*EPF407 04/18/2002
Text: Competition Needed for Telecom Development, Official Says
(State Dept.'s Gross is encouraging about broadband) (2890)

National regulatory environments that reward innovation and encourage private sector competition are essential for sustainable telecommunication development, including broadband, a senior State Department official says.

Speaking April 16 to the Media Institute in Washington, David Gross, deputy assistant secretary for international communications and information policy, said the United States is pursuing polices supporting the technology's growth in bilateral and multilateral meetings.

He cited the World Telecommunications Development Conference in March at which he met with officials from 12 developing countries, recent meetings in Brazil, Ireland and with the European Union, and upcoming meetings with China and Russia. He added that at the World Trade Organization (WTO) meeting last November the United States pushed to extend the moratorium on customs duties on digital products.

Gross said broadband -- which provides data transfer over phone lines faster than a dial-up connection -- is "one of today's most promising technologies." But he said that broadband development can only be successful if it benefits specific needs of various markets at affordable prices. "The private sector and governments must continue to work together to realize this potential," he said.

Gross said adoption of broadband around the world is uneven because of social and economic reasons. He described some examples of how different countries are adopting the technology.

South Korea, he noted, has the highest broadband penetration rate in the world with 40 percent of households having access. He said that, because Koreans emphasize connections among families, "broadband makes the virtual experience more vivid."

In India broadband connections between internationally dependent businesses are having a "disproportionate" large effect on the economy, he said.

In Canada, which ranks second in broadband penetration, two providers are offering a "lite" product that is four times faster than dial-up service at approximately the same cost as dial-up. In the United Kingdom, which has much less penetration, British Telecom has cut prices and is offering a do-it-yourself installation kit to expand its broadband market, Gross said.

In September the United States will host an international conference on e-government -- using electronic technologies to provide government services -- to encourage developing countries to improve their telecommunications services, he said.

Following is the text of Gross' prepared remarks:

(begin text)

Broadband: An International Perspective
David A. Gross, Deputy Assistant Secretary, U.S. Coordinator for International Communication and Information Policy
Remarks at the Communications Forum Luncheon
The Media Institute, Washington, DC
April 16, 2002

Thank you very much for inviting me here today. We are living through an exciting, if tumultuous period of technological development. The telecommunications and information technology industries are inventing amazing new products and services, while facing down daunting new challenges. These industries read like a novel: Some companies poised for fantastic growth. Others going bankrupt. A company name coming off one building and going up on a different one. Subscribership up one day, down the next. One company inventing a better mouse trap -- another, a better mouse. And that would all just be in Reston!

In this novel, we already know the most important thing about how it ends: the telecommunications and information revolution will change the world in many wondrous but unpredictable ways.

My job is to look beyond Reston, beyond Silicon Valley, beyond the United States. To look as far out into the world as possible. After years as a practicing telecommunications attorney in Washington and a wireless-business executive, I eagerly accepted the opportunity to serve as the United States Coordinator for International Communications and Information Policy because I couldn't imagine a more fascinating mandate: tracking and supporting the most exciting technologies as they evolve over a geographically global expanse and among countless cultures. Before taking a look at some of the factors that I see in broadband Darwinism, let me take a moment to tell you a little about my group at the State Department.

It is two dozen professionals -- engineers, lawyers, policy analysts and foreign service officers -- dedicated to advocating internationally:

-- policies for expanded access to information and communication technologies (ICT);

-- policies that encourage improved efficiency in the worldwide ICT [information and communications technologies] and telecommunications market through increased reliance on free-market forces;

-- and fair opportunities for U.S. companies to participate in this important sector around the globe.

In supporting such policies, the State Department achieves foreign policy goals of empowering people by giving them fuller access to a wealth of educational opportunities, information resources and forums for exchange of ideas. Additionally, an efficient ICT and telecommunications global structure creates a healthier environment for U.S. companies doing business in all sectors, thereby improving the standard of living at home and abroad.

In the areas of the Internet and broadband, we stress the importance of creating open and competitive global telecom regimes during all of our bilateral and multilateral activities. In February, for example, we had highly successful discussions with the Brazilians on telecom liberalization. In March, we co-hosted a conference in Ireland on improving the e-commerce supply chain, at which we stressed the value of broadband development.

I just returned last week from discussions with my European Union counterparts. We are also planning bilateral meetings with China and Russia in 2002. During the ITU's [International Telecommunication Union] World Telecommunications Development Conference in March, I met individually with ministers from 12 countries to discuss a variety of issues in addition to the conference work itself.

Working with other agencies, we pursue international policies that support Internet growth. That's why at the WTO [World Trade organization] in Doha we pushed to extend the moratorium on customs duties on digital products. We plan to host a major international conference on e-government in September to encourage developing countries to improve services to their citizens and broaden democracy.

