BEN PETRAZZINI AND MUGO KIBATI

THE INTERNET IN DEVELOPING COUNTRIES Development of the global Internet has been phe- Access means nomenal. It has grown from a small, closed, text- much higher user fees and costs based computer network of a few thousand scientific to ISPs for and government users in the early 1980s to some 43 connecting to million Internet hosts in some 58,000 separate but the global Net, interconnected networks supporting an open global and geographic network of an estimated 150 million Internet users in dispersion limited early 1999. During 1998, the last remaining “uncon- to a few big cities. nected” countries established links to the countries is just as striking, if not more so, Internet, turning it into a truly global net- than at the regional level. Singapore, for work. But these figures represent just one example, with a population of about 3.7 side of a very lop-sided picture. A closer million, has a thousand times as many look reveals great disparities between high- Internet hosts as the 60 poorest coun- and low-income regions in terms of both tries—which account for more than three Internet hosts and users. More billion people. Iceland, with a than 97% of all Internet hosts population of 250,000, has are in developed countries almost 20 times as many that are home to only 16% Internet hosts as 100 of the of the world’s population world’s poorest countries. (see Figure 1). Although there are dif- At the individual coun- ferences in the availability try level, the Internet pene- of Internet services among tration gap between developing countries as developed and developing striking as those separating

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Figure 1. Growing fast, but unevenly.

Internet hosts, worldwide, millions Distribution of Internet hosts, Jan. 1998

45 43.2 Australia, 40 Japan, 35 New Zealand 29.6 7.0% 30 25 Developing Canada Asia-Pacific 20 16.1 and U.S. Other 2.9% 15 64.1% 4.6% 9.4 Europe Latin 10 America 4.8 24.3% and 5 1.3 2.2 Africa Caribbean 0.5% 0 1.2% 1993 1994 1995 1996 1997 1998 1999

Source: Network Wizards (www.nw.com) and ITU Challenges to the Network 1999, Internet for Development (www.itu.int).

Figure 2. End-user costs in absolute and relative terms.

End user costs ...... adjusted to purchasing power Absolute prices (U.S.$) for full Internet access Cost (U.S.$) for full Internet access as % of GDP per capita

U.S. 20 U.S. 1

Finland 18 Finland 1

Dom. Rep. 26 Dom. Rep. 24

Argentina 50 Argentina 9

India 82 India 308

Armenia 121 Armenia 485

Kenya 100 Kenya 413

Ghana 50 Ghana 189

Sources: www.malinet.ml; www.ghana.com; www.Form-net.com; www.arminco.com/overview.htm; www.satlink.net/servicios/online.htm; www.aol.com; www.indiax.com/cal;www.att.net and www.concentric.com developed and developing countries, shared problems most of these countries cannot go beyond the small also unite this diverse group of countries. The high group constituting the professional class. cost of Internet services is one of them. Operating costs in developing countries are also The cost and pricing of Internet services for indi- high. Although the absolute price difference might vidual users can be broken down into two compo- not be significant, the purchasing power of most peo- nents—setup costs and operating costs. Setup costs ple in the developing world makes access to Internet are often significant, regardless of the part of the world services an extremely expensive proposition. In in which the Internet connection is made. However, Ghana, for instance, an account with Africa Online setup costs relative to per capita income are much costs $50 a month (all monetary amounts cited in this higher in developing countries than they are in devel- article are in U.S.$), nearly twice the monthly income oped ones. In the U.S., the average professional could of most Ghanaians. In Armenia, a former Soviet well afford three computers for the equivalent of a republic, where the absolute price for an Internet con- month’s salary. In Tanzania, a computer costs three nection is $121, after adjusting for gross domestic times an average professional’s monthly salary. More- product per capita, Internet users there pay an over, the professional work force is much smaller and astounding 485 times as much as users in Finland, for the ratio of professional workers to the total working probably inferior service (see Figure 2). population much lower in developing countries. The The cost to ISPs for access to the international amount of market-driven Internet development in Internet backbone also varies greatly, depending on

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Figure 3. Correlating ISP network access costs and end-user prices.

