Telecommunications and Informatics

The world of telecommunications and informatics has changed at an incredible pace over the past twenty years. That change presents both opportunities and challenges to developing countries. To grasp these opportunities will require, first, recognizing the fundamental shift in the paradigm governing the industry, and second, matching this shift with changes in technology and regulatory policies in the Middle East and North Africa region.

In the world of telecom there has been a shift in the paradigm governing the field. Under the old paradigm, telecom was seen as a "public utility" because of its natural-monopoly characteristics; under the new paradigm, it is recognized that because competition is now viable in most segments of the industry, the private sector can and should be allowed to take the lead. Where under the old paradigm Ministries of Telecommunications or the PTTs (Post, Telegraph and Telecommunications Companies) themselves served as regulators, the new paradigm relies instead on independent regulatory authorities. Computers, once seen as "luxury goods" operating as "islands" of information processing, have now become "commodities" operating together in networks. And where the old paradigm stressed the scarcity of information, now there is a deluge of information created and transmitted using information and communication technologies.

This paradigm shift has been driven by rapid technological progress in informatics and telecom. Both the cost of information processing and the cost of transmitting a given amount of information have dropped to one-ten-thousandth of their levels of the mid-1970s. At that time (to take the example of information processing), an IBM mainframe provided computing services at a cost of about US$1 per instruction per second; today the cost for the same processing on a Pentium is less than .01 cents.

Another major factor shaping the information revolution is convergence. Before convergence, each major segment of the telecom industry relied on a different infrastructure for transmitting information to end users. For example, basic telephone services used the traditional wireline network; cellular telephone services used their own wireless networks; cable TV used a coaxial cable network; and data transmission relied on satellites. Today, a generalized information infrastructure has emerged. This infrastructure encompasses all of the elements of the old transmission infrastructures — wireline, wireless, packet-switched, coaxial and satellite — so that these transmission mediums are used by all of the different segments of the telecom industry. What has convergence done for end users? Thanks to the greater flexibility and competitive dynamism in the industry, users can now find better services at much lower prices than in the past.

A third factor shaping the information revolution is the growth of computer-related networks. Less than ten years ago, there were very few such networks. In fact, the data point for mid-1989 is indistinguishable from zero. But the number has grown sharply since then, increasing eight-fold over just the last three years to reach an estimated 16,000,000 today. As noted earlier, computers can no longer be thought of as isolated islands of information processing, nor can the issue of informatics be divorced from questions of the telecom network that links these computers.

What does all this technological change mean for developing countries? It offers significant opportunities for development, but it also exposes several significant challenges faced by most developing countries — including those in MENA region.

First, access to modern telecommunications has become a necessary condition for countries to fully benefit from the process of economic globalization. As firms begin to operate in a networked environment (favoring outsourcing and market solutions vis-ˆ-vis vertical integration and hierarchical structures) and as technological barriers to entry in service industries decline, those economies able to upgrade their information infrastructure will be better positioned to explore the gains from international trade. The paperless customs system of Singapore, for example, has dramatically expedited its trade clearance procedures improving the competitiveness of local firms in time-sensitive industries. And many countries like Jamaica and India are now exploring dedicated networks to export services — data processing, software programming, etc.

Second, by developing a modern information infrastructure countries can reduce isolation and exclusion. Wireless technology can provide affordable connectivity to rural areas in a fraction of the time that was required in the past to expand conventional telephone networks. Many countries are also experiencing fast expansion of cellular telephony as an alternative to inefficient conventional network services. Moreover, community information centers can be customized to the needs of the poor. In South Africa, for example, such centers are being used to provide access to the Internet and to help answer local people's questions concerning health, employment, lodging and human rights issues.

Third, countries can now leapfrog stages of educational development using their information infrastructures for distance education. The costs and effectiveness of such programs are improving dramatically although many challenges still remain in the development and adaptation of educational software to the needs of developing countries. The World Bank is now studying models of distance education (via satellite) in countries such as Brazil and Israel with a view to disseminate the lessons from these experiences.

Fourth, a modern information infrastructure can be a powerful force for better governance. It can enhance tax administration, auditing and control. Morocco has significantly improved its tax revenue by computerizing the country's tax administration. It can also enhance environmental monitoring and management. In Nepal, satellite imaging is being used as an effective tool in helping authorities to control environmental degradation.

