Transcript Telco & Online Reg

Internet Business Economics and Policy
Lee Kuan Yew School of Public Policy
26th November 2013
Dr. John Ure
Director, TRPC Pte Ltd (Singapore)
Associate Professor and Director
Technology Research Project (TRP)
University of Hong Kong
Executive Director
Asia Internet Coalition
Lipsey’s 24 General Purpose Technologies
(Source: http://en.wikipedia.org/wiki/General_purpose_technology)

Also see Richard Harris ‘The Internet as a GPT’ in E.Helpman (1998) GPTs and Economic Growth
Internet as a GPT
(Stylized Ecosystem/Supply Chains)
Hardware
Software
Services
IP standards
Algorithms
Production (content …
3D printing)
Distribution (CDNs;
DRM…)
Exchange (e-commerce;
digital money)
Devices
Apps
e-Government
Internet of Things
Smarts
SNS
Infrastructure
Business models
Digital Society
Standards,
interoperability, networks
IPRs, open source,
hybrids
Cloud computing, unified
communications
Monopoly
Quasi-monopolies
Competition
Regulation
De-regulation
Liberalization
The Age of Algorithms
• 1930s – Turing
foresaw the
progression from HW
to SW
 mechanical
 electrical
 Algorithms (e.g.
punched tape) + solid
state electronics
The long decade
Algorithms and computers Moore’s Law = falling
(1940s)
marginal costs
Mobile wireless phones
Falling costs of ubiquitous
(1940s)
access
Cybernetics
Feedback loop = learning(1940s)
by-doing + information
enrichment
Increasing returns?
(1990s? dot.com bubble, etc.)
Breaks the rules of
equilibrium economics
e.g. W.Brian Arthur (1994) Increasing Returns and Path
Dependence in the Economy
Chris Anderson’s The Long Tail
Internet business model
• “Forget squeezing millions from a few megahits at the top of the
charts. The future of entertainment is in the millions of niche markets
at the shallow end of the bitstream. Increase in capacity and
speeds” http://www.wired.com/wired/archive/12.10/tail.html
Network Economics
• (N-1)N = N2-N ̴ known within IT sector as Metcalf’s Law
 But note: well-known within telecoms where the
“community of interest” is not infinite – cf. SNS
“Friends”?

See also Carl Shapiro and Hal R. Varian (1999). Information Rules. Havard Business School Press.
Costs
Internet Exchanges = Example of Network Economics
 Kenya IXP (KIXP), opened in Nairobi in 2000 and the second in
Mombasa in 2010.
 KIXP operates a Multi-Lateral Peering Agreement (MLPA) whereby
ISPs are required to interconnect free of charge, but each pays a
usage fee to KIXP.
 Google Global Cache (GGC) in April 2011
 Traffic volumes rose > x 10 within the year
 Lion’s share = streamed video, for example from YouTube
 Latency dropped by 20% on top of the initial fall in latency when
the KIXP was first opened from 1,200-2,000 milliseconds (via
satellite) to 60-80 milliseconds.
 Now 16 African countries hub through KIXP
Costs
International versus domestic connectivity
 Trombone traffic adds to cost and to latency = between 200 to 900
milliseconds in the case of African ISPs
 Several major submarine cables now operating in East Africa – e.g.
Eastern Africa Submarine Cable System (EASSy) connects South
Africa to the East Africa coast
 OECD assessment of the voice-equivalent cost of Internet transit
traffic in 2013 = USD 0.0000008 per minute – five orders of
magnitude lower than typical voice rates.
 BUT … local access charges levied by telecom companies
consistently account for between 30%-40% of total international
transit costs.
Source: http://www.oecd-ilibrary.org/science-and-technology/oecddigital-economy-papers_20716826
Costs of Entry and Sustainable Growth
Lowers entry costs
Business costs
(e.g. eBay staff grown from 76 to
31,500 over 15 years since IPO –
http://www.ft.com/intl/cms/s/0/ff
d8fa40-5714-11e3-8cca00144feabdc0.html )
 Something of a myth that
costs across the board are
lower
 R&D, start-up costs, capex
and opex not very different
 Funding often different (VCs,
Angel capital, etc.)
Costs of compliance  International diversity of
Costs of
sustainability
jurisdictions
 Costs of Innovation
 Upgrades, patches, new
services, form factors, etc.
Revenue models
Utility models
(marginal cost pricing = zero?)
Monthly subs, e.g.
broadband, IPTV
Annual subs, e.g. software,
online journals, MOOCs
 Consumer markets
 Enterprise markets
Online sales &
services
Ads and Big Data
 e-Commerce, e.g. eBay,
online retailers, music
 Volume dependent, e.g.
 OTT service providers
 SNS
Laws & Regulations
Trade & Investment
 Border controls and
procedures – e.g. e-Commerce
companies
 Localization – e.g. data
centres, commercial presence
 Intermediary liability
Data protection
 Cross-border data flows
 Confusion with security
issues?
Content controls
 IPRs and Intermediary
liability for breaches of
copyright (or other materials
considered unlawful)
Good to grow?
The environment for Asia’s Internet business (EIU)
1. There is global demand for Asian content and platforms,
but few entrepreneurs are thinking globally.
2. Asian Internet businesses typically focus on home
markets, either because they are potentially huge or
because they feel they need to build scale before
venturing abroad
3. Monetization is an uphill battle for many entrepreneurs.
4. Online payment channels are fragmented and underdeveloped, hindering business.
Source:
http://asiainternetcoalition.org/advdoc/2c083eb6cd1ae38cee3826e1ad6a2a6e.pdf
Good to grow?
The environment for Asia’s Internet business (EIU)
5. Internet regulation is on the rise, and many governments
are focusing more on control than enablement, failing to
understand the negative impact on the sector
6. Asia’s market for tech talent is being fought over
globally. To ensure supply governments need to think
strategically, both in letting foreign talent in and building
up the local base
7. A culture of collaboration is slowly replacing suspicion in
Asia.
Source:
http://asiainternetcoalition.org/advdoc/2c083eb6cd1ae38cee3826e1ad6a2a6e.pdf
Conclusions
1. The digital economy does not do away with any of the basic
economic truths (dare we call them “laws”?)
2. The digital economy does speed up the rate of transformation
and in that sense is disruptive
3. Supply chains (intermediaries) and value chains (sources of
revenues) are changed, sometimes dramatically
4. All transformations require changes to business models
leading to lobby groups pressurizing policy makers and
regulators
5. Policy makers and regulators often have only a partial
understanding of the digital economy and the way it works
Thank You
TRPC
www.trpc.biz