Managing Director & Senior Partner; Global Leader, Technology, Media, & Telecommunications Practice
The critical importance of digital connectivity to the quality of daily life has become starkly apparent during the COVID-19 crisis. Internet access, enabled by decades of investments by telecommunications companies, has played a major role in enabling work, education, and life to continue during the recent global lockdown. Telcos’ efforts to ensure that connectivity remains largely uninterrupted have generated praise from governments, business, and society.
Unfortunately, as the world increasingly moves online, the digital divide between people who don’t have access to high-speed internet connectivity and those who do has also become more apparent. Telecom infrastructure limitations aren’t the sole cause of this worsening problem; affordability and insufficient digital literacy add to it. Moreover, the divide isn’t confined to developing nations. Its importance in the developed world has also become more visible. Joining individuals and households on the dark side of the divide are an increasing number of small and medium enterprises that lack high-speed internet connectivity.
Moreover, telcos have been facing additional financial pressure since the pandemic broke out, and they can’t carry the weight of connecting the unconnected alone. A multi-stakeholder approach is essential. In this regard, the current crisis is also an opportunity. As the pandemic keeps the spotlight on the critical role of connectivity, we see unprecedented momentum to accelerate efforts to bridge the digital divide. Governments, business—including telecommunications companies—and society must seize this watershed moment to close the gap between the digital haves and have-nots, once and for all.
Reducing the digital divide by half over the next five years will require a $2.1 trillion investment, according to our research. That goal may seem dauntingly ambitious, but it can be achieved through a combination of actions driving high-speed internet adoption and revenue growth, promoting cross-sector partnerships, and optimizing technologies. If the public and private sectors collaborate and act quickly, they can provide high-speed internet access to around 80% of the world’s population by 2025, compared to just 53% today. That accomplishment will be critical for economic development because high-speed internet access is no longer a luxury, but an essential need—and fundamental to work and play.
Imagine, for a moment, that the COVID-19 pandemic had erupted across the world not in 2020, but at the dawn of the millennium. In 2020, as countries locked down their economies and imposed quarantine restrictions—multiple times in some cities and regions—internet usage shot up by 70%, the use of virtual communication tools rose by 10 times, and online streaming increased by more than 50%, according to several
Our analysis suggests that 20 years ago, the world’s connectivity levels would have been able to help, at most, 0.2% of the labor force to work remotely compared to the 10% of people in the global workforce who have been able to work from home in
Crucially, because of connectivity, at least 100 million schoolchildren and 200 million university students worldwide were able to continue their education online despite the pandemic—more than 75 times as many as would have been possible in
If telcos have ensured that the world can operate in the teeth of a global lockdown, it’s because of the enormous investments in infrastructure that they have made over the past two decades. Since 2000, telcos have invested more than $5 trillion to increase global
The numbers capture the impact. In 2000, less than 1% of households had access to fixed broadband, at speeds of at most 512 Kbps; but today, just over 50% of households enjoy fixed broadband, and close to half of those users access it through fiber. Similarly, whereas only 12% of the global population could access the internet over mobile devices 20 years ago—and at low speeds of 40 Kbps—now 97% can, and 85% of them do so over 4G networks that offer speeds of up to 150 Mbps under optimal
Thanks to the investments that they have been making over the past two decades, telcos were able to respond swiftly and decisively to the current crisis. When demand for voice and data communications exploded, they ensured that their networks would perform at maximum capacity, reallocating capital to free up infrastructure, launching emergency rollouts, and sharing infrastructure with each other. They launched new offerings, such as free data packages for customers in the most affected areas, and supported suppliers and distributors by offering payment extensions. Forward-thinking regulators assisted in this process by facilitating access to emergency spectrum, providing consumer subsidies, and granting telcos some tax relief. Telcos worked closely with governments to enable contact tracing and to broadcast public health information, and they proved to be a dependable lifeline of support during the crisis.
