Inequalities threaten wider divide as digital economy data flows surge

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Inequalities threaten wider divide as digital economy data flows surge
Large power imbalances stalk the growing digital economy as major platforms reinforce their positions in the global data value chain.

Geneva, Switzerland, 29 September 2021

The data-driven digital economy is surging. Recent estimates show that global internet protocol (IP) traffic – a proxy for data flows – will more than triple between 2017 and 2022, according to UNCTAD’s Digital Economy Report 2021 released on 29 September.

The COVID-19 pandemic has markedly increased internet traffic, as many activities have moved online. Global internet bandwidth rose by 35% in 2020, compared with 26% the previous year, the report says.

A growing part of data flows is related to mobile networks. With the increasing number of mobile devices and internet-connected devices, data traffic by mobile broadband is expected to account for almost one third of the total data volume in 2026, the report states.

“But the data-driven digital economy is characterized by large imbalances and divides,” said UNCTAD’s director of technology and logistics, Shamika N. Sirimanne. “As the digital economy grows, a data-related divide is compounding the digital divide.”

Developing countries in subordinate positions

In this new configuration, developing countries risk becoming mere providers of raw data to global digital platforms, while having to pay for the digital intelligence obtained from their data, the report warns.

Only 20% of people in least developed countries (LDCs) use the internet, and when they do, it’s typically at relatively low download speeds and with a relatively high price tag attached, the report says.

Also, the average mobile broadband speed is about three times higher in developed countries than in LDCs. And while up to eight out of 10 internet users shop online in several developed countries, only less than one out of 10 do so in many LDCs.

International bandwidth use is geographically concentrated along two main routes: North America – Europe and North America – China.

Digital giants reinforce their dominance

The largest digital platforms – Apple, Microsoft, Amazon, Alphabet (Google), Facebook, Tencent and Alibaba – are increasingly investing in all parts of the global data value chain, the report says.

They are investing in data collection through user-facing platform services; data transmissions through submarine cables and satellites; data storage (data centres); and data analysis, processing and use, for instance through artificial intelligence (AI).

The sizes, profits, market values and dominant positions of the platforms have further strengthened during the pandemic as digitalization has accelerated.

Thanks to privileged access to data, network effects and economies of scale and scope, these platforms have become global digital corporations with planetary reach; huge financial, market and technology power; and control over large swathes of data about their users.

According to the report, Amazon has invested some $10 billion in satellite broadband.

Amazon, Apple, Facebook, Google and Microsoft were the top acquirers of AI startups between 2016 and 2020.

Four major platforms (Alibaba, Amazon, Google and Microsoft) accounted for 67% of global cloud infrastructure services revenues in the last quarter of 2020.

By 2022, the share of global digital advertising spending by five major digital platforms – Alibaba, Amazon, Facebook, Google and Tencent – is expected to exceed 73%, up from 50% in 2015.

New global data governance approach needed

As cross-border data flows become increasingly prominent in the digital economy, UNCTAD has called for a new approach to properly regulate them at the international level.

Currently, entities that can extract or collect data are in a privileged position to appropriate most of the value.

“A new international system to regulate data flows is needed so that associated benefits can be more equitably distributed,” said Sirimanne.

She said the world should pay adequate attention to the current divides that characterize the global digital economy not only between countries, but also between states and enterprises.

Torbjörn Fredriksson, who leads UNCTAD’s e-commerce and digital economy branch says that “the shortage of appropriate skill sets in governments can result in insufficient representation of technical and analytical expertise in legislative and regulatory framework development processes”.

This he says in turn hampers the ability of governments to identify opportunities that could be afforded by digital technologies and potential risks and threats that could emerge, as well as ways to regulate them.

According to the report, less-developed countries also suffer from losing their top talent to developed countries and have smaller representation in setting up the global policy discussion – contributing further to the growing global inequality.

While all countries will need to allocate more domestic resources to the development of their capacities to create and capture the value of data domestically, the report says, many developing countries may need international support due to their limited financial, technical and other resources.