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IncreasingBroadbandInternetPenetrationIntheOICMemberCountries

COMCECCOORDINATIONOFFICE

February2017

StandingCommitteeforEconomicandCommercialCooperationoftheOrganizationofIslamicCooperation(COMCEC)

IncreasingBroadbandInternetPenetration

IntheOICMemberCountries

COMCECCOORDINATIONOFFICEFebruary2017

StandingCommitteeforEconomicandCommercialCooperationoftheOrganizationofIslamicCooperation(COMCEC)

ThisreporthasbeencommissionedbytheCOMCECCoordinationOfficetoTelecomAdvisoryServices,LLC.Viewsandopinionsexpressedinthereportaresolelythoseoftheauthor(s)anddonotrepresenttheofficialviewsoftheCOMCECCoordinationOfficeortheMemberStatesofthe Organization of Islamic Cooperation. Excerpts from the report can be made as long asreferencesareprovided.AllintellectualandindustrialpropertyrightsforthereportbelongtotheCOMCECCoordinationOffice.Thisreportisforindividualuseanditshallnotbeusedforcommercial purposes. Except for purposes of individual use, this report shall not bereproduced in any form or by any means, electronic or mechanical, including printing,photocopying, CD recording, or by any physical or electronic reproduction system, ortranslated and provided to the access of any subscriber through electronic means forcommercialpurposeswithoutthepermissionoftheCOMCECCoordinationOffice. Forfurtherinformationpleasecontact:COMCECCoordinationOfficeNecatibeyCaddesiNo:110/A06100YücetepeAnkara/TURKEYPhone:903122945710Fax:903122945777E-mail:[email protected]:www.comcec.org

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TableofContents

EXECUTIVESUMMARY 1

I. INTRODUCTION 8

II. CONCEPTUALFRAMEWORKREGARDINGBROADBANDPENETRATION 11

II.1.Impactofbroadbandoneconomicandsocialdevelopment 11II.2.Differencesbetweendevelopedanddevelopingcountrieswithregardstobroadbandimpact 23II.3.Technologicalevolutionofbroadband 27II.4.Mainchallengesregardingfixedandmobilebroadbandpenetration 32

III. BRAODBANDGLOBALTRENDS 35

III.1.Globalbroadbandindustrytrends 35III.2.Globaltrendsregardingbroadbanddevelopment 40III.3.Mainpolicy,regulatoryapproachesandimplementationforincreasingbroadbandpenetration 52III.4.BestPracticesofnon-OICdevelopingcountriesforincreasingbroadbandpenetration 57III.5.Criticalsuccessfactorsforincreasingbroadbandpenetration 63

IV. CURRENTSITUATIONOFBROADBANDPENETRATIONINTHEOICMEMBERCOUNTRIES71

IV.1.BroadbandSupplyintheOICMemberCountries 71IV.2.BroadbandDemandintheOICMemberCountries 84

V. COUNTRYCASESTUDIES 94

V.1.COTED’IVOIRE 95V.1.1.DemandforBroadbandServices 95V.1.2.Supplyofbroadbandservices 103V.1.3.Institutionalstructureandpoliciesforpromotingbroadband 113V.1.4.Lessonslearned 114

V.2.SAUDIARABIA 117V.2.1.DemandforBroadbandServices 117V.2.2.Supplyofbroadbandservices 126V.2.3.InstitutionalStructureandPoliciesforPromotingBroadband 133V.2.4.LessonsLearned 134

V.3.KAZAKHSTAN 136V.3.1.DemandforBroadbandServices 137V.3.2.SupplyofBroadbandServices 142V.3.3.InstitutionalStructureandPoliciesforPromotingBroadband 150V.3.4.LessonsLearned 153

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VI. POLICYRECOMMENDATIONS 155

VI.1.AdvancedOICMemberCountries 156VI.1.1.Promotionofinvestmentofnextgenerationbroadbandnetworks 157

VI.2.OICMemberCountriesatanintermediatestageofbroadbanddevelopment 158VI.2.1.Initiativestopromotedigitalliteracy 160

VI.3.OICMemberCountriesatembryonicbroadbanddevelopment 161VI.3.1.Tacklingthebroadbandaffordabilitychallengeinlow-incomecountries 162

References 162

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ListofFigures

Figure1:OICMemberCountries:Diffusionoffixedandmobilebroadband 8Figure2:Socialandeconomiccontributionofbroadband 11Figure3:InformationworkersanICTinvestment 18Figure4:CausalityModel:ICTinnovationanddiffusionisdrivenbythegrowthofinformation

workforce 19Figure5:Conceptualrepresentationofconsumersurplus 22Figure6:OECD:PercentageofimpactofbroadbandonGDPgrowth 24Figure7:Fixedbroadbandeconomicimpactvs.fixedbroadbandpenetration 25Figure8:Theregionaleffectofbroadbandonjobcreationaccordingtodifferentlevelsof

penetration 26Figure9:Totaltelecommunicationsindustryrevenues(inUS$)(2010-2014) 37Figure10:Economiesofscaleinthewirelessindustry 38Figure11:Differenceinscaleeconomiesbetweenlocalandglobaloperator 39Figure12:WorldwideInternetadoption(aspercentofworldpopulation)(2000-2015) 41Figure13:SelectedRegions:Internetpenetration(aspercentofpopulation)(2000-2015) 42Figure14:Worldwideinternetadoptionvs.fixedbroadbandadoption(2000-2015) 42Figure15:SelectedRegions:Fixedbroadbandpenetration(2000-2015) 44Figure16:SelectedRegions:Mobilebroadbandpenetration(2007-2015) 45Figure17:Correlationbetweenfixedbroadbandpenetrationandpriceelasticity 54Figure18:OICMemberCountries:Mobilebroadbandcoverage(3G)(2015) 72Figure19:OICMemberCountries:Herfindahl-HirschmanIndexofthefixedbroadbandindustry

(2016) 78Figure20:OICMemberCountries:Herfindahl-HirschmanIndexofthemobilebroadbandindustry

(2016) 80Figure21:OECDversusOICMemberCountries:Internetpenetration 85Figure22:OECDversusOICMemberCountries:Fixedbroadbandpenetration(2000-2015) 86Figure23:OECDversusOICMemberCountries:Mobilebroadbandpenetration(2007-2015) 87Figure24:OICAverage:Pricingofselectedbroadbandproducts 90Figure25:Percentageoflocalinternetcontentbyregion(2013) 92Figure26:Coted’Ivoire:Comparativeadoptionoffixedandmobilebroadband(2003-2016) 96Figure27:Coted’Ivoire:Uniquevisitorsamongsiteswith>100,000visits(September2016) 97Figure28:Coted’Ivoire:Internetusersandfacebookmembers(2000-2016) 98Figure29:Sub-SaharanAfrica:TelecommunicationsAffordabilityIndex(2014) 101Figure30:Coted’Ivoire:Mobilebroadbandmarketshares(bysubscribers)(2012-2016) 105Figure31:Coted’Ivoire:MobilebroadbandHerfindahl-HirschmanIndex(2012-2016) 105Figure32:Monthlysubscriptionof1GBcapUSB(inUS$) 109Figure33:OICMemberCountries:Fixedbroadbandvs.mobilebroadbandpenetration(2015) 118Figure34:SaudiArabia:Comparativeadoptionoffixedandmobilebroadband(2003-2016) 119Figure35:SaudiArabia:Internetusersandsocialnetworkmembers(2000-2016) 121Figure36:Correlationbetweeninternetpenetrationandelectroniccommerceaspercentageof

totalretailing(2015) 123Figure37:OICMemberCountries:TelecommunicationsAffordabilityIndex(2014) 125

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Figure38:Monthlysubscriptionof1GBcapUSB(inUS$) 131Figure39:Kazakhstan:Comparativeadoptionoffixedandmobilebroadband(2003-2016) 138Figure40:Kazakhstan:Internetusersandfacebookmembers(2000-2016) 139Figure41:Asia:TelecommunicationsAffordabilityIndex(2014) 141Figure42:Monthlypost-paidsubscriptionof1GBcapUSB(2012-2015)(inUS$) 149

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ListofTables

Table1:OICMemberCountries:Stateofbroadbandsupplyanddemand(2015) 5Table2:ResearchresultsoffixedbroadbandImpactonGDPgrowth 13Table3:ResearchresultsofmobilebroadbandimpactonGDPgrowth 14Table4:Broadbandconstructionimpactonjobcreation 15Table5:Impactofpositivebroadbandexternalitiesonemployment 16Table6:Broadbandcommunicationsvaluechain 27Table7:GlobalpresenceofMNCbroadbandproviders 40Table8:WorldwideInternetadoption(aspercentofpopulation)(2015) 41Table9:WorldwideFixedBroadbandadoption(aspercentofpopulation)(2015) 43Table10:WorldwideMobileBroadbandadoption(as%ofpopulation)(2015) 44Table11:Regionalfixedbroadbandcoverage(aspercentofpopulation)(2015) 46Table12:Fixedbroadbandcoverage(bycountry)(aspercentofpopulation)(2015) 46Table13:Mobilebroadband(3G)Coverage(byregion)(aspercentofpopulation)(2015) 47Table14:Fixedbroadbanddemandgap(2015) 48Table15:Mobilebroadbanddemandgap(2015) 49Table16:Percentageofhouseholdsmentioningaffordabilityasareasonfornotpurchasing

broadband 50Table17:Percentageofhouseholdsmentioningdigitalliteracyasareasonfornotpurchasing

broadband 51Table18:Percentageofhouseholdsmentioningculturalrelevanceorlackofneedasareasonfor

notpurchasingbroadband 52Table19:Impactonpenetrationleveloffixedbroadband(FBB)ofapricereduction 55Table20:Uruguay:“Social”broadbandplans 60Table21:SelectedOICMemberCountries:Fixedbroadbandcoverage(2016) 71Table22:OICMemberCountries:Mobilebroadbandcoverage(3G)(2015)(%) 71Table23:OICMemberCountries:Mobilebroadbandcoverageanddownloadspeed(4G)(2016) 73Table24:OICMemberCountries:Breakdownoffixedbroadbandlines 73Table25:OICMemberCountriesandOECD:Averagefixedbroadbandspeed(inMbps)(2015) 75Table26:OICMemberCountries:Breakdownofmobilebroadbandsubscribers 75Table27:OICMemberCountriesandOECD:Averagemobilebroadbandspeed(inMbps)(2015) 77Table28:OICMemberCountries:Fixedbroadbandmarketstructure(2016) 77Table29:OICMemberCountries:Mobilebroadbandmarketstructure(2016) 79Table30:OICMemberCountries:Presenceofglobalmobilebroadbandoperators(2016) 80Table31:InternetPenetration:OICMemberCountriesvs.allcountries 85Table32:SelectedOICMemberCountries:Fixedbroadbanddemandgap(2016) 87Table33:Mobilebroadbanddemandgap(2015) 88Table34:OICMemberCountries:Mobilebroadbanddemandgap 89Table35:Reasonsofbroadbandnon-adoptersfornotpurchasingbroadband(%) 89Table36:StateofbroadbandsupplyanddemandofOICMemberCountries 94Table37:OICMemberCountries:Stateofbroadbandsupplyanddemand 94Table38:Fixedbroadbandlines(2003-2016) 95Table39:Mobilebroadbandsubscriptions(2011-2016) 95

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Table40:Comparativebroadbandusage(2016) 96Table41:Coted’Ivoire:PopulationaccessingtheInternet(2003-2015) 97Table42:Facebookmembersasregularinternetusers(2015) 98Table43:Coted’Ivoire:Mobilemoneyservices 99Table44:NumberofMNO-onlysubscriberstomobilemoney(2014-2016) 99Table45:Coted’Ivoire:Mobilebroadbanddemandgap(2011-2016) 100Table46:Coted’Ivoire:Fixedbroadbandmarketstructure(2Q2016) 104Table47:Coted’Ivoire:FixedbroadbandHerfindahl-HirschmanIndex(2013-2016)(%) 104Table48:Coted’Ivoire:Mobilebroadbandmarketstructure(4Q2015) 104Table49:Coted’Ivoire:Mobilebroadbandmarketstructure(2Q2016) 106Table50:Coted’Ivoire:Fixedbroadbandspeeds 108Table51:FixedBroadbandSpeedLevels:Coted’Ivoirevs.othercountryaverages(2015) 108Table52:Coted’Ivoire:Privatesectorfixedbroadbandinvestment(US$) 109Table53:Coted’Ivoire:Privatesectormobileinvestment(US$) 110Table54:Coted’Ivoire:Factorsinfluencingbroadbandcapitalspending 113Table55:SaudiArabia:Fixedbroadbandlines(2003-2015) 117Table56:SaudiArabiavs.OICMemberCountries:Fixedbroadbandhouseholdpenetration(2015)117Table57:SaudiArabia:Mobilebroadbandsubscriptions(2010-2016) 118Table58:SaudiArabia:Populationaccessingtheinternet(2004-2016) 120Table59:SaudiArabia:Primaryinternetuse(2015) 120Table60:Facebookusersasregularinternetusers(2015) 122Table61:SaudiArabia:Mobilebroadbanddemandgap(%) 124Table62:SaudiArabia:Pre-paidversuspost-paidsubscriptions(2012-2015) 125Table63:SaudiArabia:Evolutionofmobilebroadbandservicecoverage(2011-2015)(%) 127Table64:SaudiArabia:Fixedbroadbandmarketstructure(2Q2016) 127Table65:SaudiArabia:Mobilebroadbandmarketstructure(2Q2016) 127Table66:SaudiArabia:Currentbroadbandtechnologiesutilized 129Table67:SaudiArabia:Linebreakdownoffixedbroadbandspeed(2011-2015) 130Table68:SaudiArabiaversusothercountryaverages(2015) 131Table69:SaudiArabia:Fixed–MobilePlanPricing(2016) 132Table70:SaudiArabia:AnnualtelecommunicationsInvestment(2005-2014) 132Table71:SaudiArabia:AnnualtelecommunicationsInvestment(2006-2014) 132Table72:SaudiArabia:IncrementalFTTHSupply(Homespassed‘000)(2011-2015) 133Table73:SaudiArabia:Institutionalpolicyresponsibilities 133Table74:Kazakhstan:Fixedbroadbandlines(2003-2015) 137Table75:Kazakhstan:Mobilebroadbandsubscriptions(2010-2016) 137Table76:Kazakhstan:PopulationaccessingtheInternet(2003-2015) 138Table77:Kazakhstan:Top10internetsites(November2016) 139Table78:Kazakhstan:Mobilebroadbanddemandgap(2010-2016)(%) 140Table79:Kazakhstan:Pricingofbroadbandsubscriptions(2006-2015)(inUS$) 140Table80:Kazakhstan:Populationcoveredbybroadband(bytechnology)(2016)(%) 143Table81:Kazakhstan:Fixedbroadbandretailmarketstructure(4Q2015) 143Table82:Kazakhstan:FixedbroadbandHerfindahl-HirschmanIndex(2013-2015) 145

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Table83:Kazakhstan:Mobilebroadbandmarketstructure(4Q2016) 145Table84:Mobilebroadbandmarketshares(bysubscribers)(2011-2016) 146Table85:Kazakhstan:Fixedbroadbandspeeds(2009-2015)(%) 148Table86:FixedBroadbandSpeedLevels:Kazakhstanvs.othercountryaverages(2015) 148Table87:Comparativebroadbandpricing(2015)(inUS$) 149Table88:Kazakhstan:Telecommunicationsinvestment(incurrentUS$)(2006-2014) 150Table89:OICMemberCountries:Stateofbroadbandsupplyanddemand(2015) 155

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Abbreviation

ADSL AsymmetricDigitalSubscriberLineDWDM DenseWaveDivisionMultiplexing4G FourthGenerationwirelesstechnologyGSMA GlobalMobileSuppliersAssociationLTE LongTermEvolutionMbps MegabitpersecondOTT Overthetop3G ThirdGenerationwirelesstechnologyWi-Fi WirelessFidelityWiMAX WorldWideInteroperabilityforMicrowaveAccess


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EXECUTIVESUMMARY Broadband is defined as a high capacity data transmission technology that allows a largenumber of messages and telecommunications traffic types (video, data, voice) to becommunicated simultaneously. Ever since its introduction in the early 1990s, broadbandtechnology has undergone a dramatic diffusion around the world, including within thecountriesof theOrganizationof IslamicCooperation(OIC).Asof theendof2015,14.95%ofhouseholds in the OIC Member Countries are connected to broadband technology, while29.41%ofindividualshavemobilebroadbandconnectivity.InseveralOICMemberCountries(such as Azerbaijan, Lebanon, Malaysia, Qatar), fixed broadband household penetration hasexceeded 50%, while in others (Bahrain, Saudi Arabia, and UAE) mobile broadbandpenetrationishigherthan70%.

Conceptual framework and best practices for fostering broadband investment andadoption

Broadband is a critical infrastructure for fostering economic growth and citizen welfare.Beyond the benefits linked to GDP growth, broadband contributes to job creation andenhancementofconsumersurplus.Broadbandpenetrationhasbeenproventohaveanimpactbetween 0.25 and 1.38 percent for every increase in 10% of fixed broadband penetration.BeyondthecontributiontoGDPgrowth,broadbandalsohasapositiveeffectonjobcreation.Theimpactonthisvariablecanbesplitintotwotypesofeffects:jobsgeneratedbytheinitialdeployment of infrastructure and employment resulting from network effects and theirspillover intootherareasof theeconomy.AswithGDP, thespilloveremploymenteffectsofbroadbandarenotuniformacrosssectors.Thejobcreationimpactofbroadbandtendstobeconcentrated in service industries, (e.g., financial services, education, health care, etc.)althoughapositiveeffecthasalsobeendetected inmanufacturing.Broadbandadoptionalsocontributestoanincreaseinhouseholdincomebyraisingtheefficiencyinlabormarketsandenhancingthepopulationdigitalskills.

The economic contribution of broadband increases with penetration: research evidenceindicatesthatthehigherbroadbandpenetrationis,thestrongeritseffectoneconomicgrowth.This effect is labeled “criticalmass”or, in economic terms, the return to economiesof scale.Thus,countriesandtheircitizenswillbenefitfromacceleratingbroadbandadoption.

Yet, somebarriers prevent an increase in broadbandpenetration. The first one is drivenbysupply:citizensdonotacquirebroadbandservicesimplybecausetheylackserviceintheareawheretheyliveorwork.Thisbarrierhasbeencalledthesupplygap.Thesecondoneiscalledthedemandgap,andmeasuresthepotentialusersthatcouldacquirebroadbandservice(sinceoperatorsofferitintheirterritory,),butdonot.Whilethedigitaldividerepresentsthesumofboth supply and demand gap, the critical success factors and policy initiatives aimed ataddressing each of them are different. At the highest level of analysis, the residentialbroadbanddemandgapistheresultofthreechallenges:


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• Limitedaffordability:certainportionsofthepopulationeithercannotaffordadeviceorpurchasethesubscriptionneededtoaccesstheInternet,

• Limitedawarenessofthepotentialofthebroadbandserviceorlackofdigitalliteracy,• Lackofculturalrelevanceorinterest:thevaluepropositionofapplications,services,

andcontentprovidedbytheInternetdoesnotfulfillaneedoftheadoptingpopulation.

Broadbandserviceprovidersarealsofacingchallengesthatpreventthemfrominvestinginthedevelopment of forward-looking broadband infrastructure. The global telecommunicationsindustry is facing the challenge of continuing to deploy network infrastructure thataccommodates the exponential growth in data traffic. Annual global Internet traffic in 2016hasreached88.7billiongigabytespermonth.Havinggrownatanannualrateof30%in thepastfiveyears,itisexpectedtocontinueincreasingatacompoundannualgrowthrateof22%through2020.InternettrafficwillgrowfastestintheMiddleEastandAfrica(27%compoundannualgrowthrate)reaching10.9billiongigabytespermonthin2020.Toaccommodatethegrowing traffic, broadband service providers need to deploy fixed and mobile networkscapableofdeliveringdataflowsatfasterspeeds.Whilepressuredtoincreasecapitalspendingfor deploying ultrafast networks, broadband service providers are facing increasedcompetitionfromOverTheTop(OTT)platforms(suchasGoogle,FacebookandNetflix)withthepotential tocaptureagrowingshareof traditional telecommunicationsrevenuestreams.The intensity of competition among broadband service providers and betweentelecommunicationsandOTTplayersisputtingpressureonthebroadbandindustryrevenues,whichhavenotgrownafter2011.

Governments and private broadband service providers have recognized the presence ofbarriers to increasing broadband penetration reviewed above. The broadband supply gaptends to be focused in rural and isolated areas. A workable business case for broadbanddeploymentistypicallypredicatedonthepossibilityofservingaggregateclustersofdemandgenerally concentrated inpopulationdense geographies.While this is feasible in the caseofurban and suburban settings, rural geographies do not provide an attractive market, whileincreasing the capital required for deployment. Several approaches can be put in place toaddressthisbarrier.Forexample,oneapproachfocusesonalleviatingsomeoftheconstraintsof the rural broadband business case. Some governments deploy publicly owned backbonenetworkswiththeobjectiveofreachingremotelocations.Sincetrafficbackhaulingrepresentsapproximately 30% of the operating costs of running a broadband network, a government-owned network represents an opportunity of cutting transit costs to subsidize ruralbroadband network operations. Another approach to tackling rural broadband deploymentinvolvestheintroductionofinnovativewaysofallocatingradiospectrumtoreducethecostsofconstructingwirelessnetworks.Conventionalspectrummanagementapproaches,whichimplyhigh costs to acquire spectrum licenses, raise a potential hurdle to deploying broadband inruralareas. Inthiscontext,somegovernmentshavedesignatedruralareaswhereacommonbandofspectrumisassignedonacooperativebasisonasharedbasis.


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On the consumer side, limited affordability is a critical adoption obstacle. Beyond thecompetitive stimuli, the reduction of broadband service prices can be achieved through anumber of targeted public policy initiatives. These are generally implemented with theobjective of achieving universal broadband adoption. The underlying rationale for thesepolicies is that,beyondacompetitionmodel,governmentpoliciesshouldbe implemented tofurther price reductions of broadband. One approach relies on state-ownedtelecommunications operators to offer, under their public service imperative, a low-pricedbroadbandservice.

Finally,addressingthedigital literacyobstaclerequirestheimplementationofprogramsthatbuild anunderstanding of the service offerings, anddevelopuser confidence, explaining thebenefitsofuse,andunderstandingsecurityandprivacyconstraintsaswell. Ingeneralterms,four types of initiatives targeting digital literacy impediments exist: 1) inclusion of specificdigital training programs at all levels of the formal education system; 2) targeted digitalliteracyinterventionsaddressedtospecificsegmentsofthepopulation,suchastheelderly,thedisadvantaged or the rural population; 3) deployment of community access centers; and 4)privacyandsecuritytrainingprogramstobuildthelevelsoftrustfromconsumersinordertofosteradoptionofbroadband. ThebroadbandsituationintheOICMemberCountries

Thirty-onepercentofindividualsresidingintheOICMemberCountriesaccesstheInternetonaregularbasis.Internetpenetrationhasbeengrowingatafastpacesince2008whenthegapbetween these states andOECD (Organization for Economic Cooperation andDevelopment)countries has begun to narrow down. However, as of 2015, at this point the proportion ofInternet users in the OICMember Countries (30.59%) remains half that of OECD countries(77.24%). As expected, the percentage of Internet users varies significantly across the OICMember Countries. For example, Internet penetration in African OIC Member Countriesreaches27.90%,whileinArabOICMemberCountries,itis39.53%,andinAsianOICMemberCountries,itis28.05%.

Fixedbroadbandpenetrationwithin theOICMemberCountrieshas reached14.95%of totalhouseholds, compared to78.07% inOECDcountries. Inaddition to thesignificantdifferencebetween both groups of countries, it should be noted that fixed broadband among the OICMemberCountrieshasnotbeenincreasingatapacecomparabletoInternetadoption.Ontheotherhand,mobilebroadbandpenetrationhasreached29.41%oftotalpopulation,comparedto87.17%forOECDcountries. Inthiscase, thepenetrationgrowthtrendsindicateaslowingdowntrendamongOECDcountries(which impliesagradualsaturation)andanaccelerationamong the OIC Member Countries, which reveals a convergence in adoption between bothgroupsofcountries.

ThefixedbroadbandmarketstructureintheOICMemberCountriesexhibits,intheaggregate,amoderatelevelofcompetitiveintensity.Ofthecountrieswithavailableinformation,thirteenhave three or more fixed broadband service providers (an indication of sustainable


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competition),while elevenhave less than three (an indicationof low competitive intensity).Moreover, based on this structure and the correspondent market shares of providers incountries where complete information is available, the Herfindhal-Hirschman Index1 (anindicator of industry concentration) indicates that only four OIC Member Countries have asomewhat healthy competitive fixed broadband environment while the remainder is eitherhighly concentrated or operating undermonopolisticmarket conditions. On the other hand,the mobile broadband market structure in the OIC Member Countries exhibits, in theaggregate, a moderate level of competitive intensity. Of the countries with availableinformation, twenty have more than three operators, seventeen have three carriers, whiletwelve have less than three (an indication of low competitive intensity). Based on thisstructure and the correspondentmarket shares of countrieswhere complete information isavailable, theHerfindhal-Hirschman Index indicates thateightOICMemberCountrieshaveahealthycompetitiveenvironmentwhilethirteenexhibitmoderatecompetitiveintensity.

A compilation of research on adoption barriers among the OICMember Countries indicatesthataffordabilityremainsapreeminentvariableinexplainingthenon-adoptionofbroadband,particularlyinemergingcountries.Approximately9%ofnon-adoptersindicateinsurveysthataffordability is oneof the reasons fornot acquiringbroadband,while6%mentioned lackofdigitalliteracyand14%respondedthattheyeitherdidnotneedtheInternetorarguedthataculturalbarrierpreventedthemfromacquiringtheservice.

Even ifenhancingbroadbandadoption isadominantpriority for theOICMemberCountries,the achievement of high broadband penetrationwill also entail some risks. Four risk areas,identified in research conducted in developed countries, need to be considered and policyinitiativesneedtobeimplementedtomitigatethem.Thefirstriskisthedegradationofhumanrelationships as a result of intensedigital consumption.The second risk, particularly amongadolescents,isthedeclineinconductingotherknowledgegatheringactivities,suchasreadingcausedbyintensedigitalconsumptionbehavior.Athirdriskthathasbeenstudiedparticularlyin developing countries is cultural uprooting. An analysis of themost popular Internet sitesaccessed by region indicates that inMENA countries only 27 of 100most popular sites areproduced locally,while the remaining are either developed overseas or developed overseasand translated to local language (Arabic, French or English). A fourth risk related to theincrease relianceonbroadband relates to the economicdisruptionof an Internet shutdown,outage, or cyber-attack. Given the increasing dependence on broadband for the worldeconomies,itisestimatedthattheeconomicimpactofInternetdisruptionperdayforagivencountryrangesfrom$3.8millionforinterruptinganationalapp(suchasTwitterorGoogle)to$15millionforanoutageofthenationalInternet.

1TheHerfindahl-HirschmanIndexiscalculatedbyaddingthesquarepowerofthemarketshareofallindustryparticipants.An indexof10,000 indicatesamonopolisticmarketstructurewhilean index lower than3,500 isconsidered todepictanindustrywithahealthylevelofcompetition.Anindexhigherthan3,500wouldindicatemoderatecompetitiveintensity.


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PolicyprescriptionsforenhancingbroadbanddevelopmentintheOICMemberCountries

The universe of the OIC Member Countries is not homogeneous when it comes to thechallenges faced regarding broadband development. Three broadband development stageshavebeenidentified:1)advancedsupplyinfrastructureandserviceadoption,2)intermediatedevelopmentoffixedbroadbandand4Gmobilenetworkdeploymentcombinedwithmediumservice penetration, and 3) limited infrastructure coverage and low service adoption. OICMemberCountriescanbegroupedinthesethreecategories(seetable1).Table1:OICMemberCountries:Stateofbroadbandsupplyanddemand(2015)

Supply DemandFixedBroadbandCoverage(ADSL)

MobileBroadband

Coverage(3G)

MobileBroadband

Coverage(4G)

FixedBroadbandPenetration(households)

MobileBroadbandPenetration(population)

OICAverage 53.33% 64.16% 46.82% 14.95% 29.41%Advanced >70%

Azerbaijan,Bahrain,Brunei,Jordan,Kazakhstan,Lebanon,Malaysia,Maldives,Oman,Qatar,SaudiArabia,Turkey,UAE,

>70%:Albania,Azerbaijan,Bahrain,Bangladesh,Brunei,Coted’Ivoire;Egypt,Gabon,Gambia,Jordan,Kazakhstan,Kuwait,Lebanon,Malaysia,Maldives,Morocco,Oman,Palestine,Qatar,SaudiArabia,Suriname,Syria,Tunisia,Turkey,UAE

>70%Kazakhstan,Kuwait,Pakistan,Qatar,SaudiArabia,UAE

>70%Azerbaijan,Bahrain,Lebanon,Qatar,SaudiArabia,UAE

>70%Bahrain,Kuwait,Libya,Malaysia,Oman,Qatar,SaudiArabia,Suriname,UAE

Intermediate 70%-40%Kuwait,Palestine,Suriname

70%-40%Afghanistan,Algeria,Benin,Cameroon,Indonesia,Iran,Iraq,Kyrgyzstan,Mozambique,Nigeria,Pakistan,Senegal,Sudan,Togo,Uganda,Turkmenistan,Uzbekistan

70%-40%Jordan,Malaysia,Morocco,Oman,

70%-40%Brunei,Kazakhstan,Malaysia,Maldives,Oman,Palestine,Suriname,Turkey

70%-40%Albania,Algeria,Azerbaijan,Coted’Ivoire,Egypt,Indonesia,Kazakhstan,Lebanon,Maldives,Tunisia,Turkey

Developing <40%Afghanistan,Albania,Algeria,Bangladesh,Benin,BurkinaFaso,Cameroon,Chad,Comoros,Coted’Ivoire,Djibouti,Egypt,Gabon,Gambia,Guinea,GuineaBissau,Guyana,Indonesia,

<40%BurkinaFaso,Chad,Comoros,Djibouti,Guinea,GuineaBissau,Guyana,Libya,Mali,Niger,Mauritania,SierraLeone,Somalia,Tajikistan,Yemen

<40%Afghanistan,Albania,Algeria,Bangladesh,Benin,BurkinaFaso,Cameroon,Chad,Comoros,Coted’Ivoire,Djibouti,Egypt,Gabon,Gambia,Guinea,GuineaBissau,Guyana,Indonesia,

<40%Afghanistan,Albania,Algeria,Bangladesh,Benin,BurkinaFaso,Cameroon,Chad,Comoros,Coted’Ivoire,Djibouti,Egypt,Gabon,Gambia,Guinea,Guinea-Bissau,Guyana,

<40%Afghanistan,Bangladesh,Benin,Brunei,BurkinaFaso,Cameroon,Chad,Comoros,Djibouti,Gabon,Gambia,Guinea,Guyana,Iran,Iraq,Jordan,Kyrgyzstan,Mali,


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MobileBroadband

Coverage(3G)

MobileBroadband

Coverage(4G)



Iran,Iraq,Kyrgyzstan,Mali,Mauritania,Morocco,Mozambique,Niger,Nigeria,SierraLeone,Somalia,Syria,Sudan,Tajikistan,Togo,Tunisia,Turkmenistan,Uganda,Uzbekistan,Yemen

Iran,Iraq,Kyrgyzstan,Mali,Mauritania,Mozambique,Niger,Nigeria,SierraLeone,Somalia,Syria,Sudan,Tajikistan,Togo,Tunisia,Turkmenistan,Uganda,Uzbekistan,Yemen

Indonesia,Iran,Iraq,Jordan,Kuwait,Kyrgyzstan,Libya,Mali,Mauritania,Morocco,Mozambique,Niger,Nigeria,Pakistan,Senegal,SierraLeone,Somalia,Sudan,Syria,Tajikistan,Togo,Tunisia,Turkmenistan,Uganda,Uzbekistan,Yemen

Mauritania,Morocco,Mozambique,Niger,Nigeria,Pakistan,Senegal,SierraLeone,Somalia,Sudan,Syria,Tajikistan,Togo,Turkmenistan,Uganda,Uzbekistan,Yemen

Source:InternationalTelecommunicationsUnion;GSMAIntelligence;Regulatoryauthorities;TelecomAdvisoryServicesanalysis

Ingeneralterms,someOICMemberCountriesintheMiddleEast(Bahrain,Oman,Qatar,SaudiArabia,UAE)andCentralAsia(Azerbaijan,Kazakhstan)tendtobefairlyadvancedintermsofsupply and penetration of broadband services. On the other hand, a large group of Africancountries(Benin,BurkinaFaso,Cameroon,Chad,Guinea,Senegal,SierraLeone,Sudan,Togo)are still at a limited stage of broadband development both in terms of supply and demand.Finally, anumberof countries inNorthAfrica (Egypt,Tunisia,Morocco), Sub-SaharanAfrica(Cote d’Ivoire), Middle East (Kuwait) and Asia (Brunei, Kyrgyzstan, Turkey, Uzbekistan)exhibitadvancedservicecoverageofthepopulationcombinedwithlowpenetration.

AdvancedOICMemberCountriesexhibitinghighbroadbandservicecoverageandadoptionarefacingthechallengeofbuildingaforward-lookingworld-classinfrastructurethatwillpositionthemina leadingpositionintermsofdigitization.Thisentailsdeployingfiberoptics intheirlastmile, completing their 4Gwireless coverage andpreparing todeploy5G. Supply relatedpolicies for these countries need to recognize that few broadband providers (typically theincumbent telecommunications operators) are capable of tackling these challenges. Alongthese lines, governments need to consider policies that entail appropriate incentives towarrant next generation infrastructure deployment. They typically include a range of taxbenefitsandregulatoryholidays.

Countrieswithadvancedcoveragebutlimitedpenetrationfaceclassicaldemandgapreductionchallenges.Firstandforemost,governmentshavetorecognizethatincreasedserviceadoptionisdependenton lowering the totaloperatingcost incurredbyconsumers forpurchasing thetechnology.Thiscanbeachievedthroughservicesubsidiesormodificationoftaxregimes,likeexemptinglow-incomepopulationfrompayingimportdutiesonterminalsorVATonservice.Moving to the digital literacy domain, governments need to put in place a series of training


7

programsorientedtofosterdigital literacy.Upto29%ofbroadbandnon-adopters incertainOICMember Countries cited limited digital literacy as a reason from not acquiring service.Initiativesaimedatbuildingdigital literacyneedto involvebothembeddingprogramsintheformal education system, while targeting non-formal initiatives to specific segments of thepopulation(elderly,handicapped,ruralpoor,etc.).

Forcountriesthatarestillattheearlydevelopmentstagesofbroadbanddemandandsupply,acombination of infrastructure deployment incentives and demand stimulation policies arerequired.Policymakersinthesecountrieshavetorecognizethatthecompetitiveincentivewillnot be sufficient to generate the stimuli required to promote infrastructure investment.Assumingthatgovernmentsofthesecountrieshavelimitedresourcestoinject investmentinuniversal broadband reach, it might be necessary again to rely on incumbents and providethem with the right incentives to deploy broadband networks. Infrastructure investmentstimulation policies should be put in place simultaneously with demand promotionmechanismsthatdriveuptaketocommercializethesupplyavailability.


8

I. INTRODUCTION Broadband is defined as a high capacity data transmission technology that allows a largenumber of messages and traffic types (video, data, and voice) to be communicatedsimultaneously.The termbroadband isalsoused todefinehigh-speedaccess to the Internetthatisalwaysonandfasterthantraditionaldial-upconnectivity.Alongtheselines,broadbandreferstoavarietyoftechnologiesthatcanbebroadlycategorizedintermsoffixed(includingcopper-based Asymmetric Digital Subscriber Line (ADSL), cable modem, and fiber optics),fixed wireless (such as WiMAX), and mobile (which includes 3G, 4G and the upcoming 5Gtechnologies).

Ever since its introduction in the early 1990s, broadband technology has undergone adramatic diffusion around the world, including within the countries of the Organization ofIslamicCooperation (OIC).As of the endof 2015, 14.95%of households in theOICMemberCountries are connected to broadband technology,while 29.41%of individuals havemobilebroadband connectivity. These statistics are even more impressive when considering thatbroadbanddidnot start itsdiffusionprocess2001 in the caseof fixed, and2007 formobile(seefigure1).Figure1:OICMemberCountries:Diffusionoffixedandmobilebroadband

Source:InternationalTelecommunicationsUnion;TelecomAdvisoryServicesanalysis

Itisinthiscontextofmassiveadoptionthatpolicy-makersandresearchershavebeenstudyingthewhole range of social and economic effects related to broadband, aswell as developingconceptual frameworks that help define policies aimed at maximizing its penetration andmeasuring its contribution. This report focuses precisely on defining such a framework anddeveloping a set of recommendations to enhancing broadband penetration within the OICMember Countries. It is organized into six chapters. Chapter II develops a conceptualframework to help the development of policy recommendations aimed at enhancingbroadbandpenetration.Itexploresfivekeyissues:

0.02$ 0.08$ 0.2$ 0.46$ 1.06$1.84$

3.33$4.52$

5.96$7.37$

8.87$10.5$

12.02$13.77$

14.95$

0$ 0.01$ 0.05$1.17$ 5.93$

8.76$11.06$

15.42$

22.66$

29.41$

0$

5$

10$

15$

20$

25$

30$

35$

2000$ 2002$ 2004$ 2006$ 2008$ 2010$ 2012$ 2014$

Fixed Broadband (% households) Mobile Broadband (% population)


9

• Whatisbroadband’scontributiontosocialandeconomicdevelopment,includingGDPgrowth,jobcreation,productivity,householdincome,andconsumersurplus?

• Are there any differences in terms of economic impact between developed anddevelopingcountries?

• Are there any specificities between broadband technologies in terms of theirsuitabilitytodevelopedordevelopingcountries?

• What are the supply trends that are detected so far, in terms of presence of global,regionalandlocalbroadbandserviceproviders?

• What are the challenges for developing countries regarding fixed and mobilebroadbandpenetration?

Havingdevelopedtheconceptualframework,ChapterIIIexaminestheglobaltrendsregardingbroadbanddevelopment.Itbeginsbyreviewingthedriversandtrendstowardstheexpansionof presence of global broadband service providers. With this background, it presents acomparativeregionalviewoffixedandmobilebroadbandadoptionaroundtheworld.Onthisbasis, fixedandmobilebroadbandservicecoverageisanalyzedtounderstandthedimensionof the supply gap (asmeasuredby thepercentageof unservedpopulation). The statistics ofbroadband service coverage and penetration are compared to measure the demand gap,definedasthepercentageofthepopulationthatcanpurchasebroadbandservicebecauseitisbeing available in their place of residence but choose not to. The analysis of supply anddemandgapsprovidesthecontextforunderstandingthecriticalsuccessfactorsandchallengesthatneedtobemettoacceleratethediffusionofbroadband.Theyincludeinitiativessuchasrural broadband deployment to close the supply gap, price reduction to increase serviceaffordability, andenhancingdigital literacy.Along these, a sampleofbestpracticesaimedatincreasingbroadbandpenetrationamongnon-OICMemberCountriesarepresented.

Havingexaminedtheglobaltrends,ChapterIVturnstoexaminethesituationofbroadbandinthe OIC Member Countries, both in terms of supply and demand. The chapter begins byassessing service availability by fixed and mobile technology. The supply assessment alsoincludesareviewofaveragebroadbandspeedasanindicatorofservicequality.Thereviewofbroadband supply is complementedwith an analysis ofmarket structure,which includes anassessment of competitive intensity, and industry concentration. After reviewing the supplyenvironment, the chapter turns to analyze broadband demand within the OIC MemberCountries.ByrelyingontheconceptsintroducedinChapterII,thedemandassessmentfocusesonpenetrationbytechnologyandquantificationofthedemandgap.Thisservestounderstandsomeofthecriticaldemandbarriers(suchaspricing,lackofdigitalliteracy,culturalconcernsand others) among the OIC Member Countries. The chapter finally addresses some of thepotentialrisksrelatedtotheincreaseduseofbroadband,whichreviewsissuessuchasculturaluprooting,infringementofdataprivacy,cyber-attacks,andothers.

InordertogetamoredetailedviewofthesituationoftheOICMemberCountries,ChapterVpresentsthreein-depthcasestudiesofbroadbandintheOICMemberCountries:Coted’Ivoire,Saudi Arabia, and Kazakhstan. These countries were selected to reflect the geographicdiversity, and differing broadband development challenges within the universe of the OICMember Countries. Along those lines, the case studies also serve to highlight specific


10

challengesfacedbycountriesaffectedbylargeportionsofthepopulationwithlowincomeandlimited literacy,versuscountrieswithhigher levelsofbroadbandnetworkdevelopment thatareaimingtoachieveglobaldigitalleadership.

Havingdevelopedadeepunderstandingofbroadbandsupplyanddemanddynamics,ChapterVIfinallymovestotheprescriptivepartofthestudy,whichisorganizedbygroupsofcountriesfacing similar challenges. It first formulates policy recommendations to accelerate thedevelopmentofadvancedbroadbandsupplyintheOICMemberCountries.Thefocuswillbeonstimulating investment to the more advanced fixed and mobile broadband technologies,comprisingthepromotionofcompetition,combinedwithstateaidwhenevernecessary.Afterpresenting recommendations to address the supply gap, the chapter presents a set ofinitiativestotacklethedemandgapamongpopulationsandenterprises.


11

II. CONCEPTUALFRAMEWORKREGARDINGBROADBANDPENETRATION

The development of policies aimed at increasing broadband penetration require outlining aconceptualframeworkthatmeasuresthepaybackintermsofsocialandeconomicreturnsandidentifies the barriers that prevent broadband from achieving universal adoption. Thefollowingchapterbeginsbyreviewingtheresearchevidenceregardingbroadbandsocialandeconomiccontribution,emphasizingtheimpactoneconomicgrowthandjobcreation(sectionII.1). Its purpose is to highlight why increasing broadband adoption is critical to fosteringeconomic development. Having demonstrated broadband economic impact, evidence ispresented to show the difference in economic contribution for developed and emergingcountries(sectionII.2).Thethirdcomponentofbroadbandimpactconceptualframeworkhasto do with its technological underpinnings, reviewed in section II.3. Finally, the mainchallengesregardingbroadbandsupplyanddemandarepresentedinsectionII.4.Thepurposeof the finalsection is toprovideanunderstandingof thekeybarriers thatpreventcountriesfromachievinghighbroadbandadoptionand,therefore,harnessingitsfulleconomicpotential.II.1.Impactofbroadbandoneconomicandsocialdevelopment

Broadbandcontributestoeconomicgrowthinitiallythroughaseriesofeffectssimilartothosegenerated by the deployment of any type of infrastructure. Beyond deployment effects,broadband,asageneralpurposetechnology,generatesexternalities,rangingfromGDPgrowthtojobcreationandenhancementofconsumersurplus(seefigure2).Figure2:Socialandeconomiccontributionofbroadband

Source:Katz(2012)

Figure2depictsfourdistinctsocialandeconomiccontributionsofbroadband.Effect1refersto the impact on GDP and job creation resulting from investing in the deployment of

Broadband Deployment

Direct benefits

Investment in Infrastructure deployment

Residential penetration

Consumer surplus

Household income

Enterprise penetration

Total Factor Productivity Contribution to

employment and GDP growth

I

III

II

IV


12

broadband(alsocalledthe“constructioneffect”).Effect2depictstheimpactofbroadbandonbusinessproductivitybyreducingtransactioncostsandenhancingtheefficiencyofenterprises(sometimes referredas “spill overeffect”).Effect3posits the increase inaveragehouseholdincomeasaresultofenhancingthecapacityofthepopulationtomarketitsskills.Effects2and3contributeinturntoGDPgrowth.EffectIV,whichisnotcapturedintheGDPstatistics,hastodowithanincreaseinconsumersurplus,ismeasuredasthevaluecreatedtoconsumerswhenthey access the Internet (for example, to use e-Government and e-Health applications, ordownload information and entertainment). This sectionwill present the results of researchconductedoverthepasttwentyyearsinsupportoftheargumentthatbroadbandtechnologyhasasignificantimpactoneconomicgrowthandjobcreation.BroadbandimpactonGDPgrowth

Themeasurementoftheeconomicandsocialcontributionofbroadbandtechnologyhasfacedthreetypesofmethodologicalchallenges.First,sincebroadbandhasbeendeployedinsuchashort time-span, it is only very recently that researchers have gained access to sufficientlylargedisaggregateddatasetsthatallowidentifyingquantitativelytheconditionsunderwhichbroadbandhasasocialandeconomiceffect.Second,consideringthatbroadbandisanaccesstechnology, its economic contribution only materializes with the information that it issupposedtotransmit.Inotherwords,broadbandpenetrationdoesnotresultinanautomaticimpactoneconomicgrowth:contentandinformationprocessingcapacityarecriticalenablersfor this contribution to materialize. The third methodological challenge has to do with thedeterminationofthedirectionofcausalimpact:doesbroadbandhaveanimpactoneconomicgrowthorisiteconomicdevelopmentthattriggersanincreaseinbroadbandconsumption2.

Overtime,researchershavebeenabletoovercomethesechallengesprovidingpolicymakerswithincreasingevidencethatbroadbandtechnologyshouldbeconsideredageneralpurposetechnology, meaning that its adoption can affect an entire economy, potentially alteringsocieties through its impact on pre-existing economic and social structures. Initially, due tolimitations on data availability, the majority of the studies focused on the impact of fixedbroadband on OECD countries (Bojnec & Ferto, 2012; Czernich et al., 2011; Koutroumpis,2009) or particular statistics-rich developed countries – for example, the United States(Crandall, Lehr, & Litan, 2007; Shideler, Badasyan, & Taylor, 2007; Thompson and Garbacz,2009).Whenmore data became available for countries in the emerging world, researcherswereabletobegingeneratingevidenceofbroadbandimpactindevelopingcountries(Kumaret al., 2016 forChina, Chavula, 2013 forAfrica, andKatz et al, 2012, 2013, 2014 for severaldeveloping countries in Africa, Asia, and Latin America). The first body of evidence of thepositive effect of broadband focused on fixed technologies since they were the first to beadopted(seeTable2).

2Theimplicationofthisstatementiscriticalsinceifitiseconomicgrowththatleadstobroadbandpenetration,policymakersshouldnot implement initiativesaimedat fosteringbroadbandadoption;theyshouldemphasizeconventionaleconomicdevelopmentpolicieswhichwouldleadovertimetoadiffusionofbroadband.


13

Table2:ResearchresultsoffixedbroadbandImpactonGDPgrowth Country Study Data Effect

HighIncomeEconomies

Allcountries

Qiang&Rosotto(2009)

1980-2002for66highincomecountries

10%broadbandpenetrationyieldedanadditional1.21percentagepointsofGDPgrowth

OECD

Czernichetal.(2009)

25OECDcountriesbetween1996and2007

Theadoptionofbroadbandraisesper-capitaGDPgrowthby1.9-2.5percentagepoints

Koutroumpis(2009)

2002-2007for22OECDcountries

Anincreaseinbroadbandpenetrationof10%yields0.25%increaseineconomicgrowth

Bojnec&Ferto(2012)

DynamicPanelmodelingof34OECDcountriesbroadbanddatabetween1998and2009

PositiverelationshipofbroadbandonGDPgrowth

UnitedStates

Crandall,Lehr&Litan(2007)

48StatesofUSfortheperiod2003-2005

Notstatisticallysignificantresults

Thompson&Garbacz(2009)

46USStatesduringtheperiod2001-2005

A10%increaseinbroadbandpenetrationisassociatedwith3.6%increaseinefficiency

LowandMiddleincome

economies

Allcountries

Qiang&Rosotto(2009)

1980-2002for120countries(lowandmiddleincome)

10%broadbandpenetrationyieldedanadditional1.38ineconomicgrowth

China

Kumaretal.(2016)

AutoregressiveDistributiveLagforChineseInternet,broadband,mobileandexportdatabetween1977-2013

AlltheindicatorsofICThaveapositiveandstatisticallysignificantelasticitycoefficientrangingfrom0.010to0.080

JordanKatz&Callorda(2016)

SimultaneousequationsofJordandatabetween2006and2014

0.73%ofGDPgrowthforevery10%increaseofmobilepenetration

MoroccoKatz&Callorda(2016)

SimultaneousequationsofMoroccodatabetween2006and2014


PanamaKatz&Koutroumpis(2012)

SimultaneousequationsofTunisiadatabetween2000and2010


Africa

Chavula(2013) Cross-sectionalendogenousmodeloffixedlines,internetandmobilelinesfor49Africancountriesbetween1990and2007

1%increaseleadsto0.21%increaseinGDPpercapita

World

Choi&Yi(2009)

200countriesbetween1991-2000forInternetpenetration

InternethasapositiveeffectonGDPgrowth

Vu(2011) 102countriesinternetdataupto1995

Fortheaveragecountry,themarginaleffectofthepenetrationofinternetuserswaslargerthanthatofmobilephones,whichinturnislargerthanthatofpersonalcomputers.ThemarginaleffectofICTpenetration,however,lessensasthepenetrationincreases.

Source:compiledbyTelecomAdvisoryServices

Astable2indicates,moststudiesconcludedthatbroadbandpenetrationhasanimpactonGDPgrowth. However, themagnitude of the contribution appeared to varywidely, from 0.25 to1.38percentforeveryincreasein10%offixedbroadbandpenetration3.

3Or.36%ifthestandardassumptionthat1%increaseinproductivityorefficiencyresultsin1%increaseinGDPismade.


14

Withthe launchofmobilebroadband,researchturnedtogaugingtheeconomiceffectof thistechnology.Thompson&Garbacz(2011)studiedtheeffectof fixedandmobilebroadbandineconomic growth among high-income and low-income countries and found that bothtechnologieshaveapositiveimpactinbothsetsofcountries.Furthermore,theauthorsfoundthatmobile broadband has a considerable greater effect on low-income countries. Katz andothers (Katz&Callorda,2013,2016a,2016b;Katz&Koutroumpis,2012,2014)alsostudiedtheeffectofmobilebroadbandonGDPgrowthinseveralcountriesofLatinAmerica,AsiaandAfrica,identifyingapositiveandstatisticallysignificantrelationship.Similarly,asetofstudiesrecently completed for theGSMAshowed thatmobile voice anddata communicationshadadirecteconomiccontributionof1.7%,anda2.2%indirectcontributiononGDPworldwidein2014(GSMAIntelligence,2015).Table3presentsthestudiesmeasuringtheimpactofmobilebroadbandonGDPgrowth.

Table3:ResearchresultsofmobilebroadbandimpactonGDPgrowth

Country Study Data Effect

HighIncomeCountries

UnitedStates

Thompson&Garbacz(2011)

Stochasticfrontiermodelofmobile,fixedtelephonyandbroadbandpenetrationfor93countriesbetween1995-2003

PositiverelationshiponGDPgrowth

LowandMiddleIncomeCountries

Senegal Katz&Koutroumpis(2014)

SimultaneousequationsofSenegaldatabetween2009and2013

0.22%ofGDPgrowthforevery10%increaseofmobilebroadbandpenetration

Jordan Katz&Callorda(2016a)

SimultaneousequationsofJordandatabetween2011and2014


Morocco Katz&Callorda(2016b)



Philippines Katz&Koutroumpis(2012)



Asiancountries

Ahmed&Ridzuan(2013)

PaneltestofstandardproductionfunctionforTelecommunicationsinvestmentofeightAsiancountriesbetween1975and2006

Positiverelationship

Ecuador Katz&Callorda(2013)

SimultaneousequationsofEcuadordatabetween2008and2012


Source:compiledbyTelecomAdvisoryServicesBroadbandimpactonjobcreation

BeyondthecontributiontoGDPgrowth,broadbandalsohasapositiveeffectonjobcreation.Theimpactonthisvariablecanbesplitintotwotypesofeffects:jobsgeneratedbytheinitialdeployment of infrastructure and employment resulting from network effects and theirspilloverintootherareasoftheeconomy.


