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Diálogo Regional sobre Sociedad de la Información
Role of Government in Increasing Role of Government in Increasing Broadband PenetrationBroadband Penetration
Lessons from Asia
Helani Galpaya
LIRNEasia
Lima, Peru
18 May 2011
This work was carried out with the aid of a grant from the International Development Research Centre, Canada and the Department for International Development, UK.
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Agenda
Korea: everyone’s benchmark Can Korea be replicated in emerging Asia? Hong Kong: a more achievable strategy? Sri Lanka: somewhere in between Conclusion
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KOREA
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Korea is everyone’s benchmark. High BB access, useage
Source: OECD Communication Outlook Documents, 1999 – 2009; Gartner, 2008
- About 70 in 100 users have/use
broadband
- Over 93 in 100 households have
BB (2007)
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A mix of FTTx, Cable, xDSL, other technologies for BB
Source: OECD Communication Outlook documents
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How did Korea get there?
Advantages of high population density & most people living in high-rises
Early start Consistent policy development: successive policies
correcting the errors of previous policies Consistent implementation Liberalization, privatization, competition Money! Lots of money. Supply push and demand pull
• Some random events too . . . .
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Gathering momentum, 1980-1994
Large investment in backbone infrastructure1980s National Basic Information System (NBIS) 1984
• Focus: building 5 national (physical) networks and related systems • National Administration Information System (IS): central & local govt. offices• Financial IS: 140 banks, financial services companies• Education & research IS: 20+ universities & research orgs• Defense & Security IS• Public Health and Social Welfare IS
NBIS: Supply push with limited success • Shortfalls in funding, absence of strong industry capability and failure to
stimulate domestic demand.
Included encouragement of production of low-cost computers for Korean households (more successful)
Source: Among others, Harindranath & Liebenau, National Information Infrastructure Policies in International Perspective. Available at http://www.docin.com/p-68100028.html
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Gathering momentum, 1980-1994 …contd.
Korean Information Infrastructure (KII), 1993• Emphasis on network expansion
• Government high speed network (KII-G) • Public high speed network (KII-P)
• Initially fiber backbone deployed to connect five metropolitan areas and nearby cities
• Focus primarily on supply. Money from govt. Demand did not keep up
• Result: lowered prices on leased lines (needed for ISPs)
• KII Centrally coordinated; but decentralized strategies needed
Deregulation, privatization, framework legislation• Korea Telecom privatized; market liberalized (int’l competition in 1991; mobile
competition 1994; long distance competition 1995 etc)
Source: Among others, Yoo J J, Lee H H and Yim C H, Naitional Information Infrastructure in Korea, from www.itu.int/TELECOM/wt99/cfp/auth/3205/pap_3205.doc
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Reform and take-off, 1994-2004
GATS accession, 1994• Introduced regulatory reforms, significant tax breaks and eased FDI and
foreign ownership restrictions• Entry and pricing rules relaxed• Exemptions from national taxes (1994-2004) and local taxes (1994-2009)
Hanaro enters broadband market in 1997• Causing KT to aggressively respond
Inflection point in growth of broadband and household computers (1999)
Cyber Korea 21, 1999• Increase competitiveness of Korean industry• Enhance quality of life of citizens
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Consolidating growth with global ambitions, 2004 -
IT 839 (8 services, 3 infrastructures, 9 growth areas)• Infrastructure 3 (Broadband convergence network, U-sensor
network, IPv6) intended to create a broadband service platform and give Korean businesses first-mover advantages
• Renamed u-IT839 in 2006
Massive outlays : USD 70 billion committed Criticized for being too supply-side and serving
Chaebols more than the public interest• But goals are open a part of industrial strategy
• To promote Korean industry (products, R&D)
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Money!
Year Policy Investment, USD m
1984 National Basic Information Systems (NBIS) 200
1987-96 National Database Computerization Project 5,536
1992 Korea Information Infrastructure (KII), 1992 40,000
1993-02 Informatization Promotion Fund 7,800
1994 GATS Tax concessions for those in high-tech and value- added
sectors
1999 Cyber Korea 21 918
2004 Information Technology 839 (IT 839) 70,000
2006 e-Korea Vision 84.4
2007 Broadband IT Korea Vision
2009-13 Ultra Broadband Convergence Network 62
Source: MIC, A critique of Korean National Information Strategy: case of national informational infrastructure, Dong Hee-Shin +
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Demand pull: Gaming
Gaming takes off in “cyber cafes” in 1994 24,000 PC rooms used for gaming by 2002 (USD 1/1
hour) Created demand for broadband even as gaming moved
to the home Collateral effect: 60% of all stock exchange transactions
over the Internet by 2002
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Key themes in the Korean journey
Willingness of govt. to continuously monitor and correct itself• Each plan had problems• Subsequent plans attempt to correct them• And match market/global/national needs and opportunities
Protection of Korean industry• But with explicit deadlines for market opening
Huge government investment/assistance Public-private partnerships Development of related industry key focus in early days
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Can Korean model be replicated in emerging Asia?
