1. Design and operation of universal service funds
Rohan Samarajiva
Course on Regulatory Design and Practice
Nay Pyi Taw, September 2017
This work was carried out with the aid of a grant from the International Development Research Centre, Canada and the Department for International Development UK..

2. Universal access & universal service
Universal access is when everyone can access the service somewhere, at a public place, thus also called public, community or shared access. In general there would be at least one point of access per settlement over a certain population size.
Universal service describes when every individual or household can have service, using it privately, either at home or increasingly carried with the individual through wireless devices.
InfoDev, ICT Regulation Toolkit

3. Universal access in flux
Because of mobile phones, universal service is feasible for voice. Payphones becoming obsolete
For Internet use universal access is still relevant: WiFi hotspots and telecenters
Shanghai street, 2013

4. Approaches to universal service, not necessarily mutually exclusive
Cross subsidies
United States and Canada, actual
Most other countries, claimed
Mandatory service obligations
Malaysia in late 1980s
South Africa in 1990s
Requirements re telecenters in Myanmar mobile licenses issued in
Market reforms
Started in UK/US in 1984; Most countries since 1990s
Universal service funds
Started in Colombia & Peru (1994 with levies on telecom operators/users)
Also Chile (1995), with funds coming from general taxation
2G; ??
First generation; tried and
found wanting  2G

5. World Bank’s efforts on equity in 2000-2010 assessed
4.28 Equity and integration of marginalized groups have been more effectively supported by Bank support for ICT policy and sector reform than by operations specifically designed to achieve these goals. ICT operations that supported reforms to introduce competition into the sector, when successful in supporting those reforms, have had significant impact, especially in access to cellular telephony services. This increase in overall access has had a spill-over effect of providing access to the underserved. Lower tariffs (especially in cellular telephony), falling handset prices, and the expansion of prepaid cellular services are all channels that facilitate access by the poor.
Independent Evaluation Group, World Bank (2011) Capturing Technology for Development

6. Is a third generation of universal service instruments emerging?
LIRNEasia’s research on broadband initiatives indicates it is, but 3G efforts are already showing cracks
Gunaratne, R.L. et al. (2015). National broadband networks of Malaysia, India, Indonesia and Australia: A comparative study. Competition and regulation in network industries. Vol 16(1):

7. Execution is the problem . . .
“We’ve informed telecom minister Kapil Sibal at a recent NOFN review meeting that it will be impossible to extend broadband connectivity to 1 lakh GPs by March 31, 2014, since BSNL, RailTel and PowerGrid have not finalised the C&T tenders,” a top telecom department official told ET. “Even if they manage to award the contracts by the month as promised, we will only be able to meet a tenth of the broadband coverage target in the first phase,” he added. A senior executive of Bharat Broadband Network Ltd (BBNL), which is the executing agency of the NOFN venture, complained that “umpteen reminders had been sent to BSNL, which will award 70% of the C&T contracts to multiple vendors, but to no avail”.

8. Third generation: regional experience

9. Internet Ecosystem Australia India Indonesia Malaysia Infrastructure
HSBB – FTTH in industrial areas
BBGP – connectivity via multiple tech in rural areas
NOFN – fiber from block to gram panchayat level
Palapa Ring – connecting all Islands through fiber
NBN Australia – wholesale network FTTH, fixed wireless or Satellite
Attractive Content/ Applications
Affordable User-friendly Devices
Australia
India
Indonesia
Malaysia
1Malaysia Netbook Distribution
E-gov, e-health, e-education, e-commerce
My1Content portal
Introduction of e-gov, e-education and e-health
App Development Centre
Skilled Users
Broadband Carnivals, ICT Training
Affordable packages
Tax breaks
Government User Network – Anchor client
Digital Literacy Program
Programs to improve ICT literacy

10. Malaysia – High Speed Broadband Network (HSBB) as at April 2014
Access Network
Domestic Backhaul
International Backhaul
TM Fiber Network
Malaysia – High Speed Broadband Network (HSBB) as at April 2014
1.74Tbps total International BW Capacity (from 682Gbps)
25 Operators for HSBB Transmission
5 Operators for HSBB Access
1.5 million Ports installed
International Connectivity
Customers
723,014 Subscribers (48% take up)
Implemented by Telekom Malaysia, as a PPP with Gov. Total cost 3.5B USD, out of which Gov spent 0.75B. Conditions to access network commercially negotiated
Broadband for General Population – subsidizes BB in rural areas using USP

