universal service and universal access to

The 36th Research Conference on Communication, Information and Internet Policy. September 26 - September 28, 2008. Arlington, VA

UNIVERSAL SERVICE AND UNIVERSAL ACCESS TO TELECOMMUNICATIONS. A REVIEW. Luis D. Emiliani [email protected] Abstract This paper presents a review of the rationale behind universal service and universal access policies, the definition of universal service and the alternatives used nowadays to fund and execute these types of policies. The examination also presents the implementation of universal service policies in Europe and Latin America (with emphasis in the Andean community) and highlights the main differences between initiatives using as reference the gaps model. In all cases the rationale remains the same, but the universality objective and the services covered by the universality goal differ according to market penetration and market characteristics. Moreover, three success cases of largescale universal access projects in Latin America are described. Keywords: Telecommunications, universal service, universal service obligations (USOs), digital divide

1.

INTRODUCTION.

The contribution of infrastructure deployment to the economic growth of any country can be intuitive particularly in the cases of transportation (roads, railways), electricity generation and distribution or sewage and water systems, but in the case of telecommunications infrastructure and services, whose effects can not be immediately perceived in the economy, it may not be so. Nevertheless, telecommunications infrastructure has a profound effect on production and markets. Information and access to it is essential to carry out investments, to increase workforce productivity, to meet the consumers’ demand and to supply other firms. Telecommunications allows the flow of information between firms, within firms and between firms and consumers, to be more efficient and with a wider reach (Wellenius, 1989; Shapiro, 1976; Hudson, 1989). During the 1980s and 1990s, several international studies were conducted to determine the impact of telecommunications upon development. A conclusion of these studies is that telecommunications contributes to the development of a country by means of various mechanisms (Graham et al., 1996; Hudson, 1995; Hudson, 1989; World Economic Forum, 2002), which could be synthesized as follows :

Emiliani, L. Universal Service And Universal Access To Telecommunications. A Review.

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- Economic effects of telecommunications: facilitating the flow of information between firms and markets (market and economic integration). This is deemed to increase efficiency of the development process. - Social effects of telecommunications: integrating isolated, rural communities to urban centers at national and international level (social and political integration). Another important finding of these studies is that a big difference existed –and still exists– between developed and developing countries in terms of the availability of telecommunication services, with far reaching implications for their economies. This difference, an infrastructure deployment gap referred to nowadays as the “digital divide”1, has been the focus of attention of various international organizations such as the United Nations (UN), the Organization for Economic Cooperation and Development (OECD) and the World Bank (WB), and has given rise to important commitments at international level, with Goal 8 of the Millennium Development Goals the most significant2. The digital divide was also subject of discussion in the World Summit on the Information Society, WSIS, sponsored by the UN. The conference focused on the problematic of the difference in assimilation and use of the information and communications technologies (ICT) over the world. The ICT-usage gap, a gap not only of technology availability but also of knowledge, is augmenting the differences between developed and developing countries. It is therefore imperative, to reduce the development gap and increase competitiveness in developing countries, to act upon this digital divide. In consequence, taking into consideration the economic and social benefits of extending the telecommunications network and the importance of bridging the infrastructure gap, developed and developing countries alike have started to promote policies aimed at providing ubiquitous access to a set of telecommunications services. As an example, according to (Stern, 2006), during the past 5 years Colombia has invested a total of US$ 153 million in projects to provide telecommunications to rural areas in the form of telecenters and community telephones. Peru has invested US$59.3 millions in similar solutions and Guatemala over US$8 million dollars in telecenters. (USAC, 2006) reports investments over US$6 billion in the United States during 20053. These policies are known as universal telecommunications service policies. This paper presents a review and comparison of current implementations of universal service policies in the European Union and Latin American countries, with emphasis in the Andean Community of Nations, and with the purpose of identifying and highlighting the differences in the approaches chosen to fulfill the universality goal of access to telecommunications services. The paper is divided in three sections: section two reviews the concepts of universal service and universal access, their background, definition and implementation aspects, and the current state of 1

At the beginning, the infrastructure gap referred mainly to fixed telephone lines, but nowadays, as a result of the Internet and the trend of convergence of services over IP, it has been extended giving rise to the “digital divide”. 2 The goal, proposed by the UN in 2000 (UN, 2006), bears the title “Develop a global partnership for development” and includes a target directly aimed at increasing the availability of communications and information technologies. 3 6,520,066,000 US dollars, unaudited total investment during 2005. T

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affairs on various countries. Section three presents an overview of three success cases in the provision of Internet and telephony access in Latin America: the Compartel initiative in Colombia, the GeSAC project in Brazil and the FITEL projects in Perú.

2.

Universal service and universal access to telecommunications.

2.1.

Historical background.

The concept of universal service –access to telecommunication services for the totality of a country’s citizens– has been around in one way or another ever since the 1900s. As outlined in the introduction, the goal of having a ubiquitous telecommunications networks responds to two main interests: on one hand, the sociopolitical interest of integrating communities and, on the other, the economic interest of reaping the benefits arising from the optimization of information flows between the productive sector and the markets. In a sense, universal service can be seen as the conjunction of political will with economic interest, towards building an interconnected society. During the early 1900s the concept of a universal telecommunications network, that is, a network reaching all households of a country, was proposed by AT&T’s president -Mr. T. Vail- when he stated his vision for a unified telecom system (Mueller, 1993). At the heart of Mr. Vail’s position was not the aim of providing the service universally, but rather the defense of the benefits of having a monopoly in the telephone service in the United States. According to (Mueller, 1993; Mueller, 1997 and Jayakar and Sawhney, 2004), the first mention of universal service in a legislative context came in 1934, also in the United States, with the 1934 Telecommunications Act. In the preamble of the act, the congress of the United States established a national policy “to make available, so far as possible, to all people of the United States a rapid, efficient, nation-wide and world-wide wire and radio-communication service with adequate facilities at reasonable charges”. However, the general context of the act was not to establish a policy to deliver telecommunications services to all, but rather to propose a bill to create and consolidate into one federal agency, the Federal Communications Commission (FCC), all the regulatory functions of the communications field (Mueller, 1993; Mueller, 1997). Moreover, if the preamble of the 1934 act is to be considered the first mention of universal service, it is incomplete in the sense that it lacks key elements in the definition of a universal service policy: a specific description of the funding strategy to support the initiative, the entity responsible for its success, and the timeline devoted to achieving the goals. It was during the 1980s and 1990s that the concept of universal service and the initiatives towards building a universal telecommunications network took form as government initiatives and as a desirable policy goal. Two important studies were conducted during the 1980s and can be identified as being responsible for quantifying and providing evidence of the impact of the infrastructure gap between developed and developing countries. The first of these works is the report of the United Nations’ International Commission for the Study of Communications Problems, headed by Nobel Prize winner Sean McBride, entitled “Many voices, one world – Communications and society, today and tomorrow” (UNESCO, 1980). The report presented the Commission’s take on the imbalances in information flow and the marked inequalities in the distribution of communications resources.


