Reinventing Telecoms

The new telecommunication world: At a new crossroads

By the beginning of 2002, more than half the countries in the world had fully or partially privatized their incumbent telecommunication operator (see Figure 1). Competition has spread widely, although a majority of countries still retain monopolies in fixed-line services, such as local and long distance calls. However, an overwhelming majority of countries now allows competition in the mobile and Internet market segments, which increasingly substitute for fixed-line voice.

Mobile: raising access to communications

With just short of one billion subscribers at the end of 2001, mobile is poised to take over from fixed lines in the early part of 2002 as the network with the most users (see Figure 2). By the end of 2001, over 90 per cent of countries had a mobile network, almost one in every six of the world’s inhabitants had a mobile phone and almost 100 countries had more mobile than fixed telephone subscribers (see Figure 3). Mobile has raised access to communications to new levels. In developing nations, and particularly in the least developed countries (LDC), mobile is increasing telephone access surprisingly rapidly. The mobile revolution in developing countries is easily explained by the ease with which mobile networks can be installed. But another key element is the availability of prepaid cards. Among populations which would not meet the financial criteria for subscription-based services, prepaid can bring communication to the masses.

Even in developed countries mobile is gradually substituting fixed — primarily among the lower-income segment of the population. This trend implies that mobile, rather than fixed, is the key to achieving universal access goals and other social policy objectives.

The new digital divide

In 1991, total telephone penetration (fixed-line plus mobile telephones) stood at 49.0 in developed nations, 3.3 in emerging nations and just 0.3 in the LDCs. A decade later, the corresponding levels stood at 121.1, 18.7 and 1.1. However, while the ratio between developed nations and emerging ones has halved, between emerging nations and LDCs it has actually grown (see Figure 4). The new digital divide is expressed in the growing gap between these countries and the LDCs, especially in terms of access to Internet (see Improving IP Connectivity in LDCs).

Note: In the left chart, 1982–2001 is based on real data and 2002–2005 on projections. In the right chart, the 97 countries that are shaded had more mobile users than fixed lines, as at year-end 2001.

The new digital divide is harder to measure because it is not just about access to the Internet, but also about the quality of the experience. For instance, international Internet bandwidth (or IP connectivity), which is a determining factor in response times, is a good measure of users’ experience with the Internet. The 400 000 citizens of Luxembourg between them share more international Internet bandwidth than Africa’s 760 million citizens. The reality is that high-speed (broadband) Internet access, which has become fashionable in many parts of the developed world, is still a long way off in most developing countries. The new digital divide is about quality, not just quantity.

However, the Internet is of little use to people who are unaware of how access to electronic information can improve their lives, or who do not know how to use the equipment. Training and locally relevant content will therefore be key factors in bridging the divide. Moreover, there is a shortage of compelling research and examples of how ICTs can transform the development process. Effective solutions will require a triumvirate pact between governments, development agencies and the private sector.

Recipe for reform: privatization, competition and independent regulation

Although many different recipes for reform have been followed, most countries have included three basic ingredients in their reform programme: private sector participation, market competition and creation of an independent regulatory body. Table 1 shows those economies that experienced the greatest change in ranking (up or down) for total teledensity (the sum of fixed lines and mobile users per 100 inhabitants) between 1990 and 2000. Among those that succeeded in improving their status are many economies that began reforms early in the decade, like Chile, Hungary or the Philippines, as well as several that started more recently, like Botswana or Morocco. The stand-out cases are China and Viet Nam, which both followed a strategy of encouraging competition between different government ministries as well as private sector investment in their mobile sectors. When a government is truly committed to telecommunications investment, it can make a big difference relatively quickly.

The industry in 2000 was worth almost a trillion US dollars in terms of service revenues, but the acceleration in telecom growth rates was reversed in 2001, notably in key market segments such as mobile and Internet. Share prices declined precipitously, and expected profits turned to losses for many of the new market entrants. The sector was left reeling, and wondering what went wrong.

While the recent diagnosis might be one of doom and gloom, the phenomenal growth of the late 1990s should be seen in a historical context, as a wave of change which only happens every fifty years or so (see Figure 5). It was the result of the confluence of rapid technological change with a shift in market expectations, in this case associated with mobile overtaking fixed-line networks, with data overtaking voice, and with widespread implementation of sector reform.

The gale of creative destruction currently blowing through the industry will bring misery to some, but opportunity to many more. Above all, for telecommunication users, who will soon form the majority of mankind, a new age is dawning in which scarcity is being replaced by plentiful and ubiquitous supply. That is telecoms reinvented!