There is over 20 years of accumulated cross-country evidence on the link between telecommunications
provision and economic growth. Looking at micro-studies from a range of countries including Bangladesh,
Botswana and Zimbabwe, there is also some evidence that provision of telephony has a dramatic effect on
the income and quality of life of the rural poor. This paper examines cross-country evidence to discover if
teledensity (the number of telephones per capita) has a pro-poor growth impact—fostering increased
average incomes while reducing inequality. It also examines the impact of telecommunications rollout on
quality of life variables including infant mortality and literacy. It finds that, historically, telecommunications
rollout has had a positive and significant impact on increasing inequality and little impact on quality
of life variables. A reason for this is tested and preliminarily confirmed that rollout has (historically) only
benefited the wealthy. The paper will then turn to emerging evidence on the role of the Internet in poverty
relief and statistics on the access gap in provision between rich and poor, suggesting that this new ICT will
also be a force for income divergence. Using the results of the cross-country analysis on telecommunications,
the paper will conclude with a discussion of potential policy responses (such as sector reform and
universal access programs) to turn telecommunications from a source of growth that also increases
inequality to a source of growth that diminishes it.
In 1876, Alexander Graham Bell was touting his new invention (the telephone) around America,
and gave a presentation at the White House. There, President Rutherford Hayes turned to him and
said ‘‘That’s an amazing invention, but who would ever want to use one?’’
Despite Hayes’ skepticism, it has long been recognized that communications might have a
central role in development. John Stuart Mill, writing in 1848, noted that ‘‘it is hardly possible to
overrate the value, in this present low state of human improvement, of placing human beings in
contact with persons dissimilar to themselves, and with modes of thought and action unlike those
with which they are familiar y Such communication has always been, and is peculiarly in the
present age, one of the main sources of progress’’ (quoted in Hirschman, 1982).
Perhaps this is even more true today than in Mill’s ‘present age’. For many observers, the global
economy is entering a ‘digital age’ and information has become a primary resource for economic
development (Talero & Gaudette, 1996). At the same time, developing countries are increasingly
alarmed at an emerging ‘‘digital divide’’, in which those without access to the latest (and most
expensive) tools and technologies will find themselves unable to compete in the global
marketplace. For the poorest people in developing countries, this conjures a two-headed
specter—living in a country that is being left behind because of generally low access to
information technologies, and falling further behind the wealthy in their own country because
they themselves have no access at all.1
This paper focuses on evidence linking telecommunications rollout to broad-based development.
It revisits past evidence on the link between telecommunications and economic growth
before turning to less-studied areas—the impact of telecommunications rollout on within-country
equality and quality of life. The paper turns to concluding sections on policy implications and
what the discussion might mean for the Internet and development.
The results of the paper can be summarized as follows. The literature on a link between
telecommunications and growth is extensive, and there is a reasonably strong consensus that
telecommunications rollout does spur growth at least under some circumstances. There are also a
range of micro-studies that suggest telecommunications access increases the poor’s income and
access to services. At the same time, across countries, telecommunications rollout at a particular
time appears to be quite strongly correlated with equality of income and quality of life measures at
that time. Having said that, across countries, telecommunications rollout at a point in time appears to be
quite strongly correlated with growing inequality of income in the period following. Countries with
one standard deviation higher teledensity than average at decade start will see a 6.5% increase in
inequality over the decade, and countries that see a one standard deviation higher than average
teledensity growth also see a 6% increase in inequality over the decade. Telephone rollout also
appears to have little relationship with changes in quality of life measures.
The paper concludes that this is likely to be the result of past telecommunications rollout being
concentrated at the wealthiest consumers, and argues that the Internet, at least in the short term,
is perhaps even more likely to be a force for divergence. The results suggest the need for
governments to follow an active program of telecommunications access rollout to the poor, a
program made feasible by recent technological and policy advances.
Any conclusion based on such preliminary analysis must be treated with caution. Nonetheless,
the results of the regression analysis fit well enough with non-statistical studies to suggest that the
telephone is a source for income generation, and that those people or countries without access are
likely to fall behind those with access. Further, copious studies on the ICT access gap, or ‘digital
divide’ (see, for example, World Bank, 2000) suggest that the poor have historically been excluded
from ICTs. This in turn suggests that ICTs have been a force for divergence—perhaps between,
and probably within countries. In this way, ICTs have acted the same as most new technologies in
terms of their impact on income differentials across countries (see Kenny, 2001b).
