Workshop on Universal Access & Service (UAS) & Broadband Development

1. Workshop on Universal Access & Service (UAS) & Broadband Development World Bank 23 November 2009, Washington D.C.

2. Introductions • Intelecon– Universal Access & Service (UAS), Regulation, ICT applications & Market strategy • UAS Policies & funding strategies & advisory services for Uganda, Botswana, Malawi, Mozambique, Burkina Faso, Peru, India, Nepal, Mongolia, Russia, Saudi Arabia • Private sector advice, incl. Contribution of Mobile to Universal Access (GSMA), various strategic market & due diligence studies • ICT Applications – Mostly recent: m-banking for Pakistan, Mobile Money User Study for IFC • www.inteleconresearch.com • Consultants present • Andy Dymond – Managing Director • Steve Esselaar – Principal Telecommunications Consultant • Kyle Whiting – Senior ICT Consultant

3. ICT Regulation Toolkit: Module 4 – Universal Access & Service • Universal Access: An overview • Regulatory reform & UAS • Overview of approaches to UAS • UAS Policy • Financing UAS • UAS Programme Development & Prioritization • Competing for UAS Subsidies • Technologies for UAS http://www.ictregulationtoolkit.org Includes: • 50 page Executive Summary • Practice Notes with case examples • Online Reference documents

4. Outline of Workshop

5. Definitions • Universal access(UA): ubiquitous access to service • e.g., at a public place, • also called public, community or shared access • Universal service (US): every individual or household can have service, using it privately • at home or increasingly, carried with the individual through wireless devices such as mobile phones or PDAs • Universal access and service (UAS): the generic term when referring to both UA & US or the concept • Developing countries targeting both UA and US to voice • US to voice and UA to Internet in same program

6. UAS Concepts With increasing focus on the Internet and broadband, awareness and abilityprobably need to be added – awareness of services and benefits & ability to use computers, navigate the Internet & use ICT services

7. Objectives & targets Voice telephone – fixed or mobile? (increasingly either) Internet – dial or always on? (changing rapidly) Broadband – How defined? (e.g., >256 Kbps)

8. Importance of QoS – Saudi example • In mid/late 2008, two leading operators reached • 39.5% of geographical area with low outdoors signal • 31.5% with medium quality outdoor signal • Population coverage • 98% with med. Quality outdoor signal • 96% with indoor signal • Only 2,000 of 15,000 villages “without service” • But demand survey showed 22% of villagers “with service” have poor QoS • Therefore target indoor service as minimum acceptable 2008 mobile coverage scenarios

9. UAS targets - examples

10. Gap model – theoretical framework for UAS 100% households (universal service) True access gap Smart subsidy Lowincome households zone Market efficiency gap Current network reach After & access one - time subsidy, will Highincome households Requires become ongoing Commerci ally commercially 100% support feasible reach feasible geographical coverage Geographicalreach Source: Initial concept in “Tel ecommunications & Information ser v ice s for the Poor: Towards a Str ategy for Universal Access”, by J. Navas - Sabater , A. Dymond, N. Juntunen, 200 2 . Modified by Intele c o n • Over last few years operators have bridged the market efficiency gap for voice • The smart subsidy zone has narrowed • The true access gap is typically last 2-5% population

11. What are the key UAS trends? • Much more ambitious goals – towards e-inclusion • Target dates compressing • Internet more closely aligned with voice • More experience with various approaches • More complex interactions with other policies • Greater interest in reaching the poor by commercial companies We will address/illustrate these throughout presentation

12. Much more ambitious goals • Driven by mobile success • Countries are achieving UA for voice and move to US goals for voice as mobile phone penetration rises • Migration to 3G increases Internet expectation • Household penetration more important for Internet

13. Much more ambitious goals (2) However, in parts of sub-Saharan Africa, voice access is still an issue for a considerable part of population Coverage gap av. Less than 2% of population Source: Africa Infrastructure Country Diagnostic WB study, 2008

