4.7

Competing for UAS subsidies

This chapter describes the key tender design considerations and the protocol for holding a competitive tender to allocate subsidies to a winning operator or service provider in exchange for universal access and service (UAS) provision. This process, which is almost always used in conjunction with a Universal Access and Service Fund (UASF), can also be used by international or national donors, or industry regulators, using government or other sources outside of UASFs, to supply subsidies or grants. The main objectives of a competitive bid are to select a qualified organization (with experience, personnel, track record, etc) that has the necessary capacity (e.g., capital, expertise, manpower, etc.), the long-term motivation (through sustainability or profitable business), and the minimum requirements for funds. Subsidizing ICT projects brings certain risks. These potential risks include:

  • Distorting the market;
  • Creating dependence on ongoing funding;
  • Potential abuse of funds;
  • Favouritism; and
  • Project failures which waste resources.

To avoid these funding pitfalls, smart subsidy has emerged as a best practice approach. Smart subsidy is considered to be a part of a broader approach to government subsidies known as Output-Based Aid (OBA). The concepts are described in more detail in Section 1.3.3 and Section 3.2. The OBA approach delegates service delivery to the for-profit or non-profit private sector under contracts that tie payments to the outputs or results that are actually delivered to target beneficiaries [1]. A smart subsidy:

  • Should be a one-time result-oriented subsidy awarded typically to a private sector operator or entrepreneur, in some cases a commercially constituted government-owned entity might also be possible;
  • Should not distort the market;
  • Should encourage cost savings and market growth;
  • Should kick start a project or service with the objective of ultimately seeing the programme become commercially viable; and
  • Should encourage service development in regions where, without the subsidy, investors might otherwise have been reluctant to invest.

Smart subsidies address the experience of some earlier funded projects that had ill-designed tenders which resulted in wasted resources, created bottlenecks in development, and generally were counter-productive. The following are guidelines for the use of smarter subsidies:

  • Operate according to pre-established clear, explicit rules that are transparent and do not create distortions in the market;
  • Link subsidies to optimal results;
  • Support cost-minimization incentives; and
  • Facilitate good governance.

The following design parameters for the competitive bidding strategy (discussed in Section 7.1), bidding and subsidy allocation process (described in Section 7.2) and inspection, payment, monitoring and evaluation process (elaborated in Section 7.3) illustrate how the smart subsidy and OBA principles are implemented in practice.

4.7.1 Design of the UAS bidding strategy

The competitive subsidy bidding approach is described in the following sections. This approach is appropriate for universal access and service (UAS) projects that involve:

    • Large capital investments in networks;
    • Large sums of subsidies to be disbursed (e.g., starting from several hundred thousand dollars to several million); and
    • Companies as subsidy recipients.

The reasons to use competitive bidding in the above types of projects are that:

    • The investment climate would be affected negatively if the regulator or government were not using a competitive process and were to favour a certain company; and
    • Organizing a competitive tender involves time and costs and thus is only efficient if large sums are involved.

As discussed earlier, the development of the UAS policy requires close consultation with the industry. The same holds true for developing UAS bidding strategies. The various steps of the UAS bidding design process are as follows:

    • Formulate the bid objectives and desired outcomes;
    • Articulate bidder eligibility, UAS areas, and separate or bundled UAS service provision;
    • Present the UAS bidding strategy and detailed projects to potential bidders for discussion and integration of feedback;
    • Conduct detailed design of the bidding process, including key parameters of the subsidy contract and license;
    • Prepare detailed bidding documents; and
    • Ensure a transparent bidding process.

The formulation of bid objectives and desired outcomes is based on each country’s UAS policy. In addition to achieving the UAS targets, bid objectives could include minimizing subsidies or increasing competition in the market. Decisions on who is eligible for participation in the competitive tender for subsidies have an impact on the objectives and desired outcomes. This is discussed in Section 7.1.1.Section 7.1.2 discusses how UAS area bidding lots can be determined and the implications of grouping regions and programmes. Section 7.1.3 presents required decisions on the design of the bidding process itself, including key parameters of the contract and license. Section 7.1.4 outlines the key elements of the bidding documents that are used in the competitive tender for UAS subsidies. Section 7.1.5 addresses how competitive procedures might be adapted for smaller ICT projects or how other approaches can be used.

