We believe that by the
early part of the next century virtually the whole of
mankind should be brought within easy reach of a
telephone and, in due course, the other services
telecommunications can provide.
The
Maitland Commission, The missing link, 1984.
We will use this
[global information infrastructure] to help our
respective economies and to promote health, education,
environmental protection and democracy.... [The ITU]
adopted five principles for a GII which the nations of
the world have been putting into practice: Private
investment. Market-driven competition. Flexible
regulatory systems. Non-discriminatory access. And
universal service.
United
States Vice President Al Gore, address to the ITU
Plenipotentiary Conference, September 1994.
Introduction
In 1984, the
International Telecommunication Union's Maitland
Commission noted that telecommunications was a "missing
link" in much of the developing world. A decade later,
policy makers were calling for a "global information
infrastructure" that would link everyone into a worldwide
network, or more likely, network of networks. Yet a
majority of individuals and whole communities in the
developing world still do not have access to
telecommunications. And where telecommunication facilities
exist in developing regions and remote parts of the
industrialized world, limited capacity and unreliability
may leave users decades behind their better-equipped
counterparts who are able to take advantage of converging
technologies and new services.
This article examines what
progress has been made toward bringing the "whole of
mankind within easy reach of a telephone," what problems
remain, and the effects of changing technologies and
policies. It then proposes strategies to achieve the goal
of universal access to reliable and affordable
telecommunication services.
Access to
telecommunications: the gap remains
Although there has been a
dramatic increase in telecommunication investment in the
past decade, there are still enormous gaps in
accessibility to telecommunications between the developed
and developing world and, within the developing world,
between urban and rural areas. While there are now almost
50 lines per 100 people in high income industrialized
countries, there is still an average of less than one line
per 100 in the poorest countries. The gaps are even
greater between urban and non-urban areas. There are
almost three times as many telephone lines per 100 in the
largest city of lower middle income countries as in their
rural areas, and more than seven times as many lines per
100 in the largest city of low-income countries as in
their rural areas. These gaps are even more significant
given the fact that more than 50 percent - and as many as
80 percent - of the population in poorest countries, live
in rural areas. (See Table 1).
Table 1: Access to
telecommunications
|
Teledensity (lines/100 pop.) |
Urban
density |
Rest of
country |
High income countries |
48.8 |
51.7 |
48.5 |
Upper middle income
countries |
12.9 |
21.9 |
10.6 |
Lower middle income
countries |
8.1 |
19.0 |
6.8 |
Low income countries |
0.9 |
5.2 |
0.7 |
Source:
ITU, World Telecommunication
Development Report, 1995
Indicators of pent-up
demand
Access to television
vs. telephones
The lack of telephones
cannot necessarily be attributed to lack of demand or
purchasing power. In many developing countries, television
sets are much more prevalent than telephone lines. In
industrialized countries, both TV sets and telephone lines
are almost universally accessible. However, in lower
middle income countries there are almost two and a half
times as many TV sets as telephone lines, and in low
income countries, there are more than 13 times as many TV
sets as telephone lines. (See Table 2). The problem
appears to be a bottleneck in provision of telephone
service rather than lack of sufficient disposable income
to pay for telephone calls.
Table 2: Access to
telephones and television sets
|
Tel.
lines/100 |
TV
sets/100 |
Ratio of
TV sets: tel. lines |
High income countries |
48.8 |
59.7 |
1.2 |
Upper middle income
countries |
12.9 |
24.1 |
1.9 |
Lower middle income
countries |
8.1 |
19.8 |
2.4 |
Low income countries |
0.9 |
11.8 |
13.1 |
Source:
ITU, World Telecommunication
Development Report, 1995
Put another way, it appears
that where television is available, a significant
percentage of families will find the money to buy TV sets.
These numbers indicate a potential pent-up demand for
other communication services, and the availability of
disposable income if the service is deemed important.
Indicators of
entrepreneurship
Another approach to
determining whether current strategies for
telecommunication investment are somehow missing the mark
is to examine indicators of communication
entrepreneurship. While comparative data are not
available, the following activities in a country would
indicate that there are entrepreneurs willing to offer
communication services and customers to support them:
Video shops:
shops that rent video cassettes and/or video recorders and
players. These are found in even relatively poor
developing countries where there would appear to be very
little disposable income for most families.
