Best Practices and Lessons from Internet Infrastructure Development Initiatives

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Best Practices and Lessons from Internet
Infrastructure Development Initiatives
El Uso de Internet en las Americas
17 de Junio, 2005
CIDE
Rob Stephens World Bank Group March 24, 2005
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Contents

• The World Bank Group and ICTs
• Affordability and the access gap
• Universal Access the OBA smart subsidy
  approach
  
• Examples Guatemala and Peru
• Closing observations

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The World Bank Group and ICTs
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Examples of World Bank Group Work

• Finance studies WSIS/UN financing of ICTs
  studies and Regulatel universal access project
  
• Development of national sector policy and
  implementation strategy e-strategies, etc
  
• Privatization of state-owned telecom operators
• Encourage public private partnerships
• Establishment of legal and regulatory framework
  and institutions
  
• Capacity-building and finance spectrum
  management
  
• Design and finance universal access programs
• Foster and finance incubators
• Invest in private sector companies
• Development, Implementation and Financing of UA
  Schemes
  

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GICT Rural Access Projects
No project yet
Technical Assistance
TA Investment
Project under development
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GICT Portfolio 2005
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An overview of the rural access problem
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Telecommunications are a key element of economic
and social development ...
Education
Less isolation in poor and rural areas
Health
Financial Sector
Telecommunications Infrastructure
Public Services
Environmental and natural resouces management
Business Services
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and they are becoming increasingly more
affordable

• Wireless/cellular explosion
• subscribers growing globally at 30-50 per year,
  in Africa this rate is of 150
  
• substantial penetrations are being achieved,
  already overcoming that of fixed lines worldwide
  
• mobile phones are becoming a means of access for
  many
  
• pre-pay mass market
• wireless payphones
• Satellites fill in the gaps
• offer cost-effective solution for remote
  locations, particularly if power systems are
  already available
  
• deployed in rural areas of Chile, Colombia,
  Guatemala, Peru, South Africa, and elsewhere
  
• serve to demonstrate there is actual demand
  viable markets

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Internet services are also slowly becoming
essential

• Very rapid growth of ISPs, Internet hosts users
  
  
• Phoneshops
• basic public telephone
• some are adding fax and PCs/e-mail
• Telecenters
• basic public telephone fax
• e-mail, Internet, computers
• training resources, skills transfer, community
  role
  
• access to govt commercial data, distance
  education, health other info services
  
• Telecenters sustainabilty (financial, social,
  cultural) challenge
  

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However, great inequalities remain
Capital / High-income users
Other urban areas / middle-income users
Country
Rural areas / Low-income users
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The digital divide is widest between urban and
rural areas
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Giving rise to universal service universal
access policies
Primary focus private lines for low-income users
Universal Service
Primary focus shared access (payphones) for
rural areas
Universal Access
Developing countries focus limited resources
primarily on universal access in rural
areas/where the market failure is greatest.
Urban areas markets serve
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Affordability and the access gap
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People spend about 2 on phone service
30000
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including rural areas and poor customers
GDP

• Poor people in rural areas often have high
  willingness to pay for phone service (different
  opportunity costs and income measurements)
  
• Availability is a larger barrier than
  affordability

Source A. Dymond, Intelecon
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Access Divide the two gaps
Full Market Access Gap
Rural Market Access Gap
Market Efficiency Gap (MEG)
Commercially Feasible
Market Access Gap (MAP)
Current expansion plans
Poverty
Community access
Current individual user access
Geographic Isolation
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How to reduce the gaps?
Develop Universal Access Programs
Full Market Access Gap
Rural Market Access Gap
Market Efficiency Gap (MEG)
Market Access Gap (MAP)
Current expansion plans
Poverty
Remove Legal and Regulatory Barriers
Community access
Current individual user access
Geographic Isolation
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Closing the access gap output based aid (OBA)
and the smart subsidy
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Government defines objectives
Provide 200 public telephones in a certain rural
area, for a one-time subsidy and operate them
for a ten year period at specified minimum
quality standards.
RURAL AREA
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Private operators bid for subsidy
Concession is awarded to consortium requesting
lowest subsidy.
0.5 million
1.5 million
2 million
1 million
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Subsidy paid against investments
Output-Based Aid Subsidy paid as investment
targets are met.
RURAL AREA
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Key Features of OBA Projects in LAC

