Deciding on the grouping of universal access and service (UAS) areas into bidding lots is one of the most strategically important tasks when preparing for subsidy tender. UAS bidding lots represent the grouping of areas within a country for UAS projects. For example in Uganda, the country was divided into three regions for the public access phone competitive tender.
There are several considerations relating to developing UAS bidding lots. Choosing which grouping is best for a particular country and which programme depends on the UAS objectives and current UAS status of a country. The main considerations when developing UAS bidding lots are as follows:
Maximising and sustaining competition
Companies’ appetites for aggressive bidding, are directly related to their strategic objectives (e.g., expansion plans, to secure licences). The division of UAS territories into several areas or regions, and the opportunity to bid for multiple areas, allows bidders to assemble territorial blocks according to corporate interests.
When a UAS competitive tender allows new entrants and offers new licences, it also provides an opportunity for new entrants to assemble major national holdings through aggressive pricing of their bids. In one example from Chile, a successful bidder accepted zero subsidies in order to get a foothold into the market, develop its targeted territory, and secure long-term control of radio frequencies (For details on Chile’s experience see the reference document Closing the gap to access to rural communications and Section 3.2.1 including the practice note on Chile).
Once the market is more mature and fewer areas and groups remain unserved, or the potential for new competitive entry declines, companies may not be as motivated to bid. This risk can be reduced, but not necessarily eliminated altogether, by fund managers considering competitive market interests when they design and group UAS areas. This means that they should assess the apparent commercial interests of the players likely to bid, and group the UAS areas in such a way as to increase attractiveness and maximise the number of competitors.
The problem of the most marginal localities
Some UAS territories, including those of strategic importance, are much less viable than territories containing broad opportunities for service growth and diversification or wider technology choice. This is seen especially in some very remote areas that can only be reached by satellite technology (e.g., the remoter regions of Chile, Mongolia, Peru, Botswana and Russia).
Packaging attractive regions with less-attractive service areas, and by offering larger licence areas (to ensure economies of scale) or perhaps, even applying a higher level of interconnect access charge to reflect the costs of the more remote communities, will help promote operators’ interest in serving these marginal regions.
The ideal formula will vary from country to country as careful UAS area grouping is a crucial issue. It could be that ultimately, some funds having to deal with extremely high-cost areas may have to consider operational as well as capital subsidies, to secure long term operator viability. The reference document Output-based aid in Nepal provides one example of how to increase the attractiveness in a very challenging environment.
Economies of scale versus increased choice and flexibility
In 2008, Mongolia offered a high level of flexibility and choice for operators in its competitive UAS bidding process. The tender to provide public access and private telephony in 90 soums (district centres) without adequate services allowed operators to bid for each soum separately. The evaluation was for each separate soum.
The advantage of offering individual bids was that the operators could bid for specific soums, which gave them maximum choice and flexibility. This method of tendering makes it is easier for the UASF fund manager who will not need to second guess the strategic interest of operators in the design packages. The potential disadvantages are that operators do not know which and how many soums they might win, and could lose out on economies of scale benefits for a larger region and end up with a very scattered distribution of UAS areas around the country. However, in general the strategy was a great success, as 89 of the 90 soums were awarded on the first round and the bids amounted to less than 70 per cent of the maximum allowable subsidies set by the fund manager.
Limiting dominant positions of a UAS provider
Regardless of whether UAS regions or individual locations are offered, it might be wise to limit how many of the regions or lots any one operator or service provider can win. A reason for this includes the scenario in which a winning bidder defaults on his obligation, then not all areas will be affected (limiting the dependence on a single operator). Another reason is that this scenario creates the opportunity for several operators and service providers to win an area and will increase the acceptance and interest in a competition (i.e., a single powerful operator cannot dominate the bidding).
An example of a bidding process with limits is the tender in Uganda to award Internet Points of Presence (POPs) and Internet cafes in all the district centres. There were 32 district centres to be bid on at the time, but any one operator or ISP could only win a maximum of 10 Internet POPs .
Separate or bundled service provision
Another important consideration with regard to designing the bidding strategy is whether to bid certain universal access and service (UAS) requirements separately or bundled. For example in Uganda, the public telephony bid for very 2,500 rural inhabitants was separate from the bid for broadband Internet points of presence (POPs) in 32 district centres around the country. In contrast, in Mongolia’s pilot project in Tariat soum (district) and Chuluut soum, wireless voice services, Internet POP, public Internet centre and support for the school to access the Internet was all combined into a single tender for each soum.
Separate or bundled UAS service tenders have each their advantages and disadvantages and the selection of which approach to use depends on the country conditions.
Advantages of the separate service tender approach are:
- The timing of separate tenders can be sequential and spread out over some time, matching fund availability;
- Complexity of the tender is limited as only a single main service needs to be provided;
- Separate tenders allow several (especially smaller) players to participate and increases the inclusiveness of the UASF programme (e.g. Internet service providers can participate in an Internet POP bid, schools can apply themselves for support for Internet access);
Advantages of the bundled service tender approach are:
- The bundling of UAS services increases economies of scale and the attractiveness of the tender; it is therefore useful if individual UAS projects and maximum subsidy offers are small by themselves and might not attract sufficient interest from potential bidders unless they are bundled;
- As the communications industry converges more and licences are technology and service-neutral (i.e., a licensee can use any technology to provide any communications service), bundled UAS bidding might be more appropriate.
Minimizing subsidies needed
In addition to the way UAS bidding lots are designed, there are a few other options which help to minimize the subsidy amount needed by operators:
- Offering free or low cost use of radio frequencies to the winning bidder;
- Allowing the winning bidder to provide other services (i.e., a service-neutral approach); and
- Mandating infrastructure sharing, both for transmission and access such as wireless towers (for details see Section 3.4.6 and its Practice Note Sharing mobile network infrastructure in India).
- However, the bidding documents allowed two exceptions as follows “the maximum limit of 10 Designated Districts for award to any single Qualified Proponent may be raised by UCC: a) if it would otherwise cause UCC to accept a Subsidy Proposal for a Designated District that is more than 10% higher than the lowest Subsidy Proposal for the Designated District; or b) if the Subsidy Proposals submitted by Qualified Proponents are otherwise insufficient to lead to the award of all 32 Designated Districts.”