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This book, and the research program which it draws from, rests on the assumption that connectivity—the opportunity (but not the compulsion) to engage in electronically-mediated communication (synchronous as well as asynchronous), information retrieval in various forms, and publication—is good. This assumption is not, however, a religious belief. It rests on evidence, if not proof.

Why is Connectivity Good?

After much debate, it is now recognized that economic growth is a necessary condition for the alleviation of human misery (or for the achievement of human development). The relationship between the ability to communicate over distance using technological means and economic growth has been much discussed (Cronin et al., 1993; Cronin et al., 1991; Cronin et al., 1993; Hardy, 1980; Mansell and Wehn, 1998; Menou, 1993; Samarajiva, 1995; World Bank, 1999). Correlation is beyond dispute, but the case for causation is unlikely to be fully established. Development requires many inputs; communication and knowledge being only some of them (see Figure 1).

Establishing causation was considerably more important prior to the 1990s when public funds, domestic as well as donor, were still the main source of investment for expanding access to information and communication technologies (ICTs), defined as including, but not limited to, telecom. Access to telecom is the foundation for ICT use. In many developing countries and among the poor, telecom (and perhaps radio and TV) constitute the total experience with ICTs.

The increased private investment in telecom in the 1990s dipped as part of the overall downturn following the bursting of the IT bubble, overbidding on 3G (Third generation) mobile and overbuilding of optic fiber capacity at the turn of the century. But at least for emerging Asia, it always remained above the levels of the early 1990s. Investment is particularly robust in South and Southeast Asia, the regions covered by this book (see Figure 2), partly because a new group of investors based in the South, such as Ayala, Etisalat, Orascom, Reliance, Singapore Telecom and Telekom Malaysia (TM), have entered the semi-liberalized markets of this region in a significant way.

When public funds were being expended on telecom, it was necessary to ensure that scarce financial resources were being spent on services which give the greatest public benefit. A rupee more for telecom was a rupee less for road building. Now, the burden of proof is much less because private capital is the main (and in many cases, exclusive) source of funding for expanding telecom networks.

Figure 1
Communication Technologies in the Context of Inputs Contributing to Development

Source: Author.

Figure 2
Annual Telecommunication Investments in South and South-east Asia (USD millions) (1985–2002)

Source: Author, based on ITU databases.

For example, telecom is one of the largest contributors to growth of Gross Domestic Product (GDP) in Sri Lanka. Yet, it draws no public funds whatsoever, contributing significantly to the exchequer. Investments in telecom do not detract from other worthwhile investments, but instead, contribute to them. This happens in two principal ways. First, the Sri Lankan government obtains substantial revenues from the sector, directly in the form of returns on its 49.5 percent investment in the incumbent and in taxes from telecom users (approximately 20 percent of every rupee spent on telecom services goes to government); with little or no leakage, telecom tax revenues are very valuable to government. Second, the availability of modern telecom facilities of reasonable quality enables improved performance in all other sectors of the economy, which, in turn, generates higher revenues for the government. Prior to liberalization, the telecom sector was a drag on the rest of the economy; now, it is a driver.

The first section of this book, "Demand at the Bottom of the Pyramid" illustrates the existence of demand at the bottom of the pyramid (BOP) at levels much higher than expected in terms of expenditure on telecom services. The always-beyond-expectations demand that has been exhibited by the unconnected when offered telecom services, most strikingly in the form of telecom riots (BBC, 2005; Nasarullah, 2004), is reason enough for private investors to step in.

The available evidence of employment and tax generation and similar benefits is adequate to justify government action to facilitate private supply (Lane et al., 2006; Waverman, Meschi, and Fuss, 2005; Zhen-Wei Qiang, and Pitt with Ayers, 2004), though not necessarily, for massive public investment. Scarce public resources are better spent on infrastructure that is less attractive to private investors such as drinking water, breakwaters in ports, and rural roads.

