Improving IP Connectivity in the Least Developed Countries Background study

1. Claudia Sarrocco Strategy and Policy Unit International Telecommunication Union International Telecommunication Union Improving IP Connectivity in the Least Developed CountriesBackground 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 claudia.sarrocco@itu.int.

2. Outline • Introduction • Background • Vicious circle • Conclusions: barriers • What can we do? Proposal • Virtuous circle

3. Background Digital divide initiatives - DOT force - UN ICT task force “Improve connectivity, increase [ICT] access and lower cost”

4. Objective 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.

5. Scope: 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.

6. Why Least Developed 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 In LDCs problems are more extreme than those of developing countries, and deserve special attention

7. 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 …

8. International Internet Bandwidth… Source: TeleGeography Inc. Data valid for September 2001 …is not equally distributed

9. World: 360 million LDCs: 0.58 million Total: 6 billion LDCs: 680 million 0.13% 10% LDCs are falling behind… Estimated Internet Users Population

10. 700 444% 600 LDCs % growth Thousands 500 400 281% 234% 230% 300 167% 200 World % growth 116% 100 56% 64% 57% 49% 0 1995 1996 1997 1998 1999 2000 …and failing to catch up Internet users growth rate (56%) in LDCsis only a few points above average growth worldwide (49%)

11. 80 International Traffic International Internet capacity 70 Bit-Minute Index 60 0.5 50 40 30 0.2 0.2 20 0.1 0.1 0.1 0.1 10 0.1 0.1 0 Mali Nepal Gambia Uganda Rwanda Cambodia Lao P.D.R. Mozambique Western Samoa Low growth, high demand Bit-minute Index: any amount under 1 indicates the existence of latent demand for the Internet (selected countries)

12. Infrastructure: Limited and Expensive

13. Result: High ISP costs for the end-user ISP charges (month) USD ISP charges (month) PPP

14. International Telecommunication Union This translates into a “ vicious circle” No exploitation of Economies of scale No growth of infrastrctures Low international Internet connectivity Low bargaining Power of ISPs Lack of competition Little investment in New infrastructures High connectivity Charges for ISPs Low demand for Internet services

15. Conclusions: There are many barriers to Connectivity 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

16. What can we do?

17. The proposal • Internationally-funded project • Objective: to provide VSAT bandwidth to LDCs at low cost • This bandwidth would be provided to ISPs

18. 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.

19. The effect of improved connectivity:Catching up…? - Increased number of users - Drop in costs - Increased bandwidth

20. The financing: VSAT costs are still 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

21. Summary: 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.

22. International Telecommunication Union IP Connectivity Project: virtuous circle Market liberalization Higher international Internet connectivity New investment in infrastructures Lower costs Market growth Higher Demand For Internet services Bargaining power Economies of scale

23. Thank you ! http://www.itu.int/ipdc