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Market forces alone won’t end the digital divide

The UN says the digital divide is narrowing. Murali Shanmugavalen tells us to think twice about leaving the job to telecoms industry giants.

When I grew up in Madurai, the second largest city in the Indian state of Tamil Nadu, there was only one private telephone line in a street of about 100 families. It took seven years for my father to get a phone thanks to a long waiting list and inadequate infrastructure. Today my parents have one landline and three mobile phones in a household of seven. India is now the world's third largest telecoms market with more than 250 million telephones for a population of 1.1 billion.

Over the last decade many developing countries have witnessed a similar expansion. Telephones, computers, the internet, and satellite have connected millions of people who previously had little contact with the outside world. The number of mobile phone connections has overtaken fixed lines, and the trend is set to continue.

Private telecom firms have played a pivotal role by reducing calling costs and revamping payment packages. The invention of 'pay-as-you-go', which allows those without a credit history to own a mobile telephone, has given people with few means a chance to take part in the information revolution.

A recent report by the consultancy firm Intelecon predicts that 90 per cent of the global market will have access to a mobile phone operator by 2010. However, between two and five per cent of the world's population (120 to 300 million people) is expected to be too unprofitable to benefit from these services. This digital underclass is likely to be concentrated in the world's poorest countries. Calling charges are still high

We are all too familiar with stories about the potential for technology to help those in developing countries, from subsistence farmers to impoverished fishermen using mobile phones to check weather forecasts and market prices. But we tend not to hear that calling tariffs remain prohibitively high in many areas and cheap calls are far from consistently available.

Research by the London School of Economics reveals wide disparity in worldwide mobile phone charges. Using figures from the International Telecommunications Union it examined mobile tariffs in 40 countries. In 2004, there were 48 mobile phone subscribers in India for every 1,000 people compared to 367 in Brazil. Yet Brazilians had to pay an average of US$18.90 a month while Indian subscribers paid just US$3.20.

This finding defies conventional market wisdom that prices fall automatically as the number of subscribers increases. Nevertheless, operators reject allegations that their tariffs are inflated and applied inconsistently across markets. And they are reluctant to elaborate on how they set their call charges, claiming that such decisions are commercially confidential.

The fact is that providers charge vastly varying prices for identical services in different markets. More often than not, these high tariffs are simply the result of companies pursuing larger profit margins without sufficient protection for the consumer.

In Europe, regulators are beginning to catch up with unfair pricing practices. For example, in March 2007, the UK regulator Ofcom clamped down on wholesale termination rates – the fee mobile companies charge each other and fixed-line operators to carry calls.

The European Commission has introduced the 'Eurotariff', which sets limits on the amount mobile operators can charge for calls made or received while a user is abroad in an EU country. It has also questioned why so-called premium rate numbers should be more expensive than national calls and has ordered providers to be more transparent about their pricing policies.

What's clear is that it takes a combination of competition and regulation to drive down prices. The private sector, even when competitive, will not automatically guarantee affordable access to underserved consumers.

Access to the internet is far from universal

While the mobile revolution using phone masts paid for by private companies has increased the subscriber base, providing affordable internet services is far more complex.

There are welcome technological developments in the shape of satellites and wireless networks which enable people in rural areas to make phone calls and to get online. But it remains the case that physical infrastructure such as optical fibre networks are superior and cheaper for the end-user than satellite-driven internet.

Broadband providers in Eastern Africa pay around US$1500-1700 for one mbps of satellite bandwidth per month compared to US$2.50 a month for the equivalent connectivity between North America and Europe via an undersea optical fibre link.

However, such infrastructure requires massive investment. A US$300 million project to connect a 9,900km stretch of Eastern Africa with undersea cabling – the Eastern Africa Submarine Cable System (EASSy) – has been held up by squabbling between its 22 consortium members. Negotiations between the private companies, governments and international organisations, which require agreement across several territories, are proving far from easy.

A role for public and private sectors

Of course, private companies do not have a duty to roll out services to communities in remote areas or to low-income families who cannot afford connection costs. Governments, however, do bear this responsibility. Indeed, many have agreed to the principle of universal access – that everyone should be within reasonable distance of a telephone (the definition of 'reasonable' is left to each country to decide).

This challenge is not unique to developing countries. The United States, the richest country in the world, is no exception: broadband penetration in urban areas is almost double that in rural. It is clear that the only way to provide affordable communication services in even the most 'connected' countries relies on hefty investment in infrastructure from both public and private sectors.

Put simply, the market alone cannot secure the 'last mile' of connectivity. Indeed, some aspects of communication provision are beyond the reach of private players. National strategies for access to communications in developing countries must therefore be smarter and linked with other initiatives. For example, planners are considering how to make use of India's extensive railway network to deliver internet connections to remote villages. Such 'hybrid infrastructures' require state intervention and coordination.

The contribution of market to the communications explosion in developing countries cannot be overstated. But it is also true that billions remain excluded from the benefits of information and communications technologies. The answer is threefold: political commitment to curbing unfair competition, investments in infrastructure in rural areas, and the establishment of strong and independent regulators.

Murali Shanmugavelan is head of our information society programme 

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