Delivering Digital Infrastructure Web Final Tcm80-159432

Industry Agenda
Delivering Digital
Infrastructure
Advancing the Internet
Economy
Prepared in Collaboration with The Boston Consulting Group
April 2014
© World Economic Forum
2014 - All rights reserved.
The viewpoints expressed herein attempt to reflect the collective opinion of various individuals who have contributed to the research and
development of this report. They do not necessarily imply an agreed position among them or institutional endorsement by any
participating company or organization involved in the work or mentioned in the report, or of the World Economic Forum.
REF 150414
Contents Preface
3 Preface In May 2013, the World Economic Forum convened a cross-industry initiative to
examine the ability of digital infrastructure to keep pace with the fast-rising demand
4 Executive Summary
being put on it, with a focus on developed markets. The assembled steering
7 Introduction: The Digital Infrastructure committee and working group include communications service providers, content
Imperative companies, software companies and hardware manufacturers active in the United
11 Growth Driver: Developing States, Europe, Latin America, Africa and Asia. For 12 months, they have jointly
Digital Services assessed digital infrastructure adequacy and, in particular, the impediments –
technological, financial and political – to the investments necessary to maintain and
15 Spectrum: Invisible Infrastructure improve the telecommunications networks and digital ecosystem that constitute
19 Staying Interconnected the internet.
25 How Regulatory Policy Can
This report is part of the World Economic Forum’s series on the Hyperconnected
Keep Up
World, a cross-industry, umbrella platform that connects the dots across industry
29 The Challenge for Europe: Crafting a projects to understand and manage social, economic and political consequences
Digital Renaissance of digital technology. The report, which was prepared in collaboration with
35 Encouraging Infrastructure Investment The Boston Consulting Group, discusses the steps necessary to keep digital
and Innovation in the US infrastructure improving at a rate that will enable it to facilitate the growth and
development of a vibrant global digital economy in the near and medium term.
41 Emerging Markets: Big Challenges, Other reports by the World Economic Forum in this series include Risk and
Big Opportunities Responsibility in a Hyperconnected World, Rethinking Personal Data and Global
45 Towards a Robust Digital Information Technology Report 2014.
Infrastructure
50 Acknowledgements
Delivering Digital Infrastructure: Advancing the Internet Economy 3

Executive Summary
The internet is fast becoming the Chapter 1. Introduction: The Digital as well as take steps to encourage
essential infrastructure of the 21st Infrastructure Imperative spectral efficiency. New approaches
century. It is as revolutionary in its The potential of the digital economy can to encourage harmonization are
way to how people live, work, play only be realized if digital infrastructure required.
and interact as previous revolutions in keeps pace.
– Establishment of secondary markets
transportation, energy and telephony
and pursuit of alternative deployment
have been in theirs. For billions of – Significant impediments constrain
models are necessary to meet the
people already, and for billions more the continued development of digital
fast-growing demand for mobile
to come, life without digital interaction infrastructure. Without corrective
data.
and the services it enables is all but action, the drag they impose will get
unthinkable. worse.
Chapter 4. Staying Interconnected
– Communications service providers
But suppose the unthinkable were to Resolving internet protocol (IP)
(CSPs), digital service and content
happen. Imagine that the infrastructure interconnection disputes is required to
providers, hardware and software
fails. Think of a bridge with a fractured ensure digital traffic continues to flow
manufacturers, industry groups, and
support. Or a pipeline slowed to efficiently.
governments all play critical roles.
a trickle. Or an electrical grid that
functions only intermittently. Such – Effecting change is the collective – The rapid rise in streaming video,
infrastructure-related realities are all responsibility of all the participants in combined with conflicting views
too frequent occurrences – and they the digital ecosystem. over who should build and pay for
represent big daily headaches and internet infrastructure, has led to IP
economic impediments for the people interconnection disputes in recent
Chapter 2. Growth Driver: Developing
who must contend with them. years.
Digital Services
Countries need energetic digital service – Because these arrangements dictate
The costly and complex infrastructure
sectors. They are drivers of social and how traffic is exchanged among
that carries the traffic that makes digital
economic development, job creators, networks, it is in everyone’s interest
services possible is hardly immune to
talent magnets and the exports of the to resolve disputes rapidly.
similar headaches and impediments. In
future.
its own highly interconnected way, the – Despite differing interests, CSPs
internet can be as fragile as a bridge and content providers can find
– Robust digital service sectors
or roadway exposed to the elements. a mutually beneficial path that
depend on a complex ecosystem
It is subject to breakdowns; it needs maintains the commercial nature of
that includes adequate infrastructure
investment and maintenance; it has IP interconnection contracts with no
and an investment-friendly business
limitations in reach, penetration and unfair discrimination.
environment.
capacity that require innovations to
overcome. Perhaps most important, – Governments can play a key role in
Chapter 5. How Regulatory Policy
it needs the continuing collaboration catalysing digital development by
Can Keep Up
of its own ecosystem of participants – creating the right environment.
Policy and regulation must be
companies, governments, users and
– Governments also need to know modernized to deal with 21st century
other parties – to keep things moving.
when to step aside and let markets realities and issues.
flourish.
This report examines the present threats
– Today’s critical issues span a much
to digital infrastructure and suggests
more complex, interconnected
approaches and actions for addressing Chapter 3. Spectrum: Invisible
value chain; policies must take into
them before they affect the flow of Infrastructure
account the impact on investment
information and services that serve The availability of mobile spectrum is
and innovation across multiple
the digital economy. Each chapter one of the biggest, and most complex,
industries.
addresses a technological, commercial, infrastructure constraints.
policy or regional challenge that is of – Given the rapid pace of change,
particular significance. – Unless changes are made, policy-makers should pursue
inefficiencies in allocation, utilization forward-looking, light-touch
and harmonization of spectrum will approaches to regulation.
only get worse as demand increases
for mobile services.
Chapter 6. The Challenge for Europe:
– Governments must release Crafting a Digital Renaissance
additional spectrum – licensed and Europe’s digital health requires attention;
unlicensed – for private mobile use, without infrastructure investment, it is
4 Delivering Digital Infrastructure: Advancing the Internet Economy
difficult to see the EU capitalizing fully on – While consumer and business – Public-private partnerships can
the benefits of the internet economy. internet use is robust in the United encourage efficient and expedient
States, there is debate over whether infrastructure deployment in
– Europe has gone from digital leader the current market is driving emerging markets.
to laggard in less than a decade. infrastructure innovation.
– The development of local digital
– Current industry economics – US policy-makers should encourage service markets can be big steps
constrain investment in the innovations taking place in local towards addressing local problems.
telecommunications infrastructure; markets to heighten competition and
– Bridging the digital divide may
consumers pay less for connectivity investment, especially in “the last
require non-traditional, innovative
than in some other countries, but mile”.
approaches, especially in funding
they are missing out on advanced
– Policy-makers should also and market access mechanisms.
services.
encourage investments in next
– Policy-makers should improve generation technologies to
Chapter 9. Towards a Robust Digital
the investment environment for accelerate the transition to high-
Infrastructure
infrastructure by allowing targeted capacity IP networks.
Effectively delivering digital infrastructure
consolidation; operators must also
and realizing the promise of the digital
adapt their business models to grow
Chapter 8. Emerging Markets: Big economy rests on three pillars:
digital services.
Challenges, Big Opportunities
– A true single digital market, in which Digital technologies can have an 1. Commitment to actions that
data and services can flow across outsized impact in emerging markets, promote the long-term growth of the
borders, is required to build a robust but they face big challenges in digital economy
digital service sector in Europe. getting established, many of them
2. Removal of impediments to the
infrastructure-related.
expansion of digital infrastructure
Chapter 7. Encouraging
– Lack of existing infrastructure allows 3. Modernization of policies and
Infrastructure Investment and
operators to adopt and implement regulations to encourage investment
Innovation in the US
the new technologies that suit and innovation throughout the
New sources of competition and
their markets’ current situation and internet ecosystem.
technology will help the US to remain a
projected requirements. (See Figure 1.)
world leader.
Figure 1: Summary Recommendations for Delivering Digital Infrastructure
i Governments, businesses and other stakeholders should commit to long-term actions that
Commitment to promote growth of digital services and the digital economy.
actions that promote
ii Establish international guidelines that enable the flow of data and services while recognizing
the long-term
privacy and security concerns.
growth of the digital
economy iii Open doors (or keep them open) to international digital service businesses while promoting
and supporting local initiatives.
iv Encourage technological and business model experimentation in infrastructure by removing

Removal of barriers to innovation and encouraging local experimentation.
impediments to the v Encourage stakeholders to pursue cooperative business models to achieve greater
expansion of digital utilization of infrastructure and grow demand for digital services.
infrastructure
vi Experiment with innovative funding and market-access mechanisms to promote market-
based infrastructure investments in emerging markets.
Modernization vii Modernize policies and regulations to be light-touch in approach and supportive of
of policies and innovation and investment across the entire ICT value chain.
regulations to
viii Allow targeted consolidation of mobile operators to encourage service-level innovation in
encourage investment
markets where fragmentation limits investments.
and innovation
throughout the ix Release more spectrum for private-sector mobile use and adapt allocation and utilization
internet ecosystem policies to encourage greater efficiency in its use.

1. Introduction: The Digital
Infrastructure Imperative
It has taken less than two decades Big expectations are riding on the Such is the impact of digital services
for the commercial internet to go from continued expansion of the digital and the digital economy that they
innovation to indispensable, from fun to economy. Internet-based economic sometimes seem to be riding a wave
fundamental. About 2.5 billion people activity is expected to reach $4.2 trillion of their own momentum. This is not the
are connected to the internet today, a in the G-20 nations by 2016, or more case. Multiple parties have invested
third of the world’s population; there are than 5% of GDP, and this does not trillions of dollars (and euros and pounds
projected to be about 4 billion users include a whole universe of pursuits and renminbi, among other currencies)
by 2020, or more than half the global not captured in GDP figures. The digital in capital and operating expenditures
population.1 Continuous access to economy is growing at more than and research and development to
information, commerce, communication, 10% a year, significantly faster than construct and maintain the infrastructure
friends and entertainment – among the economy as a whole. In emerging that supports the digital ecosystem that
myriad other things – has become a markets, the internet economy is makes the digital economy possible.
daily fact of life for billions and will soon growing at 12-25% per year, and it is These parties include communications
become a reality for billions more. As having a far-reaching social and political, service providers, or CSPs (fixed line
the internet makes its full weight felt as well as economic, impact.2 (See and wireless telecommunications
in more high-impact areas such as Figure 2.) Around the world, it is an companies, cable companies, and
healthcare, education and government increasingly important source of growth bandwidth providers), digital service
services, access to digital services and, frequently, jobs. and content providers (content,
will only become more essential for media and IT service companies), and
everyone in the years to come. hardware and software manufacturers
(infrastructure equipment,
device, software and component
manufacturers).
Figure 2: Digital Economy Growing at Over 10% per Year across G-20 Countries and Select Other Countries
2010–16 e-GDP CAGR (%)

25
Argentina Developed
India
Emerging
20 Saudi Arabia
Russia Spain Emerging average: 18%
Turkey China
Poland
15 Indonesia
Mexico Slovakia
South Africa
Brazil Czech Republic
Italy UK Average: 11%
Netherlands
10
Belgium Germany Denmark Israel
Developed average: 8%
Canada South Korea
France US Sweden
5 Australia
Greece e-GDP $100M
Japan
0
0 2 4 6 8 10
G-20 average:
4.1% e-GDP as % of GDP, 2010
Sources: EIU, Ovum, Gartner, Euromonitor, OECD, BCG analysis

Figure 3: Many Stakeholders Play a Role in Digital Infrastructure
DIGITAL
COMMUNICATION SERVICE
SERVICE
STRUCT AND PRODUCT
PROVIDERS
RA U PROVIDERS
INF
POLICY INDUSTRY
RE
MAKERS / PARTICIPANTS
REGULATORS DATA / AND END-USERS
NETWORKS PROTOCOL
DEVICES SERVERS /
STORAGE
HARDWARE
MANUFACTURERS
Governments also play big parts. Infrastructure does not get built without save costs. Digital service delivery has
Three of the most prominent roles foresight, planning, investment and the potential to revolutionize fields with
are as policy-makers, regulators innovation. Even though CSPs by huge social and economic impact
and the owners and dispensers of themselves currently invest more than such as healthcare and education. The
spectrum for mobile networks. Non- $300 billion a year in infrastructure- degree and nature of the challenge vary
governmental organizations (NGOs), related capital expenditure3, serious by region, but the need for improved
industry associations, standards bodies, impediments are already constraining infrastructure to accommodate fast-
multistakeholder associations such digital activity and interaction. Without growing digital growth is global.
as the World Wide Web Consortium new approaches, the constraints will
(W3C), the Internet Corporation for not be relieved and could intensify. In This report examines the interaction
Assigned Names and Numbers (ICANN) Europe, for example, lagging adoption between the digital economy and
and the International Telecommunication of long-term evolution (LTE) technology the infrastructure that supports it.
Union (ITU), a UN agency, are key limits the speed and functions of It identifies the main problems and
players, too. Together, all of these consumers’ mobile devices. Spectrum issues undermining investment and
participants are responsible for the fixed scarcity – exacerbated by inefficient innovation in infrastructure today and
and mobile networks, exchange points, allocation and utilization – constrains suggests solutions or avenues to finding
datacentres, devices and network mobile network capacity worldwide. solutions. A key underlying premise is
equipment, and platforms and protocols Disputes over IP interconnection that CSPs and content providers face
that make the internet work. (See Figure agreements – the deals that dictate a mutually dependent future. Digital
3.) how traffic is passed among internet services depend on infrastructure for
infrastructure providers – could slow the delivery, and without digital services,
As more people and businesses come online flow of data. In emerging markets infrastructure providers have little for
online, and more companies invent and many rural regions, basic issues of their infrastructure to do.
more ways to serve their needs – access and cost remain high hurdles.
cloud services, machine-to-machine These and other problems threaten to Policy-makers, industry participants
communications (M2M), and the undermine the continued rapid growth and other stakeholders need to work
Internet of Things are all new and fast- of the digital economy. collectively to do three things:
growing phenomena, for example – the
volume of digital traffic will continue Numerous issues complicate decision- 1. Commit to actions that promote
to grow exponentially. Can the making and cloud prospects for the long-term growth of the digital
infrastructure that society now counts necessary upgrades and improvements. economy
on (mostly without thinking about it) to At the same time, all along the digital
2. Remove impediments to the
carry all this traffic keep up? A corollary value chain, there are tremendous
question: who is responsible for making opportunities for businesses to provide
sure that it does? better customer experiences, increase 3. Modernize policies to encourage
demand, improve productivity and investment and innovation
throughout the internet ecosystem
This report explores each pillar Digital services depend on infrastructure for delivery,
and provides more detailed
recommendations at the end. (See and without digital services, infrastructure providers
Figure 4.) have little for their infrastructure to do.
Figure 4: Demands on Digital Infrastructure Exploding
Broadband connections in the G-20 (% mobile) Number of connected devices
2005 2015 2010 2020

