Communication infrastructure refers to the backbone of the communications system upon which various broadcasting and telecommunication services are operated. This can be built from copper cable, fiber, or wireless technologies utilizing the radio frequency spectrum, such as microwave and satellite. The infrastructure is the core component that connects upstream production, such as voice, data and audiovisual services, with downstream consumers.
Albert Hirschman’s (1958) now widely used definition of infrastructure as capital goods offering public services, often associated with public utilities such as electricity, water, and communications, remains pertinent to communication infrastructure today because it does not link public services to public capital goods. The definition accommodates public services being offered by public entities as they have been traditionally in most jurisdictions, but does not exclude public services from being offered by privately owned and operated capital firms. Despite ownership and investment of communication infrastructure predominantly having been transferred from the public to the private sector through privatization and the introduction of competition to traditional monopoly networks, private communication operators continue to offer public services in addition to certain private services and, for this reason, continue to be regulated to different degrees in different jurisdictions.
Economic And Social Significance
The economic and social significance of communication infrastructures lies in the nature of such networks. They have the potential to produce value much greater than the direct investment made in them. Unlike other goods, the addition of new subscribers to a telecommunication network, rather than diminishing the availability of service, indirectly benefits those already on the network and enhances the value of the network by creating more calling opportunities. This side effect of a transaction is referred to as a “network effect” and can be positive or negative (Bergman et al. 1998). Additional subscribers on the network only enhance its value up to the point of congestion, after which the effect is negative. Hence the need for networks to constantly extend their capacity to meet demand.
Such side effects or “externalities” can further extend outside the network. Access to broadcasting services, for example, could indirectly (positively) improve social cohesion or (negatively) erode cultural values as a result of foreign content. The extension of telecommunication infrastructure is associated with greater business activity, which it has the potential to enable and make more efficient.
It is the positive economic and social “multipliers” or “spillovers” that motivate the state to seek investment in and to coordinate infrastructure development even if it is not provided directly by the state. Investment in communication infrastructure contributes directly to economic activity in that it creates demand for the high-cost products used in the expansion of the network. It has also an indirect impact in that telecommunications is an input for other services. If efficiently provided, it has the potential to reduce the transaction costs between businesses and with customers. Infrastructure expansion produces positive economic multipliers as productivity within the economy is increased through more efficient information gathering and the substitution of communication for higher-transactional-cost activities (Röller & Waverman 2000). Social multipliers associated with safety and survival, and social cohesion more generally, are also well documented, though they have not been costed or quantified (see Grace et al. 2001; Mansell & When 1998).
Despite research in OECD country studies indicating a positive correlation between fixed communication infrastructure and economic growth, demonstrating causality has proved problematic (Waverman & Röller 1997). In 2000, after an extensive study of 21 OECD countries over 20 years, Röller and Waverman (2000) concluded that investments in the telecommunication infrastructure had strong growth effects and that causality is two-way in that communication infrastructure development and economic growth catalyze each other. Perhaps more significantly for developing countries, they also found that in order for the positive growth effects of infrastructure investment and expansion to be realized, a critical mass or a threshold of a significant size would be necessary for the network effects to kick in. This critical threshold is close to universal access – around 40 percent of the population, assuming around 2.5 people per household. This would explain the absence of the often anticipated positive growth associated with infrastructure investment in many developing countries where, despite improvements, teledensity remains on average under 4 percent in non-OECD countries (Röller & Waverman 2000). The exponential extension of networks to meet this critical threshold would require unprecedented investment in national communication infrastructures, probably possible only through the creation of private investment opportunities and sufficient institutional capacity to regulate it in the public interest.
Credé and Mansell highlight the significance of this as knowledge-based development becomes a more important aspect of the global economic and social order: “advanced communication networks will become more central to the acquisition of information . . . Without the appropriate communication infrastructure, ICTs might accentuate, rather than ameliorate, existing parities in income, wealth and opportunity” (Credé & Mansell 1998, 19).
Communication infrastructure, like other national infrastructure such as electricity and water, has long been understood as a “public good”. These goods are regarded as so beneficial to society and the economy that access to them needs to be insured by the state, historically often through the creation of public utilities. Even where communication infrastructure has not been provided by the state, it is regarded from a policy perspective as an economic and social good, public access to which should be insured as far as possible through regulation (see Melody 1997; Laffont & Tirole 2000). While access to communication is not a pure public good in the classical sense in that, unlike defense of a country or clean air, it is technically possible to exclude someone from the service, the attainment of universal access to this public good is a core principle from a policy perspective.
