Nigeria’s Internet hosting and economic opportunities By Jide Ayobolu

914, Nigeria’s Internet hosting and economic opportunities By Jide Ayobolu

The Executive Vice-Chairman, Nigerian Communications Commission, Prof. Umaru Danbatta, has said that the nation will save at least N2bn annually if the recent data hosting with the Internet Exchange Point of Nigeria continues.

He said that public and private organizations in the country were losing about N10bn annually to frequent hosting of Internet content overseas, and could lose twice the amount should the recession continue in 2017.

Danbatta disclosed this at the Telecoms Executive and Regulators Forum in Lagos, which was organized by the Association of Telecommunications Companies of Nigeria.

“The utilization of the Internet Exchange Point of Nigeria by some telecoms and Information Technology companies in the country could steadily reverse the situation and save Nigeria at least N2bn, rather than losing N10bn or more annually,” he said.

An Internet Exchange Point (IX or IXP) is a physical infrastructure through which Internet Service Providers and Content Delivery Networks exchange Internet traffic between their networks. The IXPs reduce the portion of an ISP’s traffic, which must be delivered through their upstream transit providers, thereby reducing the average per-bit delivery cost of their service.

The NCC executive vice-chairman, who was represented by the Executive Director, Technical Services, Ubale Maska, said that the IXPs were the focal point of the Internet.

He, therefore, said that they were critical for the development of the Internet in any country and would not only reduce the cost of Internet traffic by keeping local traffic local, “but more importantly, they enable additional applications, which have a considerable multiplier effect on the economy.”

He said, “Internet Exchange Point of Nigeria is an initiative of the NCC that enables Internet service providers, telcos, content providers and educational institutions to exchange Internet traffic locally within Nigeria.

Danbatta said the NCC also provided the seed funding that set up the IXPN as a not-for-profit organization with the key objective of improving the Information and Communications Technology ecosystem.

“The Nigerian IXP is now the second largest IXP in Africa. It has been estimated that the IXPN saves the nation above N2bn yearly, which would have been paid out to international carriers in the United States dollars if this facility was not available in Nigeria,” he said.

He said that the IXPN also reduced the delay associated with routing local traffic internationally, adding that, “This drop in latency increases speed and better quality of service to end users.”

He added, “For every Internet content hosted locally, it saves Nigeria foreign exchange, which would have been paid to foreign companies. This ensures that local data centres flourish, hence, creating more jobs and increase in technical competency for our engineers.”

The Managing Director, IXPN, Muhammed Rudman, shared the same view, saying that Nigeria had won the bid to become a regional Internet exchange point in the African Internet Exchange System project under the African Union Commission.

Content providers in developing countries often choose to host content abroad in order to access lower cost hosting services. However, this can create several challenges: it tends to impose costs on ISPs, who are faced with significantly higher transit costs to deliver the content to local users; and it means the delivery of content is much slower, giving rise to a diminished user experience.

The resulting reduced usage and stifling of the Internet ecosystem can be addressed with coordinated action from key stakeholders.
Hosting abroad adds latency, or delay, for users accessing the content, resulting from distance and congestion on international links.

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Latency negatively impacts the user experience by making content and services slower to download, and can render some services, such as interactive content and games, nearly unusable.

Together, the cost and latency involved in accessing content can depress usage, with the result that the full potential and benefits of the Internet are not realized.

Depressed usage has a direct impact on content developers, as reduced user engagement with content translates to a lower potential for content and service providers to earn revenue from advertising and sales. In addition, the high latency and low throughput can limit the viability of interactive and data-intensive services.

Just like other market players, content providers make hosting decisions based on economic and business factors, including prices and services available.
The cost of providing hosting services is often higher in developing countries, which is then factored into the prices and services offered in the market.
Access to lower prices for higher-capacity hosting packages is a leading reason for content developers in emerging markets to host their content abroad.

The local availability of technology and skills for hosting services and to facilitate traffic exchange between users and content are key elements in creating an effective local hosting environment. Also, legislation and regulation that affect the liability of the developer of content; the company hosting the content, and/or any intermediary distributing the content; can have an impact on hosting decisions.

The Internet is a tremendous, undisputed force for economic growth and social change. Not only has it unleashed new forms of connectivity, but it has also provided an outlet for new forms of innovation, entrepreneurship and social good.

