Economic Meaning of Emerging Communication Technologies for CEE Countries and Baltic States Jaroslaw K. Ponder Market, Economics and Fianance Unit Telecommunciation Development Biureau International Telecommunication Union Seminar on Mearket Analysis in CEE Countries and Baltic States: Economic Dynamics of Newly Liberalized Telecommunication Markets in CEE Countries and Baltic States 5-7 October 2004 Vilnius, Lithuania
Agenda ICTs in CEE Countries Fixed Telecommunciations Mobile Telecommunications Internet Economic Meaning of ICTs in CEE Countires Policy Implications 21. September 2004 2
Fixed Telecommunication ommunications in CEE Countries Fixed lines per inhabitant including ISDN channels per 100 inhabitants and per 100 households in 2002-2003 decrease in many countries. Are these markets already saturated? Is it effect of emerging communication technologies, especially wireless communication technologies? Is it bad performance of the telecommunication sector? The following countries belong to the exceptions: Bulgaria Czech Republic Poland Slovenia Source: IBM (2003) 21. September 2004 3
Modernization of the Networks Source: ITU 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 1700% Digitalization (1991-2003) Hungary Poland Czech Rep. Estonia Slovenia The rate of digitalization of fixed networks in CEE countries is still increasing as the effect of the intensive investment programmes. In 2003 most of the countries achieved the level of the 100 %. The digitalization of the networks is the prerequisite for the modern communication services. Investment (1991-2003) Digitalization (2002) 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 Czech Republic Estonia Hungary Poland Slovenia Source: ITU 1600% 1500% 1400% 1300% 1200% 1100% 1000% 900% 800% 700% 600% 500% 400% 300% 200% 100% 0% 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 Czech Republic Estonia Hungary Poland Slovenia Source: IBM (2003), 21. September 2004 4
Mobile Telecommunications in CEECs The popularity of the mobile telecommunications is still increasing. Mobile penetration remained below the EU average in most CEECs, except the Czech Republic and Slovenia; As of 30 June 2004, in Poland the penetration rate is on the level of 50%. The prevailing technologies include: GSM in 3 frequency bands, NMT 450, CDMA 450 MHz (e.g. Romania, Russia, Latvia), WiFi and WiMAX. The value added services sometimes are implemented on CEE markets even faster than in western European countries: MMS, GPRS, HCDS. Most of the countries has already made decision concerning the implementation of UMTS. Some of countires are just in the process of granting of licenses. Some of the countries review the licensing policies (e.g. Poland, question of the license fees). In many countries the market segment of costumers with the high willingness to pay for the communication services has been exhausted. The operators look for the new business strategies. The Polish experiences demonstrate that the youth oriented strategy can be successful. By achieving the economies of scale it is possible to enhance the profitability. Source: IBM (2003) 21. September 2004 5
Telecommunication Market Segmentation in CEECs, 2002 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 40% 53% 57% 48% 54% 49% 44% 39% 51% 51% 36% 41% 45% 50,00% 46% 35% 39% 41% 39% 40% 54% 50% 41% 42% 60% 54% 49% 41,20% CY CZ EE HU LV LT MT PL SK SI 1999 2000 2001 2002 Fixed Tel. Mobile Fixed Internet Data+LL Note: * - Cyprus, Malta has been excluded, LL leasing of lines. Source: PWC (2002), IBM (2003), own calculations. 21. September 2004 6
Data Transmission Services in Mobile Telecommunications in CEECs, 2001-2006 2006 Source: Ludwiczynski A. (2002) Source: Ludwiczynski A. (2002) 21. September 2004 7
