Importance of the Sector for Developing Countries, Including Least Developed Countries a Recent Trends in Information and Communications Technology Services and Computer and

Related Services

Over the past few decades, ICTs have contributed enormously to economic and social progress in both developed and developing economies. The ICT sector is not only a means of achieving development and economic growth, but also a productive sector in its own right composed of both ICT goods and ICT services.

ICT services83

The ICT services sector, and particularly the telecommunications segment, underwent important reforms starting in the 1980s when a vast majority of countries pursued policies of privatization and market liberalization. While many of these reforms were based on the premise that market forces could be left to develop the ICT sector, in certain circumstances high investment was still necessary. Unregulated market forces did not automatically lead to acceptable outcomes, and Government intervention remained, at times, necessary. Also, more recently the financial crisis highlighted the importance of renewed State intervention in certain countries.

In LDCs in particular, the role of the State remained important in the main fixed-line telecommunications operator. In 2009, of the 49 LDCs, 27 still had operators that were fully State-owned and 14 allowed for private participation but maintained majority ownership. In only 4 countries had the State fully divested its

83 _{This section is based mainly on ITU (2011a), The Role of ICT in Advancing Growth in Least Developed Countries; Trends,}

ownership interests in the incumbent telecommunications service provider or reduced its stake to a non- controlling minority ownership. In the case of LDCs, continued State ownership may be the only viable solution where the domestic market is too small to attract private investors.

In contrast to the situation for fixed-line telecommunications services, in most countries mobile communications have always been a more attractive commercial proposition, and most newly issued licences are held by private investors, including very often foreign companies that have built a regional presence (e.g. Mobile Telephone Networks in Africa).84

The ITU’s Measuring the Information Society reports that the year 2011 saw persistent growth in ICT uptake worldwide, with an increase in all key indicators except the number of fixed telephone lines, which has been in decline since 2005. In the mobile sector, the trend has been away from traditional mobile- cellular services (e.g. voice and Short Message Service (SMS)), towards mobile-web services. The movement from voice to data traffic will require, inter alia, more speed and spectrum and will therefore impact on elements such as price, revenue and investment. In developing countries in particular there has been growth in the mobile sector which is the result of increased competition and affordable services and devices. Mobile services continue to replace fixed-line services, which are often still dominated by the incumbent operator. One key element in the success of mobile services has been the availability of prepaid services which make the service accessible to low-income, low-user segments of the population.85

In general, the difference in terms of economic and social impacts that mobile technology has made is arguably the greatest in developing countries and particularly in LDCs. While mobile phones in developed and more advanced developing countries may represent an additional communications network (and sometimes replace the fixed line network), in many LDCs it is often the main network. By the end of 2010, LDCs had very low fixed telephone penetration rates (just above one per cent). In some LDCs, over 90 per cent of all fixed telephone lines are in urban areas, leaving most of the rural areas without fixed-line infrastructure. In contrast, thanks to mobile telephony LDCs have been partially able to tackle the infrastructure barrier and bring communications networks to the previously unconnected.

When it comes to broadband markets, uptake of both fixed-broadband (wired-broadband) and mobile- broadband services has continued to grow worldwide. Europe for now remains the leading region when it comes to broadband uptake. In developing countries, the increase in broadband subscriptions is also related to mobile services. Irrespective of these increases, mobile broadband continues to be expensive in most developing countries. While the market for mobile broadband can still be described as being in its infancy, it appears likely that once high-end consumers are covered, a number of offers targeting low- income, low-usage segments of the population will emerge. Fixed-broadband penetration is growing more slowly in developing countries. This is largely due to the fact that fixed-broadband infrastructure requires much larger investments. Thus roll-out of basic fixed-broadband infrastructure is still ongoing or at the planning stage.86

While there was an important increase in 2011 in the number of people using the Internet, which grew by 11 per cent worldwide, in developing countries 70 per cent of those under 25 years of age are not online yet. Efforts by developing countries to connect schools and increase school enrolment rates can have a significant impact on these figures.87 _{In terms of Internet use, the gap between LDCs on the one hand and}

developing and developed countries on the other hand also remains important. By the end of 2010, only about 3 out of 100 people in LDCs were online, as compared to 21 out of 100 people in all developing countries. In developed countries the percentage of persons online has reached almost 72 per cent. Much more must be done to bring people in developing regions online and particularly those in LDCs.

