ICT andEconomic growth

Jean-François SoupizetHead of International Relations

DG INFSO, European Commission

Milan, 11 December 2006

Contents

IntroductionI. ICT and economic growth EU vision and international debates II. Definition and measure of the

digital divideIII. The factors of development of

the access to the electronic communication

networksIV. The issue of access

Conclusions Prospects

ICT and economic Growth

The ICTs are at the heart of the European strategies for growth and employment (Lisbon strategy – i2010 initiative)

The ICTs are recognised for their potential in socio-economic development by the WSIS

The digital divide is synonymous with insulation of economic, scientific and cultural flows and a limitation of inter personal communications of the citizens.

i2010 – A European Information Society for growth and employment

• Launched by the Commission on 1 June 2005 as a framework for addressing the main challenges and developments in the information society and media sectors up to 2010.

• Promotes an open and competitive digital economy and emphasises ICT as a driver of inclusion and quality of life.

• Contains a range of EU policy instruments to encourage the development of the digital economy such as regulatory instruments, research and partnerships with stakeholders.

• i2010 - the first substantial initiative taken under the renewed Lisbon agenda - seeks to boost efficiency throughout the economy through wider use of ICTs.

i2010 – the 3 pillars

1) Creating the single European Information Space, which promotes an open and competitive internal market for information society and media services.

2) Increasing investment in innovation and research in ICT.

3) Fostering inclusion, better public services and quality of life through the use of ICT.

The international debates

ICT international issues gave rise to numerous national and international debates:

- In a sectoral context (the missing link): the conferences of development of telecommunications on the initiative of the ITU (1992..1998..2002)

- In a broader context (the information society): the G8 (June 2000), the United Nations General Assembly, the World Summit on the Information Society (Geneva, December 2003 & Tunis, November 2005)

World Summit on Information Society (WSIS)

Tunis November 2005

• Summit has outlined a consensus for a global approach to the Information Society.

• Summit reaffirmed the primary importance of:– Respect for human rights, freedom of expression

and democracy– Contribution of ICTs to Development and notably to

reach the MDGs – Cultural diversity– Market economy for the develoment of teh

Information Society• Balanced agreement reached to bridge the

digital divide and support vulnerable groups (elderly, people with special needs).

WSIS follow up

• Compromise found on Internet Governance:– Enhanced cooperation to enable governments to

carry out their roles and responsibilities in international public policy issues pertaining to the Internet

– Creation of Internet Governance Forum, a new forum for multi- stakeholder policy dialogue

• Involvement of all stakeholders– Private sector– Civil society organisations

• Preference for an open process

The digital divide in questions

Definition and measure – What is the DD? – How to measure it and what is its dynamic?

The factors of development of access to the electronic communication networks

– Incomes, time, technological progress and the structure of the markets

– Can the liberal model ensure the development of the

infrastructures?

The digital divide in questions

How is the offer of services financed - Public financing to the private model, - New commercial and technical regulations - The demand

A new prospect: low cost services- Examples of low cost communications services - Collective access, a model from the South?

II. Definition and measure of the digital divide

Definition: the disparities between individuals, hearths, companies and geographical areas, at various socio-economic levels, in terms of access to the ICT and of use of the Internet for a broad variety of activities (OECD).

Definition and measure of the digital divide

Given on the developing countries: - Statistical Series: ITU data but also

télégeography - Indicators and case studies, - E-readiness indicators: at the same time

the distribution of technologies and the capacity of the countries to form part of the development towards the information society.

But no specific measure of the distance between the industrialised countries

and the PEED

The Digital Divide at a glance (fixed)

The Digital Divide at a glance (mobile)

The Digital Divide at a glance (internet)

Proposal: measure the distances

The selected variables: LP, PCs, Mobiles, Internet users (Documentary data base source ITU)

Countries: OECD, Country have high average Incomes, average weak bases and.

Years: 1989-2001

Utilisation of the Analysis in Principal Components to seek main principles which preserve most information of a group of dots, without a priori on the relations between the variables.

Proposal: measure the distances

Results: There is a plan (F1, F2) which explains

99% of the variance of the initial cloud and the main principles which represent a linear combination of the initial variables.

The axis F1 gives a weight comparable to each method of access, it measures the abundance of the access, the F2 favours

the LP (50%) and Internet (25%).

