Mobile networks and universal service / access

1. Mobile networks and universal service / access David Hughes Wireless Solutions Workshop 1-3 Oct 2005 Khartoum

2. Agenda • Universal service and access • Policy objectives • Some definitions • Reasons for choosing mobile networks for universal service or for universal access • Reasons for not choosing mobile networks for universal service or universal access • Public payphones and phone shops • Use of mobile technology in South Africa and Bangladesh • Extension of universal access to broadband • Broadband mobile networks - issues • Conclusions

3. Objectives of universal service and access policies • Remove economic and social disadvantage arising because individuals and communities do not have access to telecommunications services • Barriers • Geographic – services not available in the area • Economic – services are not affordable • Disability – individuals cannot use a standard telephone or the service because of some disability • Economic impact – economic inclusion • Access to markets outside the immediate area • Access to jobs • Access to information - prices, technical information • Access to government institutions • Social impact – end to rural isolation, empowerment • End to rural isolation - communicate with extended family and friends anywhere in the world • Empowerment - access to political institutions and media • Access to health and other resources • Management of remittances from abroad or family in urban areas

4. Some definitions • Universal access – access to telecommunications services in the community • Pay phones • Internet cafes • Universal service – access to telecommunications services in the home or business • Dial tone available in the home or business • Generally limited to fixed services • Mobile licensees often have coverage or roll out obligations • But these are described in terms of populated areas to avoid unnecessary roll out • Mobile licensees have had universal access obligations in countries such as India to ensure coverage in all villages

5. Typical universal access targets • Universal access targetsare often specified as the ratio of public phones to people or the number of phones per village • Upper limits to the length of walk required for dispersed populations are often specified for dispersed populations • Grameen Telecom, Bangladesh – maximum 10 minute walk for every rural villager • Where access is subsidised, a limit to the density of phones may be specified in terms of the distance to the nearest payphone • Eg Jordan has proposed 2Km between phones and availability of phone services within the community of less than 50% of households • Universal access requires a low density network

6. Limits on universal service • Usually there is some limit on the obligation to provide a phone within a property • This is typically based on the incremental cost of establishing a connection to the property • The universal service will require a high density network in urban areas and in more prosperous villages • The universal service will require a low density network in rural areas and particularly in poorer villages where take up is low

7. Reasons for choosing mobile networks for universal service and for universal access • Fixed networks often do not have reach rural area in developing countries • Wireline networks are cost effective: • In densely populated areas • In areas with high penetration • Wireless networks typically have wider geographic coverage in developing countries • Often cover areas with lower penetration such as rural areas • Mobile tariffs typically have low fixed charges that are attractive to low income households • Mobile operators offer averaged, distance-insensitive rates • Appeal to rural callers, who may make a higher percentage of long distance calls • Rates are lower than alternative means of communicating – public phone, travelling, writing letter – and may be more practical • Call charges are not a discriminator for rural and low income groups because of the high ratio of incoming to outgoing calls • Prepay allows low income groups to control their expenditure on telephone services • Mobile is gaining higher penetration than fixed • Mobile is chosen as the first phone by low income households

8. Cellular subscribers v Mobile subscribers More Mainlines than Cellular subscribers

9. Geographic coverage provides opportunity

10. Cellular take up v mainlines is maintained across GDP gap

11. In Jordan, mobile phone is the preferred first telephone

12. Cost based affordable tariffs are easier to provide on mobile networks Proposed Jordanian tariff Relative to the monthly income of the lowest 10th percentile household group by income: • The initial payment, excluding the cost of the telephone handset, is no greater than 10% of monthly income. • The average monthly expenditure that is necessary to continue to make and receive calls is no greater than 2% of the monthly income. • The smallest payment increment for purchasing additional units of service is no greater than 5% of monthly income. • This results in an affordable tariff with the following characteristics: • Initial payment < $23.57 • Minimum monthly payment < $4.70 • Minimum payment increment < $11.78 • No limit on call charges to avoid subsidy

13. Reasons for not choosing mobile networks for universal service or universal access • High call charges on mobile networks • Inability to provide low cost access to the internet • Inability to provide broadband access to the internet • Fixed network for the universal service can easily be upgraded to a broadband network • Broadband penetration > 25% of households in leading broadband markets • Absence of broadband may inhibit adoption of IT • 3G networks may improve data delivery • 3G networks are providing 384kbit/s • HSPDA will allow for upgrade in performance • 3G will reduce the cost of data access • EPlus unlimited data tariff of 40Euros/month • Phone is becoming a low cost data terminal • SMS / MMS, instant messaging, email • Access to data services • Low cost 2nd hand phones • Hotspots and internet cafes may provide universal access but need broadband access

