Posts tagged ‘Government Regulation’

Building a Bridge to Everywhere – Closing the Global Digital Divide

I wrote in an earlier post about the digital divide – in particular, it was about who is buying online. Now I ask, “What is the global digital divide?” And is the gap closing?

What is the Global Digital Divide?

The global digital divide represents the differences in internet and other telecommunications access and usage across countries. The global digital divide encompasses two concepts. First, there is a divide in access and usage across definable groups within countries, and second there is a divide in access and usage across countries themselves.

Individual country statistics routinely show an intra-country digital divide. In a Pew Internet and American Life study and nearly all the countries surveyed in a 2008 OECD study, internet use within OECD countries decreases with the age of the user, increases with the education of the user, and increases with the income of the user. Globally, households with children are more likely to use the internet and urban/suburban users more likely to have access than rural users. And in many countries men access the internet more than women. This same study also found that internet access varies with firm size. Larger firms (firms with more than 100 employees) are twice as likely to have internet access than smaller firms.

According to Internet World Stats, the latest number of world internet users in October 2008 is 1,463,632,361 which represent 21.9% of the world population. I have reproduced some of this data in Table 1. Between 2000 and 2008 the number of users grew at a rate of 305%. The highest percentage of users per population (known as “internet penetration”) can be found in the North America, 73.6%, and the lowest percentage of users can be found in Africa, 5.3%. Asia may have the largest number of total users of the Internet, but access is still largely concentrated in the higher income urban areas (Kuang 2008). However, the fastest rate of growth of users is in the Middle East. While the Middle East only represents 2.9% of world usage, its rate of growth since 2000 is an astounding 1,175.8%. A similar pattern can be found in Africa where usage by only 3.5% of the world’s users has grown at a rate of 1,031.2%. While these numbers seem staggering , when you begin with a low number of users initially, even a small increase in the number of users can lead to big growth rates.

An enlightening image of the digital world, shown here in Figure 1, illuminates the relative densities of Internet connectivity across the globe. The U.S. and Europe are literally lit up with connections, while Africa and parts of Asia are dark. The map illustrates connections around the world, but this is not usage. In areas such as Africa, the density is low but usage may be higher because many people may be using a single connection (e.g., in an Internet Café) (Rogers 2008).

World Connection Density

Figure 1: World Connection Density, Image provided courtesy Chris Harrison, Carnegie Mellon University

Is the global digital divide closing?

Countries with low penetration rates can expect to see bigger gains in the global digital divide. The change in the digital divide “pie” is represented in Figures 2 and 3. Perhaps it is not best to treat the global digital divide as a pie of a certain size such that gains in one area represent declines in others. Statistically, the global digital divide will naturally decline as internet access in developed countries gradually grows closer to population limits (i.e., as penetration rates draw nearer to 100%). It is best to view the pie as growing, and a reduction in the digital divide would see the pie becoming closer to representing population differences. Increasing access in developing countries need not take away from the access of current of users; however, it can, as countries deal with such issues as the bandwidth sharing (Kuang 2008) and the current IPv4 address shortage (OECD 2008).

Figure 2:  Source Internet World Stats, http://www.internetworldstats.com/stats.htm

Figure 2: Source Internet World Stats, http://www.internetworldstats.com/stats.htm

Figure 3:  Internet World Stats, http://www.internetworldstats.com/stats.htm

Figure 3: Internet World Stats, http://www.internetworldstats.com/stats.htm

What causes the global digital divide?

According to recent studies (e.g., Chinn and Fairlie 2007, OECD 2001), there are several major contributors to the global digital divide including differences in income, literacy, infrastructure, and the regulatory climate. As expected, the lower income developing countries have lower access to the Internet. In countries where people worry about from where their next meal will come, internet access is less likely to be their major concern. In these same countries, illiteracy also complicates internet usage. When the internet is accessed, users must share a very low bandwidth. As a result, text based internet pages are the most likely to be successfully accessed. The irony is that these pages often cannot be read because of low literacy levels and translation difficulties. These users are deprived of the audio and video components of the web that would be most beneficial to them due to low bandwidth. “The lowest broadband speeds available to affluent countries, such as Japan, Singapore and South Korea, are faster than the maximum broadband speeds in Bangladesh, Cambodia, Laos and Tonga.” (Kuang 2008) One OECD study shows that a single user in Japan has access to more bandwidth than the 45 countries with the lowest bandwidth combined (OECD, 2004).