4.7.1.1 Determining eligibility for UAS competitions

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)?

Government-owned companiesIn 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 companiesIn 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.

4.7.1.2 Developing UAS bidding strategy and deciding on bidding lots

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 [1].

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).

4.7.1.3 Design of bidding process

In addition to strategic decisions about the eligibility of various types of operators and services providers to partake in the competitive universal access and service (UAS) bidding process, discussed in Section 7.1.1, and the strategic design of the UAS bidding lots presented in Section 7.1.2, there are also important decisions to be made on procedural issues of the bidding and key parameters of the contract and licence, discussed in this section.  

Pre-qualification required or not

While a pre-qualification requirement is more common in privatizations of incumbent operators, or licence and frequency competitive bids, most UAS subsidy competitions do not require pre-qualification. Pre-qualification adds one more step into the process and thus extends the time required for the bidding process. However, requiring pre-qualification might be helpful in instances when the government is unsure whether and how many national operators have the required qualifications, for example, for a large backbone investment.

One stage or two stage approach

A two-stage bidding approach means that the first request for proposal (RFP) asks for technical proposals from bidders, without prices. The RFP does not contain specific detailed technical requirements, but it is rather designed to elicit innovative approaches from operators. The operators issue technical bids in accordance with their best proposal for providing the service. After having seen the technical bids, the government prepares the second stage detailed bidding documents based on elements it liked from the first-stage technical bids operators submitted. Bidders then respond anew including their financial bid.A two-stage bidding approach is useful in instances where the government is unsure about a) market response to issues of bundling of areas or services, specific technologies, etc., and b) the specific UAS project design and wishes to be presented with various options of how to do a certain project. Again, typically UAS competitions do not use a two-stage approach to bidding, but each country has to choose in which instances this may be beneficial and outweighs the disadvantage of a longer tender process.

One envelope or two envelope approach

A one envelope approach contains both the technical and financial proposal in a single envelope, while a two envelope approach requires the technical bid and financial bid in separate envelopes. The two-envelope approach means that the technical bid is opened and evaluated first, before the financial bid is opened. The advantage is that the evaluation cannot be influenced by the price of the bidder. In the case of the one-envelop approach, commonly used for UAS competitions, the financial and technical bids are contained in the same envelop and the financial bids are read out at the opening ceremony. The advantage is that bidders know immediately what their competition has bid and there is a high level of transparency. Also, in UAS competitions, what is most important is the subsidy request, while meeting the technical, corporate and services requirements.

Bidder and consortia eligibility criteria

There are typically several bidder and consortia eligibility criteria that must be met. First of all, bidders are required to be free of a conflict of interest. A conflict of interest could be if a bidder is being controlled by an affiliate which is also a bidder; or a bidder that receives or has received any direct or indirect subsidy from another bidder; or a bidder has the same legal representative for purposes of the bid; or participates in more than one bid in this bidding process, or a bidder participated as a consultant in the preparation of the design or technical specifications of the UAS project. If the bidder is a joint venture, it must meet a number of requirements to be eligible, including it needs to provide a clear allocation of responsibilities among members, have a formal joint venture agreement for a certain duration in place, furnish details of the ownership interests in the joint venture and the financial contributions of each member, and have arrangements in place governing managerial control by the joint venture over the operation of the UAS service provider.

