Handbook of Research on Global Diffusion of Broadband Data Transmission Yogesh K. Dwivedi Swansea University, UK Anastasia Papazafeiropoulou Brunel University, UK Jyoti Choudrie University of Hertfordshire, UK
Volume I
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[email protected] Web site: http://www.igi-global.com and in the United Kingdom by Information Science Reference (an imprint of IGI Global) 3 Henrietta Street Covent Garden London WC2E 8LU Tel: 44 20 7240 0856 Fax: 44 20 7379 0609 Web site: http://www.eurospanonline.com Copyright © 2008 by IGI Global. All rights reserved. No part of this publication may be reproduced, stored or distributed in any form or by any means, electronic or mechanical, including photocopying, without written permission from the publisher. 3URGXFWRUFRPSDQ\QDPHVXVHGLQWKLVVHWDUHIRULGHQWL¿FDWLRQSXUSRVHVRQO\,QFOXVLRQRIWKHQDPHVRIWKHSURGXFWVRUFRPSDQLHVGRHV not indicate a claim of ownership by IGI Global of the trademark or registered trademark. Library of Congress Cataloging-in-Publication Data Handbook of research on global diffusion of broadband data transmission / Yogesh K. Dwivedi, Anastasia Papazafeiropoulou, and Jyoti Choudrie, editors. p. cm. Summary: “This book explores broadband adoption and the digital divide through a global perspective, it provides research on constructs such as relative advantage, utilitarian outcomes, hedonic outcomes, and service quality. From over 100 noted experts in nearly 30 countries, WKLVZRUNDOORZVSROLF\PDNHUV,QWHUQHWVHUYLFHSURYLGHUVDQGRWKHUVWRJDLQPXOWLFXOWXUDOLQVLJKWLQWRZKDWIDFWRUVLQÀXHQFHFRQVXPHUV¶ decisions to adopt broadband”--Provided by publisher. ISBN 978-1-59904-851-2 (hardcover) -- ISBN 978-1-59904-852-9 (e-book) 1. Internet users--Attitudes. 2. Digital divide. 3. Internet service providers. 4. Consumer behavior. 5. Broadband communication systems. 6. Globalization--Social aspects. I. Dwivedi, Yogesh Kumar. II. Papazafeiropoulou, Anastasia. III. Choudrie, Jyoti.
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To my Mother and Father for their love and blessings…And to my lovingly and much awaited ‘Shagun’
To Athina
To my dearest, wonderful, encouraging and supportive Mum, Dad and Bobby
Editorial Advisory Board
Nikhilesh Dholakia University of Rhode Island, USA Guy Fitzgerald Brunel University, UK Sergio Godoy Universidad Catolica de Chile, Chile Heejin Lee University of Melbourne, Australia Catherine Middleton Ryerson University, Canada Challa Radhakumari Sri Sathya Sai University, India Aradhana Srivastava PRIA (Participatory Research in Asia), India Viswanath Venkatesh University of Arkansas, USA Michael D. Williams Swansea University, UK Vishanth Weerakkody Brunel University, UK
Table of Contents
Foreword .......................................................................................................................................... xxxi Preface ............................................................................................................................................ xxxiv Acknowledgment............................................................................................................................... xlvi
Volume I Chapter I Broadband Adoption and Diffusion (BAD): A Framework / Yogesh K. Dwivedi and Anastasia Papazafeiropoulou ......................................................................................................... 1
Section I National Policies Division I Africa Chapter II South Africa: The Long Walk to Broadband Freedom / Justin Henley Beneke.................................... 13 Division II Asia Chapter III Bridging the Digital Divide Through Broadband Deployment / Challa Radhakumari........................ 30 Chapter IV Broadband Policy, Market Competition, and User Adoption in Taiwan / Yu-li Liu.............................. 47 Chapter V ICT Competency of Bangladesh to Face Broadband Diffusion / Anwarul Islam and K.C. Panda..................................................................................................................................... 60
Chapter VI Socio-Cultural Interpretations to the Diffusion and Use of Broadband Services in a Korean Digital Society / Dal Yong Jin............................................................................................................... 78 Chapter VII Structural Changes and Regulatory Challenges in the Japanese Telecommunications Industry / Hidenori Fuke ....................................................................................................................................... 90 Division III Australia and New Zealand Chapter VIII $QDO\VLVRIWKH,QÀXHQFHRI$XVWUDOLD¶V*RYHUQPHQW3ROLF\RQ%URDGEDQG,QWHUQHW$FFHVV Qiuyan Fan ......................................................................................................................................... 109 Chapter IX Broadband for the Mass Market / Roger Saunders............................................................................. 126 Chapter X Competition, Regulation, and Broadband Diffusion: The Case of New Zealand / Bronwyn Howell.................................................................................................................................. 139 Division IV Europe Chapter XI Digital Divide and Broadband Access: The Case of an Italian Region / Enrico Ferro, J. Ramon Gil-Garcia and Natalie Helbig ........................................................................................... 160 Chapter XII Improving Broadband Access in Rural Areas / Ingjerd Skogseid....................................................... 177 Chapter XIII Metropolitan Broadband Networks: Design and Implementation Aspects, and Business Models / Antonios Alexiou, Christos Bouras, John Papagiannopoulos and Dimitris Primpas ........................ 196 Chapter XIV Small World: The Irish Broadband Experience / Diana Wilson, Kevin O’Reilly, and Dave Murray................................................................................................................................ 211 Chapter XV Social, Political, and Ethical Responsibility in Broadband Adoption and Diffusion: $*HUPDQ&DVH6WXG\Axel Schulz, Bernd Carsten Stahl, and Simon Rogerson ............................. 227
Division V North America Chapter XVI Competition in Broadband Provision and the Digital Divide / Wei-Min Hu and James E. Prieger ..................................................................................................... 241 Chapter XVII *RYHUQPHQWDODQG&XOWXUDO)DFWRUVLQ%URDGEDQG$GRSWLRQ Elizabeth Fife, Laura Hosman,and Francis Pereira .......................................................................... 260 Chapter XVIII Regulation and the Deployment of Broadband / James E. Prieger and Sunhwa Lee ........................ 278
Section II Consumer-User Behaviors Division I Australia Chapter XIX Factors Affecting Broadband Adoption for Mainstream Consumers / Peter Adams.......................... 306 Division II Europe Chapter XX Developing a Dynamic View of Broadband Adoption / Herbert Daly, Adrina Ortiz, Yogesh K. Dwivedi, Ray J. Paul, J. Santos, and J.M. Sarriegi ........................................................... 322 Chapter XXI Employing the Content Validity Approach for Improving the Content of the Broadband Adoption Survey Instrument / Yogesh K. Dwivedi, Banita Lal, and Khalil Khoumbati..................... 337 Chapter XXII Inside the Microcosm: A Case Study of a Wireless Internet Hotspot / Pierre Vialle, Olivier Epinette, and Olivier Segard .............................................................................................................................. 349 Chapter XXIII 7KH8VHVDQG*UDWL¿FDWLRQVRI%URDGEDQG,QWHUQHW Karianne Vermaas and Lidwien van de Wijngaert ............................................................................. 366
Division III Middle East Chapter XXIV Factors Affecting Attitudes towards Broadband Adoption in the Kingdom of Saudi Arabia / Vishanth Weerakkody .......................................................................................................................... 380 Division IV North America Chapter XXV Characteristics of Farm and Rural Internet Use in the United States / Peter L. Stenberg and Mitchell Morehart ........................................................................................... 395 Division V South America Chapter XXVI Broadband User Behavior Characterization / Humberto T. Marques Neto, Leonardo C.D. Rocha, Pedro H.C. Guerra, Jussara M. Almeida, Wagner Meira Jr., and Virgilio A.F. Almeida ................... 408
Volume II Chapter XXVII Precisions about the Broadband Divide in Chile / Sergio Godoy and M. Soledad Herrera............... 427
Section III Small and Medium-Sized Enterprises (SMEs) Division I Asia Chapter XXVIII A Survey on the Adoption and Usage of Broadband Internet / Roya Gholami, John Lim, and Sang-Yong Tom Lee...................................................................................................................... 448 Division II Europe Chapter XXIX Broadband Access and Broadband-Based Applications: An Empirical Study of the Determinants of Adoption Among Italian SMEs / Massimo G. Colombo, Luca Grilli, and Cinzia Verga ................... 466
Chapter XXX Broadband Diffusion to SMEs in the UK / Oluwasola Oni and Anastasia Papazafeiropoulou ........ 481 Chapter XXXI Environmental Drivers of E-Business Strategies Among SMEs / Alessandro Arbore and Andrea Ordanini ........................................................................................... 493 Chapter XXXII ([SORULQJ60(V¶$GRSWLRQRI%URDGEDQGLQWKH1RUWKZHVWRI(QJODQGBoumediene Ramdani and Peter Kawalek.............................................................................................................................. 504 Chapter XXXIII External Pressures for Adoption of ICT Services among SMEs / Andrea Ordanini and Alessandro Arbore ........................................................................................... 524
Section IV Impact on Emerging Applications Division I Entertainment Industry Chapter XXXIV IPTV Business Model Analysis / Kate Carney Landow, Michelle Fandre, Raghu Nambiath, Ninad Shringarpure, Harvey Gates, Artur Lugmayr, and Scott Barker.............................................. 538 Chapter XXXV The Impact of the Internet on the Law and Economics of the United States Motion Picture Industry / Stanford L. Levin, John B. Meisel, and Timothy S. Sullivan .................................. 563 Division II Health Industry Chapter XXXVI Broadband for Health in Developing Countries / Aradhana Srivastava ............................................ 581 Chapter XXXVII Improving Health Services via Advanced ICT Networks / Peter Farr, Isabelle Ellis, and John Royle.................................................................................................................................... 593 Chapter XXXVIII Remote Patient Monitoring in Residential Care Homes: Using Wireless and Broadband Networks / Tanja Bratan, Malcolm Clarke, Joanna Fursse, and Russell Jones ................................................... 604
Division III Social Impact Chapter XXXIX Social Consequences of Broadband Access in Japan / Kenichi Ishii.................................................. 619 Division IV Communication Chapter XL Internet-Based Changes in Organizational Communication / Erik Lundmark and Alf Westelius........................................................................................................ 637 Chapter XLI 8ELTXLWRXV&RPPXQLFDWLRQYLD5HVLGHQWLDO*DWHZD\VAlex De Smedt............................................ 655
Section V Cross-Country Analysis Chapter XLII Adoption of Broadband Services: The Role of National Policies / Morten Falch ............................. 671 Chapter XLIII Broadband Diffusion and its Driving Forces / Banani Nandi and Chandana Chakraborty............... 689 Chapter XLIV Diffusion of Broadband Access in Latin America / Arturo Robles Rovalo, Claudio Feijóo González, and José Luis Gómez-Barroso ............................. 711 Chapter XLV Diffusion Forecasting and Price Evolution of Broadband Telecommunication Services in Europe / Dimitris Varoutas, Christos Michalakelis, Alexander Vavoulas, and Konstantina Deligiorgi ................................................................................................................ 729 Chapter XLVI Explaining Patterns of Broadband Deployment and Adoption in OECD Countries / Inmaculada Cava Ferreruela.............................................................................................................. 756 Chapter XLVII ICT Statistics for Broadband Promoting Regulatory Policy / Diana Korsakaite and Tomas Lamanauskas....................................................................................... 776
Chapter XLVIII Impact of Broadband VoIP on Telecoms: A Cross-Country Analysis / Bardo Fraunholz and Chandana Unnithan ........................................................................................ 796 Chapter XLIX The Adoption of Broadband Internet in Australia and Canada / Catherine Middleton and Shanton Chang .......................................................................................... 818 Chapter L The Evolution of Broadband Industry in the Developing World: A Comparison of China and India / Nir Kshetri, and Nikhilesh Dholakia ......................................... 841
Detailed Table of Contents
Preface ............................................................................................................................................ xxxiv Acknowledgment............................................................................................................................... xlvi
Volume I Chapter I Broadband Adoption and Diffusion (BAD): A Framework / Yogesh K. Dwivedi and Anastasia Papazafeiropoulou ......................................................................................................... 1 The aim of this chapter is to outline various factors reported in the 49 chapters of this handbook of research. 7KHDLPLVDOVRWRRUJDQL]HLGHQWL¿HGIDFWRUVLQDPHDQLQJIXOPDQQHULQRUGHUWRSURSRVHDIUDPHZRUNRI broadband adoption and diffusion. This chapter illustrates the fact that research on the adoption, diffusion, usage, and impact of broadband is clearly a global issue which requires a multidisciplinary approach. The proposed framework includes three levels of factors—macro factors, individual micro factors, and SME-level micro factors. These three levels of factors are relevant at different levels of development, deployment, and diffusion of broadband which persist in various developed and developing countries. The chapter concludes by suggesting that the proposed framework is based on a comprehensive set of factors observed in various countries, and future studies may use this framework to identify gaps and then bridge those gaps by conducting new studies.
Section I National Policies This section examines the macro or supply-side factors affecting broadband deployment and diffusion in various countries including Australia, Bangladesh, Germany, Greece, India, Ireland, Italy, Japan, New Zealand, Norway, South Africa, South Korea, Taiwan, and the United States of America. A number of pertinent factors and issues including national policy, market competition, ICT competency, structural changes, regulatory challenges, rural access, socio-political and ethical responsibility, and digital divide DUHGLVFXVVHGLQWKLVVHFWLRQ7KHVHFWLRQLVIXUWKHURUJDQL]HGLQWR¿YHGLYLVLRQVDFFRUGLQJWRWKHJHRgraphical areas where the studies included in this section were conducted.
Division I Africa Chapter II South Africa: The Long Walk to Broadband Freedom / Justin Henley Beneke .................................... 13 South Africa has fallen behind its international peersboth developing and developed marketsin the race to rollout broadband services. In fact, even within the African continent, it is neither the broadband leader nor progressive in comparison to its Northern African counterparts. This chapter explores the development of broadband services in South Africa, as well as touching on the challenges faced in bringing this phenomenon into the mainstream. Reasons for the lack of diffusion and adoption of such VHUYLFHVSRLQWWRKLJKHQGXVHUFRVWVRIWKHVHUYLFHDYHU\OLPLWHGJHRJUDSKLFDOIRRWSULQWRIERWK¿[HG line and mobile broadband infrastructure, as well as a lack of computer literacy and an understanding of what broadband is able to offer. The chapter looks at possible solutions, including introducing a greater degree of competition into the market to facilitate downward pressure on prices, as well as providing FRVWEDVHGDFFHVVWRLQWHUQDWLRQDOVXEPDULQH¿EHUFDEOHVDQGWKHXQEXQGOLQJRIWKHORFDOORRSWRIXUWKHU this objective. Division II Asia Chapter III Bridging the Digital Divide through Broadband Deployment / Challa Radhakumari ......................... 30 This chapter provides a summary relating to the functioning of two projects in the two Southern States of India, Andhra Pradesh and Kerala, to show how through broadband deployment in rural areas the digital divide can be bridged. By focusing on the implementation of the two projects, the chapter illustrates their contribution in practically using the broadband technologies in overcoming the hurdles to bridging WKHGLJLWDOGLYLGHDQGKLJKOLJKWVWKHFULWLFDOVXFFHVVIDFWRUVDVLGHQWL¿HGGXULQJWKHIXQFWLRQLQJRIWKH projects which helped the states in achieving their goals. The chapter also reveals through its analysis that the accessibility of services through broadband technology has brought an opportunity to the citizens to become a part of the current knowledge revolution, besides bringing about a great technological transformation to the areas where it is implemented and thus contributed to bridging the digital divide. The chapter is concluded by proving that moving from a manual to electronic process with broadband technology as an enabler; the two Southern States of India set an example, which will serve as a set of guidelines for application of similar projects in other geographical settings. Chapter IV Broadband Policy, Market Competition, and User Adoption in Taiwan / Yu-li Liu.............................. 47 7DLZDQKDVEHHQPDNLQJJUHDWHIIRUWVWRSURPRWHWKHIXO¿OOPHQWRILWV1DWLRQDO,QIRUPDWLRQ,QIUDVWUXFWXUH (NII), with broadband network technology and its application having rapidly developed in recent years. This chapter analyzes the broadband adoption, the competition among providers of broadband, and relevant policies in Taiwan. The research methods adopted include a literature review, in-depth interviews,
DQGVHFRQGDU\DQDO\VLVRISUHYLRXVVXUYH\VFRQGXFWHGE\7:1,&6LQFH7DLZDQ¶VEURDGEDQGSHQHWUDWLRQ LVWKH¿IWKKLJKHVWLQWKHZRUOGWKHGLVFXVVLRQVRIWKHPDMRUIDFWRUVFRQWULEXWLQJWREURDGEDQGGHSOR\ment in this chapter might provide some experiences from which other countries can learn. Chapter V ICT Competency of Bangladesh to Face Broadband Diffusion / Anwarul Islam and K.C. Panda ............................................................................................................ 60 As a developing country, Bangladesh has taken keen initiatives to develop its sustainable information infrastructure. Teledensity and overall IT infrastructure is now in a growing stage. Recently, Bangladesh KDVEHHQFRQQHFWHGZLWK6($0(:(VXEPDULQHFDEOHHVWDEOLVKLQJDQRSWLFDO¿EHUEDFNERQH LWV teledensity is changing in rapid pace. But, the broadband diffusion in Bangladesh is not on par with other Asian countries, since it is in an embryonic stage in broadband diffusion. This chapter tries to show the initiatives taken and the existing condition of Bangladesh to fetch the countrywide broadband diffusion. Efforts have been made to unmask the overall development of ICT infrastructure in Bangladesh to judge the environment of broadband diffusion in the country. Chapter VI Socio-Cultural Interpretations to the Diffusion and Use of Broadband Services in a Korean Digital Society / Dal Yong Jin............................................................................................................... 78 This chapter attempts to ascertain the causes of the rapid growth of broadband services in the context of the broader socio-cultural elements. It recognizes technology as a socio-cultural product which has historically been constituted by certain forms of knowledge and social practice, so this chapter explores cultural elements contributing to the diffusion of broadband services in the context of the cultural enYLURQPHQWLQ.RUHD)XUWKHUWKLVFKDSWHUGLVFXVVHVWKHVLJQL¿FDQWUROHRIWKHSHRSOHDVXVHUVLQWKH process of the rapid diffusion and growth of broadband services. In particular, it emphasizes the way in ZKLFKWKH HFRQRPLFFULVLVDVRQHRIWKHPRVWVLJQL¿FDQWVRFLRFXOWXUDOWXUQLQJSRLQWVLQPRGHUQ .RUHDQKLVWRU\KDVLQÀXHQFHGWKHGHSOR\PHQWRIEURDGEDQGVHUYLFHVDVKLJKVSHHG,QWHUQHWFRQQHFWLRQV have developed since 1997. Chapter VII Structural Changes and Regulatory Challenges in the Japanese Telecommunications Industry / Hidenori Fuke ....................................................................................................................................... 90 The structure of the telecommunications industry in Japan has been changing revolutionarily. The FKDQJHVDUHREVHUYHGLQ¿YHSKDVHV GHYHORSPHQWRIFRPSHWLWLRQLQWRWKHORFDOFDOOPDUNHWGLIIXVLRQ of broadband Internet and development of inter-platform competition, rapid growth of cellular services and Internet access via cellular, decline of POTS (plain old telephone service), and structural changes from vertical integration to layered structure and development of media convergence. These changes require total review of the regulatory framework that was formed in the POTS era. This chapter reviews: D HVVHQWLDOIDFLOLWLHVUHJXODWLRQ E DXQLYHUVDOVHUYLFHV\VWHPDQG F DÀDWUDWHSULFLQJV\VWHPRI the Internet to solve problems that are likely to distort the new industry structure and would stress the importance of a regulatory system that is competition, technology, and content neutral.
Division III Australia and New Zealand Chapter VIII $QDO\VLVRIWKH,QÀXHQFHRI$XVWUDOLD¶V*RYHUQPHQW3ROLF\RQ%URDGEDQG,QWHUQHW$FFHVV Qiuyan Fan ......................................................................................................................................... 109 Like many other governments in the world, the Australian government has taken a multi-faceted approach to promoting broadband Internet access. This chapter provides an in-depth analysis of the impact of policy issues on broadband Internet access in Australia. The primary goal of this chapter is to develop a holistic XQGHUVWDQGLQJRI$XVWUDOLD¶VQDWLRQDODSSURDFKHVSHUWDLQLQJWREURDGEDQG,QWHUQHWDFFHVV7KLVUHVHDUFK KDVFOHDUO\LQGLFDWHGWKDWWKHVWDWHRIEURDGEDQG,QWHUQHWDFFHVVLVFORVHO\UHODWHGWRWKHJRYHUQPHQW¶V policy and regulatory framework. The government has been basing its actions on market forces as a principal driver for broadband Internet connectivity. However, market forces only play roles in improving broadband Internet access in the major cities and have little effect in regional and rural Australia. The research has indicated that the regulatory competition regime, by and large, has failed to address concerns of market dominance and market power in the telecommunications sector as is evidenced by a relatively lower price-performance ratio of broadband services in Australia. Chapter IX Broadband for the Mass Market / Roger Saunders ............................................................................. 126 This chapter suggests that there is no new application to stimulate adoption of broadband by the mass market. Many new applications have been introduced but have not created the desired growth. One application that could have mass market attraction is voice over Internet protocol (VoIP), and it is the most likely killer application. But failure by major communications carriers to develop VoIP is slowing broadband penetration to this larger market segment. It is postulated that this resistance results from the risk to current carrier call revenue from VoIP and that infrastructure to support high-speed broadband PD\QRWJHQHUDWHDGHTXDWHUHYHQXHLQWKHVKRUWWHUPWRVDWLVI\VKDUHKROGHUVRU¿QDQFLDOPDUNHWV1R international standards have yet been set, and VoIP between the Internet platforms is not fully integrated. Also the multitude of broadband packages offered by the various competing carriers creates confusion in the mass market which, as a result, defers purchase decisions. Chapter X Competition, Regulation, and Broadband Diffusion: The Case of New Zealand / Bronwyn Howell .................................................................................................................................. 139 New Zealand offers a thought-provoking case study of the effects of different competition and regulatory policies on broadband diffusion rates. Despite having one of the highest rates of Internet connection and usage in the OECD, widely available broadband infrastructure, and low broadband prices, broadband uptake per capita languishes in the bottom third of the OECD. While low uptake has typically been atWULEXWHGWRFRPSHWLWLRQDQGUHJXODWRU\IDFWRUVDVVRFLDWHGZLWK1HZ=HDODQG¶VµOLJKWKDQGHG¶UHJXODWRU\ UHJLPHWKLVFKDSWHUSURSRVHVWKDWDPRUHFUHGLEOHH[SODQDWLRQOLHVLQDFRPELQDWLRQRI1HZ=HDODQG¶V legacy of demand-side regulations, in particular the retail tariff options for voice telephony, and the
limited value being derived by New Zealand residential consumers from the small range and narrow adoption of applications currently used that necessitate broadband connections. The New Zealand case illustrates the effect that legacy regulations can have on both the diffusion of new technologies per se and the choices made by consumers between different generational variants within that technology. The case indicates a need for more research on the effect of telecommunications industry regulations on demand-side uptake factors. Division IV Europe Chapter XI Digital Divide and Broadband Access: The Case of an Italian Region / Enrico Ferro, J. Ramon Gil-Garcia and Natalie Helbig ................................................................... 160 Reducing digital divide in order to build an information society for all is one of the top priorities for European policymakers. A better understanding of the determinants of broadband access at the individual level represent a key starting point for any e-inclusion policy. Based on a review of the literature on digital divide and broadband access, the authors document different approaches to understanding the digital divide and argue that these perspectives can also help to understand broadband access. Combining the digital divide and broadband literature provides a systematic and theory-based approach to the selection and inclusion of variables in different models. This chapter presents a case study conducted LQDQ,WDOLDQUHJLRQ7KHDXWKRUVSURYLGHVRPHLPSOLFDWLRQVRIWKH¿QGLQJVDQGDUJXHWKDWSROLF\PDNHUV should explore the relationship between IT skills acquisition, broadband access, and Internet use in order to develop more effective policies and programs. Chapter XII Improving Broadband Access in Rural Areas / Ingjerd Skogseid ....................................................... 177 The chapter explores the characteristics of rural broadband infrastructure development. Taking the existing installed base into consideration, small rural communities can initiate bottom-up cultivation of broadband infrastructure. Such initiatives are important contributions to overcoming the disparity in broadband access. In effect, they aggregate demand by creating a larger total market for suppliers than the individual needs of the actors. The proposal is to use descriptive clusters as a way to reveal the LQVWDOOHGEDVH$VHWRITXHVWLRQVDQGDQVZHUVZLOOEHGH¿QHGWRUHYHDOWKHLQVWDOOHGEDVH7KHUHVXOWLQJ data can be used to acquire an overview of the types of resources available and the choices that need to be made. The use of descriptive clusters places emphasis on the local context and culture. With a bottom-up strategy, questions must be answered in relation to the local context. The responses and lessons learned may vary from one location to the next, making blueprint implementations impossible. Chapter XIII Metropolitan Broadband Networks: Design and Implementation Aspects, and Business Models / Antonios Alexiou, Christos Bouras, Dimitris Primpas, and John Papagiannopoulos ...................................... 196 This chapter presents the design principles that cover the implementation of broadband infrastructure in the region of Western Greece, by examining all the necessary parameters that arise while implementing
such a critical developmental project. The broadband infrastructure that is deployed is either based on RSWLFDO¿EHU RQELJPXQLFLSDOLWLHV RURQZLUHOHVVV\VWHPV 2)'0EDVHGDQG:L)LFHOOV )XUWKHUPRUH the authors present as two case studies all issues of the designing of the Metropolitan Area Network of Patras, the third largest city of Greece and the Wireless Access Network of Messatida. The major target of the broadband networks is to interconnect the buildings of the public sector in the city and also deploy LQIUDVWUXFWXUH ¿EHURUZLUHOHVVV\VWHPV WKDWZLOOFUHDWHFRQGLWLRQVRIFRPSHWLWLRQLQSURYLGLQJERWKDFcess and content services to the advantage of the end consumer. The usage of the broadband infrastructure by service providers will be based on the open availability of the infrastructure in a cost-effective way. 7KLVFKDSWHUDOVRSUHVHQWVWKHPDLQFKDUDFWHULVWLFVRIDSURSRVHGEXVLQHVVSODQWKDWHQVXUHV¿QDQFLDO viability of the broadband infrastructure and guarantees the administration, growth, and exploitation of infrastructure. Chapter XIV Small World: The Irish Broadband Experience / Diana Wilson, Kevin O’Reilly, and Dave Murray ................................................................................................................................ 211 In this chapter the authors consider from a marketing perspective the political, cultural/social, and economic factors, both micro and macro, affecting the supply/demand nexus of broadband services for the Irish consumer. This chapter charts the development of broadband and its current situation of rollout and uptake, examines the reasons for its continuing poor performance, and offers recommendations on how Ireland may close the gap and perhaps even move ahead. Utilized data was collated from a variety of resources, journals and press and trade publications. The authors attended a ministerial conference on the state of broadband to which many representatives of the telecommunications industry had been LQYLWHG7KH\VXUYH\HGSHRSOHZLWKDQGZLWKRXWWKHIDFLOLW\DQGLQWHUYLHZHGNH\SOD\HUVLQWKH¿HOG7KH chapter concludes that, although the market is beginning to grow strongly, it is from a low base, and as a result Ireland still lags behind many of its European counterparts. There is still a lack of competition which is having an adverse effect on both supply and demand of broadband for the Irish domestic conVXPHU,UHODQGLVDVPDOOFRXQWU\DQGWKHLQFXPEHQWVWLOOKROGVFRQWURORIWKHPRVWSUR¿WDEOHDUHDVRIWKH technology, particularly wholesale and selling to other operators. Also, the Irish are still not convinced WKDWEURDGEDQGLVWKHµNLOOHUDSS¶WKH\QHHG7KLVPD\FKDQJHLQWKHIXWXUHDVWKHWHFKQRORJ\GHOLYHUV more of the content-rich multimedia fare that the Irish already enjoy in other formats. Chapter XV Social, Political, and Ethical Responsibility in Broadband Adoption and Diffusion: A German Case Study / Axel Schulz, Bernd Carsten Stahl, and Simon Rogerson ............................. 227 There is considerable interest worldwide in broadband diffusion, with research focusing on aspects such as the provision of broadband in remote areas and the socio-economic factors that determine the OLNHOLKRRGRIDGRSWLRQ7KLVFKDSWHULGHQWL¿HVWKHSROLFLHVDQGLQLWLDWLYHVXVHGWRHQFRXUDJHEURDGEDQG awareness, availability, and adoption. Using the case study of a local broadband initiative in remote and rural Germany, the chapter asks the question of who can and should be responsible for broadband provision, and how such responsibility ascriptions are realized.
Division V North America Chapter XVI Competition in Broadband Provision and the Digital Divide / Wei-Min Hu and James E. Prieger .......................................................................................................................... 241 This chapter examines the supply of DSL broadband by the incumbent local exchange company (LEC) LQ¿YH86VWDWHVLQWKHHDUOLHU\HDUVRIGHSOR\PHQW(PSLULFDODQDO\VLVVKRZVWKDWLQFRPHRWKHUGHmographics, and cost factors are important determinants of entry and availability. After controlling for other factors, the racial characteristics of the area do not affect DSL provision. Active competition in broadband from competitive LECs reduces deployment of DSL by the incumbent, but potential competition from competitive LECs has the opposite effect. Competition from cable companies also negatively LQÀXHQFHVWKHLQFXPEHQW¶VGHFLVLRQWRVXSSO\'6/7KHDXWKRUV¶REMHFWLYHLQJDXJLQJWKHLPSRUWDQFHRI the various factors is to highlight the important drivers of broadband provision for policymakers. Chapter XVII Governmental and Cultural Factors in Broadband Adoption / Elizabeth Fife, Laura Hosman, and Francis Pereira ............................................................................................................................ 260 7KRXJKWKHSRWHQWLDOEHQH¿WVRIEURDGEDQG,QWHUQHWDGRSWLRQDUHJUHDWWKHOHYHOVRIWDNHXSYDU\JUHDWO\ around the world. Some governments have adopted aggressive policies to deploy broadband networks and to encourage the use of these applications, while others have not. In the former cases, governments DUHPRWLYDWHGWRSURPRWHEURDGEDQGDGRSWLRQLQRUGHUWRUHDOL]HERWKHFRQRPLFDQGVRFLDOEHQH¿WV7KLV chapter argues that the high level of broadband adoption rates witnessed in certain Asian economies is attributable in part to the aggressive policies pursued by these governments. Independent of these policies however, social factors can also have an impact on whether broadband-related technology will be DGRSWHG(YHQLIHFRQRPLFDQGVRFLDOEHQH¿WVH[LVWWKHUHIRUHDVLQWKHFDVHRIWHOHPHGLFLQHLQWKH8QLWHG States, cultural and social factors may in fact hinder the deployment of such applications and retard the growth rate of broadband access. Chapter XVIII Regulation and the Deployment of Broadband / James E. Prieger and Sunhwa Lee ........................ 278 This study examines the impact of telecommunications regulatory policy on broadband service deployPHQW8VLQJ86GDWDFRYHULQJDOOIRUPVRIDFFHVVWHFKQRORJ\ FKLHÀ\'6/DQGFDEOHPRGHP DQGDOO areas served by major carriers, authors investigate the impact of state and federal regulation on broadband availability. Alternative regulation increases the probability of broadband availability, particularly for price caps. Unbundled network element (UNE) rates, the prices incumbent carriers charge to competitors for access to the local exchange network, also matter. Areas with lower UNE rates have a slightly higher probability of broadband availability. The effects of UNE rates on broadband deployment are ODUJHVWZKHUHLQFHQWLYHUHJXODWLRQLVLQSODFH7KHDXWKRUV¶REMHFWLYHLQH[DPLQLQJUHJXODWRU\IDFWRUVLV to highlight the role of incentive regulation and local telecommunications competition policypolicies used or available around the worldin stimulating broadband service deployment.
Section II Consumer-User Behaviors This section examines the micro or demand-side factors affecting broadband adoption and usage in various countries including Australia, Brazil, Chile, France, The Kingdom of Saudi Arabia, The Netherlands, the United Kingdom, and the United States of America. Chapters included in this section provides in-depth discussion on socio-behavioral, attitudinal, and demographic factors affecting the adoption of broadband and the digital divide at the consumer level. This section also focuses on broadband user behavior and characterization. Similar to Section I, according to geographical area where studies (included within WKLVVHFWLRQ ZHUHFRQGXFWHGWKLVVHFWLRQLVIXUWKHURUJDQL]HGLQWR¿YHGLYLVLRQV Division I Australia Chapter XIX Factors Affecting Broadband Adoption for Mainstream Consumers / Peter Adams .......................... 306 7KLVFKDSWHUH[SORUHVZKHWKHUSDVWH[SHULHQFHVZLWKWHOHFRPPXQLFDWLRQVSURYLGHUVDQGFXUUHQWµSODQV¶ RQRIIHUVHUYHDVEDUULHUVEHWZHHQDQLQGLYLGXDOFRQVXPHU¶VSHUVXDVLRQSKDVHRIWKHLQQRYDWLRQGHFLsion process and the decision phase. With broadband in approximately one-third of Australian homes, it is important that telecommunications providers understand why the future mainstream segment of consumers will want to adopt broadband, and any barriers to this. This analysis suggests studies are needed to investigate whether the telecommunications providers are collectively confusing potential broadband consumers in their attempts to differentiate a generic product in the market. It argues that future technology adoption studies need to consider including the complexity of the actual purchase decision when developing constructs for quantitative models. The author argues that if we are to build a picture of why mainstream consumers adopt broadband, more than just the perceptions of using the technology itself need to be investigated. Division II Europe Chapter XX Developing a Dynamic View of Broadband Adoption / Herbert Daly, Adrina Ortiz, Yogesh K. Dwivedi, Ray J. Paul, J. Santos, and J.M. Sarriegi ........................................................... 322 The widespread domestic use of broadband Internet technology has been recognized to have a positive LQÀXHQFHRQQDWLRQDOHFRQRPLHVDQGLPSURYHWKHOLIHRIFLWL]HQV'HVSLWHVXEVWDQWLDOLQYHVWPHQWWRGHvelop the infrastructure, many of the countries have experienced slow adoption rates for broadband. This chapter develops a view of UK broadband adoption using dynamic modeling techniques based on an existing statistical study. The contrasting approaches to modeling are compared. Principles of a dynamic modeling system are introduced, and an appropriate form for broadband adoption chosen. The process of building a dynamic model based on an existing static model of broadband adoption is presented. Finally, the new perspective of the dynamic model is explored using the causal loop analysis technique.
Chapter XXI Employing the Content Validity Approach for Improving the Content of the Broadband Adoption Survey Instrument / Yogesh K. Dwivedi, Banita Lal, and Khalil Khoumbati ..................... 337 The overall aim of this chapter is to validate the content of the broadband adoption survey instrument IURPWKHKRXVHKROGFRQVXPHU¶VSHUVSHFWLYH7KHREMHFWLYHVRIWKLVFKDSWHUDUH ¿UVWWRHQVXUHWKDWWKH LGHQWL¿HGFRQVWUXFWVDQGWKHLUUHVSHFWLYHLWHPVDGHTXDWHO\FRYHUUHOHYDQWGLPHQVLRQVRIIDFWRUVWKDWDIIHFW FRQVXPHUVLQWKHGRPDLQRIEURDGEDQGDGRSWLRQ VHFRQGWRGHWHUPLQHZKHWKHUWKHLGHQWL¿HGFRQVWUXFWV and their respective items adequately cover relevant dimensions; and third, to conduct a pre-test and pilot WHVWRQWKHUHVXOWLQJVXUYH\LQVWUXPHQWVLQRUGHUWRREWDLQIHHGEDFNOHDGLQJWRLPSURYHPHQWVLQWKH¿QDO TXHVWLRQQDLUH7KHLQLWLDOLWHPVIRUHDFKFRQVWUXFWZHUHLGHQWL¿HGIURPERWKWKHWHFKQRORJ\DGRSWLRQ OLWHUDWXUHDQGH[SORUDWRU\VWXGLHVRQEURDGEDQGDGRSWLRQ9DOLGDWLRQRIWKHLGHQWL¿HGLWHPVZDVWKHQ SHUIRUPHGHPSOR\LQJDYDULDWLRQRIDTXDQWLWDWLYHDSSURDFKWRFRQWHQWYDOLGLW\7KH¿QGLQJVREWDLQHG from the content validation are then presented and subsequently discussed. Chapter XXII Inside the Microcosm: A Case Study of a Wireless Internet Hotspot / Pierre Vialle, Olivier Epinette, and Olivier Segard .................................................................................................. 349 The objective of this chapter is to highlight critical elements affecting the diffusion of broadband wireless Internet at a hotspot location, through a case study. The research deals with a wireless Internet services project in the main Paris airport, and comprises two components. First, this chapter analyzes WKHHPHUJHQFHRIDYDOXHFKDLQIRUDQHZVHUYLFHEDVHGRQWKHFRRSHUDWLRQRIVHYHUDO¿UPV,QSDUticular, the authors show how different actors can or cannot position themselves on this value chain, according to their resources and capabilities. Second, the authors explore the perceptions and attitudes of business passengers in order to better understand the potential adoption and use of hotspot services, and provide a preliminary framework of analysis. The research is drawn from a qualitative survey via in-depth interviews of potential suppliers (airline companies, service providers, airport managers) and business passengers. Chapter XXIII 7KH8VHVDQG*UDWL¿FDWLRQVRI%URDGEDQG,QWHUQHWKarianne Vermaas and Lidwien van de Wijngaert ............................................................................................................ 366 7KLVFKDSWHULGHQWL¿HVDVPDOOQXPEHURIUHODWLYHO\KRPRJHQHRXVJURXSVRI'XWFK,QWHUQHWXVHUV ERWK broadband and narrowband), based on their usage pattern. Using individual and behavioral characterLVWLFVWKHDXWKRUVIXUWKHULQYHVWLJDWHWKHQDWXUHRIWKHGLIIHUHQWJURXSV7KH8VHVDQG*UDWL¿FDWLRQV approach is employed as a starting point for an online survey. Cluster analysis and logistic regression ZHUHXVHGIRUGDWDDQDO\VLV7KLVFKDSWHULGHQWL¿HVDQGSUHVHQWV¿YHFOXVWHUVRIGLIIHUHQW,QWHUQHWXVHUV based on patterns of behavior. Results show that the Internet users in the sample consist of a large group that more or less conducts the same online activities. Results also show that narrowband and broadband users differ in their Internet behavior.
Division III Middle East Chapter XXIV Factors Affecting Attitudes towards Broadband Adoption in the Kingdom of Saudi Arabia / Vishanth Weerakkody .......................................................................................................................... 380 Utilizing a survey approach, this research set out to explore the reasons for the slow progress in broadband adoption and investigates the factors that may be affecting the adoption of broadband by KSA consumers. 3DUWLFXODUHPSKDVLVZDVSODFHGRQLQGLYLGXDOOHYHOIDFWRUVVXFKDVVRFLDODQGFXOWXUDOLQÀXHQFHV7KH NH\¿QGLQJVZHUHWKDWWKHIDFWRUVZLWKWKHPDLQLQÀXHQFHRQDWWLWXGHWRZDUGVDGRSWLRQRIEURDGEDQG were usefulness, service quality, age, usage, type of connection, and type of accommodation. Contrary WRSUHGLFWLRQDOWKRXJKVRFLRFXOWXUDOIDFWRUVVXFKDVUHJXODWLRQWKURXJK¿OWUDWLRQRIEURDGEDQGZHUH IRXQGWRKDYHQRVLJQL¿FDQWLQÀXHQFHRQWKHDGRSWLRQRIEURDGEDQGFRQVXPHUVZHUHDZDUHDQGODUJHO\ did not like the regulation. The chapter also provides a discussion on research implications, limitations, and future directions. Division IV North America Chapter XXV Characteristics of Farm and Rural Internet Use in the United States / Peter L. Stenberg and Mitchell Morehart ........................................................................................................................ 395 The Internet became enmeshed in U.S. businesses management practices over the last decade. During this period access and use of the Internet increased for all regions of the United States, most types of work places, and all income groups. In this study, the authors examine Internet use by farm and rural workers, and proprietors using descriptive statistics and market demand analysis. In their market demand analysis approach, the primary methodology the authors used is categorical dependent variable analysis. The results indicate income is a critical element, though other factors such as age of proprietor DQGUXUDOXUEDQORFDWLRQDUHDOVRVLJQL¿FDQWLQPDUNHWGHPDQGGHWHUPLQDWLRQ Division V South America Chapter XXVI Broadband User Behavior Characterization / Humberto T. Marques Neto, Leonardo C.D. Rocha, Pedro H.C. Guerra, Jussara M. Almeida, Wagner Meira Jr., and Virgilio A.F. Almeida ................... 408 This chapter presents a broadband user behavior characterization from an Internet service provider standpoint. Understanding these user behavior patterns is important to the development of more ef¿FLHQW DSSOLFDWLRQV IRU EURDGEDQG XVHUV 7KH FKDUDFWHUL]DWLRQ GLYLGHV WKH XVHUV LQWR WZR FDWHJRULHV UHVLGHQWLDODQGVPDOORI¿FHKRPHRI¿FH 62+2 DQGHPSOR\VIRXUFKDUDFWHUL]DWLRQFULWHULD VHVVLRQ arrival process, session duration, number of bytes transferred within a session, and user request patterns.
The results show that both residential and SOHO session inter-arrival times are exponentially distributed, and point out that a typical SOHO user session is longer and transfers a larger volume of data. Analysis also uncovers two main groups of session request patterns within each user category: (1) sessions that comprise traditional Internet services, such as WWW services, e-mail, and instant messenger; and (2) VHVVLRQVWKDWFRPSULVHSHHUWRSHHU¿OHVKDULQJDSSOLFDWLRQVEDVLFDOO\7KLVFKDSWHUDOVRDQDO\]HVDQG FODVVL¿HVWKHHEXVLQHVVVHUYLFHVPRVWFRPPRQO\DFFHVVHGE\XVHUVZKLFKGLGQRWYDU\VLJQL¿FDQWO\ across the user categories.
Volume II Chapter XXVII Precisions about the Broadband Divide in Chile / Sergio Godoy and M. Soledad Herrera ............... 427 This chapter aims to quantify more exactly the adoption of broadband at the household level in Chile, by assessing its impact on three types of digital divide: between users and non-users of the Internet, between usage at home and elsewhere, and between home broadband users and modem home users. This was done by a statistical analysis of WIP-Chile surveys of 2003 and 2006. At least in Chile, the main digital gap is still between users and non-users of the Internet, both in terms of age and education level. Income mainly affects the probability of having broadband access at home. Since broadband has rapidly expanded among all socioeconomic segments, it is becoming less relevant as a predictor of access and Web usage. Other factors are also weak predictors of both residential use of the Internet and broadband connections at home.
Section III Small and Medium-Sized Enterprises (SMEs) This section examines the factors affecting broadband deployment, diffusion, and use by SMEs in various countries including Italy, Singapore, and the United Kingdom. According to geographical area where the studies (included within this section) were conducted, this section is further organized in two divisions. Division I Asia Chapter XXVIII A Survey on the Adoption and Usage of Broadband Internet / Roya Gholami, John Lim, and Sang-Yong Tom Lee ...................................................................................................................... 448 7KLVFKDSWHUDUJXHVWKDWLQVSLWHRILQFUHDVLQJVLJQL¿FDQFHRIEURDGEDQG,QWHUQHWWKHUHDUHQRWPDQ\UHsearch papers explicitly addressing issues pertaining to its adoption and post-adoption. Previous research on broadband has mainly focused on the supply-side aspect at the national level, ignoring the importance of the demand side, which may involve looking more deeply into the use as well as the factors impacting
RUJDQL]DWLRQDODQGLQGLYLGXDOXSWDNH,QDQDWWHPSWWR¿OOWKLVJDSWKLVFKDSWHUHPSLULFDOO\YHUL¿HVDQ integrated theoretical model, comprising the theory of planned behavior and the IS continuance model, WRH[DPLQHIDFWRUVLQÀXHQFLQJEURDGEDQG,QWHUQHWDGRSWLRQDQGSRVWDGRSWLRQEHKDYLRURIVRPH organizations in Singapore. Overall, strong support for the integrated model has been manifested by the UHVXOWVREWDLQHGSURYLGLQJLQVLJKWLQWRLQÀXHQWLDOIDFWRUV$WWKHDGRSWLRQVWDJHSHUFHLYHGEHKDYLRUDO control has the greatest impact on behavioral intention. Findings also suggest that, as compared to attiWXGHVXEMHFWLYHQRUPVDQGSHUFHLYHGEHKDYLRUDOFRQWUROPRUHVLJQL¿FDQWO\DIIHFWWKHEURDGEDQG,QWHUQHW adoption decision. At the post-adoption stage, intention is no longer the only determinant of broadband ,QWHUQHWFRQWLQXDQFH UDWKHULQLWLDOXVDJHVLJQL¿FDQWO\DIIHFWHGEURDGEDQG,QWHUQHWFRQWLQXDQFH Division II Europe Chapter XXIX Broadband Access and Broadband-Based Applications: An Empirical Study of the Determinants of Adoption Among Italian SMEs / Massimo G. Colombo, Luca Grilli, and Cinzia Verga ........................................................................ 466 Why do some small and medium enterprises (SMEs) adopt Internet broadband technologies (high-speed connection and complementary applications), and others do not? This chapter aims at analyzing the issue through an econometric investigation. Relying on the (thin) previous empirical literature on the topic and focusing on a large and representative sample of Italian SMEs, we analyze the determinants of broadband connection and adoption of complementary applications. Results of the econometric analysis UHYHDOWKDW DPRQJ¿UPVSHFL¿FFKDUDFWHULVWLFVVL]HDQGWKH¿UP¶VQHHGWRFRPPXQLFDWHDUHPDMRU determinants both of broadband connection and use of complementary applications, while indicators of ¿UPHI¿FLHQF\DQGRIWKHFRPSHWLWLYHSUHVVXUHVXIIHUHGIURPWKH60(SRVLWLYHO\DIIHFWRQO\WKHQXPEHU of used applications, while not exerting any impact on the decision to connect; (2) among location-speFL¿FFKDUDFWHULVWLFVWKHOHYHORIWHOHFRPPXQLFDWLRQVLQIUDVWUXFWXUHSRVLWLYHO\LQÀXHQFHVERWKFRQQHFWLRQ and applications use, while the presence within the local labor market of a young and skilled workforce PDNHV60(VDGRSWPRUHDSSOLFDWLRQV DQG WLPHVSHFL¿FYDULDEOHVOLNHWKRVHUHODWHGWRWKHDFWXDODQG IXWXUHSULFHRIWKHKLJKVSHHG,QWHUQHWFRQQHFWLRQDIIHFW60(V¶GHFLVLRQVWRDGRSWEURDGEDQG7KHVH ¿QGLQJVKDYHLPSRUWDQWLPSOLFDWLRQVIRUVXSSOLHUVDQGSROLF\PDNHUV Chapter XXX Broadband Diffusion to SMEs in the UK / Oluwasola Oni and Anastasia Papazafeiropoulou ........ 481 Broadband is a relatively new technology, and its adoption in the United Kingdom has been an issue GXHWRLWVSHUFHLYHGEHQH¿WVIRUEXVLQHVVHVDQGPRUHVRIRU60(V,QWKLVFKDSWHUWKHDXWKRUVDUJXHWKDW previous research focuses on home uses of broadband, particularly for educational purposes with little attention to its adoption by SMEs. The authors argue that the existing diffusion of innovation theories are inadequate for the study of broadband diffusion, and they propose a more socio-technical approach for that purpose. This study can be useful for SMEs considering adoption of new technologies such as broadband, as well as policymakers that seek to apply effective technological adoption policies.
Chapter XXXI Environmental Drivers of E-Business Strategies among SMEs / Alessandro Arbore and Andrea Ordanini .......................................................................................................................... 493 ,QIURQWRIWUDGLWLRQDOLQWHUSUHWDWLRQVRIWKHGLJLWDOJDSEDVHGRQHQGRJHQRXVFRQGLWLRQVRIWKH¿UPVWKH authors emphasize the importance that some external pressures may have on the e-business strategy of small and medium enterprises (SMEs). The environmental factors analyzed in this chapter are market position, competitive intensity, and institutional pressures. SMEs have been grouped according to their level of e-business involvement, in relation to the number of e-business solutions adopted so far. Three layers are proposed: excluded, tentative, and integrated e-business SMEs. A general conclusion of this FKDSWHULVWKDWGLIIHUHQWPRGHOVVHHPWRH[SODLQH[FOXVLRQDQGLQYROYHPHQW6SHFL¿FDOO\WZRIDFWRUV among those analyzed are revealed to be more suitable in explaining e-business exclusion. They are the size of an SME and a lack of institutional pressures to adopt. On the opposite side, this chapter suggests that e-business involvement seems to be primarily prompted by a selective competitive environment and not by imitative behaviors, as for the previous case. Chapter XXXII ([SORULQJ60(V¶$GRSWLRQRI%URDGEDQGLQWKH1RUWKZHVWRI(QJODQG Boumediene Ramdani and Peter Kawalek .......................................................................................... 504 7KLVFKDSWHUH[SORUHVWKHIDFWRUVLPSDFWLQJ60(V¶ VPDOOWRPHGLXPVL]HGHQWHUSULVHV¶ DGRSWLRQRI broadband. It argues that ICTs are highly differentiated technologies for which there is not necessarily DVLQJOHDGRSWLRQPRGHO:KLOHPRVWODUJH(XURSHDQFRPSDQLHVDUHFRQQHFWHGWREURDGEDQG60(V¶ connectivity is lagging behind. The question of why one SME adopts broadband while another does QRWLVVWLOOXQGHUVWXGLHG7KHUHIRUHWKHSXUSRVHRIWKLVFKDSWHULVWR¿OOWKLVJDSE\LQYHVWLJDWLQJWKH WHFKQRORJLFDORUJDQL]DWLRQDODQGHQYLURQPHQWDOIDFWRUVLPSDFWLQJ60(V¶DGRSWLRQRIEURDGEDQG7KLV chapter starts by highlighting the importance of ICT innovations adoption in general and broadband in particular. Based on the ICT innovations adoption literature, an SMEs broadband adoption framework ZDVGHYHORSHGDQGHPSLULFDOO\YDOLGDWHGLQYROYLQJQLQH60(V¶NH\GHFLVLRQPDNHUVLQWKH1RUWKZHVW of England. Chapter XXXIII External Pressures for Adoption of ICT Services among SMEs / Andrea Ordanini and Alessandro Arbore ........................................................................................... 524 This chapter emphasizes the importance that external sources of pressure may have on the level of ICT involvement among small and medium enterprises (SMEs) in Italy. While past research tends to prioritize the role of endogenous conditions for the adoption of information and communication technologiesthat LV¿QDQFLDOUHVRXUFHVRUJDQL]DWLRQFRQGLWLRQVPDQDJHPHQWFXOWXUHthe high dependence of SMEs on their environment requires paying special attention to external pressures as well. Both competitive and institutional pressures are proposed and tested through an ordinal regression model on a sample of 285 SMEs. The results provides both policy and management implications.
Section IV Impact on Emerging Applications This section examines the impact of broadband on emerging ICT applications and business models. Chapters included in this section provide in-depth discussion on the impact of broadband on communication, society, and delivery of entertainment and health services to consumers and citizens. According to type of impact, this section is further organized in four divisions. Division I Entertainment Industry Chapter XXXIV IPTV Business Model Analysis / Kate Carney Landow, Michelle Fandre, Raghu Nambiath, Ninad Shringarpure, Harvey Gates, Artur Lugmayr, and Scott Barker.............................................. 538 This chapter focuses on evaluating Internet protocol television (IPTV) business models from different VHUYLFHSURYLGHUVWKURXJKWKHSULVPRIWKHVWDUPRGHO7KHWRROLVEDVHGRQ3RUWHU¶V¿YHIRUFHVDVGHveloped by M.E. Porter. The star model extends the Five Forces into a set of metrics to evaluate current and future business offerings. The star model is a simple tool used to identify the strengths and weaknesses of different business models in an appealing geometric shape. To highlight how to use this tool, sample partnership models are analyzed to evaluate the strength of a combined service. This tool will help IPTV service providers, and all potential investors, to build or identify a sound business model for their target market. The star model is explored through multiple case studies in this chapter including CBS, AOL, Google, Sling Media, and YouTube. Chapter XXXV The Impact of the Internet on the Law and Economics of the United States Motion Picture Industry / Stanford L. Levin, John B. Meisel, and Timothy S. Sullivan .................................. 563 This chapter describes the far-reaching effects of broadband Internet access on the motion picture indusWU\,W¿UVWSURYLGHVDVXPPDU\RIWKHHIIHFWVRQWKHLQGXVWU\¶VEXVLQHVVPRGHO WKH,QWHUQHW SDUWLFXODUO\ when combined with broadband connections) provides a new window for the movie studios to utilize in releasing their products. It next examines the ways that legal, political, and cultural environments are DOUHDG\LQÀXHQFLQJWKHLQGXVWU\¶VVHDUFKIRUDQHZEXVLQHVVPRGHOWRUHSODFHWKHROG)LQDOO\LWGUDZV on lessons from the music industry to predict how the industry will ultimately incorporate broadband technology into a new business model. The authors believe that the motion picture industry provides an H[FHOOHQWFDVHVWXG\RIEURDGEDQG¶VHIIHFWVRQDPDWXUHLQGXVWU\ Division II Health Industry Chapter XXXVI Broadband for Health in Developing Countries / Aradhana Srivastava ............................................ 581 This chapter highlights the major issues in the use of broadband technologies in healthcare in developing countries. The use of Internet technologies in the health sector has immense potential in developing
countries, especially in the context of public health programs. Some of the main uses of ICT in health include remote consultations and diagnosis, information dissemination and networking between health SURYLGHUVXVHUJURXSVDQGIRUXPV,QWHUQHWEDVHGGLVHDVHVXUYHLOODQFHDQGLGHQWL¿FDWLRQRIWDUJHWJURXSV for health interventions, facilitation of health research, and support to healthcare delivery and administration. The technology has immense potential, but is also constrained by lack of policy direction, and problems with access to technology and lack of suitable infrastructure in developing nations. However, given its crucial role in public health, comprehensive efforts are required from all concerned stakeholders if universal e-health is to become a reality. Chapter XXXVII Improving Health Services via Advanced ICT Networks / Peter Farr, Isabelle Ellis, and John Royle .................................................................................................................................... 593 This chapter describes an innovative broadband initiative that connects a group of general practices, medical specialists, hospitals, and other health providers in rural areas of Australia through a managed virtual private network. It provides secure connectivity for a variety of mission-critical healthcare delivery applicationsfor example, transmission of pathology and radiology test results direct to clinicians. The medical practices involved are small to medium enterprises (SMEs), and the key aspects of ICTs for them are the impact on costs, productivity, and customer service. The formal evaluation process examined the GRPDLQVRIDSSURSULDWHQHVVHI¿FLHQF\DQGFRVWHIIHFWLYHQHVV%HLQJWKH¿UVWVXFKKHDOWKQHWZRUNRILWV kind in Australia, the project encountered challenges, and by overcoming these has been guiding government policy in respect to e-health. Initially funded from March 2005 via a Commonwealth Government grant, the GoldHealth network moved into a sustainable mode from mid-2006. The chapter provides insights into GoldHealth and should be a useful guide to any similar broadband network initiatives for the health sector elsewhere in the world. Chapter XXXVIII Remote Patient Monitoring in Residential Care Homes: Using Wireless and Broadband Networks / Tanja Bratan, Malcolm Clarke, Joanna Fursse, and Russell Jones ...................................................................................................... 604 7KH8.¶V1DWLRQDO+HDOWK6HUYLFH 1+6 LVXQGHUJRLQJJUHDWUHIRUP'ULYHQE\DGHPDQGIRUKLJKHU quality healthcare provision, ICTs are increasingly being used as tools to realize this change. The authors investigated the use of remote patient monitoring (RPM) using wireless and broadband networks in three community care homes between 2003 and 2006. The aim of the project was to determine for what conditions and in which setting the RPM was most useful, and to establish an organizational and FOLQLFDOLQIUDVWUXFWXUHWRVXSSRUWLW(YDOXDWLRQRIWKHSURMHFWGHPRQVWUDWHGFOLQLFDOEHQH¿WVVXFKDVWKH early detection of cardiac events, allowing prompt intervention, and routine monitoring of other conditions. A change in work practices resulted in a more collaborative approach to patient management and led to an increase in communication between healthcare professionals from different sectors, as well DVWKHHVWDEOLVKPHQWRISURWRFROVIRUVHHNLQJDGYLFH7HFKQLFDOO\WKHHTXLSPHQWODUJHO\PHWWKHXVHUV¶ needs. In conclusion, the monitoring proved a useful tool for the management of chronic diseases and has great potential to contribute to the reform of the NHS.
Division III Social Impact Chapter XXXIX Social Consequences of Broadband Access in Japan / Kenichi Ishii .................................................. 619 In Japan, both the cheapest wired broadband services and the most advanced 3G mobile phone services are widely available. Because of recent pro-competitive policy drives such as the “e-Japan policy,” the Japanese broadband market has become very competitive. While the digital divide has narrowed in recent years in terms of Internet access, a divide still exists with regard to Internet usage. Comparison between narrowband and broadband users demonstrates that broadband services currently are used mainly for entertainment. Unlike wired Internet use, mobile Internet is not used for information-gathering activities. Results do not support the media substitution effect of the Internet. Mobile Internet use VLJQL¿FDQWO\DQGSRVLWLYHO\FRUUHODWHVZLWKVRFLDOL]LQJZLWKIULHQGVZKHUHDVZLUHG,QWHUQHWXVHGRHVQRW correlate with socializing. Experience of past policies suggests that customer orientation will be a key factor in the success of the “U-Japan” policy. Division IV Communication Chapter XL Internet-Based Changes in Organizational Communication / Erik Lundmark and Alf Westelius....... 637 This chapter presents a descriptive study of the use of ICT and the change in communication patterns in Swedish sport associations over the period from 1994 to 2003. The change is discussed in light of Internet and broadband diffusion. Results show that new channels for communication have been adopted, primarily Web sites and e-mail, but few established channels have been dropped. While there are associations that save time, money, and increase the spirit of community using ICT, many organizations experience the increased number of communication channels as a burden, since maintaining them takes H[WUDUHVRXUFHVEXWWKHEHQH¿WVDUHQRWDOZD\VHDV\WRGHWHFWRUPHDVXUH&HUWDLQFKDUDFWHULVWLFVFRPPRQDPRQJQRQSUR¿WRUJDQL]DWLRQV 132V DVZHOODV,QWHUQHWDQGEURDGEDQGDFFHVVKDYHLQÀXHQFHG the development of ICT use. Chapter XLI Ubiquitous Communication via Residential Gateways / Alex De Smedt ............................................ 655 This chapter focuses on Residential Gateway, a type of home equipment providing broadband access to users in their homes. The chapter shows how such a device evolves from a simple modem to an advanced gateway system that contributes to the access inside the home of any data on any compatible device. The objective of this chapter is to give the reader technical insight into the enabling mechanisms and technologies dealing with such functionalities. The text indicates particular technical solutions, but explanations are kept high-level in order to allow non-technical readers to understand the basics and concepts of the solutions. A number of references show that the technical exposé is becoming a reality.
Section V Cross-Country Analysis This section examines both macro or supply-side factors and micro or demand-side factors affecting broadband deployment, diffusion, adoption, usage, and impact in various countries including Australia, Canada, China, Denmark, Germany, Greece, India, Latin America, Sweden, and the United States of America. This section is further organized into nine chapters. Chapter XLII Adoption of Broadband Services: The Role of National Policies / Morten Falch ............................. 671 Broadband is seen as a key infrastructure for developing the information society. For this reason many governments are actively engaged in stimulating investments in broadband infrastructures and use of broadband services. This chapter compares a wide range of broadband strategies in the most successful markets for broadband. This is done through analysis of national policies in three European countries (Denmark, Sweden, and Germany) and the United States, Japan, and South Korea. It is concluded that successful implementation of broadband depends on the kind of policy measures to be taken at the national level. Many countries have provided active support for stimulating diffusion of broadband, and national variants of this type of policy in different countries are important for an explanation of national differences in the adoption of broadband. Chapter XLIII Broadband Diffusion and its Driving Forces / Banani Nandi and Chandana Chakraborty............... 689 In light of the emerging consensus on potential impact of broadband technology on economic growth and development, this chapter analyzes the cross-country differences in growth of broadband technology by examining the key demand and supply factors driving diffusion in the observed countries. In addition, utilizing empirical evidence and country case analyses, the chapter offers tentative policy suggestions for accelerating broadband diffusion under alternative circumstances. Chapter XLIV Diffusion of Broadband Access in Latin America / Arturo Robles Rovalo, Claudio Feijóo González, and José Luis Gómez-Barroso .................................................................. 711 7KH³JHRJUDSKLF´GLJLWDOGLYLGHLVREYLRXVZKHQFRPSDULQJPRUHGHYHORSHGFRXQWULHVWRWKHUHVW,WV¿UVW and most obvious sign is the difference in the diffusion of broadband access. However, it is clear that there are also lines of separation in smaller geographic ranges: between countries in the same geographic DUHDLQVLGHHDFKFRXQWU\DQGVRPHWLPHVLQHDFKVSHFL¿FUHJLRQ7KLVFKDSWHUVKRZVWKLVVLWXDWLRQE\ studying the broadband access diffusion in Latin America on a three-level basis (regional, national, and local). At the national level, a few explanatory variables of the different situations presented by the countries chosen for the study are researched. Additionally, a description of the environment (market and public action) where this diffusion is occurring is also included.
Chapter XLV Diffusion Forecasting and Price Evolution of Broadband Telecommunication Services in Europe / Dimitris Varoutas, Christos Michalakelis, Alexander Vavoulas, and Konstantina Deligiorgi............................................................................... 729 This chapter is concerned with the methodologies for the study of the diffusion patterns and demand estimation, as well the pricing schemas for broadband telecommunication services in Europe. Along with the introduction of diffusion models and price indexes which can represent broadband convergence and diversity, a description of the theoretical models and methodologies are given, and application of these models in the European telecommunication market is performed. Evidence from Europe outlines telecom market behavior and contributes to better understanding of broadband diffusion worldwide. To this direction, a price index is constructed regarding the ADSL technology. Chapter XLVI Explaining Patterns of Broadband Deployment and Adoption in OECD Countries / Inmaculada Cava Ferreruela.............................................................................................................. 756 The aim of this chapter is to provide some insights about the explaining patterns of broadband deployment and adoption. This problem is addressed by examining these insights in light of the results of an exhaustive cross-national empirical analysis that uses a comprehensive panel data set from the 30 OEDC countries with more than 40 features. The results suggest that technological competition and the low cost of deploying infrastructures on one side, and the predisposition to use new technologies as well as some social indicators on the other, appear to be the key drivers for broadband deployment and adoption, respectively. Chapter XLVII ICT Statistics for Broadband Promoting Regulatory Policy / Diana Korsakaite and Tomas Lamanauskas ....................................................................................... 776 This chapter introduces the statistical analysis of a number of ICT market indicators as a means to develop sound regulatory policies aiming to promote broadband take-up. The chapter provides analysis of the concept of broadband, statistical analysis of ICT indicators time series and cross-country series DJDLQVW EURDGEDQG SHQHWUDWLRQ GHWHUPLQDWLRQ RI FRQWHUPLQRXV IDFWRUV ZLWK VWDWLVWLFDOO\ VLJQL¿FDQW LQÀXHQFHRYHUEURDGEDQGSHQHWUDWLRQLQ(XURSHDQVWDWHVDQGGHULYDWLRQRIFDOOVIRUUHJXODWRU\SROLF\ SDUWLFXODUDFWLRQVRXWRIVWDWLVWLFDOO\VLJQL¿FDQWUHODWLRQV7KHRYHUDOODLPRIWKHFKDSWHULVWRRIIHUD way as to how ICT statistical data could be employed to suggest preconditions for possible practical solutions in the domain of broadband promotion, and to use this to bring the rhetoric of statistics down to the operational level. Chapter XLVIII Impact of Broadband VoIP on Telecoms: A Cross-Country Analysis / Bardo Fraunholz and Chandana Unnithan ........................................................................................ 796 VoIP is a technology that has received much attention over the past few years. Speculations are rampant WKDWLWZLOOEHµWKH¶WHFKQRORJ\IRUWHOHFRPPXQLFDWLRQVRIWKHIXWXUHDVEURDGEDQGJDLQVPDVVPDUNHW
penetration in every nation. It holds the promise of ubiquity and eliminates the need for a separate infrastructure for telecommunications. In this chapter, the authors have undertaken a cross-country analysis of two economies, Germany and India, at varied levels of broadband VoIP diffusion, to examine the future potential of this technology in the respective nations and their telecommunications industries. A brief analysis presented in this chapter reveals some valuable insights regarding the impact of VoIP in both economies which may prove to be useful for other economies and telecommunication industries. Chapter XLIX The Adoption of Broadband Internet in Australia and Canada / Catherine Middleton and Shanton Chang ............................................................................................................................. 818 %URDGEDQG,QWHUQHWFRQQHFWLYLW\LVVHHQDVDPHDQVWRLQFUHDVHWKHHI¿FLHQF\DQGFRPSHWLWLYHQHVVRIDQ economy. But despite ongoing efforts to promote broadband in Australia, uptake has been much slower than expected. This chapter aims to identify areas that have been holding up broadband development in Australia. In examining multiple areas for attention (competition, user characteristics and behaviors, applications, network characteristics, and pricing), the authors refer to the experience of Canada, a leader in broadband deployment, to show the differences in each area. The chapter outlines objectives for the development of a more user-friendly broadband environment in Australia which would encourage broadband adoption. Although both countries discussed here have their own policy agendas and some unique circumstances related to broadband deployment, the chapter provides valuable insights for policymakers and industry leaders in Australia and in other countries which are struggling to develop widespread broadband deployment. Chapter L The Evolution of Broadband Industry in the Developing World: A Comparison of China and India / Nir Kshetri and Nikhilesh Dholakia .......................................... 841 7HOHFRPPXQLFDWLRQVQHWZRUNVRI,QGLDDQGWKH3HRSOH¶V5HSXEOLFRI&KLQDDUHDPRQJWKHODUJHVWLQWKH world. The two economies have a number of areas for broadband use ripe for exploration. Broadband networks in some regions in these two economies are even more developed than in some parts of the industrialized world. There are, however, a number of reasons to believe that these two countries may exhibit distinct and varied patterns of broadband diffusion. This chapter compares and contrasts the diffusion patterns of broadband technology in the two economies. The authors examine factors driving broadband diffusion in the two economies in three major categories: demand and cost conditions, industry structure, and export conditions.
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Foreword
I have been interested in the development and evolution of broadband for many years, and the one thing that has struck me in that time is the dynamic nature of the subject. Just when we think that we have it captured and perhaps have established a mental model for understanding it, at least in our own domain, broadband confounds us by reinventing itself and bringing up new issues and challenges in our own area and around the world. This handbook is testimony to the diverse nature of the subject, covering a wide range of issues and experiences in many sectors, industries, governments, regulatory frameworks, and areas of the world. The book is truly international and provides examples and experiences that will surprise and engage even the most knowledgeable. For example, its chapters range from the affects of broadband on the motion picture industry in the United States, and thus the world, through to actual and potential healthcare EHQH¿WVLQWKHGHYHORSLQJZRUOGIURPFDSLWDOLVWHFRQRPLFVWRVRFLDODQGFRPPXQLW\EHQH¿WVDQGEDFN As well as the experiences in a global context, the book also covers the critical role of governments and regulation and the economic development aspects of broadband. 7KHUHFDQEHIHZWHFKQRORJLHVWKDWKDYHEHHQPRUHLQÀXHQWLDODQGWKDWKDYHPRUHVHULRXVDQGSRWHQWLDOO\EHQH¿FLDOVRFLDOLPSOLFDWLRQVWKDQEURDGEDQGDQGLWVHHPVZHDUHRQO\DWWKHEHJLQQLQJRIWKHVH affects. This handbook provides an essential guide to that diversity and the issues to be addressed for successful broadband implementation.
Professor Guy Fitzgerald Brunel University, UK
Guy Fitzgerald is professor of information systems at Brunel University and is head of the Department of Information Systems and Computing. Prior to this he was the cable and wireless professor of business information systems at Birkbeck College, University of London, and before that he was at Templeton College, Oxford University. As well as being an academic, he has also worked in the computer industry with companies such as British Telecom, Mitsubishi, and CACI Inc., International. His research concerns the effective management and development of information systems and he has published widely in these areas. He is probably best known for his work in relation to development techniques and methodologies and is the author of a major text in this area entitled Information Systems Development: Methodologies, Techniques and Tools, now in its fourth edition. He is also well known for his research in the areas of strategy, outsourcing, and executive information systems. His PRVWUHFHQWUHVHDUFKLVFRQFHUQHGZLWKWKHGHYHORSPHQWRIÀH[LEOHLQIRUPDWLRQV\VWHPVWRHQKDQFHRUJDQL]DWLRQDODJLOLW\+H is founder and co-editor of the Information Systems Journal (ISJ), an international journal from Blackwell Publishing, and he has been a member of many international Program Committees, including the International Conference on Information Systems (ICIS) and the European Conference on Information Systems (ECIS).
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Foreword
The vital role played in modern society by information and communication technologies (ICTs) is nowadays recognized by both businesses and governments alike. The UN openly acknowledges the importance of the digital environment as a tool for economic and business development,1 and in Europe numerous EU initiatives2 actively promote and monitor the adoption of ICT-supported practices in order to raise productivity and growth. The changes brought about by the corresponding increasingly networked society have been many, with the last dozen years or so witnessing countless profound changes at societal, industry-sector, organizational, and individual levels. In this day and age, many of us now routinely make use of ICT for both work and leisure purposes, with speed and convenience of information exchange encouraging us to conduct transactions and communicate electronically with employers, work colleagues, friends, family members, businesses, and government agencies. As a result of the emergence and regular use of a wide variety of ICT-supported ways of doing things, we have witnessed terms such as e-business, e-government, e-health, e-learning, message boards, chat rooms, and blogging become part of our recognized vocabulary. However, the continued adoption and widespread use of ICT in daily life depends heavily upon the availability of reliable high-speed networks, and there is no doubt that broadband is a key enabling technology that allows such activity to occur reliably and at acceptable speeds. 7KLVREYLRXVVLJQL¿FDQFHRIEURDGEDQGKDVEHHQUHFRJQL]HGE\JRYHUQPHQWVDURXQGWKHZRUGDQG despite the massive investments required in terms of the provision of new network infrastructures, many have introduced policies to promote broadband availability and uptake. Indeed, the availability of affordable broadband was a key objective of the e-Europe action plan, and the current strategic framework for the European Information Society (i2010) places particular emphasis on broadband coverage and reducing the digital divide. The social and economic importance of broadband availability3 is such that broadband diffusion is often viewed as a means by which international competitiveness and economic development may be benchmarked. ,WLVZLWKLQWKLVFRQWH[WRIZLGHVSUHDGUHFRJQLWLRQRIWKHVLJQL¿FDQFHRIEURDGEDQGDQGLWVFRUUHVSRQGing promotion and take-up that this publication has been produced, and I am delighted to have been provided with the opportunity to write the Foreword to the Handbook of Research on Global Diffusion of Broadband Data Transmission. The handbook is clearly a valuable resource, providing a timely and relevant collection of chapters addressing a variety of issues pertaining to the adoption and use of broadband and the reduction of the GLJLWDOGLYLGHDWERWKPDFURDQGPLFUROHYHOV,WLVGLYLGHGLQWR¿YHVHFWLRQVHDFKFRPSULVLQJDQXPEHU of chapters and each addressing a different theme of broadband adoption. The international nature of WKHLVVXHDQGLWVWUHDWPHQWZLWKLQWKHKDQGERRNLVFOHDUO\LOOXVWUDWHGLQWKH¿UVWVHFWLRQZKLFKH[DPLQHV national policies affecting broadband deployment and diffusion in a range of countries including Aus-
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tralia, Bangladesh, Germany, Greece, India, Ireland, Italy, Japan, New Zealand, Norway, South Africa, South Korea, Taiwan, and the United States of America. The second section focuses upon demand-side LHFRQVXPHUUHODWHG IDFWRUVLQÀXHQFLQJEURDGEDQGDGRSWLRQDQGXVHLQFRXQWULHVVXFKDV$XVWUDOLD Brazil, Chile, France, the Kingdom of Saudi Arabia, The Netherlands, the United Kingdom, and the United States of America. The third section is dedicated to examining issues of broadband use in small and medium-sized enterprises (SMEs) in Italy, Singapore, and the United Kingdom, while the fourth DQG¿IWKVHFWLRQVDUHGHYRWHGWRH[DPLQLQJWKHLPSDFWRIEURDGEDQGRQHPHUJLQJ,&7DSSOLFDWLRQVDQG business models (including those in the entertainment and health industries) and macro and micro supply and demand factors in Australia, Canada, China, Denmark, Germany, Greece, India, Latin America, Sweden, and the United States of America respectively. I am pleased to be able to recommend the handbook. It will prove highly useful to readers who are looking for substantive material on broadband promotion and adoption, and I should particularly draw attention to the variety of international perspectives presented. Overall the handbook provides an appealing treatment of the area, and I am sure it will be viewed as a valuable information resource on what is a highly topical and relevant subject.
Professor Michael D. Williams Swansea University, UK September 2007 ENDNOTES 1
2
3
General Assembly Resolution 56/183 endorsed the need to develop the so-called information society. See for instance, the eEurope 2005 Action Plan, e-Business W@tch, and the e-Business Support Network. Broadband Access: The New Highways to Prosperity—speech delivered by Vivian Reding, the member of the European Commission responsible for information society and media, at the “Bridging the Broadband Gap Through EU Spectrum Policy” event, Brussels, March 2006.
Michael Williams is a professor in the School of Business and Economics at Swansea University in the UK. He holds a BSc IURPWKH&1$$DQ0(GIURPWKH8QLYHUVLW\RI&DPEULGJHDQGD3K'IURPWKH8QLYHUVLW\RI6KHI¿HOG+HKDVLPSOHPHQWHG DQG HYDOXDWHG LQIRUPDWLRQ V\VWHPV LQ GRPDLQV LQFOXGLQJ ¿QDQFH WHOHFRPPXQLFDWLRQV PDQXIDFWXULQJ DQG JRYHUQPHQW LV the author of numerous refereed and invited papers, and has obtained external research funding from sources including the (XURSHDQ8QLRQWKH1XI¿HOG)RXQGDWLRQDQGWKH:HOVK$VVHPEO\*RYHUQPHQW+HFXUUHQWO\VHUYHVDVDQLQYLWHGPHPEHURI the project expert group for a European Union funded project examining transformative use of ICT.
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Preface
As the Internet has become a part of everyday life, broadband has been considered as the necessary evolutionary step as a technology that offers fast, always-on Internet connections with access to services, DSSOLFDWLRQVDQGFRQWHQWZLWKUHDOOLIHVW\OHDQGSURGXFWLYLW\EHQH¿WV,QWHUQDWLRQDORUJDQL]DWLRQVVXFK as the International Telecommunication Union (ITU) and the Organization for Economic Cooperation and Development (OECD) forecast broadband to be a vital means of enhancing competitiveness in an economy and also of sustaining economic growth. Examples of delivering economic value include the potential of improving the productivity and competitiveness of small- and medium-size enterprises 60(V DQGODUJHUFRPSDQLHVDVEURDGEDQGSURYLGHVDQHI¿FLHQWFKDQQHOIRUVXSSO\FKDLQPDQDJHPHQWLPSOHPHQWDWLRQDQGVDYLQJFRVWVRIRI¿FHVSDFHE\VXSSRUWLQJHIIHFWLYHKRPHZRUNLQJ6LPLODU to commercial organizations, broadband also offers the potential to governments of creating electronic services and delivering them to citizens in a cost-effective and transparent manner. Electronic services in the public sector have the potential to reduce the cost of delivery and increase the quality of healthcare, WKHUHE\LQFUHDVLQJWKHFLWL]HQV¶WUXVWDQGFRQ¿GHQFHLQSXEOLFVHUYLFHV %URDGEDQGFDQDOVRLPSURYHFLWL]HQV¶OLYHVLQVHYHUDOZD\V,WFDQKHOSHTXLSFKLOGUHQZLWK,&7V skills for employment purposes and improve the way they obtain education. Similarly, since broadband facilitates working at home, it can help people to obtain a better work/life balance that is characterized E\PRUHHPSRZHUPHQWPRUHSURGXFWLYLW\DQGOHVVVWUHVV%URDGEDQGDOVRRIIHUVGLUHFWEHQH¿WVWRHOderly people, as it can be utilized to provide personalized care at homehence, removing the need to live in hospitals or care homes. Since broadband Internet has the potential to profoundly impact science, business, and societyand transform almost every aspect of everyday lifeit is appropriate and timely to understand the deployment and adoption of broadband technologies. Numerous researchers around the world have realized the importance of studying this research area and have focused upon accumulating knowledge in this area. %URDGEDQGUHVHDUFKKDVEHHQSUROL¿FIRUDSKHQRPHQRQWKDWLVTXLWH\RXQJ+RZHYHUDQDQDO\VLVRIWKH current literature on broadband suggests that the available body of knowledge is fragmented with some studies looking at adoption or usage patterns and some at the impact of broadband to existing or new Internet applications. This handbook is an effort to collect and group existing research results in order to offer an overall picture and comprehensive understanding of exploratory issues related to the deployment, diffusion, adoption, usage, and impact of broadband technology from a global perspective. 7RDFFHVVWKHODWHVWUHVHDUFKDQGSURYLGHDQRXWOHWWRUHVHDUFKHUVLQWKH¿HOGRIEURDGEDQGWKHHGLWRUV decided to launch this handbook where researchers from all over the world would assist in providing the necessary coverage of possible research issues within the area. The primary objective of this project was to assemble as much research coverage as possible related to the deployment, diffusion, adoption, use, and impact on emerging applications from studies conducted in various geographical settings. Our mission through this handbook is to provide an understanding of the global diffusion of broadband, examining
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factors affecting its deployment, diffusion adoption, usage, and impact on consumers and businesses from a global perspective. Additionally, the handbook helps to understand differences in the adoption of broadband in different countries and examine policy issues at national and international levels. In order to provide the most balanced coverage of concepts and issues related to the selected topics of this handbook, researchers from around the world were asked to submit proposals describing their proposed coverage and the contribution of such coverage to the handbook. All proposals were carefully UHYLHZHGE\WKHHGLWRUVLQOLJKWRIWKHLUVXLWDELOLW\UHVHDUFKHUV¶UHFRUGVRIVLPLODUZRUNLQWKHDUHDRIWKH proposed topics, and the best proposal for topics with multiple proposals. The goal was to assemble the preeminent research in broadband from all over the world to contribute entries to the handbook. Upon the receipt of full entry submissions, each submission was forwarded to at least two expert external reviewers on a double-blind, peer review basis. Only submissions with strong and favorable reviews were chosen as entries for this handbook. In many cases, submissions were sent back for several revisions prior WR¿QDODFFHSWDQFH$VDUHVXOWWKLVKDQGERRNLQFOXGHV HQWULHVKLJKOLJKWLQJDVSHFWVRIGHSOR\PHQW diffusion, adoption, and use of broadband in various geographical settings. All entries are written by knowledgeable, distinguished scholars from many prominent research institutions around the world. The extended and comprehensive coverage of broadband research in this distinctive book will contribute towards theory, practice, and policy. The theoretical contribution of this collection of studies is that it synthesizes the appropriate literature in order to enhance knowledge of broadband deployment, diffusion, adoption, usage, and impact from the global perspective. This handbook contributes to various theories and models from information systems, management, marketing, economics, and other social sciences disciplines. Some of the theories that this handbook contributes includes diffusion of innovations, technology acceptance model, theory of planned behavior, decomposed theory of planned behavior, model of adoption of technology in households, socio-technical approach, studies on developing countries, policymaking for telecommunications, and consumer behavior. Considering the relatively slow and heterogeneous adoption of broadband today, it can be learned that the policymakers and providers of the innovationin this case the telecommunications industryKROGDVSHFL¿FLQWHUHVWLQWKH¿QGLQJV of this handbook. Policymakers in various countries, particularly in the developing world, are currently investigating how to increase the diffusion of broadband within their own countries, and so information RQRWKHUFRXQWULHV¶H[SHULHQFHVFDQSURYHXVHIXO$GGLWLRQDOO\WKHWHOHFRPPXQLFDWLRQVLQGXVWU\LVLQterested in determining how to improve their current strategies. Therefore, for both policy and practice, this handbook will offer an understanding of the broadband diffusion strategies at both the macro and micro levels. This is particularly useful as there is little research published in the area of deployment, consumer adoption, usage, and impact of broadband. Understanding the usage and impact of broadband will be helpful for content developing organizations to integrate compelling content with new generation broadband, as well as to broadband service providers seeking to improve their services. In order to cater to the information needs of a diverse spectrum of readers and at the same time efIHFWLYHO\SUHVHQWWKLVJOREDOEXWFRPSOH[WRSLFWKLVKDQGERRNLVVWUXFWXUHGLQWR¿YHVHFWLRQVZLWKHDFK section including a number of divisions and consequent chapters. A brief description of each section, division, and chapter is provided below. Section I: National Policies examines macro and supply-side factors affecting broadband deployment DQGGLIIXVLRQLQYDULRXVJHRJUDSKLFDOUHJLRQVZKLFKDUHJURXSHGLQWR¿YHGLYLVLRQV $IULFD$VLD$XVtralia and New Zealand, Europe, and North America). A number of important factors including national policy, market competition, ICT competency, and digital divide are discussed within this section. 1LQHFKDSWHUVDUHLQFOXGHGLQWKLVVHFWLRQZKLFKDUHIXUWKHURUJDQL]HGLQWR¿YHGLYLVLRQVDVQRWHG above, according to their geographical orientation as follows: Division I. Africa (Chapter II: South Africa: The Long Walk to Broadband Freedom); Division II. Asia (Chapter III: Bridging the Digital
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Divide Through Broadband Deployment, Chapter IV: Broadband Policy, Market Competition, and User Adoption in Taiwan, Chapter V: ICT Competency of Bangladesh to Face Broadband Diffusion, Chapter VI: Socio-Cultural Interpretations to the Diffusion and Use of Broadband Services in a Korean Digital Society, Chapter VII: Structural Changes and Regulatory Challenges in Japanese Telecommunications Industry); Division III. Australia and New Zealand &KDSWHU9,,, $QDO\VLVRIWKH,QÀXHQFH RI$XVWUDOLD¶V*RYHUQPHQW3ROLF\RQ%URDGEDQG,QWHUQHW$FFHVV&KDSWHU,; %URDGEDQGIRUWKH0DVV 0DUNHW&KDSWHU; &RPSHWLWLRQ5HJXODWLRQDQG%URDGEDQG'LIIXVLRQ 7KH&DVHRI1HZ=HDODQG Division IV. Europe &KDSWHU;, 'LJLWDO'LYLGHDQG%URDGEDQG$FFHVV 7KH&DVHRIDQ,WDOLDQ5HJLRQ &KDSWHU;,, ,PSURYLQJ%URDGEDQG$FFHVVLQ5XUDO$UHDV&KDSWHU;,,, 0HWURSROLWDQ%URDGEDQG1HWZRUNV 'HVLJQDQG,PSOHPHQWDWLRQ$VSHFWVDQG%XVLQHVV0RGHOV&KDSWHU;,9 6PDOO:RUOG 7KH,ULVK %URDGEDQG([SHULHQFH&KDSWHU;9 6RFLDO3ROLWLFDODQG(WKLFDO5HVSRQVLELOLW\LQ%URDGEDQG$GRSWLRQ and Diffusion: A German Case Study); and Division V. North America &KDSWHU;9, &RPSHWLWLRQ LQ%URDGEDQG3URYLVLRQDQGWKH'LJLWDO'LYLGH&KDSWHU;9,, *RYHUQPHQWDODQG&XOWXUDO)DFWRUVLQ %URDGEDQG$GRSWLRQ&KDSWHU;9,,, 5HJXODWLRQDQGWKH'HSOR\PHQWRI%URDGEDQG $EULHIDFFRXQW of these chapters is provided below. Chapter II, “South Africa: The Long Walk to Broadband Freedom” by Justin Henley Beneke, aims to explore the development of broadband services in South Africa, as well as touching on the challenges faced in bringing this phenomenon into the mainstream. Reasons for the lack of diffusion and adoption of such services point to high end user costs of the service, a very limited geographical footprint RIERWK¿[HGOLQHDQGPRELOHEURDGEDQGLQIUDVWUXFWXUHDVZHOODVDODFNRIFRPSXWHUOLWHUDF\DQGDQ understanding of what broadband is able to offer. The author of the chapter concludes with possible solutions to these challenges. Chapter III, “Bridging the Digital Divide through Broadband Deployment” by Challa Radhakumari, provides a summary relating to the functioning of two projects in the two Southern States of India, Andhra Pradesh and Kerala, to show how through broadband deployment in rural areas the digital divide can be bridged. By focusing on the implementation of the two projects, the chapter illustrates their contribution in practically using broadband technologies in overcoming the hurdles to bridging the digital divide, and KLJKOLJKWVWKHFULWLFDOVXFFHVVIDFWRUVDVLGHQWL¿HGGXULQJWKHIXQFWLRQLQJRIWKHSURMHFWVZKLFKKHOSHG the two states in achieving their goals. The chapter concludes by providing recommendations for application of similar projects in other geographical settings. Chapter IV, “Broadband Policy, Market Competition, and User Adoption in Taiwan” by Yu-li Liu, analyzes broadband adoption, competition among providers of broadband, and relevant policies in Taiwan. The research methods adopted include a literature review, in-depth interviews, and secondary DQDO\VLVRISUHYLRXVVXUYH\VFRQGXFWHGE\7:1,&6LQFH7DLZDQ¶VEURDGEDQGSHQHWUDWLRQLVWKH¿IWK highest in the world, the discussions of the major factors contributing to broadband deployment in this chapter can provide some useful experiences from which other countries may learn. Chapter V, “ICT Competency of Bangladesh to Face Broadband Diffusion” by Anwarul Islam and K.C. Panda, examines the initiatives taken by Bangladesh to develop its sustainable information infrastructure, reporting that teledensity and overall IT infrastructure is now in the growing stage. Nevertheless, the broadband diffusion in Bangladesh is not on par with other Asian countries, as it is still in an embryonic stage in terms of broadband diffusion. This chapter, therefore, tries to show the initiatives taken and the existing condition of Bangladesh to achieve countrywide broadband diffusion. Chapter VI, “Socio-Cultural Interpretations to the Diffusion and Use of Broadband Services in a Korean Digital Society” by Dal Yong Jin, attempts to ascertain the causes of the rapid growth of broadband services in the context of the broader socio-cultural elements. It recognizes technology as a socio-cultural product which has historically been constituted by certain forms of knowledge and social
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practice, so this chapter explores cultural elements contributing to the diffusion of broadband services in WKHFRQWH[WRIWKHFXOWXUDOHQYLURQPHQWLQ.RUHD)XUWKHULWGLVFXVVHVWKHVLJQL¿FDQWUROHRIWKHSHRSOH as users, in the process of the rapid diffusion and growth of broadband services. Chapter VII, “Structural Changes and Regulatory Challenges in the Japanese Telecommunications Industry” by Hidenori Fuke, examines the structure of the telecommunications industry in Japan which KDVEHHQXQGHUJRLQJLPPHQVHFKDQJH7KHFKDQJHVDUHREVHUYHGLQ¿YHSKDVHV GHYHORSPHQWRIFRPpetition into the local call market, diffusion of broadband Internet and development of inter-platform competition, rapid growth of cellular services and Internet access via cellular, decline of POTS (Plain Old Telephone Service), and structural changes from vertical integration to layered structure and development of media convergence. These changes require total review of the regulatory framework that was formed in the POTS era. This chapter proposes a review of essential facilities regulation, a universal VHUYLFHV\VWHPDQGDÀDWUDWHSULFLQJV\VWHPRIWKH,QWHUQHWLQRUGHUWRVROYHSUREOHPVWKDWDUHOLNHO\WR distort the new industry structure. Chapter VIII,³$QDO\VLVRIWKH,QÀXHQFHRI$XVWUDOLD¶V*RYHUQPHQW3ROLF\RQ%URDGEDQG,QWHUQHW Access” by Qiuyan Fan, provides an in-depth analysis of the impact of policy issues on broadband Internet access in Australia. The primary goal of this chapter is to develop a holistic understanding RI$XVWUDOLD¶VQDWLRQDODSSURDFKHVSHUWDLQLQJWREURDGEDQG,QWHUQHWDFFHVV7KHJRYHUQPHQWKDVEHHQ basing its actions on market forces which help in improving broadband Internet access in the major cities, but which, however, have little effect in regional and rural Australia. The research has indicated that the regulatory competition regime has failed to address concerns of market dominance and market power in the telecommunications sector as is evidenced by a relatively lower price-performance ratio of broadband services in Australia. Chapter IX, “Broadband for the Mass Market” by Roger Saunders, suggests there is no new application to stimulate adoption of broadband by the mass market. Many new applications have been introduced but KDYHQRWFUHDWHGWKHGHVLUHGJURZWK2QHDSSOLFDWLRQWKDWLVLGHQWL¿HGDVSRWHQWLDOO\KDYLQJPDVVPDUNHW attraction is Voice over Internet Protocol (VoIP), and it is the most likely killer application. However, failure by major communications carriers to develop VoIP is slowing broadband penetration to this larger market segment. Finally, the multitude of broadband packages offered by the various competing carriers creates confusion in the mass market which, as a result, defers purchase decisions. Chapter X, “Competition, Regulation, and Broadband Diffusion: The Case of New Zealand” by Bronwyn Howell, offers a thought-provoking case study of the effects of different competition and regulatory policies on broadband diffusion rates. Despite New Zealand having one of the highest rates of Internet connection and usage in the OECD, widely available broadband infrastructure, and low broadband prices, broadband uptake per capita languishes in the bottom third of the OECD. The New Zealand case illustrates the effect that legacy regulations can have on both the diffusion of new technologies per se, and the choices made by consumers between different generational variants within that technology. Chapter XI, “Digital Divide and Broadband Access: The Case of an Italian Region” by Enrico Ferro, J. Ramon Gil-Garcia, and Natalie Helbig, looks at the issue of digital divide, and based on a review of the literature on digital divide and broadband access, the authors document different approaches to understanding the phenomenon and argue that these perspectives can also help to understand broadband access. This chapter presents a case study conducted in an Italian region. The authors provide some LPSOLFDWLRQVRIWKH¿QGLQJVDQGDUJXHWKDWSROLF\PDNHUVVKRXOGH[SORUHWKHUHODWLRQVKLSEHWZHHQ,7 skills acquisition, broadband access, and Internet use in order to develop more effective policies and programs. Chapter XII, “Improving Broadband Access in Rural Areas” by Ingjerd Skogseid, explores the characteristics of rural broadband infrastructure development. Taking the existing installed base into
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consideration, small rural communities can initiate bottom-up cultivation of broadband infrastructure. Such initiatives are important contributions to overcoming the disparity in broadband access. The proposal is to use descriptive clusters as a way to reveal the installed base. This can be used to acquire an overview of the types of resources available and the choices that need to be made. Chapter XIII, “Metropolitan Broadband Networks: Design and Implementation Aspects, and Business Models” by Antonios Alexiou, Christos Bouras, Dimitris Primpas, and John Papagiannopoulos, presents the design principles that cover the implementation of broadband infrastructure in the region of Western Greece, by examining all the necessary parameters that arise while implementing such a critical GHYHORSPHQWDOSURMHFW7KHEURDGEDQGLQIUDVWUXFWXUHWKDWLVGHSOR\HGLVHLWKHUEDVHGRQRSWLFDO¿EHURU on wireless systems. The usage of the broadband infrastructure by service providers will be based upon the open availability of the infrastructure in a cost-effective way. This chapter also presents the main FKDUDFWHULVWLFVRIDSURSRVHGEXVLQHVVSODQWKDWHQVXUHV¿QDQFLDOYLDELOLW\RIWKHEURDGEDQGLQIUDVWUXFWXUH and guarantees the administration, growth, and exploitation of the infrastructure. Chapter XIV,³6PDOO:RUOG 7KH,ULVK%URDGEDQG([SHULHQFH´E\'LDQD:LOVRQ.HYLQ2¶5HLOO\ and Dave Murray, considers the political, cultural/social, and economic factors, both micro and macro, affecting the supply/demand nexus of broadband services for the Irish consumer. This chapter suggests that although the market is beginning to grow strongly, it is from a low base, and as a result the country still lags behind many of its European counterparts. There is still a lack of competition which is having an adverse effect on both the supply and demand of broadband. Also, the Irish consumers are still not FRQYLQFHGWKDWEURDGEDQGLVWKHµNLOOHUDSS¶WKH\QHHG7KHDXWKRUVFRQFOXGHWKDWWKLVPD\FKDQJHLQWKH future as the technology delivers more of the content-rich multimedia fare that the Irish already enjoy in other formats. Chapter XV, “Social, Political, and Ethical Responsibility in Broadband Adoption and Diffusion: A German Case Study” by Axel Schulz, Bernd Carsten Stahl, and Simon Rogerson, suggests that there is considerable interest worldwide in broadband diffusion, with research focusing on aspects such as the provision of broadband in remote areas and the socio-economic factors that determine the likelihood RIDGRSWLRQ7KLVFKDSWHULGHQWL¿HVWKHSROLFLHVDQGLQLWLDWLYHVXVHGWRHQFRXUDJHEURDGEDQGDZDUHQHVV availability, and adoption. Using the case study of a local broadband initiative in remote and rural Germany, the chapter asks the question of who can and should be responsible for broadband provision and how such responsibility ascriptions are realized. Chapter XVI, “Competition in Broadband Provision and the Digital Divide” by Wei-Min Hu and James E. Prieger, examines the supply of DSL broadband by the incumbent local exchange company /(& LQ¿YH86VWDWHVLQWKHHDUOLHU\HDUVRIGHSOR\PHQW(PSLULFDODQDO\VLVVKRZVWKDWLQFRPHRWKHU demographics, and cost factors are important determinants of entry and availability. After controlling for other factors, the racial characteristics of the area do not affect DSL provision. Active competition in broadband from competitive LECs reduces deployment of DSL by the incumbent, but potential competition from competitive LECs has the opposite effect. Competition from cable companies also negatively LQÀXHQFHVWKHLQFXPEHQW¶VGHFLVLRQWRVXSSO\'6/7KHDXWKRUV¶REMHFWLYHLQJDXJLQJWKHLPSRUWDQFHRI the various factors is to highlight the important drivers of broadband provision for policymakers. Chapter XVII, “Governmental and Cultural Factors in Broadband Adoption” by Elizabeth Fife, /DXUD+RVPDQDQG)UDQFLV3HUHLUDVXJJHVWVWKDWDOWKRXJKWKHSRWHQWLDOEHQH¿WVRIEURDGEDQG,QWHUQHW adoption are great, the levels of take-up vary greatly around the world. This chapter argues that the high level of broadband adoption rates witnessed in certain Asian economies is attributable in part to the aggressive policies pursued by the respective governments. The chapter concludes by suggesting that HYHQLIHFRQRPLFDQGVRFLDOEHQH¿WVH[LVWDVLQWKHFDVHRIWHOHPHGLFLQHLQWKH8QLWHG6WDWHVFXOWXUDO and social factors may in fact hinder the deployment of such applications and retard the growth rate of broadband access.
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Chapter XVIII, “Regulation and the Deployment of Broadband” by James E. Prieger and Sunhwa Lee, examines the impact of telecommunications regulatory policy on broadband service deployment. Using U.S. data covering all forms of access technology and all areas served by major carriers, the authors LQYHVWLJDWHWKHLPSDFWRIVWDWHDQGIHGHUDOUHJXODWLRQVRQEURDGEDQGDYDLODELOLW\7KHDXWKRUV¶REMHFWLYH in examining regulatory factors is to highlight the role of incentive regulation and local telecommunications competition policy in stimulating broadband service deployment. Section II: Consumer-User Behavior examines the micro and demand-side factors affecting broadband DGRSWLRQDQGXVDJHLQYDULRXVQDWLRQDOVHWWLQJVJURXSHGLQWR¿YHGLYLVLRQV $XVWUDOLD(XURSH0LGGOH East, North America, South America). Chapters included in this section provide in-depth discussion on socio-behavioral, attitudinal, and demographic factors affecting adoption of broadband and the digital divide at the consumer level. This section also focuses on broadband user behavior and characterizaWLRQ1LQHFKDSWHUVDUHLQFOXGHGLQWKLVVHFWLRQZKLFKDUHJURXSHGLQWR¿YHGLYLVLRQVDFFRUGLQJWRWKHLU geographical orientation as follows: Division I. Australia &KDSWHU;,; )DFWRUV$IIHFWLQJ%URDGEDQG Adoption for Mainstream Consumers); Division II. Europe &KDSWHU;; 'HYHORSLQJD'\QDPLF9LHZ RI%URDGEDQG$GRSWLRQ&KDSWHU;;, (PSOR\LQJWKH&RQWHQW9DOLGLW\$SSURDFKIRU,PSURYLQJWKH &RQWHQWRIWKH%URDGEDQG$GRSWLRQ6XUYH\,QVWUXPHQW&KDSWHU;;,, ,QVLGHWKH0LFURFRVP $&DVH 6WXG\RID:LUHOHVV,QWHUQHW+RWVSRW&KDSWHU;;,,, 7KH8VHVDQG*UDWL¿FDWLRQVRI%URDGEDQG,QWHUQHW Division III. Middle East &KDSWHU;;,9 )DFWRUV$IIHFWLQJ$WWLWXGHVWRZDUGV%URDGEDQG$GRSWLRQLQ the Kingdom of Saudi Arabia); Division IV. North America &KDSWHU;;9 &KDUDFWHULVWLFVRI)DUPDQG Rural Internet Use in the USA); Division V. South America &KDSWHU;;9, %URDGEDQG8VHU%HKDYLRU &KDUDFWHUL]DWLRQ&KDSWHU;;9,, 3UHFLVLRQVDERXWWKH%URDGEDQG'LYLGHLQ&KLOH Chapter XIX, “Factors Affecting Broadband Adoption for Mainstream Consumers” by Peter Adams, H[SORUHVZKHWKHUSDVWH[SHULHQFHVZLWKWHOHFRPPXQLFDWLRQVSURYLGHUVDQGFXUUHQWµSODQV¶RQRIIHUVHUYH DVEDUULHUVEHWZHHQDQLQGLYLGXDOFRQVXPHU¶VSHUVXDVLRQSKDVHRIWKHLQQRYDWLRQGHFLVLRQSURFHVVDQG the decision phase. The author argues that future technology adoption studies need to consider including the complexity of the actual purchase decision when developing constructs for quantitative models. The chapter concludes by supporting that if we are to build a picture of why mainstream consumers adopt broadband, more than just the perceptions of using the technology itself need to be investigated. Chapter XX, “Developing a Dynamic View of Broadband Adoption” by Herbert Daly, Adrina Ortiz, Yogesh K. Dwivedi, Ray J. Paul, J. Santos, and J.M. Sarriegi, develops a view of UK broadband adoption using dynamic modeling techniques based on an existing statistical study. The contrasting approaches to modeling are compared. Principles of a dynamic modeling system are introduced, and an appropriate form for broadband adoption chosen. The process of building a dynamic model based on an existing static model of broadband adoption is presented. Finally, the new perspective of the dynamic model is explored using the causal loop analysis technique. Chapter XXI, “Employing the Content Validity Approach for Improving the Content of the Broadband Adoption Survey Instrument” by Yogesh K. Dwivedi, Banita Lal, and Khalil Khoumbati, illustrates WKHYDOLGDWLRQRIFRQWHQWRIWKHEURDGEDQGDGRSWLRQVXUYH\LQVWUXPHQWIURPWKHKRXVHKROGFRQVXPHU¶V SHUVSHFWLYH7KLVFKDSWHU¿UVWO\LGHQWL¿HVFRQVWUXFWVDQGWKHLUUHVSHFWLYHLWHPVWKDWDGHTXDWHO\FRYHU relevant dimensions of factors that affect consumers in the domain of broadband adoption, and second, LWGHWHUPLQHVZKHWKHUWKHLGHQWL¿HGFRQVWUXFWVDQGWKHLUUHVSHFWLYHLWHPVDGHTXDWHO\FRYHUHGWKHUHOHYDQW GLPHQVLRQV9DOLGDWLRQRIWKHLGHQWL¿HGLWHPVZDVSHUIRUPHGHPSOR\LQJDYDULDWLRQRIDTXDQWLWDWLYH DSSURDFKWRFRQWHQWYDOLGLW\7KH¿QGLQJVREWDLQHGIURPWKHFRQWHQWYDOLGDWLRQDUHSUHVHQWHGDQGGLVcussed. Chapter XXII, “Inside the Microcosm: A Case Study of a Wireless Internet Hotspot” by Pierre Vialle, Olivier Epinette, and Olivier Segard, highlights critical elements affecting the diffusion of broadband
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wireless Internet at a hotspot location, through a case study. The research deals with a wireless Internet services project in the main Paris airport, and comprises two components. First, this chapter analyzes the HPHUJHQFHRIDYDOXHFKDLQIRUDQHZVHUYLFHEDVHGRQWKHFRRSHUDWLRQRIVHYHUDO¿UPV,QSDUWLFXODU the authors show how different actors can or cannot position themselves on this value chain, according to their resources and capabilities. Second, the authors explore the perceptions and attitudes of business passengers in order to better understand the potential adoption and use of hotspot services, and provide a preliminary framework of analysis. Chapter XXIII,³7KH8VHVDQG*UDWL¿FDWLRQVRI%URDGEDQG,QWHUQHW´E\.DULDQQH9HUPDDVDQG /LGZLHQYDQGH:LMQJDHUWLGHQWL¿HGDVPDOOQXPEHURIUHODWLYHO\KRPRJHQHRXVJURXSVRI'XWFK,QWHUQHW users (both broadband and narrowband), based on their usage patterns. Using individual and behavioral characteristics, the authors further investigated the nature of the different groups. This chapter presents ¿YHFOXVWHUVRIGLIIHUHQW,QWHUQHWXVHUVEDVHGRQSDWWHUQVRIEHKDYLRU7KHUHVXOWVVKRZWKDWWKH,QWHUQHW users in the sample consist of a large group that more or less conduct the same online activities. The results also show that narrowband and broadband users differ in their Internet behavior. Chapter XXIV, “Factors Affecting Attitudes towards Broadband Adoption in the Kingdom of Saudi Arabia” by Vishanth Weerakkody, sets out to explore the reasons for the slow progress in broadband adoption and investigates the factors that may be affecting the adoption of broadband by Kingdom of 6DXGL$UDELD .6$ FRQVXPHUV7KHNH\¿QGLQJV DUHWKDWWKHIDFWRUVZLWKWKHPDLQLQÀXHQFHXSRQ FRQVXPHUV¶DWWLWXGHVWRZDUGVDGRSWLRQRIEURDGEDQGDUH XVHIXOQHVV VHUYLFHTXDOLW\ DJH usage, (5) type of connection, and (6) type of accommodation. Contrary to prediction, socio-cultural IDFWRUVVXFKDVUHJXODWLRQWKURXJK¿OWUDWLRQRIEURDGEDQGZHUHIRXQGWRKDYHQRVLJQL¿FDQWLQÀXHQFH on the adoption of broadband. Chapter XXV, “Characteristics of Farm and Rural Internet Use in the United States” by Peter L. Stenberg and Mitchell Morehart, examines Internet use by farm and rural workers and proprietors using descriptive statistics and market demand analysis. The primary methodology used is categorical dependent variable analysis. The results indicate that income is a critical element, though other factors such as age RISURSULHWRUDQGUXUDOXUEDQORFDWLRQDUHDOVRVLJQL¿FDQWLQPDUNHWGHPDQGGHWHUPLQDWLRQ Chapter XXVI, “Broadband User Behavior Characterization” by Humberto T. Marques Neto, Leonardo C.D. Rocha, Pedro H.C. Guerra, Jussara M. Almeida, Wagner Meira Jr., and Virgilio A.F. Almeida, presents a broadband user behavior characterization from an Internet service provider standpoint. Analysis uncovers two main groups of session request patterns within each user category: (1) sessions that comprise traditional Internet services such as WWW services, e-mail, and instant messenger; and VHVVLRQVWKDWFRPSULVHSHHUWRSHHU¿OHVKDULQJDSSOLFDWLRQV7KLVFKDSWHUDOVRDQDO\]HGDQGFODVVL¿HGWKHHEXVLQHVVVHUYLFHVPRVWFRPPRQO\DFFHVVHGE\XVHUV Chapter XXVII, “Precisions about the Broadband Divide in Chile” by Sergio Godoy E. and M. 6ROHGDG+HUUHUD3TXDQWL¿HVWKHDGRSWLRQRIEURDGEDQGDWWKHKRXVHKROGOHYHOLQ&KLOHE\DVVHVVLQJ its impact on three types of digital divide: between users and non-users of the Internet, between usage at home and elsewhere, and between home broadband users and modem home users. In Chile, the main digital gap is still between users and non-users of the Internet, both in terms of age and education level. Income mainly affects the probability of having broadband access at home. Since broadband has rapidly expanded among all socio-economic segments, it is becoming less relevant as a predictor of access and Web usage. Section III: Small and Medium-Size Enterprises (SMEs) examines the factors affecting broadband deployment, diffusion, and use by SMEs in various countries. Six chapters are included in this section which are grouped into two divisions according to their geographical orientation as follows: Division I. Asia &KDSWHU;;9,,, $6XUYH\RQWKH$GRSWLRQDQG8VDJHRI%URDGEDQG,QWHUQHW DQGDivision II.
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Europe &KDSWHU;;,; %URDGEDQG$FFHVVDQG%URDGEDQG%DVHG$SSOLFDWLRQV $Q(PSLULFDO6WXG\ RIWKH'HWHUPLQDQWVRI$GRSWLRQ$PRQJ,WDOLDQ60(V&KDSWHU;;; Broadband Diffusion to SMEs in WKH8.&KDSWHU;;;, (QYLURQPHQWDO'ULYHUVRI(%XVLQHVV6WUDWHJLHVDPRQJ60(V&KDSWHU;;;,, ([SORULQJ60(V¶$GRSWLRQRI%URDGEDQGLQWKH1RUWKZHVWRI(QJODQG&KDSWHU;;;,,, ([WHUQDO3UHVsures for Adoption of ICT Services among SMEs). Chapter XXVIII, “A Survey on the Adoption and Usage of Broadband Internet” by Roya Gholami, -RKQ/LPDQG6DQJ
xlii
munication technologiesWKDWLV¿QDQFLDOUHVRXUFHVRUJDQL]DWLRQFRQGLWLRQVPDQDJHPHQWFXOWXUHthe high dependence of SMEs on their environment requires paying special attention to external pressures as well. Both competitive and institutional pressures are proposed and tested through an ordinal regression model on a sample of 285 SMEs. Section IV: Impact on Emerging Applications examines the impact of broadband on emerging ICT applications and business models. The chapters included in this section provide in-depth discussion of the impact of broadband on communication, society, and delivery of entertainment and health services to consumers and citizens. Eight chapters are included in this section, which is grouped into four divisions according to type of impact or industry sector to which they belong: Division I. Entertainment Industry &KDSWHU;;;,9 ,379%XVLQHVV0RGHO$QDO\VLV&KDSWHU;;;9 7KH,PSDFWRIWKH,QWHUQHW on the Law and Economics of the United States Motion Picture Industry); Division II. Health Industry &KDSWHU;;;9, %URDGEDQGIRU+HDOWKLQ'HYHORSLQJ&RXQWULHV&KDSWHU;;;9,, ,PSURYLQJ+HDOWK 6HUYLFHVYLD$GYDQFHG,&71HWZRUNV&KDSWHU;;;9,,, 5HPRWH3DWLHQW0RQLWRULQJLQ5HVLGHQWLDO Care Homes (Using Wireless and Broadband Networks); Division III. Social Impact &KDSWHU;;;,; Social Consequences of Broadband Access in Japan); and Division IV. Communication &KDSWHU;/ ,QWHUQHW%DVHG&KDQJHVLQ2UJDQL]DWLRQDO&RPPXQLFDWLRQ&KDSWHU;/, 8ELTXLWRXV&RPPXQLFDWLRQ via Residential Gateways). Chapter XXXIV, “IPTV Business Model Analysis” by Kate Carney Landow, Michelle Fandre, Raghu Nambiath, Ninad Shringarpure, Harvey Gates, Artur Lugmayr, and Scott Barker, focuses on evaluating Internet protocol television (IPTV) business models from different service providers through the prism of the star model. The star model is a simple tool used to identify the strengths and weaknesses of different business models in an appealing geometric shape. To highlight how to use this tool, sample partnership models are analyzed to evaluate the strength of a combined service. This tool will help IPTV service providers, and all potential investors, to build or identify a sound business model for their target market. The star model is explored through multiple case studies in this chapter including CBS, AOL, Google, Sling Media, and YouTube. Chapter XXXV, “The Impact of the Internet on the Law and Economics of the United States Motion Picture Industry” by Stanford L. Levin, John B. Meisel, and Timothy S. Sullivan, describes the far-reachLQJHIIHFWVRIEURDGEDQG,QWHUQHWDFFHVVRQWKHPRWLRQSLFWXUHLQGXVWU\,W¿UVWO\SURYLGHVDVXPPDU\RI WKHHIIHFWVRQWKHLQGXVWU\¶VEXVLQHVVPRGHO WKH,QWHUQHW SDUWLFXODUO\ZKHQFRPELQHGZLWKEURDGEDQG connections) provides a new window for the movie studios to utilize in releasing their product. It next H[DPLQHVWKHZD\VWKDWOHJDOSROLWLFDODQGFXOWXUDOHQYLURQPHQWVDUHDOUHDG\LQÀXHQFLQJWKHLQGXVWU\¶V search for a new business model to replace the old. Finally, it draws on lessons from the music industry to predict how the industry will ultimately incorporate broadband technology into a new business model. Chapter XXXVI, “Broadband for Health in Developing Countries” by Aradhana Srivastava, highlights the major issues in the use of broadband technologies in healthcare in developing countries. The technology has immense potential, but is also constrained by lack of policy direction and problems with access to technology and lack of suitable infrastructure in developing nations. However, given its crucial role in public health, comprehensive efforts are required from all concerned stakeholders if universal e-health is to become a reality. Chapter XXXVII, “Improving Health Services via Advanced ICT Networks” by Peter Farr, Isabelle Ellis, and John Royle, describes an innovative broadband initiative that connects a group of general practices, medical specialists, hospitals, and other health providers in rural areas of Australia through a PDQDJHGYLUWXDOSULYDWHQHWZRUN 931 %HLQJWKH¿UVWVXFKKHDOWKQHWZRUNRILWVNLQGLQ$XVWUDOLDWKH project encountered challenges, and by overcoming these has been guiding government policy in respect to e-health. The chapter provides insights into the case study and should be a useful guide to any similar broadband network initiatives for the health sector elsewhere in the world.
xliii
Chapter XXXVIII, “Remote Patient Monitoring in Residential Care Homes (Using Wireless and Broadband Networks)” by Tanja Bratan, Malcolm Clarke, Joanna Fursse, and Russell Jones, investigates the use of Remote Patient Monitoring (RPM), using wireless and broadband networks, in three community care homes in the UK between July 2003 and January 2006. The aim of the project was to determine for what conditions, and in which setting, the RPM was most useful, and to establish an organizational and FOLQLFDOLQIUDVWUXFWXUHWRVXSSRUWLW(YDOXDWLRQRIWKHSURMHFWGHPRQVWUDWHGFOLQLFDOEHQH¿WVVXFKDVWKH early detection of cardiac events, allowing prompt intervention and routine monitoring of other conditions. A change in work practices resulted in a more collaborative approach to patient management and led to an increase in communication between healthcare professionals from different sectors, as well as the establishment of protocols for seeking advice. Chapter XXXIX, “Social Consequences of Broadband Access in Japan” by Kenichi Ishii, suggests that in Japan, while the digital divide has narrowed in recent years in terms of Internet access, a divide still exists with regards to Internet usage. A comparison between narrowband and broadband users demonstrates that broadband services currently are used mainly for entertainment. Unlike wired Internet use, mobile Internet is not used for information-gathering activities. The results do not support the PHGLDVXEVWLWXWLRQHIIHFWRIWKH,QWHUQHW0RELOH,QWHUQHWXVHVLJQL¿FDQWO\DQGSRVLWLYHO\FRUUHODWHGZLWK socializing with friends, whereas the wired Internet use did not correlate with socializing. Chapter XL, “Internet-Based Changes in Organizational Communication” by Erik Lundmark and Alf Westelius, presents a descriptive study of the use of information and communication technology (ICT) and the change in communication patterns in Swedish sport associations over the period from 1994 to 2003. The change is discussed in light of Internet and broadband diffusion. The results show that new channels for communication have been adopted, primarily Web sites and e-mail, but few established FKDQQHOVKDYHEHHQGURSSHG&HUWDLQFKDUDFWHULVWLFVFRPPRQDPRQJQRQSUR¿WRUJDQL]DWLRQV 132V DVZHOODV,QWHUQHWDQGEURDGEDQGDFFHVVKDYHLQÀXHQFHGWKHGHYHORSPHQWRI,&7XVH Chapter XLI, “Ubiquitous Communication via Residential Gateways” by Alex De Smedt, focuses on Residential Gateway, a type of home equipment providing broadband access to users in their homes. The chapter shows how such a device evolves from a simple modem to an advanced gateway system that contributes to the access inside the home of any data on any compatible device. The chapter gives technical insight into the enabling mechanisms and technologies dealing with such functionalities. Section V: Cross-Country Analysis examines both macro and supply-side factors and micro and demand-side factors affecting broadband deployment, diffusion, adoption, usage, and impact in various countries, including Australia, Canada, China, Denmark, Germany, Greece, India, Latin America, Sweden, and the United States of America. This section is further organized into nine chapters. Chapter XLII, “Adoption of Broadband Services: The Role of National Policies” by Morten Falch, compares a wide range of broadband strategies in the most successful markets for broadband. This is done through an analysis of national policies in three European countriesDenmark, Sweden, and Germanyand the United States, Japan, and South Korea. It is concluded that the successful implementation of broadband depends on the kind of policy measures to be taken at the national level. Many countries have provided active support for stimulating the diffusion of broadband, and national variants of this type of policy in different countries are important for an explanation of national differences in the adoption of broadband. Chapter XLIII, “Broadband Diffusion and its Driving Forces” by Banani Nandi and Chandana Chakraborty, analyzes the cross-country differences in the growth of broadband technology by examining the key demand and supply factors driving diffusion in the observed countries. In addition, utilizing empirical evidence and country case analyses, the chapter offers tentative policy suggestions for accelerating broadband diffusion under alternative circumstances.
xliv
Chapter XLIV, “Diffusion of Broadband Access in Latin America” by Arturo Robles Rovalo, Claudio Feijóo González, and José Luis Gómez-Barroso, studies the broadband access diffusion in Latin America on a three-level basis (regional, national, and local). At the national level, a few explanatory variables of the different situations presented by the countries chosen for the study are researched. Additionally, a description of the environment (market and public action) where this diffusion is occurring is also included. Chapter XLV, “Diffusion Forecasting and Price Evolution of Broadband Telecommunication Services in Europe” by Dimitris Varoutas, Christos Michalakelis, Alexander Vavoulas, and Konstantina Deligiorgi, is concerned with the methodologies for the study of the diffusion patterns and demand estimation, as well the pricing schemas for broadband telecommunication services in Europe. Along with the introduction of diffusion models and price indexes which can represent broadband convergence and diversity, a description of the theoretical models and methodologies are given and application of these models in the European telecommunication market is performed. Evidence from Europe outlines telecom market behavior and contributes to better understanding of broadband diffusion worldwide. Chapter XLVI, “Explaining Patterns of Broadband Deployment and Adoption in OECD Countries” by Inmaculada Cava Ferreruela, provides some insights about the explanatory patterns of broadband deployment and adoption. This problem is addressed by examining patterns in light of the results of an exhaustive cross-national empirical analysis that uses a comprehensive panel data set from the 30 OEDC countries with more than 40 features. The results suggest that technological competition and the low cost of deploying infrastructures on one side, and the predisposition to use new technologies as well as some social indicators on the other, appear to be the key drivers for broadband deployment and adoption respectively. Chapter XLVII, “ICT Statistics for Broadband Promoting Regulatory Policy” by Diana Korsakaite and Tomas Lamanauskas, introduces the statistical analysis of a number of information and communication technology (ICT) market indicators as a means to develop sound regulatory policies aiming to promote broadband take-up. The overall aim of the chapter is to offer a way of how ICT statistical data could be employed to suggest preconditions for possible practical solutions in the domain of broadband promotion, and in this way to bring the rhetoric of statistics down to the operational level. Chapter XLVIII, “Impact of Broadband VoIP on Telecoms: A Cross-Country Analysis” by Bardo Fraunholz and Chandana Unnithan, undertakes a cross-country analysis of two economiesGermany and Indiaat varied levels of broadband VoIP diffusion to examine the future potential of this technology in the respective nations and their telecommunications industries. A brief analysis presented in this chapter reveals some valuable insights regarding the impact of VoIP in both economies which may prove to be useful for other economies and telecommunication industries. Chapter XLIX, “The Adoption of Broadband Internet in Australia and Canada” by Catherine 0LGGOHWRQDQG6KDQWRQ&KDQJLGHQWL¿HVDUHDVWKDWKDYHEHHQKROGLQJXSEURDGEDQGGHYHORSPHQWLQ Australia. In examining multiple areas for attention (competition, user characteristics and behaviors, applications, network characteristics, and pricing), the authors refer to the experience of Canada, a leader in broadband deployment, to show the differences in each area. The chapter outlines objectives for the development of a more user-friendly broadband environment in Australia which would encourage broadband adoption. Finally, Chapter L, “The Evolution of Broadband Industry in the Developing World: A Comparison of China and India” by Nir Kshetri and Nikhilesh Dholakia, compares and contrasts the diffusion patterns of broadband technology in the two economies. The authors examine factors driving broadband diffusion in the two economies in three major categories: demand and cost conditions, industry structure, and export conditions.
1
Chapter I
Broadband Adoption and Diffusion (BAD): A Framework Yogesh K. Dwivedi Swansea University, UK Anastasia Papazafeiropoulou Brunel University, UK
ABSTRACT The aim of this chapter is to outline various factors reported in the 49 chapters of this handbook of UHVHDUFK7KHDLPLVDOVRWRRUJDQL]HLGHQWL¿HGIDFWRUVLQDPHDQLQJIXOPDQQHULQRUGHUWRSURSRVHD framework of broadband adoption and diffusion. This chapter illustrates the fact that research on the adoption, diffusion, usage, and impact of broadband is clearly a global issue which requires a multidisciplinary approach. The proposed framework includes three levels of factors—macro factors, individual micro factors, and SME-level micro factors. These three levels of factors are relevant at different levels of development, deployment, and diffusion of broadband which persist in various developed and developing countries. The chapter concludes by suggesting that the proposed framework is based on a comprehensive set of factors observed in various countries, and future studies may use this framework to identify gaps and then bridge those gaps by conducting new studies.
INTRODUCTION A recently published book on the issue of broadband adoption from the consumer perspective suggested that “the problem of the slow rate of broadband adoption and usage in many countries includes factors that may not be covered only by examining consumer perspectives” (Dwivedi, 2007). Since the deployment and diffusion of broadband is in different stages in different countries, developed and developing worlds require different types of
approaches for managing the deployment, diffusion, and adoption of broadband. For example, in terms of a developing country, there is a need to look at regulation and infrastructure development issues at the national level. However, in terms of developed countries where progress has been made towards infrastructure development in urban areas, there is a need to determine the factors affecting broadband adoption and use in the rural and farm economic sectors and the development of broadband infrastructure in rural communities.
Copyright © 2008, IGI Global, distributing in print or electronic forms without written permission of IGI Global is prohibited.
Broadband Adoption and Diffusion (BAD)
Researchers within the developed countries context should systematically examine the broadband issues at various levels, for example, heterogeneous coverage, adoption, and usage of broadband. This is also linked with the issue of the digital divide, so future research efforts should be focused on examining the varying levels of adoption in different sections of society and formulating strategies that policymakers may apply to create more homogeneity in the digital society (Dwivedi, 2007). Similar to individual consumers, small and medium-size enterprises (SMEs) have also been slow in adopting broadband. Factors that may affect individual consumers are likely to differ with those affecting the adoption of broadband by SMEs. Dwivedi (2007) provides an in-depth understanding of the factors affecting broadband adoption by consumers, but the factors affecting broadband adoption by SMEs remain largely untouched and therefore require the immediate attention of researchers (Dwivedi, 2007). New electronic services such as e-government services are currently being implemented in many countries. The diffusion and adoption of highspeed Internet is a prerequisite for the successful adoption of such emerging electronic services by citizens (Dwivedi, Papazafeiropoulou, Gharavi, & Khoumbati, 2006). This suggests that studying the impact of broadband on consumers, particularly in areas such as consumer adoption of new communication methods, music and software downloads, entertainment, retail, travel, and tourism on an LQGLYLGXDOEDVLVFDQEHEHQH¿FLDOLQGHWHUPLQLQJ the real impact of broadband (Dwivedi, 2007). Widespread adoption of broadband is also likely to change the way many businesses undertake their business processes by affecting the value chain. Therefore it is important to examine the business model of many sectors, particularly television, telecommunications, publishing, and the picture/photo industry (Dwivedi, 2007). For example, future research needs to examine the ZD\WKHDGRSWLRQRIEURDGEDQGZLOOLQÀXHQFHWKH economics of the motion picture industry. Also, with broadband facilitating the implementation of IPTV, the issue arises as to how IPTV will affect the current business model of the media
2
and broadcasting/television industry. Similarly, broadband is an enabling technology for PC-to-PC communication such as VoIP, so a further issue which requires attention is how broadband VoIP ZLOO LQÀXHQFH WKH WHOHFRPPXQLFDWLRQV LQGXVWU\ (Dwivedi, 2007). The issues discussed above are certainly critical to the success of the adoption and diffusion of broadband at global, national, and local levels. The aim of this chapter is to outline the issues and factors that are explored and discussed within this handbook of research by various authors from different JHRJUDSKLFDOUHJLRQV7KLVFKDSWHU¿UVWLOOXVWUDWHV DQGGHVFULEHVWKHSUR¿OHDQGEDFNJURXQGRIWKH contributors. Then it proceeds to list and outline various factors that affect broadband deployment, diffusion, adoption, usage, and the impact of broadband. Finally, before concluding the chapter, a brief discussion on a proposed framework on broadband adoption and diffusion is provided.
PROFILE OF AUTHORS Research Discipline of Authors Table 1 illustrates the fact that the authors of this handbook represent various research areas, as the expertise of their home departments varies widely. A total of 24 research disciplines are represented by authors including business, management, economics, IT, computer science, health science, and information systems (see Table 1). This clearly suggests that research on broadband deployment, diffusion, adoption, usage, and impact is the concern of many disciplines and, hence, is truly multidisciplinary in nature.
Geographical Location of Authors Table 2 illustrates the global nature of research on broadband-related issues. Chapters from more than 25 countries including both developed and developing countries from all continents were included in this handbook. However, the predominance of the chapter contributions is from Australia, European Countries, India, Japan, the UK, and the United States.
Broadband Adoption and Diffusion (BAD)
Table 1. Research discipline of authors SN
Discipline
Frequency
1
Business, Management & Economics
18
2
Center for Technology in Government
01
3
Computer Engineering Department
01
4
Center for Computing and Social Responsibility
01
5
Consultancy/Industry
05
6
Department of Communication
03
7
Department of Radio & TV
01
8
Department of Library & Information Science
01
9
Department of Global Media
01
10
Department of Information Systems
12
11
Department of Public Affairs and Public Policy
02
12
Health and Medical Sciences
02
13
Information and Communication Technology
01
14
Information & Communication
01
15
Industrial Management Engineering
01
16
Information Technology Management
02
17
International Business
01
18
Informatics and Communication
01
19
Management & Engineering
01
20
Public Sector
02
21
Systems Information Engineering
01
22
Telecommunications Department
01
23
Volunteer Research Organization
01
24
Others
11
Number of Authors Contributing in Each Chapter Table 3 shows that the majority of chapters were written by more than one author: 16 chapters were single authored while the remaining 34 chapters were co-authored by two or more authors. This again highlights the fact that the area of research is complex and often requires varied skills and knowledge.
FACTORS AFFECTING BROADBAND DEPLOYMENT AT NATIONAL LEVEL: NATIONAL POLICIES AND OTHER MACRO FACTORS This section examines the macro or supply-side factors affecting broadband deployment and diffusion in various countries. A total of 24 pertinent factors and issues including national policy, market competition, ICT competency, structural changes,
3
Broadband Adoption and Diffusion (BAD)
Table 2. Geographical location of authors SN
Discipline
Frequency
1
South Africa
01
2
India
04
3
Taiwan
01
4
Bangladesh
01
5
Canada
02
6
Japan
02
7
Australia
05
8
New Zealand
01
9
Italy
04
10
Norway
01
11
Greece
02
12
Ireland
01
13
Germany
03
14
USA
06
15
UK
06
16
France
01
17
The Netherlands
01
18
The Kingdom of Saudi Arabia
01
19
Brazil
01
20
Singapore
01
21
Sweden
02
22
Belgium
01
23
Denmark
01
24
Latin America
01
25
OECD Countries–Spain
01
26
EU–Lithuania
01
27
South Korea
01
28
China
01
29
Mexico
01
regulatory policy/challenges, socio-political, and HWKLFDO UHVSRQVLELOLW\ ZHUH LGHQWL¿HG IURP YDULous chapters (see Table 4 for a list of the factors). However, the dominant factors that were reported most frequently include competition, campaigns/ promotion, infrastructure-related issues, regulation, development and access cost, and government intervention/policy. Table 4 illustrates all macro
4
factors and the corresponding chapters in which they are reported and discussed.
Consumer-User Behavior This section of the book examines the micro or demand-side factors affecting broadband adoption and usage in various countries including Australia,
Broadband Adoption and Diffusion (BAD)
Table 3. Authors per chapter SN
Number of Authors Per Chapter
Frequency
1
1
16
2
2
17
3
3
11
4
4
03
5
5
00
6
6
02
7
7
01
Brazil, Chile, France, The Kingdom of Saudi Arabia, The Netherlands, the United Kingdom, and the United States of America. The chapters included in this section provide in-depth discussions on 34 factors covering socio-behavioral, attitudinal, and demographic factors affecting adoption of broadband and the digital divide at a consumer level. This section also focuses on broadband user behavior and characterization. Table 5 further illustrates all factors and the corresponding chapters in which they are reported and discussed.
SMALL AND MEDIUM-SIZE ENTERPRISES This section of the book examines the factors affecting broadband deployment, diffusion, and use by SMEs in various countries including Italy, Singapore, and the United Kingdom. Table 6 further illustrates 34 different factors and corresponding chapters in which they are reported and discussed.
IMPACT OF BROADBAND ON EMERGING APPLICATIONS This section of the book examines the impact of broadband on emerging ICT applications and business models. The chapters included in this section provide in-depth discussions on the impact of broadband on communication, society, and delivery of entertainment and health services to consumers
and citizens. Table 7 further illustrates various types of impact and the corresponding chapters in which they are reported and discussed
BROADBAND ADOPTION AND DIFFUSION (BAD): A FRAMEWORK Within this section we provide a very brief description of the proposed framework on broadband adoption and diffusion. The proposed framework is illustrated in Figure 1. The framework is based RQIDFWRUVLGHQWL¿HGDQGGLVFXVVHGE\YDULRXVDXthors of this handbook. This framework suggests that countries, mainly developing countries that are at an early stage of broadband development, should give major emphasis on macro-factors that affect deployment at a national level by creating an appropriate regulatory, technological, and socioeconomic environment. Once an appropriate and conducible environment is established, the next step is to focus on addressing the factors affecting adoption and use by households and SMEs. This is the focus of attention for the majority of developed countries. The majority of developed nations, for example Australia, have already deployed a broadband infrastructure; however, consumers are slow in adopting it due to various socio-economic reasons. Therefore, the emphasis for such countries should be removing the barriers of individual adoption and use of broadband. Failing to implement such strategies may lead to a digital divide at various levels including global, national, regional, and consumer-user levels. Broadband adoption and use is likely to affect both industry and society. Some of the socio-economic effects are discussed within this handbook. However, to avoid a harmful effect on society and to exploit the useful effects of broadband on various industries, integrated and continuous efforts from various stakeholders are needed.
