Rohan Samarajiva chaired the Universal, Ubiquitous, Equitable and Affordable session at the ITU World 2006 that raised some fundamental questions about Universal Service Obligation (USO) programs around the world. Rohan introduced the topic [PDF] drawing from LIRNEasia‘s recent Shoestrings II study on telephone use at the “bottom of the pyramid.”

The first Keynote speaker, Zhengmao Li, VP China Unicom, described the efforts of the Chinese govt and his company in building a harmonious digital society. Thanks to the govt’s policy to provide access to ICTs on an equitable and affordable basis, more than 97 percent of administrative villages in China have a phone.
The second Keynote speaker, Tom Philips, Chief Regulatory Officer at the GSM Association forcefully argued that USO programs in most parts of the world have not resulted in improved access but have rather harmed the objective of connecting those who currently do not have access. Mobile telephony provides service to 2.5 billion people, 80 percent of them are connected via GSM. The GSM Association identified the cost of a handset to be the single biggest barrier to ownership. In order to reduce that barrier, a new initiative was launched that resulted in the $20 mobile handset developed by Motorola.

However, some of the other barriers to access revolve around governments. High taxation on mobile services has been identified as one such barrier. In some countries, mobile providers are the single biggest tax payers. In Mr Philips’ view, USO funding policy is holding back ubiquitous telephone service rather than promoting it. A study of 90 different countries found about a third of them collect USO funds. Mobile networks currently cover 80% of the world’s population. Mr Philips asserted that 100% coverage of population is achievable if USO fund can be directed for mobile network deployment rather than to landline and fixed infrastructure. Of the $6 billion that is being collected in USO funds from around the world, excluding the USA, only quarter has been spend on the telecom sector. By the end of the decade, USO funds globally will rise to $10 billion.

Although the mobile industry has contributed $2 billion out of the $6 billion in USO funds collected, Mr Philips argued that only $75 million, or less than 1 percent, has been put back into the mobile sector. This is especially surprising considering that mobile technology is seen to be 10 times more cost effective than fixed in providing connectivity to the unconnected.
Mr Philips argued that USO programs should be phased out over time. The $4.4 billion in unspent USO funds should be spent for what it was collected for–for connecting those who are not connected today by the most cost effective manner.

An excellent panel discussion followed where Martin Hilbert from ECLAC, Roger Marks from IEEE and Rob Frieden from Penn State participated. The video from this session can be found here [140MB!]

Roger Marks, Chair of the IEEE 802.16 Working Group discussed the initiative to develop a nationwide broadband wireless acess system for low cost access by finalizing a new standard.
Martin Hilbert, disagreed with Mr Philip’s view that USO programs should be phased out. According to him, GSM Association’s $20 Motorola handset was too expensive for the vast majority. Hence, he argued, that universal access funds are absolutely necessary to provide access to everyone. He estmated that higher end of society can spend about $50 a month on ICTs versus $2 a month for the poorer people. In his opinion, a poor person would have to spend a year’s salary in order to buy a $20 mobile phone.

Rob Frieden, Professor at Penn State University while assessing United States’ USO program seemed to agree with many of Tom Philip’s arguments. The US has the world’s largest USO program that has collected around $30 billion over a 20 year period. In his view, any USO mechanism based on voice minutes per use will trend to “0.” He argued that you cant
fund universal service if the service costs nothing, as voice calls move to the Internet.

USO funds are a distortion of the marketplace especially if it is not spent. It tends to perpetuates the status quo and voice services. He gave the example of the US, where for many years wireless service didn’t even qualify for USO fuding. This is the case in many developing countries currently. The other major problem is that USO disbursement is not calibrated to the expendable income of the beneficiary. Any US rural resident is eligible for USO subsidy disregarding the person’s income and ability to pay for communication services.
Rob Frieden upheld the Grameen model as something all USO programs should try to emulate. The Grameen Phone model
is private, not govt, its entrepreunerial, its foward-looking, its inexpensive its self-sustaining, its streamlined and its successful. All the criteria one would want to see in an USO progran. When juxtaposes with USO programs in the US and elsewhere he finds that they are: Government driven, distorts the marketplace, promotes interest of incumbent carrier and status quo, bureaucratic, complex, vulnerable to fraud, and not necessarily successful.
He concluded by describing what USO programs ought to be. In his view, USO programs ought to be technology neutral that promotes universal access, create incentives for demand aggregation by community champions, encourage competition by reverse auction for access to subsidy etc.