14. Much more ambitious goals (3) • Internet UAS objectives require broadband, but still a long way to go • Focus shifts away from simple access to • Bandwidth/speed • ICT capacity/ ability • Applications/services • UAS goals will continue to rise with technology & service development – towards e-inclusion

15. UAS integration with other programmes • Education • Vanguard user to be targeted under UAS • First priority & demand – the emerging generation • Education Ministry responsible for the computer strategy • e-Government / e-governance • ICT improves administration, services, health, etc. • Accountability • Electricity • Raises the potential for ICT demand • Reduces the complexity & cost of infrastructure build-out • Microfinance and m-banking • Allied initiatives with pro-rural and pro-poor direction • m-banking regulated under Central bank but reliant on increasing ICT reach & telecom operator innovation

16. Trend to “e-Inclusion”- ICT & all sectors • EU-centric term but is the trend globally. • Includes both ICT and the use of ICT to achieve wider inclusion objectives. • The Riga Declaration (June 2006) stresses actions in the following areas: • Improve digital literacy & competencies; • Reduce geographical digital divides; • Use ICT to promote cultural diversity; • Promote inclusive e-government; • Use ICT to address the needs of older workers & elderly • Enhance e-accessibility & ICT usability for people of all abilities, gender & social standing.

17. UAS and broadband policies are merging Internet services UAS policy Stronger focus on Internet which increasingly requires minimum broadband Increased focus also on ICT enablement Broadband policy Includes wider range of measures While typically addressing broadband nationally, heaviest intervention/ incentives required for rural areas Demand led Supply driven Broadband facilities UAS policies migrating to (rural) Broadband policies

18. Main Approaches to UAS • Traditional incumbent obligations (USOs) • Obligation & compensation (Historic & superseded) • Regulatory reform • Several prior measures have fundamental impact on the achievement of UAS • Competitive subsidy distribution (UASFs) • Licensing and UAS • Non-Government & local community contributions • Open access, shared facilities & ICT backbones

19. Reform first • Regulatory reform, especially competition, accelerates achievement of UAS – regulatory reform is key first step in UAS policy • Key elements include: • Modern regulatory framework (addressing convergence) • Effective regulator • Effective regulation of competition • Interconnection and pricing • Spectrum allocation reform • Technology & service neutral licensing • Open access & regulating dominant markets • Taxes, import duties and fees • Implementing UAS policies in badly regulated markets is highly ineffective (e.g., higher subsidy costs)

20. Regulatory /licensing impact on mobile growth • Comparison for GSMA showed specific impacts of regulatory decisions & general policy • New competition entry • Decision on semi-fixed vs. mobile disputes • Weight of taxation

21. Licensing & UAS • Countries that reform their licensing regime in response to convergence, with technology neutral or unified licences, have major opportunity to incorporate new UAS targets • UAS targets more easily accepted in return for greater flexibility of new licences • Even without reform, newly offered licences could also include useful territorial and UA obligations to Internet & broadband • Important that those conditions are public in advance • South Africa’s new entrant Neotel has to provide broadband connectivity to 5,000 public schools and rural medical clinics • Competition for new spectrum based licenses (e.g., 3G, WiMAX) • Mandatory roll-out targets & public and school access requirements • Matching attractive urban with les attractive regions - Anatel in Brazil used this approach for their 3G frequency auction (Sao Paulo paired with state in poor North-East etc.)

22. Enabling regulation for broadband • Good competitive practice also applies to broadband – look first at regulation • Open access to dominant access networks • Access to international connectivity & capacity • Competition, joint volume purchase or both? • Liberalization of backbone: • Permission for wholesale • Enforcement or inducement to sharing & co-location • Tax/fiscal incentives to network build-out • Planning for converged services • What does IP transition & NGN need? • VOIP and multi-media

23. General recommendations ITU Sept 2008 • Recognize importance of broadband; formulate national plans, including specific targets • Award licenses & spectrum for wireless broadband technologies (3G, WiMAX) • Open up the broadband market to new operators and stimulate competition to lower prices • Create investment incentives in telecom sector • Utilize universal access & service fundsto bring broadband to rural and underserved areas • Promote development of local content • Encourage convergence and the transition to NGN including adoption of regulations allowing the use of voice and video over broadband networks.

