Universal Internet Access in 6 Countries Would Eliminate 55% of Global Digital Divide

source: ITU

Providing universal Internet access to just three countries (India, China and Indonesia) would eliminate 45 percent of the “unconnected to Internet” population of the globe.

Doing so in just six countries (adding in Pakistan, Bangladesh and Nigeria) would solve the digital divide problem for 55 percent of the world’s people, according to the International Telecommunications Union.

About 20 countries account for 75 percent of those not using the Internet, according to McKinsey researchers.

The World Bank points out that many of these offline populations share common characteristics. They are predominantly rural, low-educated, with lower incomes, and a large number are women and girls, according to the World Bank.

Affordability is an issue. According to ITU’s latest price research, a monthly fixed broadband package cost 1.7percent  of average income in developed countries, compared with 31 percent  of average income in developing countries, and 64 percent of average income in Africa.

Mobile broadband costs one to two percent of monthly income in developed countries, compared with 11 percent to 25 percent  of monthly average income in developing countries.

Lack of networks also is a big issue. Of the nearly four billion people not connected to the Internet, some 1.6 billion live in remote locations where networks do not exist. That is why Facebook and Google are developing unmanned aerial vehicle systems, Google is developing Project Loon and both are working on fixed access networks.

Among the 3.9 billion people who are not online, many people may be unaware of the Internet’s potential, or cannot use it because they lack the necessary skills or because there is little or no useful content in their native language, on top of facing other barriers to Internet access, including unreliable power supplies and/or sparse network coverage.

with just 137 million customers and a broadband penetration rate of just 13 percent, compared with a mobile penetration rate of 80 percent , India’s digital leap is just starting.

source: ITU

Digital Divide is Not Based on Access

In the District of Columbia and other urban areas, unlike rural areas of the United States, "lack of adoption of digital resources (computers and broadband) generally is not due to lack of availability of broadband," says a new strategy paper by the District of Columbina CTO.

"The District currently has three large wireline broadband providers and many smaller ones, as well at least six major wireless broadband providers (both 3G and 4G); together, these providers furnish service in all areas of the city," the report notes.

"Rather, individuals and households in areas where broadband service is available typically choose not to subscribe for one or more of three leading reasons²usability, affordability, and perceived value/relevance."

That's a different problem than the "there is no access" argument some have insisted is the issue, and will be tougher to remedy.

Digital Divide Strategy

Will Telecom Italia's Fixed Network be Privatized?

Telecom Italia’s board of directions is said to be meeting Nov. 21, 2021 about a possible fixed network privatization effort by private equity fund KKR, which is already an investor in the Italian phone group's fixed network, Reuters reported. 

At first glance, the proposed deal looks like a standard private equity deal: buy an underperforming asset, make changes and then sell. But the deal might also reflect another private equity focus: buying infrastructure assets to hold longer term, as an alternative asset. 

Telecom Italia, for its part, also fits the scenario: it has high debt and shrinking recurring revenues and profits, arguably impairing its ability to invest in digital infrastructure including fiber to home facilities. 

At the same time, the access network scarcity moat is challenged by the building of a rival Open Fiber wholesale network owned and operated by electrical and gas provider Enel. 

KKR might or might not see value in merging merging TIM's access network merged with that of rival Open Fiber, which would then be able to run as a single national internet and communications access asset supplying retail services to other internet service providers and telcos.

Alternatively, the former Telecom Italia assets might have enough scale to operate independently of Open Fiber. In either case, the value KKR sees is linked to the scarcity value and regulated, stable cash flows the access network would generate.

As the access network is deemed to be a strategic asset by Italy’s government (as is the case in virtually every country), it presumably would benefit from investment to eliminate the digital divide. That changes the business model for FTTH as it introduces subsidies. 

Were the government to sanction a merger of Telecom Italia and Open Fiber assets, to create a single national wholesale provider, KKR’s investment would acquire a business moat. 

Future KKR options would then involve a sale of the assets to a third party or a longer-term holding as an alternative asset. 

Institutional and private equity investor interest in communications infrastructure waxes and wanes. Right now it is waxing, after a precipitous drop in interest in the wake of massive facilities overbuilding around the turn of the century. 

In large part, the interest is driven by returns on other assets, leading investors to desire some exposure to alternative assets, including infrastructure with some market moats, scarcity and dependable demand, plus free cash flow. 

That appetite is matched by connectivity provider capital investment issues, namely low returns on invested capital that have bedeviled connectivity providers in recent years. 

