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ITA of NJ, Inc1 Broadband Access: Analysis of Its Economic Impacts and Policy Implications Shawky El-Toukhy, Ph.D. ITA of NJ, Inc ARNET Professional Development.

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Presentation on theme: "ITA of NJ, Inc1 Broadband Access: Analysis of Its Economic Impacts and Policy Implications Shawky El-Toukhy, Ph.D. ITA of NJ, Inc ARNET Professional Development."— Presentation transcript:

1 ITA of NJ, Inc1 Broadband Access: Analysis of Its Economic Impacts and Policy Implications Shawky El-Toukhy, Ph.D. ITA of NJ, Inc ARNET Professional Development Workshop in Collaboration with ITU Sharm El Sheikh, Egypt 4-6 March, 2005

2 ITA of NJ, Inc 2 Outline The Importance of Broadband/Advanced Telecommunications Infrastructure Economic Impacts Convergence and Broadband Policy Implications Attributes of an Effective Regulatory Body Policy Implications for ARNET

3 ITA of NJ, Inc 3 Stages of Socioeconomic Evolution Agriculture Manufacturing Information

4 ITA of NJ, Inc 4 Information Stage Telecommunications and computers are the core of the current technological revolution. – Computers process and generate information. – Telecommunications transmits information through interactive loops and feedbacks.

5 ITA of NJ, Inc 5 Information Stage (con’t ) Telecommunications & computers: – Process and interconnect information produced in all fields and spheres of activity. – Accelerate innovations as well as diffuse these innovations into other areas. – Play a major role in productivity improvements and competitiveness of most economies.

6 ITA of NJ, Inc 6 Dissemination of Information: The Printing Press The current revolution in communications technologies is as important to our lives today, as the invention of the printing press was some five hundred and fifty six years ago. Johannes Gutenberg’s printing press was arguably the most important invention of the past millennium. Led to sweeping social, economic and cultural changes across the world,facilitating the Reformation and the Age of Enlightenment.

7 ITA of NJ, Inc 7 The Printing Press (con ’ t) Dissemination of the printed word influenced art, literature, philosophy and politics. Foundation of society rocked by rise of informed middle class…people could no longer be kept in the dark. Re-created the world by shifting paradigms of information dissemination and communication among masses of humanity.

8 ITA of NJ, Inc 8 Dissemination of Information: Communications Technologies Today we are witnessing a rapid development of communication technologies that is contributing to an equally important paradigm shift of rapid dissemination of information. This shift is leading to a decentralization of traditional economic markets throughout the world.

9 ITA of NJ, Inc 9 Paradigm Shift Consequences Inter-connected global economy Market where physical borders and distance are becoming increasingly insignificant Defining perspective of globalization is “integration” Symbol of the globalization system is “www”… unites everyone

10 ITA of NJ, Inc 10 Economic Impacts Telecommunications Technologies playing dominant role in determining course of economic growth. Exercise a great power over commercial destinies of firms, thus having the power to redistribute wealth and income among both individuals and regions. Location decisions are increasingly affected by considerations of climate, prestige, amenity, and communications access.

11 ITA of NJ, Inc 11 Economic Impacts (con ’ t) Economic Impacts (con ’ t) Better communications access increases connectivity of places. Improved connectivity lessens need to cluster economic activities in order to reap benefits of agglomeration economies. – This affects the location and distribution of these activities in space.

12 ITA of NJ, Inc 12 Economic Impacts (con ’ t) As the country advances into an information economy, the role of these technologies increases significantly. Presence or absence of such technologies will have a quantifiable impact on the direction and rate of socioeconomic development.

13 ITA of NJ, Inc 13 Economic Impacts (con ’ t) These technologies allow corporations to increase efficiency and control by integrating virtually all critical business functions from the assembly line to customer billing. Deployment of these technologies leads to the creation of new industries and increased productivity of existing ones. Empirical evidence shows strong association between advanced communications technologies and growth in productivity/economic performance for industries that utilize these technologies (statistical models ).

