Study on Broadband Policy in Korea Lessons for Developing Countries by wulinqing


									Broadband policy for developing countries
ESW Concept Note: August 10, 2010

The proposed economic and sector work (ESW) activity on broadband policy for developing countries has the
following objectives:
     1. Identify policy options for how developing countries can accelerate the diffusion of broadband
        networks (henceforth “broadband”).
     2. Disseminate findings to developing countries‟ ICT policymakers and regulators through a report and

Rationale and value added
This ESW will: (1) expand the literature on broadband policy options, (2) create knowledge on the evolving role
of government in broadband diffusion, and (3) support World Bank operations.

The ESW expands the literature on broadband policy options. Compared to policy analyses focusing on
telephony, broadband remains understudied. This matters because broadband has a comparatively greater
impact on development than other ICT. Consequently, restricted understanding of policy options to diffuse
broadband will delay or deny the potential development gains.

This activity will add to existing knowledge on broadband policy in three ways. First, it consolidates existing
information on policy options for enabling the diffusion of broadband. Second, it will analyze how countries
have implemented broadband policies, drawing upon the best practice examples and creating knowledge on
translating policy ideas to actionable programs. Third, it disseminates this knowledge and findings to the
appropriate audiences both within and outside the WBG.

The ESW also creates knowledge on the evolving role of government in broadband diffusion. Experience
shows that governments are not static entities with respect to regulated markets. Instead, their functions and
influence vary as markets evolve from innovation to saturation. Specifically, there is a balance between the
government and private sector will enable the greatest diffusion of broadband, and that the nature of this
balance varies as the market develops.

This ESW will analyze this dynamic and evolving role of government in promoting, regulating, and then
universalizing broadband. Going beyond a general conception of government creating an „enabling
environment,‟ this analysis will allow governments to think clearly about specific measures that respond to both
specific local circumstances. Simultaneously, it is important that the government should not crowd out the
private sector. These aspects are discussed later in this concept note.

The ESW will also support Bank operations. Its findings will inform staff of the range of policy options
available to low- and middle-income countries looking to spur the diffusion of broadband. Further, by
disseminating its findings, this ESW creates opportunities for the Bank to engage with client countries on the
topic of broadband development. In this way, this ESW will also influence regulatory policy in client countries.

Further, this activity is closely associated with a proposed infoDev activity looking at the developmental impact
of broadband. These two activities are complementary because they are concerned respectively with examining
the creation of an appropriate policy response, and the impact of the diffusion of broadband.

Expected outputs
    1.   Report. The data collection, analysis, and conclusions of the study will be included in a report.
    2.   Dissemination activities. The ESW will emphasize dissemination of key messages and lessons learned
         from the study through knowledge sharing activities including publications and country or regional
         workshops, including a proposed joint workshop with OECD. The authors will also publish the report

              through appropriate Bank channels (e.g. IC4D, Viewpoint notes) and in conferences or academic

This ESW identifies policies to enable the rapid diffusion of broadband in developing countries. When
implemented, these policies can enable countries to realize the benefits of expanded access to broadband at a
faster rate than might be predicted, for instance, by their level of GDP per capita. The ESW proposes using the
Republic of Korea‟s (Korea) experience in broadband development as a useful example of how developing
countries can accelerate growth. This section gives a theoretical background for the ESW.

There is a “broadband divide”
There is growing recognition of how broadband supports economic growth in both developed and developing
countries. Expanded access to broadband facilitates social and economic integration, increases the efficiency of
businesses, enables wider service provision by governments, and opens new opportunities for countries, firms,
and individuals looking to participate in the knowledge economy.

However, the extent to which developing countries can realize the economic benefit of broadband is limited and
a broadband divide exists between them and the developed world. Low- and middle-income countries lag
significantly behind high-income countries in broadband diffusion (Figure 1). This lag is due to high-cost or
low-quality infrastructure, low perceived demand, or restrictive policies and regulations. Consequently, an
increasing number of developing countries looking to realize the benefits of broadband are held back by low
diffusion of their broadband networks, as well as slower speeds and higher prices.

Figure 1: Broadband subscriptions in different country groups (per 100 inhabitants) 1

         25                      High income                          Upper middle income
                                 Lower middle income                  Low income




              2000        2001           2002          2003          2004          2005     2006         2007

Without accelerating growth, the broadband divide is inevitable
Without accelerating the supply and demand of broadband, developing country markets might take a long time to
develop, making the broadband divide wider. Studies on the diffusion of innovations theorize that innovations spread
through society following an “S-curve.”2 Early-adopters lead to accelerated mass-market diffusion, decelerating to
ultimate saturation in a variety of ICT (see

Figure 2). Further, typical diffusion models predict much slower penetration rates in rural and remote areas
relative to urban zones.

