Is the industry banking on broadband?

Birth of broadband

The world has around 63 million “broadband” subscribers today, according to Birth of Broadband, a new a report issued on 16 September 2003 by the International Telecommunication Union. Leading the way in broadband penetration is the Republic of Korea, with approximately 21 broadband subscribers for every 100 inhabitants. Hong Kong, China ranks second in the world with nearly 15 broadband subscribers per 100 inhabitants and Canada ranks third with just over 11 broadband subscribers per 100 inhabitants.

Broadband services provide Internet connections that are at least five times faster than earlier dial-up technologies, enabling users to access information much faster and more efficiently than before ITU 020047/PhotoDisc

One reason for the sharp increase in broadband subscribers is the growing demand for faster Internet speeds. Broadband services provide Internet connections that are at least five times faster than earlier dial-up technologies, enabling users to play online games and download music and videos, as well as share files and access information much faster and more efficiently than before.

Following the introduction of commercial broadband services, many economies have enjoyed a continued period of growth in broadband subscriber numbers, with these numbers rising impressively since 1999 (see Figure 1, top chart). In certain markets, broadband is predicted to be one of the fastest-growing communications-based consumer services. For example, in the United States, broadband is likely to reach the 25 per cent penetration mark more quickly than either personal computers or mobile telephones did (see Figure 1, bottom chart).

Broadband is increasingly regarded as a catalyst for economic success in the information economy. And more and more economies are focused on ensuring that access to broadband is both available and affordable to their population. In most economies, the availability of affordable broadband access has been driven largely by the private sector — particularly where effective competition is present in the market — and supported by government intervention.

Figure 1 — Growth in broadband penetration worldwide Worldwide broadband penetration growth has increased at compound annual growth rate (CAGR) of 155 per cent since 1999 (top chart). Broadband growth in the United States has far outstripped mobile growth for the four years after reaching 2.5 million subscribers (bottom chart).		The title of the new ITU Report “Birth of Broadband” reflects the view that broadband is still just at the start of its growth cycle, with the main phase of market expansion still to come Broadband is one of the “hot topics” of the telecommunication industry this year. It is also expected to be one of the highlights of the ITU TELECOM WORLD 2003 Event. ITU in its commitment to play a positive role in the development of the information society specially prepared a report entitled Birth of Broadband to mark this all-important global show. Birth of Broadband is the fifth in the series of “ITU Internet Reports”, originally launched in 1997. This new edition examines the emergence of high-speed, dedicated Internet connections that will greatly expand the world’s access to information, and looks at how broadband will also facilitate the long-expected convergence of three previously distinct technologies: computing, communications and broadcasting. The report covers broadband technologies, supply trends and models, applications and content, regulatory and competition issues, successful broadband promotion and broadband in the information society. It draws entirely on country case studies carried out on sample economies around the globe. Finally, the report contains a statistical annex providing the latest data on 206 economies. Birth of Broadband was written by a team from the ITU Strategy and Policy Unit (SPU). This special issue of ITU News highlights a number of extracts adapted from the new report. For more information or to order the report, visit the website at: http://www.itu.int/birthofbroadband.

Broadband availability

Despite the overall growth in broadband penetration, certain economies have enjoyed more success in advancing its adoption than others. By year-end 2002, broadband services had been made commercially available in 82 out of over 200 economies worldwide. Most economies are still struggling to realize nationwide broadband access. This is principally because broadband network deployment comes with high fixed costs.

In the broadband era, personal computers and personal digital assistants are not the only types of terminal for accessing the Internet. Since the advent of higher-speed networks, manufacturers have been developing other broadband terminals, such as video game consoles, Internet television appliances, set-top boxes and home servers ITU 992408/A. de Ferron

The vast majority of broadband users today are in the developed world. However, as the cost of the service becomes cheaper, some developing countries may be able to use wireless broadband technology to leapfrog ahead of the traditional wireline infrastructure. Instead of waiting for wireline services, which can be costly to deploy, they can potentially use broadband to develop an integrated voice, data and video network. For example, in Bhutan, wireless broadband technologies are currently used to provide basic voice telephone access. Broadband technologies have connected villages that previously were out of range of traditional telephone service.

With satellite and wireless broadband solutions still in their relative infancy, most broadband users rely on fixed-line connections to access the Internet, mainly through digital subscriber line (DSL) — using traditional fixed telephone lines — or cable modems (using cable television networks). DSL services were first launched commercially in 1996, and have since become a popular form of broadband access, with nearly 32 million subscribers worldwide at year-end 2002. Taken by region, DSL is more common in Asia and Europe, and cable is particularly popular in the Americas.

In general, countries with high levels of gross national income (GNI) per capita can be expected to have high broadband penetration levels. Likewise, there is a strong correlation between urbanization and population density and the supply of broadband services. Given the lower cost of connecting users who live within a short distance of each other, broadband providers have found it easier to achieve a higher return on investment in urban areas, especially where a high percentage of potential users live in apartment blocks.