In addition, communication networks are nonrival – a distinguishing characteristic of public goods – that is, the consumption of the services offered by an adequately proportioned network does not diminish the availability of the services or goods for others. An additional listener to a radio station does not affect other listeners on the station. Indeed, additional listeners or viewers of broadcasting services enhance the value of the audience for advertisers or better justify the public cost of delivering the service.
Natural Monopoly And Public Utilities
Historically, the economic rationale for state provisioning of communication infrastructure was that these essential facilities and services could not be economically duplicated due to high fixed costs in several parts of the network. It therefore constituted a natural monopoly (Laffont & Tirole 2000). It was operated as a public utility on the grounds that the only way to bring essential services affordably to citizens was through the economies of scale and scope made possible by a monopoly.
However, the potential offered by economies of scale and scope tends to be underexploited when companies have no incentive for efficiency, as they would have in a competitive environment. On the contrary, the inefficiencies in many, particularly developing, countries, of state-run infrastructures have led to their paying a capital cost per line three or four times above international averages and little of the service revenues being reinvested in network extension and development. The widespread practice of subsidizing calls of those with access, and often greater resources, at the expense of those who could not own telephones meant insufficient internal revenue was generated to invest in network expansion (Stiglitz 1999).
As the necessity of developing a national information infrastructure as the backbone for a modern economy became evident, modernization and extension of communication infrastructures became the key drivers of a wave of telecommunication reform from the 1980s onwards. The poor outcomes of public provisioning in many countries, especially developing countries due to the lack of investment in network development, led to the privatization of national communication infrastructures and liberalization of markets. With new cost-effective technologies making possible the economic duplication of certain infrastructure components and services, and a growing acknowledgment of the inefficiency of telecommunication monopolies, the rationale for monopolies was increasingly eroded and difficult to enforce without resorting to repressive measures. The market was increasingly perceived as a more efficient operator of communication infrastructures and deliverer of services (Laffont & Tirole 2000).
Regulation And Competition
However, the imperfect nature of the telecommunication market, with its infrastructure bottlenecks and high barriers to entry, were acknowledged as requiring regulation to insure fair competition and to deal with market failures associated with the delivery of services to uneconomic areas. The most critical aspect of creating a fair competitive environment is insuring access to infrastructures by competitors through interconnection and facilities leasing arrangements. The necessity of regulation relates to the special nature of infrastructure industries. For seamless communication by customers on different networks, rival firms need to cooperate in order to deliver services. Interconnection appears to be a logical and mutually beneficial action between competing customers: the more subscribers there are the greater the network effect and benefit to the entire network system. However, this is so if the networks that are interconnecting are of a similar size; but, if an incumbent’s network is significantly larger than the new entrant network desiring interconnection, the benefits of interconnection are not symmetrical. Incumbents are likely either to delay interconnection or to restrict the conditions of interconnection or price it so that it is difficult for the new entrant to compete effectively (See Laffont & Tirole 2000; Melody 1997).
Regulating access to facilities raises particular issues in a case where, as in many developing country jurisdictions, despite some liberalization of the services market, the privatized entity has retained its monopoly on certain network elements and services and downstream competitors are required to acquire their facilities from it. Even if competition based on full facilities and service exists, it is likely that certain elements of the network are not economic to duplicate and open access is therefore essential.
A case in point is undersea cable infrastructure in Africa. Even with the opening up of international gateways in many countries there is only one economically feasible source of high-quality bandwidth which today is the SAT-3 undersea cable. It was built by, and is operated through, a closed consortium of African incumbents and international operators who have exclusive rights on the landing stations in their countries. Their practices have come under fire by a multi-stakeholder continental initiative to demonstrate the access and cost benefits of nonexclusive open access regimes for African countries which have the most expensive international bandwidth in the world. There have been calls to regulate these landing rights as “bottleneck” or “essential” facilities. This attention has also highlighted the arbitrariness of the costing of this essential facility for African countries at the national level and discrepancies in the charges across different portions of the network. A price survey of African countries that use SAT-3 for their international bandwidth showed that Telkom SA is charging up to 800 percent more than other countries for a megabit per second per month. While the Senegalese incumbent Sonatel charges only US$1,316, Telkom SA, which also holds the management contract for the cable, charges US$11,000 (Southwood 2006).