15

The construction of broadband networks has three effects on job creation. First, networkdeploymentrequiresthecreationofdirectjobs(forexample,telecommunicationstechnicians,construction workers and equipment manufacturing operators) to install these networks.Second, direct job creation has an impact on indirect jobs (for example, metallurgical andelectrical product industries that supply inputs to the industries directly involved). Finally,householdspendingresultingfromdirectandindirectjobsleadstoinducedemployment.

There are six studies that estimate the impact of broadband network construction onemployment: Crandall et al. (2003), Katz et al. (2008), Atkinson et al. (2009), Katz et al.(2009a), Liebenau et al. (2009), and Katz et al. (2010a). All of these studies estimate thenumber of jobs created as a result of capital investment for the deployment of broadbandnetworks:63billionUS$requiredtodeploybroadbandservicesthroughouttheU.S.(Crandalletal.,2003);13billionCHFtobuildanationalfiberopticnetworkinSwitzerland(Katz,2008);10billionUS$(Atkinson,2009)and6.3billionUS$(Katzetal.,2009a)aspartofcounter-cyclestimulus packages in the United States (Katz et al., 2009a); 7.5 billion US$ to complete thedeploymentofbroadbandintheUnitedKingdom(Liebenauetal,2009);and47billionUS$toimplement theNationalBroadbandPlan inGermany(Katzetal.,2010a).Allof thesestudieshave calculated multipliers, which measure the total employment change throughout theeconomyresultingfromthedeploymentofabroadbandnetwork(seetable4).

Table4:Broadbandconstructionimpactonjobcreation

Country Study Objective Results

UnitedStates

Crandalletal.(2003)

Estimatetheemploymentimpactofbroadbanddeploymentaimedatincreasinghouseholdadoptionfrom60%to95%,requiringaninvestmentofUS$63.6billion

• Creationof140,000jobsperyearovertenyears

• Totaljobs:1.2million(including546,000forconstructionand665,000indirect)

Atkinsonetal.(2009)

EstimatetheimpactofaUS$10billioninvestmentinbroadbanddeployment

• Totaljobs:180,000(including64,000directand116,000indirectandinduced

Switzerland

Katzetal.(2008b)

EstimatetheimpactofdeployinganationalbroadbandnetworkrequiringaninvestmentofCHF13billion

• Totaljobs:114,000overfouryears(including83,000directand31,000indirect)

UnitedKingdom

Liebenauetal.(2009)

EstimatetheimpactofinvestingUS$7.5billiontoachievethetargetofthe"DigitalBritain"Plan

• Totaljobs:211,000(including76,500directand134,500indirectandinduced)

Source:compiledbyTelecomAdvisoryServices

Beyond job creation as a result of the construction of broadband networks, the impact ofexternalitiesonemployment,referredtoas"innovation"or"networkeffects"(Atkinsonetal.2009)havealsobeenquantified.Bystudyingtheexternalitiesresultingfromtheadoptionofbroadband,numerouseffectshavebeenidentified:


16

• Introductionofnewservicesandapplicationssuchastelemedicine,Internetinformationsearches,electroniccommerce,distanceeducationandsocialnetworks(Atkinsonetal.,2009)

• Newformsoftradeandfinancialintermediation(Atkinsonetal.,2009)• Developmentofnewproductsandservices(Atkinsonetal.,2009)• Improved productivity as a result of the introduction of more efficient business

processes provided by broadband, and marketing of excess inventories and supplychainoptimization4(Atkinsonetal.,2009)

• Revenue growth resulting from extended market coverage (Varian et al., 2002 andGillettetal.,2006)

• Growthofsomeindustrieswithintheservicessector(Crandalletal.,2007)• Impactonthecompositionanddeploymentofindustrialvaluechains.Broadbandcan

attract jobs from other regions as a result of the ability to process information andprovideservicesremotely.Theservicesmostgreatlyimpactedareoutsourcingandthedeploymentofvirtualcustomercarecenters.

Jobcreationasaresultofexternalitieshasbeencalculatedbasedoneconometricanalysisofhistoricaldataseries,andhasyieldedimportantconclusions.Thesestudieshavebeencarriedoutmainly intheUnitedStates,althoughonewasconducted inGermanyandanotherone inEcuador.Table5presents theeconometric studies thatwereused toestimate the impactofbroadbandinthecreationofjobs,accordingtothepositiveexternalities.

Table5:Impactofpositivebroadbandexternalitiesonemployment

Country Authors Data Effect

GermanyKatzetal.(2010a)

2000-2006forGermanycounties

A1%increaseinbroadbandpenetrationcontributestoemploymentgrowthby0.002%

UnitedStates

Gillettetal.(2006)

1998-2002UnitedStateszipcodes

Availabilityofbroadbandaccessincreasesemploymentgrowthbetween1%and0.5%

Crandalletal.(2007)

For48statesintheUnitedStates

Forevery1%increaseinbroadbandpenetrationineachstate,employmentwouldincreasebyanestimated0.2and0.3%peryear,iftheeconomywerenotatfullemployment.

Thompsonetal.(2009)

2000-2006for48statesintheUnitedStates

Jobcreationvariedbyindustry

StateofKentucky

(UnitedStates)

Shideleretal.(2007)

DatabrokendownbycountyinthestateofKentuckyfor2003-4

A1%increaseinbroadbandpenetrationcontributedbetween0.14%and5.32%toemploymentgrowth,dependingontheindustry.

StateofCalifornia

(UnitedStates)

Kolko(2010) 1999-2006forCaliforniazipcodes

Thestudydoesnotfindasignificantrelationinpartbecausebroadbandserviceismeasuredbasedonthenumberofoperatorsperzipcode.

EcuadorKatz&Callorda(2013)

EconometricmodelofEcuadordatabetween2008and2012

0.56percentagepointsincreaseinemploymentrateforevery10%increaseoffixedbroadbandpenetration

Source:CompiledbyTelecomAdvisoryServices

According to these studies, once broadband is deployed, its contribution to employmentgrowth ranges from 0.14% to 5.32%, depending on the territory and the industrial sector.More precisely, a 1% increase in broadband penetration contributes between 0.002% and

4Efficienttelecommunicationsmakeitpossibletoreachabroadermarket,facilitatingbusinessprocesses.Theyalsoresultinreducedinputcostsasthecapacitytosearchforlowerpricesincreases.


17

0.5%toemploymentgrowth.Like therelationshipbetweenbroadbandandGDPgrowth, thecontributionofbroadbandtoemployment isalsoconditionedbyanumberofspecialeffects.Studieshaveparticularlyfocusedontwospecificquestions:

• Doestheimpactofbroadbandonemploymentdifferaccordingtoindustrysector?• Is there a decreasing return in employment generation linked to broadband

penetration?

AswithGDP, the spilloveremploymenteffectsofbroadbandarenotuniformacross sectors.According to Crandall et al. (2007), the job creation impact of broadband tends to beconcentrated in service industries, (e.g., financial services, education, health care, etc.)although the authors also identified a positive effect in manufacturing. In another study,Shideler et al. (2007) found that, for the state of Kentucky in the United States, countyemployment was positively related to broadband adoption in multiple sectors, includingmanufacturingandcertainservices.Theonlysectorwhereanegativerelationshipwasfoundwith the deployment of broadband (0.34% – 39.68%) was the lodging and food servicesindustry.Thiswastheresultofaparticularlystrongcapital/laborsubstitutionprocesstakingplace, whereby productivity gains from broadband adoption yield reduced employment.Similarly,ThompsonandGarbacz(2008)concludedthat,forcertainindustries,“theremaybeasubstitutioneffectbetweenbroadbandandemployment”5.Itshouldthereforebeconsideredthattheproductivityimpactofbroadbandcancausecapital-laborsubstitutionandmayresultinanetreductioninemployment.

ThisspecificeffecthasbeenanalyzedbyKatzetal. (2010)forruraleconomiesoftheUnitedStates. In this research, it was found that, within rural counties, broadband penetrationcontributestojobcreationinfinancialservices,wholesaletradeandhealthsectors.Thisistheresult of enterprise relocation enabled by broadband, which benefits primarily urbancommunities in the periphery ofmetropolitan areas (Katz et al. 2010d). In fact, research isstarting to pinpoint different employment effects by industry sector. Broadband maysimultaneously cause labor creation triggered by innovation in services and a productivityeffectinlabor-intensivesectors.Nevertheless,whilearobustexplanationofthepreciseeffectsbysectorandthespecificdriversineachcaseisstillmissing,itisreasonabletoexpectthatthedeploymentofbroadbandshouldnothaveauniformimpactacrossanationalterritory.

Some researchershavealso foundadecreasing impactofbroadbandonemployment.WhileGillett et al. (2006) observed that the magnitude of impact of broadband on employmentincreases over time, they also found that the positive contribution of broadband toemployment tends to diminish as penetration increases. This finding may support theexistence of a saturation effect. Coincidentally, Shideler et al. (2007) also found a negativestatistically significant relationship between broadband saturation and employmentgeneration.Thiswouldindicatethatatacertainpointofbroadbanddeployment,thecapabilityofthetechnologytohaveapositivecontributiontojobcreationstartstodiminish.

5ThiseffectwasalsomentionedbyGillettetal.(2006).


18

Insummary,areviewoftheresearchontheeconomicimpactofbroadbandindicatesmultipleeffects. Firstly and foremost, the evidence is fairly conclusive about the contribution ofbroadband to GDP growth. While the size of this contribution varies, discrepancies can berelatedtodifferentdatasetsaswellasmodelspecifications.Secondly,broadbandcontributestoemploymentgrowthwithspillover impactsontherestoftheeconomy.Whiledeploymentprogramsare,asexpected,concentratedintheconstructionandtelecommunicationssectors,theimpactofexternalitiesaregreaterinsectorswithhightransactioncosts(financialservices,education,andhealthcare).

Broadbandimpactonproductivity

It is logicaltoassumethatproductivityof informationworkers,definedastheportionoftheeconomically active population whose working function is to process information(administrative employees, managers, teachers, journalists) depends directly on theinvestment in ICT capital (andparticularlybroadband).The studies conductedbyProf.RaulKatz6 have, in fact, concluded that the larger the percent of the workforce dedicated toinformationgenerationandprocessing,thehighertheproportionofcapitalstocksinvestedintheacquisitionofICTinfrastructure(seefigure3).

Figure3:InformationworkersanICTinvestment

Note:DataforinformationworkforcewasderivedfromILOstatisticswhileITCapitalwassourcedfromKaplan(2001)Source:AdaptedfromKatz(2009b)

Figure 3 and the corresponding regression coefficient indicate the existence of a directrelationshipexistingbetweentheamountofinformationworkersandITcapitalinvestmentinagiveneconomy:thelargertheproportionofinformationworkersinagiventheeconomy,themore capital is invested in information technology. How can one theoretically explain therelationship between ICT and productivity? In his economics dissertation at HarvardUniversity(1982),CharlesJonscherraisedthehypothesisthat ifonecanmeasurethemicro-economicimpactofICTonfirmproductivity,thenoneshouldalsobeabletolinkthegrowthin 6Katz,2009b

y = 0.6123x - 0.0733R2 = 0.6403

0%

5%

10%

15%

20%

25%

30%

35%

40%

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

Information Workers as a percent of the economically active population

IT C

apita

l as

a Pe

rcen

tage

of T

otal

Fi

xed

capi

tal


19

informationaloccupationsandtheadoptionoftechnologytoimprovetheirproductivityatthemacroeconomiclevel.Thiscausallinkisconceptuallydepictedinfigure4.

Figure4:CausalityModel:ICTinnovationanddiffusionisdrivenbythegrowthofinformationworkforce

Source:Jonscher(1982);TelecomAdvisoryServicesanalysis

Accordingtothiscausalityframework,economicgrowthlogicallyleadstoincreasingcomplexproduction processes. In turn, complexity in production processes results in increasing thefunctional complexity within firms (e.g. more inputs to be combined, more steps to bescheduledinatimelymanner,moreinteractionsoccurringwithsuppliersofrawmaterialsandwithbuyersoftheendproduct).Thefirstresponseofeconomicorganizationstothiseffectisthecreationof“informationworkers”—laborerswhoseprimaryfunctionisthemanipulationof information for purposes of organizing the production of goods. At somepoint, however,information processing workers become a bottleneck in the economic system. They cannotgrow forever because this process reduces the overall availability of resources in otheroccupations. Furthermore, when information workers become a large proportion of theworkforce, the complexity of information processing becomes a bottleneck itself. In otherwords, there isa limit to thepossibilityofmanually storing, transferringandprocessing thegrowingamountsof information.Thisiswhereinformationandcommunicationtechnologiescome in. Their development and adoption is aimed at increasing the productivity ofinformation workers and addressing this bottleneck. The availability of computing andcommunicationsallowsfirms(andtheirinformationworkers)tobemoreproductiveintheirmanipulation of information. Broadband is a specific component performing this importantproductivityenhancement.

Forexample,researchontheimpactofbroadbandonproductivityhassuccessfullyidentifiedpositive effects. For example, Waverman et al. (2009) determined the economic effect ofbroadband on the GDP of 15 OECD countries for the time period of 1980 to 2007. Theseincluded14EuropeanandtheUnitedStates.ByrelyingonanaugmentedproductionfunctionderivedfromWavermanetal.(2005),theauthorsspecifiedtwomodels:aproductionfunction

ECONOMIC DEVELOPMENT

WORKFORCE SPECIALIZATION

GROWTH OF INFORMATION WORKFORCE

NEED TO ADOPT ICT TO INCREASE

PRODUCTIVITY OF INFORMATION

WORKERS

Reduction of uncertainty in information

handling

Increasing complexity

of production processes

At some point, the information

workforce becomes a bottleneck in the

system of production

Productivity increase (first

effect)

Productivity increase

(second effect)


20

and a hedonic function for ICT capital stocks. Broadband impact on the productivity of themoredevelopedcountriesinthesamplewasfoundtobe.0013andwasstatisticallysignificantat the 5% level7. In other words, Waverman estimated that for every 1% increase inbroadbandpenetration inhighandmedium impact incomecountries,productivitygrowsby0.13%. In another document, the authors commented upon the productivity effect in thecountriesoftheirsamplewithrelativelylowICTpenetration(Greece,Italy,Portugal,SpainandBelgium.).Theyfoundthatbroadbandimpactonproductivitywasnil,whichindicatedthehighadoptioncosts,andcriticalmassthresholds8.Inotherwords,forbroadbandtohaveanimpactonproductivity,theICTeco-systemhastobesufficientlydeveloped9.

Broadbandimpactonhouseholdincome

In recent years, the implementation of national household surveys that now include ICTmoduleshasallowedtoresearchtheimpactofbroadbandbasedonmicro-economicdata.Forexample,using information fromPeruvianhouseholdsbetween2007and2009,DeLosRios(2010) found that,during this timeperiod, Internetadoptersexperiencedsignificant incomegrowth relative to thosehouseholds thatdidnothave the service.The authorof this reportrecently conducted a study evaluating the impact of broadband on household income inEcuador(KatzandCallorda,2015).

To estimate the impact of broadband on poverty reduction using microdata, the authorscalculated the impact of broadband deployment on average income at the country’s countylevel. Ecuador is an appropriate case for this analysisbecause,while at the endof 2009 thecountryhadalimitedofferingofresidentialbroadbandservices,between2009and2011,CNT,Ecuador’stelecommunicationsfixedbroadbandprovider,greatlyexpandeditscoverage.Asaresult,thepopulationinnewlyservedtownshipscouldaccessfixedbroadbandserviceforthefirst time. This expansion led to a significant increase in broadband penetration at theprovinciallevelinthecountry.Basedondisaggregateddata,avariablewasbuiltindicatingthecountiesthatlackedbroadbandaccessin2009(duetoalackofcoverage)butgainedserviceby late 2010 / early 2011 (thanks to the aforementioned extension of the state-ownedtelecommunicationsoperator’snetwork).Throughthisprocess,twogroupswerecreated:1)atreatment group, comprised of those individuals living in cantons where broadband wasintroduced during the 2010-2011 period, and 2) a control group, comprised of thoseindividualslivingincantonsthatalreadyhadaccesstoresidentialbroadbandservicesbythefourthquarterof2009.Usingthis identificationstrategy,andgiventhatthetreatmentgroupand the control group are statistically equal at the baseline of the observed variables, aregressionmodelthatestimatestheimpactoftreatmentonindividualincomelevelswasbuilt.Controlswere included for thevariables that, at the individual level, can affect income (age,

7Theoriginalregressionyieldedacoefficientof0.0027forthe2/3moredevelopedcountries inthesampleandnegativeeffectforthelowerthird.Anegativeeffectdidnotmakesensesotheauthorsconstrainedtheeffectforthelowerthirdtozero.Atthatpointthecoefficientforthefullsamplemovedto0.0013.8Waverman,20099 For example,Wavermanet al. estimated that in theUnited Statesbroadbandpenetration contributed approximately to0.26%perannumtoproductivitygrowth,resultingin11additionalcentsperhourworked(orUS$29billionperyear).


21

gender,employmentstatusandhealthcarecoverage,levelofformaleducation,androlewithinthe family). In this section, the average impact on individual income level of broadbandintroductionatthecantonlevelisestimated.

TheresultsindicatedthatbroadbandadoptionincreasedtheaverageindividualincomebyUS$25.76,whichrepresentsa7.48%increaseinrelationtotheinitialaverageincomeoftheentiresample. Given that the introduction of broadband occurred over the course of two years -betweenDecember2009andDecember2011 - theannual increase in the income levelwas3.67%.This figurecapturedthe increase in incomegenerateddirectlybybroadbanduse, theimpactonthejobmarketasaresultofthelaborrequiredfornetworkdeploymentandthenewstaffhiredbycompaniestoprovidetheservice,aswellasthespillovereffectonsociety.Theimpact on income was shown to be greater among households owning a computer. Asevidence,computeruserswitnessedanaverageincomeincreaseofUS$38.36,whichequatestoatotal8.00%increase,or3.92%peryear.Finally,thelargestimpactoccursamongInternetserviceusers,whobenefitfromincreasedspeedand,inthecaseofthoseuserswhopreviouslyuseddial-upInternetservice,eliminationoftheincrementalcostofusage.Userswhocannowaccesstheservicedirectlyintheirhomesasaresultofnetworkdeploymentalsobenefited.Forthis group, the increase in the income level was substantially greater than in the previouscases:theirincomeincreasedbyUS$51.86,a10.27%riserelativetotheirinitialincome,ora5.01%increaseperyear.

This analysis demonstrated that the introduction of broadband services at the county levelresultsinanincreaseinaveragehouseholdincome.Whilethecausesforthisincreasecanvary,broadband does have an impact through four effects. First, broadband deployment requiresinfrastructure construction in order to provide the service, additional workers for theoperator’s new commercial offices, and technical personnel for the installation andmaintenance of household broadband. The new demand for labor in a market with anunemployment rate that is already below 5% generates a shift in the demand curve forworkers, which leads to an increase in equilibrium wages. Furthermore, the rise in wagesthroughthischannelmayreflectaneedforbettercompensationforthoseworkerswho,giventhelowunemploymentrates,shouldreceivebetterwagestomeetorexceedtheirreservationwage.Thisisdefinedasthe“constructioneffect”.

Asecondexplanationfortheincomeincreaseisthat,asseeninKatz(2012),broadbandhasapositiveeffectonworkerproductivity.Classiclaboreconomicsliteratureshowsthatwagesincompetitivemarketsequalmarginalproductivity.Asaresult,higherlaborproductivityshouldyieldhigherwages.Thisislabeledthe“productivityeffect”.

Third, research results also show that the effect of broadband deployment is greater forcomputerandInternetusers.Inthissense,theintroductionofbroadbandatthecountylevelallowedworkerswith digital literacy skills to signal their computer knowledge to potentialemployersandthenusethoseskillsintheworkplaceinreturnforahigherwage.Thishasbeencalledthe“skillsignalingeffect”.


22

Finally,theintroductionofbroadbandcanalsohelptoreducethetimeotherwiserequiredforan effective job search, allowing underemployed workers to look for full-time work usingbroadbandservices.Thisincreaseinefficiencyleadstoareductioninunemploymentperiodsandgeneratesan increase in themigrationofunderemployedworkers to full-timepositions,which, in turn, results in higher labor income. In other words, reduced transaction costsrelated to findingemployment canultimately result inhigher income (with less search timerequired,theunderemployedcanfindfull-timework). Broadbandimpactonconsumersurplus

There are some specific economic effects of broadband that arenotnecessarily capturedbyeconomicgrowthoremploymentcreation.Thisisthecaseofconsumersurplus,whichhasalsobeen found to be affected by the positive externalities of broadband. Consumer surplus isdefinedastheamountthatconsumersbenefitfrompurchasingaproductforapricethatislessthanwhattheywouldbewillingtopay.Inotherwords,consumersurplusistheutilitygainbyconsumersduetopricesthatarelowerthantheirreservationprices.Infigure5theconsumersurplusistheareabetweenthedemandcurveandthemarketprice.Thelargertheareaunderthecurveis,themoreutilityconsumersderive.

Figure5:Conceptualrepresentationofconsumersurplus

Source:adaptedfromKatzetal.(2008b)

Consumersurplusmaychangeovertimebecauseoftworeasons.Thefirstoneisanoutward-shiftofthedemandcurve,andthesecondisapricereduction.Thepricereductionmayresultfrom productivity gains and competition. More competition and market saturation forceproducers to reduce prices. These two developments are responsible for increases inconsumersurplus.Asindicatedinfigure5,thedarkgreyarearepresentstheinitialconsumersurplusatt=0.Theshiftofthedemandcurveatt=1resultsinanadditionalconsumersurplus(lightgreyarea).Thewholeconsumersurplusinperiod1isthesumofthedarkandlightgrayareas.


23

The estimation of consumer surplus resulting from broadband penetration is important,although this economic benefit is not captured by GDP. Greenstein and McDevitt (2009)estimated the consumer surplus generated by broadband adoption in the United States. Intheiranalysisfortheperiodbetween1999and2006,theauthorsdeterminedthatin2006theconsumersurplusgeneratedbybroadbandrepresentedUS$7.5billion (or27%of the totalUS$28.0billioninbroadbandsurplus).Thiswascalculatedonthebasisofwhatuserswouldbewillingtopaytoadoptbroadbandandsubstitutenarrowbandaccess.Consumersurpluscanalsobeconceptualizedintermsofthebenefitsthatbroadbandrepresentstotheenduser.Thevariables driving willingness to pay include the rapid and efficient access to information,savings in transportation for conducting transactions, and benefits in health andentertainment.

TheauthorsalsoestimatedthesurplusgeneratedasaresultofbroadbandadoptioninCanada,UnitedKingdom,Spain,Mexico,BrazilandChina(Greenstein&McDevitt,2010). Inthiscase,due to the data limitations, they restricted their analysis to the benefit derived from pricedeclines, which necessarily underestimates its total impact. Nevertheless, the researchersdeterminedthatfor2009,thetotalBrazilianbroadbandsurplusrepresentedUS$7.03billion,ofwhich22%shouldbe considered tobe consumerdriven. In the caseofMexico, the totalsurplusisUS$2.30billion,andtheconsumerportionwas8%.Ingeneralterms,theauthorsconcludedthatthetotalbroadbandsurplusisdirectlyrelatedtobroadbandpenetration.II.2.Differencesbetweendevelopedanddeveloping countrieswith regards

tobroadbandimpact

As briefly discussed above, research on the economic and social impact of broadbanddetermined that the technology impact is not homogeneous across countries. Koutroumpis(2009)wasthefirstresearchertodeterminethatthebroadbandcontributiontoGDPgrowthincreases with penetration: the higher broadband penetration is, the stronger its effect oneconomic growth. This effect is labeled “critical mass” or, in economic terms, the return toeconomiesofscale.TheevidencegeneratedbyKoutroumpisonOECDdatasetsindicatedthattheimpactofbroadbandonGDPgrowthincreasedwithitspenetration,whengroupedinthreecategoriesofOECDcountries(seefigure6).


24

Figure6:OECD:PercentageofimpactofbroadbandonGDPgrowth

Source:adoptedfromKoutrompis(2009)

The “return to scale” effectwas also confirmed in a later research conducted by Katz et al.(2010) for Germany. The estimate was based on a statistical analysis of the impact ofbroadband on economic growth of German counties (landkreisse) between 2000 and 2006.Theauthorsdeterminedthat,onaverage,a1%increaseinbroadbandpenetrationcontributes0.0255% toGDPgrowth.This result coincideswithKoutroumpis’ estimateof0.023 forhighfixed broadband penetration countries. At the same time, by dividing the data set betweencountieswith high and lowbroadband penetration, the authors validated the existence of areturn to scale. For counties with an average fixed broadband penetration of 24.8%, thecontributiontoGDPgrowthwasaround0.0238%,whileforthosewithanaveragepenetrationof31%,broadbandcontributed0.0256%toGDP.

The return to scale effect has also been found in countries with low levels of broadbanddevelopment.Katz&Callorda(2016)wereabletomodeltheimpactofmobilebroadbandongrowth of the GDP of Senegal for the period 2009-2014, replicating research conducted byKatz & Koutroumpis (2014) for 2009-2012 and 2009-2010. During each period, mobilebroadbandpenetrationincreasedfrom0.29%oftotalpopulation(2010)to3.42%(2012),andfinally10%(2014).While in the firstperiod,mobilebroadbanddidnothaveany impactonGDPgrowth,inthesecondone,each10%inmobilebroadbandpenetrationyielded0.22%inGDPgrowth.Inthethirdperiod,whenmobilebroadbandpenetrationreached10%,theimpactcoefficient on GDP growth increased to 0.40% for each 10% increase in broadbandpenetration.

Thesameeffect,wherebytheeconomicimpactincreaseswithpenetration,canbefoundinthecaseoffixedbroadband(seefigure7).


25

Figure7:Fixedbroadbandeconomicimpactvs.fixedbroadbandpenetration

Source:KatzandCallorda(2016)

Figure7plotsonthehorizontalaxisfixedbroadbandpenetrationandontheverticalaxisthecontribution to GDP growth as calculated for several countries relying on a similareconometric structural model based on simultaneous equations10. Validating the “return toscale”,thefigureindicatesthatthecontributiontoGDPgrowthincreaseswithfixedbroadbandpenetration. For example, the contribution coefficient to GDP growth in Germany’s countieswith high (32%) and low (25%) population penetration is much higher (0.26 and 0.24respectively) than in countries with lower fixed population penetration, such as Tunisia(4.60%), with a contribution coefficient of 0.1010. The implications of these findings foremerging countries are clear. Since the magnitude of economic contribution of broadbandtechnology increases with penetration, it is imperative that they strive tomaximize overallpenetration.

Theimpactofbroadbandonjobcreationalsovariesbetweendevelopedandemergingregionswithin a single country. The research on broadband impact in Germany discussed abovehighlighted differential job creation impact between advanced and emerging counties. Incounties with high broadband penetration, once penetration increased, the effect of jobcreation issignificant in theshort term, fadingovertimeduetoapotentialsaturationeffect.On the other hand, in countieswith low broadband penetration, the increase in broadbanddeployment results in a negative impact on job creation (in otherwords, a reduction in thenumberofjobs)intheshortterm,reachingapositiveeffectinthelongterm.Acomparisonoftheseeffectsispresentedinfigure8.

10 ThemodelsarecompiledfromdifferentresearcharticlesfromKoutroumpis(2009),KatzandKoutroumpis(2012),KatzandCallorda(2014and2016).

0%

5%

10%

15%

20%

25%

30%

35%

0% 5% 10% 15% 20% 25% 30% 35% 40%

GD

P Im

pact

Penetration

Morocco (2014)

Jordan (2014)

Tunisia (2014)

Germany High

Germany Low

LATAM

Brazil Chile

Panama

Senegal (2014)


26

Figure8:Theregionaleffectofbroadbandonjobcreationaccordingtodifferentlevelsofpenetration

Source:Katz(2011)

Thesedifferenteffectscanbeexplainedby the fact that increasedbroadbanddeployment inmore advanced regions creates a "supply shock" within the context of companies who canleverage technology to generate new businesses while yielding production efficiencies. Incontrast, in regionswith lower broadband adoption, the increase in broadband penetrationleadstoaninitialsubstitutionbetweencapitalandlabor,inwhichtheproductivitygeneratedby the technologyproduces adecline in employment.11 In themedium term, the increase inadoptionhasapositiveimpact,whichcanbeexplainedintermsoflearningintheassimilationofthetechnologicalinputandthegenerationofinnovationsthatcreatejobs.Inotherwords,inthose regions lagging behind, the effect of broadband is increased productivity in the shorttermand, as a result, the lossof jobs; in themediumand long term, innovation leads to jobcreation.

Insum,while there isastrongconsensus in thepositiveandstatisticallysignificanteffectofbroadband on economic growth, when comparing findings across research, a number ofcaveatsneedtoberaised.First,broadbandexhibitsahighercontributiontoeconomicgrowthincountriesthathaveahigheradoptionof thetechnology(thiscouldbelabeledthe"critical

11 This effectwas alluded to byGillett et al. (2006) in indicating, "broadband can facilitate the capital-labor substitution,resultinginlowerrateofemploymentgrowth.”Thompsonetal.(2008)alsomentions“itispossiblethatasubstitutioneffectbetweenbroadbandandemploymentexists."

T+1 T+2 T+3 T+4

Econ

omic

Impa

ct

HI

LO

GDP

Employment

T+1 T+2 T+3 T+4

Econ

omic

Impa

ct

HI

LO

GDP

Employment(*)

High Broadband Penetration Regions Low Broadband Penetration Regions

•  High economic growth initially, diminishing over time (�supply shock� effect) •  New Economic Growth (innovation, new services)

•  High stable economic growth (�catch up� effect) • Capital/labor substitution limits employment growth (�productivity effect�)

Increase in BB

penetration

Increase in BB

penetration

(*) Results are at a low significance level


27

mass theory"12). Research has been successful in identifying the existence of a criticalmasseffect, indicating the existence of increasing economic returns to broadband penetration.Second,broadbandhasastrongerproductivity impact insectorswithhightransactioncosts,suchas financial services,orhigh labor intensity, suchas tourismand lodging.Third, in lessdevelopedregions,aspostulatedineconomictheory,broadbandenablestheadoptionofmoreefficientbusinessprocessesandleadstocapital-laborsubstitutionand,therefore lossof jobs(this could be labeled the "productivity shock theory"). Fourth, the impact of broadband onsmallandmediumenterprises takes longer tomaterializedueto theneedtorestructure thefirms'processesandlabororganizationinordertogainfromadoptingthetechnology(thisiscalled "accumulation of intangible capital"). Finally, broadband economic impact is higherwhenpromotionofthetechnologyiscombinedwithstimulusofinnovativebusinessesthataretied to new applications. In otherwords, the impact of broadband is neither automatic norhomogeneousacrosstheeconomicsystem.Thisemphasizesthe importanceof implementingpublicpoliciesnotonly in theareasof telecommunicationsregulation,butalso ineducation,economicdevelopmentandplanning,scienceandtechnology,andothers.

II.3.Technologicalevolutionofbroadband

Eversinceitsintroductioninthemid-1980s,broadbandtechnologyhasbeenevolvingintermsitsperformanceandusageflexibility.Theassessmentofbroadbandtechnologytrendsneedstobe organized along the five components of the broadband communications value chain (seetable6).

Table6:Broadbandcommunicationsvaluechain

ValueChainLink Function AlternativeTechnologiesInternationalConnectivity Connectionstotherestoftheworldand

Internet“cloud”SatelliteFiberoptics(submarinecableandlong-haulterrestrial)Microwave

Domesticbackbone Trafficcarriedbetweenfixedpointsofinterconnectionandtotheroutingswitch

FiberopticsMicrowavelinks

Switching/routing Intelligenceinthenetworkthatensuresthatcommunicationstrafficisroutedcorrectly

Opticalswitching

Lastmiledistribution Accesstothecustomerpremiseorindividualterminal

Fixedwireline(ADSL(copper),Cablemodem,Fiberoptics)Fixedwireless(WiMax,Satellite)Mobile(3G,4G,5G)

Distributionwithincustomerpremise

ModemRouterLinktoterminal

EthernetWi-Fi

Terminal SmartphonePCTabletTVs

Source:TelecomAdvisoryServices

Eachcomponentofthebroadbandvaluechaincanbesupportedbyanumberoftechnologies.Some, like satellites and fiber optics, are suited for particular environments, and should be 12 According to this, the economic impact of broadband increases exponentiallywith penetration of the technology as aresultofnetworkeffects.


28

consideredsubstitutes.Others,suchasmobilewireless3G,4Gand5G,representgenerationsofwhatisessentiallyasameapproachtobroadbandcommunications,eachofthemimplyingbetter performance and spectrum resource utilization. The following sections review eachgroupoftechnologiesbyvaluechainstage.

Internationalconnectivity

The suitability of technologies to support international connectivity varies in terms of acountry’s geography. In general terms,microwave links can bemore suited for connectivitybetween neighboring countries, although their capital requirements and technologicallimitations(in termsofoverallbandwidth)restrict theirapplicability.Microwavetechnologycanprovide longhaul transmissionusingachainof repeater transmitters,each transmittingover a distance of up to 50 kilometers. The principal drawback ofmicrowave links is theircapacityconstraint.TheevergrowingInternettrafficcannotbeeasilyhandledbymicrowavelinks,whichhasanimpactonthequalityofservice.Inaddition,sinceamicrowavenetworkissupported by repeating sites, the impact on maintenance economics of operating such atechnologycanbefairlyhigh.Twotechnologiesaremostlyrelieduponforbroadbandinternationalconnectivity:fiberopticsandsatellites.Infact,fiberopticsubmarinecablesandcommunicationssatellitesprovidethevastmajority of broadband international links (although some terrestrial networks are stillbasedonmicrowavetechnology).

For countriesborderingona coast line, submarine fiberoptic cablesprovide themost cost-effective option as a cable installation can combine several strands, each capable oftransmitting at a rate of several gigabits per second. The capital expenditures required todeploy fiber optics imply that they are relied first and foremost for long haul high capacitytransmission.However,once installed, fiberopticcablesprovidegreatopportunities toscaleupandincreaseoveralltransmissioncapacitysimplybyactivatingadditionalstrandsofcablepairs.Carriersusingfiberopticcablescantransmitvastamountsofbroadbandtraffic,notonlybecausesinglestrandshavewidebandcapacityandfasttransmissionspeeds,butalsobecausemanypairsofcablecanbebundledtogether. Furthermore,thetechnologyofDWDM(DenseWaveDivisionMultiplexing)makes itpossible formultiple laserbeamtransmissions to takeplaceviaasinglecablestrandusingdifferent,non-interferingfrequencies.

When operators cannot economically justify the cost of installing cables, most long haulcarriage of broadband traffic takes place via satellites. In addition, satellites are particularlyapplicable for countries that are located far from submarine coastal landing sites. Satellitesreceiveasignalfromalandlockedlocationandrelayittootherlocationswithintheirfootprint.Ontheotherhand,satelliteshavesignificanteconomicdisadvantagescomparedtofiberopticcables.Satellitescanofferonlyabout500-750MHzinbandwidthwhileafewfiberopticcablepairs can transmit the total capacityof all available communications satellites. Furthermore,satellites have a usable life of about ten years and cannot be easily repaired should amalfunctionoccur.


29

Fixedwirelinelastmiledistribution

This stage of the broadband value chain provides connectivity from the network to theconsumer,beitaPCinstalledinresidence,alaptop,tabletorasmartphonebeingoperatedbyan individual. There are three types of technologies supporting last mile distribution: fixedwireline,fixedwireless,andmobilewireless.

Three types of technologies support fixedwireline broadband access: digital subscriber line(provisioned by a telecommunications company), cable modem (supplied by a cable TVoperator), and fiber optics (again operated by a telephone company). Telephone companiesprovidebroadbandADSLservicebyexpandingthebandwidthavailablefromalreadyinstalledcopperwires used to provide the telephone service. With this service, telecommunicationscompanies can offer broadband service typically at transmission speeds of about 1.5Mbps.Thisperformance isdependentuponthedistanceseparatingtheresidencefromanoperatorswitchingcenter13.Theneedforsubscriberstobelocatednofartherthan5kilometersfromaswitchingcenterreducesthemarketsizeofpotentialsubscribers,restrictingittogeographieswithhighpopulationdensity.

ADSLserviceoffersslowbroadbandserviceascompared towhatcable televisionoperators’offer.Cabletelevisionoperatorscanalsoretrofittheirexistingnetworkstoprovidebroadbandservice. By partitioning a television channel, cable operators can designate the frequenciesrepresentedbythischannelasavailableonlyforuploadinganddownloadingdata.Giventhatthe cable television network operateswith amplifiers located throughout its network, cablemodemservicecanbeofferedanywherethecompanyoffersvideoservice.Additionallycablemodem service can operate at download speeds well in excess of what ADSL can provide.Additionally, cable operators can further increase service speeds (to up to 120 Mbps) byadding more bandwidth in 6 MHz increments, a process known as cable bonding. ThisprocedureisachievedthroughstandardssuchasDOCSIS3.0.

Finally,telecommunicationscompaniescanopttomigratetheiraccessnetworktofiberoptics,providingserviceatvastlyincreasedaccessspeeds(inmanycasesreaching200Mbps).Moreimportantly,fiberopticsrepresentacriticaltechnologytoaccommodatefutureinternettrafficgrowth. The increase in traffic is driven first by an exponential growth in Internet accessdevices.Forexample,whileasof2016,mobilebroadbandconnectionsintheMiddleEastandNorth Africa region represent 44% of the total, this number will reach 62% by 202014.Similarly, smartphone adoption is expected to increase from 39% to 65%within the sametimeframe.ThegrowthinInternetaccessdevicesiscompoundedbyanincreaseintrafficperdevice.Forexample,theaverageInternetuserinSaudiArabiawillgenerate30.2gigabytesofInternet traffic per month in 2020, a compound annual growth rate of 18% from 13.4gigabytespermonth in2015.Asa result in this countryalone, Internet trafficwill grow3.5 13DSLsubscriberslocatedrelativelyclosetoatelecommunicationscompanyswitchingfacilitycanreceivesomewhathigherbittransmissionspeeds,butsubscriberslocatedmorethan5kilometerstypicallycannotreceiveanyDSLservice.Becauseoperatorsrelyonunamplifiedcopperwireasthemediumforservice,signalsweakenasthedistanceincreasesbetweenthesubscriberandtheoperatorswitchingoffice.14GSMA(2016).Themobileeconomy:MiddleEastandNorthAfrica2016.London.


30

timesbetween2015and202015.Thecostsofinstallingfiberinthelastmileareconsiderablyhigh(US$2,000inurbanareas,$4,000insuburbanareas,and$12,000inruralareasperhomeconnected).Thisputspressureonoperatorstomarketadditionalservicesinordertogenerateenoughrevenuetorenderthedeploymentbusinesscaseprofitable.

Fixedwirelesslastmiledistribution

Since many countries lack ubiquitous access to new or transitional broadband wirelinetechnologies, fixedwirelessoptions canprovidea solution for servingmany localities. Fourfixedwirelesstechnologiesexist:WiMax,Wi-Fi,SuperWi-Fi,anddirectsatellites.

WiMax(WorldWideInteroperabilityforMicrowaveAccess)referstoamicrowavetechnology,typicallyoperatingat2.5-3.5GHzfrequencies,thatcanprovidelastmilebroadbandserviceatspeedsofupto30-40Mbps.WiMaxprovidestheabilitytoextendwirelesstypeaccessoveralargerfootprint.However,asWiMaxnetworkdemandgrowsandasusersmovefurtherawayfrom a transmitter, actual achieved speeds decline. Operational WiMax networks typicallydeliverbroadbandspeedsrangingbetween1and15Mbps.

In its basic application,Wi-Fi (Wireless Fidelity) can provide access to a wired or wirelessbroadband service tomultiple userswithin a small distance from awireless router16. Thistechnologyoffersanextensionofanexistingbroadbandservice,suchasADSL,cablemodem,or fiberoptics.Wi-Fiservice typicallyrequires the installationofawirelessrouteroperatingonunlicensedmicrowavespectrumatlowtransmissionpower.Tablets,smartphonesandPCsequipped to transmit and receiveWi-Fi frequencies can communicatewith theWi-Fi routerservingasaninterfacefordownloadingandreceivingtrafficfromtheInternet.Wi-Fihasbeenalso applied as a last mile distribution fixed wireless technology. For example, WirelessInternetServiceProviders(WISPs)relyprimarilyonunlicensedspectrumtoofferbroadbandaccessibility inruralareasof theUnitedStates.WhilesomeWISPsutilize licensedspectrum,themajorityreliesonUNIIandISMbandsorlightlylicensedspectruminthe3.65GHzband:26MHzofunlicensedspectrumjustabove900MHz,50MHzin2.4GHzand100MHzin5.8GHz.WhileWISPs initially utilized the 802.11b platform, they havemostlymigrated to 802.11n,whichallowsthemtodeliver10Mbpsserviceorhigherto200customersfromasingle foursectorbasestation.

SuperWi-Fi is an enhancement ofWi-Fi technologywhich operates in the frequency bandsbetween 54 MHz and 698 MHz to deliver broadband within up to 10 miles with highpenetrationat20Mbpsdownloadand6Mbpsuploadspeeds.ItcanextendtherangeofWi-Fiand provide broadband in rural areas. Super Wi-Fi relies on empty channels of spectrum(knownaswhitespaces)andusesDynamicSpectrumAccessthatoptimizesaccesstoavailableunusedbands17.

15CISCO(2016).VisualNetworkingIndex. 16InessenceWi-Ficonstitutesan“accesstoaccess”serviceinthesensethatitonlyprovidesawirelessandmobileoptionwithinaclosedandlimitedarea,e.g.,ahomeorcoffeeshop.17UserswillpredominantlyuseSuperWi-Finetworkstoaccesssmart,radio-enableddevicesthatreporttheirlocationtoanInternetdatabase.ThedatabasewilldictatetheTVwhitespaceschannelsandappropriatepower levelbasedon in its


31

Mobilewirelesslastmiledistribution

Beyondfixedwireless,mobilewirelesstechnologieshavethepotentialtoofferfaster,cheaperand more widespread installation of broadband services. Using microwave frequencies forbackhauling traffic and an antenna that transmits a 360-degree signal,wireless carriers cancoveradiameterof100kilometers,dependingontheradiofrequencyandthetopologyoftheterrain. Wirelessnetworkoperatorsdonothavetoinstallducts,conduitsandwirestoserveeachandeverysubscriber.Insteadtheomnidirectionalsignalfromasingletowercandelivervoice and data traffic to any user within the transmission contour and also any user cancommunicatewiththetowerusingasmartphone.

Sincethemid-1980s,wirelesstelecommunicationshasevolvedinfourdistinctgenerations.Inthe first generation, in the mid to late 1980s, cellular radio used analog transmission toprovide wireless telephony only. The second generation (launched in the early 1990s)introduceddigital transmissiontechnologiesandthe firstspectrumefficiencytechniques. Inthe third generation (adopted initially in early 2000s) cellular networks acquired the firstability to handle data traffic. In this third generation, wireless operators retrofitted theirnetworks to handle data traffic commingled with voice calls. However, broadband speedsunder 3G networks are fairly slow: these networks can handle the real time “streaming” ofmusicandthedistributionofwebpages,butnotthestreamingoffullmotionvideoandotherbandwidth intensive applications, such as some forms of video gaming. 4G service offersdedicatedhighspeeddataserviceatbittransmissionspeedsexceedingwhatterrestrialADSLoffers and rivaling that of cable modem services, becoming an alternative to many fixedwirelineservice. Theproliferationofhandsets, including tabletsand lightweightcomputers,coupledwitheverincreasingcontentandsoftwareoptionshasstimulatedincreasingdemandforwirelessspectrum.Recentevidenceofdeploymentindicatesthat4GLongTermEvolution(“LTE”) has overtaken WiMax as the preferred option for extremely high-speed wirelessbroadbandservice.

5G technology is generallydefinedasproviding throughput thatwill be10-100x faster than4G,whichcouldmeanreal-worldspeedsofabout4Gbpsormore.Mostofthespeedincreasesare due to how the carriers will be adding more wireless channels, using millimeter wavetechnology(whichmeansthesignalhastotravelshorterdistances),installingsmallcellsthatdramatically increase the coverage map, and increasing capacity in the wired backhaullocations.Thespeedboosts,lowlatency,andbackwardscompatibilitywithexistingnetworkswill provide a framework for new network architectures, like Cloud RAN (radio accessnetwork)where localized nano-data centerswill occur supporting server-based networkingfunctionslikeIndustrialIoTgateways,videocachingandtranscodingattheedgeforUltraHDvideo, and newer mesh-like topologies supported with more distributed heterogeneousnetworks(“HetNets”).Inshort,5Gwillleadtoadramaticincreaseincellsites(whichduetothe higher frequency a lot of them will have significantly shorter range) and demand for

currentlocation.ThedatabasehasalistofallprotectedTVstationsandfrequenciesacrossthecountry,sothedevicescanavoid interferencewith TV broadcasts andwireless signals. This technology is truly dynamic – as different TV channelsbecomeavailable,SuperWi-Fidevicescanopportunisticallyswitchfromonegroupofchannelstoanother.


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backhaul18.II.4.Mainchallengesregardingfixedandmobilebroadbandpenetration

Therearetwotypesofbarrierspreventinganincreaseinbroadbandpenetration.Thefirstoneisdrivenbysupply:citizensdonotacquirebroadbandservicesimplybecausetheylackserviceintheareawherethey liveorwork.Thisbarrierhasbeencalledthesupplygap.Thesecondoneiscalledthedemandgap.Whilethesupplygapmeasurestheportionofthepopulationofagivencountrythatcannotaccessbroadbandbecauseoflackofservice,thedemandgapfocuseson the potential users that could buy broadband service (since operators offer it in theirterritory, either through fixed or wireless networks), but do not. While the digital dividerepresents the sum of both supply and demand gap, the critical success factors and policyinitiativesaimedataddressingeachofthemaredifferent.

Four success factors are critical for increasing broadband service penetration. In order toreduce the supply gap, the key factor is how to define the right mechanisms that wouldstimulate the deployment of networks in regions that are still uncovered. The economics ofbroadbandnetworks(morespecifically, thecapital required fordeploymentandthecostsofoperatingthetechnology)areconstrainedinlow-densityregions,particularlywheninhabitedby underprivilegedpopulation.With a low (or evennegative) return on investment, privatesectorbroadband serviceprovidershaveno economic incentive todeploy the technology inruralandisolatedareas.Undertheseconditions,governmentsareresponsibleforinterveningtoaddressthissupplyfailure.Theremediesandapproachesthathaveproventobeuseful inthisdomainwillbeaddressedinChapterIII.

At thehighest level of analysis, the residential broadbanddemandgap is the result of threechallenges19:

• Limitedaffordability:certainportionsofthepopulationeithercannotaffordadeviceorpurchasethesubscriptionneededtoaccesstheInternet

• Limitedawarenessofthepotentialofthebroadbandserviceorlackofdigitalliteracy• Lackofculturalrelevanceorinterest:thevaluepropositionofapplications,services,

andcontentprovidedbytheInternetdoesnotfulfillaneedoftheadoptingpopulation

Each of these three obstacles are driven by one or a combination of at least five structuralvariables:

185Gwirelesstechnologyhasbeendefinedaccordingtoeightrequirements(GSMA,2015):

• 1-10Gbpsconnectionstoendpointsinthefield(i.e.nottheoreticalmaximum)• 1millisecondend-to-endroundtripdelay(latency)• 1000xbandwidthperunitarea• 10-100xnumberofconnecteddevices• (Perceptionof)99.999%availability• (Perceptionof)100%coverage• 90%reductioninnetworkenergyusage• Uptotenyearbatterylifeforlowpower,machine-typedevices

19Otherbarriers,suchlackoftrustintheInternet,mightalsoexist.


33

• Incomelevels:disadvantagedsocio-demographicgroups,measuredby income,havelimited capacity to afford the acquisition of broadband. However, affordability hasbeen found tobecorrelatedwith limitedawarenessand lackofcultural relevanceofcontent. Research indicates that lack of cultural relevance, as a barrier in developedcountries, is prevalent in very circumscribed socio-demographic categories. Forexample, in the United Kingdom, the non-broadband households that cite lack ofrelevance to explain non-adoption of broadband tend to belong to lower incomedemographicswith people over 65 years old. In a study conducted in Spain (ONTSI,2012),lackofrelevanceofInternetcontentwasfoundtobeinverselyproportionaltoincomelevels.

• Education levels: theeducationattainedbypotentialusers influences thedegreeof

digital literacy and is related to interest in accessing the Internet. Beyond thedirectrelationship between income and broadband adoption, the influence of education isquite relevant. Particularly, in households above the sixth income decile (whereaffordabilityrepresentslessofabarrier),educationbecomesadeterminingfactor.Thehigher the educational achievement of the head of household, the higher broadbandadoptionis.Thestudyoftheeducationvariablerevealsthecomplexinterrelationshipithaswiththeaffordabilityfactor.Atlowerincomelevels,theaffordabilityvariableisstrongerthantheeducationaloneinpredictingadoption.Ontheotherhand,atincomelevelshigher than the sixthdecile, demand is less elastic to income, andeducationalachievementbecomespreeminent.

• Age: similarly, the age variable is inversely related to digital literacy and contentrelevance.Studiesconductedinthedevelopedworldhaveallpointedouttheexistenceof a generation gap linked to limited digital literacy. In theUnitedKingdomand theUnited States, the average age of a non-adopting household is over 65 years old(OFCOM,2012).Researchintheemergingworldsuggeststheexistenceofathresholdof30yearsold,afterwhichInternetusetendstodeclinesignificantly.Thedifferencebetween the 30-year threshold for Internet usage and persisting broadbandpenetrationatthe35to44agebracketisexplainedbythepresenceofchildreninthehousehold.Childrentendtoactaschangeagentsinahousehold,stimulatingInternetusageandsustainingbroadbandadoption.Thisindirectinfluencecancelssomeofthegenerationalgapidentifiedinnumerousstudies.

• Ethnicity: as a result of linguistic and/or cultural structural factors, ethnic groupbelongingcanimpactthelevelof interest inaccessingtheInternet.Alongtheselines,thelackofcontentinlocallanguagescouldrepresentamajorbarrierforadoption.

• Gender:differences ineducationor insertion in the labormarketbetweenmaleandfemalepopulationcanhaveanimpactonbroadbandadoption,Forexample,agendergapwasdetectedinsomecountries(seeUniversidadAlbertoHurtado,2009forChile;


34

INEI, 2012 for Peru; and Rectoria de Telecomunicaciones, 2011 for Costa Rica).However, research by Hilbert (2011) has indicated that the gender gap disappearswhencontrolvariablessuchasincomeandeducationareincludedintheanalysis.

In addition, non-adoption of broadband could be explained by concerns regarding dataprivacy. While this factor has been found to explain approximately 10% of non users ofelectronic commerce among Internet subscribers, it could be hypothesized that privacyconcernsalsopreventssomeusersfromoutrightbroadbandusage.Forexample,surveydatacompiledbytheInternationalTelecommunicationsUnionindicatethat0.20%ofBahraininonadopters, 5.20% of Iranian non Internet users, 6.20% of Brazilian non-users, and 1.30% ofEgyptian non adopters mention privacy and/or security concerns as an Internet adoptionbarrier.

Finally, researchhas found that a small portion of non-broadbandusers justify their lack ofadoptionon religious grounds.Data in support of this assertion is not available, except thatapproximately 1% of non-adopters in the survey data compiled by the InternationalTelecommunicationsUnionmention a cultural barrier as reason for non-adoption. Religiousreasonscouldpotentiallybeblendedunderthisbarrier.

