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Making Access Universal

15.01.2020
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According to a recent study by McKinsey, there are 4.4 billion offline individuals worldwide. Moreover, 3.4 billion of the offline population lives in just 20 countries and is disproportionately rural, low income, older, illiterate and female. The problem is not only about fixed broadband – between 1.1 billion and 2.8 billion individuals cannot get online via mobiles because they do not live within network coverage.

There is a clear need for internet infrastructure and an applications ecosystem to improve quality of life. As the UN Broadband Commission states, 10 of the 17 proposed Sustainable Development Goals (SDGs, which will replace the Millennium Development Goals that end this year) have a direct link with broadband, including: (1) ending poverty, (2) ending hunger, (3) ensuring health, (4) access to education, (7) access to energy, and (8) full employment and economic growth.

The cost of infrastructure can be high, especially fibre optic cable, with construction of trenches and ducts to lay cable being the most costly. But if policies and strategic regulation do not facilitate investment, there will be a high risk of not fulfilling universality and affordability objectives.

Many countries now recognise the need to ensure that the benefits of broadband are not only enjoyed by a fraction of the population. Universal access and service (UAS) broadband programmes have been developed to meet the needs of people in urban and remote areas and several countries have started substantial reforms of their telecoms framework to advance broadband towards universal usage.

Broadband is now, for example, the centerpiece of the national information and communication technology (ICT) development plans of the UK and the US, where considerable efforts are being made to transform the existing universal service funds (USFs) and to support the investments that are being made by the private sector (in public-private partnerships and stimulus packages). In India, broadband is at the heart of a much broader economic development strategy and is one of the pillars of the country’s UAS programme. South Korea, of course, is the most outstanding example of national policy driving higher levels of penetration and usage throughout the economy.

But other countries in Asia and Latin America and the Caribbean, which are subject to greater financial constraint and less favourable socioeconomic conditions, have been following different approaches. Most UAS policies are generally more nascent, reflecting the need for better objectives, strategies and capital investment. These countries are prone to numerous barriers that prevent the supply of and demand for UAS broadband. These challenges will require greater political commitment to broadband initiatives and strategies that are well planned and comprehensive.


“Some countries are prone to barriers that prevent the supply of and demand for UAS .”


McKinsey has also estimated that more than $10 trillion will be needed to fund global telecoms infrastructure up to 2030 (out of a total of an overall $62 trillion needed for infrastructure in general). How can public policy best elicit private finance to make such investment happen? In the view of a recent report by the UN Broadband Commission, the following should be put in place:

  • Ensure that the overall environment (political, regulatory, legal, financial etc.) is stable and clear
  • Identify clear scope and targets for broadband projects
  • Leverage scarce public capital and other resources to maximise their usefulness and effects
  • Allow and encourage choice between wireless and wireline networks
  • Carefully balance obligations on coverage and the range of services to be provided against their impact on the attractiveness of the project
  • Examine other measures in parallel that can help the demand side of the project, such as public sector demand and demand aggregation
  • Select a suitable vehicle, for example, the right form of public-private partnership
  • Recognise and cater for the preferences of existing investor clienteles.

UNIVERSAL FUNDS AND INFRAS TRUCTURE SHARING

I’ll highlight two ways to promote universality: Universal service funds (USFs) – Before or at the time of market liberalisation, it was recognised that boosting coverage is likely to require some regulatory intervention to ensure levels of service in rural and remote areas. In many countries, this problem has been dealt with through the imposition on operators (usually the incumbent) of a universal service obligation (USO), requiring them to provide certain services to all consumers, and contribute to a USF. The aims of USO are encapsulated in the words ‘availability, affordability, accessibility, awareness’.

Now that broadband is key to inclusive growth and contributes substantially to social and economic development in areas such as job creation, business investment and online services (eg. e-health and e-learning), among others, UAS broadband programmes can tap into USO/USF. With contributions or levies from operators as the main source of USFs, several questions arise:

  • How should revenue be calculated?
  • Should contributions be based on profit?
  • Is the fund contribution tax deductible, so depriving the government of revenue?
  • Is the revenue base fair and pro-competitive given that levies may have a disproportionate impact on new entrants?
  • What effect will the contributions have on service prices?

universal access issues


“Given the role of USFs, one must ensure that they are set up and operated efficiently.”


Given that USFs have a role to play, one must ensure that they are set up and operated efficiently. Two recent studies by the ITU4 and GSMA5 (one surveying 69 USFs and the other 64 USFs) identify examples where USFs have worked adequately. But it seems there is also a high number of USFs that are failing to achieve their goals: 26% of the funds surveyed by the ITU were inactive and 22% had low activity (fewer than five applications in progress or completed) – so 48% were not operative or underoperating. The ITU report also found that only 27 of the 69 funds surveyed permitted use of their fund for broadband deployment. The proportion in the GSMA report was similar.

