Public Private Partnerships in Telecomunications Infrastructure

1. Public Private Partnerships in Telecomunications Infrastructure Mark Williams Senior Economist Global Information and Communications Technologies Group World Bank

2. Why?Where?How?

3. Why?

4. *Excludes China Investment into privately-owned operators has driven network expansion

5. Network coverage has expanded dramatically

6. Evolving policy objectives • Voice coverage is growing and access is increasing • 10 years ago, broadband was seen as a luxury – increasingly seen as a necessity • Search for ubiquitous basic network coverage • Even in optimum market and regulatory conditions, 10% of Africa’s population will remain beyond networks (AICD). • Same likely in other regions • Greater gap for broadband – upgrading rural exchanges for broadband, upgrading backhaul • Limitations on broadband speeds – mainly in access networks • 2-50Mbs using xDSL/Cable modem • Fiber to the customer premises What’s the problem ?

7. More competition, better regulation Access regime for incumbent networks Rights-of-way Public infrastructure (electricity, pipelines) Common passive infrastructure Public co-investment (PPPs) Supply-side Broadband network investment Public demand aggregation Training, education and computer literacy Demand-side PPPs – one policy among many

8. Where?

9. Urban vs Rural • Sweden, France, USA, Australia – rural connectivity • Singapore - urban • Backbone vs Access vs bundled • Backbone – Australia • Access – Singapore • Bundled - USA Range of approaches

10. How?

11. Problem • Pre-1999, Ireland dependent on international fiber-optic cable that passed via the UK (Cable and Wireless) • Paying high prices for international connectivity – stifling local IT industry • Strategy • Attract new cables through financial incentives from government, guarantee access through public intervention as reseller • Industrial Development Authority (IDA) under the Ministry of Public Enterprise entered into $80m agreement with Global Crossing • Global Crossing owns and operates cable • IDA acts as anchor client and resells to domestic market at non-discriminatory terms Ireland – submarine fiber-optic cable

12. Problem • High levels of broadband but no operator willing to invest in fiber-to-the-home so top-speeds limited • Government willing to invest but wanted to maintain competition • Strategy • Public financial support for core infrastructure through PPP • Competition runs on top of government-financed infrastructure • Competitive tendering for PPP contracts. Owned and operated by private sector • Split into two layers – passive (ducting and dark-fiber) and active (IP transport) • Operators were required to form separate companies/consortia to bid to ensure non-discrimination Singapore – fiber-to-the-home access network

13. Problem • Fully liberalized market but no competition to Telstra on small-town/rural routes • Limits to regulated access to Telstra’s network • Strategy • Create competition to Telstra on 6 priority up-country routes (6000km, 100 locations) through subsidizing new entrant (up to A$250). • Routes selected by government and then contracts tendered. • Winner required to provide on a non-discriminatory basis – enforced through PPP contract. Operation for 5 years • Operator required to provide range of wholesale services (Managed wavelength, Carrier managed leased line services (SDH), Carrier managed Ethernet, interconnection) • Contract and awarded to Nextgen (mid 2009). Australia – rural backbone

14. Australia – rural backbone

15. World Bank experience of PPPs in telecoms infrastructure

16. Problem • No submarine fiber along the east coast of Africa • Desire to avoid cartel approach of SAT-3 • Strategy • DFIs finance new cable (EASSy). • Total project cost = $263m. $70million DFI debt financing • Privately-owned (some SOEs). No direct government role • Regulatory controls built into cable consortium contracts • Internal competition between operators on EASSY • Target subsidies at smaller operators to give them access to cable at optimal prices • Open-access and internal competition created through WB role in negotiation of consortium agreement and DFI loan covenants EASSy

17. EASSy

18. Conclusions • Successfully closed project and stimulated development of other cables • Role of WB and DFIs crucial in initial design and agreements • Role of DFIs essential in forcing open-access conditions - opposed by all shareholders • Opposition from governments after exclusion from projects • Regulators incapable of successfully regulating submarine cables • Regulation through contract is a feasible alternative • Long-run driver of success will be competition within EASSy and with other cables • Private-ownership and strong sponsor essential • DFIs cause delays… EASSy

19. Problem • All domestic network infrastructure is wireless • Limited broadband • Strategy • Government co-finances development of national backbone network through WB project • Government finance is through subsidy, no public ownership • Operators form company to develop and operate network • WB project finances studies and designs • Operators invest equity, government injects subsidy/pre-payment • Construction and operation governed by PPP contracts and license/concession agreement RCIP Burundi

20. RCIP Burundi

21. Conclusions • National fiber optic network would not be feasible without government subsidy • Negotiated (ie non-competitive) process creates problems – financing, phasing • Difficulties in getting cooperation between competitors. However, cooperative solution in which users are owners allows self-regulation • Opportunities for corruption in procurement • WB procurement process creates delays but helps with transparency and provides neutral, commonly acceptable process for management • Requires high-calibre legal and financial advisory support RCIP Burundi

22. Problem • Land-locked countries needing access to coastal landing stations • Strategy • Stimulate investment through aggregating demand (anchor tenant) • Competitive tender to supply fiber-based connection to submarine cables • Long-term supply contract to government. Operator acts as wholesaler in the market • No government ownership in project RCIP Rwanda and Malawi

23. Alternative approaches

24. Nigeria –infrastructure competition between backbone networks

25. Non profitable routes Competitive private-sector routes Kenya – mix of public and private

26. Zambia – 2 national fiber backbone networks

27. Zambia – 2 national fiber backbone networks

28. Government recently announced it is giving control of ZESCO’s fiber to Zamtel to create monopoly in order to raise privatization sale value of Zamtel Zambia – 2 national fiber backbone networks

29. MTN – investing in fiber backbone for domestic backhaul and for regional transit • LAPGreen (ex incumbent) has metro fiber and domestic backbone. Linked to business in Uganda • KDN/Altech – regional backbone network connecting Rwanda to Mombasa Rwanda – three private backbone networks

30. Rwanda – government has built fourth national backbone network

31. c. $100m total cost Designed for government traffic 100% government-owned. Plans to introduce private partner for management/investment Additional ducting included for private operators Rwanda – government has built fourth national backbone network

32. Design/policy • Target the PPP at the problem – rural ? • PPPs only work if they are part of the correct policy environment • Government appetite for PPPs is very important – can’t force a PPP on a government if they don’t want to do it. • Private-sector is very suspicious of governments • Strong political-economy forces: “national assets”, protecting SOEs, trophy projects, off-budget financing • Public investment may be storing up problems for the future – Zambia, Tanzania, Republic of Congo, Kenya ? What have we learned ?

33. PPP structure • Strong private financial and operational interest in the project is essential. Need private sector to validate technical design. • Ability of governments to regulate is very low so any solution that depends on regulator is likely to fail. Better to have structural solution (e.g. competition on EASSy). • Competitive tendering process have advantages over negotiated arrangements but operation will be more dependent on regulatory supervision. • Government equity investment (e.g. Kenya TEAMS)? What have we learned ?

34. Implementation • Involvement of WB/DFI systems provides reassurance to private operators. • WB procurement systems are not ideally suited for PPPs. • Need high-level advisory services for design, running tenders and negotiating contracts. • Governments and WB are slow. The market moves very quickly. • Corruption is a problem. What have we learned ?