    World Development Indicators data, 2008
    Rogers, E. Diffusion of innovations. New York: The Free Press. 1971.

Figure 2: Diffusion of ICT globally (subscription per 100 inhabitants) 3

    60                  Broadband
                        Mobile phone
    50                  PC
                        Wireline telephone















Broadband, like most other innovations, also diffuses in an “S-curve.” In the first stage, early adopters—
business users, high-revenue customers, or state institutions—drive the build out of networks. In the second
stage, broadband becomes mass-market typically through private-sector-led development. In the final stage,
some „access gap‟ will remain, where only specific incentives will encourage the rollout and adoption of

In order to avoid a widening broadband divide, developing countries will have to accelerate their broadband
markets to expand faster than the “S-curve.” This will need:
     1. A push in early adoption, in order that the broadband market has a faster transition to mass-market.
     2. A fast take-off in the mass-market, with both adequate supply and demand.
     3. Programs for universal access to broadband—even for remote or high-cost subscribers—when the
         market begins to reach its limits.

An evolving role for government
To spur such growth and overcome the broadband divide, developing countries are now looking to formulate
and implement policies to spur the diffusion of broadband. However, there is no “silver bullet,” and developing
countries have different implementation capacities. Hence, they require knowledge on the range of policy
options and their implementation to create an enabling environment for broadband, encourage supply-side
growth, and expose latent or create new demand.

Indeed, a government will have to enact different policies as the market grows. Consequently, the role of the
government will have to evolve from market promotion to regulation and finally move towards universalization
of service provision (Figure 3).

    World Development Indicators data, 2008

Figure 3: The evolving role of government


                     0        1       2     3          4      5       6       7         8         9     10

Early on, promotion policies will have to focus on the development of a national broadband backbone network,
demand creation, and creating an enabling environment for competition and investment. When broadband
reaches mass-market status, regulation will likely have to ensure competition and support supply growth in the
access segment. Finally, universalization will cover access gaps through universal service policies that will
drive networks into rural and high-cost areas.

Developing a menu of policy options
These varying roles require a “menu” of policy options both that drive broadband growth through these stages
of growth, and that developing countries can adapt to local circumstances. At different times, these policies can
expand the supply of, or demand for broadband and can help in reducing the price to consumers.

These demand- and supply-side policies are cumulative, and will be effective at different stages of market
development. Preliminary research suggests the following examples (that will be refined as the report is

 Market stages             Government                Supply-side policies                   Demand-side policies
Early stage              „Promote‟               Incentives and subsidies for         Government-led        demand
                                                  R&D, pilots, and network              aggregation.
                                                  rollout.                             Local content and hardware
                                                 Providing         broadband           development.
                                                  networks     to       schools,       Low cost PCs and other user
                                                  government etc.                       devices, for instance in
                                                 Lower entry barriers.                 education.
                                                                                       Digital literacy programs.
Mass market              „Regulate‟              Creating      an     enabling        Cyber-building certification
                                                  environment for intra- and            systems.
                                                  inter-modal competition.             Non-discriminatory access
                                                 Mandated        Infrastructure        for service or applications
                                                  sharing,            including         providers.
                                                  unbundling the local loop.
Universal service        „Universalize‟          State-led deployment of              Advanced        eGovernment
                                                  open     access    broadband          programs.
                                                  networks in high-cost or
                                                  remote areas.
                                                 Coordinated rights-of-way.

Korea as an example of accelerated broadband growth
To develop this list of options, this ESW will do an in-depth case study of broadband policies and their
associated programs in Korea and literature studies of other high- and middle-income countries. The team
selects Korea for study because:
     (1) It was an early mover and remains a leader in broadband development, both for fixed-line and mobile
     (2) Its broadband market growth apparently defied the “S-curve” with a quick drive to the mass market;
     (3) It adopted systematic and comprehensive policies for promoting broadband; and
     (4) The Korean government took a direct involvement in the development of broadband.

Korea was an early mover and is a leader in wireline and wireless broadband (Figure 4). Korea recognized
the importance of broadband in the late 1990s. It has subsequently outperformed most countries in its
deployment and use. Until 2004, it ranked first of 53 countries in Asia, North America, and Western Europe. As
of June 2008, penetration is 31.2 per 100 inhabitants.

Even though Korea is currently ranked seventh of 30 OECD countries in penetration on a per-capita basis, it
remains the leader both in household and fiber/LAN-based penetration, and Korean consumers enjoy some of
the lowest prices anywhere, measured in terms of price per Mbit/s per month. Furthermore, the market is
characterized by competition between technologies—DSL, cable, and fiber all have significant market share of
about a third4—with some of the lowest prices and fastest speed connections.

