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Facilitate demand, you will

Siddhartha Raja's picture

What Jedi Grand Master Yoda might teach us about broadband*

A friend told me a while ago that a key reason why videocassette players and recorders (VCPs and VCRs) became a household phenomenon in the U.S. was the popularity of the Star Wars movie franchise. The first movie had its theatrical release in 1977. At that time, less than 1 percent of TV owning households in the U.S. had VCRs. By 1985, however, soon after Star Wars was released in VHS format, that number had risen to over 20 percent.

It certainly is difficult to argue that one movie caused the entire wave. But even if my friend’s story is apocryphal, there’s little doubt that the success of technologies like VCRs and DVDs has much to do with the wealth of excellent movies and media that are available on those formats. Similarly, for those thinking about how to spread other innovations, the story of the VCR holds a valuable lesson: what is available on videotape affects how many people own a VCR. So what might Jedi Master Yoda+ say about broadband? If I were to guess, it might be four lessons. 

Build it and come they might 

Broadband has a significant and important role in economic and social development. Apart from the positive effects on economic growth, broadband plays a role in connecting communities, businesses, and individuals to ideas, markets, and each other. By supplementing telephone’s voice connectivity with an improved media experience, broadband makes communication a richer experience.

 However, demand for broadband seems to be less obvious than for telephony. After all, there are over five billion telephone subscriptions (mobile and fixed), but only one billion broadband subscribers (mobile and fixed). According to market tracking firm TeleGeography, 99 of 169 countries they track have (fixed) broadband market penetration of less than 5 percent. Of these, 69 have less than 1 percent penetration. The situation with 3G services is about the same. Fully 101 of 167 markets have less than 5 percent penetration, while 73 have less than 1 percent. 

It is reasonable to suggest that these actual subscription rates are far below the available capacity on these networks. Put another way, broadband is available but many potential subscribers are not yet signing up. One piece of evidence for this comes from an analysis of how many existing wireline and wireless telephone subscribers have ‘upgraded’ to broadband DSL or 3G services. Worldwide, about 15 percent of wireless subscribers have 3G, while about 25 percent of wireline telephone subscribers have DSL. This suggests that a significant number of people who might be able to subscribe to broadband have not. Evidence from the cable TV market also suggests the same: Across Eastern Europe, there are about 35 million cable TV subscribers and estimates suggest that only about 12 percent of these subscribed to cable TV broadband service. Across OECD countries, the share is about a third. 

Powerful evidence that there is a gap between reach and subscription comes from a survey of American adults done by the Pew Internet & American Life Project in April 2009. It found that about a fifth of the surveyed population do not use broadband, and that 33 percent of American households have access to broadband but do not subscribe. Of these, half gave the perceived irrelevance to their lives as the reason for not going broadband. On the other hand, only 17 percent said that availability was a constraint, while only about a fifth percent said prices would have to fall. This is especially interesting because these are American users, living in a country whose language dominates the Internet, who have huge sources of local content and media, and are in one of the most IT-savvy countries in the world. 

Hence, the first lesson is clear: making broadband available is only going to get so many people online. Considerations such as affordability and relevance are as or more important to address—build it and they might come. Which leads me to my proposal: in order to get subscriptions and use of broadband up, it is essential that countries should begin to consider demand facilitation. It is not enough to look at the supply side for broadband anymore, but to also consider availability, affordability, and attractiveness of broadband to users. 

Broader availability will help 

The fundamental driver of availability will be an improved policy and regulatory environment that promotes competition and investment. Indeed, as the experience of many leading broadband markets shows, facilities and service level competition have been critical to the spread of broadband networks.

 But there are also other ways in which broadband (and Internet more generally) might be made more widely available to underserved populations and potential users. One common mechanism has been to enable the setup of access centers, telecenters, kiosks, and other public access points where people can use broadband services. Many low and middle-income countries have cybercafés, for instance, that provide at least basic Internet access. 

Another mechanism to boost availability is to connect educational institutions (e.g. schools, universities, libraries) to high capacity networks, using them as poles of growth, and including both staff and students in global knowledge flows. Some countries and cities are also experimenting with providing wireless Internet services (e.g. via Wi-Fi) in public spaces such as airports or business districts. This has not yet proven itself as a sustainable means of broadband provision, especially if the services are free or subsidized. Yet, there are examples of communities or organizations opening up their wireless networks to enable wider access to Internet services. 

Make affordable, you must 

Cheaper the better, of course, and broadband subscriptions are becoming less expensive over time. There is a whole range of ways to make broadband more affordable. Again, the role of competition cannot be emphasized enough; if there is one lesson from the mobile revolution, it is that competition leads to smart thinking among service providers about cutting costs and making service cheaper while maintaining quality standards.

 However, it is important to look beyond only subscription costs. Broadband remains expensive in much of the developing world often because of high upfront costs to getting online. For example, even the fabled hundred-dollar laptop is more than a third of annual incomes for people in four Sub-Saharan African countries; a relatively good netbook priced at US$400 costs more than the annual incomes in nine African countries. In many cases, there are additional concerns such as access to electricity or literacy. 

On top of all that, many broadband packages also come with steep one-time set up costs. A barebones 256 kbps broadband account has a signup fee of US$44 in the Palestinian Territories and US$50 in Sudan. For a livelier 1 Mbps package, a Sudanese subscriber will have to shell out US$150 just to connect. This is from a report by the Arab Advisors Group, which also finds that the annual cost of a 1 Mbps broadband connection in Iraq costs as much as the annual GDP per capita. In Yemen, that drops to about half. 

