1. The relevance of public access services and universal service obligations in light of increased mobile market penetration Dr Kammy Naidoo November 2011

2. Introduction and background Key objective of universal service policies have been to make available, expand and maintain affordable telecommunication services to the public, particularly in remote, rural areas Internationally, several methods of achieving universal service and universal access have been used, for eg: – universal service funds collected through a operator tax; – exclusivity periods for incumbent service providers with corresponding obligations; – mandatory service obligations imposed on licensees, such as community service obligations (CSOs); and – regional or sub-regional licences. The sources of funding for universal service differ from country to country – these are either obtained from national government revenues or levies and/or fees from operators. Market developments is forcing a fundamental rethink of traditional universal service models

3. Introduction and background Universal service has failed in most countries for the following reasons: – Inefficient use of or non-existing Universal Service Funds (USFs); – Exclusivity periods have not really worked as they were inadequately matched between market supply and demand – Constraints on innovation at the local level; – Different and sometimes inadequate policies with respect to rural and remote areas; – High costs of interconnectivity; – Inadequate skills for rural roll-out, particularly for regional and sub-regional licencees combined with high operational and maintenance costs, significantly exceeding possible revenues; The need to acquire and retain more customers is forcing operators to invest outside of major metropolitan thus achieving universal service through competitive markets

4. Introduction and background Large parts of the continent have moved beyond infrastructure coverage, public access and shared service and are entering private service; Routine use will become more familiar once competition improves and pricing declines. 1 2 3 4 5 5 Steps to telecoms usage

5. Introduction and background 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. Market forecasts estimate over 100% penetration on average across the African continent. Top 5 countries Middle 5 countries Bottom 5 countries AVERAGE PENETRATION (FORECAST)

6. Business model innovation Until recently, shared access models were the primary means of access to communications for most low income users. For those who cannot readily afford telephone services, innovative “shared access” models provided opportunities to reach the most marginalized people. The Village Phone programme in Bangladesh is possibly the most popular shared access which had over 280,000 operators, at its height Across Africa, umbrella operators or “kiosks” were the default mode of access for those that cannot afford their own phone. However, as penetration and competition increases and the total cost of ownership decreases, including handset costs, most users are now able to afford their own phone. Further, business model innovation has enabled mobile phone ownership

7. Business model innovation Procedure Waiting list Registration & credit check Fixed address Costs of entry Deposit Installation charge Monthly rental & usage Rent and call charge increases Regular commitment No control over monthly bills Threat of credit blacklisting over non payment Simply buy a sim card No credit or simple registration No credit check Low sim and starter pack purchase price Declining handset prices removes barriers to entry Easily available second-hand handsets No fixed monthly rental charge “pay as you go” Low cost top off ensure constant network access Flat rate national calling cheaper for long distance Low priced options such as beeping and sms Barriers to entry (Fixed lines)Mobile entry

8. SA Universal Service policy and objectives SA government has embarked on three phase market liberalisation: Phase 1 – Privatisation of the fixed line operator, introduction of mobile services Phase 2 – managed liberalization with the introduction of a second national operator, a third mobile operator Phase 3 – market convergence, competition ObjectiveElementOperator Increase penetration & access - Roll-out targets - Specified geographic coverage - Under serviced area licences - Fixed and mobile Reducing costs - Community phone rate - Public Pay phone rate - e-rate for schools access - Mobile - Fixed - All operators Increase access to ICT services - Telecentres - Fund to subsidize & manage Increase jobs, economic improvement - Joint economic development plans - Mobile

9. South African telecoms market Source: InformaSource: Telkom Annual Report Market demand has responded to technological and business model relevance for services SA Mobile market growth expected to exceed 100% penetration Fixed line growth has been dismal, with declining penetration SA has achieved almost a 100% population coverage, only pricing remains an issue

10. SA market (cont) The SA market has reached high levels of penetration despite universal service and access goals; The universal service agency has failed to deliver any telecoms service of significance to underserved people due to: – Structural flaws in the setting up of the agency and its complex relationship with the various other institutional bodies – Inadequate articulation of objectives and strategy – Managerial, operational and capacity issues – Lack of co-ordination between supply and demand

11. Conclusion Business model innovation and market demand for mobile phones is making access to telecoms services a reality; Users have moved beyond shared access models as they no longer have relevance for their telecoms needs, prices have declined making shared access less relevant SA Universal Service Agency has a number of problems that has hindered effective delivery of universal access The universal service fund has proved ineffective in the delivery of services to the poor while market forces have been able to deliver Market developments is forcing a fundamental rethink of traditional universal service models

12. Recommendations Consolidate all universal service obligations into operator licences to ensure adequate coverage and penetration; Write flexible licence conditions to allow both the market and policy- makers to respond to market changes or improve poor prior assumptions made in drawing up the original targets. Improved monitoring to ensure that problems are picked up early and operators fulfill their obligations in the manner in which it was intended. The most effective way to do this is through constant monitoring of consumer demand matched with effective market reviews to ensure that universal service targets are in keeping with market changes and consumer demand.