Operational Quality and Knowledge 192 ,XONAL October 2001 / / o Findings reports on ongoing operational, economic, and sector work carried out by the World Bank and its member governments in the Africa Region. It is published periodically by the '^_______D_________________ Knowledge and Learning Center on behalf of the Region. The views expressed in Findings are WORLD BA N K those of the author/s and should not be attributed to the World Bank Group. 4 AND Internet Economic Toolkit ttOhNgf for African Policy Makers fur) ^ 0 7This Toolkit presents a model of the likely impacts of the Internet on African 2rccr I telecommunications companies and Internet Service Provider revenues, mod- els of the cost structure and potential reach of Internet service, data on the extent of Internet development in Africa, and examples of its current use. With this background, the Toolkit goes on to discuss policy choices faced by coun- U ) tries that hope to expand Internet use within the context of needed telecommu- nications reform and government-private partnerships involving universities _ ~~~~~ ~and NGOs. D3 n espite the low level of telecom- 32 countries in 1998 (see Annex 3 D ) munications development in in the report). These figure exclude the African continent, the South Africa, which alone has Internet has expanded relatively 129,000 sites. rapidly over the past few years. Pri- During the same period, the vate, nonprofit, and public sector Internet grew phenomenally in Internet service providers have other parts of the world. Africa's sprung up to help exploit the op- share of the increase was a mere portunities presented by this new 0.025 percent in 1997, and fell to technology. Forty-two of the 54 0.022 percent by the beginning of nations in Africa have live public 1998. Excluding South Africa, the access to the Internet in the capi- entire continent with its population w tal city, while eight have country- of well over 650 million has about wide local dial-up access. These are as many Internet sites as Croatia Burkina Faso, Malawi, Mali, with its population of five million. Mauritius, Morocco, Senegal, Chad, Twenty-two countries across the and Zimbabwe. Wherever compe- world, with populations of over 1 tition is allowed, the price for web million, have no Internet host sites. access has dropped below US$30 Of these, 16 are African: Zaire, a month. African entrepreneurs, Chad, Somalia, Sierra Leone, tired of waiting for government sup- Sudan, Rwanda, Malawi, port, are setting up private Internet Mauritania, Mali, Lesotho, Guinea, companies. In Mozambique, one of Gambia, Eritrea, Congo, the Cen- u the least developed nations of the tral African Republic, and Burundi. continent, it is possible to make a Outside South Africa, only one out telephone call over the Internet to- of every 5,000 Africans have access A S day. It is largely because of the ef- to the Internet. forts of private operations. that the number of host sites in African countries has increased from 290 in 5 countries in 1995 to 6,510 in Infrastructure and Internet networks of the world. This is cer- and adversely impact the profits of development tainly true of most African nations, African telephone companies. Es- which have only 2 percent of the timates of these losses are pre- Further growth of the Internet in world's telephones to offer to 12 sented in Chapter One and the an- Africa is closely tied to the quality percent of the world's population. nexes to the report. and availability of telecommunica- There are very advanced networks In markets that have not yet seen tions infrastructure in this vast in countries like Rwanda and any reform, and where there is a continent. A major component in Botswana, while others, like Mada- greater dependence on overpriced this process would be the liberal- gascar and Uganda, have unreli- international call charges, the ization of the sector and private able analog systems. In some coun- Internet is likely to be used to by- sector investment. In sub-Saharan tries teledensity drops to as low as pass these costs. But the Internet Africa, change is already under 1 telephone per 1,000 people, with is only one of a number of forces way: 25 countries have begun re- satisfied demand as a percentage that will have an impact on tele- form programs in telecommunica- of total demand only 69 percent (as communications companies in the tions. However, how much these compared to 89 percent in low in- region. There are others, such as reforms will immediately impact come countries as a whole). The international pressures on regulat- the growth of the Internet is yet to proportion of digital lines is 56 per- ing accounting rates charges and be gauged. cent as compared to a global low- the growing presence of callback The Internet places large de- income average of 90 percent. Ad- technology. Even countries with mands on infrastructure with its vanced technologies such as ISDN, advanced Internet provision are requirements of high-quality and mobile telephony and leased lines probably experiencing about 1 per- high-speed connections. Service are still not fully developed in most cent of revenue reduction. US ac- providers need cheap and reliable African countries. counting rates settlement pay- access to international communi- Another no less serious challenge ments to African countries are sig- cations lines to link with the web, to the development of the Internet nificantly larger-2.4 percent of as well as equally reliable local ac- in Africa is the existing cost struc- Mozambique's revenues, for in- cess for their customers. This need ture for access to the network. The stances, or 14.3 percent of Ghana's for high bandwidth infrastructure Internet is likely to divert traffic (see Annex 4 of the report). Effec- creates serious pressures on the from high revenue-generating in- tively what this last means is that less developed telecommunications ternational voice communications the US is paying for the net differ- Findings_ .m a;T:-sn -.les Findings would also be of interest to: Name Institution _ Letters, comments, and requests for publications not Address . available at the World Bank Bookstore should be addressed to: Editor, Findings Operational Quality and Knowledge Services Africa Region, The World Bank 1818 H Street NW, Room J-5-055 Washington, D.C. 20433 e-mail: pmohan @worldbank.org ence in telephone calls made be- as international call costs drop and few, it is vital that the costs of tween the US and Africa. The US local call costs increase. Internet access are reduced. This calls Africa more than vice versa, At the moment, however, Internet will require competition between and makes a payment based on a access is a definitely profitable in- the Internet service providers per minute "settlement rate" to vestment, purely from the point of (ISPs) and