Awareness of the benefits of broadband and the capability to use broadband are critical first steps in building demand for broadband services. In order for people to use broadband successfully, they must have the necessary interest and competency. This is sometimes referred to as digital literacy, which has been defined as “using digital technology, communications tools, and/or networks to access, manage, integrate, evaluate, and create information in order to function in a knowledge society” (Educational Testing Service 2002). Digital literacy ideally makes users aware of and capable of accessing broadband applications and services. This, in turn, widens the information available to them, provides new ways of learning, and creates new employment opportunities.

There is a spectrum of digital skills that increase in complexity as users gain expertise. Therefore, competency in information and communication technology (ICT) skills can range from a basic understanding, which enables users to access information using broadband, to deeper technical knowledge, which enables them to create and disseminate their own information, including new applications and services. This is acknowledged in definitions of the different stages of digital literacy (Figure 6.2).

People learn digital literacy skills in various ways and institutional settings. These range from watching friends, to being taught in schools, to participating in special programs (Figure 6.3). The range of skills and settings vary and overlap. For example, some people may choose simply to acquire basic skills in a formal academic environment, while others may choose to pursue a higher degree of ICT knowledge. Although there are a variety of institutional settings for gaining knowledge about the use of broadband networks, self-training plays an ongoing lifetime role. This is particularly important since the services and applications available over broadband networks continually evolve.

There are several challenges to ensuring that people are digitally literate. Some studies suggest that the main way people learn about ICTs is through self-study (that is, through their own initiative and assistance from friends, family, and colleagues) rather than through formal courses. Motivating people to continue to learn on their own is essential in order for them to adapt to the constant evolution in broadband services and applications without always having to resort to more formal training. This is related to the interaction of digital literacy with “value addition.” Although training is important, it does not necessarily build peoples’ understanding of how broadband and associated technologies can transform their lives. This lack of understanding risks creating a “value divide” in which the people who have broadband diverge widely in their ability to derive value from it. As broadband spreads to other platforms, particularly mobile phones in developing countries, the notion of digital literacy, which has typically been associated with learning on personal computers (PCs), must be adapted to entail familiarity with using applications and services delivered via various mobile devices such as smartphones and tablets.

6.2.1.2 Advanced ICT Training

Advanced ICT training refers to the acquisition of high-level skills necessary to support broadband networks and to develop broadband content and applications. Advanced skills are taught in two general venues: (1) specialized and more informal postsecondary schools, including training provided by the private sector, and (2) universities. Specialized postsecondary institutions include colleges, vocational schools, and courses typically taught by multinational software or hardware companies or international companies that specialize in ICT training. An example is the Cisco Networking Academy Program, which teaches network skills to almost 1 million students per year. Courses are taught at some 9,000 academies in 165 countries.* Cisco, “About Networking Academy Program Overview,” http://www.cisco.com/web/learning/netacad/academy/index.html. Countries can create similar partnerships with other hardware, software, content, and broadband services companies to fuel the development of training facilities and courses (Cooper 2010). India provides an example of the benefits of training through more informal institutions. Since the formal Indian ICT training sector through colleges and universities cannot cope with the demand for skilled ICT professionals, part of the demand is being met by India’s training sector, which consists of over 5,000 private institutes offering ICT courses to over half a million students (Gupta et al. 2003).

Incorporation of ICT degrees within the formal higher education setting is important for developing highly skilled experts, fomenting a research and development culture, and addressing, understanding, and developing broadband needs within the context of national goals. Governments seeking to promote broadband in their countries should develop undergraduate, master’s, and doctorate programs of study in ICTs to expand expertise in areas such as software engineering, networking, and security. A lack of domestic programs in these areas has often meant that students and professors go abroad and do not return (Rodrigues 2009). The higher education sector should forge links with industry in order to obtain funding as well as support for labs, incubators, and eventual job placement.

