ITU Model Universal Service Fund Policies and Procedures Professor David Souter ITU Workshop on...

ITU Model Universal Service Fund Policies

and Procedures

Professor David Souter

ITU Workshop on Universal Access and Universal Services Policies

Amman, Jordan, 7-9 February 2005

Professor David Souter, ITU Workshop Universal Access and Universal Services Policies, Amman, February 2005 – Presentation 1: Definitions

Universal obligations Universal obligations are requirements included

in the licences of telecoms operators which: require them to provide:

public access to telephony throughout a territory; and private access to those customers that require it;

set targets for the expansion of networks and services into previously unserved areas


Universal access targets Two types of targets:

teledensity targets proximity targets

Teledensity targets can often be achieved without addressing requirements of the poor or of remote/rural communities, and focus on availability of infrastructure

Proximity targets are more related on users, especially the poor and remote/rural communities, and focus on availability of services


Universal access targets Examples of teledensity targets:

average growth in number of lines of 12% p.a. - Mexico (1990-4)

increase main lines from 4 million to 6 million and install 120,000 payphones in 5 years - South Africa (Telkom)

a minimum of 225,000 new lines in 5 years (trebling of existing teledensity) - Ghana (Ghana Telecom)

Targets can be focused on actual line numbers or on network capability

Numerical targets can be met by operators focusing on underserved rather than unserved areas


Universal access targets Examples of proximity targets:

a phone in every village a phone in every school and clinic a phone in

every community with over 500 inhabitants a phone within one kilometre of every citizen a phone within walking distance a phone within one hour’s travel

These targets focus more on social objectives than numerical targets


Universal service obligations Universal service obligations are requirements

placed upon telecoms operators to provide a given level of service to all potential customers/households that require it

They usually include general as well as specific consumer terms

Operators with universal service obligations can be described as operators of last resort


Universal service obligations in UK :individual service obligations BT (and Kingston Communications in Hull) are

required to provide: connection to fixed network for voice telephony, low

speed data and fax to anyone who wants it at a standard, geographically averaged price

Light User Scheme Limited Service Scheme (outgoing emergency only) text-relay service for the hearing-impaired reasonable geographic access to public call boxes at

affordable prices


Universal service obligations in UK :general consumer obligations

All voice operators must provide: free emergency calls access to operator assistance access to directory enquiry services

DQ services are now competitive; until 2003, operators had to provide a DQ service

the right to receive itemised bills


Enforcement/implementation of universal service/access targets

through competition through license conditions through innovative approaches to providing

service (including telecentres and franchising) through subsidies through universal access funds


Universal Access Funds (UAFs) Universal Access Funds are used to provide a

means of subsidising access provision in areas or specific locations (or to social groups) where access would not be provided by companies acting on a commercial basis

They compensate operators implementing universal access from a central fund operated on a competitively-neutral basis

Increasingly, they are seen as the best way for a government to secure universal access requirements where these are not being met by the market


Universal Service Funds (USFs) Universal Service Funds are used to provide a

means of subsidising access provision to people whose location or level of use means that they are not profitable as individual consumers, even at postalised prices

They compensate operators who are providing service for the loss involved

Increasingly, they are seen as unnecessary or insignificant in value in industrial countries where there are competitive markets: The provider of last resort does not lose significantly

enough to merit a payment, and makes some gains from incoming call revenue and reputation


UAF mission and objectives Primary aim is to provide service or access on

equitable terms to all citizens Secondary aims are set out in policy objectives

and may include: Contribution to economic development Establishment of sustainable and competitive

communications market Core objective to minimise cost to government

and so: Minimise level of subsidy paid Minimise period for which subsidy is required


UAF objectives It is essential to have a clear view of core

objectives and priorities, e.g. 1 – Provision of public telecoms access to all locations

with >250 residents 2 – Provision of Internet PoPs to all locations with >5000

residents 3 – Provision of high speed data access to all locations

with >20,000 inhabitants Market research is important in defining these

objectives Sequencing is important in delivering them


Enabling legislation USF will be enabled in legislative

framework for the telecoms sector and associated regulations. These should include: Definition of right of access Definition of USF objectives Definition of US or UA targets Establishment and administrative

arrangements for USF Financial arrangements for USF Enforcement arrangements


UAF access objectives may include: basic services advanced services economic development (e.g. telecentres

as business incubators) support to community services (e.g.

