economic meaning of emerging communication technologies ... · business strategies. the polish...

Economic Meaning of Economic Meaning of EmergingEmergingCommunication Technologies for Communication Technologies for CEE Countries and Baltic StatesCEE Countries and Baltic States

Jaroslaw K. PonderJaroslaw K. PonderMarket, Economics and Fianance Unit

Telecommunciation Development Biureau International Telecommunication Union

Seminar on Mearket Analysis in CEE Countries and Baltic States:

Economic Dynamics of Newly Liberalized Telecommunication Markets in CEE Countries and Baltic States

5 - 7 October 2004

Vilnius, Lithuania

21. September 2004 2

AgendaAgenda

• ICTs in CEE Countries– Fixed Telecommunciations– Mobile Telecommunications– Internet

• Economic Meaning of ICTs in CEE Countires

• Policy Implications


Fixed TeleFixed Teleccommunicationommunicationss in in CEECEE CountriesCountries

• Fixed lines per inhabitant including ISDN channels per 100 inhabitants and per 100 households in 2002-2003 decrease in many countries .– Are these markets already saturated?– Is it effect of emerging communication technologies, especially

wireless communication technologies?– Is it bad performance of the telecommunication sector?

• The following countries belong to the exceptions:– Bulgaria – Czech Republic– Poland – Slovenia

Source: IBM (2003)


Modernization of the Networks Modernization of the Networks

• The rate of digitalization of fixed networks in CEE countries is still increasing as the effect of the intensive investment programmes.

• In 2003 most of the countries achieved the level of the 100 %.

• The digitalization of the networks is the prerequisite for the modern communication services.

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

Czech Republic Estonia Hungary Poland Slovenia

Slovenia

Czech Rep.

Poland

Estonia

Hungary

0%

100%

200%

300%

400%

500%

600%

700%

800%

900%

1000%

1100%

1200%

1300%

1400%

1500%

1600%

1700%

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

Czech Republic Estonia Hungary Poland Slovenia

Digitalization (1991-2003)

Investment (1991-2003) Digitalization (2002)

Source: IBM (2003),

Sour

ce: I

TUSo

urce

: ITU


Mobile Telecommunications in CEECsMobile Telecommunications in CEECs

• The popularity of the mobile telecommunications is still increasing. Mobile penetration remained below the EU average in most CEECs, except the Czech Republic and Slovenia; As of 30 June 2004, in Poland the penetration rate is on the level of 50%.

• The prevailing technologies include: GSM in 3 frequency bands, NMT 450, CDMA 450 MHz (e.g. Romania, Russia, Latvia), WiFi and WiMAX.

• The value added services sometimes are implemented on CEE markets even faster than in western European countries: MMS, GPRS, HCDS.

• Most of the countries has already made decision concerning the implementation of UMTS. Some of countires are just in the process of granting of licenses. Some of the countries review the licensing policies (e.g. Poland, question of the license fees).

• In many countries the market segment of costumers with the high willingness to payfor the communication services has been exhausted. The operators look for the new business strategies. The Polish experiences demonstrate that the youth oriented strategy can be successful. By achieving the economies of scale it is possible to enhance the profitability.

Source: IBM (2003)


Telecommunication Market Telecommunication Market Segmentation in CEECs, 2002Segmentation in CEECs, 2002

46%

35%

39%

41%

39%

40% 54

%

50%

41%

42% 60

%

54%

49%

41,2

0%

40%

53% 57

%

48%

54%

49%

44%

39%

51%

51% 36

%

41%

45%

50,0

0%

0%10%

20%30%40%50%

60%70%80%

90%100%

CY CZ EE HU LV LT MT PL SK SI 1999 2000 2001 2002

Fixed Tel. Mobile Fixed Internet Data+LL

Note: * - Cyprus, Malta has been excluded, LL – leasing of lines.Source: PWC (2002), IBM (2003), own calculations.


Data Transmission Services in Mobile Data Transmission Services in Mobile Telecommunications in CEECs, Telecommunications in CEECs, 20012001--20062006

Source: Ludwiczynski A. (2002)

Source: Ludwiczynski A. (2002)


Internet DynamicsInternet Dynamics

Internet Users in CEECs (2003)

0,00 0,02

0,09

0,35

0,71

0,00

0,10

0,20

0,30

0,40

0,50

0,60

0,70

0,80

1999 2000 2001 2002 2003

Eastern Europe

Growth of DSL Subscribers in Eastern Europe (000s), 1999-2003

Eastern Europe Penetration Growth (DSL/100 phone lines, 1999-2003)