• Project design aimed at commercial viability of
  concessions
  
• Max subsidy to make private NPV0
• Tariff structure and adjustments,
  interconnection charges
  
• allowed at expected traffic levels
• Well-defined roll-out targets for operators
• E.g. Towns to be served/Services to be provided/
  Quality
  
• indicators/ Contract length
• No exclusivity rights or technology restrictions
• Freedom to provide additional services

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Output-Based Aid (OBA)

• Disbursement of public funding is tied to
  specified outputs or services delivered by
  private firms (or NGOs)
  
• May complement or replace user-fees under
  structures where operator is responsible for
  financing and providing the service.
  
• Public funding may be sourced from Bank loans,
  other kinds of donor assistance, or governments
  own resources.
  
• Potential benefits
• Better targeting of beneficiaries/outcomes
• Better incentives for efficiency innovation
• Opportunities to leverage private financing.

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OBA - Smart Subsidy Approach

• Problem
• Universal services are socially desirable (social
  NPV0) but not always commercially viable
  (private NPV
  
• Solution
• Provide a one-time investment subsidy for private
  operators willing to provide the universal access
  service.
  
• Bid the subsidy out competitively to ensure that
  costs are kept as low as possible. Paid over time
  as outputs are provided.
  
• This effectively leverages maximum private
  investment in achieving universal service goals

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The spread of the model
level of interest
Guatemala
Peru
Colombia
Chile
Nepal
telecom
South Africa
Dom. Rep.
Uganda
(Nicaragua)
Cape Verde (Benin/Togo) (Uganda) (Senegal)
Argentina Chile
electricity
Bolivia (Mexico) (Ecuador)
transport
water
(Paraguay)
income level
upper middle income
lower middle income
low income
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Some examples design
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Some examples outcomes
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Financing options

• Universal access funds, financed by
• government budget
• operator revenue contributions (typically 1-2)
• cellular, basic service or radio frequency
  license fees
  
• interconnect levies and virtual fund transfers
• Low interest operator loans
• national sources (e.g. USAs REA loans)
• aid agency sources (not a good record)
• Micro loans for phoneshops or other retailers
• e.g. Grameen Bank phone ladies
• part financing by telecom operators

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Applying the access gap and OBA model Guatemala
and Peru
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Guatemala Liberalization achievements
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there is a pending agenda access gap example
-- Guatemala
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Guatemala Identifying the Gaps

• Four areas were selected that had a high
  concentration of areas in clusters 4 5
  
• This led to selecting four departments Petén,
  Huehuetenango, Alta Verapaz y Quiche.
  
• A field survey was carried out in these four
  departments
  

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Results of Gap Assessment in Guatemala
Backbone Gap 288 out of 331 Municipalies do not
have backone access
Las Brechas de Eficiencia de Mercado se calculan
quitando a la población urbana y rural no pobre
la densidad total fija y móvil.
La Brecha de Acceso Real es la población rural
pobre y pobre extrema que requiere de subsidio
para poder accesar al servicio (y cuyo gasto en
comunicación sí cubre el costo de OM de TTPP).
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Estimated Costs of Bridging the Rural Access Gap
in Guatemala
Estimated not Actual/Unofficial
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1 tax on operators could finance programs to
fully address the rural access gap in Guatemala
Esquema de desembolsos es 30 como adelanto ante
entrega de cronograma detallado de instalaciones,
30 contra entrega de sistema y 4 pagos anuales
de 10.
Estimated, Not Actual/Unofficial
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Impacto de FITEL (1)
Gigantesco progreso en la obtención de Accesso
Universal Efecto de reducción de distancia ha sid
o dramático, pero las variantes entre regiones
puede ser grande (debido a la altura, terreno e
inclinación)
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Impacto de FITEL (2)

• FITEL ha reducido la distancia de 5.7 km en
  promedio, esto es notable en un país con un
  terreno tan desafiante como Perú
  
• El impacto de teléfonos FITEL es numeroso,
  incluyendo un cuidadoso uso de dinero en algunos
  pueblos donde anteriormente usaban el trueque
  

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Impacto de FITEL (3)

• Análisis de costo-beneficio de 1.64 y excedente
  por consumidor de 13 Soles por mes indica
  beneficios tangibles significativos
  
