USO in Telecom Lessons for Other Sectors

1. USO in TelecomLessons for Other Sectors Martín Rodríguez Pardina July 2007

2. Equity Concerns • Which customers and services should be subsidised? • How do we pay for the subsidies? • How do we ensure efficiency in the provision of the subsidised services?

3. Which customers and services should be subsidised? • Most countries have an explicit mandate including services and costumers to be subsidized. • Dynamic nature of the sector makes it necessary to periodically review the objectives

4. Definitions • Universal access • implies the reasonable availability of network facilities and services, in terms of geographic coverage and public access points, such that citizens and institutions, can obtain and the services within their local communities, either on a private or a shared, public basis. • To achieve true “universal access” therefore implies that 100% of a designated population can obtain, at a minimum, public access to a defined service, through reasonably available and affordable public or community facilities, and those who are willing and able to pay full cost-based prices can obtain individual or household service on demand. • Universal service • intends a more absolute condition, in which telecommunications services are delivered ubiquitously to households or individuals throughout an area, and thus are both accessible and affordable, with no practical impediments to subscription and usage. • To achieve true “universal service” thus implies that 100% of a designated population is reasonably able to subscribe to and use a defined service on an individual, household or institutional basis.

5. The Gaps Model

6. Measuring Gaps

7. EU - USO • Availability of the universal service. • The Member States must ensure that the telecommunications services are made available to all users in their territory, regardless of their geographical location, at a specified quality level and an affordable price. • Directory enquiry services and directories. • At least one comprehensive directory which is updated at least once a year must be available to end-users. • Public pay telephones. • The national regulatory authorities must be able to impose obligations on undertakings to ensure that public pay telephones are provided to meet the needs of end-users, whether in terms of geographical coverage, the number of telephones, the accessibility of such telephones to disabled users or the quality of services.

8. EU – USO (cont) • Special measures for disabled users. • The term "universal" means that the Member States must ensure that disabled users enjoy a service which meet their needs. • Designation of undertakings. • The Member States may designate one or more undertakings to guarantee the provision of universal service. • The Member States may also designate different undertakings to provide different elements of universal service and/or to cover different parts of the national territory.

9. EU – USO (cont) • Affordability of tariffs. • The Member States shall ensure that consumers with low incomes have access to special tariff arrangements or are given special assistance to enable them to have access to the telephone service and to use it. • Furthermore, the Member States may require undertakings which have universal service obligations to comply with price caps or to apply common tariffs, including geographical averaging, throughout the national territory. • Quality of service. • The national regulatory authorities must set performance targets for undertakings with universal service obligations and monitor compliance with these targets by designated undertakings. • Financing of universal service obligations. • In order to compensate for the net costs to which the provision of universal service might give rise, compensation mechanisms for operators with universal service obligations may be provided for. This may involve the introduction of a mechanism to compensate from public funds and/or a mechanism to share costs between providers of electronic communications networks and services.

10. Universal Service in India • “To provide access to basic telecom services to rural and remote areas at affordable and reasonable prices.” • With the removal of the word ‘basic’ from the definition , coverage through mobile services has also been opened up.

11. Scope of USO in India • Support to cover both Public Access and Individual household lines in identified Net high cost rural/remote areas. • Recently, scope widened so as to include Infrastructure for mobile telephony and Broadband in rural/remote areas. • Rules being modified.

13. Setting Goals • The success of new universal access programs is linked to setting clear, realistic and measurable goals. • Members should agree on a common set of indicators, set regional average targets based on each country setting their own numerical goals (i.e. the “x’s” detailed below) using the same set of indicators.

14. Example of the types of indicators • Universal Community Access: • X% of the population of a country is within X km of a public payphone and/or Internet community telecenter. • Universal Geographic Coverage: • X% of inhabitants of all municipalities with populations greater than X should be covered by the signal of a mobile/cellular network and/or the signal of an Internet access point irrespective of ability or willingness to pay.

15. How do we pay for the subsidies? • Only two sources of funds • Rate payers • Tax payers • Alternatives • Direct subsidies • Cross subsidies: traditional approach • Specific funds: most common now

16. Delivering and Paying for USO • Almost all Regulatel member countries have adopted: • Market liberalization combined with regulatory initiatives including universal access obligations and special regulations and conditions which favour projects and operations in uneconomic areas); • Universal access fund programs • functioning in 12 out of 10 countries that have them; • State-mandated and controlled approaches using cross subsidies and other financing sources • 3 countries • Other financing methods and project initiatives • by national, state and local governments, cooperatives, NGOs and others (13 countries)

17. Sectoral Funds

18. India: Funding USO • USO policy effective from 1.4.2002. • Funding of USO through contributions by Service Providers. • Across the board uniform levy of 5% on designated revenue from all operators except value added service providers. • Levy collected along with License fees.

19. Use of USO Fund in India • US$ 950 million disbursed till now. Collections from USL during the same period has been US $ 2 billion plus. • A decentralized disbursal mechanism in place. • Special Audit through C&AG to suggest system improvement where necessary. • Monitoring through verification of billing records and sample physical inspections. • Subsidy Deductions in case of non-functioning of facilities. • Penalty for amounts drawn in excess of 10% due to USP for the year. • Liquidated damage charges for delays in roll-out. • Performance Bank Guarantee.

20. How do we ensure efficiency in the provision of the subsidised services? • Tools • Competition: in and for the market • Minimum subsidy bids • Use of cost models • HCPM (FERC) • Efficient Firm (Chile) • Basic approach • Technological neutrality

21. Innovative Solutions

22. Selection of Providers in India • A transparent competitive multilayered reverse auction process. • Three rounds of bidding. Lowest price at each round forming the reserve price for the next round. • Benchmark evolved by an independent Expert Agency serves as initial Reserve Price . • Eligible bidders- BSOS, CMSPs, and UASL of the respective Service Areas and any other entities as the Central Govt. may decide from time to time.

23. Achievements

24. Results in India • Potential of rural market recognized • Increased participation from Private Service Providers, • Steep fall in rates from benchmark values. 60 -75% in case of RDELs. • Change in strategy in respect of Subsidy installments. Concept of frontloaded payment introduced.

25. Role for Regulatel • Gather, analyze and disseminate best practices • Develop a model for Regulatel members to determine the feasibility of creating public access facilities which piggy back on private commercial networks such as those of banks or transport companies. • Develop a data base of information (rates, costs, regulations, interconnection agreements, etc for rural areas.) of its members. • Gather, analyze where appropriate and maintain up to date a data base of its members’ universal access regulations and policies including spectrum use policies

26. Role for Regulatel • With the support of its members determine the impact of asymmetric interconnection rates and tariffs for rural operators with the aim of developing policies, costing methodologies (that can include benchmarks), guidelines for termination charges and tariffs, along with model regulations and interconnection agreements for use in rural applications. • Create and maintain a set of indicators of international best practices in universal access fund programs which can help the 19 members measure the results obtained by their programs and to define objectives to be attained.

27. Role for Regulatel • Implement training, exchange and cooperation activities to actively promote and extend the concept of universal service funds being applied in part at least to funding venture oriented entrepreneur driven projects. • Develop a platform under its leadership and coordination to facilitate the dissemination of information on various new models for universal access projects and especially those which result from demand driven initiatives and involving small entrepreneurs, suppliers and operators. • This platform would also facilitate contact being established among these various stakeholders and links to technical, financial and other support mechanisms highlighted in this study.