The financial crisis and
its impact on ICT
When dealing with ICT and its impact on the
economy most views remain strictly optimistic. On the other hand there are
often uncertainties regarding the legitimacy of claims that ICT is actually
such a determining factor in the recovery form the financial crisis. The
following paper deals with the hypothesis that ICT and especially the mobile
telephony sector helped recover from the financial crisis. It also discusses
several benefits of investments towards ICT and mobile telecommunication in
particular, finishing up with a conclusion.
Firstly the paper gives a brief insight into
methods of research considering the financial crisis. Then it briefly
introduces the financial crisis and how it impacted ICT. Secondly, the paper will
discuss how and if ICT is a viable solution in aiding the recovery from the
How research is done in the field
The impact of the mobile phone industry on
the financial crisis and especially the recovery form it, is mostly described
through scientific research is done through induction done by empirical
observations. In this case empirical observations are gathered through field
research aimed towards finding and enforcing hypothesis in macro theory. The
data needed for the induction in this case is provided by countless entities
such as the World Bank, Analysts (Like Pyramid Research), entities in the
mobile industry (GSM Association and ITU International Telecommunication Union)
and several others.
The economic crisis
The financial crisis in 2008 has been the worst financial crisis
since the Great Depression in the 1930s. The crisis cannot be traced to a
single event, it was a result of a number of events. The beginning of the
crisis was caused by the excessive lending of subprime mortgages in the US
market (ITU, 2009). As consequence, investors lost confidence in the mortgage and
loan markets. This developed into a global banking crisis with the collapse of
the investment bank Lehman Brothers. Due to the close interaction of banks
across the world the crisis was followed by an international economic downturn
and a global liquidity crisis. A well representing, often
used symbolism for the economic crisis is a growing soap bell which pops after
a while when it has grown too big.
The impact on ICT
Due to the financial crisis, the industry has
experienced decreasing demand, operational cutbacks and reduced investment (ITU,
2009). But in comparison to most other industries, the area of mobile
communications has been proving to be more flexible. In the financial crisis of
2008 the ICT sector has had a role as both villain and hero (ITU, 2009). On the
one hand, it was acting as a leading indicator of decline while on the other
hand also proving to be an important power assisting the recovery of the
In 2009 the typical American wireless user
interacts with wireless technology via a cellular telephone and about 90% of
U.S. citizens actively use a mobile device (ITU, 2009). In contrast to this, Greece
is experiencing a mobile penetration rate of greater than 200% (ITU, 2009).
This means that on average every Greek inhabitant has two devices connected to
a mobile network. These statistics show how explosive the expenditure of the
mobile phone market is.
Impact on Demand
The financial crisis had a huge impact on most industries all over
the worlds. In contrast to that, the mobile market in developing countries
remained growing. For example, the two largest developing countries China and
India. China mobile, the world’s largest mobile operator added 74 million
additional mobile users in the year through October 2008 (ITU, 2009).
In India, the world’s second largest market 10.4 million mobile
subscriber were added in October 2008 (ITU,
2009). In Brazil, the number of subscribers rose by 4
million in October 2008 which is more than twice as much as in October 2007(ITU, 2009).
As these data show the mobile growth of developing countries has been weakly
influenced by the financial crisis and even further increased after the crisis.
On the other hand, the general demand in most
industries decreased because of less income per head. Less expensive purchases
were done in mobile phones and operators. This was also partly due to the fact
that people did not want to freeze expensive monthly deals for 2 years. This
indirectly stimulated the economic crisis as it is a down warding spiral.
Impact on supply
The Supply of the mobile industry is mainly influenced by the
expenditure and investments in telecommunication networks. Due to the financial
crisis, the capital expenditures decreased. These expenditure cuts mainly
influenced developed countries that triggered the crisis. In contrast to
the developing counties, also called “the home
of the next billion subscribers” (ITU,
2009), have the potential of untapped demand.