167 M 2707 M 5B 50 B
0% 79%
Total internet traffic (% mobile) Social media today
2005 2015 YouTube Twitter Facebook
30 EB 1000 EB
/ year / year
0% 8% 100 hours 500M tweets/day 150B friend

uploaded/min connections
Sources: EIU, Cisco, Ovum, Company press releases, BCG analysis

2. Growth Driver:
Developing Digital Services
In the digital era, connectivity counts. few years ago), and its impact extends Digital service sectors have evolved
It is impossible to imagine the country, deeply into traditional industries, along many different paths, but they
sector, industry or area of endeavour enabling new capabilities, products have certain key attributes in common:
that cannot benefit from digital and services. The quality, speed and adequate digital infrastructure,
services. The services enabled by extent of connectivity will be increasingly technology-literate end-users,
digital technology are economic growth important factors in business and technology talent with entrepreneurial
drivers, job creators, talent magnets and economic decisions in the future, spirit, and a friendly business
big sources of exports. The internet has including where companies decide to environment. (See Figure 5.)
created entirely new fields of commerce expand or locate new facilities.
(the term “app developer” did not exist a
Figure 5: Many Elements Required for a Healthy Digital Service Sector
Technology adoption
Basic ICT skills Higher level education, especially
science and engineering disciplines
eGovernment services S TTEECC Recognition of entrepreneurship /

RS
ER
S HH T
T entrepreneurial culture
-U
AALL
DD
EENN
EENNT
T
ELEMENTS FOR
ROBUST DIGITAL
E
+ REGRE ESIS
ECONOMY
TUR
Availability of venture capital

ENUVLAGT ULEENS
BUB
SIU
UC
IRORY
NS
O
N
R
ATFR ME
T
RA
S ME NT
SVIR OAR
AONN Y WO Favorable tax / legal environment
Affordable, available, high INF DMENTRK
quality connectivity and devices Investment-friendly
regulatory framework
Investment into next-
generation infrastructure Open data rights
Access to international
cloud infrastructure Access to regional and international markets
Sources: BCG analysis

Governments Can Lead – digital service economy that grew promote the free flow of information and
almost entirely out of successive services across those borders. They
Up to a Point waves of private sector innovation and can recognize that the competition for
investment, albeit with major assistance investment and talent is global, and that
In a number of countries, but by no
from a leading educational institution digital infrastructure and the business
means all, governments have played
(Stanford University) and the nearby friendliness of a country are critical
a key role in getting the digital ball
presence of the US military. Countries attributes for attracting both. Many have
rolling with strategies, policy initiatives,
as varied as China, Israel and Kenya a lot of catching up to do in this regard.
investment incentives and even
have built energetic digital service Countries vary widely in their ability
funding. South Korea saw the potential
industries with their own mixes of to attract venture capital, with most
of information and communications
private and public sector involvement. lagging the leaders by a substantial
technologies (ICT) – many then still in
margin. Engineers are in high demand:
their youth – during the South-East
they make up approximately 80% of the
Asian economic crisis of the late 1990s It’s the Environment expense structure for start-ups and are
and the public and private sectors
a critical resource for larger companies
combined to turn the country into an Governments can play a big role in seeking to grow.6 Developing strong
economic powerhouse. Sweden was creating environments that facilitate tech communities – often by first
the first country in Europe to develop digital exchange. Attitude is important. attracting international digital service
a broadband policy with the principle The UN as well as a number of players – creates a virtuous circle,
that everyone should have access. countries have declared internet access furthering the attraction, development,
The government provided IT training to be a fundamental right of all citizens, and retention of talent. The fact that
to 75,000 teachers and funded IT and Finland and Spain have mandated more than 50% of Silicon Valley start-
training for small businesses and the connection speeds of at least 1 megabit ups had first-generation immigrants
unemployed. It led a public-private per second for everyone. Fibre-optic on the founding teams illustrates the
partnership to develop Stockholm’s broadband projects have led to higher importance of immigration-friendly
Kista Science City, home to more than than average penetration in such environments.7 Reforming immigration
1,000 information and communications countries as Slovakia and Estonia, rules to attract and retain foreign-
technology companies with some where fibre as a percentage of total born technical talent are signals that a
25,000 employees and Europe’s largest broadband exceeds 30%, compared country is open for digital business.
ICT cluster.4 In these instances, as well with an OECD average of less than
as others, the governments also knew 14%.5 Many factors, such as workforce ICT
when to step aside and let the private
skills, trade barriers, access to capital
sector maintain the momentum. Policies matter, too. Governments can and the strength of intellectual property
make it easy and attractive for digital protection, hold back successful online
California’s Silicon Valley is perhaps service providers to operate within business operations. Countries with
the leading example of a thriving and across their borders. They can well-developed markets for international

trade and a domestic business Setting an Example Digitalisation of the Danish Healthcare
environment that fosters innovation and Sector 2013-2017, with a goal of
creativity have a big advantage. Equally, Three areas in which governments can increasing the “focus on ensuring full
lack of ICT literacy and access to and lead by example and promote digital deployment and use of existing ICT
affordability of financial services impede services demand are education and solutions”.9
consumers’ interaction with the digital training, healthcare, and bringing public
economy. These are areas in which services online. Today’s challenge is not In emerging and developed markets
education, trade and consumer policies whether to use the internet in education; alike, putting government services
and programmes can help. it is how to do so effectively. Emerging online can encourage internet use and
countries such as Chile, Colombia and digital development. Interactions with
Governments should recognize that Peru have established programmes private companies in developed markets
there are things they should not do. to connect schools and build digital are raising citizens’ expectations for
Tariffs, taxes and technology controls literacy.8 Schools and school districts how all organizations should perform. In
slow things down. So do excessive or need to reorganize their instructional all countries, the next step is to move to
intrusive regulations. If a country limits models, using digital technology to raise digital services as the default standard
access to cloud computing and data, the productivity of teaching staff and – or to go even further and follow the
wherever those resources happen to improve educational outcomes through Danish government’s aspiration to
be based, it is a big obstruction for high-quality, individualized instruction at phase out paper-based interaction for
start-ups. It is equally important to a more affordable cost. government services entirely.
avoid protectionist solutions, such as
mandated national traffic routing or Digital innovation has the potential to Digital services are still in their youth.
“country clouds”, that lack scale, push unlock similar value in healthcare. It Governments that want to secure a
the potential fracturing of the internet, can expand access to health services piece of the action for their economies
and put users at a disadvantage to and improve their quality; it can equip should play to their countries’ strengths
peers and competitors elsewhere. patients with the tools to manage and established capabilities. Not every
their own health and wellness; and it country can be home to Silicon Valley.
Data security and privacy are two high- can lend new energy to public health Smart policy-makers will use the
profile areas countries need to get initiatives. There is only so much that internet to extend their nations’ inherent
right. Consumers value privacy, but innovators, providers and patients can economic advantages.
studies also show they are happy to do on their own, however. To unlock
trade personal information for expanded the full benefits of digital innovation,
services and convenience if they are policy-makers must remove healthcare
satisfied with the privacy controls. Better industry barriers to faster adoption
aligning tax laws, copyright protections and encourage experimentation and
and data protection rules improve the development. Denmark, for example,
environment for digital services. has set out a National Strategy for
01: Toomas Hendrik Ilves, President of Estonia,

highlighting key elements of Estonia’s ICT policy
and Carlos López Blanco, Global Head, Public and
Corporate Affairs, Telefonica, Spain, at the World
Economic Forum Annual Meeting 2014.
01

