: a spatial econometric analysis of cell phone coverage” World Development 37 (9) 1494-1505.

28

CIS

Americas

Europe

the per capita income, together with supply costs, such as distance from a main road and distance from the nearest large city. In particular national policies affect the coverage, with pro-competitive policies, properly applied, achieving increased coverage and expected to continue to drive significant improvements. However, in many countries this seems to have been at the expense of poorer, sometimes significantly poorer, network quality. Nonetheless, coverage will not reach all remote areas, because of the high costs and low revenues. The challenge is to find sources for the long term subsidies and the necessary enduring political support. Progress towards the Millennium Development Goals (MDGs) remains patchy, with problems both in performance and in the collection of the data needed to assess performance. The goal for telecommunications is “In cooperation with the private sector, [to] make available the benefits of new technologies, especially ICTs”, for which the indicators are telephones (fixed and mobile), personal computers and Internet users per 100 persons.14 The second and third are difficult to measure, having to rely on surveys which are inconsistent and which 14 http://www.uneca.org/mdgs/

Access to mobile voice telephony and SMS has indisputably improved, but less than the simple statistics suggest. There are significant problems in the market that the regulators have, for the most part, neither measured nor remedied. There are considerable variations between and within countries, the latter still being very poorly documented and explained, in part because of lack of capacity in national statistical agencies.

Exceptions to the rule The last few years have seen mobile teledensity take off in the poorest performing countries (see Figure 4). This was not predicted, since they defied, sometimes involuntarily, the standard prescriptions of good governance and liberalisation of their markets.16 The availability of cheaper handsets and network equipment from China has been helpful, but insufficient. Growth has had to be supported by vendors through financing purchases of their equipment, construction of networks and their subsequent management - some network are effectively outsourced to the vendors. This has finally achieved expansion, even by the remaining monopolists. The provision of telecommunications services has proved especially important in countries subject to military conflict or emerging into an 15 http://data.un.org/Data. aspx?d=ITU&f=ind1Code%3aI911 16 Source: ITU ICT/Telecommunication Indicators 2010.


www.iicom.org May 2011 Volume 39 Issue 2 Figure 3 Users of ICTs per 100 persons in selected African countries in 2009 100 Mobile telephones

Fixed telephones 50

Internet users

Uganda

Ethiopia

Egypt Sudan

Kenya

unsteady post-conflict period when reconstruction and growth are essential for peace. Initially such countries face a “bitter paradox” of neither being able fully to absorb reconstruction aid nor being able to attract compensating private investment in infrastructure.17 Surprisingly, telecommunications has been an exception, with investment, particularly in mobile networks, coming immediately after and, more remarkably, even before the end of a conflict. The exceptions are where the central government has managed to retain control of the operator. Security, good governance and regulatory certainty had been considered absolute prerequisites in facilitating foreign direct investment (FDI), not least in telecommunications with its enduring and complex interactions with government. Yet despite decades of disruption in the Democratic Republic of Congo (DRC) investors in mobile telecommunica-

South Africa

Swaziland

tions have not been deterred.18 Some even rushed into Afghanistan and Iraq. The archetypal failed state is Somalia, where there has been no central government since 1991, yet this has not hindered all development and has allowed improvements in living conditions.19 Mobile network operators, supported by foreign manufacturers, have been able to create networks in parts of Somalia and operate them successfully, despite the absence of a central government body to assign (or deny) spectrum and numbers, to require interconnection of networks and to set prices.20 Instead, the operators formed the Somali Telecom Association (STA) in 1998 which acted as a self-regulatory mecha18 Agnieszka Konkel & Richard Heeks (2008) Challenging conventional views on mobile telecommunications investment: evidence from conflict zones. Manchester: University of Manchester. Development Informatics Short Paper No. 9. 19 Benjamin Powell, Ryan Ford & Alex Nowrasteh (2008) “Somalia after state collapse: Chaos or improvement?” Journal of Economic Behavior & Organization 67 657–670. 20 John Bray (2005) International companies and post-conflict reconstruction: crosssectoral comparisons. Washington DC: World Bank. Social Development Papers No. 22. http://www.international-alert.org/pdf/International_companies_post-conflict_WBank.pdf

nism. Demand for telecommunication services was greatly increased by the scale of emigration, caused by the collapse of the state, raising the willingness of migrants to remit large sums of money, because they remained connected and informed while abroad.21 Until the proceeds of piracy began to flow, remittances had been the major source of foreign currency in Somalia for two decades, representing around one quarter of household income.22

Mobile banking Many MNOs have made efforts to enter the m-banking business, sometimes presented as banking for the “unbanked”.23 Perhaps the best known is the Safaricom M-Pesa service in Kenya.24 While these can 21 Greg Collins (2009) “Connected: Exploring the extraordinary demand for telecoms services in post-collapse Somalia” Mobilities 4 (2) 203-23. 22 Hassan Sheikh and Sally Healy (2009) Somalia’s missing million: The Somalia diaspora and its role in development. Geneva: United National Development Programme. 23 A tracker of service deployment is available at: http://www.wirelessintelligence.com/ mobile-money 24 Nick Hughes & Susie Lonie (2007) “MPESA: mobile money for the “unbanked”: Turning cellphones into 24-hour tellers in Kenya” Innovations: Technology, Governance, Globalization 2 (1-2) 63-81.

