Bring on the broadband

Much has been written about the potential benefits of broadband access to developing nations. A variety of case studies have revealed these benefits to include the ability to expand economic opportunities and innovation, increase trade and productivity, reduce business costs, create jobs and encourage foreign investment.

More recently, quantitative research and empirical analysis have emerged that go further – firmly establishing the fact that broadband networks support GDP growth in developed nations and have the potential to offer similar benefits in developing emerging markets. Estimates made by Accenture suggest broadband could contribute US$500bn to GDP in the United State and as much as $400bn in Europe.

Because broadband penetration is more recent and less extensive in developing nations, fewer studies have been done to document its economic, social and other benefits. Nonetheless, early research suggests that broadband diffusion creates a wide range of benefits in developing nations, including supporting economic growth, in part by improving global competitiveness and attracting international investors.

Although such improvements are difficult to measure, one study published in the Journal of the European Economic Association found that developing countries with better ICT infrastructure attract significantly more business from offshoring, outsourcing and foreign investment.

With the laying of five undersea cables connecting Africa to the rest of the world over the past couple of years, these benefits are set to begin filtering into the continent.

Wholesale prices for internet bandwidth have come down by as much as 90% from previous levels based on satellite access, and the cost savings are slowly being passed on to the retail level as well.

Bloomberg reports that after a decade of too little internet capacity, telecoms companies in Africa now face the challenge of too much capacity, as they are forced to bring down prices to account for capacity increase.

Already in South Africa a potential price war has begun to develop as some service providers have started to offer unlimited bandwidth packages at flat rates, something unheard of as recently as early 2009.

While this may impact negatively on service providers’ margins, we welcome the developments for the overall benefits they will bring to the continent in helping it play catch up with the rest of the developed world at a faster pace, and indeed, in some instances developing innovative mobile/broadband based technologies and applications that will find a market in other parts of the world.

Article produced by the Imara Africa Securities team. Imara is an investment banking and asset management group renowned for its knowledge of African markets.