1. Universal Access Fund: How does it work? How to manage it? Rohan Samarajiva samarajiva@lirne.net

2. Why universal access?  There is a strong correlation between ICT use and economic growth  Effective delivery of ICT services such as e government requires that most, if not all, citizens have access  ICT networks are of the greatest utility when more people can be reached; adding new users benefit current users

3. How can universal access be achieved?  First and best method is to allow multiple suppliers to extend service This means removing barriers to competition  Where the market will not supply in the short term, government should identify the causes  If the causes include higher costs or lower revenues, remedies exist that will not distort market incentives and will harness efficiency

4. Population, GDP & fixed telephony shares by province

5. How to fund universal access?  Good regulation costs money. This can be obtained from general government funds (1 st best solution) or from regulatory fees (2 nd best)  Capital cost subsidies are resource intensive. Again, choice are government funds (1 st best) and industry levies (2 nd best)  Same with vouchers and other demand- side subsidies

6. How to manage universal access funds?  Subsidies attract the corrupt. It is therefore essential that strong safeguards be built into the management of the funds  Separating the design of the subsidy schemes and the administration of the funds is a good idea  Outsourcing the management of the funds and the audit of resultant activities is becoming accepted as best practice  Oversight by advisory committees with industry representation is also good

7. Who should get universal access funds (supply-side)?  Not the incumbent, as of right  Ideally, there should be broad eligibility for universal access funds Not only the existing operators but even those who are willing to enter the market  There should be no ironclad relation between who pays in, and who can receive pay outs If such a relation cannot be avoided, it should be limited to a short period after which the moneys will go to a “challenge fund” open to a broader group

8. Who should get universal access funds (demand-side)?  The whole point of demand-side subsidies, which are difficult to manage because of the larger numbers involved, is targeting  Important to have low-cost, easily defensible criteria for selecting the target groups and low-cost, constrained-discretion methods for deciding eligibility and disbursement

9. Why subsidies, not cross subsidies?  Cross subsidies are easy to administer in that the money flows within the firm itself and all that the government has to look at is outcome  However, cross subsidies rarely, if ever, yield the desired results and are anti- competitive Contrary to WTO regulatory reference paper Will attract arbitrage-based entry and create demand for entry-policing by government

10. Universal access funds and technology neutrality  In many cases, universal access funds are disbursed to existing operators who use it in ways protective of their old investments E.g., bias toward fixed connections over mobile; voice over data; and circuit- switched over packet-switched  It is possible to devise funding mechanisms that are technology neutral

11. In sum  Let the market take the network as far as it can  Regulatory shortcomings must be remedied  In devising subsidy schemes be attentive to distortions of the market and opportunities for corruption and arbitrage  Management must be low-cost, transparent and designed to avoid bureaucratic bloat  Subsidy schemes should be technologically neutral