This section presented the conceptual framework required for defining policies aimed atdeveloping broadband networks and services. First, the evidence of social and economicbenefits derived from broadband development was reviewed. Second, following thedemonstrationofbroadbandeconomicimpact,evidencewaspresentedtoshowthedifferenceinbroadband’ssocialandeconomiccontributionfordevelopedandemergingcountries.Third,maximizing the social and economic contribution of broadband is contingent upon selectingthe right technologies and platforms. Finally, the main challenges regarding broadbanddemand were presented. These four components will serve as a framework to assessbroadband’sglobaltrendsaswellasthecurrentsituationintheOICMemberCountries.


35

III. BROADBANDGLOBALTRENDS Thefollowingsectionpresentsinformationonglobaltrendsregardingbroadbandsupplyanddemand. It first reviews industry trends at a global level and then highlights the gaps inpenetration. It also identifies three best practices as approaches that would allow tacklingsomeoftheprincipalbroadbandadoptionbarriers. III.1.Globalbroadbandindustrytrends

The global telecommunications industry is facing the challenge of continuing to deploynetworkinfrastructurethataccommodatestheexponentialgrowthindatatraffic.Theneedtocontinuebuildinghigh-capacitynetworksisputtingpressureoncapitalinvestmentatatimeswhenrevenuesarestagnatingduetodemandsaturationandcompetitionfromOverTheTopplatforms.Inthiscontext,industryconsolidationandthestructuringofmultinationalcarriersthatstakedominantmarketpositionsinkeygeographieshasbecomeacriticalimperative. Exponentialbroadbandtrafficgrowth

Annual global Internet traffic in 2016 has reached 88.7 billion gigabytes permonth.Havinggrownatanannualrateof30%inthepastfiveyears,itisexpectedtocontinueincreasingatacompound annual growth rate of 22% through 2020, therefore reaching 194 billiongigabytes20.Thisgrowthisaresultofboththe increase indataaccessdevicesandusageperdevice, primarily video traffic. For example, by 2020 there will be 3.4 Internet connecteddevicespercapitaupfrom2.2in2015.

Drivers of traffic growth are numerous ranging from the increase in machine to machinedevices(whichin2020willamountto46%oftotalinstalledbase),totheintroductionofultra-highdefinition video streaming (which requires twice the bit rate of highdefinition), to theincreaseduseofonlinegamingandsocialnetworking,andthemigrationofvideowatchingtovideostreamingfromconventionaltelevision.

Inthiscontextofexponentialtrafficgrowth,InternettrafficwillgrowfastestintheMiddleEastandAfrica(27%compoundannualgrowthrate)reaching10.9billiongigabytespermonthin2020. The growth rate in Central and Eastern Europewill be similar resulting in 17 billiongigabytespermonthin2020,whilegrowthinNorthAmericaandEuropewillbebetween19%and20%. Deploymentofhigh-capacitynetworks

To accommodate the growing traffic, broadband service providers need to deploy fixed andmobile networks capable of delivering data flows at faster speeds. While high-capacitybroadbandnetworks represent38%of all subscriptionson aworldwide scale, the choiceoftechnologytendstovarybyregion.Forexample,someEuropeancountries(France,Spain,and

20CISCO(2016).VisualNetworkingIndex.


36

Portugal) have chosen to deploy fiber to the household, while others (Germany, UnitedKingdom,Belgium) tend to rely onhybridnetworks combining fiber to thenode and legacycoppernetworks.ThesenetworkscanadoptVDSLvectoringtechnologycapableofdeliveringspeedsofupto1Gbps.Ontheotherhand,cableTVoperatorshavebeendeployingDOCSIS3.1architecturescapableofdeliveringupto1Gbpsofdownloadspeed.

Inthecaseofmobiletechnology,4G/LTEisthetechnologyofchoice.Theglobaluserbaseofsubscribers that have already adopted 4G has reached 1.453 billion by 2Q2016, connectingapproximately1in5mobileusersworldwide(19.5%)21.LTEsubscribersareforecasttoreach3.3 billion by 201822. In terms of future migration, some operators are already trialing 5Gtechnology, which will be able to deliver download speeds of up 10 Gbps. Commercialdeploymentof5Gisexpectedtobeginby2020indevelopedcountries. CompetitionfromOverTheTopplatforms

Whilepressuredtoincreasecapitalspendingfordeployinghigh-capacitynetworks,broadbandservice providers are facing increased competition from Over The Top platforms withpotentialforcapturingagrowingshareoftraditionaltelecommunicationsoperators’revenuestreams.For example, Skype (ownedbyMicrosoft) already represents, at214billionannualminutes, the largest international telecommunicationscarrier23.Similarly,WhatsApp(ownedby Facebook) is expected to continue capturing a share of mobile voice networks. A 10%reductioninthevolumeofvoicecallsinWesternEuropeisexpectedbetween2016and2021,largelydrivenbysubstitutiontoWhatsApp24.

TheneteffectofOTTplayersisanerosionofpricerealization,wherebyoperatorsneedtocutpricesinordertomatchtheofferingsof“assetlight”competitors,whosebusinessmodelisnotpredicatedonsellingtelcominutesbutmonetizingadvertisingrevenues. Revenuestagnation

The intensity of competition among broadband service providers and betweentelecommunicationsandOTTplayersisputtingpressureonthetelecommunicationsindustryrevenues. An estimation of total telecommunications industry revenues between 2000 and2014indicatesastagnationafter2011(seefigure9).

21GlobalMobileSuppliersAssociation(2016).EvolutiontoLTEreport.October26.22IDATE.DigiworldYearbook2016.Montpelier.23Telegeography(2014).Skypetrafficcontinuestothrive.January15.24AnalysysMason(2016).Toptenpredictionsfor2017.December21.


37

Figure9:Totaltelecommunicationsindustryrevenues(intrillionUS$)(2010-2014)


Revenuestagnationisaffectingoperator’smargins.Tocompensate,operatorsarecapitalizingon the mobile Internet momentum and betting on convergence with video distribution. Inaddition, consolidationwithin countries andacrossborders represents a lever togenerateareturntoeconomiesofscale. Furtheringconsolidationofglobalbroadbandplayers

Theglobalbroadbandmarketisservedbyglobal,regional,andlocaloperators.Somecountriesare served by local operators and subsidiaries of global players. Other countries are servedonly by global service providers. For example, Cote d’Ivoire (a country studied in detail inChapter V) is almost exclusively served by global players: Orange and MTN (in fixed andmobilesegments),Moov(asubsidiaryofEtisalat)inmobile,Yoomeeinfixedsegmentandtwominorlocalfixedbroadbandplayers.

Thegeographicfocusofglobalplayersisdrivenbytheneedtoleverageeconomiesofscaleandknowledgeofspecificmarketconditions.Thebroadbandindustryexhibitsstrongeconomiesofscale,indicatingthatthereisastrongeconomicbenefittobeobtainedbyoperatorswithlargercustomerbases(seefigure10).

0.91.00

1.101.25

1.501.67

1.81

2.092.01

1.88 1.901.99 1.97 1.95 1.96

0.0

0.5

1.0

1.5

2.0

2.5

2000 2002 2004 2006 2008 2010 2012 2014


38

Figure10:Economiesofscaleinthewirelessindustry

Source:BankofAmericaMerrillLynch;TelecomAdvisoryServicesanalysis

Large mobile broadband operators enjoy significant cost-per-subscriber advantage overoperators half their size. These economies of scale are driven primarily by the large fixedcomponent of local radio network deployment and infrastructure costs. Furthermore,aggregatemacro-scale inmobile services could be related to the fact that they are a singleproductindustry,whichisgovernedbyvolume.Inaddition,itisalsopossiblethateconomiesof multi-plant operation (multiple call centers, regional customer service, maintenance andlogistics)arealsoatwork.Inadditiontooperatingexpenditures,capitalexpendituresarealsoaffected by economies of scale. In fact, capital expenditures per wireless minute of usedecreasewithsizeofthesubscriberbase.Scaleeffectsofcapitalspendingarealsocomingintoplay with infrastructure upgrades (3G and 4G). For an industry that is capital intensive aswireless, the extent of capex scale effects underlines the unsustainability ofmultiple (morethanthree)redundantnetworks.

A broadband operator with presence inmultiple countries can generate cost reductions byconsolidating functions such as billing, network engineering, product development, andachievingbetter terms inpurchasingequipment and terminals.When thisoccurs, theglobaloperatorcan“jump”ascalecurveandbenefitfromlowerunitcosts(seefigure11).

$0.00

$10.00

$20.00

$30.00

$40.00

$50.00

$60.00

0 10,000,000 20,000,000 30,000,000 40,000,000

Opex

/Mon

th pe

rSub

(200

7)

Total Subscribers (2007)


39

Figure11:Differenceinscaleeconomiesbetweenlocalandglobaloperator


When this occurs, the global operator achieves a cost advantage vis-à-vis the local player,which can be leveraged to gain more price flexibility. Beyond economies of scale, globalplayers achieve learning curve benefits by focusing on a single region. In general terms,regionstendtosharesimilardemographics,andcertainaspectsofregulatoryframeworks.Thefirst factorallowsaglobal carrier to replicatemarket strategieswithminimal customizationcosts (e.g. similar products, similar distribution channels). The second aspect – commonregulatory frameworks – facilitates the development and implementation of approaches todealwithlocallawsandgovernmentpolicies.

The advantage of global players vis-à-vis local players ismore noticeable inmobile than infixedbroadband.Fixedbroadbandismoreinfluencedby“local”factors(e.g.costofoperationsand maintenance labor, topographic characteristics) than mobile broadband. Nevertheless,fixedbroadbandtechnology isstillaffectedbycertaineconomiesofscaleand learningcurvefactors. On the scale side, the possibility of obtaining better prices for the acquisition ofequipment still favors the global player. On the learning curve side, global fixed broadbandplayers still command an advantage when it comes to the opportunity of sharing productdevelopmentexpertiseandbestpractices.Examplesof thesebenefitswillbeprovidedwhenanalyzing the strategies of global players active in theOICMember Countries (presented inchapterIV).

The advantage of regional focus has been a key driver of gradual concentration of globalplayers on specific regions of the world. Global operators are deployed across countriesthrough country-focused operations, but following a regional focus. For example, Orange isfocusedonEurope,Africaand theMiddleEast,MTN is focusedonAfrica,whileTelefonica isfocusedonEuropeandLatinaAmerica(seetable7).

GlobalOperator

LocalEconomiesofScale

Subscribers

UnitC

ost


40

Table7:GlobalpresenceofMNCbroadbandproviders Africa Asia Europe L.America

Orange

Guinea-Bissau,Botswana,Cameroon,CentralAfricanRepublic,Coted’Ivoire,Egypt,Guinea,EquatorialGuinea,Kenya,Mauritius,Senegal,Mali,Niger,Tunisia,Madagascar

Jordan,Iraq France

MTN

Ghana,Cameroon,Uganda,Coted’Ivoire,Sudan,Nigeria,Rwanda,Zambia,SouthSudan,Botswana,Swaziland,Benin,Congo,Liberia,Guinea,Guinea-Bissau

Syria,Iran,Yemen,Afghanistan,Cyprus

Telefonica

Spain,UK,Germany

Argentina,Chile,Uruguay,Peru,Colombia,Venezuela,Mexico,Brazil,Ecuador,CostaRica,ElSalvador,Nicaragua

Etisalat

Morocco,Mauritania,BurkinaFaso,Gabon,Coted’Ivoire,Egypt,Nigeria,Niger,Benin,CentralAfricanRepublic,Mali

Afghanistan,Pakistan,SriLanka,UAE,SaudiArabia

VodafoneEgypt

Qatar,Turkey Albania,UnitedKingdom,Spain,Italy,Germany

Airtel BurkinaFaso,Chad,Gabon,Niger,Nigeria,SierraLeone,Uganda

Bangladesh

Zain

Kuwait,SaudiArabia,Jordan,Sudan,SouthSudan,Iraq,Lebanon,Bahrain,Morocco,

Source:CompiledbyTelecomAdvisoryServicesIII.2.Globaltrendsregardingbroadbanddevelopment

GlobalBroadbandAdoption

Forty-four percent of the world’s population already accesses the Internet with regularity.Consideringthatintheyear2000,Internetpenetrationreachedonly7%ofthepopulation,thediffusion of the Internet represents a revolution in terms of changes in modes ofcommunicationandaccess to information.The rateof growth in Internet adoptiondoesnotindicateaslow-downinthenearfuture(seefigure12).


41

Figure12:WorldwideInternetadoption(aspercentofworldpopulation)(2000-2015)

Sources:InternationalTelecommunicationsUnion;TelecomAdvisoryServicesanalysis

Havingsaidthat,acomparisonofadoptionacrossregionsindicatesalagofemergingcountriesvis-à-vis the developed world. As an example, as of the end of 2015, Internet penetrationamong OECD countries is 77.24%, while it remains at 30.59% within the OIC MemberCountries.AmoregranularviewofInternetadoptionacrosscontinentsprovidesabetterviewofadvancedandlaggardInternetadoptingcountries(seetable8).

Table8:Worldwideinternetadoption(aspercentofpopulation)(2015)

Region InternetAdoption(%)NorthernEurope 90.90WesternEurope 86.83Australasia 85.13OECD 77.24NorthernAmerica 75.94SouthernEurope 70.13EasternEurope 67.32SouthernAmerica 57.77EasternAsia 54.71WesternAsia 50.35CentralAmerica 50.13SouthernAfrica 48.26Polynesia 47.33CentralAsia 43.98World 43.84Micronesia 42.11Caribbean 39.17NorthernAfrica 37.00South-EasternAsia 34.17WesternAfrica 31.09SouthernAsia 24.53EasternAfrica 15.57Melanesia 13.79MiddleAfrica 8.34Sources:InternationalTelecommunicationsUnion;TelecomAdvisoryServicesanalysis

6.8$ 8.1$10.7$

12.4$14.3$

15.8$17.5$

20.5$23.2$

25.7$29.1$

31.7$34.8$

37.2$40.5$

43.8$

0$

5$

10$

15$

20$

25$

30$

35$

40$

45$

50$

2000$2001$2002$2003$2004$2005$2006$2007$2008$2009$2010$2011$2012$2013$2014$2015$


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As table 8 indicates, Internet use in emerging regions lags the developed world average(OECD)between20(SouthAmerica)and69percentagepoints(MiddleAfrica).Itisimportanttonote,however,thatatleastforsomeregionsintheemergingworld(suchasSouthAmerica,SouthernandNorthernAfrica),thegapwithdevelopedcountriesisgraduallynarrowingdown(seefigure13).

Figure13:SelectedRegions:Internetpenetration(aspercentofpopulation)(2000-2015)


In the context of growing Internet use, broadband has become a pervasive platform forprovidingaccess.Onaworldwidescale,36%ofhouseholdsalreadyadoptedfixedbroadbandtechnologybytheendof2015.AcomparisonbetweentheadoptionofInternetusageandfixedbroadband penetration among households indicates that fixed access follows use of theInternet(seefigure14).

Figure 14: Worldwide internet adoption (percent of population) vs. fixed broadbandadoption(percentofhouseholds)(2000-2015)


0.7%1.6%2.9%4.5%

6.9%9.5%

12.4%15.5%

18.3%21.2%

23.9%26.9%

29.2%30.9%32.4%

36.5%

7% 8%11% 12%

14% 16%17%

21%23%

26%29%

32%35%

37%41%

44%

0%5%

10%15%20%25%30%35%40%45%50%

2000200120022003200420052006200720082009201020112012201320142015

FixedBroadband(aspercentofhouseholds)

InternetUse(aspercentofpopulaEon)

0%#

10%#

20%#

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40%#

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60%#

70%#

80%#

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2000 2002 2004 2006 2008 2010 2012 2014

OECD Countries Middle Africa Northern Africa

Southern Africa Southern America Southern Asia


43

Despite the growth in fixed broadband adoption on a worldwide scale, the gap highlightedabove between the developed and the emerging world remains pervasive. However, whencomparing thegapbetweendevelopedandemerging regions in termsof Internetusageandfixedbroadbandpenetration,thegapismuchlargerinthelatter.Fixedbroadbandadoptioninthedevelopingworldlagsthedevelopedworldaverage(OECD)between35(CentralAmerica)and78percentagepoints(MiddleAfrica)(seetable9).

Table9:Worldwidefixedbroadbandadoption(aspercentofpopulation)(2015)

Region InternetAdoption(%)WesternEurope 89.1NorthernEurope 86.2NorthernAmerica 84.4OECDCountries 78.1Australasia 75.2SouthernEurope 69.5EasternAsia 67.8EasternEurope 51.8WesternAsia 48.2CentralAmerica 43.1SouthernAmerica 41.8Polynesia 41.2World 36.5%CentralAsia 22.9SouthernAfrica 19.6South-EasternAsia 17.3NorthernAfrica 17.2Caribbean 15.9Micronesia 9.7SouthernAsia 8.4Melanesia 4.2EasternAfrica 2.2WesternAfrica 0.9MiddleAfrica 0.7Sources:InternationalTelecommunicationsUnion;TelecomAdvisoryServicesanalysis

Furthermore,ananalysisof fixedbroadbandpenetrationgrowthtrendclearly indicates that,withtheexceptionofSouthAmerica,thegapbetweenOECDcountriesandtheemergingworldcontinuestogrow(seefigure15).


44

Figure 15: Selected Regions: fixed broadband penetration (as percent of households) (2000-2015)


On the other hand, the adoption of mobile broadband in the emerging world has beenaccelerating,while its penetration in the developed countries is reaching a saturationpoint.TheproratedadoptionofmobilebroadbandamongOECDcountrieshasreached87%,whilethestatisticinSouthAmericaandSouthernAfricais67%and58%(seetable10).

Table10:WorldwideMobileBroadbandadoption(as%ofpopulation)(2015)

Region InternetAdoption(%)WesternEurope 74.75NorthernEurope 95.69NorthernAmerica 103.93OECDCountries 87.17Australasia 113.04SouthernEurope 72.80EasternAsia 62.96EasternEurope 58.54WesternAsia 46.39CentralAmerica 43.09SouthernAmerica 67.37Polynesia 18.41World 44.14CentralAsia 33.20SouthernAfrica 58.19South-EasternAsia 46.87NorthernAfrica 43.13Caribbean 19.78Micronesia 0.27SouthernAsia 10.82Melanesia 11.15EasternAfrica 12.54WesternAfrica 23.22MiddleAfrica 8.92Sources:InternationalTelecommunicationsUnion;TelecomAdvisoryServicesanalysis

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

2000200120022003200420052006200720082009201020112012201320142015

OECDCountries SouthernAfrica SouthernAmerica

MiddleAfrica NorthernAfrica SouthernAsia


45

Furthermore,thegrowthinpenetrationforbothregionscontinuesto increaseata fastpace,while that of theOECD countries is slowingdown,which indicates that some regions of thedevelopingworldarecatchingupwiththedevelopedcountries.This isnotthecasewiththewholeemergingworld.WhiletheadoptionofmobilebroadbandinMiddleAfricaandSouthernAsia is increasing, the rate of growth is significantly low. These trends indicate a processwherebysomeregionsoftheemergingworldareconvergingwithadvancedcountries,whileothers seem to be diverging. In other words, when it comes to broadband adoption, thedevelopingworlddoesnotrepresentahomogeneousprofile(seefigure16).

Figure16:SelectedRegions:Mobilebroadbandpenetration(percentofpopulation)(2007-2015)


Anothertrendworthpointingoutisthattheaccelerationinadoptionofmobilebroadbandisaconfirmationofitssuitabilitytofillthedemandgapinmanypartsofthedevelopingworld.ForregionssuchasMiddleAfrica,asof2015,fixedbroadbandpenetrationis0.74%ofhouseholdswhilemobilebroadbandhasreachedcloseto9%ofthepopulation.Similarly,inSouthernAsia,fixed broadband penetration has reached 8% of households while mobile broadbandpenetration represents 11% of the population. This indicates that mobile broadband iscapturingalargeportionoftheaccessibilitydemand.However,itisimportanttomentionthata largeportionof themobilebroadbandadoptingpopulation issupportedby3Gtechnology,whichasdescribedabove,isaparticularlyslowtechnology.

Broadbandsupplygap

The best statistic to measure the supply gap is broadband service coverage, which is thepercentofthepopulationthatcouldpurchasebroadbandservicebecauseitisbeingofferedinthe placewhere they live,work or study; the uncovered population is themetric sizing thesupplygap. Statisticson fixedbroadbandcoverageare typically sparse.However, somedatacanbegathered,particularlyinmoredevelopedregionsoftheworld(seetable11).

0%#10%#20%#30%#40%#50%#60%#70%#80%#90%#100%#

2007# 2008# 2009# 2010# 2011# 2012# 2013# 2014# 2015#

World Southern Africa Southern America

Middle Africa Northern Africa Southern Asia OECD countries


46

Table11:Regionalfixedbroadbandcoverage(aspercentofpopulation)(2015)

Regions Coverage(%)Australasia 92.16CentralAmerica 92.11EasternAsia 98.00EasternEurope 90.38NorthernAmerica 95.75NorthernEurope 98.81SouthernAmerica 91.10SouthernEurope 97.87WesternAsia 100.00WesternEurope 98.70OECDCountries 96.27Sources:InternationalTelecommunicationsUnion;TelecomAdvisoryServicesanalysis

Table11depicts a clear trend:developed regions (Western, SouthernandNorthernEurope,EasternAsia)exhibitahighercoverageoffixedbroadbandnetworkswhileotherregionshavea more reduced service footprint (Australasia, Central America, Eastern Europe, and SouthAmerica).Amoregranularviewbycountryprovidesasenseoftherelevanceofthesupplygapinexplainingbroadbandpenetration(seetable12).

Table12:Fixedbroadbandcoverage(aspercentofpopulation)(2015)

Country Coverage(%)1. Cyprus 100.002. Israel 100.003. Luxembourg 100.004. Malta 100.005. Netherlands 100.006. UnitedKingdom 100.007. Uruguay 100.008. Belgium 99.909. France 99.7010. Portugal 99.7011. Greece 99.6012. Austria 99.1013. Denmark 99.1014. Sweden 99.0015. Chile 98.6616. Italy 98.6017. CzechRepublic 98.5018. Japan 98.0019. Switzerland 98.0020. Germany 97.5021. Lithuania 97.1022. Finland 96.7023. Spain 96.5024. Ireland 96.3025. Colombia 96.0026. UnitedStates 96.0027. Argentina 95.9828. CostaRica 94.8629. Hungary 94.4030. Norway 94.4031. Canada 93.50


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Country Coverage(%)32. Latvia 93.1033. NewZealand 93.0034. Bulgaria 92.5035. Australia 92.0036. Iceland 92.0037. Mexico 92.0038. Romania 90.0039. Slovenia 88.7040. Poland 87.6041. Estonia 87.3042. Ecuador 87.0043. Slovakia 85.3044. Bolivia 41.37

Source:InternationaltelecommunicationsUnion;TelecomAdvisoryServicesanalysis

Astable12indicates,therearesixcountrieswithafixedbroadbandsupplygapofmorethan10%,andelevencountrieswithsupplygaprangingbetween5%and10%.Asexpected,datainthis table isbiased towardscountrieswithextensivecoverage.Therefore, it is reasonable toassume that a large portion of the countries that do not report fixed broadband coverageexhibit a supply gap in excess of 10%. Moving now to mobile broadband coverage, it isimportant todifferentiatebetween technologies.Asexplained inchapter II,2G technology isnotsuitedformobilebroadband,while3Ghassignificantservicequalitydeficiencies.Table13presentsmobilebroadbandcoverage,bothfor3Gand4G.

Table13:Mobilebroadband(3G)Coverage(byregion)(aspercentofpopulation)(2015)

Regions 3GCoverage(%) 4GCoverage(%)NorthAmerica 99.81 99.24OECDCountries 97.76 89.98WesternEurope 98.43 89.49EasternEurope 86.14 62.69LatinAmerica 87.65 55.57Africa 88.86 47.86Asia-Pacific 63.65 36.95


Thelimitationsin4Gcoveragearefairlyapparentintable13.Withtheexceptionofdevelopedregions(NorthAmericaandWesternEurope,orthecommunityofOECDstates)therestoftheworldhasseriouscoverage limitations.ConsideringthatmobilebroadbandismoresuitedtoaddressInternetconnectivityintheemergingworld,thesupplygapin4Grepresentsacriticalbarriertobeovercome. Broadbanddemandgap

Asmentionedabove,thedemandgapisdefinedasthedifferencebetweeneitherhouseholdsorindividualsthatcouldgainaccesstobroadbandbutdonotacquiretheservice.Thisisnotastatistic that is typically being tracked by either regulators or made public by operators.Consideringthedataoncoverageandadoptionpresentedabove,thedemandgapforfixedand

Coverage>95% Coverage95%-90% Coverage<90%

Coverage>90% Coverage90%-80% Coverage<80%


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mobile broadband canbe estimated for specific regions and countries. The fixedbroadbanddemandgapcalculationextrapolatesthepopulationcovered(statisticpresentedintable12)tohouseholds covered and calculates the difference of this metric with households connected(seetable14). Table14:Fixedbroadbanddemandgap(2015)

Country HouseholdsCovered(%) HouseholdsConnected(%) DemandGap(%)Malta 100.00 116.83(*) 0Switzerland 98.00 106.51(*) 0Canada 93.50 95.73(*) 0France 99.70 100.37(*) 0Iceland 92.00 92.24 0Ireland 96.30 93.51 2.79Netherlands 100.00 97.05 2.95Luxembourg 100.00 96.26 3.74Norway 94.40 89.83 4.57Israel 100.00 94.47 5.53Denmark 99.10 93.34 5.76Cyprus 100.00 93.89 6.11Greece 99.60 92.62 6.98Slovenia 88.70 81.10 7.60NewZealand 93.00 84.20 8.80Belgium 99.90 90.51 9.39UnitedKingdom 100.00 90.26 9.74UnitedStates 96.00 83.20 12.80Portugal 99.70 85.98 13.72Spain 96.50 82.46 14.04Estonia 87.30 72.24 15.06Japan 98.00 82.13 15.87Australia 92.00 73.44 18.56Germany 97.50 78.86 18.64Sweden 99.00 75.62 23.38Hungary 94.40 70.47 23.93Finland 96.70 69.84 26.86CzechRepublic 98.50 69.71 28.79Romania 90.00 60.21 29.79Austria 99.10 67.64 31.46Lithuania 97.10 64.48 32.62Slovakia 85.30 52.30 33.00Poland 87.60 54.25 33.35Bolivia 41.37 7.16 34.21Uruguay 100.00 65.66 34.34Bulgaria 92.50 58.15 34.35Italy 98.60 61.74 36.86Argentina 95.98 58.69 37.29Latvia 93.10 54.09 39.01Mexico 92.00 52.54 39.46Chile 98.66 57.51 41.15Ecuador 87.00 45.18 41.82Colombia 96.00 42.63 53.37CostaRica 94.86 40.43 54.43

(*)AhighernumberofconnectionsthancoveragecouldindicatetwolinesperhouseholdinsomecasesSources:InternationalTelecommunicationsUnion;TelecomAdvisoryServicesanalysis

Demandgap<10% Demandgapbetween10%and20% Demandgap>20%


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Thefixedbroadbanddemandgapestimatesintable14requiresomeinterpretation.First,thecountries where the fixed broadband demand gap is lower than 10% indicates asupply/demand equilibrium, where fixed broadband service coverage is matched byhousehold penetration. Not surprisingly, most of these countries are the developed ones(Australia, Belgium, Canada, Denmark, France, Greece, Iceland, Ireland, Israel, Luxembourg,Malta,Netherlands,NewZealand,Norway,Slovenia,Switzerland,UnitedKingdom)25.Second,thereare someadvancedcountrieswhere the fixedbroadbanddemandgap rangesbetween10%and20%(Estonia,Germany, Japan,Portugal,Spain,UnitedStates). In thiscase, thegapcanbeexplainedprimarilybyfixed-mobilesubstitution.Theearlyandaggressivedeploymentof4Gmobilebroadband technologyhas resulted inwireless capturingaportionof the fixeddemand.Thisalsothecaseforsomeofadvancedcountrieswherethefixedbroadbanddemandgap exceeds 20% (Austria, Czech Republic, Finland, Italy, Sweden). Finally, there are someemerging countries with a consistent imbalance between supply and demand, where thedemandgapreaches30%andhigher(Argentina,Bolivia,Chile,Colombia,CostaRica,Ecuador,Mexico, Romania). Reasons for this gap aremulti-fold, ranging from limited affordability tolackoflocalcontent.Thispointwillbereiteratedattheendofthissection,afteranalyzingthemobilebroadbanddemandgap.

Themobilebroadbanddemandgapiscalculatedbysubtractingthepercentofpopulationthatarebroadbandsubscribersfromthepercentofthepopulationcoveredby3Gnetworks.Inthiscase, the estimates are calculated by region of theworld because data is available formostcountries(seetable15).

Table15:Mobilebroadbanddemandgap(2015)

Country PopulationCovered(3G)(%)

ConnectionsPenetration(%) DemandGap(%)

Australasia 98.80 113.04(*) 0NorthernAmerica 99.80 103.93(*) 0EasternAsia 61.95 62.96(*) 0NorthernEurope 99.06 95.69 3.37OECDCountries 97.78 87.17 10.61Micronesia 15.34 0.27 15.07EasternEurope 76.92 58.54 18.38CentralAsia 54.86 33.20 21.66WesternEurope 97.64 74.75 22.89MiddleAfrica 32.06 8.92 23.14SouthernAmerica 91.28 67.37 23.91SouthernEurope 97.67 72.80 24.87South-EasternAsia 72.64 46.87 25.77NorthernAfrica 72.56 43.13 29.43Polynesia 48.56 18.41 30.15Caribbean 54.02 19.78 34.24Melanesia 46.57 11.15 35.42SouthernAfrica 94.75 58.19 36.56WesternAsia 85.55 46.39 39.16WesternAfrica 64.68 23.22 41.46 25Uruguayisaparticularemergingmarketcase.AstrongpublicprogramhasrecentlycompletedanFTTHdeployment,asaresultofwhichfixedbroadbandisbeingofferedonasubsidizedbasis(e.g.lowspeedserviceisbeingconnectedforfree).


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Country PopulationCovered(3G)(%)

ConnectionsPenetration(%) DemandGap(%)

CentralAmerica 87.96 43.09 44.87SouthernAsia 57.53 10.82 46.71EasternAfrica 62.22 12.54 49.68

(*)AhighernumberofconnectionsthancoveragecouldindicatetwolinesperindividualinsomecasesSources:InternationalTelecommunicationsUnion;TelecomAdvisoryServicesanalysis

Asexpected,inthecaseofmobilebroadband,theprorateddemandgapfordevelopedregions(OECDcountries)isfairlysmall.ThisisexplainedbythereducedgapinAustralasia,EastAsia,NorthAmerica,andNorthernEurope.Ontheotherhand,mostoftheemergingworldexhibitsamobilebroadbanddemandgapaveraging33%,meaningthatathirdofthepopulationservedbymobilebroadbandnetworksdoesnotacquiretheservice.

Thereductionofthedemandgaprequirestargetingthereasonsfornon-adoption,evenafterbroadband networks have been deployed. As mentioned in chapter II, the residentialbroadbanddemandgapistheresultofthreeobstacles:

• Limitedaffordability:certainportionsofthepopulationeithercannotacquireadeviceorpurchasethesubscriptionneededtoaccesstheInternet

• Lackofdigitalliteracy• Lackofrelevanceorinterest:thevaluepropositionofapplications,services,and

contentdoesnotfulfillaneedoftheadoptingpopulation

A compilation of research on adoption barriers indicates that affordability remains apreeminent variable in explaining the non-adoption of broadband, particularly in emergingcountries. In the developed world, approximately 20% of non-adopters have responded insurveys thataffordability isoneof theprincipal reasons fornotacquiringbroadband. In thedevelopingworld,affordabilityhasbeencitedbyanaverageof30%(seetable16).

Table16:Percentageofhouseholdsmentioningaffordabilityasareasonfornotpurchasingbroadband

Country Percentage SourceCostaRica 60 MINAET(2011)Mexico 43 INEGI(2015)Colombia 40 MITIC(2010)Brazil 37 CGI(2015)Australia 26 AGIMO(2009)UnitedStates 24 NTIA(2011)Portugal 20 ITU(2013)Argentina 18 INDEC(2015)UnitedKingdom 16 OFCOM(2011)PuertoRico 16 PRBT(2012)Hungary 15 ITU(2013)Chile 13 Subtel(2015)Estonia 13 ITU(2013)Spain 11 ITU(2013)France 8 ITU(2013)Source:CompiledbyTelecomAdvisoryServices



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As the data in table 16 suggests, the lower the level of disposable income, the higher theimportanceoftheaffordabilitybarrierbecomes.Theeconomicbarrierremainsakeyfactorinlimitingbroadbandadoption.However,itwouldseemthatindevelopedcountrieswithhigherhousehold incomes, the economic barrier takes second seat to either low digital literacy orculturalinadequacy.

Digital literacy is the ability to navigate, evaluate, and create information effectively andcriticallyusingarangeofdigitaltechnologies.Digitalliteracyencompassesalldevices,suchascomputerhardware,software,theInternet,andcellphones.Researcharounddigitalliteracyisconcerned not just with being literate at using a computer, but also with wider aspectsassociated with learning how to find, use, summarize, evaluate, create, and communicateinformation effectively while using digital technologies. Digital literacy does not replacetraditional forms of literacy; it builds upon the foundation of traditional forms of literacy.Again,researchstudiesonbroadbandadoptionbarriersrevealthatdigitalliteracyisacriticalvariableexplainingnon-adoption(seetable17).

Table 17: Percentage of households mentioning digital literacy as a reason for notpurchasingbroadband

Country Percentage YearNicaragua 58 2015Chile 47 2015Colombia 46 2015Brazil 41 2015Guatemala 38 2015Mexico 33 2015SouthAfrica 20 2014Argentina 19 2015Switzerland 9 2014Russia 5 2014Singapore 4 2014Source:CompiledbyTelecomAdvisoryServices

Datafromtable17indicatesthatdigitalliteracyrepresentsanimportantbarriertobroadbandadoptioninemergingcountries.

Finally, since broadband is a platform used to access Internet content, applications, andservices, the relevance of such content offers an incentive to purchase a subscription.Conversely, the lack of cultural relevance could serve as a barrier to adoption. Culturalrelevance could be conceptualized either in terms of content suited to the interests of theadoptingpopulationorintermsoflanguageusedforinteractingwithapplications/servicesorconsumingcontent.Aspricesforbroadbandservicedecline,theculturalrelevancefactorgainsin importance. In other words, from a policy standpoint, once the economic obstacles aretackled and affordability becomes less of an explanatory factor of non-adoption, the lack ofrelevanceor interest variable gainsweight. Studies indicate that,whilebeing less importantthan affordability and digital literacy, cultural relevance remains a barrier to broadbandadoption(seetable18).


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Table 18: Percentage of households mentioning cultural relevance or lack of need as areasonfornotpurchasingbroadband

Country Lackofneed(%) Noculturalrelevance(%) YearBrazil 47.00 5.80 2015Mauritius --- 1.60 2015SouthAfrica --- 0.20 2015Argentina --- 72.00 2015Chile 36.10 --- 2015Colombia 49.00 --- 2015Guatemala 57.00 --- 2015Korea 1.30 --- 2014Mexico 51.00 --- 2015Nicaragua 31.00 --- 2015Panama 27.00 --- 2015Russia 20.50 --- 2014Singapore 5.80 --- 2014SouthAfrica 18.60 --- 2014Switzerland 14.40 --- 2014Source:CompiledbyTelecomAdvisoryServices

Thelackofculturalrelevanceor“lackofneed”barrierpresentssomecomplexityintermsofitsunderstanding. Two interpretation options are open. One option is that the consumer hasevaluatedtheofferingsintermsofapplications,servicesandcontentandhasnotfoundthemrelevanttohisorherneeds.Underthispremise,policyinitiativesshouldbeorientedtowardsincreasing the perceived value of broadbandby expanding the range andutility of offerings(these are called “demand pull” policies). The second option is that the consumer does nothaveenoughinformationtomakeadecisionofadoptingbroadband.

Inatleastonestudyconductedinadevelopedcountry,thelinguisticfactorcontributedtothelackofrelevance.ThatwasidentifiedintheUnitedStatesamongtheHispanicpopulationthathad recently immigrated to the country. It is important to consider, however, that, as in theUnited States, the linguistic barrier is strongly correlated with economic and educationalfactors.Therefore, it is stilldifficult to teaseout thesocio-demographicvariables inorder toisolatethelinguisticfactors.Thelanguagebarrierhasbeenidentifiedintheemergingworldaswell.Forexample,inPeru,only8%ofthoseindividualswhosefirstlanguagewasnotSpanishareInternetusers.Thatpercentageincreasedto40%amongstnativeSpanish-speakers.

Having reviewed the supply anddemandbarriers to increasingbroadbandpenetration, it isrelevanttomovetoreviewsomeoftheapproachestakentoaddressthem.

III.3.Mainpolicy,regulatoryapproachesandimplementationforincreasingbroadbandpenetration

Governments and private broadband service providers have recognized the presence ofbarrierstoincreasingbroadbandpenetrationreviewedabove.Thefollowingsectionpresentsthe underpinnings of regulatory and public policy initiatives to tackle the broadbandpenetration gap. Additionally, some best practices developed in the course of programimplementationwill be presented and selected efforts implemented in developed countrieswillbeanalyzed.


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Achievingruraldeploymentofmobilebroadband

Thebroadbandsupplygaptendstobefocusedinruralandisolatedareas.Ingeneralterms,aworkablebusinesscaseforbroadbanddeploymentistypicallypredicatedonthepossibilityofservingaggregateclustersofdemandgenerallyconcentratedinpopulationdensegeographies.While this is feasible in the case of urban and suburban settings, rural geographies do notprovideanattractivemarket,sincetheyimplyincreasingthecapitalrequiredfordeploymentto yield a lower return. These factors act as a deterrent to broadband deployment fromprivatelyownedcarriers.Inthiscontext,fourpolicyapproachesarebeingfollowedtoaddresstheruralsupplygap.

Themoreconventionalwayistoallocateuniversalfunds(collectedascontributionsprovidedfromprivateoperators) to fundprojects targeted to theunservedpopulation.Responsibilityfor deployment is typically assigned to private operators selected through public bids thatreceive thepublic funds tosupport thedeployment.Thesubsidycanbecomplementedwithadditionalincentivessuchasreducedtaxesoreliminationofpermits.

In a different approach, if a publicly owned carrier is operating within the country, thegovernment might enforce an initiative to deploy broadband in rural geographies even ifconventional economic analysis renders this unattractive. This is conducted under theassumption that government-owned broadband service providers need to operate under“publicserviceguidelines”ratherthantheprofitimperative.

Anotherapproachtopromotenetworkdeploymentinruralareasfocusesonalleviatingsomeof the constraints of the rural broadband business case. For example, several governmentsdeploy publicly owned backbone networkswith the objective of reaching remote locations.Since traffic backhauling represents approximately 30% of the operating costs of running abroadband network, a government-owned network represents an opportunity of cuttingtransitcoststosubsidizeruralbroadbandnetworkoperations.However,whilethesenetworkshavereachedgeographiespreviouslyunservedbyprivatelyheld transport facilitieswith theability to significantly reducing backhaul costs, the “last mile” access barrier remains. Theconstruction of fixed broadband networks, even after a national backbone network hasreachedtheruralareaisnotfinanciallyfeasible.Inthiscontext,wirelessbroadband,duetoitsmoreadvantageddeploymenteconomicscouldbeapotentialanswertothisproblem.

A fourth approach to tackling rural broadband deployment involves the introduction ofinnovative ways of allocating radio spectrum to reduce the costs of constructing wirelessnetworks.Conventionalspectrummanagementapproaches,whichimplyhighcoststoacquirespectrumlicensesmightraiseapotentialhurdletodeployingbroadbandinruralareas.Inthiscontext,somegovernmentshavedesignatedruralareaswhereacommonbandofspectrumisassigned to a cooperative on a shared basis. This concept is an alternative to nationwidespectrumrightsinthatsmallandmediumsizefirmswishingtospecializeinprovidingservicesinparticulargeographicalareascandosowithouthavingtoresorttopayinglargeamountsofmoney,typicalofspectrumauctions. Asexpected,thisapproachrequiressomecoordination


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to prevent interference. Allocation of licences follows a ‘first-come, first-served’ procedure.Licensees must pay license administration fees and annual charges; the latter includemanagement charges and a resource rental. This approach imposes a requirement toimplementserviceswithintwoyearsofallocation.Whenmorethanoneoperatorisinterestedinbeing licensed foraparticulararea,anarbitrationprocesses isput inplacetodecidewhogetstousethespectrum.Arbitrationhasbeendesignedtoencouragesharing26.Achievingbroadbandaffordability

Research indicates that limited affordability is a critical adoption obstacle when fixedbroadbandpenetrationis low,whichisthestageatwhichmostemergingcountriesare.Asageneralprinciple, telecommunicationsserviceshavenegativeelasticities:higherprices implylowerdemand(seefigure17).

Figure17:Correlationbetweenfixedbroadbandpenetrationandpriceelasticity

Source:Estimatesbasedonresearchliterature

While the elasticity data in figure 17 is presented in absolute values, the price elasticitycoefficient isalwaysnegative indicatingthe indirectrelationshipbetweenpriceanddemand. 26NewZealandhasadopted thisuniqueapproach tomanaging the radio spectrum.The1989RadioCommunicationsActcreatedtheRadioSpectrumManager,a legalentity thatallowsprivate firmstomanageportionsof thespectrum. InNewZealand, theCrownis thespectrummanageroverseeingmostof thespectrum,and inparticular theMinistryofBusiness,InnovationandEmploymentistheManagerofthefrequencyband2575-2620MHz(with5MHzrequiredforaguardbandatthe lowerboundary reducing the effectivebandwidth available for services to40MHz),which is operated as aManagedSpectrumPark.InSeptember200980licenceswereawarded.Theparkconceptseekstoencourage“aflexible,cooperative,lowcostandself-managedapproachtoallocationanduse”(MBIE,2010)ofthespectruminthedesignatedfrequencyband.Itintendstoallowaccesstoanumberofusersinacommonbandofspectrumonasharedbasis;also,astheCrownisthemanager of the band it also seeks that the shared spectrum, if any, is also self-managed. Other objectives includeencouraging efficiency and innovation in theuseof spectrum.TheManagedParks areAccording to theMBIE theMSP is“intended for local and regional services” (MBIE, 2010) with licensees and services requiring”.Currently a number ofwirelessbroadbandprovidersexploitthe2575-2620MHzbandafterhavingsuccessfullyappliedtobeMSPlicensees.Someof the names include GisborneNet, a telecommunications provider for the eastern areas of New Zealand’s North Island,mainly around the city of Gisborne, TeamTalk and NetSmarts Ltd. These companies use the band to provide wirelessbroadbandtoruralcommunities;eachlicenseeincursacostofaboutNZD$300annuallyperlicence.


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Thus,therelationshipbetweenbothvariablesindicatesthatachangeinthepricelevelwouldhave a positive impact in the level of penetration of fixed broadband. By relying on theestimates depicted in figure 17, the effect of a price reduction between 5% and 25% wasestimatedfordifferentregionsoftheworld(seetable19).

Table19:Impactonpenetrationlevel(percentageofhouseholds)offixedbroadband(FBB)ofapricereduction

Region2015

HouseholdPenetration

5%Price

Reduction

10%Price

Reduction

15%Price

Reduction

20%Price

Reduction

25%Price

ReductionAustralasia 75.16 77.26 79.35 81.45 83.55 85.65CentralAsia 22.87 25.36 27.84 30.33 32.81 35.30EasternAsia 67.80 70.09 72.38 74.67 76.96 79.26SouthAsia 8.39 9.72 11.05 12.38 13.70 15.03South-EasternAsia 17.35 19.53 21.70 23.88 26.06 28.23NorthernAfrica 17.16 19.32 21.49 23.65 25.81 27.98EasternAfrica 2.22 2.63 3.05 3.46 3.87 4.28MiddeAfrica 0.74 0.88 1.03 1.17 1.31 1.45SouthernAfrica 19.61 21.93 24.25 26.57 28.89 31.21NorthAmerica 84.44 86.29 88.14 89.99 91.85 93.70SouthAmerica 41.77 44.55 47.32 50.10 52.88 55.66EasternEurope 51.82 54.47 57.13 59.78 62.43 65.09NorthernEurope 86.24 88.04 89.85 91.65 93.46 95.26SouthernEurope 69.48 71.73 73.98 76.22 78.47 80.72WesternEurope 89.11 90.84 92.57 94.30 96.03 97.76Source:EstimatesbyTelecomAdvisoryServicesbasedonITU2015data

As indicated in table 19, the price elasticity is higher for the regions with lower levels ofpenetration.Asaresult,inregionslikeMiddleAfricaorSouthAsia,a25%pricedeclinecouldyieldanapproximatedoublingofcurrentpenetrationlevels.Theincreaseinfixedbroadbandpenetrationissubstantialinotheremergingcountriesaswell.

Broadbandpricingneedstobedecomposedamongitsdifferentelementsbecausetheyaffectbroadbandinitialadoptionandusageindifferentmanners. Initialadoptionisconstrainedbydevice acquisition, its corresponding tax burden, service activation cost, and expectedrecurringcostsderivedfromsubscriptionretailfeesandtaxes.

Deviceretailpricesandtheircorrespondingtaxesvarybetweenfixedandmobilebroadband.Fixed broadband requires the acquisition of a personal computer, while mobile broadbandcould be supported through either a personal computer or a smartphone. Retail acquisitionprices of this type of equipment are driven by supply and demand conditions, in particularmanufacturingeconomiesofscaleandcomponentcosts.Whiledeviceretailpricingistypicallyout the realm of policy control, taxation is not. Final price of devices is affected by a set ofdifferent taxes,which vary by country and year. Taxes can, in some cases, add a significantburdentotheretailprice.

Asanexampleofinitiativesaimedatloweringbroadbandprices,inSeptember2011,Comcast,the cable TV operator in the United States launched its “Internet Essentials” plan to offerbroadbandtoasmanyas2.5millionlow-incomefamiliesforamonthlyrateofUS$9.99.The


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plan cameaspart of the approvalprocess in its acquisitionof themedia andentertainmentcompany, NBC Universal. Beyond the 1.5Mbps Internet connection, eligible customers alsoqualified for $150 refurbished computers, which would come with software donated byMicrosoft.Comcastalsooffereddigitalliteracytrainingtotheseusersfreeofcharge.Toqualifyfor the plan, householdsmust: a) not yet have a broadband connection and b) have a childenrolled ina school lunchprogram.TheUS$9.99monthly rate lasts for twoyears, atwhichpointcustomershavetheoptiontorenewatahigher–butstilldiscounted–price.BecausetheUS$ 9.99 covers the companies’ overhead costs, providers would likely not experience asignificantlossinearningsnordoesthegovernmentneedtoprovidesupplementalfunding.

In late 2011, the United States Federal Communications Commission (FCC) announced thatmostofthecountry’smajorcablecompaniespartneredtojointheinitiative.ThesecompaniesincludedTimeWarner,Cox,andCharter, thoughAT&TandVerizonchosenot toparticipate.ThelowpricesattractnewsubscriberswhopreviouslycouldnotaffordthecostofanInternetconnection. In addition, Morgan Stanley is working with the cable companies to develop amicrocredit program while partnering employment and education companies will offerspecializedcontenttomakeInternetaccessmoreattractivetotheseusers.

TheFCCsaidthatitsupportedthepartnershipasameanstoincreasethecountry’sbroadbandpenetration,particularlyamongst theotherwiseunderservedsegmentof thepopulation,andpraiseditspotentialtoguaranteedigitalliteracyamongthecountry’sstudents.Ithopesthatbyincreasing Internetaccessanddigital literacy,highschoolgraduateswillbemorehirable,asevenentry-leveljobstypicallyrequirebasicICTskills,whichalsohelpemployeesintheonlinejobsearch. Tacklingdigitalliteracy

Addressingthisobstaclerequirestheimplementationofprogramsthatbuildanunderstandingof the service offerings, and develop user confidence, explaining the benefits of use, andunderstanding security and privacy constraints as well. In general terms, four types ofinitiativestargetingdigitalliteracyimpedimentsexist:

• Digitalliteracythrougheducationprogramsentailtheinclusionofspecificprogramsatalllevelsoftheformaleducationsystem,requiringalsotheimplementationoftrainingprogramsforteachers,

• Targeted digital literacy interventions comprise the implementation of programsaddressed to specific segments of the population, such as the elderly, thedisadvantagedortheruralpopulation,

• Deployment of community access centers allows supplying non-adopting populationwith devices and access points to the Internet; in addition, the access centers canbecomepointsofdeliveryoftrainingprogramsandusersupport,

• The privacy and security training programs allow building the levels of trust fromconsumersinordertofosteradoptionofbroadband.

While digital literacy embedded in formal education processes are conducted in schoolinstitutions,closelylinkedtocurricula,targetedprogramsentailgroup-specifictraininginthe


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useofcomputersandbroadbandtypicallydeliveredthrougharangeofpublicaccesscenters.Thissectionreviewsthemajorcategoriesoftargetedprograms. III.4. BestPracticesofnon-OICdevelopingcountriesforincreasingbroadbandpenetration Thepurposeofthissectionistoprovideanexampleofbestpracticesimplementedbynon-OICdeveloping countries to promote broadband deployment and stimulate adoption. Theexamplesaimtoillustrateapproachesfollowedtoaddressthreebarriersofadoption:1)accessinruralandisolatedareas,2)improvingbroadbandaffordabilitybothintermsofserviceanddeviceacquisition,and3)developmentofdigitalliteracy.

ProvidingbroadbandaccessinruralandisolatedareasinBrazil

As part of the Brazilian Ministry of Culture’s larger program, Cultura Viva, the Pontos deCultura initiative is a socio-digital inclusion program that develops public digital spacesthroughout the country to encourage citizens to create digital culture. By providing citizenswith free, open-source software and broadband access at these telecenters, the initiativepromotes technology as a tool to spur the spread and creation of digital culture, therebyaffirmingBrazil’sculturalidentity.

Digitalcommunitycentersrepresentthemostcommonapproachtoprovidingpublicaccesstobroadbandinruralandisolatedareas.Thedeploymentofcommunitycenterscombinesatop-down and bottom-up governance framework,whereby a public policy initiative triggers theinvolvement of communities in the management of each unit. The sum of grass-rootcommunity organizations dedicated to managing each center is coordinated by a steeringcommittee,whoworkswitheachcentertodevelopplansforextendingbroadbandservice,andprovidingtechnologyawarenessandtrainingprograms.Insomecases,thesteeringcommitteeworkswithadedicatedstaff thatactsasaresource. Inthatsense, thecentraldedicatedstaffbecomesanenablerofthecommunity-basedeffortratherthananimplementer.

By virtue of their decentralized governance framework, centers become independent fromcontributionsof thenational government,with all funding supportbeingprovidedbyeitherlocal governments or the private sector. This structure appears to be also scalable acrossregions of a given country. Digital Community Centers have become highly suited to tackletechnologyandeconomicdevelopmentprogramswithinruralcontexts.

InBrazil, individual communities take chargeof their center’s financialmatters,managing itautonomously,althoughtheyallhaveaccesstoanetworkoverwhichtheycanworktogethertoshareideasandproblemsolve.Thecentershavethepotentialtogenerateincomeforthesecommunities,whichcancustomizetheservicesofthecenterstofittheneedsoftheirresidents.Once the Ministry of Culture deems it an official “Ponto de Cultura”, the center receives adigitalmultimediakit,whichguaranteesusersbroadbandaccesssothattheycansharetheirwork. It also includes a multimedia studio complete with professional-grade audio, video,


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software development, text, and imaging technology. Equipe Cultura Digital and localgrassrootsorganizationsoffer trainingonhow touse these toolsandalsoon thebenefitsofbroadbandintransmittingtheirideas.

