Effect of Ict Convergence in Asia-18

qThis paper is a revised version of a presentation made at the Twelfth Biennial Conference, organized by InternationalTelecommunications Society, Stockholm, Sweden, June 21}24, 1998.

*Tel.: #1-808-944-7329; fax: #1-808-944-7677; e-mail: [email protected].

Telecommunications Policy 23 (1999) 217}234

The impact of ICT convergence on developmentin the Asian regionq

Meheroo Jussawalla*

East-West Center, 1601 East West Road, Honolulu, HI 96848-1601, USA

Abstract

Emerging economies in the Asia}Paci"c region are experiencing dramatic and accelerating changes inpatterns of ownership and investment in their telecommunications sectors, as well as in convergence. Thispaper will highlight the signi"cant dependence of emerging economies of the region on convergence of ICTand how these technologies create new networks. Evidence will be cited from China, the Asian Dragons andthe near NIEs like Malaysia and Indonesia, to show how they have created one of the largest markets in theworld for telecoms equipment and services. The Southeast Asian countries with their open economies andexport oriented investment technologies have proved that such policies have generated trade surpluses andlong-term growth despite their current "nancial crises. They still plan to continue ascribing priority in theirinvestment patterns to converging ICT. ( 1999 Elsevier Science Ltd. All rights reserved.

Keywords: Asia; Convergence; Development; NIEs; Regional networks

1. Introduction

Convergent technologies, which blend multiple streams of information into a single presentationon a single device, are central to the future growth of the information technology (IT) industryworld-wide. The Asia}Paci"c region is no exception. To date, convergent technologies havegenerated an increasing demand in the region for the broadband spectrum and applications for itsuse. The global market for telecommunications is estimated between US$ 2.5 and 3 trillion by theyear 2000 and is currently at US$ 750 billion with services and software accounting for 80%.

0308-5961/99/$ - see front matter ( 1999 Elsevier Science Ltd. All rights reserved.PII: S 0 3 0 8 - 5 9 6 1 ( 9 9 ) 0 0 0 1 3 - 0

(Grewlich, 1998). In the Far East this market was growing at 15% a year until 1997 when the"nancial crisis struck the region. Can the telecommunications industry serve as a barometer for therecovery of the a%icted countries?

Now more than ever, Newly-Industrialised Economies (NIEs) and Low Income Countries(LICs) have an enormous stake in the US$ 1.5 trillion IT industry that has emerged globally.

The ITU World Telecommunications Report 1998 states that there is a relationship between theGNP per capita and teledensity (ITU 1998, pp. 18). A change in GNP per capita can now bringabout a greater change in teledensity than in the past as a result of advances in telecommunica-tions. For example, while China's economy has been growing at 12% annually, its informationindustry has been growing by 25% annually (Lu Xin Kui, 1996). The continued push from dynamicchanges in technology along with the pull from a progressive business sector have nudgedconsumer demand forward in the region and spurred economic development.

This paper will survey the changing regulatory, technological and economic features of ITConvergence (ITC) in the Asia}Paci"c and examine to what point the global economy o!ersopportunities for such technologies to create new, interactively related networks in equipment andservices. The survey will cover the policy and technology developments in each of the countries inthe region that are expected to be conducive to economic growth and to a!ord optimism despitethe current "nancial malaise

The structure of this paper is designed to examine the recent trends in investment and policychanges initiated by ITC. Starting with China's catalytic changes the paper describes the techno-logy changes along with consumer patterns. It then covers in detail the impact of ITC oninvestments in technology in Singapore, Korea, Taiwan and Hong Kong. Moving to the emergingeconomies of Malaysia, Indonesia and Thailand, the paper further scrutinises the relevance of ITinvestments

2. Convergence initiatives in the Asia+Paci5c

IT promises to be one of the most important growth sectors in the region. By convergence wemean the merging of content and carriage via multimedia channels. Such convergence usesbroadband technology. International Data Corporation predicts that Internet users in the regionwill reach 37 million by 2001 as compared to Europe's projected 30 million (Erickson 1998). TheInternet has become a megatrend leading to new channels of multimedia delivery via computerscreens and television sets giving unprecedented empowerment to users across the globe(Jussawalla, 1996).

In the Asia}Paci"c region digital networks rede"ne what kinds of infrastructure are poss-ible under the sweeping trend of convergence and highlight the need for privatisation andregulatory changes commensurate with such developments. In Hong Kong the CATV industry hasentered the telephony markets just as data suppliers are entering television programming andbroadcasting.

IT convergence in the region began with the digitisation of switching and transmission and theutilisation of intelligent network platforms. Falling costs of equipment led to further integrationbetween telephony and computers, resulting in the creation of call centres. This convergence enteredhomes and businesses with the extensive use of the Internet. Today, a variety of technological

218 M. Jussawalla / Telecommunications Policy 23 (1999) 217}234

innovations continue to spur the growth of convergence in the region. The introduction of newtechnologies that combine CATV with transmission of telephony has been accompanied by a spateof alliances and mergers as well as changes in regulations to take advantage of the new environ-ment. What follows is a survey of the state of convergence technologies and of liberalisation policiesin select Asia}Paci"c countries which encourage network expansion and the development of newservices, including DTH and VSATS, as well as the digitisation of transmission and production ofequipment.

3. China

China has the world's second largest market for telecommunications equipment and services. Ithas ascribed top priority to the sector by combining in March 1998 the Ministry of Post andTelecommunications with the Ministry of Electronics and the Ministry of Broadcasting therebycreating one Ministry for Information Industries (MII) as the trend setter for convergence.