11. Fund design: regional experience

12. Where does the money come from?
Country
Source of funds
India
5% of adjusted gross revenue
Malaysia
6% of weighted gross revenue, levied on operators with revenues from designated services above RN 2 million
Nepal
2% of annual income
Pakistan
1.5% of adjusted revenue
Sri Lanka
USD 0.03 per minute on international calls terminated in the country
Industry levies- % of revenue or specific calls Malaysia- weights pg 39

13. How do we measure success?
Outcome: How many people who would not be connected through market mechanisms were connected as a direct result of universal-service subsidy programs?
Output: Were the funds utilized as intended by the legislation/policy?
Necessary condition: were funds disbursed?
Sufficient condition: were funds spent for purposes intended by legislation/policy in a transparent and fair manner?

14. Necessary condition of policy efficacy
Money that has been withdrawn from a reasonably competitive sector must be disbursed
Otherwise, it’s only doing harm by depressing demand

15. assessing Necessary condition Necessary condition = zero efficacy

16. Ways of assessing necessary condition across time & in comparison to other countries
Accumulated disbursement rate (ADR) t
Y-o-Y disbursement rate (YDR)

17. YDR is kinder to fund administrators
YDR is simply about how much of last year’s inflows were disbursed this year
Leaves aside the accumulated balance
Also leaves aside this year’s inflows
But ADR must be measured because something must be done about accumulated funds
Once ADR has declined, YDR must exceed 100% for at least a few years, for ADR to come back to normal

18. India
Source: Universal Service Obligation Fund of India (2016, Oct. 02) Fund status. Calculations by authors

19. Malaysia
Source: Universal Service Provision Fund of Malaysia (2015) Annual report Calculations, graphics by authors

20. Pakistan
Notes: Contributions and disbursements of 2005/2006, 2006/2007 & 2007/2008 have been combined. The disbursement figures for 3 years differ slightly from that calculated from the USF Annual Report
Source: Iftikhar, P. (2015) Proceedings from A4AI Myanmar coalition meeting. Experiences & lessons from the region- Pakistan. Calculations, graphics by authors

21. Source: Sri Lanka Telecommunications Regulatory Agency
Source: Sri Lanka Telecommunications Regulatory Agency. Calculations, graphics by authors

22. YDR comparative: Never 100%<  ADR declines in all 4 countries over time
India (FY April-March)
Malaysia (FY Jan-December)
Pakistan (FY July-June)
Sri Lanka (FY Jan-June)
Year
YDR
2003/2004
12.72
2003
2004/2005
62.79
2004
2.90
2005/2006
51.88
2005
8.68
2005/2006, 2006/2007, 2007/2008
2006/2007
45.62
2006
3.39
2007/2008
36.70
2007
7.90
2008/2009
25.83
2008
17.68
27.79
27.03
2009/2010
42.35
2009
4.46
25.94
45.04
2010/2011
55.77
2010
29.09
19.47
18.91
2011/2012
26.16
2011
77.91
8.86
12.42
2012/2013
8.24
2012
98.66
35.24
15.39
2013/2014
28.94
2013
98.37
35.08
20.81
2014/2015
26.10
44.99
2014
30.92
Highest

23. Cause of failure could be management of the funds . . .
Most funds are managed by the public sector
Pakistan follows a corporate model with representatives from the public and private sector
Public Sector
Quasi independent entity
India ✓
Malaysia
Pakistan
Sri Lanka
Pakistan USF Company Board
Public
Private
CEO
h/e, Pakistan’s USFC has also had controversy. In 2013, funds channelled from USFC to MoF

24. Who utilizes the funds? Sri Lanka India
India: USOF funds have been utilized primarily by state owned BSNL Sri Lanka: SLT, incumbent with govt ownership, and Dialog Axiata, largest mobile operator, have received significant refunds

25. Recommendations
Reduce /eliminate distortions by financing subsidies from general taxation or available concessionary credits (Chile, not Colombia)
Focus one-off subsidies solely on capital expenditures, e.g.,
A domestic backhaul network that will be made available on cost-oriented and non-discriminatory terms to all access-network operators
Towers and renewable energy in defined rural areas
Create special purpose vehicle to disburse the funds, preferably with significant operator participation on board
Create specific mechanisms to ensure rapid disbursement, e.g., challenge funds, emergency brakes
Sunset the fund/levy, or at least require reauthorization following proper evaluation
Stepping down percentages in a levy will still yield adequate revenues in a growing market