Local Access Pricing and the International Digital Divide
To find out why electronic commerce isn't growing in some countries, look no further than the price and structure of access
By Sam Paltridge
There is a growing international digital divide among countries of the Organization for Economic Cooperation and Development (OECD). This is contrary to a widespread view that in the area of development of electronic commerce, the gaps between countries are narrowing. The price of access to the Internet and the structure of this pricing are key factors in explaining the relative development of electronic commerce across the OECD area.
The term digital divide refers to the gap between those with and those without access to information and communication technologies, such as the technologies needed to access the Internet and engage in electronic commerce. Access to the information and communication resources that those technologies enable is increasingly viewed as critical for economic and social development. However, the digital divide could also be said to exist between different countries, because the ability of individuals to take advantage of the Internet varies significantly among the member countries of the OECD.
The level and structure of pricing for Internet access are major constraints facing both the users and the potential users. The OECD has undertaken comparisons of Internet access pricing since 1995. The average price to access the Internet-including charges for line rental, local calls, and ISP services-can be plotted against the penetration of Internet hosts (figure 1). The data reflect a strong correlation between the level of access pricing and the rate of Internet development. They also bring home the extent of the international digital divide-even within developed economies.
The penetration rate of Internet hosts for the United States is
three times the average for the OECD, seven times that for the
European Union, and just over eight times that for Japan. However,
those figures reflect only partly the growing international digital
divide in terms of electronic commerce. For example, in March
2000, the United States added 3 times as many secure servers as
the rest of the OECD combined. This means that, on a per capita
basis, the United States added 10 times as many secure servers,
for that month, as the rest of the OECD.
When the penetration rate of Internet hosts is plotted against
that of secure servers, a clearer picture of the international
digital divide emerges (figure 2). Six countries are higher than
the OECD average on both scales. Each of them has had a history
of relatively inexpensive Internet access. Significantly, four
of the countries-Australia, Canada, New Zealand, and the United
States-have widespread availability of unmetered Internet access.
This suggests that pricing structure is also an important consideration
for assessing Internet and electronic commerce developments.
These reforms would enable competition to play a greater role
in fostering the pricing innovation needed to support electronic
commerce and would address the international digital divide.
All but 5 of the 29 OECD countries have liberalized their telecommunications markets. Three of the 5 plan to do so in the next 18 months. Yet, experience has shown that it takes time for local infrastructure competition to develop. That's why the majority of OECD governments are bringing forward plans to unbundle local loops in order to encourage both pricing innovation and the more rapid deployment of high-speed access via DSL. They are also taking initiatives to bring additional players into the Internet access market via new wireless technologies.
What the Private Sector Is Doing
At the local level-where competition is most advanced-the benefits of pricing innovation are increasingly evident. Of the group of countries that inherited a pricing structure most unsuitable to electronic commerce, the United Kingdom is most advanced in addressing these issues. One of the U.K.'s main advantages is that reform is being built on nearly a decade of local infrastructure competition. This means that many millions of households have a choice among local access providers. In 2000, some of the first offers for unmetered Internet access have been from new entrants such as Telewest and NTL, both cable communications companies. Many ISPs are also working with different telecommunication carriers in the U.K. to offer unmetered access. Prompted by this competition, British Telecom-the incumbent telecommunications carrier-is introducing unmetered access as well. Other countries in which communication companies have announced that unmetered access will be available by mid-2000 include Germany, Hungary, Italy, South Korea, Sweden, and Switzerland.
What You Can Do
In competitive markets, users are already voting with their accounts.
About the Author
Sam Paltridge is a communication analyst in the OECD's Division of Information Computer and Communications Policy. His recent work in communications is on infrastructure competition and on Internet issues, including domain names, Webcasting, and traffic exchange. He is a principal author of the 1995, 1997, and 1999 editions of the OECD's Communications Outlook. His most recent reports are on Internet Infrastructure Indicators and leased-line pricing and electronic commerce. His written reports can be freely downloaded from the OECD Web site. The views expressed in this article are those of the author and may not necessarily be those of the OECD and its member countries.