Public funds for support of the network economy in rural and mountainous regions

In rural and mountainous regions, where the installation of broadband and other technology innovations are considered unprofitable by the private sector, public funds are often the only option to fill in the gap.

Here are some examples of how European funding supported the e-economy and e-government in rural and mountainous areas throughout Europe.

The project Bridge Me in the Kozani mountainous region of Greece installed a high-speed wireless network with a budget of just EUR 350 000. It was promoted by the local authorities and led to connecting all the municipalities and 200 local government bodies in the Kozani region. Based on Wi-Fi and Wi-Max technologies, the network covers wireless links of 472 km, which successfully transfer Voice over IP/video and data in high altitude areas regardless of weather conditions (snow, rain, fog, wind). The project led to the introduction of a whole range of new electronic services, including e-payments, e-voting at local elections, job seeking, “back office” services via the internet, and forest fire prevention).

A project in South West England, initiated in 2010 and costing 137 million Euro, including European funding, is for deployment of super-fast (up to 100 Mb/second) fibre-based connections to 86% of all businesses in the region. 10,000 businesses are expected to benefit from the new network and it will indirectly lead to around 4300 permanent employment opportunities.

In the far North of Sweden, some 3000 km of fibre optic cables were installed with European and government funding of 10 million Euro. The works were entrusted to a public company, owned by the Council and the 14 municipalities in the County and the Local Councillors had to decide on the order of priority for connecting the villages. Once they had been equipped, various Internet service providers took over and the public support was no longer needed. Over 300 villages were connected, creating 60 jobs and three businesses. The project resulted in innovative applications in three specific areas:

- education with all schools in the region connected and having access to a variety of educational opportunities;

- e-health offering services such as post-childbirth check-ups and assistance for new parents and monitoring the quality of healthcare in old people’s homes are offered.

- industrial research and engineering networking - access to broadband has enabled companies like Volvo to remotely test their new vehicles in real time where pilots and test platforms are directly connected to the manufacturer’s laboratories, a thousand kilometres away.

The examples show that government and European funding is essential to lay the grounds for digital inclusion in rural and mountainous areas, and once the infrastructure is deployed, businesses take up the new opportunities with no need of further support.

Are social networking sites the next investment bubble?

Social networking is the fastest-growing internet activity. Internet traffic today, and the data generated by Facebook, is estimated to surpass that of all the world’s e-mail. Facebook alone has half a billion users, a little less than 10% of all the world’s population.

This is quite impressive, but even more impressive is the figure $50 billion, Goldman Sachs’ market capitalization estimation of Facebook, which even more recently has been cited as $82,9 billion. This is equal to twice the annual GDP of the whole of Bulgaria. Is it realistic for a social network occupying a single building?

Facebook is not alone. A number of other social media firms, such as Twitter, LinkedIn, Zynga and Groupon, are also valued in the billions. It’s true that they have built a vast community of committed users – with half a billion users of Facebook, 200 million “twitters” and 80 million users of LinkedIn.

The prevailing wisdom is that money from advertising will naturally flow from the large user base. LinkedIn has been successful in charging users for additional information on other users while Groupon gets a cut of each deal that its users buy, but Facebook, Twitter, Zynga and other sites rely on advertising that is more difficult to properly customize. In fact little is actually known about the sales and profits of the social networking companies as they are still private and don’t have to issue public financial statements.

According to media reports, Facebook generated about $2 billion in revenue in 2010, and so the $50 billion valuation means investors have awarded it a multiple of 25 times sales, compared with a nine-times multiple for Google, and Amazon's 2.5-times multiple. Facebook generates $4 per user, compared with Google's $24 per user and Yahoo's $8 per user, according to a recent report by JPMorgan.

Advertisers say there’s currently not enough advertising to go around and even if there was, why market to a mostly young audience that thinks you’re stepping on their personal conversations?

Apart from the threat that new technologies or rivals may easily replace the existing social networking business models, the big issue which may lead to bursting of the bubble is exactly privacy. As Scott Cleland puts it: “Simply what fuels Bubble 2.0 is the patently false core assumption that the current unfettered, widespread, and largely clandestine data mining of individuals private information in order to target specific individuals with personalized online advertising is aligned with real user interests; is a forthright business practice consumers are aware of and have meaningfully consented to; will not be legally constrained in the future; and will become the accepted norm. The holy grail here that has everybody so excited in the online-ad industry is that they understand that the more private details they can secretly learn about an individual user, they have a vastly higher chance of influencing them to do what they want them to do”.

And the new data privacy rules are already coming. Social-networking sites such as Facebook, or search engines such as Google, may face court action if they fail to obey planned EU data privacy rules. The European Commission wants to force companies to allow Internet users to withdraw any data held by the websites, calling it the "right to be forgotten," as well as make the firms provide more information on what data is collected and for what purpose.