3. Spectrum: Invisible
Infrastructure
Across all geographies, one of responsible for finance and ICT can ability to serve customers economically.
the biggest digital infrastructure conflict. Some auctions have become Impeding new entrants (through price or
constraints in the coming years will exorbitantly expensive both because otherwise) from acquiring the spectrum
be the availability, allocation and use spectrum is scarce and because they need to get into the market may
of mobile spectrum – the bands of some governments, with a short- limit competition in the long term.
radio waves over which data and voice term focus, covet the cash that they
communications (as well as other over- raise. Companies nonetheless feel Other issues plague the efficient
the-air media) travel. This constraint is bound to participate, lest they lose allocation and use of spectrum. Unlike
also one of the most complex. access to resources they need, but in in the US, there are few functioning
some instances successful spectrum secondary markets in Europe, the
Spectrum, by definition, is a limited purchasers find that they lack the capital Middle East and Africa, which means
resource. The amount currently released to build out the infrastructure necessary operators may not be able to optimize
is far less than that required to support to put the spectrum they have their holdings through sales, acquisitions
the expected growth in mobile data purchased to use. Governments that or trades with other spectrum holders.
traffic, which increased 80% to 1.5 focus too narrowly on budget goals may This limitation has very real technology
exabytes a month by the end of 2013, also lose out on larger opportunities and complexity costs.
according to Cisco10, and is expected to stimulate economic growth through
to soar by a factor of 1,000 in the next the release of licensed and unlicensed Ideally, spectrum licenses should be
10 to 15 years.11 Technology has helped spectrum. technology neutral; however, some
overcome similar constraints in the past, are technology specific. For example,
and it will no doubt continue to do so, Over the long run, approximately they dictate that 2G must be used in
but governments and operators also 25% of all “capital investments” by a particular band, rather than more
need to do more to alleviate issues of network operators are dedicated to advanced – and more efficient – 3G
availability, allocation and harmonization acquiring spectrum, a level that can or LTE. Other licenses cover bands
that constrain the ability of various limit funds available for investments in that are too narrow to be useful or
participants in the mobile ecosystem new infrastructure.12 Moreover, high- carry timeframes that are too short to
to invest in infrastructure and deliver spectrum costs have an impact on justify further investment. Spectrum
services. operations. CSPs cannot always buy is often released in small blocks – in
the bands that would be most efficient some extreme cases as low as 1 MHz
Availability, Allocation and given their current holdings. Fragmented bands – which provides limited flexibility
holdings lead to greater complexity and raises costs for operators. At the
Utilization in operations and increase costs for same time, some operators have yet
equipment (both network and handset) to build out infrastructure for spectrum
Governments are releasing and manufacturers. they have acquired, turning a scarce
redirecting additional spectrum for resource into a wasted one.
mobile use; they need to hasten these Meeting the spectrum needs of
efforts. Many are planning to do so. A large and small players by imposing
significant amount of spectrum is not (Lack of) Harmonization
restrictions and incentives can be
fully utilized: valuable bands in the 600- a tricky balancing act for most
700 MHz range are currently inefficiently Lack of harmonization at regional and
governments. Large companies international levels – meaning, for
employed by television broadcasters, tend to need more spectrum owing
for example. Many bands reserved example, that the same operator’s 3G
to their bigger subscriber bases; or 4G network operates on different
for government and military use are their experience and customer
not being used all the time. In some bands of spectrum in different countries
bases also help them use spectrum or in different regions of the same
cases, operators are not fully using their more efficiently. Smaller, sometimes
spectrum holdings. country – leads to further inefficiency.
disruptive, CSPs can be the source Currently, for example, 4G networks
of new business models and other operate on more than 40 spectrum
While they have the clear goals innovations. Reserving spectrum
of providing value and delivering bands around the world.13 Devices such
(or too much spectrum) for entrants as smartphones must be designed
spectrum to the entities that will without experience can reduce overall
use it most efficiently, spectrum to work across multiple bands of
availability and may cause spectrum spectrum, instead of just a few, which
auctions do not always function as prices and network costs to increase
intended. The priorities of ministries is expensive and requires more battery
for the larger companies, impairing their
power and antennae complexity. Governments should consider refining
Certain devices are incompatible with auction processes for licensed
particular operators’ networks. Because spectrum. Among the ideas receiving
handset makers focus on the most consideration are auctions geared to
popular bands (often the bands serving longer-term value, which charge fees
larger markets), smaller operators over time based on the value generated
or operators in some markets may by usage, rather than set-level upfront
not have access to the most recent payments. Goals include attracting a
devices. New technologies, such as wide range of bidders – regardless of
multiband chipsets, are addressing size – and ensuring that purchasers
some of these challenges, but lack of efficiently utilize the spectrum they
spectrum harmonization still imposes buy. As the range of bidders expands,
inefficiencies and adds costs. Research the importance of including build-out
by The Boston Consulting Group for the requirements in purchase agreements
GSMA found that countries in the Asia- also increases.
Pacific region can unlock up to $1 trillion
in GDP growth by 2020 through the Improving the efficient utilization
harmonized adoption of the 700 MHz of spectrum allocations can be
spectrum band for mobile services.14 pursued through additional methods.
Governments can minimize the
Harmonization is a huge challenge underutilization of a scarce asset and
because each country has released let operators know that they cannot
and allocated spectrum according to sit on unused spectrum, by ordering
its own needs and timing imperatives, appropriate build-out requirements for
and the state of mobile infrastructure licensed spectrum and authorizing the
development varies widely. No claw-back of designated bands if these
country wants to wait for others to obligations are not met. Governments
catch up or let others determine the can also support the development of
development of its market. Setting out secondary markets so that operators
recommendations and procedures to have additional opportunities, beyond
achieve better harmonization at the one-time auctions, to match spectrum
regional and international level is the acquisitions with their needs.
goal of the ITU World Radio Conference,
which next meets in 2015. There is Other, more technically oriented
urgency to this issue. The slow pace spectrum management innovations can
of spectrum harmonization processes not only improve use of existing bands,
must be accelerated, or countries but also enable more rapid incorporation
that tire of waiting for new processes of technological advances that provide
and procedures will act on their own, efficiency benefits. Regulators should
further fragmenting an already disjointed release larger contiguous bands of
system. spectrum that provide operators more
flexibility and greater throughput, though
Structural Adjustments Are new technologies may be reducing this
need. When band assignments are
Needed directly tied to specific technologies,
such as 2G or 3G, utilization can wane
Many of the problems with spectrum
as the market shifts to newer and more
allocation require the efforts of both
efficient technologies, such as LTE.
companies and governments to
Regulators can refarm such bands,
solve. Governments need to focus on
and in the process, give licensees
making additional spectrum available
future flexibility to deploy their choice of
while encouraging its efficient use.
new technologies, subject to effective
Companies must make the most of
oversight to ensure compatibility with
the technology and tools at hand to
neighbouring allocations.
maximize the capacity of current and
future allocations.
Several spectrum-sharing models
offer the potential to increase
Since spectrum is the life-blood of
utilization through approaches that
wireless networks, the most important
complement long-term, exclusive-use
step governments can take is releasing
more spectrum for mobile use. This licenses. Licensed Shared Access
includes traditional licensed spectrum, and Authorized Shared Access seek
the top priority for operators in to make broader use of dedicated
connection with delivering ubiquitous spectrum that is currently used
and predictable quality of service, only at certain times or in particular
as well as spectrum for new sharing locations (such as for testing of military
models, including both licensed and equipment, or ship-to-shore radar).
unlicensed shared access. These approaches increase efficiency
by allowing commercial users to capacity of their networks. Initiatives
share access on a designated basis, such as those described above are
which helps provide the reliability and key. So are incentives for users to
predictability that operators desire. move up to more efficient 3G and 4G
Unlicensed dynamic shared access networks (the majority of the world’s
models can also work through specific wireless customers, more than 4 billion
technical rules. connections, are still on 2G networks)
and to build denser networks with
Unlicensed spectrum also has an smaller cell deployment models that can
important role to play. The best-known handle higher traffic.
unlicensed technology is Wi-Fi, which is
now available on billions of devices, and Smaller cells will represent a vital,
has emerged as an important resource complementary tool for improving
for operators to offload burgeoning efficiency, especially in densely
data traffic. This will only increase with populated areas. While traditional
LTE Advanced technology, which can cellular deployment, which relies on
involve aggregating unlicensed and relatively few high-powered radios
licensed spectrum in the same network usually mounted on cell towers, has
with the same wireless technology. This been cost effective, the growing number
helps operators augment the capacity of of users and exploding amount of data
their networks by using the unlicensed are pushing the limits of capacity. By
spectrum more efficiently while providing contrast, small cells can be placed
a tight interworking between the almost anywhere – on buildings,
licensed and unlicensed bands. streetlamps and bus stops, for example.
They can handle a much higher volume
As the Internet of Things and M2M of traffic and are adding much-needed
services evolve, an ever-broader
density to cellular networks, bringing
variety of spectrum needs will need
connections closer to end-users and
to be filled. New M2M services, such
blurring the distinctions between wired
as smart electricity metering, may
and wireless networks. Mobile networks
initially have needs more akin to low
in Tokyo have already moved towards
bitrate 2G services. However, as M2M
a small cell approach, with stations
communications become smarter –
think self-driving cars – more advanced spaced every 100-200 meters.15
3G or LTE spectrum may be required. This is approximately five times the
Although operators can likely leverage density of a typical urban market.16
2G networks for M2M now, in the One potential model even involves the
long run, as services become more deployment of open-access small cells
intelligent, they may find it difficult to in existing premises, such as homes
justify maintaining these networks and and offices, simultaneously freeing
using valuable spectrum to support up macro network capacity for other
such low bitrate use. Operators should users and increasing network capacity
be allowed to recognize the specific inside buildings, where most wireless
needs of these services – and how broadband data is consumed.
these needs will evolve – and use
spectrum to serve them in an efficient Small cells are a key component of
manner. the more heterogeneous network
environments – combining macro cells,
Unlicensed spectrum will also play an Wi-Fi and small cells – that are expected
important role in the future of M2M. to evolve in the near to medium
Today, many sensors and M2M services term. Governments can encourage
already communicate through Wi-Fi, new wireless facilities deployment
Bluetooth, radio frequency identification by quickening permitting and other
(RFID) and other unlicensed approval processes.
technologies. Satisfying these diverse
needs will require balanced policies As a final point, application developers
that provide not only more licensed and can take spectrum use into account
unlicensed spectrum allocations, but in the technical specifications of their
also more flexibility for shared access to innovations, reducing the spectrum
underutilized spectrum. stress that growing volumes of
content place on mobile networks.
Improving Efficiency Facebook founder Mark Zuckerberg
has advocated making applications
Operators also need to invest in more efficient as a means of expanding
strategies that maximize the efficiency internet access, particularly in emerging
of their current holdings and the markets, by reducing data delivery
costs.
4. Staying Interconnected
IP interconnection agreements are the neutrality affects the so-called “last mile” necessary to support traffic levels
lubricating oil of internet infrastructure. – the connection between the internet on its own network. With the vast
These are the commercial arrangements and the end-user. (See the sidebar, “IP amount of traffic that is exchanged
that dictate how traffic is passed among Interconnection and Net Neutrality”.) every day, settlement-free peering
the thousands of networks that make simplifies these transactions and
up the internet. As the sheer volume The Short History of IP provides for efficient traffic routing.
of digital traffic has soared in recent
years, driven in large part by video, Interconnection Agreements 2. Paid-peering agreements, under
which one network (or, more
these agreements have come under
IP Interconnection refers to the recently, a network operated by
increasing pressure for renegotiation
commercial agreements among network a content provider) pays another
and oversight by public authorities in
providers that exchange the traffic to terminate traffic on its network.
a number of countries. Other sources
transmitted across the internet. There These are much less common than
of expanding data will only add to this
are three principal types of agreements: settlement-free peering agreements.
pressure. Everyone has an interest
in their continued smooth operation, 3. Transit agreements, under which
because everyone benefits from the 1. Settlement-free peering, in which a party pays a network provider to
continuing efficient flow of data. two network providers agree to accept traffic that is destined to or
accept from each other, free of from another network anywhere on
Net neutrality and IP interconnection charge, traffic that terminates on the internet.
agreements are related but distinct each party’s network. The basis for (See Figure 6.)
issues. Both concern how traffic is this exchange is that each operator
managed across networks, but at receives mutual value, so each
different points. The debate over net pays to maintain the infrastructure
Figure 6: Illustration of Common IP Interconnection Agreements
1 Settlement-free peering
– Reciprocal access negotiated
1 Settlement-free
peering between networks
– No payments but parties
COMMUNICATIONS COMMUNICATIONS responsible for maintaining
SERVICES PROVIDER SERVICES PROVIDER
interconnection infrastructure
(backbone & (backbone)
last mile)
2 Paid peering
2 Paid
peering 3 Transit – Peering relationship with
some form of negotiated
Content payment
delivery network – Less common than
settlement-free peering
Smaller CSP
(last mile)
3 Transit
– Business relationship priced
as $/Mbps with minimum
volumes
– Can exist between any type
of network, though typically
parties of different size
Content provider End customers
Note: Simple depiction of typical IP Interconnection agreements; many other variations can and do exist
Source: BCG analysis

All three types of IP interconnection
agreements are wholesale
arrangements, usually struck between
network operators; they do not involve
consumers. In the past, they did not
directly involve content providers
either, but the lines are blurring. In
February 2014, Netflix struck an
IP interconnection agreement with
US cable operator Comcast, under
which Netflix will load its streaming
video content directly onto Comcast’s
network.17 In addition, some large cloud
providers have effectively become
private network providers because
they operate their own networks and
negotiate IP interconnection agreements
with other networks for their own traffic 01
to and from their data centres.
01: Manuel Kohnstamm, Senior Vice-President and
Chief Policy Officer, Liberty Global, Netherlands, leads a
IP interconnection agreements have breakout discussion on IP Interconnection at the World
evolved on a global basis since their Economic Forum Annual Meeting 2014.
inception. To date, most of the traffic
travelling among network providers
has been exchanged without charge in Some content providers disagree. In
The first is whether IP Interconnection
settlement-free peering agreements.18 their opinion, CSPs already benefit
should continue to be based on
Until recently, most of the peering traffic greatly from the growth in internet
commercial agreements or directly
ratios have remained within relatively traffic as more and better content
regulated. CSPs and others argue that
narrow (and similar) bands that reflected attracts more customers and leads
these agreements should continue to
reciprocal traffic levels, 1:5, for example, existing customers to upgrade their
be commercial in nature, governed by
or 5:1. In recent years, however, broadband connections to plans with
competition laws. Content providers
disputes have arisen among CSPs higher capacities and prices. Making
agree on commerciality, but some are
as the volume of content carried has wholesale carriers or content providers
concerned over how CSPs are able
soared, and some peering ratios have pay to support CSPs’ infrastructure
to control traffic over the last mile, the
become lopsided, such as 1:10 or 1:20, requirements – in addition to their
only path through which the content
because of the rapid growth in content own infrastructure costs – detracts
provider can deliver traffic to end-
providers’ services and the associated from these companies’ research and
users. As content providers see it,
traffic (predominantly video, but likely to development and capital expenditure
CSPs should be required to provide
include more games and other media programmes and could also cause
high-capacity connections, since they
in the future). In the US today, Netflix them to pass on the interconnection
are compensated by their end-user
and YouTube together account for charges to consumers. Some also
customers. If CSPs do not adequately
more than half of all downstream fixed argue that paid peering will lead to
maintain their networks on their own,
broadband traffic.19 Some CSPs, often consumers losing access to some
regulators may be required to step
those on the receiving end of lopsided non-commercial content (such as free
in. Most CSPs see only fair business
handoff ratios, have maintained that the education and non-profit content) from
practice in asking content providers to
traffic imbalances no longer represent providers who cannot afford to pay
pay for upgraded capacity connections
mutual value and have sought to interconnection charges. Both sides
when they send a disproportionate
negotiate paid peering arrangements. have expressed willingness to further
volume of traffic in the direction of the
Their interconnection partners have explore new business models that make
CSP.
balked, arguing that each CSP efficient use of the network and promote
should be compensated by its own the development of new digital services.
The second issue is whether content
end-customer base, and there is no
companies should help fund network
difference in actual cost resulting from A third key question is whether
infrastructure upgrades. A number of
the direction in which traffic is carried. different quality of service tiers will
CSPs say that two-sided commercial
models, in which both end-users and lead to better delivery of content,
Three Interconnection content providers compensate the especially high bandwidth and
Issues CSP, are required to respond to the quality-sensitive content, such as
infrastructure-related costs of traffic real-time video. As the internet has
As part of this project, the World growth and new usage patterns. They evolved, the content it carries has
Economic Forum’s working group contend that if end-customers alone become more varied. Most content
on digital infrastructure has facilitated are required to cover these increasing used to be similar in volume and
many cross-industry discussions on costs, some could be priced out of urgency. Today, transmissions can
the increasing contentions surrounding high-speed internet access. In addition, include anything from basic emails to
IP interconnection agreements. Three in their view, the two-sided model feature-length movies to high-urgency
basic issues are at stake. imposes an important incentive on medical images. Many CSPs argue that
content providers to efficiently deliver different users put different demands
content across access networks. on the network and that CSPs need
flexibility to determine how to transmit to start may be a set of basic insights based. While telecommunications
data, and at what cost, to manage their that can help address these issues players build the vast majority of
networks most efficiently. Establishing through establishing common ground network infrastructure, other players
different quality of service tiers – one and understanding on the nature of invest large sums in vast data centres
for high-quality delivery, another for issues under dispute. and cloud infrastructure. There is also
“best-effort” delivery (equivalent to a broader universe of companies that
how most traffic travels today) – is one The first is the need for common invest in creating the digital products
proposed solution. Content providers metrics that can provide a fair and – hardware, software and devices,
fear that a multi-tiered internet will lead accurate assessment of the size of for example – and the services that
CSPs to favour their own high quality a particular dispute. Although traffic run on them. Still other companies
of service infrastructures and potentially ratios have been used as a core metric ensure that the services are effectively
underinvest in the upkeep and operation for measuring equivalent value in delivered and charged for. The total
of other service tiers. They point to some IP Interconnection exchanges, amount of worldwide investment made
situations where they claim that CSPs some parties argue that these ratios in “the network” on the one hand and
are degrading best-effort quality by may no longer serve this function “everything else” on the other is roughly
failing to augment interconnection effectively. They point to other, more equal.20 (See Figure 7.)
capacity. CSPs maintain that high- pertinent, in their view, means of
quality delivery would not negatively measurement. Measuring bit-miles (the Third, differentiating between services
affect best-effort quality since they average number of gigabytes carried that require less or more bandwidth
cannot afford to risk losing customers to multiplied by the number of miles the does not constitute discrimination.
other CSPs because of poor quality. data travel) has been suggested as an Varying service tiers may be one of the
alternative, most notably by wholesale most useful ways to ensure adequate
Finding Common Ground providers; other options include the quality of service for all kinds of traffic
total transmission costs borne by each as traffic volumes expand. Quality of
– On an Uncertain Playing network and the value exchanged at service differentiation also can open
Field interconnection points. No industry development of new business models,
consensus has yet emerged on this such as multilateral agreements
Because of the central importance need, and players on all sides need among network operators and content
of IP interconnection agreements to to continue to work towards an providers for the provision of managed
the functioning of the internet, the agreement. or specialized services. Implementing
disagreements over how they operate agreements based on tiered quality
require attention. They also need a Second, while it is customary to think of service, however, will require
resolution that the disputing parties can of infrastructure investment primarily reassurances to some that tiered
call fair and that does not impede the in terms of wires and cables, in reality systems will not be used to avoid or
internet’s dynamic growth. A good place ICT “investment” is much more broad- sidestep investment in infrastructure to
support lower quality service tiers.
Figure 7: Total Investment in All Other Areas of ICT Value Chain Similar to Telco Capex
% of total investments
100
80
60
40
20
R&D
Capex
0
Telecom Devices Telecom Cloud Digital Venture
HW/SW Services Services Capital
0 100 200 300 400 500
Investments - Capex and R&D ($ B)
Note: Basic methodology leverages market research to estimate market sizes and public company financials to estimate Capex and R&D; assumes capital investments and R&D are both investments in ICT
value chain
Source: Telecoms equipment (Gartner), telecoms SW (IDC), devices (IDC), cloud (public company financials), telecoms services (IDC), digital services (BCG), venture capital (OECD); Thomson Reuters
Datastream, BCG analysis