the telecommunication cover the difference. Because the view of direct savings on commu- companies offering access to the settlement rate is set at a far nications for even small companies local users. For a Mozambican e- higher level than the cost to Afri- that do a lot of international busi- mail user with local access and a can telephone companies of com- ness. Talking to the United King- personal computer, annual equip- pleting a call from the US to an Af- dom for about an hour each busi- ment costs and Internet access rican customer, this is an "excess ness day over the period of a year charges would be approximately 49 profit" for African telecom compa- would cost a Mozambican busi- percent and 51 percent respec- nies. nessman approximately tively of total costs-telephone Indeed, to be genuinely competi- US$38,250. charges being insignificant. For tive in the global marketplace, Af- Faxing that same information access to the Web, however, tele- rican telecommunications compa- would cost US$7,650. All of the communications charges become nies need to rapidly integrate the yearly costs of a regional Internet much more significant. A regional changes that are reshaping tele- connection-a computer, a modem, user, accessing the web for an hour communications across the world, and Internet access-used for in- each business day, would be pay- and transforming it into a commod- ternational e-mails alone as a sub- ing US$3,120 a year in telephone ity business. By embracing Internet stitute for fax traffic would together charges alone. Given the average technology and expanding the amount to US$1,328. The yearly level of access to networked com- number of users who can access savings would thus be US$6,322. puters (one computer is usually the network, these companies have shared by 8 people), annual hard- considerably more to gain in the Benefits for the community ware costs amount to about a quar- long run. ter of telecommunications and The Internet is far more than just Internet access charges. As con- The Internet is good business a cost-saving substitute for voice nection charges also account for up and fax communication. Already in to 90 percent of an ISP's costs, it Models presented in this toolkit Africa, the technology is being used seems evident that the vital ele- suggest that expansion of the for a wide range of other applica- ment in expanding access is to re- Internet in Africa can provide op- tions with a direct influence on the duce telecommunications charges portunities for significant reduction quality of life. Craftsmen in to the individual users. in the communications cost of a Uganda, Botswana, and Senegal The model of Internet costs and wide range of African telecommu- are marketing their products world- benefits suggests that there are nications users. These savings wide through the UN International economies of scale in Internet ser- would come almost exclusively from Trade Center's Virtual Handcraft vice provision. However, statistical international calls. There are two Exhibition Center; national news- analysis points to a different con- reasons for this conclusion. First, papers in Cote d'Ivoire, Kenya and clusion; liberalization in general, at the moment, 80 to 90 percent of Zambia publish daily on the web; and ISP competition in particular. e-mails are sent to and received doctors share diagnostic data; and lower the cost of access. Chapter from outside of the continent. Sec- more than 400 students in 6 Afri- One of the Toolkit shows that av- ond, international calls from and can countries are participating in erage monthly costs of Internet ac- to the continent attract revenues the World Bank World Links for cess in African countries are closely far in excess of the costs of com- Development program aimed at related to the level of liberalization pleting the call. Ironically, given the connecting schools around the of the telecommunications sector in pressures on rate rebalancing world to the Internet for collabora- the region (see Annex 3 for details). which are unconnected with the tive distance learning. Finally, it is important to remem- Internet, it is likely that e-mailing If these benefits are to be en- ber that although the results from will become relatively less attrac- joyed by the many rather than the tive as a substitute for voice or fax a model of potential Internet ac- The policy recommendations cess rates in the region suggest that may be able to meet these that a country like Tanzania can needs are: increase its number of Internet . Liberalization of the telecommu- Thefull report is available infive sites seven times over by bringing nications network pdfflles and an Excel spreadsheet the access cost to the level found * Liberalization of Internet service containing the model itself in South Africa, this depends on provision For more information, contact: those sites being accessible to a . Lowering of tariffs on computer Charles Kenny paying public. Unless Internet and telecommunications equip- The World Bank sites proliferate in community ment 1818 HStreetN.W centers, libraries, schools, and * General tariff rebalancing with Washnton, DC 20433 USA telecenters, access will be re- possible support for local cost ISP Waehtn202-473-35403US stricted to a minority who can pay access for it. Also, cheap computers, train- , Support for community access to E-mail: ckenny@lworldbank.org ing, and improved telephone reli- the Internet ability are essential to make the *Suppnort for training in the use of Internet a mass medium in Africa. t ' the Internet. Policy conclusions The main conclusion of this The models and data presented in toolkit is not very different from the toolkit suggest a number of those of studies that concentrate policy conclusions. To expand ac- on telecommunications in general. cess and use of the Internet in Af- The Internet is heavily dependent rica, it is necessary to provide the on an efficient telecommunications following: sector, which is usually market- * Low cost and reliable access to based. The Internet model repre- international bandwidth sents a look into the future, when * Low cost and reliable local band- PlTIs will eventually sell bandwidth width connectivity capacity to nodes on the network. * Countrywide reliable local cost As bandwidth becomes a commod- access to ISPs ity, the PTTs will want to expand Low cost access to network equi- the number of users on the network ment who demand high capacity ser- vices. Meanwhile, in the short term, * Widespread public access to net- the Internet will continue to push worked computers towards telecommunications re- . An educated and trained user form, and there is only one direc- and provider base tion that reform can take-towards • Support for the development of privatization and competition. national and African Internet content.