Aspartoftheprogram,theCulturaDigitalEquipe(digitalcultureteam)hostsworkshopsthatfocusoneducatingthecommunityonhowtousenewtechnologytobestsuittheirneeds.Thepontosdeculturareceiveamonthlystipendof€1000 for the first twoyears,atwhichpointthey should sustain themselves. The GESAC Program of the Ministry of Communicationsprovidesthisfundingaspartoftheaforementionedmediakit.

While the centers are run autonomously and funding lasts for two years, the pontos mustcontinuallyreport theirprogress to theMinistryofCulture toensure that theystayon trackandalignwiththeMinistry’soverallmissionofpromotingdigitalculture.Therearecurrently22,500pontosdeculturathroughoutthecountry27.

Inaslightlydifferentmodelfromtheonepresentedabove,privatelyownedlocalareanetwork(LAN) houses not only promote broadband access, but also foster a community of onlinegamerswhocanconnectandcompetewitheachother.Manycentersnowofferdigitaltrainingand other services as well, but in the least, they promote the social aspect of high-speedInternet use and increase the demand for such services. LAN houses typically consist of anetworkofconnectedcomputerswhereuserscancongregatetoplaythegames,thoughmanyhaveexpandedtoofferadditionalservices.

Insomeinstances,theyserveastheonlypointofaccessformanycitizens,whileinotherstheysupplement household broadband access, serving a more social function. Most LAN houseschargeusersanhourlyfeeandthepopularityofthehouseskeepsthepricesdownasownerscompete with each other to attract more customers and drive business. They have beencredited with driving digital inclusion, particularly important in countries with little publicinvestment in broadband access and low penetration rates. Throughout Brazil, citizens canaccesstheInternetatLocalAreaNetwork(LAN)Houses,whichtookthecountrybystormin1998. Each “house” consists of a network of assembled computers. Previously foundexclusively in wealthy communities, the LAN houses are now most popular in poor, ruralregionswithouteasilyaccessiblecomputersandbroadband.Whilethehouseswereoriginallydesigned to support multi-player video gaming, many users report that they use the LANHousestostayinformedandconductjobsearchesorworkonschoolprojects.

The LANHouses reduce the country’s digital divide, offering affordable ICT and broadbandaccessregardlessof locationorsocio-economicstatus.Theyhave ledto increasedsociabilityand promote e-governance and e-education.Many also offer computer training courses and

27 Bria, Francesca, and Oriana Persica. "Synergies between Pontos De Cultura and Ecosystems." Digital Ecosystems. ByMatildeFerraro.N.p.:n.p.,n.d.4.5.1-.5.8.Web.<http://www.digital-ecosystems.org/book/pdf/4.6.pdf>."Ministério Da Cultura." Study Tour Brazil. N.p., n.d. Web. <http://studytourbrazil.wordpress.com/rio-de-janeiro-2/ministerio-da-cultura/>.Pontos De Cultura." Cultural Exchange Brazil. Dutch Culture, n.d. Web. <http://www.culturalexchange-br.nl/organisations/pontos-de-cultura>.


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helpwithresumecreationandjobsearches.Whileownerschoosetheirownpricingstrategies,LANhouses typically chargebetweenUS$0.40andUS$1.50perhour. Someneighborhoodshavemorethan100LANhouses,manyofwhichstandsidebyside.

The LAN houses came in part as a result of the federal government’s Computers for Alldevelopment project, which created credit lines allowing low-income families to purchasecomputers in small monthly installments. In some instances, citizens would purchase acomputer and charge people to use it. As they accrued profits, they would purchase morecomputersandbroadbandaccess. By2008, thecountryheldmorethan90,000LANhouses,accountingforhalfofallInternetaccessinBraziland79%ofallInternetaccessamongstthetwo poorest classes. For many of these citizens, the LAN houses were their only means ofaccessing the Internet. By 2010, an estimated 35 million citizens utilized LAN houses, anumberslightlybelowpreviousyearsduetoincreasedmobilephonepenetration.Thistrendcontinued, asnoted ina2013survey releasedby theBrazilian InternetSteeringCommittee.That said, LAN houses still offered access to 68% of the population in the lowest incomebrackets.Thecommitteeconcludedthattheaccesspointsremaincriticalfordigitalinclusion28. AchievingbroadbandaffordabilityinUruguayandChina

Beyond the competitive stimuli, the reduction of broadband service prices can be achievedthrough a number of targeted public policy initiatives. These initiatives are generallyimplementedwith the objective of achieving universal broadband adoption. The underlyingrationaleforthesepoliciesisthat,beyondacompetitionmodel,governmentpoliciesshouldbeimplemented to further price reductions of broadband in order to make it accessible tosegmentsofthepopulationaffectedbylimitedaffordability.

Oneapproachreliesonstate-ownedtelecommunicationsoperatorstooffer,undertheirpublicservice imperative, a low-priced broadband service. Obviously, this option is only viable inthosecountriesthathavenotcompletelyprivatizedtheirtelecommunicationsindustry.Underthis option, a state-owned broadband provider assumes responsibility, as a public serviceentity, for providing a low-price broadband service. The advantage of this option is that, inaddition to fulfilling theobjectiveof tackling theeconomicbarrier, theofferingcanactasanincentiveforotherprivateoperatorstolaunchtheirownmoreaffordableservice.

In May 2011, government-owned telco Antel in Uruguay launched its “Servicio UniversalHogares” – or “Internet for All” - plan, aiming to bring Internet access to every home inUruguay. For a one-time payment of US$30 – the cost of a modem - all fixed line phonecustomersqualifiedforfreeADSLservice.Thepackageofferedabasicconnectionof256Kbpsandtargetedthelow-incomesegmenttowhichthepriceofbroadbandrepresentedabarrierto 28Sources:Góes,Paula."Brazil:Socio-digitalInclusionthroughtheLANHouseRevolution."GlobalVoices.N.p.,28Sept.2009.Web.<http://globalvoicesonline.org/2009/09/28/brazil-socio-digital-inclusion-through-the-lan-house-revolution/>.Lemos,Ronaldo, andPaulaMartini. "LANHouses:ANewWaveofDigital Inclusion inBrazil." InformationTechnologies&InternationalDevelopment6(2010):31-35.Web.<http://itidjournal.org/itid/article/viewFile/619/259>."Brazil."FreedomHouse.N.p.,2013.Web.<http://www.freedomhouse.org/report/freedom-net/2013/brazil#.UwgAOM0jtFA>.


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connectivity. At the time, homes and businesses with basic Internet connections paidapproximatelyUS$150monthly.Similarly, theUruguayangovernmentalsoplannedtoreachschoolsandeducationalinstitutionswithFiber-to-the-Home(FTTH)technology.

InJune2011,Antelannouncedplanstoconnectmorethan80,000UruguayanhouseholdswithFTTH by the end of the year. This project initially targeted higher-income, urban areas butincorporatedplanstoreachthelowersocioeconomicgroups.TherolloutincorporatedUS$100millioninvestmentandapartnershipwiththeChinesetechnologyfirmZTE.Describedas“themostambitiousbroadbandeffortinLatinAmerica,”theFTTHprojectaswellastheopeningofthe Bicentenario submarine cable in early 2012 increased broadband access, speed, andservicequality.

The December 2011 launch of its commercial LTE services allowed the telco to offerbroadbandconnectionstothoseregionsnotyetimpactedbytheFTTHrolloutaswellasthosecustomers who could not afford the connectivity costs of fixed Internet. Antel offeredcustomers twopackageplans fromwhich tochoose.Bysigninga2-yearcontract, customerscouldpayUS$90permonthfor30GB.ForUS$76permonthplusanadditional$6inmodemrentalfees,customerscouldaccess15GBthrougha15-dayauto-renewcontract29.

In time, the Universal Hogares plan expanded, bringing customers faster speeds for lowerprices.AsofFebruary2014,thetelcooffersthefollowingextensionsbeyondthefixedwirelessplanthatcomeswith1GBpermonthatnocharge(seetable20).

Table20:Uruguay:“Social”broadbandplans

Price(US$) Performance(Mbyte) Details2.20 256 30calendardaysfromdateofpurchase4.50 512 30calendardaysfromdateofpurchase9.00 1024 60calendardaysfromdateofpurchase

Sources:Budde,Paul."Uruguay-Telecoms,Mobile,BroadbandandForecasts."

Beyond service pricing, broadband economic adoption obstacles are linked to device prices.Three types of programs have been implemented to overcome the personal computerownershipbarrier.Thefirstonefocusesontheprovisionofsubsidiestoreducetheacquisitionprice of devices. The target in this case could be households at the lower end of the socio-demographic pyramid, primary school to university students, and SMEs (especially micro-enterprises). The second program typically targets students in primary education, withgovernments distributing “One Computer per Child.” In this case, public school students 29Sources:Budde,Paul."Uruguay-Telecoms,Mobile,BroadbandandForecasts."MarketResearch.N.p.,25Nov.2012.Web.<http://www.marketresearch.com/Paul-Budde-Communication-Pty-Ltd-v1533/Uruguay-Telecoms-Mobile-Broadband-Forecasts-7256999/>."Broadband Internet Access Worldwide." Encyclopedia. NationMaster, 2006. Web.<http://www.nationmaster.com/encyclopedia/Broadband-Internet-access-worldwide>.Prescott,Roberta."Uruguay'sAntelEyesMobileBroadbandOpportunitieswithLTE."RCRWirelessNewsAmericas.N.p.,20Apr. 2012. Web. <http://www.rcrwireless.com/americas/20120420/carriers/uruguays-antel-eyes-mobile-broadband-opportunities-when-launching-lte/>."Universal Hogares Rural." Antel. N.p., n.d. Web. 27 Feb. 2014. <https://www.antel.com.uy/antel/personas-y-hogares/internet/planes/internet-rural/universal-hogares->.


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receivecomputersfreeofcharge.Thethirdtypeofinitiativeentailsareductionoftheaccessprice by eliminating or decreasing taxes paid at time of purchasing. Levies affected by thismeasurecouldrangefromsalestax,importduties,andevensector-specificlevies.

In2009,morethanhalfofChina’spopulationlivedintheruralpartsofthecountry,wheretheaveragepercapitaannualincomewasUS$700(25%theaverageincomeofurbanresidents),broadbandpenetrationrateswerelowerthanintheurbanareas,andthepersonalcomputermarketwasnearlyuntapped.Further,PCshipmentsdecreasedgloballyandspendingfell.

Tostimulaterural spending, theChinesegovernment launchedasubsidyprogramofferinga13%rebatetoruralresidentsbuyingselectproductstohelpPCmanufacturersincreasetheirsales to thecountry’sunder-developedregions,particularlyafternationalcomputerdemandfell.Theruralcomputersubsidycameaspartofa largerUS$586billionsubsidyprogramtoincreasedemandforhomeelectronics,knownastheHomeApplianceSubsidyProgram.

The government identified 14 vendors that could participate in the program and sell low-priced PCs in rural China, making computers more affordable while also spurring industrycompetition.Thesemanufacturerscreatedspecialproductsfortheprogramwithtwo-thirdsofthecomputermodelspricedunderUS$500.Theproductsalsometregionalspecificdemands.ThePCs,forinstance,keptpotentialvariationsinpowersupplyvoltage–afrequentprobleminruralareas– inmind.Further,manyof themcamewithspecial software for farmers, likeinventorymanagementprograms.Vendorsalsoensuredphysicalproximitytotheircustomers,as citizens in rural areas did not have themeans or the desire to drive for hours to buy acomputer.

Hewlett-Packard sponsored variety shows and film screenings and offered productdemonstrations in small towns. It also sent buses equippedwith its products to elementaryschools toadvertiseand to train studentsonhow touse the technology.CompetitorLenovobeganmarketingitscomputersasluxuryweddinggifts,employingtheslogan,“BuyaLenovoPC,BeaHappyBride,”anddeliveringtheminlarge,conspicuousboxes.Thecompanyalsohasa flashy showroomwith a section of the store devoted to products designed specifically forruraluse.

Nearly60%ofallruralresidents–or200millionhouseholds-qualifiedforasubsidy.Initialestimates expected the program to generate the sales of 800,000 computers. The programendedinearly2012andwasdubbedasuccess.Combined,thesubsidiescoveringallelectronicgoodsforfarmersandruralresidentsgenerateda53%increaseinsales30. 30Sources:Chao,Loretta."PCMakersCultivateBuyersinRuralChina."TechJournal.WallStreetJournal,24Sept.2009.Web.<http://online.wsj.com/article/SB125366214543432237.html>.Lemon,Sumner,andOwenFletcher. "ChinaOffersComputerSubsidy forFarmers."Desktops.PCWorld,5Mar.2009.Web.<http://www.pcworld.com/article/160750/article.html>.He,Helen,andSimonYe."RuralChinaPCProgramWill IncreasePCShipments in2009|909330."Gartner,10Mar.2009.Web.<http://www.gartner.com/id=909330>."ChinaLaunchedAMassiveSubsidyProgramToGetPeopleToBuyAppliances."Business Insider.N.p.,18 Jan.2012.Web.<http://www.businessinsider.com/chinas-successful-appliance-subsidies-at-an-end-2012-1>.


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TacklingdigitalliteracyinthePhilippines

Whilesecondaryschoolsdoaddressbasicdigitalliteracyskills,theytendtoprovidestudentswith a more advanced knowledge than they would gain during their primary school years.Viewingdigitalliteracyasalifeskillcanexplainitsapplicationinastudent’slifewellbeyondtheclassroom.Astheglobaleconomyshiftsfromthemanufacturingofgoodstotheprovisionof services, workers and countries require more high-level skills to stay competitive.Particularlyininstanceswherestudentsmovedirectlyfromsecondaryorvocationalschooltothe workforce, the exposure they have to ICT training via the education system has thepotential to shape the trajectory of their future careers and the strength of the nationaleconomy. Employers increasingly require digital competence, andworkerswith this type oftraining also tend to acquire other on-the-job skills more easily. Further, the ICT industrytends to offer higher paying, lucrative jobs, and adding financial incentive to the benefits ofobtainingadvanceddigitalliteracy.

Byincorporatingdigitalliteracytrainingintothesecondaryschoolsystem,policymakerscaneffectivelybridgethedigitaldivide,thuscreatingmoreequalworkforceopportunityamongstthepopulation.Further,employeescomfortablewithusing the technologyatworkaremorelikelytoseeitsvaluewithinthehousehold.

Giventhatmostcountriesnowrequiresecondaryschoolattendance,thisenvironmentseemstoserveastheidealsettinginwhichtointroducecitizenstobasicandadvancedICTtraining.Training cannot come to fruition, however,without thenecessary technology. In addition todeveloping effective and applicable lesson plans, educators and policy makers must alsoconsider the provision of personal computers coupledwith broadband connectivity. To thisend, an increasingnumberof government initiativeshave focusedondistributing laptops tosecondary students and facultymembers. Some governments, such asNorth Carolina in theUnitedStates,requirestudentstopassanICTcompetenceexamintheseventhoreighthgradetoreceiveahighschooldiploma.

Asisthecasewithprimaryschooldigitalliteracyprograms,educatorsshouldhavesomeformof measurement or standardization in place to promote the efficacy of such initiatives.Successful examples have included testing, certification programs, and partnerships withinternationalorganizations.As in the caseofprimary schoolprograms, successful initiativesarealsobasedonpublicandprivatepartnerships.GearingupInternetLiteracyandAccessforStudents, or GILAS for short, provides public secondary schools in the Philippines withcomputer labs, complete with Internet connections, software, basic hardware, and Internettraining. The initiative,which began in 2005, is a partnership between 26 corporations andnon-profit institutions that recognize the limitations of the government’s education budget.Amongstothergoals,theprojectaimstodeliverInternetaccessandcomputerequipmentforschools,trainingforteachersandadministrators,andtheformulationoflessonplans.

ByprovidingInternetaccesstoschools,sponsorsoftheprojectsee itasameansofbridgingthedigitaldivideamongpublichighschoolstudents.OnlyasmallnumberofFilipinostudents


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attendcollege,largelyduetotheprohibitivecostsofhighereducationinthecountry.Beyondacollegeeducation,manyemployersseeInternetliteracyasahiringrequisite,thoughthisskillis typically reserved forwealthier studentswhose families can afford household computersandInternetconnections.Withoutcomputeraccessortheabilitytoaffordacollegeeducation,manystudentshave fewopportunitiesawaiting thematgraduation.By increasingcomputeraccessanddigitalliteracywithintheschoolsystem,theGILASprojectaimstoproduceamorequalifiedandhighlyskilledworkforce.

To support the initiative, GILASmatched donations from local and foreign companies, localgovernments,and legislators.Per themostrecentlyreleasedannualreport, thepublicsector2009contributionaddeduptoapproximatelyUS$500,860inadditiontotheprivatesector’sUS$598,470contribution.OverseasFilipinoexpatriatesalsomadedonations,mainlythroughtheAyala FoundationUSA,which totaledUS$175,980. In total, donations that year equaledUS$1.3million.

In 2010, the country’s Department of Education initiated its DepEd Internet ConnectivityProject (DICP)with the intention of connecting all public high schools to the Internetwhileproviding relevant monitoring through an annual allocation of US$ 1,200 per school. TheinitiativecomplementedtheGILASprogramand leadersofbothprojectsworkedtogether toreach their sharedgoal.DICP focusedmoreon financingschools’ Internet connectionswhileGILASlookedmoreattheinitialinvestmentintheprovisionofICTtoolsandtraining.Withinfouryearsofits2005inception,theGILASprogramconnected39%ofthePhilippines’publichighschools.Asaresult,morethan2millionstudentsaccessedtheInternetand11,621teachersreceivedtraining.Bylate2012,theprogramhadreached3,349schools31.III.5.Criticalsuccessfactorsforincreasingbroadbandpenetration32

In the prior sections, three barriers were reviewed as being the dominant obstacles inachieving broadband penetration: limited affordability, access in rural areas, and digitalliteracy. Inaddition,policyapproacheswerediscussedandbestpracticeswerepresentedasexamplesonhowtotackle thesebarriers.Thissectionturnsnowtoelaborateonthecriticalsuccessfactorsnecessarytoimplementsaidapproaches33.

31Sources:GILAS:GearingupInternetLiteracyandAccessforStudents,n.d.Web.<http://www.gilas.org/>.2009AnnualReport:OntheWaytoSustainability.Rep.GILAS:GearingupInternetLiteracyandAccessforStudents,2010.Web.<http://www.gilas.org/attachments/AR_2009.pdf>."DICP."DepEdDivisionofMalaybalayCity.N.p.,n.d.Web.<http://www.depedmalaybalay.net/programs/ict/deped-internet-connectivity-project-dicp>.32 This section is based on Katz, R. and Berry, T. (2014). Driving demand of broadband networks and services. London:Springer.33Toreiterate,criticalsuccessfactorsaretheessentialareasofactivitythatmustbeperformedwellinordertoachievethemission,objectivesorgoalsforaparticularproject.


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Achievingbroadbandaffordability

Asdiscussedabove,pricingofbroadbandserviceanddevicesisoneofthecriticalbarrierstoachieving high penetration. As it has been considerably researched, the development ofcompetition isoneof themajortools foraffectingareduction intelecommunicationsservicepricing. The theoretical basis of competition is the notion that, in the telecommunicationsmarket,multipleoperatorscancompeteamongeachotherandgeneratesufficientbenefitsforconsumersintermsofprice-reductions,whileguaranteeinganappropriaterateofinnovation.Thefollowingfeaturescharacterizeatelecommunicationscompetitionmodel:

• Existenceofmultipleoperatorsservingthesamemarketbasedontheirownnetwork,• Existenceofmultidimensionalcompetitivedynamics(prices,servicesanduserservice

quality)amongindustryplayers,• Reduction of retail prices for consumers, and intense competition in product

differentiation(dynamicefficiencies),resultinginadditionalconsumersurplus,• Competitive stimulation for each operator to increase the level of investment in its

ownnetwork,• Absence of tacit collusion between operators due to the high rate of innovation and

competitionbasedonproductdifferentiation.

Whilethetheoreticalprinciplesforsustainablecompetitioninbroadbandarewellestablished,their implementation isnot straight-forward.Along these lines, it is important toemphasizethatinordertodeterminetheexistenceofanadequatelevelofcompetitioncapableofyieldinglow broadband prices, the regulators need to have access to expertise in market analysiscapabletoestablishingwhetherthenumberofplayersinthemarketaresufficienttowarrantenough consumer benefits or whether additional remedies are required to stimulatecompetitiveintensity.

Beyond the competitive stimuli, the reduction of broadband service prices can be achievedthroughanumberoftargetedpublicpolicyinitiatives.ThefirstreviewedabovewithexampleofUruguayreliesonastate-ownedoperatortoofferalow-pricedservice.Aslightlymodifiedapproach to achieve this is for the government to offer a subsidy on the cost of broadbandaccess. This could be done in the form of a plain voucher or a tax refund for qualifyingsegmentsofthepopulation(e.g.students).Inpreviousexperiences,thecriticalsuccessfactorsinthisapproacharetwo:

• Establish upfront who is supposed to determine what constitutes an “affordable”offer?Thepublicserviceproviderortheregulator,

• Ensurethatwhoeverwilldefinethe“social”offerhastherighteconomicexpertise.

The second option to improving broadband affordability entails conducting a negotiationbetween thegovernmentandprivateoperatorsaimedatagreeing that theywilloffera low-pricedbroadbandservicetargetedfordisadvantagedsegmentsofthepopulation.Inthiscase,governmentpolicymakersnegotiatewithprivatebroadbandproviderstheofferingofa low-priced plan. This can be achieved in the context of the formulation of a national broadbandplan. Alternatively, it could be achieved as part of an agreement between the government


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regulatorandaprivateincumbentoperatorasaconditionforallowingthelattertopursueaparticular initiative.Underthisoption,thecriticalsuccessfactor isthedeterminationofquidporquoconditions.Inotherwords,whatwillthegovernmentofferinexchangeforgaininganagreement from the broadband operators (e.g. Tax reduction? Regulatory holidays on fiberinvestment?Authorizationtocompleteanacquisition?)

Thethirdoptionisalsoanagreementbetweenthegovernmentandprivatesectorbroadbandproviders tooffer low-pricedservices,but in this case limited topublic institutions (suchasschools, libraries, or health clinics). Policies and programs that promote reduced-pricebroadband for public administration facilities can bridge the ever-widening digital dividewhilealsoallowingthesefacilitiestohaveawiderreachwhenprovidingtheirservices.Criticalsuccessfactorsunderthisapproacharesimilartotheonesmentionedabove.

The fourth option comprises offering free Internet access throughWi-Fi services located inpublic areas, suchas squares, libraries, and transportationhubs.Theprovisionof freeWi-FiInternet access is being conceived as one of the building blocks needed to build a city’sinternationalcompetitiveness.ThereareseveralfeaturesandoptionsofafreeWi-Fiprogram:

• Coverageofpublicspaces:squaresandparks,publictransportation,includingmetros,publiclibraries,

• Typeofservice:amountoftimeprovidedforfreeaccess(1hr.limitwhilecommuting,openunlimitedaccess),

• Typeofserviceprovider:undercontractwithtelecommunicationsoperatorsorotherbroadbandplayer,offeredbythecityadministration,

• Qualityofservice:basicvideostreamingquality,• Businessmodel:freeprovisionbasedonasingularevent,thenmovingtoapre-paid

offering,potentiallyincludingcustomizedinteractivedigitaladvertising.Providingbroadbandaccessinruralandisolatedareas

Theapproachforprovidingbroadbandaccessthroughdigitalcommunitycenters,suchastheexample ofBrazil presented above, havebeen veryuseful to determine a number of criticalsuccessfactors:

• Establish a permanent channel of communication between the community and themanagersof thedigital center, involving the communitydirectly andencouraging totakeownershipoftheactivitiesofthecenter,

• Community involvement could entail nominating local technology champions, whoassemblecommunitysupport,leadtechnologyneedsassessmentandplanningefforts,andworktointroducetechnologyinitiativestomeetcommunityneeds,

• Makesurethatqualifiedpersonneldesignthetrainingactivitiesandtraintheusers,• Construct digital community centers as a technology and entrepreneurship hubs

withincommunities;assuch,thecentersprovidefreebroadbandaccesstothepublic,and,atthesametime,avarietyoffee-basedbusinessandtechnologyservicestolocalnon-profitsandbusinesses,


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• Among the entrepreneurship services that the digital centers can provide areemployeetraining,modernofficespace,technologyexpertiseandbusinessconsulting,

• Put in place a full technical service team that ensures that all equipment is alwaysworkingproperly,

• In terms of advertising and promotional activities, the center should post monthlynewslettersonitswebsite,addressingissuesforsmallbusinesses,suchasfundraisingopportunities,ordealingwithforeignworkerauthorizationpermits,and

• Consideroutsourcingsomeofthecenterfunctionstofacilitateitssustainability.

Complementingtheseactivities,itisimportanttoconductperiodicmonitoring:

• Ensure that centers issue annual or semi-annual reports informing about activitiesbeingheld,courses,results,topicstaught,numberofparticipants,etc.,

• Conduct internal evaluations of access centers every six months, measuring andcomparingindicatorssuchasnumberofvisitspermonth,numberofuserspermonth,indicatinggender,age,emailaccounts,blogs,andwebsitesbeingcreated.

Ifthedigitalaccesscentersaresetupbasedonapublicandprivatepartnership,itisimportanttosetupanoverseeingstructure,suchasaManagementBoardthatmeetsregularlytodiscussandmanageprogressoftheprogram.TheBoardshouldcompriseaseniorexecutivefromeachof the partner’s organizations, plus a representative from the community. Additionally, thecommunityshouldhaveacoordinatorfromeachcenter,allofwhommeetregularlytodiscussissuesfacedinrunningtheircenters.

Tacklingdigitalliteracy

Targeteddigital literacyprograms are of awide variety, potentially addressing a number ofobjectives, not all necessarily consistent. Indesigning suchprograms,policymakersneed toconsider what are the goals of the program, since these goals will frame the methods ofintervention. Among the goals to be considered in designing a digital literacy program, thefollowingissuesneedtobeconsidered:

• What is the overall objective of the program? Digital literacy, conceived as a skill,representsthemeanstoachieveavaryingsetofgoals,suchasimprovementofqualityof life,developcitizenshipandpromotedemocraticparticipation,or social inclusion.Byoutliningtheultimateobjective,policymakerswillhelpframingtheprogram.

As expected, digital literacy programs could have more than one objective, partlydrivenbythepopulationbeingtargeted.Forexample, if targetingtheruralpoor, thepurposeof thedigital literacyprogramcould includeprovidingaccess tobroadband,improving quality of life to prevent rural exodus to cities, and promoting socialinclusion. As Hilding-Hamann et al. (2009)mention in their report to the EuropeanCommission, that differences in program objectives could “reflect different policydomains” (e.g.education,economicdevelopment, socialwelfare).Programobjectivescould also be driven by the potentially different constituencies sponsoring theprogram.


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• What is the target group? Targeted digital literacy programs take different shapesaccordingtothepopulationtheywilladdress.Asanexample,thetypeofcontenttobeemphasizedinprogramdeliverywillchangesignificantlyiftheprogramaimstotargetthe elderly (email for social inclusion and fostering of social and family ties) versusadults(applicationstobuildemployabilityskills). It isoftenthecasethatevenneedswithina single targetedgroupmightbeofdifferent types.Forexample, somedigitalliteracyprogramsthattargettheelderlyhavefocusedonhelpingusersworkingwithdevices, while others have focused on basic operations and routines of operatingsystems.

• Usabilityversusaccessibility?Somedigital literacyprogramsemphasize trainingand

skills transmission, while others complement this with infrastructure for publicbroadband access. This represents a critical policy choice since access does notnecessarily equate to the capability to use broadband in a productive and beneficialmanner.Infact,iftheprimaryobjectiveisusability,experienceindicatesthattailoredcourses,complementedwithintensecoaching,arethemoreappropriateapproach.

Asexpected,ifthetargetofthedigitalliteracyprogramistheruralpoor,accessibilitywillbeadominantobjective.Acombinationofbothobjectives–useandaccess-canbeprovided by community access centers, which will be reviewed later. Nevertheless,bestpracticesindicatethataccessibilityandusabilityarenotthateasytocombineindigital literacy programs. As such, the two objectives are frequently addressedsequentially,firstprovidingaccess,followedbytraining.

• Formal versus informal delivery mode? Formal digital literacy training entailsstructuredprogramsbasedonestablished curricula, learning tools, and certification.Informal training is not delivered in specific training environments, lacking astructured pedagogical process. While it might not be intuitively appropriate fortargeted programs, the emergence of new Internet platforms might lead to theadoptionofinformalapproaches.

• Scaleof implementation?Thisquestionaddresseswhetherprogramswillbe focused

onaparticularregion,ordeployedonanationalscale.InHilding-Hamannetal.(2009)view, “national programs are rooted in centralized policies at the national level and(…) seen as strategically linked to government objectives”, such as building aninformation society. In general terms, local programs, while having a more limitedimpact across targetedpopulations, tend to experience a large sustainability successrate due tomore limited funding requirements. Nevertheless, Hilding-Hamann et al.(2009)didnotfindarelationbetweensizeoftheprogramandsustainability.

Sustainability is a primary concern of targeted digital literacy programs. In theirreview of 464 programs, Hilding-Hamann et al. (2009) estimated that 22% of themhad been discontinued. Furthermore, they found that program sustainability is


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generally linked to the number of stakeholders (“more than half of the (ongoing)initiativeshavebeendeliveredbythreeormoreimplementers”).

• Devicefocus:Untilnow,thegreatmajorityofdigitalliteracyprogramshavefocusedonpersonal computersconnected tobroadband technology.However,with thegrowingimportance ofwireless broadband and smartphones, the need tomake decisions onwhat kind of device the digital literacy program focuses on will become veryimportant.

Generationaldifferencesrepresentanothermajorbarriertobroadbandadoption.Typicalagecohort where adoption starts declining dramatically in emerging countries is 40 years old(whencontrollingforincome).Inthatsense,digitalliteracyprogramsconceivedasextensionof either universities or secondary schools have proven to be very valuable in bridging thegenerationalgap.Theoverall long-termgoaloftheseprogramsistoimprovesocial inclusionoftheelderlypopulation.Theprimarycontentdeliveredinthistypeofprogramsarestandardcomputercourses,insomecasestailoredspecificallytotheneedsoftheelderly(e.g.emailtocommunicate with the family, photo sharing, use financial applications, purchasing ticketsonline, etc.). However, in addition, digital literacy courses for the elderly give seniors anopportunity tomeet people and develop a social network. Among the best practices in thedeploymentofdigitalliteracyfortheelderly,thefollowinghavebeenhighlighted:

• Carefully determine needs of targeted population given the different requirementsthathavebeenobservedacrossthesegment,

• Create a website supporting the program, which would include self-study coursemodulesforuseonanad-hocfashionincommunitycenters,

• Self-studyprograms should compriseonline courses, complementedwith traditionalprintedmaterials,

• Include an entertainment section (media, music) in the website to enhanceattractiveness,

• Strivetocoordinatetheprogramwithculturalorganizationsthatarepartoftheusercommunity (for example, they can act as advertising vehicles for digital literacyprograms),

• Equipprogramwith self-containedunits that could be used via touch screens and asimplemenusystem,

• If program is offered at a community center, ensure continuous presence of hostinstructors that can answer inquiries, take registrations, and be responsible for alltechnicallogistics,

• Makesurethatinstructorsstayafterclassestoactastutorsfortheseniorsthatstayinthecenterworkingonthecomputers,

• Provide an environment where users can share their experiences in dealing withtechnicalissueswithpeers,whichconstitutesanimportantretentionmechanism,

• Digitalliteracyprogramsfortheelderlyattainbetterresultswhentheyaredeliveredinanenvironmentthatprovidestheopportunitytomeetotherpeopleandbreaktheirsocialisolation,

• It is sometimes useful to involve students of upper secondary schools in the role ofvolunteer“digitalfacilitators”toteachinternetbrowsingande-mailusetotheelders;


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theone-to-onerelationshipbetweentheyoungtutorandthetrainee(aconceptcalled“intergenerationallearning”)improvesthelearningexperience,

• Focus on teaching material that is immediately transferable and applicable to thesenioreverydaylife.

As Hilding-Hamann et al. (2009) concluded in their extensive review of digital literacyprograms, a large portion of these programs are targeted to the unemployed, with theobjectiveof increasing theiremployability. In this context, theseprograms tend toprovideacertificationtoprovideaproofofskill.Ontheotherhand,digitalliteracyprogramsfocusedonadults with a low education level represent an opportunity to provide a second chanceinstruction, thereby enhancing their personal development. Some of the best practicescapturedintheassessmentofadultdigitalliteracyprogramsincludethefollowing:

• Considerdeliveringcourses inmobile settings (e.g. trucksequippedwithcomputers,servers,andmobilebroadband)tomakeiteasierforpeopletoparticipateindifferentgeographies,thusenlargingthereachoftheprogram;themobileunitandinstructorscanarriveinonetown,installtheequipmentinalibrary,acityhalloranycommunitycenter,offerthefivedaycourses,andthenmoveontothenextlocation,

• Allowparticipantstoborrowequipmentandtakeithometocontinuepracticingafterthetrainingsessions(althoughthiscouldfacesomelogisticaldifficulties),

• Theformalcourseshouldlastapproximatelyfivedaysandbedeliveredtogroupsnotlargerthan12individuals,soeachofthemgetsproperattention,

• Aftercompletionoftheformalcourse,userscanenrollinaweb-basedprogram;and• Waiveenrollmentfeeforunemployedadults,butconsiderchargingforothers.

Giventhemoderndayeconomicshiftawayfromlow-skilledmanufacturingjobstohigh-skilledservicesjobs,lackofworkplaceopportunityisparticularlyheightenedasaresultofthedigitaldivide. Additionally, economic, educational, and geographic disparities tend to impact ICTexposure, further exacerbating this cycle. Thus, successful digital literacy programs manytimes target the disadvantaged groups that are less likely to have prior knowledge ofcomputersortheInternetandfacemorehurdlesasaresult(theunemployed,oldercitizens,welfarerecipients,andruralpopulation).

Trainingcanbeprovided inavarietyofways, so longas it isoffered inaneasilyaccessible,affordablemannertoencourageparticipation.Manytrainingsessions,forexample,areofferedat local community access centersor schools,where citizens already feel comfortable,whileothers are offered online. Sessions can cover a variety of topics, but tend to focus on thedevelopment of ICT skillswith “realworld” application, including, but not limited to e-mail,internet inquiry, jobsearch,andCVcreation.Manyprogramsalsooffer certificationoptions,providing participants with tangible evidence of their acquired skillset. Further, as trainingprogramsbecomemorepopular,theycreatemoreeconomicopportunitythroughthedemandforcitizenstoserveastrainersorprojectmanagers.

Digital divide based on gender differences has been studied in the emerging world with avarying set of evidence about its level of importance. Most of the digital literacy programstargeted to women have as primary objectives, reduce the digital divide, promote social


70

inclusionandimprovetheemployabilityprofileofwomen.AccordingtoHilding-Hamannetal.(2009),thefollowingbestpracticesinthiskindofprogramshavebeenidentified:

• Allinstructorsshouldbefemaleswithexperienceinteachingcomputerskills;studentsappreciatethenotionof“womenteachingwomen”,addressingnotonlyaskillsgapbutprovidingaremedytounequalopportunitiesintheworkplace,

• Additionally, the instructors could be unemployed women with prior computerexperience; as a result, the program could also become a vehicle for reintegratingunemployedwomenintheworkforce,

• Include a mentoring process in the program, which is based on younger peers orattendeestopriorsessions,

• Advertise programs in order to promote enrollment at places such as nurseries,schools,playgrounds,andmarkets,

• Alternatively,kindergartensandschoolscouldbecomeplaces forrecruitingprogramparticipants,

• Provideflexibilityincoursedeliverytoallowforoccasionalabsences,• Structure lessons as “learner-centric” rather than “curriculum-centric”, building the

programaroundwhatattendeessay theywant to learn(e.g.useonlinesearchof jobopportunities),

• Considerpartneringindeliveryoftheprogramwithassociationsornon-governmentalorganizations focused on advancing women welfare and/or enhancing the socialinclusionofwomenbymeansoftechnology,

• If focusing onwomen belonging to a specific ethnic group, tailor thematerial to bedelivered in suitable language, and customize it to the cultural idiosyncrasies of thetargetedgroup,and

• Insomecases,itcouldbeveryproductivetoinvolvethewholefamilyinlearningICTskillsinordertomotivatemotherstoparticipate.

Thischapterpresentedinformationonglobaltrendsregardingbroadbandsupplyanddemand.Itillustratedtheconceptsofsupplyanddemandgapbyreviewingindustrytrendsatagloballevel and then highlighting the gaps in broadband adoption. It also identified three bestpractices in non-OIC developing countries (Brazil, Philippines, and Uruguay) as approachesthatwouldallowtacklingsomeoftheprincipalbroadbandadoptionbarriersfacedbytheOICMemberCountries.


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IV. CURRENTSITUATIONOFBROADBANDPENETRATIONINTHEOICMEMBERCOUNTRIES

Having analyzed worldwide broadband trends, the report will now turn to analyzing thecurrent situation of broadband in the OIC Member Countries. This analysis will addressrelevant topics in the supply and demand areas with the purpose of defining policy andregulatoryrecommendations.

IV.1.BroadbandSupplyintheOICMemberCountries

Availabilityoffixedandmobilebroadbandinfrastructure

ThestatisticsonfixedbroadbandcoverageamongtheOICMemberCountriesarenotavailablein an up-to-date international database. However, the responses to a survey submitted tocountryregulatorsandcasestudyinterviewsconductedinthecontextofthisstudy,yieldthefollowingcoveragemetrics(seetable21).

Table21:SelectedOICMemberCountries:Fixedbroadbandcoverage(percentofpopulation)(2016)

Country FixedBroadbandCoverage(%)Turkey 98Jordan 85SaudiArabia 80Kazakhstan 70Suriname 60Coted’Ivoire 20Benin 5Source:Studysurveyandinterviews

While difficult to draw any conclusion for this limited data set, it would appear that fixedbroadband coveragehas reached a high level inAsianOICMemberCountries,whileAfricanstatesstillexhibitlowcoverageofthepopulation.

This situation differs significantly from coverage of mobile broadband. In this case, mobilebroadbandoperatorsinAfricanOICMemberCountriescouldserveattheendof201558%ofthepopulation.Thatbeingsaid,theOICArabstatesmobilebroadbandoperatorswerealreadycovering74%ofthepopulation.Ofnote,despitetheirimpressivegrowthinmobilebroadbandcoverage,OICMemberCountriesstilllagOECDcountriesby33%points(seetable22).

Table22:OICMemberCountries:mobilebroadbandcoverage(3G)(percentofpopulation)(2015)(%)

2007 2008 2009 2010 2011 2012 2013 2014 2015OECD 5.93 45.02 64.40 79.52 82.82 91.63 93.20 95.24 97.78AsianOIC 0.61 1.23 3.40 4.89 6.85 13.29 22.31 43.17 62.69ArabOIC 0.08 6.94 24.50 41.55 51.86 55.17 58.06 65.85 74.30AfricanOIC 0.00 0.00 2.18 5.59 7.00 10.28 17.92 32.43 57.71TotalOIC 0.35 2.24 7.87 13.47 16.55 21.75 29.14 45.82 64.16Source:RegulatoryAgencies;InternationalTelecommunicationsUnion;TelecomAdvisoryServicesanalysis


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As table 22 indicates, Arab OIC Member Countries have increased their mobile broadbandservicecoveragefasterthantheotherregions.AcountryperspectiveprovidesaperspectiveofthewidedisparitystillexistingacrosstheOICMemberCountries(seefigure18).

Figure18:OICMemberCountries:Mobilebroadbandcoverage(3G)(percentofpopulation)(2015)

Source:RegulatoryAgencies;InternationalTelecommunicationsUnion;TelecomAdvisoryServicesanalysis

According to the data presented in figure 18, there are 16OICMemberCountries that havereachedamobilebroadbandcoverageinexcessof90%,while12havecoveragebetween90%and50%,and less than50%of thepopulation iscoveredbytheservice in theremaining13countries.These statistics arevery important since they sheda lighton the criticalproblemfacingeachoftheOICMemberCountrieswhenitcomestobroadbandpenetration.Forthosecountriesthathavecoverageinexcessof90%ofthepopulation,thecriticalchallengeishowtoclose thedemandgap. For countrieswith coverage less than50%, theyneed to address thesupplysidebeforetheyfocusonstimulatingdemand.

In the case of 4G coverage, while statistics are not comprehensive for all OIC MemberCountries, crowdsourcing sites34 like Open Signal provide a view of service coverage anddownloadspeedforselectedcarriersandcountries(seetable23).

34 Crowdsourcing sites like Open Signal rely on input of smartphone users to compile coverage and download speedstatisticsforwirelesscarriersaroundtheworld.

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Kuwa

itMald

ives

UAE

Albania

Jordan

Qatar

Bahrain

Egypt

Azerbaijan

Saud

iArabia

Lebano

nTurke

yGa

bon

Oman

Tunis

iaMala

ysia

Brun

eiGa

mbia

Morocco

Surin

ame

azakhstan

Banglad

esh

Coted'Ivo

ire

Syria

Nigeria

Ind

onesia

Iran

Kyrgistan

Iraq

Came

roon

Mozam

bique

To

go

Algeria

Pakis

tan

Sudan

Benin

Ug

anda

Uzbe

kistan

Afghanistan

Guine

aSoma

lia

Chad


73

Table23:OICMemberCountries:Mobilebroadbandcoverageanddownloadspeed(4G)(2016)

Country Operator PopulationCoverage(%) Averagedownloadspeed(Mbps)

Jordan Zain 68 8Kazakhstan Altel 83 8

KuwaitZain 89 8Viva 85 7Ooredoo 82 6

Malaysia

Maxis 69 12DiGi 54 12Celcom 51 11UMobile 43 14

MoroccoIAM 67 15INWI 62 14Meditel 40 18

Oman Omantel 58 20

Pakistan Warid 70 4Zang 68 7

Qatar Ooredoo 81 10

SaudiArabiaZain 71 3STC 69 5Mobily 52 4

UAE Etisalat 80 27du 75 17

Sources:OpenSignal;TelecomAdvisoryServicesanalysis

As indicated in table 23, 4Gdeployment appears to be fairly advanced among the countrieswithavailabledata.On theotherhand,aswillbereported in theCoted’Ivoirecasestudy insectionV.1,4GcoverageinSub-SaharanOICMemberCountriesisstillatitsinfancy.

Movingnowtothetypeoftechnology,table24presentsabreakdownoffixedbroadbandlinesin terms of ADSL, fiber optics lines (provisioned by a telecommunications carrier), cablemodemaccesses(suppliedbyacableTVoperator),andothertechnologyplatforms(primarilyfixedwirelessthroughWiMaxplatforms).

Table24:OICMemberCountries:Breakdownoffixedbroadbandlines

Linesper100population TotalLines ShareADSL

(%)ShareCablemodem(%)

ShareFiberOptics(%)

OtherFixed(*)(%)

Lebanon 22.76 1,150,205 57.96 0.00 0.00 42.04Azerbaijan 19.76 1,899,456 85.69 1.06 6.86 6.40Bahrain 18.61 253,041 58.81 0.00 0.58 40.61Kazakhstan 13.05 2,188,543 51.29 2.23 39.98 6.50UAE 12.81 1,226,830 11.21 0.02 88.34 0.43Turkey 12.39 9,504,594 76.68 5.48 16.44 1.40SaudiArabia 12.01 3,590,719 49.99 0.00 32.39 17.62Iran(I.R.) 10.86 8,633,861 83.90 0.00 0.00 16.10Qatar 10.06 236,465 25.82 0.00 73.86 0.32Suriname 9.48 51,994 0.00 0.00 92.14 7.86Malaysia 8.95 2,743,280 49.61 2.42 31.31 16.66BruneiDarussalam 7.99 34,240 0.00 0.00 37.18 62.82

Albania 7.6 242,870 63.99 23.60 6.20 6.21Guyana 6.65 53,687 99.94 0.00 0.01 0.05


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Linesper100population TotalLines ShareADSL

(%)ShareCablemodem(%)

ShareFiberOptics(%)

OtherFixed(*)(%)

Maldives 6.47 23,175 72.96 20.84 2.30 3.89Palestine(**) 6.03 274,500 100.00 0.00 0.00 0.00Oman 5.61 233,234 70.11 0.00% 0.00 29.89Algeria 5.57 2,263,284 94.93 0.00% 0.01 5.05Egypt 4.52 3,826,410 98.72 0.00% 0.00 1.28Tunisia 4.34 487,923 96.84 0.00% 0.41 2.75Jordan 4.16 320,205 60.66 0.00% 2.54 36.80Kyrgyzstan 3.71 211,521 39.85 30.12% 29.62 0.40Uzbekistan 3.57 1,060,645 38.75 0.00% 8.03 53.22Morocco 3.38 1,147,533 98.87 0.00% 0.19 0.94Syria 3.14 700,000 73.91 0.00% 0.00 26.09Bangladesh 2.41 3,865,911 0.57 0.10% 67.89 31.44Djibouti 2.33 20,962 21.64 0.00% 0.00 78.36Yemen 1.55 395,000 100.00 0.00% 0.00 0.00Kuwait 1.37 49,093 100.00 0.00% 0.00 0.00Indonesia 1.09 2,785,000 96.77 1.08% 0.00 2.15Libya 0.97 61,000 0.00 0.00% 0.00 100.00Pakistan 0.95 1,793,199 72.69 2.08% 0.74 24.49Togo 0.92 65,971 76.34 0.00% 0.00 23.66Somalia 0.74 82,000 0.00 0.00% 0.00 100.00Benin 0.67 73,263 10.21 0.00% 0.00 89.79Senegal 0.67 100,611 100.00 0.00% 0.00 0.00Gabon 0.63 11,082 91.56 0.00% 0.00 8.44Côted'Ivoire 0.52 109,707 45.38 0.00% 0.27 54.35Uganda 0.32 128,452 50.27 0.00% 0.00 49.73Comoros 0.26 2,000 94.65 0.00% 0.00 5.35Mauritania 0.24 9,638 96.22 0.00% 0.00 3.78Gambia 0.18 3,573 13.23 0.00% 2.70 84.07Chad 0.08 11,337 0.00 0.00% 0.00 100.00Mozambique 0.08 21,697 87.81 0.00% 12.19 0.00Cameroon 0.07 16,000 100.00 0.00% 0.00 0.00Sudan 0.07 27,683 41.61 0.00% 9.56 48.83Tajikistan 0.07 6,000 0.00 100.00% 0.00 0.00Guinea-Bissau 0.06 1,051 0.00 0.00% 0.00 100.00Niger 0.06 11,000 0.00 100.00% 0.00 0.00Turkmenistan 0.06 3,000 0.00 0.00% 0.00 100.00BurkinaFaso 0.04 7,210 91.95 0.00% 0.00 8.05Mali 0.02 3,499 100.00 0.00% 0.00 0.00Guinea 0.01 1,000 0.00 0.00% 0.00 100.00Nigeria 0.01 15,688 100.00 0.00% 0.00 0.00Afghanistan 0 0 20.00 62.00% 0.00 18.00Iraq n/a n/a n/a n/a n/a n/a(*) Other fixed broadband subscriptions refers to Internet subscriptions using other fixed (wired)-broadbandtechnologiestoaccesstheInternet(otherthanDSL;cablemodem;andfiber)atdownstreamspeedsequaltoorgreaterthan256kbps.ThisincludestechnologiessuchasEthernetLANandbroadband-over-powerline(BPL)communications.Source:RegulatoryAgencies;InternationalTelecommunicationsUnion;TelecomAdvisoryServicesanalysis

Aspresented in Table 24, ADSL is the prevalent fixed broadband technology across theOICMember Countries. Of all 52 million fixed broadband lines, 68% are supported by ADSLtechnology, only 2% by cable modem, 17% through fiber optics, and 13% by other fixedbroadband technology (primarily WiMax). Considering that cable modem (in its latestgenerations)andfiberopticsarethetechnologiesthatcanprovidefastspeedbroadband,itisapparentthattheOICMemberCountriesstillhaveverylimitedaccesstothelatestgenerationof technology. Of the 9.6 million cable modem and fiber optics lines, 2.6 million are inBangladesh,2.1millioninTurkey,1.1millionintheUnitedArabEmirates,1.1millioninSaudiArabia, 900,000 in Malaysia, and 900,000 in Kazakhstan. This limited deployment has an


75

impactonthespeedatwhichbroadbandsubscriberscanaccesstheInternet.Accordingtothetable25theaveragefixedbroadbanddownloadspeedacrosstheOICMemberCountriesis3.4Mbps.

Table25:OICMemberCountriesandOECD:Averagefixedbroadbandspeed(inMbps)(2015)

2007 2008 2009 2010 2011 2012 2013 2014 2015OECD 3,680 3,978 4,125 4,231 5,230 6,126 8,656 9,974 11,669AsianOIC 754 837 873 827 1,038 1,384 1,902 2,363 3,556ArabOIC 1,005 1,008 1,232 1,299 1,291 1,529 1,766 2,267 3,149AfricanOIC N/D N/D N/D N/D N/D N/D N/D N/D N/DTotalOIC 822 884 972 958 1,108 1,425 1,864 2,336 3,442Source:Akamai;TelecomAdvisoryServicesanalysis

As table25 indicates, theaveragedownloadspeedhasnot improvedsignificantly in the lastnine years, when it was 1.005Mbps. In themeantime, the average download speed acrossOECD countries has increased from 3.680Mbps to 11.669Mbps. As research has indicated,broadbandspeedhasadirecteconomicimpact.Intheemergingworld,upgradingfrom0.5to4MbpsincreaseshouseholdincomebyUS$46permonth(Bohlin,2014).Similarly,doublingofbroadband speed increases GDP by 0.3%. These effects emphasize the need to acceleratedeploymentof fast fixedbroadbandacrosstheOICMemberCountries.ThischallengewillbediscussedfurtherinchapterV.

The statistics for mobile broadband speeds point out to a similar lag by the OIC MemberCountries, although the deployment of 4G/LTE is expected to increase the share of fastermobilebroadbandconnectivity.Asoftheendof2016,41OICMemberCountrieshaveatleastone operatorwith an active LTE network. Of these, Kuwait,Malaysia, Saudi Arabia and theUnitedArabEmirateshavebeguntoreflectagrowing4Gshareofthetotalmobilebroadbandsubscriptions(seetable26).

Table26:OICMemberCountries:Breakdownofmobilebroadbandsubscribers

Subscriptionsper100pop.

TotalSubscribers(2015)

Share3G(*)(%) Share4G(*)(%) YearLaunched(firstoperator)

Kuwait 139.31 4,992,033 81.30(2015) 18.70(2015) 2011Bahrain 131.78 1,791,892 --- --- 2012SaudiArabia 111.67 33,387,589 94.84(2015) 5.16(2015) 2011UAE 91.99 8,810,000 94.84(2015) 5.16(2015) 2011Malaysia 89.94 27,567,668 94.40(2015) 5.60(2015) 2013Qatar 80.03 1,881,144 98.00(2015) 2.0(2015) 2013Oman 78.26 3,253,949 --- --- 2013Suriname 75.85 416,004 --- --- 2015Maldives 63.64 227,820 100 0 Tunisia 62.63 7,036,966 99.19(2015) 0.81(2015) 2015Azerbaijan 60.92 5,856,215 100 0 2016Kazakhstan 59.97 10,057,237 98.47(2015) 1.53(2015) 2012Lebanon 53.43 2,916,231 100 0 Turkey 50.94 39,067,554 100 0 2016Egypt 50.66 42,913,302 100 0 2018Indonesia 42.05 107,518,000 99.87(2015) 0.13(2015) 2013Albania 40.58 1,297,281 --- --- 2015Côted'Ivoire 40.39 8,602,170 --- --- 2014


76

Subscriptionsper100pop.

