SHAPING POLICIES FOR FUTURE OF INTERNET ECONOMY MINISTERIAL MEETING REPORT 17-18, JUNE-2008.

ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT

The OECD is a unique forum where the governments of 30 democracies work together to address the economic, social and environmental challenges of globalization. The OECD is also at the forefront of efforts to understand and to help governments respond to new developments and concerns, such as corporate governance, the information economy and the challenges of an ageing population. The Organization provides a setting where governments can compare policy experiences, seek answers to common problems, identify good practice and work to co-ordinate domestic and international policies.

The OECD member countries are: Australia, Austria, Belgium, Canada, the Czech Republic, Denmark, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Italy, Japan, Korea, Luxembourg, Mexico, the Netherlands, New Zealand, Norway, Poland, Portugal, the Slovak Republic, Spain, Sweden, Switzerland, Turkey, the United Kingdom and the United States. The Commission of the European Communities takes part in the work of the OECD.

Foreword

This report has been developed to support the objectives of the OECD Ministerial Meeting on the Future of the Internet Economy (Seoul 17-18 June 2008). It links the Seoul Ministerial Declaration on the Future of the Internet Economy to the analytical work and policy guidance developed for the Ministerial by the OECD.

The aim of the Ministerial is to promote the Internet economy, a concept inclusive of the full range of economic, social and cultural activities supported by the Internet and related information and communication technologies. This report serves that objective by providing policy directions and guidance in 20 areas aimed at facilitating convergence, stimulating creativity, strengthening confidence, and expanding the opportunities for global economic, social and cultural development. It integrates work from five OECD Committees responsible for information and communication technologies, consumer policy, education, public governance, health and development. Policy guidance developed by OECD Committees in six areas has been produced for this report as well as three OECD Council Recommendations that express the common position of, or will of, the whole OECD membership and entail the political commitment of the Member countries to abide by these recommendations. This guidance and recommendations form an annex to this document that supports the Seoul Ministerial Declaration by setting it in a policy context.

The report was approved by the OECD Committee for Information, Computer and Communications Policy (ICCP) on 28 March 2008.

Introduction

The Internet is transforming our economies and societies. It provides an open, decentralised platform for communication, collaboration, innovation, productivity improvement and economic growth. Along with information and communication technologies (ICTs) it promotes closer integration of the global economy and interactions that increase general well-being. As the services it supports become pervasive, ubiquitous and more essential in everyday life, the economy is increasingly the Internet economy. The capacity of economies and societies to seize opportunities and meet challenges in a wide range of areas – the environment, education, health, demographic change and, more generally, the delivery of commercial and government services – already involves the use of ICTs, seamlessly interconnected by the IPbased networks of the Internet.

Promoting the Internet economy is a way to improve our ability to boost economic performance and social well-being, and to strengthen societies’ capacity to improve the quality of life for citizens worldwide. OECD countries share a vision of the Internet economy, as articulated in the Seoul Ministerial Declaration, in which its expansion is a way to bolster the free flow of information, freedom of expression and protection of individual liberties, as critical components of a democratic society and cultural diversity. Better use of the tools it provides can help address global challenges, such as climate change. To give concrete form to this vision requires awareness in the policy community of the increasing economic and social importance of the Internet.

This report, based on analytical work by the OECD (see Table 1), recognises that the dynamic nature of the Internet and its rapidly changing environment (see Figure 1) may lead to unforeseen – and unforeseeable – developments. It acknowledges that the open and collaborative nature of the Internet challenges traditional policymaking processes and that a multi-stakeholder approach to achieving an appropriate balance of laws, policies, self-regulation and consumer empowerment may be the only way to promote the Internet economy effectively. An effective and innovative multi-stakeholder approach has to be developed for government, the private sector, the technical community, civil society and individual users to join forces in shaping the policy environment for the future of the Internet economy.

Earlier OECD work has aimed at fostering growth of, and building trust in, the digital economy. Much of this work, listed in Table 2, emerged in response to the 1998 OECD Ministerial Conference on Electronic Commerce held in Ottawa, Canada. It provided a sound basis for the development of policies and practices over the past decade. In large part, the success of such policies is due to their formulation, adoption, monitoring and review by multi-stakeholder communities. It is necessary to continue to ensure the effective implementation of these policies and practices. It is also necessary to examine their relevance as the Internet economy evolves. Some existing recommendations have been reviewed, and where necessary supplemented, in light of developments such as social networks, sensors, mobile access or fibre optics. In certain areas, OECD work has been extended. In others, new policy guidance has been suggested to facilitate the development of national policies and practices.