CONCLUSION This chapter has outlined the various factors reported in the 49 chapters that follow in this handbook of research. Furthermore, the chapter 5
Broadband Adoption and Diffusion (BAD)
Table 4. Macro factors SN
National Policies/ Macro Factors
Chapters
1
Broadband Availability & Coverage
C2, C5, C12, C18
2
Competence
C2
3
Public Awareness Campaigns/ Promotion and Communication
C3, C14, C44
4
Training Policy
C3, C5
5
Broadband Policy
C4
6
Telecommunication Liberalization
C4, C14, C45
7
Competition
8
Infrastructure Development
C4, C5, C7, C8, C9, C12, C13, C17, C20, C46
9
Broadband Strategies
C4
C4, C5, C6, C7, C8, C10, C14, C16, C18, C20, C43, C45, C46, C49
10
Socio-Cultural Factors
C6, C17
11
Regulation/Regulatory Policies
C7, C8, C10, C14, C18, C42, C49
12
Development Cost/Access Pricing
C7, C8, C9, C12, C16, C18, C45, C49, C50
13
Government Support–Intervention/Government Policy
C8, C9, C20, C42, C43, C45, C47
14
Location
C11, C16, C43, C44
15
Responsibility
C15
16
Authority and Norms
C15
17
Market Size & Composition
C16
18
Telephone Penetration
C16
19
Investment/Foreign Direct Investment (FDI)
C17, C20
20
Leadership
C21
21
Network Provisioning
C21
22
Authentication and Security
C21
23
Industry Structure
C50
24
Export Conditions
C50
LGHQWL¿HG DQG RUJDQL]HG IDFWRUV LQ D PHDQLQJful manner in order to propose a framework of broadband adoption and diffusion. This chapter has illustrated that research on adoption, diffusion, usage, and the impact of broadband is clearly a global issue which requires a multidisciplinary approach. The proposed framework includes three levels of factorsmacro factors, individual micro factors, and SME-level micro factors. These three levels of factors are relevant at different levels of development, deployment, and diffusion of broadband, and persist in various developed and developing countries. Both the industry and policymakers should carefully choose and address the issues
6
relevant to their country and regions for encouraging homogenous adoption and usage of broadband. This framework is based on a comprehensive set of factors observed in various countries. However, as this is a complex and evolving area, future studies may use this framework to identify gaps and then bridge those gaps by conducting new studies.
REFERENCES BSG Report. (2001). Report and strategic recommendations. London.
Broadband Adoption and Diffusion (BAD)
Table 5. Micro factors SN
Micro Factors
Chapters C2, C4, C5, C6, C9, C14, C19, C20,
1
Cost/Price/Subscription Fee C21, C43, C49
2
Knowledge/Awareness/Information Sources
C3, C19, C20, C21, C43
3
6RFLDO,QÀXHQFH5HFRPPHQGDWLRQV
C3, C4, C14, C20, C21
Demographics/Users Characteristics (e.g., age, gender, education, income,
C2, C3, C4, C5, C6, C11, C16, C22,
occupation, and ethnicity)
C21, C23, C25, C27, C46, C49
4 5
Speed
C4
6
Citizen/Consumer/User Training
C3, C5, C11, C20
7
Stability
C4
8
Content/Applications
C4, C5, C6, C9, C22, C49
9
Reliability
C4
10
Convenience
C4, C14
11
Supplier Reputation
C4
12
Individualism
C6
13
PC at Home
C11
14
Household Size
C11
15
Customer Needs
C14, C20, C23
16
Perceived Usefulness/Utilitarian Outcomes
C19, C20, C21, C26
17
Image
C19
18
Perceived Complexity
C19
19
Technology Orientation
C19
20
Life Style Motivations (career, family, entertainment)
C19
21
Purchase Complexity
C19
22
Commitment to Technology
C19
23
Relative Advantage
C20, 21
24
Service Quality
C20, C21
25
Usage Pattern/User Behavior
C20, C23, C26, C49
26
Hedonic Outcomes
C20, C21
27
Personality
C22
28
Experience
C22, C23
29
Attitude towards Computing and Wireless Internet
C22
30
Affordability
C43
31
Broadband UseInformation
C23
32
Broadband UseCommunication
C23
33
Broadband UseEntertainment
C23
34
Broadband UseTransactions
C23
7
Broadband Adoption and Diffusion (BAD)
Table 6. SMEs
8
SN
Factors Affecting BB Adoption by SMEs
Chapters
1
Attitude
C28
2
Perceived Behavioral Control
C28
3
Subjective Norms
C28
4
Behavioral Intention
C28
5
Perceived Usefulness
C28
6
&RQ¿UPDWLRQ
C28
7
Satisfaction
C28
8
Continuance Intention
C28
9
Initial Usage/Continuous Usage
C28
10
Firm Size
C29, C31, C33
11
)LUP¶V1HHGWR&RPPXQLFDWH
C29
12
Existing Level of Telecommunication Infrastructure
C29
13
Price
C29
14
Compatibility
C30, C32
15
Complexity
C30, C32
16
Relative Advantage
C30, C32
17
Social Groups Involved in the Production and Use of the Innovation
C30
18
Lack of Institutional Pressure to Adopt
C31
19
Trailability
C32
20
Observability
C32
21
Top Management Support
C32
22
ICT Experience
C32
23
Location
C32
24
Competitive Pressure
C32, C33
25
External ICT Support
C32
26
Government Pressure
C32
27
Financial Resources
C33
28
Organization Conditions
C33
29
Management Culture
C33
30
Leading Market Position
C33
31
Business Group Membership
C33
33
Technology Legitimacy
C33
34
Manufacturing
C33
Broadband Adoption and Diffusion (BAD)
Table 7. Emerging applications SN
Industry/Sector Affected by BB Adoption and Usage
Chapters
1
IPTV Business Model
C34
2
Motion Picture Industry
C35
3
Health Sector
C36, 37, 38
4
Social Consequences
C39
5
Organizational Communication
C40
6
VoIP
C48
7
Evolution of Facilitating/Supporting Technologies
C41
Figure 1. Broadband adoption and diffusion (BAD): A framework National Policies/Macro Factors (See Table 4)
Deployment of Broadband
Micro Factors Consumer Level Factors (See Table 5)
Diffusion, Adoption, and Use of Broadband at Various Levels
Broadband Digital Divide
Impact of Broadband (See Table 7)
Micro FactorsSMELevel Factors (See Table 6)
Dwivedi, Y.K. (2007). Consumer adoption and usage of broadband. Hershey, PA: IGI Global. Dwivedi, Y.K., Papazafeiropoulou, A., Gharavi, H., & Khoumbati, K. (2006). Examining the socio-economic determinants of adoption of an HJRYHUQPHQW LQLWLDWLYH µ*RYHUQPHQW *DWHZD\¶ The Electronic GovernmentAn International Journal, 3(4), 404-419. Rice, C. (1997). Understanding customers. Oxford: Butterworth-Heinemann Rogers, E.M. (1995). Diffusion of innovations. New York: The Free Press.
KEY TERMS Broadband: Always-on access, at work, at home, or on the move, provided by a range of ¿[HGOLQHZLUHOHVVDQGVDWHOOLWHWHFKQRORJLHVWR progressively higher bandwidths capable of supporting genuinely new and innovative interactive content, applications, and services, and the delivery of enhanced public services (BSG Report, 2001). Consumers-Users: Those who pay for services DQGJRRGVZKLOHµXVHUV¶DUHLQGLYLGXDOVZKRDUH affected by or who affect the products or services. In other words, users are those who use the prod-
9
Broadband Adoption and Diffusion (BAD)
ucts and services but do not pay for them (Rice, 1997). For example, a child can be categorized as a user since he or she uses broadband for online gaming and to undertake homework; however, the child does not pay for the service. Contrastingly, WKHSDUHQWFDQEHLGHQWL¿HGDVDFRQVXPHUDVZHOO as a user since he or she pays and uses the service (Rice, 1997). Diffusion: The process by which an innovation is communicated through certain channels
10
over time among the members of a social system (Rogers, 1995). IPTV: Digital television content delivered through IP-based networks. VoIP: Refers to voice over Internet protocol. This is the family of technologies that allow IP networks to be used for voice applications, such as telephony, voice instant messaging, teleconferencing, and so forth.
Section I
National Policies
Division I
Africa
13
Chapter II
South Africa:
The Long Walk to Broadband Freedom Justin Henley Beneke University of Cape Town, South Africa
ABSTRACT South Africa has fallen behind its international peers—both developing and developed markets—in the race to rollout broadband services. In fact, even within the African continent, it is neither the broadband leader nor progressive in comparison to its Northern African counterparts. This chapter aims to explore the development of broadband services in South Africa, as well as to touch upon the challenges faced in bringing this phenomenon into the mainstream. Reasons for the lack of diffusion and adoption of such VHUYLFHVSRLQWWRKLJKHQGXVHUFRVWVRIWKHVHUYLFHDYHU\OLPLWHGJHRJUDSKLFDOIRRWSULQWRIERWK¿[HG line and mobile broadband infrastructure, as well as a lack of computer literacy and an understanding of what broadband is able to offer. The chapter continues to look at possible solutions, including introducing a greater degree of competition into the market to facilitate downward pressure on prices, as ZHOODVSURYLGLQJFRVWEDVHGDFFHVVWRLQWHUQDWLRQDOVXEPDULQH¿EHUFDEOHVDQGWKHXQEXQGOLQJRIWKH local loop to further this objective.
INTRODUCTION South Africa, situated at the southern-most tip of Africa, has an abundance of good fortunesnatural beauty, mineral wealth, a warm climate, and the like. Yet, most South Africans are considerably
more likely to know about the happenings in the lives of American movie stars or British musicians WKDQWRKDYHDWUXHFRQFHSWLRQRIµEURDGEDQG¶ This chapter aims to explore the development of broadband services in South Africa, as well as touching on the challenges faced in bringing this phenomenon into the mainstream.
Copyright © 2008, IGI Global, distributing in print or electronic forms without written permission of IGI Global is prohibited.
South Africa
A BRIEF HISTORY OF BROADBAND DEPLOYMENT IN SOUTH AFRICA 7HONRP6RXWK$IULFD¶VVWDWHFRQWUROOHGWHOHFRPmunications company, was awarded a monopoly RQ¿[HGOLQHWHOHFRPPXQLFDWLRQVVHUYLFHVEHWZHHQ 1997 and 2002 (Bridges.org, 2001). As part of its obligations, the company was mandated to implement PSTN services in rural and semi-urban areas around the country, many of which would otherwise not have proved commercially viable to operators in a competitive environment. Although initially successful in its endeavors to connect the masses, the gravity of the situation soon came to the fore as the company was forced to disconnect over two million telephone lines owing to non-payment. Telecommunications prices remained high due to the need for cross-subsidization (i.e., the wealthy QHHGLQJWR¿QDQFHQHWZRUNUROORXWWRWKHSRRU DV well as a lack of competition in the sector. Valueadded telecommunications services were also rather limited in the late nineties and early part of the current decade. Due to the fact that Telkom had LQYHVWHGVLJQL¿FDQWFDSLWDOLQLWVintegrated services digital network (ISDN) platform, it was reluctant to cannibalize on this and install ADSL lines. The incumbent was also very wary of introducing a new service to market which would have the effect of negatively impacting on its metered-driven call revenues. Nonetheless, fearing competition shortly after the expiration of its monopoly, the company
announced the provisioning of broadband services in 2002. ,QWKLVUHVSHFW7HONRPODXQFKHGLWV¿UVW¿[HG line consumer broadband offering in August 2002. This was an always-on connection to the Internet that operated at a downlink speed of 512 kilobits per second and an uplink speed of 256 kilobits SHUVHFRQG7KLVPHDQWWKDWDRQHPHJDE\WH¿OH could be downloaded in less than 20 seconds and DQLGHQWLFDO¿OHXSORDGHGLQVHFRQGV Previously, consumers were restricted to dialup connections operating at 56 kilobits per second (analogue), 64 kilobits per second (singe-band ISDN), or 128 kilobits per second (dual-band ISDN). Apart from being inherently slower, this service was billed on a per-second basis, with the result that users accessing the Internet through dial-up were typically watching the clock to ensure that their online sessions were kept as brief as possible. Their exposure to the Internet was thus minimized as lengthy online sessions equated to a hefty telephone account at the end of the month. The table below lists the cost of spending 10, 20, and 40 hours online per month during each year between the period 1993 and 2003. The Telkom costs are allocated for 10, 20, or 40 hours of local call charges during peak call times (i.e., business hours). The Telkom price constitutes the line rental cost plus the timed call charges. Figure 1 reveals the escalating cost of spending time online. It is particularly worthwhile
Table 1. Internet access costs over the decade spanning 1993 and 2003 (Internet.org.za, 2003)
14
South Africa
noting the sharp increase since the year 2001. However, while ADSL promised users a greater degree of freedom, the service was launched with DWKUHHJLJDE\WHPRQWKO\GDWDµVRIWFDS¶PHDQLQJ that consumers could only use the service at its maximum capability until this amount of data had EHHQ VHQW DQGRU UHFHLYHG $IWHU WKLV µFDS¶ ZDV reached, the service would be severely restricted in terms of international transmission speeds. This resulted in the accessing of international Web sites being throttled, while local Web sites continued to remain fast to access. Telkom has subsequently reversed this policy and applied a µKDUGFDS¶PHDQLQJWKDWDOO,QWHUQHWFRQQHFWLYLW\ is terminated once the cap has been reached. Local bandwidth is no longer unlimited. That pointed out, this restriction was seen as being largely unproblematic for Internet users merely wishing to browse the World Wide Web and check e-mail. However, for those power userswhose online activities included a greater variety of tasksthis was less than desirable. Nonetheless, despite the limitations, the deployment of broadband heralded an era where it was thought that consumers need not be as time orientated in their online behavior as was previously the case, and hence the South
African Internet community deemed it a step in the right direction. Table 2 illustrates the migration from dial-up to broadband. It is evident that dial-up subscribers have increased year-on-year until 2004, but have started to decline since this time. Early in 2004, Sentech (the government-owned national television signal carrier) launched its MyWireless service. This allowed Internet users the ability to experience broadband connectivity through a wireless medium. The service used advanced radio telephony (in particular, a form of 3G communications technology) to send/receive data between the PC and Internet. However, this was not a true mobile solution in that the computer needed WREHLQD¿[HGORFDWLRQ LHUHPDLQVWDWLRQDU\ while an Internet session was in progress. FurtherPRUH6HQWHFK¶VOLPLWHGQHWZRUNSUHVHQFHPHDQW that the service was only available in a handful of metropolitan areas. The service was launched without a data cap, instead relying on fair use by its customers. This attracted many would-be ADSL customers who were not enthusiastic about using a service which essentially limited them to only a few hours of usage per day. Unfortunately, the MyWireless service attracted a considerable amount of negative press due to teething network problems
Figure 1. A graphical representation of Internet access costs between 1993 and 2003 (Internet.org.za, 2003)
15
South Africa
Table 2. Growth and decline of dial-up subscribers (Goldstuck, 2005) Year
Subscribers (growth/decline)
1994
15,000
1995
33,600 (155%)
1996
79,700 (137%)
1997
196,620 (146%)
1998
366,235 (86%)
1999
560,000 (53%)
2000
782,000 (40%)
2001
960,000 (22%)
2002
1,008,000 (5%)
2003
1,048,320 (4%)
2004
1,088,000 (4%)
2005
1,080,000 (-1%)
2006
1,050,000 (-3%)
and their lack of support in dealing with customHUV¶IUXVWUDWLRQ7KLVUHVXOWHGLQDVPDOOJURXSRI disgruntled customers becoming incredibly vocal about their experiences (even going so far as to establish a Web site, www.SentechSucks.co.za) and creating a negative sentiment in the market which has hindered the development of MyWireless and opened the door for a competitor to gain market share. The company was also forced to reconsider its “all you can eat” philosophy in terms of usage and has subsequently imposed absolute restrictions on uploads and downloads. Wireless Business Solutions (WBS), a private operator tasked with the responsibility of running the network of National Lottery Point of Sale terminals, commercially launched its iBurst service in early 2005. This was very similar in nature to 6HQWHFK¶VRIIHULQJDOWKRXJKLWIHDWXUHGDKLJKHU theoretical download transmission rate of 1 Mbps. It did, however, include a monthly three gigabyte data cap, similar to that of Telkom. The iBurst service capitalized on the mistakes committed by 6HQWHFK¶VMyWireless service and, combined with improved funding for network expansion, now
16
Figure 2. A MyWireless modem
boasts a subscriber base which is rumored to be four times the size of its direct competitor. While all of the above broadband services UHTXLUHXVHUVWRUHPDLQLQD¿[HGORFDWLRQZKLOH XVLQJWKH,QWHUQHWWKHFHOOXODUQHWZRUNV¶RIIHULQJV (i.e., those of MTN and Vodacom) were designed WREHPRUHÀH[LEOH7KLVDOORZHGDXVHUWREHLQ motion, for example traveling on a train or bus, while online. 3ULRUWR&KULVWPDV9RGDFRPIXO¿OOHGLWV promise of launching 3G services (operating at a speed of 384 kilobits per second) in the local market. MTN followed suit in mid-2005. Due to the celOXODUQHWZRUNV¶H[WHQVLYHFRYHUDJHWKURXJKRXWWKH country, the area in which wireless broadband could EHREWDLQHGZDVVLJQL¿FDQWO\H[SDQGHG+RZHYHU the high-speed service was initially launched on a limited scalewithin metropolitan areasand is still largely restricted in this respect. Furthermore, data charges (i.e., cost per megabyte transferred) were considerably higher than those offered by ¿[HGORFDWLRQEURDGEDQGSURYLGHUV7KLVUHVXOWHG in potential 3G users being offered a one gigabyte package for a similar price to that being charged for three gigabyte (or larger) accounts on the other
South Africa
networks. This immediately signaled that users would be made to pay for true mobility and extended network coverage. In 2006, MTN and Vodacom optimized their 3G services with the introduction of High-Speed Downlink Packet Access (HSDPA). This increased download speeds to a maximum theoretical limit of 1.8 Mbps, providing the fastest wireless form of broadband. This development was seen as a major step forward for customers who required multimedia services (particularly Web 2.0 applications such as YouTube, MySpace, etc.) that are bandwidth intensive by nature. Figure 3 illustrates the split of broadband users EHWZHHQ¿[HGOLQH 7HONRP ¿[HGZLUHOHVV 6HQ-
tech and iBurst), and mobile (MTN and Vodacom) providers. Table 3 provides a year-on-year tally of the number of broadband users in South Africa. While the market is experiencing a promising growth rate in percentage terms at the time of writing, it should be acknowledged that the growth is based on a very small pool of users. The penetration rate of broadband in the local market remains under one percentage point of the population of South Africa (46 million). In contrast, Denmark, The Netherlands, Iceland, Korea, Switzerland, and Finlandthe world leaders in terms of broadband penetrationare reported to have a penetration rate
Table 3. Growth of broadband subscribers (Smit, 2005) Year
Subscribers (growth/decline)
2003
15,667
2004
51,124 (226%)
2005
147,532 (189%)
2006*
277,000 (88%)
2007*
405,000 (46%)
2008*
533,000 (32%)
* = projected totals
Figure 3. Broadband market share by access technology
25% Fixed-line Fixed-w ireless 15%
60%
Mobile
17
South Africa
of over a quarter of the population. Even the average penetration rate of the 30 countries surveyed by the Organization of Economic Cooperation and Development15.5%illustrates the gulf in existence (OECD, 2006).
TOWARDS A PROFILE OF THE BROADBAND USER BASE ([SORULQJWKHSUR¿OHRIWKHW\SLFDOEURDGEDQGXVHU LVGLI¿FXOWIRUDQXPEHURIUHDVRQV Firstly, a single broadband connection may be utilized by more than one person. Unlike a cellular phone which is very personal in nature, ,QWHUQHWFRQQHFWLRQV LQFOXGLQJWKRVHFODVVL¿HGDV broadband) may easily be shared by a multitude of individuals. This is often practiced for cost purposes where it makes little sense for a family, for example, to pay multiple times over for essentially the same service. In this respect, it may be useful WRGLVWLQJXLVKEHWZHHQWKHEURDGEDQGµFXVWRPHU¶ RUµVXEVFULEHU¶ LHWKHSXUFKDVHURUDFFRXQWSD\HU DQGWKHEURDGEDQGµXVHU¶ LHDQLQGLYLGXDOZKR makes use of the connection without directly paying for this privilege). 6HFRQGO\ LW LV UDWKHU GLI¿FXOW WR GLVWLQJXLVK between consumer broadband subscribers and business broadband subscribers. Broadband services may be marketed at either the business or home market, but there is no guarantee that individuals will register in this manner. In fact, not all broadband services are stipulated for one form of use or the otherthis is often left to the discretion of the user. To this end, many broadband users may simply opt for the cheapest offering, even if this is not aligned to the manner in which the broadband provider anticipates that the service will be utilized. Furthermore, in a 6PDOO 2I¿FH +RPH 2I¿FH 62+2 HQYLURQPHQWDVLQJOHEURDGEDQG account may be used for business purposes during RI¿FH KRXUV DQG KRXVHKROG SXUSRVHV WKHUHDIWHU In this respect, it may be useful to distinguish between consumer broadband services and business broadband services, although it is acknowledged that this is not always possible.
18
Thirdly, with the rapid deployment of broadband technology around the world, the face of typical broadband is likely to be constantly changing. As the service increases in popularity, it seems inevitable that the constitution of the broadband user base will tend more towards the mainstream and further away from early adopters. In South Africa, industry experts appear to DJUHH WKDW HDUO\ DGRSWHUV DUH µWHFKLHV¶ LH LQdividuals from a technical background who are either professionally employed within the ICT industry or who are computer enthusiasts with high levels of computer literacy). Furthermore these individuals are thought to be mostly male, based in metropolitan areas, well educated (i.e., possess VRPH IRUP RI WHUWLDU\ HGXFDWLRQ DIÀXHQW LH earning professional salaries, being able to afford a cell phone, car, house, etc.), and relatively young (i.e., tending towards 30 years of age). However, it seems that the broadband user base may be getting younger as entire families are starting to make use of the household broadband Internet connection. Furthermore, as the technology becomes more user friendly and access to LQIRUPDWLRQLQUHDOWLPHEHFRPHVµPLVVLRQFULWLFDO¶LWVHHPVOLNHO\WKDWFRUSRUDWHXVHUV DOWKRXJK not necessarily technologically minded) may adopt these services for access to their corporate networks while traveling. This facility would allow business users to check their e-mail, view FRQ¿GHQWLDO FRUSRUDWH UHSRUWV DQG VR IRUWK DW any time, from any location in which a broadband service is offered. It is thought that these developments will serve WRVNHZWKHSUR¿OHRIWKHFXUUHQWEDVHRIEURDGband users. Two local studies, conducted by Webchek and the Online Publishers Association, shed further light on this issue. The Project SA Web User study, conducted in 2005 by Webchek, is a follow-up study on the SUR¿OHRIWKHDYHUDJH6RXWK$IULFDQ,QWHUQHWXVHU Initially conducted in 1999/2000, the latest study points to the movement of the average user from “techno whizzkid” to “the man in the street.” The survey was conducted by means of a computer-aided telephonic interviewing process.
South Africa
Table 4. Webchek’s overview of the South African Internet user base Age
Almost half of South African Web users are between 25 and 44 years of age. Yet, an increase in users over the age of 55 was noted since the 1999/2000 survey.
Language
The majority of South African Web users are English speaking.
Gender
The ratio of females vs. males is approximately 60/40.
Monthly Household Income
Stage in Lifecycle
Level of Education
The average monthly household income earned is just over R13,000 (approximately US$2,000), which marks a decrease since the previous study. The number of respondents with children in the home has increased from 41% in 2001 to 53% in 2006. On average, respondents had two children. ,QOLQHZLWKSUHYLRXV¿QGLQJVWZR¿IWKVRI6RXWK$IULFDQ:HEXVHUV\HDUVDQGROGHUKDYHHLWKHU FRPSOHWHGXQLYHUVLW\RUKDYHVRPHRWKHUIRUPRIWHUWLDU\TXDOL¿FDWLRQ The ratio of respondents working in the IT industry has decreased from 1999/2000. It is also interesting to
Employment Category
note that 27% of Web users have their own business. Of these respondents, 40% had owner-run enterprises. Seven out of ten businesses appear to be run from home.
7HFKQRJUDSKLF3UR¿OH
Only 20% of respondents see themselves as technologically advanced. )RUW\¿YHSHUFHQWRIWKHVDPSOHKDYH:HEDFFHVVDWKRPHRQO\DQGDWZRUNRQO\ZLWKKDYLQJ access at both home and work. The number of days the Web is accessed per month has shown a slight upward curve from 2002 among home users. The Web was accessed 16.8 days a month on average at home
Usage and Behavioral
in April 2006 (compared to 14.4 days on average in 2002). Thirty-seven percent of home users access the
Patterns
Web everyday at home. At work, the Web is accessed 23 days a month on average (basically every working day). Home users spend an average of 5.8 hours online per week and work users 7.4 hours per week. Most LQWHUHVWLQJO\6RXWK$IULFDQ:HEXVHUVVWLOOWHQGWRXVHWKH,QWHUQHWPRVWO\IRUVHDUFKLQJIRUVSHFL¿F information and sending and receiving e-mail.
A random sample of individuals was contacted from the telephone directory. Potential respondents had to be at least 18 years of age and had to access the World Wide Web (that is, not e-mail only) at least once a month, either at home and/or at work in order to be included in the sample. No quota controls were exercised on gender and on race, and the survey was limited to the major metropolitan areas of South Africa. The Project SA Web User ¿QGLQJVDUHSUHVHQWHGLQ7DEOH A second study, commissioned by the Online Publishers Association and executed by Nielsen/ Netratings, also found that online media casts a wider net than previously thought. Demographic details are based on online surveys completed by over 37,000 individuals in October 2006. Web usage statistics were measured between July and September 2006. The Nielsen/Netratings¿QGLQJV are presented in Table 5.
7KXVERWKVWXGLHVFRQ¿UPWKHVXVSLFLRQWKDW,Qternet usage is entering an era where it is becoming a personal productivity and entertainment tool for the population at large. Where access is available, the service appears to be utilized by individuals across many walks of life. It would appear that broadband technology is spearheading growth of ,QWHUQHWVHUYLFHVLQWKHKRPHHQYLURQPHQWVSHFL¿cally, a phenomenon that will be discussed in the following section.
DRIVERS AND INHIBITORS OF BROADBAND DIFFUSION AND ADOPTION *ROGVWXFN LGHQWL¿HVWKUHHGULYHUVRIEURDGband adoption in South Africa.
19
South Africa
Table 5. The Online Publishers Association overview of the South African Internet user base Eighty-one percent of all respondents were in full-time employment. Sixty-two percent of visitors to Access in the Workplace
the Internet did so from their workplace compared to only 27% from home, 6% from an educational establishment, and 3% from an Internet café. Forty-one percent of respondents, however, did not have access to the Internet from home. Online media consumption is strongest in urban areas: 27% of access takes place from Johannesburg
Geographical Footprint
(Gauteng), 12% from Pretoria (Gauteng), 16% from Cape Town (Western Cape), and 6% from Durban (KwaZulu-Natal), with other larger cities also showing higher usage than other areas. Fifty-nine percent of Web users are younger than 35: 18-24 year olds constitute the largest age group (32%), followed by 25-29 year olds (17%) and 30-34 year olds (15%). Education levels are high,
Education and Income
with 79% having some further education and 34% having a degree or post-graduate degree. Income levels are also high, with 39% of Web users having an annual household income of over R150,000 (approximately US$20,000) and of these, 18% having an annual household income over R400,000 (approximately US$55,000). (QJOLVKZDVWKHPRVWFRPPRQO\UHSRUWHG¿UVWODQJXDJHRI,QWHUQHWXVHUV RIUHVSRQGHQWV
Language Spoken
IROORZHGE\$IULNDDQV 7KHWUDGLWLRQDO$IULFDQODQJXDJHVRI,VL=XOX DQG,VL;KRVD were the next most reported mother tongues. However, they are both slowly on the increaseup 2% and 1%, respectivelysince the October 2004 survey.
•
•
20
Lifestyle-Oriented Demand: The new JHQHUDWLRQRIRQOLQHJDPHUVDQG¿OHVZDSping enthusiasts demand speed and quality of access. For the gamers, speed and quality are paramounteven more so than for the EXVLQHVVPDUNHW)RUWKH¿OHVKDULQJPDUNHW which uses applications that accelerate data usage through multiple upload requests from DW\SLFDOXVHU¶VPDFKLQHDGDWDFDSRIDQ\ size is highly resented. SME Demand: ADSL has found a ready and enthusiastic market among small businesses. Such users are not as price-sensitive as home users, nor are they as focused on capacity issues like contention ratios and data limits. Here, the solution represents DVLJQL¿FDQWFRVWVDYLQJE\SUHYHQWLQJWKH business having to dial-up on a regular basis to send/retrieve e-mail and has also had the positive spin-off of allowing the enterprise to EHFRPHPRUHHI¿FLHQWLQWHUPVRILWVRQOLQH communications. Thus, the SOHO market, micro-enterprises, and small business alike KDYHUHDOL]HGLQVWDQWFRVWEHQH¿WVDVDUHVXOW and their experience has become an excellent word-of-mouth marketing exercise for the LQFXPEHQW¿[HGOLQHRSHUDWRU
•
Pent-Up Consumer Demand: Home users who have been on the Internet since the midor late-1990s have become frustrated with the limitations and cost of dial-up, and have been ready to spend a higher upfront monthly amount on a better form of connectivity. Many such individuals have been exposed to the merits of broadband on their travels RYHUVHDVRUKDYHKHDUGDERXWWKHEHQH¿WVRI the medium through communication with their friends, colleagues, and families settled overseas. While it is true that consumers have resisted the price levels set by Telkom, the need for speed is ever present. The World Wide Web of the current decade is most different from that of the nineties, whereby Web designers usually took account of slow (typically dial-up) connections by building sites that could download quickly. However, in a broadband-dominated developed world, where most Web sites reside, this priority is fading into the background. Bandwidthintensive sites therefore demand high-speed connectivity, and price is often a secondary factor here. Similarly, large e-mail attachments are becoming commonplace, rather
South Africa
than the exception as they were in the 1990s, and dial-up connections are ill equipped to KDQGOHWKHÀRZRIWKLVGDWD7KHUHIRUHOHQJWK\ downloads result in higher cost to dial-up users, and timeouts mean wasted time and energy…over and above simple frustration. The 3CC framework is an alternative view of the forces at play. It considers both the drivers and inhibitors of growth in the broadband market. This is represented in Table 6.
IS BROADBAND MERELY ENHANCED DIAL-UP CONNECTIVITY? 7KH GH¿QLWLRQ RI EURDGEDQG LQ 6RXWK $IULFD LV somewhat unclear as there appear to be disparities between the characteristics of local broadband services and foreign broadband services, reinforcing the notion that South Africans are obtaining a raw deal in contrast to their international counterparts. In this respect, many broadband providers in South Africa restrict the usage of their service in a number of noteworthy respects. These are discussed below. Firstly, while most standard broadband services in developed countries are not capped, ADSL accounts in South Africa typically feature a two-, three-, or four-gigabyte data cap. The 3G networks, strictly speaking, do not cap individuals, but charge users in a manner which results in the service being prohibitively expensive for anything other than basic online tasks. This means that using a broadband connection in South Africa is not feasible if individuals wish to download music albums, full-length movies, or even stream live television. In this respect, either the data cap will rapidly be exhausted, or if the user is subscribed on a pay-per-usage basis, the end-of-month account is likely to be exorbitant. Telkom, the largest provider of broadband connectivity in South Africa, considers downloading large amounts of data (usually required for obtaining multimedia content) through an $'6/ OLQH DV µDEXVH¶ RI WKH VHUYLFH 7KLV YLHZ
is strongly counteracted by the local broadband community who argue that the facility is supposed to be used for more than just e-mail and Web access purposes. However, at the present time, it appears that broadband users, based on the current service offerings, are only able to use WKHLUEURDGEDQGFRQQHFWLRQVDVDJORUL¿HGGLDOXS connection. This has caused much resentment and frustration. In fact, the Internet community felt so strongly about the issue that they have reported Telkom to the telecommunications regulator, the Independent Communications Authority of South Africa, as well as to the Competition Commission on the basis of anti-competitive behavior. Secondly, many broadband service providers XWLOL]HµSURWRFROVKDSLQJ¶7KLVWHFKQRORJ\JLYHV network preference to certain applications over other applications. In order to understand protocol shaping, it should be understood that most consumer broadEDQGDFFRXQWVDUHµFRQWHQGHG¶7KLVPHDQVWKDWD 512 kbps connection, for example, is not guaranteed the full 512 kbps data stream at all times. Instead, a number of users essentially share the same Internet pipeline, meaning that if all users are concurrently online, each user is likely to achieve a mere fraction of the theoretical performance. Protocol shaping takes this a step further. The principle here is that certain applications should be given more than their fair share of bandwidth, while others should be given less than their fair share. In this manner, certain applications can be given low priority and thus their use discouraged. File swappers are often cited as an example of parties ZKRDUHµKHDY\XVHUV¶DQGDJDLQVWZKRPQHWZRUN protection should be implemented. For example, if the network detects that the XVHU LV XSORDGLQJGRZQORDGLQJ ¿OHV WKURXJK D peer-to-peer application (e.g., BitTorrent), his or her performance is likely to be intentionally degraded and thus bandwidth removed from the FRQQHFWLRQDQGGRQDWHGWRRWKHUµQHWZRUNIULHQGO\¶ applications such as Web browsing. To this end, it is argued that potential abusers of the network are throttled so that performance is not degraded for the entire broadband user base. Unsurprisingly, the individuals concerned complain that they are being unfairly penalized. 21
South Africa
Table 6. The 3CC framework Factors
Costs
Drivers of Growth
Inhibitors of Growth
Since introducing its ADSL service, Telkom has
A lack of competition, underscored by a prolonged
reduced subscription rates twiceonce in 2005 and
telecoms monopoly, has failed to drive down costs to the
again in 2006. The incumbent has also upgraded
extent witnessed in foreign markets (Mzolo, 2005). As
the speeds of its 192 kbps lines to 384 kbps and its 1
calculated by Christian (2005), in certain circumstances,
Mbps lines to 4 Mbps free of charge, meaning that
7HONRP¶V$'6/VHUYLFHLVRYHUPRUHH[SHQVLYH
consumers are achieving better value. Prices are
than other countries. In fact, Winston Smith, MyWireless
expected to fall as the market grows (thereby bringing
portfolio manager at Sentech, even determined that
DERXWHFRQRPLHVRIVFDOH DQGFRPSHWLWLRQLQWHQVL¿HV
the cost of a dedicated symmetrical 8 Mbps Internet
It has been calculated that the original price of a 512
connection in South Africa is approximately 1,000 times
kbps line has almost halvedfrom R680 to R362in
more expensive than a comparative service in Sweden
nominal terms since inception. Mobile data rates were
(MyBroadband, 2006a).
slashed from R25.00 per megabyte in 2004 to R 2.00 per megabyte in 2005a reduction of over 90% (du Plessis, 2005). These mobile data rates now compare YHU\IDYRUDEO\ZLWK6RXWK$IULFD¶VLQWHUQDWLRQDOSHHUV Telkom has realized the potential of data revenue and
Fixed-line voice and data services are only available to
is rapidly equipping its exchanges to accommodate
a tenth of the population, whereas 3G services (mobile
ADSL lines. The phenomenal growth of subscribers
broadband) coverage is very limited in terms of its
between 2004 and 2006 bears testimony to this policy.
geographic footprint. Broadband coverage outside
The two leading cellular networks are competing,
metropolitan areas in South Africa is virtually non-
head-to-head, to acquire the more lucrative business
existent.
customers who require advanced services such as mobile broadband access. For this reason, Vodacom has already expanded its 3G service (enhanced by Coverage
HSDPA) into CBD and residential areas, whereas MTN is currently aggressively rolling out 3G services into the suburbs. The third cellular operator, Cell C, is currently investing in EDGE technology. Additionally, iBurst,D¿[HGZLUHOHVVEURDGEDQG provider, is engaging in extensive network expansion which presently includes 15 cities and large towns (MyBroadband, 2006b).
Competence
As highlighted early in this chapter, Internet services
Broadband appears to be an unknown quantity for
are starting to reach the “man in the street.” In part,
many South Africans, the vast majority of which
this is due to computer education in the workplace,
are not computer literate and are unlikely to have
as well as in the primary, secondary, and/or tertiary
ever accessed the Internet before (Monteiro, 2006).
education environment. A number of companies and
2QO\¿YHPLOOLRQ3HUVRQDO&RPSXWHUVDUHSUHVHQWLQ
QRQSUR¿WRUJDQL]DWLRQVLQFOXGLQJWKH,QWHUQHW6HUYLFH
the country (Laschinger & Goldstuck, 2006); and
Providers Association and Telkom Foundation, have
four million individuals have access to the Internet
been proactive in donating hardware and software
through their school, college, home, or place of work
to educational institutions and providing training to
(Goldstuck, 2005). This equates to a penetration rate of
educators so that they can impart these skills to their
approximately 10% for each of the above, meaning that
students.
the vast majority of South Africans have no exposure to computers, let alone the Internet.
22
South Africa
Herein lies a fundamental problem: broadband promises a multimedia-rich environment whereby XVHUVFDQH[SHULHQFHWKHWUXHEHQH¿WVRIWKHLQformation age. However, by labeling multimediaVHHNLQJXVHUVDVµKHDY\XVHUV¶RUHYHQµDEXVHUV¶ of the network, the potential for broadband to revolutionize the way in which the Internet is used LVVHYHUHO\VWLÀHG)XUWKHUXQKDSSLQHVVLVFDXVHGE\ the fact that this is a relatively unique stance foisted on consumers in the South African market.
RATIONALE PROVIDED FOR HIGHER COST STRUCTURE IN THE COUNTRY There has been much published and ushered in private conversations about the high costs of Internet, particularly broadband, access in South Africa. Telkom, feeling the need to defend its pricing structure, has contributed a number of key reasons to explain its seemingly high tariffs. Yet, WKHWHOHFRPPXQLFDWLRQVLQFXPEHQWLVGH¿DQWWKDW South African consumers should not expect the same services, at the same price, that are available to their overseas counterparts. This is discussed below. Firstly, Telkom claims that the South African broadband subscriber base is still relatively small LQVWDWXUH7KXVLWKDVEHHQXQDEOHWREHQH¿WIURP the economies-of-scale as experienced elsewhere in the world. It has argued that as the number of broadband subscribers continues to grow, subscription rates should naturally decrease. There appears to be some merit in this argument as there have already been two price decreases brought about VLQFH$'6/ZDV¿UVWODXQFKHG Secondly, Telkom claims that international bandwidth is exceptionally expensive in South Africa due to the geographical distance from the main Internet centers (i.e., United States of America, Western Europe, South East Asia, etc.). While this LVWUXH6$7WKHSULPDU\¿EHURSWLFVXEPDULQH cable linking South Africa with the rest of the world, is exclusively controlled by Telkom. It is argued that 7HONRP¶VPRQRSRO\RYHUWKLVFULWLFDOUHVRXUFHKDV driven access charges far above those that would
have been tolerated if competition over submarine international bandwidth had been in place. In fact, it is claimed that a very small percentage of the SAT-3 cable capacity is currently being utilized by the incumbent. Due to the fact that the cable is only intended to last for use over the next two decades, critics argued that this essential national UHVRXUFHLVVLPSO\µURWWLQJDZD\¶ Thirdly, Telkom claims that the cost to establish its ADSL network has been extremely capital intensive. The incumbent argues that it has had to convert previously analogue exchanges into digital IRUPDWDQGWKHQHTXLSWKHVHWRKDQGOH¿[HGOLQH broadband. It therefore maintains that it needs to recoup these costs and that further investment in LQIUDVWUXFWXUHZLWKRXWWKHUHTXLUHG¿QDQFLDOUHturn, does not make business sense. In this respect, the company has even threatened to pull the plug on its broadband network if it were to be forced to slash the price tag of its broadband offerings. )RXUWKO\ 6RXWK $IULFD¶V WHOHGHQVLW\ LV ORZHU than that of many broadband leaders. In the centre of London, for example, residents live close together. Less cable is therefore required to reach the residents. In South Africa, due to high levels of dispersion of the population, more cable is required to build the comprehensive network. Another key point in this regard is that there exists a negative correlation between the length of the local loop and the theoretical limit of the ADSL data throughput rate. Currently, the local loop is EHWZHHQIRXUWR¿YHNLORPHWHUVLQOHQJWK7HONRP feels this should be closer to two kilometers. In order for ADSL2+ speeds to be possible, it will be necessary to redevelop parts of the network in order to implement shorter local loops. Again, the infrastructure costs may not prove economically viable unless favorable returns can be generated on the service.
SOLUTIONS FOR THE ROAD AHEAD A prominent author of Internet issues in South Africa, Arthur Goldstuck, has developed a hierarchy
23
South Africa
of Internet needs. The model is closely based on 0DVORZ¶VKLHUDUFK\JURXQGHGLQKXPDQEHKDYLRU theory. The model encompasses levels for access, quality, utility, community, and strategy (in ascending order). This is depicted in Figure 4. Unfortunately, it appears that while their international counterparts have been able to ascend to the top of the pyramid (i.e., the community or strategy level), problems at the quality level have
prevented South African broadband users from REWDLQLQJPD[LPXPEHQH¿WIURPWKH,QWHUQHW In terms of remedies, the ADSL Hearings, conducted throughout 2005 and 2006, challenged the stranglehold on the broadband market by the dominant players. A complaint was laid with the Independent Communications Authority of South Africa (ICASA) by MyADSL.co.za founder, 5XGROSK 0XOOHU LQWR WKH H[FHVV SUR¿WVHHNLQJ
Figure 4. Goldstuck’s hierarchy of Internet needs (Goldstuck, 2005)
ValueAdded Services
Infrastructure
Access
This infrastructure level equates to connectivity and merely entails establishing a point-to-point connection into the Internet.
Quality
This infrastructure level equates to the nature of the connectionfor example, narrowband (dial-up), broadband (ADSL/3G), and so forth. In essence, the more mature and affordable the technology (that is, increased throughput rates and greater reliability at lower costs), the better.
Utility
This value-added services layer equates to the spread of applications that the consumer is able to use on the Internet. In essence, the more online activities the user can pursue (e.g., downloading music, reading news, etc.), the better.
Community
This value-added services layer equates to a social dimension and entails the consumer reaching out and experiencing the world through human interaction. Examples include using instant messaging and joining online discussion forums.
Strategy
7KLVYDOXHDGGHGVHUYLFHVOD\HUHTXDWHVWRWKHXVHU¶VVHFRQGOLIHZKHUHE\KHRUVKHIHHOVWKDWWKHRQOLQHZRUOGLV an extension of his or her life in the physical world. Hence, almost everything achieved off-line may actually be completed online as well. This may entail operating a business online, pursuing online relationships, shopping online, and the like. Therefore, this layer encompasses all of the above by taking the consumer into a seamless virtual realm.
24
South Africa
behavior of the incumbent. A number of remedies were proposed at the hearings. )LUVWO\7HONRP¶VFXUUHQWSULFLQJVWUXFWXUHDOlows for them to charge a line rental fee, as well as an ADSL access component fee. Muller argued that this amounted to double charging for essentially the same piece of copper line and that the internal costs to the incumbent did not merit an ADSL access fee of between US$50 to US$100. Instead, he argued that a once-off fee to cover the installation of the port at the local exchange should be levied. This would have the effect of vastly reducing broadband subscription fees and hence making the service more affordable to the µPDQLQWKHVWUHHW¶ 6HFRQGO\VXEPDULQH¿EHUFRQQHFWLYLW\VKRXOG be expanded or access charges to the existing pipeline reduced. A study conducted by BalancingactAfrica (Southwood, 2006) revealed that some 29 of 55 African countries obtain 80% of their total international Internet bandwidth by satellite (an inherently more expensive medium than submarine ¿EHURSWLFFDEOH 0XFKRIWKHUHPDLQLQJEDQGZLGWK LV SURYLGHG WKURXJK WKH 6$7 VXEPDULQH ¿EHU cable, of which Telkom is a principal stakeholder. As Telkom has exclusive rights to sell bandwidth on this cable within South Africa, prices have UHPDLQHG DUWL¿FLDOO\ KLJK 7KUHH VROXWLRQV KDYH EHHQSURSRVHG7KH¿UVWLVWRQDWLRQDOL]HWKHDVVHW However, this is fraught with danger as it sends the wrong signal to the international community about the respect of property rights within the country. The second is to force Telkom, through legislation, to offer wholesale bandwidth at cost or near-cost prices. The third is to build a rival cable, a decision currently being debated within the Ministry of Public Enterprises (McLeod, 2007). There are in fact a number of alternative cable systems in the pipeline to connect South Africa with the Internet backbone. EASSY (the Eastern Africa Submarine SYstem) is the foremost cable development. This was initially proposed in 2003 DV D 1HZ 3DUWQHUVKLS IRU $IULFD¶V 'HYHORSPHQW (NEPAD) initiative. The cable system is designed to feature landing points in a multitude of countries along the East coast of Africa including Kenya, Tanzania, Mozambique, and South Africa. Those
land-locked countries wanting access to EASSY (e.g., Botswana, Lesotho, Zambia, etc.) will be accommodated through a terrestrial network designed to bring them into the fold and alleviate their reliance on satellite bandwidth. The cable is planned to extend from Mtunzini, located just north of Durban, South Africa, to Port Sudan, Sudan, a distance of about 9,900 kilometers. The cable is expected to be launched into operation by the end of 2008. Thirdly, local loop unbundling (LLU) was proposed as a solution to give other players in the market direct access to households and businesses. During its period of exclusivity, Telkom was given the sole right to provide telecommunications infrastructure connecting commercial and private establishments in the country. This meant that no two parties could establish a connection between themselves, even if a company wished to connect WZR UHJLRQDO RI¿FHV WRJHWKHU 7KLV DOVR KDG WKH unfortunate effect of cellular operators, Internet service providers, and the like needing to use the incumbent to connect their inter-company nodes if not located within the same premises. This dramatically increased telecommunications costs
Figure 5. The EASSY cable system (Kenduiywo, 2005)
25
South Africa
and kept Internet penetration to modest levels (as highlighted earlier in the chapter). Local loop unbundling would allow the second network operator, launched in late 2005, to provide direct telecommunications services to consumers DQG EXVLQHVVHV ZLWKRXW µSLJJ\ EDFNLQJ¶ RQ WKH Telkom network. The current legislation allows for additional players in the market to apply for licenses to pursue this approach as well.
THE BOTTOM LINE Political will is required to liberate the market (i.e., introduce greater competition) or to drive down prices through legislation. Unfortunately, the Department of Communicationsresponsible for overseeing the sectorand the Independent Communications Authority of South Africathe body tasked with regulating the sectorhave a checkered past in this respect. The ADSL Resolutions, the outcome of the hearings described above, were released in mid-2006, but to date have been side-stepped by the various operators in the market. ICASA is hemorrhaging from a shortage of staff, and Minister of Communications Ivy MatsepeCassabury has by her own admission been slow to bring about positive reform in the sector. The frustrations of local users are evident in their thousands and are vented on a daily basis on activist sites such as www.MyADSL.co.za and www. Hellkom.co.za (a pun intended on combining the ZRUGVµKHOODQGµ7HONRP¶
26
ers in this respect, it is thought that the heightened state of competition will drive prices downwards, in addition to expanding broadband coverage into both urban and semi-urban areas. As the power engine of the sub-Saharan economy in Africa, broadband may prove a key ingredient to economic growth and prosperity within the country. Yet, there are other national prioritiesQDPHO\¿JKWLQJ+,9$,'6FRQVWUXFWing housing, implementing social reforms, and the liketo contend with. Broadband is still perceived to be an elitist service and therefore not within the domain of the average South African. Until pricing, coverage, and computer literacy concerns are addressed, it is unlikely that the broadband revolutionwhich has swept many a society into the information agewill have the same affect on South African shores. The long walk to broadband freedom continues.
ACKNOWLEDGMENT The 3CC framework was developed in consultation with Rudolph Muller, founder of MyADSL and Information Systems lecturer at the University of Johannesburg. Also, many of the views detailed in this chapter echo the sentiments and comments expressed on the MyADSL/MyBroadband discusVLRQIRUXPV7KDQNVWRWKHµIRUXPLWHV¶IRUWKHLU indirect contributions.
REFERENCES BizCommunity.com. (2006, November 17). Online SA consumers fuelling ad revenue growth. Retrieved from http://www.bizcommunity.com/ Article/196/23/12516.html Boer, S. (2006, July 27). Latest SA Web user survey results released. Retrieved from http://www.bizcommunity.com/Article.aspx?c=11&l=196&ai=11040 Bridges.org. (2001, May 2). South Africa telecommunications overview, commentary, and statistics (policy brief). Retrieved from http://www.bridges. org/publications/123
South Africa
Christian, C. (2005, November 11). Telkom’s ADSL QRZRI¿FLDOO\RYHUPRUHH[SHQVLYHWKDQ other countries. Retrieved from http://www.mybroadband.co.za/nephp/?m=show&id=1167 du Plessis, M. (2005, September 15). Tit for tat. Retrieved from http://www.iweek.co.za/ViewStory.asp?StoryID=155165 Franz, L. (2005, November 1). Pushing the city limits. Retrieved from http://www.iweek.co.za/ ViewStory.asp?StoryID=157791 Goldstuck, A. (2005). Internet access in South Africa 2005. Johannesburg: World Wide Worx. Internet.org.za. (2003). Cost of Internet access in South Africa (1993-2003). Retrieved October 2, 2006, from http://www.internet.org.za/costs. html Kenduiywo, P. (2005, January 30). Eastern Africa submarine cable system. Proceedings of the Workshop on Information Society and Regulation: Access and Infrastructure, Ghana. Laschinger, K., & Goldstuck, A. (2006). PC users in South Africa 2006. Johannesburg: World Wide Worx. Mawson, N. (2006, May 19). Telkom moves to shorten local loop in high-demand areas. Retrieved from http://www.engineeringnews.co.za/eng/ news/today/?show=86554 McLeod, D. (2006, June 2). Ivy’s extra mile. Retrieved IURPKWWS IUHH¿QDQFLDOPDLOFR]DWHFKnology/atech.htm McLeod, D. (2007, January 26). Undersea wrangling. Retrieved from KWWS VHFXUH¿QDQFLDOPDLO co.za/07/0126/technology/dfeat.htm Monteiro, A. (2006, March 29). Education, lack of engineers hamper SA IT. Retrieved from http:// www.moneyweb.co.za/shares/ict_sector/995758. htm Muller, R. (2006, April 20). SA slipping further behind in broadband rankings. Retrieved from http://moneyweb.iac.iafrica.com/shares/ict_sector/252408.htm
MyBroadband.co.za. (2006a, May 8). Telkom 1000 times more expensive. Retrieved from http://www. mybroadband.co.za/nephp/?m=show&id=2680 MyBroadband.co.za. (2006b, May 29). iBurst coverage expansion moving forward. Retrieved from http://www.mybroadband.co.za/nephp/ ?m=show&id=2943 Mzolo, S. (2005, December 20). Lower telecom costs ‘only talk’. Retrieved from http:// ZZZ¿QFR]DDUWLFOHVGHIDXOWGLVSOD\BDUWLFOH asp?ArticleID=1518-1786_1853631 OECD. (2006, October 13). OECD broadband statistics: June 2006. Retrieved from http://www. oecd.org/document/9/0,2340,en_2649_34223_ 37529673_1_1_1_1,00.html Simons, D. (2002). Telkom lights ADSL, but is the price right? Retrieved September 3, 2006, from http://www.iec.org/events/2002/dslwfeurope/ newsletter/feature.html Southwood, R. (2006, November 6). Satellite dominates cellular backhaul. Retrieved from http://www. mybroadband.co.za/nephp/?m=show&id=4799 Smit, T. (2005). SA wireless access and broadband market. Johannesburg: BMI-TechKnowledge. 9DSL; -XQH Telkom drops ADSL and data prices further. Retrieved from http://www. telkom.co.za/common/aboutus/mediacentre/pressrelease/articles/article_789b.html
KEY TERMS 3G: The abbreviation for third-generation cellular technology. The services associated with 3G provide the ability to transfer simultaneously both voice data and non-voice data (e.g., downloading movies or sending/receiving e-mail). A number of applications are associated with 3G including videoconferencing, high-speed Web access, and even Internet telephony. EASSY (Eastern Africa Submarine System): $ SURSRVHG VXEPDULQH ¿EHU RSWLF FDEOH WKDW LV designed to connect a multitude of countries along
27
South Africa
the east coast of Africa including Kenya, Tanzania, Mozambique, and South Africa. Landlocked countries (e.g., Botswana, Lesotho, Zambia, etc.) will also have indirect access to the cable. The proposed termination pointfor onward connection to Europeis Djibouti. Integrated Services Digital Network (ISDN): The set of protocols which transform a regular copper telephone line into a digital platform that is inherently faster and more reliable than its analogue counterpart. Local Loop Unbundling (LLU): A regulatory process of allowing multiple locally and nationally based telecommunications operators to make XVHRIFRQQHFWLRQVIURPWKHWHOHSKRQHH[FKDQJH¶V FHQWUDO RI¿FH WR WKH FXVWRPHU¶V SUHPLVHV 7KH physical wire connection between customer and company is often referred to as the “local loop” and was historically owned by the incumbent local exchange carrier.
28
Public-Switched Telephone Network (PSTN): $QHQJLQHHULQJVWDQGDUGZKLFKGH¿QHVWKHPDMRULW\ RIWKHZRUOG¶VWUDGLWLRQDOWHOHSKRQHV\VWHPV7KH technology operates by automatically connecting customers according to the number dialed. SAT-3: Refers to South Atlantic 3. This is DQ H[LVWLQJ VXEPDULQH ¿EHU RSWLF FDEOH OLQNLQJ Portugal and Spain to South Africa, with connections to several West African countries along the route. It forms part of the SAT-3/WASC/SAFE cable system, where the SAFE cable links South Africa to Asia. Small and Medium-Sized Enterprise (SME): A company whose headcount or turnover falls below certain limits. In South Africa, SMEs typically have fewer than 100 employees. Teledensity: Refers to telephone density. This is the number of telephone connections within a particular area, typically a square kilometer. Manhattan Island would have an extremely high teledensity whereas the outback regions in Australia would have an extremely low teledensity.
Division II
Asia
30
Chapter III
Bridging the Digital Divide Through Broadband Deployment Challa Radhakumari Sri Sathya Sai University, India
ABSTRACT This chapter provides a summary relating to the functioning of two projects in the two Southern States of India, Andhra Pradesh and Kerala, to show how through broadband deployment in rural areas the digital divide can be bridged. By focusing on the implementation of the two projects, the chapter illustrates their contribution in practically using the broadband technologies in overcoming the hurdles to EULGJLQJWKHGLJLWDOGLYLGHDQGKLJKOLJKWVWKHFULWLFDOVXFFHVVIDFWRUVDVLGHQWL¿HGGXULQJWKHIXQFWLRQing of the projects which helped the states in achieving their goals. The chapter also reveals through its analysis that the accessibility of services through broadband technology have brought an opportunity to the citizens to become a part of the current knowledge revolution, besides bringing about a great technological transformation to the areas where it is implemented, and thus contributed to bridging WKHGLJLWDOGLYLGH7KHFKDSWHULV¿QDOO\FRQFOXGHGE\SURYLQJWKDWPRYLQJIURPDPDQXDOWRHOHFWURQLF process with broadband technology as an enabler; the States set an example, which will serve as a set of guidelines for application of similar projects in other geographical settings.
INTRODUCTION Information and communication technology (ICT) has the potential to contribute to fostering empowerment and participation, and making the governPHQWSURFHVVHVPRUHHI¿FLHQWDQGWUDQVSDUHQWE\ encouraging communication and information sharing among people and organizations, and within the government itself. Information technology essentially refers to the digital processing, storage,
and communication of information of all kinds (Agarwal, 2001). Therefore, IT can potentially be used in every sector of the economy. The true impact of IT on growth and productivity continues to be a matter of debate, even in the United States, which has been the leader and largest adopter of IT (Arora, Arunachalam, Asundi, & Fernandes, 2000). However, there is no doubt that the IT sector has been a dynamic one in many developed countries, and India has stood out as a developing
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Bridging the Digital Divide Through Broadband Deployment
country where IT, in the guise of software exports, KDV JURZQ GUDPDWLFDOO\ GHVSLWH WKH FRXQWU\¶V relatively low level of income and development. $QH[DPSOHRI,7¶VEURDGHULPSDFWFRPHVIURP the case of IT-enabled services, a broad category covering many different kinds of data processing and voice interactions that use IT infrastructure as inputs, but do not necessarily involve the production of IT outputs (Lenhart et al., 2003). The Internet boosts immeasurably our collective capacity to archive information, search through large quantities of it quickly, and retrieve it rapidly. It is said that the Internet will expand access to education, good jobs, and better health; and that it will provide citizens with direct access to government (Helen, 2004). In so far as such claims are plausible, Internet access is an important resource, DQGLQHTXDOLW\LQ,QWHUQHWDFFHVVLVDVLJQL¿FDQW concern for all social scientists. With each passing day, there are more and more reports and studies on the opportunities and challenges associated with the global extension of information and communication technologies. Many aspects of the linkages between ICT and the resulting improvements in the commonwealth of citizens, country by country, are explored in these reports and studies (Olorunda, 2006). But, while ICT applications in rural and remote areas of both developed and developing countries are acknowledged in such reports and studies, it is usually only in a cursory fashion. This is resulting in an increasing digital divide (SocialText. com, 2006). With that in mind, this chapter focuses on matters relating to the efforts being made for bridging the digital divide in some of the developing countries like India, and how these efforts are inducing the other areas to launch similar and other innovative measures for minimizing the digital divide problem. The chapter outlines the functioning of two broadband projects in two different States of India and their role in contributing to the development of the areas, and highlights how broadband technology is practically used for bridging the digital divide by overcoming various hurdles in the implementation process. The critical success factors that created the necessary environment for
achieving the goals of the projects and contributing to their sustained development are also outlined in the chapter.
REVIEW OF LITERATURE 0DUN:DUVFKDXHU¶VERRNUHSUHVHQWVDQLPSRUWDQW and necessary stage in the evolution of scholarly WKLQNLQJ DERXW WKH GLJLWDO GLYLGH D VLJQL¿FDQW concept that has entered the lexicon of contemporary literature about technology transfer (OECD, 2005). The concept of the digital divide is perhaps itself a case study in the transfer or diffusion of NQRZOHGJH:KHQ¿UVWDSSHDULQJDVDEUHDNWKURXJK conceptualization capable of intellectually organizing and fueling an area of study, concepts and their implications tend to be presented starkly and forcefully (Modovix, 2006). Some reports also seem to suggest that developing economies such DV1LJHULDDUHWU\LQJWRµOHDSIURJ¶LQWRQHZWHFKnologies, eliminating the need for building a new infrastructure for telecommunications (Olarunda & Olarunda, 2006). The digital divide is widely regarded as a uniWDU\SKHQRPHQRQ$QGDVD¿UVWDSSUR[LPDWLRQLW is indeed useful to distinguish, in a general way, between the rich and powerful who are part of the Information Age and the poor and powerless who are not. Viewed analytically, there is not one, but three digital divides; and a fourth one is seen emerging in many nations (Keniston & Deepak Kumar, 2003).
Wealth and Power 7KH¿UVWGLYLGHLVWKDWZKLFKH[LVWVZLWKLQHYHU\ nation, industrialized or developing, between those who are rich, educated, and powerful, and those who are not. For example, income and education in the United States distinguish dramatically between those who own computers and those who do not, as between those who can access the Internet and those who cannot. In the United States, where household telephone penetration is about 95%, in 1999 households with incomes over $75,000 (roughly, the top 10%) were twenty times more
31
Bridging the Digital Divide Through Broadband Deployment
likely to have Internet access than those in the lowest income brackets: 80% of the rich and 5% of the poor had access to the Internet. If we analyze home ownership of computers, rich households were nine times more likely to own one. If we compare Americans with four years or more of college with those who have six years or less education, FRPSXWHURZQHUVKLS¿JXUHVDUH YVDQG the Internet access percentages are 49% vs. 3%. Similar results were found in a survey in Australia (Keniston & Deepak Kumar, 2003). As of mid-2002, no comparable studies have been conducted in India, where telephone connectivity is extremely low (about 3%) and the installed base of computers and Internet connections are even lower. But the overall pattern is clearly similar to that in America. As of early 2002, there were approximately six million computers in India, of which perhaps two-thirds were in businesses, VFKRROV JRYHUQPHQW RI¿FHV DQG VR IRUWK OHDYing, at a high estimate, two million computers in households. In mid-2002, there were probably about a million Internet connections in India, again most of them in institutional settings rather than LQGLYLGXDOKRXVHKROGV$¿JXUHRIPLOOLRQ,QGLDQ Internet-connected households (out of about 200 million households) in 2002 would be on the high side (Keniston & Deepak Kumar, 2003). :KRDUHWKHµFRQQHFWHG¶LQ,QGLD"2EYLRXVO\ as a group, they are a small, rich, successful, and English-speaking minority. For all of its ancient cultural wealth, despite the persistence of old elites and the emergence of new elites, India remains one RIWKHZRUOG¶VSRRUHVWVRFLHWLHV0RUHWKDQ of the population is illiterate; tens of millions of children are not in school. Telephone connectivity in India is about 3% and will not rise much above that level unless the cost of connections (the soFDOOHGµODVWPLOH¶FRVW FDQEHORZHUHG,QVKRUW there is a massive digital divide in India based on income, related to education and urban residence, and correlated with economic, political, and cultural power. (Keniston, 2003).
Linguistic and Cultural A second digital divide, less often noted, is linguistic and cultural. In many nations this divide 32
separates those who speak English or another West European language from those who do not. But even in the United States, where well over RIDOOLQKDELWDQWVVSHDNÀXHQW(QJOLVKWKHUH are large differences in access to ICTs among different ethnic and cultural groups. For example, in 1998, Asian American households (largely of 6RXWK $VLDQ RU 6RXWK 3DFL¿F $VLDQ H[WUDFWLRQ had 55% computer ownership, white Americans had 52%, while Americans of Hispanic origin had 25% and blacks 23% respectively. An even larger gap separated Asian Americans and whites from blacks and Hispanics with regard to Internet access (Pierce, 2003). These cultural disparities, dramatic in the U.S., are far more notable in India, where they are compounded by linguistic issues. An estimated 60-80% of all Web sites in the world are in English, while DOPRVWDOOWKHUHVWDUHLQRQHRIWKHPDMRUµ1RUWKHUQ¶ ODQJXDJHV OLNH -DSDQHVH *HUPDQ )UHQFK Spanish, Portuguese, and increasingly Chinese. But in India, like the rest of South Asia, only an HVWLPDWHGRIWKHSRSXODWLRQVSHDNVÀXHQW English while the rest (more than 900 million Indians and about 1.2 billion South Asians) speak other languages. For Indians who speak no (or little) English, the barriers to the Information Age are almost inseparable. All widely used operating systems require some knowledge of English or one of the µ1RUWKHUQ¶ ODQJXDJHV 7KXV LQ SUDFWLFH XQOHVV Indians know English, which most Indians do not, no matter how wealthy, brilliant, educated, prosperous, or motivated they may be, computer use and Internet access are effectively out of the TXHVWLRQ7KHUHVXOWLVDVHOIFRQ¿UPLQJSURSKHF\ since there is so little software in any language other than English, virtually everyone in South Asia who uses computers knows English. Of course the 50 or so million Indians who VSHDN ÀXHQW (QJOLVK E\ QR PHDQV FRQVWLWXWH D representative sample of the Indian population: they again tend to be prosperous, urban, highly HGXFDWHGFRQFHQWUDWHGLQWHFKQLFDO¿HOGV7KH\ are, in a word, members of the Indian elite, where English is the lingua franca. For the great majority of Indians, however, computers are linguistically inaccessible.
Bridging the Digital Divide Through Broadband Deployment
To linguistic inaccessibility in India is added the absence of culturally relevant content. The number of Web sites in 2000 in India is small in any case, but the number of sites in Indian languages is miniscule. To be sure, a few gifted programmers are attempting to change this, and sites are beginning to appear in languages with vast populations of mother tongue speakers like Hindi, Bengali, or Tamil. But to all intents and purposes, the many ancient, rich, and sophisticated cultures that make up India remain almost invisible on the Web (Keniston, 2003).
Wide Gap Between the Rich and the Poor Nations The third digital divide follows inevitably from the ¿UVWWZRthat is, the growing digital gap between the rich and the poor nations. At one extreme are WKH8QLWHG6WDWHVDQGWKHµ1RUGLF¶FRXQWULHVOLNH Sweden, Germany, Finland, and Iceland, where household telephone connectivity is well over 90%, computer saturation is over 50%, and home-based Internet connectivity averages over 50%. At the other extreme lies most of Africa, most of South America, South Asia, China, Indonesia, and so onthe 80% of the world where telephone connectivity is 3% or less (less than 30 million/1 billion in India), home computer ownership is 1-2%, and Internet connectivity is less than half of that. The reason why the digital divide between nations is increasing seems clear. If widespread access to ICTs gives a nation an advantage, and lack of access leaves it at a disadvantage, then the maxim, “To those who have shall be given” applies with special force to the international digital divide. The international disparity in access to ICTs is of FRXUVH DQ DVSHFW RI LQGHHG D UHÀHFWLRQ RI RWKHU disparities between rich and poor nations. But insofar as ICTs are themselves enabling, facilitating, and wealth-creating, the international divide in information technology widens the already great gulf between North and South.
Digerati The fourth digital divide, which is emerging in countries like India and America, can be called the µGLJHUDWL¶'LJHUDWLLPSOLHVHPHUJHQFHRIDVSHFLDO HOLWHJURXSZKLFKUHSUHVHQWVWKHEHQH¿FLDULHVRI the enormous successful information technology industry and the other knowledge-based sectors of the economy such as biotechnology and pharmacology. Time and again in India, for example, brilliant graduates of Indian Institutes of Technology or major engineering colleges and universities who chose to concentrate in the natural sciences, mechanical engineering, or chemical engineering comment that their equally gifted classmates who entered computer science or biotechnology are now earning many times their incomes and living in an altogether different way. Unlike older Indian elites, the privileges of the new digerati are based not on caste, inherited wealth, family connections, or access to traditional rulers, but on a combination of education, brainpower, special entrepreneurial skills, and ability to stay on the “cutting edge” of knowledge. The critical question about the fourth digital divide, however, is whether the prosperity of this new digital elite spreads to the rest of society, especially to urban poor and to rural villagers, or whether it creates an increasingly separate, cosmopolitan, knowledge-based enclave. The study of the implementation of Akshaya Project and how it is contributing to bridging the digital divide, and conferring various socio-ecoQRPLFEHQH¿WVKDVLWVUHOHYDQFHQRZSDUWLFXODUO\ when the policymakers world over are considering broadband as the instrument for accelerating the HFRQRPLFGHYHORSPHQW7KHVWXG\LVDOVRVLJQL¿FDQW as it highlights the technological transformation the districts have undergone, besides examining YDULRXVHFRQRPLFDQGVRFLDOEHQH¿WVWKHEURDGEDQG deployment could confer on the citizens (Radhakumari, 2006). The Akshya Project of Kerala demonstrates how in developing countries local residents are aware of WKHEHQH¿WVRI,&7LQXSOLIWLQJWKHLUOLYHVEXWLWLV the lack of infrastructure and other facilities that DUHGHSULYLQJWKHPRIWKHDFFHVVWRWKHEHQH¿WV
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Bridging the Digital Divide Through Broadband Deployment
Using the awareness levels the local residents are encouraging the local governments to play an active role in bridging the digital divide. The Akshaya Project, which is an ambitious e-literacy program of the Kerala State, has proved that information technology implementation in rural areas can also promote entrepreneurship development (Radhakumari, 2006).
BACKGROUND FOR INTRODUCTION OF THE PROJECTS A.P Broadband Network $QGKUD3UDGHVKDQG.HUDODDUHWKH¿UVWWZRVWDWHV in India to have initiated the efforts to deploy broadband to rural areas for bridging the digital divide so as to achieve the goal of balanced spread of e-services availability.
A.P Broadband Project Andhra Pradesh has emerged as one of the leaders in e-governance in India. A number of pioneering initiatives have been taken up by the state to transform itself into a knowledge society. Innovative e-initiatives such as e-Seva, which provides over 120 services to citizens; the Computerized Administration of Registration Department (CARD) project for computerization of registration of immovable property; e-procurement for bringing about transparency and reduction in government procurement procedures; and so on, have been launched by the state government for providing better quality of services to the people of Andhra Pradesh. The state has witnessed a rapid expansion of telecom networks both in the public and private VHFWRUGRPDLQVLQUHFHQW\HDUV
34
be in danger of being left behind in the emerging digital economy. Therefore the state has decided to take action on three fronts to address the problem RIGLJLWDOGLYLGH ¿UVWO\WRSXWLQSODFHWHOHFRPmunications infrastructure in order to provide affordable bandwidth for large sections of the community; secondly, to make low-cost information access appliances which are easy to learn and use by rural population, available in large numbers, so as to increase IT penetration rates; and thirdly, to develop content relevant to the lives of people and making it available over networks. :KLOHWKHVWDWHKDVPDGHVLJQL¿FDQWJDLQVLQ WKH¿HOGRI,7DSSOLFDWLRQVRYHUWKHODVWWHQ\HDUV in urban areas, especially in the state capital of Hyderabad, it is observed that the situation in rural areas continues to be grim. Under such scenario YLVXDOL]LQJFHUWDLQGLUHFWEHQH¿WVRIPDNLQJ,&7 access a universal phenomenon such as provision of access to markets, healthcare, entertainment, and MREV IUHHÀRZRILQIRUPDWLRQ LQFUHDVHGWUDQVSDUency in government operations; easy management RIGLVDVWHUVOLNHF\FORQHVDQGÀRRGVWKURXJKORJLVWLF support; procurement of information in matters like hygiene, infant care, crop disease management, which in turn would improve the overall quality of life of citizens in rural areasthe State of Andhra Pradesh has proceeded with the plan of making ICT a universally accessible and affordable phenomenon. Aspiring to become a leader in the information HFRQRP\DQGZLVKLQJWRSURYLGHWKHEHQH¿WVRI information technology revolution to broad sections of its population, the A.P government has taken initiative to facilitate and accelerate the implementation of a broadband network in the state that will provide low-cost bandwidth to people residing in both urban and rural areas. Therefore a proposed action under the title “A.P Broadband Network” is conceived with the aim of creating ubiquitous Internet access through broadband deployment to all the rural areas, and accelerate the economic, social, and personal development of citizens; and help to leapfrog the state while providing a demonstration of how information technology can improve the quality of life in rural areas.
Bridging the Digital Divide Through Broadband Deployment
Akshaya Project of Kerala Realizing that diffusion of broadband services at DIIRUGDEOHSULFHOHYHOVZLOOKDYHVLJQL¿FDQWLPSDFW on GDP: attract new investment; create additional MREVGHYHORSDTXDOL¿HGDQGHI¿FLHQWODERUSRRO increase productivity, and access new and improved services. The state government of Kerala has made VLJQL¿FDQW HIIRUWV WR FUHDWH WKH HQYLURQPHQW IRU stimulating the explosive growth of infrastructure for making the broadband access a universally affordable phenomenon. While the other countries, world over, are still speaking about delivering µXQLYHUVDOO\DIIRUGDEOHDFFHVVWREURDGEDQG¶IRU all of their citizens, India has galloped towards a revolution in information technology (IT) through broadband deployment. Perceiving better, speedier, and more transparent administration; development of entrepreneurs of all sizes, big and small, all over who would in turn cater to the demands at national and international levels; growth of IT professionals of international standards through specialized IT education; and all of which in turn would augment the quality of life of citizens, the state government of Kerala in India has taken a big leap by leveraging broadband services for taking e-governance to rural areas DQGODXQFKHGWKHµ$NVKD\D3URMHFW¶7KHSURMHFW LVDQH[DPSOHIRUGLIIXVLRQRI,7EHQH¿WVWKURXJK broadband deployment in rural areas. The efforts made by the villagers in initiating the project and contributing to its sustained functioning demonstrates that it is the lack of infrastructure and other facilities that are responsible for digital divide in the rural areas and not the talent or awareness levels (Radhakumari, 2006). In this backdrop, the above two integrated IT broadband projects have been conceived by the WZRVWDWHVIRUDFKLHYLQJWKHREMHFWLYHRIµSURYLGLQJ XUEDQDPHQLWLHVLQUXUDODUHDV¶ 385$ DQGWKXV µEULGJLQJWKHGLJLWDOGLYLGH¶7KHWZRSURMHFWVDUH chosen as the focal point for this chapter for two VLJQL¿FDQWUHDVRQV a.
The broadband project of Andhra Pradesh VHWVDQH[DPSOHIRUGLIIXVLRQRI,7EHQH¿WV through broadband deployment in rural
areas. The project lays a strong foundation for broadband application in the entire state which will accommodate many more services in the future besides making the current einitiatives available at the doorstep of each and every household in rural areas. E 7KH6WDWHRI.HUDODLVWKH¿UVWLQ,QGLDWRDWtempt to deploy broadband under the name µ$NVKD\D 3URMHFW¶ IRU EULGJLQJ WKH GLJLWDO GLYLGH WKURXJK D µFHQW SHUFHQW HOLWHUDF\¶ program; thus it is preparing the people of the entire state to be a part of the knowledge revolution, which is the result of the IT revolution. The project serves as a role model for taking IT to the grassroots level in the villages. The initiative for implementation of the project came from local bodies and has ÀRZQXSZDUGVWRWRSOHYHODGPLQLVWUDWLRQ
Functioning of the Projects The following discussion is devoted to describing the functioning of the chosen projects in terms of WKHLU REMHFWLYHV WHFKQRORJ\ DGRSWLRQ ¿QDQFLDO LPSOLFDWLRQVUROORXWRIWKHSURMHFWVEHQH¿WVUHQdered, and the critical success factors relating to the implementation of the projects.
A.P Broadband Project According to the Telecom Regulatory Authority RI,QGLDEURDGEDQGLVGH¿QHGDV³DQDOZD\VRQ data connection that is able to support various interactive services, and has the capability of a minimum download speed of 256 kbps” (TRAI, 2006a). However, in countries like South Korea, the understanding of broadband is bandwidth in excess of 2 Mbps. In view of the rapid changes in WHFKQRORJLHVLWPD\QRWEHDSSURSULDWHWRGH¿QH broadband in terms of information transmission UDWHV,WZRXOGEHXVHIXOWRGH¿QHEURDGEDQGDVD high-capacity two-way link between an end user and access network suppliers capable of supporting full motion, interactive video applications (TRAI, 2006b). This is an approach that has also been adopted, for example, by Canada, following the recommendations of its National Broadband
35
Bridging the Digital Divide Through Broadband Deployment
Task Force. For the implementation of the A.P Broadband Project in the state, the capacity to deliver a symmetrical bandwidth of at least 512 kbps with a guaranteed latency of less than 100 milliseconds and less than 1% packet loss, to the end user, with the currently available technologies, is considered as broadband.
Objectives of the A.P Broadband Project The project has set for itself double-direction goals: (a) customer centered and (b) business centered. •
•
36
Customer-centered objectives: The principal objective of the A.P Broadband Project is to accelerate the deployment of a broadband network in the state by determining the technology solutions and selecting credible partners to provide high-quality, affordable, and equitable broadband access for citizens, businesses, and public institutions. To provide seamless connectivity for citizens and businesses is the additional objective of the project which is accomplished by connecting the Andhra Pradesh Broadband Network with public sector electronic services through virtual links and peering relationships. Business-centered objectives: The A.P Broadband Project has the following key business-centered objectives: { Offering delivery of anytime, anywhere citizen-friendly electronic services and Internet access for citizens, businesses, and public institutions at affordable rates { Rolling out of broadband communications especially to rural areas that do not have access to high-quality communications { Aggregation of government demand for bandwidth and providing such EDQGZLGWKIRUD¿[HGDQQXDOIHHWREH determined from year to year { Providing solutions for voice, video, and data access for residential connections with suitable information appliances
{
Making available applications and content solutions for enabling the A.P Broadband Project to deliver expected EHQH¿WV
Techniques Adopted for Achievement of the Objectives To achieve the key objective of widespread availability and deployment of broadband connectivity for rural and urban households at an affordable tariff, a base tariff structure was proposed by the bidder that meets this objective. A separate tariff structure was also proposed for new applications and value-added services that will be provided. In addition, it is also arranged to aggregate, to the extent feasible, the bandwidth requirements of JRYHUQPHQWRI¿FHVDJHQFLHVDQGLQVWLWXWLRQVDQG source this from the proposed broadband network LQH[FKDQJHIRUD¿[HGDQQXDOIHH 6SHFL¿FDOO\WKHVWDWHKDVDGRSWHGWKHIROORZLQJ four strategies for achievement of the objectives: 1. 2. 3. 4.
Make an overall project implementation model that is acceptable Work for outcomes in the set timeframe Establish an open IP-based network, capable of application service provision Make available the broadband network access at affordable prices within the state
Rollout of the Broadband Network Telecommunication technologies have also been witnessing rapid advancement in recent years. :KLOH¿EHURSWLFQHWZRUNVFDQWKHRUHWLFDOO\VXSSRUWLQ¿QLWHEDQGZLGWKZLUHOHVVWHFKQRORJLHVKDYH matured to the point that they can today easily cross the broadband threshold. New wireless technologies make it possible to provide reliable and high-quality bandwidth to people in remote areas. Technologies like 802.11g and 802.16 are being used for catering to broadband requirements. The FRVWVRIKLJKVSHHGQHWZRUNVXVLQJ¿EHUDQGZLUHless have been coming down dramatically. Gigabit Ethernet has made it much cheaper to establish
Bridging the Digital Divide Through Broadband Deployment
broadband communications infrastructure and is opening up possibilities of leapfrog development. The broadband infrastructure established in the state is capable of reaching all parts of the state and able to deliver the following bandwidths to government and public institutions: • •
•
•
10Gb to Class I locations, which includes each of the district headquarters 1Gb to Class II locations, which includes each Mandal headquarters and other selected locations (about 1,200 locations) 1 Gb to Class III locations, which includes educational institutions, hospitals, and other designated locations, provided the customer LQVWDOOVRUSD\VIRULQVWDOODWLRQRIDGLUHFW¿EHU connection, otherwise a 50Mb connection should be provided at a tariff not exceeding WKHWDULIIIRUD0%GLUHFW¿EHUFRQQHFtion 100/50 Mb to Class IV locations, which includes each village (about 25,000 locations) (50 Mb connectivity to villages and governPHQWRI¿FHVVKDOOQRWH[FHHGRIWKHWRWDO YLOODJHVJRYHUQPHQWRI¿FHVZKHUHYHUGLUHFW ¿EHUFRQQHFWLRQLVQRWIHDVLEOH
The different levels of the network centers are: •
•
•
State Network Center (SNC): The SNC is WKHKXE ZKHUHDOOVWDWHQHWZRUN WUDI¿FDJgregates. The SNC offers various services like data services, voice services on VoIP, and videoconferencing for all the state government departments. Additionally, it offers access to Internet and state data centers, and provides connectivity to content servers. The SNC will also host the helpdesk. District Network Center (DNC): The DNC LVWKHKXEZKHUHDOOGLVWULFWQHWZRUNWUDI¿F aggregates. All DNCs shall connect to the SNC. Mandal Aggregation Center (MAC): The MAC is the hub where all Mandal network WUDI¿FDJJUHJDWHV$OO0$&V KLJKXVDJHDQG low usage) are connected to their respective DNCs.
•
Village Aggregation Center/PoP (VAC): All VACs are connected to their respective MACs.
%DVHGRQWKHIXQFWLRQDOLW\DQGQHHGIRUHI¿FLHQW management, the project is segregated into two distinct areas: (a) broadband backbone network and (b) logical aggregation network. The network is designed as layered, hybrid topology to meet the government architecture and topology requirements. The scope covers the following number RI*R$3RI¿FHVWREHFRQQHFWHGIRUHDFKFODVV of location: • •
At Hyderabad200 locations 'LVWULFW2I¿FHV40 locations 6XE'LYLVLRQDO2I¿FHV25 locations 0DQGDO2I¿FHV15 locations Villages21,150 locations
Services on Broadband Network The various services offered on broadband network in the state are categorized as services to the education department, services to all users/citizens, Internet access services, and other services to be supported on the network. •
•
Services to education department on A.P Broadband Network: { Free services: All CBSE curriculum from Class 1 to 12 that is available with the consortium partners provided online on the education portal can be accessed by the students at no extra charge except the connectivity charge { Chargeable services: The network and software have provision for interactive coaching classes. This is however a chargeable service. The fees will depend on the interactive course being taken Services offered to all users/citizens: The project will entail the deployment of infrastructure providing a broadband access service consisting of the network connection and broadband access service, meeting WKHPLQLPXPFKDUDFWHULVWLFVGH¿QHGLQWRD
37
Bridging the Digital Divide Through Broadband Deployment
broadband network providing the delivery of IP services. { Simultaneous services: The broadband access service will provide QoS functionality to support simultaneous Internet access, videoconferencing, and voice services { ISP services: The broadband access VHUYLFHZLOOEHDEOHWRÀH[LEO\SURYLGH user access to a wide, unrestricted number of ISPs and ASPs providing general DQGVSHFL¿FVHUYLFHVHOHFWURQLFDOO\ { Minimum bandwidth: The broadband access service and customer network equipment ID supporting the requirement for delivery of symmetrical 512kbps service. The broadband access service will be capable of delivering the H[SDQVLRQFDSDELOLW\GH¿QHGEHORZ Bandwidth kbps Primary Initial Minimum 2 Mbps
•
•
38
Secondary 100 Mbps
Internet access services: The broadband access service is supporting a generic IP Internet service, utilizing standard Web browser and e-mail client software Other services to be supported on the network: Broadband network will support the following additional services: easy set up and networking; expansion of capacity and capability; system management and call processing tools; network security; H.323 DQG6,3 HGXFDWLRQVSHFL¿FDSSOLFDWLRQVDQG hardware devices for distance learning; voice service (VoIP); simultaneous and interactive exchange of video, audio, and data point to point, and point to multi-point conferencing; interaction and collaboration applications; Web server and presentation systems; and FXVWRPL]HGPHHWLQJURRPRI¿FHRUGHVNWRS systems { Voice services (VoIP): The broadband access service will be capable of the carULDJHRI9R,3WUDI¿FXVLQJDQDSSURSULDWH level of QoS. Suitable customer network equipment will be made available to sup-
{
port the delivery of VoIP, however the provision of customer premises equipment is not to be an integral part of the scope of the project. PSTN interface/connectivity: The VoIP network will interconnect to the PSTN and other telecom networks. The various services considered are: ¾ Data services ¾ VOIP voice services ¾ Video services ¾ Internet connectivity ¾ Connectivity to the state data center
Functioning of the Akshaya Project of Kerala: Initiation of the Project 7KH µ$NVKD\D¶ PHDQLQJ µSHUSHWXDWLQJ SURVSHULW\¶PDUNVWKHEHJLQQLQJRIDGULYHWRµEULGJHWKH GLJLWDOGLYLGH¶LQWKH6WDWHRI.HUDOD7KHLQLWLDWLRQ for the project, unlike any other IT projects, has not come from the government as an imposition, but came as a result of the initiation taken by the three-tier Panchayatsthat is, the local/block panchayat, village/grama panchat, and the district panchayatafter decentralization of planning in India, making the project a unique one among the other IT projects in Kerala in particular and all the other IT projects of other states in general. Understanding the situation that those who do not move along with the technical progress will be marginalized and will not be able to grow along with the world, if the leap in the IT is missed, the grama Panchayat of Malappuram proposed a plan for spreading e-literacy to every family and WKXVWDNLQJWKHEHQH¿WVRIWKH,7WRWKHJUDVVURRWV levels. With the support of block panchayat and the district panchayat, the Malappuram local panchayat approached different agencies to undertake this project by setting aside Rs. 60 lakhs during 2001-2002 plan periods. When the state ,7PLVVLRQZDV¿QDOO\DSSURDFKHGLWWRRNXSWKLV project proposal as a novel idea and extended full cooperation and the needed support for the materialization of the plan. Thus the Akshaya Project was launched in the Malappuram district by none
Bridging the Digital Divide Through Broadband Deployment
other than the President of India, Sri A.P.J Kalam, on November 28, 2002, on a pilot basis. The project is being implemented by the local bodies, with support and monitoring from the district and state administration.
Objectives of the Akshaya Project $NVKD\D¶VPDLQDLPLVWRWUDQVIRUPWKHOLYHVRI 6.4 million families in Kerala, cutting across the social, cultural, and linguistic barriers, to bring KRPHWKHEHQH¿WVRILQIRUPDWLRQWHFKQRORJ\WRWKH common man, by familiarizing at least one person from each family with computers and empowering him or her to access relevant e-content in the regional language.
Mode of Achievement of the Objective Envisaging a 15-hour training for 10 days of oneand-a-half-hour duration each to train the citizens, the Government of Kerala sought to create 6,000 modern community information centers called µ$NVKD\DFHQWHUV¶DQGSURYLGHFRQYHQLHQWDFFHVV to information services within a radius of two kilometers from the each family residence.
Spread of the Project’s Objective to the State The government conceived a three-stage implementation plan for taking the Akshaya Project to WKHHQWLUHVWDWH'XULQJWKH¿UVWVWDJHWKHSURMHFW is implemented in one district, Malappuram, on DSLORWEDVLVZKLFKKDVEHQH¿WHGSHRSOH spread over 78 panchayats and municipalities in the district, with at least 1,000 persons from each panchayat converted into e-literates who are ready to use this knowledge to take full advantage in becoming familiar with the use of the Internet. The project is in its second phase of implementation in the district. Based on the successful implementation of the project during the pilot scheme, the project was rolled out to another six districts, which conVWLWXWHVWKHVHFRQGSKDVHRIWKH$NVKD\D3URMHFW¶V implementation.
Presently, the project is completing its second stage of implementation and is all set to begin the third stage of its implementation by covering the remaining six districts in the state. With the completion of the second stage of implementation, the project is able to bring credit to the state RI DFKLHYLQJ µFHQW SHUFHQW HOLWHUDF\¶ LQ VHYHQ districts.
Mode of Functioning of the Project The functioning mode of the project is the publicprivate partnership (PPP) model, where the three tier panchayats take the lead role in planning for the project, and the execution is being taken care of by the selected private entrepreneurs. The project has set for itself a three-phase LPSOHPHQWDWLRQ VWUDWHJ\ 7KH ¿UVW SKDVH GHDOV ZLWKWKHDFKLHYHPHQWRIµFHQWSHUFHQWHOLWHUDF\¶ in the state. The second phase covers the “e-vidya” program, under which all those citizens who have undergone WUDLQLQJLQWKH¿UVWSKDVHDQGZKRDUHDPELWLRXV in furthering their knowledge of computers, are given an opportunity to take part in the 30-hour computer training program that offers knowledge relating to the entire basic computer operation. This FRXUVHRIIHUVDFHUWL¿FDWHWRDOOWKRVHFDQGLGDWHV who complete the e-vidya course successfully. 7KHFHUWL¿FDWHLVUHFRJQL]HGE\WKH*RYHUQPHQW of Kerala. The e-vidya program is open to all and is not restricted to the trainees of the e-literacy plan. 7KHWKLUGSKDVHFRPSULVHVDQµ,QWHUQHWSDFNDJH¶ which envisages 10 hours of comprehensive training to each person through e-mail, chat, and other Internet facilities, so that they become familiar with the use of the Internet, including browsing. After completion of this training, each trainee is given a free e-mail account.
Financial Implication of the Project to the Citizen The learner pays only Rs. 40 of the total fee of Rs. 120the remaining being paid by the grama
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Bridging the Digital Divide Through Broadband Deployment
panchayat, block panchayat, and the district panchayats in the ratio of Rs. 60 and Rs. 10 each UHVSHFWLYHO\GXULQJWKH¿UVWVWDJHRIWKHSURMHFW¶V implementation. Learners belonging to SC/ST communities are exempted from paying even this nominal amount. During the second phase of Akshaya implementation, the cost of the total e-vidya course comes to Rs. 450/-, which is paid in full by the trainees. The total cost of the Internet package program of the project during the third phase is estimated to be Rs. 140 per person, of which the government proposes to contribute Rs. 100, leaving the remaining Rs. 40 as the share of the trainee.
Financial Implication of the Project to the Government The government is required to make an investment in providing the connectivity to each Akshaya center. The establishment cost of the coordinating RI¿FHthat is, the salaries of the Akshaya staff, HOHFWULFLW\ FKDUJHV UHQW RI WKH RI¿FH DUHD DQG so onwill constitute the annual recurring cost required to be met by the government.
Private Entrepreneur Selection, Training, and Motivation; and the Role All the educated unemployed youth who have secured a minimum 12th standard degree with basic computer knowledge and with the minimum entrepreneurial abilities like capacity to take a certain amount of risk, managing the setting up DQGUXQQLQJRIDQ$NVKD\DFHQWHUDQG¿QDOO\ZLWK minimum zeal to serve citizens, are all eligible to become the private entrepreneurs for running the $NVKD\DFHQWHUV7KH¿QDOVHOHFWLRQKRZHYHULV made on the basis of interviews and the opinion of the local bodies. Every selected entrepreneur should be ready to make an initial investment of Rs. 3 lakhs to establish an Akshaya center, requiring a geographical DUHDRIVTXDUHIHHWDQG¿YHFRPSXWHUV,Q order to promote entrepreneurship development, the government also assists those entrepreneurs
40
ZKRDUHIXO¿OOLQJDOOWKHRWKHUIRUPDOLWLHVEXWDUH XQDEOHWRVHFXUH¿QDQFLDOVXSSRUWLQJHWWLQJWKH ORDQVIURPEDQNVE\VWDQGLQJDVWKHLUµVXUHWLHV¶ Entrepreneurs who appear for interviews are DOVR JLYHQ DQ RSSRUWXQLW\ WR ¿OH FRPSODLQWV LI any, with the Appeal Committee. The selected HQWUHSUHQHXUV PXVW ¿OH DQ XQGHUWDNLQJ DW WKH $NVKD\D3URMHFWRI¿FHVWDWLQJRQD5VVWDPS paper that they are ready to serve the project for a minimum of three years. The selected entrepreneurs are trained in management skills to run the Akshaya centers in different batches in two-day and three-day workshops and seminars. Experts from C-DIT (Center for Development of Imaging Technology) become the trainers for this program. The entrepreneur is expected to recover his or her investment by conducting the e-literacy course and providing various utility services, besides using the centers for running other computer courses for the public as part of the business.
Selection of Trainers/Instructors (YHU\$NVKD\DFHQWHUKDVPLQLPXP¿YHLQVWUXFtors, one of whom is required to possess either a PGDCA or MCA or BSc degree in computer science. The others can be persons with computer knowledge and a minimum of Plus Two education background. All the instructors are given training by C-DIT experts who introduce them to the contents of four CDs developed by C-DIT for the e-literacy campaign. These CDs, meant for e-literacy learners, contain self-study material, some computer games, and certain simple computer programs. Three instructors are selected, one for every 500 learners; they are paid by the entrepreneur.
6HOHFWLRQRI%HQH¿FLDULHVRU7UDLQHHV Trainees are selected through household surveys. Entrepreneurs, local body representatives, volunteers of Kudumbasree (a poverty alleviation program of the Local Government), and Nehur Yuva Kendra and the Literacy Mission are under-
Bridging the Digital Divide Through Broadband Deployment
taking the e-literacy campaign to create awareness among the public about the entire Akshaya 3URMHFW¶VPRWLYH
•
%HQH¿WVRIWKH%URDGEDQG3URMHFWVWR Different Sections of the Society
Akshaya centers are acting as common service centers: Akshaya centers are functioning as the information centers and the common service providers offering all e-services under one roof
,QFLGHQWDO%HQH¿WV 7KH EHQH¿WV RI LPSOHPHQWLQJ WKH SURMHFWV DUH experienced by all the citizens from two angles, direct and incidental:
•
'LUHFW%HQH¿WV •
•
•
•
Achievement of cent percent e-literacy: The project implementation has brought an added credit to the State of Kerala of achieving the VWDWXVRIWKH¿UVWVWDWHWREULQJDERXWQRWRQO\ cent percent literacy but also e-literacy Low-cost e-governance: Adoption of the PPP model for implementation of the project has enabled the state government to bring about e-governance at a very low cost. Since the private party is contributing to the infraVWUXFWXUH GHYHORSPHQW WKH JRYHUQPHQW¶V ¿QDQFLDO EXUGHQ LV UHGXFHG WR VXSSO\LQJ of only connectivity to different Akshaya centers (Radhakumari, 2006). Equal access: All age groups and all sexes have equal preferences in accessing the facilities offered by the Akshaya Project of Kerala. Irrespective of age and sex, all family members in villages, barring school children who have the facility of acquiring computer knowledge as part of their course, have equal HOLJLELOLW\WREHFRPHWKHEHQH¿FLDU\RIWKH project. Active involvement of local people: Since the initiation came from the local bodies (Akshaya Project) and private parties (A.P), there is active involvement of both parties in ¿QDQFLQJDQGPRQLWRULQJWKHHQWLUHIXQFWLRQing of the projects, which is promoting the sustained development of the projects; this thus eases ongoing burden on the government
•
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Entrepreneurship development: Through involvement of locally available educated unemployed youth as private partners for implementation of the project, the Akshaya Project has incidentally contributed to the promotion of self-employment strategy and thus has proved that ICT adoption in rural areas can promote entrepreneurship development Promotion of backward communities: These communities are given the opportunity to enjoy the satisfaction of acquiring computer knowledge and participation in the knowledge revolution of the current times Enthusiasm of the senior trainers is inspiration: The enthusiasm and zeal of the elderly citizens in enrolling and attending the Akshaya classes are serving as a great inspiration to all the youngsters in the State of Kerala, who fail to make use of the opportunities knocking at their doors
Uniqueness of the Akshaya Project • • •
• •
•
Initiation and monitoring of the entire functioning of the project by the local bodies Implementation with the help of Kerala IT mission Active role of the local educated unemployed youth, which is one of the important parties to the functioning of the project Contribution to entrepreneurship development Generation of self-employment for the educated unemployed youth, thus preventing the brain drain Minimization of the chances of frustration and suicidal tendencies among the youth on account of severe unemployment problems
41
Bridging the Digital Divide Through Broadband Deployment
•
•
•
•
Increase in the number of jobs and creates a source of regular income, especially for the entrepreneurs and the instructors, and assured source of income for the trainees in the future Sense of achievement and satisfaction of participating in the government programs to the entrepreneurs and trainers, which otherwise could never be dreamed of by this category of people Practically setting an example for “broadband deployment for bridging the digital divide,” and thus taking the state to achieving cyber ÀXHQF\ Contribution to breaking the age-old social and cultural barriers in the traditional bound areas
•
Akshaya Project of Kerala •
&ULWLFDO6XFFHVV)DFWRUV,GHQWL¿HG from the Implementation of the Projects These factors represent the most important variables, which contributed to the successful implementation of both the broadband projects in the two chosen states of A.P and Kerala:
•
Andhra Pradesh Broadband Project •
•
•
42
Rapid roll out of broadband access services across the state, especially to rural areas that do not have access to high-quality communications. Adoption of a strategy with which infrastructure laying, and providing application and content solutions were done simultaneously. This had made the project a great success and made the state overcome one of the important and common barriers to broadband deployment; that is, the long-time gap between infrastructure development and applications. Offering anytime, anywhere citizen-friendly delivery of electronic services and Internet access for citizens, businesses, and public institutions at affordable rates
(I¿FLHQWLGHQWL¿FDWLRQRIULVNVWKDWDUHOLNHO\ to impact the deployment capability at the initial stage, and adoption of appropriate instantaneous risk management strategies Giving higher scores for bidders whose proposals include adoption of strategies for higher penetration of access devices and better availability of content
•
•
Active involvement of the local bodies and local people of the district: Realization by the local bodies themselves that leveraging information technology for the overall development of the district, along with the most current technological requirements of the world, made the entire project functional, and thus automatically avoided the resistance problem from the local people. This has also contributed to the adoption of technological change, with much ease, by the people of the district. Involvement of educated unemployed as private entrepreneurs: At the pre-emptive stage of moving the district forward, the policymakers created partnerships with the talented, educated unemployed youth of the district and the Tulip Pvt. Ltd., the private service provider, for the adoption of proven knowledge and technology; this constituted the most important sustainability factor for the perpetual functioning of the project. Connectivity: Without the broadband network, the district would not have been able to HVWDEOLVKLQWUDQHWDQG,QWHUQHWµFRQQHFWLYLW\¶ with its various Akshaya e-centers, nor fully leverage information technology applications for its operations. Neither the organizational restructuring nor the strategic technology plan would have been feasible. Organizational review: Decentralization of plan process has given a spurt to the local ERG\¶VDFWLYHUROHLQWKHGHYHORSPHQWRIWKH GLVWULFW$VDUHVXOWWKHORFDOSDQFKD\DW¶VLQvolvement in setting up of Akshaya e-centers, selection of private entrepreneurs, monitoring
Bridging the Digital Divide Through Broadband Deployment
•
•
•
•
of the functioning of the project, and so on, have made the project a highly successful venture. Adoption of strategic technology plan: Based on the geographical scenario of Malappuram district, provision of connectivity became a major hurdle. Many private and public sector enterprises including BSNL could not come forward to help the state cross the hurdle. Finally, the Tulip Pvt. service provider ventured and provided the wireless broadband network connectivity. Speed of plan implementation: With the close involvement, supervision, and scrutiny of the local bodiescomprising members from three tier panchayats (local, grama, and district)the decision to bring broadband network to the district, by crossing all the hurdles such as technical, geographical, political, social, cultural, and other non-technical factors, and investing in IT, was made possible. Simultaneous program of selection, training and motivation of trainees: Once the SURMHFW SURSRVDO ZDV ¿QDOL]HG DQG LPSOHmented, private entrepreneurs and the trainers were selected, trained, and motivated, simultaneously, without loss of time for designing, planning, and implementation of the programs, individually. This was only possible because the same enthusiastic team RIRI¿FLDOVDQGQRQRI¿FLDOVZHUHDOORZHGWR be involved in the project from the concepWLRQ RI WKH LGHD XQWLO WKH ¿QDO VWDJH RI LWV implementation. Training: The organizers of the project made DVLJQL¿FDQWDQGVXVWDLQLQJFRPPLWPHQWWR initial and ongoing staff training. The adoption of new software required for training the private entrepreneurs and the trainers, and the initial intensive training designed and delivered through workshops and seminars, GHYHORSHGWKHVWDIINQRZOHGJHWRDSUR¿FLHQW level by promoting individual skill sets. This has also made the entrepreneurs and the trainers embrace the sudden technological change in the district with willingness and enthusiasm.
•
•
Government conceding the plea of local bodies and revoking the transfer orders: When the Akshaya pilot project in MalapSXUDP GLVWULFW UHDFKHG WKH ¿QDO NLFNRII stage, transfer orders were issued to one of WKHLPSRUWDQWRI¿FLDOVZLWKRXWZKRVHSUHVence the project would have collapsed. The local bodies, then in unison, made a plea to the government to revoke the transfer orders at this crucial stage, which was immediately conceded. This constituted another critical success factor for the implementation of the project. Leadership: Senior administrators and HOHFWHGRI¿FLDOVVHWWKHSUHFHGHQWIRUWKHWHFKQRORJLFDO FKDQJH WKURXJK WKHLU µOHDGHUVKLS E\H[DPSOH¶7KH\ZHUHWKHHDUO\WHFKQRORJ\ adopters. This cultural change was one of the most important building blocks for success of the Akshaya Project.
CONCLUSION The study of implementation of the Akshaya Project LQ.HUDODUHYHDOHGWKHIROORZLQJVDOLHQW¿QGLQJV which will give important feedback that will be useful to all those who are concerned with this type of project: •
•
The wide gap in basic awareness about the computer world / IT world is seen among males and females, married and unmarried LQ GLIIHUHQW UHJLRQV 7R EULGJH WKH µDZDUHQHVV GLYLGH¶ µDUHDZLVH SXEOLF DZDUHQHVV FDPSDLJQV¶FDQEHDUUDQJHG)RUWKLVSXUSRVH the services of educated unemployed males and females of the region can be effectively used. Household surveys constitute the major µVRXUFHRILQIRUPDWLRQ¶IRUIHPDOHVDQGWKRVH married in both developed and developing regions, and for males in developing areas; while the other sourceslike the Internet, newspapers, friends, and so forthalso play DVLJQL¿FDQWUROHIRUPDOHVLQGHYHORSHGUHgions. Therefore, for introduction of any new
43
Bridging the Digital Divide Through Broadband Deployment
•
•
•
•
•
•
44
project/system, to create awareness, directly contacting the household particularly in rural areas will have better impact. A high proportion of females in more developed regions like district headquarters and males in less developed regions like villages are expressing that they are attending the Akshaya training out of compulsion rather than willingness. A separate strategy needs to be adopted to create inspiration among these groups prior to launching the project to enable them to accept the use of the IT services offered. Since females and males together express WKDWWKHH[SHULHQFHLQWKH¿UVW$NVKD\DFODVV is discouraging as the course content was GLI¿FXOW WKH FRQWHQW RI WKH FRXUVH PD\ EH PRGL¿HGWRVXLWDJURXS¶VVSHFL¿FLQWHUHVWV such as games or spiritual concepts, to kindle the interest to understand the simplicity of working with the computers Since different groups of citizenslike married, unmarried, males, and femalesopt for different timings for the training classes, organization of Akshaya classes should be VXLWDEOHWRWKHVSHFL¿FUHTXLUHPHQWVRIWKHVH groups It is also revealed that though there were many members in the family who were willing to attend the Akshaya classes, as the number per family is restricted to one, families decided on one person for the training, out of unity of understanding. Scope for allowing more members from each family could be explored to avoid cutting out an interested member. Varied perceptions are responsible for the WUDLQHHV¶ DWWHQGDQFH LQ WKH $NVKD\D WUDLQing, as revealed by the study. If the goal of launching the project is made clear prior to its launching, there will be a homogeneous group of trainees and the trainers. Since the majority of the females, males, married, and unmarried are using the knowledge acquired through Akshaya training only to inspire others to learn more about computers, and a smaller proportion of these groups are using the knowledge for job creation,
•
•
•
enhancement of knowledge, and so on, there should also be a strategy included in the project at every stage of implementation to make trainees aware of the various avenues available for making use of the knowledge acquired Another interesting feature of the Akshaya Project is that some females and males in both the districts where the project is under implementation are able to generate income ranging from Rs. 1,000 to Rs. 2,000 by using the knowledge acquired. While some are hiring out the systems to their neighbors for rent, some others are purchasing a system, appointing trainers, and converting a room in their house as a computer center. Analysis of aspirations revealed that the majority of trainees want to become the total EHQH¿FLDULHVRIWKH$NVKD\D3URMHFW,WLVOHIW WRWKHSROLF\PDNHUVWRDGRSWDÀH[LEOHVWUDWHJ\ that would unify the goal of the government and the aspirations of the citizens. Analysis of the suggestions made to the government brought to focus that all females and males in both the areas feel that e-vidya training, which is the plan of action for the second phase of implementation, can be consolidated with the basic training of the ¿UVWSKDVHDQGRIIHUWKHVDPHE\LQFUHDVLQJ WKHQXPEHURIFODVVHVRIWKH¿UVWSKDVHRIWKH project
7KHµOHDGHUVKLSE\H[DPSOH¶SROLF\RIWKH6WDWHV of Andhra Pradesh and Kerala is serving as motivation for other areas to embrace the technological transformation and seek ways to utilize technology WRGULYHKRPHWKHHI¿FLHQFLHV7KHDGRSWLRQRID citizen-centric approach by the planners, and the involvement of local bodies and private partners in the entire functioning of the projects, contributed WRWKHVXVWDLQDELOLW\RIWKHSURMHFW¶VLPSOHPHQWDtion. The dependence on locally available educated unemployed youth in the State of Kerala has sown the seeds for generation of income through self-employment, besides promoting the entrepreneurship development in the area.
Bridging the Digital Divide Through Broadband Deployment
For citizens, the accessibility of services through broadband technology has brought an opportunity to become part of the current knowledge revolution, besides bringing about a great technological transformation to the areas where it is implemented; it has thus contributed to bridging the digital divide. Moving from a manual to electronic process with broadband technology as an enabler, the states set an example, which will serve as guide for application of broadband in various geographical settings.
REFERENCES Agarwal, B.B. (2001, March 19). Faculty scarcity at IIT threatens knowledge capital. Retrieved from http://www.ciol.com/content/news/ trends/10103902.asp Arora, A., Arunachalam, V.S., Asundi, J., & Fernandes, R. (2000). The globalization of software: The case of the Indian software industry. Report submitted to the Sloan Foundation, Carnegie Mellon University, USA. Retrieved from http://www. heinz.cmu.edu/project/india/publications.html Davison, E., & Cotten, S.R. (2003). Connection discrepancies: Unmasking further layers of the digital divide. First Monday, 8(3). Retrieved from KWWS ZZZ¿UVWPRQGD\RUJLVVXHVLVVXHKWPO Lenhart, A., Horrigan, J., Allen, K., Boyce, A., 0DGGHQ0 2¶*UDG\( The ever-shifting Internet population: A new look at Internet access and the digital divide. Washington, DC: The Pew Internet and American Life Project. Hambly Odame, H. (2004). Gender and the Information Society. CTA Highlights. Wageningen, CTA. Keniston, K. (2003). The four digital divides. New Delhi: Sage. Modoux, A. (2002). The ‘digital divide’ could lead to a gigantic ‘cyber ghetto’ in developing countries. Geneva.
Olorunda, O., & Olorunda, A. (2006). Bridging the digital dividethe social and cultural impact of VoIP in developing countries: Nigeria as a case study. 3URFHHGLQJVRIWKH3DFL¿F7HOHFRPPXQLFDtion Council 37&¶ +DZDLL OECD. (2005). OECD broadband statistics. Retrieved November 30, 2005, from http://www. oecd.org/document/39/0,2340,en_2649_201185_ 36459431_1_1_1_1,00.html Pierce, J.C. (2003). Technology and social inclusion: Rethinking the digital divide. Comparative Technology Transfer and Society, 2(2), 218-220. Radhakumari, C. (2006, December 15-17). Akshaya a grassroots level IT project in Keralaa unique experiment with broadband. Proceedings of the International Conference on E-Governance, New Delhi. Radhakumari, C. (2006, December 15-17). IT as a source of entrepreneurship development in rural AreasAkshaya Project in the State of Kerala, India. Proceedings of the International Conference on E- Governance, New Delhi. SocialText.com. (2006). Broadband in India. Retrieved November 24, 2006, from http://www. socialtext.net/broadband/index.cgi?india TRAI (Telecom Regulatory Authority of India). (2006a). Telecom Regulatory Authority of India. Retrieved November 30, 2006, from http://www. trai.gov.in TRAI. (2006b). Study paper no.2/2006 on analysis of Internet and broadband tariffs in India. Retrieved November 30, 2006, from http://www. trai.gov.in/StudyPapers_list_year.asp
KEY TERMS Broadband for A.P: High-speed data transmission. For implementation of the A.P Broadband Project, the capacity to deliver a symmetrical bandwidth of at least 512 kbps with a guaranteed latency of less than 100 milliseconds and less
45
Bridging the Digital Divide Through Broadband Deployment
than 1% packet loss, to the end user, with the currently available technologies, is considered µEURDGEDQG¶ ISP Services: The broadband access service ZLOOEHDEOHWRÀH[LEO\SURYLGHXVHUDFFHVVWRDZLGH unrestricted number of ISPs and ASPs providing JHQHUDODQGVSHFL¿FVHUYLFHVHOHFWURQLFDOO\ Minimum Bandwidth: The broadband access service and customer network equipment ID supporting the requirement for delivery of symmetrical 512kbps service.
46
PURA: Providing Urban Facilities for Rural Areas. Voice Services (VoIP): The broadband access service will be capable of the carriage of VoIP WUDI¿FXVLQJDQDSSURSULDWHOHYHORI4R66XLWDEOH customer network equipment will be made available to support the delivery of VoIP; however, the provision of customer premises equipment is not to be an integral part of the scope of the project.
47
Chapter IV
Broadband Policy, Market Competition, and User Adoption in Taiwan Yu-li Liu National Chengchi University, Taiwan
ABSTRACT 7DLZDQKDVEHHQPDNLQJJUHDWHIIRUWVWRSURPRWHWKHIXO¿OOPHQWRILWV1DWLRQDO,QIRUPDWLRQ,QIUDVWUXFture (NII), with broadband network technology and its application having rapidly developed in recent years. In relation to the two major forms of broadband network technology, cable modem and ADSL, two multiple system operators—namely, Eastern Multimedia Company and China Network System—provide broadband network via cable modem, and HiNet and Seednet are the major ADSL service providers. 7KUHHQHZ¿[HGQHWZRUNVKDYHRIIHUHG$'6/VHUYLFHVDVZHOOVLQFHWKH\EHJDQWKHLURSHUDWLRQV7KHUH DUHPLOOLRQKRXVHKROGV ++V RURIWKHKRXVHKROGSRSXODWLRQLQ7DLZDQXVLQJWKH,QWHUQHW DQGPLOOLRQKRXVHKROGVRURIWKH++SRSXODWLRQXVLQJEURDGEDQG 7:1,& 7KLV chapter analyzes the broadband adoption, the competition among providers of broadband, and relevant policies in Taiwan. The research methods adopted include literature reviews, in-depth interviews, and secondary analysis of previous surveys conducted by TWNIC. Since Taiwan’s broadband penetration is WKH¿IWKKLJKHVWLQWKHZRUOGWKHGLVFXVVLRQVRIWKHPDMRUIDFWRUVFRQWULEXWLQJWREURDGEDQGGHSOR\PHQW in this chapter might provide some experiences from which other countries can learn.
INTRODUCTION In May 2002, the ROC government announced its “Challenge 2008” Six-Year National Development Plan to transform itself into a high-tech service island. The six-year plan involves a budget of NT$2.6 trillion (approximately US$75 billion). One of the objectives of this plan is to develop a “Digital Taiwan,” aiming to promote e-life, e-
government, e-commence, and innovative digital LQGXVWULHVLQ7DLZDQ7RWKLVHQGWKHUHDUH¿YH goals that have been set for achieving this, with one of the most important aspects of the plan being to install broadband Internet in every household, with a view to reaching six million households by the end of 2007 (CEPD, 2002). 7KH IRXU ¿[HG QHWZRUNV SODQQHG WR LQYHVW D total of NT$364.4 billion (US$10.5 billion) in
Copyright © 2008, IGI Global, distributing in print or electronic forms without written permission of IGI Global is prohibited.
Broadband Policy, Market Competition, and User Adoption in Taiwan
broadband deployment between 2002 and 2007. The Directorate General of Telecommunications (DGT), the former telecommunications regulator, had been asked to play an active role in opening up the telecommunications market, deregulating the unnecessary rules and controls, lowering the entry barriers, maintaining market order, providing a stable and competitive environment, and removing the obstacles to the broadband infrastructure. However, there exist doubts about whether the goals can be achieved, since it may be impossible to reach 82.36% of the 7.28 million households in Taiwan, in view of the fact that some of the households might not consider it necessary to subscribe to broadband. The purpose of this chapter is to: 1.
Describe the development and current status of broadband in Taiwan 2. Analyze broadband adoption and user demand 3. Analyze broadband strategies among providers $QDO\]HWKHJRYHUQPHQW¶VEURDGEDQGSROLcy 5. Discuss the obstacles to the deployment of broadband 6. Propose solutions to facilitate a more rapid deployment of broadband. While broadband includes ADSL, cable modems, ZLUHOHVV /$1V OHDVHG OLQH RSWLFDO ¿EHU and so forth, this chapter focuses mainly on ADSL and cable modems.
THE BROADBAND DEPLOYMENT According to a Point-Topic report conducted in 0DUFK7DLZDQKDVWKH¿IWKKLJKHVWEURDGEDQG household penetration in the world, only being surpassed by South Korea, Hong Kong, Iceland, and Israel (Cox, 2006). In July 2006, there were 5.25 million households (HHs) using the Internet, representing a 72.11% penetration, and 4.74 million households using broadband, or 65.05% of the HH population (TWNIC, 2006).
48
In Taiwan, the two major forms of broadband network technology are the cable modem and ADSL, with cable modem services having been in operation since the end of 1998. ADSL services started one year later than the cable modem services. Before the government opened up the ¿[HG QHWZRUNV &KXQJKZD 7HOHFRP &+7 WKH incumbent operator, monopolized the telecommunications market and hesitated to promote an ADSL service, fearing that the new broadband service might hurt leased line revenues from the business sector. When the government opened XS WKH ¿[HG QHWZRUNV LQ &+7 UHDOL]HG that it could not postpone the ADSL service any longer. After ADSL came on the market, it grew very fast. By the end of 2000, ADSL penetration surpassed that of cable modem. There were four main reasons for this: 1.
The NII established a penetration goal in July 2000 to reach three million users in three years. 7KH JRYHUQPHQW RSHQHG XS WKUHH ¿[HG networks in March 2000, all of which subsequently provided ADSL service. 3. The residential demand for broadband steadily increased. 4. Many ISPs started to provide ADSL services. Since competition within the broadband market KDVEHFRPHLQFUHDVLQJO\¿HUFHWKHFDEOHPRGHP providers have hesitated to invest more money to upgrade their one-way infrastructure to a two-way infrastructure. The situation resembles that of the chicken and the egg. If the cable modem providers do not upgrade their infrastructure, the subscribers will lose patience and might convert to ADSL services. A one-way cable modem is not only slow but also costs more, because the subscribers still have to pay the circuit fees. GigaMedia (owned by one of the multiple system operators, or MSOs) decided to provide ADSL service in addition to cable modem service in March 2001. In September 2002, there were only 241,495 cable modem subscribers. When the cable operators began to upgrade their systems to two-way,
Broadband Policy, Market Competition, and User Adoption in Taiwan
they had more cable modem subscribers. Eastern Multimedia Co., Ltd. (EMC) and China Network System Co., Ltd. (CNS) were the two MSOs providing broadband network services via cable modem. The two largest MSOs were both acquired by foreign companies in 2006. In September 2006, 3.96 million households subscribed to ADSL, while 415,962 subscribed to cable modem services (NCC, 2006). ADSL occupies 89% of the broadband market, while cable PRGHPLV 7KHLQFXPEHQW&+7¶V+L1HWKDV the largest share of the ADSL market (80.9%). 7KHWKUHHQHZ¿[HGQHWZRUNVDQGRWKHU,63VKDYH GLI¿FXOW\FRPSHWLQJZLWK+L1HW7KHLUWRWDOVKDUH of the ADSL market is only 19.1%. In September 2002, the non-HiNet broadband providers had a 34.07% market share. However, in September 2006, their market share dropped to 28.06%. In addition to the above two kinds RIEURDGEDQGXVHUVWKHUHDUH¿EHUXVHUV 28,541 leased line users, and 52,347 PWLAN users in Taiwan (FIND, 2006; NCC, 2006).
MAJOR FACTORS CONTRIBUTING TO BROADBAND DEPLOYMENT When broadband penetration in South Korea became the highest in the world, a great number of policymakers, industrialists, and scholars ZDQWHGWR¿QGRXWZKDWWKHNH\VXFFHVVIDFWRUV were. They found out that the key success factors
are government policy, industry competition, consumer demand, housing pattern, and cyber EXLOGLQJ FHUWL¿FDWH V\VWHP /HH &KDQ2OPsted, 2004). Broadband penetration in Taiwan ZDVWKH¿IWKKLJKHVWLQWKHZRUOGLQ0DUFK therefore, it is also important to know the key factors contributing to its high penetration. Strictly speaking, Taiwan cannot be considered to have been successful, for it still has some barriers to broadband deployment. Nevertheless, we can at this moment identify the factors that contributed to the rapid deployment of broadband in Taiwan, namely, the broadband policy, market competition, DQGFRQVXPHUV¶GHPDQG
Broadband Policy With regard to broadband policy, six measures are regarded as important to promote the deployment of the broadband network (Chien, 2003; Kao, 2003), as follows. Telecommunications Liberalization The process of telecommunications liberalization in Taiwan can be shown to consist of four stages (Chien, 2003; Hsieh, 2003): a.
b.
First Stage (1987-1995): Opening up customer premises equipment (CPE) and valueadded services Second Stage (1996-1998): Revising the Telecommunications Law and making DGT solely
Table 1. The growth of broadband users in Taiwan (NCC, 2006) ADSL
Cable
Date
Leased Line
PWLAN
Total
Non-HiNet
HiNet
Others
Modem
09/02
1,220,575
376,906
241,495
18,717
2,075
1,859,768
34.07%
09/03
1,806,177
515,682
446,132
21,392
7,750
2,797,133
35.24%
09/04
2,324,460
702,666
504,881
22,218
32,437
3,586,662
35.07%
09/05
2,843,267
787,574
559,910
21,706
41,330
4,253,787
33.07%
09/06
3,202,716
756,839
415,962
28,541
52,347
4,456,405
28.06%
Market Share
49
Broadband Policy, Market Competition, and User Adoption in Taiwan
c. d.
a governing agency and CHT a company that is heading toward privatization, and opening up the mobile and satellite communications markets Third Stage (1999-2000): 2SHQLQJXS¿[HG networks and international cable leasing Fourth Stage (July 2001-2003): Opening up international simple resale (ISR) and the 3G mobile phone market
The ROC government propagated two major Telecommunications Liberalization White Papers to liberalize the telecommunications industry .DR 7KH¿UVWRQHZDVUHOHDVHGLQ and was aimed at providing a fair and competitive environment; promoting technological progress; LPSURYLQJLQGXVWULDOHI¿FLHQF\ SURYLGLQJKLJK quality, diverse, and cheaper telecommunications services; and triggering economic development. The second Telecommunications Liberalization White Paper was propagated in 2002, and was aimed at constructing an international telecommunications environment, promoting universal service, improving the digital divide, promoting competition, providing creative and high-quality telecommunications services, and helping the development of the telecommunications industry (Chien, 2002; Hsieh, 2003). Revising the Telecommunications Law The 7HOHFRPPXQLFDWLRQV/DZZDV¿UVWLQWURGXFHG in 1958, and was later revised in 1977, 1996, 1998, DQG 7KHVLJQL¿FDQFHRIWKH YHUVLRQZDV that it separated the DGT from the CHT, meaning that the DGT would become a pure governing agency and would not manage CHT anymore. CHT has since been ordered to become privatized. In WKH ODZ ZDV UHYLVHG VLJQL¿FDQWO\ WR FRSH with the new telecommunications environment. For example, the foreign ownership restrictions were relaxed in order to encourage foreign investment. For Type I service, the direct foreign ownership ceiling was raised from 20% to 49%, while the indirect foreign ownership ceiling was raised to 60%. In addition, network interconnections constituted an important measure that was stipulated in
50
the 1999 law. The revised Telecommunications Law asked the dominant player CHT to rent its local loop to its competitors so that the consumers ZRXOG KDYH WKH FKDQFH WR FKRRVH WKH QHZ ¿[HG networks. Encouraging Competition The Telecommunications Liberalization White Paper and the Revised Telecommunications Law emphasized competition by opening up the telecommunications market and applying asymmetrical regulations such as network interconnections and unbundling that were imposed on the dominant player CHT. Public Land and Buildings The government also gave public land and buildings priority in order to establish the needed conduit infrastructure. It revised the rules regarding the installation of telecommunications facilities both inside and outside residential buildings in December 2001. It assured consumers that they had the right to choose a local telephone company. If Type I telecommunication services needed to pass through public or private land or buildings, or cable needed to be placed underground, the central and local governments were required to provide assistance. The application process was also shortened. Assistance in Providing Access to the Right of Way 7KHQHZ¿[HGQHWZRUNVVWLOOKDYHSUREOHPVZKHQ it comes to applying for the right of way from local governments. Therefore, the central government has formulated regulations regarding conduit sharing that the local government should adopt. Set Deployment Goal In 2002, the ROC government released the “Challenge 2008” National Development Plan, which consists of 10 projects. One of them involves setting a broadband deployment goal, whereby there are to be six million broadband household subscribers by the end of 2007. The “e-Taiwan” project launched at the end of 2001 has also been incorporated into it. Other goals included:
Broadband Policy, Market Competition, and User Adoption in Taiwan
1. 2. 3. 4. 5. 6. 7.
50% of the population using the Internet 70% of Internet subscribers using broadband A national backbone capacity of 1,250 Gbps An international backbone capacity of 250 Gbps Fiber-to-the-curb (FTTC) penetration reaching 95% Striving for next-generation broadband networks such as IPv6 and wireless LAN Allocating a NT$10.7 billion (US$0.3 billion) budget over six years to develop digital content industries (CEPD, 2002)
Market Competition and Broadband Strategies CHT is the incumbent operator of broadband in WHUPVRI¿[HGQHWZRUNVLQ7DLZDQ$OWKRXJKWKH government has been trying to privatize CHT, it is not yet completely privatized. More than 35% of the shares are still owned by the government. Its subsidiary HiNet provides ADSL service to both residents and the business sector, and dominates WKH '6/ PDUNHW EHFDXVH RI D ODVWPLOH EHQH¿W DQG LWV IRUPHU FKDLUPDQ 0DR &KLK.XR¶V PDQagement agenda. Before Mao Chih-Kuo came to CHT, he was the deputy minister of the Ministry of Transportation and Communications (MOTC). In that capacity, he had the opportunity to become well acquainted with the practices of the telecommunications industry. Realizing that the average revenue per user (ARPU) in the case of ADSL was higher than that in the case of local phone calls, KHDVNHG&+7¶VPDQDJHPHQWWHDPWRIRFXVPRUH RQ+L1HW¶V$'6/GHSOR\PHQWDQGPDUNHWLQJ+H set a goal to reach one million ADSL subscribers in 2001 and two million in 2002. He almost reached his goal (Chen, 2003), for there were over two million ADSL subscribers in January 2003. &+7¶VVWUDWHJ\KDVEHHQWRIRFXVRQEUDQGLQJDQG reliability, and so their ADSL price is higher than that of the ISPs. Although HiNet dominates the local loop, there are many other broadband providers such as the
QHZ¿[HGQHWZRUNV,63VDQGFDEOHPRGHPSURYLGers. The broadband strategies they adopt include promotion, bundling, advertisements, and price competition. They often use price competition and promotion strategies in tandem. Seednet is an ISP whose strategy is to focus on good service and lower prices. $VLD3DFL¿F%URDGEDQG7HOHFRPP $3%7 LV DQHZ¿[HGQHWZRUNWKDWIRUPHUO\KDGDIDPLO\ DI¿OLDWLRQZLWKWKHFDEOH062(0&,WDFTXLUHG DQ,63QDPHG$VLD3DFL¿F2QOLQH $32/ DQGEHcame the second largest provider in the Taiwanese broadband market. It formerly provided both ADSL and cable modem services. Its broadband strategy is to attract subscribers with its broadband content by offering online games and cheaper rates (Jeng, 2003). However, it sold its cable modem subsidiary back to EMC in 2006. GigaMedia not only provides cable modem service but also provides ADSL service. Because it hesitated to invest in upgrading to two-way cable in 2001-2002, it lost some of its one-way cable modem subscribers. As of August 2003, it had only 80,000 cable modem subscribers. Perceiving the drawbacks of one-way cable modem service, it no longer promotes one-way cable. In relation to its cable modem service, it provides a wide variety of cheap packages such as 512 k-64k, 1.5M-128K, and 6M-256K; for ADSL service, it provides 512 k-64k and 1.5M-384K. It provides DSL (512 k-512k) service as well (Chiang, 2003). 2WKHU QHZ ¿[HG QHWZRUNV VXFK DV 7DLZDQ Fixed Network (TFN) and SPARQ (New Century InfoCom Tech Co., Ltd.), because they are new entrants, still have problems regarding access to the last mile. They prefer to promote broadband to small and medium businesses and also Hi-building. Other ISPs such as Seednet and SoNet also promote ADSL actively. For instance, SoNet encouraged HiNet subscribers to switch to its service with gifts such as computers and digital cameras. In sum, the ADSL service area covers the whole country, while cable modem providers have designated service areas and thus have limited coverage. Additionally, people have more choices among ADSL providers. They can choose from IRXU¿[HGQHWZRUNVDVZHOODVRWKHU,63V,ISHRSOH
51
Broadband Policy, Market Competition, and User Adoption in Taiwan
Table 2. Comparison of cable modem and ADSL services Cable Modem
ADSL
Designated service area, limited coverage
Nationwide service area
Less choice
More choice
Not fully two-way
Chunghwa Telecom (HiNet) dominates last mile
One-way cable modem has to pay for the circuit fee
Interconnection takes time
Negative image
Better image
/HVV¿QDQFLDOUHVRXUFHV
0RUH¿QDQFLDOUHVRXUFHV
&DEOH79¶VDJHQGD WULSOHSOD\
+L1HW¶VWRSDJHQGD QHWZRUNHIIHFW
want to subscribe to cable modem, their choices are very limited, because there are only one or two cable TV operators in most cable TV-designated service areas. Since CHT at one time was the only telephone company providing local and long distance phone calls, people are more familiar with CHT than with the cable operators. Although CHT once monopolized the telecommunications market, people had fewer complaints regarding telephone companies than the cable operators. There are only two major cable modem providers, and some of their service areas are not fully two-way deployed. One-way cable modem subscribers have to pay the circuit fee. These subscribers are both time sensitive and price sensitive. When they cannot accept their phone bills, they tend to quickly switch to ADSL service. In recent years, the cable TV systems have been upgrading their services to two-way. It is obYLRXVWKDWWKH¿[HGQHWZRUNVKDYHPRUH¿QDQFLDO resources, but interconnection for the new entrants takes time. In short, the broadband providers have been trying to target different people by providing different packages and bundling strategies (Liu & Chen, 2002).
Consumer Demand: Broadband Adoption The following discussion is based on the secondary analysis of four surveys conducted by TWNIC via telephone between July 2003 and July 2006.
52
The valid samples of the four surveys were 5,523, 3,123, 3,059, and 3,192 (TWNIC, 2006).
7KH%URDGEDQG'HPRJUDSKLF3UR¿OH According to a TWNIC 2006 survey, men (63.82%) use broadband more than women (61.91%), and those people between the ages of 16-20 and 2125 tend to use broadband more than people of other ages (TWNIC, 2006). A total of 85.51% of the economic head of the broadband households KDYHDPDVWHU¶VGHJUHHDQGDERYHIROORZHGE\D university degree (79.96%).
Broadband Users’ Behavior Among the broadband users, people mostly use broadband at home (92.9%); 36.93% are at work, and 23.56% are at school. During the workday, 17.79% of the respondents spent 1-2 hours using broadband daily, while 15.9% spent 2-3 hours. With regard to the factors considered by the users in choosing the broadband suppliers, a survey conducted in July 2003 indicated that the major factors included fast speed (26.73%), cheaper price (20.03%), and stability (18.61%) (TWNIC, 2003). However, in July 2006, low cost was considered as the most important factor, followed by convenience, fast speed, and stability (TWNIC, 2006). In Taiwan, the local phone fee does not consist RIDÀDWUDWHDQGSHRSOHDUHFKDUJHGIRUWKHWLPH
Broadband Policy, Market Competition, and User Adoption in Taiwan
Table 3. Factors considered in choosing broadband suppliers Source: TWNIC (2003-2006)
1
2
3
4
July 2003
July 2004
July 2005
July 2006
Speed
Speed
6XSSOLHU¶V5HSXWDWLRQ
Cost
26.73%
19.84%
17.76%
18.68%
Cost
Cost
Cost
Convenience
20.03%
16.9%
15.03%
17.56%
Stability
6XSSOLHU¶V5HSXWDWLRQ
Stability
Speed
18.61%
12.88%
14.10%
17.23%
High Reliability
Friends or Relative
Speed
Stability
16.28%
Recommendation
12.52%
14.03%
9.84% 5
Friends or Relative
Stability
Friends or Relative
6XSSOLHU¶V5HSXWDWLRQ
Recommendation
9.08%
Recommendation
12.08%
16.19%
10.10%
Table 4. The main purposes for using broadband (multiple choice) (TWNIC, 2003-2006)
1
2
3
4
July 2003
July 2004
July 2005
July 2006
WWW
WWW
WWW
WWW
82.91%
71.71%
63.52%
70.99%
E-mail
E-mail
E-mail
E-mail
63.88%
50.63%
43.82%
47.5%
Online game
Online game
Search information
Search information
24.76%
18.11%
29.59%
34.38%
Download
Chat (MSN)
Online game
Chat (MSN)
15.83%
16.21%
21.16%
25.77%
they use. Therefore, it is very expensive to use dialup or one-way cable modem for a long period of time. One-way cable modem subscribers are time sensitive and price sensitive. When they no longer appreciate the speed of dial-up, they will be easily attracted by the promotion of broadband. What do people do with broadband? The two main purposes for using broadband from 2003 to 2006 were browsing Web pages and using e-mail. It is important to realize that broadband users do not utilize the characteristics of broadband very well, because they do not emphasize the use RI GRZQORDGLQJ DXGLR DQG YLGHR ¿OHV 0RVW RI the broadband users do not want to pay for the
broadband content. They think they can easily download the unlicensed music or movies free of charge (Chen, 2003).
