Universal Service Obligation Funding for Rural Broadband Access PDF

UNIVERSAL SERVICE OBLIGATION FUNDING FOR RURAL BROADBAND ACCESS Introduction Universal Service: By some accounts, the term “Universal Service” was first used by Theodore Vail, the President of AT&T. In the 1910 Annual Report of the company, he described. “Universal Service” by writing, “the telephon...

UNIVERSAL SERVICE OBLIGATION FUNDING FOR RURAL BROADBAND ACCESS Introduction Universal Service: By some accounts, the term “Universal Service” was first used by Theodore Vail, the President of AT&T. In the 1910 Annual Report of the company, he described. “Universal Service” by writing, “the telephone system should be universal, interdependent and intercommunicating, affording opportunity for any subscriber to any exchange to communicate with any other subscriber of any other exchange”. In the more modern sense, Universal Service refers to having a phone and affordable phone service in every home. To be more legalistic, The precise parameters for Universal Service are usually set by national law or regulation, or may be contained in the license of the dominant operator.’ As the world becomes more dependent on information and communication technology (ICT), broadband Internet access and usage is increasingly recognized as essential to economic growth and the provision of education, healthcare, and other basic services. Despite this growing acceptance, emerging countries continue to struggle to find affordable and sustainable ways to provide widespread access to digital devices and broadband connections, especially in rural and remote areas. USO-Universal Service Obligation:-The concept of „Universal Service Obligations‟ (USO) is based on the premise that telecommunication services play such a fundamental role in economic and social development that everyone should have access to a basic level of telecommunications facilities and services, if they are to participate fully in modern society. Communication networks help bring people together, allow them to be informed, get integrated and be better citizens in a democracy. Universal access is the goal adopted by many countries to provide convenient and affordable access to communications, at least on a community basis, through a combination of private and public access facilities such as payphones and tele centres. USF-Universal Service Fund: - The provision of affordable telecom services is essential for a country‟s development towards universal access to communications. It is also a well accepted fact that improved rural penetration is a key priority area for most developing countries. Most developing economies besides being faced with a very low tele density visà-vis developed / mature telecom regimes also face the problem of an increasing rural urban divide and the issue of reach ability in rural and remote areas. An increasing number of emerging countries are addressing this challenge with the help of universal service funds. These funds were initially created to ensure ubiquitous deployment of basic telephone equipment and services. Today, the funds are being used to support ICT/broadband programs, which may include access to PCs and other digital devices, broadband Internet connections, and localized content and services. USF-Universal Service Obligation Fund: - Universal service funds are known as Universal Service Obligation Funds. In developing countries, the focus of USOF continues to be on basic voice services especially to the rural and uncovered areas. On the other hand, in developed countries USO not only includes access to Public Switched Telephone Network (PSTN), but a host of value added services such as directory services, selective outgoing call barring to premium service, emergency services and internet access to public schools and libraries at discounted prices, etc. Some features of Universal service funds, a. Need to be enacted by countries law. b. Need countries parliamentary approvals to use funds. c. Every Telecom Operators has to levy some percent of the Adjusted Gross Revenue (AGR) towards USOF in the form of Universal Access Service levy (UASL). d. Countries law will create an authority to monitor USAL flow and its utilization. Benefits of Applying Universal Service Funds to Support ICT/Broadband Programs Direct economic benefits. a. Stimulation of Rural Economic Growth:-Access to telecommunication and information services, provides crucial knowledge inputs into productive activities of rural and poor households. It would stem urban migration by generating greater income and employment potential in rural areas and bringing the market to the people rather than forcing them to leave in search of the same. b. Rural BPOs/KPOs With the spread of ICT to rural areas, rural business process outsourcing and knowledge process outsourcing will become possible on a wide scale. c. Positive Externalities In purely economic terms, connecting more and more areas and people in a country to the telecom network, leads to a more intensive use of the telecom infrastructure, generating positive externalities. d. GDP growth benefits An increasing volume of data shows that ICT/broadband programs which may include PCs, broadband Internet access, and localized content and services are an important investment for developed as well as emerging countries. ICT usage has been shown to be correlated with a wide array of direct economic benefits, including global competitiveness, total factor productivity growth, and increases in GDP. In 2010, the World Bank also identified a strong relationship between ICT development and gross income. Along with the benefits of ICT in general, nearly all studies suggest that investing specifically in broadband delivers positive results, with the greatest returns frequently seen in emerging markets. For instance, a recent World Bank study found that percentage-point increase in broadband service penetration leads to an increase in economic growth of percentage points, is slightly greater growth effect in emerging countries than in developed ones. Indirect