24. Competing for subsidies & UAS Funds Competitive subsidy allocation mechanism & smart subsidy (OBA): • One-time partial subsidy that leverages additional commercial investment • Subsidy minimized through competitive procedure • Amount of money required by service provider to bring loss-making services to an acceptable rate of return over long term • only shortfall between revenue & costs is paid • exact amount determined by bidders through competitive tender • projects are selected that are commercially viable in the long-run after initial subsidy – no ongoing subsidies

25. “Smart subsidy” OBA amount Revenue Costs $ per year Profit Subsidy Years 1 to 10 Loss • “The amount of money required by an operator to bring loss-making services to an acceptable rate of return over the long term” • Specific services in a target area – e.g. payphones, Internet & private service in specified target areas • Once-only agreement • Business sustainable in the medium/ long term

26. How UASF OBA competition is administered • UASF Fund Manager initially estimates the 5 or 10 year revenues & costs, and estimates the “financial gap” (Max. allowable subsidy) • Bidders (operator-investors) make their own estimate - at or belowthe maximum allowable subsidy • The total agreed subsidy will be distributed to the lowest bidderover a limited period (e.g. the first 2-3 years) and will not need to be repeated. The operator accepts a 5-10 year (or permanent) licensed obligation to provide the minimum level of service, but is also expected to expand and serve private demand in the target areas • Internet & Broadband less certain finances than voice – tend to allow subsidies > 100% of Capex costs

27. Use of UAS Funds Funds have been used for • Meeting regional and rural service targets for telephony and Internet services • Broadband and backbone development • Supporting key users - rural schools and health clinics, to access the Internet • Supporting national and local content, services and applications development that stimulate Internet take-up and usage • ICT capacity building • Supporting various activities related to regionally balanced network and service development, such as the creation of Internet Exchange Points (IXPs) and regional Internet points of presence (POPs) Around 50 countries have UASFs.

28. UAS Funds – best practice advantages Key principles & elements of best practice UASFs: • Transparent and fair means of allocating subsidy – all operators pay proportionally equal amount and technology-neutral tenders give all equal chance to win (vs. mandating USO) • Provides incentives for innovation and cost-minimization (vs. re-imbursing USO providers their costs) • “Pay or play” in practice – operators can choose if they want to particpate • UASF programs developed with industry & stakeholder consultation • Focus on ongoing sustainability • Independent of Government, audited & publicly reported

29. Examples of UASF successes • Overall too few evaluation/ impact studies on UASFs • Peru, Colombia and Chile – 1st generation • Uganda - 1st in Africa – leveraged mobile • (practice note) • Mongolia – Highly successful in achieving operator collaboration – voice & broadband • (practice note) • India – Cumbersome but transforming – tower sharing • Pakistan – Professional & successful in mobile and broadband projects

30. UASF total experience to date – Hmmm! • Some funds have not been allocated in a technology-neutral manner (e.g. India, Russia) • Some funds have accumulated money and not disbursed or too little • E.g., Malaysia, Brazil & India • In some cases, UAS programme planning and implementation too slow – overtaken by market development • No fund has been capable of distributing more than 2% of sector revenue

31. Key lessons - future rural broadband development • Strong focus on improving regulation • Technical Assistance should include assisting the UAS policy adoption process and the passing of necessary legislation and regulation – as this is an area of delay • Otherwise UAS projects need to be developed for implementation in 2-3 years – and require update shortly before implementation • Levies should be limited to 1-2% and allowed to reduce over time as UAS targets are achieved • UASFs need stronger capacity building element and efficiency – also explore “company” models – e.g., Pakistan • Competitive mechanism & collaborative approach with industry can work well

