Archive

Posts Tagged ‘regulation’

Is Universal Access/Service a Government or Operator Obligation?

March 30, 2016 4 comments

ruralSecond to creating a level playing field for all ICT operators, one of the widely accepted objectives of regulation of the ICT sector in developing countries is to promote universal access of basic ICT services. In developed economies, the objective changes from universal access to universal service. The difference is that access promotes the notion that every person should have reasonable means of accessing basic ICT services (like a phone booth at the local shopping center) while universal service is about promoting and maintaining availability of a variety of ICT services to individuals and households. Both these terms are combined into what is known as universality.

It is clear that that universal access definition has been overtaken by events based on the recent developments especially in the wake of mobile communication boom in many developing countries. To a very large extent, its no longer about ensuring access but ensuring that a variety of services are delivered to the end user.

The need by governments to make universality a reality stems from increasing evidence that access to ICTs improves the overall socioeconomic well being of its citizens. However, with the wave of privatization of ICT services such as telecommunications, the operation of telecoms moved from social welfare minded government ministries to profit minded private entities. When privatization took place in the early 1990’s new entrants focused on providing services to profitable market segments based on geography, disposable income and population density (which improves economies of scale and scope). The result is that regions or populations that were not profitable were at the risk of being left our in the ICT revolution. To prevent this from happening, regulators were quick to include mandatory service obligations (MSOs) in the licenses issued to new entrants. These obligations mandated the operators to extend their networks (and in effect their services) to areas where the cost of providing the services and maintaining the networks was higher than the revenues realized from the same areas. This seemed to be the only practical solution to connect the ‘unprofitables’. Other solutions were available and open to use by the operators such as cross-product subsidies (which haven’t worked well due to the fact that on the other hand the regulator enforces cost-based pricing making cross-product subsidies difficult to implement). It is worth noting that the definition of Universal Service varies from country to country, in Finland for example, universal access includes the right for every individual to access 1Mbps of broadband internet in addition to other services.

In addition to the measures above, the regulator in Kenya also developed a Universal Service Fund (USF) framework which according to them on page 1 of the framework draft document was to “to complement private sector initiatives towards meeting universal access objectives”. The document title and the aim I have quoted above are conflicting to a keen eye.

If indeed the aim of the USF was to complement private sector, why is the same private sector being obligated by regulatory instruments to fund it?

The International Telecommunications Union (ITU) lists many way in which USF can be funded,  one of the more popular ways is by budgetary allocation from the government. Other ways are by use of Access Deficit Charges (ADCs) and the levying of  a percentage of monies collected by operators in their business operations towards the USF kitty. The ITU states that should a regulator go the revenue levy way, it must not place a unfair burden on the operator on how these levies can be collected. For example the regulator cannot say that it will levy a percentage for every call minute  or every MB of data used by subscribers, this would make accounting difficult and hence the approach of levying the total revenues of the operators which is easier and more transparent.

Several countries have implemented USFs that are beneficiaries of government budgetary allocations. Such countries include Chile and Peru. Incidentally the same countries are hailed as success stories of how universality has improved lives of its citizens. This is because the desire to offer universal service or access is a social obligation of the government and not private firms. Its in the governments interest to connect these otherwise unprofitable regions/people and it can easily do it from budget.

Chile’s approach has been an interesting case study of how, if done right, the USFs can work to meet government objectives. The regulator there took the concession path by having operators bid to provide services on a concession basis. The regulator would then pick the lowest bidder. The results were that most of the bids were 50% below the budgetary allocations meaning that the approach was financially efficient. Proper policies were put in place to define the penalties, rights and obligations of each winning concessionaire to ensure they delivered.

This is the approach the Kenyan regulator should take. Instead of levying operators a percentage of their hard earned revenues. The operators, through the ITU definition can claim that the regulator has placed an unfair burden on them from the perspective of them not being directly responsible for economic development of the citizens (whether through ICTs or other means). Universality is a social program and it therefore squarely falls on government arms. Profitability or lack thereof  from universality is a secondary consequence whose impact cannot be directly measured.

Proponents of operator-funded USFs argue that unseen benefits such as multiplier effect of connecting the unprofitable directly benefit the operators, if that is the case then this decision to connect these people should be a commercial decision by the operators and not a license requirement. An example of the multiplier effect is when for example I (being of better economic means and living in the city) can now use airtime (read revenues) to call my rural relatives who are now connected thanks to supposedly the implementation of universality. My act of calling them in addition to other people I normally call adds revenues to operators. The operator should therefore connect my rural relatives because I will call them and not because they will call me. This is a straightforward  commercial decision.

Obliging ICT operators to fund the USF is unfair because social economic benefits accrued from connecting the population are felt across several fronts such as improved health, education and increased commercial activities and not just by way of improved profits by operators if any. Universality’s key outcome is not purely an ICT one and making only ICT players fund it is tantamount to the unfair burden on the operators mentioned by ITU.

It is my opinion therefore that the current approach to universal service funding should be re-looked at and if possible a new method of funding it through direct government budget allocation be adopted.  This is already happening in providing roads, hospitals and schools.   The regulator needs to revisit this because of the following reasons:

  • The current market structure where one operator is making most of the revenues is unfair to this operator as they will be contributing the most to this fund. There are no clear guidelines on how these funds will be utilized leaving room for abuse.
  • Failure for the law to accommodate ICT industry players in the Universal Service Advisory Council meaning they have no say on monies they contributed. This technically makes it a tax.
  • Already, operators are extending their networks to seemingly unprofitable regions without the need for government to push them. Advancement in technology and convergence is making what universality defines as unprofitable now seemingly commercially viable because its now much cheaper to build and scale networks. USF objectives need to be reviewed or done away with altogether

Should the regulator be adamant about maintaining the USF due to various unreasonable and political ends, then operators have recourse at the international courts as Kenya is a signatory to the WTO  General Agreement on Trade in Services (GATS) especially the agreement on basic telecommunications

Advertisements