Are Universal Service Funds an effective way to achieve universal access?

Despite mobile network operators’ astonishing success in extending connectivity to billions of people, there are still many who remain digitally excluded.  Only 43.3% of the world’s population has access to the internet, while 4.2bn people remain unconnected to the mobile internet – and 3.8bn of these reside in developing markets.

In order to extend the benefits of connectivity, regulators and policy makers have a number of tools available to increase coverage and access in underserved areas, one of which is the use of Universal Service Funds (‘USFs’). In the past, Universal Service Funds have been set up in many countries around the world with this purpose, but have they been effective? And are they still relevant? Evidence suggests that USFs have not performed as planned in most cases but nonetheless many governments continue to levy these fees and pursue USF-based policies. So what are the alternatives to USFs?

These issues were debated on April 12th in London at the Commonwealth Telecommunications Organisation workshop “Regulating ICT” by commissioners from regulators around the world and government and industry representatives.

USFs are designed to fund projects that increase access to telecommunication services. They are typically financed through contributions from telecom operators in the form of a percentage of gross revenues. In order to function correctly, and to be successful in the disbursement of funds collected, it is necessary to design a legal and regulatory framework that is strong, flexible and technologically neutral. The fund should have an independent structure, measureable objectives and transparent management, and these principles should also apply to the project-awarding process.

However, the reality is that most funds do not appear to have been consistent in applying this approach and, consequently, have performed poorly in achieving universal access. Studies by the ITU and the GSMA show that across the world, more than half of the sums collected for USFs were never utilised and over a third of the funds were not able to distribute any of the levies collected. When administered ineffectively, USFs can be counterproductive in that, by effectively taxing communications customers, they actually serve to raise the affordability barrier.

The most common factors in the failure of USF policies are:
•    Most USF levies are set without any analysis of the subsidy levels needed;
•    The underlying legal frameworks tend to be poorly-conceived and thus affected by the lack of technological neutrality, lack of service-flexibility, excessively bureaucratic structure or insufficient oversight;
•    Political intervention from other government agencies often affects performance;
•    Many USFs suffer from poor or inefficient administration;
•    Programmes for the deployment of tele-centres and community information centres often fail to take into account issues related to training and education, maintenance, power sources and other sustainability concerns; and
•    Transparency for most funds is inadequate – for example, with no set targets.

Yet there has been a handful of positive experiences. Colombia serves as a good example. Here, the USF has been structured to be financially autonomous and projects are awarded in a highly transparent manner via a public bidding process. But it’s true to say that the majority of the outcomes have been disappointing so far. In Brazil, where payments to the universal service fund have amounted to 1% of operator revenues since 2000, the fund is now $6bn and largely unused due to technology restrictions. In the Philippines, the fund was closed and the use of the funds is currently unknown.  In India, the usage rate is 50%, suggesting that the fee set for the contribution may be too high.

In the opinion of the GSMA Connected Society Programme, alternative solutions to USF policies can be explored for the extension of communications to rural and remote areas, such as promoting private network sharing and public-private partnerships, or introducing service obligations into new spectrum licence awards. Governments should consider incentives that facilitate market-based solutions and help by stimulating demand, developing the supporting infrastructure and reducing the private cost of coverage by easing the operators’ burden with respect to taxation and spectrum fees.

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