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  • 1. The Road to Broadband Development in Developing Countries is through Competition Driven by Wireless and VoIP The views expressed here are those of the author and are not intended to represent the official position of the FAO. Francisco J. Proenza FAO Investment Centre 8 October 2005 Wireless Communication and Development: A Global Perspective Annenberg Research Network on International Communication
  • 2. Plan of Presentation
      • Basic Rural Character of the Broadband Frontier in Developing Countries
      • Significance of VoIP and Wireless for Low Income People
      • The Regulatory Challenge
      • Approaches to Broadband Development
      • Rural Broadband Program Design
  • 3. The Rural Character of the Broadband Frontier in Developing Countries In Developed Countries VoIP and Wireless are enabling facilities-based competition. Incumbents don’t like them; but are adjusting. Competition in profitable urban markets can sustain competing networks – mobile, cable, land lines. Developing Countries regulators are weak and often captured. Legacy operators have been challenged in urban markets (mobile). Untapped markets are rural: high cost, low-income and high risk. Investments not forthcoming because of low profitability, but also risks of weak institutions. Wireless and VoIP are changing economic calculus of rural service, but regulatory and governance obstacles remain. Subsidies are required to stimulate demand and spur investment. The way subsidies are crafted will impact rural service, competition & future of broadband.
  • 4. VoIP is Important to Low Income People Study after study (Nicaragua, Ecuador, India, Sri Lanka, Indonesia) shows the same thing: VoIP is highly valued by low income people. Source: Apoyo [2005] 33 All Users 40 D/E (lowest) 29 C 29 B 33 A (highest) % of Users Socioeconomic Status % of Peru’s Cabina Users who Talk on the Phone through the Internet, by Socioeconomic Status
  • 5. Wireless is Important for Rural Service (1 of 4)
    • Cost advantages for rural service:
      • Easy to deploy
      • Easily scalable to meet demand requirements as these rise.
      • - Cost advantage serving disperse populations (you do not high to dig. Unlike fiber, distance from one access point to the other does not affect cost of service).
      • - Mobile is great if market can bear it (e.g. Jamaica, much of rural Sri Lanka). Fixed wireless appropriate in other places.
  • 6. Wireless is Important for Rural Service (2 of 4) 2. Suited to meet rural demand Low income rural Communities do not need and cannot afford to start with High Bandwidth - 2,400 kiosks sponsored by n-logue communications and IIT-Madras operate on CORdect technology at 70 Kbps. - throughput specified by reverse subsidy auctions in South America is range of 128 Kbps – 256 Kbps per access point.
  • 7. Wireless is Important for Rural Service (3 of 4) 3. Importance of Local Networks
    • Networks local; but we subsidize long distance.
    • Mobiles in rural Jamaica are used to “link up”. (strengthen existing relationships).
    • In France 60 % of total minutes fixed lines used for local calls; 37% of revenues. Calls to mobiles (mostly local): 10% of minutes, and 36% of revenue.
    • Governments subsidize public phones or telecenters in small towns, to communicate with those far away.
    • Telecenters require digital literacy and local networking. Both factors have been missing.
    • Long distance services are valuable, but only meet partial needs & limit profit potential (i.e. sustainability).
  • 8. Wireless is Important for Rural Service (4 of 4) 4. Strengthening Local Networks Sustainably
    • ITU telecenters in Honduras have been using wireless since 2000. Two headquarters centers retransmit Internet serving as ISP for neighboring residents. This ISP soon became the major source of revenue.
    • Standardization of technology and large market in WiFi (and hopefully WiMax), promises low cost deployment and operation. They can enhance prospects of sustainability of rural service by facilitating broadband delivery to entire communities by small operators.
      • Herein lies the power of Wireless : the potential to strengthen local networks profitably & at low cost.
  • 9. The Regulatory Challenge: VoIP (1 of 3)
    • Some deveoped countries see VoIP as an innovative technology that increases competition and lowers the cost of service.
      • The US’s follows a minimal regulation approach, requiring only basic quality standards, such as the provision that VoIP phones be able to connect to the national 911 emergency number.
      • Canada’s regulator has more aggressive asymmetric stance, allowing new entrants to provide VoIP services connecting to the PSTN, but continuing to regulate the incumbents VoIP service offers to prevent predatory pricing from stifling competition.
  • 10. The Regulatory Challenge: VoIP (2 of 3)
  • 11. The Regulatory Challenge: VoIP (3 of 3)
    • The 13 countries with SkypeOut rate higher than base rate by 300% may be characterized by weak regulation or by purposeful protection by Government of incumbent’s revenues.