But these opportunities will be available only to those countries that can successfully surmount the challenges posed by outdated institutional structures and weak infrastructure. A major challenge is improving the underdeveloped telecom infrastructure found in most developing nations. For example, the MENA countries typically have an installed base of only 1-10 fixed telephone lines per 100 inhabitants — more than in sub-Saharan Africa, but far less than the 25+ found in developed economies. The large unmet demand for telecom services is reflected, for example, in the waiting lists for telephone applications. In Algeria, it will take 10 years to clear outstanding telephone applications at current rates of investment; in Egypt, nearly 6 years. Morocco has a waiting list of less than a year, but even it lags well behind such developing countries as Chile and Indonesia. In Internet density, the region also lags well behind. Where the countries of North American and Northern Europe have more than 100 Internet hosts per 10,000 inhabitants, countries in the MENA region have less than 1 host per 10,000 inhabitants.

To address the infrastructure challenge, developing countries will need to face the accompanying financial challenges. In the 1980s, investment in basic telephony in developing economies averaged US$20 billion per year, of which only 20 percent came from the private sector. For the period 1995-99, an average of US$60 billion per year is needed, with about US$8 billion needed in the MENA region alone; given the constraints on public and official funds, 55 percent of this capital will have to come from the private sector.

Embedded in this projection is a real challenge for the region. Current investment levels will not deliver sufficient network growth by 2005: Only Tunisia and Oman will achieve the minimally acceptable target teledensity of 15 main lines per 100 inhabitants. For all of the countries in the region to reach that goal, it will be necessary to increase sharply annual investment levels. Egypt and Iran, for example, will each need annual investment of about US$750 million; for comparison, their current levels are US$290 million and US$78 million, respectively. For Morocco, the task is slightly easier, but the country will still have to increase investment by about 40 percent from US$258 million to US$367 million per year.

Another obstacle to be surmounted is the inadequate regulatory framework governing most telecom sectors in the region. Currently, as noted earlier, telecom ministries or PTTs act as regulators. But they often lack the independence to act appropriately as regulators under the new paradigm. Moreover, they lack the experience necessary for devising a pro-competitive regulatory framework; this type of framework is vital if developing countries are to take advantage of the competitive possibilities offered by the new technologies. Another element of the regulatory framework is the issue of how to deal with the extensive cross-subsidization that now takes place; under a privatized, independently regulated system, governments will need to address the issue of subsidization more openly and directly. It should be noted that several countries in the region have already made progress toward dealing with this challenge of restructuring the regulatory framework and increasing the private sector’s role: Turkey, Egypt and Jordan have announced plans for privatization, and Morocco and Tunisia have made WTO commitments to liberalize the telecom sector.

In late 1995, the World Bank group launched the infoDev program to help developing countries meet these challenges. infoDev promotes partnerships between the World Bank, government, the private sector and civil society to develop the information infrastructure, and exchange ideas and best practices in telecom reform and information applications.

Regarding infoDev’s philosophy, telecom and informatics are sectors moving so fast that nobody really knows where they are going. Many people, for example, are asking how to use the Internet for educational purposes, or how to make money on the Web. These are very legitimate questions because the prospects are very big, but there is a lot of hype and illusion. However, wherever the telecom and informatics sectors are going, they are going there very fast. For this reason it is important for countries to have a plan. For example, in the US information technology industry, broadly defined, 70 percent of profits are being made in products and services that did not exist just 18 months ago. This is the kind of dynamic that this industry is working with, where the life cycle of products and services has changed dramatically. Now of course developing countries can say, "forget it, we cannot catch up," but the reality is that this will impose a burden in terms of the competitive position of these economies. Therefore, it is very important for countries to invest in these networks, and particularly to try to experiment in terms of making them fit their own needs.

infoDev supports the kind of projects that fall in several categories: a) consensus-building and awareness-raising through conferences on ICT related topics; b) information-infrastructure projects, typically Internet-related, such as projects on how to better use the Internet to share environmental information; c) pilot projects on applications, from distance education to telemedicine; and d) telecom reform efforts.

As a parting word, infoDev has received to date very few proposals for projects from the Mediterranean region. I would encourage people in MENA region to come up with innovative ideas — whether from the public, private, NGO, think tank or academic sectors — to approach infoDev with ideas and join in its information network.

Further Readings

See infoDev’s Web page at www.worldbank.org/html/fpd/infodev.

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