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Tells you what's happening in Telecommunications around the world

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ICT and economic recovery
 
mobile phone
 
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Photo credit: Shutterstock

The financial crisis that erupted a year ago has shaken the global financial sector to its foundations. It has sent many industrialized countries spinning into recession, while slowing the growth of major emerging economies. Although stock markets have rebounded slightly and some economists have found cause for optimism, analysts at leading institutions such as the International Monetary Fund (IMF), the World Bank, and the Organisation for Economic Co-operation and Development (OECD) nearly all agree that the recovery will be weak, slow and uneven.

How is this economic slowdown affecting the growth of information and communication technologies (ICT)? And how might investment in ICT help to initiate and support a recovery? These questions are examined in a report* published by ITU in August 2009. It will be presented to the leaders of government and industry attending ITU TELECOM WORLD 2009, in Geneva on 5–9 October.

Industry’s performance in the crisis

Around the world, the ICT industry has experienced reduced demand, operational cutbacks and curtailed investment. However, the report notes, it is proving to be more resilient than most other industries, especially in the areas of mobile and satellite communications.

Mobiles motor on

The mobile industry is still growing, though more slowly than before. Equipment sales have been hit, but services are doing much better and only a handful of countries are seeing reductions in their number of mobile subscribers. Also, some types of hardware — such as the smartphone — seem to be immune to the recession. In Latin America, for example, the smartphone segment is expected to be one of the fastest growing in the world, and to become an important source of rising data revenues over the next five years. This is according to Pyramid Research (analysts based in the United States), who predict that the Latin American market will grow from 7 million smartphones sold in 2009, or 5.4 per cent of total handset sales, to 48 million in 2014, or 30 per cent of the total.

With the rising demand for broadband access to the Internet via mobile devices, operators are exploring the potential of Long Term Evolution (LTE) technology. Although some LTE networks are being deployed, they are yet to become fully commercial. Meanwhile, broadband access through WiMAX technology continues to be available, with demand coming from developing economies in particular.

The body for the mobile industry, the GSM Association, believes that 2.4 billion people worldwide could be connected to the Internet over mobile devices by 2013: that is, ten times the current level of 200 to 300 million people. Emerging markets will also be a major area of growth for mobile Internet access. In India, for example, there could be more than 300 million Internet-enabled mobile devices by 2013, according to the research consultancy mobileSQUARED, of the United Kingdom.

Next-generation networks

Alongside demand for mobile connectivity, more and more people want broadband at home. The overall increase in broadband subscribers in the first quarter of 2009 remained strong in the United States, China, Brazil and Canada, and looked healthy in Latin America and South and East Asia. Packet-based next-generation networks (NGN) can deliver multiple services to mobile and fixed devices — but the economic crisis has cut into the investment plans of many telecommunication operators that are seeking to upgrade. Not only do operators face more expensive and limited financing, they also face uncertainty over the regulatory future and what revenue streams they might expect from NGN.

Nevertheless, growth in NGN during 2008 and the first quarter of 2009 was in line with long-term trends and the deployment of broadband networks is set to continue (see Table 1). Research consultants Parks Associates, of the United States, found that the number of households with broadband jumped by 18 per cent worldwide in 2008, despite it being a tough operating year. The firm projects that more than 640 million households will have broadband access to the Internet by 2013. Another US research firm, Heavy Reading, projects that fibre-to-the-home (FTTH) installations will grow by 30 per cent a year to reach some 90 million households worldwide by 2012.

 
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Photo credit: Shutterstock
VoIP’s value recognized

The number of people using voice over Internet protocol (VoIP) services to make phone calls is rising (see VoIP comes of age). In fact, the recession could be encouraging the trend, as consumers try to save money by switching to bundled services that include VoIP. In addition, ITU’s annual regulatory survey suggests that regulatory frameworks for VoIP are catching up with the reality of the market: by mid-2009, just over two-thirds of all countries had explicitly legalized commercial offerings of VoIP, or had implicitly condoned it.

Satellites sustain their growth

The satellite industry has also stayed healthy during the financial crisis. Long lead times between investment and deployment, new applications and models of financing, negligible marginal costs and the absence of terrestrial last-mile complications look set to deliver sustained growth. The industry expects to see an annual increase in revenues of 7 or 8 per cent for the next five years, and 50 per cent over the next decade.