Among the obstacles to the spread of Internet use and broadband penetration levels in LDCs are the lack of infrastructure/access, limited international Internet bandwidth, and relatively low educational levels and literacy rates. Most importantly however are the persistently high broadband Internet prices. Where these prices can be reduced, Governments and service suppliers can promote the use of mobile phones in LDCs as innovative service delivery platforms.

84

Ibid., p. 9.

85 _{ITU (2012a), Measuring the Information Society 2012.}

86 _Ibid.

Computer and related services

The demand for CRS stems mainly from the needs of businesses to process electronic transactions more efficiently and for higher productivity and improved customer service. Moreover, businesses rely on technologies to enhance their global competitiveness. Among the sectors utilizing CRS extensively are the finance industry, communications, professional services, the health sector and the tourism industry. Government is also an important consumer of CRS, ranked second in spending after the financial sector. The CRS sector is therefore affected by developments in user industries. Not surprisingly, the 2009 crisis affected the sector negatively, though long-term growth prospects remained good.88

Among the policies that Governments are currently adopting that affect the CRS sector are those encouraging the spread of broadband services, through the impacts of price competition on broadband, leased lines, mobile and satellite services, which are all means of delivery for CRS.

As will be discussed later, there is generally little sector-specific regulation relating to CRS. However, this does not imply that policies do not have a bearing on the sector. A variety of government measures can be shown to have an effect on the growth and development of these services including labour policies (work permits/visas, education and training), research and development support, protection of intellectual property rights to address software piracy, technical standards, tariffs on computer equipment and government procurement of information services. Also, as online supply of computer services becomes more common, issues of legal contract/software licence enforcement and many Internet/e-commerce related concerns such as authentification, encryption, protection of individual privacy and protection of the consumer assume ever greater importance for the industry. A country’s capacity to access global market access for CRS may hinge more on a diverse range of public policy issues than on what traditional trade or regulatory barriers its services and services suppliers may be facing.89

With the spread of the Internet and other forms of online supply of CRS, it has become even more difficult for Governments to police copyrights and patents. However, it is the very protection thereof that contributed to promoting an innovative culture in CRS. Governments’ efforts in the promotion of cybersecurity, Internet governance and the enforcement of intellectual property rights are encouraged and supported by industry associations. Governments also pursue some broader – trade and competition- related – policy issues that have a bearing on CRS. These policies address equipment trade and tariffs and the liberalization of markets for IT-enabled services and major IT-user industries.90

Support to SMEs is also an important policy tool for Governments. Indeed, although a few large firms in the industry are well known, CRS companies are mostly SMEs, often smaller than firms in other segments of the ICT industry. There is also a spin-off and incubator phenomenon in the industry that leads to the development of small companies.

b. Trends in Liberalization of International Trade in Information and Communications Technology Services and Computer and Related Services

Trade in CRS is growing rapidly and certainly for developing countries, and Uganda in particular, represents a venue for trade in services expansion. At the global level, although Europe and the United States still predominate, developing countries are gaining in importance in the sector. Their shares of computer and information services exports are expanding rapidly, rising from 4 per cent in 1995 to 28 per cent in 2005. In developing Asia and the Latin America and the Caribbean region, computer and information services exports grew at rates of 30 per cent and 19 per cent, respectively, between 2000 and 2005. Among the top 15 exporters of CRS are not only the usual countries such as the United States and India, but also emerging WTO member economies such as Argentina, Costa Rica, Hong Kong (China), India, Malaysia, the Republic of Korea and Uruguay. It is interesting to note that most major exporting markets are also among the major importers of computer services, a feature that reflects the global interdependence of the industry.91

Due to data collection difficulties, however, trade in ICT services generally, and computer software in particular, is probably underestimated. This is also due to the importance of intra-firm transactions in the sector. Also, measurement is particularly difficult for software, intra-firm outsourcing and ICT components that are incorporated into other products, which are often not included in statistics. Such measurement

88

WTO (2009), Computer and related services. Background note by the secretariat.

89 _{WTO (1998), Computer and related services.}

90 _{ITU (2011a), The Role of ICT in Advancing Growth in Least Developed Countries; Trends, Challenges and Opportunities.}

difficulties are of course even more pertinent for the nascent global activities of emerging markets in trade in computer services and software.92

The prevalence of SMEs in the CRS sector needs to be taken into account when determining a country’s trade policy positions, as trade impediments and regulatory obstacles may be particularly problematic for SMEs that are oftentimes less well equipped to address them than large companies.93 _{Ugandan SMEs are}

no exception to these considerations.

3. Uganda’s Trade Commitments for International Trade in Information and Communications