VoIP Spurring Worldwide Demand For Broadband

Telecom Policy Report, Sept 24, 2003

Internet Telephony Seen As Key Driver For International Upswing

A primary driving force behind a marked increase in worldwide subscription numbers for broadband services appears to be consumer demand for Voice over Internet Protocol (VoIP), according to a just-released study from the International Telecommunication Union (ITU). The ITU report, titled The Birth of Broadband, emerges at a time when VoIP is coming under increasing regulatory pressure in the United States.

This new ITU report examines the emergence of high-speed, dedicated Internet connections that are expected to profoundly expand the world's access to information. Broadband is also expected to facilitate the long-awaited convergence of three previously distinct technologies: computing, communications and broadcasting.

U.S. State Department sources tell TPR that the ITU report, the fifth in a series, is now being circulated among key policymakers in the United States, including the Office of the U.S. Trade Representative. The document could in fact prove useful to USTR negotiators in leveraging American broadband-related R&D as a way to further open markets overseas, the sources said.

For example, the document shows that the number of worldwide broadband subscribers grew 72 percent in 2002 to approximately 63 million. The Republic of Korea, one of America's closest allies and a major U.S. trading partner, now leads the way in broadband penetration, with approximately 21 broadband subscribers for every 100 inhabitants. Hong Kong (China) ranks second in the world with nearly 15 broadband subscribers per 100 inhabitants and Canada ranks third with just over 11 broadband subscribers per 100 inhabitants. Home users and Internet telephony are driving the vast majority of broadband demand in all markets.

Interestingly, in those international markets where broadband has most excelled, Internet telephony is not regulated like traditional wireline telephony. In fact, broadband and VoIP are arriving at a time when the revolutionary potential of the Internet has still to be fully tapped, said Dr. Tim Kelly, head of ITU's Strategy and Policy Unit. "However, while broadband is accelerating the integration of the Internet into our daily lives, it is not a major industry driver in the same way that mobile cellular and the Internet were in the 1990s. It's an incremental improvement, offering Internet access that is faster, more convenient and cheaper than ever before," he said.

One reason for the sharp increase in broadband subscribers is the growing demand for faster Internet speeds, Kelly said. Broadband services provide Internet connections that are at least five times faster than earlier dial-up technologies, enabling users to play online games and download music and videos, as well as share files and access information much faster and more efficiently than before. In many markets, increased competition among broadband service providers has also triggered lower prices for consumers, boosting demand and making broadband access more affordable.

Early evidence suggests that broadband access may also help fuel consumer spending, according to the report. Around the world, there is a positive relationship between broadband penetration and monthly spending on communications services. For example, the Republic of Korea enjoys the second highest level of monthly telecommunications spending after Switzerland. Other economies with high rates of broadband penetration, such as Canada and Iceland, also have above average levels of consumer telecommunications spending.

For businesses, the new generation of broadband services, including VoIP, competes very effectively with leased lines, which have traditionally served the corporate sector. In fact, in some markets, broadband can be up to 111 times cheaper, per megabyte per second, than today's private network options. The cost savings alone suggest a major incentive for business and government users to shift to broadband. With its increased speed and efficiency, broadband also offers an excellent infrastructure for e-government and e-education services, such as online driver's license renewals, electronic tax filing, and online library and learning resources.

"The dot.com boom was driven by the expectation that the Internet would create a large market for electronic commerce, on-demand content, and online applications," Kelly said. "Broadband brings this expectation one step closer to reality by offering faster speeds and a better platform for the development of content services. In other words, the reality is finally starting to catch up with the market hype."

Today, approximately one in every 10 Internet subscribers worldwide, or just over 5 percent of the total installed base of fixed lines worldwide, has a dedicated broadband connection. However, many more people share the benefits of high-speed Internet access through a local area network (LAN) at work or at school. In the Republic of Korea, which is approximately three years ahead of the global average in converting Internet users to broadband, broadband subscribers represent 94 percent of total Internet subscribers.