Policy and Regulatory Aspects of Universal Access and Universal Service

1. Policy and Regulatory Aspects of Universal Access and Universal Service Abdelfattah ABUQAYYAS CoE/ARB Coordinator abuqayyas@itu.int ITU - BDT Workshop on Universal Access and Universal Service Policies, 7 – 9 February, Amman - Jordan

2. Content • Definitions • UniversalityGoals • Objectives of Universality Polices • ITU/BDT fifth edition of Trends in Telecommunication Reform • GSR Universal Access Best Practice Regulatory Guidelines • The Economics of Universality • Criteria for Selecting Universality Mechanisms • Sector Reform and Universality • Mandatory Service Obligations • Cross-Subsidies • Access deficit Charges (ADCs) • Universality Funds • Promoting Universality: Comparing the Options • Universality Case-Study • CHILE; EUROPEAN COMMISSION; SOUTH AFRICA Workshop on Universal Access and Universal Service Policies, 7 – 9 February, Amman - Jordan

3. Definitions • Universal service (US) • policies focused on providing individual household connections to public telecommunication network. • Universal Access (UA) • policies focused on ensuring that all people have reasonable means to access a publicly available telephone in their community (but not necessarily in their home) through shared use of lines or terminals including public payphones, community telecentres, teleboutiques or community Internet access centres. • Universality • term used by some to refer to both universal service and universal access ALL SHARE SAME GOAL Workshop on Universal Access and Universal Service Policies, 7 – 9 February, Amman - Jordan

4. UniversalityGoals • Availability– the level of service is the same • Affordability– the level of services is affordable by everyone • Accessibility - people with disability can use the service • AvailabilityandAccessibility Goals Vary • Some countries lack services of any kind and some seek to add advanced ICTs to existing basic services • TraditionallyImplemented By PlacingObligations on FixedLine Monopoly Operator Workshop on Universal Access and Universal Service Policies, 7 – 9 February, Amman - Jordan

5. Objectives of Universality Polices • To permit full participation in 21st century society - Access to telecommunication is increasingly being viewed as a right of all citizens • To promote national, political, economic and cultural cohesion – This requires effective telecommunications • To promote economic development – Telecommunications leads to economic growth • To encourage more balanced distribution of the population – Telecommunications can encourage development outside metropolitan areas • To eliminate disparity between rural and urban areas Workshop on Universal Access and Universal Service Policies, 7 – 9 February, Amman - Jordan

6. ITU BDT Products on Universal Access • Trends in Telecommunication Reform 2003: Promoting Universal Access to ICTS • GSR Universal Access Best Practice Regulatory Guidelines • ITU-D Study Group Question 7-1/1 Workshop on Universal Access and Universal Service Policies, 7 – 9 February, Amman - Jordan

7. ITU/BDT fifth edition of Trends in Telecommunication Reform • This edition of Trends focuses on practical tools for regulators to promote universal access to information and communication technologies. • Trends 2003 includes global market trends; universal access/service policies; the role of sector reform in achieving universal access; creation and operation of a universal service fund (USF);the role of minimum-subsidy auctions; access strategies through public facilities; and how regulators can promote rural access through innovative wireless solutions. The report also highlights USF success stories. • A competitive market, coupled with effective regulation, can go a long way toward ensuring universal access that is, the availability of telecommunications or ICTs in the home. • With the growth of the Internet and of broadband access service, governments are exploring ways of incorporating Internet access in the basket of services included in their universal access/service definitions. • The first steps toward a universal access/service policy should be policies to harness the power of markets, on a sustainable basis. Workshop on Universal Access and Universal Service Policies, 7 – 9 February, Amman - Jordan

8. What’s going on in the ICT sector? Workshop on Universal Access and Universal Service Policies, 7 – 9 February, Amman - Jordan