Cable TV systems:
cable TV systems (government authorized or otherwise) that
have been installed to provide access to TV channels
(e.g., from a satellite) for a fee. The most striking
current example is India, where cable TV systems have
sprung up in urban neighbourhoods to deliver programming
from AsiaSat. Cable and MMDS (microwave multipoint
distribution systems, also known as "wireless cable") are
expanding rapidly in other developing Asian countries such
as Thailand and the Philippines.
Kiosks and copy
shops: entrepreneurs who offer
communication facilities such as telephones and facsimile
services. Some countries such as Indonesia have introduced
this model for payphone service, while retaining
government control over operation of the public switched
network. Entrepreneurs typically retain a percentage of
the toll revenues.
The changing
telecommunications environment
An analysis of strategies
for increasing access to telecommunications in developing
countries must be placed in context. First,
telecommunication technologies have changed dramatically
in the past decade, and many recent innovations offer
promising solutions for extending services at lower costs
than were generally thought possible. Perhaps the most
telling evidence of change is the cover of the Maitland
Commission report itself, which showed two rotary dial
telephones. This is not to say that digital switching did
not exist by 1984, but that it was not considered
necessary or perhaps even appropriate for developing
regions. A second indicator is that the Commission
specifically identified only telephone service, and
proposed access "in due course [to] the other services
telecommunications can provide." Today, many of those
services could be available as soon as telecommunication
service is provided.
There are many recent
technological innovations that can make telecommunication
services more reliable and cheaper to provide. Among the
technological changes:
Wireless
technologies: Advances in radio
technology such as cellular radio and rural radio
subscriber systems offer affordable means of reaching less
isolated rural customers. Cellular networks can be used
for payphones and other "fixed" services as well as for
mobile communications. "Wireless local loop" technologies
can link subscribers to the network without the need for
laying cable or stringing copper wire.
Digital
Compression: Digital video can
be "compressed" so that video conferencing may require as
few as two 64 kilobit per second circuits. Digital audio
can also be compressed so that 8 or more conversations can
be carried on a 64 kbit per second channel, thus reducing
transmission costs.
VSATs:
Small satellite earth stations (very small aperture
terminals or VSATs) are proliferating in developing
regions, usually for distribution of television signals.
However, VSATs can also be used for interactive voice and
data, and for data broadcasting. Multiple channels of
voice communications can be provided using digital
compression. Satellite terminals can also serve as hubs
for wireless local networks.
Voice Messaging:
Voice mail systems can do much more than replace analogue
answering machines. TeleBahia in north-eastern Brazil is
using voice messaging technology to offer "virtual
telephone service" to people who are still without
individual telephone service. They can rent a voice mail
box for a monthly fee. Callers can leave messages in their
mail boxes, which the subscribers can retrieve from a pay
phone. (A similar approach has been used in some United
States homeless shelters to enable job seekers to have a
way to be contacted by prospective employers.)
Store-and-forward
data: Development organizations
seeking cheap ways to communicate with field projects are
using single satellite low earth orbiting (LEO) systems
for electronic messaging. For example, SatelLife, a
non-profit association of physicians based in Boston,
operates "Health Net," using a micro-satellite to provide
store-and-forward data communication to small terminals in
developing countries.
The changing policy
environment
In addition to
technological change, the policy environment is also
changing dramatically. There is an increasing emphasis on
private sector investment and market-driven competition,
as advocated by United States' Vice President Al Gore to
the ITU Plenipotentiary in 1994. The various models of
restructuring the telecommunication sector, may be viewed
as experiments whose impacts will not be fully known in
this decade. The major models for restructuring the
telecommunication sector include:
Ownership:
Autonomous public
sector corporations: The first
strategy for creating incentives to improve efficiency and
innovation in the telecommunication sector is to create an
autonomous organization operating on business principles.
This is often seen as an intermediate step between a PTT
structure and some form of privatization. Most developing
countries have taken this step, which is advocated by the
World Bank and other funding agencies.
