International internet bandwidth: Supply and demand

ITU workshop on Internet Traffic Infrastructure, Doha, 6 November 2012

Dr. Tim Kelly, Lead ICT Policy Specialist, World Bank

New World Bank Group Strategy, 2012-2020

Three Pillars of Strategy• Innovate – Support ICT innovation for jobs

and competitiveness across industries– Promote ICT skills to develop competitive IT-

based service industries in selected countries– Promote ICT-enabled productivity gains across

industries

• Connect – Scale up affordable access to broadband internet– Support policy and institutional reforms for

private investment in broadband– Selective support of PPPs in frontier markets to

promote affordable access for all

• Transform – Use ICT to transform service delivery across sectors – Promote open and accountable development

using open government, open data, and aid accountability

– Transform service delivery using ICT applications in economic and social sectors, and establishing cross-sector foundations

Climate Change

Trade

Governance

Ener

gy

Agriculture

Heal

th

Finance

Transport

Broadband Gap: The Opportunity and the Challenge

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Although the global digital divide is disappearing for mobile access, it is still evident for broadband internet access

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International Bandwidth Growth

International Bandwidth Growth, Tbit/s, 2008-2012Source: TeleGeography Inc.

Globally, bandwidth growth is slowing, but has still increased almost 5-fold between 2008 and 2012

In Africa, bandwidth increased 20-fold between 2008-2012, helping to narrow the international bandwidth divide Nevertheless, bringing internet capacity into the interior of Africa and other continents remains the major communications challenge of the 21st Century

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Delivery of broadband involves a complex supply chain

International connectivity

Domestic backbone

Switching/Routing

Access

Retail services

Connection to the rest of the worldprovided by satellite or fiber optic cable (usually submarine).

Carries traffic between fixed points within a network. Provided by satellite, microwave, or fiber optic cable.

“Intelligence” in the network that ensures that communications traffic is routed correctly.

Link between the customer and the network. Usually xDSL or cable networks. In developing countries, wireless dominates.

The “soft” inputs required, such as sales, customer care, and billing.

Regionalconnectivity

Connection from the border to the nearest connection to the rest of the world.

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International connectivity

Domestic backbone

Switching/Routing

Access

Retail services

Connection to the rest of the worldprovided by satellite or fiber optic cable (usually submarine).

Carries traffic between fixed points within a network. Provided by satellite, microwave, or fiber optic cable.

“Intelligence” in the network that ensures that communications traffic is routed correctly.

Link between the customer and the network. Usually xDSL or cable networks. In developing countries, wireless dominates.

The “soft” inputs required, such as sales, customer care, and billing.

Regionalconnectivity

Connection from the border to the nearest connection to the rest of the world.

Some parts of this supply-chain are potentially more competitive

Low barriers to entry

Moderate barriers to entry

High barriers to entry

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Africa and Middle East

International Internet Connectivity

Projected, 2014

2011

2007 submarine cables

ImplementedCommitted FY07-10Committed FY11 and in Preparation

Since 2007 the Bank has approved regional connectivity programs (WARCIP, CAB, RCIP…) amounting to $1.2 billion

involving more than 30 countries

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Regional Communications Infrastructure Program (RCIP)

Burundi Communications Infrastructure Project - US$ 20.1m1. Enabling environment2. Connectivity: national backbone, capacity purchase

Madagascar Communications Infrastructure Project - US$ 30m1. Enabling environment2. Connectivity: national backbone, capacity purchase

US$ 424 million regional Adaptable Program Loan, disbursed in phases

Open to 26 countries in East and Southern Africa

Loans and grants made available on basis of open access principles

Countries covered include Burundi, Comoros, Kenya, Madagascar, Malawi, Mozambique, Rwanda, Tanzania, UgandaKenya Transparency and Communications Infrastructure Project -

US$ 114.4m1. Enabling environment2. Connectivity: capacity purchase, digital villages3. Transparency: eGovernment applications

KENYA

BURUNDI

MADAGASCAR

Using PPP to roll out backbone networks

10Ownership / Risk

Scop

e of

Ent

erpr

ise

Func

tiona

lity

/ Se

rvic

e O

fferin

g

Public Private

Limited Scope

Wide Scope

Management Contract

NetworkLeasing

IPO Full Privatization

Concession Contract

Outsource (BPO)

BOO

PPP case study (STP)

PPP case study (Burundi)

• Emerging international experience in the telecom sector shows that the use of PPP is the best solution to guarantee the interests of the government, private partners and consumers in frontier markets. Reducing operational risk for the public sector Reducing capital risk for the private sector Lowest cost solution and highest quality of service Faster delivery/time to market and expert project management skillsAccess to private capitalEnables high risk /low return projects

• A Public Private Partnership (PPP) is an agreement between the government and private organizations to develop, operate, maintain and market a network by sharing risks and rewards (there are several forms).