Internet Dynamics Internet Users in CEECs (2003) Eastern Europe Penetration Growth (DSL/100 phone lines, 1999-2003) 0,80 0,71 0,70 0,60 0,50 0,40 0,35 0,30 0,20 0,10 0,00 0,02 0,09 0,00 1999 2000 2001 2002 2003 Source: eeurope+ NSO and Household Survey, June 2003 Growth in the number of Internet users Eastern Europe Source: www.point-topic.com (2004) Growth of DSL Subscribers in Eastern Europe (000s), 1999-2003 500 455.50 450 400 350 300 250 200 150 124.10 100 50 0.00 7.80 33.10 Source: eeurope+ NSO and Household Survey, June 2003 0 1999 2000 2001 2002 2003 Source: www.point-topic.com (2004) 21. September 2004 8
Internet Dynamics Average spending of internet access per month as percentage of monthly household Source: eeurope+ NSO and Household Survey, June 2003 Affordability of a PC relative to monthly household income eeurope+ NSO and Household Survey, June 2003; CY,MT and TR - National Surveys 21. September 2004 9
Internet Dynamics Percentage of enterprises having access/broadband access to the Internet Percentage of households with broadband access to the Internet Source: eeurope+ NSO and Household Survey, June 2003 Source: eeurope+ NSO and Household Survey, June 2003 21. September 2004 10
Digital Divide: European Perspective (2002) GDP per capita, PPP ($) Fixed Telephone Mobile Telephone Internet User Internet Hosts PCs EU AC countries Cyprus 13.300 69,3% 59% 30% 0,64% 24,4% Czech R. 15.300 34,8% 84% 30% 2,48% 14,6% Estonia 10.900 35,0% 63% 41% 4,68% 21,0% Hungary 13.300 35,4% 68% 16% 2,57% 10,8% Latria 8.300 30,6% 40% 14% 1,53% 17,1% Lithuania 8.400 26,8% 47% 20% 1,77% 7,0% Malta 17.000 52,7% 72% 29% 1,93% 22,9% Poland 9.500 34,7% 35% 23% 1,89% 8,5% Slovak R. 12.200 27,2% 54% 16% 1,65% 18,4% Slovenia 18.000 42,4% 85% 42% 1,92% 30,0% EU AC average 12620 38,9% 60,7% 26,1% 2,10% 17,5% EU 15 countries : poor Greece 19.000 52,9% 83,8% 18% 1,45% 8,1% Portugal 18.000 41,9% 81,9% 35% 1,58% 11,7% Spain 20.700 45,9% 82,2% 19% 1,45% 56,1% EU-3 average 19233 46,9% 82,6% 24,1% 1,49% 25,3% EU-15 average 26.466 56,7% 81,8% 37,1% 6,5% 37,2% Sources : ITU (2003), IBM (2003), EUROSTAT (2003) own calculations. 21. September 2004 11
Digital Divide : European Perspective (2002) 100,0% 100,0% 90,0% 80,0% 70,0% 72,7% 82,6% 81,8% 60,0% 56,7% 60,7% 50,0% 47,7% 46,9% 40,0% 38,9% 37,1% 37,2% 30,0% 26,1% 24,1% 25,3% 20,0% 17,5% 10,0% 0,0% GDP per capita, PPP (EU= 26.466) Sources : ITU (2003), IBM (2003), EUROSTAT (2003) own calculations. 2,1% 1,5% 6,5% Fixed Telephone Mobile Telephone Internet User Internet Hosts PCs EU AC average EU-3 average EU-15 average 21. September 2004 12
IKT Expenditures in CEECs (2002) Poland, Czech Rep. and Hungary belong to the biggest ICT markets in CEEC region. ICT expenditures of these countries represent about 70% of all expenditures of CEEC region. Per capita expenditures in CEECs are about 4 times smaller than the average expenditures of west European countries. Poland 38% Expenditures for ICT in CEECs, 2002 Slovenia (total 40023 Mill. ) Czech Rep. 16% Estonia 2% Letonia 2% Lituania 3% 4% Hungary 15% Bulgaria 4% Slovakia Rep. Romania 10% 6% Expend. For ICT (Mill. ) Share in CEEC Market (%) Relation ICT/GNP (%) ICT Expenditur Per capita ( ) Romania 3916 9,8 8,6% 180,5 Bulgaria 1700 4,2 11,4% 213,1 Lituania 1086 2,7 7,5% 311,7 Poland 15049 37,6 7,7% 389,5 Letonia 951 2,4 10,6% 405,4 Slovakia Rep. 2296 5,7 10,7% 426,8 Estonia 804 2 12,6% 590,6 Hungary 6111 15,3 10,2% 599,3 Czech Rep. 6422 16 9,9% 623,9 Slovenia 1688 4,2 7,9% 846,2 CEEC total 40023 100 9,0% 387,2 Western Europe total 592000 100 6,7% 1521,5 However nominal ICT-expenditures of CEEC are significantly smaller, the CEEC countries spend for ICT significantly more in relation to their GNP (in average 9 %). In western Europe the countries spent 6,7 % of their GNP on ICT. Estonia, Bulgaria, Latonia, Slovakia and Hungary, of which ICT/GNP relation exceeds 10 % turn a special attention. Source: EITO (2003) 21. September 2004 13