The Internet has also proven a dynamic tool for stimulating economic growth in developing countries, with the World Bank reporting that a 10 per cent increase in broadband correlates to a 1.38 per cent increase in GDP growth. Beyond GDP growth, the Internet also provides opportunities to pursue social and developmental objectives.

Throughout the developing world, the Internet is connecting remote populations to markets and strengthening the overall efficiency of service delivery in areas such as health, education, livelihoods and financial inclusion, as well as creating access to government services for the most marginalized populations.

Over the last decade, the number of people connected to the Internet worldwide has grown rapidly, rising from 910 million in 2004 to nearly 3 billion in 2014.
Penetration is highest in the developed world — 88 per cent in North America and 81 per cent in Western Europe, while in Asian countries such as South Korea and Japan, more than 90 per cent of the population have access.

Internet use is also climbing in the developing world, often through the use of smart phones. The Internet has powered the growth of firms in tech hubs such as Silicon Valley and has the potential to change the way a broad range of businesses operate. It has already shaken up the news media and has even invented an entirely new sector — the sharing economy.

In the developing world, some farmers already use Internet-equipped smartphones to monitor market prices, and mobile systems such as Kenya’s M-PESA have provided millions of people with access to financial services. Such “mobile leapfrogging” can help bridge the digital divide.

One hundred years ago, most of the world worked in agriculture. Over the ensuing decades, agriculture was displaced my manufacturing.

Today, manufacturing is on the decline and services are ascendant. In 1980, less than half of world output was in the form of services. Today it is over 70 percent.

Meanwhile, manufacturing has fallen to less than 30 percent of world GDP, with the share of employment in manufacturing even lower.

This is not a story of manufacturing moving from advanced to emerging economies. We see the service sector growing in developed countries and developing countries alike. Even in China, the world’s manufacturing juggernaut, the share of services in GDP has risen to over 50 percent. What is driving this tectonic shift in the world economy, and how can countries best position themselves to take advantage of it?

The rest of the world is not saturated at all. And since the Internet is a global network, its value to all users grows as the number of users grows. There are nearly 3 billion Internet users globally, and that number will likely grow to 5 billion by 2020.

The Internet economies of the developed world are projected to grow at 8 percent annually over the next five years, so that by 2016, the digital economy will equate to the fifth largest economy in the world, contributing over $4.2 trillion to the G-20’s collective GDP.

To investigate the potential impact of the Web on business performance in the developing world, a 2015 study, “Overcoming Obstacles: The Internet’s Contribution to Firm Development,” analyzed data from firms in 117 nations over a five-year period, 2006 to 2011.

Authored by Caroline Paunov of the OECD and Valentina Rollo of Switzerland’s Graduate Institute of International and Development Studies, the report looks at whether constraints in developing economies limit potential positive impacts of the Internet on firm performance.

The scholars based their work on data from more than 46,000 firms surveyed by the World Bank. The largest proportion, 40 per cent, came from Latin America and the Caribbean, with 27 per cent from Africa, 22 per cent from Eastern Europe, Central Asia or the Middle East, and 11 per cent from the East Asian Pacific or South Asia.

As a measure of Internet access, the study looked at firms’ use of email to communicate with suppliers and customers. The study’s findings include: Internet uptake was relatively high among the firms studied.

Even in low-income economies, 45.2 per cent of companies used the Internet. While small firms were less active than large firms, their rate was still 44.5 per cent. Overall, Internet adoption had a positive impact on productivity in a broad range of regions and at firms at different development stages.

The exception was in the East Asia Pacific and South Asia, where there were no measurable positive impacts on productivity. Internet adoption remained beneficial even where firms face problems with corruption or a shortage of skilled labor. Benefits were reduced where labor regulations were more burdensome; where financial markets were under-developed; and where electricity outages were more frequent.

Despite this, even firms facing such limitations saw productivity increase after Internet adoption in their sector. Firms that were more productive initially benefited more from Internet adoption, perhaps because these firms had higher “absorptive capabilities” from the outset. The benefits were as much as three times higher than those seen by less-productive firms.

Ayobolu, a public affairs analyst contributed this piece from Lagos State.

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