ISPs' monthly international leased-line costs (U.S.$) End-user monthly prices (U.S.$) for full access

Kenya 11,000 Kenya 100

Armenia 9,000 Armenia 121

Nigeria 6,000 Nigeria 79

Argentina 4,800 Argentina 50

Ghana 2,500 Ghana 50

U.S. 300 U.S. 20

Sources: www.malinet.ml; www.ghana.com; www.Form-net.com; www.nua.ie/surveys; and www.arminco.com/overview.htm

Figure 4. Degree of competition in basic services by region and market segment, 1997.

Degree of competition in basic services Degree of competition in selected services Countries Monopoly Countries Monopoly 100% Partial competition 80% Partial competition 90% Competition Competition 80% 70% 70% 60% 60% 50% 50% 40% 40% 30% 30% 20% 20% 10% 10% 0% 0% Africa Americas Arab Asia- Europe Local Long International Leased Mobile States Pacific distance lines

Source: International Telecommunication Union Trends in Telecommunication Reform, 1998 which country they’re in. Indeed, as shown in Figure of competitiveness in the international services mar- 3, international leased-line charges are a direct and ket of most developing countries is perhaps the major factor behind the high end-user prices charged biggest single factor responsible for the high costs of in developing countries—as suggested by the strong international leased lines in these countries. correlation between costs incurred by ISPs to access Ghana and Kenya could be viewed as having nearly the network and the end-user access prices in any identical competitive end-user ISP markets, the only given country. difference being that in Ghana access to the interna- tional network is open to competition. As a result, Competitive Market for Access Ghanaian ISPs pay approximately $2,500 for a half- A major underlying reason for the great disparity in circuit, or the local portion of the international net- Internet access prices—whether for end users or for work infrastructure, while in Kenya ISPs pay some ISPs accessing the international network—is the dif- $8,000 for a half circuit [1]. Thus the fact that Kenya ferences in market characteristics between various has a vigorously competitive market of 10 ISPs and a countries. In low-income countries, the most widely similar number on the way does little to bring down prevailing type of market structure is the one in end-user prices, which average $100 per month for which the ISP market is open to competition, usu- full Internet access. ally to private-sector companies, while basic tele- Earlier this year, a number of operators in the Asia- phone services (local and international) are still Pacific region issued a joint statement claiming it is under monopoly conditions (see Figure 4). The lack inappropriate for the ISPs and operators in the Asia-

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Pacific region to bear the entire cost of the interna- Pacific region, only the link between Japan and tional Internet backbone between the Asia-Pacific Korea is greater than 45Mbps (and was unchanged region and the U.S. They requested U.S. operators between 1997 and 1998) [2]. So much U.S.-bound and ISPs share the cost of the international Internet bandwidth is already deployed that the laying of backbone between the U.S. and the Asia-Pacific competing infrastructure has become an expensive region, according to their usage or benefits (see the and daunting proposition. Furthermore, bandwidth sidebar “Cost Sharing Between Asia-Pacific and U.S. to the U.S. is quite inexpensive relative to circuit Telecom Carriers”). The Asia & Pacific Internet Asso- costs to other countries, reducing further the incen- ciation estimates global subsidies by non-U.S. ISPs to tive to build regional IP backbones. As a case in U.S. telecommunication operators stemming from point, the price for a 45Mbps circuit for a connec- the practice of paying for whole circuits could tion between countries within the Asia-Pacific amount to as much as $5 billion per year. region ranges from $500,000 to $700,000 per The lack of low-cost regional IP backbones is one month, according to the Asia & Pacific Internet of the main reasons ISPs around the world are will- Association, whereas U.S. carriers charge on aver- ing to pay for the full circuit for a connection to the age about $25,000 per month for a 45Mbps circuit U.S. For example, the aggregate bandwidth between between the U.S. and Asia. the Asia-Pacific region and the U.S. increased by The fact that in most developing countries local 1.6Gbps from 1997 to 1998, while in the Asia- calls for Internet services are metered as if they were a

Cost Sharing Between Asia-Pacific and U.S. Telecom Carriers

A number of major Asian telecommunications carriers issued the following statement last January on why and how they want to restructure the international circuit settlement arrangements between themselves and their U.S. counterparts. They argued it is inappropriate for ISPs and carriers in their part of the world to bear the entire cost of international Internet backbone between the Asia-Pacific region and the U.S. Their goal is for U.S. carriers and ISPs to share these costs according to the “usage and benefits” of that backbone.