Problems Encountered by Broadband Users Broadband users are still confronted by some problems. Those they encountered most were slow GRZQORDGVSHHGLQVWDELOLW\DQGWUDI¿FFRQJHVWLRQ during peak hours (TWNIC, 2006). Because cable modem users have to share the cable modem capacity in the same hub with other users, the chances RI WKHLU EHLQJ IDFHG ZLWK WUDI¿F FRQJHVWLRQ DQG
53
Broadband Policy, Market Competition, and User Adoption in Taiwan
Table 5. Problems encountered by broadband subscribers (TWNIC, 2003-2006)
1
2
July 2003
July 2004
July 2005
July 2006
Slow download speed
Slow download speed
Instability
Slow download speed
54.46%
26.13%
20.73%
20.65%
Instability
Instability
Slow download speed
Instability (poor connection
38.88%
19.7%
20.29%
quality)
Slow upload speed
Slow upload speed
7UDI¿FFRQJHVWLRQGXULQJ
7UDI¿FFRQJHVWLRQGXULQJ
25.59%
13.4%
peak hours
peak hours
10.89%
13.14%
Too expensive
Worries over virus
Worries over virus
Slow upload speed 12.01%
19.8%
11.03%
9.49%
19.82% 3
4
Table 6. Reasons for not subscribing to broadband (TWNIC, 2003-2006)
1
2
3
July 2003
July 2004
July 2005
July 2006
No demand
No demand
No demand
No demand
39.76%
41.04%
49.25%
60.01%
Lack of time
Lack of hardware
Lack of hardware
Lack of hardware
29.63%
30.87%
22.78%
15.25%
Too expensive
Lack of time
Lack of time
8VHU¶VDJHLVWRRROGRUWRR
21.47%
8.09%
10.01%
young 14.55%
slower speeds are higher than for ADSL users. Theoretically speaking, the ADSL infrastructure is more secure than that of the cable modem. However, it seems that ADSL users are more worried about Web security than cable modem users (Liu & Chen 2002). Among the broadband subscribers, only 9.16% ZHUHQRWVDWLV¿HGZLWKWKHEURDGEDQGVHUYLFHV$V for the reasons why some dial-up users have not adopted broadband, the answers are no demand and lack of hardware (TWNIC, 2006).
BROADBAND CONTENT 'XULQJWKH¿UVWVWDJHRIEURDGEDQGGHSOR\PHQW fast speed was important to the wide deployment
54
of broadband. At that time, the broadband operators provided many promotions regarding speed, and they lowered their prices to attract users. For instance, when CHT started to provide ADSL service in 1999, its online fee for 512 K was NT$1,299 (US$39) per month; it lowered its price to NT$499 (US$15) (Chen, 2003). The circuit fee was NT$595 in 2003; it was NT$410 for 1 M in February 2007. (The subscribers must pay for both online fees and circuit fees each month). Since the penetration of broadband household reached 65% in July 2006, the growth of broadband subscribers will slow down. Therefore the content of broadband will be considered the next important driving force. webs-tv and hiChannel are the two major broadband content aggregators developed in 1999 and 2000. As they grew in the market, the telephone
Broadband Policy, Market Competition, and User Adoption in Taiwan
companies and ISPs started to promote high-speed Internet. The reasons they could grow included: (1) the large bandwidth of the content aggregators, (2) the promotion of broadband connections, and (3) the support of the content providers (Liu, 2006). hiChannel is owned by CHT and Elta. In July 2005, it had 90 partners and 150 channels, including terrestrial channels, cable channels, and other movie channels. Its business model is to split the revenues with the content providers on the basis of a 3:2:5 ratio (CHT, Elta, content providers). CHT is responsible for the video server, storage, bandwidth, and billing; Elta is responsible for aggregating the content and digitizing the content; and the ICP is required to provide the content with the copyright &KHQE 7KH¿[HGQHWZRUNVDQGWKHFDEOH modem operators each have their own Web sites. They all provide content, but are not as attractive as hiChannel. hiChannel is an open platform and KDVWKHDGYDQWDJHRI&+7¶VODVWPLOHDQGEUDQGLQJ Thus, many content providers are willing to come to this platform because of the network effect. webs-tv positioned itself as a Web multiple system operator. It has formed strategic alliances ZLWKVHYHQSDUWQHUVLQFOXGLQJ¿[HGQHWZRUNVDQG ISPs such as anet.tv, sparq.tv, GigaTV, SonetTV, BTV, avplus.tv, and estv. webs-tv is responsible for aggregating the contents and managing the VHUYLFHV7KH¿[HGQHWZRUNVDQG,63VRQO\VXSport the bandwidth and connection. The users can choose any ISP to receive the broadband content service. In order to provide better quality content, webs-tvKDVORFDWHGLWVVHUYHUVLQHDFKSDUWQHU¶V territory (Chen, 2003a).
OBSTACLES TO BROADBAND DEPLOYMENT In order to understand the obstacles to broadband deployment, the author conducted several focus groups between 2001 and 2005. In late November 2006, the author interviewed the vice presidents of WKUHHQHZ¿[HGQHWZRUNVDQGWKHJHQHUDOPDQDJHU of an ISP, SeedNet, to update the status quo of the broadband development. The author found that the problems ADSL providers are confronting now
are the same with the problems they confronted ¿YH\HDUVDJR ODFNRIWKHODVWPLOH ORFDO loop unbundling, (3) wholesale price, and (4) local government attitudes. &+7¶V+L1HWDFFRXQWVIRUPRUHWKDQRI WKH$'6/PDUNHWVKDUHZKLOHWKHRWKHUWKUHH¿[HG networks only have less than 3% of the ADSL market individually (TWNIC, 2006). The main UHDVRQIRUWKLVLVWKDWWKHQHZ¿[HGQHWZRUNVODFN the last mile. It is dominated by CHT. There have been many disputes between CHT and the new ¿[HGQHWZRUNV(YHQWKRXJKWKHUHYLVHG7HOHFRPmunications Law stipulates that the dominant CHT must provide “network interconnection” and lease LWVODVWPLOHWRWKHQHZ¿[HGQHWZRUNV&+7KDV been trying to postpone renting its local loop. In WKHEHJLQQLQJ&+7¶VH[FXVHZDVWKDWLWKDGWREX\ new equipment and upgrade its facilities in order to provide network interconnection . Although CHT is to be privatized, it is still partially state-owned (35%), and its budget has to be approved by the Legislative Yuan. For this reason, it takes time to upgrade its facilities. The former regulator (DGT) WULHGWRDUELWUDWHEHWZHHQ&+7DQGWKHQHZ¿[HG networks, but the contract disputes over rental fees, termination terms, and maintenance responsibility have not yet been resolved. Therefore, the three ¿[HGQHWZRUNVKDYHOHVVWKDQRIWKHORFDOSKRQH VHUYLFH0RVWRIWKHQHZ¿[HGQHWZRUNVVWLOOKDYH to use the HiNet local loop when they provide ADSL service. The second and third obstacles are related to the ¿UVWREVWDFOH:KHQWKHQHZ¿[HGQHWZRUNVDQG RWKHU,63VZDQWHGWRXVH&+7¶VORFDOORRS&+7 did not apply local loop unbundling. Therefore, the applicants were forced to pay more fees than they expected. As for the wholesale price, the new ¿[HGQHWZRUNVDQGRWKHU,63VDOOFRPSODLQHGWKDW &+7¶VZKROHVDOHSULFHIRUWKHORFDOORRSDQGWKH connection fees were too high. The new regulator National Communications Commission (NCC) has been devoted to these issues since its establishment in February 2006. It set up a range for CHT to drop its wholesale price in November 2006 (http://www. QFFWZ :KHWKHUWKHSROLF\ZLOOKHOS&+7¶VFRPpetitors to develop their broadband services, it is still premature to conclude.
55
Broadband Policy, Market Competition, and User Adoption in Taiwan
The fourth obstacle is that local governments RIWHQDVNWKHQHZ¿[HGQHWZRUNVWRKHOSWKHORFDO interests if they want to deploy lines and engage in FRQVWUXFWLRQORFDOO\7KHQHZ¿[HGQHWZRUNVQHHG to apply for licenses or documents from the local government if they wish to dig roads or deploy lines either on the ground or underground. If they do not “contribute” something to the local government, or local interests, they might be confronted ZLWKGLI¿FXOWLHV6HHLQJWKLVREVWDFOHWKHFHQWUDO government has instructed the local governments WRKHOSWKHQHZ¿[HGQHWZRUNVGHSOR\IDVWHU The cable modem providers are often confronted with four major problems: (1) the economies of scale are too small, (2) the service area is restricted to its franchise area, (3) upgrading to two-way cable PRGHPVLVH[SHQVLYHDQG WKHLQGXVWU\¶VLPDJH is more negative. First, the designated service areas for cable television in Taiwan consist of 47 areas. Each cable operator is limited to operating in its franchise area. Since Taiwan covers only 36,000 square kilometers and the population is only 22.5 million, the economies of scale to be achieved in cable television are very small. The same applies to the cable modem operators. Second, the cable modem service is provided by its MSO. Since the cable television service area is restricted to its franchise area, these service providers will usually not serve cable modem to the people who do not subscribe to their cable systems, because they will be confronted with too PDQ\GLI¿FXOWLHVUHODWHGWRPRQRSRO\HI¿FLHQF\ interconnection, and so forth (Chiang, 2003). Third, upgrading to a two-way cable modem is expensive. Since cable operators hesitated to invest money in order to upgrade to a two-way cable modem, some of their one-way cable modem subscribers switched to other services. Therefore, the big MSOs realized the importance of two-way services and started to upgrade their services. Fourth, cable operators formerly had a negative image, because they started to operate before the government granted them franchises. They were regarded as illegal operators before 1993 when the Cable Television Law was passed. In addition, there were many disputes between cable operators and cable channels regarding the program loyalty fees several years
56
ago. The subscribers do not feel very secure in subscribing to cable modem because of the negative past records of cable operators. In 2006, the two largest MSOs were acquired by foreign companies which guaranteed to the regulator NCC that they would continue to invest in upgrading their cable infrastructure.
SOLUTIONS PROPOSED BY THE GOVERNMENT AND THE BROADBAND INDUSTRY The biggest obstacle to broadband deployment is WKDWWKHQHZ¿[HGQHWZRUNVGRQRWKDYHHQRXJK time or budget to build the local loop throughout WKHZKROHFRXQWU\(LJKW\¿YHSHUFHQWRIWKHORFDOORRSRIWKHQHZ¿[HGQHWZRUNVLVUHQWHGIURP HiNet. In order to solve the problems arising from lacking a local loop, the National Information and Communications Initiative Committee (NICI), a cabinet-level committee, coordinated with the Ministry of the Interior (MOI) and the Ministry of Economic Affairs (MOEA) to propose the “M-Taiwan Program” with a budget of NT$37 billion (US$ 1.14 billion) from 2005 to 2009. The M-Taiwan Program is viewed as the key initiative WUDQVIRUPLQJ7DLZDQLQWRDµXELTXLWRXVQHWZRUN VRFLHW\¶ 816 17ELOOLRQZLOOEHDOORFDWHG WR EXLOG WKH VHFRQG EDFNERQH IRU WKH QHZ ¿[HG networks. NT$7 billion will be allocated to build up seamless wireless networks (http://www.nici. nat.gov.tw/). The local government is to maintain WKH IDFLOLWLHV DQG UHQW WKHP WR WKH SULYDWH ¿[HG networks. In this case, the local government can collect rents and have more incentives to help the ¿[HGQHWZRUNV)XUWKHUPRUHWKHQHZ¿[HGQHWworks will not have to wait to negotiate with CHT to get the local loop, for they can rent it from the local government directly. They think that this is a more effective means of encouraging competition. +RZHYHUDOOWKHQHZ¿[HGQHWZRUNVFULWLFL]HWKDW they do not need a second backbone. They only need the last mile to the users. Believing that “content is king,” the government has also propagated its digital content policy. It developed a sequence of digital content training
Broadband Policy, Market Competition, and User Adoption in Taiwan
programs to train the content specialists. In addition, in April 2003 the Executive Yuan decided to HVWDEOLVKDVSHFLDORI¿FHWRSURPRWHDQGGLUHFWWKH GLJLWDOFRQWHQWLQGXVWU\7KHRI¿FHKDVVL[GLYLVLRQV including software, telecommunications application, digital learning, video, animation, and games. The government and the broadband industry hope that the content providers can develop more killer applications of broadband content, which can act as an impetus for additional broadband subscription and deployment.
CONCLUSION Taiwanese experience of rapid broadband deployment indicates that government policy, industry promotion and competition, and the demands of consumers are the major factors contributing to broadband penetration. The consumers are interested in fast speeds and more bandwidth, but are also very concerned about the price. If the prices of broadband services offered by the different providers do not differ too much, the consumers will be more concerned about the branding and stability of the providers. Since the dominant CHT enjoys RIWKHORFDOORRSWKHQHZ¿[HGQHWZRUNVDQG RWKHU,63VFDQQRWFRPSHWHZLWK&+7¶V+L1HWLQWKH broadband market on an equal footing. Therefore, WKHUHJXODWRU1&&VKRXOGEHYHU\¿UPZLWKUHJDUG to executing the interconnection policy stipulated in the Telecommunications Law. To have six million household broadband subscribers by the end of 2007 is a goal set up in the Challenge 2008 National Development Plan. In September 2006, there were 4.45 million broadband households. Since the broadband users in some apartments and communities are not counted, the broadband subscribers should be closer to 4.72 million. It is expected to reach 5.3 million at the end of 2007. It does not seem to be easy to reach 82.36% household broadband penetration by the end of 2007. Now that the second backbone will not help much for the new broadband deployment, the most practical and effective way to solve the interconnection problem is to force CHT to rent its local
loop and provide reasonable wholesale prices to the QHZ¿[HGQHWZRUNVDQGRWKHU,63V0HDQZKLOHLW is also important to develop digital and broadband content. This might serve as a driving force for broadband penetration. However, most surveys indicate that the consumers are not ready to pay for the broadband content (Liu & Chen, 2002; TWNIC, 7KHUHDUHWZRPDLQUHDVRQVIRUWKLVWKH¿UVW being that the bandwidth is not broad enough to support the broadband content, and the second that WKHEURDGEDQGFRQWHQWLVQRWVXI¿FLHQWO\DSSHDOLQJ Therefore, there is much scope for improvement on the part of the broadband providers, namely, through their providing more bandwidth to the broadband subscribers and developing more killer applications of the broadband content.
REFERENCES CEPD (Council for Economic Planning and Development). (2002). Challenge 2008, National Development Plan, Executive Yuan. Retrieved August 25, 2006, from http://www.cepd.gov. tw/2008/challenge2008.pdf Chen, M. (2005a). CEO, webs-tv. Interview by author, January 17, 2005. Chen, S. (2005b). President of Elta. Interview by author, June 9, 2005. Chen, Y.C. (2003). Managing Director, Operations Management Department, Data Communication Business Group, CHT. Interview by author, August 10, 2003; February 13, 2007. Chiang, B. (2003). Technician, GigaMedia. Interview by author, September 1, 2003. Chien, J.T. (2003). How do Taiwanese telecommunications policy and regulations cope with WTO? Teaching Materials, National Chengchi University, Taiwan. Cox, T. (2006). World broadband statistics: Q1 2006. Retrieved August 25, 2006, from www. point-topic.com
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Broadband Policy, Market Competition, and User Adoption in Taiwan
FIND (Focus on Internet News and Data). (2003). 2002 family connectivity and application survey. Retrieved August 27, 2006, from http://www. find.org.tw/0105/howmany/howmany _disp. asp?id=46 Hewett, K. (1997). Digital subscriber line: The route to broadband. London: Ovum. Hsieh, A. (2003). Telecommunications development and policy in China. In Y.L. Liu (Ed.), Telecommunications. Taiwan: Yeh Yeh Book Gallery. Jeng, J. (2003). President of Eastern Broadband Telecom Co., Ltd. Interview by author, September 1, 2003. Johnson, T., & Butt, H. (2003). Cable competition in broadband markets. Retrieved October 3, 2003, from www.point-topic.com Kao, B. (2003). Telecommunications policy and regulations. In Y.L. Liu (Ed.), Telecommunications. Taiwan: Yeh Yeh Book Gallery. Lee, C., & Chan-Olmsted, S.M. (2004). Comparative advantage of broadband Internet: A comparative study between South Korea and the United States. Telecommunications Policy, 28, 649-677. Liu, Y.L. (2006). Bandwidth, connection and access: Analyzing the business models of Webcasters in Taiwan. In L. Ha & R.J. Ganahl III (Eds.), Webcasting worldwide: Business models of an emerging global medium. Hillsdale, NJ: Lawrence Erlbaum. Liu, Y.L., & Chen, C.H. (2002). Service quality and user satisfaction of the broadband communication services. National Science Council Project, Executive Yuan, Taiwan. Liu, Y.L., Chen, C.H., Cheng, C.W., & Chu,Y.S. (2003). An analysis of narrowband and broadband user behaviors in Taiwan 2001-2002. Information Society, (July), 59-99. TWNIC. (2003-2006). A survey of the Internet users in Taiwan. Taiwan.
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Yen, C.C. (2003). Former Managing Director, Multimedia Department, Northern Taiwan Business Group, CHT. Interview by author, August 28, 2003.
KEY TERMS ADSL: Asymmetrical digital subscriber line. Cable Modem: Modem used to provide highspeed Internet with a cable distribution system. Challenge 2008: The government of Taiwan in May 2002 launched the Challenge 2008 National Development Plan, which emphasizes such goals as strengthening international competitiveness, XSJUDGLQJWKHSHRSOH¶VTXDOLW\RIOLIHDQGSURPRWing sustainable development. Chunghwa Telecom: 7KH LQFXPEHQW ¿[HG networks in Taiwan. ISP: Internet service provider. LAN: Local area network. A group of devices that can communicate with each other within a limited area. Last Mile: Also known as local loop. It is the telephone line that runs from the local telephone FRPSDQ\WRWKHXVHU¶VSUHPLVH Leased Line: Also known as private or dedicated lines. It can be used to transmit voice, data, or video. Companies that rent leased lines pay a monthly fee for the leased lines that are exclusive to the companies that lease them. M-Taiwan: A key initiative to transform Taiwan LQWRDµXELTXLWRXVQHWZRUNVRFLHW\¶LQZKLFKWKH SXEOLFFDQIHHOWKHEHQH¿WVRIµHHQDEOHPHQW¶ National Communications Commission (NCC): A converged government agency regulating telecommunications and electronic media. It is also an independent government agency established in February 2006.
Broadband Policy, Market Competition, and User Adoption in Taiwan
National Information and Communications Initiative Committee (NICI): A cabinet-level committee that is responsible for accelerating the development of the IT industry.
laborates with international network information organizations such as ICANN and APNIC, as well as other national Internet organizations such as JPNIC, CNNIC, and KRNIC.
Taiwan Network Information Center (TWNIC): Oversees domain name registration and IP address allocation in Taiwan. TWNIC col-
Unbundling: The separation of all the components offered by the telecommunications operators so that the tariff for each component is transparent.
59
60
Chapter V
ICT Competency of Bangladesh to Face Broadband Diffusion Anwarul Islam 3ULPH0LQLVWHU V2I¿FH%DQJODGHVK K.C. Panda Sambalpur University, India
ABSTRACT The bull’s eye of Bangladesh has to achieve the millennium development goal and to adapt the globalization, necessitate pursuing the development. Information is playing a driven force in development. As a developing country, Bangladesh has taken keen initiatives to develop its sustainable information infrastructure. Teledensity and overall IT infrastructure is now in a growing stage. Recently, Bangladesh ZDVFRQQHFWHGZLWK6($0(:(VXEPDULQHFDEOHHVWDEOLVKLQJDQRSWLFDO¿EHUEDFNERQH LWVWHOHdensity is changing in rapid pace. But the broadband diffusion in Bangladesh is not on par with other Asian countries, as it is in an embryonic stage in broadband diffusion. This chapter, therefore, tries to show the initiatives taken and the existing condition of Bangladesh to fetch the countrywide broadband diffusion. Efforts have been made in this chapter to unmask the overall development of ICT infrastructure in Bangladesh, so to judge the environment of broadband diffusion in the country.
INTRODUCTION %DQJODGHVK¶VVWDQGRQWKH,&7GLIIXVLRQLQGH[E\UHgional groupings does not look goodBangladesh remains at the bottom in South Asia with a rank of 164 in 1997, 171 in 2001, and 171 in 2004even though the country actually has greatly progressed in terms of cellular phone penetration (Rahman, 2006). Some of the Asian countries are successful and experienced in ICT, as well as broadband diffusion. Korea, Japan, China, Singapore, and Hong Kong are successful e-society creators. Even
India has taken substantive initiatives in various SXEOLFDQGSULYDWH¿HOGVWRHVWDEOLVKDQH,QGLD It is important to learn from the experiences of successful Asian economies so as to create or foster broadband demand and provide necessary support on regulatory and policy aspects on the supply side. An effective framework of cooperation among Asian economies needs to be developed for deployment of broadband and to bridge the digital divide. Some of the measures that could be considered to create an effective broadband network environment in Asia are: preparation of roadmaps
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ICT Competency of Bangladesh to Face Broadband Diffusion
for broadband economy at state and regional levels; undertaking collaborative programs for broadband proliferation; and developing school-nets, education and research nets, library nets, community information centers, and IGrid. Bangladesh is a South Asian developing country. Its area is 1, 47, 570 square kilometers (without sea area) with the population of 138.8 million; density of the population is 941 per square kilometer (projected in 2006). Per capita income is US$482, while the per capita GDP (gross domestic product) is US$456. Per the DCI (Direct Calorie Intake) method, the percentage of poverty is 40.9 (Ministry of Finance, 2006, p. xvii). Bangladesh has completed 35 years as an independent country and has been trying hard to get rid of the curse of poverty. Bangladesh comprises six divisions, 64 districts, 507 police stations/upazilas, and about 86,000 villages. The headquarters of the six divisions are governed by City Corporations (a specialized local government). Information and communication technology (ICT) is declared as a thrust sector of Bangladesh (Ministry of Science and Information & Communication Technology, 2002). The government has changed the name of Ministry of Science and Technology to Ministry of Science and Information & Communication Technology, which has revolutionized the globalization and market economy, DV WKH FRXQWU\¶V HFRQRPLF SURJUHVV LV YLUWXDOO\ impossible without the development of this sector. The cabinet has approved the National ICT Policy DQGWKH,&7$FWWRKHOSWKH,&7VHFWRUÀRXULVKLQ the country. In addition, the Copyright Act of 2000 has been amended, incorporating issues relating to software intellectual property right (IPR) (Ministry of Finance, 2005, p. 159). This chapter includes descriptions of literature reviews, the current National ICT Policy of Bangladesh, the enabling ICT infrastructure, national DQG%77%LQLWLDWLYHVWKHFRXQWU\ZLGHRSWLFDO¿EHU network, BTRC in communication development, teledensity, connectivity with submarine cable, ISP, Internet, and broadband.
LITERATURE REVIEWED Consistent policies for competition in telecom include policy measures to induce broadband network building and policy measures to boost demand for broadband. Korea took several measures to nurture the IT industry in 1985-1987. This led to systematic dissemination of broadband vision through various initiatives including the emerging of the National Basic Information System (1987-1996), Korean Information Infrastructure Initiative (1995-2005), National Framework Plan for Informatization Promotion (1996-2000), Cyber Korea 21 (1999-2000), and E-Korea Vision 2006 (2002-2006) (Agrawala & Shera, 2004, p. 16). In December 2005, four countries (Iceland, Korea, The Netherlands, and Denmark) led the OECD (Organization for Economic Cooperation and Development) in broadband penetration, each with more than 25 subscribers per 100 inhabitants. Iceland now leads the OECD with a broadband penetration rate of 26.7 subVFULEHUVSHULQKDELWDQWV.RUHD¶VEURDGEDQG market is advancing to the next stage of development where existing subscribers switch platforms IRU LQFUHDVHG EDQGZLGWK ,Q .RUHD ¿EHUEDVHG broadband communications grew 52.4% during 2005. This switchover effect is evident by the net loss of DSL (-3.3) and cable (-1.7%) subscribers during the year. Iceland takes over from Korea as broadband champ (OECD, 2005). The Global Information Technology Report 2002-2003 monitors the progress in networked readiness that is undoubtedly occurring in various parts of the world, and reveals the obstacles that prevent countries from IXOO\FDSWXULQJWKHEHQH¿WVRI,&7DQGEURDGEDQG The Networked Readiness Index (NRI) is the relationship between networked readiness and key variables such as gross domestic product per capita, ICT expenditure, and Internet usage. The index is composite of three components: the environment for ICT offered by a given country or community; WKHUHDGLQHVVRIDFRPPXQLW\¶VNH\VWDNHKROGHUV (individuals, businesses, and government) to use ,&7 DQG¿QDOO\WKHXVHRI,&7E\WKHVHVWDNHKROGers. The top 10 countries, as per the Networked Readiness Index, are: Finland, the United States, Singapore, Sweden, Iceland, Canada, the United
61
ICT Competency of Bangladesh to Face Broadband Diffusion
Kingdom, Denmark, Taiwan, and Germany. It also showed the Networked Readiness Index of Asian countries. Singapore is the only Asian country; it ranked third in 2003. Korea and Australia are ranked 14 and 15, while Hong Kong and Japan are ranked 18 and 20. Other Asian countries are ranked much lower as far as networked readiness is concerned. But the scenario shows changes in the report as of 2005. The report shows that the U.S. GURSSHGIURP¿UVWWR¿IWKLQWKHUDQNLQJVZKLFK measures the propensity for countries to exploit the opportunities offered by information and communication technology. Iceland, Finland, and Denmark occupy positions two, three, and four out of 104 countries surveyed, with Iceland achieving the most improvement among the top countries, moving up from tenth last year. ,QGLDDQG&KLQDVLJQL¿FDQWO\LPSURYHGWKHLUSRVLtions climbing to numbers 39 and 45, compared to 45 and 51 in 2003, respectively (Forbes, 2005). ICT diffusion is the pre-term of broadband diffusion. ICT diffusion to the poor people of third-world countries is meager, where foremost parts of the population do not have competence in reading and writing. In an interview Onno Purbo, an Indonesian IT teacher, indicated two major factors for this: “For poor people in Indonesia, there are two major barriers (poverty and illiteracy), mainly because of the society. Most of the poor people cannot read and write. So they would be fairly incidental. I see these only as a tool. For [the] listen and talk community, maybe radio and television would be appropriate. For [the] read and write community…Internet and computer would be appropriate.” (Purbo, 2007)
NATIONAL ICT POLICY: A PATHFINDER The National ICT Policy of Bangladesh was passed in October 2002 and was divided into four parts: (a) Preamble, (b) Vision and Objectives, (c) Policy Statements, and (d) Implementation and Monitoring. The preamble mentions that the policy is a guideline for the development of the ICT sector
62
in Bangladesh as a part of the overall national development plan. This policy aims at building an ICT-driven nation comprising a knowledgebased society by the year 2006. In view of this, a countrywide ICT-infrastructure will be developed to ensure access to information by every citizen to facilitate empowerment of people and enhance democratic values and norms for sustainable economic development by using the infrastructure for human resources development, e-governance, e-commerce, e-banking, public utility services, and all sorts of online ICT-enabled services (Ministry of Science and Information & Communication Technology, 2002). The above mentioned major statements of the National ICT Policy may have some drawbacks or may have included more than expectations. HowHYHULWLVRQO\DSUHGH¿QHGJXLGHOLQHIRUDFKLHYLQJ the national expectation to handle ICT for social interest. Especially in a developing country, most RIWKHSROLFLHVDUHµSDSHUGRFXPHQWV¶DVLPSOHmentation of the whole policy remains a myth DQGLVKDUGO\IXO¿OOHG/LNHWKLVDSRUWLRQRIWKH National ICT Policy has been implemented, not as a direction of the policy, but these are considered DVWKHSDWK¿QGHULQDFKLHYLQJWKHJRDOV
BTTB in Information Communication The Bangladesh Telegraph and Telephone Board (BTTB) is playing a vital role in information and communication. For developing the telecommunication, BTTB has been taking various steps and making a steady progress. In the meantime, BTTB has established 71 digital data network (DDN) nodes in 41 district towns. Presently, BTTB is providing Internet service in all the districts (64 districts) and some sub-districts (upazila level) where the digital exchange services are available. For the development and extension of Internet service, BTTB has installed remote access servers (RASs) in 39 districts instead of Nation Wide Dialing (NDW) channel. It has increased the number of international circuits to 8,401; it is providing low-cost telephone service in 25 countries. To develop and modernize the telephone system at the upazila level, small-size digital exchanges at 92
ICT Competency of Bangladesh to Face Broadband Diffusion
Table 1. Major policy statements of the National ICT Policy of Bangladesh Fields Training and Human Resources Development
Focused On Production of skilled manpower in ICT to compete effectively in the global ICT market.
ICT Infrastructure
Appropriate ICT infrastructure should be established both in public and private sectors, so as to establish direct connectivity with international information and communication backbone.
Research and Development in ICT
Contributing in applied research to the improvement of quality DQGHI¿FLHQF\RIDSSOLFDWLRQWRWKH,&7LQGXVWU\
ICT Industry
To encourage the entrepreneur, government is providing
(i) Software Industry
¿QDQFLDODQGORJLVWLFVXSSRUWWRHVWDEOLVKWKHVHLQGXVWULHV
(ii) Hardware Industry (iii) Services Industry E-Commerce
Government shall make preparation to introduce and promote G2G (government-to-government) and G2B (government-tobusiness) transactions.
E-Government/E-Governance
Government shall introduce ICT system within the public DGPLQLVWUDWLRQWRLPSURYHHI¿FLHQF\UHGXFHZDVWHRI resources, enhance planning, and raise the quality of services.
Legal Issues
Software copyright provisions embodied in the Copyright Act of 2000 shall be implemented promptly.
Healthcare
ICT should be used to develop such capabilities, especially in the areas of electronic medical records, telemedicine, medical and health education, and so forth.
Agriculture and Poverty Alleviation
Initiative will be taken to utilize ICT system in agro-based industries and agricultural research.
Social Welfare
ICT system will be implemented for rural development DFWLYLWLHVDJULFXOWXUDOKRUWLFXOWXUH¿VKHULHVOLYHVWRFN extension, career guidance for youth, technology guidance for rural enterprises, micro-level planning, and so forth.
Transportation
Introducing an ICT-based integrated transport management system.
Tourism
Launching tourist attraction activities via the Internet and providing reservation for travel and accommodation booking and shopping.
Judiciary
To enhance the capacity of the judiciary, computer-based MIS with suitable WAN and LAN will be established for the Supreme Court and for the District Courts and Tribunals.
Regional and International Cooperation
The concern ministry (Ministry of Science and ICT) shall explore regional, sub-regional, and international cooperation and ICT with developed and developing countries, as well as with relevant international agencies and development partners.
63
ICT Competency of Bangladesh to Face Broadband Diffusion
upazilas (sub-districts) of the country have already been installed by using the “Resource Mobilization and Services” fund. In the meantime, a total of 216 upazilas and 8 growth centers have already been provided with the facility of digital exchanges by utilizing the fund available through the ongoing project titled, “Installation of Digital Telephone Exchange in Upazilas and Growth Centers.” In addition to normal NWD and ISD facilities, Internet services will also be available to the subscribers of digital exchange (Ministry of Finance, 2006, p. 118) in the days ahead.
6RXWK$VLD .KDQ ,Q WKHRSWLFDO¿EHU network was completed for Bangladesh Railway along with the installation of digital switching (Islam & Rahman, 2006, pp. 135-146). After a few years, Bangladesh Railway leased its 1,800NLORPHWHURSWLFDO¿EHUEDFNERQHWRWKH*UDPHHQ Phone (a private cellular phone operator). In 2001, %77% VWDUWHG LQWHUH[FKDQJH RSWLFDO ¿EHU QHWworking and major city networking respectively. 7KH 1RUWK6RXWK OLQN WKURXJK WKH RSWLFDO ¿EHU backbone has already been completed and/or is being upgraded by BTTB as:
Optical Fiber Network in Bangladesh
• • • •
With the Norwegian untitled grant, worth US$15.99 PLOOLRQ WKLV¿JXUHKDVEHHQFRQYHUWHGIURP%DQgladesh currency taka, where the present rate is US$1 = 66.57 taka) in 1985, Bangladesh Railway EXLOWWKLV¿UVWRILWVNLQGWHOHFRPLQIUDVWUXFWXUHLQ
•
Dhaka-Chittagong Link Bogra-Gobindaganj-Rangpur Link Rangpur-Lalmonirhat Link Syeedpur-Dinajpur-Thakurgaon-Panchagar Link Sirajganj-Pabna Link
)LJXUH%77%RSWLFDO¿EHUEURDGEDQGQHWZRUNLQ%DQJODGHVK
64
ICT Competency of Bangladesh to Face Broadband Diffusion
•
Comilla-Brahmanbaria Link and Feni-Lakshmipur Link
,QDGGLWLRQWRWKHVHOLQNVWKHZRUNRI¿YHPRUH links are in progress and some of them have already been completed. These links, which deserve mention, are: • • • •
Gazipur-Mymensing-Tangail Link Tangail-Sirajganj-Bogra Link &R[¶V%D]DU&KLWWDJRQJ/LQN Brahmnbaria-Moulavibazar-Sylhet Link Kushtia-Satkhira Link
The Bogra-Natore-Rajshahi-Chapai Nawabganj Link and Dhaka-Srinagar-Munshiganj Link are under implementation. The above mentioned links are unable to cover the entire country to establish a smooth information infrastructure. Owing to this, BTTB has successfully established some Synchronous Digital Hierarchy (SDH) microwave networks. Also, some of these areas are costal areas and a lot of tributary rivers expand their nets. As a result, these areas could not be covered easily
E\ RSWLFDO ¿EHU EDFNERQH 6RPH 6'+ 670 microwave links are: • • • • • • • • • • •
Dhaka-Manikganj-Faridpur-Magura Link, Magura-Jenaidha-Kushtia-Pabna-Natore Link Magura-Jessore-Khulna Link Natore-Naogaon-Bogra-Joypurhat-Barishal Link Natore-Rajshahi Link Khulna-Bagehat-Perojpur-Jhalokathi-Barishal Link Khulna-Gopalgamj-Madaripur-FaridpurRajbari Link Madaripur-Sariatpur Link Barishal-Patuakhali Link Barishal-Bhola-Lakshmipur Link Rajbari-Faridpur Link
Submarine Cable: Connecting with Information Superhighway Telecom transmission media has changed radically with the passage of timefrom HF to satellite to
Figure 2. BTTB SDH microwave network
65
ICT Competency of Bangladesh to Face Broadband Diffusion
Figure 3. SEA-ME-WE-4 submarine cable
WRGD\¶VVXEPDULQHFDEOH1DUURZEDQG+)V\VWHPV were being used for international communications. However, since 1975 BTTB has been using Intelsat Satellites for International Telecommunications for voice and data transmission. International voice service is being provided exclusively by BTTB. Data service is being provided mainly in two different ways: through International Private Leased Circuit (IPLC) and through Leased IP Access to BTTB Internet Node. To facilitate a wide range of bandwidth at an affordable price, especially for software exporters and for ICT usage, BTTB has become a member of the South East Asia-Middle East-West Europe-4 (SEA-ME-WE-4) Consortium to connect Bangladesh to the information superhighway. Bangladesh signed the construction and maintenance agreement (C&MA) on March 27, 2004, in Dubai through which the country joined the SEA-ME-WE-4 Submarine Cable Consortium of 16 parties of 14 countries (Hossain, 2005). The work of submarine cable is already complete and was inaugurated in May 2006. It is hoped that, with the advent of SEA-ME-WE-4, use of bandwidth will increase sharply for international telecommunication because of the cheaper bandwidth cost. Submarine cable connectivity in Bangladesh will dramatically
66
improve the volume and quality of data and voice communication, and meet the increasing demand of international bandwidth. The delay factor in satellite communication, which is a barrier for high-speed data transfer, will be eliminated. ICT usage and activities will be promoted. Available capacity for BTTB in this cable is 468,000 MIU Km which may have a maximum of 64 STM-1 (10 Gbps) at the landing station. MIU is Minimum Investment Unit, which is equivalent to one STM-1. 2XWRI%77%¶VWRWDOFDSDFLW\0,8.PKDV already been contributed to the common pool of the consortium for sale. Sales and marketing of this bandwidth will be performed by the consortium in WKH¿UVWWZR\HDUV7KHFDSDFLW\RIWKHFDEOHZLOO be enhanced further in different phases with minimal investment from BTTB. Minimum capacity unit for this cable is STM-1that is, BTTB must utilize the capacity at STM-1 or a multiple of that between any two landing stations.
Submarine Cable Utilization Plan The main task of BTTB is to plan well so as to utilize the huge bandwidth available in the cable in a pragmatic and systematic way. BTTB held meetings and discussions with ISPs, BASIS, PSTN, mobile
ICT Competency of Bangladesh to Face Broadband Diffusion
phone operators, and other users to ascertain their present and future requirement and to share ideas on utilization of the submarine cable. $IWHUIXO¿OOLQJWKHUHTXLUHPHQWRIWKHFRXQWU\ excess capacity in the mainstream may be leased out to overseas operators. For the next two years, capacity can only be sold on a lease basis and not as IRU. To make better and greater utilization of the submarine cable, new services like IP VPN, virtual telephone network abroad, and various
kinds of broadband service may be introduced in the country. Connectivity with different countries may be established through SMW-3 by exchanging equivalent SMW-4 capacity. For utilization, submarine cable BTTB has taken a project to enrich international telecommunication facilities. Demands for international bandwidth have a wide range of variation in terms of capacity, protocols, purpose, use, national policy, and so forth. Taking consideration of these aspects, the
Table 2. Connected with submarine cable (BTTB, 2006b) Name of the project
:
Establishment of international telecommunication through submarine cable
:
US$94.35 million
Consortium
:
16 international telecommunication companies in 14 countries
Member Countries
:
Allocation & Expenditure
Members of the Submarine
Singapore, Malaysia, Thailand, Bangladesh, India, Sri-Lanka, UAE, Pakistan, KSA, Egypt, Italy, Tunisia, Algeria, and France
Total Length of Submarine Cable
:
20,000 km
:
NLORPHWHUV FRQQHFWLRQWR&R[¶V%D]DU
:
10 GB/Sec
Length of Bangladesh Branch
Present Speed in Data Transmission
Table 3. Statistics of different types of licenses issued by BTRC (Ministry of Finance, 2005, p. 224) Types Cellular Mobile Telecom License (Teletalk) Zonal Fixed Telecom (PSTN) License
Number of Companies/ Institutions
Total 1
1
15
37
Mobile Telecom Operator License Revalidation
4
4
Dhaka MEA Fixed Telecom Operator License Revolution (WorldTel)
1
1
Pre-Paid Calling Card Operator License Revalidation
1
1
Rural Fixed Telecom Operator License Revalidation
1
1
Internet Service Provider
181
181
Nationwide Internet Service Provider
30
30
VSAT Users
85
85
VSAT Provider (Sub-Station) Domestic Data Communication Service Provider
4
4
24
24
67
ICT Competency of Bangladesh to Face Broadband Diffusion
customer base needs to be segmented and a number RI SURGXFWV PXVW EH GHYHORSHG WR PHHW VSHFL¿F requirements of the customers. Proper attention should be given to take into account the indirect HFRQRPLF EHQH¿WV DV ZHOO DV ORVW RSSRUWXQLWLHV while pricing these products. IPLC is a dedicated secure digital point-to-point private connection between two locations (usually two LANs) in two different countries that allows transmission of data, large Internet packets, realtime video applications like videoconferencing, and such other information communication services. BTTB has been providing IPLC service through INTELSAT satellites with bandwidth ranging from 64 Kbps to 2 Mbps. Through submarine cable, bandwidth allocation for IPLCs will depend on the requirement and MXVWL¿FDWLRQZKLFKPD\EHIURP.ESVWR0ESV Higher bandwidth up to 45 Mbps will be allocated after scrutiny by BTTB. IPLCs may be provided on a half-circuit as well as on a full-circuit basis. At present, all cities and towns of Bangladesh are covered by digital exchanges. All Upazila exchanges will have digital exchanges by the end of this year. So, all telephone subscribers up to the Upazila level will have voice and Internet connectivity through the submarine cable. Rural growth centers will be brought under digital exchanges by installing a suitable access network to extend EHQH¿WVRIVXEPDULQHFDEOHLQWRWKHUXUDODUHDV
Connectivity to private mobile and land phone operators is being further improved to allow access for all the existing subscribers and ensure access for the future growth. Establishment of two more international gateway exchanges is under process; %77%¶VSUHVHQWGDWDDFFHVVQHWZRUNLVEDVHGRQ the existing DDN, which can support only up to 2 Mbps capacity. An IP access network must be developed where optical interfaces will be deployed in major cities to connect customers through optical local loop at a higher speed. At present, DDN nodes are available in 41 districts only. To ensure a homogeneous growth of ICT in the country, a data network will be extended to all 64 district +4VLQWKHQH[W¿QDQFLDO\HDU Private operators in the country will be allowed to develop an access network for data communication only. Co-location facilities in Dhaka, Chittagong, and other large cities have been included for this purpose. Co-location facilities on BTTB premises in Dhaka and Chittagong are likely to be allowed for customers who require higher capacity, like E3/DS3 or STM-1 or higher. For the purpose of redundancy and restoration of the international segment satellite, the earth station will continue functioning. Initially, STM-1 Internet connectivity is being established through the west and another through the east for redundancy in the main cable. For redundancy in WKHEUDQFKFDEOHDVLJQL¿FDQW,QWHUQHWEDQGZLGWK is being kept as backup through satellite to meet
7DEOH6XEVFULEHUVRI¿[HGDQGPRELOHSKRQH $SULO 0LQLVWU\RI)LQDQFHS Year
Grameen
Aktel
Banglalink
Citycell
Teletalk
Fixed
Total
Phone 2001
471,371
80,368
69,700
41,109
0
564,800
1,227,348
2002
774,881
161,265
112,900
91,348
0
682,000
1,822,394
2003
1,140,531
401,680
186,500
179,058
0
716,721
2,624,490
2004
2,388,158
1,096,620
369,500
296,509
0
831,280
4,982,067
2005
5,540,000
2,072,328
1,026,100
439,389
200,000
1,081,450
10,359,267
2006
6,700,000
2,458,819
1,600,000
600,000
242,617
1,000,483
12,601,919
(April)
68
ICT Competency of Bangladesh to Face Broadband Diffusion
Table 5. Growth of telecommunication of Bangladesh (2000-2006) Series Name
2000
2001
2002
2003
2004
2005
April 2006
Telephone lines
0.58
0.83
1.32
1.56
N/A
4.8
7.03
0.15
0.19
0.34
0.78
N/A
N/A
N/A
0.08
0.14
0.15
0.18
N/A
0.2
0.35
750,775
1,084,880
1,757,000
2,107,048
4,982,067
10,359,267
12,601,919
200,000
250,000
450,000
1,050,000
N/A
N/A
N/A
100,000
186,000
204,000
243,000
N/A
300,000
500,000
and cellular subscribers per 100 population Personal computers per 100 population Internet users per 100 population Telephone lines and cellular subscribers Personal computers Internet users
N/A= Not available
HPHUJHQF\,QWHUQHWWUDI¿FLQFDVHRIDQ\IDXOWRU failure in the branch cable. To ensure domestic redundancy, both Dhaka&KLWWDJRQJDQG&R[¶V%D]DU±&KLWWDJRQJPLFURwave links are planned to be upgraded to a 7+1 STM-1 SDH system. An initiative continues for KLULQJ GDUN ¿EHU IURP 3*&% EHWZHHQ 'KDND &KLWWDJRQJLQWKH¿UVWSKDVH
BTRC in ICT Development The Bangladesh Telephone Regulatory Commission (BTRC) was formed on January 31, 2002,as an independent statutory body under the Telecommunication Act of 2001. All relevant powers, responsibilities, and pertinent matters related to telecommunication regulation have been vested with the commission. The objectives of the commission include inter alia: broadening the efforts for improvement of the sector through better regulation, providing people with easy access to the telecommunication and Internet service at a reasonDEOHFRVWHQVXULQJWKHHI¿FLHQF\RIWKHWHOHFRPmunication system, and enhancing its capability
to compete at both the national and international sphere, preventing and abolishing discrimination in providing telecommunication services. The aim of the commission is to progressively rely on a competitive market-oriented system. In keeping with these objectives, the commission is committed to ensuring effective control of telecommunication, and introducing new services and creating favorable atmosphere for the local and foreign investors who intend to invest in the telecommunication sector in Bangladesh.
Teledensity in Bangladesh The government granted permission to Bangladesh Telecom Private Limited (BTL) to introduce radio trunking, cellular radio telephone, naval radio telephone network, and paging facilities for the ¿UVWWLPHLQ WRVSXUSULYDWHLQYHVWPHQWLQWKLV sector. The segment of mobile telecom operation of WKH%7/¶VOLFHQVHZDVODWHUKDQGHGRYHUWR3DFL¿F Bangladesh Telecom Limited. Subsequently, three private operatorsGrameen Phone Ltd., Telecom Malaysia International (Bangladesh), and Seba
69
ICT Competency of Bangladesh to Face Broadband Diffusion
Table 6. Installation and rental charges for port and modem (Tk=Taka; 1US$=Tk 66.57) (BTTB,
2006a) Yearly Rent for Port and Local
Speed
New Installation Charge
64 Kbps
Tk. 10,000 (US$150)
128 Kbps
Tk. 10,000 (US$150)
Tk 294,000 (US$4,416)
Tk 18,000 (US$270)
256 Kbps
Tk. 10,000 (US$150)
Tk 438,000 (US$6,580)
Tk 27,000 (US$406)
512 Kbps
Tk. 15,000 (US$225)
Tk 684,000 (US$9,734)
Tk 30,000 (US$451)
1 Mbps
Tk. 15,000 (US$225)
Tk 1,176,000 (US$17,666)
Tk 36,000 (US$541)
2 Mbps
Tk. 20,000 (US$300)
Tk 2,050,000 (US$30,795)
Tk 48,000 (US$721)
Loop up to 5 km Tk 181,000 (US$2,719)
Telecom Private Limitedwere awarded license in 1996 to market digital cellular mobile phones. After the formation of the Telecommunication Regulatory Commission, those licenses/contracts were renewed under the Bangladesh Telecommunication Act of 2001. The Commission Granted Mobile Telecom Operator License to BTTB which was subsequently revised to form a separate entity XQGHUWKHQDPHRIµ7HOHWDON¶DQGKDVDOUHDG\EHcome operational. The number of subscribers of WKH¿YHSULYDWHFHOOXODUPRELOHFRPSDQLHVLQWKH country was about 61.06 lakh (6.106 million) as of June 2005. To meet the increasing demand for telephone, 15 private companies have been awarded OLFHQVHVIRUSURYLGLQJ¿[HGWHOHSKRQHVHUYLFHV in four zones of Dhaka (except in the Dhaka multiexchange area) in a competitive environment. As a result, employment opportunities have opened up for thousands of the unemployed. The number of subscribers of BTTB is currently about 8 lakh (0.8 PLOOLRQ 7KHQXPEHURIVXEVFULEHUVRISULYDWH¿[HG telephone companies is expected to exceed 25 lakh (2.5 million) in the next two years. Four cellular mobile companies are operating competitively. Having been permitted, Sheba Telecom and PTBL to transfer shares, and approved private investment in mobile to transfer share, and approved private investment in mobile telecom sector as well as in
70
Yearly Rent for Modem
Tk 18,000 (US$270)
¿[HGWHOHSKRQHVHUYLFH7RJHQHUDWHFRPSHWLWLRQ on the telecom market and to help drive low-cost telecommunication service to people, Teletalk Bangladesh Limited has been issued license to market mobile telecom service. Already the company started offering mobile telecom service. As a consequence, mobile phone call charges are expected to decline, making it affordable to ordinary FLWL]HQV,QFRPSDULVRQWRQHLJKERUFRXQWULHV¶FHOO phone rates, the cell phone rate of Bangladesh is higher: the number of cellular phone subscribers ZDVPLOOLRQLQ$SULO,QFOXGLQJWKH¿[HG phone services, the total number of subscribers is currently 12.6 million. The current teledensity is 7.3, which is more than the target. It is remarkable that the number of the subscribers of cellular phone service is increasing in rapid SDFHLQFRPSDULVRQWR¿[HGSKRQH,QWKH\HDU WKHQXPEHURIWKH¿[HGSKRQHVXEVFULEHULQFUHPHQW rate was 21%, and 30% in 2005. On the other hand, the cellular phone subscriber increment was 72% in 2002 and increased 123% in 2005. The license contracts of WorldTel and the BTTB for the personal Handy Phone System were revalidated in consideration of a huge demand in Dhaka city. The license of Formula One of the introduction of a pre-paid card system has also been revalidated. Recipients of license in telecom-
ICT Competency of Bangladesh to Face Broadband Diffusion
)LJXUH0HWUR1HW¶VRSWLFDO¿EHUEDFNERQHRI0HWUR1HWLQ'KDND Participation of Operators
5%
2% 8%
Grameenphone Aktel
13%
Banglalink Citycell
20%
munication and broadcasting have been allocated appropriate frequencies to enable them to transmit data, picture, and voice.
Internet, ISP, and Broadband Internet came late in Bangladesh with UUCP email beginning in 1993 and IP connectivity in 1996 (Islam & Rahman, 2006, p. 136). In June 1996, the government allowed private entrepreneurs to act as Internet service providers (ISPs) using VSATs (very small aperture terminals). Initially, there were only a few Unix-to-Unix copy protocol (UUCP) accounts in the country and then they were replaced by Internet protocol (IP) accounts. At a later stage, low-bandwidth 64kbps VSAT link became the main Internet backbone of the country. In 1993 Bangladesh had access to e-mail via dialup to bulletin board systems (BBSs) of a few local providers. The combined Internet users of all the e-mail-only service providers were not more than 500. Users were charged by the kilobyte, and mail was transferred from the BBS service providers to the rest of the world by international dialup using UUCP. In June 1996, the government allowed private entrepreneurs to act as ISPs using VSATs. The government allowed VSATs to be operated in the private sector, albeit to be provided solely by the government-owned telephone operator, BTTB. Only a handful of ISPs were connected within WKH¿UVW\HDU+RZHYHUPRUHOLEHUDOJRYHUQPHQW policies followed in the subsequent years which
52%
Teletalk Fixed
led to a rapid expansion of this industry, eventually resulting in over 180 registered ISPs by 2005 (ISPABD, 2007). On May 30, 2006, the submarine cable was opened by the Honorable Prime Minister for services to which several ISPs are already connected. ISPs are currently regulated by the Bangladesh Telecommunication Regulatory Commission through the Bangladesh Telecommunication Act of 2001. BTTB, the state-owned ISP, now allows people to register their domain names and use the .bd extension in their names. The language used by the content developers is mostly English. But efforts to have Bangla (national language) are also growing subsequently.
Charges to Setup an ISP The Bangladesh Telecom Regulatory Commission KDV ¿[HG WKH UDWHV IRU ,63 OLFHQVHV $ FLUFXODU issued by the BTRC commission on December KDV¿[HGWKHVHWXSFKDUJHVIRU,QWHUQHW services. It is alleged that the license fees are also very high. There are a few categories of licenses issued to the applicants to setup an ISP. 7KH¿UVWFDWHJRU\LVWKHOLFHQVHVIRUWKHPDjor cities, namely Dhaka, Chittagong, or Sylhet. License fees for this category are Taka 200,000 (US$3,004) with a renewal fee of Taka 100,000 (US$ 1,502) per year. Apart from the above license fees, there is a bandwidth fee on the basis of the
71
ICT Competency of Bangladesh to Face Broadband Diffusion
Table 7. Broadband Internet service offered by BTTB (for corporate users) City/District
Places
City/District
Places
1. Dhaka
Babubazar, Basabo, Cantonment,
22. Moulavibazar
NM
23. Munshiganj
NM
ChawkBazar, Demra, DEPZ, Fakirapool, Gandaria, Gulshan, Lalbag, Mirpur, Mogbazar, Nilkhet, Ramna, Savar, Sayedabad, Sher-e-BanglaNagar, Uttara 2. Chittagong
Agrabad, Bayezid, CEPZ, Kalurghat, Muradpur, Nandankanon, Sagarika
3. Gazipur
Gazipur, Tongi
24. Mymensingh
NM
4. Narayangonj
Narayangonj, Siddhirgonj
25. Naogaon
NM
5. Khulna
Central, Khalishpur
26. Narshingdi
NM
6. Jessore
Jessore, Sharsa
27. Natore
NM
7. Bagerhat
Bagerhat, Mongla
28. Netrokona
NM
8. B-Baria
NM
29. Nilphamary
NM
9. Barishal
NM
30. Noakhali
NM
10. Bogra
NM
31. Pabna
NM
11.Chapai Nawabgonj
NM
32. Panchagar
NM
12. Comilla
NM
33. Patuakhali
NM
&R[¶V%D]DU
NM
34. Rajshahi
NM
14. Dinajpur
NM
35. Rangamati
NM
15. Faridpur
NM
36. Rangpur
NM
16. Feni
NM
37. Sirajgonj
NM
17. Jhenaida
NM
38. Sunamganj
NM
18. Kushtia
NM
39. Sylhet
NM
19. Lalmonirhat
NM
40. Tangail
NM
20. Magura
NM
41. Thakurgaon
NM
21. Manikganj
NM
NM=Not Mentioned
72
ICT Competency of Bangladesh to Face Broadband Diffusion
bandwidth used by the operator. The annual bandwidth fee for 128kbps is Taka 30,000 (US$451). The fee is Taka 50,000 (US$751) for 512kbps and Taka 100,000 (US$1,502) for 512kbps. In district towns other than the above three cities, the license fee is Taka 100,000 (US$1,502) and the renewal fee is Taka 50,000 (US$751) per year. Bandwidth fees remain the same in every case except the rural areas. A nationwide license is issued for Taka 500,000 (US$7,510) which can be renewed DW7DND 86 ,61WKH¿UVW,63RI Bangladesh, holds a nationwide license and operates in Dhaka and Khulna. Other ISPs are said to have regional licenses. However license fees in the semi-urban and rural areas are absolutely low. There is a license and renewal fee of Taka 1,000 (US$15) only in those areas with no bandwidth fee. In major cities and district towns, cyber cafés need to have licenses. But in the semi-urban and rural areas, no license fees are required to setup a cyber café (Jabbar, 2005). %URDGEDQGPD\EHGH¿QHGDVWKHVHWRIWHFKnologies that provide speed of at least 256 kbit/s, where this speed is the combined upstream and downstream capacity. The number of broadband subscribers refers to the number of active regisWHUHG,QWHUQHWDFFRXQWVLQFOXGLQJDOO¿[HGQHWZRUN broadband access technologies: digital subscribers line service (DSL), cable modem services, satellite EURDGEDQG ,QWHUQHW ¿EHU WR KRPH ,QWHUQHW DFcess, ethernet LANs, wireless local area network services, and so forth (ITU, 2003). Presently, 180 SULYDWH,63VDUHVHUYLQJLQWKLV¿HOGZLWKJRYHUQment-owned ISP (BTTB); all the ISPs are not active. ISPs depended on satellite, with slow speed and high bandwidth charge. But presently, the ISPs are connecting with submarine cable instead of VSAT. Cable TV channel operators are trying to offer the broadband connectivity through their cable netZRUN,WLVDIDFWWKDWWKHHVWDEOLVKHGRSWLFDO¿EHU backbone radio link has lost its popularity. The rent of a broadband line is Taka 1,000 per month for the individual subscriber. BTRC issued license to build, own, and operate (BOO) data communication infrastructure in private sectors. It helps the ISP to provide broadband connectivity to the subscribers easily (Khan, 2005). One of the ISPs,
MetroNet, put more than 125 kilometers of optical ¿EHUFDEOHZLWKLQWKH'KDNDFLW\DQGLWVQHDUYLFLQity to overcome the absence of a high-performance data communication network. MetroNet claims that LWLVWKH¿UVWWRLQYHVWLQEXLOGLQJDQXQRUWKRGR[ high-performance data communication network in the private sector (Khan, 2005). 0HWUR1HW¶VRSWLFDO¿EHUEDFNERQHLVSURYLGLQJ coverage from Tongi to Narayangonj, Sadarghat to Baridhara, Gulshan to Dhanmandi, and Dhaka University area to Mirpur, and in and around Tejgaon, Kawran Bazar, Maghbazar, Eskaton, Mouchak, Rampura, Malibagh, Kakrail to Motijheel, and Dilkusha (Metrobd, 2006). Presently, 180 ISP have licenses, though some of them are not active; but most of the ISPs are providing dial-up, radio link, and broadband connectivity to the customers. For the individual customer with unlimited time, broadband connection costs the least at Taka 1,000 per month, which is still more than the common people can afford. BTTB is offering in 41 districts leased Internet access (broadband Internet) to corporate customers. The rates of BTTB are given in Table 6. The offered broadband connectivity is based on these given terms: • • •
•
•
• •
BTTB is providing the bandwidth, which shall be provided from the nearest DDN node No security deposit 50% discount on total rental charges for accredited universities, colleges, Madrasa, training and research institutes 25% discount on rental charges for government/semi-government/autonomous and QRQSUR¿WUHVHDUFKRUJDQL]DWLRQV 25% discount on rental charges for software incubators and parks under government control and private software exporters earning at least US$100,000 per year Initial payment for six months 50% discount on registration, installation, and testing fee for 5+ connections at a time
Table 7 shows the city, district, and places where BTTB is offering broadband connection services to customers. BTTB is providing the broadband
73
ICT Competency of Bangladesh to Face Broadband Diffusion
FRQQHFWLRQLQWKHDUHDVRQO\ZLWKLQD¿YHNLORPHWHU radius from the nodes; extended facilities are given for the seven cities/districts.
• • •
Cyber Culture in Bangladesh
•
Cyber culture in Bangladesh has its optimum momentum in the capital city of Dhaka, where there are a few hundred cyber cafés within the city apart from individual users (Jabbar, 2005). Most of the cyber cafés are well-furnished, air-conditioned facilities with broadband connectivity. Some of them have private cabins with 50 or more computers. Computers are generally networked. Locations of these cafés are on the main road and in prime locations of the cities/towns. Some cyber cafés serve snacks and other fast-foods to clients. Most of them have scanning, CD writing, printing, and other facilities. Charges for browsing range from Taka 20 to 35 per hour (around US$.50 or less). Students form the largest user community of the cyber café. Cyber culture is gradually increasing at a slow pace. Still the conservative parents are anxious: misuse of the Internet by students is the main problem of the parents.
•
Barriers of Broadband Diffusion of Bangladesh With a poor economy and wondering movement LQWKH¿HOGRUHOHFWURQLFEDVHVRFLHW\%DQJODGHVK is lagging behind in development of broadband diffusion. There is not a clear plan to explore the government to the root level. Lack of poor broadband data transmission infrastructure and the necessity for broadband use are the most important reasons for the lag. The government has taken some initiative, but it is not enough to develop a good broadband network. The government must provide more citizen services through the Internet. If this is possible, then it will be possible to carry out a path for satisfactory movement. Barriers to broadband diffusion in Bangladesh may include: • •
74
Differences in education and literacy levels Gender, age, and income level
• • • •
Level of connectivity network penetration Lack of user training Lack of providing citizen service through the Internet Lack of providing electronic citizen services Lack of initiatives for the side of government and private level Lack of creating deployment of broadband Lack of creating a more equitable information society Lack of cheap service providing Lack of creating competitive marketing
National Initiatives The government has taken some initiatives so to focus on the National ICT Policy. The “ICT Act” based on the United Nations Commission on International Trade Law (UNCITRAL), known as the UNICTRAL Model Law on electronic commerce, has already been passed. The Copyright Act of 2000 has been amended to protect the intellectual property right (IPR) of the computer software. Public and private universities have started graduate- and postgraduate-level ICT courses, Beside this, the Ministry of Science and Information & Communication Technology has started a one-year postgraduate diploma course to produce skilled human resources. Ten public universities have started this course, and it will be H[WHQGHGLQDQDGGLWLRQDO¿YHXQLYHUVLWLHV3UHVently, the government has also started a one-year ICT internship program. Further, the government has taken an initiative to launce Web sites for all the ministries/divisions to implement e-governance service. These sites include all public documents and forms for providing online service easily to citizens. The Web site of the Bangladesh government (http://www. bangladesh.gov.bd) provides links to all governPHQWRI¿FHV7KH³6XSSRUWWRWKH,&77DVNIRUFH´ SURMHFWRIWKHJRYHUQPHQW¶VSODQQLQJGLYLVLRQKDV taken the initiative to launce e-governance among WKH3ULPH0LQLVWHU¶V2I¿FHHLJKWPLQLVWULHVDQG VL[GLYLVLRQDOFLWLHV)RUW\HLJKW¿UPVDUHFXUUHQWO\ working in the government-founded “ICT Incubator Center” at Kawran Bazar in Dhaka.
ICT Competency of Bangladesh to Face Broadband Diffusion
In other efforts, an IT village is planned for set up very close to Dhaka. The government has already made 18 acres of land available to set this up; it plans to spend US$3.76 million on this project (Ministry of Finance, 2006, p. 120). This village would be similar to the software technology parks in India. The entire infrastructure, including highspeed telecommunication facilities (2Mbps link), would be provided (Islam & Rahman, 2006, p. 142), and these would enable small companies to move into buildings with readily available facilities. As a part of its continuing effort to use ICT for development, the government has established an entrepreneur equity fund worth US$45.07 million IRU¿QDQFLQJSULYDWHHQWHUSULVHV7KHJRYHUQPHQW has created a National ICT Taskforce and has initiated some pilot projects, including:
•
•
CONCLUSION
•
•
An interactive Web site for downloadable and submitable forms, online complaints, billing information, and so forth, under BTTB Interactive Web sites for job search and other information for expatriate welfare under the Ministry of Expatriate Welfare and Employment Opportunities Digitization of useful land-related information such as land records, maps, documents, and so forth, under the Ministry of Land, EHLQJ ¿QDQFHG E\ WKH JRYHUQPHQW¶V RZQ resources, under the umbrella project named “Support to the ICT Taskforce,” under the planning division
All these activities by the government are focused on recognizing the power of ICT. Bangladesh is promoting e-government/e-governance and e-commerce as a way of helping government DQGWKHEXVLQHVVFRPPXQLW\LPSURYHHI¿FLHQF\ create job potential, and reduce poverty. Keeping the millennium goals and its target indicators in mind, the government has created an environment to allow the ICT sector to grow by: • •
Removing all taxes and levies on computer hardware and software Localizing VoIP (voice over Internet protocol)
•
Opening up the telecom sector for private investment Enacting appropriate laws to support ICT
It has been realized that the key to moving forward is applying ICT for development through strategies partnerships. With this belief, the Bangladesh government has undertaken several key projects in this sector supported by several international development agencies such as UNDP, World Bank, USAID, JICA, KOICA, CIDA, and SIDA. The major projects undertaken so far, with international assistance, are in the areas of banking sector reform, human resources development, policy formulation infrastructure development, and so forth.
The information infrastructure of Bangladesh in the last few years is the result of public examinations, as have been published on the Internet through 7HOHWDON¶VRQOLQHDSSOLFDWLRQIRUQHZVXEVFULEHUV A large number of Bangladeshi have applied online for the US DV lottery, though the reality about the ,QWHUQHWLQ%DQJODGHVKLVWKDWLWLVFRQ¿QHGPRVWO\ to the urban, sub-urban, and semi-urban areas of the country. Metropolitan cities along with district towns and a few small towns also have Internet connectivity. Though the availability of this technology has reached the small towns and cities, neither the rural poor nor even the rich farmers are able to use this technology for their needs. Dhaka, the capital city, has the most Internet XVHUV,WLVGH¿QLWHO\DQHZZD\RIOLIHIRUDODUJH number of people in this populous city. E-governance is currently in an early stage. Only platform-making work is in progress. E-commerce activities like G2G (government-to-government) and G2B (government-to-business) activities are yet to make satisfactory progress. E-banking facilities are providing a high rate of usage on a small scale in comparison to its neighboring countries. The ICT Act was passed last year, but it will not run smoothly without passing many related acts. Bangladesh is steadily marching onward to achieve
75
ICT Competency of Bangladesh to Face Broadband Diffusion
the optimum goal of providing access to the information superhighway. To reach its destination, it needs speed, a favorable environment, a speedy YHKLFOH JRYHUQPHQW¶V SDWURQL]DWLRQ ZLWK IXHO ¿QDQFH DQGDJRRGGULYHU SULYDWL]DWLRQ VRDV to occupy a special position in the global ICT map DQGWRUHWDLQLWVLGHQWLW\LQWKH¿HOGDWSDUZLWKWKH developed countries. This chapter could not touch the economical and social aspects of the broadband diffusion in %DQJODGHVK 7KH VFHQDULR VLWXDWLRQ ¿JXUHV RI data, perceptions and initiatives, thinking, and so forth are changing day by day. In the future one may study the economical and social aspects of broadband diffusion in Bangladesh.
REFERENCES
Forbes. (2005). IT competitiveness. Retrieved February 15, 2007, from http://www.forbes.com/ technology/2005/03/09/cx_0309wef.html ITU. (2003). ITU Internet report 2003: Birth of broadband. Retrieved November 10, 2006, from http://www.itu.int/osg/spu/publications/sales/ birthofbroadband/exec_summary.html Jabbar, M. (2005). Cyber communities of Bangladesh. Retrieved November 10, 2007, from http:// www.ispabd.org/content.php?article.14 Khan, A.S. (2003). Bangladesh is WSIS: Lies and statistics. The Daily Star, (December 19). Khan, F.A. (2005). 2SWLFDO ¿EHU LQIUDVWUXFWXUH in private sector: Experiences, opportunities & constraints.8QSXEOLVKHGSDSHU3ULPH0LQLVWHU¶V 2I¿FH'KDND%DQJODGHVK
Agrawala, S.P., & Shera, J.S. (2004, January 12-13). Hydrabad, Andhra Pradesh. Discussion paper for $VLD,70LQLVWHU¶VQGVXPPLW(,QIUDVWUXFWXUH and E-Learning Group, Department of Information Technology, Ministry of Communications and Information Technology, Government of India, New Delhi, India.
Metrobd. (2006). Homepage. Retrieved November 2006 from http://www.metrobd.org
BTTB. (2006a). Rates of DDN. Retrieved November 10, 2007, from http://www.bttb.gov.bd/home/main/ rates/retes.htm
Ministry of Science and Information & Communication Technology. (2002). National ICT Policy. Retrieved February 8, 2007, from http://www. bccbd.org/html/itpolicy.htm
BTTB. (2006b). Submarine Cable. Retrieved November 10, 2007, from http://www.bttb.gov. bd/home/main/SubmarineCable.htm Hossain, M. (2005, May 21). 2SWLFDO¿EHUEDFNERQH links in Bangladesh and their interconnection with Submarine Cable for connectivity with world information super highway. Unpublished paper, Prime 0LQLVWHU¶V2I¿FH'KDND%DQJODGHVK Islam, A., & Rahman, A. (2006). Growth and development of information technologies in Bangladesh. The Electronic Library, 24(2), 135-146. ISPABD. (2007). A short history of Bangladesh ISP industry. Retrieved February 13, 2007, from http://www.ispabd.org/news.php?item.4
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Ministry of Finance. (2005). Bangladesh economic review 2005. Dhaka. Ministry of Finance. (2006). Bangladesh economic review 2006. Dhaka.
OECD. (2005). OECD broadband statistics as of December 2005. Retrieved February 7, 2007, from http://www.lirneasia.net/2006/04/iceland-takesover-from-korea-as-broadband.-camp/ Purbo, O. (n.d.). Barriers to ICT diffusion to poor people: An interview with Onno Purbo, Bunung Institute of Technology. Retrieved February 13, 2007, from http://www.idrc.ca/en/ev-46217-2011-DO_TOPIC.html Rahman, H. (2006). Access and infrastructure issues: Context Bangladesh. Retrieved February 13, 2007, from http://bangladeshictpolicy.bytesforall. net/?q=access_infrastructure
ICT Competency of Bangladesh to Face Broadband Diffusion
KEY TERMS Networked Readiness Index (NRI): The :RUOG (FRQRPLF )RUXP¶V 15, PHDVXUHV WKH propensity for countries to exploit the opportunities offered by information and communication technology. It is published annually. The NRI seeks to better comprehend the impact of ICT on the competitiveness of nations. The NRI is a composite of three components: the environment for ICT offered by a given country or community, WKHUHDGLQHVVRIWKHFRPPXQLW\¶VNH\VWDNHKROGers (individuals, businesses, and governments) WRXVH,&7DQG¿QDOO\WKHXVDJHRI,&7DPRQJ these stakeholders (retrieved February 15, 2007, from http://en.wikipedia.org/wiki/Network_readiness_index). Optical Fiber: A glass thread that acts as a guide for light waves. Fibers used in telecommunications usually have a cladding of glass of a lower refractive index. In a communication system, VHYHUDO¿EHUVDUHPDGHXSLQWRDFDEOH UHWULHYHG February 15, 2007, from http://www.science.org. au/nova/021/021glo.htm). SEA-ME-WE 4: Refers to South-East AsiaMiddle East-Western Europe 4, a submarine telecommunications cable linking those regions (retrieved February 15, 2007, from http://en.wikipedia. org/wiki/SEA-ME-WE_4). Submarine Cable: Submarine cable (under water use) consists of copper conductors insulated with India rubber and varnish. Jute Yarn, which acts as a cushion between the cable-core, the inner sheathing of iron cables, provides mechanical insulation (retrieved February 15, 2007, from http://scard.buffnet.net/gofterms/telegloss.html). Synchronous Digital Hierarchy (SDH): Synchronic transmission and multiplex system for telecommunication networks. It operates at speeds of between 155 Mbits/s and (so far) 2.54 Gbits/s. SDH will be the future transmission system in the
telecommunications network and will gradually replace PDH (retrieved February 15, 2007, from http://www.telenor.no/annual_report/rapporter/ drift/ordliste.html). Synchronous Transport Module (STM-1): The basic rate of transmission of the SDH ITU-T ¿EHURSWLFQHWZRUNWUDQVPLVVLRQVWDQGDUG,WKDVD bit rate of 155.52 Mbit/s and is the SDH equivalent of an OC-3 (SONET) (retrieved February 15, 2007, from http://en.wikipedia.org/wiki/STM-1). Unix-to-Unix Copy Protocol (UUCP): An older protocol for sending e-mail between different Unix machines via regularly scheduled modem and network connections. This is the technology utilized by the Usenet for transmitting news postings. Most Internet mail servers now use the SMTP protocol instead (retrieved February 15, 2007, from http://www.websightsolutions.com/faq_gloss. html#sectU). Voice over Internet Protocol (VoIP): A category of hardware and software that enables people to use the Internet as the transmission medium for telephone calls. Voice data is sent in packets rather than by traditional POTS circuits. One advantage of VoIP is that the telephone calls over the Internet do not incur a surcharge beyond what the user is paying for Internet access, much in the same way that the user does not pay for sending individual emails over the Internet (retrieved February 15, 2007, from http://www.novacon.com/faq_s-z.htm). VSAT: Refers to very small aperture terminal, an earthbound station used in satellite communications of data, voice, and video signals, excluding broadcast television. A VSAT consist of two parts, a transceiver that is placed outdoors in direct line of sight to the satellite and a device that is placed indoors to interface the transceiver with the end XVHU¶V FRPPXQLFDWLRQV GHYLFH VXFK DV D 3& (retrieved February 15, 2007, from http://www. geocities.com/westgladeclcp/a6.html).
77
78
Chapter VI
Socio-Cultural Interpretations to the Diffusion and Use of Broadband Services in a Korean Digital Society Dal Yong Jin Simon Fraser University, Canada
ABSTRACT This chapter attempts to ascertain the causes of the rapid growth of broadband services in the context of the broader socio-cultural elements. It recognizes technology as a socio-cultural product which has historically been constituted by certain forms of knowledge and social practice, so this chapter explores cultural elements contributing to the diffusion of broadband services in the context of the cultural enYLURQPHQWLQ.RUHD)XUWKHUWKLVFKDSWHUGLVFXVVHVWKHVLJQL¿FDQWUROHRIWKHSHRSOHDVXVHUVLQWKH process of the rapid diffusion and growth of broadband services. In particular, it emphasizes the way in ZKLFKWKH HFRQRPLFFULVLVDVRQHRIWKHPRVWVLJQL¿FDQWVRFLRFXOWXUDOWXUQLQJSRLQWVLQPRGHUQ .RUHDQKLVWRU\KDVLQÀXHQFHGWKHGHSOR\PHQWRIEURDGEDQGVHUYLFHVDVKLJKVSHHG,QWHUQHWFRQQHFWLRQV have developed since 1997.
INTRODUCTION The widespread availability of broadband services KLJKVSHHG,QWHUQHW WKURXJKRXWWKHZRUOGVLJQL¿FDQWO\LQÀXHQFHVSHRSOHLQWKHLUOLIH%URDGEDQG services have made it easier to download digital music and movies, and the wide penetration of broadband services has enabled customers to engage in online stock transactions and online games. Many schools, from elementary to universities, in various countries are also connected to broadband
services and utilize information technology (IT) for education, while Internet broadcasters have rapidly become popular. A wide range of developed countries, such as the United States and the United Kingdom to developing countries in the Third World, have initiated modern telecommunications networks that support broadband access, providing high-speed access and always-on connections to both homes DQG RI¿FHV WR GHYHORS WKH VRFLDO DQG WHFKQLFDO landscape of cyberspace (Han, 2003; Ishii, 2003; Lee & Lee, 2003; Jin, 2007). Korea is among the
Copyright © 2008, IGI Global, distributing in print or electronic forms without written permission of IGI Global is prohibited.
Socio-Cultural Interpretations to the Diffusion and Use of Broadband Services in a Korean Digital Society
leading performers in broadband (Lee, Oh, & Shim, 2005). As of January 2006, about 77% of Korean households were connected to broadband services, which is one of the highest throughout the world (MIC, 2006). &RQVHTXHQWO\.RUHDKDVEHFRPHWKHZRUOG¶V best laboratory for broadband services—and a place to look to for answers on how the Internet business may evolve (Taylor, 2006). Much scholarly analysis and discourse (Yun, Lee, & Lim, 2002; /HH2¶.HHIH <XQ 5H\QROGV 6DFNV 2003; Choudrie & Lee, 2004; Lau, Kim, & Atkin, 2005; Lee et al., 2005; Jin, 2005) has focused on the roles of the government and competition among telecommunications companies in developing broadband services in Korea. They emphasize several factors contributing to the rapid growth of broadband services caused by the deregulation and competition policies in the telecommunications sector, such as a variety of promotion policies to boost Internet use and the strategies of broadband Internet providers. Previous studies, however, have not paid much attention to socio-cultural factors, which would be one of the most important contributing factors given that people are the major users of broadband services. Although a few papers examine cultural factors that contribute to broadband services, their discussions are neither comprehensive, nor informative.1 Unlike these preceding studies, this chapter attempts to ascertain the causes of the rapid growth of broadband services in the context of the broader socio-cultural elements. It recognizes technology as a socio-cultural product which has historically been constituted by certain forms of knowledge and social practice, so this chapter explores cultural elements contributing to the diffusion of broadband services in the context of the cultural environment LQ.RUHD)XUWKHULWGLVFXVVHVWKHVLJQL¿FDQWUROH of the people, as users, in the process of the rapid diffusion and growth of broadband services. In particular, it emphasizes the way in which the HFRQRPLFFULVLVDVRQHRIWKHPRVWVLJQL¿FDQW socio-cultural turning points in modern Korean hisWRU\KDVLQÀXHQFHGWKHGHSOR\PHQWRIEURDGEDQG services, as high-speed Internet connections have developed since 1997.
TECHNOLOGY AS CULTURAL FORMS It is generally recognized that technologies are primarily neutral because they operate essentially XQGHUWKHVDPHQRUPRIHI¿FLHQF\LQDOOVLWXDWLRQV Many users of technology argue that technology is essentially amoral and an entity devoid of values (Rescher, 1969; Mesthene, 1970). This instrumental theory, the dominant view of modern governments and the policy sciences on which they depend, argues that “if people use technology for destruction or pollution, as in the case of nuclear weapons and chemical pollution, it should not be blamed on technology, but on its misuse by politicians, the military, big business and others” (Pacey, 1983, p. 2). For many scholars, however, technology is not simply a means to an end, but has become an environment and a way of life; this is its substantive impact (Borgmann, 1984). This substantive theory of technology holds that technology is not neutral, but has a substantive value bias. Substantive theory, best known through the writings of Jacques Ellul, Arnold Pacey, and Martin Heidegger, claims that technology constitutes a new type of cultural system that restructures the entire social world as an object of control. Substantive theory explicates cultural aspects of technology, such as values, ideas, and the creative activity of technology (Feenberg, 1991). This type of cultural system is characterized by an expansive dynamic which ultimately mediates every pre-technological enclave and shapes the whole of social life. Among these, Ellul (1964) pointed out that we have to examine technology through its sociological aspects: “We should consider the effect of technique on social relationships, political structures, and economic phenomena.” Technology is not aloof from the social realm; on the contrary, it is an integral part of the social (Webster, 2002). Pacey (1983, pp. 4-6) also discussed how those who write about the social relations and social control of technology should be made aware of the cultural aspects as well as the organizational and technological aspects.
79
Socio-Cultural Interpretations to the Diffusion and Use of Broadband Services in a Korean Digital Society
In agreement with Pacey, Christians (1989, pp. 124-125) observes: “Technology is the distinct cultural activity in which human beings form and transform natural reality for practical ends with the aid of tools and procedures.” He clearly argues WKDWFXOWXUHVDUHKXPDQV¶GLVWLQFWLYHDQGLPPHGLDWH environment built from the material order by men DQG ZRPHQ¶V FUHDWLYH HIIRUW )XUWKHUPRUH :LOliams (1992, pp. 127-129) stated: “How technology develops is not only a matter of some autonomous process directed by remote engineers, but is a matter of social and cultural processes.” Technologies are developed and used within a particular social, as well as economic and political context (Franklin, 1999). As these theoreticians emphasized, technology does not develop independently, but is part of a particular social-economic and cultural process. This chapter aims to contribute to this ongoing debate of substantive theoretical discourse with a case study of the rapidly growing broadband services in Korea.
Historical Background Information on the Growth in Broadband Services The rapid deployment of broadband services in Korea began in 1995 when the government enacted the Framework Act on Information, which HVWDEOLVKHGWKH¿UVW0DVWHU3ODQZKLFKVHWXSD comprehensive strategy for the Korean Information Infrastructure (KII) (MIC, 2004). The goal of the KII was to construct an advanced nationwide information infrastructure consisting of communications networks, Internet services, application software, computers, and information products and services (Jin, 2007). The KII project aimed at building high-speed networks by providing over 80% of households with more than 20Mbps (megabits per second) broadband access by 2005 through market competition and private sector investment (Lee et al., 2003).2 In the post-1997 economic crisis, efforts bringing about the development of broadband services have accelerated. The economic crisis severely affected the Korean economy due to unprecedented rates of unemployment, corporate bankruptcies, and the demise of the stock market.3 .RUHD¶V
80
economic condition demanded that Korea change its industrial structure from traditional heavy and chemical industries to a more IT-oriented structuretelecommunications and computers. 0RUH LPSRUWDQWO\ .RUHD LGHQWL¿HG LQIRUPDWLRQ technology as its path to economic recovery, folORZLQJWKH ¿QDQFLDOFULVLV .LPD 7KH Korean government has exerted great effort on deploying a high-capacity backbone and pursued a policy of high-speed telecom infrastructure as D IRXQGDWLRQ IRU WKH EHQH¿WV RI ,7 FKDQJHV IRU sustainable economic growth (Lee et al., 2003). Under these circumstances, both government SODQQLQJDQGVWDEOHIXQGLQJKDGSOD\HGVLJQL¿FDQW roles in the rollout of broadband services. The Korean government invested a total of $11 billion into broadband services between 1998 and 2002, while the U.S. government planned to invest only $2 billion in the form of tax breaks as of May 2003 (Belson & Richtel, 2003, p. C1). The Korean government has also initiated a variety of promotion policies expediting the growth of broadband services, such as creating Internet-Friendly Classrooms4 and Ten Million People Internet Education. Clearly, .RUHD¶V UDSLG DQG H[SDQVLYH EURDGEDQG JURZWK can be traced, in large measure, to government initiatives (Lau et al., 2005, p. 351). Competition among telecom companies was also dedicated to the deployment of broadband access throughout Korea. Broadband services in .RUHD ZHUH ¿UVW LQWURGXFHG LQ DQG D IHZ telecom companies, including Korea Telecom (KT), the largest telecom company in Korea, Thrunet, and Hanaro, had severely competed with each other in the market. In May 1999, Thrunet, the introducer of broadband services in Korea, held 63% of the market share, followed by Hanaro (35%) and KT (2%). The market has undergone substantive change in recent years. For example, Hanaro Telecom, controlled by U.S. investors American International Group Inc. and Newbridge, absorbed Thrunet to be in a better economic position to compete with the dominant market player KT in late 2005. LG Powercomm, a subsidy company of the LG group, entered the market in September 2005, and cable system operators have expanded their share in the high-speed Internet market (Kim,
Socio-Cultural Interpretations to the Diffusion and Use of Broadband Services in a Korean Digital Society
2006b). As a result, as of April 2006, KT as the largest player consisted of 49.9% of the market share, followed by Hanaro (28.5%), cable system operators (10.6%), Powercomm (4.4%), and others (Park, 2006, p. 16). The intense competition among telecom companies led to price (monthly fee) reductions and subsequently a rapid increase in demand for broadband Internet services. In other words, competition among telecom companies for increasing their respective market share has resulted in a drop in the price of broadband subscriptions, and it has certainly contributed to the rapid spread of broadband in Korea. Fierce competition resulted in prices decreasing from $40 per month in April 1999 to $30 in February 2003, and again to less than $20 in May 2006 (ITU, 2003a; Taylor, 2006).5 Meanwhile, as a new market trend, Korea has been developing the next generation in high-speed Internet services. The country acknowledges the existence of market saturation, so it has enhanced the capacity of existing broadband services, including its speed and convergence with various types of media. Korea has begun to upgrade its high-speed Internet from less than 5 Mbps to 100 Mbps since 2005 in order to enjoy high-quality Internet telephone service, movies, and online education (Bang, 2005). Further, Korea expects the rapid penetration of 100 Mpbs broadband services will expedite the growth of image-related contents, and thereafter the second wave of high-speed Internet services in 10 years.6 As such, the Korean government along with telecom companies played a pivotal role in the growth of broadband services by providing infrastructure and government initiatives.
Cultural Characteristics Contributing to the Deployment of Broadband Services Although the Korean government and telecom ¿UPVKDYHFROODERUDWLYHO\LQLWLDWHGDQGH[SHGLWHG the deployment of high-speed Internet services, the swift growth of broadband services would have been impossible without people readily accepting new technology more than other nations. The diffusion of services and the widespread use of
high-speed Internet can be attributable to certain distinct characteristics of the Korean people, since the diffusion of broadband services took place with rapid acceptance by most Koreans (Jin, 2007). Regardless of the fact that many countries around the world have initiated and supported the growth of broadband services, the result varies markedly due to the acceptance of new technology by people, the users, as well as government initiatives. 7KHUHIRUHLWLVFUXFLDOWRH[SORUHWKHVLJQL¿FDQFH of assessing the culture in which technology is created and the context in which it is widely accepted. As ITU acknowledges (2003b), Internet user demand indeed contributed most decisively to the rapid explosion of broadband in many places, particularly in Korea. Again Ellul (1964) emphasized that “the development of technology is not an isolated fact in society but is related to every factor in the life of modern humanity.” In particular, cultural forms rooted in Korean history after the 1997 economic crisis should be emphasized DVVLJQL¿FDQWHOHPHQWVZKLFKSURPSWHGWKHUDSLG deployment of broadband, because members of the public are the major customers of broadband VHUYLFHV 7KHUH DUH VHYHUDO VLJQL¿FDQW FXOWXUDO characteristics (i.e., the mentality of the people) rooted in Korean society and its historical context that are important contributing factors to the development of broadband, such as rapid acceptance of new services and technologies, enthusiasm for 'edutainment,' keeping up with their neighbors (“me-too” culture), as well as developing dual personalities of two competing forces, social solidarity and individualism. The primary characteristic among most Koreans is demanding quick change, which eventually expedited the growth in high-speed Internet. Only a few decades ago Koreans were characterized as calm and patient, as one distinguished Confucian characteristic, but in just a few years, the demand for quick change became one of the most distinctive Korean characteristics (Han, 2003, p. 19). Since the 1960s when the country began its high-speed transition from an impoverished state to one of $VLD¶VPDMRUHFRQRPLHV.RUHDQVFDQQRWZDLWIRU long periods of time, nor are they very patient. Koreans have not been known for taking things
81
Socio-Cultural Interpretations to the Diffusion and Use of Broadband Services in a Korean Digital Society
slowly. Instead, Korean society is well known for its impulsivenessthat is, desiring quick communication, quick contact, and quick results (Jin, 2007). Most Koreans would certainly agree that Korea is nothing if not dynamic. In this regard, Jong Suk Lee (2000), director of the Korea Culture and Policy Institute, states: “Nine out of ten Koreans rush into the road as soon as the light changes to green and they cross the street on or even before the green light is about to turn red. In contrast, &KLQHVHZRXOGXVXDOO\ZDLWXQWLODOOWKHWUDI¿FLV cleared and safe even at the clear green light. And if the light is about to turn red, they just stop and wait for the next green light.” Indeed, “balli, balli”—Korean for “hurry, hurry”—is heard incessantly on the crowded streets RI6HRXOUHÀHFWLQJWKHIUHQHWLFSDFHRI.RUHDQOLIH in a global era (Jin, 2007). Another survey conducted in the 1980s is still compelling to explain the same trend. According to the survey (Chinese Cultural Connection, 1987), regarding Confucian dynamism which measures long-term vs. short-term orientation, Japan showed one of the highest scores, compared to the U.S., the UK, and Australia. The high Japanese score LQWKHVXUYH\UHÀHFWHGWKHSDWLHQFHRUORQJWHUP orientation of Japan compared with other developing countries (McFadyen, Hoskins, & Finn, 1998). However, Korea has lost patience and has become addicted to short-term results, and this changing Confucian dynamism in Korea has contributed to the rapid penetration of high-speed Internet. This relentless drive, which has led Korea to FKDON XS D QXPEHU RI VLJQL¿FDQW DFKLHYHPHQWV has driven the rapid spread of broadband Internet connections. Most Koreans have hurried to have broadband Internet connections, and it has been easier to develop these services compared to other countries, including Japan. What most Koreans wanted was the same thing: quick communication, quick games, and quick contact. Everything needs to go “balli, balli,” and this unique characteristic of Koreans has expedited the rapid penetration of high-speed Internet (Shim, 2006). In other words, for most Koreans, everything needs to be done right now. For example, in Korea, instant message-swapping is comparatively popular mainly because not
82
answering a message from a friend with all due speed is considered a faux-pas in Korean society (Taylor, 2006). This quick pace has particularly accelerated with the 1997 economic crisis because Koreans began to realize that quick change and adoption of new technology and information was needed to survive in the globalization era. Korea is full RIµHDUO\DGRSWHUV¶ZKRDUHZLOOLQJWREX\QHZO\ released digital devices for consumer testing. In a survey by Korean ad agencies in 2004, 43% of respondents said that they consider themselves µHDUO\DGRSWHUV¶LQWKHPDUNHW .ZRQ $Fcording to a survey by the U.S. market research ¿UP3DUNV$VVRFLDWLRQLQ1RYHPEHU.RUHD ranked second on the list of 13 countries in the adoption of consumer technologies (Parks Associates, 2005).7 Although balli balli culture has several negative aspects, such as bribery scandals and the collapse of buildings and bridges, in the midst of achieving social and economic successes in the Korean society, rapid adaptability to change is the key to the swift deployment of broadband services. An excessive enthusiasm for edutainment—the combination of education and entertainment—has also greatly contributed to the unique growth in broadband services. Above all, Korea is one of the most developed countries in terms of education. Its overall school enrollment rate (primary, secondary, and tertiary) of 90% is the highest throughout WKHZRUOG.RUHD¶VKLJKUDWHRIOLWHUDF\DQGVFKRRO enrollment are essential as prerequisites for the widespread adoption of ICTs, and these factors have helped contribute to the growing impact of ICT in Korean society (ITU, 2003a). Over-enthusiasm for education in Korea is not new, but after the 1997 economic crisis, Internet skills were considered one of the most important survival tools for many Koreans. They devote their attention to the Internet due in part to the Internet being a necessary technology for their jobs, education, and entertainment. In particular, for most parents broadband is a QHFHVVDU\WRROIRUFKLOGUHQ¶VHGXFDWLRQ -LQ Relatively simple initiatives such as encouraging school teachers to post their homework assignments on their own personal Web site and requiring stu-
Socio-Cultural Interpretations to the Diffusion and Use of Broadband Services in a Korean Digital Society
dents to submit their assignments by e-mail could create a feeling among parents that the Internet is a QHFHVVLW\IRUWKHLUFKLOGUHQ¶VHGXFDWLRQ &KRXGULH & Lee, 2004). The majority of Koreans have become fast adopters of high-tech, information-intensive products, and they are highly receptive to marketing stories that offer education after the 1997 economic crisis. Under the economic crisis, parents started to realize the potential threats and opportunities of globalization. It became a must for their children to acquire both English and Internet skills in order to survive in the era of globalization (Aizu, 2002). Many parents who have children younger than early teens, for example, have focused on cyber-based English education since the late 1990s. They have acknowledged that their children are able to enjoy online reading, music, game, and animation written in English through the Internet due to high speed and their being 24/7 support services, which is a good alternative to learning English in a classroom. In the Korean context, excessive need for education has also developed so-called edutainment, as a form of studying English while enjoying playing in cyberspace (An, 2001). Edutainment is not only for children. Many midcareers have also turned their eyes on the Internet in the midst of a changing working environment. In Korea, the majority of companies have begun to DGRSWD:HVWHUQVW\OH¿YHGD\ZRUNZHHNV\VWHP since the late 1990s and early 21st century. The VSUHDGLQJ¿YHGD\ZRUNZHHNV\VWHPVLQFHWKHQ has boosted information technology, such as DVDs, mobile games, and edutainment. With more spare time available, people began to look for a new type of education containing more entertainment factors, instead of the existing cramming type of learning (Cho, 2002). Therefore, having high-speed access to the Internet at home became an advantage for everyone from children to housewives to career persons, or a disadvantage if they did not have it (Jin, 2007). Broadband is an indispensable component for edutainment, which is one of the major contributing factors in broadband services. Meanwhile, the peculiar Korean “me-too culture,” which means all companies and people end up with the same systems and taste, has sub-
stantially contributed to the spread of broadband access. Consumers in various societies are susceptible to social pressure to keep up with their QHLJKERUV HJ³NHHSLQJZLWKWKH-RQHV¶V´LQWKH 86 KRZHYHU.RUHDQV¶HDJHUQHVVWRNHHSXSZLWK their friends and neighbors is comparatively very high (Jin, 2007). As discussed, Koreans tend to be early adopters of technology; however more they VLJQL¿FDQWO\DUHIDVWIROORZHUVDV6WHSKHQ:DUG consultant manager of the telecommunications group at Deloitte observed: Koreans are always conscious of the need not to be left behind by others, and the young have a great desire to conform with the gadget-carrying norm of their peers (Ward, 2004). The majority of Koreans have not admitted any difference in several sectors. Businessmen should get the same salary if they begin the job in the same company at the same time, and parents cannot accept the fact that their children are left behind others. They must be in the best position in terms of the quality and quantity of their houses, education, and income. Korean people buy new refrigerators when their neighbors buy them, and they buy pianos when their neighbors buy them, although they have refrigerators and pianos good enough to use. Likewise, many Koreans are eager to have high-speed Internet because they want to keep up with their neighbors. They feel that if they have the service, they could be part of the group; if not, they could not be part of the group. Technology DQG IDVKLRQ IDGV WHQG WR VSUHDG OLNH ZLOG¿UH LQ Korea. If one individual adopts an innovation, then others feel a social pressure to follow (Bajaj, 2002; Lau et al., 2005). The me-too culture, which is despicable in some senses,8 works in broadband services. Many old and new apartments are installing broadband Internet connections because the construction companies and apartment complexes do not want to be behind other apartment buildings (Cho Han, 2006). People do not want to be left behind in broadband services because they do not like a feeling of uneasiness as in many other areas. The disdainful me-too culture has ironically contributed to the rapid deployment in broadband services.
83
Socio-Cultural Interpretations to the Diffusion and Use of Broadband Services in a Korean Digital Society
Finally, a growing double personality between social solidarity and individualism, in particular in the younger generation, has played a crucial role in the rapid deployment of high-speed Internet. As well known, Korea was a country which was proud of its tradition of social solidarity (Crotty & Lee, 2002). People do not want to be left out. Due to this, the New York Times reported in 2002, “Korea is a group-oriented society, where socializing in bunches is the preferred form of interaction, and Western-style individualism is frowned upon,” while reporting booming online games (French, 2002, p. 8). To take one documented case, after conducting a case study of online games in Korea, Chee (2006) also emphasized the importance of social solidarity of teens and twenties in the process of growing online game communities. Indeed, it LVYHU\SODXVLEOHEHFDXVHWKHÀRXULVKRIWKHRQOLQH communication matched the culture and emotion of the Korean people and their need to communicate with one another through boards, which are forums to discuss and exchange information, and clubs, which brought together people with similar hobbies (Seong, 2006). However, this conventional wisdom has changed in recent years, and individualismthe degree to which individuals are able to achieve identity and status on their own rather than through membership in groups (McFadyen et al., 1998)is on the rise. In this regards, the New York TimesGLGQRWUHÀHFW the rapidly changing environment in Korea. With the swift change in the economy before and after WKH ¿QDQFLDOFULVLVDVZHOODVUHFHQWPRGHUQL]DWLRQ.RUHD¶VVRFLDODQGFXOWXUDOVLWXDWLRQKDV shifted on a large scale. The younger generation increasingly seeks Westernized culture, regardLQJDQLQGLYLGXDO¶VVXFFHVVSULYDWHSURSHUW\DQG nuclear family as important, instead of the value of the Confucian culture emphasizing patriarchy and large families (Jin, 2007). According to a marketing report by SK Telecom, “Those in their VDQGVWKH¿UVW,QWHUQHWJHQHUDWLRQLQ.RUHD gives priority to their own time and space, rejecting all invasions of privacy. They are also changing the culture of collectivism to one of individualism” (Joongang Ilbo, 2002, p. C3). The growing individualism has resulted in a unique culture for
84
developing broadband services and demanding personal time, space, and privacy. The double personality of many Koreans, on one hand social solidarity and on the other hand growing individualism, has ironically contributed to the rapid growth of broadband services. As Chee (2006) observes, young people enjoyed popular online games sometimes with friends and other times with nobody, but through high-speed Internet. This shows social solidarity on the one hand; however, it also explains growing individualistic mentality, which prefers enjoying games with no virtual IULHQGVLQF\EHUVSDFHWRSOD\LQJZLWKRQH¶VSHHUV on the playground. While seeking social solidarity, many young people enjoy high-speed cyberspace by creating their own world, and this changing social cultural characteristic has become crucial for the rapid growth of high-speed Internet. In sum, the explosion of broadband in Korea has been possible due in large part to various cultural factors, rooted deeply in Korean society and its historical context, in particular the 1997 economic crisis. Korean citizens are the most sigQL¿FDQWFRPSRQHQWLQEURDGEDQGGLIIXVLRQEHFDXVH they are the main users of the service. Without high-speed Internet, nobody can have a normal socio-cultural life, including enjoyable individual cyberspace from online games to edutainment, in contemporary Korea, which is one of the fastest growing information societies. As Aizu (2002) points out, the social and cultural factors, the aggressive mentality of the Korean people, high awareness of the challenges of globalization, and political and historical contexts played the decisive role in its dynamic acceptance of the Internet and acceleration to broadband in Korea.
CONCLUSION Korea presents a unique example with its rapid deployment of broadband penetration. Several VLJQL¿FDQW IDFWRUV KDYH FRQWULEXWHG WR WKH UDSLG development of broadband Internet connections. The government and telecommunications companies, as providers, have played important roles in the rapid development of broadband Internet,
Socio-Cultural Interpretations to the Diffusion and Use of Broadband Services in a Korean Digital Society
in particular to providing infrastructure for its development. Favorable government policies and competition among telecommunications companies became driving forces for the rapid deployment of broadband Internet. The explosion of broadband in Korea, however, was greatly made possible against the backdrop of the 1997 economic crisis and due in large part to various deeply rooted social, historical, and cultural factors. Although political factors can be important driving forces behind broadband penetration, growth also requires an existing receptiveness to using the services and applications that can be provided through broadband (Jin, 2007). In this regards, it was the citizens who actually made LQURDGVLQWRWKHZRUOG¶VPRVWVKUHZGPDUNHWIRU broadband services in Korea. Several socio-cultural factors, which are crucial to the diffusion and use of new technologies, have SOD\HG VLJQL¿FDQW UROHV LQ WKH VZLIW GHSOR\PHQW of broadband services. Cultural characteristics emphasizing quick communication and quick responses, as well as enthusiasm for edutainment, have contributed to the exponential growth of broadband services. A growing complexity of characteristics of the younger generation showing double personality of social solidarity and individuDOLVPZKLFKLVQRWHDV\WR¿QGLQDQ\RWKHUFRXQWU\ has particularly contributed to the rapid growth in broadband services. If the younger generation has only one characteristic of these two, it could not be the strong cultural factor for the rapid growth of broadband services. In the midst of globalization that expedited with the economic crisis in 1997, the younger generation has developed its unique characteristics, which resulted in one of the most VLJQL¿FDQW FXOWXUDO IDFWRUV LQ EURDGEDQG .RUHD The majority of Koreans have been eager to gain new technology, and their unique cultural characteristics have become the crucial initiative of the rapid deployment of broadband services. In conclusion, the introduction and development of new technology cannot be explained solely in terms of political structures and economic policy surrounding technology. As Ellul (1964) stated: “One should be looking at technology in its sociological aspect because technology is not an
isolated fact in society but is related to every factor in the life of modern man.” Technology does not develop independently, but is part of a particular social-economic and cultural setup. The deployment of broadband in Korea has been possible due WRLWVVSHFL¿FVRFLRFXOWXUDOGLPHQVLRQVDVZHOO as political and economic environment. Cultural characteristics rooted in the Korean society greatly LQÀXHQFHWKHJURZWKRIWHFKQRORJ\DQGEURDGEDQG services throughout the country.
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Cho Han, H.J. (2006). Internet and culture: About the formation of subject in information society. Retrieved September 2, 2006, from http://about. haja.net/bbs/download.asp?ClubNumber=214 7483569&BoardType=3&file=119%08&code_ generation=Ecce_Homo Choudrie, J., & Lee, H.J. (2004). Broadband development in South Korea: Institutional and cultural factors, European Journal of Information Systems, 13(2), 103-114. Christians, C.G. (1989). A theory of normative technology. In E.F. Byrne & J.C. Pitt (Eds.), Technological transformation: Contextual and conceptual implications (pp. 123-139). Dordrecht, The Netherlands: Kluwer Academic. Crotty, J., & Lee, K. (2002). A political-economic analysis of the failure of neo-liberal restructuring in post-crisis Korea. Cambridge Journal of Economics, 26(5), 667-678. Ellul, J. (1964). The technological society. New York: Vintage. Feenberg, A. (1991). Critical theory of technology. New York: Oxford University Press. Franklin, U. (1999). The real world of technology. Toronto: Anansi. )UHQFK + .RUHD¶V UHDO UDJH IRU YLUWXDO games. New York Times, (October 9), 8. Han, G.J. (2003). Broadband adoption in the United States and Korea: Business driven rational model versus culture sensitive policy model. Trends in Communications, 11(1), 3-25. Ishii, K. (2003). Diffusion, policy, and use of broadband in Japan. Trends in Communication, 11(1), 45-61. ITU (International Telecommunications Union). (2003a). Broadband Korea: Internet cast study. Paris. ITU. (2003b, September 16). Number of global EURDGEDQGVXEVFULEHUVJURZVLQ Press Release, ITU, Paris.
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Jin, D.Y. (2005). Socio-economic implications of broadband services: Information economy in Korea. Information, Communication & Society, 8(4), 503-523. Jin, D.Y. (2007). Hands on/hands off: The Korean state and the market liberalization of the communication industry. Cresskill, NJ: Hampton Press. Joongang Ilbo (English Edition). (2002). Generation 2030 went from apathy to passion. Joongang Ilbo, (December 21), C3. Kim, D.Y. (2006b). Hanaro, share the Wireline Telecom with KT. Dong-A Ilbo, (January 2), 38. Kim, P.H. (2006a). Is Korea a strong Internet nation? The Information Society, 22, 41-44. Kim, T.G. (2005). South Korea remains king of high-speed Internet penetration. The Korea Times, (May 29). Kwon, K.D. (2006). How to stay ahead as digital powerhouse. The Korea Herald, (February 23). Lau, T., Kim, S.W., & Atkin, D. (2005). An examinaWLRQRIIDFWRUVFRQWULEXWLQJWR6RXWK.RUHD¶VJOREDO leadership in broadband adoption. Telematics and Informatics, 22(4), 349-359. Lee, J.S. (2000). Balanced cultural policy. Retrieved September 3, 2006, from http://www.kcpi. or.kr/database/e_sosik/20000102/news_1.html Lee, Y.K., & Lee, D. (2003). Broadband access in Korea: Experience and future perspective. IEEE Communications Magazine, 30-36. /HH+-2¶.HHIH50 <XQ. 7KH growth of broadband and electronic commerce in South Korea: Contributing factors. The Information Society, 19(1), 81-93. Lee, H.J., Oh, S., & Shim, Y.W. (2005). De we need broadband? Impacts of broadband in Korea. Info: The Journal of Policy, Regulation, and Strategy for Telecommunications, Information and Media, 7(4), 47-56. Lim, H. (2001). Hype of education information policy. Kookmin Ilbo, (April 25), 3.
Socio-Cultural Interpretations to the Diffusion and Use of Broadband Services in a Korean Digital Society
McFadyen, S., Hoskins, C., & Finn, A. (1998). The effect of cultural differences on the international co-production of television programs and feature ¿OPVCanadian Journal of Communication, 23(4), 523-538. Mesthene, E. (1970). Technological change. New York: Signet. MIC (Ministry of Information and Communication). (2004). Broadband IT Korea vision 2007. Seoul. MIC. (2006). 2006 Korea Internet white paper. Seoul. Pacey, A. (1983). The culture of technology. Cambridge: MIT Press. Park, Y.S. (2006). High-speed Internet market is going to June war. Munhwa Ilbo, (May 29), 16. Parks Associates. (2005, November 21). Taiwan and Korea lead in the adoption of consumer technologies. Press Release. Reynolds, T., & Sacks, G. (2003, April 9-11). Promoting broadband: Background paper. Proceedings of the International Telecommunications Union’s Workshop on Promoting Broadband, Geneva. Rescher, N. (1969). What is value change? A framework for research. In K. Baier & N. Rescher (Eds.), Values and the future. New York: The Free Press. Seong, N.Y. (2006). How has Korea become Internet powerhouse? The Korea Times, (September 22). Shim, M.S. (2006). Similar aspects between Korean soccer and Korean information technology. HanKook Ilbo, (June 23).
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KEY TERMS Confucianism: A philosophy of life developed by Confucius. It stressed the proper relationships in society, such as father/son and ruler/subject. The philosophies of Confucius are emphasizing love for humanity; high value given to learning, and devotion to family, peace, and justice. Convergence: Also known as digital convergence. The concept that all modern information technologies are becoming digital in nature. The technological trend whereby a variety of different digital devices such as TVs, in particular highGH¿QLWLRQ79VDQGPRELOHWHOHSKRQHVDUHPHUJing into a multi-use communications appliance employing common software to communicate through the Internet. Edutainment: The combination of education and entertainment. Many people in the digital age use the Internet as a form of studying several subjects, in particular English while enjoying playing in cyberspace.
Taylor, C. (2006). The future is in South Korea. Retrieved June 14, 2006, from http://money.cnn. com/2006/06/08/technology/business2_futureboy0608/index.htm
Information Technology (IT): Compared to the labor-led technologies and industries, information technology usually includes semiconductors, computers, and telecommunications, although some economists like to use the term “knowledgebased industry” in order to explain IT.
Ward, A. (2004). Where high-speed access is going mainstream the Korean experience: Government policy, high levels of urbanization. Financial Times, (June 9), 4.
1997 Economic Crisis: The Korean economy has gone from being an example of one of the most successful development experiences in modern history to economic stagnation and decline in 1997.
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Socio-Cultural Interpretations to the Diffusion and Use of Broadband Services in a Korean Digital Society
From the middle of 1997, Korea was beset with DVHULHVRI¿QDQFLDOFULVHV7KHWUHQGRIGHFDGHV of rising incomes reversed, and unemployment and poverty were reaching alarming levels. In particular, factors responsible for the decline in the value of exports then include a dramatic fall in the prices of some electronic and information equipment, in particular semiconductors, which had dire consequences for a number of countries in the East and South Asia region. Online Games: Internet games (also known as online games) are games that are played online via the Internet. They are distinct from video and computer games in that they are normally platform independent, relying solely on client-side technologies. Normally all that is required to play Internet games are a Web browser and the appropriate “plug-in.”
4
Social Solidarity: The degree or type of integration of a society. In simpler societies, solidarity is usually based on kinship ties or familial networks. In more complex societies, solidarity is more organic, referring to the interdependence of the component parts. Thus, social solidarity is maintained in more complex societies through the interdependence of its component parts.
ENDNOTES 1
2
3
88
For example, Yun et al. (2002) and Lee et al (2003) mention that the strong emphasis on education and academic performance has prompted parents to turn to the Internet for educational goods and services; however, they do not extend their discussion further. Since broadband penetration was above 77% as of January 2006, Korea almost achieved one of the major goals; however, the speed of broadband, another major goal, could not EHIXO¿OOHGJLYHQWKDWDQDYHUDJHVSHHGRI broadband was only 2.5Mpbs in May 2005 (see Kim, 2005). In 1997, Korea experienced the worst economic recess in modern history, mainly due WRWKHFULVLVLQ¿QDQFLDODQGFRUSRUDWLRQVHF-
5
tors. Thirteen large conglomerates, including Daewoo and Donga, collapsed or became partially insolvent because of the shortage of currency. The immediate result of these FRPSDQLHV¶ FROODSVH ZDV WKH VXIIHULQJ RI small companies and workers. When they failed, thousands of small-scale companies collapsed. As of February 1998, 3,377 midsize and small companies were bankrupt. When companies went bankrupt, workers lost their jobs. By the end of June 1999, the number of jobless reached 1.78 million. This means the unemployment rate rose sharply from 2.6% in the fourth quarter of 1997 to 8.5% in the second quarter of 1999, and real wages fell by 7.9% (see Jin, 2007). The government placed an emphasis on creating Internet-Friendly Classrooms at every level of schooling by connecting them to high-speed Internet free of charge as the main component of educational information infrastructure. The government spent $1.4 billion for the establishment of school information infrastructure between 1998 and late 2000. Of this amount, the government used $600 million to connect classrooms of 10,064 elementary, middle, and high schools around the country with broadband services (see Lim, 2001, p. 3). The relatively low monthly subscription fees have helped the growth of broadband services; however, it is almost certain that a high subscription fee could not deter the spread of broadband services because the majority of Koreans have not taken the price as a factor. For example, most Koreans over teens have had cell phones regardless of high monthly subscription fees. The subscription fees of mobile phones have greatly risen since 1997; however, the penetration rate has also exponentially increased. In the late 1990s, the .RUHDQJRYHUQPHQWRI¿FLDOO\EDQQHGPRELOH carriers from offering handset subsidies in an attempt to block excessive marketing; however, many local mobile users still wanted to have mobile phones, although the full price of many handsets were priced at more than $500
Socio-Cultural Interpretations to the Diffusion and Use of Broadband Services in a Korean Digital Society
6
7
in 2002. There are major factors other than promotion policies and competition among telecom companies in the Korean context which would be cultural factors. 100Mbps broadband services can download the equivalent of a 32-page newspaper per VHFRQGDQGD¿OP *% ZLWKLQWZRPLQutes, compared to one hour with 3.5 Mbps broadband services. About 80% of customers used broadband services of 1-4Mpbs in Korea as of December 2005. Parks Associates surveyed more than 10,000 households in 13 countries and ranked nations
8
according to their proclivity to adopt and use MP3 players, video-on-demand (VOD), home networks, computers, online services, and similar advanced technologies. The survey found that Taiwan (Digital Living Index: 8.7) and Korea (8.4) lead the world in the adoption of consumer technologies, followed by the U.S. (8.1), Canada (8.0), and Japan (7.9) (see Parks Associates, 2005). It is in some ways despicable because Korean people follow others, not because they need, but because they want to be in the same class and enjoy showing off.
89
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Chapter VII
Structural Changes and Regulatory Challenges in the Japanese Telecommunications Industry Hidenori Fuke Komazawa University, Japan
ABSTRACT The structure of the telecommunications industry in Japan has been changing revolutionarily. The changes DUHREVHUYHGLQ¿YHSKDVHV GHYHORSPHQWRIFRPSHWLWLRQLQWRWKHORFDOFDOOPDUNHW GLIIXVLRQRI broadband Internet and development of inter-platform competition, (3) rapid growth of cellular services and Internet access via cellular, (4) decline of POTS (plain old telephone service), and (5) structural changes from vertical integration to layered structure and development of media convergence. These changes require total review of the regulatory framework that was formed in the POTS era. In this chapter, I propose to review: (a) essential facilities regulation, (b) a universal service system, and (c) DÀDWUDWHSULFLQJV\VWHPRIWKH,QWHUQHWWRVROYHSUREOHPVWKDWDUHOLNHO\WRGLVWRUWWKHQHZLQGXVWU\ structure and would stress the importance of a regulatory system that is competition, technology, and content neutral.
INTRODUCTION The structure of the telecommunications industry in Japan has been changing revolutionarily. Competition has developed from the long distance call market into the local call market. New competitive carriers started to offer subscriber telephone services by leasing dry copper from 177(DVWDQG177:HVW KHUHDIWHUFDOOHGµ177 ORFDOFRPSDQLHV¶ WKDWZDVPDLQO\XVHGIRU'6/
(digital subscriber line) services. The diffusion of the broadband Internet is impressive. FTTH (Fiber to the Home) has started to grow following spectacular growth of DSL. According to a 2005 International Telecommunication Union (ITU) report, Japanese broadband Internet service is the fastest and cheapest in the world. The changes are not limited to quantity. The nature of competition is changing from intra-platform to inter-platform as the broadband Internet is offered on various
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Structural Changes and Regulatory Challenges in the JapaneseTelecommunications Industry
platforms. The diffusion of cellular services, especially Internet access via cellular and 3G (thirdgeneration) services, has been remarkable. Cellular carriers are competing to offer various services on terminals including IC card functions, music distribution functions, and digital TV. With the rapid growth of broadband Internet, IP telephony has diffused. The diffusion of broadband Internet accompanying the deployment of IP telephony and cellular services has been drastically decreasing POTS SODLQ ROG WHOHSKRQH VHUYLFH FDUULHUV¶ UHYHQXHV It has become clear that the universal service system based on POTS is no longer sustainable. +RZHYHU,QWHUQHWWUDI¿FKDVEHHQFRQWLQXLQJWR increase due to the diffusion of IP broadcasting services and peer-to-peer exchange of moving pictures between users. It has also become clear WKDWWKHSUHVHQWVLPSOHÀDWUDWHSULFLQJV\VWHPRI the Internet is no longer sustainable due to rapid LQFUHDVHLQ,QWHUQHWWUDI¿F With the diffusion of the Internet, especially that of the broadband Internet, the structure of the infocommunications industry is changing from vertical integration to a layered structure. Telecommunications and broadcasting, which have developed as separate industries, are converging. These changes require urgent reform of regulatory systems that were designed in the POTS era. This chapter focuses on three matters that risk distortion in industry structure in the near future. They are: (a) essential facilities regulations designed for POTS, (b) a universal service V\VWHPIRU3276DQG F DÀDWUDWHSULFLQJV\Vtem for broadband Internet. Although reform of regulationsincluding the copyright system that has discouraged the development of IP broadcasting to respond to the development of media convergenceis also urgently required, reform involves not only economic and legal aspects but also cultural discussions. Therefore, I will focus on the above three topics in this chapter. This chapter is organized as follows. First, a brief history of Japanese telecommunications regulatory reform is given as background information. Second, the Japanese telecommunications market
is analyzed to throw structural changes into relief. Third, viability of the application to the broadband Internet market of the essential facilities regulation to promote competition in the POTS market is discussed. I will argue that the imposition of an REOLJDWLRQWRRIIHUGDUN¿EHURQO\RQLQFXPEHQW NTT local companies will distort competition in the broadband Internet market and retard the development of facilities-based competition. Fourth, the recent reform of the Japanese universal service system is analyzed, and I will propose the reform of the present universal service that ensures only POTS to a new system that ensures access to voice communications services regardless of WKHWHFKQRORJLHVGHSOR\HG)LIWKWKHµWUDJHG\RI WKH FRPPRQV¶ RQ WKH ,QWHUQHW LV DQDO\]HG DQG the introduction of a new charging system based on the quality guarantee and transmission speed is proposed. Finally, as concluding remarks, the importance of designing a new regulatory system that is neutral to competition, technology, and FRQWHQW LV HPSKDVL]HG E\ EULHÀ\ WRXFKLQJ XSRQ the copyright problem.
BACKGROUND The telecommunications industry is going through drastic structural changes with the rapid diffusion of the Internet and mobile services. Regulations of POTS assume that physical, service, and content layers are closely associated and competition is basically within the metallic subscriber line platform. Contrary to this, regulation of the Internet and 3G mobile services should be based on a layered approach, as links between layers are cut off and inter-platform competition becomes VLJQL¿FDQW3DVWUHJXODWLRQWKDWPDLQO\IRFXVHGRQ the control of market power of incumbent carriers in local access markets should be restructured to accommodate the new structure. Most regulations in the telecommunications industry were basically MXVWL¿HGE\WKHH[LVWHQFHRIPDUNHWIDLOXUH7KHUH are three main reasons behind market failure in the telecommunications industry1:
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Structural Changes and Regulatory Challenges in the JapaneseTelecommunications Industry
a. b. c.
Existence of carriers with market power2 Asymmetric information between consumers and carriers Network externality
With the structural changes indicated above, these factors are also changing. The telecommunications industry used to be regarded as a typical example of a natural monopoly. But with technological development, privileges awarded to the former state monopolies were revised and competition was introduced in the 1980s. The introduction of competition itself did not eliminate market failure, as incumbent carriers have continued to maintain a de facto monopoly on local telecommunications facilities, especially metallic subscriber lines. The prices of long distance services and services for business users were set above cost to subsidize local services for residential users whose prices were set below cost. New entry began from long distance and business markets because of this price structure. New entrants offered their services by interconnecting with the local network of incumbent carriers that cannot be practically and reasonably replicated. Incumbent carriers offered monopolistic wholesale products (access to local networks) and competitive retail products (local and long distance call services). Under this market structure, there are two choices for ensuring fair competition. One is structural separation, and the other is conduct regulation. In the case of the United States, structural separation was adopted in 1984. In many other countries, conduct regulation without structural separation was preferred. Japan is one of the few countries that introduced competition without having taken a clear position between these two choices. Although structural separation of incumbent NTT (Nippon Telegraph & Telephone) Public Corporation was discussed, the discussion was deferred and it was SULYDWL]HGDVDXQL¿HGHQWLW\RIIHULQJERWKORFDO and long distance services in 1985. At the same time, one of the most important conduct regulations (i.e., interconnection rules) was not well provided for. The regulatory uncertainty lingered on and informal asymmetric regulation by regulatory
92
authorities to make up for the gap was criticized as non-transparent and arbitrary.3 :KHQWKHUHJXODWRU¿QDOO\VHWWOHGWKHSUREOHP by the introduction of interconnection rules in 1997 and the reorganization of NTT under a holding company structure in 1999, the industry structure itself began to change. The nature of competition changed from intra-platform to inter-platform based on a layered structure. This will change the pattern of market failure. Although the MIC (Ministry of Internal Affairs and Communications)4 introduced a revised TBL (Telecommunications Business Law) from April 2004 to respond to the change, it is still built on the ideas valid in the POTS era and it missed the need to protect consumers by abolishing virtually any regulation on prices. Japan took a step forward toward regulatory reform to accommodate the above changes by WKHSXEOLFDWLRQRIWZRUHSRUWVLQ7KH¿UVW is the report published in June by the Panel on Frameworks of Communications and Broadcasting, which was convened by the Minister for Internal Affairs and Communications. The second is the report published in September by the Study Group on a Framework for Competition Rules to Address the Transition to IP-Based Networks,5 which was organized by the MIC. I appreciate that these reports were moves to reform the regulatory framework based on POTS and on the clear distinction between telecommunications and broadcasting. However, it is true that detailed discussions on the actual implementation of these reports still are not free from the way of thinking of the POTS era. Below I analyze the structural changes in the telecommunications industry in Japan since 1985, and I propose policies to accommodate changes in industry structure.
STRUCTURAL CHANGES IN THE TELECOMMUNICATIONS INDUSTRY IN JAPAN Structural changes in the telecommunications industry in Japan are observed in the following ¿YHSKDVHV
Structural Changes and Regulatory Challenges in the JapaneseTelecommunications Industry
Figure 1. Growth of broadband Internet Thousand 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0
3 6 9 12 3 6 9 12 3 6 9 12 3 6 9 12 3 6 9 12 3 6 9 12 3 6
Cable DSL FTTH
2000
a. b. c. d. e.
2001
2002
Development of competition into the local market Diffusion of broadband Internet Diffusion of cellular and Internet access via cellular Decline of POTS Development of media convergence based on a layered structure
Development of Competition into the Local Market Since the introduction of competition in the telecommunications industry in 1985, the share of the incumbent (NTT) started to decrease, especially in the long distance market. With the introduction of interconnection rules in 1997 and the adoption of carrier pre-selection in 2001, competition developed into the local call market. The share of the NTT group was 63.9 % in the local market and its share in the inter-prefecture long distance market was 48.2 % as of March 2006. The only market in ZKLFKWKH177JURXSVWLOOKROGVVLJQL¿FDQWPDUNHW share is the traditional telephone access market, where their share as of June 2006 was 89.3%. In addition, new entrants started to offer teleSKRQHVHUYLFHVE\XWLOL]LQJ177ORFDOFRPSDQLHV¶ unbundled metallic subscriber lines (Dry Copper)
2003
2004
2005
2006
in 2004. Their share in subscriber telephone lines as of June 2006 reached 5.5%.
Diffusion of Broadband Internet $VIRU,QWHUQHWDFFHVVYLD¿[HGOLQHVEURDGEDQG access has grown rapidly (see Figure 1). The number of users of broadband Internet reached 24.2 million in June 2006. Now about 48.6% of households are connected via broadband. Although DSL dominates the market with 14.5 million users, the recent growth of FTTH is remarkable. The number of users of FTTH reached 6.3 million, and WKHQHWLQFUHDVHLQWKHQXPEHURIXVHUVLQWKH¿UVW TXDUWHURIH[FHHGHGWKDWRI'6/IRUWKH¿UVW time (see Figure 2). FTTH has continued to grow, while DSL recorded a net loss in number of users for the second quarter of 2006. About 26.1 % of broadband users are now on FTTH. One of the characteristics of the Japanese FTTH market is that both facilities-based and service-based competition have developed. In the wholesale market, NTT local companies and electric power companies are competing. In the retail market, service providers including Softbank are competing with NTT local companies and electric power companies. DSL services have grown rapidly due to the aggressive marketing of Softbank
93
Structural Changes and Regulatory Challenges in the JapaneseTelecommunications Industry
Figure 2. Growth of broadband Internet: Quarterly net increase 1600
Thousand Cable DSL FTTH
1400 1200 1000 800 600 400 0 - 200
3 6 9 12 3 6 9 12 3 6 9 12 3 6 9 12 3 6 9 12 3 6 9 12 3 6
200
2000
2001
2002
BB, which took advantage of cheap, regulated line-sharing charges.6 The MIC also imposed unbundling obligation of FTTH at low charges on NTT local companies. Softbank BB set retail prices of FTTH services very low like DSL.7 To FRPSHWHZLWK6RIWEDQN%%¶VFKHDS'6/HOHFWULF power companies set prices of FTTH services very low and NTT local companies followed. Not only intra-platform competition but also inter-platform competition in the broadband Internet access market has developed, and that has contributed to the growth of cheap and fast Internet service. According to the ITU (2005), broadband service in Japan is the most advanced in the world in terms of price and speed. With the growth of broadband, IP telephony has begun to be widely deployed, and even NTT local companies started IP telephony services on FTTH. The MIC reported that the number of telephone numbers assigned to IP telephony reached 12 million at the end of June 2006 which is over 20% of POTS. To this number we must add IP telephony without telephone numbers.
Diffusion of Cellular and the Internet Access via Cellular The number of subscribers of mobile (cellular and 3+6 WHOHSKRQHVH[FHHGHGWKDWRI¿[HGWHOHSKRQH 94
2003
2004
2005
2006
OLQHVLQ¿VFDODQGUHDFKHG PLOOLRQDWWKH HQGRI0DUFKZKLOH¿[HGOLQH 3276DQG ISDN) subscribers decreased to 58.1 million. The mobile subscribers per 100 inhabitants were 71.6, ZKLOH¿[HGOLQHVHUYLFHVZHUH7KHUHYHQXH IURPPRELOHVHUYLFHVH[FHHGHGWKDWRI¿[HGOLQHV LQZKLFKKDVEHHQGHFUHDVLQJVLQFH¿VFDO 2000. Since NTT DoCoMo started Internet access service via a cellular service named i-mode in February 1999, the number of users of Internet access via cellular phones started to grow rapidly. The number of users reached 81.5 million (about 87.0% of cellular subscribers) by the end of September 2006. Japan is unique in global Internet usage in that access via cellular commands an important UROH177'R&R0RVWDUWHGWKH¿UVW*VHUYLFHLQ the world in October 2001 with W-CDMA, and KDDI followed in April 2002 using cdma2000. The number of users of 3G service is also showing rapid growth. By the end of September 2006, total 3G users exceeded 48.9 million (about 62.6 % of cellular users). KDDI started to offer 2.4Mb/s service in November 2003, and NTT DoCoMo started 3.6Mb/s service in August 2006. Cellular LVEHFRPLQJDVLJQL¿FDQWWRROIRUKLJKVSHHGDFcess to the Internet. The characteristics of the Japanese cellular market are not limited to the above mentioned
Structural Changes and Regulatory Challenges in the JapaneseTelecommunications Industry
growth. Cellular carriers are competing to add QHZIXQFWLRQVRQFHOOXODUWHUPLQDOV7KH¿UVWLV GLJLWDOFDPHUDIXQFWLRQDQGLWLVGLI¿FXOWWR¿QG cellular terminals without this function. IC card function has been added to terminals, and now cellular terminals are used for various purposes including electronic money, credit card, and train and air tickets. They also are used for entertainment purposes such as music, TV, and electronic books. As a result, the rate of data transmission revenue LQ¿VFDOKDVLQFUHDVHGWRDERXWRIWRWDO transmission revenue compared to decreasing revenue from voice transmission. The lesson to be learned from this development is the importance of facilities-based competition. As cellular carriers are competing on the facilities base, they have scrambled to add new functions on their network and terminals. Service-based competition based RQDSDUWLFXODUFDUULHU¶VWHFKQRORJ\ZRXOGQRWKDYH realized this kind of innovation.
of hours have continued to decline. The share of ¿[HGWR¿[HG FDOOV LQ WHUPV RI QXPEHU RI FDOOV GURSSHGWRLQ¿VFDO7KLVKDVOHGWRD GHFUHDVHLQ177ORFDOFRPSDQLHV¶UHYHQXHVIURP FDOOV VHH)LJXUH &RPSHWLWLRQLQWKH¿[HGYRLFH call market has developed, and voice services are also offered on various platforms other than metallic subscriber lines. These changes call for reform of the universal service system. Japan Telecom (now called Softbank Telecom) and KDDI, major competitors in the long distance market, started to offer their own subscriber telephone services usLQJ177ORFDOFRPSDQLHV¶GU\FRSSHULQDQG 2005 respectively, and competition has extended from the call market to the local access market. As NTT local companies reduced monthly basic charges in 2005 to respond to new competition, their revenues should decrease further.8
Development of Media Convergence Based on Layered Structure
Decline of POTS :LWKWKHFKDQJHVDQDO\]HGDERYHFDOOVIURP¿[HG telephones in terms of number of calls and number
7KLVLPSDFWLVQRWOLPLWHGWRFDUULHU¿QDQFHV7KH diffusion of broadband Internet and 3G and 3.5G cellular blurs the boundary between telecommu-
Figure 3. Decreasing voice revenue 50,000
Milion US$
NTT- East NTT- West NTT Communications NTT (Total)
45,000 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 2000
2001
2002
2003
2004
2005
95
Structural Changes and Regulatory Challenges in the JapaneseTelecommunications Industry
nications and broadcasting. While broadcasting over the Internet is already available, terrestrial digital TV service started in December 2003 and broadcasters started digital services over 3G cellular terminals in April 2006. The info-communications industry used to be vertically integrated with a clear boundary between media. With the diffusion of the Internet, especially broadband Internet, the structure has been changing. Any kind of content can be divided into packets and transmitted on the Internet as long as TCP/IP is observed. On the other hand, packets can be transmitted over any physical network, as 7&3,3LVGH¿QHGRQO\E\VRIWZDUH7KXVWKHVWULFW links between physical, service, and content layers are cut off. Horizontal separation of the media industry according to three layersthat is, physical, network, and content layersis developing. It is becoming an urgent challenge to revise the regulatory framework of the info-communications industry to accommodate these changes. One of WKHOHDGLQJWULDOVLVWKHLQWURGXFWLRQRIWKH(8¶V new regulatory framework.9 With the above-mentioned changes the pattern of competition in the telecommunications industry has been changing from intra-platform competition to inter-platform competition. In the case of POTS, competition is based on incumbent carriHUV¶PHWDOOLFVXEVFULEHUFDEOHV,QWKHFDVHRIWKH Internet, various platforms such as FTTH, cable PRGHP*FHOOXODUZLUHOHVV/$1DQG:L0$; are competing. The regulatory framework for POTS is no longer sustainable.
REGULATORY CHALLENGES Essential Facilities Regulation The changes in industry structure and the pattern of competition call for reforms in telecommunications regulation. I will focus on the following three points: a. b.
96
Essential facilities regulation A universal service system
F $ ÀDWUDWH SULFLQJ V\VWHP IRU EURDGEDQG Internet
DSL and Essential Facilities Regulation As mentioned earlier, the pattern of competition is changing from intra-platform to inter-platform. To accommodate this change, it is necessary to revise essential facilities regulation on incumbent carriers.10 In the case of POTS, physical, service, and content layers are closely associated, and the physical layer in the local market is offered as metallic subscriber lines and local exchanges that accommodate them. At the early stage of the introduction, fair competition policy focused on the LQWHUFRQQHFWLRQEHWZHHQQHZHQWUDQWV¶ORQJGLVWDQFHIDFLOLWLHVDQGWKHLQFXPEHQW¶VORFDOWHOHSKRQH network facilities, which were regarded as essential facilities. Service-based competition based on a single platform (i.e., metallic subscriber cables) has developed. Here access regulation has rationale regardless of the trade off between the promotion of competition and investment incentive. Diffusion of the Internet has started to change the pattern of competition. Access to the Internet is obtained through various physical networks, including metallic subscriber lines, FTTH, cable PRGHPFHOOXODUZLUHOHVV/$1DQG:L0$;$V a result, the pattern of competition is moving from intra-platform to inter-platform. This is especially true in the case of Japan. DSL service started to grow through the introduction of line-sharing obligation on NTT local companies and the extensive marketing of new entrants such as Softbank BB. Total DSL users as of March 2006 reached 14.5 million. Softbank acquired market share of 34.8%, compared to the combined share of NTT local companies of 39.2%. However, DSL service is dependent on a single platform, that is, 177ORFDOFRPSDQLHV¶PHWDOOLFVXEVFULEHUOLQHV
Is FTTH Essential? In the case of FTTH, the situation is rather different. Electric power companies entered the market RQDIDFLOLWLHVEDVLV177ORFDOFRPSDQLHV¶VKDUH LQWKHZKROHVDOHPDUNHWDWWKHHQGRI¿VFDO
Structural Changes and Regulatory Challenges in the JapaneseTelecommunications Industry
was 78.6%, compared to 94.8 % share in the metallic market. Their share of the retail market for the same time was 74.3 % for independent houses DQGEXVLQHVVPDUNHWDQGIRUÀDWVPDUNHW Their combined shares were less than 50% in some prefectures where electric companies are active. Regardless of the change in the pattern of competition, the MIC has imposed the same kind of regulation for wholesale FTTH as metallic subscriber lines. The regulation includes the REOLJDWLRQWRRIIHUGDUN¿EHUDWUHJXODWHGFKDUJHV and margin squeeze regulation. Retail prices of NTT local companies are not regulated. As the retail market is very competitive, they set retail prices very low to compete with electric power companies and other service providers. Margin squeeze regulation requires that the margin between retail and wholesale prices covers the cost of retail (Cave, 2004). The strategic price setting in the retail market obliges NTT local companies to set wholesale charges below cost.