In many cases, service providers have trouble earning back their cost of capital, according to some analysts. 

source: Arthur D. Little

All of that creates a heightened private equity and institutional investor demand for investments in “digital infrastructure” that is similar to demand for the more-traditional interest in real estate and utility investments. 

But the strategies can vary. The easiest and arguably safest choices are core infrastructure operations where most of the return comes in the form of cash dividends. This is most often found in regulated segments of the industry, with low growth but consistent demand. Ownership of electrical utilities provides a good example of this type of asset. 

Most digital infrastructure assets do not offer predictability or moats as high as might be the case for electrical utilities or airports, but arguably is most true for mobile towers. 

In other cases, there are some specific drivers that shift a bit of the story to more growth, if some tweak to the business model is made. That seems to be the case for mass market telecom networks where the upside is the upgrade from copper internet access to fiber to home. 

In other markets, the same thinking underpins buying a regional airport with expectations of creating a higher-value super-regional hub. In the communications assets business, perhaps an example is the “roll up” strategy of amalgamating many diverse and smaller connectivity or data center assets to create scale. 

The point is that a confluence of connectivity provider need and investor want is fueling a resurgence of private equity and institutional investor interest in a growing range of digital infrastructure assets.

Demand is a 5G Issue, Not Simply Supply

A foundational claim about any sort of digital divide is that supply is the problem. Networks do not reach everyone; or quality networks do not reach everyone or prices are too high. Those all are supply-side ills.

What often gets confused or forgotten is that there are demand-side drivers as well. Consumers might prefer to buy based on their own perceived needs. Most often, consumers buy home broadband services that are in the middle of what is available, in terms of price and perceived value.

The same thing might apply to mobile services as well.

Where it comes to supply and demand, pundits often assume that slower 5G uptake is to be blamed on supply, not demand. That is not necessarily the case. Subscriber levels for 4G in a few European countries have always been below what we might expect, and availability cannot, at this point, be the main culprit. 

Some might point to lagging 5G uptake and suspect that supply issues are at work. 

source: Ookla 

Customer demand also shapes uptake. Nearly half of all German mobile subscriptions appear to use 3G, instead of 4G. nearly a decade after 4G was introduced, according to a study by Opensignal. 

Governments and policymakers always are quick to quantify supply-based gaps in uptake, quality or availability of communications services, which is among the reasons stories about any form of digital divide are evergreen. 

Most often, studies about service gaps rely on supply or demand indices, including network availability, typical speeds and cost. 

Demand side choices by consumers tend to be overlooked. In other words, some “gaps” might reflect consumer choices, not failures of supply. And that matters for 5G, as much as it did for 4G.

We often are surprised at the resilience of legacy services, as those use of legacy services is always a case of supply failure. Not always. Sometimes demand choices are at work. In other words, a huge percentage of German mobile users seem to be opting to remain on 3G networks even when 4G networks now are in good supply, with good performance metrics. 

Rural Home Broadband Might Not Always--or Even Often--be an Example of Digital Divide

Rural areas always face challenges when it comes to home broadband, for simple reasons: the cost of fixed networks in areas of low population and housing density is challenging. But the latest survey data from NTCA suggests matters have improved dramatically. 

The NTCA’s latest poll of its members indicates 61 percent of residents can buy service with downstream speeds of at least 1 Gbps, up from 55 percent in 2021,  45 percent in 2020, and 25 percent in 2019. 

source: NTCA 

Customers unable to buy service at speeds up to 25 Mbps have dropped to about nine percent. 

The 2021 report indicated as much as 76 percent of customers are able to buy services running from 100 Mbps to multi-gigabit speeds. About 55 percent of customers were  in the “1 Gbps or faster” category.

source: NTCA 

There are issues, to be sure. One might argue that non-reporting firms probably support lower speeds than the 38 percent of rural ISPs that responded to the survey request. Keep in mind that the respondents report an average of 4,287 residential and 648 business fixed broadband connections in service. 

It is likely that most of the non-responders are even smaller entities. In other words, as in most markets, it is likely that a small subset of ISPs in the U.S. rural ISP market represent most of the total potential customers. 

The important takeaway is that rural home broadband is improving fast and already is on a par with urban service levels in many cases. That is not the impression a casual observer might get if reading, seeing or hearing about the digital divide in news reports. 

As often is the case, reality can be distorted unless “both sides of the story” are told.

How Big a Problem is the "Digital Divide?"

One always-present issue when looking at any particular social or economic problem is that we always face multiple problems at the same time. Drug overdoses, malnutrition, carbon and methane emissions, traffic, inflation, joblessness, homelessness, lack of medical care, uneven or inadequate educational opportunities, domestic violence, fair treatment of ehtnic, racial, religious or other minorities, corruption, crime and many other problems have to be tackled simultaneously. 