TotalSubscribers(2015)

Share3G(*)(%) Share4G(*)(%) YearLaunched(firstoperator)

Algeria 40.11 16,298,082 --- --- 2014Morocco 39.28 13,337,087 94.10 5.90 2015Jordan 35.58 2,736,017 --- --- 2015Gabon 33.12 579,997 --- --- 2014Kyrgyzstan 30.98 1,768,305 --- --- 2011Sudan 29.41 11,649,027 100 0 2016Uzbekistan 28.69 8,523,779 --- --- 2010Senegal 26.42 3,953,818 99.68(2015) 0.32(2015) 2015Mauritania 23.1 942,386 100 0 Nigeria 20.95 38,448,990 98.70(2015) 1.30(2015) 2015Iran(I.R.) 20.02 15,913,352 --- --- 2014Mali 18.84 3,063,186 100 0 Uganda 18.31 7,349,540 99.31(2015) 0.69(2015) 2012BurkinaFaso 15.44 2,766,018 100 Licence Guinea 13.93 1,719,446 --- --- 2015Bangladesh 13.45 21,575,313 99.78(2015) 0.22(2015) 2015Pakistan 13.02 24,496,354 99.85(2015) 0.15(2015) 2014Tajikistan 12.08 1,040,000 --- --- 2012Syria 10.38 2,311,107 100 0 Gambia 10.02 197,402 --- --- 2015Mozambique 9.37 2,541,315 100 0 Togo 6.02 431,661 100 0 Afghanistan 5.97 1,910,178 --- --- 2015Yemen 5.85 1,494,000 100 0 Djibouti 5.56 50,000 --- --- BruneiDarussalam 4.48 19,199 --- --- 2013

Cameroon 4.27 1,000,000 --- --- 2015Benin 4.24 461,027 --- --- 2015Iraq 3.55 1,271,100 --- --- 2013Niger 1.84 354,000 100 0 Chad 1.38 187,206 --- --- 2014Guyana 0.23 1,820 100 0 Guinea-Bissau 0 0 --- --- 2015Palestine 0 0 100 0 Comoros n/a n/a 100 0 2016Libya n/a n/a 100 0 2018Somalia n/a n/a 100 0 2016Turkmenistan n/a n/a --- --- 2013

(*)Whenindicatedas(2015)the4GsharereferstoDecember2015.Sources:GSMAIntelligence;Ovum.Telecoms,mediaandEntertainmentOutlook2015;GlobalMobileSuppliersAssociation.EvolutiontoLTEReport.October26,2016;TelecomAdvisoryServicesanalysis

Theincreasedadoptionof4Gishavinganimpactonaveragemobilebroadbandspeeds.RecentdatafortwoyearsindicatesthatwhileaveragedownloadspeedofmobilebroadbandinOECDcountrieshasjumpedfrom6.08Mbpsto9.22Mbpsinjustoneyear,datafortheOICMemberCountriesbytheendof2015wasstillunderthatoftheOECDin2014(seetable27).


77

Table27:OICMemberCountriesandOECD:Averagemobilebroadbandspeed(inMbps)(2015)

2014 2015OECD 6.08 9.22AsianOIC 2.06 4.17ArabOIC 3.87 3.57AfricanOIC N/D N/DTotalOIC 2.44 4.03Note:DataforAfricanOICMemberCountrieshasnotbeencompiledsofar.Source:Akamai;TelecomAdvisoryServicesanalysisBroadbandmarketstructure

ThefixedbroadbandmarketstructureintheOICMemberCountriesexhibits,intheaggregate,amoderatelevelofcompetitiveintensity.Ofthecountrieswithavailableinformation,thirteenhave three or more fixed broadband service providers (an indication of sustainablecompetition),while eleven have less than three (an indication of low competitive intensity)(seetable28).

Table28:OICMemberCountries:Fixedbroadbandmarketstructure(2016)

Country NumberofoperatorsAlbania 4(2013)Algeria 1(2016)Benin 4(2016)Côted'Ivoire 5(2016)Indonesia 3(2016)Iran 1(2013)Jordan 3(2106)Kazakhstan 9(2015)Kuwait 5(2016)Mali 1(2015)Morocco 2(2014)Niger 1(2013)Nigeria 6(2016)Oman 1(2013)Pakistan 4(2016)Qatar 3(2016)SaudiArabia 5(2016)Senegal 2(2016)Sudan 1(2013)Suriname 1(2016)Tunisia 7(2014)Turkey 6(2016)UnitedArabEmirates 2(2016)Yemen 1(2013)Source:TelecomAdvisoryServicescasestudiesandsurvey;BusinessMonitorInternational;PointTopic;compilationofregulatoryauthoritysites


78

However, based on this structure and the correspondentmarket shares of countrieswherecompleteinformationisavailable,theHerfindhal-HirschmanIndex35(anindicatorofindustryconcentration) indicates that only four OIC Member Countries have a somewhat healthycompetitive environment while the remainder are either concentrated or operating undermonopolisticmarketconditions(seefigure19).

Figure19:OICMemberCountries:Herfindahl-Hirschmanindexofthefixedbroadbandindustry(2016)

Sources:GSMAIntelligence;RegulatoryAgencies;TelecomAdvisoryServicesanalysis

As figure 19 indicates, Cote d’Ivoire, Nigeria, Turkey, and Kazakhstan tend to have fixedbroadband industries comprising a sufficient number of mobile broadband providers withimportantmarket shares.On the otherhand, themobile broadbandmarket structure in theOICMemberCountriesexhibits,intheaggregate,amoderatelevelofcompetitiveintensity.Ofthe countrieswith available information, twentyhavemore than threeoperators, seventeencountries have three carriers, while twelve have less than three (an indication of lowcompetitiveintensity)(seetable29).

35TheHerfindahl-HirschmanIndexiscalculatedbyaddingthesquarepowerofthemarketshareofallindustryparticipants.An indexof10,000 indicatesamonopolisticmarketstructurewhilean index lower than3,500 isconsidered todepictanindustrywithahealthylevelofcompetition.Anindexhigherthan3,500wouldindicatemoderatecompetitiveintensity.

4,382 4,433

5,2315,541

8,136

10,000 10,000 10,000 10,000 10,000 10,000 10,000

0

2,000

4,000

6,000

8,000

10,000

12,000

Coted'Ivoire

Nigeria

Turkey

Kazakhstan

Saud

iArabia

Algeria

Mali

Sudan

Surin

ame

Yemen

Niger

Mali


79

Table29:OICMemberCountries:Mobilebroadbandmarketstructure(2016)

Country NumberofOperatorsAfghanistan 6Albania 3Algeria 2Azerbaijan 3Bahrain 3Bangladesh 8Benin 5BurkinaFaso 3Cameroon 4Côted'Ivoire 3Egypt 3Gabon 4Guinea 4Guyana 2Indonesia 8Iran 6Iraq 7Jordan 3Kazakhstan 4Kuwait 3Kyrgyzstan 6Lebanon 2Libya 3Malaysia 6Maldives 2Mauritania 3Morocco 3Mozambique 3Nigeria 4Oman 2Pakistan 9Qatar 2SaudiArabia 4Senegal 3SierraLeone 3Somalia 9Sudan 3Syria 2Suriname 2Tajikistan 4Togo 2Tunisia 3Turkey 3Turkmenistan 2Uganda 7UAE 2Uzbekistan 5Yemen 4Source:GSMAIntelligence

Based on this structure and the correspondentmarket shares of countries where completeinformation is available, the Herfindhal-Hirschman Index indicates that eight OIC MemberCountries have a healthy competitive environment while thirteen exhibit moderatecompetitiveintensity(seefigure20).


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Figure20:OICMemberCountries:Herfindahl-HirschmanIndexofthemobilebroadbandindustry(2016)

Sources:GSMAIntelligence;RegulatoryAgencies;TelecomAdvisoryServicesanalysis

As the figure indicates, Nigeria, Malaysia, Indonesia, Kyrgyzstan, Tajikistan, Bahrain,Azerbaijan, and Egypt tend to have mobile broadband industries comprising a sufficientnumberofmobilebroadbandproviderswithimportantmarketshares.

Majorproviders

The broadband industrywithin the OICMember Countries is composed of global operatorsand some smaller local carriers. An assessment of global players active in these countriesindicates that, at least, seven global and/or regional operators have a significant footprintacrosstheOICMemberCountries(seetable30).

Table30:OICMemberCountries:Presenceofglobalmobilebroadbandoperators(2016)

Country Orange MTN Vodafone AirtelEtisalat-MarocTelecom

Zain Millicom Others

Afghanistan MTN Etisalat

AfghanWireless(TSI),Roshan(TDCA),Salaam(AfghanTelecom),WaselTelecom

Albania Vodafone ALBtelecom,Plus,TelekomAlbania(OTE)

Algeria Djezzy,Mobilis(AlgerieTelecom),Ooredoo(NMTC)

Azerbaijan Azercell(Fintur),Bakcell,KarabakhTelecom,NarMobile(Azerfon)

Bahrain Zain Batelco,Viva(SaudiTelecom)

Bangladesh Bharti Banglalink(Global

2224

25732807

3296 3311 3357 33643475 3476 3551

3756 37833970 4079

4207 42134333 4412

5021 51075288

0

1,000

2,000

3,000

4,000

5,000

6,000Nigeria

Malaysia

Indo

nesia

Kyrgistan

Tajikistan

Bahrain

Azerbaijan

Egypt

Kazakhstan

Kuwait

Morocco

Coted'Ivoire

Mozam

biqu

e

Saud

iArabia

Tunisia

Sudan

Turkey

Jordan

Lebano

n

UAE

Oman


81



Telecom),BanglalionCommunications,Citycell(PacificBangladesh),Grameenphone(Telenor),Qubee(Augere),Robi(Axiata),Teletalk

Benin MTN Moov

BellBeninCommunications,BeninTelecoms,GloMobile(Globacom)

BurkinaFaso Bharti Telmob Telecel(Planorafrique)Cameroon Orange MTN CamTel,Nexxtel(Viettel)Chad Bharti Tigo Sotel,TchadMobileComoros Huri(ComoresTelecom)

Coted'Ivoire Orange MTN Moov GreenN(Oricel),KoZ(Comium),YooMee

Djibouti DjiboutiTelecomEgypt Mobinil Vodafone Etisalat

Gabon Bharti Moov Azur(Bintel),Libertis(GabonTelecom)

Gambia Africell(Lintel),Comium,Gamcel(Gamtel),QCell

Guinea Sonatel MTN Cellcom,Intercel+(Sudatel)

Guyana Cellink(ATN),Digicel

Indonesia

3(CKHutchinson),BOLT!(Internux),Ceria(SampoernaTelekom),IndosatOoredoo,Smartfren,Telkomsel(TelekomunikasiIndonesia),XL(Axiata)

Iran Irancell MCI(TCI),MTCE,Rightel(TaminTelecom),Taliya,TKC

Iraq Zain

Asiacell(Ooredoo),FastLink(RegionalTelecom),Kurdistan,KorekTelecom,Mobitel,Kurdistan

Jordan JordanTelecom Zain Umniah(Batelco)

Kazakhstan

ALTEL(Kazakhtelecom),Beeline(VimpelCom),Kcell(Fintur),Tele2

Kuwait Zain Ooredoo(NMTC),Viva(KTC)

Kyrgyzstan

Beeline(VimpelCom),Katel,MegaCom(AlfaTelecom),Nexi(SoTel),O!(NurTelecom),SaimaTelecom,Sapatcom(Winline)

Lebanon Touch Alfa(OTMT)

Libya

AlmadarAljadeed,Libyana,LibyaPhoneMobile(LibyaTelecom&Technology)

Malaysia Celcom(Axiata),DiGi,Electcoms,Maxis,P1


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(TelekomMalaysia),TelekomMalaysia,UMobile,Yes(YTLCommunications)

Maldives Dhiraagu(Batelco),Ooredoo(NMTC)

Mali Orange Malitel

Mauritania Mauritel

Chinguitel(Sudatel),Mattel(TunisieTelecom),Mauritel

Morocco MarocTelecom Zain Inwi(Wana),Meditel

Niger Orange Bharti Moov SahelCom(Sonitel)

Nigeria MTN Bharti EMTS

GIoMobile(Globacom),Multi,Links(Capcom),Smile,Visafone

Oman Omantel,Ooredoo

Pakistan PTCL

Mobilink(GlobalTelecom),PTCL,Qubee(Augere),SpecialCommunicationsOrganization,Telenor,WaridTelecom(AbuDhabi),WateenTelecom(AbuDhabi),wi-tribe(Ooredoo),Zong(ChinaMobile)

Qatar Vodafone Ooredoo

SaudiArabia Etihad Zain Mobily,STC(SaudiTelecom)

Senegal Sonatel Tigo Expresso(Sudatel)SierraLeone Bharti Africell(Lintel),Sierratel

Somalia

GolisTelecom,HormuudTelecom,NationLinkTelecom,Somafone,Somtel,Somaliland,Telcom,Telesom,Somaliland

Sudan MTN Zain Sudani(Sudatel)

Suriname DigicelTelesur

Syria MTN SyriatelTogo Moov Togocel(TogoTelecom)

Tunisia Orange Ooredoo(NMTC),TunisieTelecom

Turkey Vodafone TürkTelekom,Turkcell

Turkmenistan MTS(Sistema),TMCELL(AltynAsyr)

Uganda MTN VodafoneAfrimax Bharti

Africell(Lintel),i-Tel,Smart,Smile,UTMobile(UgandaTelecom)

U.A.E. Etisalat Du

Uzbekistan

Beeline(VimpelCom),PerfectumMobileUcell(TeliaSonera),UMS(MTS),UzMobile(Uzbektelecom)

Yemen MTN Sabafon,Y,YemenMobileSource:GSMAIntelligence


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Orange, the French-based telecommunications multinational, is present in 9 OIC MemberCountries.WithrevenuesofUS$6.35billionacrossAfricaandtheMiddleEast(growingat7%year-on-year), Orange employs 22,000 professionals to serve 110million customers. In thepast three years, the operator has been consolidating its presencein Africa and theMiddleEastbystrengtheningitsdistributionnetwork,developingitsinfrastructureandinnovatingtointroducenew services. For example,OrangeMoney, the payment service is available in13countries:Côted’Ivoire,Senegal,Mali,Niger,Madagascar,Kenya,Botswana,Cameroon,Jordan,Mauritius, Guinea, Egypt (under the name Mobicash), and Tunisia (underthe nameMobimoney).Bytheendof2014,OrangeMoneyhadover13millioncustomers,andhandledtheequivalentof4.5billioneurosin2014.Inordertopromotetheservice,Orangehassignedpartnerships to enable payment of water and electricity bills in several countries, andinitiativesinfieldssuchasasavingsandinsuranceofferinMaliinpartnershipwithinsurancecompany Nouvelle Société Interafricaine d’Assurance), e-commerce (payments oncdiscount.com inCôted’Ivoire andSenegal),mobile access toOrangeMoneyvia anAndroidappinSenegal,MaliandMadagascar,andonlinefromabankaccount,throughpartnershipswith the banks BNPP and BOA. Similarly, Orange has launched Orange Healthcare, whichprovidesmoderncommunicationservices insupportofhealthprofessionalsandpatients inAfrica.TheserviceincludesamedicaladvicehotlineinCameroonandisnowopeningout-of-hourspharmaciesinSenegalandCôted’Ivoire.

TheMTNGroup,headquartered inSouthAfrica, ispresent in11OICMemberCountries.Thecarrierhastotalcustomersof232.5millionandgeneratesrevenuesofUS$10.7billion(2015)withanEBITDAmarginof40.9%.Thecarrier is in themidstofa transformationof internalstructures aimed at becoming a data and digital organization. This includes enabling saleschannels to provide digital services, and improve network service quality and customerservice at all touch points. The carrier is the largest distributor of digital music in Africasupportedby‘callerringbacktones’.Ithasalsomadeprogressine-commercebysigningjointventureswithAIHandMEIH.Forexample,AIHrecorded2.3millioncustomersand4.4milliontransactions in 2015. Additionally, the carrier is focused on developing the enterprise andpublicsectormarkets.In2015,theoperatorlaunchedMTNCloudbusinessandaPanAfrican‘Internet of Things’ platform. It has also expanded the MTN Global, multi protocol labelswitching(MPLS)bringingthefootprintto25pointsofpresence inAfrica.MTNispreparingforbroadbandservicesinseveralOICMemberCountriesbyrollingoutLTEandadvancedLTEinNigeria,andCameroon,andFTTHinNigeria,Coted’IvoireandIran.

TheEtisalatGroupistheleadingtelecommunicationsoperator intheMiddleEastandAfrica.HeadquarteredinAbuDhabi,thecarrierhadrevenuesofUS$42.9billionandEBITDAmarginof51%(2015).Fifty-sixpercentof itsrevenuesweregeneratedintheUnitedArabEmirates,15.2%and8.6%weregeneratedinMoroccoandEgyptrespectively.Theoperatorispresentin15OICMemberCountries throughpartial capital ownership thatprovidesoperating control(forexample,53%inMarocTelecom,66%inEtisalatEgypt,51%inGabonTelecom),althoughsomeoperations are fully owned (such as theMoovwireless carrier inWestAfrica, EtisalatAfghanistan, andobviously,Etisalat in theUAE).Thispresence is the resultof anaggressive


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internationalexpansionaimedatpositioningtheoperatorasastrategicratherthanfinancialinvestor and to focus on investments which provide EGwith operational influence over itsassets. It isexpectedthat theoperatorcontinuereinforcing itspresence incoremarketsandregions internationally. Inparallelwith its internationalexpansion, theoperator isaimingatdeployingnewdigitalservicessuchase-Commerceplatforms,M2MandCloudsolutionsacrossits international footprint. The product strategy is driven by a central Digital Services Unit.ThisisemblematicofastrategyaimedatleveragingscaleacrosstheGroup.

HeadquarteredinKuwait,theZainGroupispresentinthemobilebroadbandsegmentineightOICMemberCountries,serving45.6millioncustomers,andemploying6,700employees.WithUS$ 3.8 billion in revenues and 44.7% in EBITDA margin, Zain’s porfolio of subsidiariescomprisesamixoffullyownedoperations(Kuwait,Sudan,andSouthSudan),partiallyownedwith operational control (Jordan, Iraq, Bahrain, and Saudi Arabia), and financial investmentand/or management contracts (Morocco, and Lebanon). The carrier has been consistentlyincreasingitscapitalspendingorientedtowarddeployingbroadbandLTEnetworksinKuwait,SaudiArabia,Jordan,Bahrain,andLebanon.

Bharti Airtel, headquartered in India, is a mobile broadband provider present in eight OICMemberCountries,all inAfrica.Theoperatorhasbeenactivelydeployingnewservices,suchasmobilemoney (AirtelMoney), One touch Internet,WynkMusic Video and Games. At thesame time, the operator has launched a 4G network in Gabon. The operator has a total of15,406,000 data customers across its 3G and 4G networks in Africa. The review of globaloperators’ deployment and product strategies indicates a common approach, predicated onfivestrategies:

• Expandacross theOICMemberCountriesbasedprimarilyon investment thatgrantsoperationalcontrol,

• Leverage global scale in product development, brand equity, and synergies in bestpracticesandexpertise,

• Consolidatepositionsinmarketswheretheyareeither1or2,• Graduallymigrate to4GtechnologyandFTTH(further to thehome)only inselected

markets,and• Launchproductstrategiesarounddigitalproducts(mobilemoney,e-commerce,digital

music).

IV.2.BroadbandDemandintheOICMemberCountries

Thirty-onepercentofindividualsresidingintheOICMemberCountriesaccesstheInternetonaregularbasis.Internetpenetrationhasbeengrowingatafastpacesince2008whenthegapbetweenthesestatesandOECDcountrieshasbeguntonarrowdown(seefigure21).


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Figure21:OECDversusOICMemberCountries:Internetpenetration


However, as of 2015, at this point the proportion of Internet users in the OIC MemberCountries (30.59%) is half that ofOECD countries (77.24%). As expected, the percentage ofInternet users varies significantly across the OIC Member Countries. For example, Internetpenetration in African OICMember Countries reaches 27.90%,while in Arab countries it is39.53%,andinAsianOICMemberCountriesitis28.05%.ThedifferencebetweentheOICandallcountriesineachoftheregionsispresentedintable31.

Table31:InternetPenetration:OICMemberCountriesvs.allcountries OIC

MemberCountries

AllCountries(onlymajorcountriescited)

Africa 27.90%

• EasternAfrica(Burundi,Comoros,Djibouti,Ethiopia,Kenya,Madagascar,Malawi,Mauritius,Mozambique,Rwanda,Seychelles,Somalia,SouthSudan,Tanzania,Uganda,Zambia,Zimbabwe):15.57%

• MiddleAfrica(Angola,Cameroon,CentralAfricanRepublic,Chad,Congo,EquatorialGuinea,Gambia):8.34%• NorthernAfrica(Algeria,Eritrea,Libya,Morocco,Sudan,Tunisia):37.00%• SouthernAfrica(Botswana,Egypt,Lesotho,Namibia,SouthAfrica):48.26%• WesternAfrica(Benin,BurkinaFaso,Coted’Ivoire,Ghana,Guinea,Guinea-Bissau,Liberia,Mali,Mauritania,Niger,Nigeria,Senegal,SierraLeone,Togo):31.09%

Asia 28.03%

• Australasia(Australia,NewZealand):85.13%• CentralAsia(Kazakhstan,Kyrgyzstan,Tajikistan,Turkmenistan,Uzbekistan):43.98%• EasternAsia(China,Korea,Mongolia,Taiwan):54.71%• Melanesia(Fiji):13.79%• Micronesia:42.11%

28%33%

42%46%

51%54% 57%

62% 64%65% 68%

69% 71%72% 74%

77%

1% 2% 3% 4% 5% 6% 7% 9%12% 14%

16% 18%21% 23%

27%31%

0%

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40%

50%

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70%

80%

90%

2000200120022003200420052006200720082009201020112012201320142015

OECD OIC


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OICMemberCountries

AllCountries(onlymajorcountriescited)

• Polynesia:47.33%• South-EasternAsia(Brunei,Cambodia,Indonesia,Lao,Malaysia,Myanmar,Philippines,SriLanka,Thailand,Vietnam):34.17%• SouthernAsia(Afghanistan,Bangladesh,Bhutan,India,Iran,Maldives,Nepal,Pakistan,Singapore):24.53%

Arab 39.53%• WesternAsia(Armenia,Azerbaijan,Bahrain,Cyprus,Georgia,Iraq,Israel,Jordan,Kuwait,Lebanon,Oman,Palestine,Qatar,SaudiArabia,Syria,Turkey,UAE,Yemen):50.35%


ThedifferencesbetweenOICMemberCountriesandallothercountriesbyregionhavetobeinterpretedwithcaution.Forexample, the10percentagepointdifferencebetweenArabOICMember Countries and Western Asian countries is due to the fact that the latter includesArmenia, Azerbaijan, Cyprus, Georgia, Israel and Turkey, countries with high Internetpenetrationwhich increase theproratedaverage.On theotherhand, theAsianOICMemberCountries (Internet penetration: 28.03%) represent a prorated average of Central Asia(43.98% Internet penetration) and some Southern Asian countries (Internet penetration:24.53%).Finally,AfricanOICMemberCountries(Internetpenetration:27.90%)representtheaveragecountriesinallAfricanregions,exceptforSouthernAfrica.

Inthecaseoffixedbroadband,asof2015,penetrationwithintheOICMemberCountrieshasreached14.95%oftotalhouseholds,comparedto78.07%inOECDcountries.Inadditiontothesignificant difference between both groups of countries, it should be noted that fixedbroadbandamongtheOICMemberCountrieshasnotbeenincreasingatapacecomparabletoInternetadoption(seefigure22).

Figure22:OECDvs.OICMemberCountries:Fixedbroadbandpenetration(2000-2015)(percentofhouseholds)


4%8%

13%19%

26%

35%

44%

52%58%

62%66%

69% 71%73% 75%

78%

0% 0% 0% 0% 0% 1% 2% 3% 5% 6% 7% 9% 11%12% 14%

15%

0.00%

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30.00%

40.00%

50.00%

60.00%

70.00%

80.00%

90.00%

2000200120022003200420052006200720082009201020112012201320142015

OECD OIC


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Due to the limited statistics for fixedbroadband coverage, the fixedbroadbanddemandgapcanonlybecalculatedforonlyfewcountries(seetable32).

Table32:SelectedOICMemberCountries:Fixedbroadbanddemandgap(percentofhouseholds)(2016)

Country FixedBroadbandCoverage(%)

FixedBroadbandPenetration(%)

DemandGap(%)

Benin 5.00 3.36 1.64Coted’Ivoire 20.00 4.00 16.00Jordan 85.00 24.00 61.00Kazakhstan 85.00 50.23 34.77SaudiArabia 80.00 77.56 2.44Suriname 60.00 50.63 9.37Source:Studysurveyandinterviews

Itisdifficulttodrawinferencesfromthefixedbroadbanddemandgap.Itwouldseemthatinthe case of Suriname and Saudi Arabia (and Benin due to the low coverage), supply anddemand of fixed broadband have reached an equilibrium,while in the case of Cote d’Ivoire,KazakhstanandJordanthedemandgapissignificantlyhigh.

Inthecaseofmobilebroadband,asof2015,penetrationwithintheOICMemberCountrieshasreached29.41%oftotalpopulation,comparedto87.17%inOECDcountries.However,inthiscase, thepenetration growth trends indicate a slowingdownamongOECD countries (whichimplies a gradual saturation) and an acceleration among the OICMember Countries, whichrevealsaconvergenceinadoptionbetweenbothgroups(seefigure23).

Figure23:OECDversusOICMemberCountries:Mobilebroadbandpenetration(2007-2015)(percentofhouseholds)


Furthermore,mobilebroadbandpenetrationwithintheOICMemberCountriesvarieswidely.Forexample,penetrationamongArabOICMemberCountrieshasreached42.09%,while the

1%

9%

32%

45%

57%

67%74%

81%87%

0% 0% 1%6% 9% 11%

15%23%

29%

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

70.00%

80.00%

90.00%

100.00%

2007 2008 2009 2010 2011 2012 2013 2014 2015

OECD OIC


88

same statistic for Asian OIC Member Countries is 29.62% and among African OIC MemberCountries is 17.30%. Finally, when assessed penetration against coverage, the mobilebroadband demand gap can be accuratelymeasured across the OICMember Countries (seetable33).

Table33:Mobilebroadbanddemandgap(2015)

Country PopulationCovered(%) ConnectionsPenetration(%) DemandGap(%)Kuwait 100.00 139.31(*) 0Bahrain 97.90 131.78(*) 0SaudiArabia 97.00 111.67(*) 0Malaysia 92.00 89.94 2.06Suriname 80.00 75.85 4.15Algeria 46.00 40.11 5.89UAE 100.00 91.99 8.01Chad 13.00 1.38 11.62Kazakhstan 72.70 59.97 12.73Uzbekistan 44.00 28.69 15.31Sudan 45.73 29.41 16.32Oman 95.00 78.26 16.74Indonesia 60.00 42.05 17.95Qatar 98.00 80.03 17.97Guinea 39.10 13.93 25.17Uganda 45.00 18.31 26.69Kyrgyzstan 59.00 30.96 28.04Somalia 30.00 0.99 29.01Côted'Ivoire 71.00 40.39 30.61Tunisia 94.00 62.63 31.37Pakistan 46.00 13.02 32.98Afghanistan 40.00 5.97 34.03Maldives 100.00 63.64 36.36Azerbaijan 97.30 60.92 36.38Iran(I.R.) 59.81 20.02 39.79Mozambique 50.00 9.37 40.63Morocco 80.00 39.28 40.72Benin 45.00 4.24 40.76Lebanon 96.40 53.43 42.97Togo 50.00 6.02 43.98Turkey 95.03 50.94 44.09Nigeria 66.60 20.95 45.65Cameroon 50.00 4.27 45.73Egypt 97.80 50.66 47.14Iraq 55.00 3.55 51.45Bangladesh 71.00 13.45 57.55Albania 99.00 40.58 58.42Syria 70.00 10.38 59.62Gabon 95.00 33.12 61.88Jordan 99.00 35.58 63.42Gambia 86.00 10.02 75.98BruneiDarussalam 91.00 4.48 86.52

(*)AhighernumberofconnectionsthancoveragecouldindicatetwolinesperindividualinsomecasesSources:RegulatoryAgencies;InternationalTelecommunicationsUnion;TelecomAdvisoryServicesanalysis

Only in a few OIC Member Countries, the mobile broadband demand gap is non-existent:Algeria, Bahrain, Kuwait, Saudi Arabia, Suriname, and United Arab Emirates. In other



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countries,thedemandgaprangesbetween10%and20%(Chad,Indonesia,Kazakhstan,Oman,Qatar, Sudan, andUzbekistan),while in the rest of countries, thedemandgap exceeds20%.When prorated by population, the mobile broadband demand gap across the OIC MemberCountriesvarieswidely(seetable34).

Table34:OICMemberCountries:Mobilebroadbanddemandgap(2015)

MobileBroadbandCoverage(3G)(%)

MobileBroadbandPenetration(%)

MobileBroadbandDemandGap(%)

OICAsianRegion 62.69 29.62 33.07OICAfricanRegion 57.71 17.30 40.41OICArabRegion 74.30 42.09 32.21TotalOIC 64.16 29.41 34.75OECD 97.78 87.17 10.61Sources:GSMAIntelligence;InternationalTelecommunicationsUnion;TelecomAdvisoryServicesanalysis

The difference between themobile broadband demand gap amongOECD countries andOICMemberCountriesisclear.Amongindustrializedcountries,themobilebroadbandsupplyanddemand are close to reaching equilibrium with only 10.61% of the population covered bynetworksnotacquiringtheservice.ThesituationismoreworrisomeamongtheOICMemberCountries:while the gap reaches 40.41% amongAfrican countries, in the case of Asian andArabOICMember Countries, the demand gap hovers at around 33%, bringing the proratedaverageforthewholecommunityat34.75%.

The factorsdriving thesehighnumbers? InChapter III, itwas explained that the residentialbroadbanddemandgapistheresultofthreeobstacles:

• Limitedaffordability:certainportionsofthepopulationeithercannotacquireadeviceorpurchasethesubscriptionneededtoaccesstheInternet,

• Lackofdigitalliteracy,• Lackofrelevanceorinterest:thevaluepropositionofapplications,services,and

contentdoesnotfulfillaneedoftheadoptingpopulation.

A compilation of research on adoption barriers indicates that affordability remains apreeminent variable in explaining the non-adoption of broadband, particularly in emergingcountries. Among the OIC Member Countries, approximately 9 % of non-adopters haveresponded that affordability is one of the reasons for not acquiring broadband, while 6%mentioned lack of digital literacy and 14% responded that they either did not need theInternetorarguedthataculturalbarrierpreventedthemfromacquiringtheservice(seetable35).

Table35:Reasonsofbroadbandnon-adoptersfornotpurchasingbroadband(percentageofresponses)(%)

Country(yearofsurvey)

Costistoohigh LackofDigitalLiteracy

Donotneeditor

“culturalreason”

Privacyorsecurityconcern

AccesInternetelsewhere

Serviceisnot

availableService Handset

Bahrain(2015)

3.70 4.20 6.80 10.30 0.20 3.80

Egypt 1.60 1.90 0.60 1.60 1.30 56.40


90

Country(yearofsurvey)

Costistoohigh LackofDigitalLiteracy

Donotneeditor

“culturalreason”

Privacyorsecurityconcern

AccesInternetelsewhere

Serviceisnot

available(2014)Iran(2013)

1.70 7.10 13.40 46.90 5.20 19.90 12.80

Morocco(2014)

17.90 23.30 14.80 25.80 4.10 8.60 1.80

Oman(2013)

4.90 2.10 3.80 3.10 0.20 0.50 6.40

Qatar(2015)

0.60 0.40 0.20 2.30 1.50

Turkey(2013)

13.10 11.00 11.20 17.60 0.60 4.90 0.80

UAE(2014)

28.50 0 0 9.00 25.30

Source: Surveys compiled by the International Telecommunications Union. ITU World Telecommunications/ICTIndicatorsDatabase2016:ICTHouseholdsAccessandIndividualUse;indicator17:Householdwithoutinternetaccessbytypeofreason.

Asaconfirmationof theadoptionbarriersdiscussed inchapter III, thesurveydata indicatesthat, with the exception of handset cost in Qatar and the United Arab Emirates, limitedaffordability represents an important barrier. While surveys for African countries are notavailable, it isreasonabletoassumethataffordabilityrepresentsamoreimportantchallengein that region. In addition to affordability, lack of digital literacy and cultural barriers alsorepresentanobstacletobroadbandadoption.

Inlightofthesefindings,itispertinenttofirstexaminewhatthegeneraltrendiswithregardstobroadbandpricing. Ifnon-adopterscitepricingasanadoptionbarrier,howhaspricingofbroadbandevolvedoverthepastyearswithintheOICMemberCountries?Figure24presentstheaveragepricingofselectedbroadbandproductsacrosstheOICMemberCountries.

Figure24:OICAverage:Pricingofselectedbroadbandproducts


$0

$20

$40

$60

$80

$100

$120

$140

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

FixedBroadband MobileBroadbandPostpaid

MobileBroadbandPrepaid MobileBroadbandUSBPostpaid


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Figure24presentedtheaveragepricingacrosstheOICMemberCountriesoffourbroadbandofferings in US dollars: a) most economic fixed broadband monthly subscription; b) mosteconomicmobilebroadbandpostpaidmonthlysubscriptionforsmartphone(500MBcap),c)mosteconomicmobilebroadbandpostpaidmonthlysubscription forUSB(1GBcap),andd)most economic mobile broadband prepaid monthly subscription for smartphone (500 MBcap).Inallfourcases,pricinghasbeendeclininginlargepartduetocompetitiveintensity,asdiscussedinthesupplysectionabove.Thecountrylevelpricingtrendshelpsidentifyingsomeof the reasonswhynon-adoptersmention cost asbeingadominantbarrier. For example, inMorocco, where close to 18% of consumers indicated that service cost was a key adoptionbarrier,pricingoftheprepaidplanforsmartphoneshasbeenrelativelystablebetween2013and2015(itactuallyincreasedfromUS$11.47toUS$11.78).TheHerfindahl-HirschmanIndexfor Morocco’s mobile broadband industry is 3,756 indicating moderate competition. At theoppositeend,only3.70%ofBahrainimobilebroadbandnon-adopterssingleoutpricingasabarrier.Monthlypriceof theprepaidmobilebroadbandproductdropped fromUS$13.30 in2013 to US$ 7.98 in 2015. The Herfindahl-Hirschman Index for Bahrain mobile broadbandindustryis3,357.Tosumup,competitionleadstopricereduction,which,inturnallowsmorevulnerableconsumerstoacquirebroadbandservice.

Potentialrisksrelatedtotheincreaseduseofbroadband

While this area is not generally well researched in the literature, it is beginning to beinvestigated particularly in those countries that have achieved high broadband penetration,suchasKoreaandtheUnitedStates.

The first risk is the degradation of human relationships resulting from intense digitalconsumption.Americans spendanaverageof fiveandahalfhoursadaywithdigitalmedia,more than half of that time on mobile devices, according to the research firm eMarketer.Among some groups, the numbers range much higher. Once out of bed, users check theirphones 221 times a day—an average of every 4.3 minutes—according to a UK study. Thisnumberactuallymaybetoolow,sincepeopletendtounderestimatetheirownmobileusage.Research by Sherry Turkle (2015) argues that the digital revolution, by its intensity, isdegrading the quality of human relationships. Turkle finds the roots of the problem in thefailure of young people absorbed in their devices to develop fully independent selves. Sheargues thatdigitaldevicesdisrupt theabilityof children to separate from theirparents, andraise other obstacles to adulthood. Because they are not learning how to be alone, Turklecontends, youngpeople are losing their ability to empathize.Along these lines, socialmediaofferrespitefromtheawkwardnessofunmediatedhumanrelationships.

Thesecondrisk,particularlyamongadolescents,isthedeclineinconductingotherknowledgegatheringactivitiessuchasreading.InaresearchbyProf.RaulKatz(Katz,2012),highschoolstudents in the United States spend on average 554.80 minutes (or 9.25 hrs.) a day usingtechnologydevicesduringtheweek.Ofthese,279minutesarespentinfrontofaPCand191infront of a cellphone. Given the increasing capability of cellphones, it is expected that futurestudieswould yield amuchhigher timeallocation to smartphones at the expenseof thePC.


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Conversely, thestudyfoundthatteenagersreadfor leisureanaverageof5.6booksperyear.Along these lines, girls tend to readmore thanboys (6.6 vs. 3.9). Thehigher levels of videogame playing amongst boys could partly explain this trend. Furthermore,when it comes tohumaninteraction,mostadolescentsprefertextingtocallingontheircellphones.

Athirdriskthathasbeenstudiedparticularlyindevelopingcountriesisculturaluprooting.Ananalysis conducted by Prof. RaulKatz of themost popular Internet sites accessed by regionindicatesthatinMENAcountries,only27of100mostpopularsites,measuredbynumberofvisitors and time spent on the site are produced locally, while the remaining are eitherproducedoverseasordevelopedoverseasandtranslatedtolocallanguage(seefigure25).

Figure25:Percentageoflocalinternetcontentbyregion(2013)

Source:Katz(2013)basedonAlexadata

Thedatainfigure25indicatestwoimportantpatterns.First,developedregionsappeartohavea higher percentage of the most popular Internet sites to be local. Second, regions withlinguistic specificities (such as Russia) appear to have a higher percentage of local content.Conversely, developing regions with use of one of the world languages (Latin America forSpanish,SouthAsiaforEnglish,MENAandAfricaforFrenchandEnglish)tendtohavealowerpercentageoflocalInternetcontent.Theimplicationsofthesedataarethatasresultoflimitedlocalcontentproduction,theInternetcouldactasvehicleforculturaluprooting.Thisfindingisalsoconfirmedbythein-depthcasestudyofCoted’IvoirepresentedinsectionV.1.

AfourthriskrelatedtotheincreaseduseofbroadbandpertainstotheeconomicdisruptionofanInternetshutdown.AsdiscussedinchapterII,worldeconomiesareincreasinglyreliantontheInternet.Furthermore,andagainasexplainedinthesamechapter,broadbandisvitalforeconomicdevelopment.Inthiscontext,itisreasonabletoconsiderwhattheeconomicimpactmightbeofadisruptionoftheInternetasaresultofeithernaturalorman-madecauses.Theseappear to be fairly common as documented by Howard, Agarwal, and Hussain (2011). Theauthorsidentified606government-imposedshutdownsoftheInternetbetween1995andthe

26% 27% 27% 32% 35% 36%

58% 61% 67%

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Am

eric

a

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sia

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first part of 2011, for a total of 99 countries. In 2010 alone, the number of man-madeshutdowns reached 111. Between July 2015 and June 2016, West (2016) counted 81government-imposeddisruptions, ofwhich36 affected thenational broadbandnetwork and22 impacted subnational mobile networks. Beyond government-initiated downtime, theInternet is constantly affected by localized downtimes. According to the disruption trackingplatform Pingdon, at any hour period worldwide, the Internet is affected by approximately16,000 outages. Man-made and technology disruptions have an economic impact. Theeconomicimpactperdayvariesbythetypeofdisruption,ranging,accordingtoWest(2016)from $ 3,816,000 for a national app (such as Twitter or Google) to $ 14,968,000 for thenationalInternet36.

Sofar,thecultural,socialandeconomicriskstotheOICMemberCountriesrelatedtoachievinghigh broadband penetration have been reviewed. This section should also address the risksthat exist for theOICMember Countries if they do not achieve high broadband penetration(thishasbeencalledthe“opportunitycost”).AsdiscussedinChapterII,broadbandhasbeenfoundtohaveanimpactoneconomicdevelopment,competitiveness,andsocialinclusion.Thismeans that the OICMember Countries need to foster the development of broadbandwhileacknowledging the social and cultural risks it entails and implementing the necessaryremedies to control them. First and foremost, the development of local content is animperativethatwouldlimitthepotentialnegativeeffectsofculturaluprooting.

36 This impact only looks at GDP, and excludes lost tax revenues, impact on worker productivity, barriers to businessexpansion,andlossininvestororconsumerconfidence.


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V. COUNTRYCASESTUDIES To complement the study of the situation of broadband development in the OIC MemberCountries, threecountrieswereselectedtoconductcasestudies.Theobjectivewastogainadeeper understanding of trends and issues by visiting the country to interview industrystakeholders and collect data that would otherwise not be available in public internationaldatabases.Thethreecountriesselectedwerechosentorepresentnotonlyaspecificgeographybutalsoparticularchallengeswithregardstothedevelopmentofbroadband.Inparticular,thecategoriesconsideredforselectionincludedeconomicdevelopment(asmeasuredbyGDPpercapita),broadbandsupply(measuredby fixedandmobilebroadbandcoverage)anddemand(withregardstopenetration)(seetable36).

Table36:StateofbroadbandsupplyanddemandoftheOICMemberCountries

GDPpercapita

Supply DemandFixed

BroadbandCoverage(ADSL)

MobileBroadbandCoverage(3G)




OICAverage

53.33% 64.16% 46.82% 14.95% 29.41%

Advanced High >70% >70%: >70% >70% >70%Medium Medium 70%-40% 70%-40% 70%-40% 70%-40% 70%-40%

Limited Low <40% <40% <40% <40% <40%

Source:TelecomAdvisoryServicesanalysis

Thethreecountriesselectedwerefairlygoodrepresentationsofeachofthreecategories(seetable37).

Table37:OICMemberCountries:Stateofbroadbandsupplyanddemand

GDPpercapita

Supply DemandFixed

BroadbandCoverage(ADSL)





OICAverage

53.33% 64.16% 46.82% 14.95% 29.41%

Advanced

SaudiArabia:US$37,729

>70%Kazakhstan,SaudiArabia

>70%:Coted’Ivoire,Kazakhstan,SaudiArabia

>70%Kazakhstan,SaudiArabia

>70%SaudiArabia

>70%SaudiArabia

MediumKazakhstan:US$9,873

70%-40%

70%-40%

70%-40%

70%-40%Kazakhstan

70%-40%Coted’Ivoire,Kazakhstan

LimitedCote

d’Ivoire:US$1,373

<40%Coted’Ivoire

<40%

<40%Coted’Ivoire

<40%Coted’Ivoire

<40%



95

Cote d’Ivoire is a country challenged by low income distribution, low fixed broadbandcoverage and penetration, high 3G coverage but low 4G coverage, and medium mobilebroadband adoption. Kazakhstan is a middle-income country with high fixed and mobilecoverage (both 3G and 4G) and medium service adoption. Finally, Saudi Arabia is a high-incomecountry,withhighsupplyanddemandoffixedandmobilebroadbandservice.

V.1.COTED’IVOIRE

The following case study assesses the state of broadband services in the Cote d’Ivoire. Itassessesthetrendsindemandandsupply,thebroadbandindustrystructure,andthestateofinvestment and technology infrastructure.Broadbandplays an important role indriving thecountry’seconomicgrowthandoverallprospects.Ontheeconomicside,telecommunicationscan increase the inter-linkages among Ivoirian enterprises aswell as facilitate their exports.Additionally,telecommunicationscanimprovetheproductivityofsmallfarmersbyenhancingtheir access to inputs while facilitating market reach. From a development standpoint,broadband can serve to enhance the delivery of public services (e.g., education, health),improve social inclusion of rural populations, and enhance the economic prospects of theurbanpoor.

V.1.1.DemandforBroadbandService

Fixedandmobilebroadbandusagerates

The adoption of broadband services in Cote d’Ivoire is a fairly recent phenomenon. Thediffusionoffixedbroadbandbegunin2003.Theinitialrateofgrowthwasmodestuntil2009,withadoption increasingata rapidpace from2010to2014.However,as table38 indicates,despite thehighgrowththat tookplacethrough2014, fixedbroadbandpenetrationhasonlyreached3.72%ofhouseholds.

Table38:Fixedbroadbandlines(2003-2016)

2003 2007 2009 2010 2011 2012 2013 2014 2015 2016Lines 413 10,000 10,000 27,123 73,564 119,526 133,982 126,857 109,707 101,955

Percenthousehold(%) 0.02 0.44 0.42 1.11 2.94 7.82 5.13 4.74 4.00 3.72

Sources:InternationalTelecommunicationsUnion;Autoritéderégulationdestélécommunications/TICdeCoted’Ivoire;TelecomAdvisoryServicesanalysis

On the other hand, mobile broadband has the potential to become the dominant mode ofInternetaccessinthecountry,reaching7.5millionsubscribersin2Q2016afterlaunchingonlyin2011(seetable39). Table39:Mobilebroadbandsubscriptions(2011-2016)

2011 2012 2013 2014 2015 2016(2Q) CAGRSubscriptions 52,741 143,291 3,000,000 5,108,718 8,602,170 7,498,587 170%

PercentPopulation(%) 0.27 0.72 14.77 24.56 40.39 32.09 160%

Sources: GSMA Intelligence; Autorité de régulation des télécommunications/TIC de Cote d’Ivoire; Telecom AdvisoryServicesanalysis


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Duetothemobilebroadbandsuitability, thetechnologypenetrationhasbeengrowingatthehigh annual rate of 170%, reaching32.09%penetration at the end of the secondquarter of2016. The decline from the high point at the end of 2015 is partly due to the closing ofoperationsoftwomobileoperators(seemarketstructuresectionbelow).

Thecomparativeanalysisofadoptiontrendsbetweenfixedandmobilebroadbandindicatesaclear substitutionpattern,whereby the latter is capturing share from the former (see figure26).

Figure26:Coted’Ivoire:Comparativeadoptionoffixedandmobilebroadband(2003-2016)

Source:Autoritéderégulationdestélécommunications/TICdeCoted’Ivoire;InternationalTelecommunicationsUnion;TelecomAdvisoryServicesanalysis.

Asfigure26indicates,thedeploymentofmobilebroadbandnetworksinCoted’Ivoireresultedin a massive substitution effect. As soon as mobile broadband adoption picked up, thepenetrationoffixedbroadbandstartedtodecline.

Averagemonthly broadband consumption in Cote d’Ivoire indicates a variance between 3Gand4Gsubscribers.Thisistobeexpectedsince3Gtechnologydoesnotprovideanadequateuser Internet experience. On the other hand, 4G and fixed broadband consumption issomewhatinlinewithwhatisobservedinotherOICMemberCountries(seetable40).

Table40:Comparativebroadbandusage(2016) Coted’Ivoire MiddleEastandAfrica

(2015) SaudiArabia(2015)

Monthly3Guse 400MB 908MB 673MBMonthly4Guse 1GBMonthlyADSLuse 67GB --- 50.7

Note:SaudiArabiafixedbroadbandreflectsawideradoptionuniversewithlowerusageintensitySource:Fieldtripinterviews;CiscoVisualNetworkingIndex

0.02 0.04 0.06 0.46 0.44 0.43 0.42

1.11

2.94

7.82

5.13 4.74

4.00 3.72

0.27 0.72

14.77

24.56

40.39

32.09

0.00

5.00

10.00

15.00

20.00

25.00

30.00

35.00

40.00

45.00

0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

8.00

9.00

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Fixed Broadband Mobile Broadband

Fixed&Broadband&

(Percent&of&households)&

Mobile&B

roadband&

(Percen

t&of&p

opula9

on)&


97

ThebroadbandconsumptionvolumeforCoted’Ivoirehasbeengrowingat57%annually forthe past two years37, twice the rate of what is observed in Saudi Arabia (27%). Theconsumption increase inCoted’Ivoire is similar to theaveragegrowth rate reported for thewholeMiddleEastandAfrica(46%)38.

WhileusageinmobiledevicesisconcentratedonvisitstoFacebookandGoogle/YouTube(seefigure27below),theuseinADSLalsoincludesvideo-streamingsites(likeNetflix),andPeer-To-Peerdownloadingsites(likeBitTorrent).

MostcommonpurposesofInternetuse

The International Telecommunications Union reports that 21% of the population of Coted’Ivoirein2015accessedtheInternetonaregularfashion39(seetable41).

Table41:Coted’Ivoire:PopulationaccessingtheInternet(2003-2015)

2003 2005 2007 2009 2010 2011 2013 2014 2015Users 128,510 180,890 323,080 372,020 512,370 562,310 1,706,550 3,037,490 4,472,010%Pop. 0.76 1.04 1.80 2.00 2.70 2.90 8.40 14.60 21.00Sources:InternationalTelecommunicationsUnion;TelecomAdvisoryServicesanalysis

InternetusageisfairlystrongwithregardstoaccessingFacebookandGooglesites(includingYouTube),whichrepresent43%ofuniquevisitors(seefigure27).

Figure27:Coted’Ivoire:Uniquevisitorsamongsiteswith>100,000visits(September2016)

Source:Coted’Ivoireoperator;TelecomAdvisoryServicesanalysis

Beyond Facebook and Google, the next categories of destinations are those that arecommunications platforms (Skype, WhatsApp, QQ, Viber), followed by e-commerce sites(Amazon, Taobao, Jumia) and other social networks (Twitter, Instagram, Linkedin, and

37Source:Orangeinterview.38Source:CiscoVisualNetworkingIndex.39 Itshouldbementionedthataportionof the Ivoirianpopulationaccessesthe Internet fromInternetcafes,estimatedtoreach1,347inthewholecountry(ARTCI).

22.9%%

19.8%%

17.2%%

11.4%% 10.6%% 10.5%%

4.4%%3.3%%

0%%

5%%

10%%

15%%

20%%

25%%

Facebook%

Google/youtu

be%

Comm

unica@ons%

ECcommerce%

Social%Netw

roking%

Portals%

Other%

Streaming%


98

Tumblr). Interestingly enough, only 3.3% of Internet users access video streaming sites,excludingYouTube.

A comparison between Internet and Facebook members indicates that approximately onethird of Internet users are also Facebook members. As indicated above, Facebook is thedominantsocialnetworkinCoted’Ivoire(seefigure28).

Figure28:Coted’Ivoire:InternetusersandFacebookmembers(2000-2016)

Sources:InternationalTelecommunicationsUnion;CITC;Owloo;TelecomAdvisoryServicesanalysis

Data in figure 28 indicates that Internet usage is growing at a faster rate than Facebookmembership.ThisusagepatterninwhichalargeportionofInternetusersarenotnecessarilyFacebookmembersisfairlycommoninotherregionsoftheworldsuchasSub-SaharanAfrica,(seetable42).

Table42:Facebookmembersasregularinternetusers(2015)

Region InternetUsers FacebookMembers FacebookMembersas%ofInternetusers

WesternEurope 195,230,709 98,992,670 50.71RestofEurope 369,232,406 213,950,740 57.94NorthAmerica 274,225,765 213.075.500 77.70LatinAmerica 338,482,028 297.638.420 87.93Asia-Pacific 1,704,885,395 1.431.361.831 83.96Sub-SaharanAfrica 210,735,220 69.052.400 32.77Coted’Ivoire 4,472,010 939,122 21.01NorthAfrica 67,924,936 55.667.000 81.95World 3,160,716,459 2.379.738.561 75.29Sources:InternationalTelecommunicationsUnion;Owloo;TelecomAdvisoryServicesanalysis

Sub-Saharan Africa is an area of the world where social networking significantly lags thepopulation of Internet adopters. For example, in Latin America Facebookmembers in 2015

0.23% 0.4% 0.5% 0.76% 0.85% 1.04% 1.52% 1.8% 1.9% 2% 2.7% 2.9%5%

8.4%

14.6%

21%

32%

0% 0.8%

5.38% 6.03%6.75% 7.55%

8.45%11.01%

0%

5%

10%

15%

20%

25%

30%

35%

2000%2001%2002%2003%2004%2005%2006%2007%2008%2009%2010%2011%2012%2013%2014%2015%2016%

Internet% Facebook%

Percen

tage%pop

ula=

on%


99

representedmorethan87%ofInternetusers.Ontheotherhand,Coted’IvoireevenlagstherestofSub-SaharanAfrica,confirmingthestatisticsinfigure28indicatingthatIvorianInternetuserstendtorelyontheInternetforapplicationsotherthanFacebook.