3.1. Policy changes in China

In 1990, China liberalised its markets for telecommunications equipment and services andascribed top priority to investments in that sector. In recent years, China has witnessed theemergence of competition in the telephone industry. The monopoly formerly wielded by the formerMinistry of Post and Telecommunications (MPT) was challenged in 1994 when Unicom (Liantong)was established under the sponsorship of the Ministries of Power, Electronics and Transportationwith the collaboration of the China International Trust and Investment Corporation (CITIC). In1993, the Ministry of Electronics and Liantong formed a new company called Jitong. WhileLiantong focused on public voice and data services, Jitong concentrated on specialised services. Togain access to key switching and transmission technologies Unicom signed a long-term strategicalliance with GTE in 1995.

In spite of the introduction of competition, the MII continues to control the largest share of theIT market. Its data network, Chinapac, covers 43 cities, some of which are in the north. It also hasan educational network called CERN (China Educational and Research Network) that aims tolink 1000 universities around the country to the Internet by the year 2000. In order to boost its "breoptic networks, in 1995 the MPT entered into a $16 million deal with AT&T to lay a "bre opticcable trunk line from Beijing to Kowloon in anticipation of the Hong Kong take-over.

China greatly liberalised its policies for joint venture in telecommunications to form several jointventure agreements in various parts of the industry with foreign suppliers like AT&T, Alcatel, andNorthern Telecom in the switch manufacturing and land lines sectors; and Ericsson, Motorola,Nokia and NEC in the mobile communications sector. Billions of dollars have been sunk into theindustry as competition between foreign vendors has become increasingly intense. In the manufac-turing of satellites for domestic and international services and for TV, China permitted contractswith Hughes, Space Systems Loral and Daimler Benz. Likewise for its China}US submarine "breoptic cable costing $100 billion with a transmission capacity of 20 gbps, China has allowedparticipation from KDD of Japan and Singapore Telecoms in addition to the two terminalcountries using the cable.

M. Jussawalla / Telecommunications Policy 23 (1999) 217}234 219

3.2. Technology changes

China has encouraged the use of cellular services provided through private vendors. The countrycurrently has over 700 base stations for cellular services and the demand for them is growing at100% a year. The equipment standard throughout China is the European digital Groupe SpecialeMobile (GSM), although CDMA is gradually taking over some regions. Particularly in the vastregions of northern and central China and Mongolia where basic services are lacking, the demandfor pagers and CT2 mobile phones is growing rapidly. This is despite the "nancial obstacle that thecost of the cellular phone } sometimes ranging as high as US$ 2000 } poses to the average Chinesefarmer who earns approximately US$ 30 per month. Even so Nokia "nds that its fastest growingmarket is in China according to an interview conducted with its CEO Ollila (Baker, 1998). Nokia'scompetitor is Ericsson which has a greater lead in China than any other mobile equipmentsupplier. Its mobile phones are now built with fax modems and wide band cellular systems Chinaaccounts for 11% of the company's total sales and its CEO Nilsson has o$cially announced thatChina has ordered US$ 1.45 billion worth of new mobile systems in 1998 (Morais, 1998).

Both China and Hong Kong are experimenting with ADSL as a platform for video-on-demandservices and for providing access to broadband data services, and for high-speed Internet accessin particular. Shanghai has started ADSL trials in collaboration with Alcatel for CATVand Shenzen is using a hybrid "bre platform to support its local CATV station for both televisionand telecommunications services. Before the reorganisation of the new Ministry of Informa-tion Industries, the Ministry of Broadcasting started negotiations with Liantong to acceleratea local loop network in Chengdu and Tianjin with trials for convergence between CATV andtelephony.

China's satellite industry is similarly forging ahead with great speed, with spending on spacecommunications in the country expected to grow from US$ one billion in 1994 to US$ 1.5 billion in2000. In November 1995, The Great Wall Industry Corporation successfully launched the Asiasat2 satellite.

The China Aerospace Administration (CASA) develops and manufactures satellite systems, theirapplications, and launch vehicles. To date, CASA has launched 37 domestic satellites and iscontracted to launch 22 LEOS for Motorola for its Iridium system from its Taiyun launch centrefor polar orbit. The former MPT developed its own satellites for telecommunications calledDonfang Hong (DFH2 and DFH2A). These are known as the Chinasat system. Most of China'scommercial satellites are constructed by Hughes Aerospace Corporation, Lockheed Martin andLoral. There is also a private satellite company called Sinosat which has commissioned its satellitesfrom Daimler Benz in Germany under a joint venture agreement. The China Center for ResourcesSatellite Data and Applications (CRESDA) has awarded Hughes with a contract to developa ground processing system to be jointly developed with Brazil to provide remote sensing data formonitoring the environment.

VSATs are becoming increasingly popular in China, as VSAT technology makes it easy andeconomical for China to expand its rural telephony. Comstream and Scienti"c Atlanta are themajor suppliers of VSAT networks in China but domestic production is catching on. Today, over70 VSAT hubs operate across the country. While demand emerges from both the government andbusiness users for high-end VSAT services, they are under-utilised because businesses are notwilling to share these VSAT networks with other companies for fear of competition. The People's


Liberation Army is one of the major suppliers of VSATS to the remote areas, where they are usedmainly for television. While China's new Premier, Zhou Rongji along with the president hasordered the PLA out of industrial ventures, the VSAT undertaking is likely to continue. In theYellow River Valley, VSAT networks are used as a disaster warning system to alert the dwellers ofimpending #oods. China's major banks also use their own VSATS to transfer funds, makingVSATS a major convergent technology for transmitting voice, data and video.

Although anxious about the political risks involved, China has moved on to the Internet, withSprint providing the backbone and Cisco systems providing the servers for global services undercontract with the MII. China's networking equipment will have three high-speed internationallinks of E1 type with 2 megabits per second capacity. Along with the CERN system launched in1996, China is also seeking to devise an Internet system in the Chinese language. While those e!ortsare beginning to thrive, the growth in convergence technologies in China weakens considerably theChinese government's attempts to censor politically sensitive information on the Net (see Wang,G., this volume; Tan, this volume). Internet access VSAT systems such as Gilat's Skystar Advantage,for example, promise to provide high-speed Internet access independent of existing infrastructure.