Telcos’ quick, effective response has drawn widespread media attention. That’s evident from a BCG Quid analysis (Quid is a software firm that specializes in text-based data analysis) covering over 3,000 news stories relating to telecommunications as well as public sentiment about service providers before and after the pandemic began. (See the sidebar “Understanding the Responses to Telcos’ Actions During the COVID-19 Crisis.”) The most-discussed topics, we found, shifted quickly from 5G-related content (40% of the number of stories before the crisis) to actions taken by telcos to tackle the pandemic—and to public approval of them.
Despite telcos’ creditable short-term crisis response, the connectivity needs of a large underserved population remain unaddressed. The COVID-19 crisis has exposed the multifaceted nature of this challenge. The digital divide doesn’t exist solely because of a lack of access to connectivity infrastructure, but also because of constraints on speed, affordability, and usage. It isn’t just a developing-economy problem, but also a developed-economy issue. And the deficit isn’t limited to individual access, but also affects small and medium enterprise (SME) connectivity.
Beyond Infrastructure: Gauging the Real Connectivity Gap
The average household requires speeds of 30 Mbps at a bare minimum, and speeds as high as 100 Mbps to support greater connectivity, better simultaneous virtual communications for work and school, and a better user experience. The population that doesn’t have access to high-speed internet at or above 30 Mbps, regardless of the technology, must count as part of what we call the “real connectivity gap.” Although a quarter of the world’s households connect to the internet at sufficiently fast speeds through fixed broadband, and another quarter can do so via mobile, that still leaves a gap of 47% of households unconnected. The gap has three elements:
The Coverage Gap. In some countries, lack of infrastructure coverage poses a challenge for a substantial part of the population. In low-income countries (LICs), 70% of households aren’t yet covered by fixed broadband networks—and despite the enormous progress in coverage that has occurred in recent years, 33% are still out of reach of a 4G mobile network. In middle-income countries (MICs), the corresponding numbers can be as high as 24% and 9%, respectively, and even in high-income countries (HICs), 2% to 3% of households have no fixed-line or 4G network
The Speed Gap. Being connected to a fixed or mobile network is necessary for connectivity, but it isn’t enough. While 51% of households worldwide have fixed broadband connections to the internet, half of them can connect only at speeds below
The Usage Gap. Even when broadband infrastructure is available, many people don’t connect to the internet. In HICs, 8% of households covered by fixed broadband are not connected; and in LICs, the figure is 67%. Cellular 4G connectivity is more widely accessed, but a usage gap exists there too. For instance, 10% of households in LICs are covered by 4G and yet not
One key reason for the usage gap is affordability. Although the prices of offerings have continuously declined in the telecom industry over the past decade, affordability remains an issue for a substantial part of the population, particularly when gaining effective access to services entails using prohibitively expensive devices. For example, an average person in an LIC would have to spend more than a month’s wages to buy a cheap smartphone and five months’ wages to buy a laptop. (See Exhibit 3.)
Income inequality within a country only amplifies the problem: The bottom 20% of the population in HICs would have to spend more than a month’s wages for a basic laptop—rendering it unaffordable to them—and the corresponding numbers are six months’ wages for the bottom 20% in MICs and eight months’ wages for the bottom 20% in
Lack of digital skills and literacy is another factor underlying the usage gap. Over 60% of people in MICs and LICs don’t have basic computer skills—such as knowing how to use the copy-and-paste function in a document to copy and move a file, how to send email messages with attachments, or how to transfer files between a computer and other devices. Meanwhile, in HICs, almost 60% of young people and adults don’t possess the next level of standard skills, such as knowing how to use a basic formula in a spreadsheet, how to connect new devices, how to create electronic presentations, or how to find, download, and install new
Experts began to realize the seriousness of this challenge during the recent COVID-19 crisis when many teachers seemed to lack the digital skills needed to conduct online classes. In a recent BCG survey, close to 40% of parents in HICs cited that shortcoming as an important barrier to online schooling, ranking it second behind the insufficient availability of digital infrastructure. The lack of digitally skilled teachers has major ramifications in all countries but especially in LICs, where students are at risk of losing 30% of their reading skills and 50% of their math skills if they have to forgo access to classrooms for a sustained
Digital literacy lags disproportionately in areas where people don’t see the benefits of using the internet or the need to use it. In the absence of applications that can help them with their day-to-day lives—such as for financial services, education, or health care—people have little incentive to learn digital skills and to connect to the internet.
