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ECONOMETRIC ANALYSIS OF THE CONTRIBUTION OF BROADBAND, DIGITIZATION AND ICT POLICY IN THE EUROPE REGION Raul L. Katz International Telecommunication Union (ITU) Telecommunication Development Bureau
WHY IS THIS STUDY IMPORTANT? The study of the Economic Contribution of Broadband, Digitization and ICT Regulation helps Governments make decisions with regards to investment in infrastructure; The study provides an understanding of the comparative impact of fixed vs. mobile broadband is important for countries that have to prioritize public investments in telecommunications or policy focus The global and regional analyses present a perspective on how policy decisions might differ according to a country and region level of development The study demonstrates the different economic impact between a general purpose technology (e.g. broadband) and the digital ecosystem Study provides an understanding of why a developed institutional and regulatory framework can have a positive impact on the growth of the digital economy 3
METHODOLOGY: THREE ECONOMETRIC MODELS IMPLEMENTED GLOBALLY AND BY REGION OF THE WORLD Structural model Eco conomi mic c impac pact of composed of four fi fixed ed and d mobile obile equations broadban adband d Eco conomi mic c impac pact of Endogenous growth digitiza itizatio ion model Multi-variate Impac pact t of f poli licy on n regression model digitiza itizatio ion with fixed effects 4
GLOBAL STUDY RESULTS: IMPACT OF BROADBAND GDP Growth Impact of an increase in 10% of broadband penetration Mobile e broadband d generates higher economic MOBILE BROADBAND FIXED BROADBAND contribution than 2.00 1.90 fixed d broadba band 1.76 1.80 1.60 1.50 1.40 The impact of fixed ed 1.40 broadband increases 1.20 with economic 1.00 development 0.77 0.80 0.58 0.60 Developing countries 0.40 benefit more from 0.20 mobile broadband nd 0.00 0.00 0.00 than industrialized Total Countries Countries Countries countries <$12,000 $22,000-$12,000 >$22,000 Fixed Broadband Mobile Broadband Source: ITU 5
GLOBAL STUDY RESULTS: THE HE ECONO ONOMIC MIC CONT NTRIBUTIO IBUTION N OF DIGIT ITIZA IZATION TION IS HIGHE HER IN ADVAN ANCE CED D ECONO CONOMIES MIES THAN AN IN N EMERGIN ERGING G ONE NES Impact on GDP of 10% increase in What is Digitization? digitization Infrastructure� of� 1.6 Digital� Services� 1.351 1.4 Digital� Compe ve� Connec vity� of� intensity� 1.2 Digital� Services� 1.044 1 0.8 Deevelopment� of� Digital� Industries� 0.6 Household� Digi za on� 0.4 Digi za on� of� Digital� factors� of� 0.2 produc on� produc on� 0 OECD countries Non-OECD countries Regulatory� Framework� and� Public� Policies� Source: ITU, 2014-2015 Source: Katz and Callorda (2018) 6
GLOBAL STUDY RESULTS: THE HE DEVELOP ELOPME MENT NT OF DIGIT ITIZA IZATI TION ON IS PART RTLY LY DRIVEN IVEN BY INST NSTIT ITUTI TIONA ONAL L AND ND REGUL GULAT ATORY FACTO CTORS Impact of the 10% of the Lagged ITU ICT Regulatory Tracker on the Digital Ecosystem Development Index 2.00 1.8752 Digital Ecosystem Development Index 1.80 ITU ICT Regulatory Tracker Index 1.5835 • 1.60 Digital infrastructure • Digital connectivity 1.40 • Regulatory Authority • Digitization of households • Regulatory Mandate 1.20 • Digitization of Production • Regulatory Regime 1.00 • Digital Industries • Competition Framework • 0.80 Factors of digital production 0.682 0.6373 0.6132 • Competitive intensity 0.60 0.373 0.348 0.308 0.40 0.20 0.00 Global Latin Americas Europe Arab Africa CIS Asia America States Pacific Log (Digital Index it ) = B 1 Log (Digital Index it-1 ) + B 2 Log (Regulatory Index it-1 ) + Year + Country FE + ε it Source: ITU Why does regulation and policy impact digitization development? • Changes of a policy and/or institutional nature yield an acceleration in public ICT investment • Institutional changes (centralization of decision making, policy coordination) yield a higher efficiency in the development of public policy initiatives • The institutional change implies the “signalling” sent by the public sector to the private sector that ICT and digital develo pment represent a cornerstone in the development of the country 7