3.3. Consumption patterns

Consumption patterns in China of mobile and "xed telephony services in urban areas isbeginning to resemble those of more advanced nations like the US. China currently has 15 millionpagers in use and continues to import one million more each year. Such continuing rapid growth indemand for IT services may render the MII unable to cope without collaboration from the privatesector in Hong Kong which is rapidly entering the mainland market.

The "rst Purchasing Power Parity (PPP) "gures prepared for China have put per capita GDP atmore than US$ 2000, based on an economic growth rate of 9}10% through the rest of the 1990s. Ifthis growth rate continues it is estimated that China will catch up with Western countries in termsof PPP over the next 20 years (Learmount and Remmer, 1997). As per capita income grows in thericher provinces of China there will be a substantial increase in the number of cellular subscribers(now numbered at four million) and "xed telephone connections. A recent estimate of potentialdemand between 1996 and 2016 foresees China becoming the largest mobile and "xed telephonymarket in the world by the year 2016. The projection of Learmount and Remmer (1997) is based onthe following assumptions:

(1) China's population growth will continue at 1.2% annually and the urban density willincrease from 26% in 1993 to 52.2% in 2016.

(2) By the year 2016 China's per capita income will reach 88% of that in the US in terms of PPP,assuming 2% per annum growth in the US.

(3) As the purchasing power of the urban population in China approaches that of the US, thenumber of mobile cellular subscribers will increase at a rate proportional to the rate ofincrease in the per capita GDP.

For businesses in China with international markets as their aim, submarine "bre optic cabletechnology has become integral to convergence inasmuch as it carries channels of information,including Internet access, at greater speed and larger volume and compete with satellites in meetingthis growing demand. Business houses specially those conducting joint ventures in China need


greater transmission speed which has led the former to MPT to organise a joint venture with Cableand Wireless and MK Telecom in Shanghai to install and operate undersea "bre optic cable calledthe China}UK Submarine system. The Sino-American cable will cover 16,000 km acrossthe Paci"c and will be ready by 1998 with a capacity of 20 Gb/s. Among the collaborators in thisSino-American Cable are KDD of Japan and NTT has been invited to join to strengthen thecompetitive element of the partnership. Costing US$ 850 million, the SEA-ME-WE-3 will linkEurope, Singapore and Asia with Shanghai. The FLAG undersea cable around the globe will landin Shanghai, thereby bringing China further within the ambit of world class technology.

As such when the purchasing power of the population of urban China advances the number ofcellular subscribers will catch up with the rate of increase of GDP per capita. Patterns ofconsumption in rural and remote areas especially in the north are stagnating in the traditionalmode for the time being.

4. The Asian Dragons

All four Asian Dragons } Singapore, South Korea, Hong Kong and Taiwan } invested heavily intheir telecommunications sectors and subsequently reaped huge bene"ts in the form of exportearnings. They did not follow the Japanese pattern, but rather found a developmental model bettersuited to their speci"c economic needs. They opened up their economies to foreign participation bypromoting technology transfer and using it to their maximum advantage for skill formation. Infact, the success of these countries has brought about a shift in global production trends such thata high percentage of IT products, including semiconductors, are now manufactured on their shores.The electronic products of the NIEs have established many niches in global markets with their owntechnological progress. While capital shortages and the lack of heavy investment in R&D for basicsciences ensures that they do not pose a major threat to Japanese or American IT companies(except in the "eld of semiconductors), they continually sell in a borderless world with considerablesuccess.

The Asian Dragons have, with the exception of South Korea, proven themselves capable ofavoiding the worst of the "nancial crises that have rocked much of the Asia}Paci"c region in recentmonths. In South Korea, early signs of recovery are already becoming apparent as foreigninvestors, sensing an opportunity, are again beginning to pour capital into the country.

4.1. Singapore

4.1.1. Policy changesFor decades, Singapore has had a statutory monopoly over its telecommunications sector

almost up to December 1993 when it was announced that the shares of Singapore Telecoms wereplaced on the stock exchange. The public sector company even as a monopolist has taken the leadin the expansion of its telecommunications sector for over two decades and unlike other PTTs,pushed the economy of the country forward with advances in convergence technology. It hasprovided for its businesses the most sophisticated networks obtained o!-the-shelf from abroad.Singapore has 4000 multinational corporations that provide not only technology transfer but&enhance the island-state's position as one of the world's busiest entrepo( ts. Singapore's government


has promulgated its IT2000 plan which addresses the introduction of the Internet, virtual realityand other multimedia applications into the country (Porter, 1997).

ST lost its monopoly over mobile communications in April 1997 and will have to compete withMobile One Asia which is constructing its GSM and CDMA (Code Division Multiple Access)mobile phone networks. Two paging operators have also been franchised: The Hutchison Groupand ST Pagers Consortium, in which Bell South has a 20% stake.

In spite of this emerging competition, Singapore Telecoms is Asia's most e$cient telecommuni-cations company with a market capitalisation of US$ 40 billion. ST's reserves are worth US$ 1.5billion (Hiebert, 1996), and it has invested US$ 2.2 billion in 53 ventures in 21 countries of Europeand Asia. Singapore ONE, which touts itself as &One network for everyone,' is the latest thrusttowards providing broadband open network facilities to link homes and businesses with interactivemultimedia services.

4.1.2. Technology advancesSingapore was among the "rst in Asia to set up a teleport on Batam Island in collaboration with

Malaysia and Indonesia for providing instant access to its many multinational corporationshoused there.&Netpreneurs' are active in the island republic, and two new franchises for Internet were awarded

in 1995 to compete with Singapore Telecoms. The government believes that new franchises must beawarded in the convergent technologies sector to aggressive investors rather than to resellers,which re#ects the government's broader objective of retaining the economy's competitive edge.Singapore Technologies Telemedia has invested US$ 600 million in a variety of services includingTV, Internet, and mobile satellite services. It plans to provide entertainment programs on thecomputer but convergence with CATV has not yet taken o!. However, trials for ADSL systems forproviding video-on-demand services on the same platform as telecommunications have begun.

