Improving IP Connectivity in the Least Developed Countries Background study

The views expressed in this paper are those of the authors and do not necessarily reflect the opinions of the ITU or its Membership. The author can contacted by e-mail at [email protected]. 1

International Telecommunication Union

12 April 2002


Improving IP Connectivity in Improving IP Connectivity in the Least Developed Countriesthe Least Developed Countries

Background studyBackground study

Claudia SarroccoStrategy and Policy Unit


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OutlineOutline

- Introduction- Background- Vicious circle- Conclusions: barriers- What can we do? Proposal- Virtuous circle

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BackgroundBackground

Digital divide initiatives - DOT force

- UN ICT task force

“Improve connectivity, increase [ICT] access and lower cost”

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ObjectiveObjective

To provide low cost Internet connectivity to LDCs through the utilization of flexible, less expensive and simple technology, like VSATs, engendering a “virtuous circle” which can help reducing the digital divide among countries.

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Scope: LDCsScope: LDCs Forty-nine countries, with a total population

of about 670 million inhabitants, are currently designated by the United Nations as “least developed countries" (LDCs).

Cambodia, Gambia, Lao PDR, Mali, Mozambique, Nepal, Rwanda, Samoa and Uganda have been chosen as representative of the LDCs group and will be object of a deeper analysis.

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In LDCs problems are more extreme than those of developing countries, and

deserve special attention

Why Least Developed Why Least Developed Countries?Countries?

• There is less than one Internet user per one thousand people, against one user per 36 people in developing countries

• In LDCs teledensity is 0.59%, compared to 10% in developing countries

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Why focus on connectivity?Why focus on connectivity?

Connectivity is the possibility for a user of an electronic network to communicate with other networks

Connectivity is fundamental, as it precedes access to and use of the Internet

LDCs have very low levels of connectivity …

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International Internet International Internet Bandwidth…Bandwidth…

……is not equally distributedis not equally distributedSource: TeleGeography Inc. Data valid for September 2001

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LDCs are falling behind…LDCs are falling behind…

Estimated Internet Users

Population

Total: 6 billionLDCs: 680 million

10%

World: 360 millionLDCs: 0.58 million

0.13%

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……and failing to catch upand failing to catch upInternet users growth rate (56%) in LDCs is only a few points above average growth worldwide (49%)

230%

444%

281%

167%

234%

56%

0

100

200

300

400

500

600

700

1995 1996 1997 1998 1999 2000

Tho

usan

ds

116%64% 57% 49%

LDCs % growth

World % growth

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Low growth, high demandLow growth, high demand

0.20.2

0.10.1 0.1

0.1 0.10.1

0.5

0

10

20

30

40

50

60

70

80

Cambod

ia

Gambia

Lao P.D

.R.

Mali

Moz

ambique

Nepal

Rwanda

Uganda

West

ern Sam

oa

International TrafficInternational Internet capacityBit-Minute Index

Bit-minute Index: any amount under 1 indicates the existence of latent demand for the Internet (selected countries)

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Infrastructure: LimitedInfrastructure: Limited

Country Uplink/downlink capacity

Population(million)

Lao PDR 1.644/ 1.244 Mbit/s 5.23Rwanda 1.256/1.5 Mbit/s 7.73Mali 2/3 Mbit/s 11.23

Samoa 512/2.256 Kbit/s 0.18

Cambodia 3.5/6 Mbit/s 13.11

Mozambique 1.6/2.2 Mbit/s 19.68Gambia 5/5 Mbit/s 1.30

Nepal 5.5/10 Mbit/s 23.04

Uganda 4/12 Mbit/s 23.30

Proportionate cost per 64 Kbit/s unit/month

n.a.

n.a.

USD 1’500

USD 840

USD 625

n.a.

USD 625/265

USD 625

n.a.

and Expensiveand Expensive

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Result: High ISP costs for the Result: High ISP costs for the end-userend-user

90

50 4526 30 32 25 19 17 9.4

462

209

169136

112 99 96 96

0

50

100

150

200

250

300

350

400

450

500

ISP charges (month) USD ISP charges (month) PPP

This translates into a “ vicious This translates into a “ vicious circle”circle”

Low internationalInternet connectivity

High connectivity Charges for ISPs

Low demand for Internet services

Little investment inNew infrastructures

Low bargaining Power of ISPs

Lack of competition

No exploitation ofEconomies of scaleNo growth of

infrastrctures


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Conclusions: Conclusions: There are many barriers to There are many barriers to

Connectivity for LDCsConnectivity for LDCs Infrastructure:

High cost, low availability Restrictive regulation:

Monopoly of telecommunication sector Only one provider imposing its tariffs Limited competition on the end-user side (ISPs)

Market Failure: Small market Operators cannot benefit from economies of scale Operators do not have bargaining power to obtain more

attractive prices Latent demand is not satisfied

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What can we do? What can we do?

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The proposalThe proposal

Internationally-funded project

Objective: to provide VSAT bandwidth to LDCs at low cost

This bandwidth would be provided to ISPs

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Why target ISPs? Why target ISPs?

- Allows not to bypass local market and local network (less regulatory problems)- ISPs are the most appropriate target for the project, as they already have technical knowledge and equipment to provide services. - Computer services shops and cybercafés could also be targeted.

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- Increased bandwidth

- Drop in costs

- Increased number of users

The effect of improved connectivity:The effect of improved connectivity:Catching up…?Catching up…?

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The financing: VSAT costs are The financing: VSAT costs are still too high for LDCsstill too high for LDCs

- Internationally-funded Project structured over 5-7 years, decreasing each year to support bandwidth provision

- Financing allocated to ISPs through a competitive tendering process based on the reverse auction system (least cost subsidy):The winner will be the entity providing the service at given conditions with the smaller financing

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Summary: Summary: How will it work? How will it work?

Connectivity will be provided to ISPs in LDCs Partial funding: ISPs will participate in the financing In exchange for funding they will provide basic access

at lower prices to private end-users, schools, etc. In addition, ISPs will be able to make commercial use of

part of the bandwidth provided to offer enhanced services to business, foreign entities, etc.

At the end of the 5-7 years, with the growth of the user base, ISPs should be able to be completely self-financed, and provide Internet services on a fully commercial basis, at affordable cost.

Higher internationalInternet connectivity

Lower costs

Higher Demand For Internet services

New investment ininfrastructures

Market growth

Bargaining power

Economies of scale

Marketliberalization

IP Connectivity Project: virtuous circleIP Connectivity Project: virtuous circleInternational Telecommunication Union

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12 April 2002

Thank you !Thank you !

http://www.itu.int/ipdc

http://www.itu.int/ipdc

Improving IP Connectivity in the Least Developed Countries Background study

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