9. Regulatory developments Workshop on Universal Access and Universal Service Policies, 7 – 9 February, Amman - Jordan

10. UAS: The role for regulators andpolicy-makers? • Regulators and policy-makers have a critical role to play in ensuring that universal access/service goals are reached. • To set measurable targets. Regulators measure the market efficiency gap, the difference between the current service penetration and the achievable level of penetration in a liberalized market through sector reform policy framework. • To look at the true access gap, the difference between the population without service and that with service. • How have regulators sought to implement national access targets and affordability goals. • Two types: • Impose general obligation to provide service to all customers willing to pay regulated rates for service. • Imposed obligations to extend certain types services to a pre-specified number of subscribers or localities, roll-out or network build-out obligations, incorporated into operators’ licences Workshop on Universal Access and Universal Service Policies, 7 – 9 February, Amman - Jordan

11. Funding of UAS • The funding of UAS support schemes often requires some form of regulatory intervention. • Governments can impose performance requirements on operators, to pay the costs of providing UA or US. • Governments can provide incentives for carriers to provide UAS on their own, such as tax breaks or reduced license fees offered to carriers that extend their networks or improve services in target areas. • This policy choice, between setting mandates and providing incentives, is often captured in the term “pay or play”. • UAS policies are often premised as an expensive and, unprofitable. The economic potential of rural markets can be measured not only by outgoing call revenue, but also revenue from calls terminated to new subscribers in rural areas. • Regulators must ensure that rural operators do not face excessive licensing fees and are given flexibility in choosing appropriate technologies to provide quality service to rural populations. Workshop on Universal Access and Universal Service Policies, 7 – 9 February, Amman - Jordan

12. Improving market efficiency through regulatory reform. • Trends 2003 examines the key steps that governments can take to improve market efficiency through regulatory reform. • The introduction of competition in the mobile sector has greatly reduced the UA problem. • The development of competition in many mobile markets has forced down prices for end users. • The ability to send inexpensive SMS provides an e-mail substitute in many developing countries where PC penetration is low. • Effective regulation packages can reduce the UAS problem: • promoting fair interconnection and flexible tariff regulation, • fostering public access and resale, • licensing practices that enable operators to choose the most appropriate and cost-efficient technologies and minimizing regulatory fees and costs. • Asymmetric interconnection regimes are of particular importance to rural operators, since rural operators’ income is largely based on incoming calls,. Workshop on Universal Access and Universal Service Policies, 7 – 9 February, Amman - Jordan

13. Tool kit • Trends 2003 a tool kit based on documents presented as telecom policy and regulatory models. They were prepared by the ITU and the CTO. • Draw upon a wealth of experience from countries in setting up and administering specialized UASF. • Examine how funds can be used, in conjunction with minimum-subsidy competitive auctions, to finance public telecommunication access facilities in rural areas, • Explore policy and regulatory options to foster and support telecentres as key resources for community access to basic and advanced ICT services. • Trends 2003 also includes a series of valuable annexes: • Analyzing the results of minimum-subsidy auctions in Chile, Peru and Colombia • Describing benchmark consumer rates and interconnection charges for projects financed by competitive auction mechanisms. • Describing the USF experiences of India, Jamaica and Malaysia. Workshop on Universal Access and Universal Service Policies, 7 – 9 February, Amman - Jordan

14. Universal Access Regulatory Best Practice Guidelines • An enabling regulatory environment: the role of governments and regulators • The success of any universal access/service policy is dependent upon political support at the highest level that recognizes the role of ICTs as a tool for development. • It is essential that Regulators exist or be established where they do not yet exist, and that their key role in implementing universal access policies and promoting competition be recognized and reinforced. • A series of policy and regulatory reform measures can be taken to achieve universal access to ICTs. These include: • Formulating a national policy that identifies appropriate and realistic UA/S objectives Workshop on Universal Access and Universal Service Policies, 7 – 9 February, Amman - Jordan

15. Universal Access Regulatory Best Practice Guidelines • Including all citizens in national universal access/service objectives • Reviewing UA/S policies, regulations and practices periodically. • Conducting periodic public consultations with stakeholders to identify their needs and modify accordingly universal access policies • Designing UA policies, regulations and practices in order to create incentives for the private sector to extend universal access to communications services. • Establishing a fair and transparent telecommunication regulatory framework that promotes universal access to ICTs. • Establishing a fair and transparent telecommunication regulatory framework that promotes universal access to ICTs. Workshop on Universal Access and Universal Service Policies, 7 – 9 February, Amman - Jordan