Telecommunications operators, that is, bone had exceeded that for international tele- providers of international infrastructure or phone service in some countries, such as in capacity for the Internet, signed hereunder. Japan and Korea, and such difference expanded Bearing in mind in 1998. That the Internet Protocol is an epoch-mak- Conscious ing information technology; and That as more content is developed in the that the Internet has opened up many new Asia-Pacific region, more and more traffic flow possibilities, including turning information into is from the Asia-Pacific region to the U.S.; valued products and will contribute to dramat- that the Internet infrastructure in the Asia- ically increase economic and industrial activi- Pacific region is being developed so the amount ties not only in developed countries but in of transit via the U.S. is rapidly decreasing; developing countries. that the Internet is increasingly being used Recognizing as a new platform for international communi- That the Internet was devised mainly in the U.S. cations (two-way traffic), as in email, e-com- and has been developed at the initiative of the merce, and Internet telephony, making the flow U.S.; and of Internet traffic between U.S. and non-U.S. that the majority of contents flowing on the customers increasingly bi-directional; and Internet is of U.S. origin. that the Internet is being developed not only Recognizing further in the U.S. but in other countries around the That the international circuit capacity for world under the premise of interconnecting the the Internet connection from the Asia-Pacific respective resources of those countries, and region to the U.S. has been growing at a thus the Internet is becoming the common tremendous rate in the last few years; and property of the entire world population. that , at the end of 1997, the aggregate Concerned bandwidth for this international Internet back- That the increasing demand for information

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voice connection also works against development of charged less for using the Internet during nonpeak local Internet markets. To overcome these hurdles, times. Thus, Microcom in Nigeria offers a 40% dis- some countries have implemented regulations that count if the Internet is accessed exclusively between 6 have brought down the prices of lines leased to ISPs p.m. and 8 a.m. (see www.arminco.com/overview.htm and the prices charged for local calls to Internet users and www.br.ibm.com/servicos/sernet/interintera/ (see Table 1). acdisccons/acdisccons.html). To make their services more affordable to users, Some have a fixed monthly fee and a per-kB down- ISPs in developing countries have also come up with load charge, like the Armenian Internet Co., which a range of pricing schemes. Many have sought to fol- charges $100 per month plus 42¢ per MB. Also typi- low the typical developed-country model of a fixed cal of developing countries are ISPs offering email- monthly fee for unlimited Internet access. But while only service, for which they charge much lower fees. in the industrialized world such service typically costs For example, in Kenya, where full Internet access $15–$25, in most of the developing world fees are averages $100 per month, email-only access is avail- much higher and access time is limited. In Brazil, for able for $10 per month. example, the local IBM ISP subsidiary charges $39.75 Despite the availability of creative pricing schemes, per month for 20 hours of dial-up service and $2.75 Internet services in most developing countries rarely for each additional hour. Other ISPs offer the incen- spread beyond the capital and a few large urban cen- tive of time-managed pricing whereby users are ters. In Kenya, for instance, over 85% of the country’s

from the Asia-Pacific region and the related bi- Request the U.S. operators and ISPs directional traffic make the U.S. ISPs in effect Recognize the facts described; free-riding on the circuits and gateways and share the cost of international Internet ports provided by the Asia-Pacific region ISPs; backbone between the U.S. and the and Asia-Pacific region according to their usage or that given the faster growth rate of the benefits; and Internet than of telephone service, the amount discuss and build up with us an appropriate of global subsidy on international Internet cost-sharing scheme of Internet interconnection circuits will be more than the alleged subsidy by links between the U.S. and the Asia-Pacific region. the U.S. operators in the telephone area. Invite the Asia-Pacific and other region’s Believing operators and ISPs That equitable cost sharing of international To join in this resolution to urge the U.S. circuits for the Internet will maximize the operators to share the cost of the international benefit of hundreds of millions of Internet Internet backbone between the U.S. and other users around the world. regions. Respecting Urge every operator and ISP via various The study of appropriate cost sharing of activities, including the International international circuit for the Internet as pursued Telecommunication Union by the International Telecommunication Union. To study appropriate mechanisms to mea- Resolve sure the actual traffic as the basis of usage- That it is inappropriate for the ISPs and based or cost-oriented charging and operators in the Asia-Pacific region to bear the settlement arrangements. entire cost of international Internet backbone As resolved by: between the Asia-Pacific region and the U.S.— The Communications Authority of Thailand, currently the case for historical and other Kingdom of Thailand; Chunghwa Telecom Co. reasons; and Ltd., Taiwan; Indonesia Satellite Corp., Repub- that the current practice should be recti- lic of Indonesia; KDD Corp., Japan; Korea fied so the ISPs in the Asia-Pacific region Telecom, Republic of Korea; Philippines Long need not pay for the full port charge to the Distance Telephone Co.; Republic of the Philip- providers in the U.S. in exchange for the U.S. pines; Singapore Telecommunications Ltd., provider carrying the traffic to the U.S. Republic of Singapore; and Telekom Malaysia,