    • Guyana tops the list US$ 0.40/minute. Guyana’s incumbent claims a 40 year exclusivity. It does not allow VoIP competition, from its customers or anyone else. A “rogue” company has set up business, despite opposition from the regulator.
    • 12 other with SkypeOut rates > base rate by 300%:
      • 2 that ban retail VoIP services (Bolivia and Paraguay),
      • 2 that prohibit commercial domestic VoIP (Ecuador, India),
      • 2 State has high stake in incumbent (Honduras, Sri Lanka),
      • 4 restrictive licensing commercial VoIP (Mexico, Indonesia, Colombia, Dominican Republic), and
      • 2 recently liberalized sector (Jamaica and Nicaragua).
  • 12. The Regulatory Challenge: Wireless Licensing Neto, Best and Gillet of 47 African countries: only in Rwanda, Lesotho and Tunisia, was 2.4 GHz “license free”, only in Rwanda and Lesotho 5 Ghz . Galperin found restrictions for 2.4 GHz in Chile, Peru and Mexico, and to less extent in Brazil. Interconnection Interconnection agreements determined by power. An incumbent serving a large network wields negotiating power, & power to influence policy, regulation and outcome of elections. Interest of consumers is diffused. A regulator’s capabilities, independence and power is limited. Example: E-Sri Lanka telecenters viability compromised because of lack of interconnection to PSTN by VSAT operator. Only a challenge from other operators with large (or potentially large) rivalrous networks will achieve interconnection at reasonable cost.
  • 13. Broadband Development (1 of 9) Facilities based competition is avowed objective of modern regulators: requires light touch and stimulates innovation. Facilities based competition works well in urban environments, but not in rural “markets” where there are no profits to be made. To reach rural communities Government subsidies are needed to build up demand and encourage private investment. For maximum long term effectiveness, these subsidies should encourage the development of rivalrous networks.
  • 14. Broadband Development (2 of 9) Korea – An Urban Model First, government gave loans to the two facilities based service providers to roll out fiber to serve 80 cities. Operators repaid connecting 10,000 government offices. Operators encouraged to establish own network alongside but required to lease facilities to new entrants at fixed price.   Second, fall in prices and fast roll out was result of State promoted facilities-based competition . Presently 7 facilities-based operators. 90% of households access to ADSL, 57% to cable, 9% to apartment LANs and wireless. Third, 80% urban . Apartment buildings of 600 units common. Dense population= fast low cost roll out. Fourth, 21,000 PCBangs (2001) + Government sponsored informatization campaigns 10 million people trained. (students, government, the military and housewives).
  • 15. Broadband Development (3 of 9) South American Reverse Subsidy Auctions First, a market driven approach. Second, it is (usually) a transparent approach Third, it facilitates fiscal discipline. Fourth, they can help foster competition by enabling new entrants establish wireless networks in rural areas that begin to compete with incumbent networks.
  • 16. Broadband Development (4 of 9)
    • South American Reverse Subsidy Auctions
    • Experience: Thin markets – design gives powerful signals.
    • Risk Management in contest design is important.
      • - Giving detailed info about demand requirements minimizes risk to bidders.
    • Technology Neutral Contests Favor Wireless (VSAT)
    • Incumbents do not Like Reverse Subsidy Auctions
      • - Guyana’s legal actions followed by IDB loan cancellation.
      • - 2 legal challenges made by Sri Lanka’s operators
    • 4. No panacea: Risks of rural service Remain High
      • - In Colombia, after 4-6 yrs of subsidized operation telecenter sustainability questionable.
      • - New contests specify low-throughput broadband service to meet demand of Government agencies (e.g. schools, police, post) & commercial (ethernet ports).
  • 17. Broadband Development (5 of 9) Technology is driving competition at the edges. Wireless and VoIP technologies are beginning to put in the hands of consumers, small companies and social activists (through easy to install, easy to use, low cost customer premise equipment) the means to connect to IP Networks; at times developing innovative and potentially competing services; but also at times challenging and at times changing the regulatory environment. Nibbling at the edges
  • 18.
    • Voice and video text messages are personal, enhance trust and facilitate network formation.
    • Government and academic institutions have a role in helping develop applications that ordinary people can use to interact and participate in networks.
    Source: n-logue Communications Broadband Development (6 of 9) IIT Madras
  • 19. Source: IIT Madras & n-logue communications IIT Madras - Medical Consultation through Videoconferencing Broadband Development (7 of 9)
  • 20. IIT Madras – Talk to an Agricultural Expert Source: IIT Madras & n-logue communications Broadband Development (8 of 9)
  • 21. Broadband Development (9 of 9) Indonesia’s WiFi Networks
    • Indonesia’s Ministry of National Education is executing program of ‘block grants” to qualifying schools to help fund the establishment of ICT Centers which draw wireless (WiFi) connectivity and help connect neighboring (mainly secondary) schools within a district. Program targets 100 Centers in 2005.