16. Universal Access Regulatory Best Practice Guidelines • Adopting technologically neutral licensing practices. • Adopting a framework of interconnection rates linked to costs. • Reducing regulatory burdens to lower the costs of providing services to end users. • Developing an effective regulatory body. • Promoting competition in the provision of a full range of ICT services to increase access, affordability, availability and use of ICTs. • Countries can use regulatory reform as the first step in achieving universal access, • Appropriate licensing schemes for rural service providers could be granted to meet theneeds of un-served and under-served areas. Workshop on Universal Access and Universal Service Policies, 7 – 9 February, Amman - Jordan

17. Universal Access Regulatory Best Practice Guidelines • Access to information and communication infrastructures • The lessons learned from the initial experiences developing countries have achieved with mobile cellular services can be applied. • Other measures could include national manufacturing of ICT equipment, reduced customs tariffs and duties,… • A full range of public access options can be developed, including the creation of public telecentres. • Local input (including the content) into projects increases their long-term financial sustainability. • Educating local people on the benefits of ICTs and their use increases their long-term financial sustainability Workshop on Universal Access and Universal Service Policies, 7 – 9 February, Amman - Jordan

18. Universal Access Regulatory Best Practice Guidelines • Guidelines in regard to finance and management of universal access policy • Universal service funds can be viewed as an option to achieving universal access. • Universal service funds can be financed by a broad range of market players, managed neutral bodies such as regulators. Governments may consider a full range of other financing mechanisms, including incentives for ICT providers and end users. • Competitive minimum subsidy auctions could be used, as an option, to reduce of financing necessary for public access projects financed by a universal service • Public access projects can be designed to achieve long-term financial self-sustainability. http://www.itu.int/ITU-D/treg/Events/Seminars/2003/GSR/Documents/BestPractices_E_31.pdf Workshop on Universal Access and Universal Service Policies, 7 – 9 February, Amman - Jordan

19. The Economics of Universality • Universality and Economic Development. • Strong relationship between the national telephone penetration and a national per capita Gross Domestic Product (GDP). • Expenditure on Telecommunications. • There are significant differences in the percentage of income that is spent on telecommunications in different countries. • On average people spend 2 – 3 %of their income in telecommunications. • Low teledensity levels in many developing countries have two distinct causes: • Under supply of telecommunication services due to inadequate sector policies. • Low demand due to low income. Workshop on Universal Access and Universal Service Policies, 7 – 9 February, Amman - Jordan

20. Criteria for Selecting Universality Mechanisms • Market-Based Reforms: especially privatization, competition and cost-based pricing. • Mandatory Service Obligations:imposed by license conditions or other regulatory measures. • Cross Subsidies:between or within services provided by incumbent operator. • Access Deficit Charges (ADC):paid by telecommunications operators to subsidize the access deficit of incumbent. • Universality Funds: independently administrated funds that collect revenue from various sources and provide targeted subsidies to important universality programs. Recognized as the current best practice Workshop on Universal Access and Universal Service Policies, 7 – 9 February, Amman - Jordan

21. Should be kept in mind • Compliance with International trade rules: • The WTO Regulation Reference Paper:part of the WTO Agreement on Basic Telecommunications— deals with universality and subsidy issues. • Universal service:Any WTO Member has the right to define the kind of universal service obligation it wishes to maintain.These obligations will not be regarded as anticompetitive per se, provided they are administered in a transparent, non-discriminatory and competitively neutral manner and are not more burdensome than necessary for the kind of universal service defined by the Member. • Economic Efficiency:Some US mechanisms are more efficient than others. • Political Considerations Workshop on Universal Access and Universal Service Policies, 7 – 9 February, Amman - Jordan