Benefits a Social Development - Connectivity fosters social development, including improved education, health and increased citizen participation in civil society. b Increased Government Services: -Increases in the reach and delivery of government and social services. c Main Streaming Rural Areas: - Access to ICT would allow in rural and remote areas to participate in the decision making process and would decrease their sense of d e f g isolation. Narrowing these access gaps and removing barriers to information dissemination and access to knowledge is therefore a priority for promoting equitable, sustainable development and alleviating poverty, besides promoting political and social cohesion. Access to information and resources:-Broadband technologies enable rural and remote communities to overcome geographical constraints and gain access to regional and worldwide social, political, economic, and financial information and resources. Improved social services:-PCs and broadband connections provide access to online training and information that can help rural and remote communities improve healthcare, education, e-government services, and other social services, while also improving local economies. Wider market opportunities:-With broadband access, new business models can emerge and businesses in geographically remote markets can reach a wider range of potential buyers. Greater business productivity:-Broadband related services such as e-mail and VoIP enable local businesses to lower costs and improve revenues. Incentives versus Subsidies – Need For A Fresh Approach  It has generally been seen that universal access policies in most countries are based on the assumption that it is more expensive and hence unprofitable to provide telecom service in rural and remote locations. Thus, the focus of most policies to bridge the digital divide has been to provide / extend subsidy to telecom operators to reach out to rural areas.  In India, too, this is the approach that is being followed till date. Operators are paying 5% of their (Adjusted Gross) Revenues as a universal access levy which goes into the USO Fund which is then to be utilized for subsidizing rollout of telecom infrastructure in rural areas. Historically, the USOF has been utilized for subsidizing wire line services although some years back the law was amended to include provision of subsidy for wireless services.  However, it has been noticed that despite the subsidy and support for new rural household lines through USO, the number of wire-line connections in rural areas are decreasing. Till date in India, there are around 12 million rural wire line subscribers, which number has been declining steadily for the past 3 years. On the other hand in a little over 10 years of the introduction of mobile / wireless telephony, the rural wireless subscriber base has reached 44 million and the monthly additions are taking place at the rate of around 2 million every month. It is also important to note that this growth has been taking place without any subsidy support whatsoever. The market led growth in mobile services vis-à-vis the stagnation in the fixed line growth despite subsidy support makes one question the relevance of subsidies for achieving rural telecom objectives and review the factors that encourage rural penetration.  One of the key factors, at least in the Indian market appears to be the high level of competition in the segment. The Indian cellular market is perhaps the most competitive market in the world with the presence of 6-7 operators in each service area. The active participation of so many players in the market leads to faster saturation of urban centres and quicker focus on smaller cities and towns as all operators compete with each other to reach the rural consumer. Thus clearly competition plays a much bigger role in bridging the digital divide than subsidies. ITU Guidelines for applying USF in support of ICT/broadband programs:  Shift policies to enable and support ICT-related programs, including broadband  Develop an overall plan that includes short-term and long-term indicators, goals, and measurements to track progress  Bring stakeholders together in a collaborative process that includes public and private partners with a range of interests and experience.  Focus on and integrate sustainability measures from the beginning  Consider sufficient spectrum allocation for broadband and last-mile connectivity.  Create sustainable ICT/broadband programs -ICT/broadband programs that are funded by universal service funds can and should be sustainable. For that to occur, sustainability must be a key area of focus throughout the planning process and integral to the eventual program design. (i) The following are a few of the specific best practices that has been identified to improve sustainability:  Develop program plans that cover no more than five to seven years. Markets and technology change too rapidly to plan for longer periods.  Design plans to fully recover the costs of delivering services over time.  Ensure that government subsidies are targeted, short-term, and investmentoriented.  Support service operations mainly through user revenues, with operations scaled to local needs and affordability.  