0.00 7.8033.10

124.10

455.50

0

50

100

150

200

250

300

350

400

450

500

1999 2000 2001 2002 2003

Growth in the number of Internet users

Source: eEurope+ NSO and Household Survey, June 2003

Source: eEurope+ NSO and Household Survey, June 2003

Source: www.point-topic.com (2004)

Source: www.point-topic.com (2004)



•eEurope+ NSO and Household Survey, June 2003; CY,MT and TR - National Surveys

Affordability of a PC relative to monthly household income

Average spending of internet access per month as percentage of

monthly household

•Source: eEurope+ NSO and Household Survey, June 2003



Percentage of enterprises having access/broadband access to the Internet

Percentage of households with broadband access to the Internet •Source: eEurope+ NSO and Household Survey, June 2003

•Source: eEurope+ NSO and Household Survey, June 2003


Digital Divide: Digital Divide: European PerspectiveEuropean Perspective (2002)(2002)

Sources : ITU (2003), IBM (2003), EUROSTAT (2003) own calculations.

37,2%6,5%37,1%81,8%56,7%26.466EU-15 average

25,3%1,49%24,1%82,6%46,9%19233EU-3 average

56,1%1,45%19%82,2%45,9%20.700Spain

11,7%1,58%35%81,9%41,9%18.000Portugal

8,1%1,45%18%83,8%52,9%19.000Greece

EU 15 countries : poor

17,5%2,10%26,1%60,7%38,9%12620EU AC average

30,0%1,92%42%85%42,4%18.000Slovenia

18,4%1,65%16%54%27,2%12.200Slovak R.

8,5%1,89%23%35%34,7%9.500Poland

22,9%1,93%29%72%52,7%17.000Malta

7,0%1,77%20%47%26,8%8.400Lithuania

17,1%1,53%14%40%30,6%8.300Latria

10,8%2,57%16%68%35,4%13.300Hungary

21,0%4,68%41%63%35,0%10.900Estonia

14,6%2,48%30%84%34,8%15.300Czech R.

24,4%0,64%30%59%69,3%13.300Cyprus

EU AC countries

PCsInternet HostsInternet UserMobile Telephone

Fixed Telephone

GDP per capita, PPP

($)


“Digital Divide” :“Digital Divide” :European Perspective European Perspective (2002)(2002)

47,7%

38,9%

60,7%

26,1%

2,1%

17,5%

72,7%

46,9%

82,6%

24,1%

1,5%

25,3%

100,0%

56,7%

81,8%

37,1%

6,5%

37,2%

0,0%

10,0%

20,0%

30,0%

40,0%

50,0%

60,0%

70,0%

80,0%

90,0%

100,0%

GDP per capita, PPP (EU=€26.466)

Fixed Telephone Mobile Telephone Internet User Internet Hosts PCs

EU AC average EU-3 average EU-15 averageSources : ITU (2003), IBM (2003), EUROSTAT (2003) own calculations.


IKT IKT Expenditures Expenditures in in CEECsCEECs (2002)(2002)

• However nominal ICT-expenditures of CEEC are significantly smaller, the CEEC countries spend for ICT significantly more in relation to their GNP (in average 9 %). In western Europe the countries spent 6,7 % of their GNP on ICT.

• Estonia, Bulgaria, Latonia, Slovakia and Hungary, of which ICT/GNP relation exceeds 10 % turn a special attention. Czech Rep .

1 6 %

Hungary

1 5 %

Romania

10%

Slovakia Rep.

6 %

Bulgaria

4 %

S lovenia

4%

Pola n d

3 8 %

Lituania

3 %

Letonia

2 %Esto n ia

2%

Expenditures for ICT in Expenditures for ICT in CEECsCEECs, 2002 , 2002 (total 40023 Mill. €) (total 40023 Mill. €)

Expend.For ICT(Mill.€)

Share inCEEC

Market (%)

RelationICT/GNP (%)

ICTExpenditur

Per capita (€)

Romania 3916 9,8 8,6% 180,5Bulgaria 1700 4,2 11,4% 213,1Lituania 1086 2,7 7,5% 311,7Poland 15049 37,6 7,7% 389,5Letonia 951 2,4 10,6% 405,4Slovakia Rep. 2296 5,7 10,7% 426,8Estonia 804 2 12,6% 590,6Hungary 6111 15,3 10,2% 599,3Czech Rep. 6422 16 9,9% 623,9Slovenia 1688 4,2 7,9% 846,2CEEC total 40023 100 9,0% 387,2Western Europe total 592000 100 6,7% 1521,5

• Poland, Czech Rep. and Hungary belong to the biggest ICT markets in CEEC region. ICT expenditures of these countries represent about 70% of all expenditures of CEEC region.

• Per capita expenditures in CEECs are about 4 times smaller than the average expenditures of west European countries.