ACP States Results: projections on the plan F1F2

Graphique 7-3 Evolution des 4 Groupes de pays (1989-2001)

O89O90

O91O92

O93O94

O95O96 O97 O98 O99

O00

O01

H88

LP

Cellular mobile

PC

Internet users

H88H89H90H91H92H93

H94H95H96

H97H98 H99 H00 H01

B98B89B90B91B92B93B94B95B96B97

B98B99B00B01

F88F89F90F91F92F93F94F95F96F97F98F99F00F01

-7

-6

-5

-4

-3

-2

-1

0

1

-2 -1.5 -1 -0.5 0 0.5 1 1.5

Axe Horizontal F 1

Axe V

ert

ical F 2

Digital distances to the OECD

Graphique 7-7 Distance numérique de l'OCDE des 3 autres groupes de pays (1988-2000)

4

5

6

7

8

9

10

1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000

A nnées

Moyens hauts Moyens bas Faibles

Dynamic of the digital divide

The divide widens Behaviour of the groups of countries is

homogeneous Distances decrease by 1989 to 1997, but then

they increase quickly On the only fixed telephony, the ditch reabsorbs

until 2001

The role of technological innovation is decisive Progress in fixed and mobile telephony is not

enough to bridge the divide New technological waves are the key factor of the

cause divide dynamic But precisely, innovation is central in the

information society

Dynamic of the digital divide

This measure on under estimation probably reality

If we could measure the intensity of use, it is probable that distances would grow more quickly

III. The factors of development of the access to the electronic

communication networks

The principal explanatory factors are:

the incomes per capita: the row analyses and the Jipp curves illustrate it, but correlation is not necessarily causality

the time and technological progress: the modelling of the development of the networks in the time

the structure of the markets: proposal for a general model using the technique of panel

Exploration on other factors led to not very convincing results or to correlations between increasing monotonous variables

Taking into account the structure of the markets: a general model of

development of the infrastructures

Model with fixed, variable effects centeredhétérocedasticity correction

CLLP = β1CLPNBT + β2CTEMP + β3PRIV + β4CREG

• LP: Télédensity fixes for a date t • PNBT: Returned per capita for a date t • TEMP: Time of the panel. • PRIV (0,1): Binary variable representing the privatisation and

indicating the partial or total privatisation of the historical operator

* REG (0,1): Binary variable representing the Regulation and and indicating the creation of a regulation authority; in practice this date coincides with the first step towards the effective liberalisation of the market and the introduction of competition

Results of the general model on the principal lines

Valeurs des coefficients

Influence de

Revenuβ1

Tempsβ2

β3 Concurrence

Privatisation β4

Constanteβ5

Revenus seuls

1,19 N/A N/A N/A -7,23

Revenus et temps

1,17 0,07 N/A N/A -7,5

Modèle complet

1,15 0,22 0,09 0,12 -7,4

avec effets fixes

0,14 0,31 0,12 0,05 0

correction hétéroscédasticité

0,16 0,28 0,09 0,08 0

The general model applied to the various variables

The principal lines CLLP = 0,16 CLPNBT + 0,28 CTEMP + 0,09 CPRIV + 0,08 CREG

Mobile telephony CLMOB = 0,52 CLPNBT + 2,44 CTEMP + 0,78 CPRIV + 0,52 CREG

The distribution of the PCs CLPC = 0,12 CLPNBT + 0,92CTEMP + 0,21CPRIV + 0,21CREG

In the case of the Internet users the model does not give significant results

Incomes have a real influence, but the time plays a decisive rolefor the mobiles and the PCs; in all the cases bothprivatisation and competition variables add significanteffects.

Conclusion on accesses and the factors of their developments

factors: the time and technological progress, the incomes per capita and the structure of the markets.

the income effect is the most visible one, but between groups of comparable level countries, it ceases to be discriminant.

there are ranges of growth of the networks for which the models which describe the situation of the industrialised countries are also relevant. But there are effects of thresholds for the weak distributions and for saturations.

the application of a general econometric model on the identified principal factors makes it possible to measure the relative effects of these factors.

the structure of the markets has a significant effect, it raises the constraint of supply, but it is insufficient to bridge the digital divide (constraint of the demand) if the access models remain those of the industrialised countries.

Financing of the offer: the twilight of state monopolies

Internal factors: The inadequacy of the offer and The operators' inefficiency The financial difficulties of the public

sector The emergence of new technologies and

of new services External factors: • Pressure of the debt • Example of liberalisation • International negotiations under the

WTO/AGCS

Financing of the offer

DCs are in an external adaptation model: In 2002, in 113 of the 201 of the ITU, the

historical operator was partially or entirely privatised, in 49 others there was at least a private operator.