While consumers are not party to to avoiding anti-competitive actions arbitration can be written into
IP interconnection agreements, and unreasonable discrimination contracts – assuming both parties
most network participants would against different kinds of traffic. agree – as a means to expedite the
agree that it should be easier for Industry participants should work to resolution of these agreements and
consumers to access and understand resolve their own disputes; if they limit impact on consumers. When
basic information on the speed and are successful the debate over the the issues under dispute transcend
performance of networks, hosting involvement of regulators is rendered a particular agreement (or arbitration
services and digital services. The level of moot. is not provided for), the relevant
transparency needs to be appropriately authorities may need to be called on
calibrated for the intended audience, – Agreements should allow to help reach resolution.
with the goals of consumers being able experimentation with new pricing
to use simple tools to see (to the extent models, again with the condition – Appropriate transparency on
they wish to) where content is coming that the same rules must apply to all network and digital service
from, how it is travelling and, in the players. This experimentation may performance is needed, including
event of a problem, where – and under generate models under which CSPs last-mile performance even though
whose supervision – it occurred. charge content providers – provided this is not a direct IP interconnection
that all parties, including CSPs’ own issue. Forming a voluntary cross-
A Path Forward? content operations, face similar industry body to develop the
types of pricing that do not amount specific metrics and approaches
Despite the uncertainty, discussions to unreasonable or anti-competitive to measurement that can provide a
on these issues among industry practices. complete (and unbiased) picture is
participants have established several recommended. A multistakeholder
important areas of agreement, and – Building private and expedited approach, involving a range of
these provide a direction for resolving dispute resolution mechanisms, participants with clearly differing
many IP Interconnection issues. The such as arbitration provisions, points of view, has a better chance
areas of agreement include: into agreements may speed up than either a unilateral approach
resolutions when disputes arise. In or a regulated one to agree on a
– IP interconnection should remain this type of commercial environment, simple set of metrics that adequately
commercial in nature, as a means disputes are inevitable. They captures performance levels of
for the industry and its participants become particularly problematic services across the internet.
to keep pace with the pace of when they reach the point where
change. All parties should commit consumers are affected. Private

Sidebar: IP Interconnection neither a CSP nor a government nor The latter predict that bundling various
anyone else should be able to block or kinds of content for delivery over the last
and Net Neutrality discriminate unreasonably – by price, mile, according to an array of pricing
availability, or otherwise – against any models offered by both CSPs and
IP interconnection agreements affect
content carried over the internet. content providers, could become the
how traffic is routed among the
new normal.
internet’s wholesale networks, and net
Net neutrality has become a hot political
neutrality rules apply specifically to the
and judicial issue. The European In theory, the court’s decision, and the
last-mile connection to the end-user’s
Commission has included a net FCC’s new rules, should have no effect
home or place of business. Definitions
neutrality guarantee in its “Connected on IP interconnection agreements.
of net neutrality are (often hotly)
Continent: Building a Telecoms Single Inevitably, perhaps, some issues blur
debated, but the essential principle is
Market” package of legislative proposals the lines between the two concepts.
that all consumer traffic must be treated
which passed an important milestone Quality of service plans are one
equally, subject to reasonable network
in the European Parliament in April. example. Sponsored data plans are
management and network security
In January 2014, a US appeals court another. Proponents of net neutrality
principles, with potential exceptions
partially struck down the Federal view such plans as open doors for
for specialized services. What should
Communications Commission’s (FCC) the unequal treatment of traffic and a
constitute a specialized service -
2010 Open Internet Order, which had threat to smaller, innovative start-ups
examples could include medical
established net neutrality regulations for that play an essential role in the internet
imaging, video conferencing or even
CSPs. The FCC has announced that ecosystem. Those on the other side
streaming video - is still up for debate.
it will issue new rules to “ensure that argue that these plans are not only pro-
The basic tenets of net neutrality include
the internet remains open and fair”.21 competitive, they are pro-consumer in
no blocking or throttling of traffic;
Comcast, the largest US cable provider that they facilitate the desired content
appropriate transparency (principally
that would become even larger with its getting into the hands of the end-user
for consumers, but also for content
proposed acquisition of Time Warner who wants it in an economical and
providers) in how traffic is managed
Cable, has already declared that it will technically efficient manner.
within networks; and no unreasonable
continue to abide by the FCC’s long-
or anti-competitive discrimination
standing net neutrality principles until
among different kinds of traffic from
2018, regardless of the court’s remand
different sources.
of the specific regulations in the Open
Internet Order. Some observers expect
The underlying principle of net neutrality,
little impact; others see a major shift
in the eyes of its advocates, is that
in the internet’s basic business model.

5. How Regulatory Policy
Can Keep Up
“Fast-paced regulatory change” is not nearly everywhere in a few years. During increasingly fragmented marketplace,
a phrase one hears often – or wishes much of this time, the primary regulatory especially without unduly restricting
to. We all expect, rightly, that regulation issue has been the shift from state- some participants, is a much
will be well thought out, unrushed and owned and monopolistic service to tougher challenge than overseeing a
promulgated with care. This presents private sector competitive markets and monopolistic industry.
a conundrum in the internet age: the a substantially less regulated industry.
sort of deliberate approach that has It is also becoming increasingly
characterized telecommunications Today’s critical issues span a much clear that, in certain areas, policies
regulation for most of its history is ill- more complex, interconnected need to cross national borders and
suited to the speed of digital disruption value chain and could not be more be developed or harmonized at the
and the marketplace developments it different: the protection and use international level (digital services and
spawns. Policy and regulation need of personal data, the fractured their underlying data benefit from the
to evolve with changing nature of the allocation of mobile spectrum, and freedom to flow internationally, for
industry; the question is, how do they the growing convergence between example), while other areas will benefit
keep up? telecommunications (fixed, mobile, more from local experimentation.
cable) and media and digital service International bodies such as ICANN and
A good first step is recognizing the industries. CSPs are looking to expand ITU can play a role. Greater clarity is
nature of today’s challenge. The into digital services while digital required to give confidence to industry
communications industry has changed service players are experimenting participants and investors.
substantially in the last three decades. with connectivity. New business
The break-up of the AT&T monopoly in models such as M2M and the Internet Today’s markets need something other
the US was set in motion only in 1982. of Things involve companies and than new regulations – markets and
Social media barely existed a decade consumers in many sectors of the their participants will benefit from entirely
ago. Mobile has gone from nascent to economy. Establishing rules for an rethought regulatory frameworks that
Figure 8: Policy-Makers Must Rethink Scope, Approach and Level of Engagement
Historical perspective Future perspective
Telecom-specific policies and regulations Policies that recognize impact across

Scope to ensure competition entire ICT value chain
Technology-specific market definitions Converged fixed/mobile/cable definitions
Heavy regulatory approach Lightened approach and non-regulatory

tools (e.g. transparency, self-regulation)
Approach Primarily ex-ante intervention to avoid More ex-post to encourage

harm experimentation (where competitive)
Regulations established by government Collaboration with industry and other

authorities organizations
Policies and regulations established Policies and regulations established at

Level of engagement by national bodies and in select cases appropriate level (e.g. international where
institutions (e.g. ITU) harmonization required, local where
experimentation needed)

establish structures and approaches of marketplace developments. In the level, or reach, for various policies and
rooted in 21st century realities. It will fast-changing digital era, however, regulations. Harmonization in spectrum
help policy-makers in developing these it is hard to apply foresight with is required at a regional and international
frameworks if they think in terms of prescience in an environment that level. Policy for fixed infrastructure
three dynamics: scope, approach and gives birth to entire new industries - for example regarding municipal
level of engagement. They should also seemingly overnight. Could anyone operators - should be examined locally
bear in mind that the internet gives all have anticipated the privacy and data to encourage innovation. In markets
marketplace participants – most notably security issues spawned by social such as the EU, better coordination in
consumers – much greater choice and networks even a decade ago, for such areas as mobile infrastructure and
transparency than they ever had before. example? Policy-makers should look digital services will further investment
Information truly is power; consumers for opportunities to establish ex-post and innovation as well as the goals
are in their strongest position ever to regulatory approaches where there is of the EU’s single digital market. (See
make choices and protect their own sufficient competition and vehicles exist Figure 9.)
interests. (See Figure 8.) or can be established for the speedy
resolution of disputes. Policy-makers need to stay mindful
Scope of the potential for fragmentation
For such social-policy challenges at multiple levels in how, and by
In the digital age, policy-makers need in particular, governments need to what rules, the internet is governed.
to think in broad terms, taking multiple devolve and evolve. They should Networks are means of bringing people,
overlapping sectors into account. A create regulatory systems that can businesses and ideas together. Policies
debate should take place in multiple be adaptive, enacting laws based on that promote separation or isolation
markets, for example, over whether principles – for example, that consumers run counter to the internet’s overriding
telecom-specific regulation is still have a right to keep certain personal strength. “Forward-looking” and
necessary, beneficial or sufficient. The data private – and giving authority to “light-touch” should be policy-making
ICT value chain is both much expanded third parties to apply those principles watchwords in the digital age.
and more intertwined – investments and to changing market conditions.22 For
innovations in one segment are quickly issues such as privacy and copyright,
this can be accomplished through
felt in many others. Moreover, because
formal and informal judicial processes.
“Forward-looking” and
the internet accounts for a large and
growing share of market activity in so For issues such as technology or “light-touch” should
many sectors of the broader economy, content standards, industry bodies can be policy-making
ICT policy-makers should strive to take the lead, often with government as
eliminate distortions between ICT and a partner. watchwords in the digital
other industries. age.
Governments also need to experiment
None of this should mean more with different approaches, selecting the
regulation or regulations that apply more ones that appear to work, and giving
broadly. Rather, the internet affects a them room to grow in impact. Many
wide range of industries and commerce. countries with fast-growing internet
Regulations that shape, alter or economies have tried out such policies
constrain online commerce – new rules as light-handed regulation or targeted
on data use, for example, or attempts tax incentives, then stepped aside and
to regulate automotive telematics or let the resulting innovations flourish.
communications among machines – They have pursued industrial policies
have ramifications for companies and that seeks to mimic the rapid innovation
consumers that extend well beyond cycles of internet-based business
the internet itself. A new mindset is models. Equally, governments should
required, as are periodic reality checks set out guide rails – signalling types of
on the effects of new or altered rules. policy that they will not pursue or areas
As industries and ways of doing where they intend to rely primarily on
business evolve, it will be necessary industry or third-party oversight.
from time to time to remove outdated
regulations that result in discrimination Level of Engagement
between industries. There may also
be value in experimenting with non- As observed with respect to the
regulatory means of encouraging online regulation of spectrum, lack of
behaviours, using rating systems or the harmonization or interoperability at the
principles of open data, for example, regional and international level in certain
with issues such as data use by areas can lead to inefficiency and add
operators and data services companies. complexity and cost for companies and
consumers. There is a trade-off to be
Approach assessed: international policy can lead
to better coordination and efficiency, but
Many regulatory regimes have been often at the expense of experimentation
predominantly ex-ante in approach – and speed. Policy-makers need to
they have set down rules in anticipation identify the appropriate geographical

Figure 9: Policies Should Be Established at Appropriate Level
International Regional National Local
— Technological harmonization — Value of experimentation

— Cross-industry collaboration — Cultural differences
— Interoperable standards
Spectrum Management
Data privacy, Cyber-security
Internet / Digital services
Mobile infrastructure
Fixed infrastructure
Competition and Consumer affairs