And it never is possible to rank order all of those problems in terms of allocating resources to solve the problems, in a holistic way, in real time, even assuming we have our means-ends causality chains correctly understood. 

In that vein, the “digital divide” is a bigger problem some places, compared to others, even if it can be seen as a problem no matter where we find it. 

That clearly is the case for people in many lower-income or middle-income countries, where internet access in lower-income countries exceeds four percent of monthly gross domestic product, for example. 

In most middle-income countries greater progress has been made, with costs below the International Telecommunications Union target of two percent of monthly GDP. 

In developed countries, the problems are mostly confined to rural areas or high-cost areas, as monthly recurring costs are below one percent of GDP. There still are issues to be solved, but they are relatively trivial compared to other problems we also face. 

source: ITU

Mixed Progress Globally in 2018 Connecting the Unconnected

The goal of “everyone connected to the internet” saw mixed progress in 2018, one report suggests.  “We are seeing steady progress in the number and percentage of households connected to the Internet, narrowing the gender gap and improving accessibility for people with disabilities,” the latest Inclusive Internet Index report says.

Some might focus on a digital divide that appears to be widening at the bottom of the income pyramid, according to the latest iteration of the Inclusive Internet Index. Others would point to the progress being made.

On one hand, “growth in Internet connections is slowing, especially among the lowest income countries, and efforts to close the digital divide are stalling, in part due to declining affordability in a number of low-income countries,” the report states.

source: Inclusive Internet Index

On the other hand, mobile data affordability improved globally, thanks largely to improvements in lower-middle-income countries. However, the cost of prepaid data plans increased in 39 out of the 84 countries that were studied.

Also, networks and coverage are better. 4G coverage is better, and the connection quality of fixed broadband and mobile connections, such as download and upload speeds, has improved globally.

For example, the world’s average mobile download speed improved by 36 percent to 21.9 Mbps from 16.1 Mbps, with the biggest gains in South Asia. Lower middle-income countries have had a significant improvement of 66 percent in 4G coverage. However, low-income countries saw more-modest progress with a 22 percent improvement.

Gender gaps in Internet access are narrowing globally, led by low-income and lower-middle-income countries. In some countries, women’s Internet access actually exceeds that of men, with the Philippines, Ireland, China and Argentina having the largest majorities.

Mobile broadband subscriptions per 100 inhabitants grew just 0.3 percent so far in 2019, and in low-income countries subscriptions actually declined, the report says. \

Perhaps ironically, as 4G gets faster in developed countries, and 5G launches, the gap with the bottom of the pyramid will grow.

Outcomes, Not Intent, Will Drive Antitrust Against Meta, Alphabet

As U.S. regulators examine potential antitrust actions against Alphabet (Google) and Meta (Facebook) under the Clayton and Sherman Acts, they focus on several key behaviors and market outcomes that are believed to hinder competition. 

The question of intent or actions to reduce competition has been raised in that regard and the notion strikes me as quite complicated, given the obvious fact that digital goods markets (content, software, hardware, computing services) in particular often have a “winner take all” character. 

In other words, the result of robust competition is market concentration. That also seems to be the case for capital-intensive industries of most types as well. But “intent” is alleged to be at work.

Did Meta, for example, “buy” other promising firms to acquire engineering talent? Most of us would say that is a common practice in digital industries. Did Meta acquire some firms to build a position in related or adjacent industries? One might argue that also is true, but not illegal.

And the “winner take all” pattern we see in many digital industries or industry segments might likewise not be viewed as an outcome driven mostly by “intent” to prevent competition but to remain competitive in markets where innovation is constant. 

In U.S. antitrust law, the role of "intent" depends on the specific legal framework being applied, primarily under the Sherman Act (Sections 1 and 2) or the Clayton Act, some undoubtedly would note. 

Under Section 1 of the Sherman Act, which prohibits agreements "in restraint of trade" (cartels, price-fixing), intent is not a central element for proving a violation in cases of "per se" illegal conduct. If companies explicitly collude to fix prices or divide markets, the agreement itself and its effects on competition are what matter, irrespective of “intent.”

However, for "rule of reason" cases (where the conduct’s competitive effects are weighed), intent can play a supporting role. Evidence that firms aimed to suppress competition might bolster a case, but it’s not strictly required—empirical evidence of harm to consumers or market structure (e.g., higher prices, reduced output) is the core focus.

That noted, in “restraint of trade” cases, “intent” might strengthen a case for antitrust action. 