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Albeit coming from a general perspective (not discussing specifically the deployment of telecommunications infrastructure as a means to generate growth), the Commission identified the existence of an infrastructure gap between developed and developing countries and recommended that developing countries started acting more actively towards increasing the availability of telecommunication services in rural areas, with specific funds and projects4 and at universallyaccessible prices. As a result of the recommendations of the report, the UNESCO created the International Programme for the Development of Communication (IPDC, 2006). The motivations that led to the formation of the Commission are still present and are, in some senses, the same behind the World Summit on the Information Society. For more information on the impact of the McBride report and its relation with WSIS, see (Carlsson, 2005) and (Becerra, 2005). PT

The other key work of the time was commissioned by the International Telecommunications Union (ITU) with the purpose of studying its role, and that of other international cooperation and funding bodies, in leveling the differences in telecommunications infrastructure deployment between countries. The task was entrusted to the Independent Commission for Worldwide Telecommunications Development under the direction of Sir Donald Maitland. In its final report, entitled “The Missing Link” and also known as the Maitland report (ITU, 1985), the Commission delivered an analysis of the state of the telecommunications infrastructure in the world, based on information such as teledensity, gross domestic product (GDP), loans per economic sector (agricultural, communications, transportation, power) and analyzed the situation from several points of view: technology, training, the financing of telecommunication initiatives, the impact of telecommunications on economy and the mechanisms and benefits of international collaboration. The analysis of the telecommunications and economic indicators available at the time showed that 96% of the telephones around the world were located in high income or upper-middle income countries. This uneven distribution was attributed to various causes, such as the fact that the immediate needs of the developing countries -agriculture, roads, and hospital networks- limited the allocation of resources to the deployment of telecommunications infrastructure, even when the importance of a high quality and long reach telecommunications network is recognized by these countries. In essence, telecommunication initiatives were perceived as luxury projects. In particular, the report presents as partial cause of the under-investment in telecommunications the fact that conventional analysis fails to consider the telecommunication externalities. Another aspect was the final cost of equipment: when acquiring equipment from foreign providers, the cost of the project was increased due to risk and tax factors, to the point of making it excessive (ITU, 1985). It is based on the analysis, conclusions, recommendations, and actions taken afterwards, that it is possible to state that the Maitland report represents the first high level action towards the recognition of the importance of the definition and implementation of universal telecommunication service policies. One way of observing the current state of the infrastructure gap is presented in figures 1 to 3, which display the evolution and difference in penetration of fixed, mobile and PCs between developed and 4 TP

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See for instance recommendations 11, 12, 18, and 20.


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developing countries5. The gap is present in all cases, with the largest difference in the PC penetration figures: PC density in developed countries is 14 times higher than in developing countries, while telephone penetration (fixed and mobile) is 3.5 times higher. In the past years, mobile telephony penetration has increased dramatically, especially in developing countries where it has in some cases become a substitute for fixed services. The compound annual growth rate in developing countries for the period 1995-2005 is 56%, and for the period 2000-2005 is 38%. Part of the success in the take-up of mobile telephony is due to the widespread use of pre-paid contracts. For example, according to (CONATEL, 2007) in Honduras (population as of 2005: 7.19 million, surface 0.11 Million Km2), out of its total 1,281,462 mobile lines, 92% are pre-paid. In Perú (total population 27.97 million h., surface 1.2 Million Km2), (OSIPTEL, 2007) reports that the total number of mobile users amounts to 8,772,479 with 85% prepaid subscribers. For comparison purposes, the total population of Austria, one of the European countries with the highest mobile penetration value (105.9%), is 8.28 million habitants. Kelly in (2005) presents a review of the evolution of the infrastructure gap and digital divide, from the days of the Maitland Report until today.

Figure 1. Infrastructure divide between Figure 2. Infrastructure divide between developed and developing countries: mobile developed and developing countries: total telephony penetration. Source: (ITU, 2007) telephone penetration. Source: (ITU, 2007)

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A country was considered as developed if it belonged to the high income category, as defined by the World Bank. As of 2005, developed economies totalled 43 countries and 963,688,863 habitants whilst developing countries (low to upper-middle income in the WB classification) totalled 159, with 5,514,964,000 habitants. Data from (ITU, 2007).


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Figure 3. Infrastructure divide between developed and developing countries: PC density. Source: (ITU, 2007)

2.2.

Universal service: an evolving concept.

According to the World Bank/ITU handbook on regulation (WB, 2000), universal service is the goal of promoting and maintaining universal availability of connections by individual households to public telecommunications networks. The universal characteristic of the service is embodied in the following dimensions (Blackman, 1995; Jayakar & Sawhney, 2004; OECD, 2005): - Availability: to have uniform service in terms of availability, i.e., the price, level and quality of service is equal regardless of the physical location of the user (goal: universal geographic availability). - Affordability: to ensure that the provision of the service does not place a high burden upon the user, particularly on those economically disadvantaged (goal: distributional equity or universal affordability) - Accessibility or disability dimension: accessibility, usability and affordability of service by disabled people. To ensure that the abilities (mental or physical) of a person do not preclude them from accessing the telecommunication service. (goal: universal accessibility) Milne in (1998) discusses the relationship between the telecommunications network development of a country and the characteristics of its universal service definition. The paper proposes five stages in universal service policy development, each with its own specific objectives, with changes from one stage to the next identified partly in terms of an increased teledensity level. In that context, using recent data from the ITU ICT-Eye database (ITU, 2007), it is clear to see how difficult it would be for a country such as Ethiopia, with a teledensity of 0.77 and a total population of 77.43 million, to enforce a universal service initiative in the “bringing a basic set of telecommunications services to all” sense6. According to Milne’s subdivision, Ethiopia is in the network establishment stage, and its 6

Incidentally, Ethiopia’s universal access policy is that of network build-out objectives for the incumbent.


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main objective should be to acquire new technology rather than to make it available on a per-person basis. This obstacle, the total cost of delivering universal telecommunication services, forced a reduction in the scope of universal service towards providing telecommunications services to communities instead of persons. The variation, named universal access to telecommunications services, can be defined as a situation in which telecommunication services are within reach of all inhabitants in a country (WB, 2000; Stern, 2006). In practice, universal access initiatives often reflect in the installation of community phones or telecenters7, providing services to many. Up to this point, two main reasons for divergence over the definition of universal service among countries have been identified: first, the specification of the basic set of telecommunications services, i.e., which services are going to be subject to the goals of universality and second, the feasibility of ensuring the universality, i.e. the decision between universal service and universal access. In regards to the basic service set specification, figure 4 presents a classification of services included in the specification of universal service from a sample of 91 countries8 in the ITU database (ITU, 2007). The service most commonly included is telephony -public and residential-, appearing a total of 148 times, followed by emergency (68 times) and directory (56) services. It is also interesting to note how basic access to Internet is becoming more common, appearing 45 times (50% of the countries), and mostly in developing countries. Figure 5 presents the histogram by region, according to ITU’s subdivision: Americas, Africa, Asia, Europe and Oceania, and figure 6 presents the histogram in terms of service groups.

Figure 4. Services present in the definition of universal service/access. Source: (ITU, 2007) 7 8

A telecenter is a shared site providing public access to communication and information technologies. The countries selected had either universal service or universal access defined in its regulatory framework.


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Figure 5. Services included in US definition. Distribution by region. Source: (ITU, 2007).

Figure 6. Service groupings present in US definitions. Source: (ITU, 2007). The evolution from universal access to universal service, and the services covered by the initiative, can be linked to teledensity levels and per-capita GDP (Milne, 1998; Navas-Sabater et al., 2002). Intuitively the concept is as follows: when an economy is weak (reflected in a low GDP or percapita GDP), the telecommunications network is limited in reach (reflected in a low teledensity) and universal service is not practical from an economical point of view (even if it is technologically possible). In this case, universal access is a more “graspable” concept. According to Milne, the frontier between the two universality policies could be placed between teledensity levels of 50~60%, i.e. a country could realistically pursue universal service after reaching a penetration level of 60% or more. In an effort to observe the relationship between the objectives of the universal service policy and the current economic or technological development state of a country, figures 7 and 8 explore the Emiliani, L. Universal Service And Universal Access To Telecommunications. A Review.