Beyond the Developing World: The Divide in the Developed World
The digital divide isn’t just a challenge for people in LICs and MICs. It’s also a problem in HICs, where 20% of households aren’t connected to the internet at sufficient speeds. The COVID-19 crisis has exposed some limitations of networks in HICs, too. Because of sudden surges in traffic, from 15% to 25% of broadband users in a BCG survey of around 15,000 customers in 13 developed countries said that they had experienced at least daily disruptions to fixed broadband during the lockdown, hindering their ability to access remote work and education services. Reliance on legacy fixed broadband technologies in many HICs, in tandem with the sharp increase in remote activities in recent times, has probably overloaded several networks. In addition, the difference between urban and rural connectivity quality is notorious. Download speeds average 150 Mbps in New York City but can slow to far less usable speeds in rural areas of the
The COVID-19 crisis has also brought to the fore the skills gaps in HICs, where only 62% of youth and adults have basic information and communications technology (ICT)
Beyond Individuals: SMEs’ Connectivity Constraints
The digital divide has become tangible in business, too, with SMEs trailing far behind larger companies in digital connectivity. Less than half of SMEs have access to fixed broadband services, and only 25% offer customer service online, while almost 100% of large
Only a few SMEs have managed to operate remotely during the COVID-19 crisis. As a result, the coronavirus has had a disproportionately negative impact on SMEs overall. In Japan, for instance, just 10% to 20% of employees in SMEs have been able to work virtually during the pandemic compared to more than 50% of those who work for large
SMEs play a critical role in the global economy, accounting for over 90% of businesses worldwide and half of global employment. The latter proportion is even higher in emerging markets, where they are the source of over 70% of jobs and generate more than half of national
SMEs face the same connectivity barriers—including lack of infrastructure, low speeds, affordability issues, and limited digital skills—that individuals do. In many countries, cost is the top barrier to SME digitization, and a good-quality business broadband subscription can be substantially more expensive than a residential broadband subscription. Insufficient digital skills are another issue; more than a third of SMEs haven’t developed the capability to create websites, use social media, or market products and services over the
Left alone, the digital divide will only worsen in the future, when digitization becomes all-pervasive. Remote working, learning, and shopping are all likely to become routine as consumers become more accustomed to conducting key activities online and as institutions prepare for future pandemics.
In the new normal, a typical day will see digitization embedded in every aspect of daily life. (See Exhibit 4.) Working remotely may involve attending videoconferences and virtual meetings with colleagues, as well as participating in virtual town halls that bring together employees from across the world. For children, going to school virtually—at least in part—could entail streaming prerecorded lectures, attending classes via the internet, and conducting extracurricular activities remotely with the help of augmented reality. Using a digital health care system will mean using smart devices that track your vital statistics, and pursuing online leisure activities may include watching movies on demand, live-streaming concerts, and playing video games. A host of other digital services, such as online tax return filing and electronic voting, are likely to become common.
Almost every household will need more connectivity, which will consume a larger share of home budgets and family incomes. Our calculations, which factor in the use of several applications and connectivity standards for households in different countries, indicate that families will require—in addition to sufficient devices such as smartphones and laptops—a significant increase in connectivity speeds, from 30 Mbps for households in LICs to 100 Mbps for urban households in HICs. Assuming an average household size of four, that translates into a need for bigger budgets for devices and services: from $750 to $1,000 per year in LIC households to $2,500 to $3,000 per year in urban HIC households. (See Exhibit 5.) Those numbers represent a share of from 7% to 100% of average household incomes in LICs and from 4% to 8% of average household incomes in HICs, according to our projections. The numbers thus exceed most families’ affordability thresholds for internet connectivity by an order of magnitude.