Financing capacity and operational experience

Another eligibility requirement is the financing capacity and operational experience of a bidder. The tender documents should require bidders to demonstrate financial stability, with adequate cash flow and satisfactory net worth. In general, bidders should be required to demonstrate from the record of the previous two years of communications service provision that they are able to deploy and operate the network investments proposed for the UAS operation. The actual requirement in this regard is recommended to be discussed with the industry and should be set by the UASF at the time of preparation of its tender documents. Another important qualifying requirement is demonstrating operational experience. The operational experience requirement makes sure that the winning bidder has rolled out and operated a network of a certain size before or has provided very similar or the same services required for the UAS project. Often operational minimum requirements include having operated a telephony or Internet network for a minimum of 2 years, with a minimum number of customers which is similar to the customers in the expected UAS project. This requirement of operational expertise does not need to deter or limit new entrants. New entrants without operational experience can partner with an entity or person that has that experience. However, in order to make sure that this partner is not just a partner on paper, typically the requirement is that, if the operational expertise of the partner is to qualify the bidder, the partner needs to have at least 25 per cent ownership of the UAS service provider; in some cases this can be higher. It also needs to be demonstrated that the partners’ expertise is actually used in the running of the UAS service provider e.g. through a management position.

Incorporation of bidder

Bidding documents can either require that the bidder is incorporated as a company in the respective country at the time of bidding or incorporate within a certain timeframe after bid award e.g., before the contract or licence is signed and made effective. The decision to incorporate at the time of the bid is more onerous to new entrant bidders, as they may not win the bid. However, incorporating after the bid award may take time or could have unexpected complications.

Bidder selection

In most UAS competitions, the bid selection method is that bidders have to comply with the required eligibility criteria, technical, financial and corporate requirements on a simple pass or fail basis. Amongst bidders that pass the eligibility and other detailed requirements, the bidder with the least amount of subsidy requested wins, as long as it is not above the maximum subsidy. There are other methods in which, for example, bidder selection is based on price plus some measure of coverage/investment proposed, or a point system. Both those later methods allow to favour a bidder that provide certain investments or services beyond the minimum requirements, i.e., find a good balance between costs and quality. However, these methods require a higher level of complexity and very careful design so that the bid is still transparent and gives bidders a clear understanding of how to win.

Details of contract or licence

If the winning bidder is an existing national operator, it does not necessarily require a licence, unless it is not authorized to provide some of the required UAS services. However, in case a new entrant is winning the bid, it does need a licence unless the country has already moved to simpler authorizations. Ideally, the bidding documents grant the winner automatically a licence or authorization or at least describe clearly what is required and how long it will take. The same applies for required radio frequency spectrum. Also, the bidding documents should specify whether the provider will have the right to build its own international gateway or not. These decisions have an influence of the likely subsidy requested by bidders. The contract and licence can have differing durations, for example five or ten years. These are elements which need to be decided in advance and be taken into account when calculating the maximum subsidy.

Bid and performance bonds

A bid bond is a bank guarantee provided by the bidder, ranging from 1 to 5 per cent of the maximum subsidy, which the bidder will have to fortify if the bidder withdraws its bid. The purpose of the bid bond is to deter companies that are not serious bidders.A performance bond is a bank guarantee over a certain amount of money, provided by the winning bidder that guarantees satisfactory completion of the project or the bidder may loose part or all of the money. Instituting a performance bond will ensure that the operator carries out its UAS requirements as established in its service agreement. The bond provides an additional security to the government, over and above the fact that the subsidy payment will be paid out on a milestone by milestone basis. In determining the amount of the performance bond, the regulator needs to be conscious of the fact that the performance bond limits the liquidity of the winning bidder or might require the bidder to borrow money. Also, the cost of securing a performance bond might be quite high, especially in developing countries. Thus, as much as possible, the performance bond should be kept to a minimum and ideally be a point of consultation with the industry before finalizing the bidding documents while at the same time provide a level of security and leverage for the government. It is likely that an appropriate performance bond amount differs from market to market. The amount of the performance bond can be between 10 and 25 per cent, of the subsidy to be awarded.It is recommended that the performance bond be in the form of a stand-by letter of credit from a reputable bank. This will provide the government with the highest level of certainty that their security will be honored without second-guessing, negotiation or arbitration.

