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Arab Republic of Egypt Ministry of Communications and Information Technology August 2010 Socio-Economic Assessment Public Disclosure Authorized Of Broadband Development in Egypt Public Disclosure Authorized Public Disclosure Authorized Arab Republic of Egypt Ministry of Communications and Information Technology Arab Republic of Egypt Public Disclosure Authorized National Telecommunications Regulatory Authority Information and Communications Technologies (ICT) Sector Unit Contents EXECUTIVE SUMMARY ........................................................................................................................ 2 ACKNOWLEDGEMENTS ....................................................................................................................... 7 LIST OF ACRONYMS & ABBREVIATIONS ........................................................................................ 8 CHAPTER 1. EGYPT BROADBAND MARKET MODEL AND HANDBOOK ............................. 11 CHAPTER 2. MACROECONOMIC IMPACTS OF BROADBAND IN EGYPT ............................ 38 CHAPTER 3.1. BROADBAND IMPACT ON THE ECONOMY: EDUCATION ............................................................................................................................................ 68 CHAPTER 3.2. BROADBAND IMPACT ON THE ECONOMY: JOB CREATION AND IT-BPO .............................................................................................................. 84 CHAPTER 3.3. BROADBAND IMPACT ON THE ECONOMY: THE BANKING AND FINANCIAL SECTOR ..................................................................................... 97 CHAPTER 4. STRATEGIC POLICY OPTIONS TO DEVELOP BROADBAND IN EGYPT .... 107 NOTES ..................................................................................................................................................... 125 1 Executive Summary THE GOVERNMENT OF EGYPT has recognized broadband as being of strategic importance to the country´s economic and social development and it is developing a new strategy to develop access and use of broadband networks and services. As a specific target of this strategy, the government seeks to increase broadband penetration to 20 connections per 100 inhabitants by 2013. This report is the result of the second part of the existing Reimbursable Technical Assistance on communications by which the World Bank has been providing assistance to the government of Egypt in the development of this broadband strategy. The objective of this particular assignment is to support the policy making process to develop broadband services and infrastructure throughout Egypt and achieve substantial economic impact in the economy including specific intermediary sectors. This assignment builds of the outcomes of the previously delivered study (Strategic Options for Broadband Development, 2010) and it uses both qualitative and quantitative approaches to provide specific advisory outputs. This present report is structured into four components: 1. Forecasting economic model of broadband diffusion in Egypt to assess the viability of different technology choices for increasing overall broadband penetration in the country. 2. Analysis of macroeconomic impact of broadband and estimates of these impacts for broadband policies in Egypt. 3. Study of broadband impact in three intermediary sectors: (i) education, (ii) broadband job creation and IT-BPO industry, and (ii) banking and financial sector. 4. Analysis of policy options to develop broadband in Egypt and achieve the estimated economic impact in the economy and the intermediary sectors. These studies have shown that Egypt can achieve substantial economic gains from broadband diffusion. However, as the forecasting model shows, the expansion of broadband penetration in an efficient way is challenging and impacted by many variables. Thus, careful thinking must be devoted to the policies and incentives that will deliver the best outcome for broadband diffusion and its economic impact in Egypt. 2 Broadband Economic Model: Transformation of the Broadband Sector in Egypt The economic model shows that reaching the target of broadband penetration envisioned by the Egyptian government will transform significantly the telecommunications sector in the country. In particular, the results from the economic model predict that for the base-case scenario broadband subscribers in Egypt services will surpass 11 million and revenues from broadband services will reach close to US$ 3 billion per year within the 5-year forecast period. This base-case scenario follows the current NTRA broadband policy, by which in 2014 the projected number of broadband subscribers shall reach 4 million for mobile Broadband and 4 million for fixed Broadband (which consists of 3 million lines of DSL supplemented by slightly more than 1 million Fixed-wireless Urban subscribers). In this scenario, both, Rural Broadband and Fiber Access will reach only relatively small levels of penetration: around 200,000 and 300,000 subscriptions respectively. Investment requirements over the 5 year forecast period are projected to be around US$ 2.2 billion. These investments are split between the different technology/market combinations as follows: US$ 30 million for Rural Broadband, US$ 290 million for Urban Broadband, US$ 330 million for Fiber Access, US$ 510 million for DSL rollout, US$ 730 million for Mobile Broadband, and US$ 300 million for setting-up an independent backhaul network, which is required as uncompetitive high leased line prices by Telecom Egypt make most business cases not viable. Leased Line prices of Telecom Egypt would have to be reduced by 50% to 80% to reach a similar level of financial viability compared to the cases with setting up an independent backhaul provider. Besides the base-case, the model includes a worst-case and a best-case scenario. Over the 5-year forecast period, subscriber numbers range between 7 million in the worst-case and close to 17.5 million in the best-case scenario, while revenue projections range between US$ 1.8 billion and US$ 4.5 billion respectively. As investment numbers are scaled to the projected number of subscribers, total investment requirements vary between US$ 1.3 billion and US$ 3.6 billion. Broadband Economic Impact: Appropriating Macroeconomic and Sector’s Economic Impact Developing broadband as predicted by the economic model is expected to result in significant economic benefits for Egypt. Based on multipliers developed by the literature of broadband economic growth, it is estimated an incremental cumulative contribution to GDP for the period 2010-2020 for the base scenario of US$ 5-US$ 42 billion. Using the other scenarios from the model described above, contributions can increase to a range of US$ 17-US$ 67 billion. In terms of jobs created, the estimates for the base scenario are an average of 25-36 thousand jobs created per year. For the other scenarios the range is of 13-50 thousand jobs. The expansion of broadband diffusion in Egypt will not only result in macroeconomic impact. It is also likely to impact intermediary sectors, prompting transformation in these sectors. This assignment analyzed how broadband has impacted three specific sectors globally and the likely result on Egypt: Education. The use of broadband to support the education sector is transforming the education sector as it was traditionally conceived. Curriculums, learning techniques and teachers are being 3 adapted to the new possibilities of broadband and digital interactive content to achieve 21st century skills (i.e., skills to think creatively, solve problems, communicate effectively, identify and analyze existing information and create knowledge). Content sharing through crowd sourcing and teachers’ collaboration platforms, the wider availability of mobile devices and cloud computing are also transforming the way educational content is created and delivered and promise significant cost reduction opportunities. With the development of broadband, Egypt’s education sector can go beyond the connectivity of schools and transform its education system to develop 21st century skills in the coming Egyptian generations. Job creation and IT-BPO sector. Broadband has been creating new job opportunities globally. Most of job creation is due to innovation that broadband spurs in the economy. For instance, broadband has enabled new job opportunities through telecommuting or facilitation of job search. One of the industries that have been more favored with the expansion of broadband worldwide has been the IT-BPO. Egypt has already developed a globally competitive IT-BPO industry. Indeed, A.T. Kearney ranks Egypt as 4th place in providing IT offshore services globally. ITIDA estimates that Egypt’s IT-BPO industry generated more than US$ 1 billion in exports in 2010 alone. Building in this success, new job opportunities, such as rural BPO and microwork can be developed over wide broadband connectivity in the country. Banking and Financial Sector. Broadband has spurred changing in the banking and financial sector, which has been transformed from the front to the back office. Competition among banks has increase by adding new online services and customers enjoy wider choice and wider access to banking through extended ATM networks, phone and internet services. Productivity and efficiency of the sector has also increased through the use of electronic transaction systems. Egypt bank system is embracing broadband already. A widespread diffusion of this platform will result in similar benefits as seen in other countries. Moreover, the widespread network of Egypt post provides a
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