It is not reasonable to apply this kind of access regulation to the market where inter-platform competition has developed. This will not only disturb the development of facilities-based competition but also prevent the diffusion of new technologies VXFKDVZLUHOHVV/$1DQG:L0$;7HFKQRORJLFDO neutrality is one of the key factors in newly developing markets such as broadband Internet.
A UNIVERSAL SERVICE SYSTEM Universal Service System in Japan The second challenge is reform of the universal service system designed for POTS. With the introduction of competition, the universal service system in the telecommunications industry has been changing from an internal cross-subsidy system of monopolistic incumbent carriers to an industry-level subsidy mechanism. In Japan, to
Table 1. Outline of 2006 reform
97
Structural Changes and Regulatory Challenges in the JapaneseTelecommunications Industry
respond to developments since the introduction of competition in 1985, a universal service fund (USF) system was introduced in 2001 by the revision of the Telecommunications Business Law (TBL), which regulates telecommunications businesses. The system did not function at all because it stipulated that subsidies would be given to NTT local companies when the total cost for all services GH¿QHG DV XQLYHUVDO VHUYLFH H[FHHGHG WKH WRWDO revenue from the services. The system was revised LQDVWKHSUR¿WDELOLW\RI177ORFDOFRPSDQLHV was expected to further deteriorate. The outline of the reform is given in Table 1. First, as no change was added to eligible telecommunications carriers, the problem of the 2001 system still remains. Second, local calls were excluded from universal services, and only acFHVV WR ¿[HG WHOHSKRQH QHWZRUNV LV NHSW DPRQJ universal services. Third, under the new system the amount of subsidies is calculated as the difference between cost for high cost areas estimated by TERLIC and national average cost for universal services. High cost areas are those where the upper 4.9% of subscribers belong in terms of cost. More VLJQL¿FDQWO\WKH0,&H[FOXGHGIURPVXEVLG\DUHDV those areas where carriers other than NTT local companies have entered, for the reason that it is not competitively neutral to give subsidies only to NTT local companies in competitive areas (MIC, 2005, p. 46). Fourth, a big change was made in the contribution obligation. Under the new system, carriers that are assigned telephone numbers should contribute to USF according to the number of telephone numbers assigned.
Actual USF Operation The TCA (Telecommunications Carriers Association), which supervises USF, published in September 2006 that the amount of contribution from January 2007 would be 7 Yen (5.9 cents) per number assigned (TCA, 2006). This amount would be revised every six months thereafter. The total amount of subsidy is $128.55 million. The management cost of the USF (i.e., $1.05 million) is added to this amount for a total of $129.6 million. As the
98
number of total telephone numbers assigned is 165.9 million, the amount of contribution to the USF is calculated as 7 Yen (5.9 cents) per month.
Evaluation of 2006 Reform It is an important step forward that the USF in Japan is likely to function by revision of the subsidy system based on cost and revenue to a kind of benchmark method. NTT local companies applied for the designation as eligible telecommunications carriers in January 2006. The MIC estimated that the size of the subsidy would be between $166 and $234 for 2006 and would increase thereafter. However, there are still some problems to be VROYHG 7KH ¿UVW RQH LV WKH VFRSH RI XQLYHUVDO service. As analyzed in the above section, the contribution to USF based on the number of telephone numbers assigned is not competitively neutral. This is because the MIC put simplicity before competiWLYHQHXWUDOLW\7KHEDVLFIDFWRUEHKLQGWKHFRQÀLFW between simplicity and competitive neutrality is the scope of universal service. The MIC limited WKHVFRSHRIXQLYHUVDOVHUYLFHWR¿[HGWHOHSKRQH service. But as shown in earlier sections, voice communication services are offered on various platforms including cellular and the Internet. The concept of universal services is to ensure certain services regardless of the physical network on which they are offered. If voice communication services are to be ensured, the physical network should not be restricted to PSTN. The diffusion of cellular and the Internet, especially broadband ,QWHUQHWKDYHVWDUWHGIURPSUR¿WDEOHXVHUVLQXUEDQ DUHDV $V RQO\ XQSUR¿WDEOH XVHUV LQ UXUDO DUHDV would be left on the metallic telephone network LQWKHQHDUIXWXUHLWZLOOEHGLI¿FXOWWRPDLQWDLQ universal service within the framework of POTS. As voice services are offered on various platforms, universal service should accommodate this change. It is inevitable to change universal service to access to networks on which voice services are available. ,WLVFRQVLGHUDEO\GLI¿FXOWWRUHDOL]HWKLVZLWKWKH system of universal service that gives subsidies to carriers. As various facilities-based carriers and service-based providers are competing in the market, new universal service subsidies should be
Structural Changes and Regulatory Challenges in the JapaneseTelecommunications Industry
targeted toward end users. If end users are allowed choice among carriers or providers, it is possible to ensure universal service under an environment characterized by intra-platform competition. The second problem is related to the policy goal of universal service given by the MIC. The MIC explained that the policy goal of universal service is to prevent a geographical gap in telecommunications. However, both economic and geographical affordability are to be taken into account. There are huge differences in cost between exchange areas due to subscriber density. If we set prices according to this cost trend, the price for high cost exchange areas should be prohibitive. However, if we integrate exchange areas into message areas11 and set prices according to average cost for each message area, the difference should not be so big. $WWKHOHDVW177ORFDOFRPSDQLHV¶PRQWKO\EDVLF charges that are set against cost trends should be UHEDODQFHG WR UHÀHFW WKHVH WUHQGV12 Because it LV QRW HFRQRPLFDOO\ HI¿FLHQW WR JLYH VXSSRUW WR everyone in high cost areas, subsidies should be targeted toward low-income families that cannot afford to get access to voice services at competitive prices. However, the above discussions were within the framework of POTS. While discussions on universal service have been dragging on, the structure of the telecommunications industry has shown spectacular changes. NTT announced that it would offer FTTH services to more than 30 million users by 2010 in its medium-term management strategy (NTT, 2004). If this plan is realized, about half of the present POTS subscribers would move to FTTH. This move will make it almost impossible to maintain universal service for users that remain on PSTN. It has become evident that a universal service system that takes only POTS into account is no longer sustainable. Reform of the universal service system from a system that secures POTS to one that secures access to IP networks is urgently required.
NEW UNIVERSAL SYSTEM DESIGN I propose to design a new universal service system WRVROYHWKHDERYHSUREOHPVEDVHGRQ1RDP¶V¿YH criteriacompetitive neutrality, technological neutrality, structural neutrality, applications and content neutrality, and geographical neutrality (Noam, 1997, pp. 115-116). The basic framework of my proposal here is to give subsidies to lowincome consumers in high cost areas who cannot afford services included in universal services at competitive prices. This will eliminate the presHQWHFRQRPLFLQHI¿FLHQF\E\WDUJHWLQJVXEVLGLHV toward users in high cost areas. It is necessary to designate carriers of last resort (COLRs), to specify services, low-income users, high cost areas, amount of subsidy, and contribution method. First, it is necessary to designate a COLR or COLRs that accept a commitment to supply services as universal service to all consumers in the area, to ensure that there is at least one carrier that offers universal service. Second, services subsidized as universal service VKRXOG EH UHGH¿QHG DV DFFHVV VHUYLFHV WR YRLFH transmission services, regardless of the physical network on which they are offered and technologies deployed. The reason why voice call services are excluded is that voice call services have already been offered very cheaply or virtually at no cost in the case of IP telephony, and economic and geographical affordability has already been realized. Therefore, the affordability problem left is with access to voice services. As this proposal is not affected by the kind of technologies employed, it is technologically neutral. Further, as the proposal does not question whether content and applications DUHRIIHUHGRYHU¿[HGWHOHSKRQHFHOOXODURUWKH Internet, content neutrality is ensured. 7KLUGWKHGHFLVLRQUHJDUGLQJLGHQWL¿FDWLRQRI low-income consumers is primarily a political and social matter. Although I will not elaborate on it here, my tentative proposal is to adopt criteria for livelihood subsidy. Fourth, high cost areas are selected based on the actual cost of the least costly COLR for each area. There is trade off between the size of areas and the possibility of cream skimming, when ac-
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Structural Changes and Regulatory Challenges in the JapaneseTelecommunications Industry
tual cost varies. If we adopt individual exchange areas, the difference is too large. Therefore, I propose to adopt message areas that integrate several exchange areas as a basis for the calculaWLRQRIFRVW7KHQKLJKFRVWDUHDVDUHGH¿QHGDV areas where the cost of the most cost-effective COLR in the area exceeds the national average of the most cost-effective COLR in each area. This will ensure geographical neutrality. However, the precondition for the introduction of this system is WKHUHEDODQFLQJRI177ORFDOFRPSDQLHV¶PRQWKO\ basic charges. Present monthly charges that are inversely set against cost will promote cream skimming entry into urban areas, and NTT local FRPSDQLHV ZLOO ORVH SUR¿WDEOH XVHUV 7KH SULFH of dry copper is set at 1,334 Yen ($11.4)/month in the case of NTT-East and 1,405 Yen ($12.0) in the case of NTT-West. Comparing these prices with monthly basic charges, it is clear that it will QRWEHGLI¿FXOWIRUQHZHQWUDQWVWRHDUQSUR¿WVE\ targeting business users in urban areas. NTT loFDOFRPSDQLHV¶EXVLQHVVHVZLOOIDFHGLI¿FXOWLHVLI they do not rebalance basic monthly charges. To UHPRYHSROLWLFDOUHEDODQFLQJGLI¿FXOWLHVWKLVQHZ universal service system is required. Fifth, the amount of subsidy given to each low-income user is the difference between the price of the cheapest access service of the COLR or COLRs in the area and the national average of the cheapest access service of COLR or COLRs in each area, excluding high cost areas. This will ensure competitive neutrality. Sixth, relevant low-income consumers will be given vouchers for the above difference and will be able to use it for any access service offered in the area by any carrier. This will ensure competitive and technological neutrality. Seventh, the subsidy will be covered by a fund in which every telecommunications carrier will contribute according to their net revenue, calculated by reducing charges paid to other telecommunications carriers from their total revenue.13 It is competitively neutral because all telecommunications carriers contribute to the fund, and it is also structurally neutral because the amounts to be contributed are the same between vertically integrated carriers and non-integrated carriers that purchase input from
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other carriers. It is desirable to exclude small carriers to avoid excess burden.14
Flat-Rate Pricing System for Broadband Internet Internet and the Tragedy of the Commons With the development of the broadband Internet DQG,3EURDGFDVWLQJGLVFXVVLRQVRQµIUHHULGHRQ WKHQHWZRUN¶DQGµQHWZRUNQHXWUDOLW\¶DUHDWWUDFWLQJ many people in Japan. However, the discussions originated in the United States, and I doubt the appropriateness of the application of the American discussions to Japan, where the structure of broadband business is different. Even so, discussions in Japan are not free from the criticism that they lack the proper understanding of the layered structure of the Internet and the actual status of the interconnections among ISPs. I would stress that the problem should be discussed from the viewpoint of the pricing system inherent in the ,QWHUQHW WKDW LV OLNHO\ WR OHDG WR WKH µWUDJHG\ RI WKHFRPPRQV¶ One of the contributing factors behind the rapid GLIIXVLRQRIWKH,QWHUQHWLVWKHÀDWUDWHFKDUJLQJ system. This system can be broken down into two elements: the interconnection structure between ISPs and the connection between end users and ISPs. There are two patterns in the interconnection between ISPs. One is peering and the other is transit.153HHULQJLVDNLQGRIµELOO NHHS¶V\VWHP and no interconnection charge is paid between ISPs concerned. Under transit charging, ISPs requesting interconnection to another backbone ISP must pay interconnection charges. The charges are negotiated between ISPs concerned and hidden behind non-disclosure clauses, so it is hard to know actual conditions. My interviews with some Japanese ISPs support that the charges are generally at a ¿[HGUDWHEDVHGRQWKHFDSDFLW\RILQWHUFRQQHFtion lines. In both cases, the incremental cost of sending extra packets into interconnecting ISPs LV ]HUR 7KHUH LV OLWWOH LQFHQWLYH WR OLPLW WUDI¿F between ISPs. At the same time, there exists little
Structural Changes and Regulatory Challenges in the JapaneseTelecommunications Industry
incentive to expand network capacity on the part RIXSSHUWLHU,63VDVLQFUHDVLQJWUDI¿FGRHVQRW generate extra revenue. Internet access in Japan that started by dial-up PRYHGWRÀDWUDWHZLWKWKHGLIIXVLRQRIWKH,QWHUQHW DSL, which has grown rapidly, has been offered E\ÀDWUDWHDVLWLVRIIHUHGRQPHWDOOLFVXEVFULEHU lines without passing through telephone exchanges. )77+ZKLFKKDVVWDUWHGWRJURZVLJQL¿FDQWO\LV DOVRRIIHUHGRQDÀDWUDWHEDVLV:LWKWKHGLIIXVLRQ of broadband Internet, various applications such as IP telephony and IP broadcasting services have been offered over the Internet. They are offered IUHHRUE\ÀDWUDWHDVIDUDVFRQWHQWWUDQVPLVVLRQLV FRQFHUQHG8QGHUWKHÀDWUDWHV\VWHPLQFUHPHQWDO cost for users of receiving and sending extra packets is zero, and there is little incentive for them to limit WUDI¿F7KHUHUDWKHUH[LVWVLQFHQWLYHWRLQFUHDVHWUDI¿FDVEHQH¿WVIRUXVHUVLQFUHDVHZLWKWKHTXDQWLW\ of packets they send and receive. ISPs design and build their network capacity EDVHGRQWKHHVWLPDWHGDYHUDJHWUDI¿FRIDYHUDJH users and offer services by the best effort principle. If some of their users send and receive an extremely large volume of packets within a limited time, most of their network capacity will be consumed by these XVHUVDQGFDXVHGHOD\LQRWKHUXVHUV¶FRPPXQLFDtions or degrade communication quality. ISPs, which have been competing intensely since the start of broadband services, claim that they cannot afford to neither introduce a measured system nor expand their network capacity at pace ZLWKWKHUDSLGLQFUHDVHLQ,QWHUQHWWUDI¿F7KHODFN of a centralized governing Internet body helps them with this strategy. The total quality of transmission on the Internet is not managed, and matters are left to the best effort of each ISP. In principle, if one of their networks is overrun by concentrated big WUDI¿FSDFNHWVDUHURXWHGWRRWKHU,63V¶QHWZRUNV This is another reason why ISPs lack incentive to expand their own networks. From the above analysis it is clear that the LQFHQWLYH WR FRQWURO WUDI¿F GRHV QRW ZRUN ERWK RQWKHSDUWRI,63VDQGXVHUV7KXVWKHµWUDJHG\ RI FRPPRQV¶ WKDW ZDV UDLVHG E\ +DUGLQ becomes a real threat to the Internet. Goods and services that are rivalrous but are not excludable
DUHGH¿QHGDVFRPPRQUHVRXUFHV7KH,QWHUQHWFDQ be regarded as one of these common resources, as it is hard to exclude the use of network capacity while consumption of network capacity by users is rivalrous. The Internet has intrinsic cause to induce the same kind of tragedy. The Internet has developed as an open and autonomous network by the interconnection of many networks. In the case of POTS, telecommunications operators centrally manage the quality of the network. The quality of the Internet is maintained by the best effort of each provider. There is no central body to control the quality of the network as a whole. The capacity of each ISP is limited. If an individual user pours too many packets into the network, the capacity for other users decreases and that causes negative externality in the form of decrease in transmission speed or deterioration in transmission quality. If an individual ISP gains as its client a content provider offering moving picture services, too many packets will be sent out to upper-tier ISPs and the same kind of negative externality will appear. There is little economic incentive for individual users and ,63VWRFRQWUROWUDI¿FDVDQDO\]HGDERYH However, there is one big difference between the commons that Hardin observed and the Internet. Land resources (i.e., commons) cannot be expanded. In the case of the Internet, network capacity can be expanded. If we succeed in giving ISPs enough incentive to expand their network, we may be able WRDYRLGWKHµWUDJHG\RIWKHFRPPRQV¶
Diffusion of the Broadband Internet and Network Neutrality $OWKRXJK WKH µWUDJHG\ RI WKH FRPPRQV¶ RQ WKH Internet has long been pointed out, it has not been regarded as a real threat when access to the Internet is via narrowband. When the contents of the data transmitted over the Internet were text based, the sizes of packets were small compared to music or moving pictures. Even if many texts are sent, the load for the network is small. The rapid diffusion of the broadband Internet has changed the situation, as music and moving pictures are starting to be exchanged over the
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Structural Changes and Regulatory Challenges in the JapaneseTelecommunications Industry
Internet. The form of the circulation of music and moving pictures are not limited to downloading from content providers. Users have started to exchange music and moving picture data in the IRUPRISHHUWRSHHUGDWDH[FKDQJHE\XVLQJ¿OH H[FKDQJHVRIWZDUH,Q-DSDQWUDI¿FRYHUWKH,QWHUnet is growing rapidly and ISPs are facing demand to expand network capacity. Expansion of capacity means cost increases on the part of ISPs, and if they can recover, the cost from users there will be no problem. However, this is not an easy task in a competitive market ZKHUHÀDWUDWHFKDUJLQJLVHVWDEOLVKHG)DFLQJWKLV trouble, American carriers started to accuse content SURYLGHUVIRUWKHµIUHHULGH¶RQWKHLUQHWZRUNV)RU example, Edward Whitacre, the CEO of SBC, raised the problem in an interview with Business Week (2005). He claimed that content providers should bear the fair network cost, as telecommunications carriers and cable operators have made a huge investment to construct networks. Lessig, Wendel, and Carlsmith (2006) criticize this attitude, fearing that this will discriminate against particular services offered by content and service providers by imposing extra charges (access-tiering). 7KH HFRQRPLF VROXWLRQ WR WKH DERYH FRQÀLFW between telecommunications carriers and content and application providers is rather simple. I propose a system to give investment incentives to telecommunications carriers and give users incentives to FRQWUROWKHLUWUDI¿F
Problems for Each Layer 7KH$PHULFDQWHOHFRPPXQLFDWLRQVFDUULHUV¶DVsertion that content and application providers should bear the fair burden of network costs has been copied by some Japanese telecommunications carriers. Are these discussions rightly based in the Japanese broadband environment? The majority of broadband access in the United States is offered by cable modems. As no obligation to open their networks is imposed on cable operators, basic transmission functions and ISP functions are bundled. In the case of DSL, the share of incumbent local telephone companies amounts to 96.3% (FCC, 2006). Verizon, which merged with
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MCI, and the new AT&T, born by the merger of SBC and the old AT&T, are also offering Internet access services together with local telephone services. Physical layer and network layer services are bundled, but discussions on the free ride on networks have been made without clear distinction of layers. However, Japanese and American market structures are different. The Japanese broadband market is characterized by the layered structure. In the case of the physical layer, various services such as DSL, FTTH, cable modem, and wireless LAN are competing. As for the network layer, ISPs other than physical network providers are competing, and various content and application services are offered on the network layer service. :KHQZHGLVFXVVWKHµWUDJHG\RIWKHFRPPRQV¶ on the Internet, it is necessary to take this layered structure into account. Leased lines used for the backbone transmission of ISPs are offered by telecommunications carriers such as NTT local companies, NTT Communications, and KDDI. These carriers recover the cost of leased lines E\ÀDWUDWHDQGWKHFRVWLV¿[HGUHJDUGOHVVRIWKH mode and degree of use. Therefore, there arises no incremental cost on the part of carriers even LI,63WUDI¿FLQFUHDVHVE\WKHH[FKDQJHRIPXVLF and moving picture data on leased lines. Blame for a free ride is not accurate in the case of the physical layer. It is on the network service layer where the µWUDJHG\RIWKHFRPPRQV¶FDQEHDWKUHDW:LWK WKHJURZWKRI,QWHUQHWWUDI¿FFRQJHVWLRQRFFXUV unless ISPs increase their network capacity. If a IUDFWLRQ RI XVHUV SRXU WRR PXFK WUDI¿F LQWR WKH Internet where transmission capacity is limited, services for other users will deteriorate because of the delay or the loss of data. This is a typical H[DPSOHRIWKHµWUDJHG\RIWKHFRPPRQV¶
Realistic Solution to the Tragedy of the Commons It seems that it is more than easy to propose an economic solution to this problem. The solution is to give ISPs incentives to expand network capacity DQG JLYH XVHUV LQFHQWLYHV WR FRQWURO WUDI¿F 7KH
Structural Changes and Regulatory Challenges in the JapaneseTelecommunications Industry
pricing system by which the cost of facilities used exclusively by a particular user is recovered by ¿[HGUDWHDQGWKHFRVWRIIDFLOLWLHVWKDWDUHVKDUHG by more than one user is recovered by usage based UDWH LV HFRQRPLFDOO\ HI¿FLHQW 8QGHU WKH XVDJH based charge, each user consumes up to the point ZKHUHWKHEHQH¿WDQGFRVWIRUKLPRUKHUPDWFKHV DQGWKLVZRUNVDVDQLQFHQWLYHWRFRQWUROWUDI¿F ISPs are given incentives to invest in expansion of network capacity, as their revenues increase with WKHDGGHGWUDI¿F,QWKHZRUOGRI3276DWZR SDUWWDULIIV\VWHPRI¿[HGEDVLFPRQWKO\FKDUJHV and usage-based call charges has been adopted in many countries.16 However, it is not easy to adopt a two-part pricing system for the Internet. One of the contributing factors in the rapid diffusion of the Internet is the network design principle to eliminate as many functions as possible, including the usage-based charging function. If we add new charging functions to the Internet, it might damage operational DQGHFRQRPLFHI¿FLHQF\7KH,QWHUQHWLVIRUPHG by the autonomous and decentralized interconnection of innumerable LANs differently from
PSTN, which is centrally designed and controlled by telecommunications carriers. If one route is FRQJHVWHGWUDI¿FZLOOEHGLYHUWHGWRRWKHUURXWHV,I we wish to introduce a usage-based pricing system DQGUHÀHFWWKHXVDJHRQWKHVHWWOHPHQWEHWZHHQ ISPs, it is necessary to add charging functions to all routers and to exchange charging information between many ISPs. This is not realistic. Although Guputa, Dale, and Whinston (2005) propose a kind of priority pricing model,17 the actual implementation of the system is not easy, as it entails large FRVWIRUUHFRQ¿JXUDWLRQRIWKHQHWZRUN My proposal is to set monthly charges based on the combinations of service guarantee and transmission speed for end users, including application and content providers. My idea is to divide Internet access services into two classes. One is the besteffort class and the other is the guaranteed class. Each class is subdivided into some classes based on access speed. Under the system, those users that constantly send and receive moving pictures will subscribe to the guaranteed high-speed class. Those users that do not send and receive moving pictures so frequently will subscribe to the non-
Figure 4. Interconnection between GyaO and ISPs
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Structural Changes and Regulatory Challenges in the JapaneseTelecommunications Industry
guaranteed high-speed class. Those users that send and receive mainly e-mails will subscribe to the non-guaranteed low-speed class. ISPs will get extra revenues to expand their network capacities by the introduction of this scheme. As a result, those users who want to send and receive large amounts of data at a guaranteed speed can use the network without interfering with RWKHUXVHUV¶WUDI¿FDQGZLWKRXWEHLQJLQWHUIHUHG ZLWKE\RWKHUXVHUV¶WUDI¿F,QWKLVZD\WKHUHLV DQRSWLRQIRUOHVVWUDI¿FLQWHQVLYHXVHUVWRHQMR\ economical services. Of course, it is up to ISPs whether to adopt or not to adopt this system, as they are doing business in the unregulated world. Therefore, it is necessary to build incentives to adopt this kind of system on the Internet. The incentives have already been built in the interconnection system between ISPs. The problem is that ISPs have not made use of it. I will elaborate based on the Japanese Internet TV service named GyaO18 offered by USEN Corporation (see Figure 4). GyaO is not a simple content provider. As it has an AS (autonomous system) number, it is regarded as an autonomous network like ISPs. GyaO buys transit from other ISPs in some cases or concludes peering arrangements with other ISPs in other cases. In the case of transit arrangement, the solution is simple. If users that belong to national tier 1 ISPs from whom GyaO is buying transit subscribe to GyaO, they may charge GyaO based on the capacity and transmission speed of the interconnecting circuits (a in Figure 4). In some cases GyaO users belong to secondary ISPs that buy transit from national tier 1 (b in Figure 4). It is necessary to change the transit arrangement between national tier 1 and secondary ISPs as above. When GyaO buys transit from secondary ISPs (c in Figure 4), the ISPs concerned may change the contract to a usage-based one. In this case it is possible that RYHUÀRZHGWUDI¿FLVURXWHGWRQDWLRQDOWLHUYLD ,; ,QWHUQHWH[FKDQJH GLQ)LJXUH 7KHVROXWLRQLVWRUHÀHFWWKHWUDI¿FRQWKHWUDQVLWFRQWUDFW between GyaO and national tier 1, and to change the contract between GyaO and secondary ISPs at the same time. To introduce this kind of system, it is necessary for national tier 1 to measure the
104
WUDI¿FEHWZHHQ*\D2DQGLQWHUFRQQHFWLQJ,63V As this is limited to the interconnection with networks having AS numbers, it will not become a large burden for national tier 1. In the case of national tier 1 ISPs that are peering with GyaO (e in Figure 4), it is necessary to change the contract to transit. If the change is not possible because of competition with other ISPs, they must accept the situation and rearrange the relationship with secondary ISPs as above. National tier 1 and secondary ISPs are facing the trade off between expanding their network capacity without extra revenues and expanding network capacity by the extra revenues generated by bearing the cost of introducing a new charging system. It is up to their business decision. It is clear from the above discussion that there is a means to give economic incentives to avoid the tragedy of the commons resulting from the increase LQ,QWHUQHWWUDI¿F,WLVXSWRWKHEXVLQHVVGHFLVLRQ of the ISPs in the competitive market. If they think that the cost of expanding network capacity will OHDGWRGHWHULRUDWLRQLQWKHLU¿QDQFLDOSHUIRUPDQFH their rational business decision should be the introduction of a new charging system.
CONCLUSION I have pointed out that the regulations designed for POTS are not applicable to broadband Internet based on the analysis of changes in the Japanese info-communications industry structure. I also propose the revision of essential facilities regulation, the universal service system, and the introduction of a new charging system for the Internet based on quality guarantee and transmission speed. However, the area in which regulatory reform is required with the development of media convergence with the rapid diffusion of the broadband Internet is not limited to the above matters. It is necessary to redesign the regulatory framework that has been developed with a clear distinction between telecommunications and broadcasting. A copyright system is among them. Because a copyright system applied to IP broadcasting is categorized as telecommunications, it is neces-
Structural Changes and Regulatory Challenges in the JapaneseTelecommunications Industry
sary to get consent from all the people concerned, including actors or actresses that appeared only a few seconds in a movie. In the case of TV broadcasting, a package approval system is adopted and it is easy to rebroadcast movies over TV. Thus IP broadcasting is disadvantaged compared to TV broadcasting. Although many people, including myself, are discussing the need to revise, many people on the broadcasting side are reluctant to accept the revision by emphasizing the cultural value of broadcasting. This is against the principle of competitive, technological, and content neutrality. To conclude, I will mention how the Japanese experience could help in the diffusion of broadband Internet. First, it is important to impose line-sharing obligation on an incumbent carrier at considerably low prices where the broadband market is characterized by intra-platform competition. At the same time, it is advisable to promote facilities-based competition once the market starts to follow a growth curve, as service-based competition basically lacks innovative function. Second, the diffusion of broadband will stimulate the development of various applications on the Internet and this will require the revision of regulations designed for POTS.
REFERENCES Baldwin, R., & Cave, M.E. (1999). Understanding regulation. Oxford: Oxford University Press. %XVLQHVV:HHN $W6%&LW¶VDOODERXW³VFDOH and scope.” CEO Edward Whitacre talks about the $7 7ZLUHOHVVDFTXLVLWLRQDQGKRZKH¶VPRYLQJ to keep abreast of cable companies. BusinessWeek Online Extra, (November 7). Retrieved September 1, 2006, from http://www.businessweek.com/magazine/content/05_45/b3958092.htm?chan=search Cave, M.E. (2004). Remedies for broadband services. Journal of Network Industries, 5(1), 23-49. Crandall, R.W. (2005). Competition and chaos: U.S. telecommunications since the 1996 Telecom Act. Washington, DC: Brookings Institution Press.
Crandall, R.W., & Waverman, L. (2000). Who pays for universal service? When telephone subsidies become transparent. Washington, DC: Brookings Institutions Press. European Union. (2002). Directive 2002/22/EC of the European Parliament and of the Council of March 2002 on universal service and users’ rights relating to electronic communications networks and services (Universal Service Directive). FCC. (2000). The digital handshake: Connecting Internet backbones. OPP Working Paper No. 32, Federal Communications Commission, Washington, DC. FCC. (2005). Policy statement (adopted: August 5, 2005; released: September 23, 2005). Washington, DC. FCC. (2006, July). High-speed services for Internet access: Status as of December 31, 2005. Retrieved September 1, 2006, from http://hraunfoss.fcc.gov/ edocs_public/attachmatch/DOC-266596A1.pdf Fuke, H. (2003a, August). Evaluation of new regulatory framework of European Unionfrom Japanese perspective. Proceedings of the International Telecommunications Society European Regional Conference, Helsinki, Finland. Fuke, H. (2003b). Spectacular growth of DSL in Japan and its implications. Communications & Strategies, (52), 175-191. Fuke, H. (2005). Structural changes in telecommunications industry in Japan and the regulation. Communications & Strategies, (59), 113-139. Geradin, D., & Kerf, M. (2003). Controlling market power in telecommunications: Antitrust YV VHFWRUVSHFL¿F UHJXODWLRQ Oxford: Oxford University Press. Guputa, A., Dale, O., & Whinston, A.B. (2005). 3ULFLQJWUDI¿FRQLQWHUFRQQHFWHGQHWZRUNV ,VVXHV approaches, and solutions. In S.K. Majumdar, I. Vogelsang, & M.E. Cave (Eds.), Handbook of telecommunications economics—voume2: Technology evolution and the Internet. Amsterdam: North-Holland.
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Hardin, G. (1968). The tragedy of the commons. Science, 162, 1243.
KEY TERMS
Hausman, J.A. (1998). Taxation by telecommunications regulation: The economics of the e-rate. Washington, DC: AEI Press.
Essential Facilities:,QFXPEHQWFDUULHUV¶IDFLOLties that are essential for the new entrant. When it is neither practical nor reasonable to copy the LQFXPEHQW FDUULHUV¶ IDFLOLWLHV WKH\ PXVW DOORZ new entrants to access the facilities on rational FRQGLWLRQV ,QFXPEHQW FDUULHUV¶ ORFDO QHWZRUN facilities are regarded as essential facilities, and such obligations as unbundling and charging based on TERLIC are imposed.
ITU. (2005]). ITU Internet reports: The Internet of things. Geneva. Kovacic, W. E. (1992). The antitrust law and essential facilities in public utility regulation. In M.A. Crew (Ed.), Economics innovations in public utility regulation. Kluwer Academic. Lessig, L., Wendell, C., & Carlsmith, E.M. (2006, February 7). Testimony of Lawrence Lessig, C. Wendell and Edith M. Carlsmith, Professor of Law, Stanford Law School, Senate Committees on Commerce, Science and Transportation, hearing on “network neutrality.” Retrieved September 1, 2006, from http:// commerce.senate.gov/pdf/lessig-020706.pdf Majumdar, S.K., Vogelsang, I., & Cave, M.E. (Eds.). (2002). Handbook of telecommunications economics— volume 1: Structure, regulation and competition. Amsterdam: North-Holland. MIC. (2005, October 25). The review of the Universal Service Fund system (Report of the Telecommunications Council) (in Japanese). Mitchell, B.M., & Vogelsang, I. (1991). Telecommunications pricing theory and practice. Cambridge: Cambridge University Press. NTT. (2004, November 10). NTT group’s mediumterm management strategy. Press Release, NTT. Noam, E.M. (1997). Reforming universal service: A prerequisite to competition and interconnection. In E.M. Noam & A.J. Wolfson (Eds.), Globalism and localism in telecommunications. Amsterdam: North-Holland. Noam, E.M. (2001). Interconnecting the network of networks. Cambridge, MA: MIT Press. Telecommunications Carriers Association. (2006, September 15). The application for permission to MIC on the Universal Service Fund (in Japanese). Press Release.
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Facilities-Based Competition: When new entrants build their own network to compete with incumbents, it is called facilities-based competition. Inter-Platform Competition: When carriers compete with each other using various platform WHFKQRORJLHVVXFKDVPHWDOOLFFDEOHRSWLFDO¿EHU wireless LAN, or cable modem, it is called interplatform competition. Intra-Platform Competition: When new entrants compete with incumbents by leasing facilities from incumbents, the competition develops on a single platform like metallic cable. This type of competition is called intra-platform competition. Layered Structure: When the industry structure is divided according to the division of layers, it is called layered structure. In the case of the Internet, the industry is divided into physical, network, and content layers. POTS (Plain Old Telephone Service): Traditional public telephone service is called POTS when compared to the Internet. Service-Based Competition: When new entrants compete with incumbents by leasing such facilities as local access networks from incumbents, it is called service-based competition. Tragedy of the Commons: As the use of the commons is rivalrous but it is hard to exclude use by members of the community, it is likely to be RYHUFRQVXPHGDQG¿QDOO\EHUXLQHG7KLVNLQG of negative externality is called the tragedy of
Structural Changes and Regulatory Challenges in the JapaneseTelecommunications Industry
the commons. The Internet is a kind of commons facing the same kind of risk.
5
6
Vertical Integration::KHQD¿UPLVRSHUDWing in both upstream and downstream markets, it is regarded as vertically integrated. In the case of the traditional telephone industry, physical, network, and content layers are closely associated, and it is regarded as a typical pattern of vertical integration.
7
8
9 10
11
ENDNOTES 12 1
2
3
4
As for telecommunications and regulation, see Baldwin and Cave (1999), Geradin and Kerf (2003), and Majumdar, Vogelsang, and Cave (2002). The existence of market power by itself does QRWMXVWLI\H[DQWHUHJXODWLRQE\VHFWRUVSHFL¿F law. For background discussions, see Fuke (2005). The MIC is the successor ministry of the MPT (Ministry of Posts and Telecommunications) created at the time of restructuring of Japanese government organizations in 2001. It was formerly called MPHPT (Ministry of Public Management, Home Affairs, Posts and Telecommunications) in English.
13
14
15
16
17
18
Available at http://www.soumu.go.jp/joho_ tsusin/eng/pdf/060926_1.pdf See Fuke (2003b) for details. Some doubt the long-term success of this strategy (Crandall, 2005, p. 144). NTT local companies estimate that total decrease in revenue will be 140 billion Yen ($1.192 million). See Fuke (2003a) for details. As for essential facilities, see Kovacic (1992). Japan is divided into 567 message areas (i.e., local call areas). The MIC itself admits the need for rebalance (MIC, 2005, p. 43). This system is similar to the NetTrans Account System proposed by Noam (2001, pp. 237-238). The MIC excluded those carriers whose revenue is under 1 billion Yen ($8.5 million). As for peering and transit, refer to FCC (2000). As for two-part tariffs, see Mitchell and Vogelsang (2001, pp. 73-117). Guputa, Ostal, and Whinston (2005, pp. 422431) proposed to introduce a service class that offers priority transmission service in the case of congestion and to impose extra charges for the service. http://www.gyao.jp/
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Division III
Australia and New Zealand
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Chapter VIII
$QDO\VLVRIWKH,QیXHQFHRI Australia’s Government Policy on Broadband Internet Access Qiuyan Fan University of Western Sydney, Australia
ABSTRACT Like many other governments in the world, the Australian government has taken a multi-faceted approach to promoting broadband Internet access. This chapter provides an in-depth analysis of the impact of policy issues on broadband Internet access in Australia. The primary goal of this chapter is to develop a holistic understanding of Australia’s national approaches pertaining to broadband Internet access. This research has clearly indicated that the state of broadband Internet access is closely related to the government’s policy and regulatory framework. The government has been basing its actions on market forces as a principal driver for broadband Internet connectivity. However, market forces only play their roles in improving broadband Internet access in the major cities and have little effect in regional and rural Australia. The research has indicated that the regulatory competition regime, by and large, has failed to address concerns of market dominance and market power in the telecommunications sector as is evidenced by a relatively lower price-performance ratio of broadband services in Australia.
INTRODUCTION Australia is a wealthy country with a highly educated population and high dial-up Internet penetration. It might be expected that Australia would be among the leaders in broadband Internet access. However, in the past few years, it has been overwhelmingly reported that Australia is lagging behind in terms of broadband access penetration. The International Telecommunication Union (ITU) data indicates that as of January 2005 Aus-
tralia was ranked outside of the top 20 economies worldwide in broadband uptake per 100 inhabitants (ITU, 2005). The Organization for Economic Cooperation and Development (OECD) statistics show that Australia has slipped from 13 in 2000 to 21 in RQWKHOLVWRI2(&'FRXQWULHV¶XVHRIEURDGband (Working Party on Telecommunications and Information Services Policy, 2001; OECD, 2005). In December 2001, Australia was ranked 16th in the OECD, with broadband penetration of 0.8 per 100 inhabitants, compared to Korea at 17.2, Canada at
Copyright © 2008, IGI Global, distributing in print or electronic forms without written permission of IGI Global is prohibited.
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8.8, and the OECD average at 2.9 (OECD, 2005). By December 2004, the OECD ranked Australia 21st out of 30 countries in broadband uptake per 100 inhabitants. Australian broadband subscribers per 100 inhabitants were 7.7, compared to Korea at 24.9, Canada at 17.8, and the OECD average of 10.3 (OECD, 2005). Australian government data indicate that around 28% of home Internet users were connected to broadband in May 2004; this compares with the leading economies (e.g., Hong Kong 84% and U.S. 48%) (DCITA, 2004b). $OWKRXJKWKHUHDVRQVIRU$XVWUDOLD¶VVORZEURDGband growth and uptake are complex, broadband Internet access is determined by a combination of the widely available telecommunication infrastructure and the accessibility and affordability of Internet services, which are closely related to government policies. As the OECD suggests: If countries wish to take advantage of the enabling capabilities of networks such as the Internet, to implement information infrastructure initiatives, they need to urgently address the extent to which WKHXQGHUO\LQJFRPPXQLFDWLRQSROLFLHVLQÀXHQFH current growth rates.” (OECD, 1996) Other literature suggests that the underlying reason for Internet access can be traced back to the regulatory regime in each country, because government policies governing the telecommunications service market and promoting information LQIUDVWUXFWXUHKDYHDVLJQL¿FDQWLPSDFWRQWKHDIfordability and availability of broadband access. Governments around the world have moved from developing policy frameworks that encourage the growth of e-commerce to involvement in broadband deployment. The consensus reached by 175 countries taking part in the World Summit on WKH,QIRUPDWLRQ6RFLHW\ LQ*HQHYDFRQ¿UPV that broadband connectivity is a central enabling agent in building the information society, and information and communication infrastructure is an essential foundation for an inclusive information society. More recently, the 2004 Global Symposium for Regulators (GSR) encouraged political support at the highest government levels for the promotion
110
of low-cost broadband connectivity, and stressed that regulatory policy must be developed to promote universal access (GSR, 2004). In common with other national governments, the Australian government recognizes that timely access to affordable high-speed networks is critical to long-term economic development. Many national approaches to promoting Internet development have been taken since the early-1990s. How have those strategic and regulatory developments impacted on broadband access? To answer this question, this chapter examines: • • •
National strategies aimed at supporting broadband deployment The Internet market and the regulatory context within which the market operates Some main initiatives and funding programs that have been put in place by government to promote broadband Internet access
This chapter also analyzes the impact of various policy issues on Internet broadband access. As the OECD (Working Party on Telecommunications and Information Services Policy, 2000) suggested, the main policy areas examined are: • • • • •
Policy support for infrastructure competition Policy support for unbundling local loop (ULL) Policy support for Internet interconnection, Policy support for the development of broadband/high-speed access options Policy support for equitable and affordable access
The goal of this chapter is to develop a holistic XQGHUVWDQGLQJRI$XVWUDOLD¶VQDWLRQDODSSURDFKHV pertaining to broadband Internet access. The objectives deriving from the goal are to: • • •
Explore national approaches to promoting broadband Internet access Examine the key policy issues surrounding broadband Internet access Understand the impact of policy issues on broadband Internet access
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This chapter investigates the relationships between policy and broadband access by providing a detailed and comprehensive examination of policy development and the impact of national approaches RQEURDGEDQG,QWHUQHWDFFHVV7KHUHVHDUFK¿QGings in this study suggest the relationships between the elements of policy and broadband access, and indicate how the various policy aspects interplay to affect broadband access. 0RUHRYHUWKHUHVHDUFK¿QGLQJVRIIHULQVLJKWV into the regulatory outcome and effectiveness of national approaches, which will be helpful to inform and improve current practice in Australia. “National governments are not isolated actors and thus their actions and policies increasingly must take into account what is happening in other countries” (OECD, 1997). The researcher views broadband Internet access in Australia as a revelatory case to the extent that it provides an opportunity to identify and describe problems that may be common to other countries.
NATIONAL STRATEGIES AIMED AT SUPPORTING INTERNET INFRASTRUCTURE DEVELOPMENT The Australian government has developed some ICT policies for the information economy since the HDUO\ V+RZHYHUQRQHRIWKHPVSHFL¿FDOO\ addresses the challenge of promoting broadband infrastructure development. Despite the fact that the Strategic Framework for the Information Economy (1998) and the 2004-06 new Strategic Framework proposed by the current Australian government set the priority areas for advanced telecommunication infrastructure, the key priorities for action in the telecommunications sector rely heavily on private sector and market development (DCITA, 2004a). However, given that very large investment is required in broadband rollout, it is not possible to leave it up to market forces. The Senate report pointed out: There is clearly a need for long-term government involvement and leadership on telecommu-
nications infrastructure, particularly in relation to rural and regional Australia, as market forces will not be able to deliver broadband networks that reach all citizens. The future development of Australia’s telecommunications network is too important to be left solely to the decisions of SUR¿WGULYHQSULYDWHVHFWRUV´ (Australian Senate, 2004b) The Australian Competition and Consumer Commission (ACCC, 2005b), in its report on telecommunications infrastructure, notes that during 2003-04, carrier investment in xDSL services only accounted for 6% of the total investment in telecommunications infrastructure. Telstra, the incumbent carrier, and other major operators planned to undertake modest levels of investment in their networks for 2004-05 (Australian Senate, 2005). In his address to the Australian Telecommunications Users Group on March 10, 2005, the ACCC Chairman, Samuel (2005) pointed out that “Telstra admits it has no current plans for any VLJQL¿FDQW LQYHVWPHQW LQ ¿EHU WR WKH KRPH DQG claims the existing copper network has another 15-20 years of useful life in front of it.” However, WKH H[LVWLQJ FRSSHU ¿[HGOLQH QHWZRUN LV YHU\ limited and will not be able to provide the level of services which the public and businesses will need in the not too distant future (Australian Senate, 2004b). Even Telstra described the longevity of its copper network, through which ADSL services DUHGHOLYHUHGDVEHLQJµ¿YHPLQXWHVWRPLGQLJKW¶ (Lundy, 2004). Decisions about the rollout of broadband in Australia have largely been made on the basis of commercial considerations. Government agencies VXFKDVWKH$&&&DQGWKH$%6GH¿QHEURDGEDQG around speeds of 2Mbps, which is about the FDSDELOLWLHVRI7HOVWUD¶VADSL service and much less than on the capacity of telecommunications networks operating at international best practice levels (ACCC, 2005a; ABS, 2005). This has resulted in a slow broadband transmission rate. For example, the Australian market widely accepts a minimum download transfer rate of 256 kbps and upload rate of 64 kbps as a broadband speed.
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Compared to the best overseas networks (e.g., Korea, 6Mbps/640kbps; Sweden, 4Mbps/400kbps; Canada, 3Mbps/640kbps; HongKong, 6Mbps/ 256kbpsVHH7DEOH 7HOVWUD¶V['6/EURDGEDQG Internet capability lags well behind. Frieden (2005) states: “The acquisition of comparative advantages in ICT development appears impossible without some degree of government involvement.” As Cutler (2001) commented: “The world faces the major task of reinvesting in next generation infrastructure to deliver high capacity bandwidth. Broadband infrastructure is the future. Only governments and public administration can re-allocate public resources to establish next generation infrastructure in the public interest.” Many countries have developed the public policy necessary both to invest in and deploy broadband networks or upgrade their existing networks. One of the most important factors accounting for the successful rollout of broadband in Korea was government strategic commitments and investment. This research has clearly indicated that the current national strategies are not achieving the rollout of a world-class broadband infrastructure and the range of more affordable broadband services that exist in other OECD countries such as Korea, Canada, and Japan.
REGULATORY AND COMPETITION ISSUES The laws and regulations applied in competition policy in the telecommunications market broadly take two forms: telecommunications regulation and competition law (ITU, 2002). The government introduced open competition into the telecommunications industry in 1997. The telecommunications regulatory framework that was introduced in 1997 consists of the Telecommunications Act of 1997 DQGWKHWHOHFRPPXQLFDWLRQVVSHFL¿FFRPSHWLWLRQ provision in the Trade Practices Act (TPA) of 1974. The telecommunications competition provisions in WKH7UDGH3UDFWLFHV$FWDUHFRQWDLQHGLQ3DUW;,% DQWLFRPSHWLWLYHFRQGXFW DQG3DUW;,& DFFHVV regime). This section will explore some regulations DQG FRPSHWLWLRQ SROLFLHV LQÀXHQFLQJ EURDGEDQG Internet access, and examine the linkages between regulatory regimes, market environments, and broadband Internet access along the levels of telecommunications supply.
Liberalization of the Australian Telecommunications Sector The Telecommunications Act of 1997 and its related package of legislation came into force in July
Table 1. Comparison of maximum ADSL speeds for residential customers in the selected economies (source: company Web sites, accessed November 2005) Maximum Connection Speeds Country
Company Upload
Download
Korea
Korea Telecom
640 kbps
8 Mbps
Sweden
Telia
500 kbps
8 Mbps
Hong Kong
PCCW
256 kbps
6 Mbps
Canada
Bell Canada
800 kbps
4 Mbps
Sympatico
112
United States
SBC
384 kbps
4Mbps
Australia
Telstra
256 kbps
1.5 bps
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1997. In the legislation, past regulatory barriers to market entry were removed and open competition was introduced. According to this new regulatory framework, there are no restrictions on entry to any telecommunications market. There is no limitation on the number of carrier licenses that may be issued by the Australian Communication and Media Authority (ACMA). ISPs are not subject to licensing requirements. As a result, a number of carriers and service providers have entered the Australian telecommunications market since the opening up of the Australian telecommunications market to full competition in 1997. However, most of them have focused their infrastructure investment on the CBD areas of the major capital cities. There are many players, but they usually offer only one type of service or offer services only in VSHFL¿FJHRJUDSKLFDUHDV,QRWKHUZRUGVWKHUHPD\ not be inter-modal competition in some areas. Apart from inter-modal competition, another key element in a competitive broadband market is the presence of strong competitive carriers (ITU, 2003b). In Australia, Telstra remains the major wholesale and retail supplier of telecommunications services, including (Willett, 2004): • • • • •
Dial-up and broadband Internet Local, national, long-distance, international, and mobile telephony Data Printed and online directories Pay-TV (through its 50% ownership interest in Foxtel)
Based on its research on the EU and the U.S. telecommunications market, the ITU (2002) concluded that “a market share of 40-50% is highly LQGLFDWLYHRIGRPLQDQFH´7KHH[WHQWRI7HOVWUD¶V dominance of the sector was demonstrated by the fact it had about 68% of the broadband market, which is almost three times the market share that its closest competitor, SingTel Optus, had (Australian Senate, 2004a). It is reported that Telstra receives almost 60% of total industry revenue, which is four times as much as the revenue that Optus receives (Australian Senate, 2004b).
The ITU (2003a) concluded that “these countries that have prospered often have a deep-pocketed second carrier that provides a real competitive challenge to the incumbent, such as Hanaro Telecom in Korea or Yahoo BB! in Japan.” The ITU research evidence indicates that without strong competitive carriers, networks will not be developed and used to their full potential. New services (such as highspeed Internet) will not be introduced as early as they otherwise would. Services will not be provided HI¿FLHQWO\DQGDWOHDVWFRVWIRUFRQVXPHUV
Regulatory Issues about Industry Structure The Network Economics Consulting Group (NECG, 2004) stated that “an important issue in national competition policy and related reforms has been the structure of industries that were formerly dominated by government business enterprises.” :LQVORZ KHDGRIWKH2(&'¶V&RPSHWLWLRQ Policy Outreach Program (1996-2002), stressed that “the OECD has encouraged its member state to give serious consideration to full structural separation in the course of regulatory decisions, especially in the course of privatisation and liberalisation.” However, in Australia, telecommunications reform did not follow this advice. The ACCC and the NCC (National Competition Committee), the two authorities responsible for implementing competition policy reforms in Australia, have both raised concerns related to “an apparent failure of the Commonwealth Government to conduct a review of the merits of breaking up Telstra prior to partial privatization” (NECG, 2004). As discussed in the previous sections, Telstra is one of the most integrated telecommunications companies in the world and has dominated all the major telecommunication service markets, which has anti-competitive implications. For instance, Telstra did unfairly favor its own retail business units over its wholesale customers (the details can be found in the following sections). Despite this, the ACCC noted that: The Australian government explicitly instructed the Productivity Commission not to consider
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Telstra’s structural separation in the review of WHOHFRPPXQLFDWLRQVVSHFL¿F FRPSHWLWLRQ UHJXlation that commenced in June 2000, and abandoned a parliamentary inquiry into the question of structural separation in 2003. Consequently, issues surrounding the possibility of structural separation of Telstra have not been subject to a comprehensive assessment. (ACCC, 2003) In addition to the concerns about the integration issues, the cross-ownership issue is also of major concern in the telecommunication industry. Ownership of a network is a key determinant of market conduct. Telstra owns two of the three major local access networks outside the CBDs of major cities. They are the copper (PSTN) network that connects virtually every household and business in Australia and the largest cable (HFC) network, ZKLFKSDVVHVPLOOLRQKRPHV)HZRI7HOVWUD¶V competitors have any real alternative to using 7HOVWUD¶V FXVWRPHU DFFHVV QHWZRUN IRU QDWLRQDO coverage, including the second largest carrier in Australia, Optus, which owns the other HFC network, which passes approximately 2.2 million homes (Australian Senate, 2004a). Most competitors are dependent on Telstra and Optus to provide Internet services and they are competing at the UHWDLOOHYHOE\UHVHOOLQJ7HOVWUD¶VVHUYLFHV 7HOVWUD¶VFURVVRZQHUVKLSRIWKHODUJHVWFDEOH network and the ubiquitous customer access network means that Telstra has little incentive to roll out both DSL and cable modem technologies, since the two would compete against each other. This has resulted in the lack of potential price and VHUYLFH EHQH¿WV WKDW VXFK FRPSHWLWLRQ EHWZHHQ 7HOVWUD¶VFRSSHUDQG+)&QHWZRUNVFRXOGGHOLYHU to consumers. For instance, Telstra lowered the speed of its most basic cable modem service to 256 kbps from 512 kbps when it launched DSL services, since the then most basic cable offer at 512 kbps was not providing better value than the most basic DSL offer to be launched at 256 kbps. This example highlights the disadvantages of one company owning both infrastructures (Working Party on Telecommunications and Information Services Policy, 2001). Incumbent telecommunication carriers own cable networks in only nine countries out of 30 114
OECD countries, and Australia is one of the only two countries out of the nine countries where the incumbent owns the largest cable network and is also the largest broadband service provider (Working Party on Telecommunications and Information Services Policy, 2002). Countries are increasingly encouraging competition between the local loop and cable TV infrastructure as a viable means of promoting facilities-based competition (ITU, 2002). As early as 1999, the EU adopted a direcWLYHWKDWUHTXLUHG¿UVWDFFRXQWLQJVHSDUDWLRQDQG then the legal separation of cable TV networks from incumbent telecommunications operators. The United States Telecommunications Act of 1996 restricts cross-shareholdings between cable and telephony operators. The ITU analysis suggests that separation of cable TV and the copper networks may help infrastructure competition (ITU, 2002). In Australia, however, there is “no hope for LQIUDVWUXFWXUH FRPSHWLWLRQ ZLWK WKH 0LQLVWHU¶V refusal to accept the ACCC recommendation that Telstra divest itself of its share in Foxtel” (Budde, 2003). OECD experience suggests that competition between DSL and cable modem services has been the main driver of overall broadband penetration, particularly in the residential market (Working Party on Telecommunications and Information 6HUYLFHV 3ROLF\ )RU LQVWDQFH &DQDGD¶V rapid development of broadband services largely resulted from competition between independently owned competing networks or platforms. The ITU study on promoting broadband concludes that “countries where no cable TV network is available, or where the incumbent cross-owns both the telephone and cable TV networks, generally lag behind their counterparts in developing broadband” (ITU, 2003b).
The Competition Regulatory Regime 7KH¿UVWDQGODVW stage of the provision of Internet services is the connection between end users and ISP networks, which can be established through use of dial-up or other technologies such as ADSL, cable modem, and satellite, and interconnection
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between different ISP networks. Few of the players in the market have any real alternative but to VHHNDFFHVVWRRULQWHUFRQQHFWZLWK7HOVWUD¶VORFDO access network for the supply of Internet access service nationwide. The key areas for dealing with WKHSUREOHPVSRVHGE\VLJQL¿FDQWPDUNHWSRZHU in broadband competition are access to the ubiquitous local loop owned by Telstra, and Internet interconnection.
Unbundling the Local Loop (ULL) Customer access networks, or local loops, are a ¿QDOOLQNEHWZHHQWKHFXVWRPHU¶VWHUPLQDOHTXLSment and ISP networks. Competition at this layer is less well developed in Australia. Telstra almost totally dominates local access services with 94% PDUNHWVKDUH)RUVWHU LGHQWL¿HGWKHODFNRI competition at access level as the primary inhibitor to broadband access in Australia. Budde (2002a) argued that “the country is lagging behind in the rollout of broadband as there is simply no one competing with Telstra.” Broadband access can be provided by infrastructure such as copper (using xDSL technology), ¿EHURSWLFDQGVDWHOOLWHRUWHUUHVWULDOPLFURZDYH Given that the PSTN network is already in place, many countries regard competition in the local loop to be a prerequisite for effective competition in the provision of broadband services. This is particularly true in Australia where the incumbent, Telstra, owns a ubiquitous local access QHWZRUN)HZRI7HOVWUD¶VFRPSHWLWRUVKDYHDQ\UHDO DOWHUQDWLYHWRXVLQJ7HOVWUD¶VQHWZRUNVHUYLFHVDVDQ input for providing their own services, and many are simply competing at the retail level by reselling 7HOVWUD¶V VHUYLFHV ,Q WKH FRQWH[W RI FRPSHWLWLRQ policy, access to the unbundled local loop of the incumbent is critical to increase competition in the local loop. The ACCC decided to regulate the supply of ULL in July 1999, which would enable competitors WRXVH7HOVWUD¶VFRSSHUOLQHVWRGHOLYHUEURDGEDQG service via xDSL technologies. The declaration of ULL in 1999 by ACCC was regarded as an important regulatory development in Australia, DV$&&&¶VGHFLVLRQHQDEOHVFRPSHWLWRUVWRDWWDFK
WKHLU RZQ IDFLOLWLHV WR 7HOVWUD¶V FXVWRPHU DFFHVV networks. It is particularly useful for new entrants to deliver high-speed data service such as ADSL (Besley, 2000; ITU, 2001). It also enables access seekers to build residential ADSL networks in FRPSHWLWLRQ ZLWK 7HOVWUD¶V RZQ $'6/ QHWZRUN However, local loop unbundling appears to have KDGQRVLJQL¿FDQWHIIHFWLQDFFHOHUDWLQJWKHUROORXW of xDSL in Australia, as is evidenced by the lower level of broadband uptake. The ULL does not seem to be doing its job. Consequently, xDSL service quality is lower and pricing is higher since the maMRULW\RIFRPSHWLWRUVDUHVLPSO\UHVHOOLQJ7HOVWUD¶V broadband products and are not able to compete on the price and quality of broadband services because they do not have access to the underlying costs of the network (Willett, 2005).
Internet Interconnection While the PSTN and ULL relate to the provision of Internet services to end users, Internet interconnection refers to the access arrangements for technical interoperability and pricing among ISPs. Given that the Internet consists of local and regional networks interconnected with one another, HI¿FLHQWInternet interconnection is crucial to the operation of the Internet. This section examines how the current Internet interconnection arrangements have impacted on the provision of Internet access, and how the government has addressed Internet interconnection issues. Australia has used the regulatory mechanism to address anti-competitive activities since the LQWURGXFWLRQ RI WKH WHOHFRPPXQLFDWLRQVVSHFL¿F SURYLVLRQLQ3DUW;,%DQG3DUW;,&RIWKH7UDGH 3UDFWLFHV$FWRI $OWKRXJK3DUW;,&LVGHsigned to deal with interconnection, the ACCC mainly uses the competition notice regime set out in 3DUW;,%WRGHDOZLWKLVVXHVDULVLQJIURP,QWHUQHW interconnection. For instance, Telstra was taking advantage of market power to refuse or impose higher interconnection charges on interconnection until the ACCC issued two competition notices XQGHU3DUW;,%RIWKH7HOHFRPPXQLFDWLRQV$FWRI 1997 in May and June 1998 (ACCC, 1998). Under the pressure of the ACCC notices, Telstra signed
115
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interconnection peering agreements with OzEmail, Optus, and Connect.com. However, none of the smaller ISPs have established a peering relationship with any of these Big Four (Telstra, Optus, 2](PDLODQG&RQQHFWFRP VLQFHWKH$&&&¿UVW tackled the issue in 1998 (ZDNet, 2003). The ACCC has received complaints from ISPs who were excluded from the domestic peering agreements in recent years (ACCC, 2004a). Some smaller ISPs indicated that “they were being charged excessive WUDQVLWUDWHVIRUSDVVLQJWUDI¿FRYHUWKH%LJ)RXU ,63V¶QHWZRUNVDQGWKHUHZDVOLWWOHRUQR¿QDQFLDO recognition provided by the Big Four in relation to the investments they had made on their own smaller networks” (ACCC, 2004b). Others claimed that “they were equivalent in some respect to one or more of the Big Four networks and should enter into peering arrangement to avoid the transaction costs involved with transit arrangements” (ACCC, 2004b). With transit agreements all these Big Four ISPs charge downstream ISPs for Australian data, but the downstream ISPs are not able to charge the larger ISPs, which puts many smaller downstream ISPs at a competitive disadvantage. Many of the smaller ISPs have called on the ACCC to intervene in the matter (ACCC, 2004a, 2004b). However, WKH$&&&FRQ¿UPHGLWVGHFLVLRQnot to declare DQLQWHUFRQQHFWLRQVHUYLFHXQGHU3DUW;,;RIWKH Trade Practices ActLQ LWV ¿QDO UHSRUW HQWLWOHG Internet Interconnection Service (ACCC, 2004b) in January 2005.
Internet Access Pricing and Competition Internet access pricing is an important factor affecting access to the Internet. If people do not view Internet access pricing as affordable, they will not use it. Australia has high levels of penetration of telephone lines and personal computers and dial-up Internet services but, as has been pointed out, low levels of broadband take-up. One factor that contributes to the disparity of broadband access among countries is the cost of accessing Internet services. Generally, an end user pays ISP subscription fees to access the Internet, and
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an ISP builds, buys, or leases domestic and international transmission links required to provide a retail Internet access service, or it relies on the transmission networks of other ISPs via Internet interconnection relationships. Therefore, the main cost components of an Internet access service are domestic and international transmission capacity, access to an Internet interconnection point via a transmission tail connecting to other networks, and provision of Internet access to end users via a customer access network or wireless technology, many of which will be purchased from Telstra or other telecommunications providers such as Optus and AAPT. It is apparent that the cost depends to a large extent on the conditions of competition in an infrastructure market (Umino, 2002). Higher prices from the carriers directly translate into higher prices for consumers, which in turn retard Internet expansion and use. In short, Internet access cost is directly related to the regulatory framework and level of competition permitted in the local telecommunications sector.
Impact of the Level of Market Concentration on Internet Access Pricing &RPSHWLWLRQKDVDVLJQL¿FDQWLPSDFWRQ,QWHUQHW access pricing. The level of market concentration is one indicator of the degree of competition within a market. In 2004 the Big Four had 72% of customers with permanent connections, 89% of domestic IP network capacity, and 87% of international IP transmission capacity (ACCC, 2004a). The market share of the Big Four ISPs accounted for 51% of the retail subscriber customer base and 80% of the wholesale market (ACCC, 2004a), in contrast to more than 500 ISPs offering retail Internet access service and approximately 50 ISPs offering some form of Internet interconnection in Australia. Four RXWRI¿YH,63VLQWHUFRQQHFWZLWKRQHRUPRUHRI the Big Four. Since the Big Four compete in the retail markets along with their competitors, smaller ISPs, they have naturally been inclined to delay or refuse to interconnect with competitors on a peering EDVLV*LYHQWKHVLJQL¿FDQWPDUNHWVKDUHWKH%LJ
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Four ISPs in general and Telstra in particular have DVXEVWDQWLDOLQÀXHQFHRQWKHWHUPVRIZKROHVDOH Internet interconnection. The ACCC notes:
competition rule was only $6.5 million, instead of the sum of $10 million plus $1 million for each day until the Competition Notice lifted.
Fifteen to twenty per cent of retail price is attributable to the cost of interconnection borne by ,63VZKRDUHWUDQVLWFXVWRPHUVDQGWKLV¿JXUHLV EHWZHHQKLJKHUWKDQIRUWKH%LJ)RXUDQG other transit providers. The Big Four have lower interconnection costs due to their peering arrangePHQWVIRUQDWLRQDOWUDI¿FDWOHDVWDQGSRVVLEO\IRU VRPHLQWHUQDWLRQDOWUDI¿F (ACCC, 2004a)
Backhaul Pricing in Non-Metropolitan Areas
ISPs such as Comindico, PowerTel, MCI, and Request believed in 2004 that “Internet interconnection is having a negative impact on downstream markets as it is an essential input in the provision of these same services” (Comindico, 2004; PowerTel, 2004; MCI, 2004; Request, 2004). Primus (2004) commented that current Internet interconnection pricing is offered on both an arbitrary and discriminatory basis by the Tier 1 ISPs.
Telstra’s Wholesale and Retail Broadband Pricing and Competition Notice Access regimes are rarely concerned with refusal to grant access per se but rather about the terms and conditions of accessprice being the most important (Productivity Commission, 2001). Telstra has been using predatory pricing, which means it offers broadband access to its own retail customers more cheaply than it sells to its rivals that have access to its network. For instance, on )HEUXDU\7HOVWUDDQQRXQFHGVLJQL¿FDQW price reductions for its retail broadband services without any reductions in its wholesale prices. On March 19, 2004, the ACCC served Telstra with a competition notice, as it claimed that Telstra had been engaging in anti-competitive behavior by offering a broadband retail price that was below the fees it charged its rivals for access to its copper wire network. However, the competition notice was revoked in February 2005 after almost one year, and the penalty payable for a contravention of the
Gaining access to the local loop is only part of the cost of providing an end-to-end broadband service to consumers. In rural and regional areas, WKHUHDUHVLJQL¿FDQWFRVWVLQYROYHGLQSURYLGLQJD FRQQHFWLRQ IURP WKH UHJLRQDO VHUYLFH SURYLGHUV¶ infrastructure back to its metropolitan point of presence, as connection to backbone networks is required regardless of broadband access technology solutions. Although the ULL declaration enables smaller ISPs to connect their own infrastructure to the Telstra local loop, the backhaul to high-speed backbone networks problem remains. Current backhaul charges are prohibitive to those supplying broadband services to many regional areas. The Australian Telecommunications User Group (ATUG) pointed out: 7KHEDFNKDXOFRVWLVWKHVLJQL¿FDQWEDUULHUWR bush broadband. The current cost per megabit per month from Telstra for interstate backhaul is approximately 20 times too high to make those circuits viable for small regional operators to provide broadband services as there is little infrastructure competition down there. (ATUG, 2005)
GOVERNMENT INITIATIVES AND FUNDING PROGRAMS Regulatory Safeguards The government has attempted to ensure that customers in rural and remote Australia have equitable access to Internet services through a number of safeguards, such as Digital Data Service Obligation (DDSO), Special Digital Data Service Obligation (SDDSO), Extended Zones Agreement, and Internet Assistance Program, all of which are enshrined in legislation (Coonan, 2004). These regulatory initiatives guarantee Australians ac-
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cess to basic Internet services. For example, all Australians can access the Internet either via a dial-up or satellite service, and most dial-up Internet users are guaranteed at least a 19.2kbps connection speed. However, higher speed Internet access is no longer a luxury but an essential service for many Australians in all parts of Australia. The Senate report argues that reliance on the current regulatory initiative is not considered to be adequate to provide reasonable access to all Australians (Australian Senate, 2004b). These safeguards need to be upgraded to take account of improvements in technology and thus the expectations of the majority of users.
Funding Programs for Broadband Services in Regional Australia 7KH JRYHUQPHQW¶V VWUDWHJLHV UHO\LQJ RQ PDUNHW forces as the primary driver have resulted in inequitable access between the metropolitan areas and rural and regional Australia. As the Broadband Advisory Group (BAG) reported, broadband services were not available in all areas at an affordable price, largely due to geographic location (BAG, 2003). While Australia has published numerous policy statements and national strategies aimed at supporting Internet development, there are too few examples of initiatives truly addressing high-speed Internet access nationwide. The recommendations made by the Telecommunications Service Inquiry (TSI) Report, the Broadband Advisory Group Report, and the Regional Telecommunications Inquiry (RTI) Report led to a series of government funding programs over the last six years. However, the funding programs such as Networking the Nation (NTN) and the Internet Assistance Program (IAP) have often tried to address basic Internet service needs rather than broadband service and also have tried to meet the short-term demands of rural people. Indeed, there was no program that was aimed at addressing the need for affordable access to high-speed Internet services until the government implemented the Higher Bandwidth Incentive Scheme (HiBIS) in April 2004 and announced in
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August 2005 the Broadband Connect program for the next four years. The HiBIS ($107.8 million over four years), a key component of the National Broadband Strategy action plan, was established out of Recommendation 6.3 of the RTI (Estens, 2002) as an incentive scheme for the provision of higher speed Internet services to regional, rural, and remote areas. However, HiBIS seems not to be a comprehensive solution to the problems many consumers experience as a result of their inability to obtain access to affordable broadband. For example, the HiBIS subsidized monthly price is $69.95 for 500MB with Telstra Broadband two-way 256/64 kbps satellite plan, compared to $59.95 for unlimited usage with Telstra Broadband ADSL plan (Telstra, 2005). 7KHSULFHRIWKHµEHQFKPDUN¶VHUYLFHLQUXUDODQG remote areas is not really comparable to that of such a service in metropolitan areas, given that the Telstra Broadband Satellite plan is the only choice in most rural and remote areas. Moreover, most HiBIS providers are only offering threshold services with a monthly usage allowance of 500 MB at connection speeds of 256/64 kbps in the non-metropolitan area. 2QH FRPPRQ FULWLFLVP RI WKH JRYHUQPHQW¶V funding programs is that much of the funding has ÀRZHG LQGLUHFWO\ WR 7HOVWUD ZKHQ LW FRXOG KDYH been used to assist alternative providers and foster greater competition (Australian Senate, 2004b). This conclusion is supported by Optus in its submission to the Environment, Communications, Information Technology and the Arts References Committee in April 2005: 2YHURIWKHDOORFDWLRQRI PLOOLRQRI Government funding for rural and regional telecommunications since 1996 have been used directly by Telstra. In addition, it is fair to assume that a large bulk of the $347 million, not attributable to VSHFL¿FFDUULHUVLQGLUHFWO\VXSSRUWHG7HOVWUDLQIUDstructure and services. On the other hand funding directed toward non-Telstra carrier constitutes RQO\RIWKHIXQG´ (Optus, 2005) Despite the fact that the government aims to increase competition in the provision of broadband
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LQUXUDODUHDV7HOVWUD¶VVLJQL¿FDQWLQYROYHPHQWLQ the government initiatives and funding programs enhances its position as the dominant carrier in the Australian telecommunications industry. Lundy (2002) argues that “the longer-term impact is that other potential providers have fewer opportunities to establish a business case to compete effectively with Telstra in rural and remote Australia.” It is apparent that the government is failing to support and promote the growth of viable competitors through a variety of policies and programs, DVQRWKLQJLVGLVSODFLQJ7HOVWUD¶VGRPLQDQFHZLWK the growth of competing companies. In fact, most of these government funding programs have been operating in conjunction with Telstra.
CONCLUSION AND IMPLICATIONS This research has demonstrated that the government has taken a multi-faceted approach to promoting Internet access, including reliance on market forces, regulations, regulatory safeguards, and grant programs to fund Internet access in regional Australia. The analysis in this chapter has clearly indicated that the Australian government has the strategic framework to drive towards an information-based economy, and recognizes the economic and social EHQH¿WVRIEURDGEDQGFRQQHFWLYLW\DQGVHUYLFHV but it has failed to develop an effective action plan to address national concerns about the speed of broadband infrastructure and take-up of broadband services, preferring to leave the rollout of high-speed Internet service to market forces. This research has indicated that Australia has lagged behind other comparable nations in terms of broadEDQG DGRSWLRQ DQG WKH JRYHUQPHQW¶V KDQGVRII approach and belief in market channel as a primary driver has been seen as one of the barriers to the growth of broadband. In general Australia has sound regulatory safeguards, which ensures that all Australians have basic Internet access services. However, these regulatory initiatives may need to be adjusted over WLPHWRUHÀHFWXSGDWHG,QWHUQHWDFFHVVWHFKQROR-
gies (e.g., broadband) when the market does not deliver these. Despite the fact that the National Broadband Strategy (NBS) and the associated action plan were released in 2004, a closer analysis in this research shows that there is no new funding commitment or VSHFL¿FWDUJHWVLQWKH1%6WRLPSURYHEURDGEDQG UROORXWDQGDGRSWLRQ7KHJRYHUQPHQW¶V5HVSRQVHV to the Recommendations of the Regional Telecommunications Inquiry (DCITA, 2003) were reused as a major part of the strategy. Since 1997, the government has introduced an open and full competition regulatory frameworkthe Telecommunications Act of 1997. It contains various measures such as no limits on the number of licenses, access regime, anti-competitive conduct regime, and removal of barriers to entry to facilitate competition in the telecommunications and the Internet sector. The analysis in this chapter has clearly indicated that while there is some infrastructure competition in the telecommunications industry in the capital cities, it has in general not spread far beyond metropolitan areas. The lack of IDFLOLW\EDVHGFRPSHWLWLRQKDVDVLJQL¿FDQWLPSDFW on the provision of broadband services in terms of SULFHÀH[LELOLW\DQGVHUYLFHTXDOLW\ Market concentration and vertically integrated provision of the key inputs of the provision of an ,QWHUQHWDFFHVVVHUYLFHDUHDUHÀHFWLRQRIDQXQFRPpetitive Internet market. The degree of inter-modal competition and cross-ownership of infrastructure KDV VLJQL¿FDQW LPSOLFDWLRQV ZLWK UHVSHFW WR WKH need for access regulation. The current regulatory competition regime does not appear to address effectively concerns of market dominance and market power in the telecommunications sector. )RUH[DPSOH3DUW;,%DQG3DUW;,&RIWKH73$ have not produced timely outcomes in the context of the take-up of ULL and the recent experience of the broadband competition notice, despite the IDFWWKDWUHJXODWRU\GHFLVLRQVKDYHVRPHLQÀXHQFH over retail and wholesale broadband price. The very large number of Internet service providers suggests that competition is strong in the retail Internet access service market. Competition among ISPs is driving their prices toward
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cost, much of which is made up by payments to the backbone providers. However, the wholesale broadband market is less competitive. The Internet interconnection market structure is characterized by the four large backbone providers supplying a VLJQL¿FDQWSDUWRIWKHPDUNHWDQGKDYLQJVSHFL¿F peering arrangement that they do not provide to other parties (ATUG, 2004). The analysis in this research has clearly shown that these large backbone providers such as Telstra and Optus exercise strong market power when negotiating terms and conditions with other smaller ISPs. When ISPs pay higher charges to backbone providers, they must pass these costs on to business and residential users. This partly explains why the cost of broadband access is relatively high, in particular in rural and regional Australia. Structural issues impose limitations on the effectiveness of the current regulatory competition UHJLPH*LYHQWKDW7HOVWUD¶VXELTXLWRXVORFDOORRS is highly likely to remain the dominant customer access network in Australia for the foreseeable future, it is necessary to strengthen the powers of the ACCC to protect the interest of consumers and allow other service providers to compete on a level SOD\LQJ¿HOG0RUHHIIRUWVVKRXOGEHVKLIWHGWRZDUGV structural separation to achieve a more competitive environment where all Australians have high-speed Internet access at an affordable price. This research has clearly indicated that the state of broadband Internet access is closely related to WKHJRYHUQPHQW¶VSROLF\DQGUHJXODWRU\IUDPHZRUN It suggests that strong government involvement in broadband rollout, strong inter-modal competition both among providers of the same broadband technologies and between providers of different broadband technologies, as well as various initiatives and projects that are integrated to develop infrastructure-based competition and to provide more equitable and affordable broadband options to rural and regional areas are essential to the take-up of broadband services in Australia.
Implications for Other Countries The researcher initiated this study partly in a belief that the experience of Australia and its policies
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in introducing and managing competition and in developing national information infrastructure, as well as dealing with rural and regional access issues, could be expected to provide some guidance and implications for other governments, especially relatively inexperienced ones in developing countries. While no two countries will ever have identical policies, lessons can be learned from the issues examined in the case of Australia. This section highlights three key areas for policymakers in other countries to consider their ongoing attempts to make broadband Internet access available for all at an affordable price. It aims to provide a more complete picture of Internet services to policymakers in order to allow them to make better informed user choices.
Rural and Regional Access Issues Like many other governments in the world, the Australian government has used a number of policy tools such as funding programs and Special Digital Data Obligations to address the remote, rural, and regional Internet access issue. However, while increasing concern is being focused on the digital GLYLGHLVVXHVVXFKDVLQVXI¿FLHQWLQIUDVWUXFWXUH KLJKFRVWRIDFFHVVDQGLQHI¿FLHQFLHVLQWKHSURYLsion of telecommunications networks and Internet services in rural and regional areas, the digital delay factor has been overlooked. Digital delay refers to the implications of the time effect inherent in the diffusion of technologies among different geographic areas and social groups. The national rollout of broadband services always starts from the metropolitan cities and is then progressively rolled out across the country. Some broadband LQIUDVWUXFWXUHVOLNHKLJKVSHHGRSWLF¿UHDFFHVV networks, may never really reach outside the CBD of the major cities. For example, the national rollout of ADSL service took years to reach 75% of the Australian population and this service was not available to most parts of regional Australia XQWLOWKRXJKLWZDV¿UVWODXQFKHGLQ The question remains of how long the rest of the population will have to wait. It appears that the government remains unaware of digital delay. Cutler pointed this out as long ago as 2001:
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This time effect now matters more than before. In a global information economy, delay and being late into a market really matters. Delayed access to new network devices and applications imposes a huge new economic penalty on regional and non metropolitan areas. (Cutler, 2001) Minimizing digital delay is not something that should happen after addressing digital divide challenges. It should be a key component of national broadband strategy, as digital delay has some important implications for regional economic development. A fundamental requirement for reducing digital delay is for policymakers to give priority to the development of their telecommunications infrastructure and to provide R&D incentive to the development of next-generation, low-density broadband technologies for rural and regional areas. As broadband is moving from being a luxury towards being a necessity, faster access to richer information and online services becomes more important to all citizens.
Structural Issues The lesson learned from the case of Australia is that the current regulatory problems have more to do with the structure of the industry than with individual services (Budde, 2002c). The current telecommunications framework has not sought to address directly structural issues in the industry. The government has failed to review the advantages of the structural reform in the telecommunications industry prior to introducing competition into the affected markets or privatizing Telstra (NECG, 2004). The ITU research indicates that “the structural separation of dominant telecommunications operators has proved effective in facilitating competition in highly concentrated markets” (ITU, 2002). The right industry environment is therefore crucial in assuring positive outcomes of market forces. Evidence from the experience of successful developed and developing countries suggests that the government should make greater efforts to ensure a competitive industry structure, as it is a prerequisite in developing a well-functioning market, one which has the greatest effect on
prices, and in turn on broadband adoption (ITU, 2003b).
Government Leadership 7KH$XVWUDOLDQJRYHUQPHQW¶VVWURQJUHOLDQFHRQ the market has been seen as a key impediment to broadband growth. One of the main obstacles to EURDGEDQG GHYHORSPHQW LQ $XVWUDOLD LV 7HOVWUD¶V ability to provide innovative broadband service. $VWKH&RPSHWLWLYH&DUULHUV¶&RDOLWLRQFRPPHQWHG in 2005: The implications of commercial decisions by individual suppliers and the retarding effect that this has on broadband deployment and adoption and on innovation in Australian telecommunications markets must be seen in the broader context of Australia’s international competitiveness. &RPSHWLWLYH&DUULHUV¶&RDOLWLRQ Broadband infrastructure is the future. National broadband networks should be considered a public infrastructure asset. The leading countries with high broadband penetration worldwide are characterized by strong government commitment to broadband rollout. There has been a common call for the government to take an action-oriented vision to broadband development in Australia. If no action is taken at this point in time, the potential costs of inaction are greater than ever before, DVEURDGEDQGLVDVLJQL¿FDQWGULYHURIHFRQRPLF growth and innovation. Government leadership in the future broadband rollout will not only accelerate broadband deployment, but also reduce a potential geographical digital divide and the deleterious effects of digital delay.
FUTURE RESEARCH This study provides a framework for understanding the complexity of policy development and examining policy issues related to Internet access. In the face of the complicated landscape of current ICT policies, the framework provides a way in which to critically analyze how government policies af-
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fect Internet access. It also provides the necessary feedback on how polices are actually working in practice. However, comparative studies of other FRXQWULHV¶HIIRUWVFRXOGDVVLVWLQEHWWHUXQGHUVWDQGing the impact of government policies on Internet access, as national governments are not isolated actors. Their actions and polices increasingly must take into account what is happening in other FRXQWULHV$V1RUWK¿HOG S SRLQWHGRXW “Comparisons of national experiences identify some common lessons for nations to review their policies and provide a mirror for countries to examine results of existing approaches.” The comparative study of public policy has a long and honorable tradition within the social sciences, but the comparative study of information and communications policy has been rather limited (Kahin & Wilson, 1997). Much of the ZRUNLQWKH¿HOGKDVIRFXVHGPDLQO\RQLQWHUSUHWing, examining, and understanding policy issues in selected countries in isolation, rather than on drawing conclusions or providing implications for other countries. Regrettably, the literature to date has little discussion of the methodological issues and lacks even a conceptual framework for policy analysis. As Rowlands (1997) pointed out, political and social scientists have developed a number of models, frameworks, and theories for analyzing public policy, but few of these have been explicitly applied in the context of ICT policy analysis. Future research can seek to address some of these GH¿FLHQFLHV
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NECG. (2004). Submission to the Productivity Commission Inquiry into national competition policy. Retrieved November 1, 2005, from http:// www.pc.gov.au/inquiry/ncp/subs/sub134.rtf
Rowlands, I. (ed). (1997). Understanding Information Policy. Bowker-Saur: London.
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Samuel, G. (2005, March 10). Address of ACCC chairman to Australian Telecommunications
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Users Group. Retrieved August 15, 2005, from http://www.accc.gov.au/content/item.phtml?item ,G QRGH,G ¿OHI H IQ 50310%20ATUG.pdf Telstra. (2005). Telstra broadband plans. Retrieved May 6, 2005, from http://www.bigpond.com/internet-plans/broadband/pricing/default.asp Umino, A. (2002). Broadband infrastructure deployment: The role of government assistance (DSTI/DOC(2002)15). Retrieved August 15, 2005, from http://www.olis.oecd.org/olis/2002doc. nsf /43bb6130e5e86e5fc12569fa005d004c/ 42158ef983225772c1256bc100560c01/$FILE/ JT00126526.PDF Willett, E. (2004, June 25). Challenges in telecommunications competition and regulation (speech to SPAN Conference). Retrieved August 15, 2004, from http://www.accc.gov.au/content/item. SKWPO"LWHP,G QRGH,G ¿OHDGGD 2&fn=20040625%20SPAN.pdf Willett, E. (2005, May 30). National Telecommunications Summit 2005, Melbourne: The state of competition in the telecommunications industry. Retrieved August 15, 2005, from http://www.accc. gov.au/content/item.phtml?itemId=609202&node ,G ¿OH IHFG IQ 1DWLRQDO %20Telecommunications%20Summit.pdf Winslow, T. (2002). Latest developments in international competition law/policy. Retrieved December 11, 2004, from http://203.127.220.112/ content/apec/apec_groups/committees/committee_on_trade/competition_ policy.downloadlinks.0002.LinkURL.Download.ver5.1.9 Working Party on Telecommunications and Information Services Policy. (2000). Local access pricing and e-commerce. Retrieved August 15, 2005, from http://www.oecd.org/dataoecd/9/63/27129228.pdf Working Party on Telecommunications and Information Services Policy. (2001). The development of broadband access in OECD countries. Retrieved August 15, 2005, from http://www.oecd.org/dataoecd/48/33/2475737.pdf
Working Party on Telecommunications and Information Services Policy. (2002). Broadband access for business. Retrieved August 10, 2005, from http://www.olis.oecd.org/olis/2002doc. nsf /87fae4004d4fa67ac125685d005300b3/ a963ab2ca9617affc1256c85005d7190/$FILE/ JT00136306.PDF World Summit on the Information Society. (2003). Declaration of principles: Building the information society: A global challenge in the new millennium. Retrieved August 15, 2005, from http://www.itu. LQWZVLVGRFVJHQHYDRI¿FLDOGRSKWPO ZDNet Australia. (2003, February 24). ACCC tackles Internet interconnection. Retrieved August 15, 2005, from http://www.zdnet.com.au/news/ business/soa/ACCC_tackles_Internet_interconnection/0,39023166,20272319,00.htm
KEY TERMS Broadband Internet Access: Often shortened to “broadband Internet” or just “broadband,” refers to a high data-transmission rate Internet connection (retrieved from http://en.wikipedia. org/wiki/Broadband_Internet_access). Internet Backbone Provider: A company that usually has substantial network infrastructure and provides ISPs with aggregated access to many or all networks accessible via the Internet protocol. Internet Interconnection: The arrangement through which Internet backbone providers and Internet services providers physically connect to each RWKHU¶VQHWZRUNVDQGWUDQVIHU,QWHUQHWWUDI¿F Internet Service Provider (ISP): $¿UPWKDW provides Internet access services to end users. Policy: A set of government activities, which can be broadly characterized as regulations, national strategies/initiatives, and funding programs. Unbundling Local Loop (ULL): Term used to describe the access provided by local exchange carriers so that other service providers may buy or lease portions of its network elements, such as interconnection loops to serve subscribers (Kennard, 1999). 125
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Chapter IX
Broadband for the Mass Market Roger Saunders Saunders Associates, Australia
ABSTRACT This chapter suggests there is no new application to stimulate adoption of broadband by the mass market. Many new applications have been introduced but have not created the desired growth. One application that could have mass market attraction is Voice over Internet Protocol (VoIP), and it is the most likely killer application. But failure by major communications carriers to develop VoIP is slowing broadband penetration to this larger market segment. This resistance results from the risk to current carrier call revenue from VoIP, and that infrastructure to support high-speed broadband may not generate adequate UHYHQXHLQWKHVKRUWWHUPWRVDWLVI\VKDUHKROGHUVRU¿QDQFLDOPDUNHWV1RLQWHUQDWLRQDOVWDQGDUGVKDYH yet been set, and VoIP between the Internet platforms is not fully integrated. Also the multitude of broadband packages offered by the various competing carriers creates confusion in the mass market which, as a result, defers purchase decisions.
INTRODUCTION While Internet and broadband access has been promoted as a fast universal data transfer and information providing media, the mass of information available and the relative complexity of accessing the right information for the neophyte Internet user is a deterrent to adoption. It is suggested that despite the many arguments that access to broadband alone or various segmentVSHFL¿F DSSOLFDWLRQV DUH WKH NH\ WR EURDGEDQG adoption, there is no new magic bullet or killer application to stimulate rapid adoption of broad-
band. The only immediate and easily recognizable application of broadband for the mass market is voice communication, that is, voice over Internet protocol (VoIP). This places incumbent telecommunication providers in an invidious position where their primary UHYHQXHVRXUFHLVIURPYRLFHWUDI¿F To accelerate penetration of broadband and reach a level of return from the required capital expenditure, these organizations would be sacri¿FLQJ WKHLU WUDGLWLRQDO UHYHQXH EDVH IRU D ORZHU revenue stream and opening up their customer base to competition. Therefore they are reluctant
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to adopt applications that are likely to have a negative effect on their traditional markets and their prime revenue sources. While the reluctance by these companies to accept the fact that new technology has rendered much of their existing infrastructure and key products obsolescent, build appropriate technical capability, agree to cooperate in the development of international standards, and promote applications such as VoIP, the diffusion of broadband to the wider population is likely to be slower than would otherwise be the case.
BACKGROUND Currently broadband is being offered as a universal means of providing data, information, education, entertainment, and a myriad of other applications, each of which appeals to particular and different segments of the market. However, for the broadband provider, maximization of penetration to the total population is needed in order to recover costs and meet the expectations of their shareholders. It is also evident that many governments around the world are pressuring incumbent communications carriers to provide broadband to cover the majority of the population, even when this means expending large amounts of capital in locations where a return on that investment is unlikely. This seems to be based on a belief that access is the primary stimulant necessary to encourage adoption of broadband and satisfy the general population. However, the assumption that having access to EURDGEDQGLVVXI¿FLHQWWRVWLPXODWHDGRSWLRQE\ the mass market as suggested by Middleton (2003) appears to be fallacious when comparing actual demand relative to broadband availability. A counter to the argument that access alone is the killer application is that expressed by Smith and Leung (2002), who believe that high-speed ,QWHUQHWDFFHVVLVLQVXI¿FLHQWWRGULYHEURDGEDQG connectivity and that there is still a need to overcome a number of technological, economic, and social issues before any key killer application or applications necessary to promote demand can be realized.
The providers who invest capital in broadband infrastructure need these key "killer" applications if they are to attract a broad mix of customers and DWWKHVDPHWLPHHQFRXUDJHVXI¿FLHQWXVHRIWKH service to justify the investment needed. To date, growth in broadband use has been at a steady rate. However, stock market investors and analysts have been conditioned by what they see as the rapid market penetration of mobile communication to expect rapid adoption of this new technology. But broadband is not the same as the mobile service. Broadband is essentially a simplex means of communication where information is either downloaded from the Net or uploaded from the customers. While it does have text capability, it is not a direct two-way communication medium. There is some duplex voice carriage capability with VoIP, but it is not the same as mobile voice and it currently does not have the same functionality or quality as the existing wired telephone service or the mobility element of mobile network, so direct comparison of growth expectations is somewhat spurious. The apparent high rate of market penetration by mobile communications is somewhat illusory since mobile communication was available in the 1960salbeit limited in availability and quality with high access and usage pricesand it should not be used as a benchmark for new technology take-up. Take off in mobile communications in the mass market did not occur until cellular techQRORJ\ZDVLQWURGXFHGZLWKVLJQL¿FDQWO\JUHDWHU availability, performance, and at acceptably lower call prices. It is likely that broadband will follow the same path and require more technology to stimulate adoption by the general public. Technology was the “killer” factor for mobile communications, and a key question for broadband SURYLGHUVLVWR¿QGWKHIDFWRUWKDWZLOOVWLPXODWH adoption of broadband by the market so that expenditure on the needed technology can be justi¿HG+RZHYHUZLWKEURDGEDQGPDQ\RIWKHPDMRU incumbent communications carriers, having not \HWLGHQWL¿HGRUDFFHSWHGWKHH[LVWHQFHRIDNLOOHU application, are reluctant to invest the high level of capital necessary to support the required technol-
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ogy or attempt to achieve a common worldwide standard for Internet platform access. The outcome of this reticence is that some potential applications have yet to reach their full potential and may well be a factor in the slower-than-expected diffusion of broadband to the wider population.
DISCUSSION Broadband adoption by both business and domestic customers is directly affected by a number of key IDFWRUV,QJHQHUDOWKHVHFDQEHLGHQWL¿HGDV • • • •
System availability, quality, and performance Customer application, use, and need Customer value perception of the service provided Price limits set by customers
While availability, quality, value, and price can in principle be managed by a broadband infrastructure provider, application is determined ¿UVWO\E\WKHFXVWRPHUVDQGVHFRQGO\DWWKLVVWDJH of development, by content providers who are OLWWOH FRQFHUQHG DERXW WKH ¿QDQFLDO DQG WHFKQLcal constraints associated with the provision of broadband. The following sections consider each of these broadband factors in its current state of development.
System Availability and Capability Access to the Internet can be achieved by dial-up and modem capability. However, speeds across the standard phone line are somewhat limited. To provide broadband proper, there are a number of technologies that can deliver better access and performance to the household or business, each requiring greater capital investment and commitment to continued use by the customers. While the lowest level of access to the network (dial-up) is available, it cannot be considered as broadband proper although it provides Internet access capability. A digital subscriber line (DSL)
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using the existing copper network is in fact the ¿UVWPDUJLQDOOHYHORIEURDGEDQGDQGUHTXLUHVWKH least investment by network builders, provided the core infrastructure already exists and the customHUVDUHQRWORFDWHGVLJQL¿FDQWGLVWDQFHVIURPWKH exchange. Coaxial cable is a higher speed capable access, and provision in many countries is packaged with cable television in order to defray the cost and provide a better chance of reaching adequate revenue return to justify the investment. Wireless access and satellite is available where customers are located away from suitable infrastructure, but it has some operational limitations and capacity LVVXHV2SWLFDO¿EHUSURYLGLQJ³Fiber to the Home” (FTTH) or “Fiber to the Node” (FTTN) is currently regarded as the best option for high-speed and fully capable broadband delivery. It is however the most costly for the infrastructure builder since it requires replacement of existing copper customer access networks (CANs) and accounts for the reluctance of some communications companies who are most likely to be the infrastructure providers for implementation. Each of these technologies requires a progressive increase in capital expenditure by the network providers, as each increase in speed and functionality increases the cost of the service delivery. In order for broadband providers to even consider provision of these higher levels of service, they need some expectation of return on their investment, and in the current environment, speed of capital return is critical to satisfy the expectations of shareholders. As stated above, incumbent carriers will need WRPDNHVLJQL¿FDQWFKDQJHVWRWKH&$1WRWKHLU product strategies and their operating systems. In a paper in the Telecommunications Journal of Australia (TJA), the journal of the Telecommunication Society of Australia (TSA), Darling (2005) of Pondarosa Communications stated: “If the CAN of the future is to provide a full range of services, it will have to support truly broadband access. For many customers already using broadband this is not the case, particularly so in non-metro areas both across Australia and in other countries.”
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For broadband builders, high market penetration, high usage, or a combination of both is required to achieve a desired level of return, and this requires a degree of faith and commitment by them, especially if, at this stage of development of adoption by the mass market, they are not meeting ¿QDQFLDOO\ GHVLUDEOH UDWHV 3HQHWUDWLRQ FDQ RQO\ be achieved if appropriate levels of service are available to the majority of the population, but this requires capital investment where the majority of the population lives. This is where the issue becomes both problematic and political. Political imperatives seldom coincide with WKH¿QDQFLDOFULWHULDRILQGXVWU\SDUWLFXODUO\DQ industry that is in essence a provider of utility services. Electricity, gas, water, and other services including communications are considered essential in a developed society. Therefore, provision of broadband communications to the total population is in most countries a political imperative, none more so than in a country such as Australia where the population is concentrated around the coastal areas and is sparse and widely dispersed in the rest of the country. A comparison of broadband adoption between metropolitan and regional populations in Australia was presented to the TJA by the University of Queensland (Cameron, 2004) summarizing a number of studies that have been undertaken by various bodies in various localities. They all LGHQWL¿HGWKDWWKHODFNRIDYDLODEOHLQIUDVWUXFWXUH to support broadband is a key factor in the nonproliferation of broadband. A further point not indicated in the research is that even where some broadband capability was available, the level of technology used was such that the service was slow, intermittent, and in some cases, expensive. The studies also indicated that socio-economic factors had a bearing on whether some members of the population would even consider adoption of EURDGEDQGHYHQLILWZDVDYDLODEOH7KLVLVUHÀHFWHG both in the metro and regional areas, and potential customers who represent the poorer members of WKHFRPPXQLW\KDYH\HWWRLGHQWLI\MXVWL¿FDWLRQ for adoption of broadband. To provide broadband with any level of capability to these remote locations would be costly and
because of the small population the likelihood of return on the investment is unlikely. Consequently, broadband providers are reluctant to provide such services. Cross-subsidization from the high-density metropolitan centers to the remote and rural communities, similar to that which has been applied to the telephone services before, is one possible approach. That however requires higher prices for connection and usage in the cities and in an environment where government holds the view that competition and free market forces are desirable; this is not politically supported. The Australian Competition and Communications Commission (ACCC) has been considering a proposal to introduce differential pricing for both the existing communications network and for future broadband services. That is, the customer prices for services in the metro and non-metro areas should be priced according to the cost of provision and delivery. To date no outcome of this review has been forthcoming. Under this and the competitive market policy, competition in the high-density metro areas would preclude any price balancing availability to a broadband provider considering subsidizing services in the low-density areas. Without regulation and political acceptance of something less than a free market condition, the potential for higher prices DQGVLJQL¿FDQWGLIIHUHQFHVLQFKDUJHVIRUQRQPHWUR compared to metro locations further discourages take-up of broadband outside the metro areas. Therefore government policy and communications regulation play critical roles in whether broadband diffusion takes place to the total population in a country or not. In support of this view, Alcatel and KPMG (Fitzpatrick & Perin, 2006) recently produced a MRLQWUHSRUWLGHQWLI\LQJWKH¿YHUHJXODWRU\OHYHUV used by governments around the world to promote broadband. These are: • • • • •
Government subsidy and/or incentives Safe harbor Access price certainty Deployment based on return on investment Vertical disaggregation
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Government subsidy and support has been the approach taken by the Korean Government and this LVUHÀHFWHGLQWKHOHYHORISHQHWUDWLRQUHSRUWHGE\ the OECD (2005), but the broadband capability provided is at the lowest level and at a low price to customers. The Safe Harbor policy has been used in the United States to provide a honeymoon period for an infrastructure builder. This approach restricts or stops competitors to the provider from either directly accessing the new broadband network or LQVWLWXWLQJ SULFLQJ WKDW GRHV QRW UHÀHFW WKH WUXH cost of capital for a set period of time, thus limiting the ability of the builder to compete in the marketplace and receive an appropriate return on its investment. No country explicitly using the access price¿[LQJDSSURDFKKDVEHHQLGHQWL¿HGDOWKRXJKWKH safe harbor approach may be doing so by implication. Where limited direct access or competition LVDOORZHGWKHDFFHVVSULFHLVLQWKLVFDVH¿[HGE\ regulation preventing unfair competition. Basing the establishment of a broadband network purely on a return on investment approach may be an acceptable approach in dense and heavily populated countries, such as Japan and some European countries. However, under this approach there would be pockets of population in such countries as Australia, the United States, and India that would not gain access to broadband for a considerable time if ever. For many large countries with scattered and low-density population centers such as these and much of Southeast Asia, this is not generally an acceptable political outcome. Vertical disaggregation involves the separation of core infrastructure from that of the retail operations of a communications operation. In effect, a broadband provider would become a wholesaler of broadband to all customer interface organizations. This is an approach that has been proposed since the worldwide move to sell government ownership of incumbent communications operations and the introduction of competition. The issue has been that all network infrastructure requires considerable capital to build and maintain. Consequently the existing copper pair networks as well as new developments required to support high-speed
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broadband need capital investment. In a competitive market where market prices are constantly under GRZQZDUG SUHVVXUH VKDUHKROGHUV DQG ¿QDQFLDO institutions still expect expedient returns on their investments. Therefore the boards of directors and the businesses they manage are severely constrained on what the can spend on new and as yet low penetrating technology. The option to place the high-cost infrastructure operation into a separate FRPSDQ\KDVWZRSRLQWVLQLWVIDYRU7KH¿UVWLV that there are precedents in the operations of utilities, where capacity is on-sold to retail operations with premium prices to the high-usage areas. The second is that it avoids duplication of assets which would occur in a country if all competing forces decided to construct alternative networks. There DUHVLJQL¿FDQWGLVDGYDQWDJHVWRWKLVKRZHYHULQ such a diverse operation as communications, such as separation from the using customer base and the dissociation from non-network communications developments. The outcome would be that the wholesale operation would not be in a position to identify use and demand trends in the market and would be reluctant to increase investment where they could not identify any requirement or any increase in revenue return to the operation. Each of these factors, however, focuses on the technology and not on the market, and while they might stimulate availability of service to the population, they do not necessarily guarantee that adoption of broadband will automatically follow. A study conducted by Wale (2002) at the University of Melbourne, as a part of his honors degree thesis, indicates that technology is an element in broadband use stimulation by existing residential customers in that they seek better broadband attributes rather than more applications. The attriEXWHVLQFOXGHµDOZD\VRQ¶QHWZRUNLQJRIKRXVHKROG computers and to a lesser extent speed. The study LGHQWL¿HG WKDW DW SUHVHQW WKHUH DSSHDUV WR EH QR real need for broadband apart from streaming video and that the broadband advantage at this stage is that it enables e-mail, chat, and browsing WREHXVHGPRUHHI¿FLHQWO\7KHUHIRUHLWVHHPVWR LQIHUWKDWZKLOHWKHUHLVVRPHEHQH¿WWRH[LVWLQJ XVHUVZKRKDYHLGHQWL¿HGDSSOLFDWLRQVRIXVHWR WKHPWKHUHLVLQVXI¿FLHQWVWLPXOXVLQWKHFXUUHQW
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available applications to attract mass market customers who have no experience on which to base their requirements. To some degree, the proposal by Luber (2001) that e-mail is the already available killer application but is currently constrained by the relatively low bandwidth available on some broadband links supports this view. However, for broadband providers HPDLOLVXQOLNHO\WRVWLPXODWHVXI¿FLHQWUHYHQXH WR MXVWLI\ WKH SURYLVLRQ RI LQ¿QLWH EDQGZLGWK WR the mass market. In summary therefore, three factors have a direct impact on availability and the growth and adoption by the general public of broadband availability. These are the technology and quality level provided, the level of regulation required to support government policy, and the willingness of the broadband infrastructure owners, shareholders, DQG¿QDQFLDOLQVWLWXWLRQVWRDFFHSWWKHULVNDQGWKH possibility of deferred reimbursement on the capital that is required to build, support, and provide maintenance by the infrastructure builders.
Customer Application, Use, and Need Broadband can provide advanced applications to customers, but for universal application to meet the needs of the mass market, a “killer” application is still sought. Kwok (1995) proposed that to achieve the “grand vision” of the residential broadband market, platforms capable of delivering thousands of applications would be necessary. This supported the idea promoted by network providers and communications companies that broadband is, to quote Adams (1982), the answer to “life, universe and everything.” Unfortunately that is not the case. While content providers since 1995 have delivered a mass of information and applications to customers, the mass of data itself is one of the issues that appear to be constraining new users from acquiring broadband access or using the service even when they have access to some level of broadband. The content providers have particular market segments to which they target their product. One product may be sport, which is one that has to date achieved the greatest appeal in Australia, or online
auctions, music downloads, or a myriad of other potential services. One of the biggest money spinners for these content providers is advertising, and the increase in unsolicited promotion is a further addition to the mass of data a broadband customer must negotiate. By virtue of the diversity of information, some appeal to particular groups of users but not to all. In fact, the very mass of available information or entertainment services available PDNHVLWLQFUHDVLQJO\GLI¿FXOWWR¿QGWKHVSHFL¿F subject an individual may want. A typical reaction by new users of the Internet either via broadband or dial-up services, when unable to access particular information using one of the search engines, is that they tend to abandon the search and because of the negative outcome choose not to adopt broadband or limit its future use. There have been a number of psychological research projects that have linked stress to the masses of information that is now available in the public domain, and the question of whether humans can perform multiple new tasks and process this data. Swartz (2003) in his book The Paradox of Choice suggests that while more choice means better options and greater satisfaction, that choice overload can cause decision-making paralysis. This applies to both the information that is being sought and the initial broadband connection decision. This latter point is discussed in the sub-section on value perception. Information and content providers are in the market to sell their products or services, and are likely to be little concerned about the cost of broadband delivery or the cost to the customer of broadband accessing or attempting to access their Web sites. Also the cost recovery required by the network provider is not an issue for them. The broadband provider has little control over the content that is needed if adoption and usage is to DFFHOHUDWHWRWKHOHYHOWKH¿QDQFLHUVDQGVKDUHKROGers expect, and if the content claims are considered risible it is more likely to deter possible broadband subscribers than to encourage growth. So the situation is that in principle, the network capability may be available but the broadband proYLGHUKDV\HWWR¿QGRUKDYHWKHDELOLW\WRHQFRXUDJH greater participation or the incentive to provide
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DQ\ PRUH WKDQ EDVLF IXQFWLRQDOLW\ VXI¿FLHQW WR deliver a return on its investment. Apart from the ZHOOLGHQWL¿HGHDUO\DGRSWHUVDQGLQGLYLGXDOVZKR KDYHLGHQWL¿HGVSHFL¿FQHHGVQRHVVHQWLDOVHUYLFH available from the content providers appears to have been offered to the mass market so far. Video and video streaming has frequently been cited as a key application for broadband, but to date issues relating to revenue sharing and copyright between content providers, video producers and distributors, and service aggregators has tended to restrict the potential application as indicated by Lim (2002). Also, broadband bandwidth in many cases KDVPDGHGRZQORDGLQJRI¿OPVORZWKXVUHGXFing the possible attractiveness of this application. However, Price Waterhouse Coopers (2004) has proposed that by adding video capability to existing applications such as conferencing and e-mail, there is a potential short-term gain in usage. This may be one application enhancement that could EHRIEHQH¿WWREXVLQHVVEXWWKHDWWUDFWLRQWRWKH residential mass market seems marginal. A relatively recent application has been developed, not by content providers or the network providers, but by broadband users themselves. Weardon (2001) predicted that users would develop peer-to-peer applications that would stimulate use by existing customers. This has to some extent EHHQ VWXOWL¿HG E\ WKH ODFN RI Internet protocol (IP) standards, but users have adapted the network to provide their own content in the form of self-produced broadcast videos, music exchange groups, and Weblogs (blogs). While this has the potential to attract some new customers, it is still not the killer application the networks really need to increase adoption by new customers from the mass market. Therefore to provide a reason for an increase in infrastructure investment, these providers still need a key application, and the infrastructure providers have little expertise or control over the current type of content carried on their broadband DQGOLWWOHLQÀXHQFHLQLGHQWLI\LQJDFRQWHQWSURYLGHU to deliver such a product. Yet there is one application that does have universal application to the mass market, and that is the plain old mundane voice communication with
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voice over Internet protocol, VoIP, which is currently being provided to some degree by organizations in most countries other than the builders of the broadband network. Provision of user-friendly voice communication using broadband would provide the motive to deliver an essential service alternative to the current standard telephone network, and infrastructure providers would at least have some experience with this application. A paper by Bachelet (2005) of OVUM based on a report, “Altnet Broadband Strategies,” indicated that they believed that VoIP was the killer application, not TV over DSL (TVoDSL) or Video on Demand (VoD), and that they expected only a small minority of their customers to adopt these higher level services. In fact, they believed that they had an opportunity to capture more of an LQFXPEHQW¶VPDUNHWE\GHYHORSLQJDSDFNDJHRI broadband access plus VoIP. However, for incumbent and current communications companies to combat this potential attack on their market share by promoting VoIP is a two-edged sword. Most broadband infrastructure providers are telephone service providers, and to date most have resisted applying a service that both erodes their current revenue source and provides competitors access to their existing customer base. Yet this offers the greatest chance for market penetration and dispersion of broadband adoption, particularly since the carriers themselves will at least have some degree of control, albeit needing to RIIHUYRLFHDWVLJQL¿FDQWO\ORZHUSULFHVWRPLJUDWH their existing customer base to broadband. But, since these incumbent communications companies build the broadband network and in the majority of cases own and operate the CAN, they have the technological capability to deliver enhanced services using the more sophisticated broadband applications and provide faster upload and download capability such that video/voice combinations and online interactive video entertainment could become a reality. In practice these higher level services could be offered at higher usage prices to offset the inevitable decline in their current telephone revenue stream that would be a given if broadband had this capability. Until these incumbent and competing communications
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carriers are prepared to relaunch their communications infrastructure, there is little chance that there will be any move to establish appropriate world standards that are necessary for such applications as VoIP to communicate between the Internet provider platforms to enable peer-to-peer communication and other capabilities to be viable. Therefore this and other potential applications are unlikely to happen quickly. As it stands, the promotion of broadband as all things to all people is highly dependant on content, and if broadband adoption is to grow and usage to increase, carriers will ultimately need to take steps to review their technology, infrastructure, products, systems, and pricing structures. In summary, the current content available to customers on broadband is extremely diverse and complex. The need for better, faster, and more convenient service by individuals is dependent on the content they need and value they place on it. While businesses can identify practical operational reasons for broadband, the domestic market and the growth on which infrastructure providers depend is an application that is required all the time as an essential everyday service. The needs for business are different to domestic needs, but as yet the delivery of broadband is undifferentiated and much of the business activity involves inter and intra-company data transfer ZKLFK EURDGEDQG VDWLV¿HV +RZHYHU IRU WKH GRmestic customer, the applications may be accessing GDWDRUVSHFL¿FLQIRUPDWLRQEXWWKHDELOLW\IRUSHHU to-peer access is limited. As previously indicated, WKHEURDGEDQGSURYLGHUVKDYHOLWWOHLQÀXHQFHRQ the content currently carried or how the network is used. Consequently they have little power at this stage to foster adoption and use by the mass market, unless they make a strategic move to accept the changes that are inevitable as broadband adoption increases and commence the shift from dependence on their current communications network product revenue to broadband.
The Value Perception Value to the user of broadband relates directly to the content available and the ability of the service
provided to deliver that content in an appropriate manner. In other words, does broadband meet a VSHFL¿FFXVWRPHUQHHGGRHVLWSHUIRUPLQDPDQner that enables the customer to satisfy that need in a way the customer considers acceptable, and is the service seen as good value? Broadband providers around the world deliver different levels of speed and functionality, and prices are set for each packaged level. Korea has a reasonably high level of adoption by delivering a relatively low-speed download broadband and minimal if any upload capability to a large number of areas. This was in line with the Korean *RYHUQPHQW¶VDLPRIHQDEOLQJDFFHVVWREURDGEDQG by the majority of the population for which they ZHUH SUHSDUHG WR ¿QDQFLDOO\ VXSSRUW WKH EURDGband provision across Korea and to minimize the resistance to price associated with the adoption of this new technology. The Japanese telecommunications industry on the other hand has implemented high-speed, highTXDOLW\)77+EURDGEDQGVHUYLFHDWDVLJQL¿FDQWO\ higher price to customers than in Korea, and to date, penetration in Japan has been somewhat slower than that in Korea. Therefore the link between customer need, service quality, adoption, and willingness to pay is blurred. Some Japanese customers appear willing to pay high connection and/or usage prices for higher value capability, whereas others either do not have EURDGEDQGRUDUHVDWLV¿HGRUKDYHXVHZKLFKFDQ EHPHWZLWKORZHUFRVW'6/1RVSHFL¿FPDUNHW UHVHDUFKKDVEHHQLGHQWL¿HGWKDWGH¿QHVWKHGLIIHUence between adopters and non-adopters. However it seems reasonable that the socio-economic factors LGHQWL¿HGLQWKH$XVWUDOLDQFDVHZLOOH[LVW In Korea, a lower price and a lower value broadband service has attracted a relatively high penetration, but does not necessarily satisfy the total mass market since the applications must be constrained by the lower level of broadband capability. Once again, QRVSHFL¿FVWXG\RQEURDGEDQGXVHUVDWLVIDFWLRQ LQ.RUHDKDVEHHQLGHQWL¿HG However, in an increasingly global communications world, what is being provided in one country is easily comparable to that in another. Therefore, a Korean customer may question why their service
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is not as good as that in Japan, while a Japanese customer may be concerned that prices in Korea DUH VLJQL¿FDQWO\ ORZHU WKDQ WKH\ DUH UHTXLUHG to pay, with the outcome being that both have perceptions of value that is based on unrealistic expectations. For a business operation the differences between the two may be irrelevant or understandable, but the mass market tends to be conditioned by information gained from casual and possible illinformed sources, coloring their value perception and expectations. To add to the confusion of the relatively inexperienced potential Internet users represented in the mass market, broadband packages being offered by the various competitors appear inconsistent and prices being charged seemingly unrelated to the offerings. If international comparisons are made, this becomes even more apparent. Equally, as LGHQWL¿HGE\6ZDUW] WKHPDVVRIDOWHUQDtive packages merely adds to the confusion and the tendency to defer choice. This decision paralysis is supported by a recent Australian study by AdDPV LQZKLFKRQHSRLQWLGHQWL¿HGZDV³WKH complexity of the purchase decision acting as a barrier to adoption.” The 2(&'¶VSDSHURQEHQFKPDUNLQJ 2(&' 2004) reports the diversity of broadband packages and offers in the OECD, and shows clearly that for a new relatively unsophisticated customer to select an appropriate broadband to meet their as-yetXQLGHQWL¿HGQHHGVZRXOGEHGLI¿FXOWFRQIXVLQJ and likely to result in customers deferring making a purchase decision. This is further discussed in the next section on price. The outcome would be that if the wrong package is chosen, the value to the customer would be compromised. In summary, value appears dependant on the value customers place on the needs they identify but can be conditioned by information input from a wide variety of sources. Where their needs can or PLJKWEHVDWLV¿DEOHDWORZHUSULFHVHOVHZKHUHRULW appears that good value is not being offered compared to alternative options, adoption of broadband would be for them unnecessary or too expensive for what they get. At this stage, a universal application for the mass market requiring base-level broadband
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LVQRW\HWLGHQWL¿HG(TXDOO\WKHUHLVDWWKLVVWDJH of development little differentiation of broadband capability based on the value and functionality of the content or applications currently on offer. The sole differentiation to date appears to be based on the technology of volume and speed of the usage required by the individual customers and little else, all of which for a new mass market customer are unknown requirements.
Price Limits The price setting regime around the world is varied. In some cases there is no charge for connection to the broadband network, in others excess usage prices apply while others throttle use when a prepaid limit is exceeded. In still other cases, download speed offers are priced depending on availability of the technology to support increased speed. The Telecommunications Journal of Australia (Saunders, 2005) review of the OECD Broadband Benchmarking Paper suggested that few if any RI WKH FXUUHQW SULFLQJ DUUDQJHPHQWV UHÀHFWHG D customer perspective of pricing for the value of the service supplied. The variables in any broadband service, such as whether upload capability was offered, the speed of download, number of Mbytes included, and so on makes comparison of UHODWLYHYDOXHVRIWKHYDULRXVSDFNDJHVGLI¿FXOWLI QRWLPSRVVLEOH,WDOVRLGHQWL¿HGWKDWZKLOH.RUHD has a good adoption history, it has yet to make a SUR¿W ZKLFK PD\ EH D IDFWRU UHVXOWLQJ IURP DQ inability to charge higher prices for relatively low levels of service value or delivery. Japan has built a high value service but a lower history of broadband take-up, and the question of return on their investment has yet to be determined. The question then arises, is the high price charged by -DSDQDGHWHUUHQWWRDGRSWLRQZKLOH.RUHD¶VSULFH regime and customer use are too low to enable an acceptable return on investment? In either case the balance to achieve satisfactory outcomes for both customers and infrastructure providers, if wider diffusion of broadband is to take place, is critical and needs to be developed if providers and broadband are to achieve their potential.
Broadband for the Mass Market
7KHGLI¿FXOW\IRUDWUDGLWLRQDOFRPPXQLFDWLRQV company reliant on phone call revenue is to make the transition from the current hybrid copper network WRRSWLFDO¿EHUDQGRWKHULQIUDVWUXFWXUHQHFHVVDU\ to adequately support a high-quality, high-speed broadband network, which is the key requirement for them to move any of their current services to broadband. Consequently their broadband pricing structures and the capability they provide is colored by the fear of migration from their existing network and the need to either retain or develop a new revenue source. Customers appear to be only willing to pay a certain price for what they consider is the use and value of the service they require from broadband as opposed to the standard network services already available; and if the capability of fast and quality application delivery is not possible because of the technology, the value perception must be limited. If they want access to sporting Web sites, that is what they want to pay for, but they want realtime and quality service. That means availability where they want it, available when they want it, and at a price better or at least comparable to any existing communication or information provision available. As far as the average mass market customer is concerned, the means to access that Web site and the broadband network is a totally transparent entity. Therefore to price access to broadband based purely on technology is not visible to the customer and not relevant to his or her perception of pricing for valueit is what they can do with that access and whether what they do is at a lower economic cost to them than any other alternative. In summary, it is not what the broadband provider sees as price for value because of the technolRJ\LWLVWKHFXVWRPHU¶VGHFLVLRQRQZKHWKHUZKDW they are being offered is good value at the price offered, and that is in effect based on content or capability available to them from this new media. Therefore for the mass market there appears to be a need for a commodity product, such as standard voice calls at a lower price than currently available on the existing phone network, to attract them to broadband adoption. It is then possible to up-sell greater capability as the customer develops a
need for enhanced services, such as voice/video or real-time and interactive entertainment, but the technology needs to be in place to handle the higher levels of service capability beforehand and before the demand is evident in practice.
FUTURE TRENDS At this stage of development of the market and technology, the future of broadband is clouded. That it will develop is unquestioned; it is the way it develops that is uncertain. There is a need for the establishment of a set of international interface standards to enable connection between IP platforms, such that peer-to-peer communication in some utility form can be achieved without incompatibility reminiscent of the VHS/Beta situation that occurred with the introduction of videotape recording. An Australian Industry Forum (Evans &KLUJZLQ GLVFXVVLRQSDSHULGHQWL¿HVWKH complexity and variety of the technology solutions possible with the provision of peer-to-peer communication and the alternative approaches that could be adopted if there were some level of agreement between the players in the market. The discussion paper clearly states that some standards need to be set by the European Telecommunications Standards Institute (ETSI) and the International Telecommunications Union (ITU) if platformto-platform connection is to take place, opening up the full capability of broadband as a complete communications and information capability. This is where the question of the rate of broadband expansion into the broader market is indeterminate, since platform-to-platform interface UHTXLUHV¿UVWWUXVWEHWZHHQWKHFRPSHWLQJIRUFHV and second complex revenue transfer and billing, similar to the international calling agreements between competitors and countries. In a highly FRPSHWLWLYHHQYLURQPHQWWKLVPD\EHGLI¿FXOWWR do since all the competing players are now required to satisfy not only their domestic markets and governments, but also the international stock markets, WKHVKDUHKROGHUVDQGWKH¿QDQFLDOLQVWLWXWLRQV To some degree, this situation is unprecedented in the communications market, in that in follow-
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ing the new technology developments, falling prices, and the increasing commodity view of the FRPPXQLFDWLRQ FRPSDQ\¶V FDVK FRZ SURGXFWV WKHSUHVVXUHLVRQWRLQFUHDVHUHYHQXH¿QDQFLDO performance, and dividends. In this environment, it may be that free market competition is in itself a constraint on both the willingness of communications companies to take risks by investing in new infrastructure where the return on capital may be over a long period or where it provides an alternative service that erodes the current revenue stream.
CONCLUSION For existing communications carriers the transition from one network technology to another is an expensive and risky venture. Equally it is a major shift in traditional pricing and marketing VWUDWHJLHV:LWKEURDGEDQGSULFHLVIDUEHWWHU¿Wted to access pricing as the major revenue stream that has always been secondary to call revenue in traditional communications services. A further issue is that increase in adoption of broadband by the mass market increases the risk to these traditional carriers of both losing their long-held revenue stream with no guarantee of attaining the same level of return from the new technology and the opening up of their customer base to competitors. Their biggest problem from their perspective is that they no longer control customer use or the reason for that use unless they at least move their existing products, such as local, long distance, and international calling, plus all the support products and existing infrastructure to the new technology. This will require careful and well-planned pricing strategies to minimize loss of revenue, and more important, loss of customer base if they are to survive. It is clear that adoption of broadband by the mass market will occur with or without the active involvement of the traditional carriers. However, the transition and adoption of broadband will not be as fast or as dramatic as the adoption of mobile communication is reputed to have been. But with the active acceptance by the traditional carriers,
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the adoption by the market will occur as customers adapt to the newer technology. It would seem that ultimately these traditional communications companies will have to move GRZQWKLVSDWKUDWKHUWKDQ¿JKWDUHDUJXDUGDFWLRQ that can at best only slow the migration of voice WUDI¿FZKLOHORVLQJWKHPEURDGEDQGDFFHVVUHYHQXH as other providers move in. Without doubt, the challenge is whether the traditional and incumbent carriers can persuade WKHLQYHVWLQJFRPPXQLW\WKDWWDNLQJD¿QDQFLDO risk is necessary and the returns may be over the longer term. The setting of prices and balancing the revenue transition will be a more delicate operation than ever before for these telecommunication companies to both keep their customers and to maintain shareholder satisfaction.
REFERENCES $GDPV 3 ,VRODWLQJ µZK\¶ $XVWUDOLDQ households adopt broadband. Telecommunications Journal of Australia, 56(3/4), 27-36. Adams, D. (1982). Life, universe and everything. London: Pan Books. Bachelet, C. (2005). Broadband’s so-called killer application, Wireline Strategy @OVUM service. Retrieved December 28, 2006, from http://www. ovum.com/go Cameron, A. (2004). Factors affecting broadband adoption and demand. Telecommunications Journal of Australia, 54(2), 53-60. Darling, P. (2005). The 21st century CAN. Telecommunications Journal of Australia, 55(2), 3-14. Evans, S., & Chirgwin, R. (2006). Industry discussion paper QOS-based VOIP service interconnectivity. Market clarity. Sydney: Australian Communications Industry Forum. Fitzpatrick, D., & Perin, A. (2006). Alcatel and KPMG identify regulatory levers used by governments around the world to promote broadband infrastructure development. Retrieved May 5, 2006, from http://www.kpmg.com.au
Broadband for the Mass Market
Lim, J. (2002). Killer applications for broadband ,QWHUQHWDUHSURPLVLQJLQ$VLD3DFL¿F (pp. 1-6). Hong Kong: ITU Telecom Asia. Luber, A. (2001). The ultimate (surprise) broadband killer application. Capitalism Magazine. Retrieved December 23, 2006, from http://www.capmag. com/articlePrint.asp Middleton, C.A. (2003). What if there is no killer application? Journal of Information Technology, 18(4), 231-245. OECD. (2004). Benchmarking prices in the OECD. OECD Committee for Information, Computer and Communications Policy, DSTI/ICCP/TISP/ FINAL. OECD. (2005, June). Broadband subscribers per 100 inhabitants, by technology. Retrieved January 6, 2007, from http://www.oecd.org/16/0 PriceWaterhouseCoopers. (2004). White paper details key applications for broadband Internet, short-term opportunities are addition of video to existing applications, not distribution of video entertainment. Retrieved December 23, 2006, from http://www.pwc.com Saunders, R. (2005). Benchmarking broadband. Telecommunications Journal of Australia, 55(2), 20-24. Schwartz, B. (2003).The paradox of choice. Canada: HarperCollins. Smith, M.W., & Leung, H.-T. (2002). Finding the killer application: The role of the Broadband Applications Laboratory. BT Technology Journal, 20(1), 11-21. Wale, C. (2002). In search of the elusive ‘killer application’ that will drive broadband uptake in Australian households. Department of Information Systems, University of Melbourne, Australia. Wearden, G. (2001). Broadband’s killer apps will be created at home. Retrieved December 23, 2006, from http://www.zdnet.com.au/news/comunications
KEY TERMS Australian Competition and Communications Commission (ACCC): The government body established to regulate the industry and ensure fair competition in the Australian market. Similar to the U.S. Federal Communications ComPLVVLRQ )&& DQGWKH2I¿FHRI&RPPXQLFDWLRQ (OFCOM) in the UK. Blogs: Web logs, personal diaries, comments, or other material posted on the network by individual broadband users for comment or information. Customer Access Network (CAN): The wiring or cable link dedicated to communication customers from the local exchange to the customer premises. Digital Subscriber Line (DSL): The CAN PRGL¿HG WR FDUU\ GLJLWDO DV RSSRVHG WR DQDORJ signals. European Telecommunications Standards Institute (ETSI): The regulatory body established to ensure common international communications standards to enable country-to-country communication. Fiber To The Home (FTTH): The use of optiFDO¿EHUDVDUHSODFHPHQWIRUWKHVWDQGDUGFRSSHU CAN wiring. Fiber To The Node (FTTN): The use of existLQJRSWLFDO¿EHUWROLQNWKHLQGLYLGXDOVZLWFKLQJ nodes within the communications network. International Telecommunications Union (ITU): A union of the majority of the international communications providers dedicated to the development of communications and inter-exchange of technology and standard setting. Internet Platform: A server used by an Internet provider to support Internet access by their customers. Internet Service Provider (ISP): Usually a commercial organization selling access to the Internet.
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Organization for Economic Cooperation and Development (OECD): The European body established to support free trade and cooperation across all the member countries. Telecommunications Journal of Australia (TJA): The quarterly journal supported and published by the communications industry in Australia. Telecommunications Society of Australia (TSA): The society established and supported by
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all of the competing and developing communications operations in Australia. Television over DSL (TVoDSL): Television broadcasting or data cast television delivered over broadband DSL lines. Video on Demand (VoD): Customer-selected FRPPHUFLDOYLGHRDQG¿OPGHOLYHU\ Voice over Internet Protocol (VoIP): The transmission of voice communication across the Internet using data packaging technology.
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Chapter X
Competition, Regulation, and Broadband Diffusion: The Case of New Zealand Bronwyn Howell Victoria University of Wellington, and New Zealand Institute for the Study of Competition and Regulation, New Zealand
ABSTRACT New Zealand offers a through-provoking case study of the effects of different competition and regulatory policies on broadband diffusion rates. Despite having one of the highest rates of Internet connection and usage in the OECD, widely available broadband infrastructure, and low broadband prices, broadband uptake per capita languishes in the bottom third of the OECD. While low uptake has typically been attributed to competition and regulatory factors associated with New Zealand’s ‘light-handed’ regulatory regime, this chapter proposes that a more credible explanation lies in a combination of New Zealand’s legacy of demand-side regulations, in particular the retail tariff options for voice telephony, and the limited value being derived by New Zealand residential consumers from the small range and narrow adoption of applications used currently that necessitate broadband connections. The New Zealand case illustrates the effect that legacy regulations can have on both the diffusion of new technologies per se and the choices made by consumers between different generational variants within that technology. The case indicates a need for more research on the effect of telecommunications industry regulations on demand-side uptake factors.
INTRODUCTION Despite being one of the leading countries in the adoption1 and use of Internet access, and having (1) a sophisticated e-commerce infrastructure and internationally very high numbers of e-commerce transactions per capita; (2) a population regarded as avid early adopters and users of applications such as electronic funds transfer and electronic
commerce (Boles de Boer, Evans, & Howell, 2000); (3) widespread and early deployment of a variety of high-speed broadband technologies; and (4) internationally low prices for broadband products, 1HZ=HDODQG¶VEURDGEDQGXSWDNHSHUFDSLWDKDV been consistently in the lower third of the OECD2 (see Table 1). The simplistic explanation typically offered for low broadband uptake has been New =HDODQG¶V WHOHFRPPXQLFDWLRQV FRPSHWLWLRQ DQG
Copyright © 2008, IGI Global, distributing in print or electronic forms without written permission of IGI Global is prohibited.
Competition, Regulation, and Broadband Diffusion
Table 1. Relative OECD Internet connectivity and uptake rankings, 2003 (Howell, 2003, p. 39)
regulatory framework (Ministry of Economic Development, 2006). ,QDQLQGXVWU\ZKHUHVHFWRUVSHFL¿FUHJXODWLRQ and local loop unbundling (LLU) in particular, have been strongly advocated and widely adopted internationally3ZLWKWKHVSHFL¿FREMHFWLYHRIDFFHOerating broadband uptake rates,4 New Zealand has stood apart from most of its OECD counterparts. Principal differences are its historic reliance upon competition law and minimal regulation to shape SDUWLFLSDQWV¶DFWLRQV5 and its reluctance to impose competitive access obligations on its solitary priYDWHO\RZQHGQDWLRQDO¿[HGOLQHQHWZRUNRSHUDWRU (Boles de Boer & Evans, 1996). In the absence of GHWDLOHGPDUNHWDQDO\VHVµFRPSHWLWLRQSUREOHPV¶ attributed to the different regulatory approaches have become convenient scapegoats upon which to lay the blame (e.g., Network Strategies, 2006) for WKH1HZ=HDODQGEURDGEDQGXSWDNHµSUREOHP¶6 7KHFUHGLELOLW\RIWKHµFRPSHWLWLRQSUREOHPUHJXODWRU\GLIIHUHQFHV¶H[SODQDWLRQIRUORZEURDGEDQG uptake begins to fail, however, when juxtaposed DJDLQVW1HZ=HDODQG¶VOECD leadership in virtually every other indicator associated with uptake and utilization of the Internet. The same competitive and regulatory framework applying during
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the rollout of broadband infrastructures appears not to have impeded investment in, or uptake and utilization of, all other non-broadband Internetrelated infrastructures and applications.7 Neither does it appear to have impeded investment in or internationally competitive pricing of broadband services.8 The primary characteristics that competitive markets are presumed to deliver, and which are the primary objectives of regulatory intervention when the competitive process is impededlow prices, timely introduction of new services and higher product qualities, and universal availability and prices9 have already been achieved. The adGLWLRQDOEHQH¿WVWKDWDUHW\SLFDOO\H[SHFWHGIURP increased competitive intensitygreater provider variety and consequent marginal improvements in service qualityGRQRWDSSHDUWREHVXI¿FLHQWWR account for the substantial differences in broadband diffusion per capita between New Zealand and countries with smaller Internet-using populations, higher absolute prices for broadband access, and less widely available infrastructures.10 The New Zealand case study begs the question RIZKDWUROHVSHFL¿FUHJXODWRU\LQWHUYHQWLRQVSOD\ in determining broadband diffusion rates. Firstly, how has New Zealand been able to achieve sup-
Competition, Regulation, and Broadband Diffusion
ply-side conditions in the provision of broadband access that have yet to be achieved by the majority of countries employing extensive regulatory LQWHUYHQWLRQLQ¿[HGOLQHDFFHVVPDUNHWV WKDWLV various forms of local loop unbundling), despite its reliance upon a privately owned network provider with substantial market power, and only competition law and a handful of very light-handed regulations (and in particular, an absence of LLU) with ZKLFKWRVKDSHSDUWLFLSDQWV¶LQWHUDFWLRQV" Secondly, if increases in the rate of broadband diffusion are the primary objectives of regulatory intervention, then does the New Zealand case data, by its apparent absence of supply-side impediments to the timeliness, availability, and price of broadband services, yet extremely low levels of broadband uptake, support the contention that in the diffusion of this technology, supply-side regulatory intervention, even if it is successful in inducing wider availability, lower prices, and higher qualities of broadband products supplied, has minimal effect on the diffusion rate? Rather, is there some other factor on the demand side of the market that is acting as a brake on broadband GLIIXVLRQ",IWKHDQVZHUWRWKLVTXHVWLRQLVµ\HV¶ then is substantial policy reliance upon supply-side regulatory measures such as LLU and local and national government subsidies to infrastructure providers in order to accelerate national broadband diffusion rates misplaced? Thirdly, but also quite importantly, what does WKHIDFWWKDW1HZ=HDODQG¶VORZDQGVORZGLIIXsion pattern is occurring in a population of highly sophisticated, widely experienced Internet users with an internationally very high rate of Internet diffusion say about not just the diffusion of broadband per se, but about the rate of substitution by sophisticated, experienced users of legacy Internet access technologies (i.e., dial-up) with frontier technologies (i.e., broadband)? This chapter addresses these questions. Firstly, the nature of market interactions in determining technology diffusion rates is discussed. The naWXUHDQGHI¿FDF\RIWKHUHJXODWRU\LQWHUYHQWLRQV
that have been utilized in telecommunications markets are examined in light of their focus of interventionthe supply side of the market or the demand sideand their effects on the diffusion of both Internet and broadband access. The New Zealand case data indicate that, as there is no eviGHQFHRIDVLJQL¿FDQWVXSSO\VLGHLPSHGLPHQWWR broadband diffusion relative to the rate observed in other countries, the low diffusion levels may be attributable to factors on the demand side of the market. As demographic factors do not appear to account for the differences, are factors associated with the high rates of Internet use via dial-up access implicated? This leads to a development of a demand-side model that, holding all supply-side and demand-side factors other than the method of Internet access constant, assesses when, or even if, a particular Internet access technology will be adopted. 7KHPRGHOLVWKHQDGDSWHGWRUHÀHFWWKHWDULII characteristics prevailing in the New Zealand Internet access marketVSHFL¿FDOO\ÀDWUDWHXQmetered pricing of dial-up Internet use. The effect of this tariff instrument, the result of regulatory requirements predating the commercialization of the Internet, has been implicated in the rapid diffusion of dial-up Internet access in New Zealand. The model illustrates that the tariff instrument may also be implicated in a slow rate of substitution to broadband by existing dial-up Internet users if the range of applications used is small or the value derived from them is small relative to the increase in cost of broadband access. Furthermore, the tariff instrument and other regulations are shown to also KDYHKDGDVLJQL¿FDQWLQÀXHQFHXSRQWKHLQFXPEHQW WHOHFRPPXQLFDWLRQVSURYLGHU¶VVWUDWHJLFDSSURDFK to the supply of ADSL services. Thus, New Zealand regulatory intervention is implicated positively in the diffusion of Internet access via its effect on dial-up access, but negatively in the diffusion of broadband Internet access, GHVSLWHKDYLQJSRVLWLYHO\LQÀXHQFHGWKHFUHDWLRQ of a desirable set of supply-side conditions in the market.
