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Saturday, 30 May 2009

Telecommunication powered growth

A new paper  investigates the different effects that mobile and land-line phones may have on economic development, accounting for the possibility that causation may run in both directions. While previous studies have generally found that telecommunication is positively related to growth, few have looked at how mobile telecommunications specifically impacts on economic growth, especially where the growth in mobile telephony is disproportionate relative to the level of land-line telephony (we have previous discussed various micro studies e.g here, here and here). The key conclusion :
We find the current importance of traditional land-line phones for economic growth to be negligible in the sub-Saharan region. On the other hand, the contribution of cellular phones to economic growth has been growing in importance. While it is obvious that cellular phone use has been growing, we document that the impact itself of a single cellular phone has also been growing. Moreover, we find that the marginal impact of cellular phones is greater wherever land-line phones are rare. Combining these two results with the fact that cellular phone infrastructure is comparatively cheap, and the policy implication is clear – more cellular phone infrastructure should be encouraged in the sub-Saharan region, as it is the more cost-effective and beneficial technology.
Closer to home, the natural implication of this result is the relentless push for further deregulation of the international gateway, as well as elimination of cross subsidisation from ZAMTEL to Cell Z which distorts competition (further discussion of these issues  here). We continue to champion both issues on this blog. But what particularly struck me is this early observation in the paper : 
Mobile and land-line (fixed-line) telephones offer great promise for improving economic well being in Africa.... The two technologies, however, are imperfect substitutes, offering different types of services. Clearly, mobile phones offer most, and possibly all, of the services of land-line telephones. The opposite statement is less true. Land-line telephones do not offer text message services or mobileinternet access. Often, all that is required for an efficient decision to be made is a price quote. In this regard, a simple text message is far more cost-effective.
I have to say that I see no obvious reason  why individuals would prefer fixed lines over mobile. By extension, it would seem to me that fixed land lines only become important nationally, as a compliment to broadband services. But I am no telecommunications expert, I defer these issues to Zedian and others.  In particular, I would be interested to know what others think on a specific question : is there a future for fixed telephone lines in Zambia or should our communication strategy centre around expanding mobile telephony, as implied by the conclusions in the paper ?  The answer has obvious implications for the future of ZAMTEL and how quickly every dot on these maps will be all red.

8 comments:

  1. Wireless technologies are a first step in telecommunications, they can provide voice and internet access through Wi-Fi, Wi-Max, etc.

    For more multimedia capability/faster internet/ television (including learning) channels, fibre optic cable has the capability to provide many channels and is speedy. That is why in America and other places, traditional copper lines are being replaced by fibre optic cables.

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  2. Cho,

    The sub-heading of my blog reads, "The future is 'clear', the future is wireless.That sums up my view. I will be back later for an analysis of why I feel that way.

    Zedian

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  3. Lawrence Mindela31 May 2009 at 19:43

    I feel telecommunications will set a trajectory for stronger economic growth primarily becasue of more tech savy generation including high school graduates. I don't have any statistics the number of lines currently being used in Zambia and how much subcription has changed in the past 8 years.

    I think Zamtel just like Zesco needs competion. Government should look are reducing telecoms taxes to attarct new service provider and and alternative energy industry to Zesco. I wonder how increasing atrrifs by Zesco will help them take in more revenues. My guess is that people fail to pay because of high tarriffs and increasing tarrifs will scare those who have been paying.

    Telecoms may be a different ball game but reducing tarrifs will attract more advanced service providers

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  4. Firstly, I think it would be good to start with an overview of what technology options are available today, and this recent BBC web page is well worth a look. The page makes reference to the UK but it's applicable worldwide.

    To put that background information into perspective, it is worth mentioning here where we're coming from technology-wise, where we are, and where we're heading.

    Up until the '90s, the dominant telecommunications service worldwide had been voice. And the primary technology to provision this service was via the PSTN using twisted-pair copper. The technology remained unchanged for decades, and in the West investment into the infrastructure became widespread as the governments realised it's usefulness. It was also rather expensive, and labour intensive. Hence in many parts of the world the PSTN infrastructure was installed and owned by the governments who could afford to endure the lengthy periods it would take to recoup the huge capital investments.

    For those countries that achieved relatively high penetration rates, they found themselves with a bit of a problem as a result of the high CAPEX, high labour demand, and low ROI. So to ensure the technology paid off, it had to last many years. Hence the introduction of such technologies such as xDSL in the late '90s. It was meant to get more out of existing copper, and it did! The main advantage the telcos saw with this technology is that it meant the cabling infrastructure (the most expensive part) could remain virtually unchanged while changing only the equipment at the telco and the consumer end.

    The arrival of the internet and the PC changed things dramatically for telcos and consumers alike. xDSL was a solution but only for so long until the industry became liberalised in many countries and CATV providers realised they too could provide phone and internet services, and at higher speed! That was the beginning of convergence of services, and quite frankly the beginning of the end for the traditional telco, because from another angle came the mobile service providers who joined the fray further squeezing telcos' voice revenue, initially, and now data.