Similarly, SMEs will require more infrastructure, larger budgets, and better digital skills training to adapt to the demands of the post-COVID-19 world. SMEs will need greater digital literacy and more digital resources to understand, select, and adopt software for digitization. Although infrastructure requirements will vary by size, a typical SME with 20 employees may require speeds of up to 200 Mbps with unlimited data usage. It will also need to budget for business broadband plans and, possibly, dozens of devices, additional software, and other services to support effective digital processes. That adds up to a significant expense for a small, liquidity-starved business, especially in the developing world.
Worryingly, even as the requirements for telecom infrastructure rise, telcos’ operating economics are deteriorating, and they face severe financial pressure. On the one hand, although traffic has increased, intense competition has driven down the average revenues per user from fixed-line and mobile services. On the other hand, telcos have had to maintain high levels of investment in order to deploy new technologies and offer new services. In just the past three years, telcos’ free cash flows have fallen from 17% of revenues to 6%, and at the current rate of decline they could hit zero by
Many governments have supported the short-run provision of connectivity in their COVID-19-related relief measures, but most haven’t earmarked funds for digitization in their long-term recovery plans. Fewer than half of the 18 HICs and MICs we’ve studied plan to invest in expanding or improving the connectivity infrastructure for rural users; just five have designated funding for SME digitization; and only two nations have announced measures to upgrade people’s digital
There’s a crying need for a new social contract between telcos and society to ensure that providing connectivity is financially sustainable. On the one hand, investments in connectivity take a long time to generate paybacks for telcos, especially in remote and economically unrewarding areas—often more than ten years in the case of high-speed fixed or mobile coverage. On the other hand, the fillip that a country’s GDP receives from investments in the connectivity infrastructure yields a much faster payback: less than two years in almost all of the countries we
Clearly, it is time for everyone to come together, identify priorities for accelerating high-speed internet penetration, and take action to reduce the digital divide. According to our calculations, around $2.1 trillion will be required to shrink the current connectivity gap by half, which will increase the percentage of high-speed internet users from 53% to 80% by 2025. That will translate into nearly 100% use in HICs, 80% use in MICs, and around 70% use in LICs. (See Exhibit 6.) It won’t mark the end of the journey to universal internet access, but it will represent significant progress toward that goal.
Two kinds of concurrent investments are necessary: investments in deploying and operating the infrastructure, and investments to support internet adoption. Both are critical because, as the current usage gap suggests, merely building the infrastructure won’t ensure usage.
Infrastructure investments must encompass building new fiber networks and upgrading existing infrastructure, as well as increasing wireless network capacity wherever mobile networks can provide sufficient speeds more efficiently than fixed-line networks can. Around $1.5 trillion will be required to roll out and operate infrastructure in the next five years; the initial capital expenditure will account for a third of that figure, according to our
In the absence of additional measures, however, only a handful of newly connected households—just 20% in LICs, for example—will adopt and pay for services. Adoption investments will ensure that all those who are covered can connect to and use the internet. These investments will increase the affordability of services and devices through direct subsidies or financing plans; build skills through digital curricula and workforce upskilling programs; and incentivize the development of key digital applications. Driving adoption and usage will require an investment of $0.6 trillion over a five-year period, and it will enable close to 600 million households worldwide to adopt and use the internet, including existing subscribers who currently lack necessary skills or suitable devices to do so.
Daunting though the digital divide may seem, a combination of actions across three key pillars can get us halfway across during the next five years, reducing the number of households that lack high-speed internet access from 47% to 20%. (See Exhibit 7.) These pillars consist of driving adoption and revenue growth, fostering collaboration, and leveraging technology.
Imagine that it’s 2025 and that 80% of the world’s population now enjoys high-speed internet access. What actions, coupled with public- and private-sector collaboration, taken at scale during the previous five years, helped halve the digital divide? (See Exhibit 8.)