Beyond communications and e-commerce, one of commonly used applications is mobilemoney. Cote d’Ivoire is one of the most vibrant mobile money markets in Africa. All threemobileoperatorsand twonon-banke-money issuersoffermobilemoneyservices (see table43).

Table43:Coted’Ivoire:Mobilemoneyservices

MobileMoneyService ServiceProvider Partner DateofLaunchOrangeMoney Orange BICICI(BNPParibas) 12/2008MTNMobileMoney MTN SGBCI(SociétéGénérale) 10/2009CelPaid CelPaid --- 2/2011Flooz Moov BIAO 1/2013MobileBanking QashServices --- 11/2013Source:GSMA(2014)

Asaresultofthisactivity,therearecloseto7millionregisteredmobilemoneyaccounts,morethan all bank andmicrofinance accounts put together. This development is fostered by theforced introductionof electronic transactions. For example, as of 2015, all secondary schoolfeeshadtobepaidusingmobilemoney,whilehalfofelectricbillsarepaidusingtheplatform.Asaresult,thenumberofsubscriberstomobilemoneyin2016reachedalmost7million(seetable44).

Table44:NumberofMNO-onlysubscriberstomobilemoney(2014-2016)

2014 2016(2Q)Orange 3,524,717 4,819,769MTN 1,467,264 1,492,726MOOV 1,068,551 426,245Total 6,090,532 6,873,309Source:Autoritéderégulationdestélécommunications/TICdeCoted’Ivoire

Majorfactorsthatinfluenceuseoffixedandmobilebroadband

The major factors that influence non-adoption of the Internet in Cote d’Ivoire will now beassessed.Forthispurpose,oneshouldstartbymeasuringtheextentofthebroadbanddemandgap. The demand gap measures the difference between the population that can purchasebroadband service because of service availability, and the population that actually acquiresservice, which quantifies the number of non-adopters for reasons other than coverage.Consideringthatmobilebroadbandcoverageofthepopulationhasreached83%attheendof2015,thiswouldindicatethatthedemandgapis51%.Astable45indicates,thedemandgaphasbeenincreasingovertimebecausetherateatwhichoperatorsaredeploying3Gnetworksishigherthanthespeedofsubscribergrowth(seetable45).


100

Table45:Coted’Ivoire:Mobilebroadbanddemandgap(2011-2016)

2011 2012 2013 2014 2015 2016(2Q)

CAGR(*)

Populationcoverage(%) 10.00(*) 15.00(*) 21.78 43.56 71.00 83.00 60Subscribersas%ofPopulation 0.27 0.72 14.77 24.56 40.39 32.09 160

Demandgap(%) 9.73 14.28 7.01 19.00 30.61 50.91 35(*)CompoundAnnualGrowthRateSources: GSMA Intelligence; Autorité de régulation des télécommunications/TIC de Cote d’Ivoire; Telecom AdvisoryServicesanalysis

Table45 illustrates thedynamicsbetweenmobilebroadbandcoverageandadoption inCoted’Ivoire. Both trends do not evolve in parallel. At some points in time, such as in 2013,adoptionoutpaces thespeedatwhichcoverage is increasing.This iswhy thedemandgap iscutinhalf.Whenoperatorsacceleratetheirdeployment(suchastheperiodbetween2013and2016whencoverageincreasesfrom21.78%to83%),demandforsubscriptionsincreasesataslowerpace. This is the timewhen thedemand gap increases.Obviously, it is expected thatwhenthecoveragegrowthrateslowsdown,thedemandgapwillcontract.

Therefore, almosthalfof thepopulation currently reachedbybroadbandnetworksdoesnotpurchase the service. Other research conducted by Prof. Raul Katz (Katz and Berry, 2014)concluded that there are three factors that drive broadband non-adoption: affordability,cultural relevance, and digital literacy.While there are no surveys in the Cote d’ Ivoire thatexploretherelativeimportanceofeachofthesethreebarriers,someconclusionscanbedrawnfrominterviewsandtheanalysisofrelateddata.

Starting with affordability, Cote d’Ivoire has a telecommunications affordability index of32.7840.Thisindexreflectsintheaggregatethetotalcostofownershipoftelecommunicationsservices (including taxes) as a function of income.When comparedwith the rest of Africancountries,Coted’Ivoireisatthemiddleoftheaffordabilityrange(seefigure29).

40Thedigitalaffordability index isa composite indexcalculatedon thebasisof six indicators:Residential fixed line tariffadjustedforGDPpercapita;ResidentialfixedlineconnectionfeeadjustedforGDPpercapita;Mobilecellularprepaidtariffadjusted for GDP/capita; Mobile cellular prepaid connection fee adjusted for GDP per capita; fixed broadband InternetaccesscostadjustedforGDPpercapita;andmobilebroadbandInternetaccesscostadjustedforGDPpercapita(seeKatzandKoutroumpis,2013).


101

Figure29:Sub-SaharanAfrica:TelecommunicationsAffordabilityIndex(2014)


The intermediate position of Cote d’Ivoire among its regional peerswould indicate that thepricingoftelecommunicationsservicesrepresentsabarriertoadoption.Ingeneralterms,twopolicies can serve as levers to improve the affordability of broadband (seeKatz andTaylor,2014):(1)reducetaxesbornbyconsumersonthepurchaseofbroadband;and(2)increasethelevel of competitive intensity to stimulate price competition. Along these lines, with theobjectiveofreducingtheconsumerbroadbandacquisitioncost,thegovernmenthasenactedin2016 an exemption of import duties and VAT for customer terminal equipment (includingsmartphones, tablets, modems and routers). Under this program, the price of a low-endsmartphone starts at CFA20,000 (US$33). Thispolicywill remain inplaceuntil 2018.Thismeasure is expected to greatly facilitate broadband adoption. As a demonstration of thepolicy’s positive effect, with 10 months into the program, subscriptions for Orange havejumpedfrom80,000soldin2015toanestimated200,000in2016.41

Another program aimed at dealing with the affordability barrier, now under development,entailsloweringthepriceofbroadbandconnections.Abenchmarkingstudyconductedbytheregulatory authority indicated that the price of broadband service in Cote d’Ivoire is higherthan that of Senegal, a country considered as having similar socio-economic characteristics.Theresultsofthestudyareexpectedtobereportedtotheoperatorsbytheendof2016,andanaffordabilitypricepointwillbesetup,specifyingthecostofbroadbandservice.Inresponsetothis,theoperatorsareexpectedtoprovidepolicyalternativesandsuggestions,whichwouldinturnbeusedtodesigntheprogram.

41Source:fieldtripinterviews.

0

10

20

30

40

50

60

70

80

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102

For example, operators could request a reduction in customer subscription taxes usuallyadded to the customer monthly payment. The possibility of extending the terminal taxexemption mentioned above to the purchasing of a service subscription could be quitepowerful in improving affordability. Right now, when purchasing a mobile wirelesssubscriptionaconsumerpays3%inatelecommunicationsspecifictaxand18%inVAT.Sincebothtaxesarecompounded,theyamounttoapproximately21%ofthemonthlysubscriptioncost. A tax exemption could significantly improve broadband affordability. If the regulatoragreeswithsucharecommendation,itwouldbepresentedtotheMinistryofDigitalEconomyandPostalServices,whichwouldthendraftarecommendationtotheCouncilofMinisters,theauthoritythatneedstoapprovesuchameasure.

Let’snowturntodigitalliteracy.Whilelackingsurveydataonthecountry’sdigitalliteracy,itissafetoassumethatthereisadirectrelationshipbetweenoverallliteracyanddigitalliteracy.Literacy is a foundational skill needed to attain higher levels of learning in all domains.According toUNESCO, inCoted'Ivoire, the literacyrate is48%amongtheyouthpopulation;this is lower than the average youth literacy rate in other lower middle-income countries.Furthermore,nearly34%offifthgradestudentsinCoted’Ivoireperformedbelowthelowestperformancebenchmarkinreading. Insum,Coted’Ivoire isscoringata lowlevel in literacy,andisreportedashavinglowperformancestandardsintheeducationalsystem.

These metrics would necessarily have an impact on the population’s ability to conduct themost basic broadband Internet tasks such as search for information, utilize e-governmentplatforms and perform financial transactions. To deal with this barrier, the government isimplementingtwoinitiatives:

1. “One citizen, one computer, one connection”: This initiative is based on the premisethat there is a direct relationship between social inclusion, digital literacy andownershipofadeviceconnectedtotheInternet.Theprogramreliesontheschoolsastheanchorpointforthreereasons:a)thereisaschoolineveryvillage;b)schoolshavemultimedia centers to provide training on digital literacy; and c) given the highilliteracyrate,itconsidersthatliteracycomeshandinhandwithdigitalliteracy.

The program works as follows: the broadband service provider is responsible toprovideboththeterminalandthebroadbandconnection. Thereistaxexemptionforacquiring the PC. As a result, total prices range between 50,000 CFA (US$ 83) and150,000CFA(US$249).Additionally,theprogramallowsforpaymentininstallmentstofacilitateaffordability.

2. Ruralmultimediacenters:Arelatedinitiativeistheconstructionofmultimediacentersinallruralschools.ThisprogramisundertheresponsibilityoftheAgenceNationaledeServiceUniverseldeTélécommunications,whichfundsthedeploymentofsuchcenterstolinktheliteracyprogramstodigitalliteracy.


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Finally,Coted’IvoirehaslimitedcapabilitytoproducelocalInternetcontentandapplications,which explains part of the demand gap. However, the lack of country specific informationprecludes us from assessing the importance of limited cultural and linguistic relevance as abarriertobroadbandadoption.Nevertheless,anassessmentofthe100mostpopularInternetsites measured by number of visitors and time spent on the site by region of the worldindicatesthatonly32%ofthemostpopularInternetsiteshavebeendevelopedinSub-SaharanAfrica(seeKatzandCallorda,2014).ThelackoflinguisticandculturalrelevancewouldappeartobeabarriertobroadbandInternetadoption.Inresponsetothishurdle,thegovernmentistargeting thedevelopmentofe-government functionsasawaytocreatean incentive for thepopulationtoaccesstheInternet.

Tosumup,allthreebroadbandInternetadoptionbarriers–affordability,digitalliteracy,andlocalcontent–appeartobepresentinCoted’Ivoire.Thegovernmenthasputinplaceseveralinitiatives to deal with at least the first two constraints, along with the development of e-governmentapplications.

V.1.2.Supplyofbroadbandservices


Thedevelopmentofbroadbandinfrastructure inCoted’Ivoirehasundergonefourphases. Inphase1,between1996and2002,bothlastmiledistributionandlonghaulconnectivitywerefulfilledviasatellite.Thesecondphasestartedin2002,whenADSLstartedtobeinstalled.Inaddition, the deployment of a submarine cable in 2008 improved the quality of fixedconnectivity.Thethirdphasestartedin2012withthedeploymentofmobilebroadbandvia3Gtechnology.When this phasewas completed in 2016 (when 4G started to be deployed), 3Gcurrent coverage reached 50% of the population and 40% of the territory for Orange,meanwhile the MTN network is reported as covering 70% of the population42. The fourthphasebegunin2016withthelaunchof4GandwillcontinuewiththedeploymentofFTTH.

Currently4Gcoveragereachesbetween20%and30%ofthepopulation43,whileitisexpectedto achieve full coverage by 2020 for MTN and Orange. On the other hand, the target ofdeploymentofFTTHistocoverthelargecitiesthatconcentrateupscaleresidentialsegmentsandmosteconomicactivitycenters(Abidjan,Yamoussoukro,Bouake,SanPedro,etc.).

42Source:Fieldtripinterviews.43MTNisdeployedonlyinAbidjan.


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Broadbandmarketstructure

Thefixedbroadbandmarketiscomprisedbyfiveplayers(seetable46).

Table46:Coted’Ivoire:Fixedbroadbandmarketstructure(2Q2016)

NumberofSubscribers

MarketShare(bySubscribers)(%)

Revenues(inUS$)

MarketShare(byrevenues)(%)

MTN 27,966 27.42 2,564,278 20.80Orange 65,389 64.14 8,111,219 65.79VIPNET 2,198 2.16 1,224,877 9.94ALINK 49 0.05 26,388 0.21Yoomee 6,353 6.23 402,034 3.26Total 101,955 100 12,328,795 100Source:Autoritéderégulationdestélécommunications/TICdeCoted’Ivoire;TelecomAdvisoryServicesanalysis

Themarket structure, asmeasured by number of subscribers and revenues, has been quitevolatile.MTNhasbeenconsistentlylosingsharesince3Q2014whenitcontrolled56%ofthemarket.Conversely,Orangehasincreaseditsshareto66%in2Q2016from42%in3Q201444.When measuring by the Herfindahl-Hirschman Index (HHI), one can determine that theIvoirian fixed broadbandmarket has been gradually becomemore concentrated in the pastyear(seetable47).

Table47:Coted’Ivoire:FixedbroadbandHerfindahl-HirschmanIndex(bynumberofsubscribers)(2013-2016)(%)

4Q2013 1Q2015 3Q2015 4Q2015 1Q2016 2Q2016MTN 58.04 47.86 44.80 40.36 36.37 27.42AVISO 40.28 49.07 48.52 52.43 55.99 64.14VIPNET 1.54 1.67 2.08 2.03 2.03 2.16ALINK 0.12 0.12 0.11 0.11 0.05 0.05Izinet 0.02 0.02 0.02 0.02 0.02 0.02Yoomee --- --- 4.49 5.07 5.56 6.23HHI 4,993 4,821 4,385 4,408 4,493 4,909Source:Autoritéderégulationdestélécommunications/TICdeCoted’Ivoire;TelecomAdvisoryServicesanalysis

Ontheotherhand,themobilebroadbandmarketincludedfiveplayersbytheendof2015(seetable48).

Table48:Coted’Ivoire:Mobilebroadbandmarketstructure(4Q2015)

NumberofSubscribers


Revenues(inUS$)

MarketShare(byrevenues)(%)

Orange 10,798,183 42.50 38,594,862 61.25MTN 8,130,003 32.00 16,987,950 26.96MOOV 5,408,048 21.29 6,566,265 10.42Comium 710,592 2.80 643,359(E) 1.02GreenN 360,784 1.42 214,453 0.34Total 25,407,610 100 63,006,889 100Source:Autoritéderégulationdestélécommunications/TICdeCoted’Ivoire;TelecomAdvisoryServicesanalysis

However, inMarchof2016,theregulatorcanceledunderperformingoperators(ComiumandGreenN),andthedefunctNiamoutieTelecomoftheirrespectivelicenses,asaresultofunpaidtaxes and license fees. Furthermore, the government strippedWarid Telecom of its license 44Sources:Autoritéderégulationdestélécommunications/TICdeCoted’Ivoire;TelecomAdvisoryServicesanalysis


105

awardedinJuly2006thatwasneveractivated45.Inparallelwiththeexitofminorplayers,themarkethasbeengraduallymigratingtoamorebalancedstructure(seefigure30).

Figure30:Coted’Ivoire:Mobilebroadbandmarketshares(bysubscribers)(2012-2016)

Source: Autorité de régulation des télécommunications/TIC de Cote d’Ivoire; GSMA Intelligence; Telecom AdvisoryServicesanalysis

Theexitofsmallerplayershastriggeredamoderateincreaseinconsolidation,asindicatedbyariseintheHerfindahl-HirschmanIndex(seefigure31).

Figure31:Coted’Ivoire:MobilebroadbandHerfindahl-HirschmanIndex(2012-2016)

Source:Autoritéderégulationdestélécommunications/TICdeCoted’Ivoire;TelecomAdvisoryServicesanalysis

45Telegeography.ARTCIrevokesComium,GreenNlicences.4Apr2016

0%#

20%#

40%#

60%#

80%#

100%#

2Q2012#

3Q2012#

4Q2012#

1Q2013#

2Q2013#

3Q2013#

4Q2013#

1Q2014#

2Q2014#

3Q2014#

4Q2014#

1Q2015#

2Q2015#

3Q2015#

4Q2015#

1Q2016#

2Q2016#

Orange# MTN# MOOV# COMIUM# GREENN#

10,000$9,395$

3,855$ 3,706$ 3,767$3,293$

3,765$ 3,783$

0$

2,000$

4,000$

6,000$

8,000$

10,000$

12,000$

3Q2012$ 1Q2013$ 4Q2013$ 4Q2014$ 3Q2015$ 4Q2015$ 1Q2016$ 2Q2016$

Beginning$of$compe88on$

Exit$of$small$players,$lead$to$3$player$market$


106

Asaresult,themarketstructureasof2Q2016consistsofthreesubsidiariesofglobalplayers(seetable49).

Table49:Coted’Ivoire:Mobilebroadbandmarketstructure(2Q2016)

MNC NumberofSubscribers MarketShare(bySubscribers)(%)

Orange OrangeGroup 2,707,779 36.11MTN MTNGroup 3,505,557 46.75MOOV MarocTelecom 1,285,251 17.14Total 7,498,587 100Source: Autorité de régulation des télécommunications/TIC de Cote d’Ivoire; GSMA Intelligence; Telecom AdvisoryServicesanalysis

In this context, thegovernmenthas sought to reconfigure themobile sectorasa four-playermarket,bymeansof introducinganewconvergentplayer capableof supportingmobileandfixed telephony, data transmission and Internet access. In September of 2016, the fourthconvergent license was given to the Libyan Post, Telecommunications and InformationTechnologyCompany46. Thismove intended to foster competition is not yet reflected in themarket’scompetitiveintensity,sincetheentryofthenewoperatorisplannedfor201747.

Inaddition,tofurtherstimulatecompetitionthegovernmenthasbeenpromotingtheentryofMobileVirtualNetworkOperators.Youmee,thefixedbroadbandplayer,isinnegotiationswithOrangetolaunchservice48.

Stateofcompetitioninbroadbandmarket

Asaresultofexitsandentriesthattookplaceinthelastyear,theIvorianmarketiscomposedof two convergent players (Orange andMTN) and one puremobile play (Moov). As ofMay2016, Orange signed an agreementwith the Ivorian government tomerge the assets of CI-Telecom(ajointlyownedcompanybetweenOrangeandthegovernmentofCoted’Ivoire)andOrangemobile.Afterthemerger,thegovernment’spositioninthenewentitywillbeof31%,theremainderbeinginthehandsofOrange49.

Similarly, MTN is present in the wireline, fixed and mobile broadband segments. TheconvergentlicenseassignedtoLibyanPost,TelecommunicationsandInformationTechnologyCompany is currently under implementation. While the forced exit of the minor wirelessplayershas increased theHHI index, reducing the levelofcompetitive intensity, theentryofthefourthplayerisexpectedtoreestablishanadequatelevelofcompetition.

46ThenewentrantisleveragingtheassetsofGreenN,theclosedoperator.ThiscompanywasfullyownedownedbytheLibyanPost,TelecommunicationsandInformationTechnologyCompany(source:fieldtripinterviews).47Source:fieldtripinterviews. 48Source:fieldtripinterviews.49Telegeography.Govt,Orangestrikeagreementtomergefixed,mobileassetsinCoted’Ivoire.May3,2016.


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Technologiesandtrendsregardingbroadbandmarket

The technological infrastructure utilized for delivering broadband services in Cote d’Ivoireconsists of amix of ADSL and fixedwireless for fixed networks, and 3G and 4G formobilebroadband.

Regarding fixed broadband, four out of the five operators have displayed amix of wireline(ADSL, fiber optics) and wireless technology (WiMAX, CDMA, and satellite). As a result,accordingtoregulatoryreports,asoftheendof201550%offixedlines(55,803)arewirelineand the remainder (54,653) are wireless. There is one operator, YooMee, which reliesexclusively on Time Division - Long Term Evolution (TD-LTE) operating on the 2300 MHzfrequencybandtoofferfixedwirelessservicetoAbidjan’sfivemillionplusinhabitants50.

Atthesametime,bothOrangeandMTNareplanningtodeployFTTxfocusingonenterprisesand selected neighborhoods in key cities. FTTH deployment plans for both carriers targetupscale residential neighborhoods andbusiness concentration areas in large cities (Abidjan,SanPedro,Bouake,Yamoussoukro).Bothoperatorsrecognizethattheeconomicsdonotfavorfiberoptic lastmiledeployment intheIvoiriancontext.Eachhomeconnected inAbidjan, forexample,wouldcostapproximatelyUS$1,00051.Chargingconsumersamonthlysubscriptionfee to compensate for the investment. Isnot feasible, as consumerswouldnot recognize thevalue-addedofFTTHintermsofincrementalspeed.Therefore,customerswouldnotbewillingtopayaprice increaseusing the faster infrastructure.Additionally,withanunderdevelopedOver The Topmarket, the demand is still not high enough to fully use an FTTH connection.Despite these considerations, both operators are pursuing FTTH deployment because it isneededtoservetheenterprisemarket.Moreover,theyneedtoprovideacompetitiveresponseto players already active in Cote d’Ivoire, and to the potential entry of Google, which hasalreadydeployedfiberinAccra(Ghana).

Thesplitbetweenfixedandmobilebroadbandreflectsthedemandtrendsdiscussedabove:asoftheendof2015,99%ofallbroadbandaccessesaremobile,supportedby3Gtechnology.Byauctioningtechnology-agnostic licensesatthebeginningof2016,thegovernmentauthorizedthelaunchof4GLTEmobilebroadbandservice52.Asofthisdate,allthreewirelessoperatorshave deployed 4G technology. However, service coverage is restricted so far to the largestcities. Evenwithin the target cities, 4G coverage is not complete,with operators estimatingcoveragebetween20%and30%ofthepopulation53.

50Telegeography.YooMeeTD-LTEuserbasereaches4,000.8Apr2015.51 If a residential consumer is close to an enterprise location already benefitting from a fiber loop, the deployment costwouldbemuchlower. 52Telegeography.Coted’Ivoirewatchdogsettoauthorize4Gin1Q16.3Dec2015.53Source:fieldtripinterviews.


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Fixedandmobilebroadbandspeedsandqualityofbroadbandservices

International statistics of broadband service quality in Cote d’Ivoire are relatively scarce.Available data is limited to the International Telecommunications Union, which reports abreakdownoffixedbroadbandspeedsforthreecategories(seetable50).

Table50:Coted’Ivoire:Fixedbroadbandspeeds

2014(%) 2015(%)ShareFixed-broadband256Kbit/stolessthan2Mbit/ssubscriptions 36.62 38.98ShareFixed-broadband2Mbit/stolessthan10Mbit/ssubscriptions 21.13 18.86ShareFixed-broadbandequaltoorabove10Mbit/ssubscriptions 42.25 41.16Source:InternationalTelecommunicationsUnion

Accordingtotable50,in201541%oftotalfixedbroadbandlinesofferedaspeedequaltoorabove 10 Mbps. It should be noted, however, that advertised speed does not equal realperformance. It is very common that, due to network quality issues or traffic saturation,advertised speeds represent approximately 60% of real performance54. However, acomparisonbetweenCoted’Ivoirestatisticswithotherrelevantcountriesprovidesarelativecontextforassessingthecountry’sfixedbroadbandspeedlevels(seetable51).

Table51:FixedBroadbandSpeedLevels:Coted’Ivoireversusothercountryaverages(2015)

Coted’Ivoire(%)

AfricanOICMemberCountries(%)

AllOICMemberCountries(%)

ShareFixed-broadband256Kbit/stolessthan2Mbit/ssubscriptions 38.98 77.54 56.69

ShareFixed-broadband2Mbit/stolessthan10Mbit/ssubscriptions 18.86 15.54 32.20

ShareFixed-broadbandequaltoorabove10Mbit/ssubscriptions 41.16 6.93 11.11

Source:InternationalTelecommunicationsUnion

Accordingtotable51,Coted’Ivoireappearstohavesignificantlyhigherfixedbroadbandspeedlevels compared to the average African OIC Member Countries, as well as all OIC MemberCountries.

Pricingoffixedandmobilebroadband

The regulator has recently completed a study benchmarking broadband prices across theregion.IthasconcludedthatCoted’Ivoirepricesarehighrelativetoitspeers.Inparticular,theIvoirianauthoritiesemphasizedthecomparisonwithGhanaianbroadbandpricelevels,wherebroadband prices are 20% lower than in Cote d’Ivoire, suggesting Ghana as a model toimitate55.

Theconclusionofthisstudyappearstobeconsistentwithacomparativeassessmentofpricingtrendsofmonthlysubscriptionsacrosscountrygroupingsfor1GBUSBport(seefigure32).

54Itisnotpossibletocompilestatisticsonrealperformancesincethe“crowdsourcing”sitessuchasAkamaidonotreportresultsfortheCoted’Ivoire. 55Source:Fieldtripinterviews.


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Figure32:Monthlysubscriptionof1GBcapUSB(inUS$)


Asdepictedinfigure32,Coted’Ivoirepricingonlystartedtodeclinein2015,butstillremainsabove the average of all OECD countries, all OIC Member Countries, and the African OICMemberCountries. Ina similar finding, theprepaidprice for500MBcapmobilebroadbandsubscription in theCoted’IvoirewasUS$9.98 in2015,comparedtoUS$4.55 forall theOICAfrican countries, and US$ 4.66 for all OIC Member Countries. The price of the mosteconomicalfixedbroadbandsubscriptioninCoted’IvoireisUS$34.83,comparedtoUS$29.87averagepricingforallOICMemberCountries.

On the other hand, Cote d’Ivoire operators have introduced less expensive fixed broadbandsubscriptionswhencomparedtotheaveragepriceofotherOICAfricancountriesofUS$75.18.Forexample,OrangeoffersaprepaidplanbasedonADSLat1Mbpsdownloadspeedwithacapof250MBforCFA19,000(US$31.50).

Investmentsinfixedandmobilebroadbandinfrastructure

Theinvestmentoftheprivatesectoroperatorsinfixedbroadbandservicesishighlyvariable,reflectingthesector’svolatility(seetable52).

Table52:Coted’Ivoire:Privatesectorfixedbroadbandinvestment(US$)

2013 2014 2015 1H2016Fixedbroadband 2,903,002 7,041,809 1,579,421 503,758Source:Autoritéderégulationdestélécommunications/TICdeCoted’Ivoire;TelecomAdvisoryServicesanalysis

Until 2014, operators were dedicating a relatively high volume of investment to fixedbroadbandreflectingtheembryonicstatusofmobileadoption.However, in2015investmentin fixed broadband declined significantly. By annualizing statistics for the first half of 2016,total investment for 2016 in fixed broadbandwould only be US$ 1,004,000. The decline in

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fixed broadband investment by the private sector is expected to be partially offset as theOrangeGroupisplanningtodeployfiberopticsintheAbidjanarea,withfurtherexpansionifpossible.

The Ivoirian regulator does not publish statistics for mobile broadband because, given thenature of mobile infrastructure, it is difficult to discriminate between voice and datainvestments. Assuming that most mobile investment is dedicated to mobile broadbandservices,theamountsarelimitedbutincreasingsignificantlyin2016(seetable53).

Table53:Coted’Ivoire:Privatesectormobileinvestment(US$)

2013 2014 2015 June2016Mobile(includingvoiceanddata) 244,194,256 162,689,686 146,860,420 294,201,228Source:Autoritéderégulationdestélécommunications/TICdeCoted’Ivoire;TelecomAdvisoryServicesanalysis

Astable53indicates,theshiftininvestmentfromfixedtomobilebroadbandisexemplifiedbythe2016statistic,whichindicatesthatonlyinthefirstsixmonthsof2016theprivatesectorinvestmentinmobilevoiceanddatahasexceededtheentireamountspentin2015.

In addition to the investment from the private sector, the government has been activelyinvolvedinthedeploymentofanationalintercitynetwork.Thedeploymentisbeingmanagedby the French firm Bouygues, working alongside SagemCom and Polyconseil. Investment isexpected to conclude in 2017, when thenetworkis planned to span around 7,000km. Theprojectstartedin2012whenChineseequipmentmanufacturerHuaweirolledouta1,400kmcablelinkingthesouth-westernportcityofSanPedrotoFerkessedougouinthecentralnorth.Phase two of the project got underway in July 2013, focusing on a 650km link connectingGrand-BassamandAbidjaninthesoutheastwiththenortheasterntownofBouna.ThisphasewascarriedoutbyChinesestateownedmanufacturerChinaInternationalTelecommunicationConstructionCorporation(CITCC)56.

Majorfactorsthatinfluencebroadbandinvestments

Thegovernmenthasbeenputtinginplaceanumberofdemandandsupply-sideinitiativestopromotebroadbandusage,therebystimulatingcapitalspendingbyoperators.Onthedemandpromotion side, as described above, the tax exemption on terminal equipment is aimed atreducingthecostofpurchasingbroadbandservice,which,inandofitself,actsasastimulusformarketdevelopment.Asnotedearlier,anadditionaldemandpromotionpolicyconsistsofthepromotion of “one citizen, one computer” policy, which entails the subsidization of PCpurchasingandalsoactsasapromotionofdemand.However,thereareotherpoliciesthatmayact as a disincentive to stimulate demand. For example, wireless carriers cannot sign up acustomeriftheydonotproduceavalidID.AlargeportionofcitizensintheCoted’IvoirelackaproperID,whichmeansthateitherthecarriercannotsignupthesecustomersor, if theydo,theymayincurapenaltyfee.

56Telegeography.Coted’IvoirelaunchesthirdphaseofNBN.April22,2016.


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Asnotedearlier,onthesupply-sidethegovernmenthasbeeninvestingindeployinganationalfiberopticbackbonenetworkwith thepurposeof reducing long-haul connectivity costs andimprovingthebusinesscasefordeployingbroadbanddistributionnetworksinremoteareas.Additionally, the auction of technology-agnostic universal spectrum licenses acted as astimulus fordeploymentof 3Gand4G technologies. Finally, for improving coverage in ruralareas,thegovernmentispromotingthesharingofbroadbandinfrastructure,suchasbackhaulandtowers57.

However,theoperatorviewofthislastincentiveisthat,evenundertheinfrastructuresharingagreementpromotedbythegovernment,thebusinesscasehasnotbeenproventobepositive.Theperceivedbarrieristhelackof“usecases”.Giventhathighilliteracyrateinruralareas,thebroadbandconsumptionthatcouldgeneraterevenuesisnothighenough.

Furthermore,ruraldeploymentisaffectedbyanumberof“hiddencosts”.Forexample,duetothe lackofpower,eachbasestationhas tobesuppliedwithagenerator.Additionally,at theOPEXlevel,duetothelackofappropriateroadaccess,maintenanceandoperationscostsarehigherinruralareasthaninurbansettings.Onewayofaddressingthisproblemwouldbeforthegovernmenttoprovidesubsidiestocoversomeoftheadditionalcosts.

On the other hand,while enacting policies to promote investment, the government has alsoimplemented a policy that discourages investment. In 2015 theregulator raised themobilelicense renewal fees to be paid by the country’s operators in 2016 to CAF 100 billion (US$162.5million).Theregulatoralsooptedtocutthedurationoftheconcessions,from20yearsto 15 years. These measures are reported as having a negative impact on the operators’willingnessandabilitytocommitcapitalforthedeploymentof4G.Whileacknowledgingthatthesemeasures are aimed at collecting additional revenues for the country’s treasury, theirimpact should be evaluated also in terms of the extent that limit the country’s transition tonewtechnologies.

In addition to these investment impediments and increased costs reducing the amount ofcapitalfordeploymentof4Gnetworks,operatorsencounterlocalregulationsthatdelayfixedbroadbanddeployment.Forexample,onceanoperatordecidestoconstruct fixedbroadbandaccess in the last mile, it faces time delays for obtaining permits from municipalities andnegotiatingconstructiontermsofemploymentwithlaborunions.

Inthecontextof thecountry’sdevelopmentpoliciesthataffect the levelof investment, therearesomemacrovariablesthathaveapositiveimpactontheoperators’willingnesstoinvestinbroadband infrastructure, affecting the strategies of operators such as Orange and MTN toinvest in fiberoptics.Suchcompaniesconsider fiberopticdeploymentasabetonthe futureeconomicdevelopmentofthecountry.Thegovernmenthaspresentedits2016-2020NationalDevelopment Plan with a number of priority objectives that have strong implications forrequiringthedeploymentoffiberoptics.Amongthosegoals:

57Source:Fieldtripinterviews.


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• Projecte-gov:digitizingthewholegovernmentadministration;• Decentralizationofindustriestotheinteriorofthecountry;and• Promotionofforeigndirectinvestment.

Given the national development priorities, operators consider fiber deployment, as a muchneededrequisiteinfrastructure.Whilethebusinesscaseisnotalwayspositive,inthelongruntheinvestmenthasstrategicimportancetoachievingthecountry’sdevelopment58.

In addition, for the two largest operators, Orange and MTN, fiber optic deployment isenvisionedasacompetitive tool toeitherprotect itsposition(in thecaseofOrange)orgainshare (in the case of MTN)59. Both operators deploying fiber to the consumer premiserecognizethatthebusinesscasestillcannotsupporttheinvestment.Forexample,thecurrentfastestADSLoffer(8Mbps)inCoted’IvoireismarketedatCFA45,000permonth(US$74.60).It isestimated that the “psychological”price (alsocalledwillingness topay) foraresidentialfiber connection should be approximately CFA 50,000 (or US$ 83). Under this pricingassumption,giventheincomedistributionoftheCoted’Ivoire,theaddressablemarketbeyondcertainneighborhoods inAbidjanisquitesmall. Inordertodevelopthe investmentbusinesscaseundermorefavorableterms,operatorshavetoincreasetheARPU(AverageRevenuePerUser)byincludingotherservicesthatcanpayoffthefiberopticdeployment.However,theseservicesarenotyetdefined.

Theothervariablethatcouldimprovethebusinesscaseisareductioninoperatingexpenses(maintenanceoffiberplantislowerthancopper),andcopperreplacement(significantamountofcopperplantissystematicallystolen).Thisisoneofthefactorsbeingquantifiedatthisstageto try to develop a viable business case for fiber optic deployment. All in all, independentlyfrom the uncertainties surrounding the returns on fiber investments, bothmajor carriers inCoted’Ivoireareproceedingalongthispathdrivenprimarilybycompetitiveconsiderations(inotherwords,thefearofbeingthesecondmoverandtherebylosingcompetitiveadvantage).

Tosumup,broadbandcapitalspendinginCoted’Ivoireisaffectedbyanumberoffactorsthateitherencourageordiscourageinvestment(seetable54).

58Source:Fieldtripinterviews.59Source:Fieldtripinterviews.


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Table54:Coted’Ivoire:Factorsinfluencingbroadbandcapitalspending

Positiveincentives NegativeincentivesGovernmentdemandpromotionpolicies

• Taxexemptiononterminalequipment• Onecitizen,onecomputerprogram

• WirelesscarrierscannotsignupacustomerifhedoesnotproduceavalidID

GovernmentsupplyPolicies

• Deployinganationalfiberopticbackbonenetworktoreducelong-haulconnectivityandimprovethebusinesscasefordeployingbroadbanddistributionnetworksinremoteareas

• Auctionoftechnology-agnosticuniversalspectrumlicensesfordeploymenteither3Gor4Gtechnologies

• Promotesharingofbroadbandinfrastructure,suchasbackhaulandtowers

• Rulesforaccelerateddepreciationofequipment

• Spectrumlicenserenewalpolicies(15years,renewalpayment)

• Notaxexemptionforimportednetworkequipment

LocalFactors • Urbandevelopment • Timedelaysforobtainingconstructionpermitsfrommunicipalities

• Negotiatingconstructiontermswithlaborunions

Macro-Factors • Projecte-gov:digitizingthewholegovernmentadministration

• Decentralizationofindustriestotheinteriorofthecountry

• Promotionofforeigndirectinvestment

Competitionfactors

• Protectmarketposition• Gainmarketshare


V.1.3.Institutionalstructureandpoliciesforpromotingbroadband

Institutionalstructure,policiesandstrategiesregardingbroadbandmarket

Theinstitutionalarchitectureregulatingthetelecommunicationssectorincludesthreeagencies:

• TheAgencedeRégulationdesTélécommunicationsdeCoted’Ivoire(ARTCI)• TheAgenceNationaledeServiceUniverseldeTélécommunications(ANSUT)• AgenceIvoiriennedeGestiondeFréquencesRadioélectriques

ThefirsttwoagenciesreporttotheMinistèredel’EconomieNumériqueetdePostes.

Cote d’Ivoire assigns regulatory authority of telecommunications, and consequentlybroadband,totheAutoritéderégulationdestélécommunications/TICdeCoted’Ivoire(ARTCI).This agency is presided by a regulatory board responsible for the technical, legaladministrativeandfinancialmanagementofARTCI.Theboardiscomprisedofsevenmembers.

TheorganizationstructureofARTCIincludesninedepartments:

• TelecommunicationsActivities• LegalAffairs• ResourceAllocationandControls• InformationSystemsandNetworkSecurity• EconomicAffairsandInternationalCooperation


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• AuditingandManagementControls• PostOfficeActivities• HumanResources,andFinance• Communications

ThemorerelevantdepartmentsfromaregulatorystandpointaretheDepartmentofResourceAllocations and Controls (in charge of managing the radiofrequency spectrum),Telecommunications Activities (responsible for monitoring operator performance andestablishing rules for infrastructure sharing), Information Systems and Network Security(monitoringcyber-securityprocesses),andEconomicAffairsandinternationalcooperation(inchargeofmonitoringcompetition).

Major approaches, implementations and challenges in extending fixed and mobilebroadbandinfrastructure

Among themost relevant legal initiatives enacted by the Ivoirian government that have animpactonthedevelopmentofbroadband,fiveareofspecialnote:

• Assignmentofa fourthconvergent telecommunications license (which includes fixedand wireless broadband) to the Libyan Post, Telecommunications and InformationTechnologyCompanyinordertopromotesustainablecompetition

• Two initiatives to fightcybercrime(June19,2013),andprotectionofpersonal (June19,2013)

• RulesformanagingInternetdomainofCoted’Ivoire(February4,2015)• Rulesforinterconnectingtelecommunicationsnetworksandunbundlingthelocalloop

topromotefixedbroadbandcompetition(May2,2013)• Taxexemptionforimportingterminalequipment(December,2015)

V.1.4.Lessonslearned

TheassessmentofbroadbandnetworkandservicesintheCoted’Ivoireprovidesabasisforanumberof lessons learned.The following are structuredaround thepromotionof enhancedsupplyandthestimulationofdemand.

Supplypolicies

As the preceding chapters have concluded, the supply of broadband services is currentlyundergoingaprocessoftransition.Whenitcomestofixedbroadband,thesubstitutioneffectsresulting from the suitability of mobile broadband have led to a slow down of networkdeployment (as illustrated by a significant reduction in investment), and a mix of wireline(ADSL, fiberoptics)andwireless(WiMax,LTE,satellite) technologies.Theevidencesuggeststhat Cote d’Ivoire requires a more coherent broadband technology strategy. While someindications exist that fiber opticswill be deployed by Orange andMTN, it would seem thatpolicy makers have not clearly defined which technologies are more suitable to whichgeographiesorprovidedtheneededinterventionstoenablealignedoperatorinvestments.

Onthemobilebroadbandside,thedeploymentof3Gappearstohavebeenasuccess.Asoftheend of 2015, according to statistics of the International Telecommunications Union,


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penetrationhasreached32%of the totalpopulation.However, the increase indata traffic isputtingpressureonoperatorstodeploy4Gtechnology.Theauctioningoftechnology-agnosticlicenses has been an incentive towards 4G deployment which is planned to reach 100%coverageby2020.

Beyond the incentives to investment, there are some initiatives that discourage capitalspending.Oneofthemistheincreaseinmobilelicenserenewalfeesandthereductioninthedurationoftheconcessionsfrom20yearsto15.Thesemeasureswillhaveanegativeimpactontheoperators’willingnessandabilitytocommitcapitalforthedeploymentof4Gandneedtobereviewedagainstestimatednegativeimpacts.

Demandpolicies

Asdiscussedabove,Coted’Ivoire’sbroadbanddemandgapissignificant:closeto51%ofthepopulation isservedbybroadbandtechnologybutdonotpurchaseserviceduetoeconomic,digitalliteracy,culturalorlinguisticbarriers.

First and foremost, the government has recognized that increased service adoption isdependentonloweringthetotalcostincurredbyconsumersbypurchasingandoperatingthetechnology. The competition lever for stimulating price reduction has been already pulled,given the assignment of a fourth wireless license to the Libyan operator will increasecompetitive intensity, which could result in lower prices. Beyond, competition, the Ivoiriangovernmenthasreducedtaxesincurredbyconsumerswhenpurchasingbroadbandterminals.However,serviceuseisstillimpactedby18%invalueaddedtax,towhichasectorspecifictaxis added60. In general terms, since high taxation increases the total cost of ownership ofwirelessservices,higherwirelessconsumptiontaxesraisetheaffordabilitybarrierandreduceadoption.Inthiscontext,currenttaxationpoliciesarelikelytohaveadetrimentaleffectonthepublicpolicystrategyaimedatdeployingmobilebroadband.Iftaxeslimitadoptionofwirelessbroadband,itisrelevanttoaskwhattheultimateimpactofreducedpenetrationmighthaveoneconomicgrowth.Hypothetically,itissafetoassumethatareductioninadoptionasaresultofincremental taxation could yield a negative impact on GDP growth. To address this, thetaxation initiativecouldbecomplementedwithselected targetedsubsidies tobeassigned tovulnerablehouseholdsorresidentsinruralareas.

Moving to the digital literacy domain, the Ivoirian government has beendevelopingpoliciesaimedatimprovingdigitalliteracy(forexample,“Onecitizen,onecomputer”).Digitalliteracyisdefinedasthe“abilitytousedigitaltechnology,communicationtoolsornetworkstolocate,evaluate,useandcreate information” (HaugeandPrier,2010). Initiativesaimedatbuildingdigitalliteracyneedtoinvolvebothembeddingprogramsintheformaleducationsystemandtargetingnon-formal initiatives tospecificsegmentsof thepopulation(elderly,handicapped,ruralpoor,etc.).

60 These levies are documented in the International TelecommunicationsUnionEyedatabase andhave been analyzed inKatz(2015).Theimpactoftaxationonthedigitaleconomy.Geneva:InternationalTelecommunicationsUnion.


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Finally,withregardstoloweringtheculturalandlinguisticrelevancebarrier,itiscriticalthatboth the government and the private sector engage in the development of new platforms,includingthedevelopmentofcontentandfacilitationofInternetusage.Internetaccessinitselfisoflittlevalueintheabsenceofso-calledcomplementarygoodsthatdeliverconcretevaluetoInternetaccessandenableitsproductiveemployment.


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V.2.SAUDIARABIA

ThefollowingcasestudyassessesthestateofbroadbandservicesinSaudiArabia.ThecountryisoneofthemostadvancedintermsofbroadbandnetworkdeploymentandusageamongtheOICmembers.Asof20015,approximately70%oftheSaudipopulationaccessestheInternetinaregularfashion61,whilesmartphonepenetration(80%)andsocialmediausage62remainamong the highest in the world. From an infrastructure standpoint, 30% of the country iscoveredbylast-milefiberopticnetworks.

Nevertheless, despite the progress achieved so far, the Saudi government is seeking toaccelerateitsevolutiontowardsadvanceddigitization,aimingtobeinthetop20countriesintheworldby2030.Consequently,aspartofitsVision2030,thegovernmenthaslaunchedanambitious initiative aimed at accelerating broadband deployment and infrastructureinvestmentinthecountry. V.2.1.DemandforBroadbandServices


TheadoptionoffixedbroadbandservicesinSaudiArabiabegunin2001whenthefirst14,000linesweredeployedbytheSaudiTelecomCompany(STC).Afteraslowramp-upthrough2008(reachingapenetrationrateof26%),adoptionstartedincreasingrapidlyin2009,achievinganexponentialgrowthafter2011(seetable55).

Table55:SaudiArabia:Fixedbroadbandlines(2003-2015)

2003 2005 2007 2008 2009 2010 2011 2012 2013 2014 2015Lines(‘000) 46 68 623 1,048 1,438 1,712 1,951 2,540 2,920 3,032 3,590Percenthousehold 1.24 1.74 15.85 26.07 35.03 40.87 40.00 42.00 48.00 56.00 65.00Sources:InternationalTelecommunicationsUnion;TelecomAdvisoryServicesanalysis

As table 55 indicates, by the end of 2015 fixed broadband penetration reached 65 % ofhouseholds63.ThispenetrationisamongthehighestwithintheOICmembergroup(seetable56).

Table56:SaudiArabiaversusOICMemberCountries:Fixedbroadbandhouseholdpenetration(2015)

Country/Group HouseholdPenetration(%)SaudiArabia 65.00ArabOICmembers 25.59AsianOICmembers 16.96AfricanOICmembers 0.86AverageOIC 14.95Sources:InternationalTelecommunicationsUnion;TelecomAdvisoryServicesanalysis

61Source:CommunicationandInformationTechnologyCommission(CITC).62 61% of Saudis spend more than 2 hrs. per day on social networking sites. All these statistics sourced from GoogleConsumerBarometer2016,exceptforInternetusage,whichissourcedfromtheInternationalTelecommunicationsUnion. 63 As of 2Q2016, the CITC reports that the number of fixed lines decreased to 3,060,000 as a result of fixed mobilesubstitution.


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In addition to the high adoption of fixed broadband, mobile broadband penetration hasreached 33.4 million subscriptions (83.5% individual penetration) in 4Q2015. However,penetration decreased to 26.6 million in the 2Q2016 due to a government-enforceddisconnectionofunregisteredaccounts(seetable57).

Table57:SaudiArabia:Mobilebroadbandsubscriptions(2010-2016)

2010 2011 2012 2013 2014 2015 2Q2016Subscriptions 7,000,000 11,337,154 15,964,221 24,530,358 29,085,904 33,387,589 26,620,000Percent

Population 9.7 39.6 42.1 47.6 94.5 105.9 83.50

Sources:GSMAIntelligence;CITC;TelecomAdvisoryServicesanalysis

Until 2015 the key drivers of mobile broadband growth have been strong competition,significantexpansioninsmartphoneadoption,aswellastheofferingofamultiplicityofdataplanstargetedfordifferentmarketsegments.

When comparing fixed and mobile broadband adoption, Saudi Arabia is one of the mostadvancedamongtheOICMemberCountries(seefigure33).

Figure33:OICMemberCountries:Fixedbroadbandversusmobilebroadbandpenetration(2015)


Figure 33 plots OIC Member Countries in terms of their fixed and mobile broadbandpenetration. The countries in group (A) have achieved high adoption in both technologiesindicating cumulative impact: fixed broadband used for home use and mobile broadbandenablingon-the-moveaccess.Thecountriesinthisgroupinclude,inadditiontoSaudiArabia,Bahrain, United Arab Emirates, Qatar, Oman, Turkey, Azerbaijan, Kazakhstan, Jordan, Iran,Malaysia,Albania,Algeria,MaldivesandSuriname.Ontheotherhand,thecountries ingroup(B)exhibitanacutesubstitutionprocess,wherebymobilebroadbandisassumingtheroleof

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principaltechnologyforaccessingInternet.ThecountriesinthisgroupincludeKuwait,Libya,Tunisia,Lebanon,Egypt,Coted’Ivoire,Indonesia,Morocco,Nigeria,Gabon,Kirgizstan,Senegal,Sudan,MauritaniaandUzbekistan.ThecountriesingroupsCareat lowerlevelsofeconomicdevelopment and, consequently, at an embryonic stage of adoption of either broadbandtechnology. Nations in this group include Afghanistan, Bangladesh, Benin, Burkina Faso,Cameroon, Chad, Comoros,Djibouti, Guinea,Guinea-Bissau,Gambia, Iraq,Mali,Mozambique,Niger, Pakistan, Sierra Leone, Somalia, Syria, Tajikistan, Togo, Turkmenistan, Uganda, andYemen.Finally,thethreecountriesingroupD(Guyana,Palestine,andBrunei)areataninitialstageofmobilebroadbandadoptionandexpectedtomovetoeithergroupAorBinthefuture.

While SaudiArabia represents a countrywith high adoption of fixed andmobile broadbandtechnologies, the comparative analysis of adoption trends betweenboth access technologiesindicatesaclearsubstitutionpattern,wherebymobileiscapturingsharefromfixedbroadband(seefigure34).

Figure34:SaudiArabia:Comparativeadoptionoffixedandmobilebroadband(2003-2016)

Source:TelecomAdvisoryServicesanalysis.

Figure34depictsseveral trendsaffecting thediffusionof fixedandmobilebroadband in thecountry. The first trend is a ramp-up in fixed broadband adoptionbetween2011 and2013.Thisaccelerationoccursatthesametimethatmobilebroadbandpenetrationisnotincreasingat a fast pace. This would indicate that fixed broadband is capturing a large portion of thelatentdemand.Thesecondtrenddepictsaslowdowninfixedbroadbandpenetrationbetween2012and2014.This occurredbecause fixedbroadband subscriber growthwas inhibitedbythe substitution effect of mobile broadband driven by more competitive plans, such asunlimitedpackages,coupledwitheasiersetupandthemobilityadvantage.Infact,whilefixedbroadband prices remained comparable to global and local benchmarks,mobile planswererelativelycheaper(seepricinganalysisbelow).

0.20% 0.29% 0.27% 0.86%

2.40%

3.98%

5.37% 6.28%

7.03%

8.98%

10.13% 10.32% 12.01% 10.23%

9.70%

39.60% 42.10% 47.60%

94.50%

105.90%

83.50%

0%

20%

40%

60%

80%

100%

120%

0%

2%

4%

6%

8%

10%

12%

14%

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2Q20

16

Fixed Broadband Mobile Broadband

Fixed&Broadb

and&

(Percent&of&p

opula5

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120

The third trend occurs towards the end of 2015, when adoption decreases for bothtechnologies.Thedrivers for the fixedbroadbanddeclinediffer from those affectingmobile.Thereductioninfixedbroadbandsubscriptionsisprimarilytheresultofthesubstitutioneffectreferredabove.Ontheotherhand,thedeclineinmobilebroadbandsubscriptionsisexplainedby an initiative driven by CITC, the regulator, aimed at disconnecting unregistered mobilesubscribers who failed to submit their fingerprints in line with the new security measuresintroduced in September 201564. In terms of broadband consumption, the average mobilebroadband device in Saudi Arabia generated 673 MB per month, while the average fixedbroadbandconnectionconsumed50.7GB65.


Statistics indicate that 70.4% of the population of Saudi Arabia accesses the Internet on aregularfashion(seetable58).

Table58:SaudiArabia:Populationaccessingtheinternet(2004-2016)

2004 2006 2008 2010 2011 2012 2013 2014 2015 2Q2016

Users(‘000) 978 1,829 3,137 7,775 9,492 10,183 11,176 13,187 15,275 21,048PercentagePop. 10.23 19.46 36.0 41.0 47.5 54.1 55.1 63.7 68.5 70.38Sources:InternationalTelecommunicationsUnion;CITC;TelecomAdvisoryServicesanalysis

According to research conducted by the CITC, approximately 87% of Saudi Internet usersspendtwoormorehoursdailyontheInternet66,while40%areconnectedforatleast5hoursperday67.Thatbeingsaid,Internetusagepatternsvarybetweenfixedandmobilebroadbandaccess(seetable59).