In the past, the focus of reducing the global divide centered on expanding landlines to increase dial-up access. In one 2001 OECD study, expanding broadband via cables was the major emphasis for expanding access. In just a few years “those previously described as ‘haves’ as dial-up users would be considered ‘have nots’ for the emerging broadband divide.” (OECD 2004, pg. 7) In OECD countries, broadband subscribers increased by 11 times between 2000 and 2006 (OECD 2008, pg. 11). Expanding broadband into developing countries is still a prominent interest of telecommunications companies and governments. However, while the positive externalities in terms of productivity and economic growth of laying submarine and land fiber optic cables are potentially profound, governments often view internet access as a public good. This creates issues as to who should pay for creation, access, and even repair of the cables. (e.g., Waltner, 2006, and Johnson, 2008). A variety of public and private telecommunication structures has developed connecting to one vast network. Public policy analysts fear that monopoly pricing and limited access by private firms will continue to isolate vast geographical areas (e.g., see CIPESA, 2006). One OECD (OECD 2004) study suggests that the solution to the global digital divide is through liberalizing telecommunications markets while keeping a sound regulatory framework.

How can the global digital divide be reduced further?

Studies of the global digital divide often focus on both internet access and pc availability. Moves to expand laptop and pc availability to developing third world countries will help increase access to broadband and reduce the global digital divide. However, the popularity of mobile communications in developing countries may suggest that satellite technology is the medium of the future. In 2002, the number of mobile phones outnumbered fixed phone lines globally. (Euromonitor International, 2007) Mobile phones are less expensive for developing country citizens and providing access is cheaper for firms than building or repairing landline infrastructure. It is therefore easier to use satellite transmission to extend access in these areas. The US, UK and Italy are leaders in mobile Internet penetration with 15.6 percent of mobile subscribers in the US, 12.9 percent of subscribers in the UK and 11.9 percent in Italy who actively use the mobile Internet. (Nielson Mobile 2008) A Nielson report in July 2008 finds that while the US leads in overall mobile internet usage (of total users), other nations, such as Russia, Brazil, and India, are now using mobile devices as the primary mechanism for getting online. Mobile phone use in the Sub Saharan Africa grew 67% in 2005 and currently outnumbers North American customers. (Waverman 2007) A company called O3b Networks, backed by Google, Liberty Global, and HSBC Principal Investments, is currently producing a satellite-based infrastructure to bring high speed internet access to developing countries in Asia, Africa, Latin America and the Middle East by late 2010. This company faces obstacles similar to those facing broadband providers, such as various regulatory structures, particularly government owned telcos, that control prices of access in the countries that seek it. (Cherry, 2008)

Concluding Thoughts

As I mentioned above, the global digital divide will naturally tighten as user rates become closer to population levels. This requires coordination via companies that produce the broadband and satellite access, telcos and ISPs that provide the access to the consumers, and governments. Provision of access alone will not close the divide. The cost of that access for the consumers, their income, their literacy level, and their willingness to learn new technologies are also factors. There are many groups seeking to reduce these burdens and provide the tools necessary to equalize access to these markets, including those that volunteer funds and equipment (e.g, One Laptop Per Child program and other programs), accords between governments, and cooperation between private companies.

Bibliography and Selected Readings or Sites:

Kuang, Peng. “Asia picks up broadband fast, but poor still disconnected”, 15 September 2008, http://www.scidev.net/en/news/asia-picks-up-broadband-fast-but-poor-still-discon.html

OECD. “Internet Address Space: Economic Considerations in the Management of IPv4 and in the Deployment of IPv6” , May 15, 2008, http://www.oecd.org/dataoecd/7/1/40605942.pdf

OECD. “Understanding the Digital Divide”, 2001, http://www.oecd.org/dataoecd/38/57/1888451.pdf

OECD. 2004. “Regulatory Reform as a Tool for Bridging the Digital Divide” http://www.oecd.org/dataoecd/40/11/34487084.pdf

Chinn, Menzie D. and Robert W. Fairlie. “The Determinants of the Gobal Digital Divide: A Cross-Country Analysis of Computer and Internet Penetration”, Oxford Economic Papers 59 (2007), 16-44, doi: 10.1093/oep/gp1024.

