As G8 Debates the 'Global Digital Divide,' an EIU Study Says the Internet Could Leave Underdeveloped Markets Even Further Behind.

Business/Technology Editors

NEW YORK--(BUSINESS WIRE)--July 21, 2000

The threat of a growing "digital divide" between wealthy developed nations and impoverished developing economies will be a focus of talks at the G8 summit that begins today in Okinawa, Japan.

Leaders of the developed economies are right in seeing the digital divide as a real danger, say analysts at Pyramid Research, the Economist Intelligence Unit's communications division. While the Internet is often romanticised as a panacea for developing-country woes, nothing could be further from the truth, they argue in "Understanding the global digital divide." (The full report is available at ebusinessforum.com, the EIU's new website for global e-strategists.)

In fact, the Internet could widen rather than narrow the gap between developed and developing economies. Given the breakneck growth of e-business worldwide, underdeveloped markets that fail to master basic "connectivity"-the construction of a basic telecoms infrastructure-risk being left even further behind, according to the study, which was based on work conducted by Pyramid on behalf of the World Bank.

Money is one obvious handicap, and vast capital spending-particularly on basic telecoms infrastructure-is vital if the developing world is to benefit from the digital age. But sound government policies, such as telecoms deregulation and protection of competition, as well as improved literacy, are also essential to narrowing the divide.

"Understanding the global digital divide" slots the world's economies into three groups: Leaders, Adopters and Latecomers (see figure). Provided they adopt savvy policies and encourage competitive marketplaces, many of the Adopters stand a chance of catching up with the Leaders. The area of mobile telephony is particularly suited to such leapfrog growth by Adopters, the study argues. But among the Latecomers, where basic connectivity remains a problem, the risk of being left behind looms large.

What holds the Latecomers back? Not only do they suffer from low rates of basic penetration (the number of telephones per 100 people), but also from low literacy, which impedes effective use of the Internet, and from relative poverty, which makes a personal computer a monumental expense for most families. Government and business access to the huge sums of investment capital needed to build necessary infrastructure is also often blocked, making the leap to the basic connectivity all but insurmountable. This is particularly the case with respect to broadband access, the high-speed telecoms technology that is about to become universally affordable for Leaders such as the US, but whose premium cost threatens to keep it a distant luxury for the Latecomers.

A gloomy prospect, to be sure. But the Pyramid study also offers some shimmers of hope, spelling out three basic policy prescriptions designed to help the Adopters and Latecomers capitalise on the economic growth driven by the Internet revolution:

-- Connectivity is the goal. Whatever the technology employed, developing economies need to get online, and do it fast. Such markets will need to cross a 5% penetration threshold to stand a chance of leapfrogging into Internet connectivity. Business lobbies have a key role to play here, particularly if they hope to make global strategies for e-business a reality rather than just a grand-sounding slogan.

-- Competition is the vehicle. As is clear from the dynamic growth of mobile telephony where fixed-line monopolies persist, competition is the best means to promote higher investment, lower prices and advances in technology. Governments need to move fast to break up monopolies and create independent regulators.

-- Education is the enabler. The Internet has higher social-entry barriers than voice telephony, as it requires literacy (and, increasingly, English-language skills) and basic IT familiarity. Educating individuals and businesses to handle these fields should be a priority for any government aspiring to join the Internet revolution.

An ambitious agenda, to be sure-and one that requires heavy capital investment. Yet the price of inaction, as the study argues, is far more costly. Policymakers need to act now to prevent the divide from growing ever wider.

Further information:

For a full copy of the Pyramid report, "Understanding the global digital divide", written by Godfrey Chua, go to www.ebusinessforum.com at

http://www.ebusinessforum.com/ index.asp?layout=rich_story&doc_id=81&category id=&channelid=1+or+%2A&search=digital+divide&title=

For the EIU's ebusiness-readiness rankings, which assess 60 global markets on their preparedness for the digital age, see:

http://www.ebusinessforum.com/ index.asp?layout=rich_story&doc_id=367&country _id=PL&channelid=6&categoryid=20&title=Introducing+the+EIU%27s+e% 2Dbusiness%2Dreadiness+rankings+World

For detailed country-by-country profiles covering Internet usage in many of the world's major economies, see the "Doing ebusiness in ..." area of the ebusiness forum:

http://www.ebusinessforum.com/ index.asp?layout=channelid_6&channelid=6&title =Doing+e-business+in

For further information on ebusinessforum.com, the EIU or Pyramid Research, please contact: Lou Celi, Publisher of EIU Electronic, [e-mail], 1.212.554.0600; Daniel Franklin, EIU Editorial Director, [e-mail], 44.207830.1068; or Godfrey Chua, Director of Database Development at Pyramid Research, [e-mail], 1.617.494.1515.

Note to editors:

About ebusinessforum.com

Ebusinessforum.com is a revolutionary web-based briefing service for senior corporate executives intent on transforming their companies into e-businesses. At www.ebusinessforum.com, the EIU provides strategic insight, research and analysis, and daily briefings on every aspect of e-business, with an eye to building an interactive virtual community for corporate e-strategists. Access is free, thanks to financial support from an exclusive group of partners, including Bain & Co, Baker& McKenzie, Cambridge Technology Partners, Cap Gemini, Cisco Systems, Concert, Dell Computer, Deutsche Bank, DHL, Intel, KPMG, Oracle and Text 100.

About the EIU

The Economist Intelligence Unit, the business-to-business arm of The Economist Group, is one of the world's leading providers of global business intelligence. Its mission is to help companies do better business by delivering timely and reliable intelligence on market conditions around the world. Through its extensive global network of business analysts, the EIU continuously assesses and forecasts political, economic and business conditions in 195 countries. The EIU is at the forefront of the Internet revolution and now provides its full range of analysis to executives through a portfolio of digital services, including the daily EIU ViewsWire, eiu.com and EIU CountryData.

About The Economist Group

The Economist Group is the owner of The Economist, the CFO group of magazines, Roll Call - the newspaper of Capitol Hill, European Voice, The Journal of Commerce and a variety of other regional and special interest magazines, database services and the worldwide publishing and conference businesses of the Economist Intelligence Unit.