Bahjat El-Darwiche, Mathias Herzog, Milind Singh, Rawia Abdel Samad, Jad Elmir, Roshni Goel
May 17, 2016
The Internet is one of the most transformational technological innovations in human history, similar to the invention of movable type, the electric motor, radio, or television. Yet at the beginning of 2016, only an estimated 3.2 billion people — 44 percent of the world’s population — are online and connected to the digital economy. The Internet’s truly revolutionary potential will be unleashed only when the remaining 56 percent are also connected. This will create millions of new jobs, develop vast new markets, and lift millions out of poverty. However, achieving universal access in a timely manner is looking increasingly difficult as Internet growth has slowed down in the past four years. This paper seeks to understand the challenges and identify mechanisms that can accelerate Internet growth and drive universal inclusion.
Internet access is enabled by three critical, interdependent markets, and structural challenges within them have caused the recent slowdown in Internet growth:
In this report, we identify 10 mechanisms — promising ideas, approaches, and technological and business-model innovations — that will address the structural challenges in these markets and generate faster Internet growth.
In the Connectivity Market, for example, data prices need to fall by around 90 percent, on average, to make the Internet universally affordable. However, this is challenging given that margins on data are already negative in many developing countries. Reducing data prices while increasing capacity to deal with ever-increasing data demand requires the Connectivity Market to use three mechanisms. The first is to modernize its technology base. The second is to rethink content distribution. The third is to create more national and international data infrastructure, such as Internet exchange points (IxPs) and data centers.
The first mechanism, modernizing the technology base, is needed because the mobile industry in developing countries relies overwhelmingly on second-generation (2G) networks to carry data. In India, for example, around 70 percent of connections are on 2G networks. However, 2G is a two-decades-old technology that is slower than modern technologies such as Wi-Fi, third generation (3G), or fourth-generation Long Term Evolution (4G/LTE). Also, 2G is only one-fifth as efficient at carrying data. Yet, 2G occupies over 60 percent of spectrum resources available in developing countries. However, it is not profitable for operators to carry data along such networks given the low prices. Replacing 2G with 3G, or 4G/LTE, can bring about a 60 to 70 percent reduction in the cost to serve per megabyte (MB) and can make it profitable for operators to transmit this data. This mechanism alone can make the Internet more affordable for close to 2 billion more people.1
Still, replacing 2G is not enough. For this reason, it is critical to build decentralized content distribution networks, the second mechanism for inclusion. This is because developing countries lack the high-speed Wi-Fi networks that allow people to consume video-rich content. For example, average U.K. consumer usage on Wi-Fi is three times higher than usage on cellular networks.2 In developing countries, such Wi-Fi networks do not exist, in particular because of the difficulty of transmitting this data between end-users and data distribution points such as nodes (known as backhauling). Instead, decentralized content distribution networks can distribute pre-provisioned content offline through a series of high-speed networks (e.g., Wi-Fi) that provide end-users with coverage and capacity. This mechanism will enhance affordability for a further 300 million people.
The third mechanism is to provide developing countries with more efficient and more nationally based IxPs and access to international Internet infrastructure. These provide the backbone of the Internet and enable data to be exchanged nationally and regionally. Without such infrastructure, a typical data packet in Africa has to travel eight to 10 times further before it is received by a content server than a similar data packet in the U.S. More IxPs and content delivery networks will provide end-users with a better, more affordable experience that could bring the Internet to another 170 million people.3
The Content Market needs to create more content that is local and based on utility services, but is struggling to find sustainable monetization models for such services. The failures of the Content Market need to be seen in light of increased bandwidth and consumption driven by the above-mentioned developments in the Connectivity Market. The unconnected will consume the content categories that the currently connected prefer, such as entertainment, search, and communication, if they have more affordable, high-speed Internet access.
There are three Content Market mechanisms that will attract more people online: providing more educational content, making it possible to obtain social services online, and promoting economic opportunity. These three mechanisms together can create an incentive for a further 200 million to go online.4
Education is one of the most important consumer purchases in developing countries. It is also an important reason to go online because so many traditional education outlets struggle to provide quality and reliability.
Targeted e-government services that allow people in remote or rural areas to undertake critical economic activities, such as land record management, will be another important reason for them to go online. Such e-government services are the only way that many of these people can access public services.
The final Content Market mechanism is economic opportunity. People will go online if there is content that boosts their productivity and expands the market that they can sell to.
The Retail Market needs to increase awareness of the Internet, while also supporting people coming online for the first time. However, it is struggling to develop beyond a product-selling mind-set.
There are three Retail Market mechanisms that can bring more people online by reducing the cost and risk of discovery: consultative selling channels, brand- or subscriber-subsidized access, and simpler value propositions. A further mechanism, innovative technology, will be required to allow the people who are most difficult to reach on earth, the last half-billion, to go online.
The first of these mechanisms, consultative selling channels, allows people to experience the Internet for the first time and creates awareness among the unconnected of the Internet’s features and benefits. Learning centers are an important form of consultative selling. Learning centers can make people technology-literate through shared devices and pooled access. Consultative selling channels can bring another 200 million online.5
The second mechanism in the Retail Market is free or low-cost discovery of the Internet through brand- or subscriber-subsidized access. Brand-subsidized trials or subscriber-subsidized access allow people to experience and discover the Internet for free for a short duration. Introduced globally, such mechanisms could enable 500 million people to discover the Internet.6 The third Retail Market mechanism is to offer simplified value propositions, like bundled access and content plans or “pay-per-app” plans. These can provide clarity to new users on the benefits of the Internet. They also make the distribution of Internet services easier in most markets.
The final mechanism for universal inclusion will be disruptive technologies that bring the hardest to reach online, the so-called last half-billion. These are people living in remote places without modern transportation, electrical, or retail infrastructure. Making these people Internet users will demand new paradigms of technology and business.
If governments, Internet providers, telecom operators, communities, and other stakeholders implement these new approaches, then we can connect the poorest of the world’s population to the Internet and the modern economy. The result will be an Internet that looks very different from the one we see today in developed countries. It will rely far more on mobile devices in terms of data consumption, and will be more efficient at data transmission. It will be far more focused on education, social services, and income generation. It will also be more multilingual. The result will be growth, employment, and improved incomes for the 56 percent of the world’s population whose ingenuity and industriousness is currently thwarted by their lack of connection to the Internet.
The Strategy& Digital Prosperity Project brings together leading experts to provide thought leadership at the intersection of technology and economics. The project has developed measures of digitization and digital maturity to better inform policymakers and business leaders on how to use digitization to further economic and social progress.
The members of the project are: Bahjat El-Darwiche, Mathias Herzog, Rawia Abdel Samad, Jad El Mir, and Roshni Goel. Milind Singh was part of the project when he was with Strategy&.
The authors would like to acknowledge the central role of numerous colleagues in meetings and interviews. Without their expert insights, the study would not have been possible in its present form.
We thank the following individuals from Facebook for their time, insights, and thoughts:
Ime Archibong, Chris Daniels, Andrew Fiore, Markku Makelainen, Ameet Suri, Chris Weasler, Patrick Wu
We thank the following colleagues from Strategy& and the PwC network:
Nuno Gomes, Vicki Huff, Mohammed Kande, Amity Millhiser, Abhijjit Navalekar, Emmanuelle Rivet, GP Singh, Ashish Sharma
We thank also individuals from the following organizations for their time, insights, and thoughts:
Pawan Agarwal, DBCorp; Shawn Cole, Harvard Business School; Guy Kamgaing, Mobile XL; Misan Rewane, WAVE; Karim Sabbagh, SES; B. S. Shanthakumar, Indus Towers
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