Waltner, Charles. May 31, 2006. “International undersea fiber optic cable promises much needed bandwidth to East Africa but specter of monopoly pricing threatens project’s benefits”, News@Cisco, http://newsroom.cisco.com/dlls/2006/ts_053106.html

Johnson, Bobbie. “How one clumsy ship cut off the web for 75 million” February 1, 2008, The Guardian, http://www.guardian.co.uk/business/2008/feb/01/internationalpersonalfinancebusiness.internet

Bridging the Global Digital Divide, One Laptop at a Time, June 11, 2008, Knowledge@Wharton, http://knowledge.wharton.upenn.edu/article.cfm?articleid=1978

Critical Mass: The Worldwide State of the Mobile Web, Nielsen Mobile, July 2008, http://www.nielsenmobile.com/documents/CriticalMass.pdf

Schewe, Sarah. “Nielsen reports mobile internet usage has reached ‘critical mass’”, July 18, 2008, http://www.editorsweblog.org/multimedia/2008/07/nielsen_reports_mobile_internet_usage_ha.php, Accessed October 30, 2008

Mobiles, The Digital Divide, And Google, Google Tech Talks, January 12, 2007, Waverman, Leonard, http://www.youtube.com/watch?v=87-b-fyZZos

Cherry, Brett. Satellites to bring speedy Internet to developing world, 18 September 2008, http://www.scidev.net/en/news/satellites-to-bring-speedy-internet-to-developing-.html

Rogers, Madolyn Bowman. Mapping the Digital Divide, Symmetry Magazine, September 2008, Volume 5, Issue 4, http://www.symmetrymagazine.org/cms/?pid=1000639

Heimbuch, Jaymi. Closing the Global Digital Divide: Technology for Developing Countries, Central Coast, California on 10.15.08, http://www.treehugger.com/files/2008/10/closing-the-global-digital-divide-technology-in-developing-countries.php

CIPESA. “The Eastern African Submarine Cable System (EASSy): The Open Access Challenges and Debate”, Collaboration on International ICT Policy for East and Southern Africa, May 2006, http://www.cipesa.org/files/EASSy%20doc.pdf

Interesting Related Images:

Submarine cable map: http://www.telegeography.com/products/map_cable/index.php

Damaged and proposed cable: http://image.guardian.co.uk/sys-images/Technology/Pix/pictures/2008/02/01/SeaCableHi.jpg

Large cable ships that lay and repair fiber optic cable http://www.iscpc.org/information/Cableships_1.htm

The Global Digital Divide, Euromonitor International, http://www.euromonitor.com/The_global_digital_divide, 2007

World Internet Connection Density, Chris Harrison, http://www.chrisharrison.net/projects/InternetMap/index.html

Global Traffic Index – how fast data moves around the world. http://www.internettrafficreport.com/main.htm

Visualize African Connectivity with Physicist Les Cottrell.

IP Address Shortage - A Looming Crisis?

I have spent the better part of the last week preparing for my fall Internet Economics class - a class that applies economic principles to online selling. It is my intention to use this blog to present the laymen’s terms of what we’ll discuss in class.

What better topic on which to begin than the rising “crisis” of the impending shortage of IP addresses? What does it mean and how will it affect selling online? The analysis is a bit like a combination of the oil crisis and Y2K.

First, what is an IP address and why is it important to you? IP stands for Internet Protocol. The oft used analogy is that of a phone number. Every computer connected to the internet has one, and this allows computers to talk specifically to each other. If you want to find out yours, try clicking on http://whatismyipaddress.com/. Sort of surprising, isn’t it? You have an IP address and the map on the site very possibly points near to where you live if you have not taken steps to hide it. The wireless router in my home also assigns dynamic IP addresses (DHCP) to each computer connected to it within a small range of addresses. Nothing drives my kids more crazy than when the router goofs and assigns two computers in the home the same IP address. The latter computer responds with “IP conflict” and will not access the internet. This can and does happen when Internet Service Providers (ISPs) make the same mistakes with customers. Perhaps with the growing shortage of IP addresses, this may occur more often? (In economics, we call that an “empirical question”.) Even more interesting is that the IP address you just looked up is really just a “dotted decimal number” and not your computer’s address in binary form - which is a series of 0s and 1s. These 0s and 1s are represented in groups of four with eight binary numbers in each (called octets). (These are called IPv4 addresses.) These octets can be arranged in just shy of 4.3 billion combinations. (That is NOT an empirical question. It’s a fact. And we have used nearly 85% as of May 2008.*)

So what does this mean? Well, it’s a simple case of supply and demand. It has been known since the beginning that we could potentially run out of IP addresses. Remember, we started with the knowledge that we could create only 4.3 billion. Starting to sound a bit like Y2K? In that case, programmers knew for years that using two digit dates (e.g., 95, 96, 97) would cause a problem when the year 2000 (i.e., 00) rolled around. So we started with a finite supply of IP addresses, but the supply seemed so vast that there seems to have been little concern. Now, as the assignment of IP addresses is growing exponentially as developing countries like China and India come online and expanding technology in developed countries requires more IP addresses, there is a looming shortage. The OECD issued a report about this in May http://www.oecd.org/dataoecd/7/1/40605942.pdf stirring up concern that finally hit the major news media.