This report highlights ways to encourage the development of the Internet economy. It looks first at the infrastructure on which its development relies and the need to strengthen and extend broadband networks. It considers the ways in which the Internet already contributes to social and economic goals. It looks to how the Internet can act as a catalyst to further these goals through policies that facilitate convergence, stimulate creativity, strengthen confidence and expand the opportunities for global economic, social and cultural development.

The report seeks to provide guideposts for shaping policies and practices for the future of the Internet economy in this rapidly changing and inherently global area. It seeks to improve international coordination while addressing many common challenges:

• Making Internet access available to everyone and everywhere.
• Promoting Internet-based innovation, competition and user choice.
• Securing critical information infrastructures and responding to new threats.
• Ensuring the protection of personal information, respect for intellectual property rights, and more generally a trusted Internet-based environment which offers protection to individuals, especially minors and other vulnerable groups.
• Promoting secure and responsible use of the Internet; and,
• Creating an environment that encourages infrastructure investment, higher levels of connectivity and innovative services and applications.

It also identifies linkages and gaps in policy domains where future work may be useful. It is addressed to OECD countries as they face these challenges, and it seeks to be of value to OECD observers and, more generally, non-member economies.

The Internet: extending the infrastructure of the global economy

An initial policy focus is the further diffusion of broadband, the infrastructure of the Internet economy. The OECD Council report Monitoring the 2004 Recommendation on Broadband Development notes tremendous progress in the diffusion of high-speed, “always on” broadband access to the Internet. Using a variety of technologies, certain OECD countries have reached nearly 100% broadband coverage and many countries have may great strides in extending broadband to rural and remote areas. Throughout the OECD area, average broadband prices have fallen while average speeds have increased. In a growing number of countries “last-mile” copper-based connections are being upgraded to facilitate greater high-speed connectivity. Access by households, businesses, governments and schools has significantly improved as has the range and use of applications, content and services.

On the demand-side, OECD countries have focused on increasing uptake of installed capacity and paying attention to electronic business, digital delivery and broadband applications. In particular, OECD governments have implemented demand-based approaches for spreading broadband access. Policy makers made particular efforts connecting schools, libraries and other public institutions. The spread of broadband has reinforced existing activities and driven new forms of – sometimes more participatory – usage and content-rich broadband applications. Higher data-intensive applications are developing, e.g. streaming high-definition video and TV, new peer-to-peer applications, health or education applications, virtual conferencing, and virtual reality applications.

Policy objectives to further the diffusion of broadband and better measure its use include:

• Ensuring that market structures allow for developing broadband infrastructures that deliver high-quality services at competitive prices with a broad range of user choice.
• Addressing current and future access divides that place some users or localities at a relative disadvantage.
• Ensuring that policies promote innovation in new broadband networks, applications and services through support for research and development.
• Encouraging policy co-ordination among agencies, ministries and the private sector for the deployment of advanced broadband applications in vital sectors such as health, education, the environment and transport.
• Continuing monitoring of broadband developments in the context of the Recommendation of the OECD Council on Broadband Development and considering a review of the Recommendation to take account of new issues and developments.

Using the Internet to improve economic performance and social welfare

New technologies, tools and innovative services have made it easier to take advantage of the opportunities made available by the Internet infrastructure. The OECD report Broadband and the Economy shows in particular that networked ICTs will have very extensive economic and social impacts in the foreseeable future. Broadband networks allow the expansion, aggregation and globalisation of markets as well as the customisation of goods and services and the largest productivity gains will come increasingly from the use, rather than the production, of networked ICTs. The implications for all users are multifaceted and farreaching. For example, by empowering consumers through greater access to information, facilitating price comparisons, increasing competition and creating downward pressure on prices, the Internet has begun to transform the relationship between suppliers and customers, creating opportunities for new user-driven business models.

Policies to address challenges such as making government services more accessible, improving health care, providing access to quality education and better managing the environment can exploit the functionalities of networked ICTs. These are areas in which governments play a significant role and which account for a large share of their budgets and the economy. They thus represent essential areas for realising the potential benefits of the Internet economy.

In this rapidly changing environment, reliable evidence is needed to support policy debate and formulation and to determine the effectiveness of practices. Statistical systems must be able to follow adequately changes in access to, and use of, the Internet and related ICT networks by citizens, businesses and institutions. Indicators and metrics that take account of the diversity of IP-based networks and of economic and social flows over these networks are necessary to provide reliable measures of evolving uses and of the impact of the Internet on economic performance and social well-being. They can also create incentives for deploying the networks that provide the connectivity necessary for the development of the Internet economy.

