3.2.1 First generations of competitive UASFs – fixed line services

The first generation of emerging market UASFs to distribute subsidies based on the principle of competitive tendering, were established in Latin America in the 1990’s. The finance was made available under a reverse auction or minimum-subsidy auction (lowest subsidy demanded wins). These competitions were held in 1995, soon after the establishment (in 1994) of Chile’s Fondo de Desarrollo de las Telecomunicaciones.

The Chilean case, and ones that followed soon afterwards, were unique in the sense that they were also used as a one-stop mechanism to enable potential new entrants to compete with the incumbent operator for universal access (UA) licenses in areas that were historically, poorly serviced but for which a subsidy was offered. The services provided were primarily fixed network payphones, using wireless access or satellite (VSAT) technologies, and were located in places that were at the time, far from areas expected to be serviced by mobile operators. The Practice Notes Chile: Fondo de Desarrollo de las Telecomunicaciones and Peru: Experience of the FITEL programme give insight into the details and lessons learned in the early stages of UASFs.

Five Latin American countries quickly licensed rural operators through such funds. The following table summarizes the funding activities of the first three funds. Several other funds were established (though not all became operational), e.g., Brazil, Argentina, Dominican Republic, Ecuador, Guatemala, Nicaragua and Venezuela, and can be seen in a Regulatel report on UASF funds [1].

Source: ITU-infoDev ICT Regulation Toolkit – UA Module

As the above table shows, two of the early funds received finance directly from government contributions, while two used a levy on operators (one fund used both government contribution and operator levy). Other early funds, such as Guatemala’s, also secured finance from radio spectrum auction fees as well as operator levies.

On average, the amounts of subsidy actually bid and granted for the telephony competitions in the first years, were less than half of the maximum subsidy offered by the funds. This was a benefit that resulted from the competitive mechanism used and the fact that competitions offered a chance for new entrants to secure their first operating licence and radio frequency allocations. However, there was a wide range of experiences, from zero subsidies in some of the early Chilean competitions up to almost 100 per cent of the offered amount in later rounds.

While Internet access can undoubtedly be beneficial for communities, it should also be noted that later Internet access competitions resulted in much higher subsidy investments per community, and although data on offered subsidy amounts is not available, the reduction resulting from the tendering process is believed to be much less. This is also the case in all other subsequent UASF competitions elsewhere primarily due to the lower level of financial sustainability that can be achieved on Internet services. The numbers of initial Internet service users are typically lower than for telephony; a smaller proportion of the market can afford to own personal computers, take-up is slower and Internet services for the poorer parts of the country are generally considered to be a higher investment risk. More work is required in each country to develop sustainable models for public Internet access that entice people to use their services.

End Notes

1. New Models for Universal Access in Latin America, Regulatel, 2006