The following key questions relate to the eligibility of universal access and service (UAS) competitions and subsidy disbursements:
- Are government-owned companies eligible to participate in UAS competitions; and
- Can new entrants and smaller players compete for subsidies or are subsidies only available to companies that are already licensed and contributing to the Universal Access and Service Fund (UASF)?
In some countries certain operators, typically the incumbent, is still whole or partially government-owned. This raises the question whether this type of entity is eligible to take part in a subsidy competition for UAS services.
The main concern with government owned companies competing for subsidy, is the potential for conflict of interest as a UAS competition is the implementation of government policy. This raises the question of whether the government can be impartial in awarding a UAS subsidy if a participating firm is owned or partially owned by the government.
This scenario exists in several countries, for example, in India where Bharat Sanchar Nigam Ltd (BSNL) is government-owned, and the Department of Telecommunications (DoT) within the Ministry of Communications and Information Technology manages the Universal Service Obligation Fund (USOF), and has awarded subsidies to BSNL, among others.
Even when government is impartial, there might still be the perception of a potential conflict of interest. However, government-owned companies can and should be allowed to participate in UAS competitions, provided they are also contributors to the UASF, and provided there are sufficient safeguards in place to ensure that competitions are run and awarded impartially and free from conflict of interest. One such safeguard is to have the competitive bid conducted by the industry regulator. The industry regulator, typically considered more independent than a ministry and one step-removed from government, should implement UAS competitive bids when government-owned companies are involved. This is the most common practice in countries with a UASF.
Existing versus new entrant companies
In some UAS competitions, currently licensed local operators that contribute to a UASF, or who are asked to contribute to a UASF, believe that only contributors should be eligible to participate. There is an alternative view, however, espoused by the World Bank and other International Finance Institutions (IFI) and donors, that UAS competitions must be open for all players, including foreign and local new entrants.
Both these scenarios have merit. Currently licensed local operators point out that allowing only contributors to a UASF to compete and receive subsidies, is a fair scenario that in fact results in a broader buy-in to a UASF among existing operators. The alternative view, on the other hand, stresses openness, an equal-playing field and increased competition.
It depends on the specific country circumstances as to which scenario might be more beneficial. An open UAS tender is a good opportunity to increase overall competition in the market place by encouraging new players to enter. New entrants might be restricted to a certain UAS area first (e.g., rural), but can be promised a national licence at a later stage (e.g., within two to three years). Bidding documents should include licences for the new potential entrants, or the bidding documents should contain the key terms and conditions of the licences offered to the winning bidder.
If the specific market has a sufficient and satisfactory level of competition and constraints on scarce resources, in particular spectrum, make it impractical to license new operators to provide the required service, the bid could be limited to the existing local licensees and contributors to the UASF. In general, existing operators are likely to be in a better position than local or foreign new entrants to win a UAS competitive bid as they already know the market and have an existing network and service provision operation in the country which they may only need to expand, while new entrants need to set up a network and operations from scratch. Nevertheless, new entrants can win UAS tenders if either the local players are uninterested in participating, or if the new entrant is willing to make a low bid as a part of a long-term strategy for entering the market. A similar situation may emerge when new low cost technologies become available that may render irrelevant any potential competitive advantage that existing local operators may have acquired by virtue of their presence in the market.
It is also conceivable to design different eligibility rules within the overall UAS programme that is a compromise between new entrants and existing companies e.g., new entrants are allowed to compete, but limited for certain projects or areas.
It must be noted that, in countries with limited competition due to a small number of licensed operators, opening up the UAS tender rules to new entrants may have positive competitive spill-over effects beyond the UAS tender regions, since it may yield a viable new competitor in the whole market.