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ITU Strategy and Policy Unit News Update  Policy and Strategy Trends

Issue 7:  October - December 2003     Français   HTML    Español   HTML

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In this edition: 

BIRTH OF BROADBAND: ww.itu.int/birthofbroadband

Is the Industry Banking on Broadband?
1. Broadband - Availability and Access
2. Broadband - Applications and Content
3. Broadband prices may be similar, but incomes are not

1. Broadband — Availability and Access

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.

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, left 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, right 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 (left chart). Broadband growth in the United States has far outstripped mobile growth for the four years after reaching 2.5 million subscribers (right chart).
Source: ITU World Telecommunication Indicators Database

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.

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. 

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. 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.

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 . 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.

2. Applications over broadband Internet

Broadband arrives at a time when the revolutionary potential of the Internet has still to be fully tapped. The Internet has already led to the creation of a host of new applications, including Web surfing, instant messaging, file sharing, e-commerce and e-mail. Broadband, and its faster “always-on” connections, is serving to accelerate the process of integration of Internet technologies into everyday life.

“The dot.com boom was driven by the expectation that the Internet would create a large market for electronic commerce, on-demand content, and online applications,” says Tim Kelly, Head of the Strategy and Policy Unit at ITU. “Broadband brings this expectation one step closer to reality by offering faster speeds and a better platform for the development of content services. In other words, the reality is finally starting to catch up with the market hype.”

The development of broadband content and applications not only needs a large pipe and suitable technological infrastructure, but also an appropriate strategy for service evolution, and an adequate environment for the creation of new content. With broadband, the variety and quality of specialized applications — for instance online entertainment or educational material — are set to increase dramatically. But so too will the implications for issues such as intellectual property rights and security, as more and more material is made available in digital form and exchanged globally. The “MSBlast” worm is an example of how the always-on broadband connections make computers far more vulnerable to infiltration. 

Broadband also comes at a time of technological convergence, during which computer applications are spreading to other devices (such as mobile phones and television sets), and vice versa (for example, voice communications over computers).

Traditional browsing and person-to-person communications

E-mail and its mobile counterpart, messaging, are not bandwidth-hungry applications. But higher bandwidth improves these services in two key ways: it allows for always-on communication and the exchange of larger attachments. Broadband boosts even the most in-demand and fundamental applications already on offer today — indeed, one of the main incentives for residential broadband users is simply to enhance the overall Web browsing experience.

In addition, higher speeds can improve the user’s experience of certain types of content, for example, product images and software downloads. Broadband enables shorter downloading sessions. Indeed, some bulk file transfers, such as software upgrades or audio/video files, are simply not efficient without a high-speed connection. Broadband is also having an impact on traditional voice telephony services.

Voice services: prices coming down

Voice services over data networks have recently emerged as an alternative to conventional telephony and the lower cost to users is making them highly popular in some markets. Running telephony over general-purpose data networks, such as Internet Protocol (IP) networks, is cheaper due to a number of factors. First, telephony over dial-up connections, charged at a flat rate, or always-on broadband connections, avoids the per-minute charges of a traditional public switched telephone network (PSTN). Second, a long-distance or international call can be placed through a local call to an Internet service provider (ISP), thus bypassing the carrier. In North America for instance, where voice over IP (VoIP) is treated as an “enhanced” rather than a basic service, the ISP can avoid paying the per-minute access charges that telephone companies are required to pay to local carriers to terminate long-distance calls.

A number of different technologies can be used in a single “voice over broadband” call. These technologies include: asymmetric digital subscriber line (ADSL), IP, asynchronous transfer mode (ATM) and cable modems. For business applications using broadband, virtual private networks (VPN) have been a source of significant revenue for service providers. Cable companies have also been quick to enter the broadband VoIP scene in some markets, notably in the United States.

Previously, the key barriers to VoIP take-up were not necessarily bandwidth, but rather the integration of network-based voice telephony with convenient handsets and call services (such as making a phone call, call waiting, caller display and voice mail). However, recent VoIP service offerings seamlessly include these benefits on traditional telephone equipment. In terms of voice quality, VoIP approaches, or may even match, traditional fixed-line voice.

Many companies have now deployed VoIP solutions. And a number of broadband providers have chosen to add these solutions to their service packages — in some cases at very low tariffs. “Yahoo BB!” in Japan, for example, offers its 2.4 million subscribers free calls to one another across the country. Not surprisingly, subscriber growth has been significant (see Figure 2, top chart). Calls outside the network in Japan are billed at a flat rate of 2 US cents a minute, as little as one-tenth the price of the same call over NTT’s network.

Vonage subscribers in the United States, for example, can pay a flat rate of USD 39.99 per month for unlimited calling throughout the country and Canada via their broadband connection. Both Vonage and Yahoo BB! are promoting their services. This marketing push is expected to help convince users that broadband can be more cost effective than they may think. For example, at the Ann Arundel Hospital, in Maryland (United States), when patients need an additional dose of medication or an extra helping of lunch, they are able to make a voice call directly over the hospital’s Wi-Fi network. Old-style paging buttons have been re-designed to connect to the wireless handsets of staff anywhere in the building. Indeed, voice over broadband can transform almost any device (PC, laptop, tablet PC or medical console) into a voice communication device.

Growth of VoIP traffic is a worldwide phenomenon. At the end of 2002, VoIP traffic accounted for more than 10 per cent of all international traffic. Only four years ago, it accounted for a mere 0.5 per cent (see Figure 2, bottom chart).