Policy objectives for better integrating the Internet economy in the broader economy include:

• Ensuring that policies and practices favourable to the deployment and use of the Internet are systematically factored into public policy development, in all areas including trade, competition, tax policy, social policy and regulatory reform as well as those listed below.

In particular, indicators and analysis are needed to:

• Improve our ability to identify the drivers of Internet access and applications and measure its use by citizens, businesses and institutions.
• Enable the evaluation of the impact of the Internet on economic performance, notably on productivity and innovation, and social well-being, particularly through improved access to education, health and government services.
• Enhance our understanding of differences and barriers to its use, including issues of confidence.
• Enable a better understanding and quantifying of various aspects of the Internet, such as its size, areas and patterns of growth, or potential vulnerabilities, through the measurement of Internet traffic flows.

E-government

Over the last 10 to 15 years, e-government has become the tool for supporting governments’ functions and interaction with citizens and businesses and the backbone for communication and service delivery in the public sector, as described in the OECD’s report E-Government for Better Government. The introduction of a variety of e-government services, from filing tax returns to registering vehicles on line has improved efficiency and streamlined processes, making it easier for citizens and businesses to interact with government. E-government contributes to reform by offering the means to transform the public sector as part of an ongoing, continuous process. It can drive innovation and change by forcing governments to rethink organisational structures, division of responsibilities and public sector business processes. If governments are to deliver individualised and coherent e-government services, they need to have the necessary front- and back-office mechanisms and to identify user demands and needs with the help of their citizens.

Work to address these challenges should aim at:

• Improving efficiency in mass processing tasks and public administration operations through consistent implementation of e-government. Internet-based applications can generate savings on data collection and transmission, provision of information and communication with users and can facilitate sharing of data within and between governments while respecting privacy and personal data.
• Improving public services by making usability a core element of public sector transformation and reform agendas. The Internet can help governments to appear as unified organisations and provide seamless services. E-government services should be developed in light of demand and user value as part of an overall multi-channel service strategy.
• Harnessing the power of collaborative networks to help stakeholders share information and ideas and contribute to achieving policy objectives. For example, online information can boost the use of education and training programmes, and sharing health information can improve resource use and patient care. The sharing of information on individuals, however, raises privacy issues, and the potential trade-offs need to be carefully assessed. Timeframes need to be realistic as the benefits may take some time to appear.
• Contributing to efforts to discourage corruption, increase openness, transparency and trust in government as well as to reduce government spending through more effective programmes and improvements in productivity via ICT-enabled administrative simplification and enhanced government information.

Online health services

All OECD governments are struggling with questions of affordability, quality and efficiency of their health-care systems as they deal with rising health-care expenditures, demographic change and the increase in chronic illnesses. Meeting these challenges will require improving and transforming health-care systems and processes, as well as developing new and effective ways to deliver care. In particular, it will necessitate greater emphasis on prevention and a shift from the current provider focus to more patient-centred care. Although technology alone cannot solve these problems, it is widely recognised that ICTs can act as a catalyser and enabler of change. National and regional strategies for developing health information infrastructures, for enhanced use of advanced ICT applications and for ensuring networking and interoperability are emerging in areas such as electronic patient record systems, remote patient monitoring and delivery of health care, and improved diagnostics and imaging technologies. OECD countries are, however, encountering greater-than-expected barriers to the implementation of these strategies. Analysis in these areas is under way by the OECD Health Committee which has found that the most important impediments are financial, human and organisational.

To accelerate implementation and adoption of ICT for improving health care it is necessary to:

• Share lessons, improve evaluation and engage in benchmarking.
• Develop a better understanding of drivers and incentives for adoption and use of ICT in health care applications.
• Improve the policy framework for more rapid uptake of remote and cross-border monitoring of chronic illnesses, and crossborder interoperability of patient records.

E-education

Evidence from the OECD Programme for International Student Assessment (PISA) confirms a particularly strong correlation between educational performance and home access to, and use of, information technologies. Students with little access to the Internet seldom use ICTs, lack confidence in their use and tend to perform less well in schools, even when taking into account observed differences in socio-economic status. As a consequence, the disadvantages of students whose parents have low educational or occupational status are likely to be exacerbated by a lack computer access. This may be offset to some degree by use of ICTs at school although the results suggest a weak link between school access/use and performance. This raises questions about the extent to which using the Internet only as a supplement to traditional teaching methods can fully compensate the lack of home access.