schools and clinics)

Clarity is needed about the priorities and sequencing of objectives


UAF funding UAF funds can be derived from a number of

different sources, including: development agency funding general taxation direct contributions from telecoms operators

in cash in kind (i.e. capital investment to equivalent of cash

contribution) Direct contributions from telecoms operators are

increasingly common practice: e.g. 1% of turnover (up to 5% in some cases)


Competitive neutrality Contributions (and grants) should be competitively neutral

(a requirement of the WTO Agreement on Basic Telecommunications Services) – not least because all market participants will benefit from greater access in the future

This requires definitions of: what should be covered by the Fund? which companies should contribute to it? which of their revenues are relevant (‘designated revenues’)

It also means no-one should be excluded from the opportunity to take part – though fiscal and other incentives may be used to support market entrants


Who should contribute? (Universal Access) fixed telephony operators mobile telephony operators other beneficiaries of basic services, e.g.:

data networks paging operators? ISPs? equipment suppliers? VANS providers?

Will contributions deter network or service development?


Who should contribute? (Universal Service) all of the above plus:

cable TV operators?e-commerce and electronic information

providers?electronic publishers?broadcasters?


Which revenues are relevant? basic telephony revenues mobile telephony revenues data revenues interconnection revenues revenues from equipment sales? revenues from Internet service provision? converged services?? but not revenues derived from activities not dependent

on the telephone network (e.g. consultancy, postal services)


Assessment of coverage requirements Identification of target populations through:

assessment of needs – i.e. of unmet and underserved demand

assessment of costs – of providing service to areas with unmet and underserved demand

assessment of potential revenue including assessment of changes in revenue streams

over time, resulting from demand stimulation and economic growth

Prioritisation of areas for coverage


Project selection The areas requiring intervention for subsidy, if this

is required, must be carefully chosen and targeted: Subsidy should not be provided where it is not necessary

to cover the economic gap Subsidy should only be provided at the costs required by

an efficient operator Subsidy should only be provided for capital costs and, if

necessary, for operational costs up to the point of profitability

This requires Market research and analysis Analysis of the costs of an efficient operator using

appropriate technology


Selection of location Adoption of priority areas, which might

include:remote and rural areasurban informal housing areas low-income areasminority population areas suffering

multiple disadvantage low population density areas


Service criteria : basic services roll-out obligations

including public access points for telephony and internet distance or population size criteria

affordability including tariff requirements

quality of service availability and maintenance support for consumers

including DQ, operator service, managed access


Service criteria : advanced services roll-out obligations / access points availability of user devices (PCs etc.) bandwidth applications affordability quality of service training support


Implementation selection methods Licence requirement and enforcement Unspecified bidding process (solicit bids from all-

comers) Tender process:

‘beauty contest’ reverse auction

Relationship between universal service fund and overall regulatory framework


Selection criteria amongst bidding operators locations quantity of service quality of service affordability (tariff proposals) community benefits feasibility of implementation plan proven competence and financial viability of

implementing party length of subsidy required amount of subsidy required


UAF management UAF can be managed:

by relevant ministry by the regulatory agency (e.g. Uganda) by an independent body (e.g. Mauritania)

In either case: funding decisions need to be taken on UAF criteria, not

distorted for other regulatory or government purposes UAF funds need to be managed entirely separately from

other regulatory income (e.g. spectrum and licence fees)


Management structure might include: management board (including regulator) consultative or advisory committee (with

wider representation of stakeholders) senior management project managers specialist accountants


Operational plan sets out plan for delivering access against targets provides framework for project selection and

management identification of selection criteria, including: access objectives location criteria definition of services to be provided technical or technological constraints or specifics