“Work-around” solutions for rural areas

My online research led to a lot of examples where rural and remote areas and emerging markets are using innovative approaches to “work around” the lack of fixed-line broadband services and to fully benefit from the digital economy. It seems that such solutions can bring a competitive advantage of rural areas in the information age.

One way is the use of mobile data, which according to the Digital economy rankings 2010 (http://graphics.eiu.com/upload/EIU_Digital_economy_rankings_2010_FINAL_WEB.pdf) is becoming an important mode of broadband access and in emerging markets smartphones are increasingly used as a primary form of connecting to the internet. In Jakarta, for example, one-third of the inhabitants have a BlackBerry and Jakartans are among the world’s leading citizens in use of text messaging and mobile Facebook, largely because they lack fixed-line broadband services. What started as a technology “work-around” is now evolving to make full use of the digital economy. Currently online journalists and bloggers are thriving, using smartphones to report and publish, which led to a strong growth of mobile advertising spending. In addition, Jakarta now has a strong community of mobile application development entrepreneurs that source work globally. (http://graphics.eiu.com/upload/EIU_Digital_economy_rankings_2010_FINAL_WEB.pdf).

Another example is an innovative e-commerce platform put in place in Chinese rural areas, linking rural consumers and urban business (http://www.nokiasiemensnetworks.com/news-events/press-room/press-releases/online-shopping-opens-new-doors-for-villagers-and-retailers-in). The e-commerce solution is an integrated end-to-end service, which contains an online Catalogue Sales Platform (CSP), on which urban businesses can upload their products for marketing to rural customers. The service is delivered to villagers through local entrepreneurs, who provide shared internet access to the online shopping platform.

The success of IT outsourcing in India, Brazil, as well as in Bulgaria, has also been a proof that these countries compensate lower connectivity levels with digitally innovative business. In fact, according to the Digital economy rankings 2010 (http://graphics.eiu.com/upload/EIU_Digital_economy_rankings_2010_FINAL_WEB.pdf), innovative digital practices and applications are put into practice in the rural and emerging markets faster than in the developed world.

With the increased usage of mobile data tools and services, especially in the rural and emerging markets, interoperability, which is defined as being able to accomplish end-user applications using different types of computer systems, operating systems, and application software, interconnected by different types of local and wide area networks (http://en.wikipedia.org/wiki/Interoperability), becomes a pressing issue. It is not a surprise that the EU Commissioner Neelie Kroes puts interoperability at the heart of the Digital Agenda for Europe (http://www.euractiv.com/en/infosociety/kroes-interoperability-heart-digital-agenda-interview-495525).

Digitally Divided by the Great Firewall of China

Some of the provinces of China, like Macao, have the most accessible broadband in the world, accounting for only 0,3% of the average monthly income there (http://www.bbc.co.uk/news/technology-11162656). But as the technical and financial aspects of connectivity are overcome, a different kind of digital divide is emerging. The so called Great Firewall of China or the Golden Shield Project censors internet content thus creating a new kind of digital exclusion. Censoring is done through IP blocking, DNS filtering and redirection, URL filtering, connection reset. Access is blocked to sites such as Facebook, YouTube and Twitter (http://en.wikipedia.org/wiki/Great_Firewall_of_China). In essence Chinese citizens are deprived of access to certain information and social networking and though they may have Internet access, they still suffer digital exclusion.

The censorship in China caused Goolge to retreat from the Chinese market as the company was no longer willing to censoring their results on Google.cn (http://googleblog.blogspot.com/2010/01/new-approach-to-china.html). A “work-around” solution Google found was to put a link to Google.com.hk, the Hong Kong google, where they are offering uncensored search in simplified Chinese (http://googleblog.blogspot.com/2010/06/update-on-china.html). I wonder if “work-around” solutions can be found for Facebook and YouTube.

According to the Digital economy rankings 2010 report of the Economist Intelligence Unit (http://graphics.eiu.com/upload/EIU_Digital_economy_rankings_2010_FINAL_WEB.pdf) when the primary mission of countries was to become “e-ready”, the interests of various stakeholders were aligned around a shared vision to increase digital access. But as the imperative turns from availability to greater usage, those interests can start to diverge. For reasons of safety and security, for example, governments take an interest in how constituents use the Internet. China’s interest is particularly keen, but China is far from alone in trying to control its digitally enabled citizens: the Committee to Protect Journalists names China, Vietnam, Syria, Iran and Egypt among the toughest countries to be a blogger, and has recently criticised Vietnam for shutting down political blogs (http://graphics.eiu.com/upload/EIU_Digital_economy_rankings_2010_FINAL_WEB.pdf).