New funding models needed for better ICT infrastructure, says report by World Economic Forum and BCG

GENEVA: Basic online access is no longer sufficient for the ways in which increasing numbers of individuals and businesses use the internet. Moreover, current financial models, which rely primarily on investment by network operators based on company-by-company business cases, are overly narrow in scope and increasingly incapable of delivering the funding needed for next-generation infrastructure needs, according to a report released recently by the World Economic Forum in collaboration with The Boston Consulting Group (BCG).

The report, Financing a Forward-Looking Internet for All, argues that for individuals, companies, and countries to participate fully in today’s digital economy and society, all users must have a credible pathway to access the full array of social, educational, and economic advantages of contemporary high-speed internet use. This requires new ways of thinking about information and communications technology (ICT) infrastructure from an investment point of view, factoring in broader social and economic returns into traditional rate-of-return calculations.

Forward-looking access

For developed and developing economies alike, inclusive growth depends not simply on providing connectivity, but on providing “forward-looking access” – that is, providing internet via networks with sufficient capacity, quality, and speed to support more advanced usage. The report identifies four maturity levels of internet usage through which individuals, businesses, and societies progress, providing a standardised framework to view the degree to which the internet is currently incorporated into daily life.

Given the pace of internet-based technological innovation and the growth in intensity of data use, however, additional maturity levels are expected to emerge, underscoring the need for better and faster infrastructure.

“Investments in internet infrastructure will help create more equal societies in the future. It is important that decision makers become aware of the new models of financing portrayed in the report,” said Eric White, Project Lead Internet for All, World Economic Forum. 

Current disparities in ICT infrastructure, which tend to correspond with broader economic inequalities, hinder or even prevent users in many markets from climbing the maturity ladder. Disparities in network coverage also support the divide in internet use, and the compounding impact on GDP growth further exacerbates existing economic inequalities between developed and developing nations.

A total societal view of ICT infrastructure funding

Despite rising demand for data traffic, the business case for network operators to invest in upgrading mobile networks is relatively weak because operators have only a small share in the value of the projected traffic growth. But a broader view of the return on investment, which considers the associated socioeconomic benefits that are derived from increased high-quality internet access, shows that economic growth resulting from forward-looking infrastructure improvement exceeds the required investment in a surprisingly short period. The report’s analysis of the 28 countries currently in the EU shows that the returns to society in the form of GDP growth exceed any infrastructure-related capital expense in a period of five to fourteen months, as long as the full economic benefits to society are considered.

The majority of ICT infrastructure funding has traditionally come from private sector companies, namely network operators, ISPs, and tower builders. Governments and multilateral players, such as development banks, have played a relatively minor role, especially in comparison with the scale of their investment in other infrastructure sectors.

Rising internet maturity is leading to more sophisticated usage patterns that require more capable network infrastructure. New approaches are needed to increase the flow of capital to ICT infrastructure projects

Meeting the global need for advanced network infrastructure requires collaboration among the various funding sources and the development of new funding models that take into account returns on investment beyond simple business cases. In most developed and emerging markets, the public sector needs to improve the attractiveness of ICT investments. 

The public and private sectors also can work together to increase the use of blended financing and attract additional types of investors. Potential vehicles discussed in the report include blended financing, project bundling, securitisation mechanisms, multistakeholder funds, coinvestment vehicles, risk guarantees, and infrastructure marketplaces.

“This report provides a clear and important message to leaders across the public, private, and civic sectors: more collaboration is required to finance a truly forward-looking internet for all,” said Wolfgang Bock, a senior partner at BCG.