Implementation plan should include: three- to five- year business plan management plan implementation schedule tariff proposals community inclusion and other indirect

benefits monitoring and reporting arrangements


Reverse auctions and universal access funds The regulator identifies the maximum subsidy it is

prepared to pay to promote provision of access in a particular area

Companies tender to provide service for a lower subsidy level

The regulator selects the company willing to provide service for the lowest level of subsidy


Minimum subsidy auction example – Chile’s FDT

Universal access fund established 1994 (FDT)

financed from government budget not from levy on telecoms turnover

1995-1999 funded public telephony access projects only

since 1999 has funded internet access projects


Chile FDT public access telephony projects

Large number of relatively small projects

Requirement = provision of a public access telephone in each locality within project area

Effective process of competitive bidding


Chile FDT projects 1995-1999

Year Projects Localities Population (‘000)

Max. subsidy

($m)

Actual subsidy

($m)

1995 34 726 240 3.18 2.11

1996 18 1632 762 4.20 0.90

1997 70 2146 772 20.36 8.10

1998 27 858 229 8.89 5.53

1999 34 554 154 5.52 4.41

Total 183 5916 2157 42.15 21.04


Chile FDT projects 1995-1999 almost 200 projects covering almost 6000 locations serving over 2million people (14% of population) at a subsidy of $21million, which was half of the

subsidy the government was prepared to pay (i.e. a ‘saving’ of 50% on potential subsidy)

average subsidy of $3600 per locality or $9 per inhabitant

average subsidy per locality was higher in outlying regions of project areas


Chile FDT projects allocation

CTC (incumbent)

CTR

Geneva

GVT

Megacom

%age of subsidy

%age of locations


Chile FDT - investment impact

Estimates are that: $21 million in subsidy leveraged $30 million in additional investment in

public access telephony and £109 million in other services, including

residential and commercial telephony i.e. $1 of subsidy leveraged $6 of private

investment


Minimum subsidy auction example - Peru UAF established 1994 (FITEL) financed through contribution on telecoms

operators of 1% of gross revenue first project in 1998 bidders are encouraged to bid

simultaneously for a number of projects with the aim of minimising the total subsidy required


FITEL projects 1999 & 2000 : summary over 2000 locations covered serving over 1million people (4% of

population) at a subsidy of $38million (about 30% of

that government was willing to pay) estimated that $1 of subsidy leveraged $2

of private investment


The Uganda Rural Communications Development Fund (RCDF) Background to Uganda Telecoms restructuring in Uganda The Rural Communications Development

Fund structure tendering process Internet and ICT components


Background : Uganda LDC in East Africa Population

25 million people 85% rural 50% aged <15

GDP per head = cUS$300 p.c.

overwhelmingly agricultural economy


Telecoms restructuring in Uganda

1995 first stage of competition (Celtel in mobile market)

1997 Communications Act: introduced independent regulator (UCC)

1998 entry of 2NO (MTN) offering both fixed and mobile

service 2000

privatisation of incumbent operator (UTL) 2000-2005

duopoly in fixed networks; open competition anticipated from 2005


Telecoms growth in Uganda Rapid growth in teledensity

from 0.2% in 1995 (40,000 lines)

to 4.0% in 2004 (1,050,000 lines)

Rapid growth in geographical coverage from urban coverage in 1995 to 85% GSM coverage in 2004 and potentially 100%

coverage by end of 2005 (if RCDF fully implemented)

achieved through competitive markets, without subsidy

0

50000

100000

150000

200000

250000

300000

350000

400000

450000

UTL Telecel Celtel MTN Fixed Lines (UTL)


Rural Communications Development Fund (RCDF) Objectives (overall):

to provide access to basic telecommunication services within a reasonable distance to all people in Uganda;

to ensure effective utilisation of the RCDF to leverage investment in rural telecommunication development; and

to promote ICT usage in Uganda. Only for areas where commercial service provision

is not going to be achieved in near future Operators were required to identify areas in which they

would not provide network capability by a certain date and to lose their exclusive (duopoly) rights in such areas


Rural Communications Development Fund (RCDF) Objectives (detail):

to ensure that all sub-counties with at least 5,000 inhabitants have access to basic communication services by 2005;

to ensure that the limited resources of the RCDF are effectively utilised to create immediate impact;

to support establishment of an Internet Point of Presence (PoP) in every District of Uganda by 2003, where each PoP shall be associated with at least one Internet cyber café;

to increase the use of ICTs in Uganda, by supporting introduction of ICT use in at least one “vanguard” Institution in every district of Uganda, by 2003; [and]

to promote provision of communication services in rural areas as a profitable business.