Privatized
corporations: Privatization
models range from minor investments by private companies,
to joint ventures between private carriers and
governments, to full privatization without any government
stake or with a small government "golden share."
Structure:
Monopoly:
Most countries began with a national monopoly model that
is being eroded. Most maintain some level of monopoly, for
example in the local loop, but alternative providers using
wireless and fibre are also beginning to challenge the
assumption of natural monopoly in the local loop.
Open entry for
unserved areas: An intermediate
step between national monopoly and competition is a policy
of open entry for unserved areas. For example, the United
States, Finland, Hungary an Poland have small companies or
cooperatives that were formed to provide services in areas
ignored by the national monopoly carrier.
Competition:
Competition can range from terminal equipment (now
commonly competitive in most countries, including
developing countries), to new services such as cellular
telephony, to value-added services such as packet data
networks, to full competition in the network.
Implications for
planning
Changing assumptions
Changing developing
economies are likely to result in new and changing demands
for telecommunication services, while the introduction of
new technologies is changing the economic viability of
rural telecommunications.
Voice and data:
While basic voice communication is still the first
priority, many users now have requirements for data
communication as well, particularly facsimile and
relatively low speed data communication. Demand for
Internet access is also growing enormously for
universities, libraries and schools, as well as for
government and business applications and private use. Thus
transmission channels must be reliable enough to handle
data as well as voice traffic.
Urban and rural:
The availability of relatively low cost radio and
satellite technologies for serving rural areas makes it
possible to reach even the most remote locations, and to
base priorities for service on need rather than proximity
to the terrestrial network.
The combination of
increased demand and lower cost technologies makes rural
areas more attractive for investment. As a result, other
institutional structures besides public sector monopolies
may also be suitable for rural service provision.
Setting goals and
targets
Before taking major steps
to encourage investment or restructure the
telecommunication sector, planners should set national
telecommunication goals. Nations in general seek to
improve educational standards, to provide health care for
all, to create jobs, to reduce disparities between haves
and have-nots, both urban and rural. As shown in several
studies, telecommunications can contribute to many of
these goals (see, for example, Hudson, 1984; Parker and
Hudson, 1995; Saunders, Warford and Wellenius, 1994).
These general development
goals must be translated into specific telecommunication
goals, which might include:
Universal access
to basic communications: Access
may be defined using a variety of criteria such as:
- population:
e.g., a telephone for every permanent settlement with a
minimum population;
- distance:
e.g., a telephone within x kilometres of all rural
residents;
- time:
e.g., a telephone within an hour's walk or bicycle ride
of all rural residents.
Reliability:
Standards for reliable operation and availability; quality
sufficient for voice, facsimile, and data communication.
Emergency
services: A simple way to reach
help immediately, so that anyone, including children and
illiterate adults, would be able to call a hospital,
police, etc.
Pricing:
Pricing based on communities of interest; for example, to
regional centres where stores and government offices are
located; to other locations where most relatives are
located (surrounding villages, regional towns, etc.).
In North America, Parker
and Hudson (1995) have advocated that, in order to ensure
that telecommunication technologies and services can be
put to optimal use for rural development, the basic goal
should be to provide rural and remote areas with
affordable access to telecommunication and information
services comparable to those available in urban areas. The
underlying rationale is that universal access to
information is critical to the development process.
While planners may want to
modify this goal for lower income countries, there is no
longer a compelling technological or financial reason to
limit rural services. The same technologies that are used
to transmit voice can also transmit facsimile and data,
and, through digital compression, video as well. As noted
above, access criteria may differ in rural areas, but they
actually may be comparable to access criteria in high
density urban areas, where the goal is not to provide a
line for every dwelling, but access for everyone through
public phones in kiosks, shops, common areas, etc.
It is important to note
that this goal is in effect a "moving target": it does not
specify a particular technology, but assumes that as
facilities and services become widely available in urban
areas, they should also be extended to rural areas.
Information can be accessed and shared through a range of
technologies such as satellite earth stations, microwave
and cellular radio links, optical fibre and copper wire.