Source: EITO (2003)


Economic Meaning of Economic Meaning of TelecommunicationTelecommunication SectorSector

Source: IBM, 4th Report on Monitoring of EU Candidate Countries (Telecommunication Services Sector), Dec 2003

Size of telecommunications market compared with GDP, 2002


Economic CatchEconomic Catch--up Processup Process: : Simulation Simulation

Years needed to Catch-up to the EU average Hypothetic Average Economic Growth Rates

EU AC countries GDP per capita, PPP ($)

2002 1% 2% 3% 4% 5%

Slovenia 18.000 39 19 13 10 8 Malta 17.000 44 22 15 11 9 Czech Rep. 15.300 55 28 19 14 11 Cyprus 13.300 69 35 23 18 14 Hungary 13.300 69 35 23 18 14 Slovakia 12.200 78 39 26 20 16 Estonia 10.900 89 45 30 23 18 Poland 9.500 103 52 35 26 21 Latria 8.300 117 59 39 30 24 Lithuania 8.400 115 58 39 29 24 EU AC average 12.620 74 37 25 19 15 Spain 20.700 25 12 8 6 5 Greece 19.000 33 17 11 8 7 Portugal 18.000 39 19 13 10 8 EU-3 average 19233 32 16 11 8 7 EU-15 average 26466

Source: Own calculations based on data from WDI (2002).


Economic Meaning of ICTs in CEECsEconomic Meaning of ICTs in CEECs

Diffusion DeterminantsDiffusion Determinants

Economic Effects of ICTEconomic Effects of ICTInstitutional ApproachInstitutional Approach

Telecom Infrastructure and/or Usage

Economic Wealth



• Diffusion of ICTs in CEECs– Muller, Salsas (2003) – Determinants of the Internet

Usage : internet hostsinternet hosts, income per capitaincome per capita, opennessopenness, educationeducation, politicalpolitical and civil freedomscivil freedoms, state of state of transitiontransition towards a liberalized telecommunications regime, the state of the telecommunications telecommunications infrastructureinfrastructure, cost of telephone

•• Internet usage costsInternet usage costs do not explain cross-country differences in the number of Internet hosts and users

– Muller, Salsas (2004) – Significant determinants of the Internet usage in enterprises: tradetrade, company sizecompany size, computer usagecomputer usage, degree of the telecom market telecom market liberalizationliberalization



• Institutional Approach – Piatkowski (2003) – New Economy Indicator – level of

institutional readiness of transition economies for adoption of the New Economy. Slovenia, Czech Slovenia, Czech Republic, Hungary and EstoniaRepublic, Hungary and Estonia belong to the regional leaders. (NEI Factors: regulation, infrastructure, trade, financial system, R&D, human capital, labour market flexibility, product market flexibility, entrepreneurship, macroeconomic stability)

– Piech (2004) – Knowledge Assessment Methodology of World Bank (KAM Methodology: GDP, HDI, Tariffs, Property rights, Regulation, Researchers in R&D, Manuf. Trade, Adult literacy, …, Telephones, Computers, Internet hosts). Czech Czech Republic and EstoniaRepublic and Estonia, the most promising countries of region. The same structureThe same structure as developed countries.



• Economic Growth– Kolasa, Zolkiewski (2004) – Poland: ICT investment contributes

positively to TFP growth – Piatkowski (2003) – CEEC-8: ICT capital contribution to output

growth and labour productivity (extraordinary increase in real ICT investment caused by a) falling prices of ICT, b) higher-than-normal returns on investment due)

– Rajasalu, Laur (2003) – Estonia: low contribution of ICT sectors in Estonia´s output. The evidence of direct positive impact of hightech, medium, high tech and knowledge intensive industries on economic growth is not very convincing. High dependence on subcontracting and transfer pricing makes the contribution of high and medium-high tech industries rather low. Economic growthEconomic growth isisinfluenced more by indirect impact of ICTinfluenced more by indirect impact of ICT that made the economy as a whole more competitive and helped to attract investments and create new jobs.



• Economic Growth– Van Ark (2004) – Old and New Europe: Contribution of ICT

investment to productivity growth is positive and significant but differentiates between all CEECs exist.

• Champions: Czech Republic, Hungary

– Perminova (2004) – Russia: ICT contribution to the labor productivity growth 1996-2000 in:

•• ICT using sector ICT using sector -- even 5 times bigger than in Europe and 2 times as big as in USA,

•• non ICT using sector non ICT using sector -- like in USA, •• ICT producing sectorICT producing sector - very small 1/10 of European or USA

achievements.


Correlation between Correlation between IICTCT and and GDP per capita GDP per capita (ppp)(ppp)

HungaryCz. R.