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correlation between the number of services included in a given country’s universal service definition and its fixed-line teledensity and per-capita gross domestic product. There are two hypotheses to test: one is that the more advanced a country’s telecommunication network is, the more services it could attempt to provide on a universal basis. The other is that the more advanced a country is, the more it will rely on the market to provide services and hence the lower the number of services included in the universal service set. No obvious relationship can be extracted from the observation of the graphs: countries with low teledensity include as many services as countries with high teledensity. It is necessary to take into consideration that nowadays convergence of services over TCP/IP allows defining universal access policies that include not only voice and emergency services in the basic service set but also broadband Internet access, and can be readily implemented through WIMAX- or VSAT-powered telecenters. This could explain the high number of services in some definitions, such as those of Ecuador (9), Gabon (8), Morocco (9) or Madagascar (7)9 which, in addition to telephone access (public and private), include mobile telephones and high speed Internet access in its US mandate. On the other hand, countries like the Netherlands or Sweden, which have very high fixed-line teledensities (47 and 71 respectively), report as basic set only public and residential telephony. The reason for this is related to the level of competition and the availability of services in the market. As mentioned before, highly developed countries may not require a specific policy for universal services as the market itself is already providing them. For instance, Germany’s response to the ITU universal service survey states that no provision exists as the market itself is capable of providing the service. It has to be noted that the ITU database does not explicitly separate universal access from universal service policies. A possible indication of the type of policy implemented in a country is the presence of telecenters. Due to its nature –it is aimed at a community– a telecenter solution is an example of a universal access-type of effort. Referring again to figure 7, the circles mark countries which reported including telecenters in their universal service set, while the vertical dashed line represents Milne’s boundary for the network completion stage. It is interesting to note how countries with main line teledensities lower than Milne’s limit report implementing telecenters in their US/UA policy. This find supports the idea of a technological guideline towards the selection of a universality policy using teledensity as referent.

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Population 18M, teledensity 3.07, per-capita GDP 336 USD/yr.


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Figure 7. Scatter plot of teledensity and number of services included in UA definition. The red line indicates Milne’s limit. Source: (ITU, 2007).

2.3.

Figure 8. Scatter plot of per-capita GDP and number of services included in UA definition. Source: (ITU, 2007).

Implementation aspects

The solution of the access to telecommunication services problem must be addressed depending on its nature. According to (Navas-Sabater et al, 2002; Stern, 2006), two main gaps can be identified: the market efficiency gap and the telecommunications penetration or access gap. These gaps are portrayed in figure 9.

Figure 9. Graphical representation of the gap model. Source (Stern, 2006) The market efficiency frontier of figure 9 is linked to the maximum size of the theoretical, open, and profit-motivated market in which operators would participate and deliver services without any intervention (subsidies for instance) should entry barriers be removed. It is affected by the existing


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regulation (licensing scheme, taxes to imports and services), the availability of infrastructure such as roads and electricity, and by the cost structure of each operator, but it also has a geographic connotation (urban vs. rural). The presence of the market efficiency frontier contributes to the definition of the market efficiency gap, which is the difference between the size of the perfect theoretical market and the real market. In theory, to reduce the market gap it is necessary to revise the regulation to reduce economical burdens and to facilitate new entrants, but customer decisions to have or not have a given service (for instance, fixed lines versus mobile lines and VoIP) also bear influence10. When the access problem can be identified as one with the characteristics of a market efficiency problem, the market forces have the potential to solve it. This is the case of advanced countries, mentioned before, where no special subsidies or policies are necessary because given their current policy and market conditions, the access problem is deemed to be solvable by the market alone. The next level corresponds to the sustainability frontier. In this area, the expected stream of revenue would not be enough to cover investment plus operational expense and guarantee the desired rate of return. For services to be successful within this market region, external intervention in the form of funds to cover initial investment and start-up costs is required. Targeted subsidies are usually the strategy used. Beyond the sustainability frontier services will not be economically viable, even using targeted subsidies: a permanent subsidy would be required. In this situation, the gap is called the access gap.

2.3.1.

Universal Service Obligations (USOs)

The first step towards the implementation of universal service is the definition of the Universal Service Obligation. A USO is the actual requirement imposed to telecommunication operators to implement the universal service definition, i.e. to provide the services according to the dimensions described (affordability, accessibility, availability) and in regions outside the market efficiency frontier. USOs must be clearly defined if they are to be successful, paying particular attention to two elements (Peha, 1999): its scope/goal and the timeline to achieve it. In addition, USOs should be technologically neutral in order to avoid placing financial burdens on operators by preferring one technology over others, whilst also avoiding obsolescence. USOs can be implemented in various ways, depending on the universality goal. For example, in some cases network build-out objectives have been included in the licenses of specific services, to favor deployment in uncovered rural areas. In other cases, specific projects targeting particular rural communities are auctioned and the best bidder is selected. It can be a responsibility of a single operator, the designated universal service provider (as in the European case), or can be a shared responsibility between various operators. 10

For instance, (CEC, 2007) reports this phenomenon occurring in Austria, Italy, Czech Republic and Hungary, with decreases of 17%, 16%, 16% and 12% respectively, in the number of fixed lines installed. Possible reasons include switch to VoIP and mobile only. Quoting (CEC, 2007), “Having a mobile phone is the most cited reason for not having a fixed line (32%), followed by a general unwillingness to have a fixed line (26%).”


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On liberalized markets, five main strategies can be applied to ensure continued operation of universal services (Hultkrantz, 2004): -

Imposing the universal service obligation on the incumbent. Imposing the obligation on all firms. Procuring universal service from one firm. Procuring universal service from several firms. Offering universal service subsidies.

The first and third options might result in unbalanced competition, as one firm is given a de-facto dominant position on a segment of the market. While the first four options ensure the provision of the service, the fifth option does not, as the final decision is left to operators. Figure 10 presents the alternatives for USO implementation, according to the ITU database (ITU, 2007).

Figure 10. Alternatives of USO implementation. Data for 2006. Source: (ITU, 2007) Historically, the USO was naturally imposed upon the incumbent operator as it was already capable to reach remote areas and could, via internal cross-subsidies from unbalanced tariffs, support the operation of unprofitable areas of its business with the profits from other products or segments. The most common example is subsidizing rural access with revenues from international long-distance. However, as markets opened funding through cross-subsidization became more difficult to sustain as newcomers would attack precisely the long-distance market segment as it was perceived as more profitable. Therefore, to help continue the provision of service beyond the market efficiency frontier, the source of funding changed to an extra charge on interconnection or a specific tax on some services. This money could in turn be delivered to the entity responsible for the provision of the services (which could be the local dominant operator) or to a special fund established for the specific purposes of the USO mandate which would be in charge of distributing the resources. As the


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strategy of delivering the money obtained through taxes or surcharges to the incumbent could be perceived as being not competitively neutral –as the incumbent could be benefited from the rural network rollout to extend is dominant position-, the establishment of a dedicated fund is seen as the most transparent option, as it can be designed to be at the same time competitively and technologically neutral (OECD, 2005).

