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“R&D is the engine of technological progress” Interview with the OECD experts Sam Paltridge and Dirk Pilat about economic aspects of telecoms
The Organisation for Economic Co-operation and Development (OECD) biannually publishes the OECD Communications Outlook. One of its main contributors is communications analyst Dr. Sam Paltridge. Eurescom mess@ge talked to him and Dirk Pilat, senior economist at OECD, about the economic development of telecommunications and its impact on other industry sectors. What are the main trends on the telecoms market in OECD countries? Paltridge: Demand is driving the telecoms sector, and it has proven very resilient. It grew throughout the 1990s and slowed down in 2002. Household expenditure on telecommunications increased in every year since 1990. Even in the financial crisis 2001/2002, demand kept growing, it was just not growing as fast as some people had expected. No one stopped using their mobile phone or accessing the Internet when the financial bubble burst; the number of users was still growing. However, there has been some substitution going on. People have been substituting mobile services for fixed-line services, especially in the United States, where you can get mobile service packages that offer large volumes of minutes. Overall demand for telecommunication services continues to increase for the industry as a whole but the substitution effect can impact diversely on different players. Which telecommunication services are the main driving factors? Paltridge: During the 1990s, mobile was undoubtedly the premier success of the telecoms industry, in terms of growth and revenue. The other success story since the mid-1990s has been the Internet, first as dial-up service and now increasingly with broadband services. Broadband has been one of the fastest growing communication services we have seen. In 2003, we have just gone past 100 million broadband subscribers worldwide. In February, the OECD issued a statement saying that the opportunities of broadband have not been used to their full extent. What is meant by this? Paltridge: On the residential side, we had an average of 7 subscribers per 100 inhabitants across the OECD at the end of 2003. We can do a lot better than that. On the business side, our data show that especially small businesses are rapidly adopting broadband. Due to technologies like ADSL, broadband has become affordable for small companies. The OECD wanted to set out some best practices and try to define the roles of government and the private sector. The most successful countries today have been in Asia, for example Korea, Japan, and Hong Kong – not only because they have high take-up rates, but also because of the level of services on offer for the price. In Europe, traditionally the Nordic countries have been leaders, especially in mobile. But in the case of broadband, Europe has definitely not been the leader. One of the factors that slowed down the development of broadband in Europe has been ownership of cable television by the incumbent telecoms network operators. Where cable networks and telecoms networks are separate, this stimulated competition. Telcos don’t need to own the cable networks anymore to offer a full range of services, and an increasing number are providing video over ADSL. How is telecommunications influencing the growth of the economy and the development of the job market? Pilat: Information and communication technologies have become more important in economic life and under certain conditions can have a direct impact on economic growth by increasing productivity. A good example is the economic growth of the US economy in the second half of the 1990s. However, telecommunications is only a part of it. There are other factors like good hardware and software, which play a role. The other important area where telecommunication has an important impact is the globalisation process. It has become much easier for companies to collaborate and operate globally. As prices have fallen and communication has become cheaper, it has become more attractive for companies to use communication technologies. If we look at certain sectors, like the financial services sector and the distribution sector in the United States, there has been an enormous increase in productivity in these sectors in the second half of the 1990s. At the same time we have seen a strong creation of jobs. Telecommunications has certainly played a role in that, but I cannot tell you, how many jobs were created thanks to the telecoms sector. Several other factors, like liberalisation and organisational changes within firms are playing a role. We cannot disconnect these factors. What is the relationship between R&D investment and the economic performance of the telecoms sector? Pilat: R&D is an important engine of technological progress. There has been enormous technological progress in the telecommunication sector since the 1990s. This has contributed to improvements in productivity, falling prices and growing investment in information and communications technology. Do the OECD data indicate a widening or a closing of the digital divide within and between developed and developing countries? Paltridge: In terms of some services, the digital divide is much less today than it was ten years ago. We have remarkably high mobile phone penetration rates in OECD countries today. The access to telecommunication networks via fixed-line mobile is higher than it has ever been. However, I have to put a caveat on this. The telecommunications industry is very dynamic. As new services emerge, new digital divides open up. We have an adoption curve where some people use services faster than others, and it takes time to roll out services. It might be argued that there is a divide in broadband today. However what we see in broadband is tremendous innovation in areas such as fixed wireless. The remarkable point about these fixed wireless services in rural areas is that in some cases they are providing higher capacity services at lower prices than exist in urban areas. The interview was conducted by Milon Gupta. Please send us your comments on this article. |
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