The apparent weak link between school performance and some kinds of computer usage also warns against assuming that more means better. It is the quality of ICT use, rather than the quantity, that determines the contribution of these technologies to student outcomes. This suggests that policy should address:

• The lack of ICT skills that may exacerbate socio-economic divides. Broad strategies for access to and mastery of ICTs need to be coupled with targeted programmes for lagging groups.
• The need for a policy shift from providing technology in countries with nearly universal basic computer access to ensuring that it is used effectively.
• The need for teachers to be appropriately trained, including substantial hands-on experience during initial teacher training. As new digital and media literacy skills are needed to participate in the Internet economy, teachers should be encouraged to develop these skills.
• The responsibility of schools and universities as well as parents to ensure that young people learn how to make proper educational and safe use of the Internet and to address issues such as plagiarism and the critical use of sources.

Addressing environmental challenges

OECD countries face local, regional and global environmental challenges: climate change, improving energy efficiency and waste management, addressing air pollution, water quality and scarcity, and loss of natural habitats and biodiversity. The Internet and the ICT industry and research community can help tackle environmental challenges through more environmentally sustainable models of economic development. Current and emerging environmentally friendly technologies, equipment and applications, for example in buildings and transport systems, can support programmes aimed at addressing

climate change and improving energy efficiency. The Internet and ICTs can help make businesses more efficient, for example through ebusiness applications and by reducing travel, and by enabling distance work and new forms of social organisation.

Work to address these challenges should aim at:

• Further developing ICT-based systems and Internet-connected sensor networks and other applications to improve energy efficiency, reduce emissions, and improve resource use and early response to pollutants.
• Adopting cost-effective policies for the objective of, for example, applying ICT solutions to improve the performance of building and transport systems.
• Improving energy efficiency, material use, recycling and end-oflife disposal in the production and use of ICTs, for example through life-cycle audits of ICT equipment and effective policies and targets in areas such as energy labelling and disposal regulations.

The Internet as catalyst

Clearly, the Internet economy is already an important and growing part of our economies and societies, but to reach its full potential in meeting economic and social objectives, a policy environment in which the Internet’s role as catalyst can be maximised is essential. Key areas that require policy attention include: a smooth transition to nextgeneration networks to maximise the benefits of convergence; fuelling creativity and innovation to underpin economic growth and employment; and increasing confidence in the Internet infrastructure, applications and services.

Benefiting from convergence

Next-generation networks

Voice, video and data services are migrating rapidly towards platforms based on the Internet Protocol. The OECD’s Policy Guidance for Convergence and Next Generations Networks (Annex A) aims to assist member countries in modifying their regulatory environments to reflect new technologies. It advises governments to identify the objectives underlying their present regulations; to determine if these objectives remain valid and require government intervention in the market for communications services; to evaluate whether existing regulations will be effective in the new next-generation network (NGN) environment; and to develop new solutions when they are not.

Common OECD economic and social regulatory objectives for communication services presently include: universal service requirements; promoting competition, consumer choice and access; consumer protection; access to emergency call services, media plurality and cultural diversity; data security and consumer privacy; competitive markets that offer essential services at cost-based prices; and continued innovation and investment in new technologies, services and applications.

Policy guidance for convergence and next-generation networks includes:

• Reassessing the applicability of existing regulation to encourage investment by the private sector and competitive choice in the marketplace. Current economic regulation needs to be reviewed to ensure that it does not act as a barrier to the ongoing process of convergence and therefore prevent the development of more efficient means of delivery of existing and new services. At the same time policy attention may be required if advanced technologies or commercial activities result in new dominant positions in any market in the value chain.
• Facilitating the development of high-speed broadband networks with enhanced upstream and downstream capabilities, in particular advanced wireless and fibre networks; maintaining and enhancing conditions of effective competition; reducing barriers to entry by improving the development of, and access to, passive infrastructure and ensuring access on a nondiscriminatory basis and on cost-based terms.
• Encouraging the development of technology-neutral regulation where appropriate to ensure fair competition and the development of a level playing field. This would include interoperability, interconnection, spectrum management, emergency services, number portability, security and integrity of networks, and consumer protection and information.
• Reviewing existing rules in light of the convergence of telecommunication and broadcasting, and developing cross-media policies for a multi-platform environment.
• Taking into account the increasing ability to provide crossborder services that are not constrained by either geography or a given network when promoting access to local content.

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