Therefore, it is very unlikely that investors will cut investments in markets
with such high future potential (ITU,
The impact of ICT on the
Returns on investment in ICT
The ITU emphasizes the power of investing in
ICT and the importance of ongoing investments form the government and the
private sector. With the rising demand on internet access via mobile devices
industry relies on investments
to stay ahead with spare capacity concerning internet use. The increasing
importance of the internet as a prerequisite for the ability to participate in
the current information economy has led to a widespread acknowledgement of the power of ICT investments.
The provided graph in Figure 1 shows how economic growth can be stimulated
through different ways of telecommunication penetration (ITU, 2009). One
further mean of return is the so called multiplier effect. In this case it
depicts how initial government investment leads to repeated rounds of income
spending. According to Statistic Networks Group secondary investments resulting
from broadband investments are ten times the initial amount while the
contribution towards GDP could be fifteen times as high. Generally investments
towards any sector in ICT bears high returns as well as great possible benefits
to society like robust and durable economic growth, the ability to create more
skilled personnel for the future and greater productivity gains (ITU 2009).
Economic growth through ICT
ICT is considered to be one of the main
forces driving economic growth (Pohjola M, 2002). ICT has the answer on almost every question asked. The mobile phone industry as a part of ICT
has continued to show steady growth despite the financial crisis unlike many
other ICT industries that lack demand during times of financial constraints.
The positive impact of mobile telecommunication on economic and productivity
growth was proved by several studies, one in particular being
by Gruber and Koutroumpis (Gruber H, Koutroumpis
P, 2010). Extensive research looking at real GDP per capita and ICT use
index have shown that an improved ICT use leads most likely to an increase in
economic growth (Farhadi M, Ismail R, Fooladi M,
This becomes increasingly apparent when
looking at equipment sales which have been hit by the financial crisis. In
contrast the provided services of the mobile industry are doing much better.
The amount of mobile cellular subscriptions reached 67 percent of inhabitants
globally at the end of 2009 (ITU, 2010) and only
a small number of countries are seeing reductions in their number of
subscriptions. Especially the developing countries for example Latin America are
predicted to have a fast-growing smartphone market where the sale of mobile
phones is expected to rise from 7 million smartphones in 2009, or 5.4 percent
of total handset sales, to 48 million in 2014, or 30 per cent of the total
(ITU, 2009). Additionally the growth in the mobile phone industry is driven by
large emerging markets like India and China and the overall consumer
willingness to spend parts of their income on mobile services despite times of
During the development of the ICT sector, maximum growth of the
economy is trying to be reached. However, this process gets decelerated by
environmental consequences and restrictions. As some decisions may seem to be a
good idea for the company or organisation itself, it turns out to be
unprofitable for society and environment. Due to these restrictions, only
partial economic growth can be achieved (R. Evenson, 2015).
impact mobile money transfers.
But this growth potential is not restricted
solely to developed countries. The World Bank mentions for example that in a
typical developing country an extra ten phones per 100 people would be able to
grow GDP by 0.8 percent. In these countries mobile phones offer economic
empowerment through its compensation for poor infrastructures. In general
mobile phones enable a faster and freer flow of information resulting in more
efficient markets. An explicit example for this is the emergence of
mobile-money services in Africa. In one case Kenyan households where able to
increase incomes by 5-30% solely through the use of mobile banking (a service
called M-PESA) (Tavneet Suri, 2016)
Considering the observed evidence we conclude
that mobile telecommunication plays a vital role in the ICT industry.
Investments towards this technology should be supported by governments in
developing as well as developed countries since it seems safe to say that they
lead to economic growth and increased efficiency. Also ICT and especially
mobile technology enable individuals in the economy to keep on participating in
global trade and compensate for lacking infrastructure. Especially the ICT
sectors of developing countries remained stable after the crisis in comparison
to the developed countries. The demand kept stable after the crisis and it was
possible to also keep the supply stable because the developing countries build
an attractive market to invest in due to the potential of the untapped demand.