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COMPETITION, REGULATION, AND DIFFUSION At the crux of the questions addressed by this chapter is the extent to which supply-side or demand-side factors are the principal drivers of, or impediments to, the New Zealand broadband diffusion rate. In a perfectly competitive market, neither side will dominate. The diffusion rate observed will be the consequence of the systemic interaction of suppliers and consumers. Changes in consumer demand will be matched by changes in producer supply. New providers enter the market to satisfy increasing demand, and producers continually inQRYDWHWR¿QGQHZFKHDSHUDQGPRUHQRYHOZD\VRI varying the technology in order to capture a greater share of the returns from the demand increase. While supply-side factors make the purchase of a technology possible (i.e., no uptake is possible if the technology is not supplied), uptake (diffusion) rates measure the demand-side response to its availability. Consumers will buy a technology at DJLYHQSULFHRQO\LIWKHEHQH¿WVGHULYHGIURPWKH technology exceed the costs of its purchase. No matter how widely available the technology LVLIWKHEHQH¿WVGHULYHGE\WKHPDMRULW\RIFRQsumers do not exceed the costs, then widespread purchase will not occur, and the diffusion rate will be low. Low diffusion rates when the technology LVSULFHGYHU\ORZLQGLFDWHWKDWWKHEHQH¿WVDUHVR small that they do not exceed the very low price at which the technology is offered (i.e., its cost of production). Conversely, high diffusion rates, especially when the technology is high priced, LQGLFDWHWKDWWKHFRQVXPHUEHQH¿WVDUHFRQVLGHUDEOHDVFRQVXPHUVDUHSUHSDUHGWRVDFUL¿FHDODUJHU amount of their limited resources to acquire it. However, markets may deviate from perfect competition. The most common deviation in telecommunications markets arises in the balance of market power favoring suppliers. If incumbent suppliers face little or ineffective competition (e.g., a supplier is the only provider or there are barriers to other providers entering), they may be able to restrict the supply of the technology, raising prices above the competitive level and thereby
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DUWL¿FLDOO\GHSUHVVLQJWKHXSWDNH GLIIXVLRQ UDWH relative to the counterfactual where new providers can freely enter. The consequence of suppliers choosing to H[HUFLVH PDUNHW SRZHU LV SHQWXS XQVDWLV¿HG demand. Many consumers would gain from the SXUFKDVHDVWKHLUEHQH¿WVH[FHHGWKHFRVWRISURduction, but only a few are able to do so as supply LVFRQVWUDLQHG8QVDWLV¿HGWKXVFRQVXPHUVIRUIHLW SRWHQWLDOLQFUHDVHVLQEHQH¿W)DFWRUVVXFKDVVXQN costs and natural monopoly (where the economy RIVFDOHHIIHFWIURPYHU\KLJK¿[HGFRVWVDQGYHU\ low variable costs relating to the infrastructures required for service provision is so great that it is HFRQRPLFDOO\HI¿FLHQWWRKDYHRQO\RQHSURYLGHU serving the entire market) mean that these issues DUHSDUWLFXODUO\UHOHYDQWLQWKHSURYLVLRQRI¿[HG line telephony services (e.g., ADSL), although the risk is reducing as technological innovation reduces WKHH[WHQWRIWKH¿[HGDQGVXQNFRVWVRIVHUYLFH provision infrastructure (Melody, 2005). The typical response is regulatory intervention aimed at preventing the suppliers with market power from exercising it. If the regulatory interventions are successful, then supplier market SRZHULVQRWH[HUWHGSHQWXSGHPDQGLVVDWLV¿HG by increases in supply, the price in the market falls, and the diffusion rate increases to the competitive OHYHOUDWKHUWKDQWKHGHSUHVVHGOHYHO7KHEHQH¿WV are accrued principally by those additional customers who now buy the product because supply and demand are now in equilibrium.
Supply and Demand in New Zealand The apparent absence of supply-side impediments in the New Zealand market suggests that an explanation for slower rates of broadband diffusion may lie in demand-side factors. Broadband is widely available, low priced, and of high quality. Moreover, there is already a large population of Internet users in New Zealand, with evidence of high usage. Demand-side factors implicated in the diffusion of broadband include wealth (e.g., GDP per capita or household income), population density, the degree of urbanization, and user characteris-
Competition, Regulation, and Broadband Diffusion
tics such as gender, age, and education (Wallsten, 2006; Rappoport, Kridel, & Taylor, 2002; Network Strategies, 2006; among others). Yet none of these DSSHDUVXI¿FLHQWWRDFFRXQWIRU1HZ=HDODQG¶VORZ rate relative to that of other countries with similar demand-side characteristics (e.g., Network Strategies, 2006). Even when multivariate models are used to account for multiple differences between GHPDQGSUR¿OHVRIFRXQWULHV1HZ=HDODQGVWLOO appears to have an inexplicably low diffusion rate. For example, New Zealand data applied to :DOOVWHQ¶V PRGHO VXJJHVW DQ DFWXDO UDWH about 10% lower than the model would predict from income, population density, and urbanization characteristics, as well as observed prices and available supply of broadband technologies. 2QHVLJQL¿FDQWGHPDQGVLGHGLIIHUHQFHWKDWKDV not been examined systematically is the effect that 1HZ=HDODQG¶VKLJKLQLWLDOUDWHRIGLDOXS,QWHUQHW users might have had on broadband diffusion rates. The apparent reluctance of experienced Internet users in New Zealand to buy broadband connections even in the apparent absence of any supplyside impediments suggests that factors associated with the demand side of the pre-existing dial-up Internet market may be at least in part contributing to the low broadband diffusion rate. The focus upon regulatory intervention on the supply side of the broadband market may be distracting from the ability to detect these effects. A risk exists that regulators focused on improving the supply-side factors in the broadband market are ill-equipped to identify demand-side effects. This information asymmetry leads to risks of over-attribution of the effect of regulatory intervention on uptake statistics for a given variant of a technology. Underpinning this presumption is that the new technology has emerged in isolation from existing technologies. In practice, this is rarely the case. The new technology may offer a FRPSOHWHO\QHZVHWRIEHQH¿WVHLWKHULQWKHLURZQ ULJKWRUDVFRPSOHPHQWVWREHQH¿WVIURPH[LVWLQJ technologies, or may enable consumers to substitute EHWZHHQPHWKRGVRIDFTXLULQJWKHVDPHEHQH¿WV The extent to which a complement or substitute technology will be adopted depends therefore not RQWKHDEVROXWHEHQH¿WVRIWKHQHZWHFKQRORJ\EXW
RQWKHUHODWLYHEHQH¿WVFRPSDUHGWRWKHH[LVWLQJ technology. By holding all supply-side and demand-side factors apart from those directly associated with the two different technologies constant, a demand-side model of broadband purchase both in its own right for a new Internet user, and as a substitute for existing dial-up users, can be developed. The model, based upon the utility derived by users from a de¿QHGVHWRI,QWHUQHWDSSOLFDWLRQVDOORZVWKHHIIHFW of different regulatory instrumentsprincipally price-setting and mandatory tariff structuresto be examined. Moreover, it leads to questions about WKHHI¿FDF\RIWKHXVHRIGHPDQGVLGHVWDWLVWLFVWR measure the success or otherwise of supply-side regulatory intervention.
Supply-Side Regulatory Intervention The argument typically offered to justify the regulation of telecommunications markets, and incumbent telecommunications operators in particular, LVWRFRQVWUDLQRSHUDWRUV¶XVHRIPDUNHWSRZHUWR PD[LPL]HWKHLUSUR¿WVE\UHVWULFWLQJWKHVXSSO\RI services to consumers and charging prices above the point where welfare is maximized. Regulatory intervention principally seeks to reduce these supply-side constraints (including the use of price controls), resulting in a focus upon the use of metrics indicating changes in uptake per capita in order to assess the performance of regulatory intervention in constraining supplier market power. Increases in uptake per capita are thus the principal demand-side indicators to regulators of increases in total welfare resulting from reductions in the exertion of supplier market power, inasmuch as it has been previously established that the supply VLGHZDVLQIDFWEHLQJFRQVWUDLQHGE\VXSSOLHUV¶ actions. The inference drawn is that regulatory intervention has been the driver of the ensuing welfare increase represented by increased uptake. This is distinct from the welfare inferences that can be drawn from increases in uptake (i.e., the natural diffusion pattern) of a completely new technology. $QLQFUHDVHLQXSWDNHLQWKLVFDVHVLJQL¿HVWKDWWKH EHQH¿WVRISXUFKDVLQJWKHWHFKQRORJ\H[FHHGWKH costs for an increasing number of customers who
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Competition, Regulation, and Broadband Diffusion
are gradually choosing to purchase. This may occur as the price reduces (e.g., as more suppliers enter the market or as a growing market leads to economies of scale and improved production processes, resulting in lower costs passed on to consumers as lower prices); as new applications utilizing the technology are developed, thereby increasing the size of the potential market; or as more potential FXVWRPHUV EHFRPH LQIRUPHG DERXW WKH EHQH¿WV that the technology offers them, relative to other calls on their budgets.
Risks from Demand-Side Information Asymmetries Melody (2005) notes that the current body of regulatory knowledge has been accumulated principally from regulating suppliers whose exertion of market power is well established, and where it is has been established that there is a pent-up demand for products and services that is not being met VSHFL¿FDOO\EHFDXVHRIVXSSOLHUDFWLRQV+HQFHLQ the conduct of regulatory activities focusing upon constraining these supply-side powers, “attention to demand is not a priority” (p. 28). The consequence is an approach to market development “fostered by the fascination of many old and new operators with the technical capabilities of new technologies” and a prevailing view that “if we build it, they (consumers) will come,” at the expense of understanding the role of the demand-side factors in the diffusion of technologies supplied by the regulated providers. Thus, when new technologies are diffusing in industries that have been regulated because of the presence of historic supply-side market power, a risk exists that uptake increases arising from the natural patterns of a new technology offered by the regulated providers diffusing may be inappropriately attributed to supply-side regulatory LQWHUYHQWLRQVVLPSO\EHFDXVHWKHUHLVLQVXI¿FLHQW understanding of the relevant demand-side factors that are simultaneously contributing to the observed diffusion pattern. Likewise, it may be inappropriately assumed that diffusion rates can be accelerated with supply-side interventions at YHU\HDUO\VWDJHVRIWKHQHZWHFKQRORJ\¶VGLIIX-
144
sion, simply because the same interventions have been instrumental in raising uptake, and therefore welfare, in more mature product markets. Such approaches risk distorting the normal competitive interactions that occur in the early stages of any new technology, where there are substantial uncertainties for both suppliers and consumers about the short- and long-term merits and uses of the technology. The diffusion of Internet access in the historically highly regulated telecommunications industry provides an example where the risks of distortions arising from regulatory intervention DUHVLJQL¿FDQW([LVWLQJUHJXODWRU\PHDVXUHVZLOO affect diffusion patterns, with differences in initial conditions and regulations necessarily contributing to differences in patterns between countries being observed. Melody (2005) further notes that “typically, both regulatory rules and tariff restrictions prevent experimentation and add to the risks of innovation, particularly by intermediaries and endusers on the demand side of market development” (p. 33). In order to determine whether regulatory, supply-, or demand-side factors are responsible for REVHUYHGGLIIHUHQFHVWRDVVHVVWKHOLNHO\HI¿FDF\ of any regulatory intervention and to improve regulatory quality, an understanding of existing demand-side factors and their contribution to diffusion patterns is essential.
A Demand-Side Model of Broadband Uptake In the case of Internet access technologies, demand LVGHULYHGIURPWKHEHQH¿WVWKDWFRQVXPHUVDFFUXH from the applications utilizing Internet access (Crawford, 1997). As with all telecommunications technologies, Internet demand generates a requirement for both access and usage (data transmission) (Laffont & Tirole, 2002). Dial-up and broadband diffusion statistics measured as connections per capita are capturing only the component that relates to Internet access. When making a decision about whether to purchase a connection, and which connection type to purchase, a user must consider the effect of both access and usage charges required to
Competition, Regulation, and Broadband Diffusion
GHULYHEHQH¿WVIURPDGH¿QHGVHWRIDSSOLFDWLRQV While all Internet users must pay an access charge, users of applications generating large amounts of GDWDWUDI¿FZLOOLQFXUJUHDWHUXVDJHFKDUJHVWKDQ users of applications generating lower amounts of data transfer. The user will purchase an Internet FRQQHFWLRQRQO\LIWKHEHQH¿WVIURPWKHDSSOLFDWLRQV used exceed the sum of access and usage charges (Wenders, 1990), plus other incidental costs. The issue of diffusion of broadband is complicated by the fact that it is simply one variant in a series of technologies enabling access to the Internet. If the Internet is considered a general purpose technology (GPT) as per Helpman and Trajtenberg (1996), then dial-up access and broadband access are two generations of Internet access technolRJ\7KHYLQWDJHWHFKQRORJ\ LHWKH¿UVWWREH developed) is dial-up access. The frontier (i.e., the most recent technology developed in respect of the GPT) is broadband. The frontier is substantially more capable than the vintage, but is introduced in a market where the vintage has already been diffusing. Both versions offer capability to access, but the frontier will offer advantages that may offer JUHDWHUEHQH¿WVWRVRPH EXWQRWQHFHVVDULO\DOO of the vintage users. Assuming that the set of applications used is held constant, vintage users will substitute to the IURQWLHUZKHQWKHDGGLWLRQDOEHQH¿WVRIXVLQJWKH frontier technology exceed the additional costs IRU WKH GH¿QHG VHW RI DSSOLFDWLRQV 7KH IURQWLHU technology is said to be dominant when all new users of the GPT purchase it, but only conditionally dominant when some new users choose to purchase the vintage technology, despite the frontier being available (Helpman & Trajtenberg, 1996). 7KH VSHFL¿F EHQH¿WV WKDW EURDGEDQG DFFHVV confers are savings in time (due to faster data transfer) and the ability to use applications that are physically impossible to use on dial-up (Howell & Obren, 2003). Thus, the user will substitute if the EHQH¿WVRIEURDGEDQGDUHJUHDWHUWKDQWKHDGGLWLRQDO costs incurred to support use of the existing application base. Moreover, if broadband offers the RSWLRQ RI DFFHVV WR DGGLWLRQDO EHQH¿WV WKDW ZLOO accrue from the use of additional applications that can only be utilized with broadband access, and
WKHVHSURMHFWHGEHQH¿WVH[FHHGDQ\DGGLWLRQDOFRVWV that their usage incurs, substitution will likewise occur (as per Boyan & Jovanovic, 2000).11
Purchase and Substitution Holding all other supply-side and demand-side factors constant, the broadband purchase and substitution decision can be modeled thus.12 Assume an Internet customer i uses a set of j = {1, 2, 3, ..., n} applications each requiring Xj megabytes of EDQGZLGWKWRJHQHUDWHDEHQH¿W QHWRIDOOFRVWVRWKHU than those associated with information transfer) of 6 nj 1 ij 7KHEHQH¿WFDQEHJHQHUDWHGXVLQJHLWKHUD broadband or a dial-up Internet connection. Fixed costs are FD for dial-up access and FB for broadband (e.g., equipment, telephone line, DSL line, cable subscription, ISP subscription). Assuming that dial-up access is metered per minute connected and broadband per megabyte transferred, variable costs are VD per minute for dial-up access (including both telephone and ISP time-based charges) and VB per megabyte transferred for broadband. 7KHXVHU¶VWLPHWDNHQWRWUDQVIHULQIRUPDWLRQIRU application j is TDj minutes using dial-up and TBj minutes using broadband (TDj > TBj > 0). The user has a value of time Ji per minute. The user can choose to purchase no connection, a dial-up connection, or a broadband connection, depending upon which option renders the highest utility 3 Ki PHDVXUHGDVEHQH¿WVOHVVFRVWV$FRQQHFWLRQ will be purchased only if 3 Ki ! 0, K D, B . If all other user costs are independent of the information WUDQVIHUPHWKRGWKHQWKHXVHU¶VQHWXWLOLW\IURP Internet use will be: 3 Di
n
6 j 1 (Eij ( J i VD )TDj ) FD using dial-up
(1)
and 3 Bi
6 nj 1 (
ij
i TBj VB j ) FB
using broadband.
(2)
Users will continue to add applications to their portfolios, and increase the usage of exist-
145
Competition, Regulation, and Broadband Diffusion
ing applications (incurring additional costs in minutes of time and data transfer consumption), DVORQJDVWKHDGGLWLRQDOEHQH¿WVH[FHHGWKHDGditional costs. Dial-up access will be purchased where 3 Di ! 3 Bi ! 0 and broadband where 3 Bi ! 3 Di ! 0 . Substitution of dial-up with broadband will occur when 3 Bi > 3 Di . If one application j=n cannot physically operate using dial-up, then broadband will be purchased only if 3 Bi exceeds 3 Di 6 nj 11 ( ij ( i VD )TDj ) FD . Broadband will be preferred to dial-up when: ( FD FB ) i 6 nj 1 (TDj TBj ) 6 nj 1 (VD TDj VB j ) ! 0 (3)
Equation (3) shows that broadband substitution for dial-up will be more likely to occur if the ¿[HGFRVWVIRUGLDOXSDUHODUJHUHODWLYHWRWKH¿[HG cost of broadband, the value of time for the user is KLJK DQGRUEURDGEDQGLVVLJQL¿FDQWO\IDVWHUWKDQ dial-upconnection speed is implicitly captured in the user value of time), or the volume of information transfers is large. It is less likely to occur if the per-megabyte charge is large relative to the per-minute charge, the value of user time is low, or the relative speed difference is small. If broadband was truly a dominant technology, the applications predominantly used were feasible only on broadband, or if time is valued highly and the time savings from broadband use are large because data transfer volumes are large, then broadband would quickly come to dominate dial-up access. However, empirical data in both the New Zealand and other contexts does not appear to support this contention. New dial-up connections continue to be sold to new Internet users in the United States (Horrigan, 2006), New Zealand (Howell, 2006a), and Europe (EU, 2006). Different user time valuations, however, may lead to conditional dominance of broadband, at least for some user classes. Different time valuations plausibly account for observations of a greater likelihood of higher income users (presumed to have higher valuations of time) purchasing broadband connections than lower income users (Horrigan, 2006; Rappoport et al., 2002), even though in some surveys they appear
146
to use the connection less frequentlyHorrigan (2006) notes that higher income users spend less time per month on Internet activities than lower income users. Low valuations of time and/or low data volumes are also consistent with experimental (Varian, 2002) and survey (Horrigan, 2006; EU, 2006; Point Topic, 2006) data, suggesting that the majority of consumers are not prepared to pay large premiums for faster connections, given the current application base and usage patterns.13 Together, these data suggest that the applications currently available and routinely used to generate EHQH¿WV DSDUWIURPWKRVHVXSSRUWLQJvoice over Internet protocol telephony, and audio and video streaming and gaming, for which a broadband connection is mandatory) may not, as yet, necessitate the purchase of broadband connections for the majority of Internet users. Rather, they suggest that broadband technology choice is largely determined by relative prices, especially at low usage volumes. Usage data from the United States, Australia, and New Zealand suggests that the average consumption of megabytes transferred via broadband is small, and in some countries may be decreasing across time as more broadband connections are sold, suggesting that the consumption of new broadband users is actually less than that of the early adopters, as occurs typically in telephony markets as the technology becomes more widely diffused (Howell, 2006a). This would support the contention of a limited number of applications being used and a relatively static number of transfers14 occurring.
Flat-Rate Tariffs and the Demand-Side Substitution Model 7HFKQRORJ\ FKRLFH PD\ DOVR EH VWURQJO\ LQÀXenced by tariff structures. If historic regulatory intervention in the telecommunications market KDVUHVXOWHGLQSULFLQJSDWWHUQVWKDWLQÀXHQFHWKH relative connection and utilization charges faced by customers, then in the absence of any other obvious supply-side distortions in the market, it cannot be discounted that these interventions are affecting the rate of diffusion of the broadband frontier access technology. Of particular interest
Competition, Regulation, and Broadband Diffusion
in respect to Internet access is the use of two-part DQGÀDWUDWHWDULIIV )ODWUDWHSULFLQJWDULIIVLQÀXHQFHXVHUV¶FRQsumption levels by equalizing the prices paid by both light and heavy users. Whereas in order to minimize total costs, a heavy user will typically IDYRU D KLJK ¿[HG ORZ XVDJH WDULII DQG D ORZ XVHUDORZ¿[HGKLJKXVDJHWDULIIXQGHUÀDWUDWH tariffs both pay the same fee, irrespective of the level of usage (Carlton & Perloff, 2000). Once a FRQQHFWLRQLVSXUFKDVHGWKHXVHUIDFHVQR¿QDQcial consequences of varying usage levels. Light users consuming less than the average quantity subsidize heavy users consuming more than the average. Flat-rate tariffs enable heavy consumers, in particular, to use more of the product than they would had they faced a charge equal to the marginal cost of their usage. Welfare is reduced relative to marginal cost pricing, as the additional costs incurred must be recovered either from all XVHUVLQWKHIRUPRIDKLJKHU¿[HGIHH15 or from another source (e.g., cross-subsidy from other parts of the business, such as voice telephony line rentals, content distribution, or advertising). Flat-rate pricing regimes for Internet access are prevalent across the OECD. Combined with an unmetered telephony component, they have been widely advocated as means of encouraging increases in both Internet access and use (OECD, 2000). On the one hand, it is claimed they offer EXGJHWµLQVXUDQFH¶E\HOLPLQDWLQJWKHULVNRIXVHUV receiving unexpectedly large bills when unaware of the quantity of data transfer their use is generating, especially when using new Internet technologies where megabytes transferred per application may be opaque (Anania & Solomon, 1997; Brownlie, 1997).16 2QWKHRWKHUKDQGDVWKH\IDFLOLWDWHµFRVWOHVV¶ WR WKH FRQVXPHU LQFUHDVHV LQ XVDJH ÀDWUDWH tariffs are attributed with engendering the higher levels of both dial-up Internet uptake and usage REVHUYHG¿UVWLQFRXQWULHVZKHUHXQPHWHUHGORcal telephony calling was the norm (Australia, Canada, New Zealand, and the United States) (OECD, 2000; Howell, 2003). Miravete (2003) suggests that, in respect of voice telephony plans at least, while consumers facing two-part tariffs
PD\ODFNVXI¿FLHQWLQIRUPDWLRQWRVHOHFWWKHRSWLPDO plan initially, learning is rapid and they substitute quickly to a more cost-effective plan if the initial choice is non-optimal. (TXDWLRQV FDQEHPRGL¿HGWRDFFRXQW IRUWZRW\SHVRIÀDWUDWHWDULIIV:KHQORFDOWHOHphony calls are unmetered (i.e., VD = 0), equation (1) becomes: 3 Di
6 nj 1 (
ij
i TDj ) FD .
(4)
When broadband usage is unmetered (i.e., VB = 0), equation (2) becomes: 3 Bi
6 nj 1 (
ij
iTBj ) FB
(5)
With no additional infrastructure usage charge incurred with increasing transaction volumes XQGHUÀDWUDWHWDULIIVXSWDNHRIQHZDSSOLFDWLRQV and additional use of existing applications incur only the cost of user time. If new applications and WUDQVDFWLRQVDFFUXHDQHWEHQH¿WRYHUWKHDGGLWLRQDO user time costs incurred, they will be adopted and used increasingly, irrespective of the infrastructure access method chosen. The substitution choice EHFRPHV D VLPSOH WUDGHRII EHWZHHQ ¿[HG FRVWV the value of user time, the number of applications used, and the relative speed of the connections: ( FD FB ) i 6 nj 1 (TDj TBj ) ! 0
(6)
8QGHUÀDWUDWHSULFLQJRIERWKDFFHVVPHWKRGV EURDGEDQGZLOOEHSUHIHUUHGLIWKH¿[HGFRVWVRI dial-up are large relative to those of broadband, if EURDGEDQGLVVLJQL¿FDQWO\IDVWHUWKDQGLDOXSDQG the value of time for the user is high, and if the number of information exchanges is large. Once WKH ¿[HG SULFHV DQG LQIUDVWUXFWXUH VSHHGV KDYH been set by infrastructure providers, assuming users initially purchase the optimal technology for their volumes of usage, growth in the number of broadband connections is dependent solely upon LQFUHDVHV LQ XVHUV¶ YDOXDWLRQ RI WLPH DQGRU WKH volume of information transfers. +RZHYHU WUXO\ ÀDWUDWH GLDOXS WHOHSKRQ\ charges as per equation (6) are uncommon.17 Even where unmetered calling has prevailed, connec-
147
Competition, Regulation, and Broadband Diffusion
WLRQVWRWKH,QWHUQHWPD\LQFXUD¿[HGFKDUJHSHU call (e.g., in Australia). New Zealand has been one of the few countries where the regulatorymandated local residential telephony calling tariff has resulted in users incurring no charge for either dial-up Internet connection or utilization, although such tariffs are commonly offered voluntarily by providers in the United States (Miravete, 2003). From equations (1), (4), and (5), it now becomes clear why the substitution of broadband for dial-up connections has occurred at a substantially slower rate in New Zealand and the United States than in countries with metered dial-up telephony. When dial-up access is metered, but broadband is unmetered, broadband is preferred when: i
them), substitution from the vintage to the frontier will occur more rapidly when there is a metered usage price for the vintage technology. Conversely, where there is no usage charge for the vintage, current and future expectations of application usage contribute to the technology purchase decision RQO\LQDVPXFKDVWKH\DUHLQÀXHQFHGE\WKHXVHU¶V YDOXDWLRQRIWLPH%HQH¿WVGHULYHGIURPLQFUHDVHV in usage must be greater in this case to justify the decision to substitute, simply because there is no infrastructure usage cost incurred as a result of increasing transaction activity. Thus, both initial purchases of and substitution to the frontier will be less likely to occur than if a vintage infrastructure usage charge is present.
6 nj 1 (TDj TBj ) VD 6 nj 1TDj ! ( FB FD ) . (7)
IMPLICATIONS 7KHVPDOOHUWKHGLIIHUHQFHEHWZHHQWKH¿[HG FRPSRQHQWVRIHDFKWHFKQRORJ\¶VDFFHVVSULFHDQG the higher the usage price per metered dial-up minute, the greater the likelihood that broadband will be purchased for a given application base and transaction volume. Unlike in equation (6), an increase in the volume of usage contributes directly to the technology trade-off decision via an infrastructure usage charge for the vintage technology (dial-up) which is not incurred for the frontier (broadband). Thus, all other factors being held constant, where transaction volumes are increasing (that is, where new applications and uses are continuing to be developed and users are continuing to adopt
The demand-side model illustrates the weakness of relying upon uptake statistics alone in isolation from utilization statistics when assessing the effects of regulatory intervention on markets. 5HJXODWLRQV LQÀXHQFLQJ XSWDNH DQG XVH RI WKH vintage technology (in this case, dial-up) must be considered when interpreting uptake statistics for the frontier technology. While slow uptake of the frontier might indicate market power abuse, it PLJKWHTXDOO\EHUHÀHFWLQJDUHJXODWRU\GLVWRUWLRQ favoring continued use of the vintage technology. Conversely, rapid uptake of the frontier might just DVHDVLO\UHÀHFWGHPDQGVLGHUHVSRQVHVWRSULFLQJ
Table 2. Comparison: Broadband and dial-up costs, 2003 (Howell, 2003, p. 42)
148
Competition, Regulation, and Broadband Diffusion
structures of the vintage technology as the consequence of regulatory interventions in the frontier WHFKQRORJ\¶VVXSSO\VLGHSULFLQJ
Application to New Zealand $VVXSSO\VLGHFRQVWUDLQWVDSSHDULQVXI¿FLHQWWR H[SODLQ1HZ=HDODQG¶VORZEURDGEDQGXSWDNHWKH demand-side model offers a credible alternative hypothesis. While multivariate regressions on countries suggest that low GDP per capita, low population density, and uneven urbanization patterns may contribute (Wallsten, 2006), the New Zealand case study implicates regulation of vintage technologies. Together, the demand-side model and the New =HDODQGGDWDVXJJHVWWKDWWKHEHQH¿WVRIEURDGEDQG DFFHVVIRUWKHYDVWPDMRULW\RI1HZ=HDODQG¶VH[perienced Internet users do not, at present, justify the additional costs of substituting away from very low-priced dial-up access to very low-priced broadband access (see Table 2, which shows the relative price of New Zealand broadband access to dial-up access, compared to a sample of other countries). This may be because New Zealanders place very low valuations on their time, or do not, on the whole, place a high value on the range of applications currently available to them that necessitate broadband connections (that is, audio and video streaming and gaming) relative to other calls on the residential budget (e.g., substitute applications).18 This is consistent with data from other countries such as Australia and the United States, suggesting that where bandwidth used per consumer has been measured, the average bandwidth consumed per customer is low,19 with a small proportion of consumers utilizing a disproportionate share of available bandwidth. $V1HZ=HDODQG¶V*'3SHUFDSLWDLVUHODWLYHO\ ORZ WZHQW\¿UVW LQ WKH 2(&' WKH LQGLYLGXDO valuation of time may play a role. However, Howell ¿QGV WKDW EXVLQHVV XSWDNH RI EURDGEDQG connections relative to other OECD countries is high, and consistent with all of the other Internet access and usage statistic rankings in the upper quartile. This suggests that valuations of business time, at least, are not delaying broadband uptake
noticeably compared to other countries. As the number of households exceeds the number of businesses by a factor of around 8.6:1, national uptake statistics are dominated by residential user patterns. The evidence suggests that residential uptake is primarily responsible for the differences IURPRWKHUFRXQWULHV$VÀDWUDWHWHOHSKRQ\WDULIIV have applied to residential telephony users, but not EXVLQHVVXVHUVWKHGHPDQGVLGHPRGHORIÀDWUDWH pricing of both infrastructures (equation (6)) appears to offer the most plausible explanation for the low levels of broadband uptake despite high levels of Internet uptake. The differences between equation (6) and equation (7) appear to account for the lower levels of broadband uptake in New Zealand, as well as in Australia and the United States,20 relative to other countries where metered telephony usage has prevailed.
Strategic Interaction It is apposite to consider at this point the extent WRZKLFKWKHÀDWUDWHUHVLGHQWLDOWHOHSKRQ\WDULII might have contributed towards the development of the supply-side characteristics exhibited in New =HDODQG¶VEURDGEDQGPDUNHW When the incumbent telecommunications provider was corporatized in the late 1980s and privatized in 1990, all legislative barriers to entry in the New Zealand telecommunications market were removed. While the incumbent faced no requirements to allow access by other operators to its infrastructures, it had no protections from competitive entry. Under competition law, it faced the risk of legal action by competitors from exerting its market power. As a former state-owned enterprise in a light-handed regulatory environment, it also faced a very real political risk that LQGXVWU\VSHFL¿FUHJXODWLRQFRXOGEHUHLQWURGXFHG at any time. Thus, competitors and customers had access to two powerful mechanisms in addition to normal competitive and regulatory forces via which to constrain Telecom from acting in the manner typically associated with unregulated monopolies (Evans & Quigley, 2000). The threat of such actions has undoubtedly shaped the strategic choices made by the company.
149
Competition, Regulation, and Broadband Diffusion
In the absence of LLU, new technology providHUVKDGQRRSWLRQRIXVLQJ7HOHFRP¶VLQIUDVWUXFWXUH to offer broadband services. Stand-alone infraVWUXFWXUHVZHUHUHTXLUHG,QWKHDEVHQFHRIVSHFL¿F entry barriers, these could be installed whenever FRPPHUFLDOO\LQGLFDWHG1HZ=HDODQG¶V¿UVWEURDGband provider, CityLink (ethernet LAN), entered in 1995, followed by iHug (satellite) and Saturn &RPPXQLFDWLRQV ¿EHURSWLFFDEOH LQ :KHQ Telecom offered ADSL in January 1999, it was the fourth entrant into the broadband market. While each of the competitors (apart from iHug) ZDVFRQ¿QHGWRUHJLRQDORSHUDWLRQFRPSHWLWLRQ IURP DOWHUQDWLYH WHFKQRORJLHV SURYLGHG VLJQL¿cant competitive pressure on Telecom. iHug was initially the price leader (Howell & Obren, 2003). As satellite broadband could potentially be offered nationwide, Telecom was required, right from the start, to offer its ADSL services throughout the country at one (universal) price. To have adopted any other pricing strategy would have risked political action in response to accusations of strategic pricing.21 The risk of political and/or regulatory LQWHUYHQWLRQZDVUHDODQGVLJQL¿FDQWJLYHQ1HZ =HDODQG¶VORQJKLVWRU\RIJHRJUDSKLFDOO\DYHUDJHG telephony charging, consumer expectations, and WKHµXQLYHUVDOVHUYLFH¶REOLJDWLRQVRQ7HOHFRPDV DFRQVHTXHQFHRIWKHµ.LZL6KDUH¶ VHHIRRWQRWH 7). Thus, early investment in, and low universal pricing of, broadband by Telecom are in part explained by competitive entry and threat of legal and regulatory action. However, competitive entry and legal and regulatory threats alone were not the only forces acting on Telecom. These forces have interacted with another key factormandatory unmetered local residential telephony tariffs. Flat-rate residential tariffs have prevailed from the earliest days of state-owned telephony provision in New Zealand, and were included in the Kiwi Share as a point of political pragmatism in order to minimize consumer (and voter) dissent when Telecom was privatized in 1990. While designed to address voice telephony pricing, unmetered local calling SURYLGHG UHDO EHQH¿WV WR UHVLGHQWLDO FRQVXPHUV with the advent of Internet access.
150
As illustrated in equation (4), unmetered tariffs place few restrictions on increases in consumer usage. Howell and Obren (2003) show that between DQGWUDI¿FPLQXWHVRQWKH¿[HGQHWZRUN trebled as a consequence of new dial-up data traf¿F E\ FRQWUDVW GLDOXS ,QWHUQHW WUDI¿F UHVXOWHG LQOHVVWKDQGRXEOHWKHWUDI¿FSDVVLQJRYHU%ULWLVK 7HOHFRP¶VYRLFHQHWZRUNVRYHUWKHVDPHSHULRG :KLOHWKHµ.LZL6KDUH¶UHJXODWRU\DUUDQJHPHQWV allowed for Telecom to increase residential line rentals annually in line with the CPI, partly because of the real risks of political intervention arising from consumer dissatisfaction, line rentals were adjusted only once between 1990 and 2003. Consequently, Telecom was forced to bear practically all of the costs of additional use of the network for residential dial-up Internet access. The costs to Telecom of this were substantial, given that New Zealand dial-up Internet users were on average among the heaviest in the OECD (35 hours per month on average for 850,000 residential users) (Howell & Obren, 2003). On the one hand, the tariff structure was directly instrumental in accelerating the initial adoption of Internet access via the vintage dial-up techQRORJ\7KHVXEVWDQWLDOFRVWWR7HOHFRPRIµIUHH¶ (to the user) residential dial-up usage most likely SURYLGHGWKHVWURQJHVWVWUDWHJLFMXVWL¿FDWLRQIRUWKH ¿UPWRLQYHVWHDUO\UDSLGO\DQGZLGHO\LQEURDGband infrastructure. The sooner high-consuming residential Internet users could be migrated from dial-up use, which could not be charged on a usage basis, to broadband, the use of which would generate additional income (in either or both of access and usage fees), the sooner the substantial losses arising from the huge increases in the volume of dial-up Internet usage could be stemmed. A high-quality ADSL product was introduced (2 Mbps, when the entry-level residential offering in most other OECD countries was 256 kbps) early (January 1999, third in the OECD) in order to create clear quality differences between the two technologies, rollout around the country was rapid (80% of telephony customers were connected to ADSL-capable exchanges by 2002, 94% by 2005), and prices were set low to encourage early substitution. A range of two-part tariffs were offered,
Competition, Regulation, and Broadband Diffusion
providing incentives for light users to substitute broadband without having to subsidize heavy users. Heavy users, however, paid a lower per-megabyte usage charge. All users were required to pay usage FKDUJHV DOEHLWYLDµEXQGOHV¶RIGRZQORDGLQJFDSDFLW\ LQSDUWUHÀHFWLQJWKHIDFWWKDWRYHU RIGDWD consumed came from offshore, via the monopoly Southern Cross cable. All providers, including those with their own infrastructures, were required to charge in this manner, as all are required to utilize the monopoly Southern Cross cable.22 On the other hand, however, the tariff structure that induced early adoption of the vintage is now acting as a brake on the diffusion of the frontier, at least inasmuch as informed customers knowing the value derived from current usage patterns face no incentive to substitute to the frontier unless the levels of usage or their valuation of time indicate that this is the method via which they will increase WKHLUEHQH¿W([WHQGLQJ0LUDYHWH¶V ¿QGLQJV in telephony markets to Internet access markets, when faced with a menu of tariff options, experienced consumers are remarkably adept at choosing the right option for their usage pattern, and very quick to change once they learn that an alternative WDULIIZLOORIIHUJUHDWHUEHQH¿WV That the low New Zealand broadband diffusion rate has been exhibited in a market with no apparent supply-side impediments and one of the ZRUOG¶VPRVWNQRZOHGJHDEOHDQGH[SHULHQFHG,QWHUnet-using populations lends further credence to the contention that it is a combination of demand-side factors (either or both of a shortage of value-adding applications and a low user valuation of time) and legacy regulation of the voice telephony market that has spilled over into the diffusion of patterns of dialup Internet access that more plausibly accounts for WKHGLIIHUHQFHVEHWZHHQ1HZ=HDODQG¶VEURDGEDQG diffusion rate and that of other countries.
Answers and Implications ,QDQVZHUWRWKH¿UVWTXHVWLRQSRVHGLQWKHLQWURduction, regulatory factors are implicated in New =HDODQG¶VORZEURDGEDQGGLIIXVLRQUDWH,URQLFDOO\ however, it is the combination and interaction of a set of factors, including the regulatory legacy
of retail tariff obligations and universal service obligations in the dial-up telephony market, that have led to New Zealand achieving supply-side conditions in the provision of broadband access that have yet to be achieved by the majority of countries HPSOR\LQJH[WHQVLYH¿[HGOLQHUHJXODWRU\LQWHUYHQtions to induce wide availability, low prices, and high uptake of broadband. Importantly, the case study illustrates that competition is a dynamic, interactive process involving suppliers, consumers, regulators, and legislators, and that there are many ways in which desired supply-side outcomes can be DFKLHYHGZLWKRXWQHFHVVDULO\KDYLQJPDQ\¿UPV in a market, or without recourse to LLU. In answer to the second question, while some of the circumstances in the case study may be unique WR1HZ=HDODQGDNH\¿QGLQJLVWKHVLJQL¿FDQW effect that regulations relating to a legacy vintage technology can have on the supply conditions of a frontier technology. It is impossible to assess the HI¿FDF\ RI DQ\ UHJXODWRU\ LQWHUYHQWLRQ ZLWKRXW taking into account both supply and demand factors as they relate to both technologies. Moreover, it is negligent to ignore the effect of regulations on the demand side of the market (as price caps, universal service obligations, and retail tariff requirements are) upon the measures of regulatory performance, simply because they were not FRQVLGHUHG VLJQL¿FDQW LQ WKH SDVW 7KH ULVN WKLV invokes is that new regulations may be imposed on the suppliers of the frontier technology that DUHERWKXQMXVWL¿HGDQGPRVWOLNHO\LPSRWHQWLQ addressing the factors associated with the vintage technology that are the real causes underlying the observed outcomes. In answer to the third question, the demand-side model and the New Zealand case study illustrate that, in the absence of supply-side constraints, it is not at all clear that experienced Internet users will adopt broadband simply because it exists. There is no reason to presume that the decision to purchase broadband is any different from that governing any other product or service with derived demand (e.g., physical transport). Consumer purchase is determined by increases in utility, relative to other RSWLRQV,IWKHEHQH¿WVRIWKHIURQWLHUDUHQRWODUJH then relative prices are pivotal.
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The New Zealand data suggest that, given the current range of applications and usage patterns, the additional utility of broadband is possibly much lower relative to dial-up than may have been presumed by regulators. It may be that the historical emphasis on technological capabilities and the focus on supplier factors have created an over-reliance on assessments of user requirements by vested supplier interests, at the expense of genuinely consumer-determined assessments. With regulatory effort focused on infrastructure providers in markets where wholesale and access FXVWRPHUVKDYHEHFRPHWKHSULPDU\µXVHUV¶RID UHJXODWHGWHOHFRPPXQLFDWLRQVFRPSDQ\¶VVHUYLFHV the usage of residential consumers, in particular, may be more easily overlooked by regulators. The ULVNLVWKDWLQWKHVSLULWRIµEXLOGLWDQGXVHUVZLOO FRPH¶ VXSSO\ PD\ RXWSDFH GHPDQG HVSHFLDOO\ in the case of new technologies where it may take time for consumers to develop applications using its capacity, with uninformed regulators incorrectly interpreting the lack of consumer uptake DVHYLGHQFHRIVXSSO\VLGHµSUREOHPV¶MXVWLI\LQJ further regulatory intervention. A further danger emanating from the lack of demand-side understanding is that uninformed DQG XQMXVWL¿HG UHJXODWRU\ LQWHUYHQWLRQ PD\ GHWHUPLQHWKHWHFKQRORJ\WKDWµZLQV¶WKHPDMRULW\RI the market, thereby leading to increased pressure on legislators and regulators from incumbent and new entrant suppliers. As the New Zealand case VWXG\ LOOXVWUDWHV ÀDWUDWH WHOHSKRQ\ SULFLQJ KDV UHVXOWHGLQGLDOXS,QWHUQHWDFFHVVµZLQQLQJ¶WKH market share battle, at least given current range and usage of applications. Without doubt, the rate of substitution from dialup to broadband will be accelerated if this tariff option is replaced with metered dial-up tariffs. But is such a regulatory change warranted? As with all other regulatory interventions, the ¿QDODUELWHUPXVWEHWRWDOZHOIDUH,ILWLVFKHDSHU IRUDQHWZRUNSURYLGHUWRFDUU\WKHVDPHWUDI¿FRQ broadband than dial-up networks, then welfare is higher if substitution occurs. Without tariff restrictions, in these circumstances network providers would voluntarily change the tariff structure in order to accelerate substitution. Mandatory tariff
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regulations preventing suppliers from making WKHVHDGMXVWPHQWVPD\DOORZLQHI¿FLHQWRYHUFRQsumption on the vintage technology to continue for longer than would have been the case absent the regulations. It is possible that this is the welfare outcome in New Zealand, if broadband data transfer really is cheaper per megabyte transferred than dial-up. The further lesson from this chapter is that PDQGDWRU\ÀDWUDWHWDULIIVIRUFXUUHQWEURDGEDQG technologies may in the future impede the rate of substitution to the next generation of Internet technologies when broadband is supplanted by another frontier and it too becomes a vintage technology. 6LPLODU¿QGLQJVZLOODSSO\WRRWKHUPDUNHWVWRR)RU H[DPSOHÀDWUDWHFDOOLQJWDULIIV RFFXUULQJZLWKLQ XVDJHµEXQGOHV¶ PD\LPSHGHWKHVXEVWLWXWLRQ* mobile handsets for 2G handsets among the user groups who place a low value on the additional functionality of 3G applications.
CONCLUSION The New Zealand case study illustrates that regulatory interventions have interacted with other IDFWRUVWRKDYHVLJQL¿FDQWHIIHFWVRQWKHVXSSO\ side market conditions and broadband diffusion rate. The New Zealand data call into question the extent to which supply-side factors and regulatory intervention in other countries can explain differences in broadband uptake rates. Demand-side factors, and in particular, regulations affecting GHPDQGVLGH EHKDYLRU VXFK DV ÀDWUDWH WDULIIV price caps, and universal service obligations, may also be instrumental. Further analysis such as that undertaken in this chapter will likely reveal other demand-side factors affecting broadband diffusion. More research enabling regulators to understand the demand side of telecommunications markets, which has long been opaque, is indicated.
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[email protected]/e8ae5488b598839cca25682
Competition, Regulation, and Broadband Diffusion
0001316126445f12663006b83ca256a150079564d !OpenDocument
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Hausman, J., & Sidak, H. (2004, December). Did mandatory unbundling achieve its purpose? EmSLULFDOHYLGHQFHIURP¿YHFRXQWULHV Working Paper 04-40, Department of Economics, Massachusetts Institute of Technology, USA. Hausman, J., Sidak, G., & Singer, H. (2001). Cable modems and DSL: Broadband Internet access for residential consumers. American Economic Review, 91, 302-307. Helpman, E., & Trajtenberg, M. (1996). Diffusion of general purpose technologies. Working Paper 5773, National Bureau of Economic Research. Horrigan, J. (2006). Home broadband adoption 2006. Pew Internet and American Life Project. Retrieved November 6, 2006, from http://www.pewinternet.org/pdfs/PIP_Broadband_trends2006.pdf Howell, B. (2003). Building best practice broadband in New Zealand: Bringing infrastructure supply and demand together. Wellington, NZ: New Zealand Institute for the Study of Competition and Regulation (http://www.iscr.org.nz). Howell, B. (2006a, August 11). Submission: Telecommunications Amendment Bill. Presented to the Finance and Expenditure Select Committee, New Zealand House of Representatives. Available from http://www.iscr.org.nz
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Zealand Institute for the Study of Competition and Regulation (http://www.iscr.org.nz). Howell, B., Mishra, V., & Ryan, L. (2004). The state of e-New Zealand: 2004. Wellington, NZ: New Zealand Institute for the Study of Competition and Regulation (http://www.iscr.org.nz). Howell, B., & Obren, M. (2002). Broadband diffusion: Lags from vintage capital, learning by doing, information barriers and network effects. Wellington, NZ: New Zealand Institute for the Study of Competition and Regulation (http://www. iscr.org.nz). Howell, B., & Obren, M. (2003). Telecommunications usage in New Zealand: 1993-2003. Wellington, NZ: New Zealand Institute for the Study of Competition and Regulation (http://www.iscr. org.nz). ITU (International Telecommunications Union). (2006). World communication/ICT development report: Measuring ICT for social and economic development. Geneva. Jovanovic, B., & Stolyarov, D. (2000). Optimal adoption of complementary technologies. American Economic Review, 90(1), 15-29. Laffont, J.-J., & Tirole, J. (2002). Competition in telecommunications. Cambridge, MA: MIT Press. Melody, W. (2005). Regulation and network investment: a framework for analysis. In A. Mahan & W. Melody (Eds.), Stimulating investment in network development: Roles for regulators (pp. 19-37). Lyngby, Denmark: World Dialogue on Regulation for Network Economies. Ministry of Economic Development. (2006). Telecommunications stocktake cabinet paper. Wellington, NZ: New Zealand Government. Retrieved November 6, 2006, from http://www.beehive.govt. nz/Documents/Files/Cabinet%20paper%20and% 20minute.pdf Miravete, E. (2003). Choosing the wrong calling plan? Ignorance and learning. American Economic Review, 93(1), 297-310.
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Network Strategies. (2006). The broadband divide: Achieving a competitive international ranking. Report prepared for the New Zealand Ministry of Economic Development. Retrieved November 6 2006, from http://www.med.govt.nz/templates/ ContentTopicSummary____20541.aspx OECD. (2000). Local access pricing and e-commerce. Report DSTI/ICCP/TISP(2000)1/FINAL, OECD, France. OECD. (2001). The development of broadband access in OECD countries. Report DTSI/ICCP/ TISP(2001)2/Final, OECD, France. OECD. (2003). Developments in local loop unbundling. Report DSTI/ICCP/TISP(2002)5/FINAL, OECD, France. OECD. (2005). Communications outlook 2005. Paris. Point Topic. (2006). KDSS\ZLWKWKHTXDOLW\ of home Internet services. Retrieved October 30, 2006, from http://www.point-topic.com/content/ dslanalysis/061017consats.htm Rappoport, P., Kridel, D., & Taylor, L. (2002). The demand for broadband: Access, content and the value of time. In R. Crandall & J. Alleman (Eds.), Broadband; should we regulate high-speed internet access? (pp. 57-82). Washington, DC: AEI–Brookings Joint Center for Regulatory Studies. Sacher, S., & Wallsten, S. (2006). What U.S. broadband problem? (Policy Matters 06-18). Washington, DC: AEI–Brookings Joint Center for Regulatory Studies. Shelanski, H. (2002). Competition and regulation in broadband communications. In R. Crandall & J. Alleman (Eds.), Broadband; should we regulate high-speed Internet access? (pp. 157-196). Washington, DC: AEI–Brookings Joint Center for Regulatory Studies. Sutherland, E. (2006). An exit from telecommunications regulation. Available from http://3wan.net/ Varian, H. (2002). The demand for bandwidth: (YLGHQFH IURP WKH ,1'(; SURMHFW ,Q 5 &UDQdall & J. Alleman (Eds.), Broadband; should we
Competition, Regulation, and Broadband Diffusion
regulate high-speed Internet access? (pp. 39-56). Washington, DC: AEI–Brookings Joint Center for Regulatory Studies. Wallsten, S. (2006). Broadband and unbundling regulations in OECD countries. Working Paper 06-16, AEI–Brookings Joint Center for Regulatory Studies, Washington, DC. Wear, S., & Duncan, I. (2005). Telecommunications pricing in New Zealand: A comparison with OECD countries. Wellington, NZ: New Zealand Institute for Economic Research. Retrieved November 6, 2006, from http://www.nzier.org.nz/SITE_Default/ 6,7(B3XEOLFDWLRQV[¿OHV SGf Wenders, J. (1990). Two views of applied welfare analysis: The case of local telephone pricing. Southern Economic Journal, 57(2) 340-348.
Market Power: 7KH DELOLW\ RI D ¿UP WR VHW SULFHV SUR¿WDEO\ DERYH FRPSHWLWLYH OHYHOV PDUginal cost). Monopoly: A single seller in a market. Two-Part Tariff: $¿UPFKDUJHVDFRQVXPHU DIHH WKH¿UVWWDULII IRUWKHULJKWWREX\DVPDQ\ units of the product as the consumer wants at a VSHFL¿HGSULFH WKHVHFRQGWDULII 6HH&DUOWRQDQG Perloff (2000, pp. 297-331). Utility Function: A numerical representation RIDQLQGLYLGXDO¶VSUHIHUHQFHVRYHUGLIIHUHQWSRVsible choices or situations. Variable Cost: A cost that increases in direct proportion to the number of units produced (suppliers) or consumed (consumers).
ENDNOTES KEY TERMS 1
Fixed Cost: A cost that does not vary with the number of units produced (for suppliers) or consumed (for consumers).
2
Flat-Rate Tariff: A variation of a two-part tariff where the second tariff is set at zero. Local Loop Unbundling (LLU): A form of regulatory access requirement whereby an incumbent network provider is required to lease elements of the proprietary network (principally the twisted FRSSHUSDLUFRQQHFWLQJHQGXVHUV¶SUHPLVHVWRWKH local switching infrastructure) to competitors, to enable the competitors to provide a service in competition to the incumbent. Competitors may WKHQDGGWKHLURZQHTXLSPHQWWRWKHLQFXPEHQW¶V equipment, and/or differentiate other aspects of the service provided, such as sales, product, and service bundles. For a full description, see Cave (2006). Information Asymmetries: Differences among individuals in their information, especially when this information is relevant to determinLQJ DQ HI¿FLHQW SODQ RU WR HYDOXDWLQJ LQGLYLGXDO performance.
3
At September 2005, 76.3% of the New Zealand population had access to the Internet (ITU, 2006). 'HWDLOV RI 1HZ =HDODQG¶V UHODWLYH SHUIRUmance in Internet and e-commerce metrics across time are contained in Boles de Boer et al. (2000), Howell and Marriott (2001), and Howell, Mishra, and Ryan (2004). Broadband investment history, diffusion, and utilization is documented in Howell and Obren (2002, 2003) and Howell (2003, 2006a). Comparative international pricing analyses are in Howell (2003), Wear and Duncan (2005), and Network Strategies (2006). Table 1 provides a summary. The OECD has advocated since 2001 that, in the absence of competition between different technological platforms, local loop XQEXQGOLQJ PD\ SOD\ D VLJQL¿FDQW UROH LQ facilitating the development of competition for former monopoly incumbent telecommunications providers (OECD, 2001). As of October 2006, Mexico remained the only OECD nation not to have mandated some form of local loop unbundling.
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4
5
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Local loop unbundling was mandated by the European Union in Regulation 2887/2000/EC in order to boost competition in the provision RIEURDGEDQG 2I¿FLDO-RXUQDO/SS 30.12.2000 as cited by Sutherland, 2006). New Zealand mandated bit stream unbundling in 2004, and legislation for full LLU is pending. Full LLU is proposed to address low levels of broadband uptake (Ministry of Economic Development, 2006). Between 1990 and 2001, the solitary indusWU\VSHFL¿F µUHJXODWLRQV¶ FRYHULQJ WKH 1= telecommunications sector related to the µ.LZL6KDUH¶UHWDLQHGE\WKH1HZ=HDODQG government following the privatization of the formerly state-owned network operator, 7HOHFRP1HZ=HDODQG/WG7KHµ.LZL6KDUH¶ capped residential line rentals at the price charged at the date of privatization (taking into account consumer price index (CPI) changes), a universal service obligation equalizing line rental charges for rural and urban users, and an REOLJDWLRQWRPDNHDYDLODEOHDµÀDWUDWH¶WDULII option to all residential consumers. Following UHLQWURGXFWLRQ RI VHFWRUVSHFL¿F UHJXODWLRQ in 2001, the costs of the universal service obligation became shared among all network operators. A Telecommunications Service Obligation (TSO) payment is levied annually (retrospectively) by the Telecommunications Commissioner. Despite the ability to raise residential line rental charges in accordance with the CPI, Telecom has very rarely altered prices, resulting in decreases in the real price of residential access across the 1990s that have been greater than the OECD average (Howell & Obren, 2003). The popularity of the ÀDWUDWHUHVLGHQWLDOWDULIIZKLFKZDVWKHRQO\ tariff option offered under state ownership, is evidenced by the fact that fewer than 10% of residential consumers chose the two-part µ(FRQRP\¶WDULIIRIIHUHGE\7HOHFRPDWDQ\ time when it was available between 1997 and 2004. This tariff option has now been withdrawn. Wear and Duncan (2005) show that, as a consequence of the popularity of the ÀDWUDWHWDULIIFDOOLQJPLQXWHVSHUUHVLGHQWLDO
6
7
8
account in New Zealand are substantially higher than in comparator OECD countries where local calls are metered per minute. $WWULEXWLRQRIµEURDGEDQGXSWDNHSUREOHPV¶ to differences in competitive and regulatory regimes has also occurred in the United States (e.g., Hausman, Sidak, & Singer, 2001; Ferguson, 2002; Hausman, 2002; Shelanski, 2002; Wallsten, 2006; Sacher & Wallsten, 2006). New Zealand has historically exhibited a very high proportion of Internet users per capitagenerally in the top quartile in the OECD (Howell, 2003)despite ranking in the lower quartile in GDP per capita, a measure strongly correlated with higher levels of diffusion of all other telecommunications technologies (ITU, 2006). In 2006, it was estimated that 79 per 100 population were accessing the Internet (Howell, 2006a). New Zealand has also been at the forefront of the OECD diffusion of infrastructures supporting e-commercefor example, it has never been lower than fourth in the number of secure servers per capita since the OECD began measuring this statistic. Similarly high ¿JXUHV DUH HYLGHQFHG LQ RWKHU HOHPHQWV RI e-commerce utilization, such as the number per capita of routed autonomous systems, URXWHG,3YDGGUHVVHVDQGV\QWKHWLFSUH¿[HV (Howell, 2006a). The very early achievement of very high levels of both Internet connection and utilization in New Zealand compared to other OECD countries were remarkable as early as 2000 (OECD, 2000). 1HZ=HDODQGZDVDPRQJWKH¿UVW2(&'QDtions to complete digitization of the telephone network (1994). New Zealand was third in the OECD (after the United States and Canada) to offer a commercial ADSL product (January, %\\HDUHQGRI¿[HGOLQH customers could access ADSL connections. By year-end 2003, it was available to 85% RI¿[HGOLQHFXVWRPHUVFRPSDUHGWRLQ Norway; 75% in Australia, Canada, and the United States; 81% in Finland; 85% in the United Kingdom and The Netherlands; and
Competition, Regulation, and Broadband Diffusion
9
10
90% in Iceland (OECD, 2003). In 2006, ADSL ZDVDYDLODEOHWR RI¿[HGOLQHWHOHSKRQ\ customers. The initial speed offered in 1999 (2 Mbps) was one of the highest base-level product qualities offered in the OECD. In 1=¶V $'6/ SURGXFWV ZHUH WKH WKLUG lowest-priced (megabyte per second downloaded) in the OECD (Howell, 2003). It has been suggested that data caps are depressing uptake as they constrain potential usage (e.g., Network Strategies, 2006). Data caps arise as a consequence of the high volumes of data transmitted from offshore, which must pass over the monopoly Southern Cross trans3DFL¿F RFHDQLF FDEOH +RZHOO D
11
12
13
14
15
16
having a population of more than 500,000, and it is geographically isolated. New Zealand markets typically lack advantages from economies of scale, exhibit substantially higher concentration levels than comparator countries, and have relatively higher levels of capital intensity than comparator countries (Arnold, Boles de Boer, & Evans, 2003). Network effects that accrue from having more individuals connected to the Internet network (irrespective of connection type) are LQFOXGHGLQWKLVEHQH¿W The form of the model derives from Wenders (1990). EU data in January 2006 indicate that only 19% of surveyed broadband users would be prepared to pay 10% more for faster connections and only 10% of users 20% more. The EU (2006) indicates 40% of EU dial-up users, and Horrigan (2006) indicates 50% of U.S. dial-up users are happy with existing dial-up speeds and have no plans to purchase broadband connections in the foreseeable future. Point Topic (2006) indicates 82% of UK Internet households (both broadband and GLDOXS DUHVDWLV¿HGZLWKGRZQORDGWLPHV It is noted that these observations were made before the widespread use of Skype and other non-proprietary VoIP applications, and before the widespread use of IPTV for broadcast-type as well as video-on-demand video streaming. Fewer light users purchase a connection, and all users pay a higher fee, thereby lowering welfare relative to the counterfactual of the heaviest users consuming beyond the point ZKHUHWKHEHQH¿WVRIWKHLUXVDJHIDOOEHORZ marginal cost. /LNHZLVHÀDWUDWHSODQVREIXVFDWHWKHIDFW that light users are consuming very small quantities of data transfer, thereby reducing the likelihood of light consumers transferring to a more cost-effective two-part tariff plan. 'HVSLWHWKHHDUO\SRSXODULW\RIÀDWUDWHEURDGband packages, introduction of competition in broadband supply is resulting in more twoSDUWWDULIIVEHLQJRIIHUHG µSURGXFWYDULHW\¶
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18
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as predicted by Wenders (1990). As suppliers gain more information about differences in customer usage patterns, they differentiate their offerings in order to maximize their share of surplus (while simultaneously inFUHDVLQJWRWDOVXUSOXVE\UHGXFLQJLQHI¿FLHQW FURVVVXEVLGLHVIURPÀDWUDWHWDULIIV With the exception of Australia, New Zealand, the United States, and Canada, per minute charging has prevailed, although it is noted that some operators are now offering unmetered data calls on voice lines, even though voice calls are still metered (OECD, 2005). 6LJQL¿FDQWO\1HZ=HDODQGFXUUHQWO\KDVQR IPTV services. The sole digital pay television product is provided via satellite. Fiber-based cable television is available only in two localities and has a very small market share. µ7ULSOHSOD\¶ FDEOH EXQGOHV RIIHULQJ YLGHR content simply resell wholesaled content from the satellite provider. The incumbent telecommunications provider offers a pseudo µWULSOHSOD\¶EXQGOHZKHUHE\WHOHYLVLRQFRQtent is provided by the satellite company over
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its infrastructure, but with billing aggregated with voice and data services by the telco (Howell, 2006a). Australian data shows residential broadband usage was 1.3 Gb/month in the September quarter of 2003, compared with 1.5 Gb/month in New Zealand in January 2003 (Howell, 2003) to 2.2 Gb/month in the March quarter of 2005 (ABS, n.d.). Canada has a different set of local telephony characteristics, given the fact that access agreements were associated with geographic µGHDYHUDJLQJ¶RISULFHVPHDQLQJWKHVLPSOH model cannot be applied directly to the Canadian market (OECD, 2003; Howell, 2006a; Cave, 2006). When Saturn offered lower-priced telephony VHUYLFHV RYHU LWV ¿EHU FRQQHFWLRQV DQG Telecom moved to match them in the region covered by Saturn, this is precisely what occurred. Most opted to charge different rates for naWLRQDODQGLQWHUQDWLRQDOWUDI¿FUHÀHFWLQJWKH cost differences.
Division IV
Europe
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Chapter XI
Digital Divide and Broadband Access:
The Case of an Italian Region Enrico Ferro Istituto Superiore Mario Boella, Italy J. Ramon Gil-Garcia &HQWURGH,QYHVWLJDFLȩQ\'RFHQFLD(FRQȩPLFDV0H[LFR Natalie Helbig State University of New York-Albany, USA
ABSTRACT Reducing the digital divide in order to build an information society for all is one of the top priorities for European policymakers. A better understanding of the determinants of broadband access at the individual level represents a key starting point for any e-inclusion policy. Based on a review of the literature on digital divide and broadband access, we document different approaches to understanding the digital divide and argue that these perspectives can also help to understand broadband access. Combining the digital divide and broadband literature provides a systematic and theory-based approach to the selection and inclusion of variables in different models. This chapter presents the results of a survey conducted LQDQ,WDOLDQUHJLRQ:HSURYLGHVRPHLPSOLFDWLRQVRIRXU¿QGLQJVDQGDUJXHWKDWSROLF\PDNHUVVKRXOG explore the relationship between IT skills acquisition, broadband access, and Internet use in order to develop more effective policies and programs.
INTRODUCTION Over the last decade academic scholars, public of¿FLDOVDQGSULYDWHVHFWRUOHDGHUVKDYHDUJXHGWKH positive social and economic impacts of broadband technologies as a key ingredient for the economic and social development of nations. Evidence of
this considerable expectation is demonstrated by the prominent and consistent role the issues of broadband diffusion have played in the last several years in the various strategic development plans devised at the European level (eEurope 2002, 2005, i2010). In his recent best seller, The World Is Flat, Thomas Friedman, New York Times columnist,
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Digital Divide and Broadband Access
argued that in the year 2000 the world entered a third and new era of globalization. According to )ULHGPDQWKH¿UVWWZRSKDVHVZHUHVSHDUKHDGHG by countries signing international trade agreements and organizations turning into multinational corporations, whereas the latest phase is, and will be, built around individuals “globalizing,” a process that requires fast and convenient access to people and knowledge regardless of their location. )ULHGPDQ¶VZRUOGYLHZVWUHVVHVWKHLPSRUWDQFHRI the key role individuals play as dynamic agents in an information-based economy. His perspective adds an interesting frame to the issues surrounding uneven distribution, access, and usage of broadband technology. The public policy problems of the digital divide, or e-inclusion, when viewed from this perspective are shifted from a focus on pure social inequality to an issue of the strategic use of information and communication technologies in the economic and social development of countries competing in a global market. At present, the different globalization patterns individuals may pursue are still vague and surely require further investigation. Nevertheless, the new direction hypothesized by Friedman and others offers an interesting point of departure for exploring new ways of conceptualizing the policy issues surrounding the diffusion of broadband. While little doubt remains about the role broadband plays in sustainable economic development (OECD, 2004; Annis, 2005), it is still unclear how to obtain a widespread and economically accessible diffusion of such networks (Cantamessa et al., 2005). In this respect, the liberalization trend of telecommunication (TLC) markets that occurred in the nineties throughout most of the Western world represented an important turning point that led to a shift in logic. The logic moved away from strategies based on an acceptance of a natural monopoly toward a more market-driven approach (Hulsink, 1999). The privatization of telecommunication markets was one of the ingredients that led to the Internet boom during which infrastructure expansion was mainly driven by an unconditional faith in the future SUR¿WDELOLW\RI,QWHUQHWUHODWHGVHUYLFHV6LQFHWKH burst of the speculative bubble, a strong emphasis
RQWKHHI¿FLHQF\RILQYHVWPHQWDOORFDWLRQSROLFLHV for building network infrastructures has emerged. However, recent studies continue to demonstrate that the expansion of broadband networks was, and to a large extent still is, driven by technological push rather then demand pull dynamics (Ferro, 2006). In this respect, the considerable marketing efforts currently made by the main European TLC operators to raise the adoption rates among residential users somehow supports this thesis. The lack of a demand pull driving the diffusion of broadband infrastructure poses a number of issues. First, it raises the minimum threshold in terms of total inhabitants a municipality has to meet in order to attract investments in infrastructure (Howell, 2002), thus leaving unreached a higher portion of smaller municipalities. Second, LW H[WHQGV FRPSDQLHV¶ SD\EDFN WLPHV IRU VXQN FRVWLQYHVWPHQWVDQG¿QDOO\LWKLQGHUVWKHELUWK of complementary services (Pentland, Fletcher, & Hasson, 2003). In simple terms, it fosters the formation of uneven access and usage opportunities (i.e., in rural and urban areas) and lowers the PDUNHWSUR¿WDELOLW\WKXVKLQGHULQJWKHYLDELOLW\RI broadband technologies as an economic and social development tool. Therefore, it is evident why it is extremely important for both the private and public sectors to understand how to enlarge the broadband customer base. In this respect, there are two PDLQREMHFWLYHVWREHFRQVLGHUHG7KH¿UVWLVDQ increase in the total number of Internet users, and the second is the maturation of usage patterns of current Internet users (i.e., make them broadband dependent). Efforts aimed at understanding the gap between access and usage patterns present among different social groups and geographical areas ZLOO EH EHQH¿FLDO 7KH REMHFWLYH RI WKLV FKDSWHU is to explore how the digital divide literature may help identify some important areas for investigation and could prove useful in understanding the needs of broadband-enabled populations and how to increase broadband use. The rest of the chapter, starting with the next section, highlights the current situation of broadEDQGGLIIXVLRQLQ(XURSHDQGEULHÀ\UHYLHZVWKH broadband literature. We then review the digital
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Digital Divide and Broadband Access
divide literature and present the methodology of the study. We provide an analysis of different models for expanding the discussion about broadband and conclude with some remarks on policy issues.
there is some variance between Northern and Southern countries, Figure 1 shows an overall picture in which demand is struggling to take off. This suggests the necessity for further investigation of broadband demand in order to understand how it may be stimulated. For this reason, we use an Italian region named Piedmont as a case to explore some of the possible paths leading to the creation of broadband demand. Although the region in question may not be considered representative of each individual European country, its current situation is very close to that of Europe as a whole. As of 2005, the xDSL coverage and penetration in Piedmont were respectively 81% and 21% (Regional Observatory on ICT, 2005).
BACKGROUND: BROADBAND AND THE DIGITAL DIVIDE The European Broadband Outlook The emphasis on the importance of broadband infrastructure posed by European policies in the last decade culminated in 2005 with an average coverage rate, in terms of population reached by xDSL services, of 85% (European Commission, 2006). Despite the presence of a portion of individuals still excluded from easy broadband access, the current situation may be regarded as a positive result. In fact, the reduction in infrastructurerelated costs due to the fast mutating scenario in ZLUHOHVVWHFKQRORJLHVVXFKDV:L¿+,3(5/$1 DQG:L0$;DOORZVXVWREHRSWLPLVWLFDERXWWKH near future coverage of underserved areas. )LJXUHUHSRUWVVSHFL¿FDOO\RQWKHEURDGEDQG penetration rates present in the different European countries. The average adoption rate for the European Union (EU25) in 2005 was 23%. Although
Understanding Broadband: A Brief Literature Review The diffusion of broadband connections represents a complex phenomenon. The relationship of broadband development to economic activities is also important (Ferro et al., 2007). However, three main streams of research are represented in the broadband literature and document the growing complexity of the phenomenon. 7KH¿UVWVWUHDPRIUHVHDUFKWDUJHWVWKHUROHRI socioeconomic variables (such as income, educa-
Figure 1. Broadband penetration Share of households having a broadband connection 2005 (Eurostat) 70% 63% 60%
54% 51%
50% 41%
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Digital Divide and Broadband Access
tion, age, and gender, etc.) on adoption and usage of broadband connections. The end goal is to understand and control for the formation of potentially limiting information asymmetries among various population groups that could contribute to the rise in well-documented inequalities in information access and usage (Flamm, 2004; Flamm & Chaudhuri, 2005; Grubesic, 2004; Varian, 2001). Recent progress in this stream of research extends the conceptualization of individuals as just users to active consumers. In particular a few attempts have been made to develop various conceptual PRGHOVDLPHGDWLQYHVWLJDWLQJFRQVXPHUV¶DGRStion, usage, and impact of technology (Venkatesh & Brown, 2001; Oh, Ahn, & Kim, 2003; Dwivedi & Choudrie, 2004; Choudrie & Dwivedi, 2004a, 2004b, 2004c). The second stream of research focuses on the role government and policy play in the diffusion process. In particular, since the liberalization of the telecommunications industry, research investigated the role that local governments have played as catalysts for attracting infrastructure investments by telecommunication couriers. Factors leading local communities to undertake broadband initiatives and the consequences of these initiatives on the local economy are particularly emphasized in this stream of research (Gillett, Lehr, & Osorio, 2003; Lehr, Osorio, Gillett, & Sirbu, 2005). Finally, the third stream of research applies systemic approaches with the intent to identify macro factors contributing to broadband diffusion at the country or regional level. Some of these studies (Ferro, 2006) analyze broadband demand and supply as complementary diffusion processes. Some others tackle the problem from the perspective of multiple stakeholders (Dwivedi, Choudrie, & Gopal, 2003; Choudrie et al., 2003) or try to identify superior applications that could boost the diffusion of broadband-related services (Middleton, 2002; /HH2¶.HHIH <XQ +RZHYHULWLVVWLOO debated whether broadband diffusion and demand DUHVROHO\GXHWRNLOOHUDSSOLFDWLRQVRUGXHWRXVHUV¶ mature use of the Internet. $W¿UVWUHVHDUFKHIIRUWVWDFNOHGLVVXHVUHJDUGing infrastructure diffusion, and subsequently expanded in scope to consider demand aspects
such as adoption, usage, and purchase. Heretofore, most of the demand-related research analyzed socioeconomic differences between adopters and non-adopters and the impact that access to broadband connections had on Internet usage. In doing so, little attention was paid to the paths leading to the acquisition of necessary IT skills to become a broadband-enabled user. This chapter intends to contribute to the existing body of knowledge on broadband demand by using the literature on the digital divide to shed some light on the path leading to broadband adoption, including IT skills.
A Framework to Understand the Digital Divide The last 15 years have yielded three main approaches to understanding the digital divide: an access divide, multi-dimensional digital divide, and a multi-perspective digital divide (see Helbig, Gil-Garcia, & Ferro, 2005, for an extended review; Gil-Garcia, Helbig, & Ferro, 2006). Broadband is one type of access to the Internet, and the broadband literature evolved investigating diffusion rates, demand, and usage issues, as well as calling into question the role of public policy. The purpose of presenting the broadband and digital divide literature together is an attempt to identify some similarities and assess the usefulness of a digital divide framework (Helbig et al., 2005) in understanding broadband access and Internet use. The following sections outline the viewpoints and assumptions taken by different scholars about the digital divide.
Characterizing the Digital Divide The digital divide is a complex social phenomenon. The term generally evokes a broad set of implications. Robinson, DiMaggio, and Hargittai (2003) ZULWH ³7KHGLJLWDOGLYLGHLPSOLHVWKDWVLJQL¿FDQW minorities of the population are effectively denied access to a technology that, like other public facilities like libraries and super highways, is thought to be open to anyone” (p. 2). Therefore, the impact of the digital divide on certain segments of the
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Digital Divide and Broadband Access
population implies differing life chances and opportunities for those who are not technologically savvy (DiMaggio & Hargittai, 2001; Nelson, 2002; Servon, 2002, p. 14). Debates continue as to the magnitude of these consequences. Some scholars argue there is no digital divide, while others argue WKDWWKHFRQVWUXFWµGLJLWDOGLYLGH¶LVQRWSURSHUO\ framed.
Access, Multi-Dimensional, and Multi-Perspective Digital Divides 2QHRIWKH¿UVWZD\VLQZKLFKWKHGLJLWDOGLYLGHZDV characterized was as an access dividebetween those who have access to technology and those who do not. This perspective suggests that the digital divide is a one-dimensional issue. The PDLQLVVXHLVDQµDFFHVVWRWHFKQRORJ\SUREOHP¶ and the debate is framed as an inherent delay in the diffusion of technology among different groups of people (Adriani & Becchetti, 2003; Compaine, 2001). Another assumption is that “once online, there is no gap” (Walsh et al., 2003, p. 281) and that everyone can use the Internet for the same purposes. Therefore, this perspective evaluates access to the Internet as the only important determinant of the digital divide and sees no difference between having access and also being able to use the technologies (DiMaggio & Hargittai, 2001). Proponents emphasize market-driven forces will close the gap over time and government intervention is not needed (Compaine, 2001). A second stream of research focuses on multiple dimensions. This multi-dimensional viewpoint argues that the basic building block of Internet use is access (Servon, 2002; Norris, 2001) but recognizes the importance of other dimensions which impact access and use such as race/ethnicity, income, skills, geography, cultural content, education, and training (Bimber, 2000; Norris, 2001; Servon, 2002). DiMaggio and Hargittai (2001) state: “As the technology penetrates into every crevice of VRFLHW\ WKH SUHVVLQJ TXHVWLRQ ZLOO EH QRW µ:KR FDQ¿QGDQHWZRUNFRQQHFWLRQDWKRPHZRUNRU in a library or community center from which to ORJRQ"¶EXWLQVWHDGµ:KDWDUHSHRSOHGRLQJDQG ZKDWDUHWKH\DEOHWRGRZKHQWKH\JRRQOLQH"¶´
164
as important factors in understanding the digital divide. More recently, Ferro et al. (2005) added another dimension to this picture by highlighting the presence and the interrelation of demand- and supply-related divides. Proponents emphasize government intervention in access- and use-related issues and do not believe market forces will close the gap over time (Chin & Fairlie, 2004; Cole et al., 2004; Mossberger, Tolbert, & Stansbury, 2003). This view has similarities to broadband research that focuses on socioeconomic variables on the adoption and usage of broadband. A third stream of research looks at many perVSHFWLYHVDQGDVNVµ,VWKHGLJLWDOGLYLGHSUREOHP IUDPHGSURSHUO\"¶6FKRODUVDUJXHWKHUHLVDQHHG to understand how marginalized groups interact with technology and how those differing relationships to social, political, and environmental factors (Mossberger, Tolbert, & Gilbert, 2006; Castells, 2001; Kennedy, Wellman, & Klement, 2003; Warf, 2001) impact their access and use of technology. In this view, the experiences with technology by marginalized populations should be the focal point for understanding the problem, and consequently, for providing solutions (Crensahw, 1999; Servon, 2002; Kennedy et al., 2003). Scholars criticize solutions that mirror the needs of privileged group members in society (in any dimensionage, gender, race, income, location, world) (Winner, 1988). Scholars reject that any one group of individuals inherently uses technologies differently than the majority. Hines, Nelson, and Tu (2001) suggest: “Individuals and communities HPSOR\WHFKQRORJLHVIRUYHU\VSHFL¿FJRDOVOLQNHG often to their histories and social locations” and that “barriers to access [and use] operate on many levels and therefore solutions must take multiple approaches” (p. 5). Proponents of this perspective emphasize government intervention targeted to VSHFL¿F LVVXHV DQG SUREOHPV DQG WR UHH[DPLQH the current discourse (Chin & Fairlie, 2004; Cole et al., 2004; Mossberger et al., 2003).
Digital Divide and Broadband Access
RESEARCH DESIGN AND METHOD An important methodological question in the DQDO\VLVRIEURDGEDQGGLIIXVLRQLVWKHGH¿QLWLRQ of the object of study. As technology advances, WKH GH¿QLWLRQ RI EURDGEDQG LV FRQVLGHUHG DV D PRYLQJ WDUJHW 7KXV ¿QGLQJ D ZLGHO\ DFFHSWHG DQGGXUDEOHGH¿QLWLRQPD\UHVXOWLQDQDUGXRXV task. In the literature, three main interpretations DUHIRXQGZLWKUHVSHFWWRWKHGH¿QLWLRQRIEURDGEDQG7KH¿UVWGH¿QHVEURDGEDQGWKURXJKQRPLQDO bandwidth and is expressed in terms of kilobits or megabits per second (FCC, 2002). The second GH¿QHVEURDGEDQGE\SURYLGLQJDGHWDLOHGOLVWRI supported applications (Industry Canada, 2000). )LQDOO\WKHWKLUGDSSURDFKGH¿QHVEURDGEDQGDV “the technological environment that enables the use of digital technologies at their highest level of interactivity” (Italian Broadband Task Force, 2002). 1RQH RI WKH GH¿QLWLRQV OLVWHG DERYH PD\ EH considered, in principle, as optimal. Each carries ERWKDGYDQWDJHVDQGGLVDGYDQWDJHV7KH¿UVWGH¿QLWLRQLVDQXQDPELJXRXVGH¿QLWLRQEXWEHFRPHV REVROHWHYHU\IDVW7KHODVWGH¿QLWLRQLQFRQWUDVW does not require continual update, but leaves room for interpretation and thus renders comparative analyses very inaccurate, if not impossible. For WKHSXUSRVHVRIWKLVVWXG\WKH¿UVWDSSURDFKZDV preferred because it allowed a higher level of methodological homogeneity in the treatment of the data collected from different sources. In this chapter, broadband will be referred to as Internet connections with a downstream nominal speed equal to, or greater than, 2 Mbps. The empirical analysis presented in this chapter is based on a survey of 2,206 Italians who live in the region of Piedmont. The sample used for the purpose of this chapter was created from a database provided by the Italian National Statistical Institute (ISTAT), whose data refer to the last periodical census carried out in 2001. The entire data set was collected via computer-aided telephone interview &$7,V E\ WKH ,&7 2EVHUYDWRU\ RI 3LHGPRQW¶V Regional Government. Thus, people without a ¿[HGOLQHDUHQRWUHSUHVHQWHGLQWKHVDPSOH7KH VWUDWL¿HGVDPSOHZDVFUHDWHGXVLQJDGLIIHUHQWLDWHG
probability approach in order to over-represent segments with a higher variance in terms of technology adoption and usage (i.e., young vs. older SHRSOH 7KHYDULDEOHVDGRSWHGIRUWKHVWUDWL¿FDWLRQ of the sample were age, gender, and size of town of residence. Following the guidelines provided by the European Statistical Institute, people less than 16 years old were excluded from the sample. Respondents were asked questions about computer ownership, Internet access, and Internet use. Relevant individual demographics and household characteristics were also collected. The main analytical tools used for analysis and interpretation of data are multiple linear regression models, hierarchical cluster analysis, and cross-tabulations.
BROADBAND ACCESS AND INTERNET USE This section has two main purposes. First, it constructs models based on two of the three approaches presented in the digital divide literature review section and applies them to the phenomenon of broadband access: (1) access divide model and (2) multi-dimensional divide model (see Gil-Garcia HW DO 7KLV ¿UVW HIIRUW SURYLGHV HYLGHQFH of the importance of some individual- and household-level factors as determinants of broadband access, as well as evidence of the importance of broadband access as a determinant of the extent of Internet use. Second, this section proposes that ,QWHUQHWXVHUVFDQEHFODVVL¿HGLQWRDGYDQFHGLQtermediate, and sporadic or non-users. Using this FODVVL¿FDWLRQZHDUJXHWKDWWKHGLYLGH LQJHQHUDO is widening and policymakers should pay attention to the problem of lack of demand for broadband use, particularly to the issue of IT skills acquisition. Together these two subsections highlight the importance of broadband access and suggest some areas for future exploration.
Determinants of Broadband Access Table 1 shows the results of the access divide and multi-dimensional divide logistic regression mod-
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Digital Divide and Broadband Access
Table 1. Determinants of broadband access: 2 Mbps and above (dummy variable) Independent Variables
Access Divide
Multi-
Model
Dimensional
-21.987
-39.895
(<0.001)
(<0.001)
<0.001***
<0.001
Divide Model Constant
Income
Age
Education
Attitude towards Computers
Nationality (Italian = 1)
Location (Town = 1)
Location (Village = 1)
Gender (Female = 1)
(12.656)
(1.736)
-0.032***
-0.010
(23.769)
(0.939)
0.303**
0.077
(4.717)
(0.243)
0.275***
0.128
(11.584)
(2.135)
18.476
17.949
(<0.001)
(<0.001)
0.042
-0.270
(0.013)
(0.451)
-1.093***
-1.381***
(7.784)
(10.746)
-0.402**
-0.336
(4.142)
(2.593)
Other Language (English)
0.444* (3.266)
PC at Home
18.153
PC Use
1.167***
(<0.001)
(6.989) IT Skills
-0.021 (0.010)
Household Size
0.231** (5.670)
Occupation (Employee = 1)
-0.070 (0.043)
Occupation (Self-Employed = 1)
-0.122 (0.082)
Occupation (Unemployed = 1)
-0.155 (0.069)
Occupation (Other = 1)
0.020 (0.002)
-2 Log Likelihood
740.095
651.262
Cox & Snell R-Square
0.112
0.168
Nagelkerke R-Square
0.231
0.346
Chi-Square
161.144***
249.541***
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DUHVLJQL¿FDQWDWWKHOHYHODQGWKRVHIROORZHGE\
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166
Digital Divide and Broadband Access
els, where broadband access was measured as a dichotomous variable (whether a person reported a connection of 2 Mbps or more). Income is positively associated with broadband access, but it is RQO\VLJQL¿FDQWLQWKHDFFHVVGLYLGHPRGHO$JHLV negatively associated with broadband access in the DFFHVVGLYLGHPRGHODQGQRWVWDWLVWLFDOO\VLJQL¿FDQW in the multi-dimensional divide model. Similarly, education is positively associated with broadband DFFHVVLQWKHDFFHVVGLYLGHPRGHOEXWQRWVLJQL¿FDQW in the multi-dimensional divide model. Attitude towards computers was positively associated with EURDGEDQGDFFHVVEXWLWLVVLJQL¿FDQWRQO\LQWKH access divide model. Location (city vs. village) was WKHRQO\YDULDEOHWKDWZDVDVLJQL¿FDQWGHWHUPLQDQW RIEURDGEDQGDFFHVVLQERWKVSHFL¿FDWLRQVRIWKH PRGHO %HLQJ ORFDWHG LQ D YLOODJH VLJQL¿FDQWO\ decreases the probabilities of having broadband access to the Internet. Some variables related to the multi-dimensional YLHZZHUHDOVRVLJQL¿FDQW)RULQVWDQFHWKHDELOity to speak English was positively associated ZLWKEURDGEDQGDFFHVV3&XVHZDVDVLJQL¿FDQW determinant of broadband access and the sign was positive. Finally, household size is positively associated to broadband access and the relation is VWDWLVWLFDOO\VLJQL¿FDQW7KH&R[DQG6QHOO5VTXDUH improved from 0.112 to 0.168, and the Nagelkerke R-square went from 0.231 to 0.346 suggesting that the additional variables in the multi-dimensional model have an impact on the percentage of variance explained. However, given the low numbers in both R-squares, it seems that other important variables are missing. Ferro et al. (2005) suggest that individual-level variables have limited explanatory power in relation to broadband, and more household-level variables should be included in future studies.
Broadband and Internet Use Following the three approaches proposed in the literature review, this section presents the results IURPVHYHUDOVSHFL¿FDWLRQVRI,QWHUQHWXVHPRGHOV and assesses the impact of broadband as one of the determinants. Overall, the multi-dimensional divide model has greater explanatory power and
untangles the complex relationships in a more VSHFL¿F PDQQHU 7DEOH SUHVHQWV WKH UHVXOWV RI three models using the extent of Internet use as the dependent variable. The extent of use is represented as the number of activities an individual SHUIRUPVXVLQJWKH,QWHUQHW7KH¿UVWUHJUHVVLRQ model is based purely on the access divide view and therefore considers Internet access (including broadband access) as the only relevant factor affecting Internet use directly. The second model includes the factors mentioned in the access divide view, but tests direct relationships from all of them to Internet use, instead of assuming that they are determinants of access only. Finally, the third model incorporates additional variables related to the multi-dimensional divide view. Overall, there is an important improvement in adjusted R-square, which went from 0.395 in the access divide model to 0.537 in the extended access divide model, and then to 0.699 in the multi-dimensional divide model. Internet access is positively DVVRFLDWHGZLWK,QWHUQHWXVHLQDOOVSHFL¿FDWLRQV %URDGEDQGDFFHVVLVDOVRVLJQL¿FDQWDQGSRVLWLYHO\ associated with extent of Internet use, even when controlling for access. Income is positively associated with Internet use in the extended access divide PRGHOEXWEHFRPHVQRWVWDWLVWLFDOO\VLJQL¿FDQWRQFH controlling for other variables. Age is negatively associated with Internet use. Education and attitude towards computers are positively associated with Internet use. Being female is negatively associated with Internet use. There were several variables related to the PXOWLGLPHQVLRQDOGLYLGHWKDWZHUHVLJQL¿FDQWO\ associated to Internet use. For instance, speaking English was positively associated with Internet use. Having a PC at home was negatively associated with Internet use, but individual use of a PC was positively associated with Internet use. Similarly, individual Internet experience was positively associated with the extent of Internet use, but household Internet experience was negatively associated with the extent of individual Internet use. The models presented in this section represent two of the three approaches to understanding the digital divide and how they can be applied to the study of broadband access. The next sections go
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Digital Divide and Broadband Access
Table 2. Determinants of Internet use (extent of use) Independent Variables
Access Divide
Access
Multi-Dimensional
Model
Divide Model
Divide Model
(Extended) Constant
Internet Access
0.376***
-0.826*
-0.120
(6.674)
(-1.669)
(-0.274)
2.660***
1.702***
1.417***
(31.250)
(14.876)
(8.914)
Broadband Access (2 Mbps and
1.315***
0.832***
0.411***
above)
(9.343)
(5.185)
(3.125)
Income
Age
Education
Attitude towards Computers
Nationality (Italian = 1)
Location (Town = 1)
Location (Village = 1)
Gender (Female = 1)
Other Language (English)
<0.001***
<0.001
(2.656)
(0.830)
-0.022***
-0.007*
(-7.451)
(-1.942)
0.543***
0.138**
(7.780)
(2.236)
0.249***
0.099***
(7.851)
(3.712)
0.230
-0.057
(0.700)
(-0.212)
0.060
0.059
(0.299)
(0.361)
0.073
0.066
(0.366)
(0.406)
-0.533***
-0.279***
(-5.805)
(-3.668) 0.189** (1.999)
PC at Home
-0.470***
PC Use
1.158***
(-3.373)
(9.291) IT Skills
-0.099 (-1.026)
Household Size
-0.030 (-0.817)
Occupation (Employee = 1)
-0.060 (-0.357)
Occupation (Self-Employed = 1)
-0.211 (-1.042)
Occupation (Unemployed = 1)
0.152 (0.654)
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Digital Divide and Broadband Access
Table 2. (cont.) Occupation (Other = 1)
-0.171 (-0.834)
Individual Internet Experience
0.362*** (18.094)
Household Internet Experience
-0.088*** (-3.496)
R-Square
0.395
0.541
0.703
Adjusted R-Square
0.395
0.537
0.699
F-Statistic
712.875***
156.939***
146.727***
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DUHVLJQL¿FDQWDWWKHOHYHODQGWKRVHIROORZHGE\
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further, using different analytic techniques to look at the complexities of acquiring IT skills. In doing so, the analysis is an attempt to explore a multi-perspective model (derived from the spirit of WKHGLJLWDOGLYLGHOLWHUDWXUH ZKHUHDQLQGLYLGXDO¶V preferences, skills, and aptitudes are highlighted. The combination of the three models together is an effort to add to the empirical literature, for both broadband access and the digital divide.
Internet Use and Basic IT Skill Acquisition The adoption of broadband services has been linked to more intense, advanced, and varied uses of Internet applications. While the presence of this relationship has been documented in a multitude of studies (Carriere, Rose, Sirois, Turcotte, & Christian, 2000; Horrigan et al., 2001; Anderson, Gale, Jones, & McWilliam, 2002; Dwivedi & Choudrie, 2003a; Lebo, 2001, 2003), the causal associations still remain unclear. This is similar to the multidimensional digital divide view that says access and use are both equally important. From a policymaker point of view, being able to understand to what extent the adoption of broadband leads to advanced Internet behavior or whether broadband adoption occurs only as a consequence of mature Internet
usage is key for the creation of effective broadband access and use policies. Although the answer probably lies somewhere in the middlesince it would be reasonable to assume the presence of a recursive two-way relationshipit may be worthwhile to investigate the issue further in order to have a deeper understanding of its dynamics. The presence of basic IT skillsacquired either through formal or informal processesmay be considered an essential prerequisite for both advanced usage of the Internet and the adoption of broadband connections. In addition, the motiYDWLRQIRUXVH EDVHGRQDSHUVRQ¶VSHUVSHFWLYH may also be an important factor. For this reason, this section will start by exploring the process of basic IT skills acquisition and motivation for use among different user types. The analysis below reveals a user typology UHSUHVHQWLQJ WKUHH PDLQ W\SHV 7KH ¿UVW W\SH LV FKDUDFWHUL]HGE\µDODFNRI¶RUµYHU\OLPLWHGXVH¶ of the Internet and is labeled as non/sporadic users (51% of the population). The second group represents more regular use mainly based on information search and e-mail exchange, and is labeled as basic users (25% of the population). Finally, the last cluster of users demonstrates a much wider range of use including Internet applications that require fast connections (i.e., videoconferencing, VoIP, e-shopping, video-blogging, and auctions) and is
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Digital Divide and Broadband Access
Figure 2. Basis: All respondents Self-Learning by Usage Level 80% 70% 60% 50% 40% 30% 20% 10% 0% Non/Sporadic Users
Basic Users
GH¿QHGDVDGYDQFHGXVHUV RIWKHSRSXODWLRQ The last cluster reveals the concurrence of mature Internet behavior and the use of broadband-enabled applications. If we go further and investigate how the different types of users acquired their IT skills, some interesting details are exposed. For example, as shown in Figure 2, a good portion of IT skills acquisition appears to occur through an informal process of learning by doing. This is evidenced by the important role self-learning plays among both basic and advanced users. Moreover, this result does not seem to stem from regional considerations. (XURVWDW¶VUHFHQWO\SXEOLVKHGGDWDRQHVNLOOVLQ fact, shows that the percentage of individuals who obtained IT skills through formalized training in educational institutions in 2005 was as low as 20% (Eurostat, 2006). But Figure 2 does not simply show the importance of informal and self-learning. It also suggests the presence of different approaches to technolRJ\ DGRSWLRQ DQG XVDJH RU XVHUV¶ PRWLYDWLRQV Thus it suggests that a correct interpretation of the relationship between broadband adoption and mature Internet usage may require us to consider a number of different individual perspectives. This adds support for looking at the presence of a multi-perspective divide as documented in the literature and discussed above. In other words, it seems plausible to assert that the presence of a sig-
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Advanced Users
QL¿FDQWOHYHORIVHOIOHDUQLQJLQEDVLFDQGDGYDQFHG users renders the availability of broadband as an enabler or represents the strategy of “engaging the engaged.” For none or sporadic users, instead, the acquisition of IT skills through formal IT training seems to play a more important role in moving users toward more mature usage. 7KHHYROXWLRQRIWKHXVHUV¶GLVWULEXWLRQRYHUWLPH to a certain extent supports the thesis unfolding above by showing the presence of two different maturation speeds between clusters. Figure 3 shows the distribution of user types for the years 2004 and 2005. The presence of a U-shaped distribution is noticeable. The fourfold difference between the migration rates from basic users to advanced users and the one from sporadic users to basic users represents a clear signal. While part of the population is gradually progressing along the LQIRUPDWLRQVRFLHW\SDWKDQRWKHUVLJQL¿FDQWSRUtion is struggling (or is not motivated) to join this development process. The increase in the digital valley between different users represents a serious hurdle in the process of e-inclusion envisioned by recent strategic plans issued at the European level. A possible explanation of this phenomenon is the presence of positive and negative feedback LQZKDWKDVEHHQGH¿QHGDVD³networked society” (Shapiro & Varian, 1998). These concepts, mainly SUHVHQWHGLQWKHOLWHUDWXUHLQUHODWLRQWRFRPSDQLHV¶
Digital Divide and Broadband Access
Figure 3. Basis: All respondents
SHUIRUPDQFHPD\EHDSSOLFDEOHWR,QWHUQHWXVHUV¶ behaviors as well. From a policy standpoint, a counterbalance to the polarization created by positive and negative feedback may be necessary. This could happen WKURXJKSROLFLHVWKDWSURGXFHÀDWWHQLQJHIIHFWVRQ the user-type distributions. Such policies would require actions aimed at fostering the enlargement of the total Internet population, thus contributing to increase the migration rate from non-users to basic users. In order to do this, policymakers need to gain a better understanding of the different motivations and socioeconomic and demographic characteristics of the different user types in order WRGHYLVHDGKRFDFWLRQVWDLORUHGWRWKHVSHFL¿FXVHU types where they want change to occur.
FUTURE TRENDS The analysis conducted above highlights three different types or levels of inconsistencies: (1) inconsistency in coverage, (2) inconsistency in adoption, and (3) inconsistency in usage. This categorization is not exhaustive and provides only a partial view of the whole phenomenon. Other authors have proposed to describe the phenomenon from different (and not necessarily opposing) points
of views (e.g., Van Dijk, 2005). Nevertheless, it is a useful starting point to discuss the evolution of the issues that national and local policymakers will have to deal with as time continues (and most likely, in the near future). The coverage inconsistency has to do with the QHFHVVLW\WR¿QGQHZDQGPRUHFRVWHIIHFWLYHZD\V to deliver broadband services to rural areas or, more generally, to less densely populated areas. Although currently this type of divide clearly represents a pending issue for policymakers, it is bound to decrease in importance as penetration increases. As a matter of fact, technological progress, which is led by companies racing for a FRPSHWLWLYH DGYDQWDJH LV VLJQL¿FDQWO\ GULYLQJ down infrastructure-related costs, but this trend LVQRWXQLIRUPIRUDOOORFDWLRQV6SHFL¿FSROLFLHV and programs may be needed in order to solve this important element. Coverage is necessary, but is not the only condition for the successful adoption of broadband access and meaningful uses of the Internet. The second type of inconsistency has to do with the low demand levels in served areas. This may be attributable to a multiplicity of factors; however, not all factors can be addressed by local or national policymakers. Nevertheless, government action should be aimed at breaking the feedback loop
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between the lack of demand and the existence of broadband-related services that currently hinders the creation of more broadband-related activities. For instance, the fact that the ability to speak EngOLVKKDVDVLJQL¿FDQWSRVLWLYHLPSDFWRQEURDGEDQG access suggests that the content for meaningful uses is limited in other languages. Some policies and programs could promote the creation of meaningful FRQWHQWLQVSHFL¿FODQJXDJHV In the medium/long term, inconsistency that should concern policymakers the most is usage. As a matter of fact, the analysis presented above shows a polarization trend, leading to a U-shaped distribution with a clear separation between none/ sporadic users and advanced users. The situation FDOOVIRUPHDVXUHVWKDWZLOOSURGXFHDÀDWWHQLQJ effect on the distribution. A good starting point may be accounting for the importance self-learning plays in the acquisition of necessary IT skills, in addition to recognizing the presence of complementary skills. Digital divide policies should take into consideration the differences and similarities among social groups and have target programs for different types of users. Some people need training, others need motivation (meaningful content and transactions) and opportunities to experience the potential of using the Internet for a broader range of activities. The models discussed in this chapter are cuPXODWLYH)LUVWWKH¿QGLQJVDQGOLWHUDWXUHVXJJHVW that access to technology (i.e., computers) is important, as is access to the Internet (broadband or QRW 7KHQWKHVHFRQGPRGHODQGOLWHUDWXUH¿QGV that broadband access is an important element, but another important factor is use. This builds on the idea that it is not just about access, but also about how individuals use the Internet. Access to broadband is a category of access to the Internet, and it is suggested that a better connection allows for more extensive and sophisticated use. The third model, a multi-perspective model, says, once you have access and use, meaningful use depends on the context of the user and his or her level of skill, overall motivation for using the medium, DQG WKH H[SHFWHG EHQH¿WV SHUFHLYHG 7KHUHIRUH any meaningful development of comprehensive
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policies needs to address concerns highlighted by all three models.
CONCLUSION In general terms, the research presented in this chapter recognizes that the digital divide is a complex phenomenon transcending simple information access problems. Broadband access is an important determinant of the extent of Internet use, and therefore, its diffusion could potentially have a VLJQL¿FDQWLPSDFWRQVRFLDODQGHFRQRPLFGHYHORSment. However, broadband access is only one of the important factors to take into consideration. Age, education, gender, attitudes toward computers, the availability of the necessary equipment, and previous experience are also important aspects contributing to the complexity of this phenomenon. If the main goal is to increase Internet use and the value for individuals and jurisdictions, policymakers should consider integrative strategies that include not only broadband diffusion mechanisms, but also some policies targeted at some of the other dimensions of the problem. Even when thinking about broadband access as the goal itself, there are still many factors that need to be taken into account. In fact, this study provides evidence of the importance of multiple determinants of broadband access such as location, ability to speak English, household size, and familiarity with PCs. Consistent with previous research, this study found that location is important and individuals living in villages are less likely to have broadband access. In addition, individuals who can speak English, which is the language of a great number of Web sites, are more likely to have broadband access. In addition, the language difference may indicate, to a certain extent, the value that the Internet has for individuals; the more Web sites an individual is able to use in meaningful ways, the more this individual is willing to invest in better ways to use the Internet, including broadband access and IT training. In addition, different approaches to basic IT skills acquisition emerged and uncovered factors WKDWLQÀXHQFHGLYHUVHXVDJHOHYHOV,QIDFWDERXW
Digital Divide and Broadband Access
one-fourth of our respondents are advanced users (many of them also broadband users), about 20% are characterized as basic users, while the remaining 50% make sporadic use of the Internet or do not use it at all. Moreover, the analysis carried out over a two-year period depicted the presence of a widening gap in terms of Internet use between non/sporadic users and advanced users. Taking into consideration that Internet use is fundamental for individual and jurisdictional development, national and local policymakers should direct part of their efforts to offset this usage polarization, which in fact may be related to broadband access among other factors. In order to do so, understanding how people approach and use technology and the different paths leading to the acquisition of the necessary IT skills represents one fundamental aspect. A careful and close management of the evolution of digital gaps by policymakers seems to be desirable and necessary. At the same time, attention should be put toward avoiding technological deterministic approaches aimed at fostering technology adoption and use per se. Rather, the use of technology should be positioned as an important enabling tool supporting individuals in their main everyday activities (production, social, political, consumption, savings activities) (Selwyn, 2003). Hence, this should translate into opportunities to re-frame public policy debates and direct attention to the problems from a multitude of perspectives. %URDGEDQGDFFHVVPD\VLJQL¿FDQWO\LPSDFWVRPH aspects of the problem described throughout this chapter, but it is only one element in a much more complex web of social, economic, and political issues.
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Annis, R. (2005). Industry Canada broadband economic impact study. Rural Development Institute, Brandon University, Canada. BAG. (2003). Australia’s broadband connectivity. Retrieved November 9, 2006, from http://www. noie.gov.au/publications/NOIE/BAG/report/index. htm Bouvard, P., & Kurtzman, W. (2001). The broadband revolution: How superfast Internet access changes media habits in American households. Retrieved November 9, 2006, from http://www. arbitron.com/downloads/broadband.pdf Cantamessa, M., De Leonardis, D., Ferro, E., & Paolucci, E. (2005). Wireless technologies and broadband diffusion: The Piedmont case. Wireless Magazine, (December), 44-49. Cantamessa, M., De Leonardis, D., Ferro, E., & Paolucci, E. (2006). Wi-Fi: A hurdle race. Wireless Magazine, (May), 48-52. Cantamessa, M., Ferro, E., Molino, S., & Paolucci, E. (2004). Analysis of the broadband market in Piedmont, Italy. Turin: Regional Observatory on ICT. Cantamessa, M., Ferro, E., & Paolucci, E. (2005). Urban vs. regional divide: Comparing and classifying digital divide. Proceedings of TCGOV 2005 (pp. 81-90). Berlin: Springer-Verlag (LNAI 3416). Carriere, R., Rose, J., Sirois, L., Turcotte, N., & Christian, Z. (2000). Broadband changes everything. Retrieved November 8, 2006, from http:// www.mckinsey.de/_downloads/knowmatters/telecommunications/broadband_changes.pdf Castells, M. (2001). 7KH,QWHUQHWJDOD[\5HÀHFtions on the Internet, business, and society. New York: Oxford University Press. Chin, M.D., & Fairlie, R.W. (2004). The determinants of the global digital divide: A cross-country analysis of computer and Internet penetration. Economic Growth Center, Yale University, USA. Choudrie, J., & Dwivedi, Y.K. (2004a). Analyzing the factor of broadband adoption in the household.
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Proceedings of the 12th European Conference of Information Systems (ECIS), Turku, Finland. Choudrie, J., & Dwivedi, Y.K. (2004b). Investigating the socio-economic characteristics of residential consumers of broadband in the UK. Proceedings of the American Conference on Information Systems (AMCIS), New York. Choudrie, J., & Dwivedi, Y.K. (2004c). Towards a conceptual model of broadband diffusion. Journal of Computing and Information Technology, 12(4), 323-338. Choudrie, J., & Lee, H.J. (2004). Broadband development in South Korea: Institutional and cultural factors. EJIS, 13(2), 103-114. Cole, J.I. et al. (2004). The digital future report. Center for the Digital Future, USC, USA. Compaine, B.M. (Ed.). (2001). The digital divide: Facing a crisis or creating a myth? Cambridge, MA: MIT Press. Dadayan, L., & Ferro, E. (2007) Broadband and e-government diffusion. Proceedings of the 40th Hawaii International Conference on Computing Conference. IEEE Computer Society Press. Davis, F.D. (1989). Perceived usefulness, perceived ease of use, and user acceptance of information technology. MIS Quarterly, 13(3), 319-340. DiMaggio, P., & Hargittai, E. (2001). From the ‘digital divide’ to ‘digital inequality’: Studying Internet use as penetration increases. Support from the Center for the Arts and Cultural Policy Studies, Woodrow Wilson School, Princeton University, USA. Dwivedi, Y.K., & Choudrie, J. (2004). Developing a model of broadband adoption in the household. Proceedings of the ETHICOMP Conference, Syros, Greece. Dwivedi, Y.K., & Choudrie, J. (2003a). The impact of broadband on the consumer online habit and usage of Internet activities. In M. Levy et al. (Eds.), Proceedings of the 8th UKAIS Annual Conference on Coordination and Co-Opetition: The IS Role, Warwick, UK.
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Dwivedi, Y.K., & Choudrie, J. (2003b). Considering the impact of broadband upon the growth and development of B-2-C electronic commerce. In R. Cooper et al. (Eds.), Proceedings of the ITS Asia- Australasian Regional Conference, Perth, Australia. Dwivedi, Y.K., Choudrie, J., & Gopal, U. (2003). Broadband stakeholders analysis: ISPs perspective. Proceedings of the International Telecommunication Society’s Asia-Australasian Regional Conference, Perth, Australia. European Commission. (2006). Bridging the communication gap. Retrieved November 9, 2006, from http://europa.eu.int/information_society/ eeurope/i2010/docs/digital_divide/communication/com_bridging_bb_gap_2006_en.pdf Eurostat. (2006). Eurostat. Retrieved November 9, 2006, from http://epp.eurostat.ec.europa.eu/portal/ page?_pageid=1996,45323734&_dad=portal&_ schema=PORTAL&screen=welcomeref&open=/ & p r o d u c t = E U_ M A ST E R _ i n fo r m a t i o n _ society&depth=2 FCC. (2002). United States Federal Communications Commission report FC-02-33A. Retrieved November 9, 2006, from http://hraunfoss.fcc. gov/edocs_public/attachmatch/FCC-02-33A1.pdf Ferro, E. (2006). Broadband diffusion dynamicsa systemic approach. International Journal of Electronic Business, (Special Issue), 1470-6067. Flamm, K. (2004). The role of economics, demographics, and state policy in broadband competition: An exploratory study. Proceedings of the 32nd Telecommunications Policy and Research Conference, Arlington, VA. Flamm, K., & Chaudhuri, A. (2005). An analysis of the determinants of broadband access. Proceedings of the 33rd Telecommunications Policy and Research Conference, Arlington, VA. Gil-Garcia, J.R., Helbig, N., & Ferro, E. (2006, September 4-8). Is it only about Internet access? An empirical test of a multi-dimensional digital divide. Proceedings of the eGov06 Conference, Krakow, Poland. Berlin: Springer-Verlag (LNCS 4084).
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Gillett, S., Lehr, W., & Osorio, C. (2003). Local government broadband initiatives. Proceedings of the 31st Research Conference on Communication, Information and Internet Policy (pp. 537-558), Arlington, VA. Grubesic, T.H. (2004). “The geodemographics correlates of broadband access and availability in the United States. Telematics and Information, 21(4), 335-358. Helbig, N., Gil-Garcia, J.R., & Ferro, E. (2005). Understanding the complexity in electronic government: Implications from the digital divide literature. Proceedings of the 11th Americas Conference on Information Systems, Omaha, NE. Hines, A.H., Nelson, A., & Tu, T.L.N. (2001). Hidden circuits. In A. Nelson, T.L.N. Tu, & A.H. Hines (Eds.), Technicolor. New York: New York University Press. Howell, B. (2002). Broadband uptake and infrastructure regulation. Working Paper, ISCR. Horrigan, J.B., & Rainie, L. (2001). Online communities: Networks that nurture long-distance relationships and local ties. Pew Internet and American Life Project. Hulsink, W. (1999). Privatization and liberalization in European telecommunication: Comparing Britain, The Netherlands and France. London: Routledge, Taylor and Francis Group.
Lebo, H. (2003). Surveying the digital future, year two, the UCLA Internet report. Retrieved November 9, 2006, from http://www.digitalcenter.org/ Lehr, W.H., Osorio, C.A., Gillett, S.E., & Sirbu, 0$ 0HDVXULQJ EURDGEDQG¶V HFRQRPLF impact. Proceedings of the 33rd Research Conference on Communication, Information, and Internet Policy, Arlington, VA. /HH+2¶.HHIH% <XQ. 7KHJURZWK of broadband and electronic commerce in South Korea: Contributing factors. The Information Society, 19, 81-93. Middleton, C.A. (2002). Exploring consumer demand for networked services: The importance of content, connectivity and killer apps, in the diffusion of broadband and mobile services. Proceedings of the 23rd International Conference on Information Systems. Mossberger, K., Tolbert, C.J., & Stansbury, M. (2003). Virtual inequality: Beyond the digital divide. Washington, DC: Georgetown University Press. Nelson, L. (2002). Protecting the common good: Technology, objectivity, and privacy. Public Administration Review, 62(Special Issue), 69-73. Norris, P. (2001). Digital divide: Civic engagement, information poverty, and the Internet worldwide. New York: Cambridge University Press.
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Oh, S., Ahn, J., & Kim, B. (2003). Adoption of broadband Internet in Korea: The role of experience in building attitude. Journal of Information Technology, 18, 267-280.
Kennedy, T., Wellman, B., & Klement, K. (2003). Gendering the digital divide. IT & Society, 1(5), 72-96. Lebo, H. (2001). Surveying the digital future, year two, the UCLA Internet report. Retrieved November 9, 2006, from http://www.digitalcenter.org/
Pentland, A., Fletcher, R., & Hasson, A. (2003). A road to universal broadband connectivity. Cambridge, MA: MIT Media Lab. Regional Observatory on ICT. (2005). Piedmont report. Retrieved November 9, 2006, from http:// www.sistemapiemonte.it/osservatoriICT
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Robinson, J.P., DiMaggio, P., & Hargittai, E. (2003). New social survey perspectives on the digital divide. IT & Society, 1(5), 1-22. Servon, L.J. (2002). Bridging the digital divide: Technology, community, and public policy. Oxford: Blackwell. Skogseid, I. (2005). Market driven development of broadband infrastructure in rural areas. Western Norway Research Institute. Shapiro, C., & Varian, H.R. (1998). Information rules: A strategic guide to the network economy. Boston: Harvard Business School Press. Varian, H.R. (2001). The demand for bandwidth: Evidence from the INDEX project (pp. 1-19). Berkeley: University of California–Berkeley. Venkatesh, V., & Brown, S. (2001). A longitudinal investigation of personal computers in homes: Adoption determinants and emerging challenges. MIS Quarterly, 25(1), 71-102. Walsh et al. (2001). The truth about the digital divide. In B.M. Compaine (Ed.), Reexamining the digital divide: Facing a crisis or creating a myth? Cambridge, MA: MIT Press. Warf, B. (2001). Segueways into cyberspace: Multiple geographies of the digital divide. Environment and Planning B: Planning and Design, 28, 3-19.
KEY TERMS Access Divide: A common viewpoint which assumes that the digital divide is a symptom of an µDFFHVVWRWHFKQRORJ\SUREOHP¶DQGDVDQLQKHUHQW delay in the diffusion of technology among different geographic areas and social groups.
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Digital Divide: Often characterized as a set of relationships between information and communication technologies (ICTs) and groups of individuals, who are situated within a complex arrangement of social, environmental, political, and economic issues. Popularly, the term itself, digital divide, carries the connotation of those who have access to technology and those who do not have access to technology. Hiperlan (HIgh PErformance Radio LAN): A wireless LAN standard; a European alternative IRU$PHULFD¶V,(((VWDQGDUGV7KHVWDQGDUGVDUHGH¿QHGE\WKH(XURSHDQ7HOHFRPPXQLcations Standards Institute (ETSI) by the BRAN (Broadband Radio Access Networks) project. IT Skills: A varied concept, ranging from skills describing information-retrieval and searching activities to skills regarding the synthesis of information and productive use of information in daily activities. Multi-Dimensional Divide: A competing viewpoint which assumes that the digital divide is a mirror of other types of socioeconomic inequalities, and suggests access and use are important determinants of the digital divide. In addition, other dimensions such as income, age, education, location, and IT skills impact access and use. Multi-Perspective Divide: A competing viewpoint which rejects that any one group of individuals inherently uses technologies differently than the majority, and suggests any questions about access and use should be evaluated based on the needs and problems of the most disadvantaged groups, in addition to how the intersections of race, gender, class, worldview, and so forth come together. Systemic Approach: Accounting for the interactions and interdependencies present among a number of items forming a unifying whole (broadband diffusion).
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Chapter XII
Improving Broadband Access in Rural Areas Ingjerd Skogseid Western Norway Research Institute, Norway
ABSTRACT The chapter explores the characteristics of rural broadband infrastructure development. Taking the existing installed base into consideration, small rural communities can initiate bottom-up cultivation of broadband infrastructure. Such initiatives are important contributions to overcoming the disparity in broadband access. In effect they aggregate demand by creating a larger total market for suppliers than the individual needs of the actors. The proposal is to use descriptive clusters as a way to reveal the LQVWDOOHGEDVH$VHWRITXHVWLRQVDQGDQVZHUVZLOOEHGH¿QHGWRUHYHDOWKHLQVWDOOHGEDVH7KLVFDQEH used to acquire an overview of the types of resources available and the choices that need to be made. The use of descriptive clusters places emphasis on the local context and culture. With a bottom-up strategy, questions must be answered in relation to the local context. The responses and lessons learned may vary from one location to the next, making blueprint implementations impossible.
INTRODUCTION To the question “Is it possible to improve broadband access in rural areas?” we must reply, “Yes.” However, the question of “How?” must be answered by taking into consideration a combination of policies, strategies, collaboration, and costs involved, not only on a national level but also on the local level. This chapter explores the development of broadband access in a deregulated market and in relation to areas that are least favored. In countries with a deregulated telecommunications market, the process of developing the broadband infrastructure differs from earlier
infrastructure processes. In a competitive market, telecommunications operators are likely to develop broadband infrastructure in urban areas, while rural areas with lower demand are developed at a much slower rate because of higher costs and LQVXI¿FLHQW GHPDQG $FFHVV DQG DGRSWLRQGHPDQG RI EURDGEDQG WHFKQRORJ\ LV D µFKLFNHQ RU HJJ¶SUREOHP%HIRUHDEURDGEDQGLQIUDVWUXFWXUH may be adopted, it must be made available, while WKHDFFHVVSURYLGHUVUHTXLUHDVXI¿FLHQWOHYHORI demand before extending their services. However, an OECD (2004) status report on broadband provision in rural and remote areas suggests that the competitive market works even in these areas.
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Improving Broadband Access in Rural Areas
Why is this true, and what are the characteristics of rural broadband development? This chapter explores the role of the installed base in the development of two rural broadband initiatives in Sogn og Fjordane County, Norway, and discusses how different installed bases resulted in different processes and different infrastructures (see Table 3 for more details). The chapter is divided into six sections: background, research methodology, key theoretical perspectives, a description of the cases, a discussion, and a conclusion, including practical implications. It explores the development of access to broadband in a rural region1 in the context of a deregulated PDUNHW,WDOVRH[SORUHVIDFWRUVWKDWLQÀXHQFHDERWtom-up development of broadband infrastructure in rural areas as opposed to the traditional rollout of infrastructure.
GLI¿FXOW:KHQLQIRUPDWLRQDQGVHUYLFHSURYLGHUV deliver services requiring broadband capacity, the inhabitants and businesses must have access to a high-speed connection in order to take advantage of such services. As a result of this situation, a myriad of broadband providers have come into existence. A VWXG\FRPSOHWHGLQLGHQWL¿HGEURDGEDQG providers in Norway (Norsk_Telecom, 2004), and LQDVLPLODUVWXG\LGHQWL¿HGSURYLGHUV (Post_og_teletilsynet, 2006b). In 2004, about 10 of the 130 were categorized as national providers, delivering broadband services with national coverDJH$ERXWZHUHGH¿QHGDV³UHJLRQDODFWRUV´ and the remaining 80 were characterized as local providers serving local communities. The many small local providers were the result of local initiatives. The municipalities participated as owners IRU DERXW RI WKH SURYLGHUV LGHQWL¿HG LQ (Norsk_Telecom, 2004).
BACKGROUND Broadband Access At the time the telecommunications market was deregulated, the Norwegian government chose a demand-driven strategy for the development and delivery of broadband Internet access. The competition among telecommunications providHUVZDVWKRXJKWWREHVXI¿FLHQWWRHQVXUHJHQHUDO access to broadband services. In the context of PDUNHWGULYHQGHYHORSPHQWLWLVQRWSUR¿WDEOHWR roll out broadband to all parts of the country, and the national providers did not plan to develop a universal service. In March 2004, roughly 77% of Norwegian households had access to broadband infrastructure (Teleplan, 2003a), while by WKHHQGRIWKLV¿JXUHKDGLQFUHDVHGWR (Post_og_teletilsynet, 2006a). The government initiated a program called Høykom2 to increase the demand for broadband services, which also applies to rural areas; this program supports local and regional government by partially funding the acquisition of broadband access and the development of broadband services in the public sector. Although this support is welcomed, local and regional governments are still required to provide a substantial part of the investment required, which can sometimes prove
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Under the regulated market, new segments of the telecommunications infrastructure were often developed as a top-down rollout and were designed for VSHFL¿FSXUSRVHV7KHVHLQIUDVWUXFWXUHVHJPHQWV were more or less uniform, and existed in markets which might be characterized as monopolies or duopolies (OECD, 2004). In Europe, this changed with the deregulation of the telecommunications market in 1998. As a result, the telecommunications infrastructure is now being developed in the context of a competitive market. One drawback of this development is that areas with smaller competitive markets, such as rural and remote areas, may not gain access to broadband infrastructure (Grubesic & Murray, 2002; OECD, 2004; Stanton, 2004). The constantly increasing use of information and communication technology (ICT) and the economic transformation currently underway (Grubesic, 2003) make access to broadband techQRORJ\HVVHQWLDOIRUSHRSOH¶VOLYHV In a competitive market, the basic assumption is that telecommunications operators are less likely to develop broadband infrastructures in rural areas EHFDXVHRIKLJKHUFRVWVDQGLQVXI¿FLHQWGHPDQG
Improving Broadband Access in Rural Areas
(OECD, 2004), even when they are based on an existing infrastructure, such as telephone lines. This is supported by a study carried out in the United 6WDWHV ZKLFK H[DPLQHV WKH IDFWRUV LQÀXHQFLQJ the adoption of broadband. According to Stanton (2004, p. 9), the “demographics for broadband access do not replicate the demographics found for computer ownership and home Internet access.” :KLOHUDFLDODQGVRFLRHFRQRPLFYDULDEOHVLQÀXence computer ownership and Internet access, they are less important for the purchase of broadband DFFHVV%URDGEDQGDFFHVVLVPRUHVWURQJO\LQÀXenced by geographical variables (Stanton, 2004), and the broadband disparity arises between urban and rural areas. A study carried out in the county of Møre & Romsdal, Norway (Molka-Danielsen, Ohren, & Jæger, 2003), found that there are clear differences between rural and urban areas in the development of broadband infrastructure. “The aggregation of demand of users in rural communities is often not great enough to justify the investments” (MolkaDanielsen et al., 2003). The cost of developing broadband service is too high relative to the demand. But even if rural areas are lagging behind, the situation is not exclusively negative. In an OECD study of broadband access in rural and remote areas (OECD, 2004), it was found that the results in rural areas are “sometimes surprising and counter-intuitive…There is a rapidly increasing amount of new private-sector entry occurring in the provision of broadband access in rural areas” (OECD, 2004, p. 4). These providers are delivering high-quality service at a competitive price. This chapter will further examine the development of broadband infrastructure in rural areas.
RESEARCH METHOD This study of rural broadband infrastructure development is a study of factors contributing to and LQÀXHQFLQJWKHGHYHORSPHQWRIWKHLQIUDVWUXFWXUH An interpretive approach is used to reach a better understanding of the development (Walsham, 1993). Interpretive research is concerned with the development of a deep and contextual understand-
ing of a phenomenon. The focus is on the subjective processes surrounding the social construction of the network, using qualitative research methods (Walsham, 1993). The aim of such interpretive analysis is to understand rather than to predict. The interpretive perspective helps to focus on the formal and informal parts of the process that took place. The study explores a longitudinal process which covers the years from 1998 until today, and which involves activities at different levels, both regional and local. At the regional level I started out by following the process as a participant observer (Baskerville & Wood-Harper, 1996; Cole, 1991). As the process stabilized my involvement in the development has decreased, and my main source data have been documents, status reports, project reports, and applications for continued funding. Data has been gathered as part of the process through the interaction, participation, and observation of meetings and activities. In addition three of my colleagues have been active in the process as project managers and change agents; dialogue and discussions with them have been important LQ¿OOLQJJDSV At the local level a combination of interviews with broadband providers and a survey of the various offers of broadband services in the region have been used to gather data. The survey was published in a series of status reports and updated based on developments. Early in the process the frequency of status reports was high, while lately the frequency has become lower. Additional sources of information have included the Web sites of the local initiatives, project reports, and interviews with some key actors from some of the local initiatives to complete the picture. The analysis has been carried out using a historical perspective (Granovetter & McGuire, 1998, p. 149). This approach opens up for a degree of uncertainty as the events are interpreted and the interpreter bases the interpretation on the knowledge he or she has about the development; this again can open up for different interpretations. In this case, the interpretation is carried out as a FULWLFDO UHÀHFWLRQ E\ P\VHOI DV RQH DFWRU LQ WKH network. The aim is to analyze the development
179
Improving Broadband Access in Rural Areas
of the broadband infrastructure exploring the GHYHORSPHQWSURFHVVDQGWKHIDFWRUVLQÀXHQFLQJ the development.
tures. Broadband is shared between all its users, it supports a number of different applications, and its users are aware when it does not function as expected.
KEY THEORETICAL PERSPECTIVES
Infrastructure Cultivation
Information Infrastructure
Infrastructures are heterogeneous networks (Shapiro & Varian, 1999) of technical and organizational components assembled together. The heterogeneity of the network makes them complex to plan and design. Traditionally, telecommunications infrastructures, top-down planned and rolled out, are managed internally without much interaction with actors who own neighboring infrastructures. They themselves have full control over the infrastructure, the installed base, and how it may be extended. As a result both the technical and organizational complexity of the development may be considered to be relatively low. In a deregulated market there are new challenges. Depending on the approach chosen, the complexity of the development can vary from ORZWRKLJK8UEDQDUHDVZLWKDVXI¿FLHQWPDUNHW demand will still be served by providers who can roll out the infrastructure without much coordination with other actors. In rural areas where the market demand is low, alternative strategies are needed to achieve the same level of service; this involves more coordination between owners of the installed base and results in more complexity through integrating different technical and organizational systems. According to Star and Ruhleder (1996), factors such as the conventions of a community, practice, and working routines both shape and are shaped by the infrastructure. Consequently, such factors must be taken into consideration in the design process. An infrastructure from this perspective is never developed from scratch; it builds on something and continuously interacts with it (Hanseth, 2002), and when changed or improved, the new version KDVWR¿WLQZLWKWKHH[LVWLQJLQIUDVWUXFWXUH7KLV µVRPHWKLQJ¶LVRIWHQWHUPHGWKHLQVWDOOHGEDVH7KH characteristics of the installed base in question will vary depending or whether a top-down or a bottom-up approach to development is taken. In a
$QLQIUDVWUXFWXUHLVGH¿QHGDV³DVHWRILQWHUFRQnected structural elements that provide the framework for supporting the entire structure. It usually DSSOLHVRQO\WRVWUXFWXUHVWKDWDUHDUWL¿FLDO´ :LNLpedia, 2006). An infrastructure may be looked upon as a network that connects an integrated and heterogeneous set of components, such as equipment, systems, applications, processes, and people. But at the same time these components are rather stable structures, with a certain inertia. An information infrastructure is an infrastructure that supports the information society: the equipment, systems, applications, and support systems needed for operating in the information society. The term information infrastructure was introduced as part of the National Information Infrastructure initiative launched by the Clinton Administration in 1994. In the Clinton–Gore initiative, the Internet was described as an infrastructure shared by its users. With the introduction of the Internet as a tool for the general public and for particular purposes, there was a need for a construct which emphasizes the distinction between Internet- type applications and ordinary information systems. Information infrastructures are shared, according to Hanseth (2000), in that they are a foundation for the community they support. They are also open and enabling, in that they support a large variety of applications. In addition they are evolving, standardized, and heterogeneous WKDWLV both their organizational and technical components are connected using standards or gateways. The chapter will focus on broadband as an information infrastructure. Broadband is both an infrastructure and an information infrastructure because it consists of a set of interconnected components, equipment, systems, applications, processes, and people in more or less stable struc-
180
Improving Broadband Access in Rural Areas
top-down setting, the installed base is controlled by the developer. However, in a bottom-up setting, the installed base may be managed by different organizations and consist of different technical solutions; as a result the complexity of the development increases, and the installed base will also vary from community to community. Consequently, it is impossible to make a blueprint copy that may be used from one location to the next. Hanseth (2002) has developed a notion of cultivating an infrastructure based on the available installed base as a bottom-up strategy. The FRQFHSWRIµFXOWLYDWLRQ¶RULJLQDWHVIURPWKHVSKHUH of agriculture and means to “to grow and cultivate plants and the domestication of animals.” In the sphere of information systems. the word has been used in relation to strategies for developing technological systems. Dahlbom and Janlert (1996) use the concepts of construction and cultivation to describe two different processes to shape technolRJ\µ&RQVWUXFWLRQ¶SXWVHPSKDVLVRQWKHKXPDQ ability to shape the world according to set of goals. µ&XOWLYDWLRQ¶UHIHUVWRWKHSURFHVVRIVHOHFWLQJDQG assembling components, but also to a process of growth or development in the material itself when we create a system. According to Hanseth (2002), cultivation as a concept views technological systems as organisms that have a life of their own; this focuses on the limits of the rational and human control involved in the development. +DQVHWKDQG/\\WLQHQ GH¿QHWZRNH\ design strategies for information infrastructures. (DFKRIWKHVHKDVDGH¿QHGVHWRISULQFLSOHVDQG guidelines to make the development process simpler and to increase the success rate of the implementation. The strategy “bootstrap installed base” considers how to cultivate the infrastructure by IRFXVLQJRQXVHIXOQHVVIRUWKH¿UVWDGDSWHUVDQG the size of the user groups as a way of ensuring momentum and creating a critical mass of users. Another way of building momentum is to extend the available installed base. When building on the installed base, the new components need to be simple and inexpensive, but they still need to IXO¿OOWKHPDLQDLPRIFUHDWLQJDXVHIXOVHUYLFH 7KH\ QHHG WR ¿OO WKH FRQQHFWLRQ WR WKH H[LVWLQJ entity using an interface based on standards and
gateways, but it is also easier for potential users to connect to the infrastructure without making a total break from the known and existing entity. Improvements should be on a needs basis, rather than a “nice-to-have” basis. Throughout the whole process the alignment of interest needs to take place in parallel to the building process; part of this is also a process of developing a support community for the infrastructure. In this way the new infrastructure is built brick by brick as part of a bottom-up strategy. The second strategy “avoid technology lock-ins” focuses on simplicity, modularization, and use of gateways between different layers and components and to neighboring infrastructures. A lock-in situation is something that can happen over time as the infrastructure develops. By choosing simple and inexpensive components and designing IRUÀH[LELOLW\LWPD\EHSRVVLEOHWRDYRLGORFNLQ situations.