Nonetheless, the importance of digitisation has been recognised in Singapore earlier than othermembers of ASEAN. Since convergence is taking place in the basic network area, the compresseddigital networks are referred to as &diginets.' Singapore has encouraged the formation of the GroupW Network Services which is completely digital. The Asia Broadcast Center currently employsfour 11 meter satellite dishes for Panamsat 2 and 4, Apstar 1, and Palapa C 1 that cover the entirePaci"c Rim. An additional "ve antennas are planned.

Singapore's Cable TV has been in operation for only two years but it provides the best qualitytelevision in the region. The goal is to provide the island's 800,000 households with cable servicesusing hybrid "bre coaxial cable. Owned by a powerful consortium of Singapore companies alongwith US-based Continental Cablevision, which maintains a 25% stake, Singapore's Cable TV isbuilding an infrastructure mandated in the IT 2000 Plan. The company currently o!ers 42 channelsincluding Eureka (the learning channel) and other international broadcasts, and it aims at usingMotorola cable modems to allow users to access broadband networks and to surf the net.

4.2. South Korea

4.2.1. Policy changesRecognising that technological and market externalities bene"t the corporate sector and

attract foreign participation, South Korea joined the liberalisation bandwagon in 1991 when its


Telecommunications Business Law was changed to privatise its PTT, which is now known asKorea Telecom (KT). KT is still partly state-owned while Dacom is set up for data communica-tions and is in the private sector. Dacom competes with KT for international services and has setup the "rst online service for the entire country, providing Internet access to all regions. Dacom hasalso signed an agreement with Orion for satellite services to support its online infrastructure.

Korea has also privatised its mobile communications sector forming Korea Mobile Telecommu-nications, now further commercialised as SKT Mobile. Korea's chaebols (i.e. the Korean businessconglomerates) have generated new innovations in the telecommunications sector such as Sam-sung's invention of CDMA for cellular telephones. CDMA is the outcome of a joint venture withUS-based Qualcomm that has introduced a digital standard that is competing with the GSM inAsia. It is compatible with ATM (Asynchronous Transfer Mode) switches which Korea is using forits ISDN services.

4.2.2. Technology advancesIn March 1995, the government announced a new plan for nation-wide ISDN as the "rst phase

of the Korean Information Superhighway, and in July 1995 the new Koreanet was started as a testbed for the infrastructure. KT has plans to launch a Basic Rate ISDN linking 12 major cities atspeeds of up to 2.5 Gb/s. These broadband networks promise to bene"t human resource develop-ment via tele-learning and telemedicine interactive services. Already, distance education programshave been launched in some areas as a test for providing equal educational opportunities for therural dwellers. T1 cables are being used to link elementary schools in the remote areas. Teachers arebeing exposed to teleconferencing for the "rst time. Telecommunications and direct-to-home(DTH) television cover the entire republic. The latter's footprint not only covers the entire Koreanpeninsula but also extend to other countries like Taiwan, Japan and the Russian Far East.Koreasat II and Koreasat III are also now in orbit, taking Korea closer to its goal of being astrategic hub for Northeast Asia's use of convergent technology and the Information Superhighway.

Despite its current economic di$culties, Korea has nonetheless achieved convergence betterthan other Asian Dragons. It distinguishes between three di!erent components of convergentservices: network operators, system operators and program providers. Currently network oper-ators are Korea Telecom and Korea Electric Power Company (KEPCO). They own and operatethe hardware for broadcasting and transmission. This involves local distribution systems andCATV feeder lines which are just like trunk lines in a traditional telephone network. The systemoperators market and sell CATV services and they connect subscriber homes. The programproviders supply the content for the CATV channels by producing or purchasing programming,which they sell to the system operators. There are 26 licensed program providers in Korea and 54systems operators. Such an evolution of convergent networks spreads "xed costs across suppliersand increases the value of interconnectivity. Further software development will result in optimumutilisation and lowers costs on the network.

4.3. Taiwan

4.3.1. Policy changesWhile still among the best performing economies in the world, Taiwan has reached a critical

stage in its economic and political development. Taiwan is liberalising its telecommunications


sector rapidly to make it globally viable, introducing competition "rst in the consumer equipmentsector and next in domestic value-added networks. Despite the regional crisis Taiwan companiescontinue to obtain a larger percentage of GDP for Research and Development which is now 1.5%compared to Singapore's 1.3%. The government of Taiwan has encouraged the country to becomea laboratory for technology development and is weathering the "scal crisis better than itsneighbours in the region. It has changed its policy by having a ready supply of engineers, cheapcapital and low taxes and by giving the right stimulus to its low-cost semiconductor industry.Taiwan bustles with high tech activities and has become a &transPaci"c' replica of Silicon Valleybased entrepreneurship and engineering and manufacturing skills according to Andrew Tanzer(Forbes, June 1, 1998). It has become the largest supplier of the world's high-tech gear and workswith a decentralised economic model.

4.3.2. Technology advancesThe Taiwanese have a "rm grip on the world's semiconductor industry, making the lowest priced

circuit boards that go into 65% of all computers. Taiwan's largest computer manufacturer Acer, isaiming at Asian and Chinese markets rather than the markets of America and Japan.

With telecommunications liberalisation have come videotex trials and ISDN for metropolitancentres. Taiwan has also taken the lead in imaging technology and in the manufacture of mobiletelephones. Although only certain international value-added networks are permitted in Taiwan,such as SITA, SWIFT, Reuters and Associated Press, with the liberalisation of its telecommunica-tions monopoly and the introduction of privately-owned competition, Taiwan will continue toreap further bene"ts of converging infrastructure.