22. Sector Reform and Universality • The introduction of market-based reforms can significantly increase the supply of telecommunication services. • Privatization promotes universality: • Network expansion targets are often included in licenses • Availability of private capital to fund network expansion • Commercial initiatives to supply service to meet demand • Improved management • Reduced political and bureaucratic on extending service • Competition has positive universality effects: • Increased teledensity, public payphone penetration, and wireless service penetration. • Cost-based Pricing (rate rebalancing): to align prices for telecom services more closely with costs, i.e increasing local subscription and usage rates and decreasing long distance and internet access rates • The positive relationship between rebalancing and teledensity is applied not only in developed countries but also in many developing countries Workshop on Universal Access and Universal Service Policies, 7 – 9 February, Amman - Jordan

23. Mandatory Service Obligations • Mandatory Service Obligations is the most used mechanism for promoting universality in many countries “duty to service” • In many countries, governments and regulators have imposed mandatory service obligations in newly licensed or newly privatized operators (especialy for wireless operators) • The major benefit is that the funding is generally provided by the private sector • There are disadvantages to imposing excessively high roll-out obligations, an operator may simply fail to meet these obligations Workshop on Universal Access and Universal Service Policies, 7 – 9 February, Amman - Jordan

24. Cross-Subsidies • For decades, in most countries, internal cross-subsidies by the incumbent has been the main mechanism to promote universality • Internal cross-subsidization involves the use of surplus revenues earned from profitable services to cover losses from providing non-profitable services • Incumbents have been often encouraged by regulators to maintain a policy of internal cross-subsidizing • Several types of cross-subsidies were commonly used by incumbents • Inter-service cross-subsidization – Connection and access are priced below cost and long distance and international calling are priced above cost • Intra-service cross-subsidization – Tariff, where access prices in rural areas are set at the same level as in urban areas • Residential households in low-income “strata” pay lower access rates than those in high-income “strata” • Cross-subsidies weaknesses include: • Comparative unsustainable • International accounting rate reform • Inefficiency of untargeted subsidies • Subsidies promote inefficient consumption • Anti-comparative use of subsidies • In most cases, only existing users receive the subsidy • The international trend is to move away from reliance on internal cross-subsidies Workshop on Universal Access and Universal Service Policies, 7 – 9 February, Amman - Jordan

25. Access deficit Charges (ADCs) • ADCs are a variation on traditional cross-subsidy mechanisms – all providers of subsidizing services must contribute payments to subsidize access services • ADCs are often collected in a similar manner to interconnection charges, but they should be separated from them, they should be collected in a transparent, non-discriminatory and competitively manner, and should be cost-based and unbundled • The trend in the industrialized countries is to move away from ADCs for the following reasons: • ADCs inflate the prices of the subsidizing services and reduce the demand for them • ADCs encourage bypass of PSTN • Technological development (e.g. IP telephony) make it difficult to measure • Many of cross-subsidy problems are valid also for ADCs Workshop on Universal Access and Universal Service Policies, 7 – 9 February, Amman - Jordan

26. Universality Funds • It is considered the best option for promoting universality objectives • Universality Funds collect revenues from various sources (government, interconnection charges, levels on subscribers, …) and disburse them in a fairly targeted manner to achieve specific universality objectives • Generally used to finance specific high-cost areas and/or low income subscribers • These funds are generally administered independently from the incumbent • Good examples of successful universality funds are Chile and Peru Workshop on Universal Access and Universal Service Policies, 7 – 9 February, Amman - Jordan

27. Features of an Effective Universality Fund • Independent administration – not related to telecommunication operators • Transparent financing • Market-neutral – does not favor incumbent or new entrants • Funding targeted to specific beneficiaries – e.g high cost regions, rural areas, low income people, educational and health centres .. • Subsidies should be relatively small and subsidize only the uneconomic portion of service • Competitive bidding process for implementation of universality projects Workshop on Universal Access and Universal Service Policies, 7 – 9 February, Amman - Jordan

28. Sources of Fund Revenues • Direct funding from general government revenues – e.g Chile • Contributions from telecommunication operators in proportion to their revenues from specific services • Proceeds from telecommunication privatizations, spectrum auctions and/or license/concession payments • A subscriber levy paid on a per access line basis and collected by telecommunication operators • Funding from international development agencies The rules of the WTO should be kept in mind, especially the collection and administration of such funds should be transparent, non-discriminatory and competitively neutral Workshop on Universal Access and Universal Service Policies, 7 – 9 February, Amman - Jordan

