ita of nj, inc1 broadband access: analysis of its economic impacts and policy implications shawky...

ITA of NJ, Inc 1

Broadband Access:Broadband Access: Analysis of Its Economic Impacts Analysis of Its Economic Impacts

and Policy Implications and Policy Implications

Shawky El-Toukhy, Ph.D.Shawky El-Toukhy, Ph.D.ITA of NJ, IncITA of NJ, Inc

ARNETARNET Professional Development WorkshopProfessional Development Workshopin Collaboration with ITUin Collaboration with ITUSharm El Sheikh, EgyptSharm El Sheikh, Egypt

4-6 March, 20054-6 March, 2005

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OutlineOutline

The Importance of Broadband/Advanced Telecommunications Infrastructure

Economic Impacts Convergence and Broadband Policy Implications Attributes of an Effective Regulatory Body Policy Implications for ARNET

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Stages of Socioeconomic Stages of Socioeconomic EvolutionEvolution

Agriculture

Manufacturing

Information

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Information StageInformation Stage

Telecommunications and computers are the core of the current technological revolution.– Computers process and generate information.– Telecommunications transmits information

through interactive loops and feedbacks.

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Information Stage Information Stage (con’t )(con’t )

Telecommunications & computers:– Process and interconnect information

produced in all fields and spheres of activity.

– Accelerate innovations as well as diffuse these innovations into other areas.

– Play a major role in productivity improvements and competitiveness of most economies.

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Dissemination of Information:Dissemination of Information: The Printing Press The Printing Press

The current revolution in communications technologies is as important to our lives today , as the invention of the printing press was some five hundred and fifty six years ago.

Johannes Gutenberg’s printing press was arguably the most important invention of the past millennium.

Led to sweeping social, economic and cultural changes across the world ,facilitating the Reformation and the Age of Enlightenment.

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The Printing PressThe Printing Press (con’t)(con’t)

Dissemination of the printed word influenced art, literature, philosophy and politics.

Foundation of society rocked by rise of informed middle class…people could no longer be kept in the dark.

Re-created the world by shifting paradigms of information dissemination and communication among masses of humanity.

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Dissemination of Information: Dissemination of Information: Communications TechnologiesCommunications Technologies

Today we are witnessing a rapid development of communication technologies that is contributing to an equally important paradigm shift of rapid dissemination of information.

This shift is leading to a decentralization of traditional economic markets throughout the world.

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Paradigm Shift ConsequencesParadigm Shift Consequences Inter-connected global economy

Market where physical borders and distance are becoming increasingly insignificant

Defining perspective of globalization is “integration”

Symbol of the globalization system is “www”… unites everyone

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Economic ImpactsEconomic Impacts Telecommunications Technologies playing

dominant role in determining course of economic growth.

Exercise a great power over commercial

destinies of firms, thus having the power to redistribute wealth and income among both individuals and regions.

Location decisions are increasingly affected by considerations of climate, prestige, amenity, and communications access.

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Economic Impacts Economic Impacts (con’t)(con’t)

Better communications access increases connectivity of places.

Improved connectivity lessens need to cluster economic activities in order to reap benefits of agglomeration economies.– This affects the location and distribution of

these activities in space.

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As the country advances into an information economy, the role of these technologies increases significantly.

Presence or absence of such technologies will have a quantifiable impact on the direction and rate of socioeconomic development.

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These technologies allow corporations to increase efficiency and control by integrating virtually all critical business functions from the assembly line to customer billing.

Deployment of these technologies leads to the creation of new industries and increased productivity of existing ones.

Empirical evidence shows strong association between advanced communications technologies and growth in productivity/economic performance for industries that utilize these technologies (statistical models).

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Communications technologies has the power to reshape the basic structure of production and performance of the economy.– 52% of all new investments in plant and equipment

in the U.S. in 2003 were in the form of purchases of information technology, specifically computers and telecommunications devices.

