Key Principles and approach to UASF policy implementation

The following is a hypothetical draft for suggested best practice principles to guide universal access and service fund (UASF) implementation. 

  1. The Providers of universal access and service will be the sector’s licensed operators: Whereas it is recognised that within the process of liberalization certain regional inequities develop, which must be remedied through government intervention, measures will be applied in such a way as to create incentives and enable the market players to respond by providing their network services to places and customers who would otherwise remain without service or for whom the arrival of normal commercial service would lag.   
  2. Universal Access and Service Fund (UASF) as instrument for targeted interventions: The government will implement a UASF, which will be the instrument to implement specific programmes and projects that address areas, population groups and situations, which need targeted interventions in order to achieve universal access and services in communications services.
  3. Funding: The funding for any required targeted interventions by the UASF is obtained from both the government and the industry itself, but the latter will be limited to a 1 per cent levy on gross revenue per year.
  4. Commercial sector-led & market-oriented implementation -  the UASF is an instrument to collect and distribute funds to the sector for rural network and service development, using a competitive, transparent and fair mechanism. The UASF is to develop market-oriented programmes and subsidize projects that will be primarily implemented by private sector operators and service providers.
  5. Network infrastructure will be operator owned: All network elements, including backbone and spur transmission, switches and local access systems, used to fulfil contracted UAS obligations, even if partly subsidized from the UASF, shall be owned and operated by the licensed service providers. 
  6. Service and technology neutral: The UASF mechanisms must enable any service provider (e.g., fixed or mobile and Internet service provider) to compete for subsidies, and to use the most effective, efficient and appropriate technologies, deployed most cost-effectively to be implemented for universal access and service.
  7. Sequencing: The UASF programme will be based on considerations of proper sequencing of UAS projects. This means determining the status of UAS of the various areas and communities of the country in terms of infrastructure and services provision and then identifying appropriate targets and projects.
  8. Competitive tender: The mechanism to select an operator or service provider to receive a subsidy and provide defined services in a defined target area is usually that of a public, transparent and competitive tender, where the winner will be determined based on the least amount of subsidy requested, after a pre-qualification process. The pre-qualification process includes stringent corporate and financial capacity requirements, previous operating experience and substantial technical and operational compliance with the service specifications.
  9. Smart subsidy: The subsidy approach will be based on the principle of smart subsidy or output-based assistance (OBA). This is an initial subsidy that is designed to be result-oriented, does not distort the market, and encourages cost minimization and growth of the market. Operators and service providers will bid primarily to meet the specified service level obligations, agreeing to a cash subsidy that will be disbursed over time as they meet their build-out and operational obligations. The smart subsidy approach is designed to allow operations to become commercially viable and not be dependent upon ongoing subsidies. The networks are owned by the operators, unless the operators default, in which case the networks would revert to government ownership.
  10. Commercial viability & sustainability: The concept of the smart subsidy is to encourage operators, service providers and their investors to provide specific communications services with the objective of ultimately seeing the programme become commercially viable. Projects that are able to become sustainable are preferred over projects that require long-term additional financial support from the UASF.
  11. Normal principles of liberalized markets – no exclusive rights: While it is recognized that some subsidized areas and services may have marginal commercial returns, the competitively tendered UASF subsidies shall not be used as an instrument to confer market exclusivity or further advantage to any one operator.  An exception to this might be facilitating the right of market entry to a new entrant, or enabling first-in advantage to an operator due to the subsidy offered. Following conclusion of the subsidy competition, the regulator shall ensure that the normal rules of competitive service provision and interconnection shall apply. 
  12. Retail Pricing: Service prices should be set by the operators and service providers, under their respective market conditions, within permitted limits established by the regulator for particular universal access and services. Prices should, in principle, be based on existing national tariffs and not exceed a price cap/ceiling set by the regulator, but should allow the operators to recover their costs of service provision, including the cost of capital and reasonable rate of return on investment, after inclusion of the financial subsidy received from the UASF. If national prices are insufficient for long term sustainability, prior consideration will be given to the use of favourable interconnection terms for rural operations to avoid the necessity for higher retail prices. 
  13. Consumer protection: As per the regulator’s mandate, the UAS policy has to ensure that the interests of consumers, purchasers, and other users of telecommunications services are promoted as regards prices, quality and variety of services and equipment. This also applies to universal access and service provision.
  14. Regulatory support & incentives: The UASF shall operate in an environment where unnecessary regulatory barriers in general, and particularly for rural service provision, have largely been removed and the telecommunications and Internet market operates fairly and efficiently.  Failing to do this will fund market inefficiencies and waste resources. Also, the government will create and implement regulatory incentives for communications service expansion into rural and underserved areas.
  15. Asymmetric termination rates: Rural users often receive more calls than they make, thus the incoming traffic to rural networks may be considerably higher than outgoing traffic and becomes a significant part of the business case. However, per-minute costs of rural networks are higher due to lower population density and higher costs. Some form of geographically de-averaged terminating rate regime may therefore be considered as:
  • A measure to meet the costs of rural network segments, as long as they reflect objective cost differences;
  • An economically justified, non-subsidy measure to increase the commercial incentive for rural operators while limiting the need for UASF subsidy; and
  • Eliminating the risk that rural users be charged higher retail rates to maintain sustainable service.
However, the benefits shall be weighed against the complexities of implementing asymmetric termination rates.
  1. Scrutiny: The UASF will be open for scrutiny by all public stakeholders, including:
  • The rural consumer, helping them to access essential communications services;
  • The civil society, to promote socio-economic and democratic development;
  • The government as a means to implement their policy; and
  • The communications industry, helping them to expand the market to the entire country.

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