29

Mobile in Africa

17 Jordan Schwartz, Shelly Hahn & Ian Bannon (2004) The private sector’s role in the provision of infrastructure in post-conflict countries: patterns and policy options. Washington DC: World Bank. Social Development Papers - Conflict Prevention & Reconstruction Paper No. 16.

Mozambique Tanzania


www.iicom.org May 2011 Volume 39 Issue 2

25 Liberia Sierra Leone 20

Burkina Faso Chad Comoros

15

DR Congo Rwanda Malawi

10

Zimbabwe Niger Somalia

5

Burundi Ethiopia Cent Afr Rep Eritrea 2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

Figure 4 Mobile teledensities of the poorest performing states in SSA

help attract and retain domestic customers, the scope has also been extended abroad to accept remittances. Some MNOs merely allow migrants and expatriates to transfer small sums to relatives and friends at home to pay for outbound telephone calls, while others transfer substantial remittances. The results have been quite varied, with failures as well as successes. There has been very strong growth in remittances over the last decade and while part of this is due to improved, but still imperfect, reporting, there has been real growth (see Table 225). This coincides with increased access to mobile telephony in Africa and in the countries receiving economic migrants and asylum seekers. This has improved social ties, ensured awareness of needs, eased supervision of spending and facilitated informal 25 Source: World Bank. http://go.worldbank. org/SSW3DDNLQ0

30

financial transfers. Outward migration had been boosted by drought, political instability and civil wars, creating a larger pool that generated more international telephone traffic and remittances. The market for money transfers from developed countries to Africa is poorly served by traditional banks, which frequently charge prohibitive fees on smaller sums and thus depress use of the service.26 There are structural problems in Africa with many unreformed national banking systems, severe exchange controls and punitive charges. Thus there is a gap into which the mobile operators can move to compete against incumbent banking operators. The volume of incoming international calls has increased as prices 26 Sanjeev Gupta, Catherine Pattillo and Smita Wagh (2007) Impact of remittances on poverty and financial development in SubSaharan Africa. Washington DC: International Monetary Fund. WP/07/38.

have fallen, with the demise of the international settlement system, despite stout resistance from many African governments.27 Cheap calls became available with pre-paid calling cards, from teleshops and using Voice over Internet Protocol (VoIP), providing even relatively poor economic migrants and political refugees with the means to remain in contact with families and friends at home.28 The incoming traffic they generated has contributed significantly to the mobile networks, while the remittances have offered profits from an entirely new line of business. 27 Julian Wright (1999) “International telecommunications, settlement rates, and the FCC� Journal of Regulatory Economics 15 (3) 267-292 28 Richard Perkins and Eric Neumayer (2010) The ties that bind: the role of migrants in the uneven geography of international telephone traffic. Working Paper, Department of Geography and Environment, LSE, London. http://www2.lse.ac.uk/geographyAndEnvironment/whosWho/profiles/neumayer/pdf/ Telephony.pdf


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2000

Togo

2001

2002

2003

2004

2005

2006

2007

2008

2009

% of GDP

34

69

103

149

179

193

232

284

284

307

10.3%

233

305

344

511

633

789

925

1,192

1,288

1,191

9.1%

Cape Verde Is.

87

81

85

109

113

137

137

139

155

145

9.1%

Guinea-Bissau

2

10

18

23

28

28

28

29

30

27

9.1%

14

7

7

65

62

57

64

63

67

60

7.9%

2,161

3,261

2,877

3,614

4,221

4,590

5,451

6,730

6,895

6,271

6.6%

Liberia

..

..

..

..

58

32

79

62

58

54

6.2%

Nigeria

1,392

1,167

1,209

1,063

2,273

3,329

5,435

9,221

9,980

9,585

5.6%

Sudan

641

740

978

1,224

1,403

1,016

1,179

1,769

3,100

2,993

5.6%

Tunisia

796

927

1,070

1,250

1,431

1,393

1,510

1,716

1,977

1,966

5.3%

Uganda

238

349

423

299

311

322

411

452

724

694

5.1%

Egypt

2,852

2,911

2,893

2,961

3,341

5,017

5,330

7,656

8,694

7,150

4.0%

Benin

87

84

76

55

63

173

224

282

271

243

3.6%

7

7

22

26

25

2

50

148

150

48

2.3%

Senegal

The Gambia Morocco

Sierra Leone

Table 2 Remittances received by selected countries in Africa (USD millions)

Conclusion

The recent rise of the poorest performers has been remarkable, since they conform to none of the usual prescriptions of good governance, regulatory certainty, impartial policies and demonopolisation.