6.2.1.3 Privacy and Security Concerns

One obstacle to generating demand is that potential users may be afraid of using broadband services for reasons related to privacy, security, or identity theft. Training programs that address such concerns are an important part of convincing those who are not online that broadband access can be safe as well as productive. In the Republic of Korea, for example, the government created the Korea Information Security Agency and the Korea Internet Safety Commission to oversee Internet security and consumer protection as part of its efforts to get people online. The United Kingdom has a website called KidSMART that has information about safe and legal Internet use for children. Finally, Sweden has made “confidence” a cornerstone of its ICT policies since 2000. This includes not only confidence to use the technology, but confidence that personal information will be protected and secure. See chapter 3 for more information on how governments can address privacy and security concerns.

6.2.2 Small and Medium Enterprises

Small and medium enterprises (SMEs) are a particular group that governments may wish to focus on for purposes of demand stimulation. Such companies may not have ICT expertise or knowledge of how broadband can benefit their business functions. An Internet presence supported by broadband can help SMEs by providing them with the ability to reach new customers, reach a wider range of potential partners, and tap a wide range of resources to support their business. Concentrating on SMEs may also have important “pass-through” effects, allowing governments to reach their employees at the same time. SMEs are also likely to find e-government programs particularly helpful in interacting more efficiently with the government, whether to apply for permits, file taxes, or supply or obtain government services.

To help SMEs to use broadband networks and services most effectively, governments have adopted a variety of innovative outreach programs. The Dutch government, for example, has launched a program to stimulate and support the creation of applications for local SMEs (Box 6.3). In Spain the government is providing specific training for employees of SMEs, while Germany and Sweden have also established programs to provide training to SME employees to increase their ICT skills and increase their competitiveness. In Denmark the government launched a program to train SMEs, providing assistance through private consultants and helping individuals to obtain the needed ICT skills to start e-businesses.* European Commission, “Connecting Europe at High Speed: Recent Developments in the Electronics Communications Sector,” Europa Press Release, Brussels, February 3, 2004, http://europa.eu/rapid/pressReleasesAction.do?reference=IP/04/154&format=HTML&aged=0&language=EN&guiLanguage=en. Providing support to SMEs to help them better use broadband is one of the important goals of the U.S. National Broadband Plan (United States, FCC 2010, sec. 13.1).

6.2.2.1 Affordability

In identifying demand-side barriers to broadband adoption, policy makers around the world have identified affordability as one of the main reasons that people do not use broadband services where they are available. The Pew Internet and American Life Project, as well as the U.S. Department of Commerce, illustrate the importance of lack of affordability to those in the United States who do not subscribe to broadband at home (ESA and NTIA 2010). Prices for purchasing equipment and services remain a significant barrier for many consumers, especially in developing countries. Research by Ovum in 2010 showed that prices for broadband services are up to three times higher in 15 emerging markets than in developed countries, despite lower wage levels in the emerging markets.* Ovum, “Emerging Markets Paying Three Times More Than Rest of the World for Broadband,” September 20, 2010, http://about.datamonitor.com/media/archives/4775.

Various components affect the cost of broadband, including installation and ongoing service fees, as well as the prices of devices to access and use broadband services. In many developing countries, as well as among the low-income populations in developed nations, both the cost to acquire a broadband device and the cost of connection and service are often substantial relative to income levels. While potential users may have the necessary digital literacy skills, they may be hampered from making effective use of broadband services by the lack of affordable connections, services, and devices.

Part of the government’s efforts, therefore, may also focus on supporting users who want and would benefit from broadband but cannot afford to pay prevailing commercial prices. This can apply to equipment (for example, computers), initial installation (up-front costs), connection to the network (fixed periodic charges), or use of the network to access services. One way to do this in a market context is by subsidizing providers that offer service to target population groups at less than prevailing prices. Another way is to provide subsidies directly to target users for the specific purpose of helping them to pay for broadband. Yet another approach is to include broadband in lump-sum income support to households. These approaches have been used extensively in a wide range of countries to support the use of telecommunications, electricity, transportation, and water supply, as well as to help people to pay for rent, food, health care, and other essential expenses.

