ICT Policy Brief - CPR South

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ICT Policy Brief

-

CPR South


The relevance of public access services and universal service obligations and the implications
for policy and regulation


A case study of innovative new business models to address public
access services for low income consumers


November 2011


Executive
Summary

This paper explores the relevance of public access services and universal service obligations in light
of the impact of increased
consumer demand and
competition in developing markets. A combination
of factors are increasing mobile penetration in
developing countries
largely
driven by the
demand for
mobile services, declining prices of telecoms services in general and increased innovation which
has
created low
-
cost handsets thus
lowering

the barriers to entry for
most consumers
.


Introduction

The

unprecedented demand for ICT services, particularly basic voice telephony, over the last ten
years has created a mobile market far in excess of the anticipated demand. Mobile operators
are

able to reach consumers previously assumed unprofitable for the traditional fixed line players. From
almost non
-
existent telephone services in the nineties to penetration levels that are currently reaching
more than half the population across the contine
nt, with continued growth in most countries.
These
penetration rates are

a demonstration of the unanticipated consumer spending power, by largely
informal markets for services that they deem necessary. It has been recognised that telecoms
services are dr
ivers of economic growth (Waverman, Meschi and Fuss, 2005). Thus, the promotion of
universal, affordable access to telecommunications services is a key social objective of regulation in
the sector.


While urban areas tend to be saturated with a number of
players and competitive offerings for
consumers, penetration in rural areas is still limited and remains a challenge for both operators and
consumers. In most countries, penetration is largely limited to urban areas while rural areas remain
underserved by

the operators. Rural areas tend to have lower population densities, lower income per
capita and large distances between population clusters. Thus, this leads to lower potential demand
for services and hence the cost of creating and maintaining rural tel
ecom infrastructure is high
combined with a lower ability to pay. The commercial viability of rural telecoms services is always
questionable and often incentives of some form or another is required to attract investment in rural
areas. However, given the

state of competition in urban areas for subscribers and slower growth
rates as a result of market saturation, operators are increasingly starting to look for additional income
outside of the traditional urban areas. As such, this challenges traditional c
oncepts of universal
service as private sector initiatives are addressing areas once thought unprofitable. The challenge for
policy
-
makers and regulators lies in expanding access beyond the major metropolitan areas and
ensur
ing

that pricing is affordable
for people at the lower end of the income spectrum. As a result,
most countries have embarked on universal service programmes that aims to provide services to the
poor in uneconomic areas. This paper analyses the outcomes of various programmes in South
A
frica, especially the mobile service provision component of universal services. Despite the
innovative design of the universal service program, it has had little impact in increasing rural
teledensity while positive policy steps like lowering the intercon
nect rate, sponsored shared phone
models that reduced the costs for service provision facilitated greater rural penetration. This raises
the issue of
the
role of government versus private sector in increasing rural teledensities and
challenges traditional

notions of the requirements for universal service.


Key findings from this study highlighted that
low
-
income
users
used tele
communication
s for very
defined purposes
and had very serious socio
-
economic problems, including a very limited ability to
pay for
telecoms services. Access to telecommunications were a necessity in their lives which was
often funded out of their meager budgets. The mobile container phones were the most useful for
2


respondents as it is able to address their direct communication needs
, is located in areas where there
is demand for services and the lower rates make it accessible even for poor people. Further, the fixed
line solution is often inappropriate for the immediate communication needs of the respondents.


A key learning from th
is demand based research is that private sector responses to addressing the
universal service needs of lower income population were based on market demand and hence is
located in areas where demand is highest

with compatible
price points.

South Africa’s un
iversal service policy has had mixed success. Mobile has far superseded the
original intention
and

mobile services
are now

ubiquitous. However, this success cannot be attributed
solely to universal service goals but similar to
most developing country
exp
erience
,

a combination of
lower prices due to regulatory intervention, demand
-
led service provision, overall macro
-
economic
growth and a higher disposable income. Perhaps the greatest success of the mobile approach lay in
giving responsibility to entrepre
neurs that created market efficiencies by identifying areas of demand
where services are required. Coverage targets were exceeded also due to market demand. Fixed
line, on the other hand, has failed dismally

due

to
the
impact
of mobile
service
s
. A large

proportion of
the lines have been disconnected and public payphones are almost irrelevant to even low
-
income
consumers. This can also be attributed to the failure to introduce demand led solutions but were
rather introduced at the discretion of the opera
tor.


Despite the best intentions, the universal service agency has failed to deliver any telecoms service of
significance to underserved people and the reasons for this are complex. At a high level, they can be
categorized as follows:

1.

Structural flaws in

the setting up of the agency and its complex relationship with the various other
institutional bodies

2.

Inadequate articulation of objectives and strategy

3.

Managerial, operational and capacity issues

4.

Lack of co
-
ordination between supply and demand


South Africa’s universal service objectives have had mixed success with potentially more failures than
successes.
Universal service has failed in most African countries for a number of reasons which
include:

-

Inefficient use of or non
-
existing Universal Se
rvice Funds (USFs);

-

Different and sometimes inadequate policies with respect to rural and remote areas;

-

High costs of interconnectivity;

-

High risks for investment projects, in particular in rural and remote areas;

-

High operational and maintenance costs, si
gnificantly exceeding possible revenues;

-

Constraints on innovation at the local level;


Conclusion

Universal service is largely being addressed by competitive markets and the need to acquire and
retain more profitable customers. Thus,
this paper recommend
s that universal service obligations can
be met more efficiently by ensuring proper population penetration and coverage targets are
built

within
license

conditions. Pricing objectives can be achieved through overall policy and regulatory
measures.


Policy

recommendations

-

Evidence
-
based research to monitor market development and consumer demand;

-

Consolidate universal service obligations into overall licence conditions rather than creating
onerous burdens;

-

Use policy and regulatory measures to fix any market

inefficiencies