This week's Economist has a special report on telecoms in emerging markets that I highly recommend to anyone interested in ICT4D.  While much of the report reiterates what many of us already know, one of the articles in particular got me really excited and essentially validates a lot of what I was reaching for in Liberia this past summer: domestic infrastructure itself can be organized in a way to bring dramatic drops in operating costs.  Given the highly competitive nature of service providers and incentives at the firm level, my assumption was that the market wouldn't self organize in the socially optimal (i.e. lowest cost) structure, rather that government had a role to play in shaping it.

Turns out that necessity has led the Indian market to do much of this on its own.  The Economist article gets into many innovations at the network operator level that have enabled providers to profitably serve low income users.  One key aspect of the Indian model outsources wherever it can: from IT to network management to customer care, all the way to the construction and ownership of the network itself.  And there's the key.  If someone other than the retail provider is owning the network itself, it can achieve economies of scale while still retaining competition at the retail level.  Airtel, India's largest mobile phone operator, estimates this alone lowers operating expenses by 15%. 

Another key aspect of the Indian model is infrastructure sharing.  The ubiquity of multiple towers on the same building in Liberia always made me cringe.  When cell phone towers are shared among providers, both the investment required to build out the network and the operating costs drop (think about all the places without electricity where you've got to provide fuel for the generator and guards to keep the fuel for being stolen).  China and Bangladesh recognize the opportunity for policy to influence cost structures and require the sharing of cell phone towers.  

Africa is at a crossroads.  Submarine cables coming online around the African continent are driving significant investments in domestic and regional telecommunications infrastructure across the continent.  Though the Indian market has shifted to this model on its own, governments can and I believe should play a role in shaping these investments to avoid redundancies and dramatically reduce costs.  

Why does this matter so much?  Because demand for Internet connectivity in developing countries is highly elastic, meaning that small increases in prices will lead to large drops in adoption.  And that adoption is critical for ICT to realize it's development potential -- to bring productivity to market activities, to improve public service deliver, and to strengthen civil society.  Both micro and macro level studies are showing empirically that adoption leads to higher incomes and economic growth.  I'll get into issues with macro level econometrics in a future blog post, but two studies to date have shown that a 10% change in mobile phone adoption translates into an 0.6% and 0.8% respecitvely increase in GDP per capita growth.  One of those studies showed the effect is even greater for Internet adoption: 1.1% for dial up and 1.4% for broadband.  If we believe this, we should all be doing cartwheels about the opportunity in front of us.
 
It's a golden opportunity for Africa.  My fear is that it's about to be missed.  Which brings me to my next post.