14. Public payphone networks v payphones on private premises • Public payphone networks are expensive to install and manage in comparison with payphones on private premises • Public payphone networks require large number of calls to provide an ROI • Mobile phones are a substitute for public payphones • Public payphone business model is not good • Private payphones require only a small number of calls to provide an ROI • Low or no access charges on mobile networks reduces the risk to private payphone provider • Private payphones suffer less from competition from mobile phones • Focused on poorer sectors of society who do not have mobile phones • Therefore can co-exist with mobiles

15. South African Vodacom and MTN phone shops • Leverage Vodacom’s and MTN mobile networks covering 93% of the population • Vodacom: 23,000 cellular lines at over 4,400 locations owned by 1,800 entrepreneurs in response to a Licence obligation placed on Vodacom • Local businesses owned by local people • Profit retained in the community • Income for disadvantaged individuals • Capital provided by micro-loans • Package of five mobile phones at a pre-approved location often in a converted container • Regulated low call at $0.11 per minute, less than one third mobile pre-pay card rate • Shops pre-pay for calls at 2/3rds retail rate • Shop with five lines typically generates • More than 100 hours of calls per month per line • Monthly revenues of R 27,000 (US$3,550) • R 9,000 (US$1,190) profit • Can be extended to fax and internet services Ms. Mandisa Matshoba, the owner of the business, with Veliswa Banzana who runs the phone container, and a customer In November 2003, Mandisa Matshoba received a loan of R27,000 ($4,230) to purchase the phone shop By January 2005 she had already paid back R 13,000. Source: Vodacom's community services phone Shops, Jennifer Reck & Brad Wood, August 2003 Source: www.esmdevelopment.ch

16. Telenor 62% share in Grameen Telecom 38% share in GrameenPhone Ltd • Not for profit company • Bulk purchase of discounted minutes • Purchase subscription on behalf of VPO • Supplies phone and training GSM network3 million subscribers GrameenBank A Customer Making a Call at “Nomita Telecom” , the phone booth of a Grameen Village Phone Lady Source: Grameen Dialogue Issue 61 • Selection of VPOs • Organisational & infrastructural support • Micro-lease-financing • Payment to GT for phone, connection and training • Payments collection • Conduit between VPOs and GT • Pays VPO bills in bulk Village Phone Operators • VPO repays start up costs ($220) to GB over 2 or three year period • VPO reimburses GB for call charges monthly – minimum bill of $4.66 inc $1.83 licence and royalty fee

17. Results • Goal for 2004 was 40,000 villages, • Cumulative number of village phones: 56,760(Source: Grameen Bank Monthly Update, April 2004) • Grameen Bank has lent to 155,489 telephone ladies (4% of total Grameen Phone subscribers)(Source: Grameen at a Glance, August 2005) • VPO traffic totals 16% of total Grameen Phone traffic • Maximum ten minute walk for any rural villager • Each phone supports population of 2,500 • 120,000 active subscribers, doubling in 2004 • Average use 1600 minutes per month inc 1000 incoming and 600 outgoing minutes • Call termination revenue opportunity • Local call charges – $0.09 per minute, inc 15% VAT • Wholesale price $0.04 per minute, plus 15% admin charge • VPO income - $20 to $100 per month • Micro-loans are low risk - Grameen Bank reports a 99% recovery rate • Issues • Power – solar power to charge phone is often required • Signal strength - external High Gain Antennas are sometimes necessary as villages tend to be at the limits of coverage • May compete with phone card phones found at District level police stations

18. Universal ICT access • Connecting Jordanians • ICT capacity development • ICT telecentre – publicly available IT and telecomms • Jamaica, USA provide subsidies for particular users out of universal service fund • Health care, education, libraries • Commercial internet cafes • Involvement of private capital • Can grow out of phone shops • All require excellent data transmission network to rural areas • Could be incremental to a mobile phone network if no fixed network is available • Reduce transmission costs for mobile phone network and data network • Government as anchor tenant (education, health, telecentres, local government telecomms) on public network reduces risk

19. Conclusions • Mobile services are likely to meet demand for telephony services in high cost and low revenue areas • Because access infrastructure can be scaled and is therefore easier to adapt to sparse demand while still providing coverage • Because tariffs are attractive to rural and low income households • Because of the general higher utility • Mobile has been shown to be useful in providing universal access through phone shops • Can also create new opportunities for rural entrepreneurs • However, there are issues about bringing internet access and broadband to these areas using mobile technology • Potentially bring internet access and broadband through shared transmission networks

20. Regulatory issues associated with using mobile networks David Hughes Wireless Solutions Workshop 1-3 Oct 2005 Khartoum