6. The Challenge for Europe:
Crafting a Digital
Renaissance
There is widespread recognition that over digital technology. The European be told, most of Europe’s economies
the EU’s digital health needs attention. Commission’s Digital Agenda and lag.23
Unfortunately, much of the discussion proposed digital single market are far
tends to focus on treating the from being realized. Few expect the Europe’s digital health requires many
symptoms – removing roaming charges, next Google, Alibaba or Facebook to things, but without infrastructure
for example – rather than addressing emerge from the EU. investment, it is difficult to see rapid
the root causes of the EU’s digital digital growth taking off. By 2014,
malaise. Europe has gone from digital Europe is hardly homogenous, of investments in mobile infrastructure
leader to laggard in less than a decade. course, and different countries are equipment will have fallen 67% since
It has fallen behind in ultra-fast mobile in very different stages of digital 2004, as current levels of investment in
and fixed-internet connectivity as well development. The UK’s internet LTE technologies have not matched the
as in developing and manufacturing the economy represents close to 10% heavy spending on 3G networks.24 (See
technologies that run today’s systems of GDP, led by a strong e-commerce Figure 10.) In fact, European spending,
and equipment. European consumers sector. Denmark and Estonia have on a per-subscriber basis, is half that
may pay less for digital connectivity, nurtured vibrant online sectors, including of the United States and of Japan. No
but they are missing out on many of e-government capabilities that are surprise, then, that LTE accounted for
the advanced services and experiences among the world’s most sophisticated. only about 2% of mobile connections
that are available on next-generation In Sweden, consumers have driven in Europe at year-end 2013, compared
networks elsewhere. Moreover, perhaps digital-economy growth to almost 8% with approximately 20% in the US and
partly as a result of the economic of GDP, and the country has built a 50% in South Korea and the sidebar,
crisis, much of Europe seems to have significant competitive advantage in “LTE Leadership in South Korea”.25,26
adopted a form of old-world anxiety digital services and platforms. But, truth (See Figure 11.)
Figure 10: Investment in Mobile Infrastructure Equipment Has Dropped Significantly in Western Europe
Western Europe North America Japan
Mobile infrastructure purchases ($ B) Mobile infrastructure purchases ($ B) Mobile infrastructure purchases ($ B)

15 15 7.5
Annual spend per subscriber Annual spend per subscriber Annual spend per subscriber
'07-'13 '14-'16 '07-'13 '14-'16 '07-'13 '14-'16

$14.5 $8.5 $25.5 $18.7 $27.9 $24.3
10 10 5.0
5 5 2.5
0 0 0.0
2004 2006 2008 2010 2012 2014 2016 2004 2006 2008 2010 2012 2014 2016 2004 2006 2008 2010 2012 2014 2016
LTE 3G (HSPA, UMTS, ...) CDMA GSM (incl. GPRS, EDGE)
Note: Includes investments into base station and core infrastructure equipment; actuals until 2012, forecasts thereafter
Source: Gartner, IE Market Research, BCG analysis

Figure 11: European Operators Have Fallen Behind in LTE
LTE connections as percentage of total (%)

51
50
40
30
19 20
20
17
15
13
10
10
7
4
1 1 2
0 0 0 1
0
Q2/12 Q4/12 Q2/13 Q4/13 Q4/13
EU USA Japan South Korea
Source: GSMA, Ericsson, BCG analysis
The depth of the challenge is 25 internet companies by market impediments in some cases to the
compounded by its complexity. capitalization is based in Europe.29 ability of telecom companies to make
Infrastructure spending has multiple Venture capital investments in Europe necessary investments in improving
constraints in Europe, including represent 0.03% of GDP, compared quality and service. As a result,
the ability of telecom operators to with 0.17% of GDP in the US and European consumers and businesses
monetize mobile data use and generate 0.36% in Israel.30 often experience slower, less reliable
sufficient returns. The inefficient and connections, leading to less use,
fragmented system of spectrum This lack of competitive vigour less value for consumers, and lower
allocation undermines the delivery of constitutes a barrier to adopting economic growth. They often pay more
high-quality mobile communications, digital services, attracting international than others on a per-megabyte of data
not to mention the growth of mobile investment and creating jobs. Among basis. (See Figure 12.)
connectivity generally. Much of the other factors, simple attitudes towards
continent is trapped in a downward technology and entrepreneurship need There are exceptions, of course. In the
“less for less spiral” with EU operators to change. Fear of disrupting existing Nordic countries, mobile broadband
struggling both to justify investments in paradigms needs to be replaced by the penetration is quite high (including
next generation LTE infrastructure and sense of opportunity that such creative both 3G and LTE). Sweden’s mobile
to convince consumers to upgrade to destruction represents. broadband penetration of 85% is one
LTE data plans. Despite many operators of the highest in the world, and other
subsidizing smartphones to encourage Europe needs to take steps in four Nordic nations are in the 75% to 80%
LTE, in many countries between 25% areas to transform its approach and range, roughly in line with the US and
and 40% of smartphone users do achieve the EU’s Digital Agenda for well above the Western Europe average
not purchase data plans from their Europe. These include addressing the of about 67%.31 Sweden was the first
carriers.27 market environment, refining industry country to launch LTE in 2009, and it
models, adjusting the regulatory currently has the world’s fastest LTE
The development of a vibrant digital- framework, and taking affirmative steps network.32 LTE penetration (around
services sector, including widespread to promote development of a more 10% for the Nordic nations33) is well
entrepreneurial start-up activity, lags energetic digital economy. above that of most of Europe, but still
for a variety of reasons, among them trails the US, Japan and South Korea
labour law inflexibility, high taxes and Market Environment by substantial margins. Despite this
bureaucratic red tape. In the World penetration lag, data use and pricing is
Economic Forum’s most recent European policies and regulations very healthy. The average customer in
ranking of red tape, or the burden of have long pushed for low-cost mobile Sweden and Finland uses more data
government regulation, the UK ranked access plans – and they have largely than customers in the US – twice as
45th and Germany 56th, and five succeeded. Europeans often pay less much in the case of Sweden.34 Swedish
European countries placed between per subscription for digital connectivity and Finnish customers also pay about
125th and 146th, in the survey of than consumers elsewhere. But low half as much per megabyte (or less) as
148 nations.28 Only one of the top cost comes at a cost – significant consumers in the US.35

Figure 12: European Operators Have Had Difficulty Monetizing Mobile Data
Total ARPU Data pricing and usage

ARPU ($/subscription) Average price per MB (US ct.) Data usage/subscription
-1% (MB) 1,098
47.7 47.2 CAGR

47.0 46.4 46.1
3.3
10.9 11.3 36%
US 12.3 3%
2.9
33.5
22.4 -10% 1.0 114
2010 2011 2012 2013 2014 2010 2011 2012 2013 2014 2010 2011 2012 2013 2014
ARPU ($/subscription) Data Average price per MB (US ct.) Data usage/subscription
(MB)
Messaging 9.7
Voice
-4%
CAGR
30.9 29.3
Europe 1 3.9
27.4 26.5 25.8 525
5.5 6.4 13%
5.1 -2%
21.4 1.2
14.3 -9% 41
2010 2011 2012 2013 2014 2010 2011 2012 2013 2014 2010 2011 2012 2013 2014
1. EU-15 plus Switzerland and Norway

Note: Actuals until 2012, forecasts thereafter
Source: Ovum, Ericsson, BCG analysis
Europe also needs to allow more CSPs need to adapt a new mindset operator Ono with a similar idea in mind.
consolidation among operators, towards data. The experience of These strategies have the potential to
especially in mobile. There are 100 markets such as the US and Sweden reduce costs for operators and prices
operators in Europe, compared to suggests that lower per-megabyte for consumers, as well as impact
five in the US and three in China. US prices may encourage consumers to competitive dynamics. In Portugal, the
providers have an average of about consume more data to satisfy their partial deregulation of fibre access,
84 million subscribers each; the hunger for digital communication, combined with a concerted approach
average in large European countries potentially leading to higher overall to drive a quadruple-play package,
is between 15 million and 30 million.36 revenue per user. Adopting new mobile has led to the resurgence of Portugal
Allowing operators to exit unprofitable data pricing plans that encourage data Telecom (PT). According to Bernstein
markets can also help drive necessary use, for example through linear pricing Research, consumers are more willing
consolidation. (plans that price data consumption in a to adopt such bundles from fixed-
fair, roughly linear manner – 4GBs cost line incumbents. PT has priced its
Price is one critical component of no more than twice as much as 2GBs, package to gain wireless share and
competition, but only one. European for example), elimination of throttling, reduce churn, both fixed and mobile.
policy-makers need to adopt a broader easy plan upgrades and family plans, The company has reported revenue
view that extends beyond price to can generate new sources of revenue. increases of about 10% and customer
include quantity and quality of service As Sweden’s Spotify and TeliaSonera cost savings of almost 20%.38
over time as key determinants of have shown, partnerships between
consumer welfare. operators and digital service players Regulatory Framework
also can lead to new demand for data –
Industry Models and new sources of revenue for both. As discussed in Chapter 5, Europe
needs to rethink its regulatory
Data consumption in Europe lags other In recent months, several operators frameworks, in particular the scope,
markets. Data per megabyte in Europe have started to pursue “packaged approach and level of engagement
is priced 20% higher than in the US, offerings” or “quadruple plays” that of regulatory initiatives. Other big
and consumption is less than half the combine voice and fixed broadband economies – the United States
US rate. European data revenues are offerings in addition to fixed voice and and China, for example – enjoy
growing about one third as quickly.37 TV. For example, Liberty Global recently healthy and growing telecom and
(See Figure 12.) announced plans to roll out a pan- digital-services sectors as well as
European MVNO service. Vodafone thriving entrepreneurship, resulting in
has agreed to acquire Spanish cable widespread job creation. One reason is

that these are true single digital markets: Sidebar: LTE Leadership in This growth has not come without
data and services flow freely within the cost. To facilitate LTE rollout, carriers
market. They also have single bodies
South Korea increased capital expenditures by two
overseeing spectrum management, to five percentage points of revenue,
While next generation wireless
consolidated telecommunications funding both network equipment
technologies have struggled to gain
industries (the US has experienced deployment and LTE handset subsidies.
a foothold in Europe, other countries
multiple waves of telecommunications
are moving ahead. South Korea, for
consolidation since the break-up of the South Korean carriers are already
example, has seen far faster adoption of
AT&T monopoly in 1985) that are lightly starting to roll out LTE Advanced
LTE technology than any other country
regulated by international standards, networks. Current networks support
in the world. Its first LTE network was
and they share a willingness to invest speeds of up to 150 Mbps, but this is
launched in 2011; already more than
in infrastructure. The extent to which expected to reach at least 300 Mbps
half of all mobile connections are on
Europe can follow suit and form its own later this year.41
LTE.
single digital market is central to the
future of European competitiveness and
The impact on revenue has been
wealth creation.
significant. LTE users generate average
revenues per unit (ARPUs) that are
Towards a Digital Single almost 1.5 times higher than non-LTE
Market? users. Three major carriers are starting
to see ARPUs increase after years of
A committee of the European decline.
Parliament, for example, has observed,
“gaps and differences in EU member
states’ laws governing online trading or
inconsistent enforcement of rules, as
well as inadequate digital infrastructure,
are preventing EU firms and citizens
from reaping the full benefits of the
digital single market and causing the EU
to fall behind the global competition.”39
Without a market where digital goods
and services can travel freely across
borders – just as physical goods already
do – Europe will never achieve its full
potential for a digital economy. A single
digital market (and one that is allowed
to flourish without undue regulatory
intervention) would also encourage
greater entrepreneurship in digital
services, as the opportunity size and
potential for scale for European start-
ups would be greatly enhanced.
Other major economies have already

achieved conditions conducive to
infrastructure investment and rapid
growth in digital services, both for
consumers and for businesses.
The companies that are driving the
development of a worldwide digital
economy – from Alibaba to Facebook,
and Google to Tencent – are one result.
Unless it transforms its approach,
Europe gives its companies little chance
to compete with such leaders. A new
European Commission will take the
reins this autumn. It has the opportunity
to drive the Digital Agenda and vision
of a digital single market forward
and “enable Europe’s citizens and
businesses to get the most out of digital
technologies”.40

7. Encouraging Infrastructure
Investment and Innovation
in the US
Broadband infrastructure in the US has cable companies and to some extent argue that the infrastructure-based
evolved along its own path, owing in satellite providers. More recently, mobile competition model is inferior to a
large part to the size of the country and broadband providers and, in some service-based competition model, and
consumers’ enthusiastic embrace of communities, new fibre entrants such as that if cable broadband becomes a
cable TV in the decades immediately electric utilities, have joined the battle, more pervasive technology, there may
preceding the advent of the internet. especially over the last-mile connections be less incentive, theoretically at least,
CSPs in Europe typically “compete” that serve places of business and for CSPs (and others) to invest and
through a services-based competition homes. innovate. The concern is not so much
model over “unbundled local loops” that smaller countries will supplant the
– wires owned by one operator and How Deep, How Fast, How US as a leader in digital services, but
leased to others – which reduces total that the rapid pace of innovation and
infrastructure costs (especially for new Costly? advancement that has characterized
entrants) but relies on centralized price the US digital economy for years will
setting and a high degree of permanent Despite robust consumer and business slow as market leaders face falling
regulatory involvement. Other markets, internet use, some observers have competitive pressure.
such as Australia and Singapore, have voiced concern that the penetration and
nationalized broadband networks run speed of US broadband infrastructure The US does trail some countries
by governments. The US developed are not what they should or could be. in internet penetration and others in
along a path of infrastructure-based They point out that although the US speed. US broadband penetration
competition. Cable provided a second leads many markets in terms of the currently approaches 78% of the
line into almost every US home, a line health of its digital infrastructure, it population, behind countries like Korea
well suited to digital traffic. Competition trails such digital leaders as Japan and and France.42 Cable currently has a
now takes place among operators, South Korea, and it has a discernible 57% market share and continues to
urban-rural divide. These observers
Figure 13: Overview of Fixed Internet Performance by Country
Average connection speed Q3 2013 Average penetration of fixed Average internet traffic per fixed
(Mbps) broadband 2013 subscriber 2012
(% of households) (GB/month/subscriber)
22 100 58
13 74 23
10 78 51
9 82 32
8 70 16
7 95 22
5 61 15
0 10 20 30 0 50 100 0 20 40 60
Source: : Akamai State of the Internet Report, Cisco VNI, EIU, OECD, US Telecom, BCG analysis

grow while its principal competition, rankings place the US among the top markets, particularly for very high-
fixed operator DSL service with its 10 countries; others only among the top speed broadband.48 One reason is that
34% share, has been on the decline. 30.45 Akamai ranks the US seventh in the US is a geographically large and
Fibre-to-the-household (FTTH) access, terms of average connection speed and diffuse country with wide variations in
also principally a fixed operator-offered eighth in high-speed broadband (more population density. Some critics also
product in most markets, is growing than 10 Mbps) connectivity, behind argue that higher prices are evidence
faster than cable, but is subscribed to both global leaders and several smaller of the competitive model not providing
by only about 7 million homes, even markets in each instance. Speedtest.net adequate levels of competition in
though the infrastructure investment has ranks the US 34th in terms of average infrastructure. The extent to which
been made to serve more than twice measured speed.46, 47 (See Figure 13.) broadband pricing in the US is a
this number.43 problem can be debated – on the one
Price criteria are complicated to hand, higher prices might limit adoption
Average peak (37.0 Mbps) and average compare, due to the wide variety (though adoption remains relatively
mean (9.8 Mbps) connection speeds in of connection speeds and service high), while on the other, they can
the US rank high, but are slower than packages offered by CSPs around the fund investments in next generation
in some other markets.44 Some global world, but there is some evidence that technologies. (See Figure 14.)
the US is more expensive than other
Figure 14: US Fixed Broadband Often More Expensive, Especially for Higher Speeds
Lowest price offer at 10 Mbps or lower Lowest price offer at 75 Mbps or higher
$ per month (PPP) $ per month (PPP)

