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Connecting the world: Ubiquity will be a hard state to reach

Stephen Pritchard
Financial Times
29 May 2009

At the end of last year, 1.54bn people in the world had access to the internet. At the same time, more than 4bn people subscribed to a mobile phone, according to figures from the International Telecommunications Union.

Globally, there were 1.3bn fixed phone lines – and mobile broadband was used by 5 per cent of the world’s population.

The statistics reflect the changes over the past decade in the way individuals and businesses connect and communicate.

Communications have become faster, more reliable and in many cases cheaper, especially in developed economies where broadband penetration is high. In developing countries, the growth of the mobile phone has brought the most change.

Almost 40 per cent of people in developing countries had access to a mobile phone by the end of 2007, again according to the ITU. Although mobile broadband penetration remains low, it is only just behind the 6 per cent level of fixed, broadband connections and could well overtake that in the near future.

This growth presents challenges as well as opportunities for businesses, telecommunications providers, governments and regulators. The arrival of improved communications for some have raised the prospect of a “digital divide” excluding the unconnected, and not just in the developing world.

In the UK, Lord Stephen Carter’s interim report on Digital Britain, published in January, calculated that the country’s digital economy accounted for 8 per cent of GDP.

But in the same report, he cautioned that the growth of the internet and related communications services could raise issues of fairness, unless steps were taken to ensure “near universal participation” in the digital economy.

Increasing participation is about money, of course, but there are also considerable technical hurdles. In developing countries, fixed line infrastructures have already been “leapfrogged” by cellular networks. But even in mature markets, network technologies such as WiMax and satellite links are as important as fibre-optics and mobile broadband for businesses to be able to operate electronically, and on the move.

“People are beginning to take for granted the fact that 3G services, at least, are available in the most heavily trafficked areas,” says Roger Roberts, a partner in California at McKinsey & Company, the consultancy.

“For white collar knowledge workers it tends to be the case that you can count on connections in ways that people simply could not, even five years ago. But there is still a gap between pervasive, high bandwidth connectivity, and true ubiquity.”

Mr Roberts points to the example of a US utility company that needs to cover rural and semi-rural areas with its field force operation. “The stretches of territory that can only be reached by satellite are significant, so the application has to be designed ... to allow working in both high bandwidth and low bandwidth zones,” he says.

Such considerations add significant hardware and software costs. But satellite communications remain an important option for both fixed and mobile connections in areas that are often impossible to reach with other technologies.

Attempts by businesses and telecoms operators to find alternatives to both fixed and cellular connections have, however, proved less than successful.

Technologies such as wireless OFDM – offering above-cellular speeds to semi-portable modems – have been used with some success in less populated areas.

Digita, a Finnish network, uses Qualcomm’s Flash OFDM network running in spectrum previously used for analogue services, and plans to cover the whole of the country by the end of this year.

In other markets, WiMax has been touted as the answer to high-speed connections in areas not already well covered by fixed broadband networks. It has some significant backers, including the computer chipmaker Intel.

“The case for WiMax looks most attractive for fixed networks,” suggests Alan Carr, at PA Consulting. “[It] is weaker in countries such as the UK, where there is a good, fixed network. But in the Middle East, for example, where broadband and cellular networks are not as good, WiMax is more attractive.”

The challenge, Mr Carr suggests, is that fixed or semi-fixed wireless networks have failed to compete with fixed connections. Faced with competition from an alternative technology, fixed and even cellular operators are likely to fill in the gaps in coverage that could attract businesses or consumers to WiMax or an alternative network.

“There have to be gaps in capacity or coverage, and competition usually stimulates the fixed networks to improve,” he says. “There may be some isolated cases where these technologies are attractive, but demand might not be large enough.”

Developments in fixed network technologies have also enabled them to stay ahead of the competition in technical terms. Additions to the ADSL (asymmetric digital subscriber line) standard – Annex M for higher upload speeds and Annex L for better coverage further from the telephone exchange – have enabled it to encroach on markets previously dominated by leased lines or, at the low end, ISDN networks.

In cities, operators are also introducing faster Metro Ethernet networks, giving businesses access to higher-speed connections at around a third of the cost of leased lines, according to BT. In cable, innovations such as Virgin Media’s fast 200 megabits per second service in the UK offer possibilities for very high bandwidth services, such as streaming video or telepresence.

But it is also convergence that is prompting both business users and consumers to opt for fixed networks, and justifying operators’ investments in them. “The big change has been the convergence of voice and data networks,” notes PA Consulting’s Mr Carr. “In the future, there will only be one [fixed] network, based on next generation technology, which will carry everything.”

In the next few years, entertainment applications, such as the BBC’s iPlayer video-on-demand service, will drive demand for connectivity as much as business services. Video conferencing and internet telephony are also set to grow, not least because of their potential to help businesses save money and cut carbon emissions.

But they will also drive demand for bandwidth and, quite possibly, increase organisations’ communications costs.

“Convergence covers the entire value chain. We have convergence, when Vodafone moves into fixed broadband, and when France Telecom buys sporting rights or produces movies,” says Didier Bonnet, head of telecoms, media and entertainment consulting at Capgemini.

“But convergence is also causing a blurring of what you have at home, and what you have in the office, especially for the younger generation. They have YouTube at home, so why not at work?”

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