Now back to the global broadband landscape. Broadband is one of today's most promising technologies. But what is broadband? It is often described in terms of data transmission rates or speed -- so many bits per second. For the purpose of my remarks, I will steer away from the inevitably arbitrary delineation based on speed. Instead let's think of it in terms of something that is available today in many homes and provides a data rate faster than a dial-up connection. In other words, I will talk about the broadband that comes from digital subscriber lines (DSLs) that rely on existing telephone wiring, cable modems that are connected to cable television facilities, and technologies that have similar utility.

I am sure that you are well aware of the issues surrounding the deployment of new broadband facilities and services in the United States. I thought that it might be useful to discuss a bit about what we see happening around the world regarding broadband.

Broadband rollout internationally has been uneven at best. Some say what is missing is the so-called "killer ap[plication]," a new use of broadband that is overwhelmingly compelling to potential customers. Others say that more capacity deployment is required before commercially viable applications can be developed and effectively marketed. Rather than simply being stifled by the chicken and egg question of which comes first -- applications or deployment -- it may be more useful to focus on the socio-economic and cultural factors.

The U.S. experience shows that wealth and technology do not alone make broadband irresistible. Having debated in my own home the value of a broadband connection, my 17-year-old son convinced his parents to shell out the additional monthly fees so that he could download stuff from his friends. But lots of people, including early technology adopters in my own office, don't find that broadband benefits justify the cost.

And yet, there are some cultures in the world for which the broadband value equation practically begs for a high-speed connection. How has broadband successfully developed in countries that have per capita incomes less than half of that of the United States?

One somewhat familiar example is South Korea, with the highest broadband penetration rate in the world. Forty percent of households have broadband. The average South Korean spends 16 hours a month on the Internet and runs through 96 pages in a session that averages 45 minutes. This compares with an American being on line 10 hours per month and going through 37 pages in a typical 32-minute session. Surfing at twice the speed of U.S. users, Koreans spend time in online communities and in multi-player gaming.

While part of the high rate of Korean broadband uptake is likely attributable to Korean government programs to deploy backbone facilities and make loans for operator infrastructure, the cultural factors play a critical role. The Korean population is young, averaging in their early thirties. Generally speaking, they are well educated and literate. And technology has been integrated into their culture in many different ways. Already proficient in text messaging by cell phone, and having mastered various other technological ways for "keeping in touch," participating actively in on-line communities is becoming second nature. Broadband's ability to readily add music, photos and home movies into the mix has become a Korean "killer ap." Social norms emphasizing connections within circles of families and friends are better served when broadband makes the virtual experience more vivid.

In India, "killer aps" focusing heavily on the interactions between Indian and U.S. businesses are a driving factor in broadband build-out. Outsourced tasks, such as transcription and data entry, are a growing industry in India. Twenty-five million dollars of business and 8000 Indian jobs rely on Internet transfer of information for medical transcription alone. But India faces special broadband challenges. In a country often renowned for technological prowess, the telephone line penetration rate is about 2 per 100 persons. That doesn't translate into much capacity for DSL [digital subscriber line]. Ironically, cable television penetration is somewhat greater, but still limited both in buildout and technology. Most cable systems do not have the two-way capability required for data access. Consequently, much of the near-term broadband capacity may have to rely upon fledgling satellite and fixed-wireless technologies.

While the broadband penetration thus far in India is small compared to some countries, the current buildout is contributing to the Indian economy in disproportionately large ways. The interest in fostering these intercontinental business relationships drives broadband rollout. The United States represents sixty percent of the information technology export market for India that supports 5 million jobs. By focusing on providing high-speed connections for internationally dependent corporations, including small- and medium-sized enterprises -- the so-called SMEs -- broadband providers have found a niche market where their value proposition is great enough to warrant the extra fees.

Broadband appeals to different people for different reasons. In both South Korea and India, broadband deployment begins with existing, country-specific economic and social ties: Indian businesses cementing relationships to U.S. counterparts; South Korean communities maintaining strong connections over global distances. These are the types of socio-economic factors that can promote broadband adoption.

Of course, price is no small factor in the value equation. Among our neighbors to the north, Canadian Internet service providers price DSL and cable modem services the same in Canadian dollars as we pay in U.S. dollars. In other words, adjusting for the exchange rate, Canadians pay a third less for these high-speed connections than their U.S. cousins. This is probably more interesting as an indicator of service provider costs and efficiency rather than prices to end-users. Nonetheless, Canadian ISPs, seeing price sensitivity as an ongoing marketing factor, are taking steps divergent from the existing paradigm of two grades of service: broadband and dial-up.