50 200
40
150
30
100
20
Other
Asia 50
10
Europe
US
0 0
Hong Kong
London
London
Hong Kong
Toronto
Toronto
Bucharest
Bucharest
New York
New York
Riga
Riga
Tokyo
Seoul
Seoul
Chattanooga
Bristol
Chattanooga
Tokyo
Zurich
Bristol
Zurich
Dublin
Copenhagen
Dublin
Copenhagen
Prague
Mexico City
Berlin
Prague
Berlin
Mexico City
Lafayette
Lafayette
Los Angeles
Los Angeles
Washington DC
Washington DC
Paris
Paris
Amsterdam
Amsterdam
San Francisco
San Francisco
Note: Data shown is for internet-only offers; select cities did not have offers at 10Mbps – lowest price offer shown
Source: New America Foundation, BCG analysis
01: Padmasree Warrior,

Chief Technology
and Strategy Officer,
Cisco, U.S.A., leads
breakout discussion on
infrastructure innovation
at the World Economic
Forum Annual Meeting
2014.
01

The argument advanced by many market’s success.49 US operators spent that usage expands to fill the available
CSPs and others is that the competitive $36 billion on fixed-line infrastructure bandwidth, that there will always be
market is working just as it should and in 2013, or $299 per household, consumers and businesses that will
that the US remains a world leader according to Ovum – higher than any make use of faster access (and are
in digital investment and innovation. other major country worldwide. More willing to pay for it), and that history
Analysts in other countries, including than 60% of this investment was made demonstrates the impossibility of
the EU, point to the US market and by telecom operators.50 (See Figure 15.) accurately projecting future needs.
regulatory environment for infrastructure This debate will doubtless rage on, but
investment as models for other nations There is a related debate among proponents of the competitive market
to consider. Proponents of this view experts over how much digital speed can agree that high penetration rates
cite high levels of investment in US is really required. One side believes indicate that consumers find value in the
infrastructure, the competitive rates of that download speeds of 50 Mbps quality of broadband access and are
penetration, performance and use of are more than adequate to support willing to pay for faster connections to
broadband, and the continuing growth current and projected needs, including more content, and better services.
of the world’s leading digital service the advent of next-generation 4K HD
sector as evidence of the competitive video content. The other side argues
Figure 15: US Fixed CSPs Have Higher Capex per Household
Fixed CSP Capex per household 2013 ($)

400
299
300
273
215 213
200
171 161 153
131
112
100 84
31
6
0
US Netherlands UK France Italy Spain Sweden Germany Japan Korea China India
Fixed 36 2 6 4 4 4 1 5 14 2 13 1
Capex
($ B)
Note: Data represents total CSP Capex divided by total number of households subscribing to broadband; includes all fixed
telecommunications spend – fixed telecoms and cable operators
Source: Ovum, EIU, BCG analysis

Travelling the Last Mile High-speed FTTH access is This kind of local competition is still very
underway in more than 25 North much in the experimental stage, but to
There are few new sources of American municipalities ranging in the extent that the consumer response
competition in the last mile in the size from Chicago (where selected is favourable – which so far it appears
US generally, but a small number of neighbourhoods are being wired) to be – more of such experiments are to
projects are producing more competitive to Orono, Maine.53 Many of these be encouraged.
access on a local basis. These undertakings are experiments or in
undertakings are small (although some the early stages, but a host of start- Beyond the last mile, the market
have big backers) and geographically up “gigabit providers” – companies, also continues to attract investments
dispersed, and the extent of their impact government agencies and non-profit by new players. In addition to the
nationally remains to be seen. institutions – are pursuing various investments being made by CSPs,
models. Like EPB in Chattanooga, major digital service companies, such
One of the more publicized is in many involve publicly owned municipal as Google, Amazon, Facebook and
Chattanooga, Tennessee, where the electricity authorities. Some are Microsoft, are busily assembling IP
publicly owned electricity supplier community-based, others have broader backbone networks for their own use.
EPB has wired 56,000 residential and ambitions. One such undertaking These private networks incorporate
commercial customers with high- is Gig.U, the University Community fibre-optic links leased from CSPs and
speed fibre-optic access.51 Google Next Generation Innovation Project, a interconnect with last-mile networks.
has mounted well-publicized FTTH collaborative effort that seeks to bring They are spurred by the growing data
initiatives in Kansas City, Provo, gigabit-speed internet connections to transmission needs of their owners’
Utah, and Austin, Texas, where it will some 30 partner universities and their cloud-based businesses and the desire
go head-to-head with AT&T, among surrounding communities. of these companies to control their
others. Both companies plan to own data destinies. Their infrastructure
offer Austin homeowners speeds of Other players are also active. Australia’s programmes are global in scale.
1 gigabit per second in 2014, the Macquarie Capital, which has an According to a report in the Wall Street
same speed enjoyed in Chattanooga. extensive international track record in Journal in December 2013, Google
Google currently charges Kansas infrastructure investment, has entered now controls an international fibre-
City customers $70 a month for high- the US digital market with an innovative optic network extending over 100,000
speed fibre service. Typical cable or partnership agreement with the Utah miles, more than twice the size of some
DSL service in the US costs less – Telecommunications Open Infrastructure operators’ networks.55
but not enormously less – for much Agency to build out a fibre network
lower speeds.52 Google is considering connecting homes and businesses in As discussed in Chapter 4, the shifting
expanding its fibre service to up to nine 11 cities.54 IP interconnection playing field is likely to
additional metropolitan areas. lead to more experimentation in speed
and pricing models.

Two Priorities new infrastructure models. The US of new platforms depends in part on
FCC estimates, for example, that demonstrating to consumers and
Some policy advocates argue that the permitting and accessing infrastructure investors alike that the installation of
US needs to replace private sector- in public rights of way (such as utility new technologies and the retirement
funded networks with a nationalized poles) amounts to 20% of the total of legacy platforms will improve the
infrastructure that can serve all of deployment cost.56 Communities should customer experience and value. Part
its varied digital needs – including, ensure that companies can get access of this effort is a top-to-bottom review
importantly, future developments with to poles and other existing infrastructure of current regulations, which were
unknown infrastructure impacts. The in rights of way at reasonable prices, established to guide the 20th century
lack of consumer outcry over current make available data about where public switched telephone networks,
circumstances, however, combined existing infrastructure is, and provide for and an evaluation of what regulations
with current US political realities and the fast permitting processes. In addition, are appropriate for the 21st century
prospect of massive public expense, 19 US states currently restrict or IP networks (including wired, wireless,
make such a change in course prohibit municipalities from investing cable and satellite). Such a review
theoretical at best. in digital infrastructure. Relaxation of should also take into account the
such restrictions – especially in areas contemporary competitive environment
The most realistic path forward in the where limited high-speed infrastructure for services on these new networks.
US is two-fold. First, policy-makers has been built or where competition The regulatory review process should
should encourage the innovations is limited – removes a prohibitive recognize, however, that while the US
taking place in local markets to heighten barrier to investment. In general, is a single market, it is a highly varied
competition and investment among these innovations can spark private one with significant local differences,
infrastructure competitors in the last innovation. However, it is also important and specific steps will need to vary by
mile, including the involvement of new to ensure that municipal investments geography, with some level of flexibility
sources of capital such as infrastructure do not lead to excessive distortion of required, particularly to account for
funds. While some experts question competition that reduces the incentives the different needs in rural and urban
how much they need, US consumers of private operators to invest. environments.
like speed. Anecdotal evidence to
date indicates that when a new player Second, policy-makers should
introduces faster service, or faster or encourage investments in next
better service at a lower price, others generation technologies, including
feel obliged to follow. high-capacity IP networks and other
advances such as software-defined
Consumers benefit from the removal networking and network functions
of regulatory and other barriers to virtualization technologies. Deployment

8. Emerging Markets – Big
Challenges, Big
Opportunities
Emerging markets are an amalgamation Consulting Group shows that people in – Mobile broadband uptake that
of paradoxes. Some 4.5 billion people emerging countries are more frequent depends on handset costs falling to
remain unconnected to the internet, and active users of online government affordable levels
but most of them live within areas services than those in developed
– The need for local and local
covered by 2G or 3G mobile access.57 countries and they are particularly heavy
language digital services
Mobile broadband is the key to getting users of services with a significant
people online, but greater mobile impact on life and livelihood, such
penetration depends on handset costs as those related to healthcare and The challenges are big, but emerging
falling at the same time as low ARPU education. Emerging market consumers markets actually have the opportunity
figures discourage investment by are embracing the web as much more to adopt new and in many ways more
mobile operators. The opportunities than a purveyor of convenience; they versatile technology without having to
for potentially massive impact in such are using it to improve their well-being, support legacy infrastructures. They
fundamentally important fields as intellect and earning ability.59 do not need to follow the path of the
education and healthcare need users to US and Europe; the lack of existing
become sufficiently well-educated and While each market has its unique infrastructure allows operators to adopt
skilled to demand greater access to the characteristics, multiple challenges are and implement the technologies that
technology and its benefits. common factors, which are distinct suit their markets’ current situation
from those facing the developed world. and projected requirements. Some of
While there is a strong social argument These include: the ways in which emerging markets
for bringing more people in emerging can accelerate development of their
countries online, there is an equally – Severe digital divides between more digital service sectors and digital
compelling economic one. Research wealthy urban centres and rural economies include focusing on new
has shown that each additional districts technologies, especially those that
10 percentage points of internet can address infrastructure needs,
– Less developed fixed infrastructure,
penetration adds 1.2 percentage such as mobile; pursuing public-
necessitating greater access through
points to per capita GDP growth in private investment partnerships;
mobile networks
emerging markets, and each additional encouraging the development of local
10 percentage points of broadband – Low ARPUs that discourage services that use digital technology to
penetration adds 1.38 percentage investment by mobile operators address local needs; and developing
points of per capita GDP growth.58 innovative funding and market access
Separate research by The Boston mechanisms. (See Figure 16.)
Figure 16: Emerging Markets – Big Challenges, Big Opportunities
Big challenges Big opportunities Examples
Digital divides between Leapfrogging legacy Reliance Jio in India seeking

connected cities and technologies to launch 4G despite nascent
unconnected villages 3G adoption
Less developed fixed Engaged public sector to Brazilian regulator ties high
infrastructure deliver infrastructure and value spectrum licenses to
services rural service requirements
Low ARPUs discouraging
investment by operators Local application ecosystems In China, over 60% of time
to solve local needs spent on domestically
Mobile broadband uptake developed applications
that depends on falling
handset costs Innovative funding and Internet.org engages non-
market access models to traditional stakeholders to
Need for local, local- bridge digital divide provide "freemium" model
language digital services