21. Agenda • Regulatory objectives and actions associated with Universal Service and Access • Universal access – regulatory issues • Universal service – regulatory issues • Is the universal service still a fixed service? • Implications of multiple operators • Evaluating the net cost of the USO • Interconnect as a means of compensating a mobile USP • Multiple USPs and sharing of infrastructure

22. Regulatory objectives • Facilitate universal access to telecoms services and provision of universal service with minimum subsidy and intervention • Minimise regulatory hurdles arising from unnecessary regulation • Eg licensed use of 2.4GHz band • Promote aggregation of demand over shared networks particularly in high cost areas • Regulator must ensure dominant operators give non-discriminatory access to weaker competitors • Maximises revenue and minimises cost of network provision • Ensure interconnection regimes are pro-competitive and non-discriminatory • Ensure access to scarce resources particularly where they are bottlenecks controlled by a dominant provider • Empower local people to determine requirements and provide solutions • Allow flexibility in provision to meet local needs and circumstances • Ensure finance is available for local schemes

23. Regulatory action to promote universal service and universal access • Licences with specific objectives for roll out and provision of service • Mobile roll out obligation in Jordan ensured 99% coverage of population • Phones in rural areas of South Africa as provided by mobile operators • 1.7 million lines to disadvantaged areas in return for 5 year exclusivity • Philippines – 10% of lines to rural areas in return for exclusivity • Problems of quality of service • Community based networks • Municipal networks are becoming popular in North America for broadband access • Can be used for telephony services eg Bolivia • Difficulty in providing a pro-competitive community based network • Interconnect may be a problem

24. Universal access – regulatory issues • Private payphones – payphones on private premises • Private premises - owned, rented or leased by the private payphone provider • eg dwellings, cafés, shops, hotels, factories, offices, education institutions, health care institutions, places of religion and places of entertainment • Competition with licensed public payphone operators • Limit the number of unlicensed private payphones • Operated by a licensee at a single location or in total • Beware of unintended consequences • Outlawing private payphones operated by hotels and hotel tariffs

25. Should phone provider be licensed? • Pros • Licensing phone provider allows control • Quality of Service and Codes of Conduct • Price controls • Framework for subsidising phones • Allocating phones to locations • Anti • Licences • Generally require administration which imposes a cost • Administrative hurdle imposes time delay • Form filling may be a barrier for licensees with little education • Submitting forms may be a barrier for licensees in rural areas with little access to transport and inefficient postal services • Licence fees will be significant cost for a micro business • There is no scarce resource to be managed

26. Alternatives to licences • Many phones can be provided without subsidy or any other intervention • Administer through a Universal Service Provider or another operator • Impose quality and other controls through the USP’s contract with the phone provider • Only regulate the number of phones if subsidies are to be provided • Allocate subsidies through a Universal Service Provider • Paid out of the universal service fund • Regulator formally reviews each case where subsidy is required • Require the USP to monitor phone provider’s performance • Number of calls • Performance against a code of conduct defined in the USP’s contract with the phone provider

27. What about quality of service? Use of codes of conduct Private payphone provider • Services to be provided • Location and availability of the phone • Tariffs to be applied • Provision of information about the service and tariff • Use of calling cards • Incoming calls (should be allowed) • Cleanliness • Free emergency service access Wholesale service provider • Requirements for service quality • Wholesale tariff characteristics should not disadvantage the private payphone operator • Provision of contact point for complaints • Reporting on service quality and private payphone operators

28. Availability of private payphones South African criteria for locations: • Meet specific demographic and population criteria (i.e., be located in relatively densely populated, disadvantaged communities) • Have a high profile (be along a major road, near a taxi rank, or inside a store, etc.) • Be located an acceptable distance from existing phone shops • Have authorized access to electricity (or be willing to purchase a large operating battery as an • alternative) • Acceptable distance from another phone shop is determined on a case-by-case basis • Restriction on call costs and on phone shop gross margin • Unofficial phone shops are are allowed however with unrestricted rates.

29. Funding of private payphones • Micro-loans at reasonable interest rates to cover set up costs • USP’s cost of capital will be very low in comparison with local shopkeeper and can underwrite micro-loans if they supply the equipment • Subsidy may be provided where: • Community use will not cover start up or fixed operating costs • Community use is dependent on: • Size of community to be covered • Service affordability • Availability of other phones • Regulator may decided to put a lower limit on the size of community to be served and an limit on the distance to the next phone to control the amount of subsidy required • Regulator may require all operating costs to be covered by usage charges • Regulator may specify wholesale and retail call charges and hence gross margins

30. Is the universal service still a fixed service? • Implications of multiple operators • Evaluating the net cost of the USO • Definition of access network and call conveyance network for mobile and fixed networks may be inconsistent • Incorporation of the radio network costs in call termination costs means that access network costs are minimal • Who compensates the USP? • Who is in competition with a mobile USP? • What happens if there are multiple access providers serving an area?