14 ITA of NJ, Inc 14 Economic Impacts (con ’ t) Communications technologies has the power to reshape the basic structure of production and performance of the economy. – 52% of all new investments in plant and equipment in the U.S. in 2003 were in the form of purchases of information technology, specifically computers and telecommunications devices.

15 ITA of NJ, Inc 15 Share of Producers’ Durable Equipment (Constant 1996 Dollars) Equipment type 1950 % 1978 % 1986 % 2000 % 2003 % Information620404752 Industrial3328211715 Transportation292520 16 Other3227191617 Source: United States Department of Commerce, BEA-NIPA, August 2004

16 ITA of NJ, Inc 16 Economic Impacts (con ’ t) In U.S. studies that measured the strengths of forward and backward linkages of communications sector, it has been found that the sector has a strong forward linkage; therefore it is qualified to be “key” or “leading” sector in the economy. This confirms the held view that communications is a strategic sector in the emerging information economy. For regional development this means that policies which promote the construction of advanced communications infrastructure would lead to enhanced economic development.

17 ITA of NJ, Inc 17 Economic Impacts (con ’ t) Studies show that given adequate access to Broadband, proliferation of grid computing and web services applications will yield substantial productivity gains in the U.S. and worldwide over the next decade. North Carolina Study example: – Deployment of these high performance technologies will contribute the following gains to the state’s economy over the forecasted growth for 2002-2010 period. Output ($96) Agg. Labor Productivity EmploymentPers. Income ( $96) 10.1 b1.5 %24,0007.2 b Source: Cohen R. Grid Computing, Projected Impact on North Carolina ’ s Economy and Broadband Use through 2010, Rural Internet Access Authority; September 2003.

18 ITA of NJ, Inc 18 Economic Impacts (con ’ t) Industries that are early adopters showed substantial gains in labor productivity and output over the base forecast for the 2002-2010 period. IndustryOutput Labor Productivity Pharmaceuticals Autos Aerospace Financial Services Hospitals 6.3% 11.9% 3.7% 2.6% 4.3% 12% 14% 15% 12% 13% Source: IBID

19 ITA of NJ, Inc 19 Economic Impacts (con ’ t) The New York State Study: – The effect of full deployment of broadband technology by the year 2010. – The effect of the absence of full deployment on the state’s competitiveness in the regional market by the year 2010. Full Deployment Absence of Full Deployment Employment (jobs)227,340-137,850 Industrial Output19.5 b-12.9 b Earned Income8.13 b-5.01 b Source: El-Toukhy SA. Analysis of the Economic Effect of the Telecommunications Network Modernization on New York State ’ s Economy: Telecommunications Exchange Task Force, Office of Economic Development, State of New York; August 1993.

20 ITA of NJ, Inc 20 Year Percentage of Household with Telephones Access Line Per 100 Population 1920 1930 1940 1950 1960 1970 1980 1990 2000 2003 35.0 40.9 36.9 61.8 78.3 90.5 92.9 93.3 94.1 94.7 9.6 12.5 12.7 21.7 27.6 35.0 44.8 54.3 66.4 Source: FCC, Wireline Competition Bureau, December 2004 Historical Telephone Penetration Estimates

21 ITA of NJ, Inc 21 Percent of U.S. Households with a Telephone, Computer, and Internet Use 1994199720002003 Telephone93.8 94.695.2 Computer24.138.651.061.8 Internet Use18.641.554.6 Broadband Internet4.419.9 Source: A Nation Online : Entering the Broadband Age, NTIA, September 2004

22 ITA of NJ, Inc 22 Convergence has become a major market force where entire industries converge: – RBOC are no longer just telephone companies. – Cable companies are providing high speed internet access and communications services. – Power companies provide communications services. – Traditional broadcast networks and cable networks are establishing websites, thus providing content to supplement their video services. Convergence and Broadband: A Challenge to Regulators A Challenge to Regulators

23 ITA of NJ, Inc 23 Broadband and Convergence Technologies are also converging. The development of cable modems and DSL technology is taking us to a world in which all communications modes (video, voice, and data) are readily accessible and conveniently bundled. At the very core of all of these changes in the communications industry is the deployment of broadband technology. It is this technology that allows high-speed access to data, video, and telephony. This access will affect the way we live, the way our children will be educated, the way we receive entertainment, and the way we do business.

