As part of an ongoing policy project looking at the global digital divide, we have been holding a series of expert roundtables to explore different aspects of the problem. This blog post reflects on how sustainable continued universal internet access could be, and is the final in our series.
Covid-19 has brought into stark relief how critical internet access will be for transformational development in the future. And reaching universal internet access by 2030 should be possible with a concerted effort, and investment, from the international donor and private sector community.
But can this achievement be sustained? What politically needs to happen to get there, and can the internet meaningfully be available for all beyond 2030 without continued public investment? Whilst digital platforms will increasingly become the backbone of public service delivery and ubiquitous across almost every facet of the economy, what will it take to ensure everyone can become, and stay, online?
Can internet access be affordable if priced at marginal cost?
In this session we discussed whether data and devices can become affordable for all, including those at the bottom of the pyramid, and what it would take to get there. We explored whether those at the lowest income levels could afford the globally cheapest device and data package plan, or whether for many it will always remain unobtainable. And if this is the case, is there a political argument for providing universal basic internet access?
For meaningful access to be achieved, access to a 4G compatible device capable of running 4G-powered applications was essential. Access to such a device is considered one of the greatest drivers of the digital divide, with one participant acknowledging that at least a billion in the world can receive a 3G or 4G signal but cannot afford a basic smartphone. Commercial endeavours have started addressing this. Google in Kenya has partnered with Safaricom to offer a device financing programme that bundles access to a smartphone – a 4G device, five-and-a-half-inch screen, 1gig plus 16GB extended memory – plus data, for 20 Kenyan Shillings a day ($0.18) over nine months. Given a basic salary in Kenya is $5.00 a day, this places this package at 3.6% of an entry-level monthly salary. The global affordability metrics for data are 1GB for 2% of a monthly income, indicating this data plus phone package is relatively affordable for the lower income levels in Kenya.
Broader lessons for the developing world would suggest that Telco’s have a huge part to play in driving down the cost of a device. In Africa, for example, six Telco’s cover 85% to 89% of the market. If they were to purchase devices en masse for the continent, they could feasibly drive down the cost of basic devices by bulk ordering. The African Union is looking to build out an African Procurement Platform, and so if Telco’s and other regional actors begin to leverage this scale and buying power, the cost of device access for lower income levels could be meaningfully driving down, especially if coupled with device financing platforms to spread out the repayment as is offered regularly in the developed world.
But what about those at the bottom of the pyramid? It is expected that by 2030, there will still be over five-hundred million people surviving on $1.90 a day or less. At that level, the Kenyan Google-Safaricom package is still too expensive. Looking at A4AI’s global analysis of device costs, Lesotho offers the cheapest smartphone at $18. If this were to be paid for across twelve instalments, it would be the equivalent of 2.6% of the extreme poor’s monthly income, which if coupled with an affordable data package at 2%1, would be the equivalent of ~4.5% of the extreme poor’s monthly income threshold.
There was much debate as to whether this was even affordable for those living in extreme poverty. Many felt it was not, and that universal basic internet access might be the only access solution viable. Other participants felt this cost was not prohibitive, and the biggest challenge wasn’t necessarily affordability but conveying the value of the internet to those at the lowest income levels. Kenya again was offered up as an example. Many citizens now see the value of MPesa, deriving benefit from being able to transfer money across the country with their mobile phone. Even those at the lowest income levels make that conscious decision as to whether they will purchase a bottle of beer or a 20shilling scratch-card for their phone, with which they will transfer that money back home through MPesa. And so whilst those in extreme poverty may still make these conscious financial trade-offs, it was argued that the greatest barrier was that they do not yet see value from internet use, and so are not prepared to use their 20 shillings – for example – on gaining internet access.
But for the internet’s value to be realised, its utility had to be experienced. This led our discussion back to the question of universal basic internet access, and whether this coupled with investment in digital skills would be the primary driver to spread internet access and demonstrate utility from its use. Whilst it was agreed by many that completely free goods pose their own challenges, subsidising access could be the optimum way to close the digital divide. Loan guarantee mechanisms for device access, as explored in our previous blog, have very low default rates even at the lowest income levels and given the nature of the assets themselves, pose very low risk for Regional and Multilateral Development Banks (MDBs) and governments to underwrite. But apart from a few pilots trialling this now, most in extreme poverty do not have access to credit: no IDs, or any formal signifiers like permanent addresses with which to apply for credit in the first place.
Universal basic internet access could therefore act as a more holistic platform with which to drive more effective and efficient government services. A transition to digital platforms for public service delivery could save governments money in the medium term. One participant cited India’s experience of Aadhaar, the world’s largest digital ID platform that has enrolled 1.2 billion people representing over 90% (95% of adults) in the population. This participant noted that whilst roll-out of the programme originally cost between $1bn and $2bn, within two years the Indian government had made savings of $10bn2. There is therefore an economic and political argument that subsidising access for the lowest income quartiles could accrue savings made in the transition from a nineteenth century means of delivering public services to a twenty-first century one.
A consequent question then is how do you replicate this? So far, nothing else has mirrored the success of MPesa in East Africa or Aadhaar in India. Why is this? And does the pandemic create the political moment in which we can meaningfully transition to digital service delivery, and universal internet access?