Indeed, the technologies used to deliver the services in
rural areas may differ from those installed in urban
areas; for example, satellite links and radio networks may
be less costly for rural communications than optical fibre
or even copper wire.
Next it is necessary to
devise a set of strategies to achieve these goals.
Strategies are needed to create incentives to increase
telecommunication investment, and to drive the investment
toward achieving these goals.
Industry structure
The Maitland Commission
paid little attention to the structure of the
telecommunication sector beyond advocating that
telecommunications be set up "as a separate,
self-sustaining enterprise, run along business lines" (Missing
link: 38). At the time, many developing countries were
still running telecommunications through a government
department with revenues subsidizing the postal services,
and often turning foreign exchange earnings over to the
national treasury. Today, a majority of developing
countries are running their telecommunication
administrations as autonomous government-owned
enterprises, and many are in the process of privatizing
these operations.
Yet, as the data show, a
more entrepreneurial national monopoly may not have
adequate incentives to invest in facilities to accomplish
the goals outlined above, given the unmet demands of
business and upper middle class residential customers in
the cities. The following are some strategies that can
create incentives to invest in rural and less profitable
areas:
New services -
franchise or competition: The
introduction of a new service may be accelerated by
issuing licenses for franchises. This approach has been
used for cellular radio in Argentina and Mexico, for
example. It allows foreign investors with the necessary
capital and expertise to provide service more quickly than
it could be offered through the PTT. Satellite services
such as data communication may also be offered through one
or more private licensed carriers. For example, private
banking networks using VSATs have now been authorized in
Brazil.
Local companies:
Although in most countries there is a single carrier that
provides both local and long distance services, it may
make sense to delineate territories that can be served by
local entities. Local enterprises are likely to be more
responsive to local needs, whether they be urban or rural.
In the United States, the model of rural cooperatives
fostered through the Rural Electrification Administration
(REA) has been used to bring telephone service to areas
ignored by the large carriers. An example of this approach
in urban areas is India's Metropolitan Telephone
Corporation established to serve Bombay and Delhi. Local
companies also provide telephone service in Colombia.
Cooperatives have been introduced in Hungary. A
disadvantage of this approach is the need for local
expertise to operate the system, which is likely to be in
particularly short supply in many developing countries.
Franchises for
unserved areas: Another approach
to serving presently unserved areas is to open them up to
private franchises. Large carriers may determine that some
rural areas are too unprofitable to serve in the near
future. However, this conclusion may be based on
assumptions about the cost of technologies and
implementation that could be inappropriate.
It should be noted that
wireless technologies could change the economics of
providing rural services, making rural franchises much
more attractive to investors. For example, while companies
such as GTE and US West are selling rural franchises,
other companies with a more optimistic assessment of rural
profitability are buying them. Rochester Telephone has
bought properties in the rural east and midwest. Citizens
Communications spent US$1.1 billion to buy 500 000 access
lines, primarily in the rural western United States . And
Pacific Telecom, the parent of Alascom, also recently has
bought rural properties.
Resale:
Third parties may be permitted to lease capacity in bulk
and resell it in units of bandwidth and/or time
appropriate for business customers and other major users.
This approach may be suitable where some excess network
capacity exists (e.g., between major cities or on domestic
or regional satellites). Resale is one of the simplest
ways to introduce some competition and lower rates for
users, but is not legal in most developing countries, even
where some excess capacity exists in backbone networks.
Incentives
Another strategy that may
be used with a variety of institutional structures is to
introduce incentives that are designed to achieve policy
goals such as extension of telecommunication services into
rural areas. These may include:
Incentive
regulation: Some countries and
US states have introduced changes in regulation that allow
carriers considerable pricing flexibility in return for
meeting certain conditions (e.g., price caps). An
alternative to financial incentives would be a "management
by objectives" approach where policy makers and/or
regulators would set objectives and carriers would be
rewarded for achieving them. These objectives could
include service upgrades such as extension of service to
rural areas or meeting quality of service targets. For
example, the Philippines is requiring new franchisees for
international gateways and cellular systems to install a
specified number of lines in currently unserved rural
areas.