For businesses, the new generation of broadband services competes very effectively with leased lines, which have traditionally served the corporate sector. In fact, in some markets, broadband can be up to 111 times cheaper, per megabyte per second, than today’s private network options. The cost savings alone suggest a major incentive for business and government users to shift to broadband. With its increased speed and efficiency, broadband also offers an excellent infrastructure for e-government and e-education services, such as online driver’s licence renewals, electronic tax filing, and online library and learning resources (see our story: Using broadband)

Broadband over unlicensed spectrum

Wi-Fi, or the 802.11 family of standards, have emerged as the most popular standard for wireless LAN solutions using the 2.4 GHz unlicensed portion of the radio spectrum (see our story: Wi-Fi takes the sector by storm). In general, the commercial deployment of Wi-Fi services is subject to different considerations than commercial broadband services using licensed radio spectrum, such as fixed-wireless. Constrained by its limited range on the one hand but benefiting from greater affordability and scalability on the other, providers have come up with a variety of business models exploiting unlicensed portions of radio spectrum.

Hotspots at public locations, such as airports and train stations, enable users to gain Internet access without having to plug in their laptops or personal digital assistants ITU 030119/Corbis

Currently, there are two popular ways of distributing Wi-Fi access. The first of these is the “top-down model”, which has been adopted by large network providers who charge a fee for broadband access at public locations, called “hotspots”, in such places as airports and train stations. These hotspots enable users to gain Internet access without having to plug in their laptops or personal digital assistants (PDA). The second is the “bottom-up” model, where wireless access is provided free of cost by enthusiasts. Both of these models have disadvantages. The former suffers from market fragmentation, with different hotspots served by different providers, meaning that the user has to open multiple accounts to gain Internet access each time they use a different location. The latter suffers from a lack of economic sustainability (no profit is made) and the risk of customer abuse.

Recently however, hybrid business models combining the two models have emerged, giving users the advantage of a single wireless access account, coupled with a financial incentive for providers to join such a scheme. An example of this is the approach taken by a United States-based Wi-Fi start-up, Boingo Wireless, that acts as an aggregator, allowing users to access Wi-Fi hotspots deployed by all existing providers with a single account.

Broadband over existing infrastructures

In a number of economies, companies supplying public utilities, in particular power companies, have started to make use of their existing infrastructure to transport broadband traffic to businesses and residences. They typically have good customer penetration, a robust communication infrastructure and an incentive to respond to current customer needs. As an example, electricity utilities have internal needs for data communications within their power networks. These companies often have extensive networks of fibre-optic cables within the power grid to enable communications between electrical sub-stations. Once fibre is installed in the power grid, the excess capacity can be used to accommodate other rural users in the service area. Most of the cost of laying the fibre can be justified through savings achieved from more efficient electricity distribution. As a result, the incremental cost of opening up the network for broadband communications can be minimized.

Using a range of transmission mediums such as fibre, fixed wireless access and new technologies, such as power line communication and others, power companies have entered the broadband access market in a number of countries such as Iceland and Japan by leveraging the existing telecommunication infrastructure between their installations. For example, the Reykjavik Power Company has established a data transmission network over its power grid that connects its power transformer stations around the capital. Supplemented by fibre and fixed-wireless access, the company currently offers broadband solutions to corporate customers.

The power network, however, is not the only public infrastructure network to be leveraged on to expand broadband access. In developing economies in particular, alternative networks to power or telephone lines can be a bonus for long-haul broadband supply. India provides an example of the ingenious use of its vast railway network to extend broadband access to its rural areas (see box). These examples illustrate the vast range of possible approaches to supplying broadband, particularly when fixed and wireless technologies can be combined to resolve long- and short-distance, rural and urban broadband infrastructure problems.

Table 1 — Broadband costs may be equal, but incomes are not

Lowest broadband price offering as a percentage of monthly income in fifty cheapest economies (2003)

Affordable access

In addition to broadband availability and supply, another decisive factor affecting broadband take-up is the price charged to the user. Despite increasing levels of competition as different broadband technologies and players enter the market, and the resulting gradual decline in prices, broadband subscriptions worldwide lie within a range that does not always reflect average incomes in individual economies. Affordability is, therefore, relative. As Table 1 shows, in the fifty cheapest broadband economies, monthly subscription as a percentage of monthly income can range from just over 1 per cent (Japan) to over 20 per cent (Costa Rica, Saudi Arabia), and the price per 100 kbit/s as a percentage of monthly income can range from 0.01 per cent (Japan) to over 12 per cent (Saudi Arabia). These remain the most affordable broadband suppliers, with offerings in other economies truly stretching affordability and limiting growth of the broadband market.