24 ITA of NJ, Inc 24 The convergence of voice, video, and data (available in our homes) virtually on demand is also fueling massive capital investment in related industries. Communications technology is being developed at a speed that defies comparison. To put it into perspective, it took radio 38 years to reach 50 million people. It took television 13 years and PC 16 years. It took the internet only 4 years to reach 50 million people. The broadband market is growing rapidly and we are entering the Broadband Age (decline of dial up connection in U.S. by 12.7% in 2003). Broadband and Convergence (con’t)

25 ITA of NJ, Inc 25 Total Broadband Subscribers High speed lines (Over 200 kbps in at least One Direction) Types of Technology 20002001200220032004 (June) ADSL Other Wireline Coaxial Cable Fiber Satellite or Wireless 1,977,101 1,021,291 3,582,874 376,203 112,405 3,947,808 1,078,597 7,059,598 494,199 212,610 6,471,716 1,216,208 11,369,087 548,471 276,067 9,509,442 1,305,070 16,446,322 602,197 367,118 11,398,199 1,407,121 18,592,636 638,812 421,690 Total Lines Lines with High speed in both directions 7,069,874 4,293,369 12,792,812 7,404,343 19,881,549 12,350,888 28,230,149 20,344,453 32,458,458 23,473,932 Source: FCC, High speed services, Wireline competition Bureau, Dec. 2004

26 ITA of NJ, Inc 26 Policy Implications Telecommunications technologies’ infrastructure is the key to progress in many areas of critical importance: economic development, education, health care, agriculture, energy, transportation, and national security. To reap the benefits of this important infrastructure and thereby create economic growth, we must have an effective regulatory body with the following attributes: – Independent, transparent, predictable, and appropriate professional staff.

27 ITA of NJ, Inc 27 Policy Implications: Effective Regulatory Body Attributes Independence – A regulatory body must be independent from the companies it regulates and free from direct political pressure. – For a regulatory body to have an effective mechanism, it must have an adequate funding.

28 ITA of NJ, Inc 28 Transparency – A regulatory body must be open and transparent. All rules and decisions are clear and openly arrived at. – Comments from all stakeholders must be a part of the process. A clear process that people (consumers and investors) can understand and rely on. Policy Implications: Effective Regulatory Body Attributes (con’t)

29 ITA of NJ, Inc 29 Predictability – A regulatory body must be predictable. This allows entrepreneurs and investors to manage risk. – Has clear authority and jurisdiction through its national law. – Has power over licenses, spectrum, pricing, and whatever is determined to be needed. – Has the power to enforce its rules. Policy Implications: Effective Regulatory Body Attributes (con’t)

30 ITA of NJ, Inc 30 Capable Professional Staff – Up to date professional staff is a must to the success of the regulatory mission. – By recruiting the best and the brightest and offering incentives necessary to retain them. – Training has to be an important part of a regulatory body’s budget priorities. Policy Implications: Effective Regulatory Body Attributes (con’t)

31 ITA of NJ, Inc 31 Policy Implications for ARNET Challenge for regional development, to make globalization work, and to reap the benefits of this critical infrastructure is to have all nations upgrade their infrastructure and plug into the network. To attract capital and investment, a country needs: – An effective regulatory regime that abides by established technical and business standards. – To encourage the harmonization of telecommunications policies among ARNET members.

32 ITA of NJ, Inc 32 Policy Implications for ARNET (con ’ t) Given the current state of affairs in the market, the obvious question becomes what is the role of the regulators? What should be done at this critical juncture? There are at least two major responsibilities: – To ensure that advanced services and technologies are actually built and deployed. – To ensure that deployment is conducted in a manner that leaves no one behind (benefits all).

33 ITA of NJ, Inc 33 Hot Issues Facing ARNET Members Transitioning from monopoly to competition: – Human resources – Technical and business standards – Billing – Pricing – Interconnection – Consumer protection – Security and emergency preparedness

34 ITA of NJ, Inc 34 Questions or Comments?

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