Shaping Policies for the Future of the Internet Economy


OECD (2008). Shaping Policies for the Future of the Internet Economy. Report prepared for the OECD Ministerial meeting on the Future of the Internet Economy taking place in Seoul on 17-18 June.. Paris: OECD. Retrieved June 18, 2008 from

Work data:

Type of work: Report


e-Readiness | ICT Infrastructure | ICT4D | Policy & Regulation


The report focuses on the desirability of extending the economic and social benefits made possible by the Internet, to the next several billion users mainly in developing countries. The argument made is that this should be seen as an opportunity and not a burden. Liberalisation makes the access to communication services for the people in developing countries more affordable and consumers are willing to invest in it due to the tremendous positive impact on their daily lives. These users represent a commercial opportunity for businesses and a social and economic development opportunity for policymakers. The report highlights the employment, micro-entrepreneurial and social development opportunities which have emerged as access to communication services has risen among low income users.

The report reviews the evolution of policy making from a supply-led approach to demand-driven development. It recalls the era typified by monopolies in which many policy makers believed the development of communications should occur in lockstep with overall growth in the economy. Now the sector is recognised as one which can drive economic and social development. Moreover the success of the communications sector in developing countries is arguably attracting investment in other parts of these economies.

The necessary framework conditions for growth include liberalisation of markets, the separation of operational and policy responsibilities and the creation of an independent regulatory authority. The Internet creates some specific considerations, such as the need to establish IXPs, but the key is policy approaches which enable the opening of the market to investment and innovation which show the greatest benefits for developing communication access.

Governments need to consider carefully the overall policy coherence for development. For developing countries the benefit of liberalisation extends beyond the growing size of the market. It also supports the broader economic and social development goals from employment creation through to improving education and health. For countries yet to reform telecommunication markets, in areas such as liberalising international gateways, fundamental barriers will remain. A policy coherent approach also needs to consider other sectors that may affect the development of access, such as policies which place high tariffs on ICT equipment or tax services over and above those applicable to the rest of the economy.

OECD countries need to be conscious of their communication policies’ potential impact on developing countries. The report has highlighted, for example, that it may cost twice as much to make a telephone call from the Internet to a mobile telephone in some developed countries than in developing countries. Such differences are in most cases due to different levels of competition in the prices charged for terminating calls. In wireless markets with MPP the transparency of pricing to users ensures greater competitive discipline is applied. In markets with CPP the cost of termination can range from less than USD 0.06 per minute to more than USD 0.30 per minute suggesting a lack of competitive pressure and cost orientation in countries with higher prices. As communication between the Internet and mobile devices grow the large differences in the cost of terminating traffic on wireless networks, particularly between countries with MPP and CPP, can be expected to affect the financial flows between countries. While seeking ways to increase competition should be the preferred option, applying regulatory safeguards may be necessary in market segments where there is insufficient competition.

OECD governments need to be diligent in ensuring that development co-operation helps to develop rather than distort market opportunities in developing countries. Recognition of profitable business opportunities for the private sector arising from the changing communications policy paradigm is fundamental. At the same time financial support from OECD countries for developing human capital, sharing experience in institutional capacity building or funding key not-for-profit infrastructures, such as IXPs, could be extremely beneficial.

The paper concludes that claims of negative impact on developing countries, in respect to the commercial model used for the exchange of Internet traffic, are not reflected in the actual market developments. The Internet’s commercial approach has been remarkably successful in connecting more than 24 000 networks supporting millions of customer networks and the first billion Internet users. This does not mean there are not deficiencies in international connectivity. Connectivity costs are still high in many developing countries due to gaps in key facilities necessary to connect national networks to international networks in some regions (e.g. East Coast of Africa) or regulatory frameworks which do not encourage market growth to support the development of this infrastructure.

Notwithstanding the challenges ahead a large amount of private investment is pouring into African markets in recognition of the opportunities in the communication sector. The growing number of companies operating in multiple African markets, the increasing market size and liberalisation all contribute to the incentive to put into place greater regional connectivity. The striking example of “borderless roaming”, an innovative approach adopted first in Africa, reflects a potential benefit of closer integration in the development of infrastructure, the exchange of traffic and innovative services.

In closing, the report highlights the need to continue to build a culture of security and to extend it to the next several billion users as they join the Internet. As an interdependent network of networks the security and stability of one part of the global Internet may affect all other parts. To the extent that service providers or consumers do not take into account costs borne by others, lack awareness of the need for a culture of security or cannot afford to meet the costs of online protection and best practice they can affect the overall health of the Internet and the experience of its users. These issues raise specific challenges for users on low incomes and a growing need for all stakeholder communities to address building a culture of security around Internet provision and use.