The pandemic has also changed the way in which government treasuries and MDBs think about investment in digital. MDBs such as the World Bank no longer take a blanket rejection stance on service subsidies as they may have done pre-Covid. And Ministries of Finance are starting to budget internet investment as a budget line item, the same way they would education. The harder challenge is not so much the economic and financial argument for investing in digital access – moving to digital reduces the cost of public service delivery when the transaction costs of paperwork, logistics and more, are reduced or even removed. It is rather an intra-political challenge of shifting budgets across departments. Sustaining universal internet access may no longer be a question of reaching marginal costs and affordability, but a political question of making the transition from an analogue to digital government service delivery, and the political economy considerations to be managed to do this.
Would donor countries and the private sector be prepared to fund the initial capex required to reach universal internet access?
This session started on a review of where investment in internet access had worked well, and why. And consequently, what model of public investment would be best suited to drive universal coverage and address the current market failures. The discussion then concluded on what it would take to make this shift, and whether a global campaign that drew on an emotive response to connectivity and internet access may be the most effective way to drive the political change necessary to close the digital divide.
The session embarked on a discussion as to where mass internet access has been executed well. The Jio Reliance network was cited as the best example of a new player disrupting the Indian market. Its investments in fibre to support the expansion of the world’s largest mobile network was premised on a model that only supported 4G, in a market that had hitherto been dominated by voice services. It drove market penetration with a focus on user count as opposed to revenue per user (RPU), and set about disrupting the market by offering free voice, data and messaging services in two welcome offers between 2016 and 2017, opening up the opportunity for many to experience the internet for the first time, before continuing to offer low-priced data packages to retain subscribers. Similar endeavours to focus on user counts over RPUs have been seen in the large Asian markets – China, Indonesia – with the ambition of expanding access, but participants were unsure if such a model could be replicated in smaller markets.
By and large, the private sector was still focused on upgrading 4G to 5G – chasing the most lucrative areas of the market, and many Telco’s would not have the vision that Jio’s founder and chairman, Mukesh Ambani, had to transform India into a digital society. Consequently, the public sector and civil society has to step in to shepherd private investment towards universal coverage and access as opposed to profitability alone. But how can that be done?
There was broad consensus – both within this break out group and across the plenary – that public investment in the fibre backbone infrastructure would be key to stimulating competition and private investment. Fibre has relatively infinite capacity compared to other backbone technologies, which to some extent made it a non-rivalrous good. There was an expectation that if fibre was both extended and made affordable, local access solutions and innovative technologies would emerge. Last mile access technologies were considered by one participant as something that “comes and goes”, with constant beta testing of various technologies offering the promise of closing the last mile coverage gap a real possibility. But without the backbone infrastructure, this was not possible.
There are a few examples where fibre pricing has been affordable: South Africa’s National Research and Education Network has illustrated that there are business models that allow for affordable and fair-priced fibre (all universities pay the same price to access the network). But these pricing models are few and far between. There are also models where the private sector has stepped in to build fibre at scale. The 2Africa project – including a consortium of Facebook, Vodaphone, MTN and Orange – aims to be the one of the longest subsea cable projects in the world, connecting 23 countries including 16 in Africa by 2023/24, which promises more than the total combined capacity of Africa’s current cable infrastructure.
But by and large, there has been a reluctance to invest in fibre. When built by individual operators, Telecos expect relatively high returns on their investment within five years, which does not marry well with the sunk cost of fibre infrastructure deployment. In this type of “dig-once” environment, the investment vehicles need to be different – comparable to the expansion of National Electric Grids in many developed economies. Different investment vehicles with different expectations of return will be necessary for universal 4G coverage to be realised. Digging trenches, burying cables or laying fibre when a road is constructed, can offer guaranteed returns of c.2% over twenty to thirty years, which would be far better suited to insurance and pension funds than they are to Telco investors. And participants felt Telcos were interested in this model now, as they grew increasingly willing to take these large assets off their balance sheets and share the infrastructure.
Yet to do this at scale, a global effort needs to drive this shift. And the pandemic may well have created the political window to do so. However, the political argument still needs to be made, and a global advocacy campaign is likely necessary to set this model in motion. The Giga Connect project was identified as an emotive mission around which to drive this infrastructure investment. Launched in 2019 by the ITU and UNICEF, its ambition is to be audacious: to connect every school by 2030. Its model is premised on laying fibre to every school, from which ancillary digital developments including last mile infrastructure can be developed by the private sector to connect surrounding communities, and ultimately every citizen, in the world.
To do this, Giga is modelled on the GAVI-fund model, with the aim to create a global fund around which investors can pool and rally, splitting out the investment portfolio and de-risking and packaging up investments for different types of investors (and investment vehicles) to shore in. For some countries, the investment may well be entirely private, and for others there may need to be a combination. Public investment in technical capacity, as well as to support local government’s transition from analogue to digital services, would also be key.
Giga’s focus on education is not only a policy one, but an emotive one. Like the GAVI Vaccine Alliance, the political argument is as much emotional – focused on children – as it is steeped in informed policy. Rallying global political appetite and investment around infrastructure is often not as compelling as focusing on children and future generations of learners. Even if the outcome was the same: universal internet access by laying fibre into every community. A global fund that triggers an emotional response may well be far easier to ignite political will, and could be what is necessary to close the digital divide by 2030.