Government stimulus packages

Despite the relative health of the ICT industry, financial support during the crisis may be needed not only from the private sector, but also from governments. More than 50 countries have launched economic stimulus packages, the report says, including 25 member countries of the OECD. Many of these list ICT investments in their plans, with new finance for the expansion of broadband. There is also growing support for ICT applications to create “smart” transport systems or electricity grids, for instance. After more than two decades of growing private-sector participation in telecommunications, the public-sector could again be playing a crucial role in financing the building of networks and infrastructure.

graphAccess to the Internet is vital for the participation of firms and organizations in today’s information economy, and governments have recognized the powerful effects of investing in ICT upon economic growth. This is because it produces high returns and encourages further secondary investments, with little money leaking away abroad or to other sectors. Projects can be deployed relatively quickly, and they promise greater productivity gains than investment in other forms of infrastructure, while helping to create a pool of skilled personnel for the future. In addition, investing in infrastructure is likely to generate more robust and durable economic growth than other types of stimulus measures (such as tax rebates). Thus, alongside returns to individual investors, even greater benefits are possible for society as a whole. In order to achieve those benefits to the full, publicsector investment is likely to be needed.

Some commentators have emphasized that stimulus funding by governments should be temporary and targeted, so that it does not discourage (or “crowd out”) additional investment by the private sector. But this is less likely to be a danger during a credit crunch, when such private-sector investment will probably be severely constrained in any case.

The power of investing in ICT

Adopting a national policy to stimulate the deployment of broadband in underserved areas, through mobile or wired means, could have farreaching effects in both the industrialized and the developing world. Recent research by the World Bank, for example, suggests that every 10-per-cent increase in broadband penetration could boost the growth of gross domestic product (GDP) in developing countries by 1.38 per cent (see Figure 1).

Broadband access to the full range of services provided via the Internet not only has an immediate impact; it also creates opportunities for entrepreneurship and “multiplier” effects that benefit the broader economy. An economic multiplier means that a dollar’s worth of initial government expenditure is multiplied by repeated rounds of income-spending, so the ultimate impact is far greater than the initial investment. Strategic Networks Group, a Canadian firm that offers broadband planning services, found that secondary investments driven by broadband can be ten times as high as the initial investment, while their contribution to GDP could be fifteen times higher (see Table 2). These secondary economic effects take longer to materialize, but may have greater impact in the long run, as productivity and competitiveness improve, and new services and jobs are created.