No luxury of time Lack of money Even if money IS available
• Consistent policy making: rare• Effective implementation: rarer
Wired broadband unrealistic• E.g. Sri Lanka
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Why Korea cannot be replicated in Sri Lanka (& other emerging economies)
Population (mid 2009) 20.45 million
Wireless connections (2010 Q2) 15.86 m GSM +2.61 m CDMA= 18.47
Wireline connections (2010 Q2) 875,509
Cable households Negligible (terrestrial & satellite TV dominate)
Estimated # of households 4,744,780
Maximum % of households with potential for wire-guided broadband, most generous assumptions
18%
Percentage of wireless-connected households, using harsh assumptions
55% CDMA + 20% GSM = 75%
Period of 3G supply by 3 operators 7 years; 3 years intense competition
E Sri Lanka project costs (USD 83 m, huge by LK standards) as percentage of Korean investment
Less than 1 percent
- Lack of funds
- Lack of existing copper access
network (and declining)
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HONG KONG
Drawing from presentation by Cheuk Sing Tak, Sanda, Head of Regulatory Affairs, OFTA, Hong Kong China at APT Policy & Regulatory Forum, July 2010
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The Future Broadband Network: Market-Led or Government-Led?
Government-led approach• Government to drive broadband investment through incentive
schemes, financial supports and even direct investments• Concerns are
• Inadvertently affect the business case of private investors and could dampen investment sentiment
• The public becomes overly reliant on government funding for future telecom infrastructure
• Need to consider proper regulatory model
Market-led approach• Market presumed to be better than government in making commercial
investments• Concerns are
• Could slow network rollout• Need to consider intervention if market fails to achieve public policy
objectives (e.g. broadband coverage to remote areas)
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Market-Led Approach has role for government But it’s a different role Provide a clear, transparent and predictable regulatory
regime Minimise regulatory barriers to market entry and exit Ensure effective competition and maintain a level playing
field for all players Safeguard the consumer interest Facilitate the building of network infrastructure
- Hong Kong: best example of
market-led approach
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Telecommunications Policy in Hong Kong
Pro-competition and pro-consumer policy objectives• the widest range of quality telecommunications services be
available to the community at reasonable price
• telecommunications services be provided in the most economically efficient manner possible
• Hong Kong be the pre-eminent communications hub for the region
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Telecommunications Policy in Hong Kong
Market-driven approach• Fully liberalised market for telecom services
• No upper limit of no. of licence to be issued• No deadline for application of licence
Telecom companies are entirely privately owned• no government participation / subsidy • no foreign ownership restriction
Minimum intervention; let market serve public interest to maximum extent
Market to decide form and pace of broadband deployment
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HK: Market-Led Approach
Universal service obligation• A comprehensive review conducted in 2007 concluded
that the scope of universal service should not be extended to cover broadband Internet access service.
