Digital divide: The phone rules

20 Jun 2006
00:00

It's too early to say the war on digital want is over. But it's clear just how it will be won. The key is the mobile phone. The solution is not about giving away hardware - as impressive as that can look - but about providing sustainable policies and pricing.

The former is the basis for the latter: a liberalized regulatory environment with low taxes will put handsets into the hands of the unwired faster than any kind of digital aid program.

It's about the phone because of its simplicity and affordability. It takes a few seconds to boot up, requires few language skills and costs as low as $30. For those reasons we have 2.5 billion mobile users in the world but less than a billion PC users.

The attempts by MIT professor Nicholas Negroponte to create a $100 laptop are laudable but, in the greater scheme of things, not significant. Villages in remote India, Indonesia and sub-Sarahan Africa need connectivity before they need computing.

But regulations are holding them back. A PriceWaterhouseCoopers study for the GSM Association estimates that an extra 25 million people in sub-Sarahan Africa would have mobile phones but for heavy-handed taxation and poor regulation. That's worth an additional $900 million to African economies' GDP.

The classic example is Somalia, where no government has existed for 15 years, and which has a dozen networks charging a flat rate of around $10 a month and around 30 cents to call abroad. The operators pay no taxes, no customs duty on handsets, no spectrum fees and of course there are no ministry officials to be paid off.

By contrast, a country like Bangladesh is held back by a regime which focuses on subsidizing fixed-line, while taxes account for nearly 30% of total mobile revenue. Total tax intake would increase by removing the interconnection bias towards fixed-line and dropping taxes on new handsets and connections.

One government that has climbed the learning curve is Pakistan. In the last six years it has liberalized the industry, cut taxes on network gear and removed duties on handset imports. The result is that mobile phone ownership has gone from 1% to 13%.

The problem is that some ideas die hard among telecom ministries in south Asia and Africa. The most difficult one to budge is that telcos are a cash cow, there to be taxed supposedly in order to fund network buildout. Governments also have issues with policy certainty and transparency, in everything from licensing rules to interconnection settings.

Poor telecom regulation adds to the investment risk and adds to the cost of capital and ultimately the total cost of ownership for the end-user.

Very little of this will be discussed during CommunicAsia - yet we can take this as a good sign.

That is because virtually all Asian governments have taken these lessons on board. They accept that the most sustainable way of putting phones and connectivity into people's hands is through sound commercial practice.

The result has been steadily increasing level of mobile phone penetration in developing countries like China, India and Indonesia. Asia, containing half the world's population, is seen as the natural future growth center for the telecom industry.

Because of its history, and because of the social and national security importance of telecoms, this industry will be regulated for a long time to come. Thanks to falling technology costs, the goal of universal access to communications is in sight - if only governments will let it happen.

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