EUROPE STUDY RESULTS: IMPACT OF BROADBAND GDP Growth Impact of an increase in 10% of broadband penetration Mobile e broadband d generates higher economic MOBILE BROADBAND FIXED BROADBAND contribution than 3.50 fixed d broadba band 2.96 3.00 2.50 The impact of fixed ed 2.10 broadband increases 2.00 2.00 with economic development 1.50 1.00 Developing countries 0.46 benefit more from 0.50 mobile broadband nd 0.00 0.00 0.00 than industrialized Europe Region Low-Income countries High-Income countries countries (<USD 20,000 GDPPC) (>USD 20,000 GDPPC) Fixed Broadband Mobile Broadband Source: ITU 8
EUROPE STUDY RESULTS: THE E ECO CONO NOMIC MIC CONTRIBU ONTRIBUTIO ION N OF DIGIT ITIZAT IZATIO ION N IN EUROP ROPE E REGIO GION IS SIMIL ILAR AR TO O THE HE ONE NE AT OECD CD COUNT OUNTRIES IES Impact on GDP of 10% increase in digitization 1.6 1.359 1.351 1.4 1.2 1.044 1 0.8 0.6 0.4 0.2 0 OECD countries Non-OECD countries Europe Source: ITU, 2014-2015 9
EUROPE STUDY RESULTS CONFIRM EVIDENCE FROM GLOBAL STUDY Econometric modelling Results: Global vs. Europe Region Coefficient of 10% increase impact in penetration on GDP per capita growth Hyptheses ITU global ITU global High- Low-income ITU global Aggregate income Europe study study – study – Europe Europe region High income Low-income region region countries countries Economic impact of fixed broadband in high-income 0.07 0.5 countries in the ITU Europe (not (not region is higher than the 0.4 2.9 0.8 1.4 significant significant impact estimated for low- ) ) income countries (return-to- scale effect) Economic impact of mobile broadband in low-income -0.2 -0.2 countries in the ITU Europe (not (not 2.1 2.0 1.5 2.0 region is higher than high significant significant income countries (saturation ) ) effect) Economic impact of digitization 1.0 in the ITU Europe region is as 1.35 (non- Source: ITU high as that of OECD high- 1.36 1.33 (OECD OECD income countries (return-to- countries) countries) scale effect) 10
POLICY AND REGULATORY IMPLICATIONS Encourage policies to facilitate infrastructure deployment in rural and isolated • areas (infrastructure sharing, interconnectivity, and effective use of spectrum) Promote use of emerging technologies (e.g. Wi-Fi) for addressing the need of • affordable digital infrastructure and services Developing countries Implement incentives that are attractive to operators and stimulate • should accelerate the collaboration between private sector firms within the digital ecosystem development of mobile Implement public sector-sponsored initiatives to reduce the economic • broadband adoption barrier of vulnerable population Promote the development of local Internet content and languages • Build digital skills of non-adopters in order to address the digital illiteracy • barrier Industrialized nations should focus on the deployment of ICT to accelerate digitization of production Countries should develop ICT policy making processes that integrate economic analysis and simplified institutional architecture 11
POLICY AND REGULATORY IMPLICATIONS Developing countries should accelerate the Promote the development of commercial and investment cases that combine development of mobile • the benefits of telecommunication/ICT infrastructure with other enabling broadband technologies (e.g. AI, AR/VR) Put in place regulatory sandboxes for enterprises wishing to test emerging • technologies and use cases Industrialized nations Stimulate de launch of 5G pilot projects to obtain feedback and support • should focus on the design of future spectrum allocations, while stimulating the adoption of new deployment of ICT to services accelerate digitization of Combine digital transformation of production with the assessment of digital • production skills requirements and the implementation of retraining efforts Keep flexibility on regulatory rules and procedures to allow innovation, so • that new uses and technologies can be conceived, designed, tested and Countries should deployed develop ICT policy Ensure predictability and regulatory certainty from long term policies to • making processes that underline multi-year infrastructure deployment integrate economic Migrate to competition models that, while protecting consumers, recognize • analysis and simplified that certain levels of industry concentration are required to ensure adequate institutional architecture returns 12
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