01
01: Manoj Kohli, and remote areas, help fill coverage
Managing Director and
Chief Executive Officer,
gaps, and bring people back online after
International, Bharti Airtel disasters”.63 In Kenya, Microsoft has
Limited, India at the World partnered with the Ministry of Information
Economic Forum Annual
Meeting 2014.
and Communications and a local internet
service provider to bring low-cost internet
access and charging stations to rural
communities that lack electricity, using
a solar-powered wireless broadband
network featuring TV White Space radios.
Public-Private Commitment
There is a greater role for governments
to play in emerging markets, particularly
as catalysts for essential infrastructure
Focus on New Technologies phone subscribers than individuals with projects. Public-private partnerships
bank accounts, “mobile money” has are a time-tested method of getting big
The lack of broadband penetration in huge potential. The Boston Consulting infrastructure projects off the ground,
emerging countries – especially fixed, but Group has estimated that by 2015, although it is important to ensure that
also mobile – is well documented. This $350 billion in payment and banking the capabilities and experience of private
ought to represent an opportunity – many transactions could flow through mobile market players are not lost and that
emerging markets are free to adopt new phones in India, compared with around public sector involvement does not lead
technologies, such as LTE and fibre, $235 billion of total credit- and debit-card to market distortions. Several emerging
without the burden of managing legacy transactions today.61 economies are using this tool to build out
infrastructures. Progress has often been digital infrastructure and increase internet
slow, however. India, for example, has The mobile pump is primed, and a access.
struggled to develop digital infrastructure. gusher of activity can be expected to
Fixed broadband reaches less than flood India when smartphones penetrate Public and private sector players in
10% of households, and while mobile the market more widely. Some observers Brazil have come together to develop
penetration has hovered around 75%, it believe the major market shift may be and implement a plan for boosting
is dominated by 2G networks; 3G and imminent with the advent of pan-Indian digital penetration and use by building
4G penetration is less than 5%. There 4G service offered by Reliance Jio. The out infrastructure coverage and raising
is also a strong urban-rural divide, with unified voice and data services on a 20 service quality. Smart policy has led to a
mobile penetration in urban areas topping MHz band may bring the speed and well-functioning marketplace.
160% while in rural areas it does not capacity increase needed to jumpstart
reach 40%.60 Indian mobile operators the Indian mobile data market. Competition is facilities-based with three
struggle with fierce competition, low or four major operators in each of the
consumer spending power and poor Four out of five internet users in sub- fixed, mobile, and pay-TV markets, with
spectrum management. Saharan Africa go online using mobile some overlap among them. Spectrum
phones, according to TNS, a market policy spurs competition among mobile
The cost of smart devices remains research firm. Mobile connections in operators and propagates mobile
an issue as well. Despite attempts by Africa are projected to grow at an annual broadband coverage. LTE spectrum
manufacturers to bring less expensive rate of 21% between 2012 and 2016. assignments through an auction
smartphones and tablets to market, The government of Rwanda hopes process in 2012 linked ownership to
prices for 3G and 4G handsets have to establish its country as a regional comprehensive coverage obligations to
remained too high to boost additional information- and communications- ensure access is brought to rural or less
demand for data services in many technology hub by 2020 and has desirable coverage areas. An auction
emerging markets. embarked on building a fibre-optic of the 700 MHz band of spectrum
network and an advanced data center.62 is expected in 2014. It is hoped that
Despite such constraints, India is the Brazilian government will make
nonetheless an example of creativity and In other emerging markets, fibre-optic appropriate efforts to clear this band and
entrepreneurialism that makes the most cables and new IP exchange points are encourage investments in new networks.
of the mobile connectivity that is available. the modern-day equivalent of providing
Competition among 2G operators has led landlocked countries with ocean port Brazil nonetheless has issues related to
to the creation of an ecosystem of value- access. They open up an entire world penetration and coverage. While mobile
added services built around the networks (literally) of new trade routes and partners. penetration in Brazil already exceeds
and less sophisticated feature phones Undersea fibre cables have brought 100%, it is mostly 2G coverage. The
that provide users with a wide array of high-speed access to both the east and rollout of 4G networks begins this year.
services. Many Indians use their devices west coasts of Africa in recent years, The Brazilian National Broadband Plan
for entertainment and information, for example. Main One’s cable system, combines government spending on fibre
and are now starting to conduct basic which links West Africa with Europe, was networks with public-private partnerships
financial activities such as bill payment. the first submarine cable to bring open- to provide basic broadband access at
Matrimonial matchmaking and astrology access, broadband capacity to multiple a low cost. The first phase (2010-2013)
sites are highly popular. Farmers use countries in West Africa. Google’s Project has 30% of the population covered. The
mobile phones to check commodity Loon is experimenting with high-altitude ultimate goal is 90% fixed-line coverage.
prices. In a country with more mobile- balloons to “connect people in rural

In Malaysia, the government launched with Wikimedia to provide free access companies (the founding partners
Telekom high-speed broadband for its subscribers to Wikipedia. The include Ericsson, Facebook, Mediatek,
(HSBB) in 2009 with a subsidy of government of Botswana has launched Nokia, Opera Software, Qualcomm
RM 2.4 billion (about $730 million) to a National Broadband Plan with the and Samsung) with the goal of working
“expand the communications network aim that all appropriate government with governments and NGOs to bring
to ensure more equitable access to information and services (more than 300 basic internet services to people who
information and services”, and to services in all) will be available through a do not have them. Facebook founder
“bridge the digital divide”. At the time, single government portal by 2016.65 Mark Zuckerberg describes it as “the
broadband penetration was only 22%. on-ramp for the internet”. The underlying
The broadband service based on HSBB Local app development is beginning philosophy is that demonstrating the
offers special packages for low-income to take hold in a few countries, where internet’s value for free will cause users to
households in both urban and rural areas. they provide important local language want to pay for more or better services
resources for local users. Chinese down the road (which is not too far
While the government contributed users already spend far more time on removed from how internet use evolved
approximately 20% of the total capital, apps developed locally than those from in the rest of the world).
operational control remained in the hands other countries. Brazilian users are also
of Telekom Malaysia. To ensure fair play spending considerable time using locally Public-private partnerships, such as the
and competition for all industry service developed apps. Local digital ecosystems one being pursued in Malaysia, have
providers, the government subsidy, are vital developments for serving local an important role to play. The M-Pesa
issued under a public-private partnership needs and boosting competition in an money transfer system in Kenya is
agreement, committed Telecom Malaysia increasingly international digital service the result of collaboration and public
to open its network to its competitors. market.66 By maintaining a free and open and private sector organizations. The
This competitive, open market will help internet, governments have a role to play government of Rwanda and KT, the
to create multiple “innovation clusters”. in fostering future development of these Korean telecommunications company,
As of early 2013, broadband penetration ecosystems and enabling compelling app have developed a joint venture to roll out
in Malaysia had increased by a factor development within them. (See Figure 4G LTE access to 95% of Rwandans.
of three to 66%. The HSBB project is 17.)
expected to increase national GDP by There may be a productive role for
0.6% and create 100,000 new jobs by A Role for Innovative funding and coordinating organizations
2018.64 that can help match players and provide
Funding and Market Access seed capital to advance innovative ideas
Local Digital Services Can Mechanisms for expanding digital infrastructure and
access as well as sharing costs and
Address Local Issues The economics of many emerging capabilities. Such programmes could
economies make infrastructure (as well involve non-traditional companies and
It is easier today to open a mobile bank as other) investment tough. At the same explore the possibility of infrastructure-
account in Kenya than in Kansas. The time, a growing number of governments, sharing among entities. It would be
development of local digital service companies and organizations recognize important to ensure that any non-
markets can be a big step towards the benefits of expanding internet access traditional mechanisms focus on
addressing local problems. as widely as possible. They also see that especially poor and hard-to-reach areas
gaining access can have an outsized and do not impede traditional private
Like other emerging markets, Kenya impact for people who live in particularly investments.
is unconstrained by the legacies of poor and remote areas.
infrastructure, regulations and inertia. The World Economic Forum’s digital
Its success with mobile money – two- Bridging this divide may require non- infrastructure initiative will be exploring
thirds of its citizens use the technology traditional and innovative approaches. issues related to emerging markets in
– shows how technology can be put to Internet.org is a partnership started more detail in the coming year.
work addressing local needs. In many by a group of major technology
African countries, mobile phones are
helping people run businesses, find jobs,
pay their bills, transfer money, learn, Figure 17: “App Economy” Already Emerging in Brazil and China
share, bank, and connect with family
Percentage of time spent on apps by country of origin of apps (%)
and friends. Mxit, a South Africa-based
mobile-messaging platform, claims to 100
be Africa’s biggest social network, with

7 million monthly active users and more 80
than 65 million registered users.
60
Elsewhere on the continent, other new
App's country
services are starting up. In June 2012, of origin:
Angola’s Education Ministry and mobile- 40
Other
network operator Unitel partnered
Brazil
with Huawei to launch E-net, a project 20 China
designed to provide free internet access UK
for selected groups of public and private US
secondary-school students across the 0
country’s 18 provinces. Similarly, pan- US UK Brazil China
African operator Airtel recently partnered

Source: Flurry Analytics, GSMA, BCG analysis

9. Towards a Robust Digital
Infrastructure
A large and complex ecosystem of 1. Commitment to actions that This includes developing
companies and other entities compete, promote the long-term growth of the cybersecurity and privacy
collaborate and cooperate to construct digital economy frameworks for data use
and maintain the interconnected that facilitate accountability
network of networks that is the internet. It is much easier to grow in an and enforcement. Countries
The ecosystem works, and anyone expanding market than in a stagnant should also take steps towards
can download a web page or video, one – especially if that stagnation is establishing regional and
or activate a mobile app, because brought on by unnecessary action (or international digital markets that
of common standards and a shared inaction). All of the participants in the remove barriers to cross-border
understanding among participants of digital ecosystem have a shared interest trade and cooperation, enabling,
the benefits of a vibrant and growing in its continued growth. They can take for example, entrepreneurs to
economic system. With rapid growth, the following steps: access international suppliers
however, as well as big differences (such as cloud providers) and
between where various players stand i. Governments, businesses, and consumers to purchase products
on the development path, individual other stakeholders should commit and services without regard to
interests inevitably diverge, and the to long-term actions that promote country of origin.
shared understanding can start to fray. growth of digital services and the
When companies lose the incentive digital economy. iii. Open doors (or keep them open)
to invest, for example, technological to international digital service
advancement slows. Essential All stakeholders can establish businesses while promoting and
processes such as spectrum allocation comprehensive, aspirational plans supporting local initiatives.
can be subverted. Governments can feel that lay out a path to broadband
compelled to intervene in unproductive connectivity for all. Making The most important thing public
ways. Any of these actions can have an expanded connectivity a reality sector participants can do is
adverse impact that is felt throughout requires a continuing commitment create investment-friendly tax,
the ecosystem. Users and usage suffer. to investment and innovation by legal and regulatory environments
Services go un- or under-delivered. the private and public sectors for digital services. They can
Growth slackens. – and an understanding of the also commit resources to fund
importance of keeping digital basic and advanced technical
A clear understanding of goals and traffic flowing. Governments education, and take steps to
direction for the future can help in particular need to recognize deliver government services
overcome uncertainty and disagreement the broader role that digital digitally and provide open access
in the short term created by current services can play in economic to government data to spur
challenges and emerging trends. development and growth; the innovation. Public and private
Particular challenges and solutions digital economy is much more sector players can serve as
differ around the world, but based than a potential source of tax catalysts. Private companies,
on conversations with a wide range revenues. Multistakeholder particularly infrastructure
of players who will collectively forums such as the April 2014 providers, can help make it easy
determine how – and how well – the conference in Brazil on the Future for consumers to access and use
internet functions in the future, the of Internet Governance can help digital services.
understanding rests on three pillars: further this goal. Broadband
targets and other digital goals 2. Removal of impediments to the
1. Commitment to actions that promote need to be included in the UN’s expansion of digital infrastructure
the long-term growth of the digital post-2015 agenda of Millennium
economy Development Goals. Ensuring a basic level of well-functioning,
reasonably-priced digital infrastructure
2. Removal of impediments to the
ii. Establish international guidelines for consumers and businesses is an
that enable the flow of data and essential goal. Facilitating delivery of
3. Modernization of policies and services while recognizing privacy faster, more capable infrastructure is the
regulations to encourage investment and security concerns. appropriate next step. Removing policy,
and innovation throughout the regulatory and financial impediments to
internet ecosystem
the construction and improvement of International as well as local to new sectors. In some
robust digital infrastructure is critical to efforts should focus on emerging instances, self-regulation can
both. markets and hard-to-reach be a viable option in competitive
areas where infrastructure markets. Governments should
Stakeholders should consider the needs are less likely to be seek to develop policies that
following steps: addressed by commercial address issues at an appropriate
players. Governments, NGOs geographic level (which, in some
iv. Encourage technological and and businesses can experiment cases, will be international).
business model experimentation with funding and market-access
in infrastructure by removing mechanisms to promote market- viii. Allow targeted consolidation of
barriers to innovation based infrastructure investments mobile operators to encourage
and encouraging local in emerging markets. These service-level innovation in markets
experimentation. explorations could be multi- where fragmentation limits
party and could include shared investments.
Policy-makers should seek infrastructure approaches based
to liberalize fixed broadband on commercial agreements that Policy-makers and competition
markets where adequate reduce the investment burden on authorities need to take a more
infrastructure-based competition individual participants. comprehensive view of the
exists, for example by allowing mobile marketplace that includes
operators to set prices on fibre 3. Modernization of policies and both price-based competition
networks. They should allow regulations to encourage investment and the benefits of improved
experimentation with commercial and innovation throughout the infrastructure and services. To
IP interconnection agreements internet ecosystem this end, competition authorities
as long as they are fair and they can take into account dynamic
benefit innovation and growth The policy-makers of the future must efficiencies (improvements in
in the overall digital ecosystem. be able to tackle the challenges posed network quality and innovation,
Restrictions on municipal and by the digital economy. They need for example), as well as consumer
other local investments in high- to consider the impact of policies prices, when conducting merger
speed broadband networks on the entire value chain, including reviews. They can also include
should be relaxed. Regulatory telecommunications, digital services and the impact of fixed/mobile
policy should permit new entrants media, and ensure that any regulations convergence and growth of cable
and incumbents to use existing that are deemed necessary are applied broadband when considering
fixed infrastructure assets, such with a light touch and restraint. Perhaps market definitions. They can allow
as utility poles and underground most importantly, policy-makers need for more consolidation in markets
conduits, at fair prices. to take into account how quickly where competition is fragmented
technologies and the innovations they and take steps to facilitate swaps
v. Encourage stakeholders to enable are evolving. Complicating among operators that lead to
pursue cooperative business matters is the fact that the internet is a efficient network footprints.
models to achieve greater global phenomenon, and many of the They should allow sharing of
utilization of infrastructure and issues it gives rise to are also global in infrastructure to encourage
grow demand for digital services. nature. These issues often require some cost-effective coverage in lower-
form of global, coordinated solution. The density areas.
While competition will likely following is recommended:
remain the dominant business ix. Release more spectrum for
model in most markets (as it vii. Modernize policies and private sector mobile use and
should), companies in different regulations to be light-touch adapt allocation and utilization
segments – CSPs and content in approach and supportive of policies to encourage greater
providers, for example – can innovation and investment across efficiency in its use.
also benefit from cooperating the entire ICT value chain.
in areas that expand the digital Governments need to release
pie by serving consumers Simple, transparent policies additional spectrum for licensed
better. Companies can pursue work best in fast-changing and unlicensed use. They
opportunities to reduce the environments. Existing also should accelerate their
overall investment burden by regulation should be reviewed approaches for spectrum
sharing infrastructure investments for the possibility of reducing harmonization to avoid unilateral
by mutual accord in areas such or eliminating rules that impede band assignments by countries.
as equipment and spectrum. technological innovation and Auction models can be modified
business model experimentation to reduce the cost of spectrum,
vi. Experiment with innovative (for example, by relying on ex- and secondary markets will
funding and market-access post approaches where possible). enable spectrum owners to swap
mechanisms to promote market- Governments should avoid, or holdings to improve utilization and
based infrastructure investments look for alternative approaches reduce costs. Governments at all
in emerging markets. to, adding new regulations or levels can support experiments in
expanding existing regulations alternative deployment models,
such as small cells.