29. Universality Case-Study (CHILE) • The Chilean model of extending telecommunications services to low income and rural areas was one of the first to utilize market-based mechanisms to implement a successful universal access policy. • In March 1994 the general telecommunications Law was revised to establish the Telecommunications Development Fund (FDT) • The FDT provides government funds to private operators to subsidize the installation of public telephones in unnerved, low income and rural areas. • The private operators are selected by means of a competitive biding process. • The FDT is administrated by a special Ministerial Council Workshop on Universal Access and Universal Service Policies, 7 – 9 February, Amman - Jordan

30. FDT project Selection Process (CHILE) • The main features are: • Focus on public telephone service • Publicity – to raise the awareness of the FDT • Application process • Development of FDT projects • Competitive biding process • Selection of successful bidders • Concessions • Implementation • Access to Internet • Having met the target in 1999, the President of Chile proposed revisions to the FDT: funds may be used to finance community Telecentres with access to the Internet Workshop on Universal Access and Universal Service Policies, 7 – 9 February, Amman - Jordan

31. FDT Results (CHILE) • At the start of the FDT program; around 6000 localities were identified as unnerved • Between 1996 – 1999a total of 183 projects were approved under the program, covered 5916 localities with a served population of over 2 million people. • The completion between bidders significantly reduced the actual subsidies paid. As compared to maximum projected ones Workshop on Universal Access and Universal Service Policies, 7 – 9 February, Amman - Jordan

32. Universality Case-Study (EUROPEAN COMMISSION) • The European commission a Communication on developing universal services in a competitive environment in November 1993 • Any member state can select their approach from the followings three options: • USO is not required • USO do represent an unfair burden on the designated operators, the State chooses to finance it directly or indirectly • USO is considered to be an unfair burden on the designated operators and a specific universal service mechanism is required, in this case the national scheme must comply with the European Community Law • Universal service is defined as a minimum set of services of specified quality which is available to all users independent of their geographical location at an affordable price • Recently the Commission defined universal service to include: • Voice telephony service via a fixed connection which will also allow a fax and a modem to operate • Operator assistance • Emergency and directory inquiry services • The provision of public payphone Workshop on Universal Access and Universal Service Policies, 7 – 9 February, Amman - Jordan

33. Universality Access Case-Study (EUROPEAN COMMISSION) (cont’ d) • Costing Methods • The Interconnection Directive State: Universal service regimes must be based on the net cost of the universal service obligations and should be based on LRAIC • USO Funding Mechanisms • A universal fund established at a national level (and/or) • A system of supplementary charges collected directly by the concerned operators • Only organizations providing public telecommunications networks and/or public voice telephony services may be required to contribute to universal service fund or to supplementary charges Workshop on Universal Access and Universal Service Policies, 7 – 9 February, Amman - Jordan

34. Universality Case-Study(SOUTH AFRICA) • In South Africa universal service is considered a long-term goal, and a universal access a short-term goal • Telcom (Incumbent operator)has the primary role in universality • According to its license Telcom must install 2.69 million new lines by 2002 (1.67 millions in under-served areas), and 120 thousand pay-phone lines • Other telecommunication providers also have obligations related to universality • Telecom licensees must pay an annual contribution to the USF, which was created in 1996 • The USF must be used for: • Providing direct subsidies to targeted persons • Subsidizing the cost of network rollout to under-served areas by operators • The USF is administered jointly by the regulator (SATRA) and the Universal Service Agency (USA) • The establishment of telecentres has been a priority of USF financing Workshop on Universal Access and Universal Service Policies, 7 – 9 February, Amman - Jordan

35. Policy and Regulatory Aspects of Universal Access and Universal Service Thank You abuqayyas@itu.int ITU - BDT Workshop on Universal Access and Universal Service Policies, 7 – 9 February, Amman - Jordan