2.3.2.

Funding the USOs.

Besides defining the goal and timeline to reach it, it is important to establish the origin of the funds allowing the completion of the USO. The possible sources of USO funds can be grouped in three (WB, 2000; Navas-Sabater et al, 2002; OECD, 2005): - Cross-subsidization (implicit markups). - Explicit Markup/taxes on selected services. - Funding from internal or external sources (spectrum or license auctions, foreign aid, budget transfers). Figure 11 presents, for countries who replied to the ITU universal service questionnaire, the current distribution of USO funding sources (ITU, 2007). Cross-subsidies are the main alternative to support USOs when the country has a monopoly on telecommunication services. Cross-subsidization implies that a segment of the population will be charged well above cost in order to allow disadvantaged users to be charged below cost. As mentioned before, USOs where traditionally funded with revenues coming from international long distance calls which were used to subsidize access charges of basic telephone services. Arguments against cross-subsidization are based in the idea that they distort consumption and investment decisions (Clarke & Wallsten, 2002), are not transparent as it is difficult to determine who is receiving the subsidy and who is funding and they do nothing to encourage service to high-cost regions or to the poor since the existence of monopoly profits from one group does not induce the firm to provide service to another group. Additionally, the difference in tariffs may discourage the subsidizing segment from using the service, therefore reducing the efficiency of the scheme. Subsidization is also perceived as non-neutral, as incumbents receiving subsidies to extend their monopolies in certain services have an advantage over their competitors.


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Figure 11. Sources of USO funding. Source: (ITU, 2007) Colombia, for instance, has in place a subsidy for basic telephone service used to reduce the access gap within urban zones. The scheme, a regime of subsidies and contributions for local domiciliary telephone service between high and low income users, has high income users (classified as stratus 5, 6, and commercial) subsidize telephone service of low income (stratus 1,2, and 3) users by up to 20% of their telephone bills. Data from Regulatel in Latin America (Stern, 2006) indicates that out of its 19 members11 - 12 countries have specified special funds for supporting USOs. - 13 countries support USOs through contributions from international agencies and NGOs. - 3 continue to use cross-subsidies. The use of dedicated universal service funds is gradually becoming more popular, as markets are opened to competition, and the USO is also shared among the operators. This is the case in Africa, America and Asia, where the contribution to a fund is the most common form of implementing the USO, as shown on figures 10 and 11. The mentioned ITU survey reported that out of 87 countries, 48 have already defined and implemented a fund. In Europe, however, funds are not common as the responsibility of US is left to market forces. In general, the mechanisms used to provide resources to a dedicated universal service fund fall within the ones already described to fund a USO. It is also common to see a general levy or tax on revenues applied to all operators for the purposes of gathering money for the fund. Once established, 11

Regulatel is a forum of Latin American telecommunication regulators. Its members are Argentina, Bolivia, Brazil, Colombia, Costa Rica, Cuba, Chile, Ecuador, El Salvador, Guatemala, Honduras, México, Nicaragua, Panamá, Paraguay, Perú, República Dominicana, República Oriental de Uruguay and Venezuela. Acting as observers are Spain and Portugal.


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the fund awards subsidies to operators in a competitive manner to make the regional or rural license more attractive. Two types of bidding process are common (Navas-Sabater et al., 2002): - A process in which funds are delivered to lowest bidder in the sense that, considering the prescribed amount of subsidy available, the bidder requesting the lowest amount of subsidy would be selected provided of course that it is technically capable of providing the desired service. This method is referred to as “smart subsidy” or “reverse auction”. - A procedure in which the subsidies are delivered to the operator that provides the best development targets, with no organized competitive bidding. This method is known as “beauty contest”. In addition to competitive processes, the fund can be used to compensate the designated US operator for the costs incurred in fulfilling the obligation. This is the case of Spain, France and Italy, where the fund reimburses Telefónica, France Telecom and Telecom Italia.

2.3.3.

Extension and evolution of the US concept.

As was discussed before, the concept and definitions of universal service vary from country to country but also do –and must– vary with time. The main reasons behind changing the definition of US in time are political as well as technological. The OECD in (2002) presents, for several of its members, the general guidelines used to expand the scope of a USO in terms of services included. There are common elements among countries, such as an evaluation of the overall relevance of the service to the population (judging by popularity and social use) and the need to estimate the service’s cost/benefit ratio. Most of the discussion today regarding the role and future of universal service revolves around the concept in the context of mobile communications, Internet and broadband access networks. Developed countries are reviewing the basic service set, according to the guidelines and principles mentioned above, in order to determine whether mobility and broadband access should be included in the USO. Examples of these initiatives are the “Communication on the Review of the Scope of Universal Service” (CEC, 2005a), issued by the European Communications Commission, and public consultations and discussions at country and international organization level such as (OFCOM, 2005) and (OECD, 2005). The results of the European process are that broadband and mobile communications are perceived as necessary technologies but that a change in the scope of the USO to include them is not necessary as market forces are deemed as able to guarantee the provision of services. This however has not been the case thus far, as will be discussed in the following sections. In developing countries, the existence of the access gap is reflected in the definition of the USO which, as was shown before, aims at maximizing the number of services delivered via telecenters and taking advantage of convergence over TCP/IP. Trade agreements between countries might impose additional restrictions to the extension of the service set in a USO. As an example, Burkart in (2007) argues that Mexico’s decisions to extend the basic service set might be limited due to its obligations under WTO and NAFTA agreements. In the


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case of the United States-Colombia and United States-Peru trade agreements, the universal service clause (article 14.8) indicates that each party has the right to manage their USO definition in a competitively-neutral fashion, and Clause 14.4 forbids each party to engage in cross subsidization. Both agreements include provisions to exempt rural operators (defined as operators with at least 80% of their installed base in municipalities with less than 4,500 installed lines) from the obligations imposed to service providers in terms of cross-subsidization, service resale, number portability, service pricing, element unbundling and co-location. Both Peru and Colombia use universal service funds and minimum subsidy auctions to select operators for their universal access projects, as described in section three. Accessibility is another dimension driving the definition of universal service. There are various activities in this field, aimed at easing the use of devices by people with disabilities within reasonable technological boundaries and acknowledging limitations. Recent examples include the United Nations eNable Program for Equalization of Opportunities, which proposed a set of rules and guidelines to improve accessibility not only in the field of telecommunications services, but over all spheres of society. European actions on the field include COST actions 219bis and 219ter (Ekberg, 2001; COST, 2006), which are focused on universal accessibility to ICT services through the “Design for All” principle. Other sources, such as the Information and Communication Technologies Authority of Mauritius (ICTA, 2004) suggest an extension to the scope of universal service by adding two more goals and dimensions: universal technological standard, referring to policies concerning the spread of communications technologies such that certain innovations are made universal on the basis of need, social expectations and social desirability and universal telecommunications and participation in society, referring to policies of telecommunications use which enable full participation in society, protecting freedom of speech and freedom of information through guidelines of common carriage and content neutrality.

2.4.

Review of current definitions of USOs in Europe and the Andean Community of Nations.

To complement this section on definition and characteristics of universal service obligations, a review of current USOs is presented. It will serve to reinforce some of the ideas already discussed, in particular the approach to bridge the access gap in terms of service definitions and funding. Two cases will be described: the European community case with its unified framework but still with differences in the particular definitions and funding and the case of the Andean Community of Nations in Latin America, which includes some of the most successful experiences in terms of universal access initiatives.


