Small markets and the absence of competition make Internet access expensive for developing country users, states Information Economy Report 2005
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Linking domestic Internet services to international "backbone" networks is proving costly for developing countries, a new UNCTAD publication reports.
Information Economy Report 2005
(1) (IER 2005), released today, says the terms for international internet connections for the world´s poorer nations tend to be less favourable than those applied when telecommunication services were largely phone based and the costs and earnings of back-and-forth traffic could be shared. As a result, what used to be a net financial inflow has for most developing nations become a significant outflow. In most cases Internet service providers from developing countries have to pay the full cost of connection to the backbones owned by industrialized-country operators, regardless of the fact that the link is used to carry traffic in both directions.
Such arrangements have been criticized as unfair in many international fora, such as the World Summit on the Information Society, and have been cited as having a negative effect on the cost of Internet access in developing countries. But the report says the difficulty has more to do with technological factors and economics than with anti-competitive practices by networks in industrialized nations.
The UNCTAD survey finds that more practical immediate results could be achieved by addressing domestic factors such as insufficient competition among Internet providers and telecom markets, small market size, and a lack of economies of scale. In general, international "backbone" connections are only a small part of total costs, and Internet expenses at the national level are much more significant. Rules forcing domestic Internet providers to use the international gateway of an incumbent provider may result in much higher prices. Several developing nations have found that expenses can be reduced by lifting restrictions on connecting to Internet backbone services and by improving infrastructure.
The report suggests that developing countries aggregate Internet traffic domestically and regionally as an effective way of keeping it local - so that, for example, sending an e-mail to a bordering country does not require routing it through the United States -- and as a way of increasing their bargaining clout when negotiating with international services. Aggregation at Internet exchange points (IXPs) helps developing country operators to negotiate with backbone networks from a stronger position and gives them greater opportunities to cooperate among themselves, but unfortunately, the report notes, many developing countries have restrictions on the creation of IXPs. In other cases, incumbent operators impose high prices on leased lines, which may represent up to 70% of the total costs of Internet service providers. Another frequent obstacle is licensing for providers, which in many developing countries is subject to high fees.
Greater Internet use and lower prices are possible in many developing countries if the latter allow their Internet service firms to make their own choices about the commercial arrangements that will be most efficient and least costly, the report says. And government policies that promote Internet use by households and businesses can help to create a critical mass of customers that in turn can lower connection costs by enabling international networks to justify investments that make backbone access easier and cheaper.
In developing countries which have small markets or are geographically remote, domestic reforms won´t be enough to make Internet access both widespread and affordable, the report states, and international cooperation is needed to spur the development of what is turning out to be an essential technology for trade and international business. Such assistance may also be necessary to provide expertise to developing country Internet service providers and to establish equitable regulations on the functioning of the Internet.
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