The rationale for using subsidies to overcome obstacles to broadband affordability is twofold: (1) greater deployment and use of broadband services are important drivers of economic growth, and (2) the value of network services in general, and broadband services in particular, increases as more people participate. Possible measures to consider include the following:

• Subsidizing the purchase of devices or computers, by means of government financing or bulk procurements, vouchers, or distribution of devices
• Introducing tax credits for the purchase of devices or computers
• Establishing locations for shared or community access to computers and other devices to facilitate the use of broadband services
• Introducing measures that reduce or eliminate taxes on broadband service so as to reduce the final price paid by consumers.

Colombia’s Plan Vive Digital, for example, addresses cost issues by making connection devices more available to the general public by eliminating customs tariffs, making access to credit for the acquisition of terminals more flexible, eliminating the value added tax for Internet service, and redirecting landline subsidies toward Internet subsidies.*  Colombia, Ministerio de Tecnologías de la Información y las Comunicaciones, “Ecosistema Digital: Servicios,” http://201.234.78.242/vivedigital/ecosistema_2_servicios.php.

6.2.2.2 Device Ownership

The realization that demand for communication services, including broadband, does not generally increase if citizens do not have access to a PC or other broadband-enabled device has spurred policy makers around the world to introduce measures to facilitate ownership of devices or computers (Box 6.4). The range of broadband devices includes more traditional means of access, such as PCs and laptops, as well as mobile devices, including cellular phones, smartphones, and tablets.

For many citizens in developing countries, the cost of even a discounted computer is prohibitively expensive. For example, Figure 6.4 compares income levels in Sub-Saharan African countries with the cost of broadband devices. The data show that a US$400 netbook is more than the annual per capita gross domestic product (GDP) in nine Sub-Saharan African countries (Kim, Kelly, and Raja 2010). In these situations, direct distribution of low-cost devices has been used to overcome the price barrier.

6.2.2.4 Mobile Devices, Smartphones, and Tablets

Mobile phones have taken the world by storm, with average mobile penetration rates in 2010 of 68 percent in developing countries and 116 percent in developed countries. Regionally, Africa has 41 percent penetration, Arab states, 79 percent, Asia and Pacific, 68 percent, Commonwealth of Independent States, 132 percent, Europe, 120 percent, and the Americas, 94 percent.* ITU, World Telecommunications/ICT Indicators database, http://www.itu.int/ITU-D/ict/statistics/at_glance/KeyTelecom.html. In recent years, mobile service providers have begun to offer broadband services in addition to the original voice telephony and narrowband data services.

A business model that has contributed to the explosive growth of mobile telephony throughout much of the world is the “subsidization” of the mobile phone by revenues from subscriptions. Operators generally offer cheaper handsets subject to the consumer signing up for a one- or two-year service contract. Often, high early-termination fees are linked to such contracts to recover the remaining cost of the subsidy, if required. Besides device affordability, ease of use through prepaid services has also been one of the key benefits for low-income customers, offering them the ability to control their expenditures, the ability to switch to just receiving calls in times of economic difficulty, simple sign-up, and other features that have given mobile telephony an edge in the marketplace over traditional wireline telephone service (Oestmann 2003, 3).

