Increasing Broadband Internet Penetration
In the OIC Member Countries
158
VI.2. OIC Member Countries at an intermediate stage of broadband
development Countries with advanced coverage but limited penetration face classical demand gap reduction
challenges. First and foremost, governments have to recognize that increased service adoption
is dependent on lowering the total operating cost incurred by consumers for purchasing the
technology.
As it has been considerably researched, the development of competition is one of the major
tools for affecting a reduction in telecommunications service pricing. The following features
characterize a telecommunications competition model:• Existence of multiple operators serving the same market based on their own network,
• Existence of multidimensional competitive dynamics (prices, services and user service
quality) among industry players,
• Reduction of retail prices for consumers, and intense competition in product
differentiation (dynamic efficiencies), resulting in additional consumer surplus,
• Competitive stimulation for each operator to increase the level of investment in its
own network,
• Absence of tacit collusion between operators due to the high rate of innovation and
competition based on product differentiation.
Along these lines, it is important to emphasize that in order to determine the existence of an
adequate level of competition capable of yielding low broadband prices, the regulators need to
have access to expertise in market analysis capable to establishing whether the number of
players in the market are sufficient to warrant enough consumer benefits or whether
additional remedies are required to stimulate competitive intensity. This aspect is particularly
critical because unrestricted competitive entry of broadband providers could result in a
number of market inefficiencies (for example, low incentives to invest under low market share
conditions) and/or frictional costs (the costs incurred by carriers entering and exiting the
market after facing unsuccessful competitive strategies, as was the case of the wireless
industry in Cote d’Ivoire).
Beyond, competition as a lever for price reduction, governments should consider reducing the
taxes incurred by consumers when purchasing broadband services. For example, in Cote
d’Ivoire the acquisition of handsets is levied by 18% in value-added tax, 5% in customs duty,
and 2.5% in sector specific taxes. On the other hand, the service use is levied by 18% in value
added tax113. In general terms, since high taxation increases the total cost of ownership of
wireless services, it is correct to consider that higher wireless consumption taxes will raise the
affordability barrier and reduce adoption. In this context, taxation could have a detrimental
effect on the public policy strategy aimed at deploying mobile broadband. If taxes limit
adoption of wireless broadband, it is relevant to ask what the ultimate impact of reduced
penetration might have on economic growth. Hypothetically, it is safe to assume that a
113 These levies are documented in the International Telecommunications Union Eye database and have been analyzed in
Katz (2015). The impact of taxation on the digital economy. Geneva: International telecommunications Union.