Under Section 2 of the Sherman Act, which addresses monopolization or attempts to monopolize, intent becomes more relevant. To prove monopolization, two elements are needed: (1) possession of monopoly power in a relevant market (an empirical question about market share, barriers to entry), and (2) "willful acquisition or maintenance" of that power through exclusionary conduct (not just superior efficiency). 

So “intent to exclude competitors” by buying them out can be part of the analysis, but it’s not sufficient on its own to prove antitrust violations. The issue remains the reality of market share, not “why did you do it” (intent) in a strict sense. 

The Clayton Act (Section 7 on mergers) is arguably even more empirical. Section 7 prohibits acquisitions where "the effect may be substantially to lessen competition or tend to create a monopoly." 

Intent to reduce competition isn’t strictly necessary. Regulators assess market concentration (Herfindahl-Hirschman Index) and competitive outcomes, irrespective of “intent.”

If a merger in a digital market (say, a dominant software firm buying a rival) risks entrenching market power, it can be challenged regardless of whether the firm explicitly aimed to squash competition or just wanted growth.

In cases like United States v. Microsoft (2001), the antitrust violation stemmed from specific exclusionary acts (tying Internet Explorer to Windows, restricting OEMs), not just its market dominance or intent to dominate.

In digital markets, where "winner-takes-most" dynamics are common, structural outcomes might always tend towards concentration. Are efforts to create customer  “stickiness” anticompetitive? Are ecosystems? Are bundles of value necessarily anticompetitive? 

And perhaps those will not prove decisive issues. Regulators will look for behavior: actions that harmed potential competitors. 

Under the Sherman Act (Section 2 dealing with monopolization), regulators will analyze whether the firms companies have:

• Obtained or maintained monopoly power through anticompetitive conduct

• Used exclusive dealing arrangements to foreclose competitors

• Leveraged dominance in one market to gain advantage in adjacent markets

Under Section 1 (Restraint of Trade), regulators will be looking at actions that:

• Restrict competition between platforms and third parties

• Include potentially anticompetitive terms in advertising or services contracts

Under the Clayton Act, dealing with the anticompetitive effect of mergers and acquisitions, regulators will look at:

• Acquisitions of potential competitors (Instagram, WhatsApp, YouTube, Waze)

• Whether these deals substantially lessened competition or created monopolies

• "Killer acquisitions" of nascent competitors

Also, under the Clayton Act’s Section 3 relating to “exclusive dealing,” regulators will look at:

• Default placement agreements (Google as default search engine)

• Distribution arrangements that exclude rivals

For Alphabet, that likely means looking for:

• Self-preferencing in search results and advertising markets

• Tying of Google services to Android

• Control of digital advertising technology stack

• Restrictive agreements with device manufacturers

In the case of  Meta, regulators will examine:

• Network effects and data advantages creating barriers to entry

• Acquisition strategy eliminating potential competitors

• Interoperability restrictions

• Data collection and privacy practices giving competitive advantages

“Intent” might not prove decisive, as the regulator focus might turn on empirical market outcomes almost exclusively. 

High-Cost Home Broadband Subsidies Work

Very few major social problems have clear and uncomplicated causal relationships, which makes virtually impossible the task of determining whether public policies actually work, or not. 

For complex social problems like poverty, housing, crime, education, carbon reduction or traffic, it remains quite difficult to prove causal links between policies and outcomes. Basically, policies are tried without any real way of knowing whether they work. 

Contrast that with a few instances where the primary causation mechanisms are relatively clear. The causal link between smoking tobacco and various health issues like lung cancer, heart disease, and respiratory problems is well-established.

There is a direct causal relationship between alcohol consumption and impaired driving leading to accidents and fatalities.

Conditions such as scurvy (vitamin C deficiency) or rickets (vitamin D deficiency) have clear causation mechanisms related to lack of specific nutrients in the diet. Likewise, the danger of lead exposure, especially in children, is clear.

The overuse and misuse of antibiotics in healthcare and agriculture has a direct causal relationship with the development of antibiotic-resistant bacteria.

Home broadband supply now is likely one problem for which we know at least one causal relationship, namely that financial subsidies work. Since the cost of home broadband infrastructure is directly related to population density, financial subsidies are required in low-density rural areas. 

Urban households tend to have access to better home broadband than households in rural areas, rural residents might note, policymakers might agree and OpenSignal says. 

And though there are correlations between income, education and age in any market, “income levels are less predictive of reliability than density,” OpenSignal notes.