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Examples of PPP models used by the World Bank in Africa

1. Cooperative Model - Burundi Backbone System (BBS)– Cooperative solution in which users (mobile operators and ISPs) are owners ($ 10 million

investment) , enabling “self –regulation” of the network (open access, non-discrimination, low cost oriented pricing, high quality)

– Government provides subsidy ($ 10 million) with no ownership (national backbone would not be feasible without, nor backbone extensions to rural areas)

2. SPV Share ownership model - Sao Tome Principe, Liberia, Sierra Leone, Gambia– SPV created with Government and private operators as equity shareholders– Ownership reflects capacity uses and provides for government shares (warehoused) to be divested

in future to new operators or investors

3. Bulk purchase model - international connectivity – Rwanda and Malawi– Stimulate investment through aggregating demand (anchor tenant approach)– Competitive tender to supply fiber-based connection to submarine cables– Long-term supply contract to government (no government ownership)– Operator acts as wholesaler in the market

4. Concession Model – Congo, traditional BOT approach whereby assets transferred to the client government at the end of the concession period (e.g. 20 -25 years)

5. Management Contract (O&M) – Gabon, private sector operator contracted to manage and operate the network during (for 3-5 years) with core assets remaining the property of the state

PPP case study (1) Cooperative model: national links in Burundi

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• Problem– All domestic network infrastructure is

wireless– Limited broadband– National fiber optic network would not

be feasible without government subsidy• Strategy

– Operators and ISPs form company to develop and operate network

– Government co-finances ($ 10 million) development of national backbone network through WB project

– Government finances ($ 10 million) through subsidy/prepayment, no public ownership

– Users (are owners , enabling “self –regulation” of the network (open access, non-discrimination, low cost oriented pricing, high quality)

– WB project finances studies and designs– Construction and operation governed by

PPP contracts and license/concession agreement

Example 1: Burundi Backbone System

Subsidy

IDA Credit

Equity

Africell

BurundiBackbone

System

TelecelONATEL

OthersCBINETECONET

BurundiGovernment

Dividends

Dividends

X% Y% Z%

Capacity sales

All operators who wants to buy

capacity

X% Y% Z%

US$10m US$10m

Fbre fiberSDH MW ring

PPP case study (2) SPV Share ownership model :ACE international connectivity in STP

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• Problem– Africa’s smallest economy and one of the

poorest countries in the world– Prices for voice and internet services are

above average in the region– Unsuccessful attempt to introduce mobile

competition in 2007– International fiber optic connectivity

would not be feasible without government subsidy

• Strategy– forming a local SPV (Special Purpose

Vehicle) company to channel the different parties’ contributions into the ACE consortium ($ 25 million) and to access ACE capacity

– Ownership reflects capacity uses and provides for government shares (warehoused) to be divested in future to new operators or investors under open access conditions

– WB project finances Government’s contribution in ACE and studies to support policy and institutional reforms

Sao Tome Principe, Liberia, Sierra Leone,

Gambia, Guinea+

Mauritania

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International lessons learned

• Infrastructure competition is the most effective way of promoting investment and competition

• Competition is viable at some level in many segments of the international/domestic backbone infrastructure. If government supports competition through providing easy access to rights of way, alternative infrastructure (e.g. railways) and through direct support to passive infrastructure, infrastructure competition will develop.

• But full infrastructure competition not possible in all areas of a country and in all segments of the market

• Regulated access to dominant operators’ infrastructure is the second-best solution where competition is not yet effective. Regulation is always difficult because of information and skills asymmetries. Operators fight regulation, sometimes for years.

• Government’s attempts to regulate key bottlenecks (e.g. landing stations) have been expensive and usually not fully effective.

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For more information

• Tim Kelly (tkelly@worldbank.org)

• Broadband Strategies Toolkit (www.broadband-toolkit.org)

• Regional Communication Infrastructure Program (RCIP) in Africa http://go.worldbank.org/1UNCU3TTM0