The dramatic shift in the composition of World Bank loans in the telecom sector, shown in Figure 3, is an example of what happens when this line of thinking is accepted. It may not be possible to attribute the massive growth in telecom worldwide during the past decade (Figure 4) to the World Bank getting out of the business of financing government-owned integrated monopolies and putting its resources behind reforms instead, but the withdrawal of World Bank assistance had no ill effects, at least!

The perennial opportunity-cost question, though, reappears in a more modest form. Given finite investment resources of governments, should they be spent on telecom as against drinking water or breakwaters in ports? Not telecom, because it does not need government investment. Given the finite resources to design and implement reforms in governments, should they be spent in reforming telecom or education, or military procurement, or electricity? Should it be telecom—because it is easier to reform, because it generates more tax revenues than the alternatives, and, because it yields greater benefits to the economy?

Why Unconnected?

Connectivity is undersupplied because of historically evolved policy, locked in by inertia, has made it so. This book is, among other things, an extended conversation about whether technology by itself can increase supply, or whether policy and regulatory pre-conditions have to be satisfied to realize the potential of technological and service innovations.

In the extreme form, the argument may be framed in terms of policy and regulatory reforms versus supply of new technologies. Assuming a fixed quantity of resources (capital, personnel, etc.), should it be allocated solely to policy reform or to new technologies? More moderately, the debate may be framed as one between the emphasis placed on institutional reforms versus technologies; mostly on reforms with technology playing a supporting role, or, mostly on technology with reforms not being neglected?

Figure 3
Composition of World Bank Loans in Telecom Sector (1980–2000)

Source: World Bank (2002, p. 22).

Figure 4
Growth in Fixed and Mobile Subscribers in the Asia-Pacific, Europe and Central Asia, and the Americas (1984–2003)

Source: Author, based on ITU databases.

One who looks at the explosive expansion of connectivity within the past two decades, especially in relation to the seminal 'Missing Link Report' (Independent Commission for World Wide Telecommunications Development, 1984), which serves as a good baseline, may be tempted to attribute all growth to new technologies such as wireless. There is no question that reductions in per-line costs over the past two decades have enabled more people to be connected. But what gave rise to those reductions?

The dramatic reductions in the per-line cost witnessed in the past 5–6 years were made possible by economies of scale in manufacturing and competition among manufacturers, driven primarily by massive growth in several large Asia-Pacific markets—China, India, Pakistan, Bangladesh, Indonesia, and Vietnam. Why were these conditions not present earlier?

Before multiple service providers, operating under varying forms of competition, found reason to connect the hitherto unconnected in large numbers, there was no need for large production runs—the necessary condition for realization of economies of scale. Before telecom operators started to behave like normal firms seeking to obtain the lowest-cost inputs, there was little reason for equipment manufacturers to drive down costs. In the old days, the determinant of equipment sales were not price, but the overall calculus of vertically integrated national champions, tied aid, the local-manufacturing provisions of long-term purchase agreements and bribes.

So it appears that the lowering of barriers to entry in telecom service markets and the vertical disintegration of telecom value chains served as pre-conditions for lowering of the costs of connectivity. But this was not all. The virtuous cycle of expanding connectivity, with greater demand driving down the cost inputs and lower costs of inputs causing even greater demand would not have gotten started if not for business innovations that transformed the entire business of supply of telecom services.

In the engineer-dominated PTT (Posts Telephones and Telegraphs) culture of yore, it would have been unthinkable to offer connections at the low average revenue per customer as is being done today, or to offer flexible and consumer-responsive service packages. In Indonesia, the current average revenue per prepaid customer of Excelcomindo (TM subsidiary) is USD 4.64, but the company is making profits and connecting more people.

In 1998, the regulatory commission in Sri Lanka had to coerce the reluctant incumbent, Sri Lanka Telecom Limited (SLTL), to offer a three-part installment plan to customers (Samarajiva, 2000). In 2006, the same company, now nine years after privatization, facing intense competition and having somewhat outgrown the PTT culture, offered a much more favorable, 10-part installment plan to potential customers on its own initiative.