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2.4.1.

The case of the European Union. Universal Service Directive 2002/22/EC.

The European Union shares a common regulatory framework for telecommunication services issued in 2002 including five harmonization directives describing the framework’s outline12, the authorization of electronic communications networks and services13, a directive on access and interconnection14, the specific directive on universal service and a directive on data protection and privacy in the telecommunications sector15. Other components of the 2002 regulatory package include a directive consolidating existing liberalization directives16, a decision on radio spectrum policy17 and a regulation by the European Parliament to complement the harmonization directives in the particular subject of unbundling the local loop18. The universal service directive of the framework (Directive 2002/22/EC) aims at ensuring to all users, irrespective of their geographical location, the availability of a minimum set of services at high quality, at an affordable price (left to each member state to decide) and without accessibility limitations in regards to impaired or physically-limited users. It provides the guidelines which all member countries should follow when implementing their universal service policies, in order to guarantee undistorted competition. According to Europe’s Information Society Thematic Portal (Europa, 2006), the members of the Union have finished transposing the entire set of directives into their national telecommunication acts. This means that, for universal services purposes, all countries share the same definition. The USO, as defined by Directive 2002/22/EC (“the Directive”), is expressed as a set of minimum services to be provided as well as a set of conditions to deliver them in line with the goals and dimension of US policies already presented. Services included in the obligation are emergency, directory and enquiry, and basic and public telephony services. In addition, the Directive discusses the provision of a “functional Internet access connection” without specifying its minimum speed as it depends on the technology used to deliver it, but proposing as a guideline a data rate of 56Kbps which is conventionally achievable via the use of standard telephone modems. Some comments and observations in regards to the application of the universal service directive principles in the EU member countries are given in (CEC, 2006a). These refer to the availability of directory and enquiry services in various member countries, the characteristics of the emergency services in terms of their compliance with the directive and the procedures used to select the operator responsible for carrying-on with the USO. The universal service provider (USP) selection mechanism must conform to four criteria: it must be efficient, objective, transparent and non-discriminatory, so as to not exclude, a priori, any operator. The process varies from country to country, with methods such as minimum cost auctions, comparative selection, or market presence. The process may also consider relative market presence, 12

Directive 2002/21/EC. Regulatory framework for electronic communications Directive 2002/20/EC. Authorization of economic communication networks and services 14 Directive 2002/19/EC 15 Directive 2002/58/EC Directive on privacy and electronic communications, concerning the processing of personal data and the protection of privacy in the electronic communications sector. 16 Directive 2002/77/EC 17 Decision 676/2002/EC 18 Regulation 2887/2000 13


17

for instance, selecting each region’s significant market power (SMP) operator as the USP for that particular area, or the core business of the operators, for example assigning one company to provide telephony services and another, in the same geographic region, to provide the directory services. More information on the selection of USPs can be found in (IRG, 2003; OECD, 2005). According to (CEC, 2006c) all member countries which have designated the USP have chosen the incumbent operator. USO funding in the European framework can be made available through several sources, provided the mechanisms used do not distort competition. A 1998 Report on universal service in the Union (CEC, 1998) indicated that, at the time, 9 out of 15 member countries did not feel the need to establish neither a fund nor special subsidies to cover the universal service obligation costs, whilst 5 member countries had or were considering establishing a fund. Table 1 presents the main characteristics of some of the universal service funds created in Europe. Most new members have implemented the fund to compensate the designated operator for the extra costs or losses incurred by the provision of the services covered in the mandate. EU-15 countries have defined the fund but in some cases it has not been implemented yet (for instance, of Austria and Germany), as the obligation is not deemed to be an excessive financial burden to the operators involved in providing the service. In regards to initiatives to bridge the digital divide, and as discussed in a previous section, in Europe broadband access to the Internet is not part of the universal service obligation and therefore money from the universal service funds is not used to subsidize network deployment for these purposes. However, as seen from the outcome of the public consultation reported in (CEC, 2006d), some operators, local authorities, and user communities are still calling for the inclusion of broadband in the basic service set. It is interesting to note how, even though broadband was seen as not fulfilling all conditions required for its inclusion in the basic service set, the rationale behind public support to broadband access initiatives aimed at closing the infrastructure component of the “territorial divide” –gap in infrastructure availability between rural and urban areas, presented as the access gap in the gaps model– is very similar to the rationale supporting a basic telephony USO. The territorial divide in Europe is becoming more important. Recent figures (Montage, 2006; CEC, 2006d) indicate that the gap between rural penetration and average national penetration is widening (from 6% in 2005 to 8% in 2007), suggesting an increase in network rollout and installations in urban areas. This seems to support the views in (Hughes, 2006) where it is stated that if left to the market alone, the gap will grow to affect over 20 million EU-25 users, and the conclusions of the Digital Divide Forum Report (CEC, 2005b) which indicate that by 2013, 4.7M users might be left behind in terms of broadband coverage. Public intervention has been suggested as an option to help accelerate broadband network deployments in uncovered areas (CEC, 2006d). Resources in the form of loans or grants from funds such as the Structural Fund or the Rural Development Fund can be made available to connectivity projects, and disbursed following the guidelines in (CEC, 2003). Romania, for instance, has decided to use the universal service fund to address the connectivity gap. According to (ANRC, 2007), 70% of the fund’s money will be spent in the installation of telecenters Emiliani, L. Universal Service And Universal Access To Telecommunications. A Review.

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and 30% on subsidies to low income families. Poland included in the telecom law of 2004 a provision to ensure broadband Internet connections to public schools and training centers (Art. 81, paragraph 4). Other state-led initiatives such as France’s AGORA project to provide broadband Internet to rural regions in Europe (CNES, 2004) or the United Kingdom’s Broadband Fund have seen mixed results, with the AGORA project’s objective being changed into a mix of military and civil services (SPACE, 2005) and UK having reports of supporting initiatives connecting an additional 1.6 million broadband subscribers (Hyder, 2005). Recently, France has started a plan to increase broadband coverage in underserved areas (Plan de couverture en haut débit pour les zones rurales) through which regional local administrations can obtain funds for equipment and connectivity (DIACT, 2007). According to (CEC, 2005b), the European Commission has given approval to seven requests for public funding for broadband infrastructure projects in under served areas since 2003. These projects are divided in two categories: infrastructure deployment and service provision. In order to ensure non-discriminatory access to infrastructure and to avoid distortion in the competition, each project is evaluated by the Directorate General on Competition. More examples on existing state-supported broadband access programs are given in (CEC, 2005b). Besides public-funded projects, there are also private ventures such as Avanti broadband (ESA, 2007; AVANTI, 2006; AVANTI, 2007), which seeks to use a combination of DVB-RCS satellite VSAT terminals with Wi-Fi to provide broadband Internet access for communities outside ADSL coverage.

2.4.2.

Universal service in the Andean Community of Nations.

Universal service policies in the ACN are oriented at ensuring that telecommunications infrastructure is within reasonable distance of towns and villages, rather than attempting to achieve the goal of one phone per every home. For instance, Colombia and Peru pursue universal access initiatives, aiming at placing services within 5 km of anyone, anywhere in the country. The access problem is present in the region in its two dimensions, the market and telecommunications gap, and efforts have been made to close both through regulation and subsidies. The experiences have been successful and some of them have become models for other developing countries19, particularly in the case of establishment and management of universal service funds. Following the recommended guidelines to close the market gap, the market is open to competition in most countries with monopolies remaining in long distance services in Bolivia, the local loop in Bolivia and most cities in Colombia and in WLL services in Ecuador, as shown on table 2. Table 3 shows some economic and telecom indicators for members of the ACN and Venezuela. It is important to note that in all ACN countries, the number of mobile subscribers has surpassed the number of fixed lines installed. Due to market liberalization and the low number of restrictions to handset acquisition and activation, mobile telephony has become crucial in closing the market gap in urban and rural areas.