The digital economy will not stop or
stand still. New technologies and
services are already on (digital) drawing
boards worldwide. The digital economy
will continue to expand and generate
growth. The only questions are where
and how fast.
Lack of investment in infrastructure is

an impediment, but barriers are never
erected evenly. Some economies grow
faster and more dynamically than others.
Policy plays a role in determining which
economies lead. Some companies
and sectors are quicker to embrace
technological and business model
development, taking the risks that
expand existing markets and create
new ones. It is within the power of each
of the digital ecosystem’s participants
– public and private sector alike – to
reap their own benefits while furthering
the global investment and innovation
necessary for continued expansion.

Endnotes
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“Global Internet Phenomena Report”. Sandvine, https://
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“The Internet Economy in the G-20: A Country-by-Country
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Interactive”. The Boston Consulting Group, https://www.
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technology_software_internet_economy_g20_country_by_country_
“FCC Plans to Issue New ‘Net Neutrality’ Rules – Update”.
21
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“Ovum Telecoms Global Revenue Capex Tracker”. Ovum, 2013. CO-20140219-709059.html, 19 February 2014.
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8
“Adapt and Adopt: Governments’ Role in Internet Policy”. The
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9
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“Entrepreneurship at a Glance”. OECD, 2013.
11
“The 1000x Data Challenge”. Qualcomm, http://www.qualcomm.
com/solutions/wireless-networks/technologies/1000x-data, 2014. 31
“Mobile Broadband Connections and Revenues: 2012-2017”.
Ovum, 2012.
12
BCG analysis.
32
OpenSignal, http://opensignal.com/reports/state-of-lte/, 2014.
13
“LTE Band Fragmentation”. Qualcomm, http://www.qualcomm.
com/media/documents/files/ctia-2013-qualcomm-lte-band- 33
“Mobile Technology Split Forecast: 2012-2017”. Ovum, 2012.
frangmentation.pdf, 2014. 34
BCG analysis based on data provided by various regulators.
14
“The Economic Benefits of Early Harmonisation of the Digital 35
“Mobile Voice and Data Forecast: 2012-2017”. Ovum, 2012.
Dividend Spectrum & the Cost of Fragmentation in Asia-Pacific”.
GSMA and The Boston Consulting Group, http://www.gsma.com/ 36
“Global Mobile Operator Forecast”. IE Market Research, 2012.
spectrum/wp-content/uploads/2012/07/277967-01-Asia-Pacific- 37
“Mobile Voice and Data Forecast: 2012-2017”. Ovum, 2012.
FINAL-vf1.pdf, 2012.
38
Bernstein Research presentation for BCG by Robin Bienenstock,
15
Information provided by Delivering Digital Infrastructure Working
2014.
Group.
39
“Build trust to boost online cross-border trade, says Internal
16
Density depends on the square of the distance between cell
Market Committee”, http://www.europarl.europa.eu/news/en/news-
towers. Macro-cells typically are placed 400 to 500 meters apart in
room/content/20121008IPR53130/html/Build-trust-to-boost-online-
urban environments.
cross-border-trade-says-Internal-Market-Committee, 2012.
17
“Comcast and Netflix Reach Deal on Service”. The New York 40
“Digital Agenda for Europe”. European Commission, http://
Times, http://www.nytimes.com/2014/02/24/business/media/
ec.europa.eu/digital-agenda/en/our-goals, 2014.
comcast-and-netflix-reach-a-streaming-agreement.html?_r=0, 23
February 2014. 41
“Spotlight on South Korea: LTE developments, one year on”. Delta
Partners, http://deltapartnersblog.com/archives/641, 2013.
18
“An assessment of IP interconnection in the context of Net
Neutrality”. BEREC, http://berec.europa.eu/eng/document_register/ 42
Economist Intelligence Unit, 2014.
subject_matter/berec/download/0/1130-an-assessment-of-ip-
interconnection-in-t_0.pdf, 2012.

43
“Cable dominates US broadband connections”. Telecompaper, 62
“Whither the Internet in Africa?” The Boston Consulting Group,
http://www.telecompaper.com/news/cable-dominates-us- https://www.bcgperspectives.com/content/articles/digital_
broadband-connections--985237, 2013. economy_center_for_consumer_consumer_insight_whither_the_
internet_in_africa/, 2012.
44
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com/stateoftheinternet/, 2014. 63
Google Loon, http://www.google.com/loon/, 2014.
45
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adoption, the US ranks seventh; by the OECD percentage of Group.
users with performance faster than 10 Mbps, the US ranks sixth. 65
“Whither the Internet in Africa?” The Boston Consulting Group,
According to Akamai’s State of the Internet, the US has climbed
https://www.bcgperspectives.com/content/articles/digital_
from 22nd in 2009 to eighth in terms of users with performance
economy_center_for_consumer_consumer_insight_whither_the_
faster than 10 Mbps.
internet_in_africa/, 2012.
46
Means of measuring speed vary. Speedtest.net relies on reports 66
Flurry Blog, http://blog.flurry.com/?Tag=China, 2013.
by self-selected users at times of their choosing, a method that
some argue does not provide data reflective of the broader
marketplace.

47
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48
“The Cost of Connectivity 2013”. New America Foundation,
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49
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files/documents/110613-usage-research-brief.pdf, 2013.
50
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51
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switch/wp/2013/09/17/how-chattanooga-beat-google-fiber-by-half-
a-decade/, 17 September 2013.
52
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53
“Want gigabit fiber home Internet? Move to one of these cities”.
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54
“Utah cities score broadband deal that rivals Kansas City and
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55
“Tech Firms Push to Control Web’s Pipes”. Wall Street Journal,
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December 2013.
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“National Broadband Plan”, http://www.broadband.gov/plan/.
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“Value of Connectivity: Economic and social benefits of expanding
internet access”. Deloitte and Facebook, 2014.
58
Qiang, C. and C. Rossotto with K. Kimura, “Economic Impacts of
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glass/, 2013.

Acknowledgements
The World Economic Forum’s Delivering Digital Infrastructure initiative is a global, multistakeholder effort to ensure digital infrastructure
deployments are able to support the promise of the digital economy.
The project engaged a multistakeholder community of government, private sector, civil society and academia.
Sincere thanks are extended to the Steering Committee which helped guide the project.
AT&T Steve McGaw Chief Marketing Officer

Baidu.com Jing Wang Vice-President, Engineering
Bharti Airtel Manoj Kohli Managing Director and Chief Executive Officer, International
Huawei Technologies Ken Hu Deputy Chairman
Liberty Global Manuel Kohnstamm Senior Vice-President and Chief Policy Officer
Microsoft Corporation Jan Mühlfeit Chairman, Microsoft Europe
Qualcomm Anand Chandrasekher Senior Vice-President, Business Development, Qualcomm Technologies, Inc
Salesforce.com J.P. Rangaswami Chief Scientist
Telefonica Carlos López Blanco Global Head, Public and Corporate Affairs
Thanks are also extended to the Working Group members for their active participation, collaborative spirit and, most importantly, unique
insights.
AT&T Eric Loeb Vice-President, International External Affairs

Baidu.com Alex Cheng Vice-President, USA
Bharti Airtel Willie Ellis Director, Products and Innovation
BT Garry Miller Head, Group Public Policy
Cisco Andy Blackburn Vice-President, Strategic Marketing
Google Derek Slater Policy Analyst
Burda Media Michael Tenbusch Vice-President, Broadcast Media
Index Ventures Shardul Shah Principal
Level 3 Communications Nicolas Pujet Senior Vice-President, Corporate Strategy
Liberty Global Michael Bryan-Brown Managing Director, Regulation and Competition Policy
Liberty Global Maurice de Valois Turk Director, Regulatory Economics
Microsoft Corporation David Tennenhouse Vice-President, Technology Policy
Microsoft Corporation Sharon Gillett Principal Strategist, Technology Policy
Netflix Colin Bortner Manager, Government Relations
Qualcomm Haleh Partow Vice-President, Technical Marketing, Qualcomm Technologies, Inc.
Qualcomm Ryan Gorostiza Senior Director, Marketing, Qualcomm Technologies, Inc.
Salesforce.com Shubber Ali Vice-President, Innovation
Spotify Will Page Director of Economics
Telefonica Pablo Pfost Head of Group Regulatory Affairs
Telenor Group Torgeir Hovden Chief Technology Officer, Telenor Digital
Telenor Group Olav Kolbu Chief Technology Officer and Vice-President, Technology, Telenor Digital
Services
TeliaSonera Rune Pedersen Vice-President, Consumer Mobility
VimpelCom Hany Bedair Chief Technology Officer, Orascom Telecom
VimpelCom Mohamed Hosny Director, Managed Services and Outsourcing, Orascom Telecom
The global dialogue included sessions at the Dead Sea, Jordan; Singapore; Palo Alto, USA; Dalian, People’s Republic of China; Brussels,
Belgium; Davos, Switzerland; and Barcelona, Spain. Thanks are extended to all participants at these events who participated in the dialogues.
Finally, additional thanks go to David Kirkpatrick, Chief Executive Officer, Techonomy Media, for moderating dialogues at the Annual Meeting of
the New Champions 2013 and the World Economic Forum Annual Meeting 2014.
The Forum is also grateful for the generous commitment and support of The Boston Consulting Group in its capacity as project adviser.
Special thanks are extended to David Dean and John Corwin of The Boston Consulting Group. John Corwin served as the primary author of
this report and his tireless efforts are to be commended. We would also like to thank David Duffy for his assistance in the writing of this report.

World Economic Forum Telecommunications
Industry Team
Alan Marcus
Senior Director, Head of Information Technology and
Telecommunications Industry
[email protected]
Bruce Weinelt
Director, Head of Telecommunications Industry
[email protected]
Aurélien Goutorbe
Senior Content Manager, Telecommunications Industry, Global
Leadership Fellow
[email protected]

The World Economic Forum is
an international institution
committed to improving the
state of the world through
public-private cooperation in the
spirit of global citizenship. It
engages with business, political,
academic and other leaders of
society to shape global, regional
and industry agendas.
Incorporated as a not-for-profit
foundation in 1971 and
headquartered in Geneva,
Switzerland, the Forum is
independent, impartial and not
tied to any interests. It
cooperates closely with all
leading international
organizations.
World Economic Forum

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Delivering Digital Infrastructure: Advancing the Internet Economy 3

Figure 1: Summary Recommendations for Delivering Digital Infrastructure

iv Encourage technological and business model experimentation in infrastructure by removing

Delivering Digital Infrastructure: Advancing the Internet Economy 5

2010–16 e-GDP CAGR (%)

Sources: EIU, Ovum, Gartner, Euromonitor, OECD, BCG analysis

Delivering Digital Infrastructure: Advancing the Internet Economy 7

Figure 4: Demands on Digital Infrastructure Exploding

Broadband connections in the G-20 (% mobile) Number of connected devices

2005 2015 2010 2020

Total internet traffic (% mobile) Social media today

2005 2015 YouTube Twitter Facebook

0% 8% 100 hours 500M tweets/day 150B friend

Sources: EIU, Cisco, Ovum, Company press releases, BCG analysis

Delivering Digital Infrastructure: Advancing the Internet Economy 9

Figure 5: Many Elements Required for a Healthy Digital Service Sector

eGovernment services S TTEECC Recognition of entrepreneurship /

Availability of venture capital

Sources: BCG analysis

Delivering Digital Infrastructure: Advancing the Internet Economy 11

12 Delivering Digital Infrastructure: Advancing the Internet Economy

01: Toomas Hendrik Ilves, President of Estonia,

Delivering Digital Infrastructure: Advancing the Internet Economy 13

Figure 6: Illustration of Common IP Interconnection Agreements

Content provider End customers

Delivering Digital Infrastructure: Advancing the Internet Economy 19

Investments - Capex and R&D ($ B)

Delivering Digital Infrastructure: Advancing the Internet Economy 21

22 Delivering Digital Infrastructure: Advancing the Internet Economy

Delivering Digital Infrastructure: Advancing the Internet Economy 23

Figure 8: Policy-Makers Must Rethink Scope, Approach and Level of Engagement

Historical perspective Future perspective

Telecom-specific policies and regulations Policies that recognize impact across

Heavy regulatory approach Lightened approach and non-regulatory

Approach Primarily ex-ante intervention to avoid More ex-post to encourage

Regulations established by government Collaboration with industry and other

Policies and regulations established Policies and regulations established at

Source: BCG analysis

Delivering Digital Infrastructure: Advancing the Internet Economy 25

26 Delivering Digital Infrastructure: Advancing the Internet Economy

International Regional National Local

— Technological harmonization — Value of experimentation

Data privacy, Cyber-security

Internet / Digital services

Competition and Consumer affairs

Source: BCG analysis

Delivering Digital Infrastructure: Advancing the Internet Economy 27

Western Europe North America Japan

Mobile infrastructure purchases ($ B) Mobile infrastructure purchases ($ B) Mobile infrastructure purchases ($ B)

'07-'13 '14-'16 '07-'13 '14-'16 '07-'13 '14-'16

LTE 3G (HSPA, UMTS, ...) CDMA GSM (incl. GPRS, EDGE)

Delivering Digital Infrastructure: Advancing the Internet Economy 29

LTE connections as percentage of total (%)

EU USA Japan South Korea

Source: GSMA, Ericsson, BCG analysis

30 Delivering Digital Infrastructure: Advancing the Internet Economy

Total ARPU Data pricing and usage

47.7 47.2 CAGR