In the old days, the first reaction of telecom operators to new technologies such as mobiles that work both in circuit-switched mode and in packet-switched mode on Wireless Fidelity (Wi-Fi) networks would have been to quash them through appeals to regulators and the courts, if not through direct pressure on manufacturers. Now, such reactions are less common, especially in the liberalized markets. For example, Cingular, an operator in the United States, is now offering such dual-mode phones, even at the risk of harming its existing markets (Richtel, 2006).

If new technology alone could extend connectivity, the offering of Internet services by Bhutan Telecom through its fully-owned DrukNet Unit in 1999 with International Development Research Centre (IDRC) assistance should have yielded good results. Until the second mobile operator starts functioning under the license issued in 2006, Bhutan remains one of the last remaining government-owned integrated monopolies.

With donor assistance, Bhutan Telecom connected the mountain kingdom to the world in May 1999 as part of the celebration of the King's Silver Jubilee. The connection of the world's remotest country to the Internet was undoubtedly a good thing and made a few headlines. Yet, the new technology had little or no impact on extending connectivity. DrukNet simply became another service from the same lackadaisical and unimaginative monopoly, serving a few government and foreign entities, travel agencies and tourists willing to pay high prices and tolerate the poor quality of service.

The discussion of Wi-Fi innovations in Indonesia in Section 2 also illustrates the inadequacy of technology by itself. As Chapter 4 illustrates, Indonesia may have one of the highest levels of citizen activism and do-it-yourself knowledge regarding Wi-Fi as a local-access technology. But, as Chapter 6 shows, this has not translated into commensurate increases in digital opportunity because of the perverse policy and regulatory environment within which the Internet service providers and citizen activists have had to operate.

Would it have been better if the activists put all their energy into policy reforms? Or if they ignored the policy process altogether and concentrated entirely on developing workarounds to the barriers erected by misguided policy?

It is unlikely that there can be an answer to these questions that is correct for all countries and all times, or even for Indonesia at all times. The Indonesian civil society activists have a major policy success to their credit, the unlicensing of the 2.4 GHz band as one of the first acts of the Yudhoyono administration in January 2005. As Chapter 4 shows, the activists are in favor of greater policy reforms. So this suggests that they have not conceded the policy space.

The real question is whether the policy success of getting the 2.4 GHz band unlicensed could have been achieved without the previous educational and mobilization activities? Would the reform advocates have had the clout without the numbers provided by the extensive mobilization and the resources without the Internet Service Providers (ISPs) and the Warnet (Warung Internet) cybercafés? Would there have been ISPs and Warnets if technological workarounds had not been devised to circumvent the barriers erected by the incumbent monopolist?

It appears that the technology focus created the conditions for effective reform actions in the policy space. If the activists had boycotted policy process altogether, they could not have freed up the 2.4 GHz band and created the conditions for further connectivity-friendly reforms such as the lowering of leased-line prices. But had they not done the hard work of community education and mobilization, they may have been less successful in changing bad policies.

Liberalization

The lifting of policy constraints on participation in the provision of connectivity may be described as liberalization, a process that achieved critical mass in 1984 with the AT&T (American Telephone & Telegraph Company) divestiture in the United States and the reforms in the United Kingdom that included the end of the British Telecom (BT) monopoly and the establishment of the Office of the Telecommunications Regulator (OFTEL), now Office of Communications (OFCOM), as a specialized ex-ante sector regulator. Conceptually, liberalization includes the following components, ideally in sequence (Fink, Mattoo and Rathindran, 2002; Samarajiva, 2002):

• The creation of an explicit regulatory regime, separate from the incumbent or major operator;
  
  
• The relaxation of entry controls to allow more suppliers to participate in the market and at various points in the value chain; and
  
  
• Reform of the incumbent or major operator, which in many cases includes a complete or partial change in ownership and/or management.