4.3.3. Technology dynamicsA new high-tech "rm in Taiwan is Asustech, which manufactures motherboards built with

capacity to be used in convergence of computers with broadcasting. It turns out eight millionproducts a year and supplies 8% of the global market. Asustech is also planning to compete in thenotebook PC market with more memory in its notebooks than any of its competitors. Conse-quently, Intel is investing in supplying the chips for this company even at the cost of competingwith its own products.

Being an &island at the cross roads,' Taiwan has invested heavily in China and other SoutheastAsian economies. Its investments in China are estimated at US$ 25 billion, and its investments inVietnam, Indonesia and the Philippines are approximately US$ 30 billion (Asia Paci"c Telecom-munity APT, 1997). Export performance of the electronics sector has contributed US$8 billion toits trade surplus. However, the recent decline in demand for semiconductor chips led to a depress-ion in Taiwan's chip-making and circuit board industries in 1997. However, Taiwan is the world'sfourth largest chip maker with an output growth rate 30}40% per annum. There are currently 28additional wafer fabrication plants under construction costing $ 53 billion.

Although the electronics industry is down, it is not out in Taiwan. The production value ofTaiwan's IT industry was US$ 27 billion in 1997, and averaged a compounded annual rate ofgrowth (CAGR) of 24% over the last decade. During this time Taiwan became a &wired' republicwith greater emphasis on PCs and their integration with data and voice systems. The saturation ofdomestic markets, however, has led approximately one-third of its electronics industry to move o!shore.


Taiwan's cable market is about more control in fewer hands in programming, channel controlsand distribution. Taiwan's "rst cable channel was launched in May 1997. There are 2.3 millioncable TV households, but most of the investments are concentrated in Taipei. Taiwan-based SpaceTV is targeting global Chinese audiences with its new digital DTH platform. Located in anindustrial park outside Taipei, Space TV's broadcast centre is equipped with DiviCom'sMPEG2/DVB encoder system. While capital costs are high for the system, Taiwan aims to reapoptimal price-quality bene"ts leading to systems integration to bene"t its business users.

The Taiwanese have been major players in personal computers, components and peripheralEquipment. With Convergence at their doorstep they "nd a large window of opportunity in the"nancial crisis in Japan and Korea and are moving up fast in the capital intensive semiconductorindustry.

4.4. Hong Kong

4.4.1. New policiesCable and Wireless (C&W) has historically been the principal supplier of equipment to Hong

Kong. The Hong Kong Telephone Company is also associated with C&W and holds themonopoly for basic domestic and international services. Hong Kong is "nally getting serious aboutopening its telecoms market to competition. In a city that has bragged about having a free market,its telephone monopoly is a paradox. On January 1, 1999, Hong Kong will end a 17 year monopolyon international calling eight years ahead of schedule. Liberalisation will also improve access to theInternet and hasten the convergence of telecommunications, broadcasting and computers, makingthe economy ready for the 21st century. In September the Government's new InformationTechnology and Broadcasting Bureau will release a blueprint on liberalisation which will entaillicensing many new ventures in the telecom market.

4.4.2. Technology advancesWith a progressive "lm and television industry in Hong Kong and cable television pushing for

wider coverage, the interactive convergence between cable and computer networks for broadcast-ing is likely to advance. Electronic commerce has already become one of Hong Kong's hottestemerging markets. In order to allow companies to escape paying a broadcast license, the HongKong government has come to regard video-on-demand as a point-to-point service and Internetpostings as electronic publishing. Trials of using the ADSL technology to provide video-on-demand with telecoms are currently under way. Hong Kong Telecom uses Very High Speed DigitalSubscriber Line (VDSL) to connect customers to interactive multimedia services including theInternet. HK Telecom uses a Java-based multimedia platform to support its interactive services,and plans to include interactive TV in the near future.

Hong Kong has a high penetration rate for cellular services, and the cellular telephone sectorcontinues to grow by 15% each year. Competition is spearheaded by Paci"c Link Company andHong Kong Telecom, with the latter now having a 50% share of the market.

To summarise, the above developments demonstrate the ability of the NIEs of the Asia}Paci"cregion to adapt to the major structural shifts brought about by &the convergence syndrome.' Theextensive capitalisation that has taken place in these countries is related to the growth of foreigndirect investment from multinational companies along with technology transfer and domestic


human capital formation. Continued liberalisation and privatisation of the telecommunicationssector in the Asian Dragons will ensure that, in spite of the widespread economic crisis in theAsia}Paci"c, those countries will continue to experience IT convergence as a driving force in theircontinued development.

In these countries we see the growth of convergence of the broadcast media with telephony andcellular systems as an alternate means of transmission. Convergence is taking place primarily in thenetwork origination area and opening the sector to systems integrators. Noam (1998) predicts thatthese systems integrators will soon become capacity brokers, buying and selling capacity ona global scale.

5. Emerging economies

5.1. Malaysia

5.1.1. Privatisation policyMalaysia was among the "rst countries of the region to privatise its government held telephone

monopoly known as Jabatan Tekom Malaysia. Its shares were placed on the Kuala Lumpur StockExchange as far back as 1989 and the Prime Minister Dr. Mahatir decided to make Malaysia theleading country for information technology. With the heralding of convergence, Malaysia's Vision2020 was one of the region's most ambitious programs to develop its telecommunications sector.The country's economic woes will, in all likelihood, set back Malaysia's plans for at least "ve toseven years. However, the IT revolution has already had a tremendous impact on Malaysia's rapiddevelopment, and continued encouragement of convergent technologies in the country hold out thepromise of kick-starting national economic growth.