19

Colombia’s COMPARTEL program cooperates with the governments of Honduras, Guatemala, El Salvador and Panama. www.compartel.gov.co


19

USOs are incorporated into the telecommunications legislation of each country, either by means of a universal service definition or by including network rollout objectives in service licenses. Table 4 presents the services included in the definitions across the ACN (as per the ITU) and table 5 the characteristics of universal access funds in these countries. Universal service projects in the ACN belong to two categories: the top-down and the bottom-up. Top-down projects refer to government-led initiatives, with clearly defined targets in terms of area and service characteristics, and for which funding is available and assigned usually through a reverse bidding mechanism. Bottom-up initiatives are those in which the operators, nongovernmental organizations or other entities propose programs and projects and request funds to cover them based on a business plan. Examples of top-down projects are the COMPARTEL initiatives in Colombia for basic telephony (Compartel Rural Telephony) and Internet access (Compartel Telecenters, Connectivity) and Peru’s FITEL projects for telephony (Fitel Frontera Norte, Fitel TUP for public telephony). An example of support to bottom-up initiatives are Peru’s PPTs (Telecommunications Pilot Projects) which enable organizations to present their own rural and social telecommunications initiatives to the fund to apply for resources. Emphasis so far has been placed on universal access initiatives with focus on telephone lines and telecenters for rural areas (Colombia, Chile, Peru) but small and medium-sized urban centers have also been included in the plans for Internet access in rural communities (Colombia, AMI-Compartel and Conectividad Banda Ancha projects) as well as libraries, schools and military garrisons (Colombia, Compartel Conectividad Banda Ancha project). A key component in the success of any project aiming at providing Internet access to rural communities is training. Universal access initiatives in the region include an educational component in their objectives, focusing on applications and website creation and infrastructure administration. Such is the case of Colombia’s Social Internet and Internet Connectivity for Public Institutions projects (E-Colombia, 2007; AMI-COMPARTEL, 2007)) and Perú’s Banda Ancha Rural (FITEL, 2007). Most notably, education is the main focus of Peru’s Huascaran project, devoted at improving IT knowledge via education portals and support to schools all over the country (Huascaran, 2007).


20

Table 1. Characteristics of some universal service funds in Europe. Country

US fund

Enabling legislation

Source of funds Levy on annual telecom turnover in excess of EUR 5M.

Fund distribution

Austria

Defined, not implemented

Telecom. Act 2003 – TKG 2003

Net cost compensation

Bulgaria

Fund for guaranteeing the provision of universal telecommunications service

Telecom. Law Prom. SG. 88/7 Oct 2003, amend. SG. 19/1 Mar 2005

Levy on gross telecom revenues (up to 0.8%)

Net loss compensation

Czech Republic

Universal service account

Electronic communications act of February, 2005.

Variable percentage of revenue.



France

Fond de Service Universel

Decree 2004-1222

Levy on telecom operators according to revenues on telecom services only. To be taxed, revenues should exceed EUR5M.

Italy

Fondo per il finanziamiento del costo netto degli obblighi del servizio universale

Decree 10 1998.

Levy according to income and costs of delivering universal service, if it applies.


Germany

Defined, not implemented

Telecom act of 1998 amended 2006.

-


Poland

Universal service fund

Telecom Act of July 2004.

Variable, up to 1% of revenues.

Fondul pentru serviciul universal

ANRC President’s Decision 1074/2004, Law 304, 2003.

Variable levy on telecom operators according to previous year turnover from telecom services minus income from interconnection and roaming.

Net cost compensation, Tenders, Targeted subsidies

Slovak Republic

Universal service account

Act No. 610, December 2003 on Electronic Communications. Decree No. 501 of 27 August 2004.

Variable share of annual domestic turnover in the fiscal year.


Spain

Fondo Nacional Servicio Universal Telecomunicaciones

Law 11/1998. Title 3, Section 2.

Levy on telecom operators according to income from telecom services.


Romania

de de


21

Net provision cost compensation

Table 2. Market status in the ACN and Venezuela. P=Partial competition, M=Monopoly, C=Full competition, N.A. =data not available. Data for Bolivia are pre-2004. Source: ITU. Year of liberalization Bolivia* 2001 Chile 1982 Colombia 1997 Ecuador 2001 Peru 1998 Venezuela 2000

Local Services M P P P C C

Country

Nat. Long Distance M C C P C C

Intl. Long Distance M C C P C C

Mobile

Data

C C P P C C

C C C C C C

Leased lines M P C C N.A. N.A.

Table 3. Indicators for ACN members and Venezuela. Source: ITU. Country

Surface Area, thousand Km 2 1,098.58 756.63 1,138.91 283.56 1,285.22 912.05 P

Bolivia Chile Colombia Ecuador Peru Venezuela

P

GDP (B-USD) 8.8 94.1 97 30.3 68.7 109

Per-capita GDP (USD) 977 6,108 2,141 2,295 2,476 4,164

Teledensity, fixed lines 6.97 21.53 17.14 12.22 7.39 12.78

Teledensity, total (fix + mob) 27.04 83.61 40.08 39.08 22.14 44.96

Table 4. Definition of the universal service set in the ACN. Fixed line private residential Fixed line public payphone Emergency services Directory services Fax Special services for the impaired or elderly Dial-up Internet access Public mobile payphone Telecenters Individual mobile cellular service High-speed Internet access

Bolivia -

Chile -

Colombia Ecuador Perú Venezuela


22

Table 5. Characteristics of US-related legislation in the ACN and Venezuela. Source: (Stern, 2006). Country

Regulatory framework for USO

US fund

Enabling legislation

Source of funds

Fund distribution

Bolivia

Telecom. Law, Ley 1632/1995. Market liberalization decree 26.005. USO imposed on incumbent ENTEL when privatized in terms of goals for line installation and service delivery

Fondo Nacional de Desarrollo Regional (not exclusive to telecommunications)

Art. 28 of Telecom. Law, Law 1632.

% of income difference with respect of the incumbent’s income. Income from: Spectrum use fees, concession fees, sanctions

Chile

Telecom law 18.168, 1982 modified in 1987 and 1994 (Ley General).

Fondo de Desarrollo de Telecomunicaciones, FDT

Telecom law, Title IV. Law 19.724, decree 353

National treasury

Minimum subsidy auction

Minimum subsidies

-

Colombia

Telecom law 72 of 1989, Decree 1900 of 1999, Cellular telephony law 37 of 1993.

Fondo de Comunicaciones, FCM.

Law 142, 1994.

% of net revenues, local fixed line services services. 4% net revenues, postal services, 5% gross revenues from nat. and intl. long distance and cellular services.

Ecuador

Telecom law, 2000 and Executive Decree 1790 of 2001.

Fondo para el desarrollo de las telecomunicaciones en areas rurales y urbanomarginales, FODETEL.

Res. 380-17 of 2000.

1% of annual revenues from all operators

According to plan establish by FODETEL and through tenders.