Entertainment and public services

Video

With the widespread popularity of video entertainment, video applications are considered by many Internet users to be the principal raison d’être of broadband technologies. Even though the quantity and quality of streaming video is still limited, Internet users can already enjoy live news broadcasts and pre-recorded programming. And the future promise of such uses is even brighter as quality increases.

Once video content becomes more widely available, and with higher resolution and screen sizes, one of the main benefits of broadband connections for users will be the possibility to watch what they want, when they want. Video on-demand via broadband is already available in some parts of the world and could drastically change the way people watch television. As an example, the broadband portal “now.com.hk” in Hong Kong, China delivers true video-on-demand to broadband subscribers, including premium content such as first-run movies or live sporting events.

As early as 2001 in the Republic of Korea, SBSi, the interactive division of the Seoul Broadcasting System, began offering streaming video programmes, such as soap operas. The cost to users was 40 US cents a show. The service has attracted 1.8 million registered users, and many more are signing up every day. In Japan, users benefit from high definition television (HDTV) programmes delivered to them directly over fibre-optic connections. These programmes arrive over fibre and are viewed on the television set, but they could just as easily be viewed via a personal computer or be saved on the hard drive of a digital video recorder for future playback. Japan’s fibre networks allow for very high-bandwidth HDTV signals. However, many DSL and cable technologies are not fast enough to offer a digital signal for high-definition television. New compression technologies and faster line speeds continually improve the quality of the picture above and beyond that of traditional television. However, it will take some time before broadband television catches up with traditional television.

Public services

It is not only commercial, entertainment-oriented applications that are set to benefit from broadband, but the public sphere also provides a rich terrain in which to develop and promote services, especially given the price advantage of broadband over comparable leased-line networks. Moreover, and perhaps most significantly, it is through the government’s promotion of online services that economies benefit most in the long term: raising educational and health standards are recognized factors in improving economic status. Already in some countries, the public sphere has been transformed by e-government initiatives, with, for example, citizens filing their tax forms, or registering for various public services over the Web. These and other public services, such as health and education, stand to benefit from the possibility of higher-speed connections, particularly through the extension of access to underserved or rural communities. Whereas the impetus for commercial services has largely come from the private sector, albeit on the basis of a favourable market and infrastructure environment, public service initiatives have been hugely boosted by governments that have been willing to foster content development with a view to better meeting users’ needs.

Content in a high-speed world

Bundling and unbundling content

In their endeavour to exploit the potential of broadband technology and services, broadband operators, ISPs, content providers, and the entertainment industry are studying new partnership models to offer a more complete range of services and applications and gain access to users, at the same time as guaranteeing revenues.

In 2001, one of the largest providers of dial-up Internet access, AOL merged with the entertainment giant Time Warner, and began upgrading its portal for broadband, providing more high-bandwidth content, such as full-motion video news, CD-quality audio, and video from the company’s Time Warner division. In an attempt to maximize its market and counter the erosion of its subscriber base, AOL started an unbundled subscription to its portal services in addition to its standard access package. This is akin to a “bring your own (broadband) access” (BYOA) solution, and reaches a wider number of broadband users. However, this strategy did not seem to bring about the desired result, and the company was losing clients steadily — at least until the deployment of AOL for Broadband, an effort to convert AOL dial-up customers into broadband users.

A different example of partnership can be found in Japan, where Softbank Corporation, the holding company of the DSL provider Softbank and the ISP Yahoo Japan, launched Yahoo BB! — a service providing both broadband access and innovative high-speed services in the country. By June 2003, Softbank had managed to attract some 2 822 000 subscribers — about 30 per cent of the market — thanks to its low prices and diversified services (e.g. IP telephony, WLAN hotspots, and access to films and other content).

However, the shift from free to paid access, which becomes financially unavoidable when offering enhanced content, such as movies or music that are usually subject to copyright, is not easy. Internet customers have exhibited their unwillingness to pay for such content, especially if it can be obtained free of charge from an alternative peer-to-peer (P2P) source. Linking access and content allows players to have a closer (billing) relationship with their customers. It is akin to a one-stop-shop solution that includes all the services needed, and gives ISPs the opportunity to diversify their revenues. This is important when taking into account the decline of the online advertising market. In the United States for example, Yahoo receives a cut of subscriptions and will share its advertising revenues with the telecommunication company. Yahoo BB! In Japan makes a web page available detailing which part of the user’s subscription rate is for ADSL access (Softbank BB), dry copper line rental (NTT), ISP (Yahoo Japan) and other enhanced services, such as voice over IP.

There is also a second type of content provider in the Internet market, which traditionally offers its products offline, but is now exploiting the potential of the Internet to widen its reach. Newspaper and magazine publishers, for instance, now offer online subscriptions and news channels, and entertainment players (recording companies, film industry, etc) are beginning to make their entrance on the online market.

Traditional multimedia companies are also making an appearance on the Internet stage. Although there are still many legal and regulatory issues to be resolved, in recent years many companies have started offering music online. A recent example is Apple iTune, which allows users to download a single song starting from USD 0.99. Other services, such as MusicNet or PressPlay, propose a monthly subscription fee, which gives access to a certain number of services (e.g. streaming and downloading).

These activities open the door for future developments in the broadband market. For the time being, however, bundling access and services seems to be the most viable method to help the diffusion of this service, and to attract less technology-enabled users.

3. Broadband prices may be similar, but incomes are not

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

For more information, visit the Birth of Broadband website at www.itu.int/birthofbroadband