Network neutrality• OFTA conducted a review in 2009
• There is sufficient competition in both the network and service markets
• As long as the Internet services providers adopt a fair and open method to control the flow of Internet traffic on their networks, this should be tolerated
• OFTA will closely monitor the market and will take appropriate action if adverse market situation arises
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HK: Measures to Facilitate Broadband Deployment
Coordination of Lands Development Projects and Public Works• Operators’ infrastructural requirements will be included in
future development and infrastructural projects
Government Premises and Public Facilities• Allow use by operators for network rollout
• Fixed network operators – public roads, highways, government bridges & tunnels
• Mobile network operators – highway facilities (lamp posts, flyovers, footbridges) & government premises
• Wi-Fi providers –public payphone kiosks for access points
• Only a nominal rental fee is charged
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HK: Measures to Facilitate Broadband Deployment
Facilitate extension of mobile broadband coverage• Use of microwave links and hill-top sites to establish backhaul
network and base stations• More viable and cost effective option for broadband access in
remote and rural areas
Timely Release of Radio Spectrum• release relevant radio spectrum through market-based
mechanisms• Auction of spectrum in 2.3GHz and 2.5 / 2.6GHz bands in Jan 2009
for next generation mobile broadband services
• Auction of spectrum in 850 / 900 / 2100 MHz bands in end 2010
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HK: Measures to Facilitate Broadband Deployment
Registration Scheme for Buildings With Optical Fibre-based Access Networks• A voluntary registration scheme
• For residential buildings• Buildings are classified into
FTTH building; or FTTB building
• Registered buildings are permitted to use label identifying the broadband infrastructure provided
• OFTA acts as the scheme administrator
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HK: Measures to Facilitate Broadband Deployment
Facilitate landing of submarine cables in Hong Kong• Increasing transparency of application procedure• Enhancing coordination between government
departments• Considering relaxation of government subsidised land
for operating cable landing stations• Better use of existing spaces in cable landing stations
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HK: Measures to Facilitate Broadband Deployment
Improving access to broadband for needy families• Provision of cash subsidy for low income families with
children attending primary or secondary school to have broadband access
• USD 167 per year
• Special Purpose Vehicle (SPV) established by government to provide low cost broadband services, low-cost new computers, and training / technical support
• Aimed at mitigating the impact of the digital divide on the quality of learning of children and young people
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Hong Kong: Fixed Broadband Penetration by household
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10
1.9 millionhousehold subscribers82.1% penetration as
at March 2010
Source: OFTA
- 1.9 million household
subscribers
- 82.1% household
penetration (Mar 2010)
- 1.2 million IPTV
subscribers (mid 2010)
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Hong Kong: Fixed Broadband Traffic
0.1 0.20.9
2.9
5.4
7.8
9.610.3
11.5
0
2
4
6
8
10
12
14
2001 2002 2003 2004 2005 2006 2007 2008 2009
Million T
erab
its
Source: OFTA
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Hong Kong: Mobile Data Service Penetration
8.33
4.43
179.3%
0
2
4
6
8
10
12
14
16
18
20
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010
No.
of s
ubs
crib
ers
(Million
s)
0%
20%
40%
60%
80%
100%
120%
140%
160%
180%
200%
3G subscribers2G subscribers *Penetration
* The figures of 2G subscribers include those who subscribed 2G plan or using 2G prepaid card but occasionally use 3G services.** For year 2010, figures of March 2010 are used. Source: OFTA
**
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30
0
100
200
300
400
500
600
700
800
900
1000
Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10
TB
ytes
0
20
40
60
80
100
120
140
160
180
200
MB
ytes
Mobile Data Usage per Month (TBytes)
Usage per Customer per Month (MBytes)
Source: OFTA
875TBytesas at Mar 2010
44TBytesas at Mar 2008
Hong Kong: Mobile Data Traffic
Increased 19.9 times over two years
- 214 Mbytes per 2.5G/3G user per
month (Jul 2010)
- 19.5x growth since Jul 2008
Source: Information Service Dept., Hong Kong SAR (www.gov.hk) and OFTA (www.ofta.gov.lk); Nov 2010
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Hong Kong and Korea outcomes and inputs
Population and pop. density • Great Seoul-Incheon 24 million = 4 x Hong Kong population• Density Seoul 16,000 km2 = 2+ x Hong Kong
Importance of high-rise apartments in both countries
Broadband penetration and use levels in same range
Not very different results, but at much lower cost for Hong Kong
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SRI LANKA
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Regional telecom networks & telecenters
E-gov
E-business develop
ment fund
E society
fund
E-leadership
Example of programmatic approach: e Sri Lanka design (2002-04)
- USD 83+ million (WB,
Korea, other)
- Supply and demand-
stimulation strategies
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No regional telecom networks; commercial telecenters (will remain in long term)
E-gov
E-
business
develop
ment
fund
E
society
fund
E-leadership
Example of programmatic approach: e Sri Lanka design (2002-04)
- Individual components more
successful than foundation.