Related Materials

Module 3, "Authorization of Telecommunication/ICT Services", Section 4, "The Competitive Licensing Process"

Reference Documents

4.7.1.4 Competition and application procedures for smaller ICT projects

The bidding documents for a universal access and service (UAS) competition provide complete information on the following four key elements of the UAS bidding programme:

  •  
    • The context and background of the UAS bid (e.g., the UAS policy, overall programme and government commitment), including a detailed description of the particular UAS project for which the tender is called;
    • The detailed requirements and obligations of the UAS service provider (i.e., the winning bidder);
    • The rules and procedures of the bidding process itself; and
    • A draft contract, also called the UAS Service Agreement, and a draft license (including spectrum license and numbering rights, if required).

In many cases the bidding documents also include specific forms, or templates, to be completed by the participating bidder. The purpose of including all these elements is to provide the bidders with as complete and comprehensive information as possible in advance of the project. This will solicit well-prepared bids and provide a transparent process with no ambiguities, especially in regards to the bid evaluation and bidders’ qualification rules. The following table provides an overview of key topics and elements typically covered in UAS bidding documents.

Overview of Key Topics and Elements Covered in Bidding Documents

Source: ITU-infoDev ICT Regulation Toolkit - UAS Module

Generally, qualification criteria for bidders should be limited to ensuring applicants have the financial, technical and managerial resources and experience to successfully develop and execute the planned project. It is important to establish clear, rigorous and proportionate qualification criteria, explicitly stated in the bidding documents. Depending on the planned project, the qualifications may vary, but need to be developed by the funding agency. The input from various interested bidders during the consultation process might help to clarify key qualifications, since the most appropriate qualifications may vary from project to project, with market size, etc. 

Draft contract

 In general, the bidding documents should include as an annex the draft contract, also called a UAS service and subsidy agreement. Details of its typical contents are shown in the following table:

UAS Service and Subsidy Agreement

Source: ITU-infoDev ICT Regulation Toolkit - UAS Module

Practice Notes

4.7.1.5 Competition and application procedures for smaller ICT projects

The competitive subsidy bidding approach, described in the previous sections, is essentially designed and appropriate for universal access and service (UAS) projects that involve:

    • Large capital investments in networks;
    • Large sums of subsidies to be disbursed (e.g., starting from several hundred thousand dollars to several millions); and
    • Have companies as recipients.

Funding processes for smaller ICT projects can be provided through either a simplified competitive process or an application process for grants. The former, for example, could be used for smaller pilot projects, (e.g., USD 50,000 to USD 200,000). For pilot projects, minimizing cost might not be the foremost objective but rather, the sound testing and evaluation of a particular concept, programme or application in the ICT field. Therefore, a fixed-budget competition process might be used, where the amount of subsidy is given (fixed) and the evaluation is based on specific, pre-published criteria, including a pre-published point system for various elements of the proposal.An example for when to use a fixed-budget competition award might be the specific funding for Internet access in rural schools (after the backbone infrastructure is available), or for funding the start-up of individual public Internet access points/ telecentres.Similarly to the process for the competitive bidding, this process would go through the same sequence:

    • Formulation of project objective and outcome;
    • Public consultation with stakeholders and potential applicants;
    • Preparation of application form;
    • Transparent invitation process;
    • Qualification and evaluation; and
    • Bid award.

The Practice Note Uganda’s application process for rural schools to have Internet access summarises the requirements and process for applicants wishing to provide Internet access to schools and their selection. In general, applicants should be required to prepare an acceptable business plan (or sustainability plan) that outlines the sponsor’s vision, objectives, need for funding, and demonstrates long term sustainability. These simplified qualification requirements could be used for similar small projects.

