How can we unleash the potential of the internet in East Asia?

This year is a milestone for the ASEAN (Association of Southeast Asian Nations) region as it marks the beginning of the process for the establishment of the AEC (ASEAN Economic Community). In 2007, ASEAN decided to accelerate its Vision 2020 by five years and the AEC blueprint aims to turn the region into a single market and production base in less than 10 years.

With a population of over 600 million, South-East Asia is one of the most dynamic regions in the world and has much going for it – a young workforce, a rapidly expanding middle-class; and a combined projected growth rate of 5.4% a year from 2014-2018, according to OECD figures. As a bloc, it already has a combined GDP of $2.5 trillion and intra-regional trade of $1 trillion. The promise of the AEC means this region is a significant market opportunity in all respects.

Regional diversity

In the lead-up to the AEC coming into effect in 2015, ASEAN has made some progress in areas such as cross-border tariff elimination, a national single-window for customs processing and free trade agreements. However, there is still a lot of work to be done in areas such as the free movement of capital, skilled labour and professional services.

South-East Asia is also a region of great diversity – and stark contrasts. Regional averages mask huge differences, both in stages of development and quality of life. As an example, Singapore’s GDP per capita is over 60 times higher than that of Myanmar.

Narrowing the development gaps and at the same time ensuring equitable and inclusive growth will be critical for the success of ASEAN integration. One of the issues in addressing this challenge is connectivity. In ASEAN’s various masterplans, information and communications technology (ICT) connectivity – and with it internet connectivity – is recognized as fundamental to deepening regional integration and achieving AEC goals.

If we look at internet penetration across ASEAN economies, there is again marked contrast, from 73% in Singapore to little more than 1% in Myanmar. The potential consequences of this digital divide within ASEAN are profound when looked at from an AEC perspective. As the internet continues to evolve and proliferate further into machines and “things” – and, in the process, becoming further embedded into everyday life – the cost of not getting online (or rather, of not being online) will continue to mount for economies already at a disadvantage based on other indicators.

Internet penetration

A recent study commissioned by the Internet Society, found that ASEAN can be clustered into three groups by internet penetration rates:

• Cluster 1 (above 60%): Singapore, Brunei, Malaysia
• Cluster 2 (25%-50%): Thailand, Philippines, Vietnam
• Cluster 3 (1%-20%): Indonesia, Cambodia, Lao PDR, Myanmar

While most countries find themselves in the cluster corresponding to their respective income level (according to World Bank classifications), this is not the case for Indonesia and Thailand. Both economies find themselves in a lower internet cluster than might be expected which indicates that per capita GDP is not always a complete guide in determining the internet penetration in a given economy.

There are various policy and market conditions that can play a role in either driving or constraining internet adoption. But in lower-income economies it is perhaps the price of internet connectivity that comes into play the most; more so when such economies have large rural populations and network coverage (and competition) may be limited.

The data in the study also indicates that internet transit charges are lower in countries with more international connections to submarine cables and, in turn, this lower cost is passed on to the consumer with a competitive local ISP market.

In poorer countries where the ability to subscribe to internet connectivity may be constrained by low incomes and high prices, policies need to encourage investment in the supply side. This will help to drive down both wholesale and retail prices so that latent demand can emerge. Where required, government can also play an important role in helping to bridge the gap between supply and pent-up demand until the overall internet ecosystem becomes self-sustaining. The establishment of neutral IXPs (internet exchange points) is also helpful in not only improving network performance but also in reducing the cost of upstream transit.

Asia in general is said to be a “mobile-first” region where, for most users, internet access via their mobile device is how many get online. The same holds true for the ASEAN economies. As the cost of devices (smartphones and tablets) continues to drop and device capabilities improve and enhance, this puts a better internet experience into the hands of those in lower-income groups. Needless to say, the point above about the actual cost of internet access goes hand-in-hand with the cost of the access device.

However, being “mobile-first” also requires applications and services to work seamlessly on the mobile device. Applications and services can no longer be retrofitted to the mobile platform from the desktop; they need to be made to work on the mobile platform natively and with all the features and capabilities available on the desktop or there is a risk of disenfranchising users. As e-commerce gains traction in the region, this is all the more important.

Stable infrastructure

Finally, another important piece from the infrastructure perspective is a stable power supply. During the World Economic Forum on East Asia in 2012, I contributed a blogpost on the important role that power supply plays in development. This remains true today. A stable, reliable electrical grid is critical to the evolution of ASEAN to a digital economy. Without continuous and stable power, systems cannot fully operate and the benefits of technology – and the efficiencies it can bring – cannot be realized.

Some economies in ASEAN also have the potential to leapfrog development cycles and step right into being a digital economy. However, this will be possible only with stable infrastructure in place and by ensuring that there is both interconnectivity and interoperability. Interconnectivity of networks (across various sectors) within and between countries will give rise to economies of scale. Interoperability of these network platforms, and the applications and services that run on them, will give rise to economies of scope. And the net effect of this will be truly transformative for the ASEAN economy.

Author: Rajnesh Singh Regional Director, Asia-Pacific, The Internet Society (ISOC), Singapore

Image: A journalist checks her iPod at Apple Inc’s announcement event in Beijing, September 11, 2013. REUTERS/Jason Lee