Estonia

Slovak R.Poland

Bulgaria Slovenia

Greece

Romania

IrelandSpainPortugal

y = 1E-05x + 0,1999R2 = 0,5989

0%10%20%30%40%50%60%70%80%

0 5.000 10.000 15.000 20.000 25.000 30.000 35.000

GDP pec Capita (PPP, $)

Fixe

d Te

leph

one

Den

sity

Lithuania

EstoniaCzech R.

PolandSlovak R.

Denmark

Ireland

Hungary

SloveniaGreece

PortugalSpain

y = 3E-05x + 0,006R2 = 0,7428

0%10%20%30%40%50%60%70%80%90%

0 5.000 10.000 15.000 20.000 25.000 30.000 35.000

GDP per Capita (PPP, $)

Mob

ile T

elep

hone

Den

sity

Estonia

Czech R.Greece

Hungary

Portugal

Slovenia

Sweden

Ireland

Denmark

Poland

Spain

y = 1E-05x - 0,0085R2 = 0,5405

0%

10%

20%

30%

40%

50%

0 5.000 10.000 15.000 20.000 25.000 30.000 35.000

GDP per Capita (PPP, $)

Inte

rnet

Use

r D

ensi

ty

Poland

Estonia

NetherlandsFinland

Czech R.Latvia

Hungary

Ireland

Sweden

Slovenia

y = 0,0023e0,0001x

R2 = 0,6295

0%

2%

4%

6%

8%

10%

12%

0 5.000 10.000 15.000 20.000 25.000 30.000 35.000

GDP per Capita (PPP,$)

Inte

rnet

Hos

ts D

ensi

ty

Note: The depicted relationship is calculated from data for the year 2000 from 26 European countries, i.e. EU-14 (EU -15 minus Luxemburg), EU accession countries, Turkey and Bulgaria. / Source: ITU (2003), own calculations.

Fixed TelecommunicationsFixed Telecommunications Mobile TelecommunicationsMobile Telecommunications

Internet User per 100Internet User per 100 Internet Hosts PenetrationInternet Hosts Penetration


Correlation Coefficients, (2002)Correlation Coefficients, (2002)

GDP per capita,

PPP ($)

Fixed Telephone

Mobile Telephone

Internet User

Internet Hosts

PCs

GDP per capita, PPP ($)

Pearson Correlation

1 ,759** ,752** ,542** ,358 ,723**

Significance (2-side)

,000 ,000 ,005 ,079 ,000

N 25 25 25 25 25 25 Fixed Telephone

Pearson Correlation

,759** 1 ,564** ,628** ,380 ,726**


,000 ,003 ,001 ,061 ,000

N 25 25 25 25 25 25 Mobile Telephone

Pearson Correlation

,752** ,564** 1 ,506** ,237 ,518**


,000 ,003 ,010 ,254 ,008

N 25 25 25 25 25 25 Internet User

Pearson Correlation

,542** ,628** ,506** 1 ,688** ,631**


,005 ,001 ,010 ,000 ,001

N 25 25 25 25 25 25 Internet Hosts

Pearson Correlation

,358 ,380 ,237 ,688** 1 ,527**


,079 ,061 ,254 ,000 ,007

N 25 25 25 25 25 25 PCs Pearson

Correlation ,723** ,726** ,518** ,631** ,527** 1


,000 ,000 ,008 ,001 ,007

N 25 25 25 25 25 25

Note : ** The correlation is significant on the level of 0,01 (2-side).Source : ITU (2003), own calculations.


Policy Implications Policy Implications

• Digital modernization should be a key word for the CEECs looking for the factors accelerating the process socio-economic catching-up.

• The first proves of the economic meaning of ICT sector in CEECs opens the new perspectives in terms of the economic policies (also for the developing countries).

• The existence of the digital divide should motivate the CEECs to look for the most efficient digital ICTs (Fixed telecommunications is important but the emergence of all wireless technologies can minimize its role)

• The ICT diffusion depends on the prices that is why especially in countries of a low average disposable income the fostering of competition in ICT markets should become the most important objective of each policy maker.

• The state should use the potential of digital ICTs for its modernization what can be connected with plenty of economic advantages. In theprocess of creating of workable e-government the sequencing should play the most important role.


Thank you very much for Thank you very much for your attentionyour attention

Jaroslaw K. PonderJaroslaw K. PonderMarket, Economics and Finance Unit Market, Economics and Finance Unit

Telecommunication Development Biureau Telecommunication Development Biureau International Telecommunication UnionInternational Telecommunication Union

Tel.: +41 22 730 59 10 Tel.: +41 22 730 59 10 EE--mail: mail: [email protected]@itu.int

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