A major part of Malaysia's Vision 2020 is its plans for a US$20 billion Multimedia Supercorri-dor (MSC), linking Kuala Lumpur with an immense new international airport 30 miles to the south(Greenwald, 1997). As it is still envisioned, the Supercorridor will contain two cities: one will be thePutrajaya which will have a paperless bureaucracy and the other will be Cyberjaya for allconverging technologies. As of September 1998, 179 companies have been approved for MSCstatus of which 43% are local companies, 23% joint ventures, 12% Europe, 10% USA andonly 3% Japanese. Microsoft has applied for the MSC status but has not yet obtained approval.It is of interest to note that Malaysia is planning on a new law called the Communications andMultimedia Act 1998 which has passed the lower house. It will merge broadcast, telecommunica-tions and other online services into one generic industry, establish a new ministry and anindependent Regulatory Commission. The challenge to Singapore is critical, as to-date Singaporehas prided itself on being the lone &Intelligent Island' in a relatively undeveloped part of theAsia}Paci"c.

The government of Malaysia has promised to open access to rival competitors into each other'snetworks from 1999, which will become a critical phase of development for the telecommunicationsindustry. The government is creating a new broadband infrastructure in order to propel Malaysiainto the forefront of IT in the next century (Inglebrecht, 1997). Telekom Malaysia and NTT will"rst invest US$2.4 billion in the Multimedia Super Corridor (MSC), where there will be an ATMswitch with 2.5 Gbit/s #owing over a "bre optic backbone.


5.1.2. Technological growthWith Malaysia's previous 8% economic growth over several years, the teledensity rapidly rose to

19% and cellular penetration to 8%. Private companies such as Binariang plan to invest billions ofdollars in expanding "xed wire line services. Earlier forecasts called for cellular penetration to riseto 14% by the year 2000, but like much of the IT sector in Malaysia, this estimate must bereassessed.

Nonetheless, Malaysia's Vision 2020 continues to call for the country to become a regionalcommunications hub. Since privatisation took place a decade ago, Malaysia has spent US$4.5billion to upgrade its "xed line services and to install ISDN networks to the interior regions.Consequently, over the last "ve years the market for telecommunications services has been growingat 12% per year, an indication that it is overtaking the growth of the macroeconomy andsubstantially contributing to economic development. Private sector investment currently accountsfor 15% of the total investment. Sapura, for example, has a joint venture with Nokia is currentlycompeting with Federal Cables over contracts but is supplying digital switches to TelekomMalaysia. The former is a major exporter of payphones, fax machines and pagers to the Asia-Paci"c region, and it supplies prepaid phone cards and public call o$ces to Ho Chi Min City inVietnam.

In 1991, the convergence process began when Malaysia decided to launch its own satellite systemand selected Binariang to operate it. However, Malaysia continues to rely on Intelsat for itsinternational communications and on Palapa for its domestic needs during the transition period.The new satellites, Measat I and II (Malaysian East Asian Satellite), constitute Malaysia's majorforay into the commercial satellite system and marks the beginning of the country's e!orts to usecompression technology for its television programs. The "rst satellite is in orbit at 91.53 East witha footprint extending over Singapore and the Philippines, and it broadcasts DTH television fromits KU band transponders. US West has invested US$ 1.8 billion in this venture.

Malaysia has advanced not only its global competitive ability but has taken a lead position in theASEAN region and the APEC. It successfully launched the idea of AFTA as a counterfoil toNAFTA and the European Union. Now that both Malaysia and Indonesia have equipped theirsatellites with DTH capabilities, convergence with computers and telecommunications will bespeeded up for larger volumes of information #ows using less bandwidth. Policymakers inMalaysia hold the view that the multiplier e!ect this will generate will far outweigh the initialcapital costs by enhancing the capacity of the network system compared with a closed public sectormonopoly.

Malaysia exports US$ 35 billion worth of computer chips and electronics equipment annually(Wilson, 1998). However, the imports of components outweighed the export earnings. The value-added was modest. However, the MSC authority in charge of constructing the Supercorridorincludes a 15% share bought by NTT of Japan (Wilson, 1998). Malaysia envisages equipping itscyber city with new cyber laws governing such issues as intellectual property protection, and taxexemption codes and laws for foreign and local investment. Simultaneously Malaysia is investing inforeign countries. Together with SBC Communications (one of the Baby Bells) Telekom Malaysiabought 30% of South African Telekom at US$ 1.3 billion. Such international investment will haveto be reduced in view of the "nancial crisis.

Malaysia has had substantial growth in the number of Internet users even as its business sectorgrows. Its attempts to control the content of the Internet have been reduced.


The capital controls introduced by Prime Minister Mahatir in October 1998 have isolated thecountry from Foreign Direct Investment while trying to stem the tide of hot money. The currencyhas been protected from instability but foreign trade has been adversely a!ected along withtechnology inputs when the country is struggling to recover from its debt burdens and volatility inthe stock market.

5.2. Indonesia

Indonesia has two state-owned monopolies for its telecommunications services: Perumtel andIndosat, which are used for domestic and international services respectively. These are beingliberalised as PT Telekommunikasi has opened up the construction of new telephone lines toforeign companies. Jakarta now wants to catch up with its neighbours in liberalising its ITindustry. No longer a monopoly, Indosat now faces competition from Satellite Palapa Indonesiaalso called Satelindo. This system, owned by the Bimantra Group, started international servicesfrom August 1994.

Teledensity in Indonesia is still 2%, one of the lowest in the region. The government initiated thestrategy of inviting foreign investment in 1994 when the shares of Indosat were placed on the stockexchange in New York } US$ one billion was raised in one day. This was coterminous with theAPEC Summit addressed by President Clinton in Jakarta.

In 1996, as part of a major restructuring of PT Telekom, the country was divided into sevenregions for cellular operations in the private sector and with two regions reserved for Telkom tocover Jakarta and Surubaya. However, Indonesia's e!orts at privatisation have not been uniform,creating apprehensions on the part of suppliers and impeding the growth of convergence andinteractivity. The monopoly supplier PT Telkom has entered into a joint venture with LucentTechnologies for narrowband ISDN which is a "rst step towards convergence. It is also runninglab tests for ATM switching in collaboration with IBM, NEC and Siemens. SDH transmissionlinks are to be rolled out in the major cities.