The supply/cost factors in this scenario seem to be upgrading to IPv6 compatibility, obtaining and distributing remaining IPv4 addresses, and/or better managing existing IPv4 addresses. The demand factors in this scenario are the growing demand for Internet access by developing countries as they come online and technological innovation in developed countries. (For example, just imagine that people are now clamoring to have internet access via their cell phones. When I first started teaching, none of my students had cell phones. Now I can’t find any that don’t. Soon, I won’t be able to find any that don’t have internet access via their cell phones. It may be as common as microwaves.)

Developers have known that there are ways to get more IP addresses. Conversion to an IPv6 system of allocating internet addresses (having six octets instead of four) is the solution that would provide trillions more addresses. But it is costly and until devices were compatible, demand was low. Now, many of the newest systems and devices are already IPv6 compatible; however, IPv6 devices are not backwards compatible to IPv4-only devices. And imagine the cost of reassigning billions of IP addresses… Without getting over my head in how these things work, the simple economic notion is that eventually everyone may have to upgrade to the new system. Sort of like how your analog tv will quit working next year (http://www.fcc.gov/cgb/consumerfacts/digitaltv.html). And then there are networks effects. Few want to make the investment until they see others getting on board as well. (Read the Cellular-News article below to see how Japan and China are innovating in this area.)

How is this like drilling for oil? Well, it is less profitable to drill for oil in some places until the price is high enough. We have been quite spoiled to have relatively low cost access to the internet and perhaps our demand elasticity (our quantity response to the change in price) will be similar to our demand for gas as we grow more dependent. When the market price of internet access rises, as could be the case when supply decreases due to higher costs and demand increases due to more desire for internet access, some folks will reduce their access, but how many? (Another empirical question.) If the answer is not many, we can expect the price to rise quite a bit.

And then there is supply elasticity. Some reporters (as reported on Fox News on July 7, 2008 titled “The End is Near: Less Than Three Years Until the End of the Net?”) would have us believe that the supply of IP addresses will become perfectly inelastic - i.e., there will be no more and the Internet will just fail. If there were no solution, then there would be no new users at some point and the cost of purchasing access will grow as those who have it are lured into giving it up by the higher price they can get to sell it. Some fear that companies will monopolize the industry by buying up all the IP addresses and selling them at a high price. This does not make sense to me when there is an alternative that could ultimately flood the market with trillions of IP addresses. There are also methods of sharing IP addresses, much like the wireless router in my house, that can, and are, being applied in larger measures to IPv4 addresses. (This is called Network Address Translation.) But again, if this were the case that the OECD fears, should the government regulate the distribution of the remaining IP addresses? Or should the market handle it? Should we “drill” where we currently know to find IPv4 addresses or explore to find a better, more efficient source? Or would drilling be a good short term solution while working on the longer term solution? Whew, the analogies could go on, and I don’t profess to have the answers.

I am going to recommend that my students read the OECD report for discussion in class. And while this blog is still incredibly new, any comments or suggestions posted here would be great. I don’t claim to be a computer expert, so any corrections to technical errors in this post would be appreciated.

Ok, so how many economic terms have we covered here that we will eventually discuss in class? Supply, demand, elasticity, market price, compatibility, monopolize, network effects, government regulation.

Other Sources:

“What Is An IP Address?”, How Stuff Works, http://computer.howstuffworks.com/question549.htm
*”Mobile Phones Could Be Affected by IP Address Shortage”, Cellular-News, http://www.cellular-news.com/story/31184.php, Posted to the site on 15th May 2008
“Internet Address Space: Economic Considerations in the Management of IPv4 and in the Deployment of IPv6, OECD, http://www.oecd.org/dataoecd/7/1/40605942.pdf, May 15, 2008
“IP address shortage to limit Internet access” USA Today, Posted 8/3/2007 12:37 PM, http://www.usatoday.com/tech/webguide/internetlife/2007-08-03-ip-shortage_N.htm