Universal Access Fund: How does it work? How to manage it?

1. Universal Access Fund: How does it work? How to manage it? Rohan Samarajiva samarajiva@lirne.net

2. Why universal access? • There is a strong correlation between ICT use and economic growth • Effective delivery of ICT services such as e government requires that most, if not all, citizens have access • ICT networks are of the greatest utility when more people can be reached; adding new users benefit current users

3. How can universal access be achieved? • First and best method is to allow multiple suppliers to extend service • This means removing barriers to competition • Where the market will not supply in the short term, government should identify the causes • If the causes include higher costs or lower revenues, remedies exist that will not distort market incentives and will harness efficiency

4. Population, GDP & fixed telephony shares by province

5. How to fund universal access? • Good regulation costs money. This can be obtained from general government funds (1st best solution) or from regulatory fees (2nd best) • Capital cost subsidies are resource intensive. Again, choice are government funds (1st best) and industry levies (2nd best) • Same with vouchers and other demand-side subsidies

6. How to manage universal access funds? • Subsidies attract the corrupt. It is therefore essential that strong safeguards be built into the management of the funds • Separating the design of the subsidy schemes and the administration of the funds is a good idea • Outsourcing the management of the funds and the audit of resultant activities is becoming accepted as best practice • Oversight by advisory committees with industry representation is also good

7. Who should get universal access funds (supply-side)? • Not the incumbent, as of right • Ideally, there should be broad eligibility for universal access funds • Not only the existing operators but even those who are willing to enter the market • There should be no ironclad relation between who pays in, and who can receive pay outs • If such a relation cannot be avoided, it should be limited to a short period after which the moneys will go to a “challenge fund” open to a broader group

8. Who should get universal access funds (demand-side)? • The whole point of demand-side subsidies, which are difficult to manage because of the larger numbers involved, is targeting • Important to have low-cost, easily defensible criteria for selecting the target groups and low-cost, constrained-discretion methods for deciding eligibility and disbursement

9. Why subsidies, not cross subsidies? • Cross subsidies are easy to administer in that the money flows within the firm itself and all that the government has to look at is outcome • However, cross subsidies rarely, if ever, yield the desired results and are anti-competitive • Contrary to WTO regulatory reference paper • Will attract arbitrage-based entry and create demand for entry-policing by government

10. Universal access funds and technology neutrality • In many cases, universal access funds are disbursed to existing operators who use it in ways protective of their old investments • E.g., bias toward fixed connections over mobile; voice over data; and circuit-switched over packet-switched • It is possible to devise funding mechanisms that are technology neutral

11. In sum • Let the market take the network as far as it can • Regulatory shortcomings must be remedied • In devising subsidy schemes be attentive to distortions of the market and opportunities for corruption and arbitrage • Management must be low-cost, transparent and designed to avoid bureaucratic bloat • Subsidy schemes should be technologically neutral