The wave of reforms that spread across the world since 1984 did not take long to build up momentum, as shown in Figure 4.

The Asia-Pacific has emerged as the driver of worldwide connectivity expansion, with the East Asian Tigers supplying much of the needed hardware and also reaching saturation in basic services and the world's two most populous countries, China and India, providing the numbers. Yet, the region is also home to some of the economies which offer their citizens the least connectivity, as seen in Figure 5.

It is easy to rest on the achievements that have been made. However, it is more productive to make a realistic assessment on the lines of Ashok Jhunjhunwala (2001, p. 1):

In 1991 both India and China had about 5.5 million telephones. Today (2001), India has about 35 million telephones—a six-fold increase in a decade is by no means an achievement in the conventional sense. But in the same period the number of telephone lines in China has grown to about 200 million; and is adding about 30 million lines every year.

Figure 5
High and Low Performers in Asia-Pacific Telecom

Source: Author, based on ITU (2005).

So the question is "what could have been?" It is clear that connectivity in the unreformed economies has not grown. But at the same time connectivity in many of the "reformed" economies has not grown as much as it could have.

Better Policies

The Section on "Demand at the Bottom of the Pyramid" provides evidence of how much unsatisfied demand there is at the BOP. Section 2, "Access, Against All Odds", dealing with the softer issues of local access networks and mechanisms, and Section 3, 'Regulation: To Stifle or Enable?', dealing with the harder issues of backbones, cross- and other subsidies and cost allocations, deal with policies—not necessarily the best policies or international best practices from idyllic lands populated by honest politicians and competent officials; but real policies that have been tried, and either failed or succeeded in the harsh terrain of some of the most poorly governed countries this side of Somalia and Liberia.

Levy and Spiller (1994) drove home the point that the optimal policy solution was not the absolute best but what fitted the environment in which they were to be applied. Our attempt here is not to describe the best policies for extending networks, but to identify the policy actions that would be most efficacious in the governance badlands of South and South-east Asia.

We do not seek to whitewash the failures or justify them. We take joy when Bangladesh connects a million new mobile users in one month and Pakistan overtakes both India and Sri Lanka in extending mobile connectivity in the space of one year. We rage when our governments talk the talk of greater connectivity and walk the walk of corrupt monopoly and proven failure.

The countries that we write about have done well in extending connectivity in the past decade, for the most part. South Asia has gone from 15 million in 1995 to over 110 million in 2005, a more than seven-fold increase in a decade. Indonesia also shows a six-fold growth over the decade like its giant counterpart, India. However, as Jhunjhunwala points out, well is not good enough. The East Asian giant, China, has grown enormously, connecting more than twice the combined number in South and South-east Asia up to 2004.

The analysis in this book suggests why Indonesia's committed ICT activists and ISPs have been driven from pillar to post simply to use the Internet, as shown in Chapters 4 and 6. They have had to devise complex workarounds that boggle the imagination and violate all languages used in Indonesia as well as the law, simply to browse the web and send e-mail. They had to engage in 'unlegal' (not illegal, as they point out) activities to be able to connect to the Internet. They had to change a President to get a band of frequencies unlicensed. If all this energy could have been used for more productive purposes, what would have been the result?

Chapter 5 documents the lessons that can be learned on business models that can be derived from the Village Phone enterprise in Bangladesh, which Nobel Laureate Muhammed Yunus made famous and which in turn made Yunus famous. These innovations do not relate to telecom per se, but are business practises that made it possible for women to make a living out of telecom, and for others to use it. Some of the innovations, the authors find, were specific to time and place and need not be replicated. For example, today's context of cheap handsets reduces the need for the provision of micro-credit to potential Village Phone operators to get their phone business started; the availability, and now the predominance of prepaid makes the continuing credit relationship less significant. Yet, other aspects such as the ability to receive as well as make calls and the higher degree of privacy afforded by a mobile phone versus a public call office can, and are, being absorbed into current adaptations of the Grameen Village Phone model.