In 1993 Satelindo was set up to compete with the Palapa Satellite system and is now thecountry's biggest GSM operator, having invested almost a billion dollars for expansion. DeutscheTelekom Mobilfunk has a 25% interest in the company. Its revenues have exceeded Palapa C's bya factor of four. Nynex has backed another successful cellular supplier called Excelcomindo, whichuses the GSM standard. PT Paci"c Satellite Nusantra has succeeded in using its DTH system ina partnership with Hughes for roaming access for cellular telephones called the Asia CellularSatellite System (ACeS). Having raised one billion dollars in equity and loans, it is the world's "rstfully funded mobile satellite system. It will supply telephony, DTH satellite TV, and multimediaservices at low cost to customers across the region. Currently, there are four Palapa satellites inorbit, and VSAT networks set up by Palapa Paci"c Nusantra, service public pay phones in ruralareas. Indonesia also has the ambition of launching a new advanced system using broadbandtechnology called Nusantra 21, which will link 27 provincial capitals with a backbone network.However, the political travails of the country together with social uprisings have destroyed much ofthe con"dence foreigners had in investing in that country. It will probably be the last country inAsia to recover from the contagion of "nancial crisis caused by more political mismanagementthan market forces. If the discipline enforced by the IMF followed, there may be hope for a quickereconomic recovery.


5.3. Thailand

Thailand's recent economic troubles have led most foreign investors to reconsider their projectscarefully. Perhaps more than any other country in the region, the future of IT industries growth inThailand hinges on continued commitments to privatisation of the telecommunications sector anda subsequent restructuring of its domestic and international companies.

Like Indonesia, Thailand's telecommunications sector has historically been burdened with twostate owned monopolies that did not permit advances in infrastructure growth. They were TOTand CAT. In 1995 these two were partially privatised.

Contracts were awarded to private "rms to build 1.9 million telephone lines throughout thecountry. The contract for the satellite Thaicom was awarded to Shinawatra which is also a majorsupplier of cellular services. Telecom Asia, the biggest private company in the IT sector inThailand, is a conglomerate between Charoen Popkhand and Nynex worth US$ 9 billion. JasmineInternational competes with Telecom Asia for laying landlines which, before the onset of theeconomic crisis, were estimated to reach 13 million by the end of the decade.

Convergence of systems is mostly being spread in the private sector, particularly with the use ofthe Thaisat system. Thaicom II is providing voice, data and video services along with spot beams tothe Philippines using two KU band transponders for DTH both within Thailand and forbroadcasting to neighbouring regions. The "rst two satellites in the system were constructed byHughes and the third by Aerospatial.

Taking advantage of this new infrastructure, another private company, the Samarat Group, hasbecome the leader in electronic commerce installing converging systems, point-of-sale networks,and teleconferencing facilities over VSAT links. The conglomerate is also starting to provide EDIand Internet services in a joint venture with CAT called Infonet. The Samarat Group owns andoperates another subsidiary called Samarat Cybernet which is a collaborative venture with SunMicrosystems for providing servers. It has established the Thai tradenet for foreign companies toaccess their o$ce Intranet systems through two gateways. Samarat has vertically integrated itselfinto a hardware manufacturer and a service provider. The company o!ers total solutions usingconverging technologies, and it has entered the Pay TV market with a license. Samarat suppliesKU band satellite dishes to both the DTH broadcasters, namely IBC and ThaiSky. The payTV operations have not been successful because reception and programming from cable operatorshas not been satisfactory to the viewers. It is unable to compete with DTH. At the same time,however, Samarat is currently tapping into the rapidly growing market for computer-basedentertainment.

Another private supplier of IT in Thailand is Asia Inc. under the chairmanship of SondhiLimthongkul. This company has as its goal the skies above Cambodia where it wants to launch twosatellites that would blanket the whole of Asia with DTH broadcasts. Providing an &Asianperspective' to news and entertainment is what the company wishes to achieve, but it has tocompete with titan like Rupert Murdoch who already has the vast majority of viewers in Asiahooked into his networks. The economic downturn in Thailand has halted these visions, if onlytemporarily.

Satellite launch facilities are being lined up in Thailand with investment coming from the UnitedCommunications Industry. It owns a large share (42%) of the Thai market for mobile telephonenetworks, and has invested in Motorola's Iridium system.


Thailand continues to o!er a growing market for convergence services, with two telephoneproviders moving into cable TV. Among the seven CATV licensees, three operators will transmittheir services via wire line media. They are Universal Cable TV, Total Access Communications(partnered with UCOM); and Comlink.

However, telecommunications services continue to be con"ned to TOT, TelecomAsia andTT&T. This oligopoly in basic telephone services is hindering the growth of the nation's conver-gence market, despite the exploding demand for subscription TV in the country. The problem isthat all subscription television signals have to be transmitted using only the TOT trunk network,which is not always satisfactory. Both AsiaCom and Thai Telephone and Telecommunication(a conglomerate of Loxley and Jasmine) are building millions of wire lines under a build-operate-transfer (BOT) agreement and are seeking CATV licenses to a!ect convergence over their net-works. Fibre to the home and "bre to the curb both o!er solutions for converging networks.Loxley, for one, has already ventured into North Korea for providing cellular services and forlaying the land lines along the Tumen River Delta.

6. Analysing future trends

Telecommunications technology has become the driving force which will transform societiesacross the globe according to a new economic model. The economies of participating countries willbe fuelled by information and knowledge instead of factories. In the age of convergence of new andold technologies we have seen that the landscape is changing rapidly. The Internet has becomea megatrend, leading to new channels of multimedia delivery via computer screens or televisionsets.