Investment
incentives: Several countries
including Indonesia and Thailand have encouraged investors
to build new facilities through schemes known as Build
Operate Transfer (BOT). Investors build the system,
operate it and receive a percentage of the revenues for a
specified period, and then turn it over to the government.
Joint ventures may also include incentives for investment
in rural areas.
Service
incentives: Some countries have
encouraged private entrepreneurs to offer
telecommunication services. For example, in Indonesia and
Rwanda, entrepreneurs may install telephones in kiosks
that also sell soft drinks and newspapers. The
entrepreneurs receive a percentage of the revenue,
typically stay open much longer hours than post offices,
and provide a secure location for the telephone.
Limiting
exclusivity: While investors may
require a predictable industry environment to commit
capital, countries must resist pressure to issue
indefinite or very long term licenses. The technology and
the industry is changing too fast for countries to assume
that what seems adequate investment and performance today
will be adequate five years, let alone ten years, from
now. Thus, franchise awards should be for five years or
less and exclusivity agreements should not exceed five
years.
Other sources of revenue
Internal cross-subsidies
have been the primary means of sustaining rural services
in the past. However, with the restructuring of the
sector, if competition is introduced or even contemplated
for some services, subsidies must be separately accounted
for so that monopoly services are not used to subsidize
competitive services. If subsidies are required, they
should be targeted for specific services or classes of
customers. Funds may be generated in several ways:
Pooled revenues:
Carriers may pool a percentage of their revenues which
would then be allocated to provide services in high cost
areas. In the United States, a "high cost fund" set up
after the divestiture of AT&T is administered by the
National Exchange Carriers Association (NECA).
Taxes on usage:
A tax on usage may be imposed, with the revenue used to
provide services that would otherwise not be economical.
This is one of the models used to support universal
service in the United States .
Taxes on revenues:
Carriers or service providers may be taxed on revenues
generated, with these taxes allocated for service upgrades
or rate subsidies.
License or
franchise fees: Carriers may be
charged fees for a franchise, use of spectrum, or other
resource. These fees could be allocated to a fund for
upgrading or extending services. The goal should be to
raise income to support upgrading and oversight of the
telecommunication sector - and possibly applications such
as pilot projects for education and health care - not to
provide a new source of revenue for the national treasury.
Aggregating demand:
Rural areas often lack economies of scale that would make
provision of new services attractive. One approach to
aggregating demand would be to require that all government
traffic, often carried out on dedicated networks, be
carried on the public switched network. Government
expenditures would then generate revenue that could be
used to upgrade and extend the public network.
Monitoring progress
No matter what approach or
combination of approaches countries choose to adopt, they
must have some way of monitoring progress toward their
goals. Incentives have been stressed because most
countries do not have the legal history or regulation, nor
sufficient available expertise, to staff regulatory
bodies. However, these countries can establish a small
oversight group with the legal authority to require
licensed carriers to provide data on the number of lines
available, quality of service, sample period traffic data,
etc.
A second strategy is for
this oversight group to schedule regular opportunities for
users to present their needs and problems to carriers.
Formal hearings may not always be appropriate, but there
needs to be some mechanism for carriers and users to share
information, and for regulators to be made aware of user
issues and perspectives.
Bringing
telecommunications within reach of all
The above strategies are
designed to reflect the changing technological, policy and
financial environments of the 1990s. In particular, they
are designed to reflect three themes:
- an awareness that
telecommunication goals will be moving targets because
of changes in technology and user needs;
- a broadening of the definition of
"public interest" beyond the simple assessment of price
to customers, which is the indicator most often used in
industrialized countries;
- an assumption that incentives are
likely to be more successful than regulations in
encouraging development-oriented investment, but that
sanctions must be available in the case that agreed-upon
targets are not met.
These themes of moving
targets, planning to reflect the public interest, and
incentives with sanctions need to be incorporated into
policies that embrace privatization and liberalization if
telecommunication services are to become universally
accessible throughout the developing world.
Heather E. Hudson
Director
Telecommunications Management and Policy Program
University of San Francisco
Courtesy
fao.org
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