Lowering the cost of end-user terminals through import duty and other tax reductions can help. Some countries have also tried targeted subsidies and grant programs to enable poorer families or individuals to buy PCs and in some cases, broadband subscriptions. Indeed, the U.S.’s universal service program has a stream to fund Internet access in libraries and schools (the E-Rate program), but one major constraint has been that funds are not available to buy the computers. Hence, subsidizing broadband access equipment used in educational institutions is one powerful way to extend the benefits of the Internet to education, and to create widely used resources for Internet access. 

Provide consumers with information on providers and pricing options as well as available technology. Even among OECD countries, there is significant price variation. The average price of one month’s worth of broadband in Mexico, the U.S., Portugal, or Turkey is about US$45. But per Mbps of speed, a subscriber has to pay US$65 (PPP equivalent) in Mexico versus US$20 in Turkey, US$10 in the U.S., and US$5 in Portugal. It is essential that subscribers should understand what they are buying and have a transparent means to compare plans. In itself, this will improve competition among service providers and diminish the role of ‘hidden fees’ that can often dissuade even enthusiastic users. 

Attractiveness is the most important Force 

Above all, making broadband relevant and attractive to its users is critical. And in some cases, the drivers for relevance might be accidental; e-mail for example, remains one of the most widely used Internet applications. More recently, applications such as YouTube and Facebook have become hugely popular. Facebook now has over 350 million users and YouTube stream over one billion videos every day. Newer and more bandwidth-hungry applications are appearing all the time.

It is the widespread availability of such applications and associated content that makes broadband attractive to users. Going back to the example of Star Wars, it was movies like that which drove demand for cinema tickets and then videocassettes and DVDs. This is certainly a restatement of the ‘demand-pull’ model of market growth, but it holds significance for broadband. Unlike the mobile telephone, where demand and the application was clear (voice communication), with broadband, things are a bit more diffuse. 

Hence, we have a chance to learn from the accidental or unplanned successes and building the attractiveness of broadband will need a multipronged approach. First, users will be attracted to relevant content in local languages: games, movies, music, news, and information. They all play a major role in attracting users to media and broadband is no exception. For businesses and serious users, the availability of government and public information online and e-Government applications (such as tax forms, business registration, drivers’ license renewals, and utility bill payments) can drive adoption. This might not seem as exciting as news or movies, but encourages users to be more sophisticated about broadband**. 

And when users are hooked on to such services, they really use them. Apple’s iPhone and other smart phones have in fact made its users so data-hungry that in the U.S., its associated service provider AT&T has found that some 3 percent of the company’s customers account for 40 percent of its data usage. Intense use of data to stream videos, music, and surf the Internet has led to severe congestion on the network and has prompted the company to look for ways to curb data use

Available+Affordable+Attractive=Demand 

The proposed three-pronged approach is an attempt to identify the focus areas for demand facilitation programs. But I do believe that building broadband networks is only one part of the equation. It is essential that those eager to support the wider use of broadband should also look into ways to facilitate demand. And without interesting and engaging content and applications potential users will see no need to upgrade from dial-up Internet or even no Internet to broadband, even if it is within reach.

Comments on this approach will be appreciated.

* With apologies to George Lucas!

+ Just to clarify here, he is not the friend to whom I was referring 

** Thanks to John Windhausen for this idea 

Comments

Submitted by Sanjay P. Sood on
Well written Siddhartha, that is a comprehensive analysis about the adoption of broadband. For over 12 years, I have been into telemedicine technology's development and deployment in India, and in the process I have closely monitored the evolution of eHealth and telemedicine applications. After going through your post it seems that adoption of broadband is following the adoption of eHealth and telemedicine applications. Across India (and in many other developing countries) telemedicine has been implemented at a noteworthy level, in India alone there are over 600 nodes but practitioners are yet to impress the policy makers and the technology developers with respect to the usage of this marvel of IT that carries a high social relevance. In order to dig deeper into the causes of such dismal adoption and utilisation of eHealth / telemedicine I undertook a research (Ph.D.) on the subject. Based on my research experience, towards late 90s it was the Integrated Services Digital Network (ISDN) that was used as the communications channel, the affordability of ISDN and inadequate expertise at the service providers' end were the key factors those because of which clinicians did not feel encouraged to use telemedicine. But within last 5 years, over 75% of the telemedicine implementations have migrated form other communications networks to the broadband. This change (that brought with it affordability and attraction - as broadband is coupled with Internet) has also not motivated clinicians beyond a certain level. As per the practitioners and researchers, adoption of innovation (specifically information systems or IT based innovations) depends on social, organisational and technical factors. Furthermore, Technology Acceptance Model (TAM) is an Information Systems theory it states that a user will accept a technology - based on two factors: Perceived usefulness and Perceived ease of use. Unless a user is convinced about these two aspects he/she may not feel encouraged to even try a new technology. As regards the adoption of Internet, it is said online games, gambling and pornography enticed its early adopters who in turn recommended the technology to new users. Researchers are pegging hopes on social networking, eLearning and 3D content for entertainment (games, animations etc) to entice users in developed world to adopt broadband. Researchers and experts have speculated that eGovernance applications may be an additional factor for those in developing countries to adopt. broadband. Hopefully the trends and factors pertaining to broadband's adoption may be completely understood by December 2012. Since Communications technology is a sort of a backbone of eHealth & telemedicine, once we are clear about broadband, issues pertaining to eHealth & telemedicine's adoption will get sorted out. I hope my thoughts are in sync with your observations.

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