The balance between those able to participate in the information society and those unconnected and unable to participate is not a simple divide. It reflects income or social status, but also involves state actions and globalisation through the increasingly important roles of multi-national manufacturers and operators, plus the active participation of migrant populations making calls and remitting money. Advances in technology mean that it is necessary to consider what new types of policy goals should be set for 2015 and 2020, in particular in terms of access to broadband Internet services. A major challenge is funding the upgrading of domestic infrastructure to support 3G and 4G/LTE, including the devel-

opment of business models that can pay for the infrastructure. Access to the Internet means appropriate content, requiring the development of whole swathes of service and content creation industries, with the necessary investments in skills and equipment. It requires a paradigm shift away from the technocratic focus on burying fibre and erecting masts. Ewan Sutherland is an independent telecommunication policy analyst and a research associate at the LINK Centre (University of the Witwatersrand) and CRIDS (University of Namur). He has undertaken projects for infoDev, OECD, and the ITU. He is a graduate of the Universities of Glasgow and of Strathclyde in his native Scotland and has worked in the Universities of Wolverhampton, Westminster, Stirling and Wales.

31

IPTV Mobile in Africa NewsAnalyisis Analysis

The rapid growth of mobile telephony, from an extremely low base, has been consciously overstated by around one quarter, with operators, regulators and international agencies passing off numbers of connections as distinct individuals. Consequently, there has been less progress than claimed, equivalent to about nine months’ growth. Attention has been distracted from identifying and addressing problems of increasing access and from addressing market failures and institutional shortcomings. The level of analysis by international bodies has been weak, at times more inclined to cheerleading, than to the identification of best and, especially, worst practice.

A willingness to invest in conflict and semi-conflict zones, with extremely uncertain futures, shows that alternative commercial strategies do exist.


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by Nico Grove, Arnold Picot, Friedrich K. Jondral, and Jens Elsner

Why the Digital Dividend will not close the Digital Divide A major European case study highlights the problem

Technological advance makes it possible to use broadcasting frequencies more efficiently. All over the world, terrestrial broadcasting infrastructure is being updated to switch from legacy analog to digital television. For the same broadcasting coverage less spectrum is required, and a “Digital Dividend” – the freed spectrum – is to be distributed. Many options on how to make best use of these frequencies are being discussed and have to be weighed against each other. Distribution of spectrum is further complicated by the need to provide adequate protection or alternative solutions for incumbent users affected by the change in spectrum allocation. A political goal which is driving the Digital Dividend discussion particularly in Germany, the USA and Australia is to close the so called “Digital Divide”, which refers to the widening gap between people with access to the Internet and those without. Especially in rural areas, the absence of high data rate (“broadband”) Internet access contributes to a widening of the gap. In this article, we would like to answer the questions “Can the Digital Dividend close the Digital Divide or mitigate it?” and suggest, in consequence, economically

32

feasible options for reassignment of frequencies.1

Digital Divide and Digital Dividend Digital Divide: Economic and social Impact The availability of modern information and communication technology has fundamentally changed human communication behavior and social interaction. Moreover, the possibility to overcome spatial distances in combination with the ubiquitous presence of information had a massive positive impact on economic growth, leading to the creation of the information society2. Information and communication technologies are essential in the process of economic growth, social interaction and enhancing the standard of living3. The OECD identified a positive correlation between the availability of broadband and growth in GDP4. In consequence, 1 See e.g. D21 (2008), Digitale Dividende nutzen!. http://www.initiatived21.de/presseinformationen/ digitale-dividende-nutzen. Accessed 10th March 2010. 2 See Picot, A./Reichwald, R./Wigand, R. (2008), Information, Organization and Management. Springer. Berlin, p. 132. 3 See e.g. Pohjola, M. (2001), Information Technology, Productivity, and Economic Growth: International Evidence and Implications for Economic Development. Oxford University Press. UK. 2001. 4 See OECD (2008), OECD Information Technology Outlook 2008: Highlights. Paris. OECD Publishing. 2008.

broadband was already regarded as a “General Purpose Technology”5 in 2007. Today, being offline means being excluded from the information society. This phenomenon is referred to as the Digital Divide. Consequences of a widening Digital Divide are harsh, not only for offliners, but for entire nations. It can not only increase social injustice, but also lead to new inequalities and distortions among the entire population. That is why there is broad consent about the fact that adequate countermeasures have to be taken in order to fulfill governmental duties of care, responsibility and preservation of equal opportunities for every member of society6.

Digital Dividend and Options for Reassignment Compared to analog transmission, digital terrestrial broadcasting allows the transmission of television signals with higher spectral efficiency, i.e., for the same number of broadcast television programs, only a fraction – about one third to one sixth depending on the level of compression and standard – of the spectrum 5 See OECD (2007), Broadband and the Economy. Paris. OECD Publishing. 2007, p. 9. 6 See Kubicek, H., Welling, S. (2001). Vor einer digitalen Spaltung in Deutschland? Annäherung an ein verdecktes Problem von wirtschafts- und gesellschaftspolitischer Brisanz. in: Medien- & Kommunikationswissenschaft. 48(4). S. 497-517, p. 497.