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Share of Producers’ Durable EquipmentShare of Producers’ Durable Equipment(Constant 1996 Dollars)(Constant 1996 Dollars)

Equipment type 1950

%

1978

%

1986

%

2000

%

2003

%

Information 6 20 40 47 52

Industrial 33 28 21 17 15

Transportation 29 25 20 20 16

Other 32 27 19 16 17

Source: United States Department of Commerce, BEA-NIPA, August 2004

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In U.S. studies that measured the strengths of forward and backward linkages of communications sector, it has been found that the sector has a strong forward linkage; therefore it is qualified to be “key” or “leading” sector in the economy.

This confirms the held view that communications is a strategic sector in the emerging information economy.

For regional development this means that policies which promote the construction of advanced communications infrastructure would lead to enhanced economic development .

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Studies show that given adequate access to Broadband, proliferation of grid computing and web services applications will yield substantial productivity gains in the U.S. and worldwide over the next decade.

North Carolina Study example:– Deployment of these high performance technologies will

contribute the following gains to the state’s economy over the forecasted growth for 2002-2010 period.

Output ($96)

Agg. Labor

Productivity

Employment Pers. Income ($96)

10.1 b 1.5 % 24,000 7.2 b

Source: Cohen R. Grid Computing, Projected Impact on North Carolina’s Economy and Broadband Use through 2010, Rural Internet Access Authority; September 2003.

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Industries that are early adopters showed substantial gains in labor productivity and output over the base forecast for the 2002-2010 period.

Industry Output

Labor Productivity

Pharmaceuticals

Autos

Aerospace

Financial Services

Hospitals

6.3%

11.9%

3.7%

2.6%

4.3%

12%

14%

15%

12%

13%Source: IBID

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Economic ImpactsEconomic Impacts (con’t)(con’t) The New York State Study:

– The effect of full deployment of broadband technology by the year 2010.

– The effect of the absence of full deployment on the state’s competitiveness in the regional market by the year 2010.

Full Deployment

Absence of Full

Deployment

Employment (jobs) 227,340 -137,850

Industrial Output 19.5 b -12.9 b

Earned Income 8.13 b -5.01 bSource: El-Toukhy SA. Analysis of the Economic Effect of the Telecommunications Network Modernization on New York State’s Economy: Telecommunications Exchange Task Force, Office of Economic Development, State of New York; August 1993.

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Year

Percentage of Household with

Telephones

Access LinePer 100

Population

1920193019401950196019701980199020002003

35.040.936.961.878.390.592.993.394.194.7

9.612.512.721.727.635.044.854.366.4

Source: FCC, Wireline Competition Bureau, December 2004

Historical Telephone Penetration Historical Telephone Penetration EstimatesEstimates

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Percent of U.S. Households Percent of U.S. Households with a Telephone, Computer, and Internet Usewith a Telephone, Computer, and Internet Use

1994 1997 2000 2003

Telephone 93.8 93.8 94.6 95.2

Computer 24.1 38.6 51.0 61.8

Internet Use 18.6 41.5 54.6

Broadband Internet 4.4 19.9

Source: A Nation Online : Entering the Broadband Age , NTIA, September 2004

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Convergence has become a major market force where entire industries converge:– RBOC are no longer just telephone companies.– Cable companies are providing high speed

internet access and communications services.– Power companies provide communications

services.– Traditional broadcast networks and cable

networks are establishing websites, thus providing content to supplement their video services.

Convergence and Broadband:Convergence and Broadband:

A Challenge to RegulatorsA Challenge to Regulators

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Broadband and Convergence Broadband and Convergence

Technologies are also converging. The development of cable modems and DSL technology is taking us to a world in which all communications modes (video, voice, and data) are readily accessible and conveniently bundled.

At the very core of all of these changes in the communications

industry is the deployment of broadband technology.

It is this technology that allows high-speed access to data,

video, and telephony. This access will affect the way we live, the way our children will be educated, the way we receive entertainment, and the way we do business.