Ensure that government contributions directly relate it to public service goals. Alternate USOF Models Globally 60% USO Funds are administered under the Regulators. The rest are either administered by Ministries (typically MoC/IT) or by independent agencies Alternate USOF Models can be i Fund raised through Community Co-operatives a. Community owned enterprises date back to over 50 years b. Members of each telecom co-operative pay a subscription fee, which also entitles them to equity & voting rights in phone company/co-operative. c. Each co-operative or its operator holds an exclusive license for its designated region for a specified period. d. In addition to telephony, cooperatives today also offer internet e. In mid-20‟s, 6,000 cooperatives in USA were involved in telephone companies both as subscribers & as owners. ii Asymmetric Interconnection a. In this model, the USO Operator gets a higher termination rate than the originator of the call and in this way he gets “compensated” for the additional cost that is incurred by him b. The Model worked with mixed results during telephony days but now in the age of internet it would not be workable c. In the past this model has been used with some success in South Africa iii Universal Access through License Obligations a. Operators are made to provide services in some rural areas as part of their License Obligations b. Later versions gave operators a choice “play or pay” either provide universal access/service itself or pay to the Fund. c. Sometimes to encourage operators to “play”, incentives aimed at operators‟ profitability are given (tax concessions, removal of duties, lifting some relevant restrictions, etc) d. But disputes arise about concessions given to operators vs services provided by them e. Value of investments made by operators is also often disputed. f. Does not relieve government of collecting/managing Funds. g. This model has been used till very recently in Thailand. iv Administered by Ministry/Regulator but for Incumbent a. Govt allocates funds to incumbent to provide access in remote areas b. This was especially useful in times when incumbent was the sole operator c. Liberalization in telecom has introduced competition & new operators feel it unfair when charged with a levy when incumbent may only provide service. On other hand, incumbent feels “burdened” with this when he already finds it hard to compete with new operators. d. Countries who worked with this model are moving to newer models, e.g.: Australia. Telstra has been treated as the incumbent, who is asked to fulfil Universal Access requirements, against payment every year. v Fund Administered by Ministry/Regulator for all/any Operator a. Administered by a Manager / Administrator who reports to Ministry/Regulator, sometimes thru a Board involving others like Ministry of Finance b. Disbursements to competing operators usually by auction. c. Major problem: inability to effectively & speedily disburse collected money, due to slow bureaucratic government procedures d. Some governments have brought changes but many still suffer e. Model being followed in several countries f. E.g. India: USOF is administered as office of DOT, where Controller of Communication Accounts is responsible for verification & payments. g. Probably due to these reasons, for India‟s latest „fiber to villages‟ initiative, India has formed a Special Purpose Vehicle vi Administered by Ministry/Regulator but disbursed thru separate entity a. Very similar to the previous one, while trying to overcome its drawbacks of inefficient and slow disbursement by Ministry/Regulator. b. An independent not-for-profit “Company” is created for disbursement c. This company is owned by Ministry & managed by a Board d. All stake-holders are brought on the Board, with equal representation for Public & Private, e.g. USF Pakistan Challenges and Best Practices i. The Model– Experience shows that a successful model has to be: Non-bureaucratic and participatory with the private sector ii. Bureaucratic delays – In preparing necessary legislation, spectrum allocations, budgets approvals, too much time taken especially when USO money treated like the usual Public Money etc. iii. Political Interference– Short-term political agendas, that are not in line with USO objectives, are unavoidable.- To minimize: openness, transparency & strict adherence to Rules iv. “Hostility” of the Industry- No one likes to pay! Some just stay away after paying. But it helps by involving Industry players in decision-making and spending mostly on “pure ICTs” through them! v. Challenges from within – It is not easy to build a competent/professional team to implement USO. - Retention with private sector emoluments. vi. Dominance of the Incumbent – It helps in reaching far-and-wide but tends to eliminate other operators from the process. Some restriction for the incumbent – like restricting the percentage of subsidies that an operator can win. vii. Disputes with Contractor– These are inevitable especially at payment times. But in USO the relationship with contractor is unique! Therefore independent Technical Auditors! Conclusion As the world becomes more dependent on information and communication technology (ICT), broadband Internet access and usage is increasingly recognized as essential to economic growth and the provision of education, healthcare, and other basic services. Despite this growing acceptance, emerging countries continue to struggle to find affordable and sustainable ways to provide widespread access to digital devices and broadband connections, especially in rural and remote areas. The provision of affordable telecom services is essential for a country‟s development towards universal access to communications. It is also a well accepted fact that improved rural penetration is a key priority area for most developing countries. Most developing economies besides being faced with a very low tele density vis-à-vis developed / mature telecom regimes also face the problem of an increasing rural urban divide and the issue of reach ability in rural and remote areas. An increasing number of emerging countries are addressing this challenge with the help of universal service funds. These funds were initially created to ensure ubiquitous deployment of basic telephone equipment and services. Today, the funds are being used to support ICT/broadband programs, which may include access to PCs and other digital devices, broadband Internet connections, and localized content and services. Affordable Telecom Services is essential for economic and social development of country. USOF will help to provide such services to the Rural and remote area of the country. USOF needs to be enacted by respective countries law considering the parameters of policy, legal, rules and regulation, organizational structure, mandate, collection and disbursement. According to their policy, different countries are running with suitable USOF models.