Economic Meaning of Telecommunication Sector Size of telecommunications market compared with GDP, 2002 Source: IBM, 4th Report on Monitoring of EU Candidate Countries (Telecommunication Services Sector), Dec 2003 21. September 2004 14
Economic Catch-up Process: Simulation EU AC countries GDP per capita, PPP ($) Years needed to Catch-up to the EU average Hypothetic Average Economic Growth Rates 2002 1% 2% 3% 4% 5% Slovenia 18.000 39 19 13 10 8 Malta 17.000 44 22 15 11 9 Czech Rep. 15.300 55 28 19 14 11 Cyprus 13.300 69 35 23 18 14 Hungary 13.300 69 35 23 18 14 Slovakia 12.200 78 39 26 20 16 Estonia 10.900 89 45 30 23 18 Poland 9.500 103 52 35 26 21 Latria 8.300 117 59 39 30 24 Lithuania 8.400 115 58 39 29 24 EU AC average 12.620 74 37 25 19 15 Spain 20.700 25 12 8 6 5 Greece 19.000 33 17 11 8 7 Portugal 18.000 39 19 13 10 8 EU-3 average 19233 32 16 11 8 7 EU-15 average 26466 Source: Own calculations based on data from WDI (2002). 21. September 2004 15
Economic Meaning of ICTs in CEECs Diffusion Determinants Economic Wealth Telecom Infrastructure and/or Usage Institutional Approach Economic Effects of ICT 21. September 2004 16
Economic Meaning of ICTs in CEECs Diffusion of ICTs in CEECs Muller, Salsas (2003) Determinants of the Internet Usage : internet hosts, income per capita, openness, education, political and civil freedoms, state of transition towards a liberalized telecommunications regime, the state of the telecommunications infrastructure, cost of telephone Internet usage costs do not explain cross-country differences in the number of Internet hosts and users Muller, Salsas (2004) Significant determinants of the Internet usage in enterprises: trade, company size, computer usage, degree of the telecom market liberalization 21. September 2004 17
Economic Meaning of ICTs in CEECs Institutional Approach Piatkowski (2003) New Economy Indicator level of institutional readiness of transition economies for adoption of the New Economy. Slovenia, Czech Republic, Hungary and Estonia belong to the regional leaders. (NEI Factors: regulation, infrastructure, trade, financial system, R&D, human capital, labour market flexibility, product market flexibility, entrepreneurship, macroeconomic stability) Piech (2004) Knowledge Assessment Methodology of World Bank (KAM Methodology: GDP, HDI, Tariffs, Property rights, Regulation, Researchers in R&D, Manuf. Trade, Adult literacy,, Telephones, Computers, Internet hosts). Czech Republic and Estonia, the most promising countries of region. The same structure as developed countries. 21. September 2004 18
Economic Meaning of ICTs in CEECs Economic Growth Kolasa, Zolkiewski (2004) Poland: ICT investment contributes positively to TFP growth Piatkowski (2003) CEEC-8: ICT capital contribution to output growth and labour productivity (extraordinary increase in real ICT investment caused by a) falling prices of ICT, b) higher-thannormal returns on investment due) Rajasalu, Laur (2003) Estonia: low contribution of ICT sectors in Estonia s output. The evidence of direct positive impact of high tech, medium, high tech and knowledge intensive industries on economic growth is not very convincing. High dependence on subcontracting and transfer pricing makes the contribution of high and medium-high tech industries rather low. Economic growth is influenced more by indirect impact of ICT that made the economy as a whole more competitive and helped to attract investments and create new jobs. 21. September 2004 19
Economic Meaning of ICTs in CEECs Economic Growth Van Ark (2004) Old and New Europe: Contribution of ICT investment to productivity growth is positive and significant but differentiates between all CEECs exist. Champions: Czech Republic, Hungary Perminova (2004) Russia: ICT contribution to the labor productivity growth 1996-2000 in: ICT using sector - even 5 times bigger than in Europe and 2 times as big as in USA, non ICT using sector - like in USA, ICT producing sector - very small 1/10 of European or USA achievements. 21. September 2004 20
