Papua New Guinea - Strategy & Project Outline (Oct 23 2008)


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Presented in Port Moresby to stakeholders in October 2008.

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Papua New Guinea - Strategy & Project Outline (Oct 23 2008)

  1. 1. Rural Telecommunications Strategy for PNG
  2. 2. Agenda <ul><li>Overall approach and methodology </li></ul><ul><li>Main Findings </li></ul><ul><li>Recommendations </li></ul><ul><li>World Bank project </li></ul>
  3. 3. Overall Approach <ul><li>The overall approach towards rural telecommunications is outlined by the “gaps” model: </li></ul>Universal Service Frontier (100%) Access Gap Sustainability Frontier Market Efficiency Frontier Market Gap Current access Low Income Households High Income Households Low cost Areas High cost Areas Supply Demand Penetration level achievable in a well-functioning competitive market under a stable regulatory environment Requires Universal Service Fund, but once demand catches up, service is expected to cover its operational costs. Port Moresby, main cities Mobile Competition World Bank Project
  4. 4. Closing the market gap is key <ul><li>Designing a universal access strategy without first addressing any pending regulatory issue is inefficient </li></ul><ul><ul><li>Universal access program could end up financing otherwise commercially viable areas </li></ul></ul><ul><ul><li>Subsidy requirements in non-commercially viable areas could be lower with improved regulation </li></ul></ul><ul><ul><li>Opportunity cost of public resources is high </li></ul></ul>
  5. 5. Key questions in designing a universal access program <ul><li>In PNG, the following questions need to be answered to develop a universal access program: </li></ul><ul><ul><li>Who to finance?  define target population (e.g. all villages with minimum population of x…; all district centres…) </li></ul></ul><ul><ul><li>What to finance?  define target services (e.g. telephony, Internet, backbone, public access) </li></ul></ul><ul><ul><li>How to finance?  define funding mechanism </li></ul></ul><ul><ul><li>How much is required?  estimate required funds </li></ul></ul>
  6. 6. Agenda <ul><li>Overall approach and methodology </li></ul><ul><li>Main Findings </li></ul><ul><li>Recommendations </li></ul><ul><li>World Bank project </li></ul>
  7. 7. Gradual introduction of competition in PNG is reducing the market gap <ul><li>Entry of a new mobile operator has increased the subscriber base dramatically over the past year (900,000 subscribers by Q1-2008) </li></ul><ul><li>Mobile prices have decreased approximately 60% since the entry of Digicel </li></ul><ul><li>Recent sale of 50% of B Mobile should further increase competition in the sector </li></ul>
  8. 8. Digicel is increasing its coverage nationwide…
  9. 9. … and Telikom needs to frequently update its backbone
  10. 10. Internet access is still very low <ul><li>Very low penetration (approx. 10,000 / 15,000 subscribers) </li></ul><ul><li>Mostly dial-up with very slow connection speeds </li></ul><ul><li>Limited by the low penetration of fixed lines and quality of the local loop (DSL-- copper) </li></ul><ul><li>Some broadband (DSL) available in Port Moresby; fewer than 2,000 subscribers (est.) </li></ul><ul><li>Broadband wireless technologies offer opportunities for more widespread service in PNG </li></ul><ul><ul><li>WiMAX </li></ul></ul><ul><ul><li>3G mobile </li></ul></ul>
  11. 11. The regulatory framework is still incomplete <ul><li>Besides those regulations required to close the Market Gap, there is a set of regulations required to enable a rural strategy: </li></ul><ul><ul><li>Rules for interconnection (eg. Asymmetric ix for rural operators) </li></ul></ul><ul><ul><li>Licensing and spectrum policies (eg. can ISPs provide voice services over IP? Will the government tender WiMax frequencies in the short term?) </li></ul></ul><ul><ul><li>Tariff regulation for rural areas </li></ul></ul><ul><ul><li>Quality of Service </li></ul></ul><ul><ul><li>Further definition of coverage requirements included in the licenses of B Mobile, Digicel and Greencom </li></ul></ul><ul><ul><li>International gateway </li></ul></ul><ul><ul><li>Overall institutional settings for regulation and enforcement in the sector </li></ul></ul>
  12. 12. Agenda <ul><li>Overall approach and methodology </li></ul><ul><li>Main Findings </li></ul><ul><li>Recommendations </li></ul><ul><li>World Bank project </li></ul>
  13. 13. Close the market gap <ul><li>A progressive implementation of the required legal and regulatory framework is recommended </li></ul><ul><ul><li>Transition towards competition in other services </li></ul></ul><ul><ul><li>Prepare Telikom for a new competitive environment </li></ul></ul><ul><li>Government has retained Freehills and Concept Economics to specifically address this issue and prepare a roadmap for liberalization of the sector </li></ul><ul><li>World Bank and Freehills/Concept collaborating on Universal access policy issues, at request of Government, to ensure consistency of approaches </li></ul>
  14. 14. Close the Access Gap: Universal Access Program <ul><li>Who to finance? </li></ul><ul><ul><li>An earlier World Bank study (InterConnect Communications/ICC) divided the country into three “zones” </li></ul></ul><ul><ul><ul><li>Zone 1: Areas that are commercially viable </li></ul></ul></ul><ul><ul><ul><li>Zone 2: Areas that would require a one-time subsidy </li></ul></ul></ul><ul><ul><ul><li>Zone 3: Areas that would require continuous subsidy </li></ul></ul></ul>