• Beneficios menos tangibles incluyen la mejora del
  contacto familiar, mejor salud y seguridad
  (llamadas de emergencia), integración de
  economías regionales y menor aislamiento

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Impacto de FITEL (4)

• 70 de encuestados fueron conscientes de los
  teléfonos públicos en sus comunidades, sólo 50
  lo ha usado en el año pasado (MINAG análisis de
  encuesta)
• Promedio de gasto en telecomunicaciones es
  alrededor de 8 Soles por mes por usuario US
  2.3 cerca de las salientes ARPU de muchos
  usarios de prepago en la ciudad
• Esto es equivalente al 1.4 de los ingresos
  familiares
  
• Modelo típico de uso ligeramente mayor a 3
  llamadas por mes/usuario, 10 minutos por mes en
  promedio (Suministro-figuras afectadas)
  
• Más de 3.3 millones de llamadas por mes en
  teléfonos rurales GTH, 1.9 millón recibidas (58)
  y1.4 millón salientes (42)
  

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Impacto de FITEL (5)

• FITEL alcanzó similar (ligeramente menor)
  subsidio por figuras prepagadas como FDT de
  Chile, entre US 5,600 y 12,000
  
• FITEL ha usado pilotos y circulado ofertas
  iniciales como experiencia de aprendizaje, y
  continua mejorando su programa, diseñando ofertas
  y marcos regulatorios.
• Tarifas de interconexion asimetricas para
  operadores rurales
  
• FITEL ha logrado mantener los costos
  administrativos de gestión del fondo en un nivel
  bajo (debajo del 2 del financiamiento) , aparece
  estable alrededor del 1

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Components of Access Strategy
1. Liderazco, dialogo y coordinacion
Consensuar una estrategia nacional de e-desaroll
o
2. Internet y Telecentros Mas pilotos y estrat
egia para asegurar uso productivo
3. Telefonos Comunitarios/VSAT
Mejorar, mover, fomento uso para otros servicios


4. Telefonia Celular Estimular expansion celu
lar
5. Banda Ancha Nacional Diagnostico y opciones
.
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Recap of LAC experiences

• Priority is universal access not universal
  service
  
• Voice is the killer ICT application demanded by
  poor ? cellphone is the worlds most important
  2-way ICT commodity
  
• Privatization, Liberalization and Universal
  Access reforms at the same time Chile, Peru,
  Guatemala, Colombia, Brazil
  
• Private sector has lead role to invest in sector.
  Government roll is to stimulate private
  investment in less attractive areas.
  
• Slow roll-out of some universal access programs
• Rural build-out requirements imposed on
  privatized firms
  
• Benefit Service quickly provided to unserved
  communities
  
• Policy Cost Exclusivity periods and weaker
  regulation of incumbent
  
• Universal access fund and agency established
• Financing options (1) government budget
  --Chile), (2) 1-2 tax on telecom sector --
  Peru, Colombia, Brazil), (2) Other sources
  Guatemala.
• Options (1) part of regulator Peru, Chile, (2)
  part of Ministry (3) independent
  
• Targeting of funds Identify access gaps
• Allocation of funds -- Output Based Aid (OBA)
  model/tenders
  
• Universal programs evolve over time
• Trends From large national projects to smaller
  projects, from supply/infrastructure focus to
  projects that combine supply/infrastructure with
  demand generation and productive use.

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Evolucion de Proyectos TICs Rurales

• Segunda Generacion
• Tecnologia y servicios variados
• Telefonos publicos, infocentros, telefonia
  celular y servicios inalambricos (WAP, Wi-Fi,
  Wi-Max)
  
• Infocentros comunitarios y infocentros
  especializados
  
• Banda ancha y backbone
• Contenido y aplicaciones
• Estimular/compaginar la oferta y demanda
• Eliminar barreras legales/regulatorios
• Variedad de subsidios y selección
• Multi-sectorial y integrados
• Acelerar el desarrollo de marcados
• En algunos paises se esta empezando la transicion
  de aceso universal a servicio universal
  

• Primera Generacion
• Telefonos publicos y infocentros comunitarios
• VSATs
• Enfoque sobre la demanda
• Subsidio minimo
• Enfoque en expandir la oferta