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Table 1: Comparison of Reassignment Options

Licensing

Transmission power Approximate cell radius/ communication range

Cellular wireless communication

Other broadband services

Terrestrial broadcasting

Wireless media equipment

Consumer equipment/ WLAN

Individual allocation/ countrywide

Individual allocation, possibly localized

Individual allocation, possibly sharing with low power devices

General authorization

General authorization

Medium power

Low to medium power

High power

Low power

Low power

<30km

<30km

50-100km

<5km

<1km

is needed7. This fact is known as the Digital Dividend: for the same number of television channels less spectrum is required and the respective frequencies can be made available for other uses. However, as this spectrum is a scarce good and all technologically useful spectrum has been already been assigned to a certain purpose and to specific users, if spectrum is subject to reassignment, demand usually exceeds supply8. Spectrum access rights are then redistributed according to a reward procedure, e.g., an auction, lead by the respective regulatory body. The time scale of such spectrum auctions and reassignment for new purposes spans from months to years. Regarding the Digital Dividend, the frequency band from 790 MHz to 862 MHz was identified for co-primary IMT use as a result of the World Radio Confer-

From a spectrum regulatory view point, three approaches are possible in principle: an individual allocation for a closed user group, a general authorization for public use, or a primary and secondary assignment of spectrum to both a closed user group and a general allocation (spectrum sharing). These options can be associated with existing or new services and affect each of the market participants; some options are mutually exclusive. Five major market participants and services are under consideration: Mobile cellular communication, other broadband services, terrestrial broadcast services, wireless media equipment (wireless audio/video) and consumer equipment and wireless local area networks. The options and the possible regulatory approaches are shown in Table 1.10 9 See ITU Radio Regulations. 10 See power allocations in Frequenznutzungsplan, Bundesnetzagentur (2008), Frequenznutzungplan. April 2008. www.bnetza. de 10th March 2010. Power and range are approximate estimates, based on current mobile communications standards. See e.g. 3GPP (2009), as above, and IEEE (2009a). IEEE 802.11, Wireless Local Area Network Working Group. http://grouper.ieee.org/ groups/802/11/. Accessed 10th March 2010.

Using the Digital Dividend to mitigate the Digital Divide Rural areas are lacking high performance wired communication infrastructure11. This is not only the case in developing countries but also in industrialized nations. The Digital Dividend was identified quickly by political stakeholders with broad consent to yield the spectrum needed to provide wireless broadband Internet access in rural areas, where high wired infrastructure costs and small market size still hinder the development of broadband Internet access12. The major reasons brought forward to support this approach are rollout speed, convenience, and significantly reduced infrastructure cost.

The Relationship between Reach, Speed, Frequency and Transmission Power The achievable data rate in a network setup ultimately depends on the available signal strength at the receiver and, if the signal strength if high enough, the available transmission bandwidth. The available signal strength at the 11 See Picot/Grove Picot, A., Grove N. (2009), Flächendeckende Breitbandversorgung im internationalen Vergleich: Strategien für den Glasfaserausbau in ländlichen Gebieten, Infrastrukturrecht Vol. 6, 11/2009, p.315 – 326. 12 See e.g. D21 (2008), ibidem.

33

IPTV NewsAnalyisis Analysis Digital dividend

7 See ETSI standard EN 300 744, Framing structure, channel coding and modulation for digital terrestrial television. 8 See Bundesnetzagentur (2009a), Entwurf zur Anhörung - Entwurf einer Entscheidungen der Präsidentenkammer der Bundesnetzagentur für Elektrizität, Gas, Telekommunikation, Post und Eisenbahnen über die Verbindung der Verfahren zur Vergabe von Frequenzen in den Bereichen 790 bis 862 MHz sowie 1710 bis 1725 MHz und 1805 bis 1820 MHz mit dem Verfahren zur Vergabe von Frequenzen in den Bereichen 1.8 GHz, 2 GHz und 2.6 GHz für den drahtlosen Netzzugang zum Angebot von Telekommunikationsdiensten Anhörung nach §§ 55 Abs. 9, 61 Abs. 1 TKG. Federal Network Agency of Germany. Bonn., p. 8f.

ence 20079. To make use of this Digital Dividend, various options are discussed to redistribute the respective frequencies.


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Figure 1 Relative capital expenditure and required number of base stations Cell radius determines number of base stations

8.9

1230

1000 5.5

4.7 3.9 2.9 455

100

328

100

675

10.0 Cell radius (km)

Relative capex (%)

10

Relative capex for network investment

2.0

126 700 [UHF]

3500 850 2500 2100 Mobile communication frequencies (MHz)

receiver is given by the transmission power of the base station and the distance between base station and receiver. High available signal strength and a large bandwidth allow for high data rates. In consequence and under the assumption of constant transmission power, high data rates are possible close to the transmitter, while the achievable rate declines with distance. Most importantly, if the wireless standard is cell-based, which implies that all receivers listen to a base station, the transmission bandwidth has to be shared among all users in the coverage area of a cell13. This directly leads to another aspect of the relationship between reach and speed: if the cell has to serve a high number of users, the individual data rate is low. For a given wireless standard, the maximum traffic per cell is constant. This is why cell density and cell size are directly related to user density. Another aspect to be taken into account are the frequency dependent propagation characteristics of electromagnetic waves. Generally speaking, higher frequencies propagate worse in space for omnidirectional communication and suffer 13 See Geng, N., Wiesbeck, W (1998). Planungsmethoden für die Mobilkommunikation. Springer.