For some eastern and southern Africa countries the longer-term solution lies in the Eastern Africa Submarine Cable System (EASSy), which is to be completed by 2008. Through the intervention of nongovernmental and academic organizations and the e-Africa Commission, the consortium established to build the cable has been far more open and the approach to landing rights nonexclusive. Bandwidth will be sold on an open access model where everybody can purchase it at the same price whether they are an investor or not. Of course, while EASSy will provide relief for the eastern and southern African countries, including many landlocked countries that have bought into the consortium, the likelihood that west Africa will have any alternative to SAT-3 in the foreseeable future is poor, rendering the landing station a natural monopoly which requires regulation.
Investment, Credibility, And Economic Growth
Intervention of this kind by regulators, however, has to be clear and reflect a fair rate of return on operator investment, otherwise it could impact negatively on future investments. This is one of the major challenges for regulators in insuring that the benefits of competition are achieved by guaranteeing access to all competitors to scarce resources such as spectrum, numbers, rights of way, incumbent infrastructure, and facilities. From an investor’s perspective all are regarded as “regulatory risk.” If, however, the government is regarded as credible as a result of clear policies and contracts on which there is no history of reneging, and regulation is transparent and independent of political and commercial interference, there is evidence that this can induce investment in new operations (See Gillwald 2005; Mahan & Melody 2005).
Because infrastructure investment is capital-intensive and involves long-term, “sunk” or nonrecoverable costs, governments have often induced infrastructure investment by offering periods of exclusivity (monopoly) at the time of privatization or reserving particular activities for new licensees before introducing competition. After several decades of reform there is evidence that the sequencing of these activities is important. Where privatization has occurred prior to competition, without effective regulation prices generally increase. There is little innovation of new services and even network extension, unless compelled, may not increase significantly (Wallsten 2001, 2002).
Broadcasting and telecommunication infrastructure looked much the same for the first 100 years of their existence. However, in the last few decades infrastructure has required constant reinvestment in network upgrades in response to the constant waves of new generation technologies and associated services. Historically, these services have been operated on distinct platforms but with digitization and the reduction of all communication information into bits, telecommunication services such as voice services and data services such as the Internet can be offered on cable and satellite infrastructure proportioned for television. Television can be offered on new broadband networks of fiber, upgraded cable, and wireless infrastructure originally used for telecommunications. This has allowed not only for the convergence of broadcasting and telecommunications but for convergence within telecommunications, for example, between fixed and mobile voice services that were previously operated on separate networks.
This has compelled policymakers to create a regulatory framework and licensing regime better suited to the convergence of broadcasting and telecommunication infrastructures. Primarily this entails shifting the licensing of the silo-like vertically integrated operators that have characterized the market structure in the industrial era to horizontal service layers – infrastructure, services, and content (ITU 2005). Increasingly, it is only the “infrastructure” or “network” layer that requires a license, with the other service layers automatically receiving class licenses on compliance with basic threshold requirements, which might be only registration. This framework is more suited to the IP-based networks that are likely to dominate communication rollout in future and the seamlessly integrated information infrastructure necessary for a modern economy.
Next Generation Networks
Whilst digitization allowed for the convergence of broadcasting and telecommunications services through reduction of all services into bits that could be carried across any platform, it is through new IP-based networks that seamless communication across integrated networks can be realized. Such networks are generally referred to as next generation networks (NGN) and are evidenced in the increasing number of lower-cost, IPbased services such as Voice over IP (VoIP) and IP Television (IPTV).
The shift from circuit switched to packet switched protocols allows traditionally distinct PSTN, wireless, DSL, 3G, CATV, and potentially new power line communication networks to be integrated through common standards. The layered nature of these NGNs’ architecture allows for the separation of the service from the transmission layers and permits new services to be offered independently of the underlying infrastructure on which they run. A significant characteristic of IP-based networks is the ability to distribute intelligence across the networks from the core to the periphery, unlike traditional public switched telephone networks (PSTNs), enabling the connection of different types of access networks at their intelligent edge (Wey et al. 2006). This is critical for the growth of potentially cheaper, decentralized services and the seamless connection of networks that enhances the network effects or positive multipliers.
Combining IP-based services with lower-cost, rapidly deployable wireless technologies has enabled rapid and easy entry into the market by new service providers, some of which have been able to circumvent technical and regulatory restrictions, often undermining the rationale for regulation and potentially the revenues of traditional PSTNs.
Despite prohibitions on many of these IP-based services in many developing countries, the significance of this type of network for countries with limited infrastructure is that considerably more efficient IP-based networks could be rapidly and flexibly deployed. Unencumbered by the financial and technical concerns of countries with extensive legacy networks, such countries would be able to benefit from open standards and global economies of scale and scope. Countries without these obstacles or those that rapidly reach a decision on how to enable IP-based networks will have quicker times to market and are more likely to achieve more widespread ICT diffusion.
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