31. Implications of multiple operators • Generally there is more than one mobile operator with similar requirements • Roll out obligations • Jordan • South Africa • Scale in rural areas and low revenue area may be sub-optimal • Insufficient traffic to sustain more than one network • Need for roaming agreements or infrastructure sharing to cover uneconomic areas • Need to ensure that such agreements do not lead to collusion between operators • Mobile infill for fixed networks can use the same approach

32. USO net cost calculation Universal service cost = avoidable costs – revenue foregone - intangible benefits Costs and revenues are determined line by line or area by area Revenue per line = Access revenue per line + revenue from USO services + net revenue from other services provided* Cost per line = Access costs per line + costs from USO services * because that line is in use The loss on any loss making line or area is added to the USO net cost

33. DP‘2’ DP‘1’ Fixed networks costs Call conveyance TE LE LE cabinet Access Costs vary with call volumes in the long run Costs do not vary significantly with geographic factors Costs vary from location to location with line length and other geographical factors Costs do not vary with call volumes in the long run

34. SIM Mobile network costs SMSC HLR GMSC VLR MSC MSC VLR AUC BTS BSC BSC BSC BSC BSC Call conveyance Access Costs vary a small amount with call volumes in the long run Costs do not vary significantly with geographic factors Costs vary from location to location with line length and other geographical factors Costs vary significantly with call volumes in the long run

35. Implications for cost and revenue modelling • The costs and revenues taken into account are the same for fixed and mobile networks • Both need to evaluate all access revenues, call revenues including interconnect revenues and net revenues from non-USO services • Fixed network costing can assume geographically averaged call costs • Mobile network costing must assume call costs that vary by originating and terminating location • Fixed access network costing must assume geographically de-averaged access costs • Mobile access costing need only consider SIM costs as access if all other costs vary with call volumes • Mobile access costing should take account of infrastructure sharing in high cost areas

36. Interconnect and USO • Interconnect is costed as the sum of the long run incremental costs of making a call • On a fixed network • There are no incremental costs in the access network arising from interconnect • Therefore interconnect costs cover call conveyance alone • One a mobile network • There are incremental costs arising from interconnect in the radio access network • Therefore interconnect costs have to cover call conveyance and access • This difference has to be taken into account in calculating USO costs and revenues for a mobile operator • This will happen if interconnect revenues and payments are included in USO revenues and costs

37. Can asymmetric interconnect regimes assist in paying for the USO? • Many regimes have asymmetric interconnect charges • Termination charges on mobile networks are higher than termination charges on fixed networks • Because mobile termination charges include some radio network costs as well as call conveyance costs • Asymmetric termination charges associated with a mobile USO will mean that interconnecting operators will cover average incremental call costs • However: • There are some fixed costs associated with the access network and these would not be covered by asymmetric interconnect costs • Access in high cost areas may be 6 to 10 times the cost of access in low cost areas source: COMESA Workshop, Cairo, 27-30 July 2003 • Geographically averaged asymmetric interconnect regimes will not contribute sufficiently to access costs in high cost areas

38. Can de-averaged interconnect regimes finance USO? • Proposals for financing USO through interconnect regimes • Termination costs vary by cost of access but generally termination charges represent average cost of termination • De-averaged termination charges: • high access cost areas have higher termination charges • De-averaging could be implemented for mobile networks because long run incremental access costs included in interconnect charges • Advantages: • Economically efficient because revenues track costs • Beneficiary of the access network in high cost areas pays towards it • Often more traffic into high cost areas than out of high cost areas in developing countries therefore high cost areas can also be low revenue areas • De-averaged interconnect costs represent a means of correcting this imbalance • Disadvantages: • Difficult to implement – interconnect negotiations are generally difficult to resolve • Calling party resistance – reduces predictability of call costs

39. SIM Shared transmission infrastructure for universal access to internet Internet café Internet Health centre School M/W WLAN Router BTS M/W Mux Mux BSC Shared backhaul reduces access costs for mobile and enables broadband internet access and other data services PSTN

40. Universal internet access • Encourage sharing of mobile transmission networks • Local government, education, health and security forces as anchor tenants on public broadband data network – this is an opportunity to extend government policy for ICT • Allows Government policies and goals to be achieved in areas such as: • Economic development • Technology development • Workforce skills • Access to services • Require competitive access to mobile transmission networks for internet cafes and other commercial uses at cost based tariffs • Make spectrum available on an unlicensed basis for Wifi at realistic power levels for point to point links and for WLANs • Allow VoIP • Promote micro-loans to extend phone shops to internet cafes