34

5800

higher attenuation by physical objects14. Hence, for large cells lower frequencies, e.g., frequencies in the UHF band, are better suited. On the other hand, higher frequencies allow a more focused or directed emission of radiation, making them ideal for use in areas with high user and hence cell density. Figure 115 shows the number of base stations required for mobile operators to cover an area of 314 km², which can be achieved with a single cell of 10 km radius at 700 MHz. At 5.8 GHz, approximately 12 cells of 2.9 km radius are needed for the same coverage16. These cells are, however, able to support 12 times more users. From an MNOs viewpoint, the Digital Dividend frequencies are hence especially suited for large cell sizes and at comparatively low user density.

14 See Geng/Wiesbeck (1998), ibidem. 15 According to Krämer, M. (2009), Die Evolution von Mobilfunknetzen in Deutschland im Rahmen der Digitalen Dividende- Die Sicht von E-Plus. Presentation at 10th ZFTM Workshop. 6th of May 2009. Duisburg and Forge, S., Blackman C., Bohlin E. (2007). The Mobile Provide - Economic Impacts of Alternative Uses of the Digital Dividend. Study of SCF Associates. Bucks, p. 9. 16 See Forge/Blackman/Bohlin (2007), ibidem, p. 8f.

The fourth and last aspect which influences reach and speed of wireless links is the transmission power allowance for the allocated frequency range. This factor does not only influence directly the maximum distance between sender and receiver, the transmission power moreover correlates negatively with the bandwidth available per region and user. In addition, wireless broadband technologies are inherently less reliable due to the physical nature of the free space propagation of electromagnetic waves compared to wired technologies. Transmission speeds have historically been slower by orders of magnitude. On short range (several meters to several dozen meters), wireless transmission with comparatively high data rates - several hundred MBps to several GBps – will be possible in the near future with technologies based on the IEEE 802.11 (WLAN) and IEEE 802.15 family of standards17. It is, however, much harder to attain data rates in the order of 100 Mbps and faster in omnidirectional cell-based communication access networks. Summing up, the relationship between reach, speed, frequency and transmission has the following basic implications: When using the Digital Dividend for broadband access in rural areas, a high transmission power allowance (or large cell size in a cellular network) will provide the potential to overcome wide distances and provide even remote households with Internet access. The price to be paid for the high level of coverage is the data rate individually available. As explained above, the data rate available per user will be low, as a reuse of frequencies is not possible in wide areas.

17 See IEEE 802.15 WG.


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Figure 2 Wireless broadband pilot setup in Grabowhofe

3 antennae

7.2 Mbps downlink 1.5 Mbps uplink

65m

20km radius

Case Study: Wireless Broadband in Grabowhöfe, Germany The theoretical analysis showed major restrictions for wireless broadband provisioning. By combining these theoretical results with information gained from the first pilot project in Grabowhöfe, Germany, valuable implications for the future use of the Digital Divide spectrum can be derived.

Project Description Grabowhöfe is a small town located in Mecklenburg-Western Pomerania, Eastern Germany. It consists of 1065 inhabitants living on 31.12 km2 18. Broadband wired access is not available there yet.

Technical Specification20:The infrastructure consists of three antenna arrays, located on one existing mast owned by E-Plus Mobilfunk GmbH & Co KG. The broadcast equipment used is provided by Ericsson and mounted at the radio mast in a height of 65 meters. The coverage 19 According to expert interviews, Bach, C. (2009), Nutzung von Frequenzen aus der Digitalen Dividende zur ländlichen Breitbandversorgung. Speech at eco Forum. 11th May 2009 and Krämer (2009), ibidem. 20 According to expert interviews, Bach (2009), ibidem, and Krämer (2009), ibidem.

of this setup is a maximum area of 20 kilometers around the radio mast21. A schematic view of the setup is shown in Figure 3. The frequencies used are in the range of the Digital Dividend from 790 MHz – 862 MHz. Based on the UMTS HSDPA technology of Ericsson, data rates of 7.2 Mbps uplink and 1.5 Mbps downlink per user are realized.

Project Evaluation The project has to be evaluated from two perspectives, including the acceptance and usage by participating consumers and the technological capacity possible. This allows deriving conclusions for the feasibility of a nationwide rollout in rural areas. From the consumers’ perspective, E-Plus Mobilfunk GmbH & Co. KG reported usage figures effective from April 200922. The majority of the test users are online daily, some with several sessions per day. A maximum of 20 active users per day was measured. A total of 60 GB data of traffic were generated, which equals an average of 1.4 GB 21See Bach (2009), ibidem. 22 See Krämer (2009), ibidem.

35

Digital dividend

18 See Destatis (2006), Grabowhöfe. http:// www.destatis.de/jetspeed/portal/cms/Sites/ destatis/Internet/ DE/Content/Statistiken/Regionales/Gemeindeverzeichnis/NamensGrenzAenderung/Aktuell/2005,property=file.xls. 10th March 2010 and Amt Seenlandschaft Waren (2009), Gemeinde Grabowhöfe. http://www.amt-seenlandschaft-waren.de/ gemgrabo.html. 10th March 2010.