Exploring the Installed Base When dealing with bottom-up cultivation of infrastructure in a rural area, the complexity is high and there is a need to explore features of the available local installed base before and during the cultivation process. What is the installed base in broadband development? Installed base in general is the available infrastructurethe existing standards, and technical and non-technical components needed to develop an infrastructure or develop it furtherto cultivate it. An infrastructure is never developed from scratch, it is an extension to the existing installed base (Hanseth & Lyytinen, 2006); therefore there is always an existing installed base that can be cultivated. In a bottom-up process, it is necessary to start by examining the installed base in a local community to identify what is the starting point and identify actors that can be aligned and utilized in the cultivation process. The design strategies (Hanseth & Lyytinen, 2006) for information infrastructures with their principles and guidelines provide guidance for the designers and constructors who are responsible for the cultivation process. They bring us to a certain level where the instruction is to draw on and expand the installed base by using the existing transport
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Improving Broadband Access in Rural Areas
infrastructure and building gateways to the existing infrastructure. In the case of local broadband development, the number of local actors controlling the existing installed base may be high, and the number of needs and motivations may also be high. As a result, the development is often complex with a number of actors who need to align and move toward a common aim. One of the challenges is to identify the installed base and consider how best to utilize it in the design process. But how can we identify the available installed base and how can WKHLQVWDOOHGEDVHEHXWLOL]HGLQWKHGHVLJQ"6FK|Q¶V ³UHÀHFWLYHFRQYHUVDWLRQZLWKWKHVLWXDWLRQ´ offers one such framework. In an effort to idenWLI\³WKHUHÀHFWLYHSUDFWLWLRQHU´KHH[SORUHVWKH teacher–student relationship in one of the design professionsarchitecture, which includes urban design, regional planning, and town planning. Design processes for infrastructures in general and information infrastructures are met with many of the same challenges that the architect meets when approaching the location for a new development. In search of more information about exploring the installed base, I was therefore inspired by Schön DQG KLV ³UHÀHFWLYH FRQYHUVDWLRQ ZLWK WKH situation,” which views the process using three dimensions: the design, the implications discovered in the process, and changing stance regarding the situation, going from unit level to considering the whole. This chapter uses the framework as described by Schön for architecture to create a ³UHÀHFWLYHFRQYHUVDWLRQ´LQUHODWLRQWREURDGEDQG infrastructure, and in particular the design dimensions, which may offer a framework for information infrastructure in general. When an architect is designing a new construction, a house, a campus, the utilization of a plot, WKHUHDUHDQXPEHURIH[LVWLQJIDFWRUVLQÀXHQFLQJ the designthe installed base. Any decision made LQWKHGHVLJQSKDVHPD\LQÀXHQFHODWHUGHFLVLRQV ,Q SHUIRUPLQJ WKLV UHÀHFWLYH FRQYHUVDWLRQ WKH designer takes different stances in relation to the object and location. Hanseth and Lyytinen (2006) claim that we need to draw upon and expand the existing installed base. However, they do not offer DIUDPHZRUNIRUDVVHVVLQJDQGUHÀHFWLQJXSRQWKH LQVWDOOHGEDVHDQGLWVLQÀXHQFHRQWKHGHVLJQRI
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the new infrastructure. For the design dimension Schön (1991) describes 12 clusters of elements describing the features, relations, and actions related to the architectural design and the norms to evaluate problems, consequences, and implications. The descriptive clusters focus on the sitethat is, WKHIDFWRUVWKDWLQÀXHQFHWKHGHYHORSPHQWWKDWDUH VSHFL¿FWRWKHORFDWLRQDQGKRZFRPSRQHQWVPD\ be organized in relation to each other. They also focus on the use and function of the construction, including the elements that need to be in place. The descriptive clusters are part of a process of making design decisions, but also part of a process of “zooming in and out” from a unit level to the whole as part of a process of considering the design implications from a number of shifting viewpoints. In the next section we will give a description of the case material and then we will use the cases to explore the descriptive clusters as part of the process of cultivation of the installed base.
THE DEVELOPMENT OF BROADBAND IN SOGN OG FJORDANE COUNTY Sogn og Fjordane County is located in the western part of Norway and covers an area of 18,634 square kilometers, with an average of about six persons per square kilometer. The county is characterized by a rugged physical environment which includes glaciers, mountains, and fjords, which separate populated areas. At the time of the deregulation, access to broadband infrastructure in Sogn og Fjordane County was very limited. The regional university college, research institution, and hospital, all had access to broadband capacity. There were also D IHZ HQWHUSULVHV WKDW OHDVHG OLQHV IRU VSHFL¿F purposes and used ISDN for e-mail and Internet access. However, in other more urban areas, both local and national providers offered a number of broadband alternatives. The industries in Sogn og Fjordane are to a large extent based on natural resources and are often located close to these resources. As a result the
Improving Broadband Access in Rural Areas
Table 1. Overview of local broadband initiatives and suppliers in Sogn og Fjordane as of June 2006. The two initiatives marked with * are chosen for consideration in this chapter. Initiative
Aurland &
BB
Owners/ Involve-
Since
ment
2003
Ltd owned by
Existing cable-TV &
2 Municipality + 2
ADSL & wireless &
el. suppliers
¿EHU
Ltd company
Wireless & ADSL
Lærdal Breiband
Datapart
Enivest
2002
2000
Infrastructure
Users/Use
Operation
Coverage Municipality
Sogn Breiband
Internal opera-
Aurland & Lærdal
tion
Private & busi-
Internal opera-
nesses
tion
Ltd owned by 4
ADSL & wireless &
Private & busi-
Internal opera-
municipalities and 3
¿EHU
nesses
tion
ADSL & wireless
Private & busi-
Internal opera-
Luster & Sogndal
Nine municipalities
el. suppliers Firdanett *
2000
nesses
tion
Jølster Breiband
2002
Ltd company
Wireless
Private & busi-
Internal opera-
nesses
tion
Kapasitets-
2000
Ltd Company
Fiber
Businesses &
Outsourced
public sector
operation
Luster
2005
Ltd company
Services on top of
Private & busi-
Internal opera-
Aurland & Lærdal
ALB
nesses
tion
Wireless & ADSL
Private & busi-
Internal opera-
nesses
tion
businesses
Internal opera-
Ltd company owned by el. supplier
laget * Sogn Breiband
SicoData
ViaVest
Vik IT-Partnar
?
2000
2002
Ltd company
Ltd joint venture
Wireless & leased
between companies
lines
Ltd company
Wireless
Gloppen
Mainly Jølster
Sogndal, Leikanger,
Stryn
Stryn
tion Private & busi-
Internal opera-
Vik Balestrand
nesses
tion
in coop. w el. supplier
Zet.no
1998
Ltd company
:LUHOHVV ¿EHU
Private & businesses
tion
Årdalsnett
2001
Ltd company
Existing cable-TV &
Private & busi-
Internal opera-
12 local owners
wireless
nesses
tion
population is spread over large parts of the region with only a few agglomerated areas. For commercial providers the cost of cabling the whole region was considered too high and the demand was too small. The providers are willing to deliver access to individual organizations, but at a high cost. To rent a 2 Mbit/s connection is 40 times as expensive per bit as the rent for 622 Mbit/s (Teleplan, 2003b); accordingly it is a discount based on quantum. Lo-
Internal opera-
5 towns
Årdal & Lærdal
cal actors can reduce cost by collaborating if they share a high-capacity connection and develop an access network locally. To meet the challenge a total of 12 regional and local initiatives were undertaken which utilized existing relational and organizational networks and established new ones where it was needed. These initiatives ensure that large areas of the region now have access to broadband infrastructure.
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Improving Broadband Access in Rural Areas
Several of the initiatives were developed as part of a public-private partnership and have received funding from Høykom and from the public sector. Nine of these initiatives have been included in a study carried out by Norsk Telecom (2004). Table 1 lists all the initiatives with a short description of their main characteristics. As a result of these initiatives, the region has a broadband DSL coverage of 79.36% (Telenor_Jara_AS, 2006). However, DPRQJWKHUHJLRQV¶PXQLFLSDOLWLHVWKHFRYHUDJH varies from 34.51% to 97.16%. Figure 1 shows the development of broadband access from 2002 to 2006 in Sogn og Fjordane County. Each of these initiatives covers only a part of Sogn og Fjordane, and all are the result of local initiatives. The company Enivest is the only entity that may be considered to be a provider with regional coverage. The national provider Telenor is currently present in all 26 municipalities in the region, providing DSL service (BBF, 2005). In addition to the local initiatives, there is a regional initiative called Broadband-forum Sogn og Fjordane (BBF); this is a network organization initiated in 2001. BBF focuses on the establishment, development, and utilization of broadband infrastructure in local communities. BBF initiates and participates in activities focusing on disseminating information by means of meetings and conferences. It maintains an overview of providers in each municipality, and monitors projects by focusing on utilization and service delivery. By participating in these activities, BBF supports the demand side in achieving the aim of having the best possible coverage in the region. The following description focuses on two of the local development initiatives in the municipalities Sogndal–Leikanger and Gloppen (marked with * in Table 1). These two localities had different starting points (different installed bases) and also went through different processes subsequently (the differences are further outlined in Table 3).
Sogndal–Leikanger Municipalities Sogndal Municipality is one of the main agglomerations in the region, with about 6,600 inhabitants. It has a diverse business structure, and is also the
184
location of the regional university college and a small research institute. These two institutions both had access to broadband prior to deregulation. As the university college developed, it grew to occupy various buildings throughout Sogndal; over the years a broadband infrastructure has been built which connects these various buildings. This infrastructure originally leased lines from the national telecom provider Telenor, but with the liberalization of the market, the university college and the municipality purchased the available infrastructure. Below is a chronological list of the main events involved in this development process in Sogndal–Leikanger: •
•
•
•
1996: Today: two large public organizations, the county municipality,3 and the county governor4 participated in international projects together and separately, in the development of national e-government services. 1999: Increasing need for better, faster access to the Internet. The need for high-capacity access to provide services to regional and QDWLRQDOXVHUV6HUYLFHVJHQHUDWHKHDY\WUDI¿F ERWKZLWKUHJDUGWRODUJH¿OHVDQGWKHQXPEHU of requests, for example, the portal norge.no, which has approximately 55,000 page views per day.5 The two public organizations, along with regional partners, saw an opportunity WRDFKLHYHVXI¿FLHQWDFFHVVDWORZHUFRVWE\ aggregating demand. 1999: Applied for funding from the national program Høykom. The project started in -XQH DQG ZDV ¿QDOL]HG LQ 'HFHPEHU 2001. The focus was on developing the local infrastructure to facilitate service delivery. 1999-2001: A network structure was set up to connect the two public organizations located in Leikanger to the national trunk network in Sogndal with a 2 Mbit/s and a 4 Mbit/s line. The 20-kilometer line to Leikanger from Sogndal was established by leasing lines from the national provider. Subsequently they UHQWHG XQWHUPLQDWHG ¿EHU WR REWDLQ PRUH control over capacity and both endpoints. In Sogndal there was a 4 Mbit/s line to the
Figure 1. The map on the left shows access points for broadband coverage in 2002, and the one on the right shows the coverage in 2006 (Vorland, 2006).
Improving Broadband Access in Rural Areas
185
Improving Broadband Access in Rural Areas
•
•
•
•
•
•
university college, and the connection to the national trunk network was 4 Mbit/s. 1999-2001: In Leikanger a backbone network was developed in two phases to include 16 QRGHVORFDOO\FRQVLVWLQJRI¿EHUDQGUDGLR links 1999-2001: The county municipality extended its network to include the administration of nine municipalities in the region. The virtual private network (VPN) had a capacity of 2 0ELWVDQGDFRPPRQ¿UHZDOO 1999-2001: In Sogndal two R&D organizations were connected with a 4 Mbit/s line. Eight businesses cooperated in a joint effort to create a backbone network consisting of ¿EHUDQGUDGLRWRH[WHQGWKHFRPPRQLQIUDstructure to other potential users. January 2001: A joint venture company µ.DSDVLWHWVODJHWL6RJQ$6¶ ./ ZDVVHWXS Its aim was to continue operation and development. Ten local companies own equal shares in KL. The combination of owners ensured access to the installed base and to knowledge about how to operate the infrastructure. Initially KL was operated using employees from the participating owner organizations. Later the operation was out-sourced to one of the organizations. 2002: The access network was extended to the neighboring municipality Luster. A QHZ¿EHUOLQHZDVQHHGHG7KLVZDVPDGH possible by a joint effort between two local energy companies and the main national WHOHFRPSURYLGHUXWLOL]LQJH[LVWLQJ¿EHUDQG DGGLQJDUHODWLYHO\VKRUWQHZ¿EHUFDEOH$V a result, Luster municipality acquired commercial broadband at least one year earlier than planned. Summer 2003: $QHZSLHFHRI¿EHUFDEOH infrastructure was installed to connect Kaupanger; this infrastructure is owned by a local energy company
7KHNH\WRWKHGHYHORSPHQW¶VVXFFHVVZDVWKH DELOLW\ WR PDNH XVH RI H[LVWLQJ ¿EHU LQIUDVWUXFture owned by the municipality and the college. It was also possible to keep the operational costs
186
low by using existing employees from the owner organizations. The collaboration between KL and the owners of the infrastructure was a win-win situation. Compared to traditional top-down diffusion of infrastructure development, this approach worked well: it was instrumental in keeping cost to a minimum while providing broadband services in a very short period of time. Under this setup KL provides the backbone infrastructure; the company does not provide any other services. Provision of other services has been left to the users of the infrastructure. Organizations that wish to connect to the infrastructure may do so at their own cost or through a radio line delivered by one of the service providers in the network. KL negotiates access to the national infrastructure at regular intervals. As the use of the infrastructure increased, higher capacity access to the national trunk network was needed. Currently the capacity is 20 Mbit/s. The experience so far is that working jointly in this way has led to cheaper and faster access for all of the companies connected through KL. Summing up this initiative, the main actors and WKH¿UVWDGDSWHUVLQWKH./LQLWLDWLYHZHUHIURP the regional public sector, together with a limited number of enterprises and the two local research and educational institutions. The strategy chosen was ad hoc. The main focus was on the needs of WKH¿UVWDGDSWHUVDQGWKHQHHGVRIWKH¿UVWDGDSWHUV and the aim of less expensive broadband capacity were the main motivating factors behind the well-aligned network. There was prior knowledge about operating broadband infrastructure, and the organizations involved had a large knowledge base to draw on. In addition, the infrastructure was cultivated based on the utilization of existing LQIUDVWUXFWXUHXQXVHG¿EHURSWLFOLQNVIURPIRUPHU LQVWDOODWLRQVDQGXQWHUPLQDWHG¿EHUFDEOHVZKLFK were supplemented with some new components to connect the new broadband access network. KL has no employees; initially the operation of KL was based on human resources drawn from the participating organizations, while consultants stepped in to manage administrative and operational services later on. Consequently, the focus remained on the QHHGVRIWKH¿UVWDGDSWHUVDQGWKHHFRQRPLFDVSHFWV of the operation were not a problem.
Improving Broadband Access in Rural Areas
Gloppen Municipality
•
Gloppen is a municipality with a population of 6,000. The development of the local broadband initiative Firdanett is the result of several interacting processes. Below is a chronological list of the main events involved in this development process in Gloppen: •
•
•
•
•
1996: The chamber of commerce was revitalized and with it a strategy for revitalizing the economic development of the community (Gloppen-Næringsorganisasjon, 2001). This started a process that led to a consensus about the current situation and the future challenges. The chamber of commerce worked in cooperation with the municipality. 1996: $*ORSSHQEDVHG,&7¿UPVHWXSD/$1 to provide services to a customer located in RQHEXLOGLQJ7KH¿UPKDGUHFHLYHGUHTXHVWV for an extended service to customers not located in the same building. Due to certain legal regulations, this was not possible. 1998: The telecommunications liberalization policy was implemented. The regulations were changed and the LAN was expanded. The LAN and its services formed the basis for the development of the local broadband infrastructure. 1998: µ*ORSSHQ,7QHWW¶ZDVHVWDEOLVKHGDVD joint venture between the chamber of commerce, the municipality, and the local energy company (Gloppen-kommune, 2000). 1999: An application for funding was made to the Høykom program. The project started LQ-XQH DQGZDV¿QLVKHGLQ'HFHPEHU 1999. As part of the project, the LAN was extended to become a full broadband access network. The project was important in helping to expand the network to provide better coverage throughout the municipalLW\ 7KH GHYHORSPHQW RI µ*ORSSHQ ,7 QHWW¶ was considered to be an exemplary model (Samferdsledepartementet, 2002) for publicprivate partnerships for the development of broadband infrastructure.
•
•
1999: After about one year of operation, it became clear that there was a disagreement among the owners with regard to priorities. As a result services connected with the infrastructure, such as backup, server space, and so forth, were transferred back to the ORFDO,&7¿UPZKLOHWKHUHPDLQLQJRZQHUV UH¿QDQFHGWKHFRPSDQ\ ZKLFKDOVRFKDQJHG its name to Firdanett at that time). The local energy company was the majority owner of Firdanett, while the chamber of commerce and the municipality were minority owners. Firdanett had two employees, one technician and one salesman. 2003: Firdanett provided broadband access to 55 companies and 85 households. At that time the national provider Telenor did not offer broadband to households and small businesses in Sandane. March 2004: Firdanett merged with another broadband company, ENIVEST, and as a result of another merger process the two companies came under the same ownership. ENIVEST had regional coverage and expanded its access services based on demand and public sector projects, which were important for development. Coverage in Gloppen was increased further after the merger.
The local broadband infrastructure consists of a mixture of the early LAN, supplemented by ¿EHUFDEOHVFRQQHFWLQJWKHPDLQEXLOGLQJVLQWKH central parts of Sandane and radio transmitters/ receivers to reach communities elsewhere in the municipalities. Firdanett has access to national infrastructure through a 6 Mbit/s licensed radio link to Hunvikfjellet that is about 22 kilometers (straight-line distance) which connects the local network to the national trunk network. In Gloppen the LAN was the only technical installed base that could be cultivated in the same way as in the KL FDVH7KHFRVWRISXWWLQJD¿EHURSWLFLQIUDVWUXFWXUH in place was high, and there was no short-term payback from the investment. Firdanett offers broadband Internet access and ,3WHOHSKRQ\DQGWKH,&7¿UPDQGRWKHUVHUYLFH
187
Improving Broadband Access in Rural Areas
Table 2. Mapping of Schön’s (1991) descriptive clusters with the clusters found useful for rural broadband development Descriptive cluster w/ explanation according to Schön (1991) 9) Character - the kind of, mode of, or style of construction 1) Use and function - what is the intended use or function of the construction 2) Siting - Features of the site, factors that influence the development
Cluster broadband development
Definition of cluster for broadband development
Character
Kind of infrastructure
Use and function
Description of intended function and use of the infrastructure
Siting
10) Precedent - describing a model for the construction; 3) Building elements and components - what needs to be in place and can be used in the construction; 6) Structure/Technology and processes used - the material needed in the construction and an understanding of the process 7) Scale - Magnitudes of elements in relation to one another 4) Organisation of space and the relation of spaces to one another 5) Form - Shape, geometry, organisation of space and paths through space 8) Cost of development;
Precedent
Descriptions of the site(s) to be served by the infrastructure. If relevant description of neighbouring infrastructure, of geography or structural features that can influence the infrastructure and of organisations or actors that can play a role in bootstrapping the infrastructure. Models for the implementation, reference types. List of possible components. Design principles for development.
11) Representation - Language and notions for describing the construction 12) Explanation - context of interaction.
188
Technology, building elements and components
Scale
Form/ Organisation of space
Cost of development: Representation:
Explanation
Reach and capacity of infrastructure, EDQGZLGWKFRYHUDJH, coverage geography The shape of the infrastructure, distribution, redundancy, M:M or 1:M How and were are different places that will be using the infrastructure located, how can they be connected? Budget available for the development and for operations. Representation used to describe infrastructure Protocol for frequency and involvement of users in the development process.
Improving Broadband Access in Rural Areas
providers offer their ICT services to the businesses connected to the network along with other service providers such as accountants. Summing up this initiative, the main actors in the Gloppen initiative were local enterprises and the local public sector. The strategy chosen was ad hoc and the main focus was on the needs of the business community. The main motivating factor was access to broadband infrastructure for a relatively low number of organizations; as a re-
sult there was an immediate need to increase the number of users quickly which made the developPHQWPRUHGLI¿FXOW$VDUHVXOWWKHORFDOQHWZRUN was not well aligned at the start; however, after the restructuring it became a well-functioning initiative. The initiative had IT competence but little experience in operating this kind of network, and there was no common knowledge base. BeFDXVHLWZDVQHFHVVDU\WRKDYHVXI¿FLHQWLQFRPH to employ stafftwo persons were employed to
7DEOH'HVFULSWLRQRIWKHWZRFDVHVXVLQJPRGL¿HGFOXVWHUV Descriptive cluster 1) Character of information infrastructure: 2) Use and function
3) Siting:
4) Precedent:
Firdanett
Kapasitetslaget
Internet access, service platform
Internet access
Phase 1. Access to Internet & service provision public sector and businesses in centre. Phase 2. extending to also cover private homes and businesses outside centre Function: 1)Provision of services locally on the network, 2) Gateway to services on the Internet Municipality of Gloppen, Phase 1. Centre of Sandane, public sector + businesses. Phase 2. Byrkjelo, Reed, Austrheim, Vereide, Rygg and Hyen, schools + general public. Installed base: LAN inside buildings, Telephone lines, Organisational: Municipality, energy company, chamber of commerce and some businesses interested in leading the development. Knowledge: Had sufficient operational skills, but very dependent on individuals and one company. Received external help to get funding. Needed to employ service personnel and a manager to operate the network. Salaries were the main costs of the company and put pressure on compan\¶s economy. Internet
Access to Internet to deliver services to external customers. Cover needs of initiators. Function: Gateway to services on the Internet and provision of services to users on the Internet. . Negotiating power increase/lower total cost? Municipalities Sogndal and Leikanger, specific organisations. Later also extending to other neighbouring communities, Luster, Kaupanger. Installed base: Municipality and university college own fibre network covering much of Sogndal Centre. Access point for national trunk network in Sogndal. Knowledge: Partners in the development had across organisations skills and knowledge about running and extending the networks. Did not need to employ personnel to manage the network - was in the start-up phase operated based on “donation” of time from employer to KL. This kept the operation costs very low.
Internet
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Table 3 (cont.) Descriptive cluster 5) Technology, building elements and components
6) Scale,
Firdanett
Kapasitetslaget
Licensed Radio link to Eid to connect to national trunk network. Optical fibre in Sandane centre, licensed radio link and wireless broadband to the subscriber to connect more of the surrounding and remoter communities.
Fibre owned by university college available, leased lines to Leikanger connecting county municipality (Fylkeskommunen) and county governor (Fylkesmannen) to network. Leikanger installed trunk network in 2 phases to include 16 nodes locally; consists of both fibre and radio link. Use gateways to connect fragmented infrastructures. Extending to Luster and Kaupanger in collaboration with national provider, and two local electricity companies. Capacity on the link to national trunk network, determining the cost of KL services. Dependent on number of connected users, and type of data. Transfer of music files requires high capacity, web search requires lower capacity. Access to trunk network needs to be scalable to fit number of users and the demand of the users connected to the infrastructure.
Reach: Phase 1. Centre of Sandane, businesses & public sector. Phase 2: Small communities in municipality Gloppen, businesses and private homes. Bandwidth (initial): 10/100 Mb to trunk network. In the network aiming for 2-11 Mbit capacity using radio links. 7) Form/ Centre of Gloppen Sandane is Organisation of located about 20 km from a space location to connect to national trunk network. 2 possible trunk network providers. Star shaped infrastructure, no redundancy. Unlicensed radio and fibre are alternatives for distribution to end user. 8) Cost of Cost of putting down fibre and development setting up radio link and radio. Cost of serving an IP phone switch. Funded among others through 2 projects. Phase 1: 1.8 million NOK. Phase 2: 1.66 million NOK 9) RepresentaNo particular representation tion chosen 10) Explanation Aim of development to ensure broadband access to Internet for public sector, businesses and individuals.
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Sogndal is on the national trunk network. Leikanger is 20+ km from Sogndal. Luster 10-15 km, Kaupanger 10 km. Star shaped infrastructure - no redundancy
Cost of connecting fragments, cost of gateways. Project phase: 2.9 Million NOK
No particular representation chosen Aim of development to ensure broadband access to Internet for public sector, businesses and individuals.
Improving Broadband Access in Rural Areas
7DEOH5HGH¿QLWLRQRIGHVFULSWLYHFOXVWHUVIRUWKHLQIUDVWUXFWXUHGRPDLQ PRGL¿HGIURP6FK|Q Cluster
Important Questions to Ask
Character
Kind of infrastructure. What kind of infrastructure is intended?
Use and function
Description of intended function and use of the infrastructure. What is the intended function? What is the intended use? Who are the intended users? (public sector/ business/ private)
Siting
Descriptions of the site(s) to be served by the infrastructure. If relevant, description of neighboring LQIUDVWUXFWXUHRIJHRJUDSK\RUVWUXFWXUDOIHDWXUHVWKDWFDQLQÀXHQFHWKHLQIUDVWUXFWXUHDQGRIRUJDnizations or actors that can play a role in bootstrapping the infrastructure. Where is the installation? Location of sites to connect? What is the installed base? What organizational infrastructure can be XWLOL]HG",VWKHUHVXI¿FLHQWNQRZOHGJHDQGFRPSHWHQFHWRRSHUDWHWKHLQIUDVWUXFWXUH":KRKDVWKLV NQRZOHGJHDQGFRPSHWHQFH":KRDUHWKH¿UVWDGDSWHUV"$UHWKHUHRWKHUSRWHQWLDO¿UVWDGDSWHUVWKDWDUH instrumental to be included? Which facilities need to be connected to the new infrastructure? What are potential growth paths? Who are potential second adapters?
Precedent
Models for the implementation, reference types. Has anyone done something similar before? Is it possible to learn from them and their choices? Study trip?
Technology, building elements, and
List of possible components. Design principles for development. Which components is it possible to
components
XWLOL]H"+DUGZDUH ¿EHUOLFHQVHGDQGXQOLFHQVHGUDGLRFRSSHUSKRQHOLQHV'6/ 6WDQGDUGVVZLWFKHV organization. Structure and basic choice of technology and development process.
Scale
5HDFKDQGFDSDFLW\RILQIUDVWUXFWXUHEDQGZLGWKFRYHUDJHFRYHUDJHJHRJUDSK\What bandwidth is needed? What is the geographical coverage? What is the percent coverage?
Form/organization of space
The shape of the infrastructure, distribution, redundancy, M:M or 1:M. How and where are different places that will be using the infrastructure located, how can they be connected? Possible designs taking technology, building elements, components, scale, and costs into consideration. Should there be redundancy in the system? If this is the case, how and where are the critical applications/users?
Cost of development
Budget available for the development and for operations. Cost of alternatives? Can the development be phased? What human resources are needed? Is there access to these resources? How can the project EHIXQGHG SXEOLFIXQGLQJ¿UVWDGDSWHUVGHSHQGHQWRQFULWLFDOPDVVRIXVHUV "%XGJHWDYDLODEOHIRUWKH development and for operations?
Representation
Representation used to describe infrastructure.
Explanation
Protocol for frequency and involvement of users in the development process.
operate and market the infrastructurethis put pressure on the organization, as the focus became income generation as opposed to the needs of the ¿UVWDGDSWHUV
CAN DESCRIPTIVE CLUSTERS BE USED TO EXPLORE THE INSTALLED BASE? Both the cases described above are successful developments, but the conditions for the developments were quite different. Out of the 12 initiatives in the
191
Improving Broadband Access in Rural Areas
region, these two were chosen in order to represent some of the variety that was present. Common to all is the bottom-up approach, including the approach of making development as simple as possible using available infrastructure and low-cost additions to ¿OOWKHQHHGVRIWKH¿UVWDGDSWHUV,QHIIHFWWKHVH developments create a larger total market for suppliers than that constituted by the individual needs of the actorsthat is, they aggregated the demand. This involved a public-private partnership sharing costs between regional and local public sector and local businesses. Transaction costs are also lower for suppliers, who interact with the initiative as one large customer rather than many small customers. The variety in the development process illusWUDWHVWKHQHHGWRWDNHVSHFL¿FORFDOIDFWRUVLQWR DFFRXQW WKLVLQFOXGHVWKHQHHGVRIWKHSRWHQWLDO¿UVW adapters, the existing infrastructure (installed base) which is available to be built upon (both technical and organizational), and the local organization(s) which are part of the installed base. This is where I VXJJHVWWKDW6FK|Q¶V ³UHÀHFWLYHFRQYHUVDWLRQ with the situation” may be useful. In Table 2, the FOXVWHUVGH¿QHGE\6FK|QDUHOLVWHGDQGUHGH¿QHGIRUWKHORFDOEURDGEDQGFRQWH[W0RVWRIWKH descriptive clusters are also useful when working with rural broadband infrastructure, but some seem not to be applicable or to be variations of one of the other clusters. The original 12 descriptive clusters (Schön, 1991) have been examined, combined, and UHGH¿QHGLQWRGHVFULSWLYHFOXVWHUVZKLFKFRYHU areas relevant to the local broadband context. There are small variations between the original cluster 3 µEXLOGLQJHOHPHQWV¶DQGFOXVWHUµVWUXFWXUHWHFKQRORJ\¶DQGDOVREHWZHHQFOXVWHUµRUJDQL]DWLRQRI VSDFH¶DQGFOXVWHUµIRUP ¶WKHUHIRUHWKHSURSRVDO LVWRXVHFOXVWHUVDVRSSRVHGWRWKHGH¿QHG by Schön (1991). When developing rural broadband infrastructures, what is the installed base and what are the input factors to the bottom-up cultivation process? In Table 3 the two local initiatives are described XVLQJWKHUHGH¿QHGFOXVWHUV7KLVLVGRQHWRHQable the extraction of important factors relating to the cultivation process and to identify rhetorical µZKDWLI¶TXHVWLRQVWDNLQJWKHLQVWDOOHGEDVHDQG
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the features of the location into the consideration in the cultivation process. The descriptions shed light on the installed base, the choices made, and the components used as part of the cultivation process.
CONCLUSION AND PRACTICAL IMPLICATIONS Using a bottom-up strategy is more complex than a top-down rollout, because there are many actors and components to consider. Hanseth and /\\WLQHQ¶V IUDPHZRUNDQG6FK|Q¶V descriptive clusters are intended to serve as a framework for both understanding and guiding bottom-up development. In the description of the cases, it has been used in retrospect to examine the development. Looking at the information brought forward in the description (Table 3) of the cases, it is possible to extract a number of questions that are useful to consider when starting a bottom-up process. In all of the cultivation processes, there will be uncertainties. To reduce the uncertainties it is necessary to know as much as possible about local conditions and potential actors that the project should be aligned with, as well as the installed base; which components need to be added to the installed base as part of the cultivation must also be carefully considered. During the cultivation process the descriptive clusters may be used to arrive at a description of the installed base and the considerations needed to cultivate it. To identify the opportunity space of the local broadband development, the descriptive clusters become a tool, a set of rhetorical questions for uncovering the installed base and the choices that need to be consideredthat is, the “what if” and “if…then…” considerations that need to be taken as part of the cultivation process. In Table 4 the local broadband clusters are analyzed to produce a set of questions addressing key contributing factors to a bottom-up cultivation of broadband infrastructure in rural areas. In this way the descriptive clusters may be used to uncover the starting point of a development. The questions and answers describe important inputs
Improving Broadband Access in Rural Areas
into the development process, and in using them it is possible to gain an overview of what kinds of resources are available, of the features installed base, and of the kinds of decisions that need to be taken. In addition, the use of a tool like the descriptive clusters also puts the focus on the local context and culture in the community. With a bottom-up strategy questions have to be answered in relation to the local context. When changing from one location to another, there are always things to be learned, but the bottom-up strategy makes it impossible to make blueprint implementations. What can be transferred are rather the relevant methods and experience of dealing with a type of problem situation.
REFERENCES Baskerville, R., & Wood-Harper, A.T. (1996). A critical perspective on action researcha method for information systems research. Journal of Information Technology, 11, 235-246. BBF. (2005). Breibandsstatus Sogn og Fjordane 22.01.05. Retrieved March 31, 2005, from http:// www.it-forum.no/pub/Pubdok/Breibandsstatus% 20Sogn%20og%20Fjordane200105.pdf Cole, R.E. (1991). Participant observer research. In W.F. Whyte (Ed.), Participatory action research. Sage. Dahlbom, B., & Janlert, L.E. (1996). Computer future. Manuscript as referenced in: Hanseth, O. (2002). From systems and tools to networks and infrastructures—from design to cultivation. Towards a theory of ICT solutions and its design methodology implications. Retrieved November 29, 2003, from http://www.if.uio.no/~oleha/Publications/ib_ISR_3rd_resubm2.html Gloppen-kommune. (2000). Gloppen-modellen—utbygging av digitalt allemannsnett i distrikta (Høykom rapport 1019/240). Retrieved October 29, 2004, from http://www. hoykom.no/hoykom/web_hoykom_ prosjekter.nsf/677cffd27235dae8c1256d7a0041af6f/
efcfd7951176e01d41256823003ce603/$FILE/ P1019%20Gloppen.doc Gloppen-Næringsorganisasjon. (2001). Vedtekter Gloppen Næringsorganisasjon 27.3.2001. Retrieved October 29, 2002, from http://www.gloppennaerings.org/vedtekter.doc Granovetter, M., & McGuire, P. (1998). The making of an industry: Electricity in the United States. In M. Callon (Ed.), The laws of the markets (pp. 147-173). Oxford: Blackwell. Grubesic, T.H. (2003). Inequities in the broadband revolution. Annals of Regional Science, (37), 263289. Grubesic, T.H., & Murray, A.T. (2002). Constructing the divide: Spatial disparities in broadband access. Papers in Regional Science, (81), 197-221. Hanseth, O. (2000). The economics of standards. In C. Ciborra (Ed.), From control to drift (pp. 56-70). Oxford, UK: Oxford University Press. Hanseth, O. (2002). From systems and tools to networks and infrastructures—from design to cultivation. Towards a theory of ICT solutions and its design methodology implications. Retrieved November 29, 2003, from http://www.if.uio.no/~oleha/ Publications/ib_ISR_3rd_resubm2.html Hanseth, O., & Lyytinen, K. (2006). Theorizing about the design of Information infrastructures: Design kernel theories and principles. Retrieved -XO\IURPKWWS ZZZL¿XLRQRaROHKD 3XEOLFDWLRQV,65LQIUDVWUXFWXUH¿QDOSGI Molka-Danielsen, J., Ohren, O., & Jæger, B. (2003, November). Broadband infrastructure in the County of Møre and Romsdal and rural regional development. Proceedings of the Annual NOKOBIT 2003 Conference, Oslo, Norway. Norsk_Telecom. (2004). Norske Bredåndsaktører (Rapport 2. Mars 2004 for NHD). Retrieved March 31, 2005, from http://www.enorge.org/File$UFKLYH$NW&%UUDSSRUW¿QDO pdf OECD. (2004). The development of broadband access in rural and remote areas. Retrieved
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September 10, 2004, from http://www.oecd.org/ dataoecd/38/40/31718094.pdf
IURP KWWS ZZZRGLQGHSQR¿ODUNLY2IIHQWOLJHBDYJLIWHUB¿QDOSGI
Post_og _teletilsynet. (2006a). Bredbåndsdekning—tekniske muligheter og begrensninger. Retrieved September 10, 2006, from http://www. npt.no/iKnowBase/Content/bredbandsdekning. pdf?documentID=47302
Vorland, A. (2006). Status og behov breibandutbygging i Sogn og Fjordane. Retrieved September 28, 2006, from http://www.it-forum.no/konferanse/pdf/BBF.pdf
Post_og_teletilsynet. (2006b). Det norske telemarkedet 1. halvår 2006.
Walsham, G. (1993). Interpreting information systems in organizations. New York: John Wiley & Sons.
Samferdsledepartementet. (2002). Breiband i kommunane—Kva er breiband, kvifor er det nyttig og korleis kan det nyttast? Retrieved October 29, 2004, from http://www.dep.no/sd/norsk/publ/ veiledninger/028021-120002/dok-nn.html
Wikipedia. (2006). Infrastructure. Retrieved March 29, 2006, from http://en.wikipedia.org/ wiki/Infrastructure
Schön, D.A. (1991). 7KH UHÀHFWLYH SUDFWLWLRQHU How professionals think in action. Aldershot: Ashgate/Arena.
KEY TERMS
Shapiro, C., & Varian, H.R. (1999). Information rules: A strategic guide to the network economy. Boston: Harvard Business School Press. Skogseid, I., & Hanseth, O. (2005, May). Local actors build broadband infrastructure. Proceedings of the European Conference of Information Systems 2005, Regensburg, Germany. 6WDQWRQ/- )DFWRUVLQÀXHQFLQJWKHDGRStion of residential broadband connections to the Internet. Proceedings of the 37th Hawaii International Conference on System Sciences, Hawaii. Star, S.L., & Ruhleder, K. (1996). Steps to an ecology of infrastructure. Design and access for large information spaces. Information System Research, 7(1), 111-134. Telenor_Jara_AS. (2006). Retrieved June 2, 2006, from http://www.jara.no/produktlosninger/bredbaand/priser_avtaler.html# Teleplan. (2003a). Bredbånd—Dekning og tilknytning. Retrieved March 31, 2005, from http://www. enorge.org/modules/module_111/news_item_view. asp?iNewsId=2369&iCategoryId=153 Teleplan. (2003b). Kartlegging av bruk av offentlige vederlag for fremføring. Retrieved March 31, 2005,
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Broadband: High-speed data transmission. 7KHUHLVQRFOHDUGH¿QLWLRQRIZKDWFRQVWLWXWHVD EURDGEDQG WUDQVPLVVLRQ 6RPH GH¿QLWLRQV RQO\ consider speeds above 2 Mbit/s, while in this chapter speeds above 384 kbit/s are considered as broadband, while ISDN and modem transmissions IDOORXWVLGHWKHGH¿QLWLRQRIEURDGEDQG Cultivation: A strategy for developing technological systems. The term originates from the sphere of agriculture and means to “to grow and cultivate plants and the domestication of animals.” Dahlbom and Janlert (1996) use the two terms “construction” and “cultivation” to describe two different processes to shape technology. “Construction” emphasizes the human ability to shape WKHZRUOGDFFRUGLQJWRVHWRIJRDOVµ&XOWLYDWLRQ¶ refers to the process of selecting and assembling components, but also to a process of growth or development in the material itself that has characWHULVWLFVWKDWLQÀXHQFHWKHGHYHORSPHQW Høykom: A Norwegian program to increase the demand for broadband services. The Høykom (www.hoykom.no) program is at present in its third period of operation. The program was initiated in 1999 for a period of three years (1999-2001). Its current period of operation lasts from 2005-2007. +¡\NRPKDVSURYLGHG¿QDQFLDOVXSSRUWIRUPRUH WKDQ SURMHFWV RQ D VKDUHG ¿QDQFLQJ EDVLV
Improving Broadband Access in Rural Areas
Høykom supports projects initiated by the public sector with up to 50% of total project costs, totalLQJPRUHWKDQ¼PLOOLRQDQGKDVOHGWRDWRWDO SURMHFWYROXPHRIPRUHWKDQ¼PLOOLRQ Infrastructure: A “set of interconnected structural elements that provide the framework for supporting the entire structure. It usually applies RQO\WRVWUXFWXUHVWKDWDUHDUWL¿FLDO´ :LNLSHGLD 2006). An infrastructure may be viewed as a network that connects an integrated and heterogeneous set of componentssuch as equipment, systems, applications, processes, and peoplewhile at the same time these components form rather stable structures with certain inertia. Infrastructures are often taken for granted; their existence is only noticed when a segment breaks down, for example, during a power outage. There are many types of infrastructures: • • •
Transportation, such as roads and public transportation Public utilities, such as telephone and electricity networks 3XEOLF VHUYLFHV VXFK DV ¿UH GHSDUWPHQWV police, and waste management National services such as defense, postal services, and the national bank
Information Infrastructure: An infrastructure that supports the information society: the equipment, systems, applications, support systems, and so forth that are needed for operating in the information society. The term was introduced with the National Information Infrastructure initiative launched by the Clinton Administration in 1994. In the Clinton-Gore initiative the Internet is described as an information infrastructure shared by the users.
ENDNOTES 1
2
3
4
5
I use “rural areas” to describe areas that are sparsely populated, where the inhabitants live in small towns, villages, farms, or isolated houses. This is used in contrast to “urban areas,” which I use to describe areas such as densely populated towns and cities. +RZHYHUWKHUHLVDÀXLGERXQGDU\EHWZHHQ the two, and some who reside in small towns or villages may regard these as urban areas, though the district on the whole may have rural characteristics. The Norwegian Høykom (www.hoykom. no) program is at present in its third period of operation. The program was initiated in 1999 for a period of three years (1999-2001). Its current period of operation lasts from +¡\NRPKDVSURYLGHG¿QDQFLDO support for more than 400 projects on a VKDUHG¿QDQFLQJ EDVLV +¡\NRP VXVWDLQV projects initiated by the public sector with up to 50% of total project costs, totaling more WKDQ ¼ PLOOLRQ ZKLFK KDV OHG WR D WRWDO SURMHFWYROXPHRIPRUHWKDQ¼PLOOLRQ Norwegian: Fylkeskommunen: Sogn og Fjordane County Municipalitypolitical and administrative regional organization. Norwegian: Fylkesmannen: The county governor in Sogn og Fjordanethe regional state representative. Calculated based on data accessed September 20, 2006, from http://www.norway.no/omnorgeno/statistikk/norgeno.asp
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Chapter XIII
Metropolitan Broadband Networks:
Design and Implementation Aspects, and Business Models Antonios Alexiou Research Academic Computer Technology Institute and University of Patras, Greece Christos Bouras Research Academic Computer Technology Institute and University of Patras, Greece John Papagiannopoulos University of Aegean, Greece Dimitrios Primpas Research Academic Computer Technology Institute and University of Patras, Greece
ABSTRACT This chapter presents the design principles that cover the implementation of broadband infrastructure in the region of Western Greece, by examining all the necessary parameters that arise while implementing such a critical developmental project. The broadband infrastructure that is deployed is either based on RSWLFDO¿EHU RQELJPXQLFLSDOLWLHV RURQZLUHOHVVV\VWHPV 2)'0EDVHGDQG:L)LFHOOV )XUWKHUPRUH we present as two case studies all issues of the designing of the Metropolitan Area Network of Patras, the third largest city of Greece and the Wireless Access Network of Messatida. The major target of the broadband networks is to interconnect the buildings of the public sector in the city and also deploy infraVWUXFWXUH ¿EHUVRUZLUHOHVVV\VWHPV WKDWZLOOFUHDWHFRQGLWLRQVRIFRPSHWLWLRQLQSURYLGLQJERWKDFFHVV and content services to the advantage of the end consumer. The usage of the broadband infrastructure by service providers will be based on the open availability of the infrastructure in a cost-effective way. )LQDOO\ZHSUHVHQWWKHPDLQFKDUDFWHULVWLFVRIDSURSRVHGEXVLQHVVSODQWKDWHQVXUHV¿QDQFLDOYLDELOLW\ of the broadband infrastructure and guarantees the administration, growth, and exploitation of infrastructure. Copyright © 2008, IGI Global, distributing in print or electronic forms without written permission of IGI Global is prohibited.
Metropolitan Broadband Networks
INTRODUCTION This chapter presents the design principles that cover the implementation of broadband infrastructure in the region of Western Greece, by examining all the necessary parameters and studying all the issues that arise while implementing such a critical developmental project. In particular, we present the main principles that should be followed while developing such metropolitan area networks. Regarding the design guidelines, in this chapter we cover issues such as architecture of the broadband network, topology selection, requirements of the passive and active equipment, and requirements of WKH¿EHUDQGGXFWLQJLQIUDVWUXFWXUH)XUWKHUPRUH we present as a case study critical issues regarding the design of the metropolitan area network of Patras, the third largest city of Greece. The main target of the MAN of Patras is to interconnect the buildings of the public sector in the city. The organizations that are going to be connected in the MAN are organizations of the sectors of public administration, education, health, culture, and so forth. The usage of the broadband infrastructure by service providers will be based on the open DYDLODELOLW\RIWKH¿EHURSWLFVLQIUDVWUXFWXUHLQD cost-effective way. Finally, we present the main characteristics of a proposed business plan that HQVXUHV ¿QDQFLDO YLDELOLW\ RI WKH EURDGEDQG LQfrastructure and guarantees the administration, growth, and exploitation of the infrastructure. Several related projects that implement neutral broadband infrastructure in cities are running across the world. For example, Ireland, Sweden, and New Zealand run such programs, where the local authorities design and fund the major part of the projects aiming to increase the broadband SHQHWUDWLRQZLWKEHQH¿WVWRWKHHQGXVHUV 8723,$ 2006; CityLink, 2006; Localret, 2006). This chapter is structured as follows. We next describe broadband infrastructure in Europe and in Greece, then present the general guidelines for the design of municipal broadband networks. Following this, the methodology of work regarding the designing of the MANs is offered, and the overall architecture and topology of the MAN of Patras LVEULHÀ\GHVFULEHG$GGLWLRQDOO\WKHVDPHVHF-
tion describes the architecture of smaller wireless networks that are implemented in smaller municiSDOLWLHVZKHUHWKHRSWLFDO0$1VDUHQRWSUR¿WDEOH and presents a typical case study that is Messatida municipality. A presentation follows of the main characteristics of a business plan that ensures the ¿QDQFLDO YLDELOLW\ RI EURDGEDQG LQIUDVWUXFWXUH Finally some concluding remarks and planned next steps are presented.
BROADBAND STATUS IN GREECE The importance of broadband infrastructure ZRUOGZLGHLVFRQ¿UPHGE\WKHDFWLYLWLHVRIFHUWDLQ advanced countries in order for the appropriate broadband infrastructure to be developed and adopted so as to contribute to economic growth and to tackle any possible cases of “technological exclusion” of citizens (Firth & Mellor, 2005). The importance of broadband networks for the GHYHORSPHQWRIDFRXQWU\PD\DOVREHFRQ¿UPHG by the intensiveness of the activities of many countries that set as their main strategic objective the implementation of such infrastructures. In addition, the development of such networks has also been adopted in the common European policy for the implementation of the Information Society. In eEurope 2005 as well as in i2010, broadband access is an important priority of the European Union (EC, 2002; Europa, 2004). In the current situation, the proper infrastructure in Greece is owned only by the former public telecommunications provider (OTE), while the alternative providers seem only to have plans in expanding their network infrastructure within the big cities of Greece. The business plans of the alternative telecommunications companies and network carriers do not include the expansion of their network throughout Greece, since they are afraid that non-urban areas do not appear to have DQ\EXVLQHVVLQWHUHVW%URDGEDQGDFFHVVDVGH¿QHG by the “Strategic Text on Broadband Access” of the relevant task force, requires the proper broadband infrastructure and the competition between the Internet service providers. Since broadband infrastructure is now being developed, the penetra-
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Metropolitan Broadband Networks
tion of broadband usage has not been increased. $OWKRXJKWKHVH¿QGLQJVDUHSHVVLPLVWLFUHJDUGLQJ the growth of broadband, the action line of the operational program “Information Society” appear WREHDVLJQL¿FDQWKRSHIRUWKHQHDUIXWXUH Unfortunately, the broadband penetration level has been very low in Greece. Greece has been the last country among the EU of 15, and remained last, in providing broadband access among the 25 countries of the EU (see Figure 1) (Europa, 2006). This is caused by the fact that there is no investment by the private sector, therefore there is no competition in the broadband market in the region. The main issues that occur during this research for the current state of broadband in Western Greece could be divided in two main categories: D WKHFOLHQWV¶VLGHDVIDUDVEURDGEDQGGHPDQG LVFRQFHUQHG DQG E WKHSURYLGHUV¶VLGHDVIDUDV broadband supply is concerned. Regarding the end users, the major issues are the following: • •
High cost of broadband access regarding home usage Lack of broadband services that will take advantage of the infrastructure
Figure 1. Broadband penetration rates in EU25
198
The telecommunications companies have raised a number of issues that discourage them from investing in broadband infrastructure and services. Synoptically these issues are: •
•
Lack of the regulatory framework that adjusts DQGGH¿QHVWKHPDUNHWRIEURDGEDQGVHUYLFHV LQRUGHUWRHQVXUHPDUNHWDQGFRPSHWLWLRQ¶V functioning 'LI¿FXOWLHVLQGHYHORSLQJlocal loop unbundling (LLU) Lack of preparation in supporting the demand of broadband services by the former public telecommunications carrier (OTE)
Since the start of 2005, the xDSL penetration has been rising. The current access network (copper cables) is being updated by installing xDSL technologies such as ADSL mainly and HDSL. According to OTE, 10,929 ADSL ports were installed in the region of Western Greece by the end of 2005 (and 270,000 throughout the country). In addition, wireless hotspots have been installed in public places, such as ports, entertainment parks,
Metropolitan Broadband Networks
and so forth, through a project of the Information Society. Another measure that is expected to boost ADSL use in the major cities of the country is the provision of ADSL Internet access at a diminished cost to university students. This measure was announced by the Greek government in June 2005, and it will begin at the start of the next academic year. Taking into consideration the current state in the region of Western Greece where the telecomPXQLFDWLRQVPDUNHWVWLOOGHSHQGVRQWKHFRUH¿EHU optics networks of the dominant provider (OTE) and all the above mentioned issues, it can be said that it is important for the Greek government authorities to update the telecommunication law of the country. This could secure the viability of the public and private telecommunication companies, and simultaneously the viability of the communityowned networks. To this end, the Greek government authorities, taking into consideration the issues mentioned in this section and the variability of the Greek telecommunications market, passed the new telecommunications law. This law aims to secure the telecommunications market and competition in Greece, and as a consequence, better services will be provided to the citizens. The new law provides WKHWHOHFRPPXQLFDWLRQV¿UPVZLWKWKHFRQGLWLRQVWR HQDEOHWKHUHGXFWLRQRISULFHV7KHVSHFL¿FFODXVHV clearly describe the functioning of the Regulatory Authority (EETT) in terms of independence and HI¿FLHQF\7KHLVVXHVFRQFHUQLQJWKHULJKWVRIZD\ DUHDOVREHLQJGH¿QHG HJWKHULJKWVRIZD\RI ¿EHU RSWLF WKURXJK XUEDQ SODQQLQJ UHVRXUFHV RI different proprietors such as municipalities, individuals, institutions, and organizations), collocation issues, and the demarcation between public and private networks.
ISSUES ON DESIGNING BROADBAND INFRASTRUCTURE This section presents the main principles that should be followed while designing such metropolitan area networks. In Western Greece (our case) the networks belong to cities, where in most of the cases the municipalities do not have the proper know-how
of designing such networks. Therefore, a specialized technical consultant (the Research Academic Computer Technology Institute) has been selected in order to provide its know-how. In particular, the consultant works on conducting the studies of the QHWZRUNV¶GHVLJQDQGDUFKLWHFWXUHVXSHUYLVLQJWKH technical part of the construction of the networks and also designing the business plan that will be DSSOLHG DQG ZLOO HQVXUH WKH QHWZRUN¶V YLDELOLW\ The business plan proposes the scheme that will be responsible for the operation of the networks, according to the criteria and the guidelines of the EU (EC, 2002; Europa, 2004). The expected result of these projects is the creation of broadband infrastructure in Greece, which in turn will create conditions of competition in Greece in advance of the end user. A common strategic design and implementation in a regional OHYHO LV KLJKO\ GHVLUDEOH $W WKH ¿UVW VWDJH WKH main target of these networks, as metropolitan area networks, is to interconnect the buildings of the public sector of the cities in which they will be developed. The organizations that are going to be connected are those belonging on the education, health, and culture sectors, and so forth. During the second stage, this infrastructure will be available on network and content providers in a cost-effective way. The latter will create conditions of competition in broadband infrastructure and VHUYLFHVWKDWZLOOEHQH¿WHQGXVHUV7KHSODQIRU deployment of the infrastructure encourages the public exploitation through the leasing of pairs of ¿EHURSWLFV7KLVIDFWSURYLGHVUHYHQXHLQDFRVW effective way in order to cover all operating and maintenance costs. The projects mainly consist of manholes, ducts, FKDQQHOV¿EHURSWLFVSRLQWVRILQWHUFRQQHFWLRQ together with the installation of the passive and active equipment in order to provide the basic broadband access in the public sector buildings. In particular, a broadband infrastructure based on RSWLF¿EHUVZLOOEHLQVWDOOHGDFURVVWKHFLWLHVDQG several public collocation points will be created. The projects also fund some additional access infrastructure from public sector buildings to the collocation and aggregation points. This access LQIUDVWUXFWXUHDORQJZLWKDVPDOOSDUWRIWKHFLWLHV¶
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broadband infrastructure will be used to provide network connectivity to the public sector. The UHPDLQLQJEURDGEDQGLQIUDVWUXFWXUH RSWLF¿EHUV and collocation points) will be available for the content and service providers to use, and it will provide broadband services to the citizens. The major characteristics of the mentioned broadband infrastructure according to the European Commission (EC, 2003) should be the following: 1.
2.
3.
Open access: The funded projects must be consistent with the new regulatory framework of electronic telecommunications and the rules of competition (public funding and antitrust). The appliance of these rules is a FRPPLWPHQWLQRUGHUWRKDYHFOHDUO\GH¿QHG open access. In particular, the construction of the networks, as already mentioned, should be limited in the construction of infrastructure and equipment that will be open to any telecommunication carrier and service provider (ED, 2003; Magnago, 2004). Neutral operator: The main principles in the deployment of the broadband infrastructure assign the network operator the obligation to retain the neutral character of the infrastructure. The network should be an open access installation to all the organizations that provide electronic networks and services with absolutely no discriminations against them (Economides, 1996). Infrastructure owner: The municipality constructs the broadband infrastructure and REYLRXVO\ KDV VSHFL¿F EHQH¿WV IURP WKHVH networks. Therefore, it is also responsible for planning the expansion of the current infrastructure in a controlled and rational way. Also its role is to solve all issues of the installed infrastructure and declare the rules of usage of the infrastructure by the providers.
METROPOLITAN AREA NETWORKS This section is dedicated to describing the methodology that we followed in order to design the 200
MAN of Patras. Furthermore, it presents the main characteristics of the MAN of Patras in terms of topology, architecture, and technology selection.
Designing Aspects The overall architecture of the MAN is shown in Figure 2 (ITU, 2006). The topology is based on a three-level model: main network, distribution network, and access network. In turn, there are three types of nodes in the system: main nodes, distribution nodes, and access nodes. The main network consists of a number of main nodes that are connected directly between each other. In the main network, there must be some direct redundancy between main nodes which are close together. This means that it must be possible from one main node to reach the main nodes next to it without passing through the active equipment of another node. The optical cables should be laid without a break between the main nodes, so as to achieve high operational dependability. 7KH PDLQ QHWZRUN¶V RSWLFDO FDEOHV WKDW FRQQHFW different main nodes are to be separately ducted. 7KHQXPEHURI¿EHUVEHWZHHQWKHPDLQQRGHVLQ the main network in a municipality ought to be not less than 72 per optical cable. This number results as follows: Each distribution node usually FROOHFWV WUDI¿F IURP DSSUR[LPDWHO\ HLJKW DFFHVV nodes, as designed in the technical studies for the development of the networks. Each access node JDWKHUV WZR SDLUV RI ¿EHUV RQH XSOLQN DQG RQH backup), thus each optical cable should have at OHDVW[ ¿EHUVSOXVIRUDOWHUQDWLYHURXWHV in the distribution network. The available cables XVXDOO\SURYLGHDQG ¿EHUVVRLVWKH lower acceptable optical cable. If main nodes in different municipalities are long distances apart, with a smaller number of distribution nodes, the QXPEHURI¿EHUVPD\SRVVLEO\EHVPDOOHULIWKLVLV MXVWL¿HGE\JUHDWGLIIHUHQFHVRI¿EHUFRVW As far as the distribution network is concerned, it consists of the distribution nodes. A distribution node shall connect to a main node and shall be planned to have a redundant connection to another main node. The optical cables should be laid without a break from each main node to any
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Figure 2. General architecture
distribution node. Alternatively, an optical cable loop is laid with two or three distribution nodes where the need for each distribution node is hived off. Over long distances this will be a cheaper but PRUHYXOQHUDEOHRSWLRQ7KHQXPEHURI¿EHUVLQ the distribution network is affected by the following parameters: • •
Number of access nodes connecting with each distribution node Number of operators needing connections in the distribution network /HDVLQJRIGDUN¿EHUWRRWKHUDFWRUV
7KHQXPEHURI¿EHUVWRHDFKGLVWULEXWLRQQRGH ought not to be less than 72 per optical cable, as already described. The access network consists of the access nodes. A number of buildings are connected to an access QRGHWKURXJKD¿EHUFDEOHZLWKDWOHDVWIRXU¿EHUV WZRSDLUVRI¿EHUVRQHXSOLQNDQGRQHEDFNXS 5HJDUGLQJ WKH ¿EHU LQIUDVWUXFWXUH WKH DGditional optical cable will be installed, in order to handle situations of possible or anticipated penetration in the area, a large number of Internet operators active in the area, the positioning of ac-
tive equipment, and the degree of redundancy in the networks. As a general rule, if existing ducting is to be used, a careful assessment must be made of the best way to use it. If the number of existing optical pipes is small, an optical cable with many ¿EHUVZLOOKDYHWREHODLGVRDVWRPDNHPD[LPXP use of the ducting. For the part of the network that will provide FRQQHFWLYLW\WRWKHSXEOLFVHFWRU¶VEXLOGLQJVWKH ethernet technology has been selected (Metro Ethernet Forum, 2006). Ethernet switches are used RQ DFFHVV QRGHV DQG DJJUHJDWH WKH WUDI¿F IURP the buildings. Each building has a 100 Mbps or *ESVFRQQHFWLYLW\WKURXJK%DVH/;6)3V7KH distribution nodes do not have any active equipment, only passive. The main nodes have gigabit ethernet switches with advanced features. Those switches connect the ethernet switches of access nodes as well as the buildings that have dedicated ¿EHUFRQQHFWLRQV7KLVFKRLFHKDVEHHQGRQHGXHWR WKHIDFWWKDWWKHSXEOLFVHFWRU¶VEXLOGLQJVVKRXOGXVH YDULRXVVHUYLFHSURYLGHUV,QSDUWLFXODUWKHWUDI¿F from the connected schools in the MAN should be forwarded to the Greek School Network, the WUDI¿FIURPXQLYHUVLWLHVRQ*UHHN5HVHDUFKDQG Technology Network, and so forth. Therefore, the
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GHVLJQLQJDSSURDFKLVWRFRQ¿JXUHWKHHTXLSPHQW in such a way that will provide Transparent LAN services, connecting the building to their service provider transparently and “friendly” (Kompella & Rekhter, 2005). The latter means that the approach will eliminate the limitations that add to the network and service providers.
Methodology of Work In order to handle the project work and secure the FRUUHFWQHVVDQGTXDOLW\RIWKHGHVLJQDVSHFL¿F methodology was followed. In particular the steps were the following: •
•
•
•
•
Several visits on municipalities took place, in RUGHUWR¿QDOL]HWKHORFDWLRQRIWKHEXLOGLQJ the points that the building will connect to WKHQHWZRUNDQGWKH¿QDOPDSSLQJRXWRIWKH ducts Design the network according to the three distinct levels (access, distribution, and main network) 'HVLJQ WKH UHTXLUHPHQWV RI WKH QHWZRUN¶V nodes and the equipment (passive and active) :ULWHWKH¿UVWYHUVLRQRIWKHDQDO\WLFDOGHVLJQ study of the network Write the specific requirements of the QHWZRUN¶V FRPSRQHQWV DFFRUGLQJ WR HDFK PXQLFLSDOLW\¶VQHHGV Perform indicative cost accounting of the requirements and the overall design in order to ensure that it is compliant to the allocated budget Finally, optimize the network design and equipment requirements
The above mentioned methodology was used HI¿FLHQWO\IRUHLJKWGLIIHUHQWPXQLFLSDOLW\QHWZRUNV in Western Greece. The case of MAN of Patras was the largest one and therefore the most complex.
The MAN of Patras The city of Patras is the largest municipality in the region of Western Greece, the third largest city of
202
Greece (its metropolitan area has a population of more than 200,000), an important commercial center, and a busy portthe second largest in Greece. 3DWUDV¶0$1FRQQHFWVSXEOLFEXLOGLQJVLQWKH city, among them three university institutes, six research centers, four hospitals, and 120 schools (primary and secondary). ,PPHGLDWHO\EHQH¿WLQJIURPWKLVQHWZRUNZLOO be all the employees of institutions of education, research, health, and public administration in the region of Patras, while in effect all the citizens RIDZLGHUUHJLRQRIWKHFLW\RI3DWUDVZLOOSUR¿W Additionally, all major Greek content and service providers can use (cost effectively) this infrastructure to provide broadband services to the citizens. 7KHLULQWHUHVWLVTXLWHODUJHDVWKHORFDOµ3DWUDV¶ market is very attractive. 7KH0$1RI3DWUDVFRQVLVWVRI¿YHULQJVZKLOH the total length of the ducts is 48 Km (see Figure 3). 7KHXVHG¿EHUFDEOHV YDULRXVW\SHV ¿EHUV DUHDSSUR[LPDWHO\.P$PRQJWKHULQJV a star topology is used for the connections of the buildings to the access nodes. Additionally, 100% redundancy has been designed for the distribution DQG PDLQ QHWZRUN 0RUH VSHFL¿FDOO\ WKH 3DWUDV MAN will consist of: • • • •
Four (4) main nodes Eight (8) distribution nodes Twenty-two (22) access nodes Nine (9) wireless access nodes
Regarding the cost of the total investment, the Patras infrastructure cost approaches the value of 0¼ZKLFKLVDEVROXWHO\FRPSDUDEOHWRWKHFRVWRI the telecommunication services of the public sector of municipality of Patras. As shown in Table 1, this FRVWLVDSSUR[LPDWHO\0¼DFFRUGLQJWRUHFHQW research for the municipality of Patras conducted by the Research Academic Computer Technology Institute. Consequently, the depreciation of the cost of the whole investment in the municipality of Patras will take no more than two years.
Figure 3: The general ducting schema in Patras MAN
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Table 1. Telecommunications fees in the municipalLW\RI3DWUDV LQȀ¼ ORGANIZATION
Education–Research
Universities Technical Universities
SUM 2
880.41
1
73.37
Research Institutes
6
117.39
Elementary Schools
76
102.72
High Schools
44
108.58
Public occupational centers
2
5.57
Hospitals
4
622.16
Region
1
158.48
Prefecture
1
70.43
Municipalities
2
76.30
Libraries
1
3.22
Sum
140
2218.6
works can be implemented, investing a reasonable amount of money. Those networks are designed in a three-level hierarchy (see Figure 4), where there are: •
•
Government
Wireless Municipal Networks Additionally, the Information Society program funds similar smaller projects that are suitable for small municipalities (less than 10,000 citizens) that mainly are underpopulated. These projects have the same goals as the optical metropolitan area QHWZRUNVEXWGXHWRWKHORFDOJHRJUDSK\ GLI¿FXOW morphology), the underpopulation of these areas, and the small needs of the public sector, the deSOR\PHQWRIRSWLFDOLQIUDVWUXFWXUHLVXQSUR¿WDEOH Therefore, these special projects are carried out and are based on wireless technology. The main design goal is the existence of backhaul connections based on multi-carrier OFDM that can succeed with large transmit rates over long distances and also support non-line-of-site (NLOS) connectivity. These systems are accompanied by WiFi products that are used in the densely populated areas in order to connect various sites of public sector (local authorities, schools, hospitals, etc.). Following this approach, small wireless net-
204
Access nodes that provide connectivity through WiFi systems, or in special cases through multi-carrier OFDM (mainly :L0$; Retransmission nodes that are used to connect main and access nodes when their immediate connection is not feasible 0DLQQRGHVWKDWDJJUHJDWHWKHWUDI¿FIURPDOO connected sites and provide inter-municipal routing. Main nodes also support the interconnection with the global Internet through the appropriate providers in a federated way
Except for the basic connectivity between sites, those networks aim to provide inter-municipal VoIP calls for all public sector sites and connectivity with other federated networks that are higher in the hierarchy (for example, school networks, national administrative networks). Additionally, the expansion of those networks is a continuous goal that can be succeeded either with wireless or optical connections. Finally, these networks will comprise the basis for the e-government and all the e-services of the new digital world that the European countries try to establish. In the region of Western Greece, 19 small municipalities are going to implement such wireless metropolitan networks, aiming to limit their operational costs and increase the quality of the services provided to the citizens.
The Wireless Access Network of Messatida This section presents a case of a municipal wireless access networkthe case of Messatida. Messatida, in the western part of Peloponnesus and very close to Patras city. The population of the city is 11,873, and its area is 66.4 square kilometers. The proposed municipal wireless access network covers the wider region of Messatida and constitutes a network that could be easily implemented
Greek Government Network
Building 1
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Switch
Antenna WiFi PtP Km
1 - 25 Km
Bridge
-
1,5 K m
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0,1
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Building 5
Antenna WiFi PtP
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Building 4
Antenna WiFi PtP
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Antenna WiFi PMP
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Antenna WiMAX (PtP)
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Site Â
25 Km
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Antenna WiMAX (PtP)
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1
Retransmission Node
Bridge
Greek Government Network Router Router
Bridge
Antenna WiFi PMP
Main Node
0,1 - 1,5
1 - 25 Km
Main Site
Figure 4: The architecture of wireless broadband networks
Access Node
Bridge
Switch
Bridge
Antenna WiFi PMP
Building 3
Antenna WiMAX (PtP)
Antenna WiFi PtP
Switch
Building 2
Switch
Antenna WiFi PtP
,5 -1
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0, 1
Site C
Bridge
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Building 7
Building 6
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Km
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since the covered distances are relatively small. 7KLVQHWZRUNZLOOEHQH¿WLQVWLWXWLRQVRIHGXFDWLRQ research, health, and public administration in the municipality of Messatida, and all citizens of the wider region of the city of Messatida will have access to this broadband network. The municipal wireless access network of Messatida consists of the backhaul network and the access network. The backhaul network consists of point-to-point and point-to-multipoint high capacity links (one and four respectively), with highpower transceivers able to cover long distances with a cost-effective way. The selected technology FRXOGEHHLWKHU:L0$;RUDQ\WHFKQRORJ\WKDW supports multicarrier OFDM. The whole wireless network of Messatida has one main node, six access nodes, and uses one retransmission node that is necessary due to the morphology. The total number of connected buildings is 22. As far as the access network is concerned, it consists of large-scale cell deployments LPSOHPHQWHGZLWKSRLQWWRPXOWLSRLQW:L0$; multi-carrier OFDM technology, as well as WiFi hotspots where the cell radius is small enough. In particular, two access connections are implemented XVLQJ:L0$;DQGVL[XVLQJ:L)LV\VWHPV
The outer goal should be the interconnection of those networks (not even for the needs of the public sector) through broadband infrastructure that will either be deployed or will be leased for a long time (at least 20 years). The solution for the deployment of interconnection infrastructure could be an easy solution, if we take advantage of existing projects for construction of highways and other roads. In this case, the deployment of optical infrastructure during the construction is worldwide a very cheap solution. Additionally, for solitary areas where the optical deployment is not feasible, alternative solutions such as wireless backhaul connections based on OFDM technology or satellite links can be studied. This prospect will offer global connectivLW\ WKURXJK LQIUDVWUXFWXUH FRPSOLDQW WR VSHFL¿F technology standards and neutrality. Over this infrastructure, each provider will offer its services to its clients. The latter also applies for public sector needs. Generally, it is a key point to study carefully this prospect of global national connectivity that will add value to these municipal broadband networks and will also expand their usage and viability.
Interconnection at a National Level
BUSINESS MODEL
A major issue for the viability and exploitation of those networks is the interconnection between them in order to make a full connected broadband country. It is a key point for future years, but also a big challenge due to the morphology of Greece. ,QD¿UVWVWDJHWKHLQWHUFRQQHFWLRQRIDOOWKH optical MANs and the wireless municipal networks from each “provider” of the public sector (school networks, Greek research and education networks, the Greek government network) independently is an obvious solution. In this case, each provider ZLOOHVWDEOLVKOLQNVWKDWZLOOURXWHLWVWUDI¿FIURP the main node of each municipal network. But this solution must be temporary, as it is not scalable and cost effective due to the fact that each provider leases lines (or buys access lines from OTE) that DUHH[SHQVLYHDQGWHFKQRORJ\VSHFL¿F
,Q RUGHU WR VHFXUH WKH ¿QDQFLDO YLDELOLW\ RI WKH broadband infrastructure of Western Greece, it has to be supported by a business plan. Such business models have been proposed by several researchers and are used on other broadband municipal networks. $EXVLQHVVPRGHOGH¿QHVWKHZD\DPHWURSROLWDQ SXEOLFQHWZRUNVKRXOGEHH[SORLWHG,WGH¿QHVWKH role of the municipality or the public authorities, the handling of competition issues, the involvement of private companies, and so forth. Its intention is to provide the citizens with a viable metropolitan ¿EHURSWLFQHWZRUNLQFOXGLQJWKHSURSHUUHVRXUFHV for the maintenance and the expansion of the network (Monath, Kristian, Cadro, Katsianis, & Varoutas, 2003; Ecomomides, 1996). The main goal is the provision of better and less expensive services to the public (Henderson, Gentle, & Ball,
206
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2005). Figure 5 presents the three basic levels of a business model:
•
•
7KH¿UVWOHYHOUHIHUVWRWKHSK\VLFDOLQIUDVWUXFWXUHRIWKHQHWZRUN GXFWVGDUN¿EHUHWF DQG to the organization that provides and exploits this broadband network infrastructure The second level refers to the active equipment of the network (e.g., routers, switches, etc.) The third level refers to who has access to the network, its services, and the provided content
Figure 5. Basic business model’s levels
Access, Services, Content
Network Equipment (Backbone and Access )
Physical Infrastructure (Dark Fiber)
By assigning each of the above mentioned levels to different organizations, consortiums, or companies, different business model cases can be proposed: 1.
Equal Access Model: In this model the broadband infrastructure is built by the city or state and then it is leased or sold to an operating company or a consortium. The operating company adds the active equipment to the network and sells access to the operating broadband network to any service provider. The service providers pay the operating company a monthly fee per customer, while independent content providers are able to sell their content to the public or to business customers. This process is done through WKH RSHUDWLQJ FRPSDQ\¶V SRUWDO ZKLFK LV responsible for keeping billing records and having a direct billing relationship with the customer. The role of the public authorities (municipality or government) in this model is to stimulate competition at the level of content and services. The government in this model has already invested in passive infrastructure, thus the cost for a service or content provider to enter the market is much lower. Through the operating company the government ensures an equal confrontation of all the service and content providers. In this model the roles and responsibilities of all the involved organizaWLRQVPXVWEHFOHDUO\GH¿QHGEHFDXVHLWPD\
2.
-
TV / radio Internet Telephony Other services
- Routers - Switches - etc. - Ducts - Fiber optics
lead to complex structures and processes (Chlamtac, Gumaste, & Szabo, 2005). The equal access model is followed by a number of international and EU countries. Examples of this model can be found in The Netherlands (Enschede) with the Dutch/GerPDQ,QWHUQHW([FKDQJH 1',; LQ&DQDGD (Alberta) with Axia, and in the United States (Grant County) with the Zipp Network. Variations of this model can also be found in the case of the city of Amsterdam, where the physical infrastructure already existed, and in Spain (region of Catalonia) and Italy (Infratel), where local government also set up the active infrastructure of the network. Sole Private Provider Model: This model is applicable for cases where no service and content providers preexist, and the broadband market has not created a critical mass of customers that would be able to generate suf¿FLHQWUHYHQXHWRDODUJHQXPEHURILQYROYHG companies. In this model the operating company is also the service provider. In this way, the development of broadband infrastructure can become more easily a viable project, but the customers experience a less wide range RIVHUYLFHVDWDSULFHWKDWGRHVQRWEHQH¿WWKH competition of companies. For this reason, the monopoly of the operating company should be maintained temporarily, in order to lead WRDQHTXDODFFHVVPRGHOLQD¿[HGSHULRGRI time. This model requires a lower manage-
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3.
ment complexity and is also more attractive to service providers as it becomes commercially viable much more quickly (Chlamtac et al., 2005). Examples of this model can be found in Sweden (Stokab–Stockholm) and The Netherlands with the Fiber Pilot program in Almere. Full Public Control Model: In this model all the layers are managed by one or more public organizations, including the development of passive and active infrastructure and the provision of services. The private sector can also get involved in a variation of this model, by the creation of public-owned companies with private capital investment. This model is suitable in cases where the involvement of an operating company is not feasible and no service providers are activated. Most of the time, this is the case of rural or remote communities, with no prior broadband infrastructure (Chlamtac et al., 2005). The main problem of this model, like the previous one, is that no competition is evolved between service and content providers. Moreover, the lack of technical expertise of the local government most of the time has as an effect of less innovation in the deployment of the network and its provided services. Finally, the cost of the total investment in building the network and providing the services is quite high for the local government. Examples of this model can be found in Italy with Terrecablate in Siena and Acantho in the region of Emilia-Romagna, and in Austria with the Wienstrom in Vienna.
Proposed Business Model The selection of the proper business model is essential for the viability and the success of the project. Regarding the metropolitan area networks, the use of the equal access business model based RQDQDWLRQDOOHYHOLVWKHRQHWKDWVHHPVWR¿WPRVW in the case of Greece. In this business model, the public sector is only the owner of the passive infrastructure (level one in the model presented in Figure 5) while in the upper two levels (Figure
208
5), competition is delivered between both telecommunications carriers that operate the networks and content and service providers. 7KH SXEOLF VHFWRU¶V RUJDQL]DWLRQ ZKLFK ZLOO RSHUDWHRQOHYHORQH ZLOOSURYLGHWKH¿EHURSWLFV infrastructure, in a cost-effective way, to the telecommunication companies. The mission of this organization will be to establish competition conditions between the providers, and maintain and expand the network, where this will be necessary. In particular, it should have certain responsibilities, such as the information of the citizens, the recording of the needs during the use of the network infrastructures, in order to be able to maintain the networks and conduct the studies for their expansion. The requested revenue for the expansion of the network will come by the leasing of the existing infrastructure to telecommunication and service providers. Thus, the service and content providers will focus on their role by providing their competiWLYHVHUYLFHVLQDFRVWHI¿FLHQWZD\7KHFRQVXPHU will be able to choose from among the competition a great variety of different services. All in all, this model has some certain advantages regarding the design and the deployment of an overall broadband network in Greece. In this way, the service and content providers will provide their services at a low cost and in a continuously developing way. The service providers will also gain from this situation, as they will have access to national infrastructure through one organization and network operating schema. Additionally, there will be competition in the network level between telecommunication companies and competition in the access, services, and content level among the service and content providers (see Figures 5 and 6).
CONCLUSION This chapter presented the basic design aspects for the broadband municipal infrastructure networks in the region of Western Greece. The proposed broadband networks will cover the needs of the eight major cities within the region of Western Greece and 61 other networks in other regions of Greece.
Metropolitan Broadband Networks
Figure 6. The application of the proposed business model in network layers Network’s Layers
Access, Services, Content
Competition between content providers Competition
Network’s active equipment (main and distribution network)
Competition between telecommunication providers
Network’s passive equipment
National Level non-profit Company
Cost Effective
Geographic Area
These networks will interconnect the organizations of education, research, health, culture, and the sum of the buildings of public administration via highspeed connections, and will also establish public FROORFDWLRQSRLQWVDQGH[FHHGLQJ¿EHUFDEOHVWKDW can be used cost effectively by service and content providers. The projects are in the construction phase, and in the second half of 2008, the network will be up and running. Additionally, the case of the city of Patras, the largest case on the designed MANs, is described. Finally, the chapter discusses the proposed business models for the operation of those broadband networks and the one that we believe better suits the Greek case. For future work, we already have plans to study and propose an appropriate business model to cover all technical and political aspects for the operation of those broadband infrastructure networks.
REFERENCES Chlamtac, I., Gumaste, A., & Szabo, C. (2005). Broadband services: Business models and tech-
nologies for community networks. New York: Wiley Interscience. CityLink. (2006). New ZealandWellington’s case. Retrieved June 14, 2006, from http://www. citylink.co.nz EC (European Commission). (2002). eEurope 2005: An information society for all. Retrieved January 13, 2006, from http://ec.europa.eu/information_society/eeurope/2002/news_library/documents/eeurope2005/eeurope2005_en.pdf EC. (2003). Guidelines on criteria and modalities of implementation of structural funds in support of electronic communications. Retrieved January 10, 2006, from http://ec.europa.eu/regional_policy/ consultation/telecom_en.htm Economides, N. (1996). The economics of networks. International Journal of Industrial Organization, 14(4), 673-699. Europa. (2004). Challenges for Europe’s Information Society beyond 2005: Starting point for a new EU strategy. Retrieved January 13, 2006,
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from http://europa.eu/rapid/pressReleasesAction. do?reference=IP/04/1383
Metro Ethernet Forum. (2006). Homepage. Retrieved June 14, 2006, from http://www.metroethernetforum.org
Europa. (2006). Broadband access in the EU: Situation at 1 July 2006. Retrieved February 9, 2007, from http://forum.europa.eu.int/Public/irc/ infso/cocom1/library?l=/public_documents_200 6&vm=detailed&sb=Title
Monath, T., Kristian, N., Cadro, P., Katsianis, D., 9DURXWDV' (FRQRPLFVRI¿[HGEURDGband access network strategies. Communications Magazine, 41(9), 132-139.
)LUWK/ 0HOORU' %URDGEDQG %HQH¿WV and problems. Telecommunications Policy, 29(23), 223-236.
UTOPIA (Utah Telecommunication Open Infrastructure Agency). (2006). Retrieved June 14, 2006, from http://www.utopianet.org/
Henderson, A., Gentle, I., & Ball, E. (2005). WTO principles and telecommunications in developing nations: Challenges and consequences of accession. Telecommunications Policy, 29(2-3), 205-221. ITU. (2006). Construction, installation and protection of cables and other elements of outside plant. Retrieved June 14, 2006, from http://www. itu.int/rec/T-REC-L/e Kompella, K., & Rekhter, Y. (2005, December 28). Virtual private LAN service. Internet Draft (draft-ietf-l2vpn-vpls-bgp-06). Localret. (2006). The case of Barcelona. Retrieved June 14, 2006, from http://www.localret.net/idiomes/english.htm Magnago, A. (2004). Open accessbusiness models and operational costs. Proceedings of the Broadband Europe International Conference 2004, Brugge, Belgium.
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KEY TERMS Access Network: Part of the network architecture that consists of a number of access nodes. Business Model:$SODQWKDWHQVXUHVWKH¿QDQcial viability of the broadband infrastructure. Distribution Network: Part of the network architecture that consists of a number of distribution nodes. Main Network: Part of the network architecture that consists of a number of main nodes. Optical Fiber Network: A type of network PDLQO\EDVHGRQ¿EHURSWLFVWHFKQRORJ\ Wireless Access Network: Type of network mainly based on wireless technology.
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Chapter XIV
Small World:
The Irish Broadband Experience Diana Wilson Trinity College, Dublin Kevin O'Reilly eircom, Ireland Dave Murray eNua IT Consultancy, Ireland
ABSTRACT In this chapter we consider from a marketing perspective the political, cultural/social, and economic factors, both micro and macro, affecting the supply/demand nexus of broadband services for the Irish consumer. We chart the development of broadband and its current situation of rollout and uptake, examine the reasons for its continuing poor performance, and offer recommendations on how Ireland may close the gap and perhaps even move ahead. We collated data from a variety of resources, journals and press and trade publications. We attended a ministerial conference on the state of broadband to which many representatives of the telecommunications industry had been invited. We surveyed people with and ZLWKRXWWKHIDFLOLW\DQGLQWHUYLHZHGNH\SOD\HUVLQWKH¿HOG:HFRQFOXGHGWKDWDOWKRXJKWKHPDUNHWLV beginning to grow strongly, it is from a low base, and as a result the country still lags behind many of its European counterparts. There is still a lack of competition which is having an adverse effect on both supply and demand of broadband for the Irish domestic consumer. In a small country, the incumbent VWLOOKROGVFRQWURORIWKHPRVWSUR¿WDEOHDUHDVRIWKHWHFKQRORJ\SDUWLFXODUO\ZKROHVDOHDQGVHOOLQJWR other operators. Also, the Irish are still not convinced that broadband is the ‘killer app’ they need. This may change in the future as the technology delivers more of the content-rich multimedia fare that the Irish already enjoy in other formats.
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INTRODUCTION: THE MACRO AND MICROECONOMIC BACKGROUND After more than 15 years, the Celtic Tiger still roars. The economy doubled in size in the 1990s, achieving the fastest growth in the OECD zone in WKDWSHULRG7KHUHZDVQROHWXSLQWKH¿UVWKDOIRI the following decade where it recorded the highest rate despite being hit by the worldwide slump in the information and communication technology (ICT) sector (OECD, 2006). Many countries, including some in the EU15 but especially those in the new EU27 and those awaiting accession, have looked to Ireland to learn the secrets of its success. There are both long- and short-term, macro and micro IDFWRUVIRU,UHODQG¶VHFRQRPLFVXFFHVVRIZKLFKD brief synopsis follows. Following a period of harmful protectionism (from the foundation of the State, but particularly from 1932-1938), successive Irish governmental SROLFLHVERWK¿VFDO LQWKHIRUPRIORZFRUSRUDWH taxes) and social (in the form of ongoing partnership agreements between trades unions, employers, and governments which have guaranteed workplace VWDELOLW\ KDYH RSHQHG ,UHODQG¶V PDUNHWV ZLGHU and wider. This opening of the markets was further enhanced by membership of the European Union in 1973 and being in receipt of numerous grants from there. This money was, by and large, well spent (Dorgan, 2006). The country, through its agencies, the Irish Development Authority and Enterprise Ireland, has for decades actively sought and encouraged foreign direct investment while also promoting the successful integration RI LQGLJHQRXV ¿UPV LQWR WKHVH JOREDO QHWZRUNV ϶5LDLQ 3DUDGR[LFDOO\DVDUHVXOWRIWKH protectionist policy mentioned above, Ireland was a predominantly agricultural nation and therefore did not have the large, heavy industrial base of many of its European counterparts. Such industries often require burdensome subsidies or protracted GLVPDQWOLQJ,UHODQGZDVOLWHUDOO\DµJUHHQ¿HOG¶ VLWH (FRQRPLVW 2¶+HDUQ Its geographical location on the edge of Europe, and its perceived pro-European attitude at a time when the United Kingdom was displaying distinctly anti-European tendencies, combined with a highly
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HIIHFWLYH H[SORLWDWLRQ RI µ7tUJKUi¶1 attracted the EHQLJQ LQÀXHQFH RI WKH ,ULVK 'LDVSRUD DQG WKH economic interests of many multinationals, both American and European. Furthermore, in recent WLPHVµ7tUJKUi¶KDVEURXJKWPDQ\,ULVKQDWLYHVDQG descendants home. With them they brought back a world outlook and experience, known locally as having a BABeen Abroadand strong technical and advanced managerial skillsets. They joined the indigenous, well-educated, computer-literate, \RXQJ ÀH[LEOH (QJOLVKVSHDNLQJ SRSXODWLRQ which until recently was regarded as low cost (Wilson & Murray, 2000. All these factors make a formidable combination, which bears out Paul .UXJPDQ¶V FLWHGLQ϶5LDLQS SLWK\ VXPPDU\RI,UHODQG¶VDGYDQWDJHVEHLQJGXH³«SDUW to luck, in part to policies….” But some commentators do ask how, and for how long, can this growth be sustained (Economist, 2004; Gottheil, 2003; OECD, 2006; Thornton, (2004)? Many solutions are given: sustaining pruGHQW¿VFDOSROLFLHV PDLQWDLQLQJVWDEOHLQGXVWULDO relations; nurturing indigenous entrepreneurship; increasing investment in education, research, and development; and importantly, yet little discussed in the literature of the Celtic Tiger, protecting the peace process (McAleese, 2000).2 Time and time again, furthermore, the crucial role of advanced telecommunications infrastructure in Ireland as an important driver for economic growth is cited (DCMNR, 2006; Forfás, 2005; Ottens, 2005; Sunday Business Post, 2006c). Yet for all our roaring, we remain, at best, just below European averages or, at worst, slipping towards the bottom of the leagues, for PC penetration, connection to the Internet, broadband rollout and uptake for domestic and commercial consumers, local loop unbundling (LLU), and value for money indices (CSO, 2005; Forfás, 2005; Sunday Business Post, 2006c; TIF, 2002). In this chapter we consider from a marketing perspective the political, cultural/social, and economic factors, both micro and macro, affecting the supply/demand nexus of broadband services for the Irish consumer. We chart the development of broadband and its current situation3 of rollout and uptake, examine the reasons for its continuing poor
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performance, and offer recommendations on how Ireland may close the gap and perhaps even move ahead. We collated data from a variety of resources, journals and press, attended a ministerial conference on the state of broadband, surveyed people with and without broadband, and interviewed key SOD\HUVLQWKHEURDGEDQG¿HOG
PLVVLRQZLWKWKHDEROLWLRQRI7(¶VVWDWHPRQRSRO\ One reason for bringing the date forward may have EHHQGXHWR0LFURVRIW¶VGHFLVLRQDWWKHEHJLQQLQJ of the same year not to locate its European mirror in Dublin, but London instead (Thompson, 1999). Among many technical reasons given by Microsoft, WKHFRPSDQ\VSHFL¿FDOO\PHQWLRQHGWKHIROORZLQJ at that time:
THE DEVELOPMENT OF BROADBAND IN IRELAND: THE TELECOMMUNICATIONS BACKGROUND
•
In the late 1970s, the Irish telecommunications infrastructure, managed by a state company, Telecom Éireann (TE), was at a breaking point; when (and it was a long when) a domestic or commercial subscriber eventually got a phone, the equipment was of poor quality, the lines unreliable, and the bills among the highest in Europe (Forfás, 1998). The detrimental impact of this situation was making itself felt on the economy as foreign investment looked elsewhere in Europe to spend its money (Burnham, 2003). The issue was raised LQWKH'DtO4: “We must recognise that we have the worst telephone service in Western Europe. The lack of a modern telecommunications service is proving to be a serious impediment to the economic development and social progress of our country…The Minister will agree it is becoming more and more GLI¿FXOWWRDWWUDFWLQGXVWU\WRWKHVHDUHDV«7KHUH are jobs at stake. There are businesses at stake….” 2¶'RQQHOO Thus, Ireland began a program of massive investment in telecommunications infrastructure, with particular regard to establishing state-of-theart, international communication links (Forfás, 2004). But to maintain such a position requires ongoing investment and to achieve this, Ireland began to open its markets and began to semiprivatize its state companies. Full liberalization (although the process had begun in 1995) of the telecommunications market in Ireland took place on December 1, 1998, one year ahead of the date agreed on with the European Com-
• • •
Ireland was uncompetitive for large-scale digital communications There was an absence of large-scale ISPs with good international links The Irish market was not perceived as being deregulated, with TE holding a monopoly E-commerce, part of the MS European Internet strategy, would require a vast amount of bandwidth which Ireland did not have
On the same date as liberalization, TE announced a £100 million investment in broadband, VSHFL¿FDOO\¿EHURSWLFFDSDELOLW\DQGWZRZHHNV later changed its name to eircom (Thompson, 1999). It was also obliged to dispose of its shareholding in Cablelink, the cable service company (Massey & Shortall, 1999). But commercial broadband did not commence until 2002, some two to three years behind other countries (DCMNR, 2006; TIF, 2003). :K\WKHµVWUROORXW¶" The delay can be attributed to factors that also affected other countries, including the dot.com bust of 2000 and the general downturn in the telecommunications sector resulting in a slowdown of investment (TIF, 2003). But there are factors that are peculiarly Irish....
It’s a Long Way from Here to There… Ireland is a young country; its own violent history (which for some is still unresolved) is within living memory. Fresh from a Civil War, Ireland adopted a SURWHFWLRQLVWSROLF\ZLWKWKHDLPRIVHOIVXI¿FLHQF\ Many industries, including telecommunications, were brought under state control, and monopolies were created for the common good; some remain in this situation to this day. In the 1960s, this policy was reviewed and reassessed under Sean Lemass,
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who began to open Ireland to external markets. 7KHUHIRUHWKHQHFHVVLW\IRUDQHI¿FLHQWUHOLDEOH and affordable telecommunications system was crucial. Serious attempts to deal with increasing demand and capacity, rather than just geographical reach (which has left Ireland with a high ratio of local exchanges in rural areas with shared lines) began. The 1980s saw an extensive period of sustained investment (which remains, to date, the most expensive ever) to ensure that Ireland would never fall so far behind demand again (Flynn & Preston, %XWWKLVLQYHVWPHQWZDVQRWMXVWFRQ¿QHG to telecommunications. Similar investments had to be carried out in other sectors of Irish society: education, health, transport. From “the poorest RIWKHULFK´WREHFRPH³(XURSH¶VVKLQLQJOLJKW´ (Economist, 2004), Ireland had a lot of catching up to do.
See You in Court Competition law enforcement in Ireland has historically been weak. The State, as a policy instrument, has a tradition of creating national monopolies and protecting private ones, and allowing concentration of markets, both strong and weak (Ingleton, 2003). Irish companies have been known to use the courts as both a delaying tactic in the face of UHJXODWRU\HQIRUFHPHQWRUDVµUHQWVHHNLQJ¶5 For example, following complaints received in 1997 and 1998 about TE, the Competition Authority (CA) of Ireland decided there was evidence of a possible abuse of dominant position, particularly with regard to local loop unbundling, and warned the company that unless this was resolved they would instigate proceedings (CA, 1998). This they did in 1999. The case was discontinued in 2002. On an almost annual basis, since that time, eircom (the incumbent) has either been taken to court by various parties, or has taken various parties to court, despite the proposed provisions of the Communications Regulations Act of 2000, which sought to reduce the resort to the courts (OECD, 2001). To counteract the growing perception that the Commission for Communications Regulations (ComReg) was powerless to move against the
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LQFXPEHQWDQGDIWHUDGHOD\RI¿YH\HDUVZKLFK is given as a reason for the lack of competition in WKH ,ULVK WHOHFRPV PDUNHW DQG WKH QDWLRQ¶V SRRU broadband infrastructure, the Communications 5HJXODWLRQ $PHQGPHQW %LOORIZDV¿QDOO\ SXEOLVKHG 7KH ELOO KDV LQFUHDVHG WKDW DJHQF\¶V LQYHVWLJDWRU\ SRZHUV DQG FDSDFLW\ WR ¿QH QRQ compliant behavior. It is also intended to eradicate the time-consuming and expensive trot to the court taken by providers against the regulatory body.
What Did You Do in School Today? Well, not computing. Of course there are computers in Irish schools, and they are integrated into subjects other than computing itself, but it is patchy. However, computer science or ICT-related subjects are still not examinable subjects in the Irish School Curriculum. The Broadband for Schools program was launched in 2004 to provide broadband to all of the 4,100 primary and secondary schools by the end of 2005 (Forfás, 2005). The deadline was missed, but as of July 2006, some 90% of schools were connected (Campbell, 2006). However, ongoing professional development of all teachers is lacking (Forfás, 2005). Korea enacted its Classroom Advancement Plan in 1999, and the UK and U.S. have policy documents on the transformative potential of ICTs in education. In Ireland, there is no government policy for equipping schools with even the minimum of equipment and no central procurement or distribution of technology by government to schools (Murphy cited in Kennedy, 2005). Schools fund themselves, DQGWKHLQHYLWDEOHµGLJLWDOGLYLGH¶UHVXOWV
These Little Telcoms Went to Market… eircom, the incumbent, has had a turbulent history since deregulation in 1998. It has changed ownership four times in less than seven years (Sunday %XVLQHVV3RVWD ,WKDVEHHQÀRDWHGRQDQG delisted from the stock market twice (it remains GHOLVWHGWRGD\ ,WV¿UVWÀRDWDWLRQLVSHUFHLYHGE\ some to be an example of a stock market bubble which left many Irish small investors with a jaun-
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diced view of both the company and the government.6 This feeling persists. Currently the company is owned by Babcock and Brown, an Australian investment company, with employees holding 35% RIWKH¿UPLQDQ(627 HPSOR\HHVKDUHRZQHUship trust). It is undergoing major restructuring. It has nearly halved its workforce. The company UHFHQWO\ DQQRXQFHG D ¼ ELOOLRQ LQYHVWPHQW LQ telecommunications projects over the next three years, to include enhanced broadband services and LQLWLDWLRQRIUROORXWRI¿EHUWRWKHNHUE There are now more than 60 authorized operators, most of whom are active, in the fully liberalized, deregulated Irish market offering ¿[HGOLQH PRELOH LQFOXGLQJ * ¿[HG ZLUHOHVV access, wireless, and satellite communications platforms (ComReg, 2007). Telecommunications KDVEHFRPHDVLJQL¿FDQWVRXUFHRIHPSOR\PHQW employing on average 13,000 workers and revenue JHQHUDWLRQRI¼ ELOOLRQ9HQGRUVRIIHUDYDULHW\ of options, and pricing tariffs depend on contention rates, upload and download capacity, caps, and contracts. Helpful government and lobbying JURXSV¶:HEVLWHVJXLGHFRQVXPHUVLQWKHLUFKRLFH these include: http://www.callcosts.ie/home/default.asp and http://www.mulley.net/2006/02/09/ broadband-choices-in-ireland/. eircom continues WREHWKHODUJHVWRSHUDWRULQWKH¿[HGOLQHPDUNHW (ComReg, 2007). Ireland has young, mobile, well-educated, English-speaking, and technically literate workforce.
We have 103% mobile phone penetration and are the second highest number of users of voice and text services in Europe (ComReg, 2006b). We also have among the highest mobile phone costs in Europe (OECD, 2006). Figure 1 shows the overall call volume (ComReg, 2007). The Irish telecommunications market is small, and that may have made it unattractive for some players (OECD, 2006). Furthermore, as one of the 2(&'¶VPRUHRSHQHFRQRPLHV 2(&' WKHUH are multinationals entering the sector and they may EH VXVFHSWLEOH WR JOREDO ÀXFWXDWLRQV '&015 2003). The government and the regulator (ComReg) are trying to foster competition through a number of initiatives to foster supply, particularly through LVVXLQJOLFHQVHVWR¿[HGZLUHOHVVRSHUDWRUVDQG encourage demand using media campaigns. However, most licensees have delayed or failed to start up, ceased trading after a while, or chosen niche (rural) markets, thereby leaving little effective competition for the incumbent. Smart Telecom, a major competitor, went to the wall on October 2, 2006, discommoding some 40,000 phone customers, and eircom began the process of disconnecting broadband customers (RTÉ Business, 2006). This KDVVKDNHQFRQVXPHUFRQ¿GHQFHLQWKHFRPSHWLtiveness of the market, as eircom was able to offer VZLWFKEDFNWR6PDUW¶VFXVWRPHUV%7,UHODQGKDV SXEOLVKHGLWVDFFRXQWVZLWKUHSRUWHGORVVHVRI¼ billion. Magnet Networks has reported that it will
Figure 1. Overall call volume (ComReg, 2007)
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Figure 2. Broadband subscribers by platform (ComReg, 2007)
take its emphasis off LLU and concentrate on more SUR¿WDEOHPDUNHWV .HQQHG\ Time and again, the issue of the slow progress of LLU is raised, with commentators stating that unbundling is crucial to broadband uptake (ECTA, 2006a; OECD, 2006) With only 4% of DSL fully unbundled, which is below the EU25 average of 17% (ComReg, 2006a), most of the alternative DSL providers are either resellers or offering bitstream products resulting in limited product differentiation (Forfás, 2005). While the incumbent is criticized by the press, the regulator, the Oireachtas Committee, and lobbying groups for dragging its feet on the LLU issue, it did pay for the infrastructure when it was privatized and therefore does own the loop, and in the words of its newly appointed chairman, Pierre Danon: “The price of the loop needs to be at a reasonable price in order that eircom can make money at selling the unbundled local loop and the cost is the cost.” (Irish Times, 2006) Paradoxically, for a country renowned for its strong ICT-producing sector, Ireland does not adopt such systems in non-ICT-related sectors. We spend VLJQL¿FDQWO\OHVVRQ,&7WKDQYLUWXDOO\DOORWKHU European countries (Forfás, 2005).
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THE STATE OF BROADBAND IN IRELAND TODAY After a slow start, Ireland is moving quickly to demand and supply broadband services and products, just in time to meet the global slowdown in broadband uptake as established markets reach saturation levels and others see no reason to climb on board *XDUGLDQ 7KHUH KDV EHHQ D VLJQL¿FDQW slowdown in broadband uptake across Europe from 23% to 14% growth rates. ECTA (2007) reports also a corresponding growth in telecommunications monopolies in key European countriesa correlation they believe is not coincidental. In June 2006, the Parliamentary Joint Committee on Broadband, comprised of Teachta Dála7 and senators from the Lower and Upper Houses, called in CEOs from eircom, SmartTelecom, BT Ireland, eNet, and ComReg. They were subjected WRYHU\KHDY\TXHVWLRQLQJZLWKUHJDUGWR,UHODQG¶V SRRUSHUIRUPDQFH 'tRVSyLUHDFKWDL3DUOLDPHQWH 2006). ComReg released its Quarterly Key Data on the Irish Communications Market in March 2007. Figure 2 shows the number of broadband subscribers by platform. $FFRUGLQJWRWKH&HQWUDO6WDWLVWLFV2I¿FH &62 2005), broadband uptake by consumers with an Internet connection between 2003 and 2005 rose from just under 2% to almost 16%. However, dialup connections dropped from 94% to 81% in the same timeframe. This would seem to indicate that
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Figure 3. Market share of total broadband (ComReg, 2006c)
for the majority of Internet users, broadband has been a matter of migration from one platform to another rather than substantial numbers of new uptakes. Finally, Figure 3 shows the market share of the EURDGEDQGPDUNHW$VFDQEHVHHQWKHLQFXPEHQW¶V DSL share has been dropping consistently. In February, 2007, ECTA, the industry benchmark used by the EC, national regulators, and the OECD released its quarterly scorecard for broadband across Europe (see Figure 4). Ireland is not doing well. Public perception of broadband supply and demand is not good. There are almost daily accounts in the popular and practitioner press of ,UHODQG¶VSRRUSHUIRUPDQFHDQGYRFLIHURXVSXEOLF OREE\LQJ IRUD VXFK DV ,UHODQG2IÀLQH %RDUGVLH and ComWreck. These performance indicators can range from technical issues, such as bad contention rates and low capacity, to more social factors such as static PC penetration levels, confusion of services and applications, and irrelevance to consumer needs.
IF YOU BUILD IT: FACTORS AFFECTING UPTAKE The Minister for the Department of Communications, Marine and Natural Resources (DCMNR), Noel Dempsey, has stated publicly that there is a lack of demand for broadband (Kennedy, 2006a). This was met with public and private derision, particularly with statistics about lack of supply DQGDYDLODELOLW\(PEDUUDVVLQJO\RQH¿IWKRIWKH PLQLVWHU¶V FROOHDJXHV LQ WKH 'DtO ZKR ZHUH invited by eircom to have broadband installed in WKHLUKRPHVRUFRQVWLWXHQF\RI¿FHVGLVFRYHUHGWKDW their lines failed the test (Sunday Times, 2006).8 But there is a grain of truth on both sides. We were intrigued by statements made not only by the minister, but also by ComReg (Kennedy, 2006b), eircom, and the Irish Business and Employers Confederation (IBEC), that one of the reasons for the slow uptake for broadband was lack of customer, both domestic and SME, demand. eircom cited countrywide coverage at 85% (although there is an ongoing dispute about line quality and fail tests) that they were unbundling EHWZHHQDQGORRSVDZHHN 'tRVSyLUHDFKWDL
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Figure 4. Evolution of broadband penetration rates (ECTA, 2007)
Parliamente, 2006), government initiatives were underway to roll out in rural areas, and competitors were offering alternative broadband access, such as cable and wireless. Yet this contradicted press reports and results from our survey about the lack of availability of broadband infrastructure for the consumer being a major reason for lack of uptake. It would appear that Ireland was building it, and the Irish did want to come, but something was going wrong. This contradiction highlighted for us the complexity of supply/demand nexus and the effect it was having on the market; it is often said that connection pushes and content pulls. A further paradox is that Ireland buys and sells over the Net far above the European average (CSO, 2005; Ottens, 2004): 92% of all companies have access to the Internet (not necessarily via broadband) (Demunter, 2005), yet only 16% of Irish households with an Internet connection (48%) had broadband (CSO, 2005). For this reason, we were interested primarily in the domestic market.
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Using a combination of the traditional four 3VRIPDUNHWLQJLQWHJUDWHGZLWK.RWOHU¶VIRXU&V of e-marketing, we analyzed the Irish broadband market as evidenced from the press, the literature, interviews with key personnel, and the results from our survey. We surveyed 305 people, from farmers to ICT professionals, the retired to factory workers, from all over the country to ascertain why they opted for broadband, why they did not, and the reasons they felt were hindering uptake; 12.6% had broadband at home only, 17.9% had broadband at work only, 61.3% had broadband both at home and at work, while 8.3% had neither. The four Ps, while they may be regarded as oldfashioned and no longer applicable in the age of the Net and often thought of as too product-centric, are still the standard in marketing textbooks and useful for analysis. The four Cs are an adaptation of the four Ps for the Net economy and are an attempt to counterbalance the product by placing the customer at the center of the marketing mix. By merging them, we aimed to reveal the interrelationships between supply and demand.
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Traditional Marketing Based on 4 Ps
E-Marketing Based on 4 Cs
x
Product
x
Customer Needs and Wants
x
Price
x
Cost to the Customer
x
Place
x
Convenience
x
Promotion
x
Communication
Product and Customer Needs and Wants Well, it’s broadband, isn’t it? And I need it and want it, don’t I? Broadband is a complex suite of communications technologies, made even more complex by providers having to make investment and infrastructural decisions on maintaining, modifying, or scrapping equipment altogether. In Ireland, as with other countries, most broadband is rolled out on a combination of legacy telephony FRSSHUZLUHVDQG¿EHURSWLFFDEOHV7KLVFDQEH IXUWKHUFRPSOLFDWHGZLWKWKHLQWURGXFWLRQRI¿[HG wireless, wireless, television co-axial cable, and satellite delivery mechanisms. Then there is the decision on how the data, in all its multimedia forms, is going to move and how fast in whatever direction, and what other data, in all its forms, has to be accommodated on the stream. Currently,
WKHGHEDWHEHWZHHQ,ULVKµWHFKLHV¶LVGLIIHUHQWLDO between upload and download rates, contention issues, and lately, the pros and cons of dial-up vs. ISDN vs. xDSL. And all the customer wants to do is use it quickly, conveniently, reliably, securely, and at a reasonable price. A total of 78.1% (n=224) of our respondents gave “faster access to the Net” as a major reason for getting broadband, with 60.7% of them upgrading from dial-up. But why did they want it? Respondents were allowed to choose as many options as they wished from a given list; and 34% and 15% stated that leisure and family requirements were the drivers here, respectively. There was a voluntary option to specify what they wanted broadband for, and of the 39 respondents who completed this, 14 stated voice over Internet protocol as a reason, while 11 mentioned homework or telework needs. :KHQ&RP5HJ¶V7UHQGV6XUYH\6HULHV &RPReg, 2007) asked respondents their reasons (they
Figure 5. Reasons for not adopting broadband
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could opt for as many as they wished) for not getting broadband in the home, they found the results in Figure 5.
Price and Cost to the Customer Ireland has the highest landline rentals and mobile phone bills in Europe (ComReg, 2006a). The costs to the customer of entry-level DSL services, which KDYHGHFUHDVHGVLJQL¿FDQWO\VLQFHDUHDPRQJ the most competitive in Europe (Forfás, 2005). However, when speed of connectivity is factored in rather than just price, Ireland drops almost down to the bottom of the EU15 (Sunday Business Post, 2006c). In an effort to guide the consumer, ComReg recently included comparison tables for broadband on its site9: 25% of 224 of our respondents felt that prices have become more competitive and that was a reason for uptake. Of the 207 out of 305 who had upgraded to broadband, 56% found the switch better value. When asked what would be an important consideration for broadband uptake, 63% of 295 respondents stated low costs. The cost of accessing broadband in rural areas can be as much as 20 times higher than in Dublin, as consumers have no alternative but to choose satellite. Latency problems with this platform have already caused one company to relocate its server to America (ISC, 2003). With the crash of Smart Telecom, government LQLWLDWLYHV ORVLQJ PRQH\ DQG LQFXPEHQW¶V GHEWV RI ¼ ELOOLRQ EURDGEDQG VWLOO LV QRW SUR¿WDEOH (Sunday Business Post, 2006b). Furthermore, if the private sector is unwilling to supply in areas it perceives as high cost for return and people are unwilling to subscribe due to concomitant high costs, WKHµEURDGEDQGJDS¶ZLOOJURZ ,6&
Place and Convenience On a geographical level, the penetration rate for EURDGEDQG LQ UXUDO DUHDV LV VLJQL¿FDQWO\ ORZHU than the national average and is among the lowest in the EU15. In this country, more than 40% of the population resides in rural areas. (Forfás, 2005; EC, 2005). Ireland has a high ratio of local exchanges to telephone lines, many of which are
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not suitable for upgrade, and the longer distances from buildings to exchanges and from these to the backbone render them unattractive to the commercial market. Indeed a larger share of the population may be beyond the range of standard DSL or cable services. These factors increase the investment costs of a ubiquitous DSL system (TIF, 2003). Government initiatives, such as MANs and County and Group Broadband Schemes for communities of less that 1,500 people, are seeking to address the gap in the market that broadband suppliers will not enter. Both were launched in 2004, and at present, there is a lack of reliable data. Yet time and again, non-availability to location is cited in report after report. Of those respondents who did not have broadband in the home, 63.5% (n=85) of our respondents stipulated that they could not get broadband at their current address. A further 20% said that as they had it at work, they did not want it at home. The connection to landlines in new home builds is dropping as the Irish have taken mobile phones to heart (or rather to their ears). Most of us have two! While electricity and water are obviously SLSHG WR HDFK KRPH FDEOH 79 ¿EHU RSWLFV DQG telephone lines are not. Many of our respondents mentioned choosing a broadband service that did not require a landline or making the decision to install cable for the convenience of a single bill. However, number portability is an issue, and one LQ¿YHFXVWRPHUVKDYHWRZDLWWZRZHHNVIRUOLQH reconnection if they choose to switch from eircom (Sunday Business Post, 2006a). Long lock-ins to contracts were also mentioned. We asked respondents that if they could receive broadband in the home, and if their employer was amenable, would they like to telework. A total of 55.2% (n=183) said yes. Not only is this a strong indicator of the pervasiveness of the ICT sector ZLWKLQ,ULVKLQGXVWU\LWLVDVDGUHÀHFWLRQRQWKH VWDWHRI,ULVKWUDI¿FZLWKDYHUDJHFRPPXWHWLPHV within the Dublin area alone standing (pun intended) at one hour. With 61.3% of respondents (n=302) stating they had broadband both at home and at work, experiHQFLQJWKHEHQH¿WVRIWKHIDFLOLW\LQWKHZRUNSODFH may have been a deciding factor in upgrading or subscribing to it at home.
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Promotion and Communication
FUTURE TRENDS
After some time, competition to the incumbent has entered the market and predictably, achieved a response from the latter. Cable, after delayed re-investment, is making some progress as a provider. Wireless and FWA access continue to grow (DCMNR, 2006): 40.4% (n=120) stated that they felt there was a lack of understanding/confusion as to exactly what broadband is and what it can offer the domestic consumer. There are more than 40 broadband providers, yet 50% of our respondents (n=292) thought there were only about 20. Broadband providers, products, services, and bundles are being touted in the media everyday, adopting different tactics on price, technical advantages, and lifestyle choices. But the Irish also have access to media from other countries, particularly the UK and Northern Ireland, and the differences in these factors are glaringmore bang for the EXFNZKLFKUHDI¿UPVSXEOLFRSLQLRQRIµWKHULS RII5HSXEOLF¶10 The incumbent is consistently blamed by consumers and the press for impeding the progress of broadband; slow unbundling, poor quality lines,11 the cash cow of dial-up, lock-in to other services such as Homewatch, and delay in switching accounts from themselves to other providers were the qualitative reasons given by 67% (n=199) of our respondents. This is not unique to Ireland however, as ECTA (2006c) has found that the incumbents in Europe retain 80% of the lines used to supply broadband. Many of the European incumbents are criticized for exactly the same reasons given in the Irish market. But this negative perception is having an impact with consumers. Many of our respondents gave ABe (Anyone But eircom) as an emotive reason for choosing an alternative provider. Research shows that broadband users were more likely to use the Net for a wider variety of purposes (ComReg, 2006b) than narrowband users; as the former sings the praises of more content-rich applications, it may persuade others to revisit their decision to get broadband.
7HOHFRPV¶JURZWKUDWHLVHVWLPDWHGWRLQFUHDVHE\ LQGULYHQE\¿[HGGDWDZKLFKZLOOWRS ¼PLOOLRQDQLQFUHDVHRIRQRQHRI the fastest growths in Europe (Daly, 2007). Fixed YRLFHDQGPRELOHYRLFHVHUYLFHVZLOOUHPDLQÀDW 7KHUH LV ZLGHVSUHDG FRQ¿GHQFH LQ WKH ZLOOingness of Irish consumers to purchase new technologies. But we do not buy for the sake of buying, rather the technology must be relevant to our lifestyles (DCMNR, 2006). We love talking, texting, gambling, gaming, Bebo and MySpace, video, and music. As mentioned above, we are a young demographic, but when the time comes, we will have our own children who will want to do all these things also (Demunter, 2005). These IDFWRUVDQGµSHVWHUSRZHU¶DUHOLNHO\WREHWKHELJ GULYHUVRIEURDGEDQGGHPDQGDQGµIDW¶EURDGEDQG at that. $FFRUGLQJWRD6RQ\EXVLQHVVEULH¿QJLQ0DUFK 2006, the country is the third largest purchaser, on a per capita basis, of PlayStations and PS2s. With the advent of PS3, which permits online gaming, the demand for broadband should rise accordingly. 7KHFRPSDQ\¶V&RPSXWHU(QWHUWDLQPHQW(XURSH President David Reeves said: “…the company is investigating the possibility of electronic distribution of content over broadband for its next generation system—describing the pursuit of this as the ‘ultimate goal’ for the PlayStation 3, and stating that Sony hopes to see always-on network access and viable broadband distribution in place when the PS3 becomes available in 2006.” (Fahy, 2005) Ireland has the second highest cinema attendance in Europe, and the country is set to be the ¿UVW LQ (XURSH WR LQVWDOO 'LJLWDO &LQHPD LQ picture houses (BBC, 2005). This will require the necessary bandwidth for download of simultaneous releases in Dublin and the rest of the country. ,WZRXOGDOVRVHHPWKDW¿OPVZLOOGULYH,QWHUQHW protocol TV, video on demand, and so forth; the proliferation of multimedia content and the Irish GHVLUHIRULWFRXSOHGZLWK¿OHVKDULQJLVOLNHO\WR be a huge driver for demand. Expanding the number and variation of devices that can go online should
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increase broadband users, and this in turn will drive more broadband usage (ISC, 2003). As they continue their love affair with the PRELOHSKRQH¿[HGOLQHSHQHWUDWLRQKDVOHYHOHG off at 79% of Irish households. But as the major broadband access mode, and likely to continue to be so for some time, is DSL, subscribers will reTXLUHD¿[HGOLQHWRWKHKRPH '&015 * licenses have been issued (4G is on the way), and there have been successful promotion campaigns of this technology, particularly 3 Ireland offering free edited highlights of the recent Ryder Cup and Barclays Premiership football. But broadband mobile pricing looks set to incur a premium rate and therefore is not likely to be a viable alternative platform; thus its impact is likely to be minimum over the next few years (Forfás, 2004). VoIP is making headway into companies as a mechanism to drive down costs, and given our high domestic charges, the desire for VoIP should grow for the home user, particularly as many of us have American relations. :LUHOHVVDFFHVV ¿[HGDQGQRQ¿[HG FRXOGEH a way to enable intra-platform competition. eircom LVWULDOLQJ:L0$;DWHFKQRORJ\WKDWVKRXOGJR some way to addressing the problems in line quality (RTE Business, 2006).
CONCLUSION The rollout of broadband is often cited as a requirePHQWIRUDFRXQWU\¶VHFRQRPLFJURZWK,QPDQ\ ways, it should be no surprise that Ireland has lagged in the uptake in broadband; it has had a remarkable amount of catching up to do in all sectors to build the related infrastructures to support such massive and profound change (Economist, 2004). It could be said that broadband was not the priority for Ireland that it was for other countries; jobs, education, health, roads and transport, energy, as well as telecommunications were banging on the 0LQLVWHURI)LQDQFH¶VGRRU After a slow start, the market is growing robustly, but the issues are sustaining this growth and closing the gap. The small size of the market may make it unattractive (OECD, 2006), yet con-
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versely, the increasing prominence of multinational ¿UPVHQWHULQJWKH,ULVKWHOHFRPVVHFWRUPDNHLW VXVFHSWLEOH WR ÀXFWXDWLRQV LQ WKH JOREDO PDUNHW (DCMNR, 2003). This tension can make the Irish sector dynamic and volatile. eircom has been asset stripped in the form of its cable arm (as part of privatization) and then its mobile phone division (as part of making money for shareholders).12 It now KROGVGHEWVRI¼ELOOLRQ,QQRYDWLRQLQEURDGEDQG both in terms of inter- and intraplatform, may not be a priority for this company. For example, the company only offers asymmetric services at the moment, when it is envisaged that symmetric services will be required in the near future. Smart Telecom, a major competitor, has gone to the wall. This has impacted on consumer con¿GHQFH LQ WKH FDSDELOLW\ RI VPDOOHU FRPSDQLHV to supply reliable broadband. LLU has been the VXSSRVHG VWXPEOLQJ EORFN RQ ZKLFK HLUFRP¶V ¿[HGOLQH EURDGEDQG FRPSHWLWRUV KDYH IDOWHUHG In other markets, full LLU has allowed operators to innovate in products and pricing. Sean Murphy, director of policy at Chambers Ireland, says LLU is academic because copper cannot handle the bandwidth required for the future (Kelly, 2006). This was also echoed by Peter Cochrane at the Facilitating Broadband Leadership Conference mentioned above. It is estimated that there is an immediately addressable broadband market of 800,000 subscribers (DCMNR, 2006). Data from government departments, ComReg, and the Information Society VXJJHVWWKDW,UHODQGKDVMXVWFRPSOHWHGWKHµHDUO\ DGRSWHUVWDJH¶LQWKH6WDQGDUG7HFKQRORJ\$GRStion Curve. A variety of reasonsincluding late start; late liberalization; slow progress with LLU; lack of competition; innovation in both inter- and intra-platforms, prices, products, and services; nonintervention from the government and a light-touch approach on behalf of the regulator; and lack of perceived relevanceindicate that Ireland may be H[SHULHQFLQJWKHµDGRSWLRQJDS¶ZKHUHE\WKHH[WHQW to which the technology will be fully adopted in society is questioned (ISC, 2003). But there is still evidence of market failure, both for supply and demand. It is acknowledged to be a GLI¿FXOWDQGXQGHUGHYHORSHGPDUNHW,QDQHIIRUW
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to tackle markets which private companies may ¿QGXQDSSHDOLQJWKHJRYHUQPHQWKDVOHGLQLWLDtives in MANs and group broadband schemes to roll out broadband to rural areas. The government would fund 55% of the start-up costs. To date, RQO\DERXW¼KDVEHHQGUDZQGRZQZLWK participants stating too much bureaucracy, footGUDJJLQJTXLEEOLQJDQGJHQHUDOODFNRIµMRLQHGXS¶ government as the obstacles to achieving uptake of 90,000 subscribers (6,000 are participating currently) (Kennedy, 2006b). This lack of supply to the regions outside of Dublin is a barrier both to the consumer and to business. It would be in WKH FRXQWU\¶V LQWHUHVW LI WKHUH ZDV FRQYHUJHQFH between various government departments under an overall information and communications technology strategy. 7KHUH LV RQH ¿QDO IDFWRU ZKLFK PD\ UHDOO\ push the Irish into getting broadband: Ireland is the highest consumers of alcohol in Europe.13 The government recently introduced strict new anti-alcohol abuse measures, and that great social, cultural, political, and religious center of Irish life, the pub, is slowly emptying. The price of a pint is truly shocking....
REFERENCES BBC. (2005, March). Irish cinema set to go digital. Retrieved November 10, 2006, from http://newsvote.bbc.co.uk/mpapps/pagetools/print/news.bbc. co.uk/1/hi/northern_ireland/4365875.stml Burnham, J.B. (2003). Why Ireland boomed. The Independent Review, VII(4), 537-556. CA (Competition Authority). (1998). Competition Authority annual report 1998. Retrieved November 10, 2006, from http://www.tca.ie/NewsPublications/AnnualReports/AnnualReports.aspx Campbell, I. (2006, July 31). Schools round broadband corner. Retrieved November 10, 2006, from http://www.siliconrepublic.com/news/news. nv?storyid=single6810
ComReg (Commission for Communications Regulation). (2006a, June). Irish communications market: Quarterly key data report. Dublin. ComReg. (2006b, October). Trends survey series—wave 2, 2006. Dublin. ComReg. (2006c, December). Irish communications market: Quarterly key data report. Dublin. ComReg. (2007, March). ComReg trends survey series Q4 2006. Dublin. &62 &HQWUDO6WDWLVWLFV2I¿FH )HEUXDU\ Information society and telecommunications 2005. Dublin. CSO. (2006, December). Information society and telecommunications 2006. Dublin. Daly, S. (2007, February). IT and telecoms spend in Ireland. Retrieved November 10, 2006, from http:// www.ireach.ie/failid/Alert_21st_feb_07.pdf DCMNR (Department of Communications, Marine and Natural Resources). (2003). Ireland’s broadband strategy. Retrieved November 10, 2006, from http://www.micr.cz/images/dokumenty/Ireland_Broadband_Strategy.pdf#search=%22irelan G¶VEURDGEDQGVWUDWHJ\2 DCMNR. (2006, January). A review of demand in the Irish broadband market. Retrieved November 10, 2006, from http://www.dcmnr.gov.ie/Communications/Communications+Development/ Broadband+demand+report.htm Demunter, C. (2005). The digital divide in Europe, Eurostat. Retrieved November 10, 2006, from http://epp.eurostat.ec.europa.eu/cache/ ITY_OFFPUB/KS-NP-05-038/EN/KS-NP-05038-EN.PDF 'tRVSyLUHDFKWDL3DUOLDPHQWH -XQH Reports on broadband: Presentation (vol. 74). Dorgan, S. (2006, June). How Ireland became the Celtic Tiger. Retrieved November 10, 2006, from http://www.heritage.org/Research/WorldwideFreedom/bg1945.cfm
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EC. (2005, July). Digital divide forum report: Broadband access and public support in underserved areas. Retrieved November 10, 2006, from http://europa.eu.int/information_society/eeurope/ LGRFVLPSOHPHQWDWLRQGGIBUHSRUWB¿QDOSGI search=%22EC%2C%20Digital%20Divide%20F orum%20Report%3A%20Broadband%20Access %20and%20Public%20Support%20in%20UnderServed%20Areas%2C%20July%202005%22 Economist. (2004). Survey: Tiger, tiger, burning bright. The Economist, (October 16). ECTA. (2006a, May). Broadband study highlights two-speed Europe. Retrieved November 10, 2006, from http://www.ectaportal.com/en/basic245. html ECTA. (2006b, July). Broadband penetration in EU: The haves and the have nots. Retrieved November 10, 2006, from http://www.ectaportal. com/en/upload/File/Broadband%20Scorecards/ Q106/FINAL%20BB%20ScQ106%20Press%20r elease%20Sept%2006.pdf
Forfás. (2005, November). Benchmarking Ireland’s broadband performance. Retrieved November 10, 2006, from http://www.forfas.ie/publications/forfas051205/webopt/forfas051205_broadband_webopt.pdf *RWWKHLO) ,UHODQG :KDW¶V&HOWLFDERXW the Celtic Tiger? Quarterly Review of Economics and Finance, 43(5), 720-737. Guardian. (2006). Global broadband take-up slows to lowest level ever. The Guardian, (October 3). Ingleton, J. (2003, June). De-monopolising Ireland. Proceedings of the EU Competition Law and Policy Workshop, Fiesole, Italy. Irish Times. (2006). The smart money is unlikely WREHWRQWKLVSKRQH¿UPThe Irish Times, (October 3). ISC (Information Society Commission). (2003). Ireland’s broadband future. Retrieved November 10, 2006, from http://www.isc.ie/downloads/InfoSocBroadband.pdf
ECTA. (2006c). 2006 review. Retrieved November 10, 2006, from http://www.ectaportal.com/en/basic522.html
Kelly, M. (2006). The future for broadband in Ireland. Retrieved November 10, 2006, from http:// www.enn.ie/frontpage/news-9674046.html
ECTA. (2007, February). Broadband take-up dramatically slows across Europe. Retrieved November 10, 2006, from http://www.ectaportal. com/en/upload/File/Broadband%20Scorecards/ Q306/FINAL%20European%20PR%20Sc%20Q 306_2_.pdf
Kennedy, J. (2005). Delays to school broadband scheme. Retrieved November 10, 2006, from http://www.siliconrepublic.com/news/news. nv?storyid=single5162
Flynn, R., & Preston, P. (1999). The long-run diffusion and techno-economic performance of national telephone networks: A case study of Ireland, 1922-1998. Telecommunications Policy, 23(5), 437-457. Forfás. (1998). Broadband telecommunications investment in Ireland. Retrieved November 10, 2006, from http://www.forfas.ie/publications/ bband/index.html Forfás. (2004, November). Broadband telecommunications benchmarking study. Retrieved November 10, 2006, from http://www.forfas. ie/publications/broadbandbenchmarking041126/ broadbandbenchmarking041126.pdf 224
Kennedy, J. (2006a, June 15). Dempsey concedes broadband demand problem. Retrieved June 15, 2006, from http://www.siliconrepublic.com/news/ news.nv?storyid=single6596 Kennedy, J. (2006b, November 6). Group broadband scheme labeled an ‘abject failure’. Retrieved November 10, 2006, from http://www.siliconrepublic.com/news/news.nv?storyid=single7307 Kennedy, J. (2007, February 15). Ireland is a dif¿FXOWPDUNHWIRUWHOHFRPVVD\V%7 Retrieved November 10, 2006, from http://www.siliconrepublic. com/news/news.nv?storyid=single7802 Massey, P., & Shortall, T. (1999, July). Competition and regulation in the public utility industries. Dis-
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cussion Paper Number 7, Competition Authority. Retrieved November 10, 2006, from http://www. irlgov.ie/compauth/Dis_doc7.htm
Sony. (2006, March). Business EULH¿QJRetrieved November 10, 2006, from http://www.gamespot. com/news/6146007.html
McAleese, D. (2000, July-August). The Celtic Tiger: Origins and prospects. Options Politiques.
6XQGD\ %XVLQHVV 3RVW D HLUFRP¶V IXWXUH back on hold. The Sunday Business Post, (February 26).
2'75 2I¿FHRIWKH'LUHFWRURI7HOHFRPPXQLFDtions Regulation). (1999, December). Liberalisation in the Irish telecommunications market. Dublin. 2¶'RQQHOO 7' 0D\ 6SHDNLQJ RQ WKH Telecommunications Capital Bill. Díospóireachtaí Parliamente, 328. OECD. (2001). Regulatory reform in Ireland: Regulatory reform in the telecommunications industry. Retrieved November 10, 2006, from http://www. oecd.org/dataoecd/30/54/2511026.pdf#search=%2 2telecommunication%20in%20ireland%22 OECD. (2006). Economic survey of Ireland 2006. Retrieved November 10, 2006, from http://www. oecd.org/document/48/0,2340,en_2649_201185_ 36157872_1_1_1_1,00.html 2¶+HDUQ' *OREDOL]DWLRQµQHZWLJHUV¶DQG the end of the developmental state? The case of the Celtic Tiger. Politics and Society, 28(1), 67-92. ϶5LDLQ 6 7KH ÀH[LEOH GHYHORSPHQWDO state: Globalization, information technology and WKH µ&HOWLF 7LJHU¶ Politics and Society, 28(2), 157-193. Ottens, M. (2004). Internet usage by individuals and enterprises. Retrieved November 10, 2006, from KWWS ZZZPLFUF]¿OHV VWDWLVWLN\B vyu__v_n__ict_EU.pdf#search=%22internet%2 0usage%20by%20individuals%20and%20enterp rises%202004%20eurostat%22 Palcic, D., & Reeves, E. (2004, October). An economic analysis of privatisation in Ireland, 19912003. Proceedings of the Statistical and Social Inquiry Society of Ireland, Dublin. RTÉ Business. (2006, October 19). eircom to use WiMAX for broadband. Retrieved November 10, 2006, from http://www.rte.ie/business/2006/1019/ eircom.html
Sunday Business Post. (2006b). Eight tough calls for Babcock and Brown. The Sunday Business Post, (September 3). Sunday Business Post. (2006c). In the news. The Sunday Business Post, (October 22). Sunday Times. (2006). TDs discover the broadband revolution has failed them. The Sunday Times, (June 11). Thompson, H. (1999, May). Irish government sells off state telecom company. Retrieved November 10, 2006, from http://www.wsws.org/articles/1999/ may1999/tele-m03.shtml 7KRUQWRQ 5 &DJLQJ WKH WLJHU ,UHODQG¶V economy roars on. Harvard International Review, 26(3). TIF. (2003). Getting Ireland online. Retrieved November 10, 2006, from http://www.iia.ie/downloads/TSG_Interim_Report.pdf#search=%22gett ing%20ireland%20online%22 Wilson, D., & Murray, M. (2000, November). Pushing groupware, pulling teams: A re-evaluation of groupware in the light of m-business. Proceedings of 10th BIT Conference, Manchester.
KEY TERMS DCMNR: The Department of Communications, Marine and Natural Resources, affectionately known as the Department of Fish and Chips. Enterprise Ireland (EI): Government agency responsible for promoting indigenous enterprises. Forfás:,UHODQG¶VQDWLRQDOSROLF\DQGDGYLVRU\ board for enterprise, trade, science, technology, and innovation.
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Industrial Development Agency (IDA): Government agency responsible for attracting foreign investment.
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ENDNOTES
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7tUJKUiOLWHUDOO\ µORYH RI FRXQWU\¶ $V D result of the forced emigration of many Irish from Famine times onwards, and the gaining of independence, albeit of 26 counties, from the British, the Irish Diaspora hold a strong ORQJLQJIRUWKHµDXOGFRXQWU\¶ At the time of writing (February 2007), the Assembly of Northern Ireland remains suspended pending elections to be held in March. Established in 1998, the Assembly has gathered intermittently and been suspended four times as a result of disagreements between the main Protestant parties and Sinn Féin, the largest Nationalist Party. ³,UHODQG KDV µZRUVW EURDGEDQG LQ (XURSH¶ says eircom owner,” according to the Sunday Business Post, August 6, 2006. The Lower House of the Oireachtas, the National Parliament
7
8
9 10
11
12
13
µ5HQWVHHNLQJ¶LVWKHWHUPJLYHQE\HFRQRmists to socially wasteful activities such as litigating to retain a monopoly. It may even have been a factor in the then Minister for Public Enterprise losing her seat in the General Election which followed. Teachta Dála are the equivalent of Members of Parliament. 7KLVVLWXDWLRQZDVUHFWL¿HGRYHUWKHVXFFHHGing months by eircom. http://www.callcosts.ie/home/default.asp The Rip-Off Republic was a impactful television program presented by Eddie Hobbs, ¿QDQFLDO DGYLVRU DQG FRQVXPHU FKDPSLRQ ZKLFK GUHZ LQ UHFRUG YLHZLQJ ¿JXUHV ,W made for depressing viewing. The bar set for eircom for the quality of landlines may be too high. A 5% reduction would still offer broadband suitable for most consumers needs. eircom subsequently purchased Meteor, the mobile phone company, in 2005. http://www.euromonitor.com/Alcohol-related_illnesses_cause_for_concern_in_Ireland
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Chapter XV
Social, Political, and Ethical Responsibility in Broadband Adoption and Diffusion: A German Case Study Axel Schulz De Montfort University, UK Bernd Carsten Stahl De Montfort University, UK Simon Rogerson De Montfort University, UK
ABSTRACT There is considerable interest worldwide in broadband diffusion, with research focusing on aspects such as the provision of broadband in remote areas and the socio-economic factors that determine the OLNHOLKRRGRIDGRSWLRQ7KLVFKDSWHULGHQWL¿HVWKHSROLFLHVDQGLQLWLDWLYHVXVHGWRHQFRXUDJHEURDGEDQG awareness, availability, and adoption. Using the case study of a local broadband initiative in remote and rural Germany, the chapter asks the question of who can and should be responsible for broadband provision, and how such responsibility ascriptions are realized.
INTRODUCTION National and international institutions across Europe and beyond encourage broadband adoption and coverage in rural areas. But often, on a local level, the broadband adoption does not take place. Broadband Internet is among the most important technologies in the telecommunication infrastruc-
ture market. Telephony and data transmission of all kinds will be provided and handled by broadband networks. Broadband is thus held to be a very important tool in order to take part in the knowledge and service society. But what if broadband is not available? This chapter will present a case study from East Germany where local authorities failed to take the demand for broadband seriously.
Copyright © 2008, IGI Global, distributing in print or electronic forms without written permission of IGI Global is prohibited.