RCDF Board Independent chairperson Two members of UCC

including Executive Director Representative of ministry Four stakeholder representatives

telecoms sector finance sector engineers consumer representative


RCDF funding Three funding sources:

1% levy on the turnover of telecoms businesses (operators and ISPs)

contribution from initial (1998/2000) licence fees ($400,000)

grant from World Bank ($5million) as additional commitment to rural electrification programme (available 2004)


RCDF phases 2002-2003 pilot phase April 2004 pre-qualification mid-2004 tendering phase 2004-2005 main phase

By the end of 2005, every sub-county should have at least one payphone


RCDF main phase Tendering for main phase initiated 31 March 2004 Implementation during 2004 and 2005 Three components:

provision of public access telephony in all ‘unprotected’ sub-counties

provision of Internet Point of Presence (PoP) in each district headquarters

support for ‘vanguard’ ICT institutions


RCDF main phase : telephony

Uganda has 926 sub-counties (local administrative units)

National licensed operators (MTN and UTL) were required to identify within one year of licence (by July 2001) in which sub-counties they would not provide service by July 2002 (to ‘unprotect’ them)

UCC given power to issue licences to alternative operators for ‘unprotected areas’

154 sub-counties unprotected in July 2002 – to be covered by RCDF main phase


RCDF telephony – tendering process The RCDF is using a ‘reverse auction’ process,

i.e.: UCC and RCDF Board will announce subsidy cap

(maximum available subsidy for each area) bidders submit offers to provide service for lower

subsidy UCC and RCDF Board accept bid with lowest subsidy

(other factors being equal) First use of reverse auction process in Africa


RCDF telephony – delivery requirements Three lots:

154 sub-counties divided into 3 lots including higher risk Northern areas bidders can offer for individual lots and for whole

Two phases: Phase 1 – one public telephone per sub-county (154 telephones) Phase 2 – one public telephone per 5000 inhabitants (800 telephones) plus capacity to meet specified level of private demand within three years

No preferred technological solution (technological neutrality) but nb impact of private demand requirement

No international gateway until end of duopoly in 2005


RCDF telephony – pre-qualification requirements (involvement of or intention to be) Ugandan

registered company experience of deploying rural telephony:

at least 5000 lines or 250 telecentres at least three years

financial security: net worth of at least $2million

letter of endorsement from regulator in country where operational


RCDF main phase issues include importance of :

consolidating areas to enable economies of scale and incorporate least attractive locations

research/modelling of demand and cost projections technological neutrality consultation and information processes integration with evolution of regulatory framework integrity of competitive tendering process


RCDF Internet components Internet Points of Presence (PoPs)

a PoP in every district headquarters town ICT ‘vanguard institutions’

pilot programme to establish non-commercial (‘public good’) facilities to promote ICT awareness and provide ICT leadership


Pilot phase undertaken in 2002-2004:

telephony in marginal areas inside GSM coverage areas

initial programme of Internet PoPs Internet cafés (little take-up) ICT training institutions (little take-up) Internet content


RCDF pilot phase outcomes demonstrated limits to competition:

only one major telco bid to provide telephony service and in only one stage of pilot phase (but was substantially cheaper than alternatives)

questionmarks over demand levels in telephony locations during pilot phase (lower than in main phase locations?)

limited take-up of Internet café and ICT training opportunities in first stage


RCDF pilot phase lessons include importance of:

market research (including consumer preferences)

engaging the sector in participation objective selection of locations for subsidy monitoring and evaluation

ITU Model Universal Service Fund Policies and Procedures Professor David Souter ITU Workshop on...

Documents

Transcript of ITU Model Universal Service Fund Policies and Procedures Professor David Souter ITU Workshop on...