Project Realization19: Three project partners, the Ministry of Economy, Labour and Tourism of Mecklenburg-Western Pomerania, the E-Plus Mobilfunk GmbH & Co KG and the Ericsson GmbH created a joint pilot project in order to test the feasibility of the Digital Dividend for serving broadband to rural citizens. 50 test users in Grabowhöfe were selected in order to test the wireless broadband access in a testing period lasting until the beginning of 2010. The service and the equipment required for usage are provided free of charge to the participants. In consequence, the pilot project also provides insights about the demand side, which can be matched with the data of wireline broadband access technologies.


www.iicom.org May 2011 Volume 39 Issue 2

Table 2: Maximum parallel Service Use in Grabowhöfe, own calculation

Maximum parallel # users (%)

Restriction

15 (4%)

Upstream

120 (34%)

Upstream

7 (2%)

Downstream

File exchange

1-2 (1%)

Upstream

WWW

72 (20%)

Downstream

120 (34%)

Upstream

15 (4%)

Upstream

1-15 (1-4%)

Upstream/downstream

45 (10%)

Downstream

10 (3%)

Downstream

Service Email Electronic payment processing Updates

VoIP Videoconferencing Telework/home office Other: Online video (YouTube) See Youtube (2009) Systemvorausetzungen, http://help.youtube. com/support/youtube/bin/answer. py?hl=de&answer=78358. Accessed 10th March 2010. HDTV See Tandberg (2007), TANDBERG lowers bit rate for IPTV content delivery. http://broadcastengineering. com/infrastructure/tandberg-lowersbit-rate-iptv-content/. Accessed 10th March 2010, delivering 720p at below 6MBps in MPEG-4.

per user within the first three weeks. Regarding connection speeds, the majority is below 3 Mbps, only some can get data connections with more than 3 Mbps.

Matching Theory and Reality: Shortcomings from Grabowhöfe The first results from Grabowhöfe sound impressive. Unfortunately, there are compelling reasons why using the Digital Dividend to close the Digital Divide is merely a drop in a bucket. First, the user behavior of the pilot project in Grabowhöfe does not represent average user behavior at all. The traffic generated per user added up to approximately 1.9 GB 36

per month23. Compared to a city based broadband user, who generates approx. 9.2 GB24 on traffic per month, this equals less than one fifth. The distortion might be caused by two major factors: lack of knowledge and time lag effects. Further research including traffic protocols would be required in order to prove these hypotheses. Second, the capacity restrictions probably already have a negative effect on user behavior. These effects might not have been observed during the period under survey. From an entirely economical 23 Linearly interpolated from 1.4 GB in 3 weeks. 24 See Gerpott, T.J. (2008). Zehnte gemeinsame Marktanalyse 2008. Dialog Consult/ VATM.

point of view, the pilot project is not even able to provide the services defined and qualified by the Ministry of Economy, Labor and Tourism of Mecklenburg-Western Pomerania to all participants of the pilot project. According to their predefined requirements, e.g. only two services - electronic payment and VoIP with a capacity of 128 kBps - require a connection with less bandwidth than 1 Mbps25. Comparing these figures to the project setup, major shortcomings can be identified. To show this, the theoretical maximal data rate of the area is calculated and matched with the parallel use of exemplary services in the following. To extend broadband services from a technological perspective, to the entire population of Grabowhöfe, the service will be calculated at a user base of the 1065 inhabitants. Each of the three antennas is providing 7.2 Mbps in downstream and 1.5 Mbps in upstream direction to 10 users maximum in parallel. Assuming an equal distribution of the population in Grabowhöfe, one antenna is hence assigned to one third of the population under perfect conditions. This results in a maximum total throughput for 355 users of 72 Mbps downstream and 15 Mbps upstream, respectively. According to the minimum requirements provided by the Ministry, this allows maximum parallel service use according to Table 2. For sure, not all inhabitants will probably watch IP-based HDTV at the same time. But it does not even need the World Cup on IPTV to bring Grabowhöfe to its capacity limits. Whereas 15 users, equaling 4% of the total population, are still able to use e-mail in parallel, only seven users 25 See Tavangarian, D., Krohn, M., Scheil, D., Brozio, L. (2008). Breitbandzugang zum Internet in Mecklenburg-Vorpommern. Study on behalf of the Ministry for Economics, Labour and Tourism Mecklenbourg-WesternPomerania. 2008, p. 6.


www.iicom.org May 2011 Volume 39 Issue 2

(2%) can start an auto update at the same time. When it comes to HDTV, only ten users (3%) can watch a high definition video stream at the same time. The biggest impact has been on telework, which is seen as one of the major benefits for rural broadband provisioning. However, the pilot project does not even fulfill its bandwidth requirements of 10 Mbps per user in upload for more than one user. The situation is further exacerbated by the fact that excessive usage by one user has negative external effects on the other users due to the single shared medium described earlier. At this stage, it becomes even more obvious, that if the requirements defined by the government cannot be met, the project does not provide broadband services to the citizens in rural areas. Looking into future development, the wireless broadband coverage via HSDPA does not qualify to be future proof. The next wireless standard to be deployed is LTE, which promises to offer 170 Mbps downstream per cell by the end of 201326. Again, these 170 Mbps are shared among the users connected to the base station and do not meet at all today’s and future demand for bandwidth at all.