The table presents the challenges to the development of universal broadband access and the strategies to overcome them.

A USF therefore must have a proper structure and policies, including an effective legal and regulatory framework for the autonomy of the fund, and requires good management and operation, and accountability. The success of a USF is crucial if it is to invest in broadband infrastructure and/or generate demand.

Infrastructure sharing – In a highly capital intensive sector as in telecoms, reducing risk – financial, operational and regulatory – is a must for investors. Network rollout and operational costs can be reduced by allowing operators to share inputs – either only passive assets such as a mobile tower or dark fibre, or active elements as well. Costs could come down as a result of sharing, and these savings should be passed to customers.

However, the implementation of infrastructure sharing implies that regulators are giving the right signals to the market regarding ‘build or buy’ decisions. In addition, specific regulations for rights of way and infrastructure maps could be critical to speed up the deployment of telecoms infrastructure that eventually can lead a country to bridge its digital gap.

MOVING FORWARD

In our comparative study of universal access, we have made a number of recommendations, which can be summarised as follows. Recognise the benefits of broadband – People and businesses are increasingly dependent on broadband services; it is crucial to ensure that broadband is included in UAS policies. Adopt a holistic approach – A UAS policy should complement a national broadband plan as UAS alone, while necessary, is not sufficient. Recognise the role of USFs – they provide a transparent means to distribute subsidies to achieve UAS, are efficient when funding is awarded competitively and allow governments and other donors to contribute financially.

uas policy sharacteristics

Collaborate with relevant stakeholders – UAS programmes that are most successful have been designed with cooperation from stakeholders. In Chile, for example, UAS projects are not initiated by the regulator but in response to requests from telecoms operators, consultants, municipalities and community organisations.

Define a clear vision and set ambitious objectives – Given the challenge of reaching high cost and poor areas, it is good practice to have a UAS policy that is clearly separate from other policy documents, with specific targets and means (in particular, from a dedicated fund), and integrated within broader national policies.

Use alternatives to USOs – One way to enforce UAS policies is to mandate a broadband USO via licence obligations or specific policies. Our analysis suggests that this is not favoured by countries with advanced broadband markets, all of which prefer to rely on incentives for private investment. While most countries do impose mandatory contributions to their USF, the implementation part of the UAS policy is usually achieved through targeted subsidies awarded during public competitive tenders, instead of through a mandated USO. Competitive tendering helps to limit potential market disruptions.

Older USFs were usually designed in a preliberalisation world where an incumbent fixed operator received financing to provide fixed services in areas that would otherwise not be commercially viable. In today’s mostly liberalised world, operators are also competing at the infrastructure level, and subsidising an operator to rollout costly infrastructure that might help it to make the transition from a PSTN to a next-generation network could represent an unfair subsidy. This is a major concern in the EU, where member states are not allowed to require market players to finance measures which do not form part of USOs.

USOs tend not to be future-proof, as they often focus on certain technologies, and their relevance differs from country to country.

Planning – it is important to carry out a broadband gap and cost-benefit analysis. In Vietnam, for example, the ministry of information and communications identifies the regions that require priority by using two criteria: local fixed teledensity and socioeconomic status. For the governance of USFs, we find that regulators or dedicated UAS agencies are best-placed, mostly for efficiency and independence reasons. Sustainability is especially important, avoiding projects that make ongoing losses and fail to have a prolonged effect. A typical example is a subsidy to build access infrastructure, but then failing to provide support for low-income households to take services.

Funding – Sources of funding must be adapted to the strategic vision of the UAS policy and the environment; spending needs to be significant to bring the best results; and the rules for spending the USF should be fair and transparent.

Implementation – Cooperation between public and private sectors is essential; UAS programmes must address both the supply and demand sides with some degree of flexibility; and implementation needs centralised control for strict monitoring of progress. Monitoring is made difficult by factors such as looking at internet usage instead of subscriptions, which requires more subtle analysis. UAS programmes also of course overlap with other initiatives such as education and ICT promotion.

CONCLUSION

The demand for broadband services is growing rapidly. Telecoms is no longer just run by the private sector – public-private partnerships, network sharing and universal service funds are issues that need to be considered within business and social development models. There is a need for an active role of governments to reduce social divides and the good news is that most countries do not require massive investment to achieve reasonable UAS targets and the private sector is usually well positioned to fill market gaps once adequate support has been provided by the state. But some nations are at a crossroads: failure to act effectively could result in even larger connectivity gaps that will increase the social divide.

Universal access and service programmes are vital to extending broadband to all parts of a country. Antonio GarcIa Zaballos discusses the findings of a comparative report.

Intermedia Issue:
Vol 43, Issue 2
Issue Date:
June 2015
Antonio García Zaballos (Prof) Antonio García Zaballos (Prof) Telecommunications Lead Specialist- Leader of the Broadband Program, Institutions for Development (IFD), Connectivity Markets and Finance (CMF), Inter-American Development Bank

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