Fondo de Inversión de Telecomunicaciones, FITEL.

Telecom. Act of 1993.

1% of gross billed and received incomes

Minimum subsidy and direct awards for specific projects

Art. 54 of Telecom Law of 2000.

1% of gross income of all telecom operators.

Minimum subsidy tenders.

Peru

Venezuela

Texto único ordenado de ley de Telecomunicaciones (Telecom Act), decree 01393-TCC, 1993, Decree 027-2004-TTC,2004, Decree 06-94-TCC and subsequent modifications in1998, 1999 and 2002. USO imposed to incumbent when privatized, in terms of penetration and lines goals. Law 28900, 2006. Ley Orgánica de Telecomunicaciones, Law 36970 of 2000. USO imposed on incumbent CANTV upon privatization, goals in terms of number of lines and plans for provision of services in villages with population of 5000 h. and less.

Fondo de Servicio Universal, FSU.


23

3.

Overview of success-cases of rural telecommunication projects in Latin America.

This section will present an overview of the main objectives and characteristics of what are perhaps the largest projects of the sort in South America. Even though each of the countries on which these projects are deployed is very different from the other, they all share common elements. Due to the geography of the region, it is easy to find several isolated communities, be it because of the presence of the rain forest as in the case of Brazil, or a broken topography as in the case of Colombia and Peru. In all cases, satellite networks have been found to be the most cost-effective solution to the connectivity problem. A smaller proportion of installations correspond to cellular network extensions and cellular fixed terminals and WLL sites. Another, more important common element is that the projects are not aiming merely at providing connectivity. The main goal is to bring the governmental institutions closer to the people of the communities served by the projects and providing them with tools and contents adapted to their needs, so that those previously isolated places to interact and become integrated into the democratic processes of the country, striving to eliminate the socioeconomic, cultural and knowledge differences between regions. The projects incorporate the generation of contents with the provision of the technology tools to access them, as well as the training required to understand how to best exploit the equipment installed. Universal access to telecommunications is only the first step in the greater scheme of the initiatives. Finally, all projects represent a continued effort towards the provision of connectivity and training. They are not one-off ventures but reflect the commitment of each country to achieve the goals of universal access and universal service.

3.1.

Brazil: GESAC

GeSAC is one of Brazil’s three universal telecommunication service initiatives. Its main objective is to provide communities with various electronic and communications services, such as Internet access, voice over IP, tele-education, free of charge. The network consisted initially of 3200 sites, then expanded in 2005 to 4,200 (3420 in operation nowadays) and with an option to expand to an additional 1300 sites (COMSAT, 2007a). The estimated total population impacted is of 6.2 million. The project is financed by the Federal Government in its entirety, and is the responsibility of the Ministry of Communications. The candidate sites were selected based on the Municipal Human Development Index (MHDI), the availability of alternate means of Internet access and the current level of ICT usage by the community (GISW, 2007). Out of the total number of telecenters installed, 72% correspond to schools (primary and secondary). Based on the figures reported in (ITU, 2006), the estimated total cost of the project is of U$79.2 million. The system relies on satellite as its main transmission medium, using mainly Viasat’s Linkstar DVB-RCS terminals, although some sites use Gilat’s Skystar360E. A schematic diagram of the current network is shown in figure 12, simplified to show only one hub. Emiliani, L. Universal Service And Universal Access To Telecommunications. A Review.

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Figure 12. Diagram of GeSAC’s VSAT network Training is a key component of the project, with courses on basic ICT skills and solutions development and telecenter management. The training activities are aimed to encourage the community’s involvement with the telecenter and to generate employment. In the long term (5 years), the community should be able to sustain the cost of maintenance and operation of the telecenter (ITU, 2006). The project’s website is www.idbrasil.gov.br.

3.2.

Colombia: Compartel

The Compartel Program (www.compartel.gov.co) is the means through which the social telecommunication initiatives in Colombia are executed. Its objectives are: − To facilitate universal access to telecommunications services in rural areas throughout the country. − To allow the use of Internet services in less developed localities. − To deploy a telecommunications infrastructure that allows rural communities to exploit ICTs. Compartel is financed with resources from the Colombian Communications Fund (FCM), as described in table 5. Since its launch, the program has executed various projects centered on providing telephony and Internet access services to villages, towns and public institutions. The main characteristics of the most important projects in terms of investment and coverage are shown in table 6. Table 6. Characteristics of the three main Compartel projects. Population targeted Investment Project Phase Sites (Millions) (US$ Millions) 1 3.7 31.8 6,745 Rural Telephony 2 1.2 22.7 3,300 Social Internet 1 2.5 6.8 670 Telecenters 2 0.9 9.9 270 Emiliani, L. Universal Service And Universal Access To Telecommunications. A Review.

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Project Internet Connectivity to Public Institutions

3

Population targeted (Millions) 1.8

1 2

2.1 2.3

Phase

Investment (US$ Millions) 62.4 76.6 68.1

Sites 550 4,794 4,357

According to (Mendoza, 2004), phase one of the Rural Telephony (RT) project aimed at providing services to a total of 6,745 rural communities with more than 250 habitants and without telephone service within an area of radius 5 km. Phase two considered an additional 3,300 sites (Compartel, 2007). After culmination, the average distance to a telephone was reduced to an average of 4 Km (Mendoza, 2004). The Social Internet and Connectivity to Public Institutions programs aim at closing the Internet access gap in communities and public institutions by providing broadband access to villages of 10,000 habitants or less and to qualifying civic facilities and military garrisons. Combined, the two projects provide Internet access to 114,444 sites. From the technology perspective, the most favored approach to the provision of access to the communities served by the project has been that of using VSAT terminals and more recently exploiting the convergence of traffic over IP using broadband terminals. The products selected were Gilat’s DialAway (RT) and Skystar360E (Telecenters), Hughes’ PES5000 (Telecenters) and Viasat’s Surfbeam (Connectivity). Each project has developed its own star-based network, as shown in figure 13. According to (Compartel, 2007) VSAT terminals account for 96% of the total number of sites in the Telecenters project and for 80% of the total number of installations in the rural telephony project.

Figure 13. Diagram of the VSAT networks used for Compartel’s main projects The Internet access programs (Telecenters and Connectivity) have incorporated a training element, providing an introduction to the use of computers for Internet browsing and for office activities.


26

Other initiatives, articulated with the Compartel program, are Computers to Educate (computadoresparaeducar.gov.co), in charge of collecting computers unused by Colombian companies, refurbishing them and delivering them to public schools, gobiernoenlinea.gov.co, the nation’s government portal, providing information on laws, contracts and administrative processes and contratos.gov.co, Colombia’s sole state contracting portal, giving information of current and future public contracts and bids. The precise impact of the Compartel projects in the communities served is difficult to assess. The Compartel program is currently contracting a study to determine the real impact of the rural telephony projects on the communities served. Nevertheless, it is clear that due to the geographic characteristics of the country, for some isolated communities the Compartel program has been the first contact with the government. In the case of Social Internet, the project has also provided an alternate source of employment for community-managed telecenters and free Internet access to search the national job database. Less specific benefits are along the lines of the general objectives of the US policies: reduction in travel times, faster response to emergency situations and an increase in participation of the rural communities in governance. More details of the impact of the Compartel initiatives in the communities and the characteristics of each project can be found in (ITU, 2006).

3.3.

Peru: FITEL.