Conclusions and Outlook

26 See Bach (2009), ibidem and Bundesnetzagentur (2009b), Eckpunkte über die regulatorischen Rahmenbedin-gungen für die Weiterentwicklung moderner Telekommunikationsnetze und die Schaffung einer leistungsfähigen Breitbandinfrastruktur – Konsultations-entwurf – Stand 13.05.2009. Federal Network Agency of Germany. Bonn., p. 8.

The existing gap between those with access to high performance Internet access and those with only access to a shared medium will not shrink; it will even become wider in the future. It is questionable, if public funding should be used for a service provisioning with a technical solution, which cannot offer at the predefined requirements from the Ministry. Thus, by installing a bandwidth restricted shared medium today, the necessary funding for the required high performance infrastructure in cities will be sunk and not available for the installation of city comparable broadband access infrastructures. Furthermore, the proposed concept by the German regulatory body to give the Digital Dividend to the MNOs includes the requirement to serve rural areas first, in order to make use of these frequencies within population dense areas27 has to be put in question. Unfortunately, this restriction decreases MNOs’ incentives to invest in infrastructure in general, as the MNO will wait for an additional investment incentives into infrastructure in cities until additional revenues will not only exceed costs in cities, but also in rural areas. This is also a reason why the outcome of the Digital Dividend auction in Germany in May 2010 only resulted in comparably low biddings of a total of Euro 4.4 bn28. Another option to be considered is the allocation of the Digital Dividend to short range communications in order to connect inhouse communications equipment and serve as a local loop alternative at the same time. In short range communica27 See Bundesnetzagentur (2009a), ibidem, p.8 and 39f. 28 See Bundesnetzagentur (2010), Frequenzversteigerung in Mainz beendet, press release of 5th of May 2010.

tions, significant frequency assignments for WLANs are currently available only at frequencies in the GHz range. Attenuation in these frequencies is high, and it is difficult to establish inhouse connections through several walls. Therefore, lower band frequencies of the Digital Divide would be more convenient. Examples for short range high performance communications are wireless connections capable of HD video or uncompressed wireless audio and would help to create an entire new market. Summing up, higher returns from handing over the Digital Dividend to MNOs without any restriction could be used to subsidize wired broadband rollouts in rural areas. A Digital Dividend should either be auctioned to the existing mobile phone operators to make this bandwidth available on mobile networks or be made available under a general authorization to allow operations of WLAN comparable standard for local communication with a two range approach. A use for the primary broadband provision in rural areas has been rejected.

Acknowledgments Friedrich Jondral’s and Jens Elsner’s contribution to this work was supported by the Federal Ministry of Economics and Technology (BMWi) under project number 38/08: Effiziente Frequenznutzung im TK-Review. The views expressed are those of the authors and do not necessarily represent those of the BMWi or BMWi policy. Nico Grove is at the Bauhaus-University Weimar, Germany, Arnold Picot is at the Ludwig-Maximilians-Universität (LMU), Munich, Germany, Friedrich K. Jondral and Jens Elsner are at the Karlsruhe Institute of Technology, Germany.

37

Digital dividend

As the analysis did show, the pilot project in Grabowhöfe does not provide city comparable Internet access to its citizens as a matter of fact. As the calculation has shown, the maximum wireless bandwidth available will not suffice in order to get more than 10 per cent of the citizens of Grabowhöfe online

with a connection comparable to a modern, city-like, broadband access connection.


www.iicom.org May 2011 Volume 39 Issue 2

IIC TMF Brussels 2011 The Elusive Common Market Goal Brussels -- April's IIC Telecommunications and Media Forum in Brussels had a number of overarching themes ranging from the Digital Single Market to Internet funding via Connected TV and Cloud Computing. At the level of networks and services, three key elements were identified which need to be addressed by regulation and competition rules, namely: the importance of disruptive technological developments; the increasing importance of service bundles; and the significance of broadband applications, and particularly the role played by mobile traffic data. There was general consensus that a harmonized frequency allocation procedure could prove to be a major instrument in realising harmonization goals. At the same time, it also needed to be acknowledged that there exist real regulatory differences among the Member States which should not be ignored when forging business models that would operate across the EU; as such, it should still be a matter for the EU Member States to drive the pace of change. Change should take into account the need to foster competition in infrastructure, with a view to eventually de-regulating the market, and fostering the growth of NGA networks through the introduction of the adequate economic incentives and legal safeguards. Only where such incentives and safeguards are carefully chosen will operators take the appropriate steps to rollout technologies and build the networks which will determine the success or failure of the Digital Single Market. 38

A number of participants also highlighted the vested interests of certain Member States in raising barriers to the Single Market and in avoiding real competition in the sector. Some of them also expressed hope that, with the entry into force of the new Article 7 procedure in May, BEREC will be able to push forward some major reforms in the regulatory environment. At the forefront of other participants’ minds in creating a Digital Single Market were the issues relating to illegal content and IPR protection (especially relating to piracy). In this regard, the lack of sufficient rules of deterrence, both at the national and transnational levels, were identified as constituting a barrier to harmonization. In the absence of such deterrence, there

price, functionality, regulation, and industry structure, and the fact that national incumbents are not challenging each other outside their “home” markets, were canvassed as the evidence of market deficiencies. Finally, certain participants considered the relative importance of developing coherent data protection and privacy rules in dealing with the particular problems raised by the era of social networking. Many governments have identified the need for them to arrive at proportionate responses; in this light, Vice-President Reding’s tabled proposals, together with the emergence of the “do-not-track” system, constitute clear evidence that not all is well in the regimes which currently operate for the handling and processing of personal data in the social networking domain.