Table59:SaudiArabia:Primaryinternetuse(2015)

Activity Fixedbroadband(%) Mobilebroadband(%)Webbrowsing 90.01 66.00SocialNetworking 85.15 82.23Getinformationongoodsandservices 61.73 37.00Sending/receivinge-mail 53.30 46.00Playingvideogamesordownloadingmovies 49.64 --Readingnews 43.13 29.73Educationandlearning 26.05 15.22Postinginformationorinstantmessaging 23.15 --Internetbanking 17.62 20.00Electroniccommerce 15.52 9.69Video-conferencing 6.47 4.30Source:Communicationsand InformationTechnologyCommission. IndividualsReport ICTSurveyResults,2015,p.40,andp.50.

64TheCITCsaidthefingerprintregistrationismeanttoprotectpersonalinformationofSIMcardholdersandpreventbuyersfromobtainingmobile phones using fake or stolen identification cards. All unregisteredusers had a grace period of twoweekstosubmittheirdetailsbeforetheservicewascut.Theregulatorsaidinitsreportforthefirstquarterof2016thatitexpected a continueddecline in thenumberofmobile subscriptions in the comingperiods as adirect result of thenewregistrationprogram.65Source:CiscoVisualNetworkingIndex.The fixednetworkconsumptionwascalculatedbydividingtotal fixedtraffic,asreportedbyCisco,fromthetotalnumberoffixedbroadbandconnections.66CommunicationsandInformationTechnologyCommission.IndividualsReportICTSurveyResults,2015,p.34.67Source:GoogleConsumerBarometer.


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Asdataintable59indicates,webbrowsingisoneoftheprimaryusesoftheInternet,althoughbrowsingismoreintensewhenaccessingtheInternetviaafixednetwork.Thiscouldprobablybe explained by themore user-friendly presentation of information in large screen formats(e.g.,PCortablet)whencomparedtoasmartphone.

Secondly,socialnetworkingalsorepresentsanimportantInternetuse.Acompilationoffixedandmobilebroadbandsubscriberdataindicatesthat91%ofSaudiInternetusersaccesssocialnetworks.ThemostimportantsocialnetworkaccessedisFacebook:halfofsocialnetworkuseison this site.BeyondFacebook,Saudi Internetusers relyonother socialnetworks, suchasTwitter (47%), Instagram (43%), Google+ (30%), Snapchat (23%) and LinkedIn (8%). Forsocial network members, Internet usage is fairly intense: 61% of social network membersspendmore than 2 hours per day connected to those platforms. Facebookmembership inSaudiArabiaisgrowinginparallelwithInternetusage(seefigure35).

Figure35:SaudiArabia:Internetusersandsocialnetworkmembers(2000-2016)

Sources:InternationalTelecommunicationsUnion;Owloo;TelecomAdvisoryServicesanalysis

A comparison of Facebookmembership as a percentage of Internet users across the worldindicatesthattheSaudipopulationhasamorediversesetofusesanddestinationsthanwhatiscommonlyfoundinotherregions,exceptforSub-SaharanAfrica(seetable60).

2.21%%4.68%%6.38%%8.00%%

10.23%%12.71%%

19.46%%

30.00%%36.00%%38.00%%

41.00%%

47.50%%

54.00%%

60.50%%64.71%%

69.62%%

83.00%%

0.00%%0.49%%0.87%%

9.28%%10.00%%14.39%%

20.69%%25.17%%

30.64%%

40.14%%46.00%%

0.00%%

10.00%%

20.00%%

30.00%%

40.00%%

50.00%%

60.00%%

70.00%%

80.00%%

90.00%%

2000%2001%2002%2003%2004%2005%2006%2007%2008%2009%2010%2011%2012%2013%2014%2015%2016%

Internet% Social%Network%


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Table60:Facebookusersasregularinternetusers(2015)

Region InternetUsers FacebookUsers Facebookusersas%ofInternetusers

WesternEurope 195,230,709 98,992,670 50.71RestofEurope 369,232,406 213,950,740 57.94NorthAmerica 274,225,765 213.075.500 77.70LatinAmerica 338,482,028 297.638.420 87.93Asia-Pacific 1,704,885,395 1.431.361.831 83.96Sub-SaharanAfrica 210,735,220 69.052.400 32.77SaudiArabia 21,048,009 9,682,084 46.00NorthAfrica 67,924,936 55.667.000 81.95World 3,160,716,459 2.379.738.561 75.29Sources:InternationalTelecommunicationsUnion;Owloo;TelecomAdvisoryServicesanalysis

As table 60 indicates, on aworld scale, 75%of all Internet users are Facebookmembers aswell.Thispercentagereachesalmost88%inthecaseofLatinAmerica.Ontheotherhand,inSaudiArabiaonly46%ofInternetusersarealsoFacebookmembers.

Otherthansocialnetworking,SaudistendtoaccesstheInternettowatchvideoprogramming:73%of Internetusersprefereitherdownloadingprogramsorvideostreamcontent fromtheInternet.Additionally,useoftheInternetforsearchinginformationisquitecommon:83%ofSaudi Internetusersrelyonthewebasthe firstplaceto lookfor informationversus67%intheUnitedStates.

On theotherhand, someapplications still havenot achieved the adoptiononemight expectgiven the levelof Internet adoption.Ofnote is theuseof electronic commerce.Only21%ofInternet users appear to purchase goods electronically68. In 2015, only 0.83% of all retailcommerceinSaudiArabiawasconductedthroughelectronicchannels.Acorrelationanalysisof Internet penetration versus electronic commerce as a percentage of total retailing percountryindicatesthatSaudiArabiaiswellbelowthecorrelationline(seefigure36).

68CommunicationsandInformationTechnologyCommission.IndividualsReportICTSurveyResults,2015,p.79.


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Figure36:Correlationbetweeninternetpenetrationandelectroniccommerceaspercentageoftotalretailing(2015)

Sources:InternationalTelecommunicationsUnion;Euromonitor;TelecomAdvisoryServicesanalysis

Figure 36 indicates that after Internet adoption reaches a threshold of approximately 60%,electronic commerce flows as percentage of retailing tend to grow exponentially. In otherwords,theInternetcreatesanewmoreefficientretaildistributionchannel,whichismassivelyadoptedbyconsumers.However,thereddatapointsinfigure36indicatethat,whileInternetadoption is increasing in Saudi Arabia, electronic commerce remains stagnant. ReasonsreportedbyInternetusersfornotrelyingonelectroniccommercesitesrangefromthelackofacreditcard(53%),tolimiteddigitalliteracy(18%),toconcernsaboutsecurity(12%)69.


So far, thebehavioralpatternsof Internetusershavebeenanalyzed.Theanalysiswillmovenowtounderstandtheuniverseofnon-adoptersoftheInternet.Forthispurpose,oneshouldstart by measuring the extent of the so-called “broadband demand gap”. The demand gapmeasuresthedifferencebetweenthepopulationthatcanpurchasebroadbandservicebecauseof service availability and the individuals that adopt the service, thereby estimating thenumberofnon-adopters forreasonsother thancoverage.Considering thatasof2Q2016theSaudi Arabia mobile broadband coverage of the population reached 97% and mobilebroadbandadoptionwas83.5%,thedemandgapis13.5%(seetable61).

69Op.cit.,p.79.

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124

Table61:SaudiArabia:Mobilebroadbanddemandgap(%)

2010 2011 2012 2013 2014 2015 2Q2016Servicecoverage 90.00 93.80 95.08 97.00 97.00 97.00 97.00PercentPopulation 9.7 39.6 42.1 47.6 94.5 105.9 83.5Demandgap 80.3 54.2 52.98 49.4 2.5 0(*) 13.5(*)Whenthedemandgapcalculationisnegative,itisassumedthattherearenobarrierstoadoption.Sources:GSMAIntelligence;TelecomAdvisoryServicesanalysis

Table61alsoillustratesthedynamicsbetweenmobilebroadbandcoverageandadoptioninacountrywhereadoptionisnotsupplyconstrained.SaudiArabiaveryrapidlyachievedahighlevelofpopulationcoverage,whichenabledovertimeadiffusionprocessthatwasessentiallycompletedby2014:ademandgapof13.5%wouldindicatethatbarriersformobilebroadbandadoptionarefairlylow.ThisestimateisfairlyclosetotheresultsofasurveyconductedbytheSaudiregulatoronICTusageintheKingdom70.Accordingtothatstudy,only9%ofallsurveyrespondentsagedbetween12and65yearsoldwerefoundtobenon-usersoftheInternet.

Whatare the reasonsexplainingnon-adoptionofbroadband?Firstand foremost, thesurveydata indicates that affordability does not appear to be a significant barrier. Based on thecalculation of the digitization index in 2014, Saudi Arabia scored in 2014 atelecommunicationsaffordabilityindexof94.8371.Thisindexreflectsintheaggregatethetotalcostofownershipoftelecommunicationsservices(includingtaxes)asafunctionofincome.Infact,whencomparedwiththerestoftheOICMemberCountries,SaudiArabiaisatthetop-endoftheaffordabilityrange(seefigure37).

70Op.cit.p.20.71Thedigitalaffordability index isa composite indexcalculatedon thebasisof six indicators:Residential fixed line tariffadjustedforGDPpercapita;ResidentialfixedlineconnectionfeeadjustedforGDPpercapita;Mobilecellularprepaidtariffadjusted for GDP/capita; Mobile cellular prepaid connection fee adjusted for GDP per capita; fixed broadband InternetaccesscostadjustedforGDPpercapita;mobilebroadbandInternetaccesscostadjustedforGDPpercapita(seeKatzandKoutroumpis,2014).


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Figure37:OICMemberCountries:TelecommunicationsAffordabilityIndex(2014)


The position of Saudi Arabia among its regional peers would indicate that the pricing oftelecommunicationsservices,asafunctionof incomedoesnotremainasignificantbarrierofadoption of broadband. This is also the conclusion derived from analyzing the adoption ofmobile broadband plans. The prevalence of pre-paid options among mobile broadbandsubscriptionswouldindicatethatthecurrentofferingsadequatelymeetthepotentialpricingconstraints that might exist in the country: in other words, if postpaid data plans are tooexpensive, consumers tend to purchase prepaid plans, which remain quite affordable (seetable62).

Table62:SaudiArabia:Pre-paidversuspost-paidsubscriptions(2012-2015)

2012 2013 2014 2015 Lines

(‘000’000)

Pre-paid

Postpaid

Lines(‘000’000)

Pre-paid

Postpaid

Lines(‘000’000)

Pre-paid

Postpaid

Lines(‘000’000)

Pre-paid

Postpaid

Dataonlyplans

8.1 99% 1% 9.7 99% 1% 20.0 99% 1% 22.2 99% 1%

Voiceanddataplans

4.2 83% 17% 4.6 80% 20% 9.1 84% 16% 9.6 14% 86%

Sources:CITC;WCIS

On the other hand, in the case of fixed broadband, the affordability gap exists primarily forhigh-speedbroadbandservice.Asoftheendof2015,despitetheavailabilityoffastbroadbandnetworks,only23%of the country’s3.5million fixedbroadband lineshavea capacityof>8Mbps.Oneofthereasonsoflimitedadoptionofexistingultrabroadbandplansisprice.

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126

Let’s now turn to the next variable that could be affecting broadband non-adoption: digitalliteracy. The CITC survey cited above provides ample evidence that lack of digital literacyremains the most important barrier explaining fixed broadband non-adoption. Fifty-threepercent of non-adopters surveyed indicated that the primary reason for not accessing theInternetthroughfixedbroadbandwaslackofknowledgeofhowtouseit.Inaddition,19%didnotknowwhattheInternetis,while8.5%didnotknowhowtogetanInternetconnection.Allinall,itwouldappearthatlackofdigitalliteracyexplains81%ofnon-adoption.Interestinglyenough,whennon-adopterswereaskedwhethertheywereplanningtousetheInternetwithinthe next six months, 83% answered “no”.72 In the case of mobile broadband, 18% ofindividualssurveyedstatedtobenon-users.Inthiscase,theprimaryreasonwaslackofneed(88%),while 13.55% reported reasons linked to low digital literacy73. Research of Internetadoption has concluded that lack of need is generally linked to limited awareness, andultimately,tolowdigitalliteracy(KatzandBerry,2014).

Finally,consideringthatthecountry’scapabilitytoproduce localcontent isrelatively low, itwouldappearthatlimitedavailabilityofapplicationsandcontentpresentedinArabicislikelya barrier for Internet adoption. Research conducted among professors and students at KingAbdulazizUniversity(certainlyahighlyeducateddemographic)indicatesthatfor23%ofthepeoplesurveyed,theEnglishlanguageremainedanobstaclefortheirInternetusage.Alargershareoftheserespondentswasfemale,whichmight indicatethatthisbarrierhasadifferentimpactbygenre74.Ifthesefindingsemergefromresearchamonghighlyeducatedsubjects,itisreasonable to assume that the language barrier remains relevant for other segments of thepopulation.

Tosumup,ofallthreebroadbandinternetadoptionbarrierstypicallyfoundinpriorresearch(Katz and Berry, 2014), limited affordability appears to be not relevant, while low digitalliteracy and limited local content development appear to be important in Saudi Arabia andrequiretheenactmentofpublicpoliciestoaddressthem.

V.2.2.Supplyofbroadbandservices

HavingreviewedthestateofdemandofbroadbandandInternetusage,theanalysiswillnowturntoanassessmentofsupply.Thecurrentavailabilityofbroadbandservicewillbeassessedfirstandthenlinkedittothestateofcompetitionintheindustry.


Broadband infrastructure is available throughout most of the Kingdom. On the fixedbroadbandside,ADSLserves70%ofthepopulation,whilefiberopticsinthelastmilecovers38%(1,770,000households).Ontheotherhand,mobilebroadbandservicecoveragehasbeen

72Seep.30inCommunicationsandInformationTechnologyCommission.IndividualsReportICTSurveyResults,2015.73Seep.47inCommunicationsandInformationTechnologyCommission.IndividualsReportICTSurveyResults,2015. 74Seetable4inAlsaleh,I.,andRashad,S.“MeasuringDigitalDivideinKingAbdulazizUniversity”.ProblemsofManagementinthe21Century.Volume3,2012


127

constantlygrowingsince2011, reaching98%in thecaseof3Gand90%forLTE technology(seetable63).

Table63:SaudiArabia:Evolutionofmobilebroadbandservicecoverage(2011-2015)(%)

2011 2012 2013 2014 20153G 94 95 97 97 98LTE 40 65 76 85 90Source:GSMA

Comparativelyspeaking,a97%coveragelevelfor3GisequivalenttothatofOECDcountries,and significantly higher than the average for all OICMember Countries (64.16%), and evenArab OIC Member Countries (74.30%)75. These high levels of service coverage can beexplained by the incentive resulting from industry competition, which will reviewed in thenextsection.


The Saudi fixed broadband market is serviced by several players, but dominated by twooperators:SaudiTelecomCompanyandMobily(seetable64).

Table64:SaudiArabia:Fixedbroadbandmarketstructure(2Q2016)

NumberofSubscribers MarketShare(bySubscribers)(%)

SaudiTelecomCo. 2,190,960 71.60Mobily(BayanatalOula) 679,300 22.20EtihadAtheeb(GOTelecom) 79,560 2.60IntegratedTelecomCo. 15,300 0.50Otherminorplayers 94,800 3.09Total 3,060,000 100Source:Telegeography;CITC;TelecomAdvisoryServicesanalysis

On the otherhand, themobile broadbandmarket is servedby SaudiTelecomCompany andtwosubsidiariesofMiddleEasternregionalplayers(seetable65).

Table65:SaudiArabia:Mobilebroadbandmarketstructure(2Q2016)

MNC NumberofSubscribers MarketShare(bySubscribers)(%)

SaudiTelecomCo STC(SaudiArabia) 13,310,000 50.00Mobily Etisalat(UAE) 7,719,800 29.00Zain ZainGroup(Kuwait) 5,856,400 22.00Total 26,620,000 100Source:CITC;GSMAIntelligence;TelecomAdvisoryServicesanalysis

In the2012-13timeperioda fourthwirelessoperator,WataniyaTelecom,enteredtheSaudimarket.However,itnevergainedtractionandinOctober2013,itwasacquiredbySTC.Itsexittriggeredamoderateincreaseinconsolidation.

75Source:InternationalTelecommunicationsUnion.


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In this context, the government has sought to increase the number of players in themobilesectorbypromotingtheentryofMobileVirtualNetworkOperators(MVNO).InJune2013theCommunications and IT Commission shortlisted three companies forMVNOlicenses: Lebara(targetedtomigrantcommunitiesandrelyingonMobily’snetwork),VirginMobile(targetedtotheyouthsegmentandusingSTC’snetwork)andFriendi(aimedatexpatriates).Thefirsttwolaunchedservice inthe fourthquarterof201476,while thethirdhad its licensecancelled fornot having submitted the full application. These two operators have started gaining somemarkettraction,particularlyVirginwhichhassigneduptoonemillionsubscribersasof2016.

Stateofcompetitioninbroadbandmarket

Asnotedintheearliersection,theSaudibroadbandmarketconsistsoftwoconvergentplayers(SaudiTelecomCompany,andMobily),twofixedbroadband“pureplays”(EtihadAtheebandITC), one mobile broadband operator (Zain), and two MVNOs. Competition in the fixedbroadbandsegmentisinfrastructure-based,whileinthecaseofmobilebroadband,itisamixbetweeninfrastructure-basedandservice-based77.

Created in 1998 from the state-owned telecommunications monopoly, the Saudi TelecomCompany (STC) remains the dominant player in the broadband market with 2,190,960subscribers in fixedbroadband(71.6%share)and13,310,000mobilebroadbandcustomers(50%share). Inaddition tobeing the soleADSLprovider in the country, STC started rollingFTTHtechnology inFebruary2011offeringspeedsofup200Mbps.By theendof2015, theoperatorhadpassed1,770,000homeswithfiberopticsinmostSaudicities.STCdominatesthefixedbroadbandmarket because its copper accessnetworkhasmuchgreater reach than itscompetitors, providing direct access to DSL. Furthermore, until recently the fixed networkremained largely not liberalized, thereby limiting the competitive threat. Alongside its fixedbroadband network, STC has deployed LTE technology, serving approximately 85% of theSaudi market. In July 2016, the regulator issued a draft Market Definition and DominanceReport establishing that STC was dominant in 11 national markets and 4 submarkets. Itrecommended remedies to promote competition linked to Interconnection and Access toPhysicalFacilities.

Mobily, partly owned by Etisalat of the United Arab Emirates, is the country’s secondconvergent player, controlling 79,560 fixed broadband (2.6% share) through its Bayanat alOulasubsidiary,and7,719,800mobilebroadbandsubscribers(29%share).Whileremainingamuch smaller player than STC, Mobily has been actively deploying fixed broadbandinfrastructure. The company owns 66% of the Saudi National Fiber Network after theacquisitionofBayanatalOula, theholderofaWiMax license.Asof theendof2015,existingMobilyandSTCfibernetworksare90%overlappingindenseurbangeographies.

76“LebaralaunchesMVNOservicesinSaudiArabia”.Telegeography,December16,2014.77Infrastructure-basedcompetitionisbasedonplayersdeployingtheirownnetworks,whileservice-basedentailsoperatorspurchasing facilities from another provider and competing on the basis of service offering and quality of customerexperience.


129

EtihadAtheebTelecomCompany(alsocalledGOTelecom)isafixedwirelessserviceproviderrelyingonWiMAX technology.The company is a jointventureofBatelcoofBahrainand theSaudiArabia-basedAtheebTradingCompany.TheremainingplayeristheIntegratedTelcomCo(ITC)targetingprimarilythebusinessandwholesalemarketsthroughWiMAXtechnologyand fiber infrastructure and offering dedicated data communications services. ITC joinedforces with Bayanat al Oula to be part of the Saudi National Fibre Network. Most fixedbroadband competition has been centered so far around FTTH, WiMAX and fixed TD-LTEtechnologygiventhatnolocalloopshavebeensofarunbundled.

Theonlymobilebroadbandpureplay,ZainSaudiArabiabackedbyKuwait’sZainGroup,hasbeenfocusingonamobilebroadbandstrategy,emphasizingatechnologystrategyaroundLTE-A,offeringservicewithmaximumdownloadspeedof187.5Mbps78.

The Saudi broadband industry is facing two key challenges. In the first place, operators arefacing increasingpressureon revenuesderived from traditional services.Core revenuesandmarginsaredecliningasresultofcannibalizationof longdistanceservicebyVoIPoperators,suchasSkype.While fixedandmobilebroadband is still growing inmostmarkets segments(consumer,enterprise,andgovernment),itdoessoatadisproportionatelylowerratethanthesurgeindatatraffic.Thisputsadditionalpressureoncapitalspending.Inthiscontext,onlytheoperatorsthataremonetizingtheirbroadbandofferingsarecapturingthegrowthopportunity.Ontheotherhand,allmobilebroadbandplayersareconsidering thespin-offsof their towerassetsintoaseparatejointventureinordertosaveoninfrastructurecosts79.

Asanadditionalrisk,theincreasedadoptionofInternetandsmartdevicesisshiftingmarketpower to Over The Top app providers who capture the relationship with customers andappropriatealargeshareofrevenuegrowth.

Technologiesandtrendsinthebroadbandmarket

The technological infrastructure utilized for delivering broadband services has to dateconsisted of amix of ADSL,WiMAX and FTTH for fixed networks, aswell as 3G and 4G formobilebroadband(seetable66).

Table66:SaudiArabia:Currentbroadbandtechnologiesutilized

Company ADSL WiMAX FTTH 3G LTE

STC • Yes

• Yes

• FTTHnetworkreachingmosturbancenters

• Over2100MHzband

• 98%coverage

• HSPA+

• TD-LTEover2300MHz

• FD-LTEover1800MHz

• 90%coverageMobily/Bayanatal

• Yes • FTTHinDammam,Jeddah,KhoubarandRyadh

• Over2100MHzband

• TD-LTEover2600MHz

78“ZainSaudilaunchestri-bandLTE-AinJeddah”.Telegeography,May12,2016.79“SaudicellcosindiscussiontocreateJVtowerbusiness”.Telegeography.February11,2016


130

Company ADSL WiMAX FTTH 3G LTEOula • PartoftheSaudiNational

FiberNetwork(17,000kms)• 98%

coverage• HSPA+


• 90%coverage

Zain • Over2100

MHzband• HSPA+


• 90%coverage

ITC Yes • Yes • PartoftheSaudiNationalFiberNetwork

Sources;AnalysisMason;Telegeography


Despite the pervasive offering of fiber optic distribution, adoption of high speed fixedbroadbandisstill limited.Outof the3.5million linesdeployedat theendof2015,only23%wereatspeedshigherthan8Mbps(seetable67).

Table67:SaudiArabia:Linebreakdownoffixedbroadbandspeed(2011-2015)

2011 2012 2013 2014 2015 CAGR<2Mbps(%) 39 35 33 39 36 14.22-8Mbps(%) 57 55 49 42 41 6.68-20Mbps(%) 4 9 16 17 20 71.3>20Mbps(%) 0 1 2 2 3 48.4

Source:CITC;MCITLab

Thisgapbetweensupplyoffasterspeedsanddemandisduetofourreasons:

• Lackoflocalcontentandapplicationsrequiringfasterbroadbandspeeds• Limitedfixedbroadbandqualityofuserexperience• Relativelyhighpricesforhighspeedbroadband• Strongfixedmobilebroadbandsubstitution

Asnotedontable67,23%oftotalfixedbroadbandlinesofferedaspeedequaltoorabove8Mbps in 2015. It should be noted, however, that advertised speed does not equal realperformance. It is very common that, due to network quality issues or traffic saturation,advertised speeds represent approximately 60% of real performance. For example, Akamaireports that 50% of fixed broadband lines in Saudi Arabia actually only provide 4 Mbpsperformance.

However,acomparisonbetweenSaudiArabiastatisticswithotherrelevantcountriesprovidearelativecontextforunderstandingthecountry’sfixedbroadbandspeedlevels(seetable68).


131

Table68:SaudiArabiaversusothercountryaverages(2015)

SaudiArabia

ArabOICMemberCountries

AllOICMemberCountries

ShareFixed-broadband256Kbit/stolessthan2Mbit/ssubscriptions(%) 44.92 53.66 56.69

ShareFixed-broadband2Mbit/stolessthan10Mbit/ssubscriptions(%) 22.10 38.60 32.20

ShareFixed-broadbandequaltoorabove10Mbit/ssubscriptions(%) 32.99 8.92 11.11


According to the International Telecommunications Union, Saudi Arabian broadband hashigherspeedthanthecountryaveragesofallOICMemberCountriesandalsothoselocatedintheArabregion.

Pricingoffixedandmobilebroadband

The liberalization of the Saudi telecommunications market has resulted in a significantreduction in prices. For example in 2014, while the cost of living index in the Kingdomincreased by 2.7%, the price index for telecommunications services decreased byapproximately0.1%.Whenconsideringalongertimeperiod(2007-2014),inflationisreportedat30.1%,whilethepricingoftelecomservicesdeclinedby6.3%80.

As an example, themonthly subscription for 1GBUSBport hasdropped fromUS$26.40 in2012toUS$11.73in2016.ThisdecreaseislargerthantheoneundergoneintheaverageofallArabOICMemberCountries,andthatofallOECDcountries(seefigure38).

Figure38:Monthlysubscriptionof1GBcapUSB(inUS$)


80CITCAnnualreport2014,p.73.

26.4% 26.67%

11.73% 11.73%

$0%

$5%

$10%

$15%

$20%

$25%

$30%

2012% 2013% 2014% 2015%

Saudi%Arabia% OECD% Arab%OIC%countries% OIC%Countries%


132

Pricing of mobile broadband plans is currently more advantageous than fixed broadband,therebycreatinganadditionalincentivetofixedmobilesubstitution(seetable69).

Table69:SaudiArabia:Fixed–MobilePlanPricing(2016)

PrepaidLargeScreenMobileBroadbandPackages

70SAR3GB

(1month)

130SAR10GB

(4months)

300SARUnlimited(3months)

PostpaidFixedBroadbandPackages

99SAR2Mbps

SAR1494Mbps

SAR19920Mbps

Source:Operatorswebsites

Investmentsinfixedandmobilebroadbandinfrastructure

The annual infrastructure investment in Saudi telecommunicationswasUS$ 2.169 billion in2014.However,totalinvestmenthasbeenconsistentlydecliningsince2011(seetable70)

Table70:SaudiArabia:AnnualtelecommunicationsInvestment(2005-2014)

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014AnnualInvestment(US$‘000’000)

1,927 1,928 2,107 3,031 3,105 3,105 3,372 2,674 2,314 2,169

AnnualInvestmentperbroadbandsubscriber(US$PPP)

230.06 207.00 208.65 253.72 303.19 255.54 239.11 181.17 157.54 150.17

Source:InternationalTelecommunicationsUnion;TelecomAdvisorServicesanalysis

As table 70 indicates, the total annual investment per broadband subscriber has beendecreasingfromahighpointofUS$303in2009toUS$150in2014.Thetotalinvestmentintelecommunicationsinfrastructureindicatesagradualshiftfromfixedtelecommunicationstomobile(seetable71).

Table71:SaudiArabia:AnnualtelecommunicationsInvestment(2006-2014)

2006 2007 2008 2009 2010 2011 2012 2013 2014FixedTelecommunications 1,850 1,807 2,262 1,367 --- --- --- --- ---Mobiletelecommunications 78 300 769 1,738 --- --- --- --- ---Total 1,928 2,107 3,031 3,105 3,105 3,372 2,674 2,314 2,169Source:InternationalTelecommunicationsUnion;TelecomAdvisorServicesanalysis

ThechangeincapitalspendingmixisdrivenbyashiftininvestmentfromFTTHto4G.Duetoaslow-down in demand for high-speed fixed broadband (mentioned above), operators havereduced their investment in FTTH and focusedmore on LTE deployment. For example, thenumberofincrementalhomespassedbyFTTHnetworkshasdeclinedforthefirsttimein2015(seetable72).


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Table72:SaudiArabia:IncrementalFTTHSupply(Homespassed‘000)(2011-2015)

2011 2012 2013 2014 2015IncrementalHomesPassed 100 300 430 570 300Source:AnalysisMason

Majorfactorsthatinfluencebroadbandinvestments

The encouragement of broadband infrastructure spending is driven by the Kingdom’s 2030vision which sets clear and ambitious targets for the economy, with implications forbroadbandnetworks,inparticularlastmilefiberopticandLTE.

However,intheshorttermbroadbandcapitalspendingintheKingdomisconstrainedbythreeregulatoryfactors.First,regulatorypricecontrolisaffectingtheoverallretailrevenuesofthetelecommunications sector, which have declined 2% year-on-year between 2012 and 2015.Price controls are compounded by ex-ante tariff approvals,which cause revenue stagnationand diminish operator profitability. For example,mobile broadband revenues have declined62% between January 2014 and December 2015. Third, the telecommunications industrycontributesasignificantamountofroyaltiestotheTreasury,whichlimitsoperators’abilitytoinvest in infrastructure.Theseregulatory factorshaveresulted incapitalspendingdecreasesinthreeareas:

• Haltofinfrastructureinvestmentinruralareasleavingsubstantialshareofcustomersuncoveredbylastgenerationtechnologies;

• Slowdowninfiberdeploymentanduptakeofhigh-speedbroadband;and• Further reduction in network throughput leading to deteriorating customer

experience

V.2.3.InstitutionalStructureandPoliciesforPromotingBroadband

Institutionalstructure,policiesandstrategiesregardingbroadbandmarket

Theinstitutionalstructureguidingthedevelopmentofbroadbandisinaprocessoftransition.In the recent past, the development and management of broadband public policies wasfragmentedacrossanumberofagenciesandministries(seetable73).

Table73:SaudiArabia:InstitutionalpolicyresponsibilitiesPolicyDomain Initiative GovernmentEntities

Developmentandimplementationofe-Governmentservices

Yesser • MinistryofCommunicationandInformationtechnology• CommunicationsandInformationTechnologyCommission

• MinistryofFinance• MinistryofInterior

Implementationofbroadbandwholesalemarket

OpenAccess • CommunicationsandInformationTechnologyCommission

Addressthedigitaldivide UniversalServiceFund

• CommunicationsandInformationTechnologyCommission

Internetapplicationsdevelopment

Nitaqat • MinistryofLaborandSocialDevelopment



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This structure is gradually consolidating under two ministries: Ministry of Economy andPlanning and Ministry of Communication and Information technology. The Ministry ofEconomy and Planning is assigned the responsibility of leading the development andimplementationofthedigitalagenda,Ontheotherhand,theMinistryofCommunicationandInformationtechnologyis inchargeofsupervisingandcoordinatingtheactivitiesofMinistryofFinance,MinistryofMunicipalandRuralAffairs,PublicInvestmentFund,MinistryofLaborandSocialDevelopment,SaudiArabianMonetaryAgency,MinistryofHealth,andMinistryofEducation.


TheKingdom’s2030visionprovidesanoverarchingdirectionforbroadbandinSaudiArabia.Several of the vision’s economic objectives depend on the continued development ofbroadbandinfrastructure.Examplesofrelatedobjectivesinclude:

• Buildauniquelogisticshub;• IntegratetheSaudieconomybothregionallyandinternationally;• SupportdevelopmentofnationalSaudienterprises;• Rehabilitateeconomiccities;• Establishspecialinvestmentzones;and• SupportdevelopmentofSMEs

Along theses lines, the government considers broadband to be a key catalyst. In particular,competition is considered to be a key stimuli to accelerate the deployment of fiber optics.Additionally, local governments are seen as key partners to operators on the promotion oflocal infrastructure.TheUniversal ServiceFund is considered tobea critical component forsupporting entry-level broadband investment in rural areas. Given the exploding traffic inmobilebroadband, theMinistryof Communications and InformationTechnology is planningonmakingmorefrequencyspectrumavailablefordeploymentofLTE.

V.2.4.LessonsLearned

The assessment of broadband network and services in Saudi Arabia provides a basis for anumberoflessonslearned.Thefollowinglessonslearnedarestructuredaroundthepromotionofenhancedsupplyandthestimulationofdemand.

Supplypolicies

SaudiArabiahasachievedahighlevelofbroadbandinfrastructuredeployment.Thishasbeenenabledbytworegulatoryinitiatives:

• Assignment of radio-frequency spectrum to enable thedeployment of LTEnetworksserving85%ofthepopulation

• Promotion of infrastructure-based competition leading to the deployment of fiberopticlast-milenetworkscoveringalmost40%ofthepopulation

Demandpolicies


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On the demand side, price reduction and infrastructure deployment have eliminated keybarrierstoadoption.ThemostimportantlessonlearnedsofarfromtheSaudicaseisthatoncethe affordability barrier is eliminated, other obstacles emerge as being key tobe addressed,suchasdigital literacyandthedevelopmentof localInternetcontentandapplications.Theseissues need to be addressed by the government to enable greater use of the Internet andachievingitsderivedenvisionedbenefits.


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V.3.KAZAKHSTAN

ThefollowingcasestudyassessesthestateofbroadbandservicesinKazakhstan.Itreviewsthetrends indemandandsupply, thebroadband industrystructure,andthestateof investmentandbroadbandtechnologyinfrastructure.

InordertounderstandthestateofdemandandsupplyofbroadbandservicesinKazakhstanitis first necessary to take a look at the country’s demographic structure since it provides aperspectiveofthechallengesfacedbythegovernmenttoincreasebroadbandadoption.Asof1January 2016, the population of Kazakhstan was estimated to be 17,769,475 people81. Thecountry’s total population density is fairly low: 6.5 people per square kilometer82. Fifty-fivepercent of the population lives in cities, which means that, beyond the urban centers,population density of rural areas approximates 2.9 people per square kilometer. This rural-urbandichotomyisattherootofboththecountry’stechnologicalprogressinurbanareasandthechallengesremainingtobridgetheruraldivide.

In theaggregate,Kazakhstan ishighlyadvanced in termsofbroadbandnetworkdeploymentandusagewhencomparedtootherOICMemberCountries.Since2006,thenumberofInternetusersinKazakhstanhasincreasedfrom8.3%to73%83,thankslargelytothedevelopmentofamoderntelecommunicationsinfrastructure.ThishasalsohelpedraiseKazakhstan’srankinginthe 2014 UN E-Government Survey to 28th position. Smartphone penetration (41% ofpopulation)84andfixedbroadband(50%ofhouseholds)remainamongthehighestinCentralAsia.Froman infrastructurestandpoint, the industry isactivelymigratingmobilebroadbandsubscribersto4GLTEnetworks,anddeployingfiberopticsinthedistributionnetworks.Inthe2014-15GlobalCompetitivenessReportof theWorldEconomicForum,Kazakhstan ranks in62ndplacefornumberofInternetusersand58thforusersofbroadbandInternet,outofatotalof144countries.

Ontheotherhand,inpartduetothechallengesencounteredtoservetherurallowpopulationdensity areas, a demand gap related to the urban/rural divide exists. The urban centerscomprise a set of fixed and mobile broadband competitors deploying highly advancedtechnology with high broadband adoption, while the rural areas remain somewhatunderserved or relying on underperforming technology in a context of highly concentratedindustry structure. This situation is driven both by challenging deployment economics andlowerpurchasingcapacityofruralpopulation.

In this context, the government is pushing to address the digital divide challenge, whileattempting to further diversify the country’s economy, beyond the oil and gas sector. Alongtheselines,Kazakhstanaspirestobecomeoneofthethirtymostcompetitivecountriesintheworld through an ambitious digitization program. “Digital Kazakhstan 2020” aims to helpboost the economy through accelerated digitization. Creating a digital platform to increase 81Source:UnitedNationsDepartmentofEconomicandSocialAffairs:PopulationDivision.82ThetotalareaofKazakhstanis2724900km2accordingtotheUnitedNationsStatisticsDivision.83Source:InternationalTelecommunicationsUnion,4Q2015.84Source:GSMAIntelligence,4Q2016.


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competitiveness of sectors of the economy, while increasing connectivity of the ruralpopulationarethemainobjectivesofthisprogram.

V.3.1.DemandforBroadbandServices


The adoption of broadband services in Kazakhstan is a fairly recent phenomenon. Thediffusionoffixedbroadbandbegunin2003.Theinitialrateofgrowthwasmodestuntil2006,withadoptionincreasingatarapidpacethereafterfrom2007to2015.Astable74indicates,asofyear-end201550%ofKazakhhouseholdshavealreadyadoptedfixedbroadbandservices.

Table74:Kazakhstan:Fixedbroadbandlines(2003-2015)

2003 2005 2006 2007 2009 2011 2012 2013 2014 2015Lines(‘000) 1.0 3.0 30.0 270,.0 577.3 1,193.4 1,637.3 1,958.8 2,148 2,107Percenthousehold 0.03 0.08 0.79 6.68 14.07 28.54 38.73 45.86 49.79 50.23Sources:InternationalTelecommunicationsUnion;JustSmartSolutionsLLP;TelecomAdvisoryServicesanalysis

With50.23%fixedbroadbandadoption,KazakhstanrepresentsthecountrywithhighestfixedbroadbandadoptionrelativetootherOICCentralAsianmemberstates:Kyrgyzstan(15.56%),Tajikistan(0.40%),Turkmenistan(0.31%),andUzbekistan(19.42%).

Ontheotherhand,afterlaunchingin2010withtheinitialdeploymentof3Gnetworks,mobilebroadbandadoptionreached12.5millionconnections(or70.3%ofthepopulation)by4Q2016(seetable75).

Table75:Kazakhstan:Mobilebroadbandsubscriptions(2010-2016)

2010 2011 2012 2013 2014 2015 2016 CAGRConnections 3,700,000 6,225,000 6,875,600 9,406,900 9,863,700 10,056,700 12,495,374 22%PercentPopulation 23.24 38.67 42.26 57.22 59.40 59.97 70.3 21

Sources:GSMAIntelligence;InternationalTelecommunicationsUnion;TelecomAdvisoryServicesanalysis

Astable75indicates,mobilebroadbandtotalconnectionshaveincreasedata22%compoundannualgrowthratesince2010.At70.3%ofconnectionspenetration,KazakhstanagainhasthehighestmobilebroadbandadoptionrelativetootherOICCentralAsiancountries:Kyrgyzstan(68.48%),Tajikistan(41.46%),Turkmenistan(54.25%),andUzbekistan(32.56%).

Contrary to what is observed in other countries regarding fixed-mobile broadbandsubstitution, the comparative analysis of both adoption trends indicates that the launch ofmobile broadband services has not affected the diffusion rate of fixed broadband in asignificant fashion. This could indicate that, rather than fixed-mobile substitution, bothtechnologiesmightbecomplementary(seefigure39).


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Figure39:Kazakhstan:Comparativeadoptionoffixedandmobilebroadband(2003-2016)

Source:GSMAIntelligence;InternationalTelecommunicationsUnion;TelecomAdvisoryServicesanalysis.

Asfigure39indicates,thedeploymentofmobilebroadbandnetworksinKazakhstanresultedinacomplementaryeffect,wherebyeachtechnologyisadoptedtofulfillspecificfunctions(e.g.video distribution and data rich Internet access in the household vs. light data applicationsthroughthemobileplatform).Thiscouldbeexplainedbythefastdeploymentoffiberoptics,afixed technology that portends a specific set of differentiated features relative to mobilebroadband.


The International Telecommunications Union reports that 73% of the population ofKazakhstanin2015accessedtheInternetonaregularfashion(seetable76).

Table76:Kazakhstan:PopulationaccessingtheInternet(2003-2015)

2003 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015Users(‘000) 295 446 498 619 1,712 2,865 5,031 8,146 8,676 10,358 10,961 12,221

%Pop. 2.00 2.96 3.27 4.02 11.00 18.20 31.60 50.60 53.32 63.00 66.00 72.87Sources:InternationalTelecommunicationsUnion;TelecomAdvisoryServicesanalysis

While there are no official statistics of the geographic distribution of Internet users, someanalysts consider that more than 35% of Internet users are concentrated in the city ofAlmaty85.However,InternetusageisfairlylimitedintermsofaccessingasocialnetworksuchasFacebook. Asof2016,Facebookpenetrationhadreachedonly8.86%ofthepopulation.A

85RevenueofenterprisesprovidinginternetaccessbyregionsasofJanuary2015,”[inRussian]Ranking,February24,2015,http://bit.ly/1DNjp8a.

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comparison between Internet users and Facebookmembers’ penetration indicates that only10%ofInternetusersarealsoFacebookmembers(seefigure40).

Figure40:Kazakhstan:InternetusersandFacebookmembers(2000-2016)

Sources:InternationalTelecommunicationsUnion;Owloo;TelecomAdvisoryServicesanalysis

Data in figure 40 indicates that Internet usage is growing at a faster rate than Facebookmembership. This is because social networking is dominated by V Kontakte andOdnoklasssniki, twoRussianplatforms86. Table77presents the top Internet sites rankedbytrafficinKazakhstan.

Table77:Kazakhstan:Top10internetsites(November2016)

Ranking Site Category PercentofvisitorsinKazakhstan Countryoforigin1 VK. SocialNetwork 3.7 Russia2 Mail.ru Portal 7.5 Russia3 Youtube.com Onlinevideo --- UnitedStates4 Google.kz Search 96.9 USAdaptedtoKazakhstan5 Odnoklassniki(mail.ru) SocialNetwork 3.0 Russia6 Yandex.kz Search 96.0 Russia7 Facebook SocialNetwork --- UnitedStates8 Aliexpress E-Commerce --- China9 Kolesa E-Commerce 92.5 Russia10 Instagram SocialNetwork --- UnitedStates

Sources:Forbes;TelecomAdvisoryServicesanalysis

While Internetusage inKazakhstandoesnotdiffer significantly fromwhat is found inothercountriesaroundtheworld(concentrated inonlinevideo,searchengines,portals,andsocialnetworking), Russian sites are prevalent in destination: five out of the top ten sites are ofRussianorigin.

86Source:WorldMapofSocialNetworks,January2016.

0.67% 1.01% 1.67% 2.00% 2.65%2.96% 3.27% 4.02%

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63.00%66.00%

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Internet% Facebook%


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Despite thehighpenetrationof the Internet, aportionof theKazakhpopulationhasnot yetadopted it.Toestimate theportionofnon-adopters, thedemandgapstatistic is reliedupon.The demand gap measures the difference between the population that can purchasebroadband service because of service availability, and the individuals that actually acquireservice; this serves to calculate the number of non-adopters for reasons other than lack ofcoverage.Consideringthatmobilebroadbandcoverageofthepopulationhasreached75%bythe endof2015, thiswould indicate that thedemandgap is42%.As table78 indicates, thedemandgaphasbeenincreasingovertimebecausetherateatwhichoperatorsaredeployingmobilebroadbandnetworksishigherthanthespeedofsubscribergrowth.

Table78:Kazakhstan:Mobilebroadbanddemandgap(2010-2016)(%)

2010 2011 2012 2013 2014 2015 2016Populationcoverage 7.38 14.75 29.50 59.00 59.00 72.70 73.00Uniquesubscribersas%ofPopulation 0.34 2.08 4.59 9.17 15.51 22.34 31.18Demandgap(basedonuniquesubscribers) 7.04 12.67 24.91 49.83 43.49 50.36 41.82(*)EstimatedSources:GSMAIntelligence;InternationalTelecommunicationsUnion;TelecomAdvisoryServicesanalysis

A note of caution should be made in interpreting the figures in Table 78. To calculate thedemand gap, mobile broadband penetration metrics are based not on the number ofconnectionsbutonuniquesubscribers,whichconsidersuniqueusersratherthanthenumberofSIMcards.Thus,considering theacceleratedgeographicdeploymentofmobilebroadbandnetworks,thedemandgaphasbeenincreasinguntil2016,whenaslow-downindeploymenthasresultedinareductionofthedemandgap.Whileagradualreductioninthedemandgapisforecast,asofnow42%of thepopulationcurrently reachedbymobilebroadbandnetworksdoes not purchase the service. One reason for non-adoption could be limited affordability.However, as indicated in table 79, pricing of some of the more economic broadbandsubscriptionplansinthecountryhasbeendecreasingsignificantly.

Table79:Kazakhstan:Pricingofbroadbandsubscriptions(2006-2015)(inUS$)

Monthlysubscription 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015Fixed-broadband 157.82 31.01 20.14 13.09 13.10 23.87 12.94 12.69 10.77 8.70MobilebroadbandUSB1GB,postpaid 6.64 6.51 5.52 4.46

Mobilebroadbandhandset500M 6.64 6.51 5.52 ..

Mobilebroadbandhandset500MB,prepaid 6.64 6.51 5.52 4.46


Asdataintable79indicates,broadbandpriceshavebeendroppingacrosstheboard,primarilydriven by competition (see supply section below). Price declines have led to an increase inKazakhstan digitization affordability index, which has risen from 50.04 in 2006 to 94.98 in


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2015.87.Thisindexreflects,intheaggregate,thetotalcostofownershipoftelecommunicationsservices (including taxes) as a function of income. When compared with the rest of Asiancountries,Kazakhstanisatthehigh-endoftheaffordabilityrange(seefigure41).

Figure41:Asia:TelecommunicationsAffordabilityIndex(2014)


The position of Kazakhstan among its Asian peers would indicate that pricing oftelecommunications services might not represent a barrier to adoption. In fact, the mosteconomicfixedbroadbandproductofferedintheKazakhmarketrepresentsonly1.40%oftheaveragemonthlyincomeofUS$63488asofNovember2014.ThispercentageiswellwithintheparameterestablishedbytheUNESCO/ITUBroadbandCommissionof5%ofmonthlyincome.

Ifpricingisnotasignificantbarriertobroadbandadoption,itisprobablethatdigitalliteracyandculturalrelevancebecomemoreprominentinexplainingthedemandgap.Withaliteracyrateat99.7%,however, it isdoubtful thatdigital literacyrepresentsan importantbarrier89.Furthermore, Kazakhstan’s multi-ethnic demographics and the prevalence of the Russianlanguage from the Soviet eradonot have significant impact onbroadband access: all publicinstitutionsarerequiredtoprovidetwolanguageversionsontheirwebsite,andmanyprivatesector actors follow this trend, although currently there is much more domestic contentavailableinRussianthanintheKazakhlanguage.

87Thedigitalaffordability index isa composite indexcalculatedon thebasisof six indicators:Residential fixed line tariffadjustedforGDPpercapita;ResidentialfixedlineconnectionfeeadjustedforGDPpercapita;Mobilecellularprepaidtariffadjusted for GDP/capita; Mobile cellular prepaid connection fee adjusted for GDP per capita; fixed broadband InternetaccesscostadjustedforGDPpercapita;andmobilebroadbandInternetaccesscostadjustedforGDPpercapita(seeKatzandKoutroumpis,2013).88Mojazarplata,“AverageMonthlyWages,”[inRussian]accessedMarch5,2015,http://bit.ly/1erDCv5.89Officialstatisticsindicatethat,asof2012,only4.5%ofthepopulationlackedallcomputerliteracy(AgencyofStatisticsoftheRepublicofKazakhstan).

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Ontheotherhand,45%oftheKazakhpopulationresidesinruralenvironments90.Alongthoselines, it could be assumed that Internet content relevancemight represent one of themostimportantbarrierstobroadbandadoption.Asaconfirmationoftheruraldrivendigitaldivide,fixed broadband penetration in urban areas is 42% of households, while in rural area itremains13%ofhouseholds.

V.3.2.SupplyofBroadbandServices


Four facilities-based operators provide fixed broadband services to retail customers.Kazakhtelecom, the fixed broadband incumbent, offers ADSL 2+ service to 70% of thepopulation, as well as fiber optic GPON access to 35% of the population91. In addition, thecarrierhasdeployedanationalCDMA450EV-DOnetworktoserveruralareas.Thedensityinruralareasbeingextremely low, it cannot render theeconomicsofa fixedwirelinenetworkprofitable. Even under a fixed wireless network, the carrier incurs losses in serving ruralareas92.ThisiswhyKazakhstelecomiscompensatedforlossesgeneratedinservingruralareaswith funding originated from the 1% of revenue contribution for universal service93. Thecarrierconsidersthat,giventhecostofservingextremelylow-densityareas,thesubsidydoesnot fully compensate for the losses. This affects the spending on base station deployment,ultimatelyerodingqualityofservice94.Thecarrier is involvedintheDigitalKazakhstan2020planforthedeploymentoffiberopticinfrastructuretopublicbuildingsinruralareas.Villagesandtownswithover250inhabitantswillbeconnectedtoKazakhtelecom’sfibernetwork.TheprojectisledinpartnershipwithKazakhstan’sMinistryofInvestmentandDevelopment95(seedetailsinsectionofmajorinitiativesbelow).

IncompetitiontoKazakhtelecom,VimpelcomoffersFTTB100Mbpsservice.Thenetworknowpasses 1.2 million homes in 25 cities, among which it counts the cities of Almaty, Astana,Dzhezkazgan,KaragandaandOskemen.ThethirdcompetitorinthefixedbroadbandmarketisAlmaTV, a cableTVplayer thatoffersFTTHGPONofferingup to100Mbps service. Finally,Transtelecom, an operator partly owned by the national railway, Kazakhstan Temir Zholi(KTZ),offersADSLservicetouserslocatedalongrailwaylines.

Inadditionto theofferings in theretailmarket,severalcarriersofferbroadbandtobusinesscustomers. Transtelecom also operates a 13,000 km. fiber network along its right ofway96.Katzteleport, a subsidiary of the Kazakhstan banking group Halyk Bank offers services tobusinesscustomers.DucatandAsiaBellofferWiMAXfixedwirelessservicein36majorcities.

90Source:AgencyofStatisticsoftheRepublicofKazakhstan.91Source:KazakhtelecomCorporateStrategypresentation,2016andfieldtripinterviews.92Fieldtripinterviews.93ThecarriersubmitsareportonfinanciallossesincurredinservingruralgeographiesandtheUniversalFundprovidesasubsidy.94DownloadspeedinruralareasservedwithCDMA450couldreach128Kbps(source:fieldtripinterview).95Telegeography.Kazakhtelecomplansruralfibrerollout.26Nov201496Telegeography.TranstelecomupgradesKazakhbackbone.16Dec2015


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Onthemobilebroadbandside,thethreewirelesscarriershavelaunched4GLTEservices,andoffer service in most cities. Kazaktelecom’s subsidiary Altel launched 4G LTE service inDecember201297inthecitiesofAstanaandAlmaty.Theoperatorhadanexclusivelicenseforoneandahalfyear.By2015,theservicewasofferedto7.2millionpeoplein22cities.Another22 cities of more than 50,000 population were covered in 2015, reaching 65.5% of thepopulation.Asoftheendof2016,thecarriercovers70%ofthepopulation.

BeelinelaunchedserviceinthecitiesofAstana,AksaiandUralsk.Bytheendof2016itplanstocover eleven more cities: Almaty, Shymkent, Karaganda, Ust-Kamenogorsk, Aktau, Atyrau,Kostanay,Pavlodar,Semey,ZhezkazganandSatpaev.Theoperatorexpectstobecovering70%ofthepopulationbyend-201798.Duetotheirobligationbytheregulatortoextend4Gtoruralgeographies,andconstrainedbyCAPEX,BeelineandK-Cellnegotiatedanagreementwiththeregulatorbywhichtheformercoversthenorthofthecountryandthelatercoversthesouth.To achieve nationwide coverage, they have signed a mutual roaming agreement. Table 80summarizesthecoveredpopulationbybroadbandtechnologyandcarrier.

Table80:Kazakhstan:Populationcoveredbybroadband(bytechnology)(2016)(%)

Operator ADSL FTTH 3G LTEKazakhtelecom 70 35 73 70Vimpelcom(Beeline) 27 73 60Transtelecom AlmaTV 30(E) K-Cell 73 60Source:Fieldtripinterviews;InternationalTelecommunicationsUnion


Asmentionedabove, the fixedbroadbandmarket is comprisedby four retail facilities-basedplayersandseveralcarriersfocusedonthebusinessmarket(seetable81).