32. NGO & community initiatives (1) • Bottom up approaches (vs. top-down policy driven initiatives) • Most successful example are micro-finance & entrepreneurial village phone initiatives • Community networks • fairly recent and few established examples – usually small scale (i.e., solving the problem in one community, not nation-wide) – depend on local leadership/champion • Too complex for effective national programs • Telecentres • wide range of models – mixed record but successful if there is a network of telecentres, & financing model that secures ongoing sustainability • good Internet connectivity essential – best to follow UAS infrastructure projects

33. NGO & community initiatives (2) • Community radio or local radio • Local radios connected to the Internet are successful intermediaries in community to overcome issues of pre-literacy, lack of ICT training and language barriers • Co-operatives • Only thrive in handful of countries – require certain conditions • Regional or rural operators • Limited experience (e.g., Nigeria, South Africa) difficult -require special/strong regulation to be protected from bigger players • Temporary phenomenon – become national operators (through acquisition or own drive to grow) • Possible tool to introduce more competition – also for broadband – cover rural area first and then be allowed to provide national service

34. Backbone development & open access Important because • Limited ICT access if backbone does not reach all parts of country • Challenge with single backbone – access for all at reasonable cost-based prices • Increased demand for bandwidth capacity & investment costs for NGNs can potentially create bottlenecks Increased attention on backbone development – some UASFs have financed backbone & transmission extensions (e.g., Chile, Pakistan, Nigeria)

35. Backbone development & open access (2) • Opening networks of dominant operators to wholesale service provision: non-discriminatory access & pricing • Through price regulation (least invasive) to functional, operational or structural separation (costly and complex) • Backbone extensions via competitive UASF bid • Many UASF projects already included backbone extensions and open access policies (Nigeria, Uganda, Mongolia) • Alternative network options • If not already liberalized, license alternative network operators (electricity, gas, railway) and allow existing operator to sell excess capacity • Building new wholesale backbone-only networks • Have been considered, few existing examples (Canada, EU) – best operated independent of existing operators, wholesale only and open access

36. Backbone development & open access (3) Infrastructure sharing – form of open access • India’s USOF identified locations for 11,000 rural mobile infrastructure towers, buildings & power supply (passive infrastructure) to be shared by multiple operators • Consulted with the industry and secured broad support • Competition for 5 year subsidy was successful and bids were below the “reserve” price – mostly bid by independent tower operation companies • Separate competition for 3 mobile operators to use each tower was overwhelmingly successful – “negative” bids (no net subsidy required)

37. Tower sharing – for broadband deployment • Much of the voice telephony needs in rural areas met by mobile service • Digital Backbone links all sites • Fibre or microwave • Can be developed for broadband • Initial demand for Internet services mostly in vicinity of small towns &district centres, • Use GSM EDGE, CDMA, 3G, Wi-Fi, WiMAX type wireless from same towers • How far will broadband reach? • Smaller operating radius (<5Km) • Need more sites? (depends on Min Bandwidth specification) • Lower wireless frequency (e.g., 900 MHz or less more efficient • ‘Open Access’ to towers a key UASpolicy tool      ☎      Broadband Internet Demand     Rural voice coverage     

38. Financing UAS & broadband • Government aid for ICT infrastructure has diminished • e.g., OECD: USD 1.2 billion in 1990 to ~200 million in 2002 • However, some major broadband investments now underway – USA, UK, Finland • In developing countries, mainly private sector funded UAS achievement • through commercial drive • through UASFs • Through philanthropic/commercial/NGO initiatives (e.g., GSMA Development Fund, Grameen Phone) • Donor focus on policy & regulatory support, ICT service applications and capacity development • Will this be enough for broadband development?