FITEL is the fund created by the telecommunications Law of 1993 with the aim of providing monetary resources for rural telecommunications services. Its main objectives are (Fitel, 2007) − To reduce the telecommunications access gap in rural and in areas of social interest. − To promote social and economic development in rural areas, by enabling access to telecommunication services and training local population in the use of ICTs. − To incentive the private sector to get involved in the provision of telecommunication services in rural areas. The criteria used to select the target areas are set in the national regulation and include towns and villages with population between 400 and 3000 and district capitals and towns in areas defined by the state as being of particular social interest (WB, 2000; Saravia, 2005). Thus far FITEL has financed five projects, four of which focus on the telephone service and one on Internet access provision (with a total benefited population estimate of 6.7 million people), and is currently auctioning three more projects focusing on broadband and rural Internet access. Table 7 summarizes the main investments incurred and the impact in terms of average distance to a telephone. For more information on scope of each project, refer to FITEL’s portal: www.fitel.gob.pe. From the technology perspective, four of the five projects have been awarded to Spacenet Rural Communications (Spacenet, 2007) who has used VSATs to provide connectivity services, with products adapted to the particular needs of each project such as DialAwayIP® for FITEL I and


27

FITEL II, both with focus on telephony (Gilat, 2004). Figure 14, based on (Gilat, 2004) shows a schematic of one of the networks providing rural telephony service. Considering the nature of the projects, the network topology for the other services should be similar. Table 7. Summary of FITEL's projects. 1998-2004. Source: (Osiptel, 2004) FITEL I FITEL II FITEL III FITEL IV TOTAL Total amount of bid 1.66 10.99 27.85 11.39 52.07 (US$ Millions) No. of towns selected 193 1,937 2,290 1,616 6,036 Total population benefited 0.14 1.6 2.1 2.9 6.74 (Millions) Average cost per town (US$) 8,609 5,674 12,163 7,052 8,375 Avg. distance to a telephone before 90 54 24 60 the project (Km) Avg. distance to a telephone after 5 8 4 6 the project (Km)

Figure 14. Diagram of the VSAT network used for FITEL II telephony project. Perhaps the most tangible benefit of FITEL’s initiatives is the reduction of the average distance to a telephone from 60 kilometers to 6. According to (Stephens, 2005), a beneficial side-effect has been the introduction of monetary transactions into areas where bartering had hitherto been the practice. Other less tangible benefits include an enhanced sense of security (enabled by the availability of emergency numbers) and the integration of isolated economies.

4.

Summary and Conclusions.

Universal service in the context of telecommunications represents an ambitious concept with a twofold objective: on the one hand, recognizing the impact that telecommunications have on the Emiliani, L. Universal Service And Universal Access To Telecommunications. A Review.

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industry at all levels, it aims at ensuring a timely flow of information between consumers and producers and between sectors of production. On the other, it helps a government by providing it with tools to reduce the barriers in its relationship with citizens. The survey of universal service definitions in Europe and Latin America reflected key differences in conception. In the European Community, the telecommunications infrastructure and market is deemed as able to provide the basic service set and therefore there are no top-down initiatives to extend network coverage. Current telephony penetration figures for EU-25 are 95%. However, new members still have an important percentage of households without connection to the network: Romania, 23%; Bulgary, 15%; Hungary, 12%, and the difference in rate of growth of penetration of broadband connections between rural and urban areas is increasing even for EU-15 countries. (CEC, 2007) The mechanisms to provide universal service are to select one or several operators (based on its market share and other factors) and then reimburse the costs in which the operators have incurred in order to deliver the service. This results in the fact that the responsibility of initiating network expansion lies in the operators’ side and not on the government. It is the duty of the operator to analyze the underserved customers’ concerns, and to evaluate periodically the network coverage against the distribution of the customers’ requests in order to ensure that the service is provided universally. With this scheme, a mismatch between the customers’ requests and the operators’ expansion plan might happen and some areas still risk not being served. This is particularly true in the case of broadband network infrastructure in rural areas, as highlighted in (CEC, 2005b). Even though not included in the basic service set, the lack of availability of broadband network infrastructure is seen as an obstacle to the development of rural regions and actions at state-level have been taken to support bottom-up initiatives. For instance, France, Hungary, Italy and the UK have followed the bottom-up approach by setting up governmental initiatives to support local administrations in developing their own broadband infrastructure, but as this service is not considered part of the universal service obligation, it is not supported by the universal service fund. Central funds such as the Rural Development Fund can supply the resources required to build and operate network infrastructure in rural regions, and examples of the sponsored projects are given in (CEC, 2005b). A key element towards the successful implementation and long-term sustainability of these bottom-up initiatives is the aggregation of demand from rural regions, particularly when satellite projects are being proposed as a solution. On the other hand, initiatives in Latin America are developed to provide access to telecommunications services and not to guarantee universality of the connections. Considering the characteristics of the countries, the top-down approach has been privileged but initiatives coming from independent operators and enterprises can also compete for resources. As was described in this review, universal access programs in Latin America are among the most ambitious in terms of services and coverage, with installations numbering in the thousands. This approach to the provision of the services –and the scale of each project– is another difference between European and Latin American countries. Even though financing universal access projects through dedicated universal service funds has been a successful experience in some Latin American countries, in general the funds are not disbursing the monies efficiently and in some cases have not disbursed any of it. Stern in (2006) identifies various elements affecting the success of the USF approach such as the nonEmiliani, L. Universal Service And Universal Access To Telecommunications. A Review.

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existence of a clear collect-disburse mechanism and the bureaucracy involved in the approval of the disbursements (as they are considered public investment). One important recommendation from (Stern, 2006) which can be extended to both the Latin American and European scenario as described in this paper is that the funds should act as a financing institution, supporting bottom-up initiatives to achieve the universal access objectives, with the aim of supporting the development of the region or area benefiting from the project. This component is present in the European scenario through the Rural Development Fund, but is not present at the country level, with the exception of some initiatives such as those in France and the UK. Various success stories of universal service programs and examples of how access to the Web affects businesses, such as (Oram, 2004), (Garzon, 2006) or (Gopinath, 2005) show how once isolated farmers and businesses are now able to put their products on the global market. This possibility, reaching a global market in a relatively easy way, is one of the key elements in today’s conception of digital inclusion as a way to development. If these initiatives are to be successful, it is important not to just provide the tools, but also the means to use them. Therefore, a key component of US initiatives, one which was not discussed in this document but identified as a result of the analysis, is training. Without knowledge dissemination, the efforts to put telephone and Internet at the doors of every house will be undernourished. ----

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Carlsson, U. (2005). The MacBride Report in the Rear-view Mirror. Quaderns del CAC 21. Clarke, G. and Wallsten, S. (2002). Universal(ly Bad) Service. Providing Infrastructure Services to Rural and Poor Urban Consumers. World Bank Policy Research Working Paper 2868. CNES (2004) CNES magazine No. 22, June 2004. available tv.com/cnes_fr/cnesmag/cnesmag22_FR_dossier.pdf. Accessed: Apr. 2007.

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Agreement

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Luis Emiliani received the B.Sc in Electronic Engineering (1999), Specialist and M.Eng. degrees in Telecommunications (2003) from Universidad Pontificia Bolivariana, Medellín, Colombia. His main field of study is microwave communications (terrestrial and satellite), and particularly the impact of rain in communication system design. He has acted as reviewer for journals and conferences in this field. He is also interested in the impact of communications in economic development and in the benefits of pursuing the universality objective in telecommunication services. ------


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