Social, Political, and Ethical Responsibility in Broadband Adoption and Diffusion
Using the theoretical lens of responsibility, this chapter will also present an explanation why the demand/supply model fails when free markets do not emerge/exist. The chapter will concentrate on the question of responsibility for broadband. In order to explore what responsibility can mean in the context of broadband, we will start out with a discussion of the importance of broadband and technical infrastructures necessary for providing it. After EULHÀ\RXWOLQLQJWKHVRFLDODQGHWKLFDOUHOHYDQFHRI broadband, we will describe the German broadband market. This will set the scene for the case study of AltmarkDSL.de, a case where market forces did not lead to the provision of broadband in a remote and rural area in Germany. In this case, broadband was eventually provided because of pressure exerted by the local public. We will use this case study to discuss the question of responsibility for and in broadband, and to explore the link between ethical, political, social, and other factors. The main aim of this discussion is to show that broadband can be understood as a social innovation in which WHFKQRORJ\LVRQO\RQHLQÀXHQFLQJIDFWRUDPRQJ many.
SETTING THE SCENE: WHY BROADBAND IS IMPORTANT Broadband is a technology that facilitates participation in the global information society. It enables the transmission of large amounts of data in short time. In the near future TV and telephony may be delivered by broadband infrastructures only. Other examples of its importance include the KHDOWKRUQRWIRUSUR¿WVHFWRU+RVSLWDOVZLOOVHQG radiograms to foreign destinations via broadband connections. This will require doctors to be linked to a broadband connection. There is a range of other possible applications that cover all aspects of human life. What is important to note is that the political sphere has already recognized the importance of broadband. Germany is one example. The German coalition parties formulated in November 2005 their coalition contract using the following words: “In
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order to advance the industry and research position of Germany, the coalition parties will provide incentives for the set up of modern broadband telecommunication infrastructures.”1 Furthermore, the European Union debates if broadband should get the status of a Universal Service Obligation (USO). “Universal service is a safety net for achieving social inclusiveness that is to ensure that basic communications services would always be available at a determined quality and an affordable price, even if the market would not provide them under normal commercial circumstances.” 7KH(8GH¿QHVXQLYHUVDOVHUYLFHDVD³PLQLPXP VHWRIVHUYLFHVRIVSHFL¿HGTXDOLW\WRZKLFKDOO end-users have access, at an affordable price in the light of national conditions, without distorting competition.”2 Thus, on an international and national level, the importance of broadband seems to be quite well recognized.
What Is Broadband? The speed and the quality of the signal by which data is transmitted around the globe via the Internet KDVEHFRPHDVLJQL¿FDQWHFRQRPLFDOIDFWRU7KH buzzword for the modern and fast transmission of data via Internet connection is broadband. Broadband transmission became the ordinary form of Internet connection. Many Internet applications do need in fact the availability of a broadband connection in order to be usable. The Internet is no longer a medium were scientists and young people share their thoughts, music, and videos. Instead, broadband is becoming an infrastructure for the many new industries and applications, a necessity for human life. Radiograms are nowadays transmitted via the Internet. The new form of telephony, called voice-over-Internet-protocol, is likely to become the new standard of how telephone calls are transmitted. In general one can say that the mass of data which will be transmitted by many new applications via the Internet will increase in the coming years. That is why it is important that people have access to new information infrastructures like broadband. Technically an Internet connection can be deVFULEHGDVµEURDGEDQG¶LIWKHEDQGZLGWKIRUGDWD
Social, Political, and Ethical Responsibility in Broadband Adoption and Diffusion
transmission is at least 0.5 Mbit/s fast (Lindskog & Johansson, 2005, p. 49f). However, the technical GH¿QLWLRQRIEURDGEDQGPD\YDU\IURPFRXQWU\ to country. In the United States, every Internet connection that exceeds the speed of 200 kbit/s is labeled as broadband. Other resources (Savage & :DOGPDQQ VXJJHVWHGWKHLPSUHFLVHGH¿QLtion of broadband as 50 times faster than dial-up connections (56 kbit/s). “Broadband is thus not a system or a technology, but rather refers to speed or capacity (bandwidth)” (Lindskog & JohansVRQ S 7KXV D FOHDUFXW GH¿QLWLRQ RI “broadband” is not available. For the purposes RI WKLV FKDSWHU ZH ZLOO GH¿QH EURDGEDQG DV DQ Internet access technology with a bandwidth of 2 Mbit/s downstream and 0.5 Mbit/s upstream. This should be acceptable for most of the Internet applications like video streaming, VoIP, browsing, and so forth. Broadband Internet connections can be realized via a range of different technologies. ADSL is in Europe one of the most common access technologies to broadband infrastructures. In the United States, cable TV infrastructures are commonly used to deliver broadband to households. Other technologies for the access to broadband infrastructures are WKHZLUHOHVVDFFHVVLQIUDVWUXFWXUHVOLNH:L0$; WLAN, or HSDPA. Potentially broadband can also EHGHOLYHUHGYLDVDWHOOLWHV7KHGLI¿FXOW\KHUHLV that the speed and bandwidth relies heavily on the number of user who use the satellite connection at the same time. Because of this disadvantage, broadband via satellites was not really successful in the broadband access market.
The Social and Ethical Consequences of Broadband Since the main argument of the chapter will aim at the question of responsibility for and in broadband provision, we need to introduce the idea of broadband as something more than just a technology. The discussion of the reasons why politicians are pushing for broader broadband provision has already pointed to some of the social and ethical consequences that broadband is believed to have or to develop. If we have already entered or are about
to enter the information era and live in a knowledge society, then it is clear that access to information is of central concern. This has to do with the fact that information work is a fast growing sector of meaningful employment, whereas most other sectors (agriculture, production) are in decline, at least in industrialized countries. Access to information is thus of importance for employment, but also for healthcare, social interaction, and entertainment, and it affects most areas of life. The often implicit argument then is that in order to be able to participate in the knowledge society, one will need technical access to information. In current terms this means that some form of broadband access is required to participate. Lack of such technology then means lack of inclusion of society. This leads us to the issue of digital divides (cf. Trauth, Howcroft, Butler, Fitzgerald, & DeGross, 2006; Rookby & Weckert, 2007). The digital divide and the discussion about “information-rich” and “information-poor” is an established topic of applied ethics. Normally the discussion refers to the large gap between the Third and the First Worlds in respect to the level of available telecommunication infrastructures and computers as such: the level of how people are able to use computers, the level of competency, and the level of how the issue is recognized by public policies. Recently this discussion got a new dimension. Politicians and scientists had to realize that the digital divide is not only a matter of fact EHWZHHQWKHWZRµZRUOGV¶WKHGLJLWDOGLYLGHLVDOVR a matter of fact within industrial countries. The digital divide is a good concept to understand why broadband technology can be viewed in terms of social and ethical responsibility. It allows a discussion of which rights citizens should have, KRZIDUHFRQRPLFFRQVLGHUDWLRQVVKRXOGLQÀXHQFH political decisions, and it is based on a percepWLRQWKDWIDLUQHVVPDWWHUVLQWRGD\¶VVRFLHWLHV$Q important consideration here is that the economic consequences of technology feed directly into its ethical evaluation. Precisely because broadband is VHHQDVHFRQRPLFDOO\EHQH¿FLDODFFHVVWRLWFDQ be interpreted as an ethical question.
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THE GERMAN SITUATION The current state in many rural areas across Europe regarding broadband diffusion is quite bad. Many regions cannot be equipped by ordinary $'6/RU¿EHUVLQFHLWLVWRRFRVWO\IRU,QWHUQHW service providers (ISPs) to improve the existing infrastructure. The obvious solution to this problem is to equip rural and remote areas via a wireless technology (Sari, 2000; Vaughan-Nichols, 2004). In Germany this poses particular problems for ISPs investing in broadband infrastructure. One problem is the competitive character of possible broadband technologies of different ISPs. The other problem is the technology “pool” of one single ISP, for example, German Telekom, which LQÀXHQFHVLQYHVWPHQWGHFLVLRQVWUHPHQGRXVO\,Q the year 2000 more than 99.3 billion Deutsche Mark4 DURXQG ELOOLRQ ¼ ZHUH SDLG WR WKH German government by big mobile ISPs for the UMTS frequency spectrum. UMTS and the next generation of UMTS, HSDPA, enable providers to offer wireless broadband and even mobile wireless broadband services. But since these providers paid such a substantial amount of money for the licenses, they will need a fast return of investment. Thus, the investments in UMTS networks were
undertaken in large and urban cities/regions with a high population density (see Figure 1). In addition, other wireless technologies capable of delivering EURDGEDQG HJ:L0$; DSSHDUHG7KLVFUHDWHVD YHU\GLI¿FXOWVLWXDWLRQIRUWKHODUJHZLUHOHVV,63VLQ Germany. Large companies are not willing to risk substantial investments in rural and remote areas since none of them knows which market risks they KDYHWRIDFHE\FRPSHWLQJWHFKQRORJLHVOLNH¿EHU cable TV, or new and future wireless technologies OLNH:L0$;E\RWKHUSURYLGHUVRUE\WKHPVHOYHV *HUPDQ7HOHNRPIRULQVWDQFHRZQVWKH¿EHULQfrastructure in Germany, including the “last mile.” On the other hand, the company also owns UMTS licenses. The decision to set up a total-coverage UMTS network will probably cause a market loss LQWKH¿EHUPDUNHW $QRWKHUTXLWHUHFHQWH[DPSOHRIKRZGLI¿FXOW the German situation seems to be is the “Broadband Wireless Access” auction by the German Federal Network Agency (FNA). In December 2006 the FNA, which is responsible for the regulation of the telecommunication market in Germany, sold for a WRWDODPRXQWRIPLOOLRQ¼WKHVRFDOOHG³%URDGEDQG:LUHOHVV$FFHVV´ ³:L0$;´ OLFHQVHVLQWKH frequency spectrum of 3.4-3.6 GHz. The ISPs that now own these new licenses are not the same ones
Figure 1. UMTS coverage in Germany by the largest mobile telecommunication providers: Vodafone (left) and T-Mobile (right)3
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Social, Political, and Ethical Responsibility in Broadband Adoption and Diffusion
as the ISPs that own the UMTS spectrum since none of those providers participated in the BWA auction. Compared with the results of the 2000 UMTS auction, there is a huge difference in the amount of money for frequency spectrums, which can basically be used to offer the same products and services. Products and services will constitute the overall market share for ISPs. At the end, this will be the ultimate indicator and value for such licenses. Wireless broadband services across Europe can also be delivered by ordinary WLAN. There are several commercial and non-commercial projects within the EU where ordinary WLAN is used to cover regions with broadband Internet services. Additionally the EU decided in 2003 that the frequency spectrum for WLAN has to be made available free of charge. This, of course, makes the decision for ODUJH,63VHYHQPRUHGLI¿FXOWZKHQWKH\KDYHWR decide which technology for what kind of region LVFRPPHUFLDOO\MXVWL¿DEOH 7KLVLVYHU\EULHÀ\WKHVLWXDWLRQRQDPDFUR level from a mere business perspective. The main focus of this chapter is which consequences such a situation has for rural and remote regions, and how social and political responsibility can be ascribed to certain actors.
Literature Review In recent years the diffusion of broadband has EHFRPHDPDMRUWRSLFLQYDULRXV¿HOGVRIUHVHDUFK DQGGLVFLSOLQHV7KH¿UVWHGLWLRQRIWKHELEOHRIGLIfusion research called “Diffusion of Innovations” E\(YHUHWW05RJHUVZDV¿UVWSXEOLVKHGLQ (Rogers, 2003). This book outlined a theory how new technologies or innovations diffuse within a society within a certain place and by a certain time. If one accepts that broadband is one of those innovations, then one can inquire about its diffusion. Some studies chose a normative approach. In such studies broadband is seen as an entity which can help to improve a situation within a society, for example, bridging the digital divide (Prieger, 2003; Oakes, 2004; Mbebe & Sewsunker, 2004; Zhang & Wolff, 2004; Gubbins, 2003a). Other studies use an analytical approach. Here the diffu-
sion process as such in a particular country society is described and analyzed in respect of adoption (Tookey, Whalley, & Howick, 2006; Adams, 2006; Papacharissi & Zaks, 2006). In most of the studies, recommendations for particular political actions are suggested such as how to overcome the demand/supply problem in the case of broadband GLIIXVLRQ /LQGVNRJ -RKDQVVRQ +ROOL¿HOG & Donnermeyer, 2003). But also success stories of broadband diffusion (Bradley, Eng, & Toms, 2004) and the role and status of broadband are UHSRUWHG HJ;DYLHU 7KLVFKDSWHULGHQWL¿HVWKHSROLFLHVDQGLQLWLDWLYHVXVHGWRHQFRXUDJH broadband awareness, availability, and adoption by presenting a case study.
Methodology: Action Research The methodological approach for our research ZDVµDFWLRQUHVHDUFK¶³$FWLRQUHVHDUFKZDVRULJLQDOO\SURSRVHGE\/HZLQ DQGLQÀXHQFHGE\ work at the Tavistock Institute (Rapoport, 1970; Trist, 1976). It uses intervention into problematic VRFLDOVLWXDWLRQVDVDPHDQVWRGHYHORSVFLHQWL¿F knowledge. Different action research approaches have been developed, one of the best known being 6XVPDQDQG(YHUHG¶VDFWLRQUHVHDUFKF\FOHFRQVLVWing of diagnosing, action planning, action taking, evaluating, and specifying learning (Davison et al., 2004; Susman & Evered 1978)” (quoted in Iversen, Mathiassen, & Nielsen, 2004, p. 397). Action research summarizes different methods of the social sciences under one umbrella. “Action research challenges the claims of a positivistic view of knowledge which holds that in order to be credible, research must remain objective and value-free” (Brydon-Miller, Greenwood, & Maguire, 2003, p. 11). We chose this method since one of the authors was heavily involved in the public-awareness initiative called AltmarkDSL, which emphasized the importance of broadband for rural and remote areas. Thus, the research and UHÀHFWLRQV RI WKH DXWKRU ZKR LV DOVR D OHDGLQJ ¿JXUHRIWKHORFDOLQLWLDWLYH$OWPDUN'6/KHDYLO\LQÀXHQFHGWKHIXUWKHUDFWLRQVRIWKHLQLWLDWLYH and thereby the actions of the other actors, like politicians, local authorities, and so forth. “There
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is universal agreement among action researchers that it must be collaborative. The ultimate aim of the researcher is to empower those with whom he/she works to improve their condition. At the same time, the researcher typically enters the collaboration with particular political ideals or goals; the collaboration is typically intended to further this agenda” (Gergen, 1999, p. 100). We hold that action research seems to be the most appropriate approach to the research setting/object in our case. One of the implicit assumptions of an action UHVHDUFKSURMHFWLVWKDWWLPHDQGWKHUHÀHFWLRQVRI WKHDXWKRUZLOOLQÀXHQFHWKHHPSLULFDOVSKHUHRU the empirical setting. Thus, the researcher will determine which research subjects will enter the research scene and why. In the course of time this will become a dialectical process. Some defenders of action research even hold that the research as such must give an impact on the social and political situations in society (cf. Brydon-Miller et al., 2003). This is, of course, a fairly bold statement since a value-laden research approach in the social sciences was an object of rejection by many authors in the past. However, we hold that in order to generate valid data about the research subject, the UHVHDUFKHUPXVWEHSDUWRIWKH¿HOG,IWKLVKDSSHQV LQWHQWLRQDOO\DQGXSRQUHÀHFWLRQWKHQWKHZKROH research will generate very valuable empirical data DQGNQRZOHGJHDERXWDFHUWDLQ¿HOG In our case study we tried to identify which moral agents could potentially carry a responsibility for the diffusion and adoption process of broadband. Thus, at the beginning of the research process, it was not clear which moral agents would be the subject of research. When the impact of the local initiative AltmarkDSL started to develop, more DQGPRUHPRUDODJHQWVHQWHUHGWKH¿HOG,QRUGHU to understand the background of the initiative and why we chose action research as our method, we will now present the case study that outlines the SUREOHPVDQGGLI¿FXOWLHVRIEURDGEDQGGLIIXVLRQ and adoption in a rural and remote area in SaxonyAnhalt, Germany.
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Case Study from Germany: AltmarkDSL.de Before we turn the focus on how one can ascribe UHVSRQVLELOLW\WRDQDFWRUZH¿UVWKDYHWRLGHQWLI\ which actors we have to deal with. The diffusion of broadband can be studied from a bottom-up or topdown perspective. From the top-down perspective the research question will mainly rely or focus on economic analysis and the easy-to-identify actors like governments, ISPs, trade agencies, laws, and so forth. The bottom-up approach is much harder to describe. Of course, there are the potential costumers, local authorities, social networks, and the local infrastructure which we can ascribe responsibility to. But the situation might differ from region to region and from nation to nation. This makes it impossible to really tell who is in charge or responsible since potentially every citizen can be held responsible. In our study we focused on a grassroots movement called AltmarkDSL. AltmarkDSL is a group of people who tried to create public awareness in an rural and remote region in middle East Germany. This region is called “Altmark.” Altmark is left behind in many ways. A low population density (48 people per square kilometer) and a high unemployment rate (approximately 22%) make this region one of the poorest in Germany. However, it is a beautiful place to live with low industry density, beautiful landscapes, and no motorways. In order to close the gap to more developed UHJLRQVDQGLQRUGHUWRSUR¿WIURPWKHSRWHQWLDOV and options of a service and knowledge society, this kind of region is in special need of broadband connections since new forms of work and employment can be based on broadband infrastructures. Broadband could play an important role in addressing the infrastructural problems of this area. As indicated above, the EU and the federal government are in support of further broadband development. At the same time, there are few economic incentives for commercial ISPs to provide access to the population. Additionally, there is the very disadvantageous situation of the German telecommunication sector for such remote and rural regions.
Social, Political, and Ethical Responsibility in Broadband Adoption and Diffusion
This was the point of departure for some local individuals in September 2004 to form an initiative which “publicized” the importance and potential of broadband for this region. At the same time they presented the possible option for total broadband FRYHUDJH :L0$; :L0$; ZDV DW WKDW WLPH a wireless broadband technology that was not standardized. However, the German FNA granted ³H[SHULPHQWDOOLFHQVHV´WRSRWHQWLDO:L0$;SURviders. The Swedish city of Skeleftea was one of WKH¿UVWFLWLHVLQ(XURSHWRXVHWKLVQHZWHFKQRORJ\ to cover a whole region with wireless broadband Internet connections. So, technically this technology should have also been working for the German UHJLRQ$OWPDUN:L0$;LVFDSDEOHRIGHOLYHULQJ high-speed Internet connections over a distance of up to 20 kilometers with a speed of up to 10 Mbit/s. The local initiative published ideas and concepts of how this region could be covered with wireless broadband connections. Members of parliament, local authorities, mayors, business development agencies, local companies, and interested citizens were asked to participate in advertising the idea of broadband in rural Altmark. The results were interesting. Companies and politicians participated little in that campaign. The local business development agency decided not to support that campaign. Their argument was that this is solely a matter of business and had to be resolved by business. The same position was declared by the District Administration, which has the highest political power in a region like Altmark. These reactions showed several facts. First, the importance of broadband was underestimated. The national (“Broadband-Atlas”) and international campaigns (“eEurope 2005”) for broadband diffusion and adoption did not reach the local levelin this particular case. The demand/supply failure was misunderstood or not recognized. The broadband market for the total coverage of broadband in Altmark did not emerge, because the demand was, generally speaking, too small. Only larger cities, which were supplied with DSL-broadband from German Telekom, had the chance to get a hold of broadband. On the other hand, as a consequence this exacerbated the situation for rural villages.
Approximately half a year after the campaign was started, it became clear that even citizens in such small villages still trusted the competence and promises of the largest ISP in the DSL market in Germany, German Telekom, to coversooner or laterthe region via cable DSL. Thus, the probroadband campaign had to face the trust of citizens in large ISPs. That made the potential market for alternative wireless broadband providers even worse. For this reason the AltmarkDSL initiative started a second campaign for a small company which offered to cover seven small villages via WLAN, another wireless technology capable of delivering broadband Internet. At the end, this campaign was successful. Today there are six villages which have broadband access of up to 2 Mbit/s via WLAN technology. Given our involvement and familiarity with the AltmarkDSL case, which stems from our active participation in the project, the question of theoretical interest we wish to discuss here is who is or can be held responsible for broadband provision. We will use the case study to explore this question in some depth. One guiding question here is whether a theory of responsibility will allow us to develop principles or practices that will facilitate the evaluation of comparable situations with the aim of overcoming some of the practical problems we have faced.
Responsibility for (or in?) Broadband The central question of this chapter is who should be held responsible for the diffusion of innovations, in this case: the diffusion of broadband. In the social sciences there had been extensive research on the “diffusion of innovation” problem (Rogers, 2003). 'LIIXVLRQ FDQ EH GH¿QHG ³DV SURFHVV E\ ZKLFK an innovation is communicated through certain channels over time among the members of a social system” (Rogers, 2003, p. 11), which is also the GH¿QLWLRQRIGLIIXVLRQ³7KHLQQRYDWLRQGHFLVLRQ process is essentially an information seeking and information-processing activity in which an individual is motivated to reduce uncertainty about the advantages and disadvantages of the innovation” (Rogers, 2003, p. 14). What will the advantages and
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disadvantages be in my situation? “Observability is the degree to which the results of an innovation are visible to others. The easier it is for individuals to see the results of an innovation, the more likely they are to adopt” (Rogers, 2003, p. 16). This is where the chapter will introduce the concept of responsibility in order to investigate the question how such a dilemma can be understood and possibly overcome. Structurally, responsibility is the ascription of an object to a subject with the aim of setting sanctions. The whole social construct of responsibility is meant to improve social life. Responsibility ascriptions are complex social interactions that need to consider a range of angles and dimensions. We will structure this discussion by investigating each of the major dimensions of UHVSRQVLELOLW\XVLQJWKHZRUNRQUHÀHFWLYHUHVSRQsibility by Stahl (2004). We explicitly use the term “responsibility” and not “accountability” since our methodological approach does not allow the ascription of accountability to certain moral agents. This assumption relies on the Aristotelian distinctions of responsibility. Aristotle made a distinction between the merit-view of responsibility; that means a moral agent can be praised or blamed because of the actions he did or did not do, and the consequentialist view, where an action is judged to be good or bad dependent on the outcome. Accountability would presuppose that the subject of responsibility can EHSUHGH¿QHG$VDOUHDG\VWDWHGLQWKLVFKDSWHU this was impossible in our case study and with our methodological approach. On the other hand it was under no circumstances clear which moral agents could be held accountable for which actions. The synergy and network effects made it simply impossible to ascribe a certain accountability to a certain agent. That is why we chose the concept of responsibility as our point of departure for the analysis of the case study.
Object and Subject of Responsibility As indicated above, there are three major dimensions that need to be considered in each responsibility ascription: the subject, the object, and the authority or normative background. The subject is the one who is held responsible, the object is
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what the subject is responsible for, and the authority provides the norms on which responsibility is ascribed and enforces sanctions. In our case the easiest of these three dimension seems to be the object. It is the provision of broadband access to the population of the Altmark region. All is not as easy as it seems, however. While the general aim of providing broadband access seems to be ZHOOHVWDEOLVKHGDQGQRWFRQWHQWLRXVWKHVSHFL¿F underlying reasons for requiring the object seem less clear. Broadband provision can be desired for economic, political, ethical, or other reasons. Depending on the underlying reason for the desire for broadband, different subjects, different norms, and different sanctions would be applicable. The object of responsibility ascription changed dramatically, depending on whether broadband was seen as a purely technical piece of infrastructure, a means for regional development, a vehicle for economic growth, or a source of higher standard RIOLYLQJDQGPRUHIXO¿OOHGLQGLYLGXDODQGFROOHFtive activities. The District Administration or the local initiative AltmarkDSL may serve as an example for a subject of responsibility which neglected the meaning of broadband as a “vehicle” to develop the region economically. Both subjects recognized their responsibility in two totally different directions. The District Administration rejected the responsibility by pointing the market. Their argument was that market forces have to resolve the broadband issue (object of responsibility). As PHQWLRQHG HDUOLHU WKH GLI¿FXOW VLWXDWLRQ LQ WKH broadband market in Germany leads the market forces not to invest in rural areas. This was already described by a number of studies (Lindskog & Johansson, 2005; Oakes, 2004; Prieger, 2003). Thus, the supply model fails because the market does not emerge. However, the demand for broadband is still prevailing because the people are in need of broadband, and at least some articulated this by participating in AltmarkDSL or in other circumstances. Further, subjects are the individuals or entities that are held responsible. In our case there are several contenders for the role of subjects. Politicians, ISPs, markets, the people, and many more
Social, Political, and Ethical Responsibility in Broadband Adoption and Diffusion
moral agents can be held responsible for successful diffusion and adoption of broadband in the rural area Altmark. As we saw in the case study, the local initiative AltmarkDSL publicized the need for broadband for the rural and remote area Altmark. AltmarkDSL is a voluntary and independent organization which articulated an ethical concern. This ethical concern is highlighted in much of the digital divide literature, and in national and international political initiatives which emphasized the importance of broadband. From July 2004 onwards AltmarkDSL tried to raise the awareness for the “broadband problem” to local politicians and MPs, who represent the region in the parliament of the county and the German Bundestag. This approach failed. None of the local politicians responded to this initiative. Additionally, AltmarkDSL tried to deliberate the issue with local entities that are responsible for the economical development (IGZ) of the rural region Altmark. Even here the response was a mere rejection of the issue. It is interesting to note that the IGZ noted that broadband coverage is a solely business issue. The ISPs must decide if they want to invest in the broadband infrastructure in the rural area. The ISPs on the other hand, as described earlier in this chapter, have little incentives to invest in a rural region with a low population density. Thus, it seems that the main responsibility lies in the hands of local authorities like politicians or the IGZ. The crucial point here is, these authorities rejected more or less the accountability for the moral, political, and social responsibility for this particular problem because they saw broadband as a mere “product,” like ice cream or a car, and not as an important multiplicative tool for the positive GHYHORSPHQWRIWKHUHJLRQ+HUHZHKDYHLGHQWL¿HG the crucial fact which generates an ethical issue in broadband. If authorities do not recognize the true value of an entity (here: broadband) or are not willing to evaluate the consequences the diffusion of broadband will have for the rural region, then they are blameworthy. So, the diffusion of broadband becomes an ethical issue.
Authority and Norms The subject is held responsible on the basis of accepted norms, and these are considered and sanctioned by the authority of the ascription. The authority in our case is, on the one hand, the general political agreement on the national level that broadband constitutes an important infrastructure for the people in order to take part in a modern IT society. The fact that broadband was discussed as an issue of Universal Service Obligation underlines this importance. On the other hand, Internet service providers and business as such emphasize the importance of broadband. Thus, politics and business declare in unison the high status of broadband. Our point here is that this seems only to “work” on a macro level. However, this accepted view of the importance of broadband on a macro level does not lead to provision-positive politics on a micro level. That would be the general expectation of the public and AltmarkDSL. The people themselves, as the authority, articulated within the initiative AltmarkDSL their desire for broadband. So, implicitly AltmarkDSL articulated an ethical claim (“broadband for the region”) which made at least every local authority blameworthy because these institutions do have the responsibility to respond to that claim.
Typical Responsibility Ascriptions Just describing all possible permutations of responVLELOLW\DVFULSWLRQVZRXOGJREH\RQGWKHFRQ¿QHV of this chapter. They are also not all relevant or useful. What the above enumeration of some of them should have done, however, is show that there is no simple linear way of ascribing responsibiliWLHV7KHPRVWSURPLQHQW¿JXUHVRIUHVSRQVLELOLW\ ascription in our case study were the following: the local District Administration, MPs, IGZ, ISPs, and AltmarkDSL. AltmarkDSL was during the period of time very well recognized as a successful grassroots movement which fought for needed technology. It ZDVWKH¿UVWHQWLW\ PRUDODJHQW ZKLFKDUWLFXODWHG WKHQHHGIRUEURDGEDQGDQGSRLQWHGWRWKHGLI¿FXOW
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Social, Political, and Ethical Responsibility in Broadband Adoption and Diffusion
market situation in rural and remote areas for broadband provision. The crucial point here is that the local District Administration, MPs, ISPs, as well as the IGZ did not have to fear any bad consequences. Ascription of moral responsibility to these agents did not really cause bad consequences for them. The empirical evidences proved that all ethical economical and social concerns did not provide enough reasons and forces to stimulate actions of one of those moral agents.
CONCLUSION In our case the overall objective seems clear, namely the provision of broadband access to the rural population of Altmark. All other aspects are much less clear. These include the subject (who is responsible?) as well as the sanctions (rewards or punishments). Responsibility can be of different types (legal, moral, religious) and there seems to be a mix of different types in our case. It is not clear on what grounds responsibility should be ascribed, nor is it obvious how achievement is to be measured and how the sanctions can be implemented. We are thus looking at a complex net of responsibilities, some of which established, others still emerging, that currently do not facilitate a solution. One possible way to address this SUREOHPLVWKHFRQFHSWRIUHÀHFWLYHUHVSRQVLELOLW\ 6WDKO 5HÀHFWLYHUHVSRQVLELOLW\VWDQGVIRU the attempt to render responsibility ascriptions realizable. One important aspect of this is that the process of ascription must be undertaken in a participative manner to include the voices of those who are affected. In our case study there is a local imitative, AltmarkDSL, which conforms to the ideas of UHÀHFWLYHUHVSRQVLELOLW\EHFDXVHLWLVDERWWRPXS population-driven attempt to provide broadband. In the chapter we explored how this initiative articulated and may have changed existing perceptions of responsibility and assumptions about relevant realities (“broadband diffusion”).
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Ghosh, A., Wolter, D.R., Andrews, J.G., & Chen, R. (2005). Broadband wireless access with :L0$; &XUUHQW SHUIRUPDQFH EHQFKmarks, and future potential. IEEE Communications Magazine, 43(2), 129-136. *ULPHV6 +RZZHOODUH(XURSH¶VUXUDO businesses connected to the digital economy? European Planning Studies, 13(7), 1063-1081. Grubesic, T.H. (2004). The geodemographic correlates of broadband access and availability in the United States. Telematics and Informatics, 21(4), 335-358. Grubesic, T.H. (2003). Inequities in the broadband revolution. Annals of Regional Science, 37(2), 263-290. Grubesic, T.H., & Murray, A.T. (2004). Waiting for broadband: Local competition and the spatial distribution of advanced telecommunication services in the United States. Growth and Change, 35(2), 139-165. Gubbins, E. (2003a). Broadband for everyone. Telephony, 244(4), 18. Gubbins, E. (2003b). Rural broadband funding going fast in future budgets. Telephony, 244(11), 12. Gutierrez, V. (2002). Broadband and the Internet. Arthroscopy, 18(6), 654-657.
provement: An action research approach. MIS Quarterly, 28(3), 395-433. Kaigo, M. (2005). Can the WSIS declaration principle and plan of action work in Japan? Digital VWUDWL¿FDWLRQRI-DSDQHVHVRFLHW\Telematics and Informatics, 22(4), 333-347. Lindskog, H., & Johansson, M. (2005). Broadband: A municipal information platform: Swedish experience. International Journal of Technology Management, 31(1-2), 47-63. Madden, G., Savage, S.J., Coble-Neal, G., & Bloxham, P. (2000). Advanced communications policy and adoption in rural Western Australia. Telecommunications Policy, 24(4), 291-304. Mason, R., & Rennie, F. (2004). Broadband: A solution for rural e-learning? International Review of Research in Open and Distance Learning, 5(1). Mbebe, Z., & Sewsunker, R. (2004). xDSL as a broadband solution for the developing countries. IEEE AFRICON Conference, 1, (pp. 155-160). Murray, B. (2003). Delivering education in remote areas by Internet via satellite broadband. Telecommunication Journal of Australia, 53(1), 59-63, 71. Oakes, S. (2004). The Internet and regional inequality. Geography Review, 18(2), 24-29.
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Ohata, K., Kobayashi, K., Nakahira, K., & Ueba, M. (2005). Broadband and scalable mobile satellite communication system for future access networks. Acta Astronautica, 57(2-8), 239-249.
+ROOL¿HOG &$ 'RQQHUPH\HU -) &UHDWLQJGHPDQG ,QÀXHQFLQJLQIRUPDWLRQWHFKQROogy diffusion in rural communities. Government Information Quarterly, 20(2), 135-150.
Papacharissi, Z., & Zaks, A. (2006). Is broadband the future? An analysis of broadband technology potential and diffusion. Telecommunications Policy, 30(1), 64-75.
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Park, S., & Yoon, S.-H., (2005). Separating earlyadopters from the majority: The case of Broadband Internet access in Korea. Technological Forecasting and Social Change, 72(3), 301-325.
Iversen, J.H., Mathiassen, L., & Nielsen, P.A. (2004). Managing risk in software process im-
Pastrover, S. (2003). The prospects for broadband deployment in rural America. Government Information Quarterly, 20(2), 95-106.
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P a t e l , D. , & M a n n i g s , R . (2 0 0 2) . 5HÀH[personalised wireless interaction in a broadband environment. BT Technology Journal, 20(1), 38-46. Philpott, M. (2003). Broadband technologies and rural areas. Journal of the Communications Network, 2(1), 9-16. Prendergast, D., Guillet, M., & Caron, B. (2004). Broadband Internet multimedia service return channel using DTV for rural and remote access. Proceedings of Fifth World Wireless Congress (pp. 166-171). Prieger, J.E. (2003). The supply side of the digital divide: Is there equal availability in the broadband Internet access market? Economic Inquiry, 41(2), 346-363. Rao, B., & Parikh, M.A. (2003). Wireless broadband drivers and their social implications. Technology in Society, 25(4), 477-489. Rogers, E.M. (2003). Diffusion of innovations. New York: The Free Press. Rookby, E., & Weckert, J. (Eds.). (2007). Information technology and social justice. Hershey, PA: Idea Group. Savage, S.J., & Waldman, D. (2005). Broadband Internet access, awareness, and use: Analysis of United States household data. Telecommunications Policy, 29(8), 615-633. Sari, H. (2000). Trends and challenges in broadband wireless access. Proceedings of the Symposium on Communications and Vehicular Technology (pp. 210-214). Sinha, A., Mitchell, K., & Medhi, D. (2005). NetZRUNJDPHWUDI¿F $EURDGEDQGDFFHVVSHUVSHFWLYH Computer Networks, 49(1), 71-83. Stahl, B.C. (2004). Responsible management of information systems. Hershey, PA: Idea Group. Strover, S., Chapman, G., & Waters, J. (2004). Beyond community networking and CTCs: Access, development, and public policy. Telecommunications Policy, 28(7-8), 465-485.
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Tookey, A., Whalley, J., & Howick, S. (2006). Broadband diffusion in remote and rural Scotland. Telecommunications Policy, 30(8-9), 481-495. Trauth, E., Howcroft, D., Butler, T., Fitzgerald, B., & DeGross, J. (Eds.). (2006). Social inclusion: Societal & organizational implications for information systems. Boston: Springer. Van Gorp, A.F., Maitland, C.F., & Hanekop, H. (2006). The broadband Internet access market: The changing role of ISPs. Telecommunications Policy, 30(2), 96-111. Vaughan-Nichols, S. (2004). Achieving wireless EURDGEDQG ZLWK :L0$; Computer, 37(6), 1013. Venkatachalam, S., & McDowell, S. (2003). What is broadband? Where is “rural”? Government Information Quarterly, 20(2), 151-166. Wang, R.Y., Sobti, S., Garg, N., Ziskind, E., Lai, J., & Krishnamurthy, A. (2004). Turning the postal system into a generic digital communication mechanism. Computer Communication Review, 34(4), 159-166. Warner, T.D., Monaghan-Geernaert, P., Battaglia, J., Brems, C., Johnson, M.E., & Roberts, L.W. (2005). Ethical considerations in rural health care: A pilot study of clinicians in Alaska and New Mexico. Community Mental Health Journal, 41(1), 21-33. ;DYLHU 3 6KRXOG EURDGEDQG EH SDUW RI Universal Service Obligations? Info, 5(1), 8-25. Zhang, M., & Wolff, R.S. (2004). Crossing the digital divide: Cost-effective broadband wireless access for rural and remote areas. IEEE Communications Magazine, 42(2), 99-105. Zhang, M., & Wolff, R.S. (2004). Using WiFi for cost-effective broadband wireless access in rural and remote areas. Proceedings of the 2004 IEEE Wireless Communications and Networking Conference (WCNC 2004) (vol. 3, pp. 1347-1352).
Social, Political, and Ethical Responsibility in Broadband Adoption and Diffusion
KEY TERMS
ENDNOTES 1
Action Research: A research method origiQDOO\SURSRVHGE\/HZLQDQGLQÀXHQFHGE\ZRUN at the Tavistock Institute. It uses intervention into problematic social situations as a means to develop VFLHQWL¿FNQRZOHGJH Broadband: 7KHUHLVQRFOHDUFXWGH¿QLWLRQRI “broadband.” Broadband can be used synonymous for every technology for high-speed transmission RI GDWD 6RPH GH¿QLWLRQV RQO\ FRQVLGHU VSHHGV DERYH0ELWVDVEURDGEDQG2IWHQWKHGH¿QLWLRQV DOVRLQFOXGHWKHFDSDFLW\RIµDOZD\VRQ¶DVW\SLFDO for broadband. Case Study: A form of qualitative descriptive research. It refers to the collection and presentation of detailed information about a particular group RULQGLYLGXDODQGWKHVSHFL¿FFRQWH[W7KHFRQFOXsions drawn from a case study research project are only applicable and valid for this particular case and context. The emphasis of case study research projects is placed on exploration and description. Diffusion of Innovation: (YHUHWW5RJHUVGH¿QHV diffusion as the process by which an innovation is communicated through certain channels over time among the members of a social system.
2
3
4
German: Die Koalitionsparteien werden zur Sicherung der Zukunft des Industrieund Forschungsstandorts Deutschland Anreize für den Aufbau bzw. Ausbau moderner und breitbandiger Telekommunikationsnetze schaffen. Taken form the “Coalition Contract” of the Social Democratic Party of Germany and the Christian Democratic Union of Germany from November 11, 2005. Retrieved June 19, 2006, from http://koalitionsvertrag. spd.de/servlet/PB/show/1645854/111105_Koalitionsvertrag.pdf Retrieved June 6, 2006, from http://europa.eu.int/rapid/pressReleasesAction. do?reference=MEMO/05/ 165&format=HT ML&aged=0&language=en&guiLanguage =en Vodafone map retrieved February 20, 2007, from http://netmap.vodafone.de; T-Mobile map retrieved February 20, 2007, from http://t-map.t-mobile.de http://www.bundesnetzagentur.de/media/archive/214.pdf (p. 26)
Ethics: According to http://onlineethics.org, “the term ethics is used in several different ways. It means the study of morals. It is also the name for that branch of philosophy concerned with the nature of morals and moral evaluation, e.g., what is ULJKWDQGZURQJYLUWXRXVRUYLFLRXVDQGEHQH¿FLDO or harmful (to others).” Responsibility: Structurally responsibility is the ascription of an object to a subject with the aim of setting sanctions. The whole social construct of responsibility is meant to improve social life. Responsibility ascriptions are complex social interactions that need to consider a range of angles and dimension.
239
Division V
North America
241
Chapter XVI
Competition in Broadband Provision and the Digital Divide Wei-Min Hu Peking University, China James E. Prieger Pepperdine University, USA
ABSTRACT This chapter examines the supply of DSL broadband by the incumbent local exchange company (LEC) LQ¿YH86VWDWHVLQWKHHDUOLHU\HDUVRIGHSOR\PHQW2XUHPSLULFDODQDO\VLVVKRZVWKDWLQFRPHRWKHU demographics, and cost factors are important determinants of entry and availability. After controlling for other factors, the racial characteristics of the area do not affect DSL provision. Active competition in broadband from competitive LECs reduces deployment of DSL by the incumbent, but potential competition from competitive LECs has the opposite effect. Competition from cable companies also negatively LQÀXHQFHVWKHLQFXPEHQW¶VGHFLVLRQWRVXSSO\'6/2XUREMHFWLYHLQJDXJLQJWKHLPSRUWDQFHRIWKHYDULRXV factors is to highlight the important drivers of broadband provision for policymakers.
INTRODUCTION The worldwide explosion in the growth of broadband infrastructure is allowing countries to enjoy productivity gains in industries that heavily use communications. Consumers also are deriving LQFUHDVHGEHQH¿WVIURPWKHDYDLODELOLW\RIEURDGband connection to the Internet, as the technology speeds up some applications (e.g., downloading music) and creates entirely new possibilities (e.g., telemedicine).1 Households typically connect to
the Internet through digital subscriber line (DSL) service provided on their telephone line or through cable modem service. Although broadband technology of these and other types is diffusing rapidly, some policymakers in the U.S. and abroad are concerned that not all regions within countries are receiving broadband access at the same time. The phenomenon of unequally diffusing information and communication technology is known as the “digital divide.” The digital divide in the United States takes the form of a well-documented gap
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Competition in Broadband Provision and the Digital Divide
in computer and Internet usage between richer and poorer households, majority and minority groups, and urban and rural areas (Newberger, 2001; NTIA, 2002; Mills & Whitacre, 2003; Fairlie, 2004). Broadband Internet access has become one of the latest aspects of the digital divide to be discussed, examined, and lamented in arenas of public policy. In the early years of broadband Internet adoption, the U.S. Department of Commerce (NTIA, LVVXHG DQ LQÀXHQWLDO UHSRUW VKRZLQJ WKDW black and Hispanic households had less access to broadband Internet access than did white households. The report also found that households in rural areas were less likely than urban households to subscribe to broadband access, and that lowerincome households lagged the subscription rates RI PRUH DIÀXHQW KRXVHKROGV 7KH 86 )HGHUDO Communications Commission (FCC) opined that low subscription to broadband services in rural, low-income, and minority areas was due at least in part to a lack of availability (FCC, 2000a). Since availability—the supply of broadband infrastructure by communications providers—is necessary for the household to subscribe to broadband service, fundamental analysis of the broadband digital divide must begin on the supply side. What are the determinants of the supply side of the digital divide? Both the demographic characteristics of the territory and competition among broadband service providers play a role in entry in the broadband market. The racial composition DQGLQFRPHRIDPDUNHWPD\LQÀXHQFHEURDGEDQG supply directly through overt discrimination (sometimes called “redlining” in the U.S.) on the part of the providers, or more likely, according to the SUR¿W PD[LPL]DWLRQ K\SRWKHVLV 3ULHJHU 2003), through reducing the demand in an area DQGWKHUHIRUHWKHSUR¿W SHUFHLYHGE\DSRWHQWLDO supplier. Competition in local communications also affects broadband access. For example, incumbent telephone and cable companies may be more likely to provide broadband access to “meet the competition” when they face broadband competitors (the competitive stimulus hypothesis). On the other hand, if potential entrants deem a market large enough to support one broadband provider
242
but not two, then the availability of cable modem service (for example) will discourage deployment of DSL (the carrying capacity, or market size, hypothesis modeled by Bresnahan & Reiss, 1987). If competition is an important driver of broadband availability, then policy efforts to close the digital divide should encourage competition. Although the data we examine are from the U.S., the public policy concerns of the digital divide and the issue of the role of competition in broadband rollout are universal. In this chapter, we examine the supply of DSL broadband by the incumbent local exchange comSDQ\ /(& LQ¿YH0LGZHVWHUQVWDWHVLQWKH86 Our objective is to gauge the importance in the DSL entry decision of the various markets and competiWLYHIDFWRUVGLVFXVVHGDERYH7KH¿QGLQJVLQWKLV study show that there is no evidence that race per se matters in the supply of DSL once the impact of the income of the area is removed. However, household income does matter, with lower-income DUHDVUHFHLYLQJOHVVDFFHVV:HDOVR¿QGWKDWWKH education levels, average length of commute, size RI¿UPVLQWKHDUHDDQGFRVWVDIIHFWWKHGHSOR\PHQW of DSL. The effect of competition in the area is in accord with the carrying capacity hypothesis.
LITERATURE REVIEW A growing body of literature exists on the determinants of broadband availability in an area. Our study has the advantage of examining a precise geographical market for DSL deploymentthe wire center serving area. This allows us to gather exact demographic characteristics of the markets, as would be considered by the decision makers at the potential broadband providers. Previous studies in the economics literature looking at deployment throughout the U.S. typically examine postal service code areas2 )ODPP ;LDR Orazem, 2005; Grubesic & Murray, 2004; Prieger 2003) or counties (Gillett & Lehr, 1999), neither of which conform to telecommunications geography. Gabel and Kwan (2001) also use the wire center serving area as the unit of observation. Studies considering broadband diffusion within a state
Competition in Broadband Provision and the Digital Divide
or metropolitan area have used other geographical units. For example, Grubesic (2003) uses the ¿QHVWOHYHORIJHRJUDSK\DYDLODEOHIRUHDFKW\SH of provider (townships for cable modem providers and wire centers for DSL providers) in his study of broadband availability in Ohio. The studies on the determinants of broadband DYDLODELOLW\JHQHUDOO\FRQ¿UPWKDWUXUDODQGORZ income areas are less likely to have broadband available, but the set of variables included in the HVWLPDWLRQVFDQJUHDWO\LQÀXHQFHWKHFRQFOXVLRQV For example, Prieger (2003) uses a nationally comprehensive broadband survey by the FCC to examine the income and racial aspects of the supply side of the digital divide. The author shows that if the only area characteristics included in an estimation for the availability of broadband are the racial composition, urban density, and identity of the incumbent telephone company, then areas with more minorities appear to be less likely to have broadband. However, one cannot draw a causal link between race and supply-side overt discrimination, because once Prieger (2003) controls for income, WKHVWDWLVWLFDOVLJQL¿FDQFHRIWKHUDFLDOFRPSRVLWLRQ of the area disappears. Furthermore, when Prieger (2003) introduces additional demographic and business characteristics of the area to the estimation, the author found that there is no evidence of unequal availability based on race or income, except for Native Americans. Rural location and demand characteristics such as age, education, commuting time, gender, and size of businesses in the area were determinants of broadband availability that were more important. There are many more studies on household-level demand for broadband Internet access than there are on supply (see other chapters of this book for citations). A few studies (Burnstein & Aron, 2003; Wallsten, 2005) commingle supply and demand, and examine the factors determining the state-level penetration rate (the ratio of subscribers to total households in a state). These studies consider the impact of competition (among other factors) on the penetration rate. Burnstein and Aron (2003) ¿QG WKDW LQWHUPRGDO FRPSHWLWLRQ EHWZHHQ FDEOH FRPSDQLHVDQGWHOHFRPPXQLFDWLRQV¿UPVLVSRVLtively correlated with broadband penetration. In a
VLPLODUYHLQ:DOOVWHQ ¿QGVWKDWVWDWHVZLWK more competition in local telephony (as proxied by the number of telephone lines sold by competitive local exchange carriers) have higher broadband penetration rates. One disadvantage of using statelevel penetration rates is that the relatively small number of observations makes identifying driving factors problematic. The most ambitious of the broadband entry studies, those mentioned above using the FCC data from postal service code areas, are subject to criticism because broadband access is not necessarily ubiquitous in an area.3 Thus, using characteristics of the postal code areas subjects the broadband deployment estimations to measurement error bias, since the characteristics of the actual geographical market may differ.4 By examining the actual unit of GHSOR\PHQWRI'6/WKHFHQWUDORI¿FHDUHDLQRXU study we are able to test conclusions from earlier studies in a setting free from the measurement error bias that stems from geographical imprecision. For H[DPSOHZH¿QGWKDWWKHUHLVQRHYLGHQFHWKDWUDFH matters in the supply of DSL, other things equal, ZKLFKFRQ¿UPVWKH¿QGLQJRI3ULHJHU :H thus lend credence to the methods used in the previous studies.
THE DECISION TO DEPLOY BROADBAND INFRASTRUCTURE There are several steps involved when a household connects to the Internet via broadband access. &RQVLGHUWKHFDVHRI'6/¿UVWWKHPRGHRIDFcess examined in this chapter. Data moves across various networks from the Internet backbone XQWLOLWUHDFKHVWKHORFDOH[FKDQJHFDUULHU¶VFHQWUDO RI¿FH7KHFHQWUDORI¿FHLVWKHFDUULHU¶VSRLQWRI presence in the local exchanges, and contains the telecommunications switching and DSL multiSOH[LQJHTXLSPHQW)URPWKHFHQWUDORI¿FHGDWD is transmitted over a DSL connection residing on WKHWHOHSKRQHOLQHEHWZHHQWKHFHQWUDORI¿FHDQG WKHVXEVFULEHU¶VSUHPLVHV,QFDEOHGDWDQHWZRUNV GDWD ÀRZV IURP WKH ,QWHUQHW WKURXJK WKH FDEOH FRPSDQ\¶VKHDGHQG DFDEOHVHUYLFHSURYLGHU¶VYHUVLRQRIWKHORFDOH[FKDQJHFDUULHU¶VFHQWUDORI¿FH
243
Competition in Broadband Provision and the Digital Divide
and on to regional high-capacity data networks. 7RUHDFKWKHFDEOHPRGHPVXEVFULEHU¶VSUHPLVHV GDWDWUDYHOVWKURXJKORFDO¿EHURSWLFQHWZRUNVDQG ¿QDOO\RYHUFRD[LDOFDEOH:LUHOHVVDQGVDWHOOLWH carriers also offer broadband capability, although VXFK¿UPVW\SLFDOO\IRFXVRQWKHEXVLQHVVPDUNHW and have small market shares.5 Thus, for residential subscribers, cable modem service and DSL are the broadband options of choice in the U.S., with cable modems enjoying about a three-to-one advantage around 2000, the vintage of the data analyzed here.6 The FCC found as early as 2000 that the Internet backbone and the networks between the backbone DQGWKHWHOHSKRQHFHQWUDORI¿FHVDQGWKHFDEOHFRPpany headends were generally adequate to provide broadband access (FCC, 2000a). The so-called “last PLOH´WRWKHVXEVFULEHUV¶SUHPLVHVLVWKHOLPLWLQJ factor on the supply side of the market. $EURDGEDQGFDUULHU¶VGHFLVLRQWRHQWHUDPDUNHW depends on the expected demand, costs, and entry E\RWKHU¿UPV7KHHQWU\GHFLVLRQGHSHQGVRQWKH H[SHFWHGSUR¿WV( S(t,w,z(t),H)), where SLVWKHSUR¿W ÀRZDWWLPHt, w is a vector of demographics of the area and other observed variables, z represents the FRPSHWLWRUV¶HQWU\GHFLVLRQV LWVHOIDIXQFWLRQRI time), and HLVDUDQGRPYDULDEOHUHÀHFWLQJXQFHUWDLQW\DERXWIXWXUHSUR¿WDELOLW\)ORZSUR¿WVGHSHQG explicitly on time because, for example, the cost of telecommunications equipment falls over time. (QWU\DOVRGHSHQGVRQWKH¿[HGFRVWLQFXUUHGDW time of deployment, C(t). Given a discount rate r, DULVNQHXWUDO¿UPKDVDQRSWLPDODGRSWLRQWLPH t*IRUDSDUWLFXODUPDUNHWGH¿QHGE\ f
t* arg max ³ e rs E ª¬ t
t
s, w, z (s), º¼ ds e rt C (t )
Entry time t* may be treated as a random variable from the standpoint of the econometrician, who not observe all the relevant elements of the GHFLVLRQ LQFOXGLQJWKH¿UP¶VVXEMHFWLYHSUREDELOLW\ distribution for H WKDWWKH¿UPWDNHVLQWRDFFRXQW Then the probability that DSL has been deployed in area i as of the time T of our data is: Pr(ti * < T |x)
244
(1)
where x is the subset of (w,z) observed in the data. We use the probit model as our econometric speci¿FDWLRQRIHTXDWLRQZKHUHWKHGHSHQGHQWYDULDEOH yi is a binary indicator for DSL availability in the market. Using the probit model is tantamount to assuming that the distribution of random variable T, conditional on x, is standard normal.7 Thus the HPSLULFDOVSHFL¿FDWLRQLV yi = 1 if ti * < T, 0 otherwise Pr(yi = 1|x) = )(E'xi)
(2)
where ELVDYHFWRURIFRHI¿FLHQWVWREHHVWLPDWHG and ) is the standard normal cumulative density function.
DATA In October 1999, SBC and Ameritech merged. Both companies were dominant telecommunications service providers,8 albeit in different locations. As such, their merger required FCC approval in addition to the usual scrutiny by the Department of Justice. The FCC approved the transaction subject to certain conditions, including the promotion of advanced services such as broadband Internet access by the company. Failure to meet the conditions was to trigger penalty payments of more than $2 billion in payments. In particular, SBC was required to locate at least 10% of its advanced service facilities in low-income areas in the Ameritech region.9 6WDWHUHJXODWRUVLQ$PHULWHFK¶VRSHUDWLQJUHJLRQ (Illinois, Indiana, Michigan, Ohio, and Wisconsin) DOVRSXVKHGWKHPHUJHG¿UPWRDFFHOHUDWHEURDGEDQG GHSOR\PHQW 7KH UHJXODWRUV¶ FRQFHUQ ZDV that Ameritech had made slow progress deploying DSL compared to other major telephone companies in other areas of the U.S. Precise statistics at the company level on DSL deployment are closely held data, and so comparisons must rely on estimates, but one industry source calculated that at the end of 1999, Ameritech had only 2% as many DSL lines in service as the next smallest dominant telephone company in the U.S.10 7R DOORZ UHJXODWRUV WR JDXJH $PHULWHFK¶V progress in implementing DSL, as part of the
Competition in Broadband Provision and the Digital Divide
7DEOH6XPPDU\VWDWLVWLFVIRUWKHFHQWUDORI¿FHOHYHOGDWD Variable
Mean
DSL
0.051
Std. Dev.
Min
Max
0.220
0.000
1.000
Race and Ethnicity % Black
0.033
0.109
0.000
0.984
% Native American
0.006
0.033
0.000
0.962
% Asian
0.007
0.017
0.000
0.315
% Other
0.023
0.070
0.000
1.000
% Hispanic
0.021
0.042
0.000
0.695
Income (log)
10.652
0.245
9.613
11.911
% in Poverty
-2.628
0.615
-5.778
-0.724
Households (log)
7.369
1.507
-0.693
11.562
Number of Firms (log)
4.537
1.638
0.000
8.661
% Less than H.S.
0.172
0.070
0.000
0.704
% Some College
0.269
0.052
0.000
0.465
% College Degree
0.104
0.061
0.000
0.447
% Graduate Degree
0.053
0.044
0.000
0.429
% Work at Home
0.046
0.033
0.000
0.356
% Commute 20-40 minutes
0.348
0.109
0.020
0.713
% Commute 40-60 minutes
0.104
0.059
0.000
0.556
% Commute > 60 minutes
0.069
0.045
0.000
0.499
Income and Poverty
Size of Market
(GXFDWLRQ3UR¿OH
&RPPXWLQJ3UR¿OH
Other Demographics % Female
0.500
0.028
0.062
0.728
38.022
3.783
19.943
73.752
Ave. Workers/Firm
2.253
0.671
-0.847
5.676
% Small Firms
0.900
0.072
0.000
1.000
Pop. Density (log)
4.479
1.680
-2.857
10.215
Rural
0.846
0.361
0.000
1.000
4.059
1.114
0.525
6.908
3.571
0.297
1.747
4.126
Median Age Business Market
Cost Variables
Phone Density
†
Structure Age (log) Competition Cable Modem Presence
0.338
0.474
0.000
1.000
CLEC DSL Presence
0.083
0.275
0.000
1.000
245
Competition in Broadband Provision and the Digital Divide
Table 1. (cont.) CLEC Presence
0.871
0.335
0.000
1.000
Illinois
0.266
0.442
0.000
1.000
Indiana
0.147
0.354
0.000
1.000
States
Michigan
0.188
0.391
0.000
1.000
Ohio
0.226
0.418
0.000
1.000
Wisconsin
0.173
0.379
0.000
1.000
†
Phone density is transformed with a reverse log transformation: -ln(1-x).
regulatory contract the company made available a list of their DSL subscribers by nine-digit postal code (known as ZIP+4 Codes) as of March 2000. The data are a snapshot of DSL deployment as of shortly after the merger and established a baseline to which regulators could compare future deployment. ZIP+4 areas are typically very small geographic areas, comprising a few blocks worth of addresses at most. The list contains every ZIP+4 &RGHLQ$PHULWHFK¶VVXEVFULEHUGDWDEDVHDQGWKH deployment date, and allows us to see which central RI¿FHVKDG'6/GHSOR\HG In addition to the DSL deployment list, the other GDWDIRUWKHVWXG\FRPHIURP¿YHRWKHUVRXUFHV D GIS database of ZIP+4 Codes and locations, a GIS telecommunications wire center database, the FCC local competition database, and two Census data sources for household demographic and business information. A complete list of variables and summary statistics for the data are in Table 1. Given the nascent state of the market in the region in 2000, the data are from the early years of broadband rollout in the area. The advantage to examining data from the early years is that there was still much geographic variation in the DYDLODELOLW\RIEURDGEDQGZKLFKDOORZVLGHQWL¿cation of the impact of explanatory variables on GHSOR\PHQW7RGD\¶VQHDUO\XELTXLWRXVFRYHUDJH in U.S. urban and suburban areas does not allow researchers to apply fruitfully similar methodology to current data.
246
DSL Availability Data There are more than 170,000 entries in the Ameritech DSL ZIP+4 list. This implies that there are at least that many DSL subscribers, which means that either the external industry source mentioned above grossly undercounted DSL lines, or Ameritech enjoyed a phenomenal growth rate over the three months between the two data collection dates. The pattern of deployment can be seen by plotting the centroids of the ZIP+4 areas with DSL. Figure 1 VKRZV DOO WKH =,3 GHSOR\PHQWV LQ WKH ¿YHVWDWH region.11 The striking picture shows that DSL is available in only a small fraction of the total geography. However, it is important to remember that we do not observe DSL deployed by incumbent phone companies other than Ameritech, and that Ameritech is not the incumbent carrier in many rural areas in these states. In Illinois, all deployment is in the extended Chicago area. There is no DSL in Indiana. In Michigan, most deployment is in the Detroit area. In Ohio all DSL is around Cleveland. The few DSL customers in Wisconsin live in the Milwaukee area. These are the most populous areas in the region. DSL, as deployed by Ameritech at least, clearly lags behind other forms of broadband infrastructure LQWKHUHJLRQDVVXJJHVWHGE\WKHRI¿FLDOVWDWLVWLFV cited above. Figure 2 compares the Ameritech DSL ORFDWLRQVZLWKWKHFRPSUHKHQVLYH)&&GDWDRQ¿YH digit ZIP Codes with broadband access for Illinois. Many parts of the state have broadband access from non-Ameritech sources. Only in the Chicago area
Competition in Broadband Provision and the Digital Divide
Figure 1. DSL subscribers in the Ameritech region
does the Ameritech DSL deployment come close to matching deployment from all sources. The local exchange carrier implements DSL LQWKHFHQWUDORI¿FHDQGVRWKHUHOHYDQWGHFLVLRQ XQLWLVDFHQWUDORI¿FHVHUYLQJDUHD$OWKRXJKLWLV theoretically possible that Ameritech could choose not to offer DSL to certain neighborhoods within a serving area, as a marketing decision the company offers it to all neighborhoods in the area.12 We deWHUPLQHGZKLFKFHQWUDORI¿FHVZHUH'6/FDSDEOH by matching the ZIP+4 centroids on the DSL list WRWKHFHQWUDORI¿FHDUHDV13 Our dependent variable in the estimations is an observation on a central RI¿FHDUHDHTXDOWRRQHLI'6/LVGHSOR\HGRU]HUR if not. The sample includes all Ameritech central RI¿FHVLQWKH¿YHVWDWHUHJLRQZKLFK\LHOGV observations.14
Market Characteristics Data We model the deployment decision as a probit function of demand variables, cost factors, and the competitive environment.
Demand Variables Socioeconomic statistics at the block or block group level from the 2000 U.S. Bureau of the Census GHFHQQLDOFHQVXVFDSWXUHIDFWRUVLQÀXHQFLQJFDUULHUV¶H[SHFWHGVXEVFULEHUGHPDQGIRUEURDGEDQG :H DJJUHJDWH WKH YDULDEOHV WR WKH FHQWUDO RI¿FH area for the entry estimations.15 These variables SUR[\WKHH[SHFWHGSRVWHQWU\SULFHDQGSUR¿WLQ the DSL deployment estimations. The variables include racial breakdown of the area, Hispanic ethnicity, income, market size and composition, rural,
247
Competition in Broadband Provision and the Digital Divide
Figure 2. Comparison with FCC data for Illinois (FCC, 2000b)
DJHDQGHGXFDWLRQSUR¿OHJHQGHUUDWLRFRPPXWH time, and telephone penetration. An additional set of business market-related variables (the average QXPEHU RI ZRUNHUV SHU ¿UP DQG WKH SHUFHQWDJH RI¿UPVWKDWKDYHIHZHUWKDQHPSOR\HHV DUH taken from Census sources for establishment and employment counts at the postal code level.16
Costs Various studies and industry sources suggest that relevant cost considerations for broadband deployPHQWDUH¿[HGFRVWVVXEVFULEHUGHQVLW\DQGWKH vintage of the telecommunications infrastructure.17 Controls for these costs include subscriber density and a proxy for the vintage of the local telecommunications networks (median age of the housing
248
structures) in the area. For a more complete explanation of broadband costs and these variables, refer to Prieger (2003).
Local Telecommunications and Broadband Competition Local telecommunications competition had started to spring up at the time of the passage of the Telecommunications Act of 1996. Anecdotal evidence from the industry suggests that incumbent local exchange carriers are more likely to offer advanced services in areas in which they face competition, although the endogeneity of entry prevents any conclusion of causality from this observation.18 Some facilities-based competitive local exchange carriers (CLECs) offer DSL. CLECs can offer DSL
Competition in Broadband Provision and the Digital Divide
7DEOH3URELWHVWLPDWLRQVIRUWKHDYDLODELOLW\RIEURDGEDQGVHUYLFHZLWKLQDFHQWUDORI¿FHDUHD 5DFH and income Estimation 1
Estimation 2
Race
Race and Income
&RHI¿FLHQW
Variable
Marginal
P-Value of
Effect
Coef.
&RHI¿FLHQW
Marginal
P-Value of
Effect
Coef.
Race and Ethnicity % Asian
13.030***
0.621
0.000
7.408**
0.155
0.013
% Black
-0.701**
-0.033
0.034
1.199***
0.025
0.008
-127.046***
-6.057
0.002
-0.410
0.510
-13.682**
-0.652
0.017
2.192
0.046
0.725
0.410
0.008
-0.219
-0.005
0.951
% Native American % Other % Hispanic
8.591***
-19.546
Income and Poverty Income (log)
2.227***
% in Poverty
0.047
0.000
-0.269
-0.006
0.253
Size of Market Households (log)
0.216**
0.010
0.018
0.157
0.003
0.174
Pop. Density (log)
0.692***
0.033
0.000
0.852***
0.018
0.000
0.000
-33.406***
Intercept
-7.364***
Log Likelihood N Pseudo R
2
0.000
-264.793
-220.818
1,120
1,119
0.490
0.575
VLJQL¿FDQW DW WKH OHYHO
VLJQL¿FDQW DW WKH OHYHO
VLJQL¿FDQW DW WKH OHYHO 1RWHV 7KHGHSHQGHQWYDULDEOHLVLIWKHUHLVDWOHDVWRQHEURDGEDQGFXVWRPHULQWKHFHQWUDORI¿FHVHUYLQJDUHDLIQRW7KHVDPSOHLQFOXGHVDOO$PHULWHFKFHQWUDORI¿FHDUHDV0DUJLQDOHIIHFWLVWKHPDUJLQDO HIIHFWRQWKHPHDQHYDOXDWHGDWWKHVDPSOHPHDQRI[$VWHULVNVDQG3YDOXHVDUHIRUWKHFRHI¿FLHQWQRW the marginal effect.
LQ$PHULWHFK¶VVHUYLQJDUHDHYHQLI$PHULWHFKGRHV QRWLWVHOIGHSOR\'6/LQWKHFHQWUDORI¿FHE\FROORFDWLQJWKHLURZQHTXLSPHQWLQWKHLQFXPEHQW¶V FHQWUDORI¿FHDQGUHQWLQJWKHVXEVFULEHUOLQHWRWKH FXVWRPHU¶VSUHPLVHV The FCC makes available a list of postal codes in which there is local competition. In some speci¿FDWLRQVZHLQFOXGHDQLQGLFDWRUYDULDEOHCLEC Presence, for the presence of at least one competing local exchange company in the area. The FCC data do not indicate whether the competitor offers DSL, however, and so CLEC Presence indicates
only the potential for competition. We collected information on actual competition in DSL from CLECs from the New Paradigm Resources Group (2001). The data from NPRG lists which CLECs operate in which cities and whether they offer DSL.19 For a subset of ZIP Codes, we also have data on deployment of cable modem service, which ZH PDWFKHG WR RXU FHQWUDO RI¿FH VHUYLQJ DUHDV The cable modem data cover a random sample of =,3&RGHVDFURVVWKH¿YHVWDWHV20 except for Ohio, where coverage is complete.21
249
Competition in Broadband Provision and the Digital Divide
Table 3. Probit estimations for the availability of broadband service within a FHQWUDORI¿FHDUHD $OOYDULDEOHV Estimation 3
Estimation 4: All Variables and State Fixed
All Variables
Effects Marginal
P-Value of
Marginal
P-Value of
&RHI¿FLHQW
Effect
Coef.
&RHI¿FLHQW
Effect
Coef.
% Asian
12.345**
0.036
0.016
7.145
0.050
0.193
% Black
0.143
0.000
0.866
0.172
0.001
0.859
% Native American
3.515
0.010
0.943
-92.174
-0.639
0.255
% Other
-1.875
-0.005
0.833
-8.318
-0.058
0.401
% Hispanic
-3.316
-0.010
0.518
2.115
0.015
0.723
Income (log)
1.893**
0.006
0.039
0.887
0.006
0.367
% in Poverty
0.056
0.000
0.892
0.304
0.002
0.485
Households (log)
0.296
0.001
0.116
0.275
0.002
0.172
Number of Firms (log)
0.268*
0.001
0.086
0.357**
0.002
0.026
% Less than H.S.
22.491***
0.066
0.000
13.795**
0.096
0.019
% Some College
12.621***
0.037
0.006
1.346
0.009
0.805
% College Degree
3.314
0.010
0.355
1.455
0.010
0.705
% Graduate Degree
8.004*
0.023
0.056
2.654
0.018
0.567
17.864
0.052
0.11
27.176**
0.188
0.018
Variable Race and Ethnicity
Income and Poverty
Size of Market
(GXFDWLRQ3UR¿OH
&RPPXWLQJ3UR¿OH % Work at Home % Commute 20-40 minutes
2.670*
0.008
0.095
3.918**
0.027
0.019
% Commute 40-60 minutes
17.069***
0.050
0.000
16.393***
0.114
0.000
% Commute > 60 minutes
-9.176***
-0.027
0.006
-7.704**
-0.053
0.043
Other Demographics % Female
-6.211
-0.018
0.198
-10.517**
-0.073
0.038
Median Age
0.538*
0.002
0.070
0.401
0.003
0.208
Median Age Squared
-0.007*
0.000
0.096
-0.004
0.000
0.296
Business Market Ave. Workers/Firm
1.135***
0.003
0.002
1.189***
0.008
0.002
% Small Firms
7.399*
0.022
0.051
7.194*
0.050
0.06
0.708***
0.002
0.001
0.784***
0.005
0.001
Rural
-0.804*
-0.004
0.063
-0.939**
-0.010
0.041
Phone Density†
0.611***
0.002
0.002
0.681***
0.005
0.001
Structure Age < Median (log)
0.965**
0.003
0.035
0.353
0.002
0.482
Structure Age > Median (log)
-1.762
-0.005
0.105
-1.813
-0.013
0.123
Cost Variables Pop. Density (log)
250
Competition in Broadband Provision and the Digital Divide
Table 3. (cont.) States Michigan
0.792**
0.009
0.035
Ohio
-0.613
-0.003
0.151
Wisconsin
-0.001
0.000
0.999
Competition CLEC Presence
-0.021
0.000
0.963
0.086
0.001
0.862
CLEC DSL Presence
-0.517**
-0.001
0.025
-0.544**
-0.003
0.035
-64.317***
0.036
0.000
-42.590***
0.050
0.003
Intercept Log Likelihood N Pseudo R
2
-152.242
-133.255
1,119
957
0.707
0.725
VLJQL¿FDQW DW WKH OHYHO
VLJQL¿FDQW DW WKH OHYHO
VLJQL¿FDQW DW WKH OHYHO † Phone density has a long left tail and is transformed with a reverse log transformation: -ln(1-x). Omitted racial variable is White. Omitted education variable is High School Degree. Omitted commute variable is 1-20 minutes. Marginal effects for dummy variables are for a zero to one change in x. Observations from Indiana are dropped from estimation 4 because no DSL is deployed in the state. See notes to previous table.
EMPIRICAL FINDINGS The estimations for the determinants of DSL entry, based in equation 2, are reported in Tables 2-4.
The Digital Divide Table 2 contains two estimations that show an apparent supply-side digital divide based on race and income. Recall that the unit of observation is DQ$PHULWHFKFHQWUDORI¿FHDUHD,QDOOWDEOHVZH UHSRUWWKHSURELWFRHI¿FLHQWVWKHPDUJLQDOHIIHFWV of the variables, and the p-value for the hypothesis WKDWWKHFRHI¿FLHQWLV]HUR7KHPDUJLQDOHIIHFWRI a variable expresses the change in the estimated probability that broadband is deployed from a unit change in the variable (evaluated at sample averages of the data). In estimation 1, we control for nothing except race and market size. Areas with high concentrations of blacks, Native Americans, and “other” UDFHV DVGH¿QHGE\WKH&HQVXVFDWHJRULHV DUHVLJQL¿FDQWO\OHVVOLNHO\WRKDYH'6/DYDLODEOH$UHDV with many Asians and (surprisingly) Hispanics are
VLJQL¿FDQWO\PRUHOLNHO\WRKDYHDFFHVVWR'6/7KLV simple portrait of the digital divide is incomplete, however. An obvious question is whether race is a causal determinant of broadband deployment or is merely correlated with other demographic FKDUDFWHULVWLFV XSRQ ZKLFK ¿UPV EDVH WKHLU HQtry decision, such as income, education, and the business market. In estimation 2, we add income variables. Access to DSL is correlated with higher income and fewer households in poverty, although WKHODWWHUFRHI¿FLHQWLVQRWVLJQL¿FDQW,PSRUWDQW WRQRWHLVWKDWWKHVLJQL¿FDQWQHJDWLYHHIIHFWVIRU blacks, Native Americans, and other races disapSHDU7KHFRHI¿FLHQWIRUEODFNVVZLWFKHVVLJQDQG LVQRZVLJQL¿FDQWO\SRVLWLYH7KXVLQFRPHDSSHDUV to be a more important factor contributing to the digital divide on the supply side than race per se.
Demographic and Economic Factors In estimations 3 and 4, we add a host of other demographic and economic variables. The distinction between the two is the addition of state ¿[HGHIIHFWVLQHVWLPDWLRQ7KH¿[HGHIIHFWVDGG
251
Competition in Broadband Provision and the Digital Divide
DVWDWHVSHFL¿FLQWHUFHSWWHUPWRWKHLQGH[E'xi in HTXDWLRQ7KHDGGLWLRQRIVWDWH¿[HGHIIHFWVUHmoves the impact of any factor, observed or not, that varies among states but not within a state. Examples of such factors include the state regulatory environment, unique or historical reasons why costs of provision differ among states, and average demand and supply conditions. Adding state effects necessitates dropping observations from Indiana, where no DSL was in place. Except for some of the education variables, there are no VWDWLVWLFDOO\VLJQL¿FDQWODUJHGLIIHUHQFHVEHWZHHQ WKHFRHI¿FLHQWVLQWKHWZRHVWLPDWLRQV22 The education level of the area has a curious correlation with DSL access. The excluded educational category in the estimation is high school HGXFDWLRQDQGDOOFRHI¿FLHQWVDUHSRVLWLYHUHODWLYH to this category. The largest positive effect is for “less than high school” education. Perhaps inner urban areas with low average educational attainment but other desirable characteristics (from the ¿UP¶VSRLQWRIYLHZ VXFKDVEXVLQHVVGHPDQGDUH driving this result. More expected is that the fraction of people with some college education or higher positively affects the probability of DSL.23 Commuting has the expected impact. There are large positive effects for the “work at home” variable, perhaps due to demand for telecommuting. For those who commute, entry rises with the length of the commute up to one hour, which may UHÀHFWDFRPELQDWLRQRIXUEDQDUHDHIIHFWV XUEDQ areas have more demand for DSL) and stronger demand for telecommuting. The industry press has noted the link between longer commuting times and demand for broadband access (NPRG, 2006). The longest commuting category (over an hour) causes the probability of access to fall, which LVSUREDEO\DUHÀHFWLRQRIORZUXUDOGHPDQGIRU broadband (perceived or real on the part of the ¿UP $QLQWHUHVWLQJ¿QGLQJLVWKDWDUHDVZLWKPRUH women are less likely to have access to DSL. Median age of the area has an inverted U relationship to access, with the maximum occurring around age WR7KHLPSDFWRIDJHPLJKWUHÀHFWORZHU demand for Internet access among the elderly and the very young.24
252
Regarding business demand, access rises with WKHDYHUDJHQXPEHURIZRUNHUVSHU¿UPEXWDOVR ZLWKWKHIUDFWLRQRI¿UPVWKDWKDYHIHZHUWKDQ HPSOR\HHV7KHODWWHUSUREDEO\UHÀHFWVWKDW'6/LV an especially attractive broadband access option for small businesses, given its low price in comparison to high-speed dedicated telecommunications lines (so-called “special access” lines) and the relative lack of availability of cable modem service to business addresses.25 In a separate estimation (results not reported), we added variables for the percent of the businesses in the area in various industrial categories. While some of the categories had VLJQL¿FDQWHIIHFWVWKH\GLGQRWFKDQJHWKHPDLQ results of interest.26 The cost variables mostly have the expected signs. Denser areas, measured by population or telephone penetration, have higher probability RIDFFHVVWR'6/5XUDODUHDVGH¿QHGLQDFFRUG ZLWKWKH&HQVXVGH¿QLWLRQRIDGHQVLW\OHVVWKDQ 500 persons per square mile, have lower access. The marginal effects indicate that Ameritech was 4 to 10 percentage points (depending on which estimation is used) less likely to deploy DSL in its UXUDOFHQWUDORI¿FHVWKDQLQLWVXUEDQRQHV2OGHU infrastructure, as proxied by structure age, has a negative impact—at least for levels of the variable above the median. Younger structure ages show the RSSRVLWHVLJQEXWQHLWKHUFRHI¿FLHQWLVVLJQL¿FDQW in estimation 4.
The Impact of Competition The carrying capacity, or market size, hypothesis states that competition from CLECs and cable modem providers should make the provision of DSL less attractive to the phone company, other things equal. Some markets may be large enough to support one entrant only, and if the cable company or a CLEC already offers broadband, then the phone company may delay DSL provision until the market grows. An alternative hypothesis is that competition provides competitive stimulus to telecommunications investment (Willig, 2003; Aghion, Harris, Howitt, & Vickers, 2001).27 To test ZKLFKRIWKHVHK\SRWKHVHVEHWWHU¿WVWKHGDWDZH examine how competition affects the probability
Competition in Broadband Provision and the Digital Divide
of DSL deployment. Since our cable modem data are not available for the full sample, in estimations 3 and 4 we include only the CLEC variables for potential and actual competition. 7KH FRHI¿FLHQW IRU &/(& SUHVHQFH LV QRW VLJQL¿FDQW EXW ZKHQ WKH &/(& DFWXDOO\ RIIHUV '6/WKHLPSDFWLVQHJDWLYHDQGVLJQL¿FDQW7KH marginal effect of -0.001 for CLEC DSL Presence from estimation 3 implies that when a CLEC is actively offering DSL service in the central of¿FHDUHD$PHULWHFKLVSHUFHQWDJHSRLQWVOHVV OLNHO\WRGHSOR\'6/LWVHOI:KHQWKHVWDWH¿[HG effects are included in estimation 4, the marginal effect of DSL competition rises in magnitude to -0.26 percentage points. Thus, while the potential broadband competition that a CLEC represents neither spurs not hinders deployment, actual competition in DSL is associated with less deployment by the incumbent. The magnitude of the effect, however, is small. To explore the impact of the availability of cable modem service on DSL deployment, we turn to RXU VXEVHW RI FHQWUDO RI¿FHV IRU ZKLFK ZH KDYH both CLEC and cable modem data. The carrying capacity hypothesis, which predicts a negative sign RQFRHI¿FLHQWVIRU&/(&DQGFDEOHPRGHPSUHVHQFHLQWKHFHQWUDORI¿FHDUHDGHSHQGVFUXFLDOO\RQ other things in the market being equal. If one fails WRFRQWURODGHTXDWHO\IRUWKHSRWHQWLDOSUR¿WDELOLW\ of a market (through cost and demand variables), then the unobserved differences among markets may make it look like the presence of competitors is associated with greater DSL entry. If areas H[SHFWHGWREHPRUHSUR¿WDEOHDSULRULDWWUDFWERWK DSL and cable modem entry, then not controlling DGHTXDWHO\IRUH[SHFWHGSUR¿WDELOLW\ZRXOGOHDGWR a false rejection of the carrying capacity hypothesis in favor of the competitive stimulus hypothesis. The correlation between DSL and cable modem entry would not be causal in nature. To illustrate this point, we estimate a model FRQWUROOLQJ RQO\ IRU VWDWH ¿[HG HIIHFWV DQG WKH competition variables (estimation 5 in Table 4). The presence of both cable modem and competitive '6/RSWLRQVIRUVXEVFULEHUVLQWKHFHQWUDORI¿FH area is associated with a higher likelihood of deployment by the incumbent DSL provider. Before
taking this as evidence for the competitive stimulus hypothesis, however, we control for other market IDFWRUVDIIHFWLQJH[SHFWHGSUR¿WDELOLW\LQHVWLPDtion 6 (Table 4). The results show that negative FRHI¿FLHQWVIRUFRPSHWLWLYH'6/DQGFDEOHPRGHP service appear/result in accord with the evidence for the carrying capacity hypothesis found in estimations 3 and 4. We cannot include as many controls for market factors as in estimations 3 and 4, due to the smaller sample size in estimation 6. 7KH FRHI¿FLHQWV RQ WKH YDULDEOHV Cable Modem Presence and CLEC DSL Presence are negative EXWQRWVWDWLVWLFDOO\VLJQL¿FDQWKRZHYHUGXHWR the small sample size). The marginal effect for CLEC DSL Presence, 0.52 percentage points, is even higher than that estimated in the full sample. Given these results, together with those from the larger estimations, it appears that support is greater for the carrying capacity hypothesis than the competitive stimulus hypothesis. The variable measuring potential competition, CLEC Presence, is positive but not statistically VLJQL¿FDQW 3ULHJHU IRXQG D SRVLWLYH FRUrelation between CLEC presence and broadband provision, but could not separate provision from the incumbent local exchange company from other sources. A positive association with DSL deployPHQW E\ WKH LQFXPEHQW PD\ UHÀHFW D GHVLUH E\ Ameritech to beat the competition to market (and perhaps prevent the CLEC from entering the DSL market at all).28
FUTURE TRENDS AND CONCLUSION Our empirical results for the determinants of the deployment of DSL broadband Internet connection indicate that the racial and ethnic composition of an area do not matter independent of related factors VXFKDVLQFRPHDQGHGXFDWLRQ7KH¿QGLQJVDUH LQDFFRUGZLWKWKHYLHZWKDWWKH¿UPVDUHVHHNLQJ WRPD[LPL]HSUR¿W DVUHTXLUHGE\WKHLU¿GXFLDU\ responsibility to their stockholders). Any apparent redlining in the region studied is completely H[SODLQHGE\GHPDQGVLGHIDFWRUVWKDWDIIHFWSUR¿W Thus, to the extent that society desires to close what
253
Competition in Broadband Provision and the Digital Divide
7DEOH3URELWHVWLPDWLRQVIRUWKHDYDLODELOLW\RIEURDGEDQGVHUYLFHZLWKLQDFHQWUDORI¿FHDUHD &RPpetition variables Estimation 5
Estimation 6 Marginal
P-Value of
&RHI¿FLHQW
Effect
Coef.
0.000
-0.204
-0.003
0.442
0.151
0.027
0.813
0.007
0.551
-0.008
0.867
-0.440
-0.005
0.187
Income (log)
1.491
0.023
0.108
% in Poverty
-0.145
-0.002
0.775
Households (log)
-0.380
-0.006
0.168
Number of Firms (log)
0.530***
0.008
0.009
Median Age
-0.998**
-0.015
0.028
Median Age Squared
0.014**
0.000
0.028
Variable
&RHI¿FLHQW
Marginal
P-Value of
Effect
Coef.
Competition Cable Modem Presence CLEC Presence CLEC DSL Presence
0.898*** 0.719** -0.029
0.270
Income and Poverty
Size of Market
Other Demographics
Business Market Ave. Workers/Firm
0.448
0.007
0.464
% Small Firms
4.469
0.069
0.385
1.264***
0.019
0.000
Rural
-0.624
-0.009
0.537
Phone Density†
0.226
0.003
0.444
0.454
0.007
Cost Variables Pop. Density (log)
Structure Age Intercept State Fixed Effects Log Likelihood N Pseudo R2
-1.800***
0.000
-15.522
0.471 0.212
No
Yes
-175.104
-71.056
374
360
0.116
0.634
VLJQL¿FDQWDWWKHOHYHO
VLJQL¿FDQWDWWKHOHYHO
VLJQL¿FDQWDWWKHOHYHO † Phone density is transformed with a reverse log transformation: -ln(1-x). See notes to previous table.
254
Competition in Broadband Provision and the Digital Divide
remains of the broadband digital divide in the U.S., either attention must be given to the demand side of the market or means should be found (through WDUJHWHGVXEVLGLHVSHUKDSV WRLQFUHDVHWKH¿UPV¶ SUR¿WDELOLW\RIHQWHULQJOHVVGHVLUDEOHDUHDV,QWKH latter case, however, subsidies may create their own GLVWRUWLRQVRIHFRQRPLFHI¿FLHQF\DQGWKHFRVWV DQGEHQH¿WVRISROLF\LQWHUYHQWLRQLQWKHPDUNHW must be carefully weighed. The experience in the U.S. with the diffusion of broadband since the early years examined here shows that the question of broadband deployment is not “if” but “when.” At the time of the data ZHH[DPLQHGWKH)&& E IRXQGLQLWV¿UVW comprehensive survey that there was at least one customer for high-speed service in 59% of all the postal code areas in the United States. By the end of 2005, the same statistic rose to 99% of postal code areas (FCC, 2006).29 The speed at which the U.S. attained nearly ubiquitous broadband access is all the more remarkable given that (unlike some other countries) there are no general federal subsidy programs for either broadband infrastructure or household subscription.30 Even though some form of broadband access is available in most areas of the U.S. today, the lessons learned from looking at the early years of adoption are still important. While broadband availability is necessary to close the digital divide, more is needed. Cooper (2004) emphasizes that bringing down the price of service is essential if lower-income households are to be brought online. Competition among providers holds the greatest promise for bringing down prices in the United States, given the reluctance of the FCC to add broadband explicitly to the list of services supported under federal universal service programs. As the market grows, it is reasonable to expect that the IDFWRUVLQÀXHQFLQJIXWXUHHQWUDQWVLQDQDUHDZLOO follow patterns similar to that of the incumbent DSL entrant uncovered in this chapter. Thus, understanding what drives initial DSL deployment lends insight into what drives increasing competition.31 Furthermore, many countries around the world are in situations today similar to where the U.S. was ¿YH\HDUVDJR,QWKH86KDGDERXWD
subscription rate to broadband, which is higher than in Turkey, the Slovak Republic, Mexico, or Greece in 2006, just to mention OECD countries.32 ,IWKHSUR¿WDELOLW\RIJHRJUDSKLFDOPDUNHWVUHODtive to each other in the U.S. is similar to that in other countries, then we should expect broadband WR EH DYDLODEOH ¿UVW LQ GHQVHU XUEDQ DUHDV ZLWK longer commutes, a more educated populace, and wealthier households. Furthermore, intermodal competition (and thus lower prices) may be slower in coming than initial diffusion, as areas with an existing broadband provider look less attractive to enter (other things equal) than do virgin territories.
ACKNOWLEDGMENT We gratefully acknowledge Sean Gill for research assistance and the many seminar participants who commented on earlier versions of this project, including those at the Center for Research in Regulated Industries 18th Annual Western Conference (San Diego), the FCC, the International Industrial Organization Conference (Georgia Tech), the NSFConacyt Internet Use in the Americas Workshop (Mexico City), the Pew Charitable Trusts Workshop on Measuring Broadband (Washington, DC), the Public Utility Research Center and London Business School Annual Telecommunications Conference (University of Florida), the Economic Impacts of Technology Conference (UC Santa Cruz), and the Western Economic Association International 80th Annual Conference (San Francisco). The above-mentioned individuals and institutions are responsible for neither the opinions nor any errors contained herein.
REFERENCES Aghion, P., Harris, C., Howitt, P., & Vickers, J. (2001). Competition, imitation and growth with step-by-step innovation. Review of Economic Studies, 68, 467-492.
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Bresnahan, T.F., & Reiss, P.C. (1987). Do entry conditions vary across markets? Brookings Papers in Economic Activities, 18, 833-882.
FCC. (2000b). High-speed services for Internet access: Subscribership as of June 30, 2000. Washington, DC.
Burnstein, D.E., & Aron, D.J. (2003). Broadband adoption in the United States: An empirical analysis. In A.L. Shampine (Ed.), Down to the wire: Studies in the diffusion and regulation of telecommunications technologies (pp. 119-128). Haupaugge, NY: Nova Science Press.
FCC. (2006). High-speed services for Internet access: Subscribership as of December 31, 2005. Washington, DC.
Cameron, A.C., & Trivedi, P.K. (2005). Microeconometrics. New York: Cambridge University Press. CED. (1999, December). DSL technology looms ever larger (p. 100). Cooper, M. (2004). Expanding the digital divide & falling behind on broadband. Washington, DC: Consumer Federation of America. Crandall, R.W., & Jackson, C.L. (2003). The $500 ELOOLRQRSSRUWXQLW\ 7KHSRWHQWLDOHFRQRPLFEHQH¿W of widespread diffusion of broadband Internet access. In A.L. Shampine (Ed.), Down to the wire: Studies in the diffusion and regulation of telecommunications technologies (ch. 8). Haupaugge, NY: Nova Science Press. Dixit, A. (1980). The role of investment in entry deterrence. Economic Journal, 90(357), 95-106. Duffy-Deno, K.T. (2000, September). Demand for high-speed access to the Internet among Internet households. Proceedings of ICFC 2000, Seattle, WA. Retrieved October 20, 2006, from http://www. icfc.ilstu.edu/icfcpapers00/duffy-deno.PDF Fairlie, R.W. (2004). Race and the digital divide. Contributions to Economic Analysis & Policy, 3(1), Article 15. Faulhaber, G.R., & Hogendorn, C. (2000). The market structure of broadband telecommunications. Journal of Industrial Economics, 48(3), 305-329. FCC (Federal Communications Commission). (2000a). Deployment of advanced telecommunications capability: Second report (FCC 00-290). Washington, DC.
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Flamm, K. (2005, February). The role of economics, demographics, and state policy in broadband availability. Proceedings of the PURC/London Business School Conference on the Future of Broadband: Wired and Wireless, 2005, Gainesville, FF. Fox, S. (2004). Older Americans and the Internet. Washington, DC: Pew Internet and American Life Project. Gabel, D., & Kwan, F. (2001). Accessibility of broadband telecommunication services by various segments of the American population. In B.M. Compaine & S. Greenstein (Eds.), Communications policy in transition: The Internet and beyond (pp. 295-320). Cambridge, MA: MIT Press. Gillett, S.E., & Lehr, W. (1999, September). Availability of broadband Internet access: Empirical evidence. Proceedings of the 27th Annual Telecommunications Policy Research Conference, Alexandria, VA. Grubesic, T.H. (2003). Inequities in the broadband revolution. Annals of Regional Science, 37, 263-289. Grubesic, T.H. & Murray, A.T. (2004). Waiting for broadband: Local competition and the spatial distribution of advanced telecommunication services in the United States. Growth and Change, 35(2), 139-165. Mills, B.F., & Whitacre, B.E. (2003). Understanding the non-metropolitan–metropolitan digital divide. Growth and Change, 34, 219-243. NTIA (National Telecommunications and Information Administration). (2002). A nation online: How Americans are expanding their use of the Internet. Washington, DC.
Competition in Broadband Provision and the Digital Divide
NTIA. (2000). Falling through the Net: Toward digital inclusion: A report on Americans’ access to technology tools. Washington, DC. Retrieved October 20, 2006, from http://www.ntia.doc.gov/ ntiahome/fttn00/contents00.html Newberger, E.C. (2001) Home computers and Internet use in the United States. Special Study P23-207, U.S. Department of Commerce, Washington, DC.
KEY TERMS &HQWUDO2I¿FH See Wire Center. Competitive Local Exchange Carrier (CLEC): A public telephone company that provides local telecommunications service in competition with the incumbent local exchange company.
New Paradigm Resources Group. (2001). CLEC report 2001 (vols. 1-2, 13th ed.). Chicago, IL.
Digital Divide: The gap in computer and Internet usage between richer and poorer households, majority and minority groups, and households in urban and rural areas.
New Paradigm Resources Group. (2006). The telecommuter boon: The opportunity is there, but FDQFDEOHFR¶VJHWLWULJKW"Competitive Telecom Advisor, (October 24). Chicago, IL.
Last Mile: The part of the local telecommuQLFDWLRQVQHWZRUNWKDWFRQQHFWVWKHFHQWUDORI¿FH to the subscriber premises. The last mile typically consists of copper telephone wire.
Prieger, J.E. (2003). The supply side of the digital divide: Is there equal availability in the broadband Internet access market? Economic Inquiry, 41(2), 346-363.
Local Exchange Company (LEC): A public telephone company in the U.S. that provides local telecommunications service.
Rappoport, P.N., Kridel, D.J., Taylor, L.D., Alleman, J.H., & Duffy-Deno, K.T. (2003). Residential demand for access to the Internet. In G. Madden (Ed.), Emerging telecommunications networks: The international handbook of telecommunications economics (vol. 2, pp. 55-72). Cheltenham, UK: Edward Elgar. Wallsten, S. (2005). Broadband penetration: An empirical analysis of state and federal policies. Working Paper 05-12, AEI–Brookings Joint Center for Regulatory Studies, Washington, DC. Willig, R.D. (2003). Investment is appropriately stimulated by TELRIC. Unpublished manuscript. Retrieved October 20, 2006, from http://psc.ky.gov/ pscecf/2003-00379/5200700_efs/04132004/MCI_ 67B07%B(;BBSGI ;LDR0 2UD]HP3) Do entry conditions vary over time? Entry and competition in the broadband market: 1999-2003. Unpublished manuscript.
Redlining: The practice of deliberately avoiding selling products or services (in context here, broadband Internet service) in particular neighborhoods. The term comes from the credit industry, and originally meant the refusal of a bank or other lender to extend credit to customers located in a high-risk geographical area, usually a declining inner-city neighborhood. These institutions supposedly drew red lines on maps marking off the high-risk areas. Telephony: A system of telecommunications employing telephonic equipment to transmit sound between points. In common parlance, the “telephone system.” Wire Center: The location where a central of¿FHVZLWFKFRQQHFWVWRWKHORRSIDFLOLWLHVWKDWFRYHU part or all of a local exchange. It is also the physical location where the loop distribution plant in the local telecommunications system can be accessed, and where the equipment enabling DSL service for subscribers is deployed. Used synonymously ZLWK ³FHQWUDO RI¿FH´ LQ WKLV FKDSWHU DOWKRXJK elsewhere sometimes the wire center refers to the SK\VLFDOEXLOGLQJDQGWKHFHQWUDORI¿FHUHIHUVWR the switches within the wire center.
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ENDNOTES 1
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Crandall and Jackson (2003) estimate that WKHYDOXHRIWKHEHQH¿WVWRFRQVXPHUVLQWKH U.S. from broadband Internet access (net of subscription cost) reaches the hundreds of billions of dollars yearly. Postal codes are known as “ZIP Codes” in the U.S. The FCC data list a ZIP Code if there is at least one broadband subscriber whose premises are in the ZIP Code area. Researchers then treat the listed codes as having broadband available and all ZIP Codes not on the list as not having broadband available. In large ZIP Code areas, not all parts of a ZIP Code on WKH)&&¶VOLVWPD\EHLQWKHDFWXDOEURDGEDQG service areas, however. Prieger (2003) and Flamm (2005) discuss the issue at length. Measurement error bias is also known as error-in-variables bias. See Cameron and Trivedi (2005, ch. 26) for a textbook treatment of the issue. Local telephone companies also lease high-speed dedicated circuit access lines to residences and businesses, but their high prices generally restrict them to high-volume business use. More recently, some telephone FRPSDQLHVKDYHDOVREHJXQWRGHSOR\¿EHU optic cable in the last mile network, but most of such investment occurred after the period of the data examined here. $FFRUGLQJWRRI¿FLDOVWDWLVWLFVIRUUHVLGHQFHV and small businesses in the U.S., there were 2,179,749 coaxial cable broadband lines in 2000, compared to 771,311 DSL lines (FCC, 2000b). The remainder of the 3,120,350 broadband lines consisted of dedicated lines (T-1) rented from phone companies, satellite and ¿[HGZLUHOHVVOLQHVDQG¿EHURSWLFOLQHV See Cameron and Trivedi (2005, ch. 14) for a textbook treatment of the probit model. SBC and Ameritech were both Regional Bell Operating Companies (RBOCs), formerly known as the Baby Bells after the breakup of AT&T. The merged entity kept the name
9
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SBC, and later adopted the moniker AT&T DIWHUPHUJLQJZLWKWKDW¿UPLQ 6%&¶V6(&¿OLQJVIURPWKHWLPHGLVFXVVWKHVH conditions. $PHULWHFK¶VHVWLPDWHG'6/OLQHVDUH RI86:HVW¶VPLOOLRQOLQHV &(' 1999). The same source estimates 17 million lines for Bell Atlantic, 5 million lines for Bell 6RXWKDQG PLOOLRQOLQHVIRU6%&3DFL¿F Bell. 7KHVWDWHDEEUHYLDWLRQVLQWKH¿JXUHDUH,OOLnois (IL), Indiana (IN), Ohio (OH), Michigan (MI), and Wisconsin (WI). Due to technological restrictions at the time, transmission speeds degrade beyond 2.2 miles. Therefore, homes in the area may not have access if they are too far from the central RI¿FH7KHGLVWDQFHOLPLWDWLRQFDQEHVHHQ in Figure 2 from the circular clusters of DSL points, each of which surrounds a central RI¿FH We matched the ZIP+4 centroids to central of¿FHVXVLQJ$UF0DS*,6VRIWZDUHDQG*'7¶V WireCenter Premium telecommunications geography product. When there were between one and nine DSL =,3VLQWKHFHQWUDORI¿FHDUHD RXWRIRYHU FHQWUDORI¿FHV ZHUHPRYHGWKHFHQWUDO RI¿FHIURPWKHHVWLPDWLRQWREHFRQVHUYDWLYH because these might be “stray” ZIP+4s that do not actually belong in the DSL list. The average number of ZIP+4s in a DSL-capable FHQWUDORI¿FHLV Blocks are the smallest unit of U.S. Census geography, and typically contain about 10-30 households. Some statistics, such as household income, are available at the block group level but not at the block level. Block groups typically contain about 600 households. We aggregated the statistics at the Census block RUEORFNJURXSOHYHOWRWKHFHQWUDORI¿FHVHUYing area using the GIS software. The business data are from U.S. Bureau of the Census, ZIP Code Business Patterns CDROM, 2000 data. The ZIP Code areas were PDWFKHGWRWKHFHQWUDORI¿FHDUHDVXVLQJ*,6 software.
Competition in Broadband Provision and the Digital Divide
17
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26
See Faulhaber and Hogendorn (2000) and Gabel and Kwan (2001), for example. The endogeneity issue is that there are characteristics of markets, such as high household income, that make entry by both competitors and the incumbent more likely. In such cases, WKHFRUUHODWLRQEHWZHHQWKHFRPSHWLWRUV¶DQG WKH LQFXPEHQW¶V GHFLVLRQV GR QRW SURYLGH SURRIWKDWWKHFRPSHWLWRUV¶SUHVHQFHcauses DSL deployment by the incumbent. The data from NPRG are not as geographically precise as our other data, because the CLEC locations are listed by city or suburb name. We matched the city names to the FHQWUDORI¿FHDUHDVE\KDQG These data were collected by Kevin DuffyDeno and are described more fully in DuffyDeno (2000) and Rappoport, Kridel, Taylor, Alleman, and Duffy-Deno (2003). We gratefully acknowledge permission to use these data. The cable modem data for Ohio are from Grubesic (2003). We gratefully acknowledge permission to use these data. The apparently large differences in some of WKHFRHI¿FLHQWVGRQRWWUDQVODWHLQWRVLJQL¿cant differences in the marginal effects. The unexpected result for the less than high VFKRROFRHI¿FLHQWLVQRWDQDUWLIDFWRIFROOLQearity; the variable is not highly correlated with any variables expected to increase the likelihood of deployment. Fox (2004) documents low demand among WKHHOGHUO\DQG¿QGVWKDWLQRQO\ of Americans age 65 or older reported having access to the Internet. Low demand for household broadband subscription among \RXQJHUDGXOWVPD\UHÀHFWERWKODFNRILQFRPH and the availability of broadband at school or work as a substitute for access at home. Cable companies built their networks to offer primarily residential service. The main changes were that the statistical VLJQL¿FDQFHRIWKH$VLDQDQGLQFRPHYDULables declined, compared to estimation 3. The LQGXVWU\FDWHJRU\RI³¿QDQFHDQGLQVXUDQFH´ DQGRI³UHDOHVWDWH´KDGVLJQL¿FDQWQHJDWLYH
27
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effects, and the category of “professional, VFLHQWL¿FDQGWHFKQLFDOVHUYLFHV´KDGSRVLWLYH effects on deployment. The former results are probably indicative of the other broadband RSWLRQVWDNHQE\¿UPVLQWKHVHFRPPXQLFDtions-intensive industries. The incumbent marketed DSL at the time toward home and small-business users, since the phone company had little incentive to cannibalize demand for the high-speed (and high-cost) dedicated circuits it leased to businesses. Willig (2003) characterizes the competitive stimulus hypothesis as follows: “Under this view, the previous lack of competition in monopoly local telephone markets may have dissuaded the I[ncumbent ]LECs from making certain investments, and the competitive stimulus from CLEC entry under the 1996 Act may have encouraged greater investment by both the ILECs and the CLECs.” The author is not referring to the DSL investment in particular, but the same notion applies to investment generally (Aghion et al., 2001). Note that when the competition is potential EXWQRWDFWXDOLWLVGLI¿FXOWWRGLVWLQJXLVKWKH competitive stimulus hypothesis from predatory conduct (i.e., investment undertaken VSHFL¿FDOO\WRGHWHUHQWU\ 'L[LW Cable modem or DSL service was available in 87% of the ZIP Codes. Most of the remaining ZIP Codes were covered by satellite. There are a few relatively small targeted federal infrastructure subsidy programs. Two of these are the eRate program subsidizing broadband infrastructure for schools (Flamm, 2005) and the USDA Rural Development broadband program for rural LECs (Wallsten, 2005). See chapter 18 by Prieger and Lee in this volume for an exploration of how policies related to competition affect broadband deployment. Source of statistics: OECD data for June 2006, released October 13, 2006, available at www.oecd.org/sti/ict/broadband.
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Chapter XVII
Governmental and Cultural Factors in Broadband Adoption Elizabeth Fife University of Southern California, USA Laura Hosman University of Southern California, USA Francis Pereira University of Southern California, USA
ABSTRACT 7KRXJKWKHSRWHQWLDOEHQH¿WVRIEURDGEDQG,QWHUQHWDGRSWLRQDUHJUHDWWKHOHYHOVRIWDNHXSYDU\JUHDWO\ around the world. Some governments have adopted aggressive policies to deploy broadband networks and to encourage the use of these applications, while others have not. In the former cases, governments DUHPRWLYDWHGWRSURPRWHEURDGEDQGDGRSWLRQLQRUGHUWRUHDOL]HERWKHFRQRPLFDQGVRFLDOEHQH¿WV7KLV chapter argues that the high level of broadband adoption rates witnessed in certain Asian economies is attributable in part to the aggressive policies pursued by these governments. Independent of these policies however, social factors can also have an impact on whether broadband-related technology will EHDGRSWHG(YHQLIHFRQRPLFDQGVRFLDOEHQH¿WVH[LVWWKHUHIRUHDVLQWKHFDVHRIWHOHPHGLFLQHLQWKH United States, cultural and social factors may in fact hinder the deployment of such applications and retard the growth rate of broadband access.
INTRODUCTION The continued worldwide growth of broadband ,QWHUQHW XVH KDV H[SRVHG WKH EHQH¿WV RI DQ ³H VRFLHW\´WRDQLQFUHDVLQJQXPEHURIWKHZRUOG¶V population, resulting in improved access to healthcare through telemedicine, the diminishing of the social divide through tele-education, and increased
economic competitiveness through telework. Although many countries around the world have modern telecommunications networks that support broadband access to the home and business, broadband penetration rates vary across these countries. One of the key factors explaining this difference in penetration rates is the government initiatives in the various countries, particularly in
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the more developed Asian economies, to establish national “information superhighways.” Governments are motivated to develop national EURDGEDQGQHWZRUNVIRUVHYHUDOUHDVRQV(I¿FLHQW information-age infrastructures can enhance productivity by providing intelligent networks that can accommodate the converging voice, data, and electronic commerce applications (Frieden, 2005). These infrastructures provide a competitive advantage in the knowledge-based industries that include data processing, insurance, management, customer relationship management, and logistics and distribution. Such a competitive advantage in the area of information and telecommunications technology (ICT), when combined with a stable economy and favorable regulatory system, has been shown to translate to higher levels of foreign direct investment (FDI). The deployment of such networks, either directly through the use of tax dollars or indirectly by use of appropriate poliFLHVVXFKDVVSHFWUXPDOORFDWLRQE\¿DWIXUWKHU DOORZQDWLRQDOJRYHUQPHQWVWRH[SORLWWKHEHQH¿WV RI HJRYHUQPHQW LQFOXGLQJ LQFUHDVHG HI¿FLHQF\ and transparency. Governmental involvement and promotion of broadband can encourage end user adoption, by effectively lowering the usage cost of applications for business and consumers alike, thus improving working and living standards, and enhancing productivity. 6SHFL¿F DSSOLFDWLRQV WKDW DUH PDGH SRVVLEOH through broadband capabilities, such as telemedicine, may soon enable governments—particularly developing countries where transaction costs are high because of logistical problems (Sein & Harindranath, 2004)—to extend universal healthcare services to remote areas and provide an economically viable means to increase the quality of medical services. Similarly, tele-education provides governments with the potential to increase the level of educational services to resource-strapped inner-cities or rural areas and the means to extend the learning experience into the home. In addition, teleworking allows employees to work from home while still being productive agents of society, DQGJLYHV¿UPVDPHDQVWRGHFUHDVHFRVWVLQWKH production process. Furthermore, from a societal
YLHZSRLQWWHOHZRUNLQJUHGXFHVWUDI¿FFRQJHVWLRQ and helps in pollution control. Given the numerous areas where broadband deployment can bring about both social and ecoQRPLFEHQH¿WVIRUVRFLHW\GHPDQGFDQEHH[SHFWHG to grow in the coming years. The question remains regarding the proper role of governmental intervention in this process, and what role the unique FXOWXUDOFKDUDFWHULVWLFVRIVSHFL¿FVRFLHWLHVEULQJ to bear. This chapter addresses these issues by presenting a number of case studies illustrating the roles both governments and culture have played in the broadband deployment process, followed by a GLVFXVVLRQRIRXU¿QGLQJV
THEORETICAL FRAMEWORK The relationship between telecommunications investment and growth has been demonstrated (Roller & Waverman, 2001). Indjikian and Siegel (2005) review work from the developed world that suggests evidence, both qualitative and quantitative, of a positive correlation between IT investment and economic performance. The implications for developing countries are encouraging, and it DSSHDUVWKDWWKHHPSLULFDO¿QGLQJVRQ,7DQGHFRnomic performance, including case analysis from China, India, Chile, and elsewhere, are contributing to improvements in productivity and growth. In the economic literature, endogenous growth theory (or new-growth theory) stipulates that it is technology and human capital, when endogenously present, that contribute to continuous economic growth and therefore play an essential role in a FRXQWU\¶V GHYHORSPHQW (DVWHUO\ .LQJ /HYLQH & Rebelo,1994; Barro, 1997). Logically, workers who are better educated and literate, better fed, healthier, and technologically capable can produce more than those who are hungry, illiterate, unhealthy, and technologically unskilled. %DUUR¶V VWDWLVWLFDO DQDO\VLV RI WKH GLIference in growth rates across a large number of countries reveals that a high initial level of huPDQFDSLWDOKDVDVLJQL¿FDQWO\SRVLWLYHHIIHFWRQ growth—a virtuous circle. We can predict that ICT penetration—the ability to use technology to
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LQFUHDVHHI¿FDF\DQGHI¿FLHQF\²ZRXOGKDYHWKH same reinforcing effect. A key economic incentive for some governments to develop a broadband network is to create competitive advantage in attracting direct investments by multinational corporations (MNCs). Foreign direct investment increases domestic capital formation, augments host country stocks of technology and managerial expertise, improves access to export markets, and provides a comparaWLYHO\VWDEOHVRXUFHRIH[WHUQDO¿QDQFLQJ /HKPDQ 2002, p. 3). Furthermore, FDI strengthens a host FRXQWU\¶VDELOLW\WRUHDFKPDUNHWVDEURDGWKURXJK its international links. ,Q JHQHUDO WKH LQYHVWPHQW ÀRZV WR WKH (DVW Asian economies studies in this chapter have been directed at creating export-oriented industries (Fan & Dickie, 2000). The rapid growth of these economies is widely attributed to a strategy of building industrial capabilities through foreign direct investment, achieved principally by creating favorable conditions for MNCs to locate their activities in their respective economies (Matthews, 1999). As expected, many of the East Asian economies are countries with some of the highest broadband penetration rates, in order to create these favorable business and investment conditions.
CASE STUDIES Singapore Government’s Efforts to Promote a Digitized Knowledge Economy The government of Singapore has been particularly aggressive in promoting the deployment of new technologies and broadband access, as manifested in several initiatives, which are discussed below. The government of Singapore has pursued an international-oriented business focus for a number of years. One result of this plan is that the total SURGXFWLRQ RI 86 01& DI¿OLDWHV FRQVWLWXWHG VRPHRI6LQJDSRUH¶V*URVV'RPHVWLF3URGXFW (GDP). Altogether, there over 7,000 MNCs located in Singapore (Lim, 2006).
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Relatively high labor costs in Singapore, coupled with high employee turnover rates—particularly in the IT sectora manpower shortage, and the high overall cost of doing business in Singapore is motivating the government to look to e-commerce solutions, as some have observed, to encourage ¿UPVWRDGRSWWHOHZRUNLQJ /LP 7HRS 560). 2QH RI WKH ¿UVW WZR 6LQJDSRUH JRYHUQPHQW initiatives was the deployment of TradeNet and the Singapore ONE program. TradeNet, which facilitates trade documentation online, processes 99% of all trade permit declarations and is used by over 2,400 companies. This service has reduced SURFHVVLQJWLPHIURPVHYHUDOGD\VWR¿YHPLQXWHV 7UDGH1HW3OXVDPRUHFRPSOHWHDQGHI¿FLHQWYHUsion that incorporates other online features, such as payment and insurance, is expected to further reduce processing time to between one and three minutes. Furthermore, it is estimated that it will generate annual savings of some S$2.8 billion (Shih, 1999, p. 2). The Singapore ONE (One Network for EvHU\RQH SURJUDP LV D KLJKVSHHG RSWLFDO ¿EHU QHWZRUNWKDWPDQLIHVWVWKHJRYHUQPHQW¶V,7 Masterplan, a blueprint to deploy IT in almost every government department with the end goal of transforming the state into an “intelligent island” (Economist, 2000). The IT2000 Masterplan was GHVLJQHGWRDOORZDOORI6LQJDSRUH¶VRYHU KRXVHKROGVWRFRQQHFWWRDK\EULG¿EHUFRD[LDO network, irrespective of whether they intended to subscribe to the various services (Cable and Satellite Asia, 1997). The Singapore ONE initiative strives to develop a nationwide broadband network to link businesses, homes, and schools to deliver interactive, multimedia applications and services (Santiago, 2000). It is estimated that by 2005, some 43% of all households had connected to this broadband network (Burton, 2005). In this respect, WKH6LQJDSRUHJRYHUQPHQW¶VH&LWL]HQ&HQWHUDQ integrated service delivery system, was designed to ensure that the public sector operated, and was seen to operate, as a single entity. This particular project is aimed at bringing together useful services and delivering them to Singaporeans in convenient and easily accessible packages. The Singapore
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government hopes that eCitizen will enhance the ability of the public to be increasingly familiar and comfortable with IT, which has become a critical component in the knowledge economy (Economist, 2000). In June 2006, the Singapore government launched its latest 10-year Masterplan, dubbed iN2015 (Intelligent Nation 2015) which established ambitious goals for the country: the establishment RI6LQJDSRUHDV¿UVWLQWKHZRUOGLQKDUQHVVLQJ,&7 to add value to the economy, a two-fold increase in value-added of the ICT industry to S$26 billion, a three-fold increase in ICT export revenue to S$60 billion, the creation of 80,000 additional jobs, a 90% rate of home usage for broadband, and the achievement of 100% computer ownership for all homes with school-going children (Business Wire, 2006). The government hopes to accomplish these goals through programs and initiatives that LQFOXGHIRUH[DPSOHWKH&;2SURJUDPZKLFKZLOO facilitate strategic discourse among key decision makers, CEOs, CIOs, and CFOs, and the iEnterprise Challenge Program, which will focus on developing innovative products and solutions as reference projects, which will have a strong impact across various sectors while simultaneously creating new intellectual property (Lim, 2006). Another government initiative seeks to raise the percentage of small and medium-sized enterprises (SMEs) conducting e-commerce to 25% within WKUHH\HDUV¶WLPH$FFRUGLQJWRDVXUYH\FRQGXFWHG late in 1999 by the Singapore IT Federation, while 91% of the top 1,000 companies already had Internet access, only 4% of the 92,000 SMEs were conducting e-commerce (Raj, 2000, p. 7). Sixtysix percent of SMEs with sales below $1 million cited lack of in-house IT skills and infrastructure, inadequate knowledge of e-commerce, and low budgets as barriers to implementing e-commerce (Koh, 2000, p. 14). As such, the Economic Development Board (EDB) will assist businesses in their e-commerce strategy by supporting up to 50% of WKHLUH[WHUQDOFRQVXOWDQWV¶FRVWVLQIRUPXODWLQJD business plan or business collaboration venture, conducting feasibility studies, or providing assistance in implementation, up to a maximum limit of S$250,000 (Lee, 2000, p. 71). The government
also unveiled a three-year, $11.7 million plan to SURGWKHFLW\¶VJURZLQJORJLVWLFVLQGXVWU\LQWRGRLQJPRUHZLWKWKH,QWHUQHW6LQJDSRUH¶VWUDQVSRUW and logistics industry contributed more than 7% WRFRXQWU\¶VWKHJURVVGRPHVWLFSURGXFWODVW\HDU (Bangsberg, 2000, p. 10). 7KH6LQJDSRUHJRYHUQPHQW¶V¶*H%,=LPLWDWLYH is an attempt to create a one-stop, round-the-clock FHQWHUIRUWKHJRYHUQPHQW¶VEXVLQHVVGHDOLQJV7KH ¿UVW SKDVH ZDV ODXQFKHG LQ $SULO *H%,= HQDEOHV WKH ¿QDQFLDO V\VWHPV RI PLQLVWULHV DQG the procurement applications to work together. 7UDGLQJ SDUWQHUV FDQ ¿QG LQYLWDWLRQV WR WHQGHU and purchase orders on the site. Suppliers can also submit invoices, check payment status, post their catalogs, and bid for contracts. Currently, purchases are capped at S$30,000 (US$17,341), but the Ministry of Finance estimates that once new payment and security systems are introduced, 80% of all government procurement will transfer to GeBIZ. In 2005, some 41,000 small-value purchases worth some $36 million were transacted over GeBIZ (Business Times, 2006). As with other online B2B WUDGLQJQHWZRUNVWKHEHQH¿WVFRPHLQWKHIRUPRI more competitive bidding, easy access to suppliers around the world, time saved by online processing of orders, lower stocks, and automated collection of high-quality data (Economist, 2000).
Taiwan Launches National Information Infrastructure Plan The government of Taiwan has also taken major steps to promote Internet usage among the population, making it clear from the start that its program was designed to promote simultaneously economic development and quality of life for citizens. The enabling steps the government has taken have included the gradual liberalization, according to a timetable, of each aspect of the telecommunications industry. The end goal is to move from a statemonopolized market to a completely competitive RQH7KHJRYHUQPHQW¶VSURJUHVVLQWKLVHQGHDYRU has been remarkably successful. Its liberalization and development plan was exceedingly well enumerated, planned out, and funded, and the fruits
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RIWKLVODERUDUHHYLGHQWLQWKHSURJUDP¶VOHYHORI success over a relatively short time span. The number of broadband subscribers in Taiwan has rapidly expanded since the government began promoting the service in 2001. At the end of 2000, Taiwan had 262,800 subscribers. This number increased to 3.04 million subscribers by December 2003. By June 2005, this number had risen to 3.87 PLOOLRQ VXEVFULEHUV ZKLFK SODFHG 7DLZDQ ¿IWK in the world in household broadband penetration (Point Topic, 2006). As another example of rapid progress, Taiwan was recently ranked seventh among 105 nations around the globe, in terms RI µQHWZRUN UHDGLQHVV¶ LQ WKH :RUOG (FRQRPLF )RUXP¶V*OREDO,QIRUPDWLRQ7HFKQRORJ\5HSRUW 2005-2006, up eight places from just the previous year (E-Taiwan Update, 2005). In June 2002, the government of Taiwan launched a major initiative for e-enablement—the e-Taiwan Program—as part of the Challenge 2008 Program. This program promotes digitization throughout Taiwan through a number of initiatives LQ RUGHU WR LPSURYH WKH QDWLRQ¶V ,7 SUR¿FLHQF\ and competitiveness, both domestically and on an international level. This program involves the participation of a number of government agencies and is wide ranging in focus. The original framework of the program was developed around ¿YHSLOODUV LQIUDVWUXFWXUHHVRFLHW\HLQGXVWU\ e-government, and e-transportation. The e-Taiwan Program has been regularly subjected to performance and progress reviews, and has been revised according to the changing conditions and requirements over time. In June 2004, for example, Premier Yu Shyi-kun recommended that e-Taiwan Program initiatives be expanded to include a greater number of disadvantaged groups. 7KXVWKHµHRSSRUWXQLW\¶SODQZDVERUQ7KLVSODQ has been incorporated into the e-Taiwan Program DQGZLWKWKHDLPRIEULQJLQJJUHDWHUEHQH¿WDQG convenience to the greater Taiwanese public, includes several initiatives such as teleworking, healthcare, and e-governance, intended to be more user oriented in its approach. Some of the goals of the e-Taiwan project are WRLPSURYHJRYHUQPHQWHI¿FLHQF\UDLVHLQGXVWU\ FRPSHWLWLYHQHVV LPSURYH FLWL]HQV¶ TXDOLW\ RI
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life, and establish an equal opportunity e-society through the use of modern information and communications technologies. By doing so, the program will accelerate the development of a knowledge economy in Taiwan, with the aim of achieving the reality of a high-tech services island (E-Taiwan Program, 2005). Recognizing the importance of being able to benchmark progress, the government has estabOLVKHGVSHFL¿FPHDVXUDEOHWDUJHWVIRUWKHSURJUDP including: the creation of 20,000 jobs related to the program or to technology, to achieve a 75% satisfaction rate of e-government policies, to provide 600 online services, to enable e-commerce to represent 15% of total GDP, and to expand broadband use to 6 million subscribers (E-Taiwan Program, 2005). 'HPRQVWUDWLQJ WKH JRYHUQPHQW¶V FRQWLQXHG commitment to the e-Taiwan project as well as to expanding it, Dr. Feng-Ching Lin, Minister of 6WDWHDQQRXQFHGDWWKH:RUOG(FRQRPLF)RUXP¶V October 2006 meeting, the new basis for the JRYHUQPHQW¶VYLVLRQ RQHRI7DLZDQ¶VQHZJRDOV will be to focus on the development of a “ubiquitous network society” in which all citizens would be able to access the Internet anytime, from any location (FIND, 2006). One particularly noteworthy aspect of the eTaiwan Program has been its recognition that there are greater societal aspects to the digital revolution, and promoting telecommunications availability can serve the country in ways reaching far beyond just increased international economic competitiveness. The program has been consistently successful in focusing on assisting the disadvantaged and helping to bridge the digital divide. To this end, in 2005 the government established 33 Digital Opportunity Centers (DOCs) in remote and rural areas of the country. This has provided disadvantaged groups and citizens in remote areas DQHTXDORSSRUWXQLW\WREHQH¿WIURP,QWHUQHWDFcess. In its greater effort to help reduce the digital divide globally, the Taiwanese government has taken this successful program to the international level, assisting Peru, the Philippines, and Vietnam to build their own Digital Opportunity Centers, and has plans to assist Chile, Indonesia, and Papua
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New Guinea with the same in the future (E-Taiwan Update, 2005).
Malaysia Seeks Foreign Direct Investment through Infrastructure Improvement In much the same way, Malaysia is striving to become a fully developed economy through its Vision 2020 program, designed to shift focus to high value-added products with more automated operations. Malaysia sees itself well suited for high-tech, knowledge-driven, and service-based outsourcing industries, believing that it will eventually lose its competitive advantage in labor-intensive manufacturing to highly populated countries such as China and India that have even lower labor rates. Malaysia aspires to be a global leader in the IT sector by producing leading-edge technology products to be developed and used both within the country and to be exported. As a result, various government policies and initiatives focus on IT-related industries (Simic & Lee, 1997). 7KHVXFFHVVRIWKHJRYHUQPHQW¶VLQLWLDWLYHVLV evidenced by the amount of foreign direct investment into the country. Not only has this investment been relatively stable, but it has shown a marked increase over the past year from $2.7 billion in 1998 to $4.5 billion in 2005 (UNCTAD, 2007). The United States continues to be the largest foreign investor in Malaysia, accounting for nearly 30% RI0DOD\VLD¶VWRWDO)',DQGWKHWZRQDWLRQVDUH currently exploring the possibility of a bilateral free trade agreement. The ASEAN region overall has also seen record levels of FDI over the past few years, higher than those seen before the Asian ¿QDQFLDOFULVLV 7DQ 0DOD\VLD¶V PRVW SURPLQHQW ,7 SURMHFW LV WKH Multimedia Super Corridor (MSC). Unveiled by the government in August 1996, the original MSC project encompasses a 15x40-kilometer area, stretching from the Kuala Lumpur City Center to the new Kuala Lumpur International Airport (KLIA). This region has been transformed into a multimedia research and manufacturing zone. It will be home to Putrajaya, the paperless Malaysian federal government, and Cyberjaya, a new informa-
tion-age industrial and residential city. Projected to run well over US$40 billion, the MSC will include tele-suburbs, technology parks, and a multimedia university (Tan, 2006). The MSC will be equipped with a state-of-the art telecommunications and network infrastructure capable of supporting interactive applications and serviced by high-speed connections to Japan, the United States, Europe, and the ASEAN region. The Malaysian government has designated VHYHQ³ÀDJVKLSDSSOLFDWLRQV´LWVHHNVWRGHYHORS LQSDUWQHUVKLSZLWKSULYDWH¿UPVWKDWKDYHJDLQHG MSC status. These applications are in the following areas: electronic government, smart schools, telemedicine, multi-purpose smart card development, borderless marketing, an R&D cluster for developing software and next-generation multimedia technologies, as well as a multimedia-based worldwide manufacturing web that will serve as DVXSSRUWKXEIRU¿UPVLQKLJKFRVWFRXQWULHVWR access lower-cost facilities throughout Malaysia and the region (Simic & Lee, 1997). When entirely completed, the MSC asynchroQRXV WUDQVIHU PRGHEDVHG ¿EHURSWLF QHWZRUN within the corridor will support automated information network (AIN) telephones and enhanced services, cable television, video-on-demand, data communications, MSC applications, and teleport services. Telecom Malaysia is also considering using ADSL technology to connect to homes and RI¿FHV7KHIDVWHVWJURZLQJVHUYLFHDWSUHVHQWLV dedicated ISDN networks (Legard, 1998). The infrastructure will also be linked to Telekom 0DOD\VLD¶V FRUSRUDWH LQIRUPDWLRQ VXSHUKLJKZD\ (COINS) network. COINS is an open multimedia network with extreme high-speed capacity (Kim, 1997). 7KH 06& SURMHFW¶V GHYHORSPHQW KDV JRQH forward over the past 10 years, yet it has also experienced some growing pains. For example, there has been a call for greater oversight of the JRYHUQPHQW¶V FRQWUDFWLQJ DQG ,&7 VSHQGLQJ LQ light of revelations that some of the companies contracted to provide services under two of the JRYHUQPHQW¶VÀDJVKLSDSSOLFDWLRQV²LQWKHDUHDV of telehealth and electronic government—had not
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completed their assignments. Concessions needed to be extended or revoked as a result. In 2001, Malaysian Prime Minister Mahathir Mohamad reported that the impact of the MSC RQ0DOD\VLD¶VHFRQRP\ZDVQRWDVVXFFHVVIXODV the government had expected (ZDNet Asia, 2001). Nevertheless, the government has continued its work on developing and promoting the MSC. Responding to numerous calls by corporations (and the media) to increase the number of ICT-skilled Malaysian workers, the government recently announced a double tax deduction for employee costs in ICT training. In other words, corporations are allowed to doubly deduct any expenses incurred while their employees are being trained in ICT, at an approved institution or by government training institutes (Measures, 2006). Additionally, the government has streamlined the entry visa and work permit issuing process, also in response to reported frustration on behalf of corporate interests (Matthews, 2006). 7KHJRYHUQPHQWKDVODXQFKHGWKHSURMHFW¶VVHFond phase which will be extended across the nation. The project has been renamed MSC Malaysia, in an effort to “brand” the project and increase global awareness of its location. In addition to launching a second cyber center in the city of Malacca, south of Kuala Lumpur, the Prime Minister declared the DLPRIWKHSURMHFW ³WRH[SDQGWKH06&¶VFRUULGRU network throughout the country and to bridge the digital gap between those with access to information and communications technologies and those without” (Matthews, 2006). Although the original focus and objectives of the 06&SODQUHPDLQWKHVDPHLWLVWKHJRYHUQPHQW¶V intent to improve the methods, approaches, and strategies employed to achieve the goals of the MSC Malaysia plan. As part of this plan, additional cyber centers and cyber cities will be established in various parts of the country. In addition to the Malacca center mentioned above, the rollout of MSC Malaysia continues at Johor and is expected to be extended to Perak within the year. To date, the MSC project has created 48,200 jobs, with 1,522 international and local companies SDUWLFLSDWLQJ7KHSURMHFWKDVEHQH¿WHGIURPPDMRU investments by companies such as Dell, DHL, Sun
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Microsystems, BMW, Shell, EDS, Unisys, and AMD (Matthews, 2006). MSC Malaysia is not the only area in which the Malaysian people have seen progress in ICT use and uptake over the past decade. Mobile penetration in Malaysia surpassed the 80% mark in early 2006, with subscribers numbering over 20 million. This was up from just 2 million subscribers in 1998. Malaysia has the second highest mobile penetration rate in South East Asia, after Singapore (CAN Newswire, 2006). The government awarded two 3G licenses in March 2006, and this is expected to boost activity and competition in this sub-sector. The number of PC users has also risen dramatically. Malaysia had 888,000 PC users in 1996, and this had risen to 4.2 million users by 2006. The Internet penetration rate rose from 1.8% of the population in 1998 to nearly 40% in 2006. The JRYHUQPHQW¶VRYHUDOOSODQLVWRPDNH0DOD\VLDD knowledge-based economy and community, where ICT is seen as the key enabling tool for all other sectors of the economy, including manufacturing, services, and agriculture (MSC, 2006).
The Role of Advanced Telecommunications Infrastructure in Hong Kong +RQJ.RQJ¶V6SHFLDO$GPLQLVWUDWLYH5HJLRQ 6$5 KDVRQHRIWKHZRUOG¶VPRVWVRSKLVWLFDWHGDQGDGvanced telecommunications networks, which is crucial for Hong Kong to maintain its status as a OHDGLQJEXVLQHVV¿QDQFLDODQGLQGXVWULDOFHQWHU Sizeable investments in communications technology have made the telecom market in Hong Kong KLJKO\HI¿FLHQWDQGFRVWHIIHFWLYHIRUWKHPDQXfacturing industry. An advanced network, together with a wide range of professional and high valueadded manufacturing support services, ample supply of skilled and low-cost workers from China DQGRWKHU$VLDQ3DFL¿FFRXQWULHVDOOFRXSOHGZLWK the cross-border production competence of Hong Kong companies, has positioned Hong Kong as a control center in global production and sourcing (Chan, Yung, & Burns, 2000, p. 288).
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Hong Kong boasts what is widely considered WKH ZRUOG¶V IUHHVW HFRQRP\ DV ZHOO DV D KLJKO\ VNLOOHG ZRUNIRUFH ÀXHQW LQ (QJOLVK WKH OLQJXD franca of the business, legal, and technology industries. The government of Hong Kong has been one of the leading investors in its IT sector through its resource allocation, e-government program, its implementation of information systems and procurement arrangements, as well as through DGPLQLVWUDWLYHDGRSWLRQ7KHJRYHUQPHQW¶VLQYHVWment in this industry has averaged HK$4.6 billion per year (Commerce, Industry, and Technology Bureau, 2004). The city launched its bid to privatize and demonopolize local and long-distance telephone services in 1995 and 1998, respectively. By 2001, all telecom services and infrastructures were liberalized, which resulted in wider choices and a higher quality of services at more competitive prices. Today, Hong Kong has one of the most advanced and competitive telecom markets in the world, with six major mobile operators competLQJWRVHUYH+RQJ.RQJ¶VPDUNHWQRQHRIWKHP dominating (Yan, 2006). In fact, with a penetration level of 123 mobile phones per 100 inhabitants, it may not be an exaggeration to claim that Hong Kong has the highest level of telecom competition, as well as adoption of mobile technology, in the world (Yan, 2006). 7KHJRYHUQPHQW¶VSROLFLHVDQGWKHGULYHWRZDUG market liberalization created a great deal of presVXUHIRULQQRYDWLRQ$VDUHVXOW+RQJ.RQJ¶VIRUPHU WHOHFRPPRQRSROLVWEHFDPHWKH¿UVWSURYLGHULQWKH world to launch interactive television (video-ondemand) service commercially in 1998, and was DOVRWKH¿UVWWRRIIHU,QWHUQHWSURYLGHUWHOHYLVLRQ (IPTV) service. In 2006, they launched a mobile real-time TV broadcasting service as well (Yan, 7KHSHRSOHRI+RQJ.RQJKDYHEHQH¿WHGLQ QXPHURXVZD\VIURPWKHJRYHUQPHQW¶VSURPRWLRQ RIFRPSHWLWLYHSROLFLHV +RQJ.RQJZDVWKHZRUOG¶V ¿UVWFLW\WRIXOO\GLJLWL]HLWVWHOHFRPPXQLFDWLRQV QHWZRUNV,WZDVDOVRWKH¿UVWHFRQRP\LQWKHZRUOG WRLQFRUSRUDWH¿[HGOLQHQXPEHUSRUWDELOLW\DQG WKLUGLQWKHZRUOGZLWK¿[HGOLQHPRELOHQXPEHU portability.