Fixed Telephone Density Internet User Density 80% 70% 60% 50% 40% 30% 20% 10% 0% Correlation between ICT and Bulgaria GDP per capita (ppp) Fixed Telecommunications Mobile Telecommunications Greece Estonia Hungary Portugal Spain Cz. R. Slovak R. Slovenia Poland Romania Ireland y = 1E-05x + 0,1999 R 2 = 0,5989 0 5.000 10.000 15.000 20.000 25.000 30.000 35.000 GDP pec Capita (PPP, $) Internet User per 100 50% 40% 30% 20% 10% 0% y = 1E-05x - 0,0085 R 2 = 0,5405 Estonia Portugal Slovenia Spain Greece Czech R. Poland Hungary Sweden Denmark Ireland 0 5.000 10.000 15.000 20.000 25.000 30.000 35.000 GDP per Capita (PPP, $) y = 3E-05x + 0,006 R 2 = 0,7428 21. September 2004 21 Mobile Telephone Density 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Estonia Lithuania Czech R. Hungary Slovak R. Poland Portugal Spain Slovenia Greece Denmark Ireland 0 5.000 10.000 15.000 20.000 25.000 30.000 35.000 Latvia GDP per Capita (PPP, $) Internet Hosts Penetration Internet Hosts Density 12% 10% 8% 6% 4% 2% 0% y = 0,0023e 0,0001x R 2 = 0,6295 Sweden Estonia Czech R. Poland Hungary Slovenia Finland Netherlands Ireland 0 5.000 10.000 15.000 20.000 25.000 30.000 35.000 GDP per Capita (PPP,$) Note: The depicted relationship is calculated from data for the year 2000 from 26 European countries, i.e. EU-14 (EU -15 minus Luxemburg), EU accession countries, Turkey and Bulgaria. / Source: ITU (2003), own calculations.
Correlation Coefficients, (2002) GDP per capita, PPP ($) Pearson Correlation GDP per capita, PPP ($) Fixed Telephone Mobile Telephone Internet User Internet Hosts PCs 1,759**,752**,542**,358,723** Significance,000,000,005,079,000 (2-side) N 25 25 25 25 25 25 Fixed Pearson,759** 1,564**,628**,380,726** Telephone Correlation Significance,000,003,001,061,000 (2-side) N 25 25 25 25 25 25 Mobile Pearson,752**,564** 1,506**,237,518** Telephone Correlation Significance,000,003,010,254,008 (2-side) N 25 25 25 25 25 25 Internet Pearson,542**,628**,506** 1,688**,631** User Correlation Significance,005,001,010,000,001 (2-side) N 25 25 25 25 25 25 Internet Pearson,358,380,237,688** 1,527** Hosts Correlation Significance,079,061,254,000,007 (2-side) N 25 25 25 25 25 25 PCs Pearson,723**,726**,518**,631**,527** 1 Correlation Significance (2-side),000,000,008,001,007 N 25 25 25 Note : ** The correlation is significant on the level of 0,01 (2-side). 25 25 25 Source : ITU (2003), own calculations. 21. September 2004 22
Policy Implications Digital modernization should be a key word for the CEECs looking for the factors accelerating the process socio-economic catching-up. The first proves of the economic meaning of ICT sector in CEECs opens the new perspectives in terms of the economic policies (also for the developing countries). The existence of the digital divide should motivate the CEECs to look for the most efficient digital ICTs (Fixed telecommunications is important but the emergence of all wireless technologies can minimize its role) The ICT diffusion depends on the prices that is why especially in countries of a low average disposable income the fostering of competition in ICT markets should become the most important objective of each policy maker. The state should use the potential of digital ICTs for its modernization what can be connected with plenty of economic advantages. In the process of creating of workable e-government the sequencing should play the most important role. 21. September 2004 23
Thank you very much for your attention Jaroslaw K. Ponder Market, Economics and Finance Unit Telecommunication Development Biureau International Telecommunication Union Tel.: +41 22 730 59 10 E-mail: Jaroslaw.Ponder@itu.int 21. September 2004 24