39. Issues of cost versus speed / bandwidthFactors emerging in a recent UAS consultation • Broadband “coverage” dependent on • Bandwidth required • Capacity & usage demand per cell • Frequency of wireless signal • Targeting 512 kbps could cost 3x 128 kbps due to • Technical Options - 2G (e.g., EDGE) versus 3G (HSPA) • Frequency Spectrum policy • Thus broadband UAS could depend on spectrum policy • 900 MHz versus 1800/2100 MHz • GSM only versus technological neutrality • Whether WiMAX licensing opportunity is leveraged to achieve rural roll-out

40. Financing UAS & broadband (2) Compared to telecom, more money is also needed for • Providing public Internet/broadband centres throughout the country • Improving PC penetration through PC loan/ grant programs – to increase broadband subscriptions • ICT capacity building campaigns • Accelerating e-gov services for rural/ poor population (possibly initially through mobile SMS) • But remember – some e-applications (e.g., m-money) are not necessarily bandwidth hungry

41. Philippines – hindrance is demand & applications Major operator financials 2008; Similar capex amounts for 2009 • Finance & supply capacity not the issues in this case – GSM coverage is 99% of population & could be leveraged • However, broadband uptake mainly hindered by: • Computers (USD 292) not affordable for large majority; but could afford to pay over 2 years; could afford usage • Government not advanced with own connectivity (e.g., only now connecting all high schools to Internet) • Government not advanced with implementing e-gov services for the general population • Challenges are: affordability of Internet access device; ICT capacity; useful applications & services

42. Broadband & e-applications • Broadband benefits • Review of broadband issues & challenges • Overview of broadband strategy options • Best practice responses • Country case examples

43. Broadband & e-applications What has changed with the advent of broadband? • “The need for speed” – new digital divide No fixed UAS speed; will constantly increase (20) (30) (50) (50) Mbps Data ITU Sept 2008

44. Benchmarking Study in 2009 for S. Arabia • Minimum download speed at the customer level in rural (UAS) programs • Consider the incremental costs of bandwidth in rural areas (bandwidth versus radius)

45. The benefits of broadband • Measuring impact of broadband still in early phase; few quantifiable and internationally comparable data; • Currently restricted mostly to developed nations • However, findings so far support • ICT sector growth & macro-economic multiplier • Productivity gains, growth in employment, growth in businesses • Transformation of how individuals, companies & government work, communicate and interact • Reduction in pollution (due to reduced travel) • Potential socio-economic impact significant • Expected benefits especially in education & health delivery; improved governance & transparency

46. The benefits of broadband (2) • While specific “proof” of broadband benefits for developing countries and their impact on poverty, hunger and sickness still outstanding, countries cannot afford to wait as they lack already behind in their ICT development Options include • Piloting of broadband ICT & e-applications projects • Strategic/tactical use of mobile SMS to introduce e-gov services which then can migrate to broadband for more complex service • Example Telehealth in Philippines – started with computers & Internet to district hospitals, but there was no need/ demand; Doctors who needed help were young doctors in really rural and marginalized areas, but there was no connectivity; • Telehealth program switched to mobile and SMS, even e-mail & photos using GPRS – highly successful

47. Key challenges for broadband development • Physical network infrastructure (or access) at the margins: • Rural & developing regions • High costs for establishment & service provision in non-urban markets • Operator interest and viability of subsidy • Lack of competition in service provision? • Weak demand + lack of affordability for Broadband service? • Computer literacy and training • IT skills, e-applications & Desktop PC/internet infrastructure needed

48. Four approaches to Broadband Policy • These address the main obstacles to broadband development • Not necessarily exclusive to one another • May be pursued in combination

49. Issue (1) – Lack of Infrastructure supply • Challenges • Lack of network infrastructure at the margins - fixed-line copper, fiber & wireless • Poor competition & access to existing network infrastructure • High costs of infrastructure & operation are barriers to investment & user uptake in rural areas • Lower populations, distance and geographic constraints • Best Practice responses Progressive regulation and open access policies • Public-Private-Partnerships for network establishment • Subsidies through competitive bidding • Government purchase and use of bandwidth

50. Issue (1) Infrastructure – Smart SubsidiesCompetitive Tendering & OBA Approach • Smart Subsidy Approach • One-time subsidies, non-distortion of markets • Open to both infrastructure and service providers foreign and local • Stakeholder input into design • Bundling of Strategic Regions • Strategies to ensure subsidies are tied to both commercially promising and challenging regions • Competitive Bid Process • Formulation of bid design with stakeholders • Clearly outline eligibility criteria & requirements • Use of least subsidy or reverse auction approach