Table 1 — Selected operators' investment plans for ICT infrastructure and national stimulus plans
Country Announced Date Investment Goals and targets Speeds
Austria Telekom Austria 2004 EUR 780 million
(USD 1,130 million)
Full conversion of core to NGN started in 2004; to be completed by 2012 20 Mbit/s
Australia Government 2008 USD 3 billion Fibre all the way to the premises for 90 per cent Australians 100 Mbit/s
Australia Telstra November 2005 AUD 10 billion IP core network by 2007–2010 for 90 per cent households in eight years 100 Mbit/s
Belgium Belgacom 2007 EUR 647 million High-speed broadway project for IP/MPLS network 2008–2012 for 80 per cent homes 100 Mbit/s
Canada Government January 2009 CAD 225 million
(USD 211 million)
Broadband coverage for unserved rural and remote communities over three years N/A
Denmark TDC 2006 N/A TDC will establish NGN single IP-based network for 75 per cent households 2009, 90 per cent households 2010, 75 per cent households 2010 20 Mbit/s
20 Mbit/s
100 Mbit/s
European Union European Commission November 2008 EUR 1 billion
(USD 1.46 billion)
100 per cent coverage of high-speed Internet by 2010, focusing on rural communities N/A
Finland Government September 2008 EUR 200 million
(USD 291 million)
in public-private partnerships
Extending ultra-fast broadband for 100 per cent households by 2016 1 Mbit/s 2010;
100 Mbit/s 2016
France Government   N/A Access to broadband by 2010; mobile broadband by 2012 for all N/A
France France Telecom January 2006 EUR 3–4.5 billion
(USD 4–6.6 billion) by 2012
1 million households passed with fibre in 2008; 4 million households passed in 2012 N/A
Germany Government 2009 EUR 150 million
(USD 219 million)
Nationwide capable broadband access no later than end 2010. 2010-unserved areas. By 2014, 75 per cent households broadband Target
50 Mbit/s
Germany Deutsche Telekom 2005 EUR 3 billion
(USD 4.4 billion)
PSTN to be fully substituted by 2010 VDSL and HDTV for 30 per cent households with 50 Mbit/s 50 Mbit/s
VDSL and FTTC
Greece Government September 2008 EUR 2.1 billion
(USD 3 billion)
Tender for fibre network roll-out for seven years from 2009/2010 100 Mbit/s
FTTH/B
Ireland Government 2009 EUR 223 million
(USD 318 million)
Universal broadband coverage by September 2010 1.2 Mbit/s
Ireland Eircom 2006 EUR 60 million upgrade Migrate NGN core network and deploy fibre network in towns 1–24 Mbit/s
Italy Telecom Italia 2006 EUR 60 million
over 2007–2017
Migration of access network to NGN for 98.5 per cent population broadband 5.2 per cent fibre 2009 4–100 Mbit/s
Japan Government September 2008
April 2009
Yen 37.1 billion
(USD 395 million)
ITS, improving information technology (IT) infrastructure, training IT staff and new industries, with broadband roll-out to rural areas N/A
Korea (Republic of) Government February 2009 USD 890 million Increase national broadband infrastructure speeds tenfold by 2012 1 Gbit/s by 2012
Latvia Lattelecom 2009 N/A Plans to replace DSL by FTTH 2009–2012, FTTH under trial in some cities 100 Mbit/s
500 Mbit/s
Luxembourg     EUR 195 million
(USD 285 million)
Accelerating build out of Luxconnect highway N/A
Netherlands KPN 2005–NGN
2008–FTTH
EUR 6–7 billion Migration of network to NGN — all IP backbone planned for 2010 N/A
New Zealand Government March 2009 NZD 1.5 billion Ultra-fast broadband by 2019; 75 per cent population coverage Fibre
Norway Telenor 2005–NGN
2007–FTTH
N/A Core IP MPLS network by 2010, using PON, DSL and WiMAX for full coverage FTTH
Poland Telekom.Polska (TP) September 2008
NGN and FTTx
EUR 400 million TP is investing in passive optic networks from 2009–2011 50 Mbit/s
Portugal Government January 2009 EUR 800 million
(USD 1,168 million)
Subsidized investments optical fibre for 1.5 million users in NGN N/A
Singapore Government 2007–2008 SGD 1 billion
(USD 710 million)
NGN Broadband Network to cover 60 per cent premises by 2010 and 95 per cent premises by 2012 1 Gbit/s+
Slovak Republic Slovak Telekom 2004 N/A Digital NGN core network and overlay for 40 per cent households by 2010 Fibre
Spain Government 2008 N/A Installing next generation fibre and regulating broadband Up to 30 Mbit/s
Spain Telefónica May 2006 EUR 1 billion Investing in next generation FTTx with 40 per cent population coverage in 2009 25 Mbit/s
Sweden TeliaSonera End 2004 SEK 200 million
(USD 28 million)
Multiple operators moving to IP and IMS core networks; National target of broadband for all households by 2010 10 Mbit/s
United Kingdom Government January 2009 To be announced Universal service commitment for broadband for virtually every community by 2012 2 Mbit/s by 2012
United Kingdom BT 2004 GBP 1.5 billion
(USD 2.2 billion)
BT launched 21st Century Network in 2004 and its super-fast broadband plan in Openreach in mid-2008 for 40 per cent or 10 million households 40–100 Mbit/s
United States Government 2009 USD 7.2 billion To foster broadband service to unserved/underserved areas, schools, libraries, health providers No set minimum

Sources: Christine Zhen-Wei Qiang (2009), OECD (2009), Dr Vaiva Lazauskaite (2009), Booz & Company (2009).

Note — Currency equivalents are presented in original form, so as not to distort the sources, so USD conversions do not all use the same exchange rate.