- Ongoing
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What happened (separate from e-SL): emergence of Budget Telecom Network Model.. Regulator: enable market entry
• Multiple operators high competition
ToP market quickly penetrated Need to penetrate BoP to keep growing
• Need to lower prices (therefore lower costs)
Lowering of operating costs• Over 90% pre-paid (not post-paid): no credit risk, no bill, variable income
customers attracted
• Very low value re-charge; low income customers
• Outsourced/managed networks, utilization based payments, regional negotiations for equipment:lowering network costs
Result: Ability to offer extremely low-priced voice and SMS [budget telecom network model = BTNM]
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…giving low mobile voice & SMS prices
Source: Nokia
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Consequences and natural evolution of BTNM
Low prices + innovative payment modes high usage• MOUs and network load: much higher than EU
Saturating market even reaching BoP• New products to grow revenue Data
Regulator: made 3G spectrum available v. early Same BTNM business model applied to data Result: cheap/affordable data service on mobile networks
• High adoption : data SIMs = fastest growth service• Mobile internet subscriptions = 4x fixed internet subscriptions
|Asia’s first 3G network”; LTE this year; “mobile BB success story”
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..leading to cheap mobile data access
BD, IN, PK – Cheapest among all countriesIN, PK, LK –most affordable group
BD, IN, PK – Cheapest among all countriesIN, PK, LK –most affordable group
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…with quality that’s NOT relatively inferior to fixed BB products
- Solid lines = mobile BB
packages; dotted lines = fixed
BB packages
- Mobile (normadic) BB performs
as well as fixed in Sri Lanka & S.
Asia
- But both (fixed and mobile BB)
perform poorly
Source: www.lirneasia.net; Note: sample results shown. Time series data for bi-annual BB quality of service testing available at www.lirneasia.net.
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But bottlenecks/limits being reached
Access network for BB• Problem solved (more or less)
Mobile BB gives similar speeds to fixed BB But both (fixed and mobile) perform poorly
• Low value for money• Lower than promised speeds
Because bottlenecks exist (in fixed and mobile BB) • In local peering• International connectivity
Due to high cost of backhaul• Local• International
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Local backbone: problematic
Partially govt.-owned incumbent has widest fiber coverage• Unregulated sharing • Not cost based
Largest mobile operator has limited fiber Resulting high use of microwave. Still Plans for NBN halted
• World Bank funds initially allocated no longer available for this purpose
• Currently: plans to “ask” incumbent to implement
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International connectivity: problematic
Expensive access to landing stations• Controlled by incumbent• Operators must use incumbent’s (expensive) fiber to connect to
station• Non-tariff barriers: “delays” when capacity increases needed
General under-supply of international cable in the region• Only better than Africa
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Low supply of int’l cables
Source: Global Marine Systems Ltd.
Fewer cables in Indian Ocean, compared to Pacific, AtlanticFewer cables in Indian Ocean, compared to Pacific, Atlantic
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Resulting higher prices
Source: TeleGeography
$9~10
$32~52
$10~11
Asian Backhaul prices = 3 x N.American or European prices
Asian Backhaul prices = 3 x N.American or European prices
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Sri Lanka: room for improvement
Programmatic approach of policy maker Work in progress/room for improvement
Regulator: facilitated entry; allocates spectrum Mobile voice business model applied to mobile BB
• Successful, so far
But stymied by structural bottlenecks• Backbone (local and international)
Market forces (when facilitated) will get you to a certain point (e.g. developing the access network)
But regulators need to monitor constantly and act • Backbone access (or areas with high coordination cost or externalities)
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CHOICES
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Key decisions to make
Subsidy-driven vs. market-driven • both allow role for government
Organic vs. programmatic• Urge to go programmatic?
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Most relevant choice: Subsidy-driven vs. market-driven
South Korea and Australia are exemplars of subsidy-driven approach
Hong Kong is best example of market-driven approach
Clarifying role of government in each
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Organic-programmatic continuum
India is organic, moving toward programmatic by consolidating multiple initiatives• Many dispersed initiatives (by organization, by city, by
state)• Consolidated under several initiatives
• NEGP and other• Unique Identification Authority under Nandan Nilekani
Sri Lanka started on the programmatic end (e Sri Lanka initiative in 2003), but is actually organic, in the face of weaknesses of execution
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CONCLUSION
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Nature of the state is key
Choices that need to be fully examined• Programmatic vs. organic• Subsidy-led vs. market-led
• Korea vs. Hong Kong?
Markets can lead, but not in the absence of ineffective regulation
Market-led does not mean govt. has no role• Different role• Facilitating/enabling/incentivizing vs. funding/investing vs.
implementing vs. operating
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The appropriate solution depends on nature of the state• Back to Levy & Spiller (1994): institutions and context• What will work in a country with an efficient
bureaucracy will not necessarily work in one that does not
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To improve the lives of the people of the emerging Asia-Pacific by facilitating their use of ICTs and related infrastructures; by catalyzing the reform of laws, policies and regulations to enable those uses through the conduct of policy-relevant research, training and advocacy with emphasis on building in-situ expertise
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