International internet bandwidth: Supply and demand ITU workshop on Internet Traffic Infrastructure, Doha, 6 November 2012 Dr. Tim Kelly, Lead ICT Policy Specialist, World Bank

New World Bank Group Strategy, Three Pillars of Strategy Innovate – Support ICT innovation for jobs and competitiveness across industries – Promote ICT skills to develop competitive IT- based service industries in selected countries – Promote ICT-enabled productivity gains across industries Connect – Scale up affordable access to broadband internet – Support policy and institutional reforms for private investment in broadband – Selective support of PPPs in frontier markets to promote affordable access for all Transform – Use ICT to transform service delivery across sectors – Promote open and accountable development using open government, open data, and aid accountability – Transform service delivery using ICT applications in economic and social sectors, and establishing cross-sector foundations Climate Change Trade Governance Energy Agriculture Health Finance Transport

Broadband Gap: The Opportunity and the Challenge 3 Although the global digital divide is disappearing for mobile access, it is still evident for broadband internet access

International Bandwidth Growth 4 International Bandwidth Growth, Tbit/s, Source: TeleGeography Inc.  Globally, bandwidth growth is slowing, but has still increased almost 5-fold between 2008 and 2012  In Africa, bandwidth increased 20-fold between , helping to narrow the international bandwidth divide  Nevertheless, bringing internet capacity into the interior of Africa and other continents remains the major communications challenge of the 21 st Century

Delivery of broadband involves a complex supply chain 5 International connectivity Domestic backbone Switching/ Routing Access Retail services Connection to the rest of the world provided by satellite or fiber optic cable (usually submarine). Carries traffic between fixed points within a network. Provided by satellite, microwave, or fiber optic cable. “Intelligence” in the network that ensures that communications traffic is routed correctly. Link between the customer and the network. Usually xDSL or cable networks. In developing countries, wireless dominates. The “soft” inputs required, such as sales, customer care, and billing. Regional connectivity Connection from the border to the nearest connection to the rest of the world.

International connectivity Domestic backbone Switching/ Routing Access Retail services Connection to the rest of the world provided by satellite or fiber optic cable (usually submarine). Carries traffic between fixed points within a network. Provided by satellite, microwave, or fiber optic cable. “Intelligence” in the network that ensures that communications traffic is routed correctly. Link between the customer and the network. Usually xDSL or cable networks. In developing countries, wireless dominates. The “soft” inputs required, such as sales, customer care, and billing. Regional connectivity Connection from the border to the nearest connection to the rest of the world. Some parts of this supply-chain are potentially more competitive 6 Low barriers to entry Moderate barriers to entry High barriers to entry

7 Africa and Middle East International Internet Connectivity Projected, 2014

submarine cables Implemented Committed FY07-10 Committed FY11 and in Preparation Since 2007 the Bank has approved regional connectivity programs (WARCIP, CAB, RCIP…) amounting to $1.2 billion involving more than 30 countries

Regional Communications Infrastructure Program (RCIP) 9 Burundi Communications Infrastructure Project - US$ 20.1m 1. Enabling environment 2. Connectivity: national backbone, capacity purchase Madagascar Communications Infrastructure Project - US$ 30m 1. Enabling environment 2. Connectivity: national backbone, capacity purchase  US$ 424 million regional Adaptable Program Loan, disbursed in phases  Open to 26 countries in East and Southern Africa  Loans and grants made available on basis of open access principles  Countries covered include Burundi, Comoros, Kenya, Madagascar, Malawi, Mozambique, Rwanda, Tanzania, Uganda Kenya Transparency and Communications Infrastructure Project - US$ 114.4m 1. Enabling environment 2. Connectivity: capacity purchase, digital villages 3. Transparency: eGovernment applications KENYA BURUNDI MADAGASCAR

Using PPP to roll out backbone networks 10 Ownership / Risk Scope of Enterprise Functionality / Service Offering Public Private Limited Scope Wide Scope Management Contract Network Leasing IPO Full Privatization Concession Contract Outsource (BPO) BOO PPP case study (STP) PPP case study (Burundi) Emerging international experience in the telecom sector shows that the use of PPP is the best solution to guarantee the interests of the government, private partners and consumers in frontier markets. Reducing operational risk for the public sector Reducing capital risk for the private sector Lowest cost solution and highest quality of service Faster delivery/time to market and expert project management skills Access to private capital Enables high risk /low return projects A Public Private Partnership (PPP) is an agreement between the government and private organizations to develop, operate, maintain and market a network by sharing risks and rewards (there are several forms).

