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.

6.3.1 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.

6.3.1.1 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.

6.3.1.2 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.

6.3.2 Service Costs

Programs to provide affordable broadband devices to users are important, but only solve part of the problem. The longer-term issue for adoption of broadband services is the ongoing cost of receiving service. Some users may not have the means to pay for broadband access on an ongoing basis, particularly in countries where broadband service prices are still high. More information about support programs that could help users to get and keep their broadband service can be found in chapter 4, which addresses universal service funds and obligations.

In order to address the issue of service cost, in 2001 the Kenniswijk project in the Netherlands proposed a two-part subsidy program for connecting users. Notably, a year after the subsidies ended, 80 percent of subscribers were still using the service.

• Initial connection. A subsidy would be paid directly to the consumer and the administration would be undertaken by a government agency. This part of the subsidy would be used to encourage people to get Internet connections.
• Ongoing support. Ongoing support would be administered by the companies that win the contract to build the broadband infrastructure. They would receive money from the government and would then distribute the full amount to individual consumers in the region in the form of a lower connection tariff per household. It was thought that this would encourage people to adopt and keep broadband access.* Ultimately, the subsidies were not paid exactly this way; the initial connections were subsidized by government at the rate of €800, and service for the first several years was free.

6.3.3 Shared or Community Access

In addition to using community access centers as a way to promote awareness of broadband, shared or community access can be a means of facilitating broadband affordability. Establishing locations where users are able to share broadband access is an important tool to enable broadband adoption and drive demand for otherwise willing and skilled persons who lack the financial means to purchase devices or pay long-term (contract) access charges. Public access facilities can be (1) government access facilities operated by public libraries, post offices, municipalities, or schools or (2) for-profit Internet cafés or local area network (LAN) gaming arcades operated privately. Both models are seen in abundant numbers throughout the world, including in developing countries. Public funding for access facilities may be particularly justified in localities where privately operated telecenters or Internet cafés are not yet available.

These facilities provide additional benefits, as they can also be places where training in digital skills occurs, such as those discussed earlier in this chapter. Figure 6.5 illustrates how important shared access facilities are in providing Internet access. It shows the place of access for Internet use on the basis of household surveys conducted in 12 countries in Latin America. In seven of the 12 countries, more persons access the Internet at public access facilities than do so at their own households.* ECLAC, “Observatory for the Information Society in Latin America and the Caribbean (OSILAC),” http:www.cepal.org/tic/flash/, as cited in ECLAC (2010, 32).

In India the government is establishing 96,000 common service centers (CSCs) with broadband access that is configured to enable video, voice, and data in the areas of e-governance, education, telemedicine, entertainment, and other private uses.* India, Department of Information Technology, “National e-Governance Plan,” http://mit.gov.in/content/national-e-governance-plan. E-government services from the national, state, and local governments are all available at the CSCs. One Indian state, Kerala, has implemented FRIENDS (Fast Reliable Instant Efficient Network for Disbursement of Services) as a single-window facility with at least one center in each district of the state. Currently each center has 800 to 1,000 visitors daily. Citizens can make payments for various government-related services, obtain e-literacy training, and access a help desk to receive answers to questions or register complaints.* Kerala State IT Mission, “Friends,” http://itmission.kerala.gov.in/ksitm-e-governance-projects/82-friends.html. In the initial implementation of the program, 95.6 percent of participants said they lost their fear of computers because of the program, 30.5 percent felt they gained more respect in the community because of their computer knowledge, and 9.2 percent signed up a child for a computer-literacy class (Pal 2007).