Korea is also taking the lead in wireless broadband; it was one of the first countries to launch 3G mobile
services and estimates suggest that as of 2008, it is the largest market in Asia for both WiMAX/WiBro5 and
commercial Wi-Fi operations.

Figure 4: Broadband subscribers (per 100 inhabitants)6

     35              Korea, Rep.                    Japan                          High income: OECD
     30              East Asia & Pacific            World
          1999     2000           2001      2002         2003         2004     2005        2006        2007

Korea’s broadband growth apparently defied the “S-curve.” Consequently, it is useful to study Korea‟s
success and understand what factors might have driven it, especially to derive lessons for the developing world.
This is more relevant now, when there are calls for fiscal stimulus packages to counter the credit crisis; the
conditions are similar to those prevailing in Korea at the time of the Asian financial crisis. By defying the “S-
curve”—clearly seen in Figure 4—Korea offers a unique example of how developing countries can accelerate
their broadband markets and overcome the broadband divide quickly.

Korea has adopted systematic and comprehensive policies early and effectively. It strategically executed
competition policies, and a variety of supply-push and demand-pull policies. Indeed, an outstanding
characteristic of Korea‟s success is the creation of an enabling policy environment. This makes it a useful
example of the range of policy options available for governments.

  OECD, Broadband statistics, June 2008
  BMI, The Future of WiMAX in Asia: Winners & Losers, February 2008
  World Development Indicators data, 2008

The Korean government has played a significant role in developing the broadband market. The Government
of Korea developed strategic plans and promotion policies when most developed countries were skeptical of
government intervention and hesitated to draw up the policies to boost broadband. Hence, while many other
countries have carried out a range of varied policies in this area, it is not easy to find any other country with as
comprehensive and diverse broadband policies in terms of scope and level of government involvement as

Analytical approach
As described above, the overall ESW activity will include a study leading to the preparation of a report and
subsequent dissemination activities. This section describes (1) the methodology for the study, (2) the audience
and dissemination strategy, and (3) a discussion of some important caveats and considerations for the study.

Methodology for the study
The study will answer the following questions:
    1. How can developing countries accelerate broadband diffusion to “defeat” the S-curve? What are the
        policy options available?
    2. How can the range of policies support accelerated growth of the broadband market through early
        adoption, take-off, and drive to achieving universal access?
    3. What is the role of government in creating an enabling environment and in overcoming any gaps left
        by the market?
    4. How can governments ensure that state involvement in the development of broadband does not stifle or
        crowd out the private sector?

The study answers these questions through four components:
    1. Detailed case study of Korea. Under Bank staff supervision, a consultant will prepare an in-depth case
        study of the broadband market, policies, and programs of Korea. This case study will provide an
        historical and political-economic overview of the development of the market, and detail the actions of
        the public and private sectors in enabling and promoting the growth of broadband networks and their
        use. It will draw upon earlier studies7 to provide a comprehensive and up-to-date picture of policies
        adopted at different stages of market development.
    2. Identification of broadband policies and programs. Based on the detailed case study of Korea, as well
        as the survey of other countries‟ experience, the consultant will prepare and analyze a long list of the
        different supply- and demand-side policies and programs implemented. This long list will be the
        prototype list of policies for the remainder of the study.
    3. Other countries’ experiences. Based on a survey of other (developed and developing) countries, the
        team will identify how policies similar to Korea‟s have been implemented in other situations, and with
        what success. This will improve the understanding of how similar policy options might be
        implemented differently in different political economic circumstances.
    4. Analysis and conclusions. The study will end with an analysis of findings and recommendations on
        policy options for developing countries to consider.

Audience and dissemination strategy
The intended audience for this ESW is:
     Government policy-makers and regulators: Officials responsible for broadband strategies, policies,
         and regulations;
     Private Sector: Firms that can be inspired to roll out broadband more aggressively; multinational
         firms who can save by outsourcing some of their information-based activities to new locations in
         developing countries due to lower cost of broadband; SMEs who can benefit from cheaper broadband
     Civil society and academia: Academics, think tanks, NGOs, etc. who can catalyze the adoption of
         global best practices in broadband access;

  See, for instance, ITU (2003) “Broadband Korea: Internet Case Study”, available at:

        WBG staff: Country management teams, sector teams that could both support the broadband agenda
         and benefit its expansion (e.g. education, agriculture, health, private sector development).

To reach this audience, the results of the study will be disseminated in the following ways:
     1. Publication of the resulting report in full;
     2. Publication of a summary version in a “Viewpoint” note for wider reach;
     3. A Workshop in Washington D.C. with participation of GICT and other WB staff, Korean officials,
         private sector and experts (in person, via the GDLN, and a live webcast); and
     4. Participation in a workshop organized in coordination with infoDev and the OECD on the
         developmental impact of broadband.