Tomorrow’s Internet Funding – Who Pays the Piper?

were those who felt that the three-strikes-and-you’re-offline rule is the only feasible and effective method of fighting piracy. Having said that, there were also advocates of a less intrusive approach striking the balance between openness and blocking, especially at a time when a clear position on net neutrality has yet to be adopted in the EU. Cross-border access to digital material was also seen by some to be a key element in achieving a Digital Single Market. The differences in obtaining access across national borders in terms of differences in

The discussions naturally moved to the challenges faced by European governments, regulators and industry in funding the Internet of tomorrow, at a time when Europe was not in a leadership role in any of the key parameters of competitiveness for investment in a broadband environment. The high level view expressed was that Euros 200 billion of investment needs to be deployed to finance the Internet of the future. While new sources of demand pull for such investment is arguably found in the growth of public sector services in generating critical scale (eg., e-government and e-health),


www.iicom.org May 2011 Volume 39 Issue 2

there are also question marks about whether all investments are financially justifiable, especially in non-urban areas. In this respect, the pending revision of the existing Broadband State Aid Guidelines is seen as being of particular importance, given the messages that it will send or reinforce to industry about the perceived role of the State in the development of broadband networks and services, and the impact which this role will have on private investment. At the heart of larger operators’ concerns about their ability to finance the investments required to build bandwidth-hungry networks in Europe lies a constellation of concerns around their perceived inability to share in the wealth created by the Internet due, inter alia, to the lack of commercial flexibility afforded by the existing Regulatory Framework. Accordingly, the benefits of being allowed to put an end to free peering, to charge for higher bandwidth services without offending net neutrality principles, to be afforded greater flexibility in devising differential charging

Discussion also centered upon the tangible results being achieved in the United States in the development of broadband, including through wireless, and the regulatory “mix” used to realize those results. Some of the US messages for the EU also touched the possible need to afford different regulatory treatment to business services as opposed to residential users. Another important emphasis was on the need to actively explore co-investment models and to deploy more efficiently the resources already available under various European Structural funds. Whatever funding options adopted, the reguPrinted in England by H. Charlesworth & Co Ltd, Flanshaw Way, Flanshaw Lane, Wakefield WF2 9LP UK

latory policies adopted should not deter the adoption of new business models, which were developing around the shift from “access to” to “experience on” the Internet. The simple message from the broadcasting sector was that the funding model for the Internet should be a thriving competitive user-facing access selling market with a strong attractive content sector supporting it (“Content sold radios. It worked. And it is working in getting more people to buy broadband”). The general feeling was that commercial business models which raise revenue for investment in faster networks, including “fast lanes”, are acceptable, but it is also important that these fast lanes do not disincentivize investment in the open Internet (i.e., the standard Internet should not become a proverbial “dirt track” which is subject to large amounts of management). Peter Alexiadis and Alvaro GarciaDelgado are at Gibson, Dunn and Crutcher LLP in Brussels. The full review is available on http://www.iicom.org

International Institute of Communications, 2 Printers Yard, 90a Broadway, London, SW19 1RD, UK Tel +44 (0) 20 8417 0600 Fax +44 (0) 20 8417 0800

Archive password: halibut Annual subscription £175 Online: www.iicom.org

39 3

IPTV Analyisis IIC TMF Brussels News Analysis2011

The IIC publishes Intermedia to provide a forum for a wide range of people and views. Intermedia does not necessarily reflect the opinions of IIC officers, trustees and members. Credit quotations as source: Intermedia, Journal of the International Institute of Communications © 2011. ISSN 0309 11 8X

models, to be permitted to manage traffic for the management of traffic congestion, and to be allowed to maintain or to raise copper access prices, was put forward. As one can imagine, opinion was divided among participants as to whether each of these elements was actually borne out in theory or in practice, especially as regards to inherent flexibility of many facets of the existing Regulatory Framework.


International Institute of Communications PRESIDENT Fabio Colasanti STAFF Andrea Millwood Hargrave Director General Carol Geldart Director of Programmes Stephen McClelland Editor in Chief, Intermedia Director of Publishing, Media and Electronic Communities Joanne Grimshaw Projects Executive BOARD MEMBERS Andrew Barendse South Africa Bernard Courtois Canada Tim Cowen UK Alasdair Grant Hong Kong Ann LaFrance US Augusto Preta Italy

Intermedia Vol 39 No 2 May 2011  

Deciphering the broadband plans of North America Africa: mobile partnerships Africa: distracting statistics? Digital dividend and digital di...

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