    • The Center for ICT Studies started operating on the legal fringe in Indonesia. Vigorous lobbying by the project’s promoters – individuals within the Ministry of Education and private technology activists led to liberalization of the 2.4-2.483 Ghz band on 6 January 2005.
    • The decree is temporary (2 years) and proscription on interconnection by 2.4 GHz networks to PSTN remains in effect.
    • Liberalization of the 2.4 GHz band is reportedly leading Indonesian ISPs to shift to wireless networks.
  • 22. Reverse Subsidy Auctions (1 of 2) Government sponsored investments should lay the groundwork for future expansion, but should not assume high risks or pay dearly for broadband that will not be used & that could be overshadowed by technology. R3 Network specifications should be consistent with demand requirements of low income, rural communities. Telephony, chat, email and videoconferencing should be assured by tender. License and interconnection agreement should be part of the tender offer, to assure the winning enterprise they will be able to complete local and international calls. VoIP connecting through the PSTN should be enabled prior to or conditional to launching of the tender; as is the possibility that local operators can provide Wireless services on a commercial basis to the neighboring community. R2 The regulator should have the independence and a track record of enforcing interconnection agreements prior to Planning the subsidy auction. Otherwise it is best not to proceed. R1
  • 23. Reverse Subsidy Auctions (2 of 2) Given the magnitude of investments that have already been made using reverse subsidy auctions and their present popularity among donors, there has been remarkably little study of their impact and sustainability of benefits. This is a major research gap that needs to be addressed. R6 Risks can be reduced by designing the tender in a way that combines commercial broadband service, connectivity to telecenters and to government offices (Post Office, hospitals, police stations, libraries, secondary schools) in communities to be served. R5 Reverse subsidy auctions offer the opportunity to increase competition based on rivalrous infrastructure. Structuring tender into networks may help reduce risks and enable different operators with local knowledge to enter the market. R4
  • 24. Effecting Change in Regulation (1 of 2) Modern Wireless technologies (WiFi & WiMax) are low cost because costs of setting up and operation are low and because risk of congestion is significantly reduced by technology. Whatever the merits of licensing spectrum in congested urban areas, these are hardly justified in the context of rural communities in developing countries. VoIP is the innovation that reduces prices at some sacrifice in quality. Regulation should provide basic consumer protection (e.g. emergency numbering) but enable VoIP interconnection. Donors and Governments committed to using ICTs to reduce rural poverty, would do well to focus on liberalization of VoIP and VoIP interconnection to the PSTN and in the elimination of restrictions on the use of Wireless spectrum in the bands that enable WiFi and WiMax wireless networks (i.e. 2.4 and 5.8 Ghz bands). R7
  • 25. Effecting Change in Regulation (2 of 2) Buildup Participation and Monitoring Capacity of Stakeholders Three kinds of interventions have the potential to contribute to this build up: i. Training in wireless networking, including administration and management of sustainable networks. ii. Local wireless network projects that increase competition at the edge, filling a gap in rural broadband service; iii. Local Observatories of hot topics in telecom regulation, through which informed exchange, analysis and debate about regulatory issues takes place. R8
  • 26.
    • “ Regulatory policy tends to lag technical change because it protects current stakeholders against new interest groups. Current interest groups have large, well defined stakes and low costs of organization. In contrast, entrants tend to have ill-defined stakes (only options on future gains) and are heterogeneous, as are consumers who could benefit from entry. Thus regulation generally protects incumbents against entrants. Only after the entrants have established themselves can they gain influence similar to the incumbents.” (Vogelsang and Woroch 1998)
    • “ Marketplace experience suggests that expensive networks most likely develop … from policies nurturing the development of rival infrastructure in adjacent markets or the adoption of alternative technologies. Foremost among these are policies to encourage investment in broadband and wireless telecommunications networks.”
            • (Thomas Hazlett 2005)
  • 27. Thank you
  • 28. Broadband Development (9 of 10) Indonesia’s WiFi Networks
  • 29. “ the network evolution path does typically not lead in a linear way from one dominant network technology to a predefined successor technology, e.g. from copper to fiber, without significant intermediate innovations. Rather, technological rivalry along the technological trajectory can fundamentally alter the path. For example, facility competition between (fixed) wireless and wire line technologies might lead to a variety of hybrid broadband access solutions with no single transmission medium (e.g. fiber) achieving universal deployment in the long run.” (Kiessling and Blondeel 1999, page 4.) Dense urban area Remote rural community Fiber VSAT ??????