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u In 1997, over 60% of the people in developing countries lived in rural Areas, yet over 80% of the main telephone lines were in urban centers. u

Internet users are in Nairobi, the capital, while cities in the country’s interior. Moreover, ISPs charge Moscow accounts for 64% and Buenos Aires for 60% for technical support depending on the remoteness of of all Russian and Argentine users, respectively ([1], the customer. Swift Global, for example, charges and www.internet-magazine.co.uk/news/aug/26d.htm 5,000–20,000 Ugandan shillings ($3.65–$14.60) per and www.secom.gov.ar). half hour of technical support, depending on the user’s One major factor leading to this skewed user pro- distance from Kampala. file is that ISPs are rarely present in the interior of most developing countries, and ISPs established in Conclusion Despite the significant growth of the Internet on a Table 1. Regulatory intervention in Argentina. global scale over the past few years, the poorer Influence of regulatory intervention on the prices regions of the world continue to face a combination of leased lines (top) and local rates for an Internet of obstacles to the rapid diffusion of Internet ser- call (bottom) in Argentina, 1997 (in U.S.$) vices. Lack of competition—especially in interna- tional service—has made access to the international Speed Before After Change network expensive. And the fact that ISPs in devel- oping countries have to pay for the full cost of leased 64Kbps $8,905/mo. $4,793/mo. -46.18% lines to Internet backbones in the U.S. adds to the 2Mbps $114,096/mo. $63,182/mo. -44.62% already high costs of providing Internet services in the southern hemisphere. Worse still, the dire lack of Pricing scheme Before After Variation intraregional infrastructure means that even Internet communications with neighboring countries have to Peak-time prices 1.35 0.64 -52.50% be routed through the U.S. Transferring these costs Regular prices 1.01 0.64 -36.67% to end users—whose purchasing power is already limited—has rendered Internet access a very costly Discount prices 1.01 0.42 -58.25% proposition throughout the developing world. The

Source: Secretaría de Comunicaciones de Argentina result, for the time being, is relatively slow growth of a skewed Internet market, with a small number of users concentrated in a few large urban centers. c the capitals do not provide plain old telephone service in the interior. In Cameroon, dial-up services at local References call rates are available only in Yaounde and Douala, 1. Arum, G. Kenya to build Internet backbone. Telecom. Afr. (Apr. 1998). the country’s two biggest cities. Elsewhere in the 2. Greene-Raveendran, B. International Internet infrastructure financ- country, it is necessary to make costly long-distance ing. Paper presented at the 18th Meeting of the APEC Working Group on Telecommunications (Papua-New Guinea, Sept. 7-11, calls to reach the ISPs. The lack of adequate infra- 1998); see www.apia.org/i3fcontents.htm. structure in the interior is also a major hindrance. In 1997, over 60% of the people in developing coun- Ben Petrazzini ([email protected]) is a telecommunication tries lived in rural areas, yet over 80% of the main policy analyst in the Strategic Planning Unit of the International telephone lines were in urban centers. Telecommunication Union in Geneva, Switzerland. In the few instances where services have been estab- Mugo Kibati ([email protected]) is a graduate student lished in the interior, local users pay higher prices for in the Technology, Management, and Policy Program and a research assistant in the Internet Telephony Consortium, Center for services their counterparts generally receive in the Technology Policy and Industrial Development at the Massachusetts larger cities. Starcom, an ISP in Uganda, for example, Institute of Technology in Cambridge, Mass. charges $30 for email-only services in the capital, Kampala, and $50 in Jinja and Mbale, two smaller © 1999 ACM 0002-0782/99/0600 $5.00

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