Caveats and considerations
This concept note and the ESW study will clarify three important caveats and considerations. First, one-size
does not fit all. It is critical to understand that one solution does not fit all country situations. The local political
economy and socio-cultural circumstances will have to inform the design of the final policies and programs.
Yet, it is possible to derive lessons and identify options based on what has or has not worked to spur broadband
growth in the studied countries.

This study avoids a “cookie cutter” approach by studying how countries other than Korea have implemented
similar policies, providing readers with not only a range of policy options but also different implementation
situations. Hence, the intention of this study is not to provide a “silver bullet” solution or suggest that one
country‟s policies are the only option, but rather to lay out the range of options for other countries to consider.
Indeed, using the Korean example to identify options, discuss how other countries have undertaken similar
policies and programs, and then conclude with an analysis will enable the audience to assess the various options
available to them and learn from a variety of examples and country situations.

Second, it is important to emphasize that the intention is not to suggest that the government should take over the
provision of broadband services. Rather, a balance needs to be struck between public sector programs that
improve the reach and adoption of broadband services, and private sector operations of the infrastructure and
services. The intention of this ESW is not to suggest the substitution of market mechanisms with government
intervention, but to identify policy recommendations that facilitate the market provision of broadband service.

At no point is the intention to create a backdoor for government entry into service provision, a move that would
potentially undo two decades of reforms and progress in the ICT sector. Instead, this ESW will look for new
ideas that allow the government to play a role in improving access to broadband services supplied through the
private sector.8

A number of commentators now suggest that relying on markets alone might not be sufficient to realize
widespread broadband provision and adoption. Indeed, as the OECD explains in a recent report, “the private
sector should take the lead in developing well-functioning broadband markets, but there are clearly some
circumstances in which government intervention is justified.”9 Further, a number of emerging models for
backbone development suggest that partnerships between the public and private sector will speed deployment
even in challenging markets in regions like sub-Saharan Africa.10 Hence, the government also has an important
role to play in encouraging the rollout of broadband networks and services.

   Indeed, there could be specific rules, such as the EU State aid rules. In that arrangement, the Commission‟s DG
Competition monitors State aid to the ICT sector and contributes to the development of State aid policy in this field. State
aid is defined as an advantage in any form conferred on a selective basis to undertakings by national public authorities. In
view of this definition, a number of measures such as research and development aid or regional aid to ICT companies have
to be monitored by DG Competition in order to avoid market distortions. DG Competition also clears aid that is beneficial to
consumers, by providing new research grants and encouraging the development of new products, such as open source.
  OECD, Broadband Growth and Policies in OECD countries, 2008, p. 12 (emphasis added)
   Williams, M. D. J., Advancing the Development of Backbone Broadband Networks in Sub-Saharan Africa, IC4D 2009.

Indeed, Korea itself was criticized in some quarters for adopting an “interventionist” approach to broadband.
However, the successful government-led programs in countries such as Sweden and Japan have led to a re-
evaluation of Korea‟s broadband policies. Now, countries are targeting a number of Korea‟s programs for
benchmarking. This includes the building of the national backbone network, deploying the Korea Information
Infrastructure, establishing a national Internet Exchange Point and measures to promote broadband usage and
create demand. In addition, several developed nations are studying the Korean case to transfer those models to
their own countries.

This change of perspective on the role of government in broadband development is of significant importance to
developing countries. Developing countries seldom have ideal telecommunications markets, and require pro-
active government policies and regulation to spur growth, especially in advanced ICT such as broadband.
Hence, Korea‟s experience is also more appropriate for them than the developed countries that limit the
government‟s role to competition regulation.


Task team
       Core team. The core team for this ESW activity is Yongsoo Kim (Sr. ICT Policy Specialist, TTL), Tim
        Kelly (Lead ICT Policy Specialist) and Siddhartha Raja (Telecommunications Policy Analyst).
       Consultant. The team will hire and supervise the preparation of the detailed case study on Korea by a
        consultant (individual or firm to be competitively selected).
       Peer reviewers. Proposed internal peer reviewers for this activity are Rajendra Singh (Sr. Regulatory
        Specialist, CITPO) and David Satola (Sr. Legal Counsel, LEGPS). The external peer reviewer for this
        concept note is John Windhausen (President, Telepoly Consulting). Another external peer reviewer
        will be identified for the final report review.
       Management oversight. Philippe Dongier (Sector Manager).

              Milestone                                              Date
              Concept note review meeting                            January 22, 2008
              Data collection and analysis                           February-May 2009
              Draft review                                           May 31, 2009
              Decision meeting                                       August 31, 2009
              Delivery to client                                     September 30, 2009
              Joint workshop with OECD on developmental              October 2009
              impact of broadband
              Final delivery including dissemination                 December 31, 2009
              Activity Completion Summary                            January 31, 2009


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