It might be noteworthy that although sharing of network infrastructure often is touted as a way of reducing the cost of home broadband infrastructure, OpenSignal studies find there is no correlation between network infrastructure sharing and either high reliability or a narrow digital divide. “Countries with limited infrastructure sharing but targeted subsidies for private rural investment mostly perform better than those relying on widespread infrastructure sharing,” OpenSignal notes.

Topography and density are key factors in the size of the divide between urban and rural home broadband experience. 

Markets with highly-concentrated populations in urban areas show small gaps between urban and rural reliability, and spread-out middle-income countries with difficult terrain show big gaps. “But a few countries with lots of medium-density areas, like the U.S., and Spain, have relatively small digital divides,” the firm says. 

In fact, the U.S. market might better be characterized as having huge low-density areas. population density has a huge impact on the cost of building new networks, mobile or fixed, but especially fixed networks.  

U.S. population density is quite thin across most of its geography, which directly affects the cost of building broadband networks, as hefty subsidies are required to reach the last one percent or two percent of remote locations. 

And the United States has a huge percentage of its land mass that is thinly settled, if at all settled. In Canada, 14 percent of the people live in areas of density between five and 50 people per square kilometer. In Australia, 18 percent of people live in such rural areas.

In the United States, 37 percent of the population lives in rural areas with less than 50 people per square kilometer.

Put another way, less than two percent of Canadians and four percent of Australians live in such rural areas. In the United States, fully 48 percent of people live in such areas.

Put another way, about six percent of the U.S. land mass is “developed” and relatively highly populated. Those are the areas where it is easiest to build networks. But about 94 percent of the U.S. land surface  is unsettled or lightly populated, including mountains, rangeland, cropland and forests. And that is where networks are hardest to build and sustain.

So it should not at all be surprising that broadband reliability is, on average, 23 percent higher in urban areas than in rural areas across all markets we analyzed,” say analysts at OpenSignal. The firm uses a 100 to 1000 point scale to measure broadband experience in a typical household where multiple devices are used simultaneously. 

The metric is based on ability to connect (uptime); ability to complete tasks and speed, latency, jitter performance. 

source: OpenSignal 

Financial subsidies for service providers in rural areas are one way governments try to close digital divides, and arguably are the most effective ways to do so. Whether in the form of subsidies for anchor institutions or per-passing or per-connection support is the clearest way to reduce the cost of rural infrastructure for suppliers. 

Beyond that, policymakers often try to encourage competition and promote deployment of alternative platforms (satellite, fixed wireless, mobile access). 

Governments can help communities create cooperatives; reduce permitting and other regulatory costs or train people to use broadband. But perhaps nothing works so well as simple subsidies, for the simple reason that population density and network cost are inversely related. 

High population density leads to lower costs; low density leads to higher costs. So subsidies for home broadband in rural areas are a relatively clear example of cause-and-effect relationships. 

Internet Phobia?

BT wants to find out why some people, even living in homes with broadband connections, resist using the Internet. About 39 percent of U.K. households do not have Web access. Fear of technology might be one reason, BT theorizes.

To acquaint them with online life, four subjects have been given a broadband link, a laptop, webcam and a digital camera. A two-month training plan has also been developed that will introduce them to what they can do on the Internet.

Writ large, that's one way to deal with any lingering short term "digital divide." Long term, I don't think there's a problem. There used to be a joke several decades ago in the U.S. cable TV industry about "resisters." Basically, the punch line is that the "resisters" are dying. There was a clear shift in the character of demand for television that now has fully established itself, as tough as it might have been to get the new behavior established in the first place.

The same thing is going to happen with broadband. Demand simply is shifting. All of which suggests BT ultimately will move beyond its fiber-to-cabinet; copper drop strategy and move ahead with a full fiber-to-customer upgrade. Like any other tier one service provider it is going to hold out for the most favorable deal it can get from regulators. But there's not much doubt about the long term outcome.

Bandwidth consumption is going to outstrip anything all the wireless networks together can provide, which makes the fiber connections an essential part of the future bandwidth story.

U.S. cable operators used to "diss" switched digital video" as well. Now they're starting to embrace it. They still say in public that fiber-to-home networks are way too expensive, and are unnecessary, from a cable standpoint. That's not necessarily what executives think privately, though.

Nor is it the case that resisters stay that way forever. Those of you with grandparents, who are grandparents or who have pre-baby boomer relatives know that mobile phones, PCs, cable and Internet connections frequently are used daily by people who might be prime "resisters." And the people who move them into the "connected" camp are friends, children and grandchildren. So BT might consider a "friends and family" program that enlists other family members in providing training and support for resisters. That's the way it works anyway.