4.7.2 Bidding & subsidy distribution process

One of the cornerstones of a fair and successful competitive bidding process is transparency. Transparency requires that the process should be conducted openly and that the selection of the winning candidates be based on criteria published in advance. Key features of transparent processes include:

    • Advance publication of the bidding documents, with process rules, qualification requirements and selection criteria;
    • Separation of qualification and selection processes; and
    • Public opening of proposals including separate sealed financial offers from qualified applicants.

The funding agency needs to ensure that participants in the competitive processes, as well as the general public, perceive the process to be fair.The various steps of the competitive subsidy bidding process are as follows:

    • Marketing and official publication of the bidding opportunity as described in Section 7.2.1;
    • Conducting a pre-bid meeting that allows bidders to request clarifications and make possible suggestions for modification, discussed in Section 7.2.2; and
    • Bid opening, bid evaluation and selection, and subsequent bid award, presented in Section 7.2.3.

In order to allocate subsides to pilot projects, it is recommendable to require business or sustainability plans, as outlined in Section 7.2.4.

Reference Documents

4.7.2.1 Publicizing the opportunity

Publicizing a competitive bidding opportunity for a universal access and service (UAS) project effectively increases competition and will likely lead to a better outcome (i.e., lower subsidy to be paid, suitable winning bidder). There are several ways to publicize and market a UAS bidding opportunity. They are as follows:

    • By direct invitation to all relevant licence holders within the country. To avoid the perception of favouritism, it is important to notify all the various eligible licence holders. Depending on the number of relevant licence holders, this might be either a practical or unpractical approach (i.e., in a small market, it is practical to contact between 10 to 50 licence holders whereas in larger markets this might not be appropriate or effective).
    • Placing an announcement in the main national newspaper that has wide circulation among the business community. Ideally, it is placed in two national newspapers or trade journals. Also, it is helpful if the advertisement runs for at least two to three days.
    • The bidding opportunity should be published on the web page of the industry regulator, and the relevant ministry could also have links to the announcement. Web-notices, increasingly important, will also help market the opportunity internationally.
    • If the bid is open internationally, as discussed in Section 7.1.1, notices or advertisements also need to be placed in international industry or business magazines, newsletters, newspapers and other relevant media. As well, international or regional industry conferences can be used to market a UAS bidding opportunity. It might also be appropriate to contact a certain number of potentially interested international bidders as long as it is more than two or three, in order to avoid any favouritism.

Typically, a country will use a mix of the above options to advertise the bidding opportunity depending upon the specific UAS project and market situation. For example, a small pilot or Internet project below USD 0.5 million might not need to be advertised internationally. Notices of bidding opportunities can be short but should contain the following vital information:

    • Who is calling the competitive tender;
    • What area shall be served with which service;
    • What is the maximum subsidy offered; and
    • Information on how to obtain the official bidding documents.

Public tender documents should be offered for sale to prospective bidders for a specified sum. These are typically kept low for accessibility by interested parties, while at the same time are priced high enough to cover the costs of photocopying, binding, mailing, etc., which will also reduce the number of requests received from non-relevant parties to the bid. The notice and the public tender documents should be issued with at least two months lead time, allowing for bidders to investigate, research and prepare detailed proposals. Depending on the complexity and size of UAS project and whether it is likely that companies need to conduct some site surveys, it might be advisable to give three months lead time.