Table81:Kazakhstan:Fixedbroadbandretailmarketstructure(4Q2015)

NumberofSubscribers

MarketShare(by

Subscribers)(%)

Revenues(‘000’000)(US$)

MarketShare(byrevenues)

(%)

Kazakhtelecom 1,502,632 72.7 57.8 75Vimpelcom(Beeline) 320,000 15.5 5.4 7Transtelecom 70,000 3.4 1.5 2AlmaTV 42,000 2.0

8.5 11Other(Astek,KazinformTelecom,Katzteleport,DucatandAsiabell)

132,262 6.3

Total 2,066,894 100 77.1 100Source: BMI; Kazakhtelecom Annual report; Just Smart Solutions LLP; International Telecommunications Union;TelecomAdvisoryServicesanalysis

97Telegeography.ResurgentAltelreachestwomillionsubsmilestone.10Apr201598Telegeography.Beelinelaunches4GinKazakhstan.7Jul2016


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Of Kazakhtelecom’s 1,502,632 broadband lines, 750,000 are FTTH, and the remainder isADSL2+. The FTTH service is sold through four plans (30Mbps, 50Mbps, 120Mbps, and 1Gbps).TheADSL2+planoffers8Mbps.Astheformerstate-ownedmonopoly,Kazakhtelecomhasastrongadvantagebuiltaroundtheirbrandequity.Theoperatorisconsideredtobequiteanadvancedcompany,evenaheadofRostelecominRussia;managementisopenminded,andhas been capable at sustaining share, and manage to replace falling voice revenues withbroadband and pay TV. The company is not being run as state company, partly because itspublicshareholdersarequiteactive.

Kazakhtelecom is undergoing a process of privatization. Initially, the carrier’s mainshareholders were the state-holding company Samruk-Kazyna Fund of National Prosperity(sovereign wealth fund) (with a 51.0% stake), Netherlands-based private investment firmBODAMB.V. (with 16.9%) and theBank ofNewYork (17.1%). The remaining shares of thecompanywereheldontheKazakhstanStockExchange(KASE).Asof2015,Kazakhtelecom’sshareholder structurehadbeenaltered toStateholdingcompany ‘Samruk’ (51.0%),BODAMBV (16.87%), Bank of New York (9.81%), Deran services (7.60%), and other (14.72%). InJanuary 2016, the Kazakh government announced that Kazakhtelecom is among 65 state-backedfirmsin lineforprivatizationoverthenextfouryears.Thesale is likelytotakeplaceviaapublicshareoffer99.However,itisstillunclearwhethertheprivatizationwillgothroughduetobureaucraticbarriers100.

VimpelcomistheprimarycompetitortoKazakhtelecomintheretailfixedbroadbandmarket.Vimpelcom owns KaRpTel, which provides service under the Beeline brand (see below).BeelineoffersonlyFTTHservicethrough30Mbps,50Mbps,and100Mbpsplans.

ThethirdcompetitorinthefixedbroadbandmarketisAlmaTV,acableTVplayerthatstartedoriginallyoffering fixedbroadband through theDOCSIS3.0 standard,but ismoving toFTTHGPONofferingup to100Mbpsservice.AlmaTVreliesonTranstelecom forbackhaul service.While they 500,000 cable TV subscribers, their broadband customers reach approximately42,000.TranstelecomalsohasADSLsubscribersintheirownright,mainlyconcentratedalongrailwaylines.Theremainderofthemarketisservedbysmalllocalbuildingcompaniesofferingbroadbandserviceonafranchisingbasis.

WhenmeasuringbytheHerfindahl-HirschmanIndex(HHI)ofindustryconcentration,onecandetermine that the Kazakh fixed broadband market has been gradually become morefragmentedoverthepastthreeyears,asaresultofKazaktelecomshareloss(seetable82).

99Telegeography.KTtobeprivatized.7Jan2016.Theoriginallistannouncedin2014included600companies,ofwhich44

shouldbeconsideredlarge“BlueChip”ones.100Fieldtripinterview.


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Table82:Kazakhstan:FixedbroadbandHerfindahl-HirschmanIndex(bynumberofsubscribers)(2013-2015)

2013 2014 2015

LinesShare(%) Lines

Share(%) Lines

Share(%)

Kazakhtelecom 1,467,520 74.9 1,543,138 71.8 1,502,632 72.7Vimpelcom --- --- --- --- 320,000 15.5Transtelecom --- --- --- --- 70,000 3.4AlmaTV --- --- --- --- 42,000 2.0Others(Astek,KazinformTelecom,,Katzteleport,DucatandAsiabell) --- --- --- --- 358,000 6.3

TOTAL 1,958,823 100 2,148,000 100 2,066,894 100HHI 5,359(*)

(*)Estimatedbasedonequalsharesof“otherplayers”Source:KazaktelecomAnnualreports;TelecomAdvisoryServicesanalysis

Ontheotherhand,theKazakhmobilebroadbandmarketcurrentlyincludesthreeplayers(seetable83).

Table83:Kazakhstan:Mobilebroadbandmarketstructure(4Q2016)

NumberofSubscribers


ALTEL/Tele2 944,018 23Beeline(VimpelCom) 1,641,768 40Kcell(Fintur) 1,518,635 37Total 4,104,421 100Source:GSMAIntelligence;Telegeography;TelecomAdvisoryServicesanalysis

The mobile broadband market in Kazakhstan has significantly changed over the past twoyears.Originally,themarketwasstructuredaroundfourplayers,includingthesubsidiariesofKazakhtelecom,Vimpelcom,Tele2,andK-Cell(ajointventureofTurkcellandTeliaSonera).InSeptember2015,TeliaSoneradeclared that itwouldexitall countries in itsEurasiadivision,whichincludedKazakhstan101.Thestrategicdecisionfollowedatroubledperiodinwhichthegroup was affected by investigations into corruption allegations in Eurasian markets,exacerbated by tough macroeconomic conditions and price competition across the Eurasiafootprint. Following the announcement, Turkcell, TeliaSonera’s partner in the joint venture,submittedanofferinMarch,2016toacquiretheremainingsharesoftheventure:59%102.

In parallel, Tele2 and Altel announced plans to combine their mobile operations, therebyreducing the number of mobile broadband players in themarket from four to three. Tele2Kazakhstanwasthecountry’s thirdmobilebroadbandprovider,whileAltelwas thesmallestcarrier.Accordingtothetransaction,bothoperatingentitiesownedviaajointventureholdingcompanyincorporatedintheNetherlands.Tele2GroupandKazakhtelecomhave,respectively,51%and49%ofthevotingrightsanda49%and51%economicinterestintheventure,withSweden-based Tele2 Group retainingmanagement control. As part of the transaction, Tele2Group will purchase Asianet’s existing 49% stake in Tele2 Kazakhstan for an upfrontconsiderationofUSD15millionandafutureearnoutequivalenttoan18%economicinterest 101Telegeography.TeliaSoneradecidestoexitEurasiacountries.17Sep2015102Tomas,J.P.“TurkcellsubmitsoffertoacquireTeliaSonerastakeinFintur”.RCRWirelessNews.March3,2016.


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ofthejointventure.ThiswouldgiveTele2afullydilutedeconomicinterestof31%,takingintoaccount Asianet’s 18% earn out.103 The transaction combined Altel 4G presencewith Tele2marketingexpertise.

TheexitofTeliaSoneraandtheconsolidationofTele2andAltelhaveresultedinanincreaseintheHHIconcentrationindexinmobilebroadband(seetable84).

Table84:Mobilebroadbandmarketshares(bysubscribers)(2011-2016)

2011 2012 2015 2016

LinesShare(%) Lines

Share(%) Lines

Share(%) Lines

Share(%)

Altel 971,100 15.60 667,000 9.70 1,035,000 11.00 2,874,000 23.00Beeline 3,808,000 61.17 3,031,000 44.08 3,763,000 40.00 4,998,000 40.00K-Cell 1,289,000 20.71 2,525,000 36.73 3,575,000 38.00 4,623,000 37.00Tele2 349,000 5.61 652,000 9.49 1,129,000 12.00 TOTAL 6,225,000 100 6,875,600 100 9,406,900 100 12,495,374 100HHI 4,446 3,476 3,309 3,498Source:KazaktelecomAnnualreports;GSMAIntelligence; InternationalTelecommunicationsUnion;TelecomAdvisoryServicesanalysis

Between2011and2015, theHHI industry concentration indexwas graduallydeclining as aresultofincreasingcompetitionprimarilybetweenBeelineandK-Cell.Thepressureresultingfrompricedeclinesand theeconomiesof scaleadvantageofBeelineandK-CellonAltel andTele2 was a stimulus towards consolidation. The consolidation between the two smallerplayers has resulted in an increase in theHerfindahl-Hirschman Index from3,309 to 3,498.However,thisvalueisstillwithintherangeofacceptablecompetition.Someanalystspredictthattheresultingindustryconcentrationwillreestablishsomepricedisciplineandthatpriceswillstartincreasing,andthatunlimitedplansaregoingtobephasedout.

Stateofcompetitioninthebroadbandmarket

As a result of the consolidations in mobile broadband and diversifications into fixedbroadband, the Kazakhmarket is composed of two convergent players (Kazakhtelecom andVimpelcom), one pure play wireless (K-cell), and several fixed broadband carriers focusingprimarilyonthebusinessmarket.

Given the saturation reached in the wireless market (penetration rates of approximately158%) and the high adoption in broadband, themarket has plateaued.Additionally, intenseprice competition, coupled with mobile number portability has had an impact on carrierprofitability. In consequence, it is highly unlikely that new entrants will venture into theKazakhmarketinthenearterm.

Technologiesandtrendsinthebroadbandmarket

ThefixedtechnologicalinfrastructureutilizedfordeliveringbroadbandservicesinKazakhstanconsistsofamixofADSL,FTTB(FibertotheBuilding),FTTH(FibertotheHome),andfixed

103 Telegeography.Tele2andAlteltocombineKazakhoperations.4Nov2015


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wireless(CDMA450)forfixednetworks.Regardingfixedbroadband,onlyKazakhtelecomhasdisplayedADSLandupgradedtoADSL2+inordertooffercloseto8Mbpsservice.

In 2011, Kazakhtelecom begun to deploy fiber optics in the local loop under the GPONstandard. Vimpelcom, the primary retail competitor to Kazakhtelecom, also deployed FTTBservice, initiallyofferingspeedsofupto20Mbps.Overtime,thecarrierupgradeddownloadspeeds up to 100 Mbps for accessing domestic websites and up to 50 Mbps for accessingexternalresources.Theserviceisdeployedinmorethan130townsandcities104.

In addition to fiber-based Internet services, a number of Kazakh network operators haveinvested in the development of fixedwireless networks. Despite Kazakhstan having greaterfixedaccess infrastructure than its regionalpeers, fixedwireless technologiesareplayinganincreasing role in developing the country’s broadband sector. Fixedwireless deployment isgenerallycheaperthanbuildingnewfixed-linenetworks,whichgivesoperatorsanadvantageinareaswithlittleornofixed-lineinfrastructure.Forexample,Kazakhtelecomhasdeployedanational CDMA 450 network. Other companies that are active in the fixed wireless sectorincludeDucatandAsiaBell,whichoffercommercialWiMAXservicesinavarietyoflocations.

InadditiontoCDMA450andWiMAX,wirelesstechnologiessuchassatelliteandVSATarealsopresent inKazakhstan’sbroadband sector.These technologies aregenerallyused toprovideInternet connectivity in remote regions where communications infrastructure is limited.Finally, Kazakhtelecom has developed broadband wireless networks based on Wi-Fi inlibraries,hotels,railwaystationsandairportsacrossthecountry.

Onthemobilebroadbandside,threeoutofthefouroriginalcarrierswereoperatingundertheGSM 2.5 standard (Edge, GPRS), while Altel relied on CDMA2000 1xRTT initially and latermigrated to CDMA 2000 1xEV-DO. In 2012, the carrier began switching its customers fromCDMAtoLTE105.

In2010,VimpelcomlaunchedanLTEtrialinAstana,overthe700MHzfrequencyband.Inthesameyear,K-CellstarteditsownmigrationtoLTE.Interestinglyenough,Kazakhstan’smobileoperatorsoptedtoleapfrogtowarddeploying4GservicesbasedonLTEratherthancompletethedeploymentof3Gtechnology.


International statistics of broadband service quality in Kazakhstan are relatively scarce.Available data is limited to the International Telecommunications Union, which reports abreakdownoffixedbroadbandspeedsforthreecategories(seetable85).

104Telegeography.Kazakhtelecomboostsbroadbandspeeds.9Jun2014105Telegeography.ResurgentAltelreachestwomillionsubsmilestone.10Apr2015


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Table85:Kazakhstan:Fixedbroadbandspeeds(2009-2015)(%)

2009 2010 2011 2012 2013 2014 2015ShareFixed-broadband256Kbit/stolessthan2Mbit/ssubscriptions 31.34 41.61 42.57 37.17 19.10 16.52 16.33

ShareFixed-broadband2Mbit/stolessthan10Mbit/ssubscriptions 66.83 54.65 49.04 44.02 46.14 43.58 43.68

ShareFixed-broadbandequaltoorabove10Mbit/ssubscriptions 1.83 3.74 8.38 18.80 34.76 39.90 39.99


Accordingtotable85,in201539.99%oftotalfixedbroadbandlinesinKazakhstanofferedaspeedequaltoorabove10Mbps.Itshouldbenoted,however,thatadvertisedspeeddoesnotequal real performance. It is very common that, due to network quality issues or trafficsaturation,advertisedspeedsrepresentapproximately60%ofrealperformance106.However,acomparisonbetweenKazakhstan’sstatisticswithotherrelevantcountriesprovidesarelativecontextforassessingthecountry’sfixedbroadbandspeedlevels(seetable86).

Table86:FixedBroadbandSpeedLevels:Kazakhstanversusothercountryaverages(2015)

Kazakhstan

AsianOICMemberCountries


ShareFixed-broadband256Kbit/stolessthan2Mbit/ssubscriptions(%) 16.33 53.66 56.69

ShareFixed-broadband2Mbit/stolessthan10Mbit/ssubscriptions(%) 43.68 33.36 32.20

ShareFixed-broadbandequaltoorabove10Mbit/ssubscriptions(%) 39.99 12.98 11.11


Accordingtotable86,Kazakhstanappearstohaveaslightlyhigherpercentageof2Mbpsto10MbpslinescomparedtotheaverageAsianOICMemberCountries,aswellasallOICMemberCountries. When it comes to lines faster than 10 Mbps, Kazakhstan appears to have muchhigherpercentagethantheothertwogroups.

Pricingoffixedandmobilebroadbandservices

Acomparativeassessmentofpricingtrendsofamonthlypostpaidsubscriptionof1GBcapforUSB ports across country groupings indicates that Kazakhstan consumers have consistentlyenjoyed lower mobile broadband prices than subscribers in the OECD countries, and OICMemberCountries. It isonlyin2015,whenotherAsianOICMemberCountriesseemtohavecaughtupwithKazakhstanlowmobilebroadbandprices(seefigure42).

106Itisnotpossibletocompilestatisticsonrealperformancesincethe“crowdsourcing”sitessuchasAkamaidonotreportresultsfortheCoted’Ivoire.


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Figure42:Monthlypost-paidsubscriptionof1GBcapUSB(2012-2015)(inUS$)


As depicted in figure 42, Kazakhstan postpaid mobile broadband pricing was significantlybelow other countries’. A consistently similar picture emerges when comparing fixed andothermobilebroadbandplans(seetable87).

Table87:Comparativebroadbandpricing(2015)(inUS$)

Kazakhstan

AsianOICMemberCountries


OECD

Fixed-broadbandmonthlysubscription 8.70(*) 13.21 29.87 22.52Mobilebroadbandhandset_1GB,postpaid 5.52(**) 6.49 9.73 33.99Mobilebroadbandhandset_500MB,prepaid 4.46(***) 3.59 4.46 17.47(*)Thisispricefor50Mbps,unlimited(**)AsofYE2016,Altelispostpaid7GBCAPplanforUS$2.8(***)AsofYE2016,Altelisofferingprepaid10GBCAPplanforUS$3.7Source:InternationalTelecommunicationsUnion;TelecomAdvisoryServicesanalysis

Accordingtodata in table87,postpaid fixedandmobilebroadbandoffers inKazakhstanareless expensive in absolute terms compared to Asian OIC, all the OIC and OECD countries.Kazakhstanappearstohavelostthepriceleadershiponlyinprepaidpriceplans.

Investmentinfixedandmobilebroadbandinfrastructure

The telecommunications sector has been investing considerable amounts of capital in thedevelopmentofbroadbandnetworks. Forexample,KazakhtelecominvestedUS$189millionin the deployment of fiber optic distribution networks in Astana andAlmaty between 2011and2014,US$251millioninthedeploymentof4G(toproceedbetween2012and2021),andUS$32milliontomeetthedemandofvoiceandbroadbandcommunicationsinruralareas107.

107Source:Kazakhtelecom2013AnnualReport.

6.64$ 6.51$5.52$

4.46$

$0$

$5$

$10$

$15$

$20$

$25$

$30$

2012$ 2013$ 2014$ 2015$

Kazakhstan$ OECD$ Asian$OIC$ OIC$Countries$


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All in all, capital spending in telecommunications between 2007 and 2014 has remainedrelativelystable(seetable88).Table88:Kazakhstan:Telecommunicationsinvestment(incurrentUS$)(2006-2014)

2006 2007 2008 2009 2010 2011 2012 2013 2014TotalInvestment(‘000’000) 121 678 --- 495 --- 600 725 657 648

Investmentpercapita 7.95 44.04 --- 31.44 --- 37.27 44.56 39.96 39.02Source:InternationalTelecommunicationsUnion;TelecomAdvisoryServicesanalysis

As theaggregatespending indicates in table88, the telecommunications industryappears tobe spending significant amount of capital. A large portion of spending is geared to deploybroadbandnetworksandupgradetheircapacity.Adominantdriverofbroadbandinvestmentistheneedtocompeteeffectively.

V.3.3.InstitutionalStructureandPoliciesforPromotingBroadband

Institutionalstructure,policiesandstrategiesregardingthebroadbandmarket

InMay2016, theMinistryof InformationandCommunicationwascreated todeveloppublicpoliciesintheinformationandcommunicationstechnologydomain,includingbroadband.Theministryisstructuredaroundeightdepartments:

• Informatization• Communication• Massmedia• InternalAdministration• Finance• StrategicPlanning• Kegal• HumanResources• PublicservicesDevelopment

The Minister presides the Information Committee, responsible for establishing andimplementing national policies to promote the development of information andcommunications, including mass media. More specifically, the committee is responsible forstate regulation of the activity in the fields of communications, informatization, and e-government, implementation of state policy and state regulation and control in the field ofnaturalmonopoliesandintheregulatedmarketsinthefieldoftelecommunications.Intermsof regulation, theMinistry regulateswholesalepricingof shared facilities (ducts,poles,etc.);ontheotherhand,interconnectpricingisnotregulated.

In addition to the Ministry of Information and Communication, Zerde NationalInfocommunicationHoldingJSCisanagencywithprominentparticipationinthedevelopmentofdigitalstrategies,withanimpactonbroadbanddevelopment.Zerdewascreatedasaresultof reorganization of National Scientific Technological Holding "Samgau" JSC. In 2009, Zerdedevelopedamasterplanonthedevelopmentof"e-government"ande-servicesfor2010-2014,aswellastheregulationactspackageontheissuesof"e-government"andtheprovisionofthe


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informationalsecurityofinfrastructure.Furthermore,asapartofthedevelopmentofnewICTtechnologiesandtheinitiationofnewprojectsin2011,theResearchInstituteofInformationTechnologies was established and registered as a participant of the special economic zone"Information Technologies Park "Alatau". In 2013, the holding took an active part in thedevelopmentofthestateprogramInformationalKazakhstan2020108.


ThedevelopmentofbroadbandinKazakhstanhasbeeninfluencedbytwomajormasterplans:InformationalKazakhstan2020andDigitalKazakhstan2020.Approvedon8January2013,theInformationalKazakhstan2020programidentifiedfourkeyareasoffocus:

• Ensuringtheeffectivenessofgovernmentadministrationsystem;• Ensuringtheavailabilityofinformationandcommunicationinfrastructure;• Formation of an information environment for socio-economic and cultural

developmentofsociety;and• Thedevelopmentofthenationalinformationspace.

According to the plan’s basic premise, the improvement of government administration, thedevelopment of an "open" and "mobile Government", and the deployment of informationinfrastructurewouldbesolvedthroughthewidespreadintroductionof ICT.Consideringthatthe development of an information society must be accompanied by the development ofhuman capital, the Program also included provisions for the creation of opportunities forcitizens to learn and gain skills in information technology through e-learning and to receiveservices of available electronic healthcare. In addition, the program recommendedimplementationofsmartsystemsinbasicindustriesinordertobuildamoreopen,accessibleand competitive economy. Collectively, the plan assumes that the measures taken for thedevelopment of ICT should follow the principles of ensuring conditions of sustainabledevelopment. Finally, theplan recognizes that the effectivenessof thepolicyof transition tothe information society depends on consolidation of public and private efforts on a wideapplicationofICTinallsectorsoftheeconomyandsocialsphere109.

TheInformationalKazakhstan2020programprovidedacontextfortheformulationofanotherprogram:DigitalKazakhstan2020.ThekeygoalofDigitalKazakhstan2020istheimprovementofcitizens`lifequalityandthecountry`seconomycompetitivenessthroughthedevelopmentofadigitaleconomy.Theprogramcomprisesfourmajoraxes:

• DigitalSilkWay:developadigitalinfrastructurethroughtheprovisionofbroadbandInternet in rural localities, the construction of a telecommunication hub, ensuringinformationsecurity,anddeployingdatacenters;

• Creativesociety: develophumancapital throughenhancing citizens’digital literacy,provideadvancedtrainingofspecialistsinthefieldofinformationandcommunication

108Seehttp://www.zerde.gov.kz/en/holding/history/#hcq=pJgvV2q.109Seehttp://www.zerde.gov.kz/en/activity/program-control/information-kazakhstan-2020/#hcq=2BUeV2q.


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technologies, and improve educational programs to develop critical thinking instudents;

• Digital transformations in economic sectors: promote digitization of productionthroughautomatingthecountry’stransportandlogisticssystem,implementingdigitaltechnologies in the field of agriculture and industry, developing e-Commerce,improving mineral resources` registration system, ensuring geological digitalinformation safety and accessibility, and implementing technologies in thedevelopmentofsmartcities;and

• Proactive society: further develop e-Gov and m-Gov applications, increasing thenumber of public services delivered online, developing Open Government and anationalspatialdatainfrastructure.

TheProgram’sgoalstobeachievedby2020,areasfollows:

• Internetpenetration:78%;• TerrestrialbroadcastingcoverageofKazakhstanipopulation:95%;• Digitalliteracylevelofpopulation:80%;• PercentageofICTsectorweightintheGDP:4.7%;• GrowthofperformanceinICT:34%;and• Citizens’satisfactionwiththequalityofonlineservicesobtainedindependently:80%.

The Program implementation period is 2017 to 2020. Funding will be supplied from thenational budget, quasi-public sector, and private investments as well as the financialorganizationsandloansfromdevelopmentbanks.Implementationoftheprogramwillbeakeyfactor for achievement of the goal for Kazakhstan to be ranked in the top thirty mostcompetitivecountriesintheworldby2050,anobjectivesetbythePresidentoftheRepublicofKazakhstaninthe“Kazkhstan-2050”Strategy.

In terms of the broadbanddeployment objective,Digital Kazakhstan 2020plans to deploy afiberopticsnetworktovillagesandcitiesof250andmorepopulation(1stphase).Theinitialpurposeoftheplanistodeployfibertoavillagepointofpresenceandfromtheretohospitals,police, etc. The capital required ($ 300 million over three years) will be paid for byKazakhtelecom, although the government guarantees revenues to be derived from amastercontract toservehospitals, schools,agriculturalbodies,etc.Thesecondphasewill consistofdeploying be fiber to smaller cities but only if demand from rural geographies can beidentified.Stillthereisnodecisiontodeploydistributionlastmileloopstohouseholdsbecausethebusinesscasehasnotbeendeveloped.Theoptionsoftechnologyavailableatthispointforthe lastmile are fiberoptics (GPON),ADSL, andpotentiallyLTE for fixedbroadband. In thiscontext,Kazakhtelecomwouldbegradually replacing theCDMA450 technology110withLTErunningon800MHzspectrumband111.Thatbeingsaid,theplansforaddressingthelastmiledistributiontohouseholdsundertheDigitalKazakhstanplanstillneedtobeaddressed112.

110ServicequalitywithCDMA450insomeareasisnogood(somevillagesgetdownloadspeedsof128Kbpswhichhasanimpactonthepopulationwillingnesstobuy).111The700MHzbandisstillutilizedbymanypartiesthatneedtobereassignedbefore it isusedbytelecommunicationscarriers.112 Someanalysts remain skeptical about theprobabilityof thisprogram tobe fully implementeddue to thegovernmentbureaucraticlimitations.


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Inadditiontothetwomasterplansreviewedabove,amongthemostrelevantlegalinitiativesenacted by the Kazakh government that have so far had an impact on the development ofbroadband,threeareofspecialnote:

• Network unbundling: the owners of buildings and structures are now obligated tolease thepremises (area) to telecommunicationsoperatorsonequal termsunderanagreementondeploymentbyoperatorsoftelecommunicationsequipmentwithaviewtoprovidingtelecommunicationsservices.

• Sharing of passive infrastructure (ducts, antennae, poles) for broadband networkdeployment

• Considerwirelessbroadbandwithminimumspeedof1.5MbpsasauniversalserviceV.3.4.LessonsLearned

TheanalysisofbroadbandnetworksandservicesinKazakhstanprovidesabasisfordistillinganumberof lessons.Thefollowingarestructuredaroundthepromotionofenhancedsupplyandthestimulationofdemand.

Supplypolicies

Public policies aimed at enhancing the supply of broadband services in Kazakhstan havefocusedaround thedevelopmentof competitive incentives.The fixedandmobilebroadbandsegments comprise multiple players actively competing on the basis of state-of-the artnetworksandqualityof service.TheKazakhbroadbandcompetitionmodel isbuiltaroundalimited number of players to allow industry sustainability as opposed of promoting thefrictional costs resulting from unrestricted competition. The government recognizes that athree playermobile broadbandmarket is sufficient enough to allow for the development ofcompetition.

Similarly, a de facto fixed broadband competition model built around an incumbent andnumerous niche players focused either on specific geographies and/or market segmentsappears to be appropriate. On this basis, the enforcement of network sharing throughunbundling of specific physical facilities (ducts, poles, antenna) is aimed at facilitating thesustainabilityofnewentrants.

The pro-competition policies are combined with state intervention in order to foster thedeployment of broadband in rural areas. The intervention is based on the formulation ofnationalplans,combinedwithgovernmentfundingsupport.

Demandpolicies

AdemonstrationofhowsuccessfultheKazakhcompetitionmodelhasbeenisthatbroadbandpricinghasdecreasedsignificantly,practicallyeliminating theaffordabilitybarrier.However,the digital divide continues to exist driven potentially by cultural relevance issues. Thesignificant difference in broadband penetration between the urban and rural geographiesmightindicatethattheprimaryvariablestandinginthewayoffurtherstimulatingbroadband


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adoptionislinkedtothedevelopmentofcontentandapplicationsthatrespondtotheneedsoftheKazakhruralpopulation.


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VI. POLICYRECOMMENDATIONS The universe of the OIC Member Countries is not homogeneous when it comes to thechallengesfacedregardingbroadbanddevelopment.Thus,thepolicyrecommendationsshouldnotbeconsideredasuniformacrossthecommunityofmembers.Intheaggregate,OICMemberCountries canbe categorized into threegroups: advanced, intermediateanddeveloping (seetable89).

Table89:OICMemberCountries:Stateofbroadbandsupplyanddemand(2015)


MobileBroadband

Coverage(3G)

MobileBroadband

Coverage(4G)



OICAverage 53.33% 64.16% 46.82% 14.95% 29.41%Advanced >70%

Azerbaijan,Bahrain,Brunei,Jordan,Kazakhstan,Lebanon,Malaysia,Maldives,Oman,Qatar,SaudiArabia,Turkey,UAE,

>70%:Albania,Azerbaijan,Bahrain,Bangladesh,Brunei,Coted’Ivoire;Egypt,Gabon,Gambia,Jordan,Kazakhstan,Kuwait,Lebanon,Malaysia,Maldives,Morocco,Oman,Palestine,Qatar,SaudiArabia,Suriname,Syria,Tunisia,Turkey,UAE

>70%Kazakhstan,Kuwait,Pakistan,Qatar,SaudiArabia,UAE

>70%Azerbaijan,Bahrain,Lebanon,Qatar,SaudiArabia,UAE

>70%Bahrain,Kuwait,Libya,Malaysia,Oman,Qatar,SaudiArabia,Suriname,UAE

Intermediate 70%-40%Kuwait,Palestine,Suriname

70%-40%Afghanistan,Algeria,Benin,Cameroon,Indonesia,Iran,Iraq,Kyrgyzstan,Mozambique,Nigeria,Pakistan,Senegal,Sudan,Togo,Uganda,Turkmenistan,Uzbekistan

70%-40%Jordan,Malaysia,Morocco,Oman,

70%-40%Brunei,Kazakhstan,Malaysia,Maldives,Oman,Palestine,Suriname,Turkey

70%-40%Albania,Algeria,Azerbaijan,Coted’Ivoire,Egypt,Indonesia,Kazakhstan,Lebanon,Maldives,Tunisia,Turkey

Developing <40%Afghanistan,Albania,Algeria,Bangladesh,Benin,BurkinaFaso,Cameroon,Chad,Comoros,Coted’Ivoire,Djibouti,Egypt,Gabon,Gambia,Guinea,GuineaBissau,Guyana,Indonesia,Iran,Iraq,

<40%BurkinaFaso,Chad,Comoros,Djibouti,Guinea,GuineaBissau,Guyana,Libya,Mali,Niger,Mauritania,SierraLeone,Somalia,Tajikistan,Yemen

<40%Afghanistan,Albania,Algeria,Bangladesh,Benin,BurkinaFaso,Cameroon,Chad,Comoros,Coted’Ivoire,Djibouti,Egypt,Gabon,Gambia,Guinea,GuineaBissau,Guyana,Indonesia,Iran,Iraq,

<40%Afghanistan,Albania,Algeria,Bangladesh,Benin,BurkinaFaso,Cameroon,Chad,Comoros,Coted’Ivoire,Djibouti,Egypt,Gabon,Gambia,Guinea,Guinea-Bissau,Guyana,Indonesia,Iran,

<40%Afghanistan,Bangladesh,Benin,Brunei,BurkinaFaso,Cameroon,Chad,Comoros,Djibouti,Gabon,Gambia,Guinea,Guyana,Iran,Iraq,Jordan,Kyrgyzstan,Mali,Mauritania,Morocco,


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MobileBroadband

Coverage(3G)

MobileBroadband

Coverage(4G)



Kyrgyzstan,Mali,Mauritania,Morocco,Mozambique,Niger,Nigeria,SierraLeone,Somalia,Syria,Sudan,Tajikistan,Togo,Tunisia,Turkmenistan,Uganda,Uzbekistan,Yemen

Kyrgyzstan,Mali,Mauritania,Mozambique,Niger,Nigeria,SierraLeone,Somalia,Syria,Sudan,Tajikistan,Togo,Tunisia,Turkmenistan,Uganda,Uzbekistan,Yemen

Iraq,Jordan,Kuwait,Kyrgyzstan,Libya,Mali,Mauritania,Morocco,Mozambique,Niger,Nigeria,Pakistan,Senegal,SierraLeone,Somalia,Sudan,Syria,Tajikistan,Togo,Tunisia,Turkmenistan,Uganda,Uzbekistan,Yemen

Mozambique,Niger,Nigeria,Pakistan,Senegal,SierraLeone,Somalia,Sudan,Syria,Tajikistan,Togo,Turkmenistan,Uganda,Uzbekistan,Yemen


Ingeneraltrends,someOICMemberCountriesintheMiddleEast(Bahrain,Oman,Qatar,SaudiArabia,UAE)andCentralAsia(Azerbaijan,Kazakhstan)tendtobeadvancedintermsofsupplyandpenetrationofbroadbandservices.Attheoppositeend,alargegroupofAfricancountries(Benin,BurkinaFaso,Cameroon,Chad,Guinea,Senegal,SierraLeone,Sudan,Togo)arestillatalimited stage of broadband development both in terms of supply and demand. Finally, anumber of countries in North Africa (Egypt, Tunisia, Morocco), Sub-Saharan Africa (Coted’Ivoire), Middle East (Kuwait) and Asia (Brunei, Kyrgyzstan, Turkey, Uzbekistan) exhibitadvancedcoverageofthepopulationcombinedwithlowadoption.Broadbandpoliciesneedtobe defined for each group. The following are structured around the promotion of enhancedsupplyandthestimulationofdemand.Cognizantthatsupplyanddemandstimulationpoliciescouldbeimplementedinallthreecountrygroupings,eachgrouphasadominantimperative:advancedcountriesneedtofocusonpolicyinitiativesthatpromotenextgenerationbroadbandnetworkdeployment; countries at an intermediate stageofbroadbanddevelopmentneed tofocus on demand stimulation policies around digital literacy; finally, countries with limitedbroadbanddevelopmentneedtoemphasizeaffordabilityinitiatives. VI.1.AdvancedOICMemberCountries

Advanced OIC Member Countries exhibiting high coverage and adoption are facing thechallengeofbuildingaforward-lookingworld-classinfrastructurethatwillpositiontheminaleading position in terms of digitization. This entails deploying fiber optics both at thebackboneandlastmilelevel,completingtheir4Gcoverageandpreparingtodeploy5G.Supplyrelatedpoliciesforthesecountriesneedtorecognizethatfewbroadbandproviders(typicallytheincumbents)arecapableoftacklingthesechallenges.Alongtheselines,governmentsneedto consider policies that represent appropriate incentives to warrant next generationinfrastructure deployment. They typically include tax benefits and regulatory holidays, bothappliedonaselectivebasis.


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VI.1.1.Promotionofinvestmentofnextgenerationbroadbandnetworks

Stimulationofnetworkdeploymentandinvestmentofnextgenerationtechnologiesshouldbebased on policies that reduce the cost of acquiring network equipment by operators. Forexample, one approach is to reduce import duties andVATon the acquisition of broadbandequipment. Taxes tend to raise the required pre-tax rate of return of capital invested. Ingeneral terms, leavingaside thepositive impact taxes fulfill in termsof their contribution tothedelivery of public services, they tend to also affect the incentives of a company tomakeinvestments and reduce the supply of funds available to finance them. In industries such astelecommunications that provide broadband services, a critical platform to deliverinformation,publicservices,andensureeconomicgrowth,taxationtendstoreducethelevelofcapitalinvestment.Therefore,thegovernmentshouldconsideranexemptionofimportdutiesand maybe VAT for equipment to be used in deploying broadband services. Malaysia hasenactedsuchapolicy inordertopromotedeploymentof lastmilebroadbandnetworks.Thetaxexemptioncouldbeappliedonaselectivebasis.Forexample, ifequipmentisacquiredinorder tobedeployed in rural and/or isolatedareas, theexemption couldbeapplied.On theotherhand, if theequipment is intendedtobedeployed inurbanareas, theserviceprovidershouldpaythecorrespondingtaxesandlevies.

Onthemobilebroadbandside,thedeploymentof3GintheOICMemberCountrieshasbeenasuccess. However, the increase in data traffic is putting pressure on operators to continuedeploying4Gtechnology.However,itshouldbeconsideredthat,withonlyrecentadvanceson3Gdeployment,operatorsinsomecountrieswouldbereluctanttoproceedtowardsdeploying4Gbeforeachievingareasonablerateofreturnonthepriorgenerationoftechnology.Inorderto accelerate 4G deployment governments should consider the enactment of financialincentivestooperators.Oneofthemistheextensionofthetaxexemptionforthepurchasingofnetwork equipment mentioned above. Beyond this, governments should consider reducingsomeofthespectrumlicensingcoststhatareincurredbyoperators.Thesemeasureswillhavea negative impact on the operators’ willingness and ability to commit capital for thedeploymentof4G.Whileacknowledgingthatthesemeasuresareaimedatcollectingadditionalrevenuesforthecountry’streasury,theirimpactshouldbeevaluatedalsointermsofwhetherthey detract the country from accelerating its transition to new technology. Severalapproachesexist that could reduce the costof acquiring spectrum.Oneof them is to extendspectrum license renewal payment policies. Another one is to implement spectrum auctionapproaches such as beauty contests that reduce the cost of acquisition when compared toconventionalauctionapproaches.

Approachescombiningregulatoryholidaysanddirectsubsidiestendtoaddresstheproblemofhowtoachievehigh-speedcoverageinruralandisolatedareas(recognizingthatforadvancedcountries, high speed service is already provided in urban and suburban areas). Regulatoryholidays exempt incumbents that deploy fiber from the obligation of sharing their networkwithcompetitors.Subsidiescouldentailco-financingmechanismsweregovernmentsinvestindeploying ultra broadband infrastructure in areaswith limited return on investment. Theseapproachesareexpandedinthesectionbelow.


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VI.2.OICMemberCountriesatanintermediatestageofbroadbanddevelopment

Countrieswithadvancedcoveragebutlimitedpenetrationfaceclassicaldemandgapreductionchallenges.Firstandforemost,governmentshavetorecognizethatincreasedserviceadoptionisdependenton lowering the totaloperatingcost incurredbyconsumers forpurchasing thetechnology.

As it hasbeen considerably researched, thedevelopmentof competition is oneof themajortools foraffectinga reduction in telecommunicationsservicepricing. The following featurescharacterizeatelecommunicationscompetitionmodel:

• Existenceofmultipleoperatorsservingthesamemarketbasedontheirownnetwork,• Existenceofmultidimensionalcompetitivedynamics(prices,servicesanduserservice

quality)amongindustryplayers,• Reduction of retail prices for consumers, and intense competition in product

differentiation(dynamicefficiencies),resultinginadditionalconsumersurplus,• Competitive stimulation for each operator to increase the level of investment in its

ownnetwork,• Absence of tacit collusion between operators due to the high rate of innovation and

competitionbasedonproductdifferentiation.

Alongtheselines, it is importanttoemphasizethat inordertodeterminetheexistenceofanadequatelevelofcompetitioncapableofyieldinglowbroadbandprices,theregulatorsneedtohave access to expertise in market analysis capable to establishing whether the number ofplayers in the market are sufficient to warrant enough consumer benefits or whetheradditionalremediesarerequiredtostimulatecompetitiveintensity.Thisaspectisparticularlycritical because unrestricted competitive entry of broadband providers could result in anumberofmarketinefficiencies(forexample,lowincentivestoinvestunderlowmarketshareconditions) and/or frictional costs (the costs incurred by carriers entering and exiting themarket after facing unsuccessful competitive strategies, as was the case of the wirelessindustryinCoted’Ivoire).

Beyond,competitionasaleverforpricereduction,governmentsshouldconsiderreducingthetaxes incurred by consumers when purchasing broadband services. For example, in Coted’Ivoiretheacquisitionofhandsetsisleviedby18%invalue-addedtax,5%incustomsduty,and2.5%insectorspecifictaxes.Ontheotherhand,theserviceuseisleviedby18%invalueadded tax113. In general terms, since high taxation increases the total cost of ownership ofwirelessservices,itiscorrecttoconsiderthathigherwirelessconsumptiontaxeswillraisetheaffordability barrier and reduce adoption. In this context, taxation could have a detrimentaleffect on the public policy strategy aimed at deploying mobile broadband. If taxes limitadoption of wireless broadband, it is relevant to ask what the ultimate impact of reducedpenetration might have on economic growth. Hypothetically, it is safe to assume that a

113TheseleviesaredocumentedintheInternationalTelecommunicationsUnionEyedatabaseandhavebeenanalyzedinKatz(2015).Theimpactoftaxationonthedigitaleconomy.Geneva:InternationaltelecommunicationsUnion.


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reductioninadoptionasaresultofincrementaltaxationcouldyieldanegativeimpactonGDPgrowth.Thetaxationinitiativecouldbecomplementedwithselectedtargetedsubsidiestobeassignedtovulnerablehouseholdsorresidentsinruralareas.

Inaddition, the reductionofbroadbandserviceprices canbeachieved throughanumberoftargeted public policy initiatives. These initiatives are generally implemented with theobjective of achieving universal broadband adoption. The underlying rationale for thesepolicies is that,beyondacompetitionmodel,governmentpoliciesshouldbe implemented tofurther price reductions of broadband in order to make it accessible to segments of thepopulationaffectedbylimitedaffordability.

Oneapproachtoachievethisisforthegovernmenttoofferasubsidyonthecostofbroadbandaccess. This could be done in the form of a plain voucher or a tax refund for qualifyingsegmentsofthepopulation(e.g.students).Inpreviousexperiences,thecriticalsuccessfactorsinthisapproacharetwo:

• Establish upfront who is supposed to determine what constitutes an “affordable”offer?Thepublicserviceproviderortheregulator,

• Ensurethatwhoeverwilldefinethe“social”offerhastherighteconomicexpertise.

Thesecondoption is tonegotiateanagreementbetween thegovernmentandprivate sectorbroadbandproviderstoofferlow-pricedservices,butinthiscaselimitedtoinstitutions(suchasschools,libraries,orhealthclinics).Severalcountrieshaveenactedpoliciesinthisdomain.IntheUnitedStates,theFCCprovidesa65%subsidytoruralpublicornon-profitruralhealthcare providers to use toward the cost of broadband network deployment or subscriptionsthrough its Health Connect Fund. The Korean government spent $24 billion on a publicbackbone network,which service providers used to offer broadband to 30,000 governmentand research institutes and 10,000 schools. Scotland’s 2004 Broadband Pathfinder Projectofferedgrantstowireschools,libraries,andpublicbuildings.

The third option comprises offering free Internet access through Wi-Fi services located inpublic areas, suchas squares, libraries, and transportationhubs.Theprovisionof freeWi-FiInternet access is being conceived as one of the building blocks needed to build a city’sinternationalcompetitiveness.ThereareseveralfeaturesandoptionsofafreeWi-Fiprogram:

• Coverageofpublicspaces:squaresandparks,publictransportation,includingmetros,publiclibraries,

• Typeofservice:amountoftimeprovidedforfreeaccess(1hr.limitwhilecommuting,openunlimitedaccess),

• Typeofserviceprovider:undercontractwithtelecommunicationsoperatorsorotherbroadbandplayer,offeredbythecityadministration,

• Qualityofservice:basicvideostreamingquality,Asitisobvious,theoptionsoutlinedabovearenotmutuallyexclusiveandcanbeappliedsimultaneously.


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VI.2.1.Initiativestopromotedigitalliteracy

Asmentionedabove,upto29%ofbroadbandnon-adoptersincertainOICMemberCountriescitedlimiteddigitalliteracyasareasonfromnotacquiringservice.Digitalliteracyisdefinedasthe“abilitytousedigitaltechnology,communicationtoolsornetworkstolocate,evaluate,useandcreateinformation”(HaugeandPrier,2010).Initiativesaimedatbuildingdigitalliteracyneedtoinvolvebothembeddingprogramsintheformaleducationsystemandtargetingnon-formalinitiativestospecificsegmentsofthepopulation(elderly,handicapped,ruralpoor,etc.).

Addressingthisobstaclerequirestheimplementationofprogramsthatbuildanunderstandingof the service offerings, and develop user confidence, explaining the benefits of use, andunderstanding security and privacy constraints as well. In general terms, four types ofinitiativestargetingdigitalliteracyimpedimentsexist:

• Digitalliteracythrougheducationprogramsentailtheinclusionofspecificprogramsatalllevelsoftheformaleducationsystem,requiringalsotheimplementationoftrainingprogramsforteachers,

• Targeted digital literacy interventions comprise the implementation of programsaddressed to specific segments of the population, such as the elderly, thedisadvantagedortheruralpopulation,

• Deployment of community access centers allows supplying non-adopting populationwith devices and access points to the Internet; in addition, the access centers canbecomepointsofdeliveryoftrainingprogramsandusersupport,

• The privacy and security training programs allow building the levels of trust fromconsumersinordertofosteradoptionofbroadband.

While digital literacy embedded in formal education processes are conducted in schoolinstitutions,closelylinkedtocurricula,targetedprogramsentailgroup-specifictrainingintheuseofcomputersandbroadbandtypicallydeliveredthrougharangeofpublicaccesscenters.ProgramsorientedtofosteringdigitalliteracythroughformaleducationconsistinembeddingICT training in curricula at the primary and secondary school level complemented withtargeted programs focused on teachers. This section addresses the need to introducefundamentalchangesintheformaleducationalsysteminordertoenhancethelevelofdigitalliteracy.

Digitalliteracyprogramsembeddedintheformaleducationalsystemshouldbe,bydefinition,large scale and centrally driven, generally hosted within ministries of education. Whileproviding access infrastructure (both devices and broadband), programs tend to generallyfocus on improving usability. As expected, the initiatives are less focused on deliveringstandard computer courses, emphasizing the use of IT and broadband accesswithin coursematerialbyleveraginge-learningplatformsandsocialnetworking.

While digital literacy embedded in formal education processes are conducted in schoolinstitutions,closelylinkedtocurricula,targetedprogramsentailgroup-specifictrainingintheuseofcomputersandbroadbandtypicallydeliveredthrougharangeofpublicaccesscenters.Forexample,adulteducationprogramsarefocusedonupgradingtheskillsof theworkforce,


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thereforepreparingittofulfillaproductiveroleinthedigitaleconomy.Theycanbestructuredaroundconventional continuingeducationcourses, asextensionprogramsofuniversities,ororganized under economic development efforts focused on specific regions of a country.Trainingcanbeprovided inavarietyofways, so longas it isoffered inaneasilyaccessible,affordablemannertoencourageparticipation.Manytrainingsessions,forexample,areofferedat local community access centersor schools,where citizens already feel comfortable,whileothers are offered online. Sessions can cover a variety of topics, but tend to focus on thedevelopment of ICT skillswith “realworld” application, including, but not limited to e-mail,Internetsearch,Jobsearch,andCVcreation.

Programs focused on rural isolated areas represent a particular case of the examplespresentedabove.Assuch,theyaddressthecomplexitiesofdeliveringtraininginunderservedregions of a country. The primary foci of these programs is bridging the digital divide andenhancingtheemployabilityprofileofthetargetedpopulation.Inthiscase,theinitiativestendto be large scale and centrally managed and focus on accessibility. While the centralgovernmentplaysaprominentroleinprogrammanagement, it isnotunusualtofindprivatesectorparticipantsorNGOs.Accessinthiscaseiskey,asthispopulationcannoteasilyutilizethephysicalresourcesfoundinurbanareas.Tothisdegree,successfulprogramshave:

• Offeredonlinetraining,• BuiltlocalaccesscentersorcybercafésinareaswithlimitedICT• Implementedinitiativesinpublicschoolsorsafehouses• Partneredwithlocalgovernments• Deployedtrainerstoruralareas

Finally, digital literacy programs conceived as extension of either universities or secondaryschools have proven to be very valuable in bridging the generational gap. The overall long-term goal of these programs is to improve social inclusion of the elderly population. Theprimary contentdelivered in this typeofprogramsare standard computer courses, in somecases tailored specifically to the needs of the elderly (e.g. email to communicate with thefamily,photo sharing,use financial applications,purchasing ticketsonline, etc.).However, inaddition,digitalliteracycoursesfortheelderlygiveseniorsanopportunitytomeetpeopleanddevelopasocialnetwork.

Finally,withregardstoloweringtheculturalandlinguisticrelevancebarrier,itiscriticalthatboth the government and the private sector engage in the development of new platforms.Internetaccessinitselfisoflittlevalueintheabsenceofso-calledcomplementarygoodsthatconfervaluetosuchaccess.

VI.3.OICMemberCountriesatembryonicbroadbanddevelopment

Forcountriesthatarestillattheearlydevelopmentstagesofbroadbanddemandandsupply,acombination of infrastructure deployment incentives and demand stimulation policies arerequired.Policymakersinthesecountrieshavetorecognizethatthecompetitiveincentivewillnot be sufficient to generate the stimuli required to promote infrastructure investment.


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Assumingthatgovernmentsofthesecountrieshavelimitedresourcestoinject investmentinuniversalbroadbandreach,itmightbenecessarytorelyonincumbentsandprovidethemwiththe right incentives to deploy broadband networks. Infrastructure investment stimulationpoliciesshouldbeputinplacesimultaneouslywithdemandpromotionmechanismsthatdriveuptaketocommercializethesupplyavailability.

VI.3.1.Tacklingthebroadbandaffordabilitychallengeinlow-incomecountries

Beyond the competitive stimulimentionedabove, the reductionofbroadband servicepricescanbeachievedthroughseveralpublicpolicyinitiatives.

Thefirstonereliesonstate-ownedtelecommunicationsoperatorstooffer,undertheirpublicservice imperative, a low-priced broadband service. Obviously, this option is only viable inthosecountriesthathavenotcompletelyprivatizedtheirtelecommunicationsindustry.Underthis option, a state-owned broadband provider assumes responsibility, as a public serviceentity, for providing a low-price broadband service. The advantage of this option is that, inaddition to fulfilling theobjectiveof tackling theeconomicbarrier, theofferingcanactasanincentiveforotherprivateoperatorstolaunchtheirownmoreaffordableservice.

The second option entails a negotiation between the government and private operators forthem to offer a low-priced broadband service targeted for disadvantaged segments of thepopulation. In this case, government policy makers negotiate with private broadbandproviders the offering of a low-priced plan. This can be achieved in the context of theformulation of a national broadband plan. Such has been the case of the Brazilian NationalBroadband Plan, which triggered a negotiation leading to the launch of the “Banda LargaPopular”,offeredbyseveraloperators.Anotheroptiontoreachsuchanagreementcouldbetoattach theofferingofa low-pricedplanasa sinequanoncondition forprovidingregulatoryapprovalofanincumbentplan.SuchwasthecaseintheUnitedStates,wherethegovernmentdetermined that Comcast should offer a low-priced broadband service if it were to receiveapprovalforacquiringNBCUniversal.ThistriggeredaprocessthatledallothermajorcableTVoperators to join in the initiative. A slight variance of this option entails a move by anincumbentwirelineoperator tooffera lowpricedplanandcreategoodwill inorder topre-emptathreateninggovernmentregulatorymove.Underthisoption,thecriticalsuccessfactoristhedeterminationofquidporquoconditions.Inotherwords,whatwillthegovernmentofferin exchange for gaining an agreement from the broadband operators (e.g. Tax reduction?Regulatoryholidaysonfiberinvestment?Authorizationtocompleteanacquisition?)The third option comprises offering a subsidy for broadband purchase. Under servicesubsidizationpolicies, thegovernmentoffers a refundon the costofbroadbandaccess.Thisoptionisbeingincreasinglyexaminedasacomplementtosomeincomeredistributionpolicies.Three types of programs have been implemented to overcome the personal computerownershipbarrier.Thefirstonefocusesontheprovisionofsubsidiestoreducetheacquisitionprice of devices. The target in this case could be households at the lower end of the socio-demographic pyramid, primary school to university students, and SMEs (especially micro-


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enterprises). The second program typically targets students in primary education, withgovernments distributing “One Computer per Child.” In this case, public school studentsreceivecomputersfreeofcharge.Thethirdtypeofinitiativeentailsareductionoftheaccessprice by eliminating or decreasing taxes paid at time of purchasing. Levies affected by thismeasurecouldrangefromsalestax,importduties,andevensector-specificlevies.


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