Drive Adoption and Revenue Growth
To unlock funds for infrastructure investments in underserved areas—especially areas that were not commercially viable—stakeholders had to reverse the trend of declining revenues in the telco industry and stimulate revenue growth across every channel.
Key industries digitized. The digitization of sectors that underpin basic needs—such as finance, health care, and education—generated a 30% increase in connectivity revenues from these sectors by 2025. That change had a double impact. In addition to generating additional revenues for telcos, it helped accelerate the adoption of connectivity by new users by making new applications and use cases available.
Governments played a key role in the process by incentivizing digital transformation through loans, grants, and funds, and by creating clear regulatory regimes and standards. They drove national digital strategies across sectors, and many of them appointed a minister for digital affairs to coordinate the digital transformation efforts of government agencies and industries. Governments also took the opportunity to earmark funds for cross-sector digitization in post-COVID stimulus packages in 2020.
Many countries kick-started digitization in the financial services sector because of the ubiquity of financial transactions in daily lives and their potential impact on other sectors. Industry players quickly developed use cases to address target groups’ biggest pain points, such as e-wallets for the unbanked and real-time price information for small farmers. To facilitate mass adoption, players worked with regulators to ensure that digital platforms were interoperable. Governments supported the creation of a conducive ecosystem by allowing companies to use digital payment systems to pay salaries and by creating digital identities to facilitate tax filing and loan applications.
SMEs went online. SME digitization increased significantly from the relatively low levels of 2020, generating a 50% increase in connectivity revenue for telcos around the world. Telcos, tech companies, and financial services players collaborated to create end-to-end offerings that simplified and facilitated digitization for smaller businesses. The offerings, described as “digital SME in a box,” covered everything from connectivity, devices, and related infrastructure (such as cloud and virtual private networks) to turnkey software solutions, large-scale training, and financing mechanisms. (See the sidebar “Digital SME in a Box.”) In parallel, governments catalyzed ecosystems by setting up suitable regulation standards, supporting financing and training solutions, and developing platforms to facilitate SMEs’ searches for digital vendors.
Usage and adoption proliferated. As much as $600 billion was invested globally by 2025, enabling almost 600 million households to obtain devices and digital skills and to thrive in the new normal. Governments and industry players helped make devices and services more affordable by accelerating the availability of subsidies; financing microfinance, interest-free loans, and installment plans; and providing incentives to develop inexpensive devices such as the $40 smartphones offered by MTN, Safaricom, and Vodacom, among others, in
Telcos’ monetization improved. Telcos’ average revenue per user increased by 1.5% over 2020, returning to previous years’ levels. That was a significant first step in generating the cash needed to invest in closing the digital divide. To support a healthy telecom industry structure, governments allowed consolidation that benefited both customers and telcos. This policy followed the trend of “four-to-three” telco mergers that started in many countries in the 2010s. Telcos were able to pursue healthy pricing strategies and increase their offerings of value-added products and services to improve price realization.
Telcos stepped up collaboration within the industry, with governments, and with other sectors, such as utilities and finance, to facilitate the deployment and financing of connectivity infrastructure.
Infrastructure sharing expanded beyond telcos. To utilize infrastructure more efficiently, especially in remote and low-density areas, telcos shared half of their fresh infrastructure building over the past five years. That strategy yielded savings of 30% to 40% in capital expenditure and operating expenses on those
Creative financing flowered. The telecom industry took advantage of the rising interest among infrastructure investors and private equity firms in tower companies, fiber companies, and others in the sector. In addition to promoting such investments, many governments facilitated co-investment by bundling projects into infrastructure funds; encouraging the use of infrastructure marketplaces to connect investors and players; and issuing grants and loans to reduce project risk. By tapping cheaper sources of funding, telcos reduced their capital expenditures by 2%, contributing significantly to their efforts to bridge the funds gap.
Moreover, governments set up creative ways to provide universal internet access in places where commercial ventures couldn’t. They did so for specific use cases such as connecting schools in certain regions within specific time frames. Governments worked with industry players to package internet service and devices in order to provide bundles to every public school, essentially mandating access for education. To finance such projects, governments redirected funds, including some from the COVID-19 stimulus packages; disbursed unspent universal access funds; and encouraged partnerships between government and industry.