It is reasonable to expect to see similar business models and programs expanded to include broadband devices, such as providing modems, smartphones, or tablet devices at reduced prices, along with contracts for broadband services. The first versions of such offers have consisted of a subsidy for the purchase of a laptop computer and modem, or a modem alone, bundled with a customer contract for Internet access.* For example, in 2008 Radio Shack in the United States offered a laptop for US$99, along with an AT&T data card and a two-year service contract for US$60 a month (Kraemer 2008). In Europe and the United States, for example, network operators already subsidize other kinds of equipment in addition to phones. * The commercial information presented was current as of the preparation of this report. Commercial service offerings in this sector are subject to frequent change. In exchange for a two-year data contract, consumers can obtain cellular modems and sometimes even netbook computers with no up-front charge (Byrne 2009). Primarily, these offers are contingent on signing a contract for service. In Europe, studies show that the practice of bundling the cost of a laptop with an access plan is leading to robust sales in mobile access subscriptions. Thus, for example, global demand for mobile broadband pushed European operator Orange’s mobile broadband customer base, including smartphone customers, to 23.2 million at the end of September 2008, which represented an 81 percent increase from the previous year. For United States–based AT&T Mobility, which started subsidizing laptops in 2008, data revenue jumped 51.2 percent in the fourth quarter of 2008 compared with the same quarter in 2007. It recorded US$3.1 billion from data revenue alone.* “The Switch to LTE: When’s the Tipping Point?,” Motorola eZine, http://www.motorola.com/web/Business/Solutions/Industry%20Solutions/Service%20Providers/Network%20Operators/_Documents/_static%20files/LTE%20Tipping%20Point.pdf?localeId=33.

Eventually, less expensive devices are likely to be offered, along with simplified or even no contractual commitments to purchase the broadband service, but simply with the expectation that such service will be purchased on a prepaid basis in sufficient quantities by enough customers to justify the subsidy. Already in some countries, mobile users own a USB modem enabling broadband service, but not necessarily a laptop or computer; they access the Internet at a shared computer. Throughout Africa (for example, in Tanzania, South Africa, Swaziland, Cameroon, and Kenya), operators sell subsidized modems with service contracts for 3G (or Enhanced Data Rates for GSM Evolution, EDGE) service, following the mobile phone subsidization business model. Since most users are prepaid, however, most of the mobile broadband uptake is prepaid as well and does not involve service contracts. In South Africa bundled broadband products have started to emerge over the last few years, which typically include a PC, laptop, or netbook with a standard data bundle based on a 24- or 36-month contract. Incumbent operator Telkom offers its “Do Broadband” Acer netbook in a bundle, while Vodacom and MTN also have notebook and netbook offerings. iBurst is also selling 1 gigabyte (GB) and 2 GB notebook bundles.* “Broadband Laptop Bundles: The Best Deals,” My Broadband, July 2010, http://mybroadband.co.za/news/broadband/13694-Broadband-laptop-bundles-The-best-deals.html.

Recently, South African operators have been aggressively pursuing customers with attractive pricing of bundled mobile broadband packages. Vodacom, for example, launched a “2GB + 2GB” promotion in April 2011 for R 149 (US$22) per month, offering consumers on a 12-month contract a 2 GB per month data allowance, a 7.2Mbit/s High-Speed Packet Access (HSPA) modem, and an additional 2 GB of “night owl bandwidth” that can be used between midnight and 5 a.m. Subscribers also get free technical setup support plus a mailbox with 5 GB of storage (Muller 2011). South Africa is one of the few countries worldwide that still maintains monthly data caps on fixed-line broadband, although such caps are more common for mobile broadband.

The mobile phone subsidization business model is not without its detractors, and the practice is illegal in some countries. Concerns include whether the total cost of ownership is higher over time with subsidies and contracts versus scenarios involving unsubsidized phones and lower service prices, device locks that are used to prevent phones from being used with another operator’s service, the limited variety of device models that operators are willing to subsidize, and high fees that consumers may pay if they want to terminate their contract early. Policy makers considering some type of subsidy program will need to take such concerns into account as they analyze various subsidy approaches.

6.2.3 Personal Computers, Laptops, and Netbooks

Programs to subsidize the purchase of laptops or computers have taken many forms, including tax breaks, government subsidies, and a reduction in price of the device itself. Some countries have provided fiscal incentives for individuals and businesses to purchase PCs, for example, by allowing pretax income to be used for these purchases. In Sweden, for example, the government established a tax rebate whereby employers could purchase computers for their employees to use at home. The program, which started in 1998, allows the purchase price of a computer to be deducted from salaries as monthly repayments over three years’ time. Home computer penetration reached 90 percent by 2006. Similar programs have been used in other European countries. Governments in countries such as Korea, China, and Portugal have provided financing for the purchase of computers or are directly leasing computers to low-income families, students, or other identified groups (Box 6.5).* For a further example, see the global nonprofit organization One Economy Corporation, http://www.one-economy.com/who-we-are. International locations include Turkey, Jordan, Israel, Cameroon, Kenya, Nigeria, Rwanda, South Africa, and Mexico.

