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Broadband Pricing: Where it is Falling

June 3, 2011 - 0 Comments

By Howard Baldwin, Contributing Columnist

Two reports issued by the International Telecommunications Union (ITU) in the past few months reveal that concerted efforts of both governments and service providers are combining to make broadband more accessible and affordable, at least for developing countries.

Let’s look at the most recent report first.

According to the 2010 ICT Price Basket report, broadband costs around the world have dropped approximately 52 percent between 2008 and 2010 — compared to a 22 percent drop in prices for mobile cellular services.

That’s really good news for citizens who believe that a high price was the final barrier to overcome — because the lower the connection costs, the more people will likely connect to the Internet and thereby participate in the digital economy.

The Comparative Cost of Broadband Access

However, the report did reveal some interesting anomalies. There was a big disconnect — pardon the expression — between developing countries and industrialized countries. For instance, the 52 percent figure only related to developing countries; in developed countries, costs dropped by only 35 percent.

But in 31 countries — all of them highly industrialized economies — customers pay only the equivalent of 1 percent or less of average monthly GNI (global net income) per capita for an entry-level broadband connection.

In contrast, within 19 developing countries, a broadband connection costs more than 100 percent of monthly GNI per capita. So while it costs less, it’s a higher percentage of income.

That’s why some governments are working assiduously to bring broadband to its citizenry. A March ITU report, Trends in Telecommunication Reform 2010-2011: Enabling Tomorrow’s Digital World, released last March, contains a comprehensive list of best practices for progressive countries who want to proactively support broadband installation and adoption.

One of those countries cited for its best practices in this Computerworld recap was Malaysia. It is not only investing in broadband installation, but is also using tax policy to boost adoption. It extended the investment allowance period for the last mile broadband service providers, as well as the import duty and sales tax exemption on broadband equipment until next year.

In addition, while it subjects ordinary mobile phones to a 10 percent sales tax, those who buy Internet-enabled mobile phones don’t pay sales tax at all.

How to Leverage the Economies of Scale

In Singapore, the government is working to create a secure infrastructure to serve banking, health care, and government online services built-in.

In a speech last year, the minister of information, communications and the arts, Lui Tuck Yew, said, “Consumers can look forward to greater assurance and ease of using a single authentication device for multiple services, while businesses can enjoy cost savings from the use of a common platform.”

To understand the ramifications of these efforts, one only has to think back to their “Introduction to Economics” class at school. The more affordable a capability such as broadband becomes, the more people will take advantage of it. The more people who adopt it and reap the benefits, the less expensive it becomes for everyone — thanks to economies of scale.

Though some U.S. citizens responded to the news of decreased costs with skepticism, it’s still less expensive than before to get connected; because of new data caps, though, those who download movies (or other very large data files) on a regular basis are likely to see increased broadband bills.

But those citizens who may have been shut out of the emerging digital economy, whether in industrialized or developing nations, are finding lower economic barriers to entry than ever before. Clearly, policies that increase inclusion and participation are fundamental to achieving meaningful progress.

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