    The current and certainly future trend is a move away from traditional telecoms (voice), as we know it, to ICT (information and communication technologies). That's both on the consumer as well provider sides, where regulation allows. (will come back to this later on)

    Today’s consumer, generally speaking, desires to be able to access data, communicate via voice, and off course watch TV/videos whenever and wherever (the YouTube era). Here I make no distinction between domestic and business consumers.

    The service providers’ challenge is to find the most efficient and cheapest means possible to satisfy the above as well as to stimulate new demand, in the face of stiff competition from all angles, as I said above.

    There's an interesting and important bi-directional causality here, in that new technology can and does present opportunities for new services for consumers, and vice versa. You may recall that it's taken the past part of 6 years for consumers to find killer applications for 3G.

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  5. The BBC intro (link above) highlights the technologies in use today and the near future in the provisioning of triple-play services and perhaps an added dimension of ubiquity, which is becoming increasingly important.

    And this is where I concur with Cho when he said, "I see no obvious reason why individuals would prefer fixed lines over mobile." As the paper in question mentioned, the mobile phone can now do just about everything the landline can, plus mobility.

    The prohibitive nature of CAPEX in copper infrastructure and time to market, compared to mobile technology is the reason that mobile subscriptions surpassed landlines in Africa early this decade. It actually happened in Africa first.

    And that's just on voice service alone! When we add the more recent data services that today' mobile technology is able to provide such as GPRS (2.5G) as well 3G (and mobility power), then there's no contest!

    Currently in Zambia, I understand 3G is still under trials, so it's pretty much GPRS and sometimes WAP on 2G. But even then, there're people already on Blackberry service!

    The last time I checked, the official average time to get a landline in Zambia (where exchange capacity allowed and landlines existed), was about 21 days. Many many people can now get a mobile phone in a day (where infrastructure exists). Mobile technology has done in a decade what the landline could not even come close to do in 5 decades!

    See World Bank reports mentioned in the above paper for details.


    As for the other Next Generation technologies namely WiMAX, LTE (long term evolution), and fibre, I think they probably all have some sort of role to play in various size markets as follows.

    WiMAX is similar in the services (triple-play) it offers to LTE with more or less comparable speeds. However, the difference lies in the fact that WiMAX is data-centric, while LTE as the name suggests is the sort of natural evolution of 3G into 4G and is voice-centric. Therefore, mobile operators favour LTE over WiMAX. However, WiMAX offers an extremely attractive option for voice+high-speed data, not to mention quick time to market, especially for new entrants to the market. Currently, there’re far more deployments of WiMAX in developing markets than there are in developed ones. In the UK there several cities with WiMAX covereage. There are a few ISPs offering pretty good data-only WiMAX Internet services in Zambia. They cannot offer voice because of, well, the usual government regulations.

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  6. As for LTE, to the best of my knowledge there’re only about 2 commercial licenses so far in the entire world, including one just recently awarded to a Norwegian operator. And none of them are operational yet; just trials. But that could change in the not so distant future. The thing is 3G operators are not in a rush fro LTE, because they want to get more out of their 3G investment first. You may recall that some operators paid billions of dollars for 3G spectrum licenses.

    Fibre has the same sort of issues as copper in the ground; i.e huge CAPEX and labour. However, its capacity is incomparable to any of the afore mentioned wired and wireless technologies. There’re a few rich countries that have laid fibre country-wide as indicated here. British Telecom has embarked on a small project to cover a small fraction of the country using the less expensive FTTC (fibre to the curb or cabinet), which is based on GPON technology. Even then, they’re spending a staggering £1.5bn on it, and it’s not even a quarter of the country. Does Zambia have that sort of money to spend on ICT? The labour cost is off course comparably less in Zambia so £1.5bn would theoretically reach a bit further down there.

    It is also worth noting here that the comms infrastructure can be separated into the Access Network (from the consumer premises to the exchange), and the Back Haul from the exchange to the central office. The most difficult and sometimes expensive part of the network is usually the access part, which is what wireless base stations would replace. Then fibre could be used for the back haul where large aggregated bandwidth is needed.

    I believe this is what Zamtel, CEC and Zesco are doing country-wide.

    The paper conluded that “We find the current importance of traditional land-line phones for economic growth to be negligible in the sub-Saharan region. On the other hand, the contribution of cellular phones to economic growth has been growing in importance.

    I totally agree and see no need to continue with investment in landline infrastructure.

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  7. Here's a good example of fibre and wireless technology in combination as part of a new plan to bring rural comms in Angola. They don't specify what type of wireless technology, but I would guess WiMAX. Note that there's NO mention of copper wire; it's clearly out of the picture.

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  8. http://www.nytimes.com/2009/10/06/science/06uganda.html?_r=1

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