Facilitating investments in future digital infrastructure

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A towerco’s view on the optimal approach to achieving Universal Service and its funding

Around the world, developed countries are achieving rapid growth in telecommunications maturity and performance via wireless rather than fixed line networks as they move to the Digital Economy. This ‘leapfrogging effect’ of wireless networks is widely acknowledged. As a key long-term player in Asian telecommunications infrastructure, edotco is committed to supporting policies that efficiently and effectively bridge the digital divide in all of the markets in which it operates. In this article, the towerco talks to TowerXchange to share its views on the current and future opportunities to get involved in ensuring Universal Service.

TowerXchange: Please tell us about your role at edotco and experience/background.

Azizul Abdul Rahman, Director Group Corporate Affairs, edotco Group:

I joined edotco in August 2015 and at present, hold the position of Director, Group Corporate Affairs heading the Legal, Regulatory and Corporate Responsibility portfolios. Before this I served as edotco’s Director of Performance and Special Projects and prior to joining the company, I was Head of Telecoms (Asia) in Tesco PLC and General Manager/Head – Business Development in the Consumer Business Division in Maxis Berhad.

TowerXchange: To set the context for our readers, could you please tell us Universal Service actually is?

Azizul Abdul Rahman, Director Group Corporate Affairs, edotco Group:

Universal Service is underpinned by the principle that everyone should be given access to communication services at an affordable price so these services are available to everybody regardless of location, background and income level.

Implementation of specific Universal Service programs can take various forms but in general we categorise them as follows:

1) Universal Service Obligation (USO) – the obligation to deploy and maintain networks is put on designated Universal Service Provider (USP), typically the incumbent operator or established operator where the funding could be provided by the Government, the operator concerned through their retail rates and tariffs or other funds.

2) Universal Service Fund (USF) – where the industry is required by legislation to provide contribution to the Universal Service Fund which is then used to subsidise any industry player who participates in Universal Service programs, usually through a claim process or an offset with their contribution.

The concept of Universal Service is observed in numerous countries however, the level of effectiveness and scale of its implementation varies.

TowerXchange: Why is this issue important right now? What are some of the drivers impacting Universal Service?

Azizul Abdul Rahman, Director Group Corporate Affairs, edotco Group:

The main issue at the moment is that despite the existence of USPs and the many technology advancements we have reached, Universal Service has not achieved its main goal, which is to bridge the current digital divide.

There are a few drivers that impact USPs and their roadmap to success. Namely:

1. Scope of Universal Service

Communication services under Universal Service policies have not evolved as we have progressed. The concept was developed when only fixed networks existed. Today, there are broadband services, mobile services and wireless technologies, all of which are key components to communication services. An update to a “live concept” where such technologies can be added as and when required is much needed.

The design or updates to Universal Service policies should also take into account the important role that towers and other passive infrastructure play in the provision of such services.

2. Cost effectiveness

Price should never be a factor that stops people from utilising communication services and supply of services should reflect the most cost-effective approach for all parties.

For instance, for more efficient dispersion of communication services, tower sharing by mobile network operators (MNOs) makes more sense as this lowers the cost and makes it cheaper to access.

3. Technology neutrality

Technology neutrality is key in ensuring policies back the provision of services that are driven by socio-economic impact and public interest rather than technological preferences.

Mobile and broadband consumption for example have reached many areas cost effectively under a commercial roll-out, due to shared access to networks and greater network coverage at competitive prices. Adding on the fact that tower companies lower the cost even further through infrastructure sharing, improved efficiency due to scale and implementation of innovative solutions.

Universal Service programs need to take these factors into account as it means less Universal Service Fund is required for network or infrastructure roll-out and more importantly, so that more funds can be used in other areas like mobile broadband and data services. This also includes provision of devices, ICT training, education and content development.

TowerXchange: How do governments typically make Universal Service available/come to life?

Azizul Abdul Rahman, Director Group Corporate Affairs, edotco Group:

Countries have adopted different approaches with varying degrees of success. Among these:

- Sector reforms and introduction of competitive frameworks

- Imposing mandatory service obligations such as coverage roll-out obligation from spectrum allocation 

- Infrastructure sharing frameworks 

- Putting in place cross subsidies 

- Levying access deficit charges

- Negotiating Private Public Partnerships (PPPs)

- Universal Service Fund 

TowerXchange: Based on edotco’s research, what’s not working well for some of the programs/initiatives in Asia?

