Once the ICT sector analysis and assessment of demand are conducted, the costing aspect needs to be addressed in order to develop a universal access and service (UAS) programme:
- How much will the UAS programme cost and how much will individual projects cost;
- What is the commercial viability and sustainability of the UAS programme and projects; and
- What is the estimated financial shortfall between the cost and revenues through the provision of UAS services, and therefore how much subsidy is required to finance UAS.
The following methodology on modelling costs and viability and subsidy analysis is designed to assist UAS programme development in the context of a Universal Access and Service Fund (UASF) using competitive mechanisms to allocate subsidies.
The typical process to competitively allocate UASF subsidies for UAS service projects is as follows:
- Identify how much subsidy an operator or service provider needs in order to construct the stipulated level of infrastructure and to provide UAS service to the target area, population group or project, using current least-cost technology that meets the required quality and level of service; then
- Submit the specified area to be supplied with UAS services to tender and accept the lowest bid commensurate with meeting the published technical, corporate and operational pre-qualification requirements, provided the required subsidy is less than or equal to the set maximum subsidy.
The methodology for calculating the amounts of subsidy to be offered is designed to achieve, with the subsidy, commercial sector investment and sustainable operations.
The purpose of establishing maximum subsidy levels is to set a realistic ceiling. It is not necessary to establish exact costs and a detailed engineering study by the regulator is not required. An illustration of the methodology used to estimate the maximum subsidy is described in Section 6.2.1 for a public access telephony project and in Section 6.2.2 for a public access Internet project
This methodology is chosen, among other reasons, because the regulator has less information than telecommunications operators and service providers have about the costs of providing UAS services. Operators and service providers also consider their financial and non-financial benefits they may stand to gain from providing UAS. Some of the benefits of being a UAS provider may include:
- Increased brand recognition;
- Good public relations;
- Additional private revenue; and
- More traffic due to increased national network, etc.
With a maximum subsidy amount in place, the competition among operators and service providers ensures that costs are not inflated, and that the operators include their tangible and intangible benefits from being a UAS provider into their considerations for the subsidy request.