Reducing the cost of devices, particularly laptops, has also been successful in increasing device and broadband usage. One notable program to promote the spread of low-cost laptops in schools is the One Laptop per Child (OLPC) Initiative. The cost of the devices was predicted to drop to around US$100 under this program. Although the OLPC Initiative has experienced some significant setbacks, it has led to increased availability of lower-cost devices around the world. Uruguay has had some of the greatest success with the OLPC Initiative, with all of its primary students receiving their own laptop by 2009.* See ITU, “Connect a School, Connect a Community Toolkit: Uruguay Case Study,” http://www.connectaschool.org/en/schools/connectivity/devices/section_5.7/case_studies/Uruguay. Some of the corporate participants that supported the initiative have since gone to market with their own low-cost computers, thus providing countries with additional options (Kramer, Dedrick, and Sharma 2009). The main commonalities of such devices, regardless of the brand or specific functionality, are a relatively low price (less than US$300 for the device), a flip or clamshell design, and small size (for example, screen size less than 10 inches).* ITU, “Connect a School, Connect a Community Toolkit, Module 2: Disseminating Low-Cost Computing Devices in Schools,” http://www.itu.int/ITU-D/sis/Connect_a_school/Modules/Mod2.pdf.

6.2.3.1 Internet

A broadband subscription provides a high-speed connection to the Internet. The way the subscription is provided can affect attractiveness and will depend on the technology and regulatory or business considerations. This includes whether the broadband subscription can be purchased on its own or requires a subscription to an underlying transport technology. For example, in the case of a digital subscriber line (DSL) broadband connection, a telephone line is required. Subscribers have typically been obligated to pay a monthly rental for the telephone line in addition to the broadband subscription even if they do not use the telephone line for anything else but broadband. This adds to costs and may require an extra bill, discouraging users from taking up the service. Some operators include the telephone line with the broadband subscription, so there is no separate bill. In a few countries, the cost of the physical broadband connection is billed separately from Internet access. In other words, the user needs to pay one bill for a broadband connection and another bill for Internet access.

Several factors make a broadband subscription more or less attractive to potential users. One important factor is speed. Although some consider all “always-on” subscriptions of at least 256 kilobits per second (kbit/s) to be broadband, in practice speeds must be above a certain threshold to use desirable applications such as video viewing or gaming. A variety of offers with different speeds provides more choice to the user. Other factors to consider are restrictions that the broadband providers may impose on capacity (for example, data or usage caps). Some operators distinguish between domestic and international use by having no cap or a higher cap for traffic to national sites and a low cap for access to sites hosted abroad. One issue with caps is that users often do not understand the relation between volume and their usage needs. Users can easily underestimate how much data they will use, particularly if they access a lot of video services or use peer-to-peer download services (some of which may run in the background). This makes it difficult for them to know which package to select when packages vary by data caps. Some operators cap usage through time rather than data volume (for example, monthly subscription of 20 hours).

Increasingly, governments are responding to data caps and “throttling” practices by requiring service providers to disclose their network management practices clearly, in order to protect consumers and improve the overall broadband experience (see the discussion of network neutrality in chapter 3). Regulators have also instituted other measures, such as monitoring quality of service and alerting users to sites where they can test their broadband connection for speed or throttling (see chapter 5 for more discussion of quality of service issues).

6.2.3.2 Services to Drive Broadband Demand

Services refer to the basic connectivity function of providing access to the Internet as well as value added features that broadband operators include with the broadband subscription and that meet specific quality guidelines. Within the broadband ecosystem, the availability of services is an important factor that influences and possibly drives demand. This level of demand, of course, will be affected by the attractiveness and affordability of the service offerings.