Looking for ways to better fulfill the diverse needs of their online population, two Canadian providers are introducing a "lite" product that is four times faster than dial-up -- though seven times slower than traditional high-speed connections. The "lite" offering costs approximately the same as standard dial-up connections: 25 Canadian dollars. This additional market segmentation seems to make sense given the usage patterns in Canada. Ten percent of the broadband subscribers account for 90 percent of the network traffic. Not surprisingly, this 10 percent mainly use their connections to download movies and music, just like many U.S. teenagers. For many of the remaining 90 percent of users, the attraction of DSL and cable modems is not necessarily a higher speed connection, but rather that they have an "always on" connection that does not tie up their telephone.

And what about rural broadband buildout in Canada? Beating the laudable drum of bringing e-business, telemedicine and distance learning to the most far-flung of its citizens, the government pledged in the fall of 2000 to bring high-speed access to every business and home by 2004 through a public/private partnership. Using words that many of us like for broadband, this initiative was described by saying "that over time, the impact of broadband communications on Canadian life will be at least as great as the impact of railways, highways, airlines, traditional telecommunications, and broadcasting...." But barely over a year later the public spending portion of the program was deferred for at least three years. Instead, "strategic infrastructure" expenditures this year will focus on those old mainstays: roads, sewers and public transit. The value proposition for broadband apparently has not supported itself economically or politically where more traditional needs are on the line, especially in a country that has high, if not universal broadband penetration.

While Canada ranks second, only behind South Korea, in an OECD study of broadband penetration, Canada's Commonwealth neighbor across the ocean, the United Kingdom, ranks twenty-second. This despite many prices in the U.K. being lower than those in Canada and much lower than in South Korea. So the U.K. government set the lofty goal in 2001 to have by 2005 the most competitive and extensive broadband market among the Group of 7 Industrialized Nations. Sound familiar? To surpass the Canadians, the U.K. would have to essentially meet the goal of the recently abandoned Canadian plan, giving themselves just one more year to do it. Will the U.K. succeed where the Canadians have for the moment thrown in the towel? In the first quarter of 2002, with only around 350,000 broadband users, prospects for reaching the goal seemed bleak. Two major changes in the past few months may help improve the odds. First, to encourage broadband uptake British Telecom slashed the monthly charges for wholesale broadband access from 25 to 14.75 pounds and residential prices from 39.99 to 29.99 pounds. In addition, they have also begun to offer a do-it-yourself installation kit that eliminates installation charges.

Preliminary signs show that lowering the initial and monthly costs seem to be working. This past Saturday, the BBC [British Broadcasting Company] published an article titled "Britons dash for Broadband." It observed that online stores report shortages of do-it-yourself kits, some stating that monthly sales of kits have jumped from two to five units a month to over fifty. The extent to which British Telecom providers have found a solution to the broadband equation remains to be seen. However, given the sharp boost in adoption rates, they seem to be on the right path.

We can see that broadband development can only be widely successful when it benefits the specific needs of individual markets at prices that are affordable. We haven't even been able to fully sell the idea of broadband here in the U.S. -- the birthplace of the Information Society and the country that should be the most attuned to the technology's potential. Nonetheless, there is widespread agreement on the many potential benefits of broadband technology. The private sector and governments must continue to work together to realize this potential.

Speaking of the government role, a speech on any sort of telecommunications development would not be complete without a call for sound regulatory structures. Having said that socio-economic drivers are fundamental, an appropriate policy climate is essential. Ironically, though India is in many respects an IT superpower, it only recently has begun to create a regulatory regime that encourages competition in the telecommunications industry. Only 5 million out of over one billion Indians have access to the Internet, and only 2.7 percent of that 5 million uses a broadband connection. This is because, as I mentioned earlier, the data network cannot make widespread use of common technologies such as DSL, which must rely on a telephone infrastructure that has been historically stifled by Indian regulatory policies that neither encouraged competition nor effectively controlled monopolies. On the other hand, according to the OECD the success being experienced by Korea in the rollout of high-speed Internet access is due to competition among companies, technologies and infrastructures.

So one clear component to broadband penetration is a national regulatory environment that rewards innovation and encourages private sector competition. This is a critical ingredient for sustainable telecommunications development, including broadband.

I hope that my remarks today will encourage you to consider ways to support broadband development. I welcome your ideas and suggestions. My door at the State Department is always open, and I encourage you to visit us on the Web at http://www.state.gov/e/eb/cip. It has been my pleasure to address you today. Thank you for your time and attention.

(end text)

(Distributed by the Office of International Information Programs, U.S. Department of State. Web site: http://usinfo.state.gov)

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