Examples of PPP models used by the World Bank in Africa Cooperative Model - Burundi Backbone System (BBS) – Cooperative solution in which users (mobile operators and ISPs) are owners ($ 10 million investment), enabling “self –regulation” of the network (open access, non-discrimination, low cost oriented pricing, high quality) – Government provides subsidy ($ 10 million) with no ownership (national backbone would not be feasible without, nor backbone extensions to rural areas) 2. SPV Share ownership model - Sao Tome Principe, Liberia, Sierra Leone, Gambia – SPV created with Government and private operators as equity shareholders – Ownership reflects capacity uses and provides for government shares (warehoused) to be divested in future to new operators or investors 3. Bulk purchase model - international connectivity – Rwanda and Malawi – Stimulate investment through aggregating demand (anchor tenant approach) – Competitive tender to supply fiber-based connection to submarine cables – Long-term supply contract to government (no government ownership) – Operator acts as wholesaler in the market 4. Concession Model – Congo, traditional BOT approach whereby assets transferred to the client government at the end of the concession period (e.g years) 5. Management Contract (O&M) – Gabon, private sector operator contracted to manage and operate the network during (for 3-5 years) with core assets remaining the property of the state

PPP case study (1) Cooperative model: national links in Burundi 12 Problem – All domestic network infrastructure is wireless – Limited broadband – National fiber optic network would not be feasible without government subsidy Strategy – Operators and ISPs form company to develop and operate network – Government co-finances ($ 10 million) development of national backbone network through WB project – Government finances ($ 10 million) through subsidy/prepayment, no public ownership – Users (are owners, enabling “self – regulation” of the network (open access, non-discrimination, low cost oriented pricing, high quality) – WB project finances studies and designs – Construction and operation governed by PPP contracts and license/concession agreement

Example 1: Burundi Backbone System Subsidy IDA Credit Equity Africell Burundi Backbone System Telecel ONATEL Others CBINET ECONET Burundi Government Dividends X% Y% Z% Capacity sales All operators who wants to buy capacity X% Y% Z% US$10m Fbre fiber SDH MW ring

PPP case study (2) SPV Share ownership model : ACE international connectivity in STP 14 Problem – Africa’s smallest economy and one of the poorest countries in the world – Prices for voice and internet services are above average in the region – Unsuccessful attempt to introduce mobile competition in 2007 – International fiber optic connectivity would not be feasible without government subsidy Strategy – forming a local SPV (Special Purpose Vehicle) company to channel the different parties’ contributions into the ACE consortium ($ 25 million) and to access ACE capacity – Ownership reflects capacity uses and provides for government shares (warehoused) to be divested in future to new operators or investors under open access conditions – WB project finances Government’s contribution in ACE and studies to support policy and institutional reforms Sao Tome Principe, Liberia, Sierra Leone, Gambia, Guinea + Mauritania Sao Tome Principe, Liberia, Sierra Leone, Gambia, Guinea + Mauritania

International lessons learned Infrastructure competition is the most effective way of promoting investment and competition Competition is viable at some level in many segments of the international/domestic backbone infrastructure. If government supports competition through providing easy access to rights of way, alternative infrastructure (e.g. railways) and through direct support to passive infrastructure, infrastructure competition will develop. But full infrastructure competition not possible in all areas of a country and in all segments of the market Regulated access to dominant operators’ infrastructure is the second-best solution where competition is not yet effective. Regulation is always difficult because of information and skills asymmetries. Operators fight regulation, sometimes for years. Government’s attempts to regulate key bottlenecks (e.g. landing stations) have been expensive and usually not fully effective. 15

For more information Tim Kelly Broadband Strategies Toolkit ( Regional Communication Infrastructure Program (RCIP) in Africa