The Grameen Village Phone program was an innovation that flowered despite the incredibly hostile telecom regulatory environment. The roll-out was delayed because of the difficulties of getting the phone service operational. Even today, full interconnection is not available for all Grameen phones. If all these barriers did not exist, what would have been the result?

The battle over backbone in India described in Chapter 7 illuminates several key issues in telecom policy and reform. Is the Government of India not treating backbone as an essential facility that should not be wastefully duplicated because of an exaggerated respect for the 'private property rights' of a fully government-owned incumbent or because of fear of the incumbent's managerial caste and powerful unions? Will 'pure infrastructure providers' who see only operators as customers enable competitors to match the stockpiled advantages of the incumbent in the rural areas, or will they also transform themselves into 'service providers' directly interacting with customers? If the answers to these questions had been clearer, would more dark fiber have been lit and more rural customers connected? What would have been the result?

Chapter 8 describes a good policy idea orphaned at birth and beset by misfortune and malgovernance in Eastern Nepal. Can least-cost subsidy auctions work when the telecom regulatory environment takes a dive and the macro political environment becomes actively hostile? Does this case study give donors and governments a better sense of when to cut and run? Would the prospects for least-cost subsidies have been better in Asia, had the World Bank retreated in the face of rapidly deteriorating security, political and regulatory environments? What would have happened if the gunpowder had been kept dry for a better day?

Chapter 9 demonstrates that the world's second largest universal service fund has for the most part been unutilized and wrongly directed, though the disbursements have been done most transparently. If all the money extracted from the capital-hungry sector had been disbursed quickly and if the changes now being implemented had been accepted at the start, what would have been the result?

It is almost surreal to read the contorted progress of the Access Deficit Charge policy in India in Chapter 10. It is perhaps the best single answer to the Jhunjhunwala question as to the causes of underperformance in the Indian telecom sector. The narrative describes the tortuous process by which the Telecom Regulatory Authority of India (TRAI) grinds down the forces protective of the incumbent, its privileged managerial castes and its multitude of unionized employees. It is almost as if it knows the right answer, but it has to work through a sequence of wrong answers to gain acceptance for the right answer. What if the vested interests were less entrenched and TRAI could have implemented the right answer at the beginning? What would have been the result?

In Conclusion

The book itself is an introduction, not a conclusion. It is an introduction to a new way of governing, especially in areas that rest on specialized, yet incomplete, knowledge such as infrastructure. The basic idea is that policy requires knowledge, but that the knowledge is necessarily incomplete. Decisions must be made with the best available evidence. The imperfections of the available evidence should be remedied by subjecting them to the test of argumentation (Melody and Mansell, 1983).

Accordingly, the book contains multiple points of view and contestations. LIRNEasia, the organization that generated the research which forms the basis of the chapters, is not the most sympathetic to incumbents; yet the head of regulatory affairs at an incumbent phone company has been invited to respond to the authors, within the book itself. Generally, the authors favor market forces and see regulation as a necessary evil. However, a leading regulatory professional has been asked to make his comments within the covers of the book itself. The authors are, for the most part, immersed in telecom and ICTs and see the world from vantage points that privilege those technologies and associated practices; yet the last of the responding authors comes from outside the ICT field.

'What could have been' is an interesting question, but, on the face, it addresses the past. 'What is to be done' is the question that focuses attention to the present and the future. The workarounds described in this book are not simply the equivalents of the two-headed goats in formaldehyde in the museum of South Asian reforms; they contain within them valuable lessons for the way forward. Wish as we may, we cannot conjure up effective and clean governments for our region overnight. Future reforms must also take place within the dysfunctional contexts described in the chapters.

The reforms in the ICT sectors have so far resulted in the improvement of governance in this sector, if not yet in the larger polity. The point is not to perpetuate the vested interests and dysfunctional governance arrangements, but to challenge the vested interests and improve governance. We believe and hope that the research presented in this book will contribute to that process.

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