 

Table 2 — The multiplier effects of investments in broadband infrastructure (the United Kingdom and Canada)
  United Kingdom* Canada**
Investment in community
broadband infrastructure
Investment in e-learning,
telemedicine and broadband
Initial investment by government in broadband infrastructure USD 10 million USD 10 million
Leveraged investment from other sources (private sector, municipal authorities, etc.) USD 116 million USD 101 million
Total investment USD 126 million USD 111 million
Contribution to GDP from total investment USD 164 million USD 150 million
Contribution to total employment 2100 jobs 4800 jobs
Contribution to taxes USD 61 million USD 32 million

Source: Strategic Networks Group (SNG).

* SNG report for UK Department of Trade and Industry, 2003.
** SNG report for Industry Canada, 2004.

Which technology?

The wireless industry has been well-served by private-sector investment, and this might explain why some economic stimulus plans have focused instead on wired infrastructure, such as fibre-optic networks. However, because of the variety of competing wireline technologies, there is caution about investing solely in one next-generation option. Instead, operators can mitigate the risks by investing in a range of NGN technologies. This is one strategy being pursued by British Telecom, Deutsche Telekom and Norway’s Telenor, for example.

Meanwhile, governments must be careful to avoid creating broadband stimulus plans that favour certain technologies, or incumbent firms, and thus compromise the competitiveness of the marketplace. Economic measures must be designed carefully to minimize these dangers and ensure that stimulus funds are well spent to the benefit of the industry, consumers and society.

Enabling environment

Another concern is that the emphasis on funding could be ignoring other more simple and immediate measures that governments (and regulators) can take to promote investment by the private sector. These include reforming taxation, promoting competition, and creating greater regulatory clarity and certainty. Issues over the availability of the radio-frequency spectrum could be resolved if spectrum is freed up more quickly by accelerating the transition to digital television. Governments can also simplify licensing procedures and optimize spectrum allocation, while also promoting colocation and infrastructure sharing. There are several ways in which governments can create an enabling framework for greater investment despite a lack of readily available credit, before (or in addition to) resorting to providing public funds.

Digital divide

Developing countries are vulnerable to the knockon effects of the economic slowdown — not only from the impact of job losses, but also from declines in exports, reductions in foreign direct investment and collapsing global demand for commodities. Some emerging economies have launched large stimulus packages. China’s plan, announced in November 2008, is worth USD 585 billion (or 19 per cent of GDP) and will be used to ease credit restrictions, as well as for improving agriculture, health care, social welfare services and infrastructure, including projects aimed at promoting technological innovation. This is in addition to the significant investments already being made in next-generation mobile and fixed broadband infrastructure.

Other emerging economies have ongoing stimulus plans that were started before the crisis struck. Brazil’s Accelerated Growth Program, for instance, was announced in 2007. It includes an investment of USD 221.4 billion for creating infrastructure, mainly in the transport and energy sectors. Long before the economic slowdown, Brazil has also been investing heavily in ICT infrastructure and in meeting universal service requirements, including a Universal Service Fund.

graphIn Africa and elsewhere, the growth of homegrown technologies and the creation of inspiring new models in delivering health and financial services via mobile phone, for example, can also help to maximize the economic benefits of ICT. However, faced with global recession, many developing countries with limited reserves may be forced to focus on meeting more immediate needs, such as improved housing and sanitation. If this does come to pass, they could be missing out on the stronger impact of ICT investments on productivity. And if industrialized countries forge ahead with State-subsidized investments in high-bandwidth networks, developing countries may continue to find themselves on the wrong side of a newly growing digital divide.

Looking beyond the crisis

The ICT industry had a tough start to 2009, especially for the hardware sectors. Jobs have been lost, but there has been growth on the service side and continued (albeit lower) investment in research and development. This is a forward-thinking strategy. The ICT industry is based on technological transformation and stimulus plans can help promote the roll-out of NGN and advanced infrastructure to the benefit of consumers, businesses and governments alike.

The report concludes that although the financial crisis is challenging for many firms, the strategic importance of ICT in underpinning other industries, as well as the need to extend the benefits of connectivity to all the world’s inhabitants, mean that investing in ICT is essential in promoting economic recovery

* “Confronting the Crisis: ICT Stimulus Plans for Economic Growth" (August 2009)

 

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