$JDLQVWWKLVEDFNJURXQGWKHJRYHUQPHQW¶V¿UVW Digital 21 IT Strategy was published in 1998. It was revised and updated in 2001 and then again in 2004. The plan is a comprehensive strategy to bring Hong Kong into the 21st century as a global leader in e-business, new technologies, and the LQIRUPDWLRQHFRQRP\7KHJRYHUQPHQW¶VYLVLRQLV that it should be an effective facilitator to promote innovation and the development of industry, as well as to ensure that the entire community will EHQH¿WIURP,7GHYHORSPHQWE\WDNLQJPHDVXUHV to bridge the digital divide. 7ZR ÀDJVKLS SURJUDPV RI WKH JRYHUQPHQW¶V Digital 21 Plan are the Cyberport and the Science and Technology Park. Both of these industrial clusters provide high-technology-focused value DGGHGWR+RQJ.RQJ¶VRYHUDOOHFRQRP\ZLWKWKH larger concept of attracting leading IT companies and a critical mass of professional talent into Hong Kong. The Cyberport is a high-technology multimedia hub designed to attract the research and development sectors of major high-tech companies. The &\EHUSRUW¶V3KDVHRFFXSDQF\UDWHKDVDOUHDG\ reached 80%, attracting such major tenants as Microsoft and GE Information Services. The Cyberport is designed to be more than a workplace, as it incorporates both a world-class living and working environment, and attracts businesses from many industries, including entertainment, communications, advertising, sales, trading, and ¿QDQFH 0$,7 The Science and Technology Park focuses on four sectors: ICT, electronics, biotechnology, and precision engineering. It is equipped with broadband networking and wireless LAN, laboratories, and support centers. +RQJ.RQJ¶VHFRQRP\EHQH¿WVIURPLWVVWDWXV DVDPDMRUJOREDO¿QDQFLDOVHUYLFHVFHQWHUDVZHOO as a trade, commerce, transportation, and logistics hub. All of the sectors comprising these industries are major users of IT, which has helped provide the impetus for Hong Kong to be at the forefront of the IT development and innovation, as well as for the government to facilitate and augment this SURFHVV+RQJ.RQJ6$5¶VEDQNLQJVHFWRULVWKH second largest in Asia, after Japan, and in terms
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of total bank assets to GDP it is only matched by Singapore. +RQJ.RQJ¶VWUDGHDQG¿QDQFLDOFRPPXQLW\ is extremely “IT oriented.” The Hong Kong Trade Development Council (HKTDC) promotes Hong .RQJ¶VJRRGVDQGVHUYLFHVE\VHUYLQJDVDQLQformation broker and matchmaker among traders, exporters, manufacturers, buyers, and service providers. With the advent of the World Wide Web, the HKTDC introduced a host of electronic advertising and publishing activities to take advantage RIWKH:HE¶VLQVWDQWDQHRXVORZFRVWLQIRUPDWLRQ distribution to a wide online audience. Besides using the Internet for Web browsing, there is an increasing trend by Hong Kong corporations to use the Internet as the backbone to develop intranets for mission-critical applications, including dynamic access to databases, and functional applications such as purchasing, trading, and inventory control. The rapid growth of the Internet and intranets is generating rapid expansion in LANs (IMF, 2002). Hong Kong has a high level of LAN penetrationapproximately 70% of all corporations. +RQJ.RQJ¶VHFRQRP\KDVZLWQHVVHGUHPDUNDEOH JURZWK LQ )', LQÀRZV RYHU WKH SDVW IHZ GHFDGHV*OREDO)',LQÀRZVURVHVXEVWDQWLDOO\LQ 2005, up 29% from 2004, as Hong Kong maintained its number two position (behind China) as East $VLD¶VOHDGLQJUHJLRQDO)',WDUJHW +RQJ .RQJ¶V FXOWXUH LV FKDUDFWHUL]HG E\ LQdustriousness and by individuals who desire to better themselves (MAIT, 2005). As was menWLRQHGLQ.RUHD¶VFDVHDERYHVXFKFKDUDFWHULVWLFV may promote the adoption and acceptance of new technologies, as these are seen as methods for LQFUHDVLQJ HI¿FLHQF\ WRROV IRU OHDUQLQJ DQG DV an opportunity to show that one owns and knows how to use the latest device. $JUHDWSURSRUWLRQRI+RQJ.RQJ¶VSRSXODWLRQ KDVUHDOL]HGWKHEHQH¿WVRIWKHJRYHUQPHQW¶VSUR technology efforts. Broadband is now available to over 95% of households and to more than 98% of business buildings. The PC penetration rates in 2004 stood at 71% for households and 58% for businesses, while Internet penetration rates held at 65% for households and 50% for businesses (MAIT,
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2005). The mobile penetration rate of 123% was mentioned above, while 70% of Internet users had used e-government services. Despite this level of technological progress, the government still acknowledges that it must go further in order to bridge the digital divide within its borders. In order to ensure that the entire FRPPXQLW\ZLOOEHQH¿WIURP,7GHYHORSPHQWWKH government has begun collaborating with both industry and NGOs in order to introduce a wide UDQJHRIPHDVXUHVWRIXUWKHUHQKDQFHUHVLGHQWV¶ quality of life. The “IT Hong Kong” campaign was designed as a result, to promote IT adoption in the greater community. It consists of free courses providing IT training, free talks in libraries, district promotional activities, and infotainment programs for citizens. Other initiatives include providing public computers with Internet access at convenient locations, computer recycling for the needy, ¿QDQFLDODVVLVWDQFHWRSHRSOHZLWKGLVDELOLWLHVIRU the purchase of computer facilities to enable working from home, and the installation of devices in public computers so that they may be accessed by the blind and visually impaired (Commerce, Industry, and Technology Bureau, 2004).
Korea’s Initiative to Develop a Broadband Infrastructure The Korean government has taken a strongly proactive approach to promoting an information society for all of its people, businesses, and industries. In DOORILWVHQGHDYRUVWKHJRYHUQPHQW¶VRYHUDUFKLQJ objective has been to utilize ICT to enhance the quality of life in Korea. .RUHD¶VIRFXVRQSURPRWLQJLQIRUPDWLRQDQG communication technologies began in the mid1990s, with the establishment of the Ministry of Information and Communication (MIC) in 1994 and the announcement of its overall broadband strategy, the Korea Information Infrastructure .,, LQ .RUHD¶VEURDGEDQGPDUNHWLVFXUrently an open market, free of regulation and controls over licensing and pricing. Its incumbent telecom provider, Korea Telecom, has been completely privatized as of May 2002 (Lee, 2002).
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One aim of the KII initiative was to stimulate private sector investment and competition in the broadband market, by lowering the regulatory barriers to entry. A second aspect of the initiative was for the government to provide a high-speed network that would serve as a public backbone, providing broadband services to 30,000 governPHQWDQGQRQSUR¿WRUJDQL]DWLRQVDVZHOODVWR research institutes and to around 10,000 schools. The government had another ambitious goal: to provide high-speed Internet to every household in Korea. Not only has this goal nearly become realLW\EXWWKHJRYHUQPHQW¶VWDUJHWHG,QWHUQHWVSHHG (threshold) is continually revised upward: the current target is to provide 20 Mbps connectivity to all homes by the end of 2006, and 50-100 Mbps to all homes by the end of 2010 (Lee, 2002). The Korean government is continually revising its strategies, due in part to rapid changes in technological innovation and market demands (Lee & Chan-Olmsted, 2004) and putting forth new initiatives in its wide-ranging telecommunications efforts. In December 2002, Korea announced its eKorea Vision 2006 plan. This initiative, with a focus RQLPSURYLQJWKHTXDOLW\RI.RUHDQFLWL]HQV¶OLYHV KDG¿YHREMHFWLYHV7KH¿UVWZDVWRPD[LPL]HWKH opportunity for and ability of all Korean citizens to utilize the information society and communication technologies in order to actively participate in the information society (or to be “prosumers”—both producers and consumers of information.) The government took action by providing increased opportunities for Internet access for all, and by establishing a lifelong education system available through online learning (Ministry of Information DQG &RPPXQLFDWLRQ &LWL]HQV¶ DELOLW\ WR utilize IT will lead to the creation of added value in all aspects of society. The second objective is to strengthen the FRXQWU\¶VOHYHORIJOREDOHFRQRPLFFRPSHWLWLYHness by promoting “informatization” within all Korean industries, as the IT industry strengthens the competitiveness and productivity of most all other industries. This objective also has an environmental component: the use and application of ICT will enable improvements in the ecological system and ensure the conservation of a clean and
natural environment by strengthening environmental policy functions, while its use in the realm RIWUDQVSRUWDWLRQZLOOUHOLHYHWUDI¿FSUREOHPVDQG reduce logistics costs (Ministry of Information and Communication, 2002). 7KHWKLUGREMHFWLYHLVWRUHDOL]HDPRUHHI¿FLHQW and transparent government structure through informatization, by offering more online public services in the areas of education, culture, and VRFLDO ZHOIDUH 7KH 0LQLVWU\¶V IRXUWK REMHFWLYH is to facilitate continued economic growth by promoting the IT industry in general, and both core and new technologies in particular. Finally, the Ministry also aims to become a leader in regional technological cooperation, by establishing a system that promotes ICT collaboration within WKH$VLD3DFL¿FUHJLRQ 0LQLVWU\RI,QIRUPDWLRQ and Communication, 2002). In 2004, the MIC produced a new and ever further-reaching policy plan: the IT 839 Strategy. One of the overarching economic goals announced in this document was to see Korean GDP per capita grow to US$20,000. The exploitation and utilization of ICT is seen as crucial to achieving this goal (Ministry of Information and Communication, 2004). The IT 839 Strategy also seeks to establish and promote new and cutting-edge technologies, including a broadband convergence network, Internet protocol version 6, and new services, such as WiBro, digital multimedia broadcasting, home network service, telematics service, and Internet telephony (VoIP). These services, available over a converged network, will ensure Internet access at any time in any place (Ministry of Information and Communication, 2004). In terms of competition, both DSL and cable have been unbundled (de-monopolized and made competitive). This has resulted in making Korea one of the most truly competitive nations in terms of the levels of domestic ICT competition. In turn, this high level of competition has made for comparatively low costs and high rates of subscription E\.RUHDQFRQVXPHUV,QGHHG.RUHDLVWKHZRUOG¶V leading nation in household broadband penetration, with 78.5% of households having access (Point Topic, 2005).
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The importance of foreign direct investment in the Korean economy can be seen in the table below. With policy reforms to allow increased foreign participation in the Korean economy, including the purchase of troubled corporations, the value of FDI between 1997 and 2000 quadrupled and VKDUH LQFUHDVHG IURP RI EXVLQHVV ¿QDQFLQJ to 13%. In 1998, FDI was equal to some 14.8% of total gross domestic investment in the Korean HFRQRP\7KRXJKWKHUHKDVEHHQVRPHÀXFWXDWLRQ in investment levels over recent years, 2004 data show a strong resurgence in foreign interest in .RUHD¶VHFRQRP\ ,QDGGLWLRQWRWKH0,&¶VRYHUDOOSROLF\SODQV the Korean government has launched a number RIVSHFL¿FEURDGEDQGUHODWHGLQLWLDWLYHVPDQ\RI them with an eye to bridging the digital divide. Among these has been the Public Fund Program, wherein the government provided low-interest ORDQVWRSURYLGHUVWRHDVHWKH¿QDQFLDOEXUGHQRI bringing access networks to small and mediumsized cities. An additional initiative the government has taken to close the digital divide was to provide 3,000 free Internet access points in public places, VXFKDVSRVWRI¿FHVDQGFRPPXQLW\FHQWHUV7KH government has also provided PCs and Internet infrastructure to schools. Further, within the context of its “Plan for Promoting ICT Use and Distributing PCs to Children of Low Income Families,” the government provides discounted ICT access and a PC to those who otherwise could not afford it (ITU, 2003). Further, the government has launched IT literacy programs, targeted at social groups that traditionally would not have access to computers or the Internet, such as housewives, the elderly, and prisoners. More than eight million people were trained between 2000 and 2002. The government has also started offering high school education programs that are broadcast over the Internet, increasing the demand for PCs and Internet connectivity in family homes (ITU, 2003). Beyond government initiatives, Korean culture has played a large role in determining ICT adoption. Some cultural characteristics prevalent in Korea include a high valuation placed on family
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relationships, social advancement (as well as on social status in general), and learning and education (Davies, 2006). These cultural values promote hard work and personal development, and education is seen as a key means for achieving economic and social success. Another cultural characteristic at play is the “copycat syndrome” or “keeping up with the Joneses,” by which if one household subscribes to broadband Internet service, other households in the neighborhood will subscribe to an equal or superior service in order to maintain their social standing (Davies, 2006, p. 7). Both of these social characteristics have promoted the adoption of ICT within the Korean society. One downside of the cultural propensity for ICT uptake has been the widespread addiction to gaming. Most see this addiction spreading in reaction to the high level of societal pressure to H[FHOLQRQH¶VSHUIRUPDQFH JDPLQJRIIHUVDQDWtractive—and addictive—form of escape. This phenomenon has been abetted by the increasing prevalence of PC Baangs (PC rooms). These are inexpensive Internet cafes that, over the past few years, have morphed mostly into gaming rooms. The number of PC Baangs increased from 3,000 in 1998 to 22,500 in 2002. These Baangs, and gaming in general, are becoming so popular that addiction to gaming is currently considered one of the biggest social problems facing Korea—indeed, Korea is widely FRQVLGHUHG WR EH WKH KRPH RI WKH ZRUOG¶V PRVW extreme gamer culture, as well as the epicenter of gaming addiction. The situation has grown so acute that 10 South Koreans—mostly teenagers and people in their twenties—died in 2005 from game addiction-related causesfrom sitting in a single, cramped position for too long. To combat this problem, the government launched a game addiction hotline in 2006, after having opened a treatment center in 2002. Numerous private hospitals and psychiatric clinics have also opened units to treat this addiction (Faiola, 2006). ,Q WHUPV RI WKH EHQH¿WV RI ,&7 KRZHYHU DV PHQWLRQHGDERYHRQHRIWKHJRYHUQPHQW¶VNH\REMHFWLYHVLVWRHQVXUHWKDW,&7ZLOOPDNHDVLJQL¿FDQW difference in the daily lives of its citizens. To this
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end, the government has implemented numerous ICT-oriented public services, such as e-health, e-transport, and e-learning, with positive results 'DYLHVS 7KHJRYHUQPHQW¶VSURPRWLRQ of ICT development is also expected to stimulate job creation. 7KH .RUHDQ JRYHUQPHQW¶V RYHUDUFKLQJ ,&7 objectiveto create an information societyhas been marked by its strong and continually renewed commitment. The results have been remarkable: one decade after the announcement and implementation of its initial ICT plan, the country now ranks at or near the top of almost any global-level survey measuring broadband use, uptake, or readiness, or of ICT penetration.
SIGNIFICANCE OF SOCIAL AND CULTURAL FACTORS FOR BROADBAND ADOPTION As the case studies above demonstrate, governmental initiatives can be important drivers of broadband penetration, by transforming the economy to a digitized, information-based one and promoting economic growth through numerous channels. However, the adoption of such a system also requires a transformation of societal structures and institutions, as well as an existing receptiveness to using the services and applications that can be provided through broadband, in order to more fully UHDOL]H,&7¶VSRWHQWLDOEHQH¿WVIRUVRFLHW\ A variety of social and cultural factors explain the growth of Internet adoption. Some of the cultural characteristics present in Asian states, including industriousness, the drive to keep up with RQH¶VSHHUVDQGWKHJDPLQJDVHVFDSHIURPVWUHVV mentality, were discussed above. In the United States, the society has a high degree of receptiveness to technological innovation. The population density is comparatively low relative to much of the developed world, and suburban life continues to increase with single-family homes the standard. With the need to communicate across great distances being the rule, the Internet offers DEHQH¿WLQWHUPVRIPDLQWDLQLQJFRPPXQLFDWLRQ links between families and friends, and colleagues.
Since the United States is a highly mobile society, the prospect for mobile Internet adoption among Americans initially appeared promising. However, mobile Internet has not caught on as rapidly in the U.S., and the majority of Americans still do the JUHDWHUSDUWRIWKHLU,QWHUQHWVXU¿QJIURPKRPH The decentralized governance of the Internet and the market structure in the U.S. led to a reducWLRQLQWKHFRVWRI:HEFRQQHFWLRQVÀDWUDWHDFFHVV schemes, and the emergence of high-speed bandwidth systems via telephone lines, cable systems, as well as satellites. As a result, there has been a fast spread of Internet connections and use. However, take-up rates for broadband to the home also have not met expectations. As such, even when broadband connections are available, consumer demand remains an issue: residential consumers may not ¿QGEURDGEDQGXVHIXOWRWKHLUOLYHVRUWKHUHPD\ EHLQVXI¿FLHQWVHUYLFHVDQGFRQWHQWWRMXVWLI\WR subscribing to broadband when it is available. One major explanation for this discrepancy between expectations and actual adoption patterns in the U.S. is that, unlike the Asian economies described above, the U.S. government has not to date established any comprehensive national policy to drive broadband development and adoption rates. ,WKDVDOVREHHQDUJXHGWKDWWKH86JRYHUQPHQW¶V policies have been prohibitive to competition, and in fact have promoted monopolistic behavior on the part of industry incumbents (Koski & Majmudar, 2000). Another major difference between the information superhighway programs in the Asian countries and the rest of the world is the concomitant government initiatives (in collaboration with the private sector) to develop content, particularly multimedia and IT applications. In Malaysia, for example, the government has established numerous incentives WR HQFRXUDJH WKH GHYHORSPHQW RI VHYHQ ³ÀDJship applications,” including telemedicine, smart schools, and electronic government, for its “Multimedia Super Corridor.” In much the same vein and for similar objectives, Taiwan has established the “Internet Applications/Electronic Commerce Program.” Similarly, in Singapore, the government KDV LQDXJXUDWHG D ³3LRQHHUV¶ &OXE´ WR FXOWLYDWH innovative applications and content providers for
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its Singapore One Network. Club members are UHZDUGHGZLWKEHQH¿WVVXFKDVSUHIHUHQWLDOUDWHV for broadband usage as well as reimbursements of up to 70% of the cost for being new applications or content online.
Social Factors Behind the Success of Japanese Wireless Internet The unexpected success of i-Mode, the Internetenabled phone service from NTT DoCoMo in Japan, illustrates the pivotal role that culture and social traits play in explaining the different adoption rates for new technologies. In this case social and cultural factors, as well as geographical and historical circumstances, in large part account for the unprecedented growth of i-Mode: since its launch in February 1999, i-Mode has attracted on average some 500,000 new users monthly, and as of 2004, counted some 42 million users. While the European market has not yet met hopes for wireless Internet access, Japan remains the only market that has exceeded expectations. However, it is still debatable whether the success of i-Mode is transferable to other markets with different cultural, JHRJUDSKLFDQGVRFLHWDOLQÀXHQFHV $ PDMRU IDFWRU EHKLQG L0RGH¶V LQLWLDO VXFcess was its complementarity with the lifestyle of young urban Japanese consumers and the focus on entertainment-related content. i-Mode is hugely popular in densely populated cities like Tokyo ZKHUHZDLWLQJLQOLQHVIUHTXHQWWUDI¿FMDPVDQG general delays are commonplace. Some 55% of i0RGHDFFHVVLQWKH¿UVWIHZPRQWKVRIZHUH to entertainment-related areas, with the most popular categories including downloads of ring tones, characters and other pictures, horoscopes, games, and information about music (U.S. Department of Commerce, 2001). Overall, the trade-off between “reach,” which explains accessibility and ubiquity of coverage, and “richness,” which is the depth of content as well as interactivity, customization, and bandwidth, was appropriate for the cultural background and lifestyle of the Japanese consumer (Baldi & Thaung, 2002, p. 8). In addition, the relative rarity of home comSXWHUV LQ -DSDQ LV DQRWKHU VLJQL¿FDQW IDFWRU EH-
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KLQGL0RGH¶VVXFFHVV'HVSLWH-DSDQ¶VLPDJHDV techno-friendly, in fact, the number of households ZLWK,QWHUQHWDFFHVVRQO\SDVVHGRQHLQ¿YHWKLV year—one of the lowest rates among industrialized countries. In addition, expensive Internet connections and phone calls via wireline connections have led to a high acceptance of the wireless Internet compared to the U.S. or Western Europe. As a result, wired penetration of the Internet has remained extremely low in Japan relative to other markets where wireless access is viewed as an alternative rather than primary means of Internet access. (Funk, 2000) Thus, i-Mode provides a cheap alternative to accessing the Internet for Japanese consumers, providing information and services FDOLEUDWHGWRWKHVSHFL¿FQHHGVDQGFXOWXUHRIWKH society (Suda, 2001).
Telemedicine in the United States The United States presents a distinct contrast to -DSDQLQWKHDGRSWLRQRIQHZWHFKQRORJLHV6SHFL¿cally, in the United States the value-proposition for telemedicine is attractive. Healthcare in the United States has been experiencing substantial and increasing cost pressures which could be addressed in part by telemedicine. For example, a 1992 study prepared by the Arthur D. Little consulting company estimated that the implementation of telemedicine would result in savings of $36 billion annually (Shoor, 1994). The fact that the savings estimates today remain strikingly similar to those made in 1992 UHÀHFWV KRZ OLWWOH SURJUHVV KDV EHHQ PDGH RYHU the past decade in the adoption of telemedicine in the United States (Pharmalicensing Limited, 2006).These savings could be generated from reduced costs for serving patients, through savings in time and travel for doctors and patients, fewer unnecessary referrals, and the replacement of doctors with less medically trained personnel supported by telemedicine. There would also be savings from the provision of better health care, generating cost reductions from early diagnosis and treatment. 'HVSLWHWKHSRWHQWLDOHFRQRPLFEHQH¿WVDQGWKH fact that telemedicine technology has existed since
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the 1920s, usage has not been widespread due to structural and social constraints.a These barriers include low compatibility with existing medical practices, complexity of telemedicine equipment and interfaces,b multiple technical standards (Choi, Krause, Seo, Capitan, & Chung, 2006), the absence of reimbursement by third-party agencies, and incompatibility of state laws regarding telemedicine and licensure issues (McGee, 2004, p. 53; Smith, 2005). Overall, the social system surrounding the adoption of telemedicine is very structured and complex. In addition, the lack of clear support from key institutions, such as the American Medical Association and most medical colleges and medical schools, save the American College of Radiology, presents another impediment. This ambivalence is linked to four major social impediments to the use of telemedicine. First, the cost of implementing a telemedicine infrastructure is a large obstacle, both in the United States and in Europe (Statura, 2006). Currently, a large majority of telemedicine initiatives are sponsored by organizations where reimbursement is not crucial, like research centers, the Armed Forces, or state-owned hospitals, and these initiatives are IUHTXHQWO\¿QDQFHGE\GHPRQVWUDWLRQJUDQWV2QO\ DVPDOOQXPEHURIIRUSUR¿WPHGLFDOFHQWHUVDUH involved in telemedicine, and many of these, like the Mayo Clinic, are employing closed telemedicine systems (Tangalos, 1994). Furthermore, medical organizations are reluctant to purchase equipment because of the risk that it will be quickly outdated (Charles, 2000, p. 66; Muirhead et al., 2000, p. 96). In the United States, where healthcare is most often DSULYDWL]HGIRUSUR¿WFRQFHUQPDQ\FRPSDQLHV DUHORDWKWRWDNHWKH¿UVWVWHSVKDUHLQIRUPDWLRQ ZLWK FRPSHWLWRUV RU SXW WKHPVHOYHV DW ¿QDQFLDO risk regarding investment in an unproven technological direction. Secondly, under the present individual state licensure system, the potential of telemedicine is limited to the somewhat arbitrary borders of a state. Physicians are required to have medical licenses in each state in which they practice. This clearly OLPLWVWKHSRWHQWLDOJHRJUDSKLFEHQH¿WVWHOHPHGLcine could provide (Charles, 2000).
7KLUGO\ WKHUH LV VLJQL¿FDQW XQFHUWDLQW\ UHgarding whether malpractice insurance policies cover services provided by telemedicine (Western *RYHUQRUV¶$VVRFLDWLRQ 7KHOHJDOSUREOHPV associated with telemedicine malpractice liability are especially intricate when services cross state borders (Wasley, 1992, p. 82). In a highly litigious society like the United States, physicians are reluctant to increase their exposure to potential malpractice lawsuits. Finally, like other communications technologies, there is a concern regarding the security of personal medical information stored in telemedicine systems (Smith, 2005). Sanders (1994) notes the possible use of encrypting algorithms and OHJDO SUHFHGHQW \HW WR EH GH¿QHG GHWHUPLQLQJ “reasonable and customary” efforts in protecting LQGLYLGXDOV¶LQIRUPDWLRQ S 7KXVLWLVFOHDUWKDWVLJQL¿FDQWQRQWHFKQRORJLcal barriers exist to the widespread adoption of telemedicine in the United States, including regulatory, cultural, and cost issues. There has been little to no governmental effort in the United States to assist in promoting the adoption of telemedicine. 7KHHI¿FLHQFLHVDQGEHQH¿WVWHOHPHGLFLQHFRXOG bring about have not been realized.
CONCLUSION ,QVXPDOWKRXJKLWLVGLI¿FXOWWRDFFRXQWFRPSOHWHO\ for the differences in the deployment and adoption rates of broadband access throughout the world, a few provisional conclusions can be made. First, due in large part to the high costs for the deployment of advanced networks, thus far the most extensive examples of implementation have occurred due to strong government involvement. The governments that have taken an aggressively pro-ICT approach are motivated to implement high-speed networks largely for clear economic reasons: to encourage foreign direct investment and to realize multiple EHQH¿WV IURP WUDQVIRUPLQJ WKHLU HFRQRPLHV WR technological, information-based ones. In the U.S. by contrast, where the role of FDI in the domestic economy is relatively less important, coordinated efforts from the government are lacking.
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,QWHUPVRIWKHVRFLDOEHQH¿WV,&7FDQEULQJ VLJQL¿FDQW XVH RI KLJKVSHHG QHWZRUNV FDQ EH expected to occur when services and applications are available that improve the quality and ease of life. In a number of the cases above, pro-ICT governments have also focused on and actively promoted citizen use of broadband technology LQ RUGHU IRU VRFLHWDO DQG LQGLYLGXDO EHQH¿WV WR accrue, emphasizing the role that ICT can play in increasing the quality of life through such areas as tele-education, teleworking, and telemedicine. Our cases have demonstrated that where the government does not take an active role, broadband XSWDNHLVVORZHUDQG,&7V¶PDQ\SRWHQWLDOEHQH¿WV often are not realized. Finally, the importance of considering social and cultural factors is paramount to understanding the different ways that broadband will develop and grow throughout the world. Although applications, content, and devices must be appropriate to cultural context, a transformation of social structures and organizations is crucial to support greater ubiquity of broadband in daily life activities.
REFERENCES Baldi, S., & Thaung, H.P.P. (2002). The entertainLQJZD\WRPFRPPHUFH -DSDQ¶VDSSURDFKWRWKH mobile Internet—a model for Europe? Electronic Markets, 12(1), 6-13. Bangsburg, P.T. (2000). Singapore to meld Internet logistics. Journal of Commerce, (March 20), 10. Barro, R.J. (1997). Economic growth in a cross-section of countries. Quarterly Journal of Economics, 106, 407-443. Barro, J. (1997). Determinants of economic growth. Cambridge, MA: MIT Press.
Business Times. (2006). Measures to further ERRVW0DOD\VLD¶VVHUYLFHVVHFWRUBusiness Times, (August 31). Business Wire. (2006). Singapore iN2015 Masterplan offers digital future for everyone. Business Wire, (June 26). Cable and Satellite Asia. (1997). No couch potatoes? Cable and Satellite Asia, (July), 18. CAN Newswire. (2006, September 12). 2006 Asia telecom, broadband and mobile reports, Malaysia, Philippines. Retrieved January 28, 2007, from http://www.marketresearch.com Chan, J.W.K., Yung, K.L., & Burns, N.D. (2000). (QYLURQPHQWVWUDWHJ\¿W $VWXG\RI+RQJ.RQJ manufacturing logistics. Logistics Information Management, 13(5), 286-300. Charles, B. (2000). Telemedicine can lower costs and improve access. Healthcare Financial Management, 54(4), 66-69. Choi, Y.B., Krause, J., Seo, H., Capitan, K., & Chung, K. (2006). Telemedicine in the USA: Standardization through information management and technical application. IEEE Communications Magazine, 44(4). Commerce, Industry, and Technology Bureau. (2004, March). Digital 21 strategy: Sustainability and opportunities. Government of the Hong Kong Special Administrative Region, Hong Kong. Davies, J.R. (2006, July). Korea broadband market December 2005. eCommerce Innovation Centre, Cardiff University, Wales. Easterly, W., King, R., Levine, R., & Rebelo, S. (1994). Policy, technology adoption and growth. NBER Working Paper No. 4681, National Bureau of Economic Research, Cambridge, UK.
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Frieden, R. (2005). Lessons from broadband development in Canada, Japan, Korea and the United States. Telecommunications Policy, 29, 595-613.
Lee, S.S. (2000). EDB 50% grant to aid switch to e-commerce. The Straits Times, April 12, p.71.
Funk, J. (2000, September). The mobile internet market: Lessons from Japan’s i-Mode system. Paper presented at The E-Business Transformation: Sector Developments and Policy Implications, Washington, DC. Indjikian, R., Siegel, D. (2005). The Impact of Investment in IT on Economic Performance: Implications for Developing Countries, World Development, 33 (5), 681-700. ,QWHUQDWLRQDO 0RQHWDU\ )XQG 3HRSOH¶V Republic of China- Hong Kong Special Administrative Region: Selected Issues. IMF Country Report, 02/99. International Telecommunications Union (2003) Broadband Korea: Internet Case Study. Retrieved February 1, 2007 at http://www.itu.int/ITU-D/ict/ cs/korea/material/CS_KOR.pdf Kim, F.F. (1997). Government IT Infrastructure. International Market Insights, National Trade Data Base, U.S. Department of Commerce, December 16. Koh, J. (2000). E-biz yet to touch SMEs. Business times, July 17, p.14. Koski, H.A. & Majmudar S.K. (2000). Paragons of virtue? Competitor entry and the strategies of incumbents in the US Local Telecommunications industry. Berkeley Center for Research on Telecommunications Policy Working Paper 55. Accessed February 11, 2007 from http://groups. haas.berkeley.edu/imio/crtp/publications/workingpapers/wp55.PDF Lee, C. & Chan-Olmstead, S.M. (2004). Competitive advantage of broadband internet: A comparative study between South Korea and the United States. Telecommunications Policy, 28, 649-677.
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msc.com.my/index.php?option=com_content&tas k=view&id=114&Itemid=57 Muirhead, G. et al. (2000). An update on telemedicine. Patient Care, 34(6), 96-110. Pharmalicensing Limited. (2006). 2006 healthcare business market research handbook. Retrieved February 11, 2007, from http://pharmalicensing. com/intelligence/reportsearching.php?action=to c&productID=1211311 Point Topic. (2006, July 17). 7DLZDQUDQNHG¿IWK broadband country in Point Topic’s latest report. 5HWULHYHG )HEUXDU\ DW KWWS ZZZ¿QG org.tw/eng/news.asp?msgid=247&subjectid=2& pos=0 Raj, C. (2000). Singapore to pump up SMEs doing e-commerce. Business Times, (April 11), 7. Roller, L., & Waverman, L. (2001). Telecommunications infrastructure and economic development: A simultaneous approach. The American Economic Review, 91(4), 909-923. Sanders, J.H. (1994). Telemedicine, 1994: Challenges to implementation. Written Testimony to the Telemedicine Hearing before the Subcommittee on Investigations and Oversight, Committee on Science, Space and Technology, U.S. House of Representatives, 103rd Congress, U.S. Government 3ULQWLQJ2I¿FH 6DQWLDJR7 6LQJDSRUH¶VHFRPPHUFHQHW strategy bears fruit. Electronic Engineering Times, (June 10). Sein, M.K., & Harindranath. (2004). Conceptualizing the ICT artefact: Toward understanding the role of ICT in national development. The Information Society, 20(1), 15-24.
Simic, T., & Lee, J. (1997, November 24). Malaysia computer market brief. Washington, DC: National Trade Data Base, International Trade Administration, U.S. Department of Commerce. 6PLWK' 7KHLQÀXHQFHRI¿QDQFLDOIDFtors on the deployment of telemedicine. Journal of Health Care Finance, 32(1), 16-27. Statura, M. (2006). Telemedicine/tele-health: A national development tool and economic engine. International Journal of Economic Development, 18(3), 679-681. Suda, K. (2001, November). Broadband access in Japan: Implications for the future universal network. Economic and Social Research Institute. 7DQ&6 6WHDG\ÀRZVRI)',VLQWR$6($1 The Star Online, (September 1). Retrieved January 28, 2007, from http://sso.msc.com.my/index. php?option=com_content&task=view&id=184& Itemid=57 Tangalos, E.G. (1994). Telemedicine: An information highway to save lives. Written Testimony to the Telemedicine Hearing before the Subcommittee on Investigations and Oversight, Committee on Science, Space and Technology, U.S. House of Representatives, 103rd Congress. U.S. Government 3ULQWLQJ2I¿FH UNCTAD. (2007). Country fact sheets: Malaysia. Retrieved December 5, 2007, from http://www. unctad.org/Templates/Page.asp?intItemID=2441 &lang=1 U.S. Department of Commerce. (2001). NTT /DXQFKHVZRUOG¶V¿UVW*FHOOXODUVHUYLFHInternational Trade Administration, International Market Insights, (October 10).
Shih, T.H. (1999). Singapore at home and abroad. Business Times, (April 8), 2.
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Shoor, R. (1994). Long-distance medicine: Telecommunication promises to deliver better care. Business and Health, (June). Retrieved February 11, 2007, from KWWS ¿QGDUWLFOHVFRPSDUWLFOHV mi_m0903/is_n6_v12/ai_15496262
:HVWHUQ *RYHUQRU¶V $VVRFLDWLRQ Telemedicine action report. Retrieved February 1, 2007, from http://www.westgov.org/wga/publicat/actrept.htm
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;X< -XQH 7KHUHJXODWRU\HQYLURQPHQW for future mobile multimedia services: The case of Hong Kong SAR and China. Proceedings of the ITU New Initiatives Workshop on the Regulatory Environment for Future Mobile Multimedia Services. ZDNet Asia. (2001, July 8). Malaysia: MSC’s performance defended. Retrieved January 28, 2007, from http://www.zdnetasia.com/news/hardware/0,39042972,30102699,00.htm
KEY TERMS Culture: Patterns of human activity and the symbolic structures that give such activity sigQL¿FDQFH'LIIHUHQWGH¿QLWLRQVRI³FXOWXUH´UHÀHFW different theoretical bases for understanding, or criteria for evaluating, human activity. Consists of values, norms, institutions, and artifacts passed on from generation to generation by learning. Endogenous Growth Theory: An macroeconomic theory in which both technology and policy measures have an effect on long-term growth
rates. It arose as a critique of neoclassical growth models which did not explain the origin of growth, assuming it to be exogenous. Foreign Direct Investment (FDI): A long-term investment by a foreign investor in an enterprise resident in an economy other than that in which the foreign direct investor is based. The FDI relationship consists of a parent enterprise and a IRUHLJQDI¿OLDWHZKLFKWRJHWKHUIRUPDPXOWLQDWLRQDO corporation (MNC). In order to qualify as an FDI, the investment must afford the parent enterprise FRQWURORYHULWVIRUHLJQDI¿OLDWH Tele-Education: The use of information and communication technologies to provide education from a distance. Telemedicine/Telehealth: The delivery of health- or medical-related services and information via telecommunications technologies. Telework: A work arrangement in which emSOR\HHVHQMR\OLPLWHGÀH[LELOLW\LQZRUNLQJORFDWLRQ and hours. In other words, the daily commute to a central place of work is replaced by telecommunication links. It refers to substituting telecommunications for any form of work-related travel, thereby eliminating distance restrictions.
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Chapter XVIII
Regulation and the Deployment of Broadband James E. Prieger Pepperdine University, USA Sunhwa Lee University of California-Davis, USA
ABSTRACT This study examines the impact of telecommunications regulatory policy on broadband service deployPHQW8VLQJ86GDWDFRYHULQJDOOIRUPVRIDFFHVVWHFKQRORJ\ FKLHÀ\'6/DQGFDEOHPRGHP DQGDOO areas served by major carriers, we investigate the impact of state and federal regulation on broadband availability. Alternative regulation increases the probability of broadband availability, particularly for price caps. Unbundled network element (UNE) rates, the prices incumbent carriers charge to competitors for access to the local exchange network, also matter. Areas with lower UNE rates have a slightly higher probability of broadband availability. The effects of UNE rates on broadband deployment are largest where incentive regulation is in place. Our objective in examining regulatory factors is to highlight the role of incentive regulation and local telecommunications competition policy—policies used or available around the world—in stimulating broadband service deployment.
INTRODUCTION Broadband Internet access services are available in the United States via digital subscriber line (DSL), cable modem, and wireless or satellite technology for residences and additionally, dedicated leased lines for businesses. New Economy enthusiasts have touted the promise of broadband to provide VLJQL¿FDQWEHQH¿WVWRFRQVXPHUVDQGEXVLQHVVHV since the inception of the technology. Crandall DQG-DFNVRQ HVWLPDWHWKDWWKHEHQH¿WVWR consumers in the United States from broadband
Internet access are valued at hundreds of billions RI GROODUV DQQXDOO\ %XVLQHVVHV DOVR FDQ EHQH¿W from broadband technology through lowering their cost of doing business.17KHORQJHUWHUPEHQH¿WV may be even higher, if broadband follows the pattern set by the information technology sector as a whole, which is a major contributor to GDP growth (Jorgenson, 2001). Broadband access technology spread quickly in the U.S., compared to other popular consumer technology innovations such as analog cellular telephony and videocassette recorders (VCRs)
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Regulation and the Deployment of Broadband
(Faulhaber, 2002). Notwithstanding, commentators (e.g., Hausman, 2002) note that the pace of broadband diffusion has not been as swift in the U.S. as in some other countries, and point to regulatory roadblocks as potential causes. Although broadband technology is diffusing rapidly, not all areas of the U.S. are receiving broadband access at the same time. This study examines whether differences in regulatory treatment across states contributes to the unequal availability of broadband. Federal and state regulation may give some ¿UPVOHVVLQFHQWLYHWRGHSOR\EURDGEDQGWKDQWKH\ would have absent regulation. At the federal level, the unbundling and resale provisions of the Telecommunications Act of 1996 meant that in 2000, the time of the data we analyze, telephone companies could face “instant competition” from competitive local exchange carriers (CLECs) and broadband UHVHOOHUVLIWKH\GHSOR\HG'6/&DEOH¿UPVRIIHUing cable modem service have no such obligations, and therefore may have more incentive to invest in the necessary infrastructure. Similarly, smaller and rural telephone companies are exempt from unbundling and resale rules,2 and may therefore (other things equal) have more incentive to deploy DSL than do larger local exchange carriers. Due to lack of variation in the federal regulations in the cross-sectional data we use in this study, we are not able to investigate the primary effects on broadband deployment from federal regulation. Other authors attempt to uncover the impact of federal telecommunications regulation on broadband from variation over time (Hazlett & Bazelon, 2005) or by comparing cable modem deployment to DSL (Hausman, 2002). Neither of these strategies is ideal, because many other factors may change over time, and cable modem and DSL service differ in other ways beside regulation.3 In this chapter, we instead investigate the effects on deployment of state telephone regulation, the rates charged to competitors for the incumbent WHOHSKRQHFRPSDQLHV¶QHWZRUNHOHPHQWVDQGWKH interaction between state telephone regulation and federal unbundling policy. State legislatures and regulatory commissions FDQLQÀXHQFHWKHGLIIXVLRQRIEURDGEDQGWKURXJK (at least) three channels. First, a legislature could
pursue policies to encourage infrastructure development through tax incentives, loan programs, or other means. As of 2000, the vintage of the data explored in this study, few states had such policies and we do not investigate this channel.4 Second, a state regulatory commission could regulate broadband pricing directly, through ratemaking cases, inclusion in the rate base for rate-of-return regulation, or the application of price caps. Often, however, broadband pricing is effectively unregulated.5 Third, and of primary interest for this study, the VWDWHUHJXODWRUPD\LQGLUHFWO\LQÀXHQFHEURDGEDQG deployment through its regulation of basic services and the prices it allows incumbents to charge competitors for access to the local network. The two main classes of telecommunications regulation are rate-base rate of return regulation (RORR) and alternative regulation, the latter of which includes price caps, rate freezes, and hybrid regulatory schemes combining price caps and rate freezes. These regulatory schemes are described in more detail in the section on regulation later in the chapter. The incentives facing local exchange carriers to deploy DSL may differ under RORR and alternative regulation. RORR may not be conducive to investment in general, since an expost “prudency review” by the regulator can strike failed investments from the rate base (Kolbe & Tye, 1990). If revenue from DSL is included in the rate of return calculation, then any underinvestment problems associated with RORR would also apply to broadband infrastructure.6 On the other hand, Lehman and Weisman (2000) show WKDWLQVWDWHVZLWKDOWHUQDWLYHUHJXODWLRQ VSHFL¿cally price caps), regulators have insisted on lower prices for unbundled network elements (UNEs).7 :HFRQ¿UPWKLVIDFWZLWKRXURZQGDWD%HFDXVH a local exchange company is required to offer UNEs to competitors that allow the offering of EURDGEDQGVHUYLFHWKHSUR¿WIURPGHSOR\LQJ'6/ may be smaller in states with alternative regulation because the UNE rates are (expected to be) lower. )LQDOO\LIVWDWHUHJXODWLRQLQÀXHQFHVWKHWHOHSKRQH FRPSDQLHV¶LQFHQWLYHVWRRIIHUEURDGEDQGVHUYLFH it will have another, indirect, effect through the cable companies. If regulation affects the decision WRRIIHU'6/LWZLOODOVRDIIHFWWKHSUR¿WDELOLW\RI
279
Regulation and the Deployment of Broadband
offering cable modem service, which is a close substitute competing for the same customers. Economic models of entry, old and new (Chamberlain, 1933; Bresnahan & Reiss, 1987), as well as common sense, suggest that markets may only be able to hold a certain number of competitors, and thus the entry decisions of potential broadband providers in a market are intertwined. Burnstein and Aron (2003) note that unbundling obligations laid on local exchange carriers, if they discourage DSL, may encourage cable modem deployment in DUHDVWKDWZRXOGRWKHUZLVHEHXQSUR¿WDEOH7KH total effect of the regulation on broadband deployment is ultimately an empirical matter. Since we have data on both regulation and UNE rates, we attempt to disentangle the regulatory policy effect from the UNE price effect. We also examine the interaction between the two. 7KH¿QGLQJVLQWKLVVWXG\VKRZWKDWDOWHUQDWLYH regulation at the state level generally increases the probability of broadband availability, particularly for price caps. UNE rates do appear to matter, but not as expected by opponents of unbundling. After excluding the highest and lowest outlying UNE UDWHV ZH ¿QG WKDW DUHDV ZLWK ORZHU 81( UDWHV have a slightly higher probability that broadband is available. Interacting UNE rates with the form RIUHJXODWLRQZH¿QGWKDWWKHHIIHFWVRI81(UDWHV on broadband are largest where there is alternative UHJXODWLRQ:HWKXVGRQRW¿QGHYLGHQFHVXSSRUWLQJ /HKPDQDQG:HLVPDQ¶V DUJXPHQWWKDWORZ 81(UDWHVUHWDUGWKHLQFHQWLYHVRILQFXPEHQW¿UPV to invest in infrastructure more under alternative regulation than under RORR, since under price caps WKH¿UPFDQQRWPDNHXSORVWSUR¿WE\JHQHUDOO\ raising prices, as it can under RORR. There is relatively little formal econometric investigation of the link between broadband investment and regulation. This chapter uses a nearly comprehensive broadband survey by the FCC that covers services offered by nearly all cable and telecommunications companies. In the next section, we review the extant literature on the determinants of broadband deployment. In subsequent sections, we provide an overview of broadband technology and federal and state broadband regulation. We then outline our
280
empirical strategy, discuss our data, and present the results.
LITERATURE REVIEW There are many studies on the diffusion of broadband Internet access services. Several (Flamm, ;LDR 2UD]HP *UXEHVLF 0XUUD\ 2004; Prieger 2003) make use of the same data source we do, the FCC broadband survey described in our data section later in the chapter. Studies using other data include Gillett and Lehr (1999), Gabel and Kwan (2001), Grubesic (2003), and the chapter by Hu and Prieger in this volume.8 Most of these studies focus on non-regulatory factors such as demand-side determinants and cost factors. Studies focusing directly on regulatory impacts on broadband supply include Howell (2002), several of the chapters contained in Crandall and Alleman (2002), and Wallsten (2006). The former examines cross-country evidence from the OECD nations and concludes that local line unbundling is less successful at encouraging broadband rollout than intermodal competition between cable and telephone companies. The studies in Crandall and Alleman (2002) and Wallsten (2006) look at the effect of local network unbundling on broadband access, and we discuss them (along with related literature) in the section on regulation below. In another study, Wallsten (2005) examines some UHJXODWRU\ IDFWRUV LQÀXHQFLQJ WKH VWDWHOHYHO penetration rate (the ratio of subscribers to total households in a state). Note that the penetration rate commingles supply and demand considerations (the authors do not attempt to disentangle the two). :DOOVWHQ ¿QGVWKDWVWDWHOHYHOSROLFLHVDLPHG at promoting broadband, such as universal service and tax subsidies, are largely ineffective. Flamm (2005) also found demand-side subsidies (for federal programs intended to help connect schools and libraries to the Internet) to be ineffective at increasing broadband supply measurably. Most JHUPDQHWRRXUVWXG\LV:DOOVWHQ¶V ¿QGLQJ that states with more unbundled platform elements sold have lower penetration rates. However, given WKDWKHDOVR¿QGVWKDWWKHPRUHOLQHVWKDWDUHUHVROG
Regulation and the Deployment of Broadband
in the state, the higher the broadband penetration rate, it is not clear how to interpret his results. A related literature exists on the effect of telecommunications regulation on investment and innovation more generally. Several authors have found alternative regulation to speed the introduction of new technology and services (Taylor, Zarkadas, & Zona, 1992; Greenstein, McMaster, & Spiller, 1995; Prieger, 2001). Similarly, Prieger ¿QGVWKDWGXULQJDSHULRGRIOLJKWHUUHJXlation in the 1990s, the Bell operating companies introduced new information services such as fax, voicemail, and audiotext services more rapidly and DWDJUHDWHUUDWH$LDQG6DSSLQJWRQ ¿QG that costs are lower under alternative regulation, compared with RORR.
BROADBAND TECHNOLOGY There are several steps involved in accessing the Internet through a connection to a broadband network. Figure 1 depicts a (stylized) collection of terrestrial
(i.e., non-satellite) broadband networks.9 In a DSL network, data moves from the Internet backbone (the left side of Figure 1) through various high-speed networks (the “middle mile”) until it reaches the ORFDOH[FKDQJHFDUULHU¶VFHQWUDORI¿FH7KHFHQWUDO RI¿FHLVWKHORFDOWHOHSKRQHFRPSDQ\¶V³SRLQWRI presence” in a neighborhood. The so-called “last PLOH´RIWKHQHWZRUN ZKLFKLVWKH¿UVWPLOHIURP WKHHQGXVHU¶VSRLQWRIYLHZ LVWKHIRFXVRIWKLV chapter. In a DSL network, the last mile consists of a DSL connection residing physically on the existing WHOHSKRQHOLQHEHWZHHQWKHFHQWUDORI¿FHDQGWKH XVHU¶VFRPSXWHU WKHWRSULJKWRI)LJXUH /RFDO exchange carriers also lease high-capacity access lines (known as special access linemiddle right of Figure 1) to end users, but their high prices (at least $450 per month) take them out of the massmarket category. Figure 1 also shows a cable data network. After receiving data from the Internet DWWKHFDEOHFRPSDQ\¶VKHDGHQG DFDEOHVHUYLFH SURYLGHU¶VYHUVLRQRIWKHORFDOH[FKDQJHFDUULHU¶V FHQWUDORI¿FH WKHFDEOHFRPSDQ\VHQGVLWRQWR regional high-capacity data networks (the middle
Figure 1. A stylized depiction of terrestrial broadband Internet access networks
281
Regulation and the Deployment of Broadband
milebottom of Figure 1). In the last mile of the cable modem network, data travels through local ¿EHURSWLFQHWZRUNVDQG¿QDOO\RYHUFRD[LDOFDEOH to the end user (bottom right of Figure 1). Over WLPH FDEOH FRPSDQLHV DUH SXVKLQJ ¿EHU FORVHU to the end user as they upgrade their networks. Wireless and satellite carriers also offer broadband FDSDELOLW\DOWKRXJKVXFK¿UPVW\SLFDOO\IRFXVRQ the business market and had small market share in 2000. Nearly all residential subscribers choose cable modem service and DSL for their broadband option.10 In 2000, cable modems enjoyed a threeto-one advantage in the U.S. Since that time, DSL has nearly caught up, due to the currently lower average prices of DSL compared to cable modem subscription.
REGULATION AFFECTING THE PROVISION OF BROADBAND 7KHPRVWJHUPDQHIHGHUDOUHJXODWLRQVLQÀXHQFLQJ the broadband diffusion and competition in the U.S. DUHWKH)&&¶VUHVDOHDQGXQEXQGOLQJUHTXLUHPHQWV for common carriers. As of 2000, CLECs wishing WRRIIHU'6/FRXOGPDNHXVHRIWKHLQFXPEHQW¶V network through several channels. First, any service that the incumbent offers to retail customers, such as DSL, had to be offered to CLECs at wholesale prices.11 The CLECs can then mark up the service and resell it to end users. Second, the CLEC can purchase the local loop between the central of¿FHDQGWKHVXEVFULEHU¶VSUHPLVHVWKH³ODVWPLOH´ of the network, on an unbundled basis from the incumbent.12 The CLEC can then use the line to offer voice and data services. Finally, the CLEC could purchase only the high-frequency portion of the local loop as a UNE to offer DSL. This last option is known as “line sharing,” because the incumbent uses the lower-frequency part of the same line to offer voice service.13 By any of these methods, a CLEC uses the “last mile” owned by the incumbent instead of duplicating this part of the network with their own facilities. Hausman (2002), Shelanski (2002), and others have argued that granting a CLEC these “free options” to offer service causes the incumbents
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to invest less in broadband infrastructure (or in upgrading the narrowband local loop to enable line sharing).14 Hazlett and Bazelon (2005) supSRUW+DXVPDQ¶V FRQWHQWLRQE\SRLQWLQJWR evidence that the rate of DSL subscription growth jumped up after the federal rule mandating line sharing was lifted. Bittlingmayer and Hazlett UHYLHZHYLGHQFHIURPWKHVWRFNPDUNHW¶V reaction to potential regulatory changes and conclude that deregulation of common carrier obligations (resale and unbundling) for broadband services would stimulate investment in the technology. Other authors expect that by making entry easier for competitors, unbundling should increase broadband penetration (Garcia-Murillo & Gabel, )DXOKDEHU FRQFOXGHVWKDWWKH)&&¶V loop-unbundling requirement has some effect on investment incentives to deploy broadband infrastructure, but that the effect is small compared to other factors.15 Little direct empirical evidence is available to date on whether unbundling helps or hinders deployment, and much of it is inconclusive, based only on case studies or returns results that are only PDUJLQDOO\ VWDWLVWLFDOO\ VLJQL¿FDQW +DXVPDQ 2002; Garcia-Murillo & Gabel, 2003; Wallsten, $ QRWDEOH H[FHSWLRQ LV :DOOVWHQ¶V international comparison of broadband penetration, ZKLFK¿QGVVWDWLVWLFDOO\VLJQL¿FDQWHYLGHQFHWKDW sub-loop unbundling requirements are correlated with lower penetration levels in OECD countries.16 +RZHYHU:DOOVWHQ IDLOHGWR¿QGHYLGHQFH that full-loop unbundling hindered broadband penetration. From the above description, it is clear that UNE prices for both the local loop and for line sharing may affect the incentive to deploy broadband. Burnstein and Aron (2003) provide evidence that lower UNE prices retard broadband diffusion, measured as state subscription rates and the latter in terms of the fraction of postal areas within a state with at least one broadband provider.17 While the requirement to unbundle network elements comes from the federal level, the states determine the UNE rates. After the Telecommunications Act of 1996, the FCC instructed state regulatory commissions to establish rates in accord with the cost
Regulation and the Deployment of Broadband
of operating a hypothetical network built with the PRVWHI¿FLHQWWHFKQRORJ\DYDLODEOH,QSUDFWLFHWKH hypothetical cost that is supposed to determine rates depends on many contested parameters and state regulatory agencies have wide leeway in setting rates. UNE rates vary greatly among states, even after considering local cost conditions. We use this variation to explore the impact of UNE rates on broadband deployment. UNE prices for line sharing are not available for our study; the UNE prices described in the data section below are for the local loop and switching (i.e., platform) costs. We expect that states that price the platform low also price line sharing low, and so the UNE rates used in this study are a proxy for both. We introduced the main classes of telecommunications regulation in the introduction: rate of return regulation and alternative regulation. RORR was the dominant form of utility regulation in the United States for much of the 20th century. Under RORR, the regulator approves prices for WKH UHJXODWHG ¿UP WKDW DUH MXVW KLJK HQRXJK WR cover production costs and a “fair” rate of return on installed capital.18 The allowed rate of return and prices are set through regulatory rate cases, which in most states were infrequent, lengthy, and costly formal hearings (Joskow, 1972). Firms must UHWXUQUHDOL]HGSUR¿WVLQH[FHVVRIWKHDOORZHGUDWH of return to the ratepayers. Alternative regulation includes price cap plans, rate freezes, and hybrid regulatory schemes. Price FDSSODQVOLPLWWKHSULFHVD¿UPFDQFKDUJHIRUD market basket (or “index”) of services that the UHJXODWHG ¿UP RIIHUV %UHQQDQ 8QGHU D SXUHSULFHFDSSODQWKH¿UPFDQUDLVHSULFHVIRU individual goods as long as it concomitantly reduces prices of other goods to keep the overall price index from rising. Price cap plans thus give the regulated ¿UPPRUHSULFLQJÀH[LELOLW\WKDQ5255GRHVDQG SODFHQRGLUHFWOLPLWVRQSUR¿WV Rate freezes, also known as rate case moratoria, are often part of a broader social contract between WKHUHJXODWRUDQGWKH¿UP$Q\UDWHIUHH]HLQYROYHV the “freezing” of the price charged for a service of particular interest to the regulator—often the price of basic local telephone service. In exchange for the promise not to request a rate hearing for a
VSHFL¿FSHULRGIRUWKHUHJXODWRU¶VVHUYLFHRIVSHFLDO FRQFHUQWKH¿UPRIWHQUHFHLYHVFRQFHVVLRQV7KH concession may be additional freedom to price certain other classes of services (for example, advanced, business, or toll services), acceptance RIWKH¿UP¶VFRVWLQJPHWKRGRORJ\IRUIXWXUHUDWH cases, or merger approval. Hybrid regulatory schemes combine price caps, rate freezes, or other non-traditional regulatory approaches such as earnings sharing or “banded” RORR.19 The most common hybrid plan, and the one we focus on in our empirical work, is a rate freeze combined with price caps for the non-frozen services. Cable company regulation in the U.S. differs greatly from telephone regulation. Only the basic service tier of cable programming was subject to rate regulation at all in 2000. The local franchising authority (typically a city or county) determines rates, not the state or the FCC. Furthermore, the FCC treats cable modem service as an information service rather than as a cable or a telecommunications service. This regulatory distinction means that cable modem service, unlike DSL in 2000, is not subject to the common carrier requirements under the Communications Act. Thus cable companies, in contrast to local exchange carriers, do not have to offer discounted services for resale or unbundled access to their network. Although policymakers in the U.S. discussed laying so-called “open access” requirements on cable companies a few years ago, they were never mandated. A cable company deploying cable modem infrastructure does not face the prospect of having to offer use of the network to rivals. Some authors (e.g., Hausman, 2002) argue that is why cable modem service took such a large early lead over DSL in the U.S.
METHODOLOGY We model the decision by a broadband carrier to enter a geographic market as depending on the expected demand in the area, costs, entry by other ¿UPVUHJXODWLRQDQG81(UDWHV20 We base our discussion on the results from probit estimations, where the dependent variable is binary: yi = 1 if
283
Regulation and the Deployment of Broadband
broadband of any type is available in ZIP Code area i; yi = 0 otherwise. In the probit model, the probability of observing yi = 1 is modeled as: E(yi) = )(E'xi) where xi is a vector of regressors, ) is the standard Normal cumulative density function, and E LVDYHFWRURIFRHI¿FLHQWVWREHHVWLPDWHG21 The QRQOLQHDUVSHFL¿FDWLRQRIWKHPHDQLPSOLHVWKDW WKHFRHI¿FLHQWVWKHPVHOYHVDUHOHVVLQWHUSUHWDEOH than are the marginal effects:
the results for the telephone regulation variables are interpretable as effects on DSL providers only if the cable modem deployment decision is largely XQLQÀXHQFHGE\WHOHSKRQHUHJXODWLRQ7KDWLVLI broadband deployment by cable companies actively responds to the form of regulation that their telecommunications rivals labor under, as discussed above, then the marginal effects of a regulatory variable is a net effect, subsuming all impacts on all players in the market.
DATA dE(y)/dx = I(Ecx)E where I is standard Normal probability density function. The marginal effects are the increase in probability that y = 1 due to a unit change in x. We calculate marginal effects for all estimates at the sample averages of the regressors. Although economic theory suggests variables that we included as controls for demand and costs, the estimations are of reduced form and we do not assign a structural interpretation to the estimates.22 Of the potential impacts of regulation mentioned in the introduction, the available data will not allow us to explore the differing regulatory treatment of telecommunications companies and cable companies, because we cannot distinguish cable modem access from DSL in the data. We are also not able to explore the direct impact of the UNE requirements, because we limit our sample to areas served by telephone carriers subject to the requirement. Firms qualifying for the rural H[HPSWLRQ IURP XQEXQGOLQJ DUH WKH ¿UPV PRVW likely to fall below the reporting threshold for the broadband survey (as explained in the next section) and are different in other respects to the RWKHU¿UPV:HFDQH[DPLQHKRZHYHUWKHLPSDFWV of state regulation on broadband deployment. We restrict attention to major local exchange companies (those with over 50,000 lines). These companies are all subject to UNE requirements, and so we can explore the effect of UNE rates on broadband in various regulatory regimes. Note that since we cannot separate DSL from cable modem access,
284
The data for the study come from four major sources: the FCC, the U.S. Bureau of the Census, a telecommunications wire center database, and a compendium of state telecommunications regulation. A complete list of variables and summary statistics for the data are in Table 1.
Broadband Availability The dependent variable is broadband availability within a ZIP Code area, covering all ZIP Codes in the mainland states. Since 1998, the FCC has collected data on where broadband access is available LQWKH867KHGDWDZHXVHDUHIURPWKH)&&¶V VHPLDQQXDOEURDGEDQGVXUYH\UHÀHFWLQJFRQGLtions on June 30, 2000. We examine data from the nascent years of broadband deployment in the U.S. because there was still much geographic variation in the availability of broadband.23 Through its survey, the FCC requires facilitiesbased telecommunications carriers to provide basic information about its operations in a state.24 The survey is obligatory for the carriers providing any kind of broadband technology if they serve more than 250 broadband lines in a given state.25 For SXUSRVHV RI WKH VXUYH\ WKH )&& GH¿QHV EURDGband as transmission speed in excess of 200 kbps in at least one direction. The survey is intended to cover all possible purveyors of end user broadband accessincumbent and competitive local exchange carriers, wireless carriers, cable companies, and otherswhether they are otherwise subject to FCC regulation or not.
0.047 0.105
0.076 0.960 0.073 0.967 0.324 0.055
),5(¿UPV
¿UPVZ HPSOR\HHV
% graduate degree
% have phone
% high-school diploma
PDQXIDFWXULQJ¿UPV
0.127
0.029
Verizon
UNE rate ($/mo.)
SBC
rate freeze regulation
Qwest
proxy cost ($/mo.)
price cap/rate freeze regulation
price cap regulation
population density (ln)
median structure age (years)
median income (ln)
deregulation/other alternative reg
CLEC presence
BellSouth
0.243
19.705
0.252
0.041
0.100
41.273
0.418
0.418
4.328
32.293
10.565
0.025
0.632
0.140
2.113
DYHHPSOR\PHQW¿UP OQ
0.314
0.483
0.040
Mean
% workers with no commute
VHUYLFH¿UPV
% rural non-farm households
% rural farm households
Independent Variables (cont.)
Variable
0.429
4.131
0.434
0.198
0.300
35.037
0.493
0.493
2.244
13.353
0.380
0.158
0.482
0.347
0.958
0.037
0.121
0.418
0.058
Deviation
Standard
Note: Demographic data are from the 2000 U.S. Census of Population. Business market data are from the Census Bureau’s “2000 ZIP Code Business Patterns.” The sources for the other data are described in the text or appendix. All percentages are expressed as IUDFWLRQV),5(VWDQGVIRU¿QDQFHDQGUHDOHVWDWH&/(&LV&RPSHWLWLYH/RFDO([FKDQJH&DUULHU2WKHUDOWHUQDWLYHUHJXODWLRQLQFOXGHV WKHIHZLQFHQWLYHUHJXODWRU\VFKHPHVQRWRWKHUZLVHFODVVL¿HGDVSULFHFDSUDWHIUHH]HRUK\EULGSODQV
0.065
0.070
0.046
0.058
0.040
0.393 0.505
% college degree
0.049
0.043
0.045
0.049
0.060
0.123
0.069
1.596
1.783
0.429
Deviation
Standard
% female
0.162
0.072
% age 19-24 yrs
% age 50-64 yrs
0.265
DJH\UV
0.128
0.262
% 30-60 min commute
0.236
0.085
% > 1 hr commute
% age 30-49 yrs
7.536
% age 25-29 yrs
4.587
# households (ln)
0.756
Mean
¿UPV OQ
Independent Variables
Broadband availability (1=yes)
Dependent Variable
Variable
Regulation and the Deployment of Broadband
Table 1. Summary statistics of the data
285
Regulation and the Deployment of Broadband
The publicly available broadband data from the FCC have some limitations. First, the data only contains ZIP Code areas with broadband providers reported. ZIP Codes without any reported broadband provider are not reported, and so the universe of ZIP Codes must be constructed outside the dataset. The universe of ZIP Codes in our study is the subset of the ZCTAs (ZIP Code tabulation areas) in the 2000 Census of Population that we ZHUHDEOHWRPDWFKWRWHOHSKRQHFRPSDQLHV¶FHQWUDO RI¿FHVXVLQJDZLUHFHQWHUGDWDEDVH26 A major limitation of the FCC data is that they do not indicate the type of company offering a service. The regulatory regime variable in this study applies only to local exchange companies, that is, providers of DSL service. The effects of telephone regulation on cable modem companies are indirect: if regulation affects the decisions of local exchange companies to offer DSL, that may DIIHFW WKH SUR¿WDELOLW\ RI RIIHULQJ FDEOH PRGHP service, a close substitute. Since we cannot tell from which types of companies broadband is available, we are measuring the total impact of the telephone regulation on the market, including (with no ability to separate out) any indirect effects through rivals to DSL. The reporting threshold raises an interpretational issue for the rural location variables we include in the estimations below. Carriers serving fewer than 250 broadband lines do not have to submit information (though the FCC states that some did voluntarily). It is therefore possible that some areas are incorrectly recorded as lacking broadband access. The carriers not meeting the reporting threshold are the mostly likely to be in rural areas, and thus availability may be understated there. However, since rural carriers are generally not subject to the unbundling obligations and are not in our sample, we do not attempt to explore the rural/urban divide in any event.27
coupled with interim rate freezes, and deregulation grouped with a few miscellaneous other alternative regulatory schemes. The incumbent local exchange carrier in each ZIP Code is matched with the form of regulation it operates under within that state.29 The other regulatory variable is the UNE rate. 7KHVSHFL¿F81(UDWHVIRUHDFKORFDOH[FKDQJH carrier are set by the state public utility commissions. They may differ by company and by density ]RQH :H FDQQRW PDWFK VSHFL¿F 81( UDWHV WR each ZIP Code area, and so we instead use statewide average rates.307RUHÀHFWWKHGLIIHUHQWFRVW structure at each wire center, we also include the proxy cost of local telephone service at each wire center. See the appendix for information on the proxy cost data.
Demand and Cost Variables All demographic, socioeconomic, and business market variables are from the U.S. Bureau of the Census.31 The data from the Bureau of the Census are for ZIP Code tabulation areas (ZCTAs), which convert the collection of point addresses in a ZIP Code to a geographic area. Demand and cost variables are expected to DIIHFWD¿UP¶VHQWU\GHFLVLRQEHFDXVHWKH\SUR[\ IRUWKHH[SHFWHGSRVWHQWU\SULFHDQGSUR¿WLQWKH estimations (Bresnahan & Reiss, 1987). Demand variables include income, market size and composiWLRQUXUDODJHDQGHGXFDWLRQSUR¿OHJHQGHUUDWLR commute time, and telephone penetration. Relevant cost considerations for broadband GHSOR\PHQWDUH¿[HGFRVWVVXEVFULEHUGHQVLW\DQG the quality of the telecommunications infrastructure.32 Controls for these costs include population density and a proxy for the vintage of the local telecommunications and cable networks (median age of the housing structures) in the area. For a more complete explanation of broadband costs and these variables, refer to Prieger (2003).
State and Federal Regulation Local Telecommunications Competition Regulatory variables consist of the state regulatory regime and UNE rates. We divide regulatory UHJLPHV LQWR ¿YH FDWHJRULHV IROORZLQJ 155, (2000):28 RORR, price caps, rate freezes, price caps
286
Local telecommunications competition, enabled by the Telecommunications Act of 1996, grew steadily until the telecom bust around the time of the data.
0.205 -0.069 1.517 1.18 0.689 0.948 1.300 2.931
% aged younger than 19
% aged between 19 and 24
% aged between 25 and 34
% aged between 35 and 49
% aged between 50 and 64
% high school education
% college education
% graduate education
% rural farm households -0.465
-2.138
Median income (> median income)
-0.229
0.179
Median income (< median income)
% female
-0.082
ORJ QXPEHURI¿UPV
% rural non-farm households
0.210 0.368
log (number of households)
Demand and Cost Variables
36.38
16.14
11.77
8.56
14.64
18.83
-0.85
2.55
-2.84
-5.78
-26.54
2.23
-1.02
4.56
2.60
0.396***
0.188***
0.211***
0.411*
0.378***
0.430***
0.395
0.316
0.349
0.068***
0.286***
0.124
0.093
0.025***
0.024***
1.201
1.229
0.537
0.398
0.311
1.081
0.334
0.065
-0.313
-0.399
-0.169
0.330
-0.199
0.396
0.332
0.361
2.155
Verizon 0.031***
0.000
SBC-Ameritech-PacBell
CLEC Presence
0.107 0.968
-0.380
0.168
-0.088
0.141
Coef.
Qwest
5.87
0.087***
0.073***
0.049***
0.048
s.e.
BellSouth
0.420
-9.26
-0.522
Bell Operating Company
Deregulation
5.81
0.857
Rate Freeze
2.12
0.174
0.39
0.032
Price Caps
x 100
Marginal effect x 100
8.90
9.11
3.98
2.95
2.31
8.01
2.48
0.48
-2.32
-2.95
-1.25
2.45
-1.47
2.93
2.46
3.04
9.54
0.00
3.79
0.74
-3.89
1.08
-0.66
1.03
Marginal effect
and CLEC Presence
and CLEC Presence Coef.
Regulatory Variables, BOCs,
Regulatory Variables
Price Caps & Rate Freeze
State-Level Regulation
Variable
ESTIMATION 2
ESTIMATION 1
0.446***
0.210***
0.236**
0.467
0.420
0.483**
0.433
0.359
0.392
0.074***
0.308
0.139**
0.102*
0.027***
0.027***
0.034***
0.067***
0.043
0.063***
0.050**
0.095***
0.086*
0.059
0.056**
s.e.
2.870
1.444
0.839
0.656
1.274
1.559
-0.128
0.310
-0.355
-0.503
-2.257
0.243
-0.088
0.378
0.242
-0.609
0.788
0.237
0.094
Coef. x 100
35.93
18.07
10.51
8.22
15.95
19.44
-1.60
3.88
-4.44
-6.30
-28.25
3.04
-1.10
4.73
3.03
-11.46
5.65
2.90
1.17
Marginal effect
without CLEC Presence
Regulation Variables
ESTIMATION 3
0.391***
0.186***
0.209***
0.407
0.375***
0.426***
0.390
0.313
0.346
0.067***
0.286***
0.123**
0.092
0.024***
0.024***
0.086***
0.073***
0.049***
0.047**
s.e.
Regulation and the Deployment of Broadband
Table 2. Probit estimations for the availability of broadband service within a ZIP Code area (cont. next page)
287
288 -2.36
-0.580 0.157
),5(¿UPV
VHUYLFH¿UPV
median structure age
s.e.
0.437 -5281.70
Pseudo R-square
Log-likelihood
0.945***
0.001***
0.026**
0.017**
0.056*
0.022***
0.320
0.102
0.243**
0.188**
0.341***
0.199***
0.119***
0.399***
-2.859
0.006
-0.046
-0.006
0.172
-0.099
-0.356
0.225
0.200
0.582
0.726
1.117
0.710
0.492
Coef.
-4420.92
0.529
18,978
0.04
-0.34
-0.05
1.27
-0.73
-2.64
1.67
1.48
4.31
5.38
8.27
5.26
3.64
x 100
Marginal effect
1.033***
0.002***
0.030
0.019
0.060***
0.024***
0.367
0.116*
0.261
0.213***
0.350**
0.221***
0.133***
0.437
s.e.
-5.049
0.014
-0.059
0.042
0.110
-0.120
-0.213
0.183
-0.547
0.492
2.607
1.183
0.557
1.836
Coef.
-5374.01
0.427
18,978
0.17
-0.74
0.52
1.37
-1.51
-2.67
2.30
-6.84
6.16
25.87
14.81
6.97
22.98
x 100
Marginal effect
without CLEC Presence
Regulation Variables
ESTIMATION 3
0.933***
0.001***
0.026**
0.017**
0.055**
0.022***
0.315
0.102*
0.241**
0.186***
0.339***
0.198***
0.118***
0.398***
s.e.
VLJ Q LI L F D Q W D W WK H OH YH O
VLJ QLI L F D Q W D W WK H OH YH O
VLJ Q LI L F D Q W D W WK H OH YH O Notes: Dependent variable is 1 if there is at least one broadband customer in the ZIP Code area, 0 if not. The excluded regulation indicator is Rate of Return Regulation. The excluded BOC indicator is all non-Bell LECs. Marginal effects are expressed in percentage points. The sample includes only ZIP Codes matched to large ILECs (those subject to the UNE provisions of the Telecommunications Act of 1996); these include the BOCs and other LECs such as Sprint, Valor, Cincinnati Bell, Citizens, Concord, and so forth. Marginal effect is the marginal effect on the mean evaluated at the sample mean of x; for indicator variables these are discrete changes. S.e. is WKHVWDQGDUGHUURUIRUWKHFRHI¿FLHQWQRWWKHPDUJLQDOHIIHFW&/(&LV&RPSHWLQJ/RFDO([FKDQJH&RPSDQ\
18,978
0.15
-0.80
0.52
1.19
-1.45
-7.20
5.70
22.59
13.63
Observations
-4.774
-0.064 0.012
population density (> median)
Constant
0.096 0.042
DYHHPSOR\PHQW¿UP OQ!PHGLDQ
population density (< median)
-0.190
0.459
PDQXIDFWXULQJ¿UPV
-0.117
1.820
% households with phone
¿UPVZLWK HPSOR\HHV
1.098
% over 1 hr commuting time
DYHHPSOR\PHQW¿UP OQ PHGLDQ
1.95
0.559
6.94
1.906
% 30-60 min commuting time
23.66
x 100
Marginal effect
and CLEC Presence
and CLEC Presence Coef.
Regulatory Variables, BOCs,
Regulatory Variables
% workers with no commute
Demand and Cost Variables (continued)
Variable
ESTIMATION 2
ESTIMATION 1
Regulation and the Deployment of Broadband
Table 2. (cont.)
Regulation and the Deployment of Broadband
Competition in local telephony may spur incumbent carriers to offer broadband. Furthermore, some facilities-based competitors offer DSL themselves, although Faulhaber (2002) disparages the effectiveQHVVRIWKHGDWDRI&/(&V¶EXVLQHVVSODQV The FCC makes available a list of ZIP Codes in ZKLFKWKHUHLVORFDOFRPSHWLWLRQ,QVRPHVSHFL¿FDtions, we include an indicator for the presence of at least one competing local exchange company in the area.
Telecommunications Carriers’ Operating Areas To control for institutional differences among the major incumbent local exchange carriers, we include indicator variables for territory served by the Bell Operating Companies at the time: BellSouth, Qwest (formerly U.S. West), SBC (formerly 6RXWKZHVWHUQ%HOO7HOHSKRQH3DFL¿F%HOO1HYDGD Bell, and Ameritech), and Verizon (formerly Bell $WODQWLF DQG 1<1(; 7KH H[FOXGHG LQGLFDWRU is all non-Bell carriers large enough to remain in the data set.33
RESULTS The results from the estimations are in Tables 2 and 3. The variables of interest are the regulatory variables, and we discuss their impact on broadband GHSOR\PHQW¿UVW:HQH[WWXUQWRWKHRWKHUGHPRgraphic, business market, and cost variables.
Regulatory Variables ,QWKH¿UVWVSHFL¿FDWLRQLQ7DEOHWKHYDULDEOHVRI interest are indicators for the forms of regulation: price caps, price caps coupled with rate freezes (“hybrid” plans), rate freezes, and the “not elseZKHUHFODVVL¿HG´FDWHJRU\RIGHUHJXODWLRQRURWKHU alternative regulatory schemes. We collectively refer to these four categories as “alternative regulation,” opposed to traditional RORR. The marginal effects of alternative regulation are positive (except for the deregulation/other alternative regulation category), showing that alternative regulation is
correlated with more broadband deployment, compared to the excluded category RORR. The coef¿FLHQWIRUSULFHFDSVLVQRWVWDWLVWLFDOO\VLJQL¿FDQW however.34 Given the miscellaneous nature of the deregulation/other alternative regulation category and the fact that it contains few observations, we will not discuss it further below. Before concluding that alternative regulation of the incumbent telephone companies provides a favorable environment for deploying broadband, we PXVW¿UVWQRWHWKDWLWPD\EHGLI¿FXOWWRGLVHQWDQJOH WKHLPSDFWRIUHJXODWLRQIURPFRPSDQ\VSHFL¿F factors. The data we have are not the outcome of a controlled experiment, and regulation is not randomly assigned to companies. BellSouth and SBC did not face RORR at all, having embraced price caps or hybrid plans in most of their territory. Qwest and Verizon have more variation in regulation across their operating states, facing both RORR and most forms of alternative regulation. GTE and Sprint operate under both RORR and alternative regulation, but do not face rate freezes. Thus, without controlling for the company incumbent in the area, the interpretation of the regulaWLRQFRHI¿FLHQWVLVSUREOHPDWLF)RUH[DPSOHWKH RORR effect is indistinguishable from a “neither BellSouth nor SBC” effect. 7RUHPRYHWKH¿UPVSHFL¿FIDFWRUVIURPWKH effects of regulation, we include indicator variables for the four large Bell Operating Companies (BellSouth, Qwest, SBC, and Verizon) in estimation 2 (see Table 2). The excluded indicator variable is “other LECs.” All Bell Operating Company (BOC) indicators (for BellSouth, Qwest, SBC, and Veri]RQ DUHVLJQL¿FDQWDQGSRVLWLYHFRPSDUHGWRWKH excluded category of other carriers subject to the unbundling requirements, which are all smaller than the big four. The result is expected, since the BOCs rolled out broadband faster than other local H[FKDQJHFDUULHUVGLGDQGVLQFHWKH%2&V¶WHUULtory includes the most-populated areas of the U.S., making it also attractive for cable modem entry. There is a marked change in some regulatory estimates when we include the BOC indicators. In particular, the size of the positive effect of price FDSVLQFUHDVHVDQGJDLQVVWDWLVWLFDOVLJQL¿FDQFHWKH HIIHFWRIK\EULGSODQVORVHVVLJQL¿FDQFHDQGWKH
289
Regulation and the Deployment of Broadband
positive effect of rate freezes is greatly attenuated (although still positive). The marginal effects, all with reference to the excluded category of RORR, DUHIRUSULFHFDSV EXWLQVLJQL¿FDQW IRU hybrid plans, and 1.1 for rate freezes (all in perFHQWDJHSRLQWV :KLOHWKH¿JXUHVDUHVPDOOHYHQ the one percentage point increase associated with price caps represents almost 200 additional postal areas nationwide. 7KXVLWDSSHDUVWKDWWKHSUR¿WOLPLWLQJDVSHFWV of RORR outweigh the potentially negative effects of alternative regulation in the broadband deployment decision, except perhaps for hybrid plans. That regulation consisting of a rate freeze encourages the growth of broadband infrastructure is not surprising, because prices for advanced services typically are not frozen. In most of the estimations in Tables 2 and 5, an indicator is included among the controls for the presence of at least one local telephone competitor (CLEC). The variable is potentially endogenous, however, given that there may be common unobVHUYHGIDFWRUVMRLQWO\LQÀXHQFLQJD&/(&¶VHQWU\ decision and the broadband deployment decision RIWKH¿UPVLQWKHPDUNHW3UHYLRXVDXWKRUVGHDO with the endogeneity issue differently. Prieger ¿QGVWKDW&/(&SUHVHQFHLVHQGRJHQRXV when jointly estimating the CLEC and broadband entry decision. Flamm (2005) also discussed the potential endogeneity of CLEC entry in the broadband equation, and presents estimations including and excluding the variable. Here, we follow the latter approach and redo estimation 1 excluding the CLEC variable (estimation 3 in Table 2). Comparing estimations 1 and 3 in Table 2 shows that the results with and without the CLEC variable are consistent, in the sense that there are no sign FKDQJHVRIWKHFRHI¿FLHQWVEHWZHHQWKHHVWLPDWLRQV The sizes of the marginal effects is also generally similar in the two estimations, although the marginal effect of price caps is about three times higher when the CLEC variable is excluded in estimation 3. Therefore, in the estimations that follow we leave WKH&/(&YDULDEOHLQWKHVSHFL¿FDWLRQ The causal interpretation of the results for the regulatory variables is problematic if regulators implemented alternative regulation only after
290
H[WUDFWLQJ DJUHHPHQWV IURP WKH ¿UPV WR GHSOR\ broadband. For example, many incentive regulation SODQVLQFOXGHFRPPLWPHQWVE\WKH¿UPWRGHSOR\ advanced telecommunications infrastructure. In VXFKFDVHVUHJXODWRUVDOORZWKH¿UPVWRVZLWFK out from RORR in exchange for promises to upgrade their infrastructure. Thus, while alternative regulation may be positively correlated with broadband deployment, it may not be because of incentive effects stemming purely from the price regulation. $UHODWHGFRQFHUQLVZKHWKHURXU¿QGLQJVDUH merely a demonstration effect (Sappington & Weisman, 1996). A demonstration effect is created when regulated telephone companies perform actions regulators desire, such as introducing DSL, to “demonstrate” the success of a favorable regulatory regime—in this case, alternative regulation. In such cases, the desirable outcome may be short-lived after the regulatory regime is FRQ¿UPHG+RZHYHULQWKHFRQWH[WRIEURDGEDQG deployment, if incentive regulation elicits a demonstration effect, then so much the better (from the point of view of encouraging broadband deployPHQW 2QFH'6/LVLQSODFHLQDFHQWUDORI¿FHWKH telephone company will not uninstall it or cut off its broadband customers. Thus, any demonstration effect can properly be counted among the virtues of alternative regulation. Finally, the regulatory scheme in place in a state may itself be endogenous (Ai & Sappington, 2002).35 There may be underlying factors leading to both adoption of alternative regulation by state public utility commissions and broadband deployPHQWE\¿UPV7KHLQFOXVLRQRIVWDWH¿[HGHIIHFWV (i.e., indicator variables for the states) can mitigate WKLVFRQFHUQVLQFHWKH¿[HGHIIHFWVXEVXPHVDOO state-level unobserved factors (as long as they do QRWFKDQJHRYHUWLPH 7KHDGGLWLRQRIVWDWH¿[HG effects to estimation 1 (results not reported) only strengthens the positive association between alternative regulation and broadband deployment, KRZHYHU :KHQ ¿[HG HIIHFWV DUH LQFOXGHG WKH regulatory marginal effects have the same signs but even larger magnitudes (and all are statistically VLJQL¿FDQW 36:HGRQRWLQFOXGHVWDWH¿[HGHIIHFWV in the main estimations because in many states
-0.247
Deregulation
UNE rates (deciles 2-9)
Proxy Cost
0.70
0.531 -4402.44
Pseudo R-square
Log-likelihood
0.000***
0.019**
0.008***
0.072*
0.034***
0.098**
0.137
0.059
0.057*
s.e.
0.767
5.34
1.60
-4398.51
0.531
18,976
Yes
-0.75
-0.15
-0.103
-0.02 -0.020
-0.25
0.01
0.39
-0.20
-0.003
-0.034
0.001
0.054
-0.027
0.219
3.66 2.94
2.62
-0.22
0.356
x 100
Marginal effect
2.073
0.582
-0.030
Coef.
0.077
0.031
0.017
0.017**
0.000***
0.029*
0.015*
0.081***
0.034***
1.743
0.83
0.351
0.339**
s.e.
VLJQL¿FDQWDWWKHOHYHO
VLJQL¿FDQWDWWKHOHYHO
VLJQL¿FDQWDWWKHOHYHO Notes: Dependent variable is 1 if there is at least one broadband customer in the ZIP Code, 0 if not. Controls include all the variables in Table 1. See notes to previous table.
18,976
Yes
0.01
0.27
-0.30
0.93
2.93
-2.25
0.78
-0.71
Observations
All other variables from Estimation 2
UNE rates * Deregulation
UNE rates * Rate Freeze
UNE rates * Price Caps & Rate Freeze
UNE rates * Price Caps
UNE Rates and Regulation Interaction
0.037 0.001
UNE rates (10 decile)
th
0.126 -0.041
UNE rates (1st decile)
UNE Rates and Proxy Cost
0.353
0.117
Rate Freeze
CLEC Presence
0.096 -0.095
Price Caps
x 100
Marginal effect
and Interaction Terms
and UNE Rates
Coef.
Regulatory Variables, UNE Rates,
Regulatory Variables
Price Caps & Rate Freeze
State-Level Regulation
Variable
ESTIMATION 5
ESTIMATION 4
Regulation and the Deployment of Broadband
Table 3. Probit estimations for the availability of broadband service within a ZIP Code area: The impact of UNE rates
291
Regulation and the Deployment of Broadband
Table 4 . Summary statistics of UNE rates by the type of regulatory regime Number of Obs. (Percent) Rate of Return
Price Caps
Price Caps with Rate Freeze
Rate Freeze Deregulation and Other Alternative Regulation
Standard Mean
1,999 (9.76%) 8,557 (41.78%) 8,561 (41.80%) 841 (4.11%) 522 (2.55%)
Deviation
Min
Max
21.97
4.08
12.89
33.42
18.43
2.74
13.87
33.42
19.10
3.23
12.89
33.42
31.62
3.62
14.87
33.42
22.57
1.27
18.00
26.40
Notes: UNE rates ($) are statewide weighted averages, from Gregg (2002). The unit of observation is a ZIP Code.
Table 5. OLS regression of UNE rates on the type of regulatory regime and costs State Average UNE Rates ($)
&RHI¿FLHQW
Standard Error
Price Caps
-6.610
1.863***
Price Caps with Rate Freeze
-5.932
1.650***
Rate Freeze
1.332
2.834
Deregulation/Other Alternative Regulation
-2.816
2.022
Proxy Cost
0.222
.0853**
Constant
19.295
2.380***
2
R = 0.514 Adjusted R2 = 0.425 F statistic = 5.97, p-value = 0.00 Number of Observations = 49
DQG
VLJQL¿FDQWDWDQGUHVSHFWLYHO\ Notes: The estimation method is OLS with heteroskedasticity-robust standard errors. There is one observation per state and Washington, DC, excluding Alaska and Hawaii. UNE rates are statewide weighted averages, from Gregg (2002). Proxy Cost is the state=level weighted average of proxy cost for local telecommunications service in the local exchange area, as calculated for individual wire centers by the FCC’s Hybrid Cost Proxy Model (HCPM) in January 2000. The weights for the state-level SUR[\FRVWYDULDEOHDUHFDOFXODWHGIURPWKHWRWDOQXPEHURIKRXVHKROGVDQG¿UPVZLWKLQWKH=,3&RGHDUHD
292
Regulation and the Deployment of Broadband
there is no variation in regulatory regime, which PHDQVWKDWWKHUHJXODWRU\FRHI¿FLHQWVDUHEHLQJ VWDWLVWLFDOO\LGHQWL¿HGEDVHGRQO\RQWKHVXEVHWRI states with more than one regulatory scheme in SODFH7KHUHVXOWVPD\QRWUHÀHFWWKHWUXHLPSDFWRI regulation in the full national sample, therefore.
Unbundling and UNE Rates We now turn to the impact of the unbundling of the LQFXPEHQWV¶ORFDOWHOHFRPPXQLFDWLRQVQHWZRUNV In estimations 4 and 5 in Table 3, we add the statewide average UNE rate and the local proxy cost of providing telephone service. If we could control perfectly for local loop and switching costs, DQGKDG81(UDWHVVSHFL¿FWRHDFKREVHUYDWLRQ then movements in the UNE rates would also be PRYHPHQWVLQWKHLQFXPEHQWV¶QHWUHYHQXHIURP sale of unbundled platform elements. Given that ZHKDYHSUR[\FRVWVDWWKHFHQWUDORI¿FHOHYHOEXW UNE rates only as the statewide average, our UNE rate variable only imperfectly measures the net revenue from unbundling, which may reduce the precision of the estimates. A further potential problem in the interpretation RIWKHFRHI¿FLHQWRQWKH81(UDWHYDULDEOHLQWKH estimation stems from the relationship between UNE rates and regulation in the data. An ideal experimental design37 for determining the causal incentive effect of regulatory policy on broadband diffusion would randomly assign UNE rates and UHJXODWRU\VFKHPHVWR¿UPV,QUHDOLW\/HKPDQ and Weisman (2000) show that in states with price caps, regulators have set lower UNE rates for the local loop and platform. Correlation and co-determination of UNE rates and the form of regulation do not necessarily introduce bias into the estimation. However, if there are unobserved factors that LQÀXHQFH81(UDWHVUHJXODWLRQDQGEURDGEDQG diffusion jointly, then the exogeneity assumption required of the independent variables in the probit HVWLPDWLRQIDLOVDQGWKHFRHI¿FLHQWHVWLPDWHVZLOOEH inconsistent. This is the endogeneity problem discussed in the previous subsection. In this instance we cannot adopt the solution of adding state-level ¿[HGHIIHFWVVLQFHWKH81(UDWHVDUHVWDWHDYHUDJHV and do not vary within the state.
:H UHSOLFDWH /HKPDQ DQG :HLVPDQ¶V result with our data in Tables 4 and 5. Table 4 shows the average UNE rates by form of regulation. Where the incumbent carrier is price capped, UNE rates are lowest, about $3.50 lower than RORR observations. Observations associated with rate freezes have the highest UNE rates—so high, in fact, that we suspect that cost differences are driving at least part of that result. To control for costs, we regress UNE rates on the form of regulation and average proxy costs in the state (see Table 5). The proxy costs do affect rates: every dollar that average proxy cost goes up leads to UNE rates going up 22 cents, DQGUDWHIUHH]HVWDWHVQRORQJHUVKRZDQ\VLJQL¿FDQW difference from RORR states. After controlling for cost, the difference between price capped (with or without rate freezes) and RORR states is even JUHDWHU DQGVWDWLVWLFDOO\VLJQL¿FDQW WKDQLQGLFDWHG in Table 4. The R2 statistic shows that 51% of the variation across states in UNE rates is explained by variation in the regulatory regime. Return now to our main estimation for the determinants of broadband diffusion. The UNE UDWHYDULDEOHLQHVWLPDWLRQVDQG 7DEOH LV¿W with a piecewise linear spline with knots separating the lowest and highest decile groups.38 The reported UNE parameters in Table 3 are the slopes and marginal effects for the relevant range of the UNE rates. In estimation 4, the marginal effect for the mid-range of the UNE rates is negative and VLJQL¿FDQW7KXVIRUDUHDVZLWKWKHPLGGOHRI UNE rates, higher UNE rates are associated with less broadband availability—the opposite outcome than that feared by commentators arguing that “cheap” unbundling schemes retard investment. The size of the effect is modest: if UNE rates were to rise by one dollar, the probability of broadband deployment falls by 0.3 percentage points. For the lowest and highest decile groups of UNE rates, however, the marginal effects are positive. While the effect for the lowest group is only marJLQDOO\VWDWLVWLFDOO\VLJQL¿FDQW WKHREVHUYDWLRQVDW this extreme come from only three states), the effect IRUWKHKLJKHVWJURXSLVVLJQL¿FDQWDWWKHOHYHO In the latter case, then, it may be that when UNE rates rise very high, the incumbents feel insulated from the prospect of competition. If the entry of
293
Regulation and the Deployment of Broadband
competitors via UNE and resale is less likely, then the return on infrastructure deployment rises for the incumbent. While it is not usually interesting to focus on outliers, in the present context the top decile group of UNE rates could be highly relevant for the following reason. Some policy advocates, DQGWKH¿UPVVXEMHFWWRXQEXQGOLQJUHTXLUHPHQWV argue that the methodology used to set UNE rates (known as TELRIC, for Total Element Long Run Incremental Cost) results in uneconomically low UNE rates. A federal court agreed in 2004 and UHMHFWHG WKH )&&¶V 81( SODWIRUP UXOHV DQG WKH TELRIC methodology. With the cheapest UNE rates (those for the platform) now unavailable, the impact of UNE rates at the high end in our data becomes more relevant. Comparing estimation 4 to estimation 2 (the most comparable, since it also includes the BOC indicator variables), we see that the marginal effects of the regulatory variables are reduced in PDJQLWXGH H[FHSW IRU WKH LQVLJQL¿FDQW K\EULG category). Given the association between type of regulation and UNE rates evidenced in Tables 4 and 5, it is not surprising that the inclusion of UNE rates directly in the estimation changes the strength of the regulatory effects. For example, as UNE rates rise, it is less likely that the observation is in a price cap area, and so the larger positive marginal effect for price caps in estimation 2 PLJKWUHÀHFWLQSDUWWKHLPSDFWRIORZ81(UDWHV in accord with the negative effect found for UNE rates in estimation 4. In estimation 5 in Table 3, we interact the UNE rate with the forms of regulation. The main UNE FRHI¿FLHQWVKDYHWKHVDPHVLJQVDVLQHVWLPDWLRQ 4. More interesting is that all four interaction coHI¿FLHQWVDUHQHJDWLYH$OWKRXJKRQO\WKHHIIHFW IRUSULFHFDSVLVLQGLYLGXDOO\VLJQL¿FDQWWKHIRXU FRHI¿FLHQWVDUHMRLQWO\VLJQL¿FDQWDWWKHOHYHO This means that the negative marginal effect of UNE rates shown for the bulk of the observations (from estimation 4) is even larger in magnitude in areas with alternative regulation. The main UNE FRHI¿FLHQWV JLYH WKH LPSDFW RQ 5255 VWDWHV since RORR is the excluded regulatory variable. 7KLV¿QGLQJLVWKHRSSRVLWHRIWKDWVXJJHVWHGE\ /HKPDQ DQG :HLVPDQ¶V DUJXPHQW WKDW
294
XQGHUDOWHUQDWLYHUHJXODWLRQWKH¿UPKDVQRZD\ WRPDNHXSORVWSUR¿WE\UDLVLQJUHWDLOSULFHVDVLW can under RORR. Their argument suggests that DQ\SUR¿WGDPSHQLQJHIIHFWVRIWKH81(UHJLPH for incumbents would be felt most strongly under alternative regulation. Note, however, that since we are not looking at investment by the incumbent local exchange carriers only, we do not have a clean test of that hypothesis.
Other Demographic, Business Market, and Cost Variables 7KHRWKHUYDULDEOHVLQWKHVSHFL¿FDWLRQDUHLQFOXGHG to control for underlying factors that may affect WKH¿UPV¶GHFLVLRQVWRGHSOR\EURDGEDQG,IWKHVH factors are correlated with the regulatory variables of interest, omitting them would bias the regulatory estimates. Although the other variables are QRWRISULPDU\LQWHUHVWZHEULHÀ\GLVFXVVWKHP here. Unless otherwise noted, the impacts of the YDULDEOHVDUHVLPLODUDFURVVVSHFL¿FDWLRQVDQGZH discuss the results from estimation 1. 7KHPDUNHWVL]HFRHI¿FLHQWVIRUKRXVHKROGVDQG ¿UPVDUHSRVLWLYHDQGVLJQL¿FDQW7KHPDUJLQDOHIfect of 0.026 for log number of households means that if the number of households nearly tripled, there would be a 2.6 percentage point increase in the probability of broadband access.39 The marginal effect of the size of the business market (the log QXPEHURI¿UPV LVDOPRVWWZLFHDVVWURQJ 7KHUHLVQRVWDWLVWLFDOO\VLJQL¿FDQWHYLGHQFHIRU unequal access to broadband based on the income of the area in estimation 1, although there is in estimations 2 and 3. Exploratory analysis revealed that income has a nonmonotonic relationship to broadband access.40 The relationship between median income and broadband deployment is 8VKDSHG LQ DOO VSHFL¿FDWLRQV GHSOR\PHQW GHcreases with income for areas below the national median and increases with income for wealthier DUHDV ,Q WHUPV RI VLJQL¿FDQFH WKH HYLGHQFH LV stronger for the latter than the former. The latter LV SUREDEO\ WKH UHVSRQVH RI ¿UPV WR WKH JUHDWHU demand for broadband in wealthier areas, since higher household income increases demand for broadband (Rappoport, Kridel, Taylor, Alleman,
Regulation and the Deployment of Broadband
'XII\'HQR 7KH¿QGLQJWKDWEURDGEDQG deployment increases as incomes fall (when below median income) may result from unobserved cost differences among areas. Controlling for rural location, as we do, lower-income areas may be in denser urban areas that have lower average costs to serve, or may have stronger business demand. %RWKUXUDOJHRJUDSKLFFRHI¿FLHQWVDUHQHJDWLYH 7KH)&&DQGRWKHUVWXGLHV¿QGWKDWUXUDODUHDVODJ urban areas in broadband availability (FCC, 2000b; Prieger 2003). However, recall most rural areas of the country are not included in our data. 7KHDJHFRHI¿FLHQWVLQWKHWR\HDUROG UDQJHDUHVLJQL¿FDQWDQGHDFKRIWKHVHDJHJURXSV¶ effects is positive compared to the excluded senior group (aged 65 and older). The education effects are all positive, compared to the excluded group lacking a high school diploma. In addition, the higher the educational level, the stronger the efIHFWLV7KHFRPPXWLQJGLVWDQFHFRHI¿FLHQWVDUH all positive compared to the excluded category of a 1-30-minute commute. A larger fraction of workers who do not commute (and who thus have higher demand for broadband for purposes of telecommuting) increases access likelihood. For workers with commutes, longer commuting times are associated with higher broadband deployment. The fraction of households with a telephone also affects broadband deployment. Since DSL (but not other modes of broadband) requires a phone line to function, it is not surprising that the marginal effect of the fraction of households with phone access in the area is positive. Regarding business demand, a higher fracWLRQRI¿UPVLQWKHPDQXIDFWXULQJDQG LQVRPH VSHFL¿FDWLRQV VHUYLFH LQGXVWULHV OHDGV WR PRUH broadband access. The opposite is true for the fracWLRQRI¿UPVLQWKH¿QDQFHDQGUHDOHVWDWH ),5( category, which is surprising given the relatively KHDY\XVHRIWHOHFRPPXQLFDWLRQVE\WKH¿QDQFH LQGXVWU\:KHQWKHUHDUHPRUHVPDOO¿UPVLQWKH DUHDDVPHDVXUHGE\WKHIUDFWLRQRI¿UPVZLWKOHVV than 50 employees, the probability of broadband GHSOR\PHQWLVORZHUEXWWKHHIIHFWLVQRWVLJQL¿FDQW statistically or in magnitude. There is a U-shaped association between the average employment per ¿UPDQGEURDGEDQGDFFHVV:KLOHWKHQHJDWLYHFR-
HI¿FLHQWRQDYHUDJHHPSOR\PHQWEHORZWKHPHGLDQ is unexpected, the positive impact on broadband DFFHVVRIDYHUDJHHPSOR\PHQWIRUODUJHU¿UPVLV QDWXUDO0DQ\RIWKHODUJHVW¿UPVXVHKLJKVSHHG dedicated access lines rented from the local phone company, which are included in the data. 7KHFRVWYDULDEOHVKDYHVLJQL¿FDQWHIIHFWVRQ the probability of broadband access. Population density has the expected positive sign in the upper median group, although it has a negative (but small in magnitude) effect in the lower median group. The age of housing structures in the area, as a proxy for the vintage of the network infrastructure of the telephone and cable systems, has an unexpected positive effect on broadband deployment. It is hard to imagine a causal reason why older infrastructure would lead to more broadband deployment, and the variable is probably acting as a proxy for other factors not otherwise adequately controlled, such as urban location or long-established business areas.
IMPLICATIONS AND OUTLOOK This study explores the interplay between reguODWLRQ DQG EURDGEDQG ,QWHUQHW DFFHVV :H ¿QG that alternative telephone regulation in the U.S. increases the probability of broadband availability in the U.S., particularly for price caps. Higher UNE rates are correlated with lower probability of broadband availability in general, although not throughout the entire range of the data. The effect is strongest in areas with price caps. 2XUGDWDDUHVSHFL¿FWRWKH8QLWHG6WDWHV+RZever, the implications of the results are relevant to the world telecommunications market, since many of the regulatory schemes we discuss are in use around the globe. By 2002, 23 OECD countries had mandatory local loop unbundling regimes in place, and prices for UNEs varied greatly across countries (OECD, 2003). By 2005, regulators in at least 19 OECD countries used price caps to UHJXODWHWHOHFRPPXQLFDWLRQV¿UPV 2(&' 7KHEHQH¿FLDOLPSDFWRISULFHFDSVRQEURDGEDQG deployment in the U.S. that we document here implies that the international push toward price
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cap regulation is a movement in the right direcWLRQ2XU¿QGLQJWKDWORZ81(UDWHVGRQRWDSSHDU to hinder broadband deployment may be more germane to other countries than it is for the U.S. today, given that low UNE rates have disappeared in the U.S.41 Broadband has diffused in the U.S. to the point where today there is at least one customer for high-speed service in 99% of all the ZIP Code areas in the United States (FCC, 2006).42 Despite the ubiquity of broadband access today in the U.S., lessons learned from the early years of deployment are still valuable. There will always be technoORJLFDOFKDQJHLQWKH¿HOGRIWHOHFRPPXQLFDWLRQ and information services. Incentive regulatory schemes that encourage infrastructure deployment and network modernization today are likely to encourage it tomorrow as well (as opposed to the older-style command and control regulation, which adapts slowly to new technological opportunities). Furthermore, since competition among providers holds the greatest promise for reducing prices in the U.S. and abroad (Gruber & Denni, 2005), the most relevant question today is not if there is broadband access but how many providers offer it. Good regulatory schemes should encourage not only initial entry but subsequent competition among providers as well.
ACKNOWLEDGMENT 7KH¿UVWDXWKRUJUDWHIXOO\DFNQRZOHGJHVDJUDQW from the Institute of Governmental Affairs at UC Davis that supported this work. We thank participants at the Center for Research in Regulated ,QGXVWULHV¶WK$QQXDO:HVWHUQ&RQIHUHQFHDQG the Transportation and Public Utilities Group Annual Meeting (San Diego) for helpful comments on versions of this work.
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Wire Center: The location where a central of¿FHVZLWFKFRQQHFWVWRWKHORRSIDFLOLWLHVWKDWFRYHU part or all of a local exchange. It is also the physical location where the loop distribution plant in the local telecommunications system can be accessed, and where the equipment enabling DSL service for subscribers is deployed. Used synonymously with ³FHQWUDORI¿FH´LQWKLVFKDSWHUDOWKRXJKHOVHZKHUH sometimes the wire center refers to the physical EXLOGLQJDQGWKHFHQWUDORI¿FHUHIHUVWRWKHVZLWFKHV within the wire center. ZIP Code Tabulation Area (ZCTA): An approximate area representation of a United States Postal Service ZIP Code service area. A ZCTA may not exist for every valid ZIP Code. In most FDVHVWKHH[FOXGHG=,3&RGHLGHQWL¿HVDVLQJOH delivery location for which the Bureau of the &HQVXVKDGLQVXI¿FLHQWGDWDWRHVWDEOLVKDGLVWLQFW ZIP Code area.
KEY TERMS ENDNOTES &HQWUDO2I¿FH See Wire Center. 1
Competitive Local Exchange Carrier (CLEC): A public telephone company that provides local telecommunications service in competition with the incumbent local exchange company.
2 3
Last Mile: The part of the local telecommuQLFDWLRQVQHWZRUNWKDWFRQQHFWVWKHFHQWUDORI¿FH to the subscriber premises. The last mile typically consists of copper telephone wire. Local Exchange Company (LEC): A public telephone company in the United States that provides local telecommunications service. Unbundled Network Element (UNE): Allows competitive local exchange carriers to offer comSHWLWLYHO\ SULFHG DOWHUQDWLYHV WR WKH LQFXPEHQW¶V services rapidly. UNEs are purchased at wholesale rates from the incumbent telephone companies. UNEs include the local loop, switch port, switching, transport, signaling systems, and databases (such as operations support systems and directory assistance). UNE-Platform (UNE-P, generally no longer available) combined all elements necessary to offer local service.
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5
Litan and Rivlin (2001) estimate that the Internet could potentially reduce business costs by $100 billion to $250 billion annually. 47 U.S.C. § 251(f). Cable modem service suffers from congestion effects in the last mile, whereas DSL does not. The two services are also bundled differently with other services that consumers value, such as cable television subscription or local phone service. There have also been price differences between the services. Three states had tax incentives for broadband and one state was considering a loan program (Lee, 2001). Only 14 state commissions out of 39 answering a survey (Lee, 2001) decided broadband rates in rate cases, and some of these only under special circumstances. Lee (2001) also reports that the majority of states do not apply price caps for broadband; he does not report how many do. The survey report does not say which states enact which policies, so these variables cannot be used in the present study.
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By “underinvestment” we mean the reduced incentive to offer a new service under RORR EHFDXVHWKHUHJXODWLRQOLPLWVWKHSUR¿WWKDWFDQ be made from service. This is distinct from the better-known overcapitalization property of RORR (the Averch-Johnson effect). Their explanation is that price caps insulate the regulator from the consequences of low 81(VEHFDXVHWKHSULFHVWKH¿UPFDQFKDUJH are constrained. Under RORR, on the other KDQGLI81(SULFHVDUHWRRORZDQGWKHSUR¿WDELOLW\RIWKH¿UPVXIIHUVWKHQWKH¿UPZLOO be allowed to raise its other prices to meet the allowed rate of return. See Chapter 16 for a more detailed review of the literature. 7KH¿JXUHDQGWKLVVHFWLRQGUDZKHDYLO\RQ Prieger (2003). $FFRUGLQJWRRI¿FLDOVWDWLVWLFVIRUUHVLGHQFHV and small businesses in the U.S., there were 2.2 million coaxial cable broadband lines in 2000, compared to 0.7 million DSL lines (FCC, 2000b). The remainder of the 3.1 million broadband lines consisted of dedicated lines (mostly T-1) rented from phone FRPSDQLHVVDWHOOLWHDQG¿[HGZLUHOHVVOLQHV DQG¿EHURSWLFOLQHV2IWKHPLOOLRQPHdium- and large-business high-speed lines in VHUYLFHZHUH¿EHUZHUH'6/ were coaxial cable, and 53% were dedicated lines. Smaller companies are exempt from this obligation. CLECs at the time could buy the loop by itself (known as UNE-L, for “loop”) or a package including the loop and switching (known as UNE-P, for “platform”). A court decision in 2004 struck down the UNE-P option. The local exchange carrier is not required to unbundle its DSL packet-switching facilities, however. See Shelanski (2002) for a fuller discussion of regulatory issues regarding unbundling and DSL. The FCC eliminated the requirement to offer line sharing to CLECs in February 2003. The term “free option” does not mean that the CLEC does not pay rental charges on the
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last mile facilities. It refers to the fact that while the incumbent bears the investment risk in deploying the facilities, the CLEC can choose to purchase only those inputs that have turned out to be successful (at less than the cost of building their own facilities) (Pindyck, 2004). This option value provided to the CLEC from the unbundling rules is not included in the rental rates. Faulhaber (2002) points to evidence that the incumbent telephone companies are limited in their provision of DSL by their operational FDSDELOLWLHVQRWLQYHVWPHQWSUR¿WDELOLW\ In sub-loop unbundling, non-incumbent carriers can interconnect with the local access QHWZRUNDWSRLQWVEHWZHHQWKHLQFXPEHQW¶V site and the end user (for example, at a remote terminal deployed between the incumbent WHOHSKRQHFRPSDQ\¶VFHQWUDORI¿FHDQGWKH end user). See Ford and Spiwak (2004) for a non-refereed empirical study reaching the opposite conclusion. 7KH YDOXH RI WKH ¿UP¶V LQVWDOOHG FDSLWDO LV called the “rate base.” Earnings sharing and banded RORR schemes DOORZWKHUHJXODWHG¿UPWRHDUQPRUHWKDQ the “fair” rate of return on capital, as long as SUR¿WVIDOOZLWKLQDQDXWKRUL]HGUDQJHFDOOHG the “deadband.” Earnings above the deadband are returned partially or completely to ratepayers. A less common variant of earnings sharing is revenue sharing. See Chapter 16 by Hu and Prieger in this YROXPHIRUDIRUPDOPRGHORID¿UP¶VGHFLsion to deploy broadband. See Cameron and Trivedi (2005, ch. 14) for a textbook treatment of the probit model. In structural econometrics modeling, economic theory is used to impose structure on the problem, and the resulting estimates may be used to reveal the underlying “deep” parameters facing the economic agents (for example, the parameters of the cost and revenue functions). See Reiss and Wolak (2005) for a discussion of structural econometric PRGHOLQJLQWKH¿HOGRILQGXVWULDORUJDQL]D-
Regulation and the Deployment of Broadband
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tion within the economics literature. The FCC broadband data are not well suited to existing structural models of entry using the QXPEHURI¿UPVLQWKHPDUNHW HJ%UHVQDhan & Reiss, 1987; Berry, 1992) because the FCC data are heavily censored. If there are RQHWRWKUHH¿UPVLQWKH=,3&RGHDUHDWKH exact number is not given; the majority of the GDWDDUHVRFHQVRUHG6HH;LDRDQG2UD]HP (2005) for an attempt at structural modeling with the FCC broadband data. Such geographic variation allows us to identify the impact of our regulatory variables of interest on broadband deployment. Today, broadband is available to almost all U.S. households (at least in urban and suburban areas), and thus we could not learn much from using similar methodology with current data. The FCC considers a carrier to be “facilities based” if it provides broadband access over its own local loop, or over unbundled network elements (UNEs) or leased lines that it obtains from other carriers and equips as broadband (FCC, 2001). Restricting the survey to facilities-based carriers removes double counting of resold access lines. The FCC has since removed this reporting threshold. We matched the ZIP Code areas by centroid WRFHQWUDORI¿FHVXVLQJ$UF0DS*,6VRIWZDUH DQG *'7¶V :LUH&HQWHU 3UHPLXP WHOHFRPmunications geography product. These data are proprietary. Another commonly cited disadvantage of the FCC broadband data is censoring. If the number of the reported broadband providers is one, two, or three, the actual number LVFHQVRUHGGXHWRFRQ¿GHQWLDOLW\FRQFHUQV However, since we only make use of the fact that there is at least one provider in the area, this limitation does not affect our methodology. The regulatory variable is constructed from NRRI (2000) and our own survey of state regulatory agencies. The regulatory variable is not necessarily the same for all observations within a state,
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because there may be more than one carrier in the state, and not all carriers are necessarily under the same regulatory regimes. The UNE data are from Gregg (2002). They are the basic monthly “UNE platform (UNEP) price,” which includes local loop, port cost, and 1,000 minutes of switching. The personal and household data are from the U.S. Bureau of the Census “Census 2000 Summary File 3” DVD. The business data are from the “Census ZIP Code Business Patterns 2000” CD-ROM. See Faulhaber and Hogendorn (2000), Gabel and Kwan (2001), and Prieger (2003) for discussion. The other carriers are Alltel, Concord Telephone, Contel, Century, Cincinnati Bell, Citizens Telecom, Frontier Communications, IowaTel, Quaker State Telephone, and Sprint. Bell Atlantic had recently acquired GTE to form Verizon at the time of our data. Given that the merger had just taken place, and that most infrastructure in place was deployed by GTE when they were under their own manDJHPHQWZHGRQRWLQFOXGH*7(LQ9HUL]RQ¶V territory for purposes of the company indicator variables. The standard errors in Tables 2 and 3 are calculated using the usual formula assuming homoskedastic errors. We did not use heteroskedasticity-robust standard errors, as one sometimes sees for probit models, because: (1) the maximum likelihood estimates of WKHFRHI¿FLHQWVWKHPVHOYHVDUHQRWUREXVWWR heteroskedasticity (and the standard errors on inconsistent estimates are not interesting), and (2) the robust standard errors are very close to those we report. For example, none RIWKHVLJQL¿FDQFHVWDUVIRUWKHUHJXODWLRQDQG CLEC variables in estimation 1 would change if we used the robust standard errors. See also Donald and Sappington (1997) on the political economy of telecommunications regulation. The one exception is the rate freeze effect, which is about the same in magnitude as it is in estimation 1.
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Regulation and the Deployment of Broadband
37
38
39
40
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Ideal for the econometrician, presumably not WKH¿UPV The lowest decile group encompasses the lowest 10% of observations, ranked by UNE rates. The highest decile group includes the top 10% of observations so ranked. Preliminary nonparametric analysis from Hastie DQG7LEVKLUDQL¶V JHQHUDOL]HGDGGLWLYH model (GAM) indicated that there was possible nonmonotonicity in the effect of UNE rates across the range of the data. We chose the location of the knots for the spline based on the visual evidence from the GAM. The marginal effect of a variable that is in logs corresponds to the effect of multiplying the variable in levels by e (#2.7). We assess the functional form of such variDEOHV XVLQJ +DVWLH DQG 7LEVKLUDQL¶V
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generalized additive model, which allows YDULDEOHV WR HQWHU WKH VSHFL¿FDWLRQ RI WKH PHDQÀH[LEO\7KHYLVXDOHYLGHQFHIURPWKH results informally guided our choice of locations for the knots of the spline functions for the income, population density, and average employment variables. A court decision since the time of the data we study here effectively rendered uneconomical large-scale competitive entry in local telephone markets by competitors using UNEs. Incumbents are no longer required to offer platform UNE (UNE-P) to competitors. Cable modem or DSL service was available in 87% of the ZIP Codes. Most of the remaining ZIP Codes were covered by satellite.
Regulation and the Deployment of Broadband
APPENDIX In this appendix, we describe the variables collected on characteristics of the ZIP Code areas. The QXPEHURI¿UPVLVWKHFRXQWRIHVWDEOLVKPHQWVIURPWKH³=,3&RGH%XVLQHVV3DWWHUQV´,QFRPHLV measured as median household income. Households are categorized as urban, rural non-farm, or rural farm (urban is the excluded category in the estimations). The excluded age category is 65 years and older. The excluded education category is “less than high school degree.” The commuting variables are taken from the travel time to work of workers aged 16 years and up; the excluded category is “commute is less than 30 but greater than zero minutes.” The units for population density are persons per square mile. Median structure age refers to dwelling places. The other demographic variables are straightforward and are described in the text. The cost variable is the proxy cost for local telecommunications service in the local exchange area, as FDOFXODWHGE\WKH)&&¶VK\EULGFRVWSUR[\PRGHO +&30 LQ-DQXDU\7KH+&30LVDQHFRQRPLF HQJLQHHULQJPRGHOWKDWFDOFXODWHVWKHFRVWRISURYLGLQJORFDOWHOHFRPPXQLFDWLRQVVHUYLFHXVLQJHI¿FLHQW WHFKQRORJ\JLYHQDQDUHD¶VJHRJUDSKLFWHUUDLQDQGVXEVFULEHUGHQVLW\3UR[\FRVWVDUHQRWDYDLODEOHIURP the model for some of the wire centers (mostly for smaller carriers); in these cases, we used the proxy cost of the nearest wire center for which cost was available. We matched wire center locations to ZIP Code areas as described in the text. The UNE rates are described in the text.
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Section II
Consumer-User Behavior
Division I
Australia
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Chapter XIX
Factors Affecting Broadband Adoption for Mainstream Consumers Peter Adams Charles Sturt University, Australia
ABSTRACT This chapter explores whether past experiences with telecommunications providers and current ‘plans’ on offer serve as barriers between an individual consumers’ persuasion phase of the Innovation-Decision 3URFHVV 5RJHUV DQGWKHGHFLVLRQSKDVH:LWKEURDGEDQGLQDURXQGRI$XVWUDOLDQKRPHV it is important that telecommunications providers understand why the future mainstream segment of consumers will want to adopt broadband, and any barriers to this. This analysis suggests future studies are needed to investigate whether the telecommunications providers are collectively confusing potential broadband consumers in their attempts to differentiate a generic product in the market. It argues that future technology adoption studies need to consider including the complexity of the actual purchase decision when developing constructs for quantitative models. If we are to build a picture of why mainstream consumers adopt broadband, more than just the perceptions of using the technology itself need to be investigated.
INTRODUCTION There is no simple explanation as to why one household installs broadband Internet and another chooses not to. While economic variables like price change over time and demographic distributions of income among a population will often correlate with the diffusion of an innovation, these correlations do not help us explain why members of the population under study adopt. These economic and demographic descriptions become even less useful as we move through the traditional diffu-
sion curve and study the mainstream segment of the population. Key literature across four disciplines (information systems, sociology, psychology, and consumer behavior) underpins the discussion and study presented in this chapter. The majority of the technology adoption literature in the information systems area can trace its roots back to sociology and psychology studies. Work in the areas of innovation diffusion theory (Rogers, 2003), the theory of planned behavior (Ajzen, 1991), and the theory of reasoned action (Fishbein & Ajzen,
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Factors Affecting Broadband Adoption for Mainstream Consumers
1975) are the building blocks for most technology adoption studies in the information systems literature. The majority of technology adoption research has studied workplace adoption intention DQGQRWLVVXHVVSHFL¿FWRKRXVHKROGFRQVXPHUV while most existing broadband adoption studies have primarily concentrated on economic and demographic descriptions of adoption (Madden & Coble-Neal, 2005; Choudrie & Dwivedi, 2005a; Cameron, 2004; Roy Morgan, 2003; Madden, Simpson, & Savage, 2002; Hausman, Sidak, & Singer 2001). The participants in the study outlined here discussed what technologies they found useful in their lives from the perspective of the household consumer. The transcripts were analyzed for both HPHUJLQJ WKHPHV DQG LQ WKH FRQWH[W RI ¿QGLQJV from existing studies. This chapter argues that future technology adoption studies need to investigate in more breadth and depth the role complexity of the purchase decision plays in acting as a barrier to adoption. Qualitative longitudinal studies of a purposive sample of households would provide more depth to this issue, while quantitative studies should consider including the complexity of the actual purchase decision when developing broad consumer technology adoption models. Building a picture of why mainstream consumers adopt broadband requires more than just investigating either their perceptions pre-adoption of the technology itself, or post adoption of using the technology. The critical issue is: what is the tipping point (Gladwell, 2002; Adams, 2005) which takes them from the persuasion to the decision phase (Rogers, 2003) in purchasing new technology for their household?
LITERATURE OVERVIEW There is much common ground in the studies of LQQRYDWLRQDQGWHFKQRORJ\DGRSWLRQLQWKH¿HOGVRI information systems, consumer behavior, psychology, and sociology. This study approached the issue from an information systems perspective initially through the lens of the following technology adoption models: the technology adoption model (TAM) of Venkatesh and Davis (2000) and Davis (1989);
the XQL¿HG WKHRU\ RI WKH DGRSWLRQ DQG XVDJH RI technology (UTAUT) of Venkatesh, Morris, Davis, and Davis (2003); and most recently the model of adoption of technology in households (MATH) of Brown and Venkatesh (2005). The origins of these models can be traced back to the sociology work of Rogers (1962, 2003) with his innovation diffusion theory (IDT), and two theories from the psychology discipline: the theory of reasoned action (TRA) of Fishbein and Ajzen (1975) and the theory of planned behavior (TPB) of Ajzen (1991). Work across several disciplines (Rogers, 2003; Moore, 2002; Bass, 1969; Mahajan, Muller, & %DVV VKRZVRFLDOIDFWRUVDQGVRFLDOLQÀXHQFHV KDYH D VWURQJHU LQÀXHQFH RQ PDLQVWUHDP consumers than on the innovators or early adopters. 5RJHUV¶ ZRUNIURPDVRFLRORJ\SHUVSHFWLYH LVWKHEHVWNQRZQRIWKHVHDQGKHGHVFULEHV¿YH attributes of innovations which can be studied in trying to predict their rate of adoption. In addition 5RJHUVGHVFULEHVD¿YHVWDJHSURFHVVKHFDOOVWKH Innovation-Decision Process (2003, pp. 174-179). 7KHVHFRQGRIWKHVHVWDJHVLVµSHUVXDVLRQ¶ZKHUH WKHLQQRYDWLRQ¶VFKDUDFWHULVWLFVLQÀXHQFHWKHIRUPDtion of a favorable or unfavorable attitude towards WKHLQQRYDWLRQEHIRUHWKHQH[WµGHFLVLRQ¶SKDVHRI adoption or rejection (see Figure 1). The process from the persuasion to the deciVLRQVWDJHLQ5RJHUV¶ ,QQRYDWLRQ'HFLVLRQ 3URFHVV VHH)LJXUH LVWKHVSHFL¿FDUHDRILQWHUHVW for the research outlined here. In the popular press Gladwell (2002) has described this transition as the µWLSSLQJSRLQW¶+HRXWOLQHVKRZVRPHLGHDVDQG products spread like viruses or epidemics, while others fail to gain any traction. Moore (2002) GHVFULEHVWHFKQRORJ\µPDLQVWUHDP¶FRQVXPHUVDV ZDQWLQJ WKH µZKROH SURGXFW¶ ZKHUH WKH JHQHULF SURGXFW¿WVZLWKWKHLUH[SHFWDWLRQVEXWDOVRSURvides the add-ons (peripherals, support, interoperability), as well as seeing some future potential for satisfying their growing needs. In developing a model of consumer adoption of technology, the idea of matching both current and perceived future needs is important. A more general view of conVXPHULQÀXHQFHLVSURYLGHGE\&LDOGLQL D psychologist. He sees the six principle categories RILQÀXHQFHDV UHFLSURFDWLRQFRQVLVWHQF\VRFLDO
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Factors Affecting Broadband Adoption for Mainstream Consumers
Figure 1. The Innovation-Decision Process (Rogers 2003, p. 170).
proof, liking, authority, and scarcity. The principal of social proof is most relevant to informing the development of a model explaining why consumers adopt technology. Cialdini (2001, p. 140) says people look at others they see similar to themselves to see what they are doing, particularly where the situation contains uncertainty. Adopting a new technology is a situation which can be seen as containing uncertainty for many mainstream consumers. This LGHDRIVRFLDOSURRIRUVRFLDOLQÀXHQFHLVDFRPmon theme throughout the literature (Venkatesh et al., 2003; Brown & Venkatesh, 2005; Moore & Benbasat, 1991). There is a range of work in the marketing literature devoted to the communication channels used to inform decision making in the Innovation-Diffusion Process. The Bass (1969) model has formed the basis of much of this work which is well summarized by Mahajan et al. (1990). The %DVV PRGHO VKRZV WKDW LQWHUSHUVRQDO LQÀXHQFHV EHFRPHPRUHVLJQL¿FDQWDVZHPRYHWKURXJKWKH adoption curve. The Bass model assumes potential DGRSWHUVDUHLQÀXHQFHGE\WZRPDLQFRPPXQLFD-
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WLRQFKDQQHOV WKHPDVVPHGLD H[WHUQDOLQÀXHQFH DQG ZRUG RI PRXWK LQWHUQDO LQÀXHQFH :KLOH there is a large body of work utilizing the Bass model, it is aimed at describing the market at an aggregate level. The work described here is aimed VSHFL¿FDOO\DWH[SORULQJwhy households make the purchase decision. In the information systems discipline over the past 20 years, there has been a considerable body RI UHVHDUFK GHYRWHG WR H[SODLQLQJ LQGLYLGXDOV¶ intentions to adopt technology. The most mature of these streams of research is in the area of DGRSWLRQLQDQRUJDQL]DWLRQDOFRQWH[W7KLV¿HOG of research was brought together by Venkatesh et DO SURSRVLQJWKHXQL¿HGWKHRU\RIDGRStion and usage of technology. With their model explaining up to 70% of the variance in intention in an organizational setting, they speculated that “we may be approaching the practical limits of our ability to explain individual acceptance and usage decisions in organizations” (p. 471). While this is a well-established area of research, the results need to be considered in the context of the research be-
Factors Affecting Broadband Adoption for Mainstream Consumers
ing done in organizations and studying individual adoption intention. Brown and Venkatesh (2005) have focused their work on household adoption of technology, and they have empirically tested and extended their model of adoption of technology in households, ¿UVWSURSRVHGLQ %URZQ 9HQNDWHVK This model was developed and tested in the context of personal computer (PC) adoption in households and explains 74% of the variance in intention to DGRSWD3&IRUKRPHXVH%URZQDQG9HQNDWHVK¶V (2005) extended MATH model incorporates household lifecycle stages and income (Brown & Venkatesh, 2005, p. 404). The extended MATH model is designed to better capture the complexities of household decision making by taking into account characteristics such as marital status, age of adults, and the presence (and age) of children in the household. Brown and Venkatesh used work originally developed by Gilly and Enis (1982) GH¿QLQJKRXVHKROGOLIHF\FOHVWDJHV7KHVRFLR economic factor of income was incorporated from work developed by Wagner and Hanna (1983). There is a large body of current work by Choudrie and Dwivedi (2004, 2005a, 2006a, 2006b; Dwivedi, Choudrie, & Brinkman, 2006) related to the adoption of broadband by consumers. The
same group of authors have also published on usage issues, but only the relevant adoption-related papers have been cited here. While their work informs the topics explored in this study, in the context of this chapter it is important to note that these papers relate to data collected in two surveys developed and implemented during the period 2003 to early 2005. In the design of their survey instrument, Dwivedi et al. (2006) have used work by Venkatesh and Brown published in 2001 which developed the MATH model from qualitative data gathered using a longitudinal phone survey related to the adoption of personal computers in the home. Subsequent to Dwivedi et al. (2006) developing their survey, Brown and Venkatesh published a paper in 2005 which extended their original MATH model to include a number of changes and additions (Brown & Venkatesh, 2005, p. 404). They tested their extended MATH model by surveying 746 U.S. households. The contemporary nature of the broadband adoption issue, combined with the time lags associated with publishing academic work, has PHDQW WKH µHDUOLHU¶ %URZQ DQG 9HQNDWHVK paper is more relevant in the context of this study than the work published in 2006 by Dwivedi et al.
Figure 2. The non-cumulative diffusion of innovations by adopter category over time (Rogers, 2003, p. 281)
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Factors Affecting Broadband Adoption for Mainstream Consumers
which had relied on the 2001 work by Venkatesh and Brown. Other contemporary research being done in the broadband adoption area includes work by Cameron (2003, 2004, 2005) which is primarily concerned with comparing the adoption of broadband in Australia between Canberra (the national capital with good infrastructure) and the Northern Rivers area of NSW (coastal hinterland with a distributed population and pockets of infrastructure). &DPHURQ¶VGDWDZDVFROOHFWHGLQ1RYHPEHU and found the key demographic factors relevant to broadband adoption to be related to a range of factors including: location, education level, occupation level, ownership of other technology in the household, and home ownership for example. While the data is fairly recent, in terms of helping to explain why mainstream consumers adopt, it is too early for the Australian context. At the end of 2003 approximately 5% of Australian households had broadband (ACCC, 2006), which is still at the VWDUWRI5RJHUV¶HDUO\DGRSWHUSKDVHDQG5RJHUV DQGRWKHUV 0RRUH VKRZWKHUHDUHVLJQL¿cant differences in the attributes and attitudes of consumers at this stage of the diffusion cycle. There is also a range of work which focuses on broadband adoption in Korea. Korea has been a popular country to study because up until 2005 it had the highest penetration rate of 25.5 subscribers per 100 inhabitants according to the OECD (2005). One of the lessons we can learn from the Korean experience is that there are many ways to stimulate broadband adoption. Some of these are: government initiatives (Choudrie, Papazafeiropoulou, & Lee, 2003), geographic and cultural issues (Choudrie & Lee, 2004), as well as the role of experience with broadband at the individual level (Oh, Ahn, & Kim 2003). In 2006 Korea was overtaken by Denmark, The Netherlands, and Iceland at the head of the broadband subscriber rankings. The Netherlands comes in second with 28.8 broadband subscribers per 100 inhabitants, with Australia ranking 17th with 17.4 per 100. Barr (2006) presents a useful insight into some of the innovative approaches being taken in The Netherlands where a government-backed partnership with private enterprise called KenQLVZLMNZHQWWRWKHµXVHUV¶DQGDVNHGWKHPZKDW
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they would like to see delivered via broadband. As Barr outlines, this user-centered approach offers DVLJQL¿FDQWDOWHUQDWLYHLQVLJKWLQWRKRZWRPDNH broadband appealing to mainstream consumers. Most of this literature does not exclusively focus on household-level adoption, but does offer some useful insights and demonstrates that there are many lenses through which to view the broadband adoption issue. While these studies have informed the approach taken here, for this chapter the critical elements of the literature are those facets which focus on the actual decision to purchase, described by Gladwell (2002) as the “tipping point.” Visually, it is best GHVFULEHGE\5RJHUV¶ ,QQRYDWLRQ'HFLVLRQ Process (see Figure 1). The diffusion model views the whole Innovation-Decision Process as having ¿YH VWDJHV 5RJHUV S NQRZOHGJH persuasion, decision, implementation, and con¿UPDWLRQ:KLOHFRQVXPHUVPD\KDYHDQDZDUHness of or be persuaded to consider a technology, at some point they make an adoption or rejection decision. In the information systems (IS) discipline, technology adoption research has been dominated by quantitative approaches. Choudrie and Dwivedi (2005b) found that 74% of studies on technology adoption in the leading IS journals used the survey method. They also looked more broadly at the issue of technology adoption in the household context in a wider range of journals and found the survey method still dominated, having been used in 63% of studies. The next most common approach used in 25% of the studies involved a mixed method approach where a survey was used in combination with interviews or a time use diary. The dominance of quantitative approaches in researching technology adoption may be explained by researchers tending to use the same methods as others in their discipline and the desire to be able to generalize about the potential adopting population to inform broad management or marketing strategies. The study of broadband adoption by households presents some unique challenges. Broadband is an intangible commodity to a certain extent (Adams, 2004) and one that can serve a range of
Factors Affecting Broadband Adoption for Mainstream Consumers
KRXVHKROGPHPEHUVLIWKHµKRXVHKROG¶DGRSWVRQH shared broadband connection. This is in contrast to mobile phones or personal computers which may have multiple adopters of different phones or computers within a household. While the exploratory nature of the research discussed in this chapter is outlined in the next section, there is a range of views on how to study WKH µKRXVHKROG¶ DGRSWLRQ RI EURDGEDQG ,Q WKHLU work studying the family purchasing process of broadband Internet in Australia, Chang, Ahn, and Lee (2006) adopted a family buying decision approach proposed by Sheth, Mittal, and Newman (1999). Chang et al. (2006) chose not to use the work of Rogers (2003) because they saw it more suited to individual adoption decisions, not family purchasing decisions. This approach worked for them because they chose to limit their study to RQO\IDPLOLHVZLWKFKLOGUHQDWWKHµIXOOQHVW¶VWDJH of the family lifecycle (Sheth et al., cited in Chang et al., 2006, pp. 286-288). There are many unanswered questions about whether broadband adoption in households follows similar patterns to individual purchase decisions or follows family decision models such as that proposed by Sheth et al. (1999). While that question will not be answered here, the approach used considers the relevance of the traditional adoption models (TAM, UTAUT, and MATH) used in the information systems and sociology (IDT, TRA, and TPB) literature. The study reported here is designed to provide a basis for the development of a survey instrument which will study a representative sample of all types of Australian households. It is projected that over the 26-year period 20012026, the fastest-growing segment in the makeup of Australian households will be the single person household, and the average household size will decline from 2.6 in 2001, to between 2.2 and 2.3 people by 2026 (ABS, 2004). Interestingly two of the three data series used for this analysis projects that by 2026, couples without children will be more abundant than couples with children. The subset RIWKHµIXOOQHVW¶WUDGLWLRQDOIDPLO\KRXVHKROGDV studied by Chang et al. (2006) only offers insights into one type of household. The family buying decision or individual adoption approach to studying broadband adoption need
not be seen as mutually exclusive. In households with more th