Azizul Abdul Rahman, Director Group Corporate Affairs, edotco Group:

One of the issues we have identified is that Universal Service is stuck in its original framework.

The development of the Universal Service framework unfortunately has been a static process which needs to change. We need the framework to continuously evolve and adapt to the industry progresses and to do so, a review period could be implemented every three or five years. Countries such as India and Australia have already proposed reforms to their Universal Service programs.

India

Early in 2015, the Telecom Regulatory Authority of India (TRAI) recommended a reduction in the Universal Service Obligation levy from 5% to 3% in India (a proposed 40% reduction). TRAI’s rationale is that the fund has not been utilised fully in the past few years. This reduction would help in minimising the financial stress of the telecom companies and enable them to offer quality services to consumers at affordable prices.

Australia

In 2012, the Australian Government recommended, after an extensive public consultation process by the Productivity Commission (PC), to eliminate the Universal Service Obligation (currently called the Telecommunications Industry Levy) and replace it with a Universal Service Guarantee (USG). The new Universal Service Guarantee will propose to provide all Australian homes and businesses, regardless of their location, with access to both voice and broadband services. It also ensures areas with specific needs have access to pay-phones or equivalent community.

The governance of Universal Service Fund is another issue. In fact, there is also a lack of transparency in the operation and administration of such funds – not only in Asia but global studies have indicated that most often, a significant portion of Universal Service Funds are not fully utilised or distributed for the levies collected. The collection increases cost to operators and is a burden to industry resources. It also hinders them from innovating and rolling out services quickly. More than that, this cost is passed on to consumers hence raising the service affordability barrier.

TowerXchange: What are some recommendations to improve Universal Service?

Azizul Abdul Rahman, Director Group Corporate Affairs, edotco Group:

Policies around Universal Service need to be refined to meet its overall aim while easing our journey towards a more advanced and connected society. edotco’s recommended best practices are:

i. Infrastructure to be a focal point of Universal Service policies

Infrastructure is crucial in the provision of communication services, even more so in unserved and underserved areas. Tower sharing enables MNOs to have a wider dispersion of service while reducing cost to operators and remaining affordable.

ii. Expand the design of Universal Service policies

Include service providers of new technology and the full spectrum of connectivity (i.e. 3G, 4G, 5G technologies and beyond). Mobile networks that are using such progressive wireless data services are integral to the delivery of service and a nation’s Digital Economy. In Malaysia, Digital Economy continues to be a key driver of growth, having contributed 18.2% to Malaysia’s gross domestic product (GDP) in 2017 expected to exceed the projected target of 20% earlier than 2020 (source: https://www.nst.com.my/news/nation/2017/10/296200/budget-2018-set-boost-digital-economy-mdec).

iii. Contribution should not be a burden

The contribution rate should not burden operators and it should not add to the build-up of excess funds in Universal Service Fund. A contribution rate of 1-2% services revenues is reasonable and in line with global best practice. Currently, Malaysia has a hefty 6% rate which can mean it will be difficult to maintain a cost-effective approach to service provisioning as this forces operators to increase their cost to customers.

TowerXchange: So how can towercos play a role? What are some good examples in Asia that allow infrastructure providers to contribute meaningfully?

Azizul Abdul Rahman, Director Group Corporate Affairs, edotco Group:

Towercos are critical in extending Universal Service to underserved and unserved communities as they promote infrastructure sharing and ease access. There is already precedence for tower construction and investment being a key focus of Universal Service funding, countries including Australia, India and Malaysia have made tweaks to their Universal Service policy noting the increasingly important role of infrastructure in service delivery.

Australia’s Mobile Black Spot Program delivered almost AU$600mn in new investments in telecoms infrastructure, including new mobile towers, to improve mobile coverage in the country.

India’s Universal Service Obligation Fund plans to invest US$1bn back into the mobile industry through the financing of up to 10,000 towers in rural areas.

Under Malaysia’s Universal Service Provision fund, approximately US$256mn telecoms contracts have been granted to develop and deploy communication facilities in underserved areas, including telecom towers.

As discussed earlier, Universal Service policies should be developed in tandem with the technological innovations within the telecommunication industry. The journey towards achieving the optimal approach of Universal Service should also take into account the role of infrastructure service providers in advancing the industry through innovative infrastructure solutions and connectivity. And finally, players in the telecom sector and those involved in governing and formulating industry policies need to ensure that collectively, there is an effective execution of our Universal Service policies and utilisation of the Universal Service Fund.

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