In the Asia}Paci"c region, digital networks continue to rede"ne what kinds of infrastructure arepossible under the sweeping trend of convergence and highlight the need to privatise and introduceregulatory changes commensurate with such developments. As these transformations move for-ward, global megamergers are taking place in the telecommunications industry as well as inbroadcasting even as they are converging. At the same time, the telephone networks are understrain, choked with data tra$c under a system that was never designed for such use. But the Asia}Paci"c region has become plagued by crony capitalism and tight links between bankers, business-men and bureaucrats and a shortage of aggressive entrepreneurs which pose structural impedi-ments to economic development arising from the IT industry.

To ward o! technological problems, packet switched Internet technology may in the long-runrevolutionise voice networks which now operate under traditional circuit-switched architectures.As the costs of such systems continually decline, it will become di$cult for traditional telecommu-nication companies to maintain their revenue streams without adding new services and features. Aswireless, satellite and cable companies increasingly all o!er the same services, the winners andlosers cannot be delineated. In the Asia}Paci"c region, "xed wireless services are already provingto be more cost e$cient in areas where there are no land lines. Even in the domain of convergencewe "nd that there are uncertainties. This happens because globalisation forces suppliers to provideone source end-to-end services. With the decisions of the WTO negotiators, trade barriers will falland a whole new class of global service providers will emerge to provide broadband multimediacommunications to hand-held portable voice and data devices.


Internet-enabled television is another emerging trend. On April 6, 1997, Microsoft announcedthat it had purchased WebTV, developers of Internet-on-a-TV technology, for $425 million(Groves, 1997). WebTV is a newer advance over &push' technology which automatically sendsinformation to a user's PC and is somewhat similar to television. At that time both Microsoft andCompaq announced that they will bring a similar service on digital TV using a common standard.In the long run, webcasting will most likely be the way of the future for interactive convergencebetween the computer and television. Yet the question remains as to how long webcasting ontelevision will be a technology looking for a market.

Delivery vehicles for convergent technologies will not be lacking in the Asia}Paci"c. Intel andthe Paci"c Century Group of Hong Kong are two of the latest entrants to "eld of digitalbroadband delivery with their creation of Paci"c Convergence, a company that intends to providebroadband services via its own satellite network throughout the entire region.

The convergence of cable TV with telephony will shape several trends in the telecommunicationsnetworks of the Asia}Paci"c. It will create a new regulatory environment and spur the consolida-tion of regulatory bodies. While governmental control of content may become di$cult under thisconvergence, lucrative entertainment services extending beyond those on cable TV will acceleratetelephone network expansion, especially in rural and remote areas where providing telephoneservice alone is not pro"table. One thing, however, is for certain: convergence is here to stay andcommunity media will be among the "rst to utilise its bene"ts to bridge the gap between the havesand have-nots of society. Successful restructuring of the region's telecommunications sectors will bedetermined by factors such as the economies of scope versus diseconomies because the former playsa more determining role in cost reduction than scale economies (See Wildman, 1998).

7. Conclusion: how far have we come in the impact of ICT on development?

Convergence technologies are indeed changing the face of the telecommunications industrythroughout the Asia}Paci"c and spurring economic growth in a region that desperately needsstimulus. But in the new international telecommunications regime as recently rati"ed by the 1997WTO Basic Telecommunications Agreement, it is important to explore questions of equity anddistribution. Is there equity in access to these technologies or do they threaten to keep large massesof people outside the ambit of their bene"ts? Are developing countries as a whole doomed to beexcluded from these bene"ts of the Information Age? Answers to these question appear hopeful ifwe look at the enormous leaps in national and per capita incomes achieved by the Asian Dragonsand China along with the emerging economies of Southeast Asia and Latin America, whoseinvestments in IT have increased their trade opportunities and rendered their countries economi-cally viable.

The neo-classical growth model was based on notions of diminishing returns, perfect competi-tion and infusions of technological progress. The Telecommunications Revolution, as it has takenplace in much of the Asia}Paci"c, looks like it may have transformed this model. With theirpolicies of open economies and export-oriented investment in technology, the Southeast AsianDragons have proven that such an approach generates increasing returns, trade surpluses and } inspite of the region's recent "nancial turbulence } can provide the basis for long-term economicgrowth.


International companies were looking for large sales in the region when the recent "nancial crisisoccurred. Oracle and Deutsche Telekom report losses because much of their international revenuecame from the Asian region. Even Microsoft saw its revenues from Asia decline by 8% due to theturmoil and Motorola's revenues are taking a loss for 1998. On the other hand, Compaq, theworld's largest computer manufacturer, imports parts from Asia and found its manufacturing costsdecline. ¹he Business ¹imes in Singapore reported that Alex Haas, Vice President of Siemensbelieves that the economies of the Asia paci"c are strong enough to overcome the turmoil in theregion and that Siemens will continue its programs in the Asian markets (Chellam, 1997). It is nowimperative for policymakers and regulators alike to re-examine the issue of converging technolo-gies and their impact on development. Most countries have come to recognise that there isa network economy operating in a global environment and whether developing or advanced theyhave to come to terms with rapidly changing ITC. Continued increasing returns to scale, mergersand acquisitions, and expanding competition are driving economies to take advantage of ITC anduse it as a barometer to indicate the growth and recovery of the Asian countries. The above surveyhas shown systematically that ITC is still being actively pursued even by the crisis-a!ectedcountries of the region and that gradually they are pulling themselves out towards a sustainedrecovery. Thailand and South Korea seem to be overcoming the hurdles through a program ofrestructuring their IT sectors and greater liberalisation of their state owned monopolies. If thistrend continues and if the Japanese economy regains momentum, there is every hope that Asia willregain its position as one of the world's largest markets for ITC equipment and services.

Acknowledgements

I am indebted to Joshua Gordon, Degree Fellow at the East}West Center, for substantialcontributions to the research and writing of this paper.

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