1. Introduction: The Digital Infrastructure Imperative
Digital services depend on infrastructure for delivery, and without digital services, infrastructure providers have little for their infrastructure to do.
It has taken less than two decades for the commercial internet to go from innovation to indispensable, from fun to fundamental. About 2.5 billion people are connected to the internet today, a third of the world’s population; there are projected to be about 4 billion users by 2020, or more than half the global population.1 Continuous access to information, commerce, communication, friends and entertainment – among myriad other things – has become a daily fact of life for billions and will soon become a reality for billions more. As the internet makes its full weight felt in more high-impact areas such as healthcare, education and government services, access to digital services will only become more essential for everyone in the years to come.
Big expectations are riding on the continued expansion of the digital economy. Internet-based economic activity is expected to reach $4.2 trillion in the G-20 nations by 2016, or more than 5% of GDP, and this does not include a whole universe of pursuits not captured in GDP figures. The digital economy is growing at more than 10% a year, significantly faster than the economy as a whole. In emerging markets, the internet economy is growing at 12-25% per year, and it is having a far-reaching social and political, as well as economic, impact.2 (See Figure 2.) Around the world, it is an increasingly important source of growth and, frequently, jobs.
Figure 2: Digital Economy Growing at Over 10% per Year across G-20 Countries and Select Other Countries
Sources: EIU, Ovum, Gartner, Euromonitor, OECD, BCG analysis
Such is the impact of digital services and the digital economy that they sometimes seem to be riding a wave of their own momentum. This is not the case. Multiple parties have invested trillions of dollars (and euros and pounds and renminbi, among other currencies) in capital and operating expenditures and research and development to construct and maintain the infrastructure that supports the digital ecosystem that makes the digital economy possible. These parties include communications service providers, or CSPs (fixed line and wireless telecommunications companies, cable companies, and bandwidth providers), digital service and content providers (content, media and IT service companies), and hardware and software manufacturers (infrastructure equipment, device, software and component manufacturers).
Governments also play big parts. Three of the most prominent roles are as policy-makers, regulators and the owners and dispensers of spectrum for mobile networks. Non-governmental organizations (NGOs), industry associations, standards bodies, multistakeholder associations such as the World Wide Web Consortium (W3C), the Internet Corporation for Assigned Names and Numbers (ICANN) and the International Telecommunication Union (ITU), a UN agency, are key players, too. Together, all of these participants are responsible for the fixed and mobile networks, exchange points, datacentres, devices and network equipment, and platforms and protocols that make the internet work. (See Figure 3.)
As more people and businesses come online, and more companies invent more ways to serve their needs – cloud services, machine-to-machine communications (M2M), and the Internet of Things are all new and fast-growing phenomena, for example – the volume of digital traffic will continue to grow exponentially. Can the infrastructure that society now counts on (mostly without thinking about it) to carry all this traffic keep up? A corollary question: who is responsible for making sure that it does?
Infrastructure does not get built without foresight, planning, investment and innovation. Even though CSPs by themselves currently invest more than $300 billion a year in infrastructure-related capital expenditure3, serious impediments are already constraining digital activity and interaction. Without new approaches, the constraints will not be relieved and could intensify. In Europe, for example, lagging adoption of long-term evolution (LTE) technology limits the speed and functions of consumers’ mobile devices. Spectrum scarcity – exacerbated by inefficient allocation and utilization – constrains mobile network capacity worldwide. Disputes over IP interconnection agreements – the deals that dictate how traffic is passed among internet infrastructure providers – could slow the online flow of data. In emerging markets and many rural regions, basic issues of access and cost remain high hurdles. These and other problems threaten to undermine the continued rapid growth of the digital economy.
Numerous issues complicate decision-making and cloud prospects for necessary upgrades and improvements. At the same time, all along the digital value chain, there are tremendous opportunities for businesses to provide better customer experiences, increase demand, improve productivity and save costs. Digital service delivery has the potential to revolutionize fields with huge social and economic impact such as healthcare and education. The degree and nature of the challenge vary by region, but the need for improved infrastructure to accommodate fast-growing digital growth is global.
This report examines the interaction between the digital economy and the infrastructure that supports it. It identifies the main problems and issues undermining investment and innovation in infrastructure today and suggests solutions or avenues to finding solutions. A key underlying premise is that CSPs and content providers face a mutually dependent future. Digital services depend on infrastructure for delivery, and without digital services, infrastructure providers have little for their infrastructure to do.
Policy-makers, industry participants and other stakeholders need to work collectively to do three things:
- Commit to actions that promote the long-term growth of the digital economy
- Remove impediments to the expansion of digital infrastructure
- Modernize policies to encourage investment and innovation throughout the internet ecosystem
This report explores each pillar and provides more detailed recommendations at the end. (See Figure 4.)