  15. 15. Close the Access Gap: Universal Access Program Universal Service Frontier (100%) Access Gap Sustainability Frontier Market Efficiency Frontier Market Gap Current access Low Income Households High Income Households Low cost Areas High cost Areas Supply Demand ZONE 1 ZONE 2 ZONE 3 Pending on-going review, and analysis of network coverage, the main target areas for the RCF should focus on zone 2 As demand expands and costs decrease, locations in zone 3 should become viable in time and eventually be included in future tenders
  16. 16. Universal Access (2) <ul><li>What to finance? </li></ul><ul><ul><li>Earlier World Bank study proposed these targets: </li></ul></ul><ul><ul><li>These targets are being reviewed </li></ul></ul><ul><ul><li>Your feedback is requested </li></ul></ul>At least 5km away from the nearest payphone ≤ 500 Access to broadband and value-added services ≥ 1,000 Phone coverage plus one public access point per every 500 inhab. ≥ 1,000 One public access point (eg payphone) 500 ≤ 1,000 Target service Population Threshold
  17. 17. Universal Access (3) Project A tender process Operator 1 Operator 2 Operator N <ul><li>The Universal Connectivity Fund holds a tender for a specific project (areas, services, quality, term) </li></ul><ul><li>The project is awarded to the operator that requests the lowest subsidy (“smart subsidy” approach) </li></ul>Proposals <ul><li>How to finance? Through the Universal Connectivity Fund </li></ul>
  18. 18. Smart Subsidies <ul><li>It is not a direct subsidy to investment </li></ul><ul><li>Sustainability is critical </li></ul>If project is financed with private resources Net present value for private parties: -K10 million If project is financed by private and public resources Net present value for private parties: -K0 Subsidy: K10 million
  19. 19. Some characteristics of smart subsidy reverse auctions <ul><li>Technology neutral tenders allow operators propose different options </li></ul><ul><li>Successful tenders usually depend on: </li></ul><ul><ul><li>Design of the tender </li></ul></ul><ul><ul><li>Credibility </li></ul></ul><ul><ul><li>Stability and Certainty </li></ul></ul><ul><ul><li>A good contract </li></ul></ul>
  20. 20. Universal Access (3) Operator 1 Operator 2 Operator N Universal Connectivity Fund Contribution Usually % of net revenues Universal Connectivity Fund Collection <ul><li>How are funds collected? </li></ul>
  21. 21. Universal Access (5) <ul><li>Institutional setting: </li></ul><ul><ul><li>Several options previously discussed during visits to PNG. Recommended approach at this stage is an independent RCF with institutional safeguards. </li></ul></ul><ul><ul><ul><li>Transparency, accountability and independence are key to the success of the program </li></ul></ul></ul><ul><li>Basic design principles: </li></ul><ul><ul><li>Management is independent (of regulated companies) </li></ul></ul><ul><ul><li>RCF has technical and financial expertise or access to it </li></ul></ul><ul><ul><li>Monies in fund are managed by experts </li></ul></ul><ul><ul><li>Criteria for allocation decision-making are clear </li></ul></ul><ul><ul><li>Recipient of funds (subsidies) have clear expectations and targets </li></ul></ul><ul><ul><li>RCF has capacity to monitor use of funds and performance </li></ul></ul>
  22. 22. Universal Access (6) <ul><li>Legal implications: </li></ul><ul><ul><li>RCF to be established by legislation – either amendments to existing legislation OR a separate stand-alone statute; </li></ul></ul><ul><ul><li>New legislation allows simultaneous focus on several issues: </li></ul></ul><ul><ul><ul><li>establishing Fund; </li></ul></ul></ul><ul><ul><ul><li>imposing levies and other sources of income for Fund; </li></ul></ul></ul><ul><ul><ul><li>organization and governance of Fund and agency </li></ul></ul></ul><ul><li>In addition to creating an agency to manage the Fund, new legislation should include: </li></ul><ul><ul><li>Scope of activities to be funded </li></ul></ul><ul><ul><li>Benchmark costs (e.g., methodology for assessing net cost, capital recovery, capital cost, and revenue) </li></ul></ul><ul><ul><li>Process of selection of Universal Access Provider </li></ul></ul><ul><ul><li>Appropriate licensing conditions </li></ul></ul>
  23. 23. Agenda <ul><li>Overall approach and methodology </li></ul><ul><li>Main Findings </li></ul><ul><li>Recommendations </li></ul><ul><li>World Bank project </li></ul>
  24. 24. Scope and activities <ul><li>Assist the Government in the creation of the Universal Access Program </li></ul><ul><li>Project components: </li></ul><ul><ul><li>Component 1 - Technical assistance to the Ministry of Information & Communications to support the improvement of the current legal and regulatory framework (aimed at reducing the market gap) </li></ul></ul><ul><ul><li>Component 2 - Technical assistance to assist in the creation of the universal service program (Rural Connectivity Fund) and the institutional settings and legal and regulatory framework required </li></ul></ul><ul><ul><li>Component 3 - Investment subsidy (“seed capital”) for the Fund to support the first set of tenders, both as a pilot for the newly formed entities and to jump-start the program, about US$13 m. </li></ul></ul>
  25. 25. Current status and next steps <ul><li>Current mission (Oct 20 – 25) will identify specific activities to be financed: </li></ul><ul><ul><li>Component 1 will be coordinated with the Government and Freehills/Concept Economics </li></ul></ul><ul><ul><li>Component 2 will be assessed on-site </li></ul></ul><ul><ul><li>The economic and financial model for Component 3 will be populated during the mission and the scope of the first set of tenders will be provided by the end of the mission. </li></ul></ul>