Having said that, a number of factors suggest that telephony could be a force for convergence
of incomes and widespread improvements in quality of life in the future. The historical trend,
which is continuing, is toward convergence in access to telephony across countries (Grace et al.,
2001). One cause of this is that technological advance continues to make telephony increasingly
affordable. As we have seen, the average teledensity at a given income level has been growing over
the last four decades, and recent advances are likely to speed that process. For example, the
GrameenPhone program discussed earlier relies on mobile telephony to provide access where
fixed-line provision would not be viable.
The worldwide move toward private, competitive and regulated telephone provision is also
playing a role in extending telephone access (Kubota, 2000; Reynolds et al., 2001; Wallsten,
1999)—as well as access amongst the poor. In 1994, Peru privatized its telecommunications
system, and the privatization contracts included substantial obligations to install public
telephones in rural areas. Teledensity increased from 29 to 76 lines per thousand, the number
of public telephones increased sixfold and the percentage of the poorest income quintile with a
telephone increased from 1% to 21% (World Bank, 2001a). Particular regulatory mechanisms to
help ensure access—such as licences requiring service rollout and legalizing resale—are discussed
in Dyamond, Juntunen, and Navas-Sabater (2000).
Further supporting a movement towards universal access are a growing number of successful
models for providing public telephone access in LDCs. In Senegal, for example, more than 6000
privately operated telecenters have come into existence since the early 1990s.17 Public access to a
telephone has more than doubled—with the added advantage that the cost-effectiveness of each
additional line was four times greater than that of a private home line (ITU, 1998). India, Peru,
South Africa, and Thailand have also seen dramatic growth in privately owned and operated
telecenters providing rural inhabitants with new information sources and opportunities (Ernberg,
1998) (see also Ervin, 1998; Falch, 1998; Jensen, 1999; Richardson, 1999; TeleCommons
Development Group, 2000).
Finally, the Chilean reverse subsidy auction scheme provides a mechanism to subsidize the
private provision of access beyond the market in a manner that keeps the cost of that provision to
a minimum. Chile has achieved near-universal telephone access by auctioning subsidies to the
lowest bidder to provide public telephones in unserved areas of the country at the cost of a little
under $10 per newly served citizen (Kenny, 2002).
Together, these four factors suggest that many developing countries could rapidly move toward
teleaccessibility for the great majority of their citizens. In turn, this would help to ensure that
telephony moved from being a ‘sub-pro-poor’ to a ‘super-pro-poor’ tool of development.
A program to widen access would have four parts (not necessarily in this order). First,
privatization of the state fixed monopoly. In order to maximize access, bids could be evaluated on
the basis of rollout plans rather than or as well as highest purchase offer. Bolivia’s
telecommunications privatization plan was designed to be fiscally neutral, with companies
bidding on the basis of investment plans rather than payments to the treasury. Second, the
introduction of fixed and wireless competition, including wireless local loop services, with licences
awarded on the basis of rollout plans. In Uganda, for example, the Second National Operator’s
bid evaluation criteria included a network rollout plan in addition to the bid price. Third, a strong
regulatory regime to ensure, in particular, fair interconnection and revenue sharing arrangements.
Regulations should also guarantee the right to resell services. Further, and after the introduction
of well-regulated private competition, governments should create a universal access fund,
preferably supported from general government revenues (as in Chile), to provide reverseauctioned
subsidies to support access rollout in uneconomic areas.
Turning to the Internet, in the absence of an active policy stance covering access, training and
content development aimed specifically at the poor, it is likely that the new technology will also be
a force for income divergence. On the other hand, given the barriers mentioned above, it is likely
that such a program would be both complex and very expensive (Kenny, 2002). Depending on
one’s view of the benefits of direct Internet access for the poor in LDCs, this program could be a
distraction from more important priorities or a vital step towards equality of opportunity. The
answer to this question is left to other researchers.