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The convergence of voice, video, and data (available in our homes) virtually on demand is also fueling massive capital investment in related industries.

Communications technology is being developed at a speed that defies comparison. To put it into perspective, it took radio 38 years to reach 50 million people. It took television 13 years and PC 16 years. It took the internet only 4 years to reach 50 million people.

The broadband market is growing rapidly and we are entering the Broadband Age (decline of dial up connection in U.S. by 12.7% in 2003).

Broadband and ConvergenceBroadband and Convergence (con’t)(con’t)

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Total Broadband SubscribersTotal Broadband Subscribers High speed lines High speed lines

(Over 200 kbps in at least One Direction)(Over 200 kbps in at least One Direction)

Types of

Technology

2000 2001 2002 2003 2004

(June)

ADSL

Other Wireline

Coaxial Cable

Fiber

Satellite or Wireless

1,977,101

1,021,291

3,582,874

376,203

112,405

3,947,808

1,078,597

7,059,598

494,199

212,610

6,471,716

1,216,208

11,369,087

548,471

276,067

9,509,442

1,305,070

16,446,322

602,197

367,118

11,398,199

1,407,121

18,592,636

638,812

421,690

Total LinesLines with High speed in both directions

7,069,874

4,293,369

12,792,812

7,404,343

19,881,549

12,350,888

28,230,149

20,344,453

32,458,458

23,473,932

Source: FCC, High speed services, Wireline competition Bureau, Dec. 2004

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Policy ImplicationsPolicy Implications

Telecommunications technologies’ infrastructure is the key to progress in many areas of critical importance: economic development, education, health care, agriculture, energy, transportation, and national security.

To reap the benefits of this important infrastructure and thereby create economic growth, we must have an effective regulatory body with the following attributes: – Independent, transparent, predictable, and appropriate

professional staff.

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Policy Implications:Policy Implications:Effective Regulatory Body AttributesEffective Regulatory Body Attributes

Independence– A regulatory body must be independent

from the companies it regulates and free from direct political pressure.

– For a regulatory body to have an effective mechanism, it must have an adequate funding.

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Transparency– A regulatory body must be open and transparent.

All rules and decisions are clear and openly arrived at.

– Comments from all stakeholders must be a part of the process. A clear process that people (consumers and investors) can understand and rely on.

Policy Implications:Policy Implications:Effective Regulatory Body Attributes Effective Regulatory Body Attributes (con’t)(con’t)

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Predictability – A regulatory body must be predictable. This allows

entrepreneurs and investors to manage risk.– Has clear authority and jurisdiction through its

national law.– Has power over licenses, spectrum, pricing, and

whatever is determined to be needed.– Has the power to enforce its rules.


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Capable Professional Staff– Up to date professional staff is a must to the

success of the regulatory mission.– By recruiting the best and the brightest and

offering incentives necessary to retain them.– Training has to be an important part of a

regulatory body’s budget priorities.


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Policy Implications for ARNET Policy Implications for ARNET

Challenge for regional development, to make globalization work, and to reap the benefits of this critical infrastructure is to have all nations upgrade their infrastructure and plug into the network.

To attract capital and investment, a country needs:– An effective regulatory regime that abides by

established technical and business standards.– To encourage the harmonization of

telecommunications policies among ARNET members.

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Policy Implications for ARNET Policy Implications for ARNET (con’t)(con’t)

Given the current state of affairs in the market, the obvious question becomes what is the role of the regulators? What should be done at this critical juncture?

There are at least two major responsibilities:– To ensure that advanced services and

technologies are actually built and deployed.– To ensure that deployment is conducted in a

manner that leaves no one behind (benefits all).

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Hot Issues Facing ARNET MembersHot Issues Facing ARNET Members

Transitioning from monopoly to competition:– Human resources– Technical and business standards– Billing – Pricing– Interconnection– Consumer protection– Security and emergency preparedness

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QuestionsQuestionsor or

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ita of nj, inc1 broadband access: analysis of its economic impacts and policy implications shawky...

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