Governments reduced bureaucratic hurdles. With governments helping to resolve bureaucratic hurdles—such as objections by landlords and municipalities to installing underground cable or rooftop masts, and high right-of-way fees—the standard rollout time required for telecom infrastructure was cut in half. Governments streamlined their approval processes, incentivized consensus through subsidies and brokered agreements, and launched campaigns to educate key stakeholders. An early example of this occurred in Germany in 2020, when the federal government set up a new entity to accelerate wireless infrastructure rollout by granting permits faster and mounting a public information campaign. Collectively, those measures reduced capital expenditure by 10%.
Optimize Technology Use
Connecting underserved areas required a mix of new technologies and existing ones, so industry players adopted a more collaborative and technology-agnostic approach to delivering global connectivity. They worked on two fronts.
Companies optimized the access technologies mix. Existing terrestrial technologies continued to roll out at scale to provide the required speeds in unserved areas, with telcos optimizing the mix of fixed-fiber, fiber-wireless access, and 4G or 5G networks, depending on geographic, demographic, and economic context. As novel, nonterrestrial solutions (such as satellites, drones, and high-altitude balloons) became more widely available, industry players incorporated them into hybrid solutions (such as Huawei’s Rural Star and SES Networks’ satellite backhaul) to provide access in difficult-to-reach areas. Both traditional players and newcomers collaboratively developed solutions, while governments adopted technology-agnostic standards for performance and regulatory approval.
Telcos digitized their operations. Telcos around the world switched to digital technologies in their operations to improve the economics of rollouts in underserved areas. By doing this in 50% of the new infrastructure rollouts, they reduced capital expenditures by as much as 15% and operating expenses by 10%. Specifically, telcos used smart network planning, automation and artificial intelligence (AI), new network architectures, and agile ways of working—each of which contributed to a 4% to 6% overall reduction in ownership costs.
For example, Finland’s Elisa used automation to optimize the configuration, management, and operation of its networks, leveraging machine learning and AI to learn from data and build self-organizing networks. In addition, some telcos pursued network virtualization and centralization—Rakuten’s network built on cloud architecture with OpenRAN, for instance—to reduce spending and broaden the ecosystem.
As we have just shown, bringing 2 billion more people into the Digital Age will entail taking a number of discrete steps within each of the three primary pillars. Our experience suggests that several of these steps will require significant changes in companies, processes, and regulations, and may necessitate new forms of collaboration. However, each step will have tremendous impact, spurring growth and increasing efficiency to help close at least half the digital divide over the next five years.
During the recent pandemic, telcos emerged as unlikely heroes for their swift responses to the crisis as well as for the investments they had made since 2000, which enabled key activities such as work and school to continue despite lockdowns. However, the crisis has also exposed the stark digital divide that exists today. Overcoming that divide is a multifaceted challenge, spanning connectivity coverage, speeds, and usage; the developed and developing worlds; and individuals and businesses. Unfortunately, the divide will only worsen as the globe emerges from the COVID-19 crisis, so urgent action is necessary now. As the crisis drove home, there is no alternative to extending internet access and catalyzing its use by everyone.
We estimate that around $2.1 trillion will be required to halve the connectivity gap through investments in infrastructure and increasing adoption. That is a large number and suggests the need for a huge effort, but a combination of levers across three key pillars—driving adoption and revenue growth, fostering partnerships, and optimizing the use of technology—can help us get significantly closer to the objective. With strong, timely collaboration between public and private sectors, we can accelerate digital inclusion for all.
The authors thank Derek O’Halloran, Isabelle Mauro, and Jonathan Bahmani of the World Economic Forum for the joint research that they contributed to this report. They also thank Anand Raman for writing assistance and Kath-erine Andrews, Kim Friedman, Abby Garland, Steven Gray, and Shannon Nardi for their help with editing, design, and production.
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