The entirely private historical partially or operators account for 85% of the incomes, the other private actors represent 13% and the purely public operators only 2%.

Financing of the Offer in the PEED: the model of the 1990-2000s

International financing plays a considerablerole: Direct investment Flows (FDI) for acquisitions

accounted for more than 40 billion USS during the decade

Revenues from international communications for which 50 billion would have been transferred during the same decade

There is a synergy between these two factors, theinternational incomes making acquisitions attractive.

Financing of the Offer: the FDI-model threatened

The most attractive privatisations are carried out

The confidence of the markets with respect to the ICT decreased

The incomes of the international communications of the developing countries are falling: the settlement rates (ITU agreements) yield the step to the trade interconnection agreements, under the rules of the WTO, and within the American benchmarking.

Migration towards the IP networks changes the distribution of the incomes of the international communications.

Operators will have to turn to the national markets

Solvency of the demand

If the countries are distributed in four categories: high incomes, average tops, average bases and bases, in 2001 télédensities amounted to 3,85%, 23,3%; 48% and 120% in 2001 with an overall average of 32,65%

But per capita, yearly communication expenditure was of: 8$; 32$; 178$ and 812$, on average 157.

In developing and emerging countries, the model of distribution of the North is not sustainable.

However, there is a substantial demand for electronic communication services from the consumers everywhere

The national markets: the solvency of the demand

There is an important potential of development of the markets of the consumers with low income, provided the methods of supply adapt to the specific characters of demand.

At the same time, several technological and organisational innovative ways open new perspectives for these consumers, for example: - Mobile telephony with prepaid card; telecentres,

cybercafes, - Satellite technologies coupled with the VSAT; the

digital radio and digital television, the use of the powerlines (powerline communications), the digital radio broadcasting, the PCs at low cost (simputer) and even second-hand products.

IV. A new prospect: low cost services

The modernisation of the economy and of theadministrations necessitates needs newinformation services: New methods of use in the communications

(mobiles); but also the cybercafes; Of the new products like the simputer, the

sofcomp aim not only products at low cost but at simplified interfaces (voices);

the experience of the villages of Cambodia, of Costa Rica of Kigali with an Internet bus;

Electronic communication services develop throughan offer adapted to the characteristics of customerswith low income.

An example: collective access

There is a major range of collective access to electronic communication services, with an offer adapted to the characteristics of customers with low income or customers which are not familiar with these technologies.

Collective access represents a considerable potential, in particular in the developing countries where it represents the least expensive access and where there is a synergy with mobile telephony.

The empirical study demonstrates however that collective access develops relatively little and that it generally is not supported by the telecommunication operators.

A concept to be developed: low cost services

An important potential exists for new markets – theconsumers with low incomes - but theirdevelopment represent: a technological challenge (we saw the importance

of the time variable) an industrial challenge: what makes the price is

not only complexity but the scale of production and DPI

a distribution challenge which rests on proximity between salesman and user and on take up by the users (inspired by micro-credit experiment)

a regulation challenge: recognise the micro companies

General conclusions

The analysis also shows that it is not only the delay in the introduction of a specific technology which makes the divide, it is also linked to the successive technological waves: that reference to cognitive access, to appropriation and to the control of uses. It should be noted that this is compatible with alternative access modes.

Results show that the development of the access is encouraged by various factors, in particular by the restructuring policies which make it possible to raise the constraint of the offer.

But the effects of these policies are limited because they run up against the limits of the solvent demand.

General conclusions

Additionally, the model of financing of the infrastructures, observed during the decade 1990-2000 in the developing countries, is threatened.

A new frontier: the consumers with low incomes as illustrated by the booming of mobile telephony or collective accesses.

The issue: the mass diffusion of accesses and of uses.

Perspectives

The ideas on the development of an informal economy at the border of most advanced technologies and its swing in the formal economy.

The role of research, because in this area we witness ruptures caused by technological breakthroughs

The poverty reduction strategies: the ICT had important individual effects (brain drain to the United States for example, development of the software industry in India) but, without exception, did not spread around a clear pattern.

Perspectives

Convergence, and key role of Internet (services, VoIP, audiovisual…)

Need for a Mass diffusion of Internet

access

New ways for Internet Governance, from hierarchical to polyarchical structures .

To continue this dialogue This work is published at Economica under the title

"The North-South Digital Divide"

Additional information on: www.soupizet.net

Thank you for your attention jean-francois.soupizet@ec.europa.eu