Reference Documents

4.7.2.2 Pre-bid meeting

At a set date that is specified in the bidding documents, the regulator or Universal Access and Service Fund (UASF) department typically holds a pre-bid meeting. The purpose of the meeting is to allow potential bidders to ask questions and request clarifications. It should also be seen as a last chance to make some modifications to the UAS project and bidding documents, based on suggestions and comments from potential bidders. These changes are likely to be minimal, as the industry had the opportunity to make comments and suggestions during the earlier public consultation process. The pre-bid meeting can be open to all interested parties, or it can be restricted to companies that purchased the bidding documents. Both options are fine, and deciding on either is more dependent on logistical issues such as location and meeting room size. However, typically all participants are required to register (i.e., provide their name, position, company and contact details). This enables the regulator later to distribute the pre-bid meeting minutes. Attendance at the pre-bid meeting is typically not mandatory. However, pre-bid meeting minutes which might include amendments to the bidding documents (either to clarify or modify based on feedback) are distributed to all entities that purchased the bidding documents as well as all additional entities that were represented at the pre-bid meeting. It is helpful to start the discussion at the pre-bid meeting through a brief introductory presentation outlining the main features of the UAS project and the key elements of the bidding process and bidding requirements. The pre-bid meeting should be held early, e.g., two to three weeks after bid document availability. This allows potential bidders time to thoroughly review the bidding documents and gives them enough time to prepare the proposal once they have received important clarifications, if applicable. The bidding process should also allow for written requests for clarification or comments, but this should be limited to a certain deadline similar to the process involved in the pre-bid meeting. Answers to written requests are published jointly with the pre-bid meeting minutes, or a separate document is issued and distributed to all potential bidders. Typically the written questions are treated anonymously.The bidding documents should also include a date at which operators are required to register their intent to participate in the bid or to decline. The written clarifications of the questions can include a reminder of this deadline. While this cannot be legally binding, it is helpful for the regulator to see early on, if there is sufficient interest among operators to bid.

4.7.2.3 Bid evaluation, selection of winning bid and bid award

There should be a public opening of the tenders on the published date. The names of all bidders and their respective subsidy offers should be announced at the tender opening ceremony. Attendance can be open for all interested parties or bidders only. Sometimes, a quick preliminary bid compliance check is conducted during the public bid opening, in order to verify that the contents of the bid envelope are complete, have been signed by the proper authority (e.g., power of attorney included), the bid bond is valid, etc. If this is not feasible during the ceremony, it is usually conducted shortly thereafter as a preliminary examination process, prior to the detailed examination i.e., evaluation.The tender can use a single envelope format or separate envelope format for each of the components i.e., the technical proposal and the financial proposal. Best practice is to split the evaluation into two stages, as follows:

  • Pre-qualification of the technical proposal, which includes information on how the bidder meets the corporate, financial and operational requirements as well as how the bidder meets the service and quality requirements, among others; and
  • The financial proposal which is the required subsidy amount.

Only those bidders who meet the stipulated technical pre-qualification thresholds will have their subsidy request considered by the regulator.Tender evaluation criteria should be described clearly in the tender documents to be purchased by interested prospective bidders. Furthermore, the documents should be based, to the greatest extent possible, on objective factors to avoid favouritism or subjectivity in the evaluation process. Also, the tender documents should contain a clear schedule including the duration of the evaluation period and the date on which results are announced. Depending on the complexity of the bid and required internal approval processes (e.g., by the board of the regulator), the evaluation period typically varies between four to six weeks.

Technical proposal evaluation

The evaluation team should be drawn from within the regulator and ideally should include various subject experts e.g., an engineer, a lawyer, a financial expert or accountant, an economist, somebody with a business background and possibly a procurement specialist. Sometimes consultants or other outside experts (e.g. an academic) are part of the evaluation team to add international expertise and provide an added independent view. The team should be led by a senior figure of the Universal Access and Service Fund (UASF) or regulator. Ideally, each member of the evaluation team will review each technical proposal separately and independently and come up with an assessment as to the suitability of the bidder. These evaluations are then compared and discussed in a group meeting, any uncertainties or questions in regards to the compliance of a bidder removed, and a conclusion reached whether the technical proposal is compliant or not.The evaluation can be carried out with a simple compliance checklist covering a number of criteria and coded or coloured as follows:

  • Compliant (green colour);
  • Clarification required (yellow colour); and
  • Non-compliant (red colour)

Evaluation criteria are the same criteria that are spelled out in the bidding documents, which need to be met to satisfy the technical requirements. The compliance checklist of the bidding documents should cover all the necessary criteria, and can be used by the bidders to check if they have covered the criteria as well as the evaluation team. The regulator typically reserves the right to reject bids that do not conform to all minimum requirements. To summarise the process, bidders’ proposals should be announced as acceptable or unacceptable based on the criteria set out in the bidding documents. These criteria include but are not limited to the following:

  • Does the bidder meet the minimum corporate qualifications such as a minimum net-worth, financing capacity, proper incorporation and operational experience;
  • Has the minimal service level target been offered;
  • Has the required quality of service level been guaranteed;
  • Are the proposed tariffs within the allowed limit set by the regulator;
  • Is the technical solution allowable in accordance with current law and regulation; and
  • Is the technical solution field-proven, deployed in at least two reference projects (in the country or worldwide), and providing the service required in the bidding documents?

Within a stipulated period after tender closing (e.g., maximum of one month) the universal access and service (UAS) department director and his evaluation team should determine which bidders have met the minimum service obligation requirements and the minimum corporate, financial, technical, operational and quality standards.

Financial evaluation

The second stage relates to the least amount of subsidy required by the bidders. All qualifying bidders who have met the publicised qualification criteria will be evaluated in the second stage only with regard to the amount of funding they require. The lowest bid for a subsidy wins.Bidders who do not meet the minimum standard in all the required criteria in their technical proposal will not have their financial offers considered.

Bid award

Once the evaluation team has determined the winning bid, a letter of intent is sent to the winning bidder, notifying them of the award and requesting acknowledgement and willingness to enter into contract negotiation. After the winning bidder acknowledges the award, the evaluation results can be made public to all participating bidders. Bidders that did not qualify have the opportunity to obtain information on why they did not qualify and may lodge a complaint if they are not satisfied with the reasons given to them. With a pre-published draft contract and firm universal access and service (UAS) requirements, room for actual contract negotiations is rather limited. The competitive tender would be unfair if the winning bidder can change UAS requirements. Also, as the draft contract is an appendix to the bidding documents, bidders have had the opportunity to comment or question any particular provisions of the draft contract beforehand. The only changes in the contract might refer to minor issues such as a modified implementation and payment schedule (as long as the overall completion date does not change) and modifications in monitoring, reporting or technical auditor processes and communication protocols. Once the contract is signed, the bid bond is returned to the winning bidder as well as to all other bidders. Typically, at the time of contract signing or shortly thereafter (but before the bid bonds are returned to the bidders), the winning bidder has to furnish the performance bond, as per the bidding documents.

4.7.2.4 Business or sustainability plans as pre-requisite for fund allocation

Business plans are important to any ICT venture. Donors or Universal Access and Service Funds (UASF) should request a business plan before they support larger pilot projects. This business plan ideally meets certain minimum criteria and demonstrates sustainability of the project concept, as well as its development impact or outputs. This is particularly important when the allocation of funds does not involve a competitive tender. A business plan (or sustainability plan) for a pilot project should always describe the project’s rationale, demand basis, costs, expected revenues and financial performance, which need to be met to qualify. The following is an illustrative list of business plan elements which a donor or UASF may require, as appropriate to the particular project:

  • The project purpose and mission statement – a brief introduction to the project idea, the need or opportunity and how the project addresses the opportunity.
  • Sponsorship & ownership - a clear outline of the ownership structure and participants in the project, and whether the project will be a franchised or independent business, a community co-operative, an arm of local government, etc.
  • Market and beneficiary assessment - a demand assessment (based on demographics, interests, economics, needs and affordability). The assessment should include a market description that assesses the role of the project compared to the availability of other competitive services (e.g., for a public access project, identify other phone shops or Internet cafes), and the specific needs of the region, including the kind of information or services needed by the local community. Explain how they will benefit and how they will justify paying for the services. This should include an estimate of the expected usage (e.g., number of calls, Internet minutes of use, messages, pages printed, photocopies, forms delivered, or whatever mode of information and service is to be offered).
  • Legal and regulatory framework, licences and authorizations – a summary of the status of the project proposal with respect to licenses and authorizations. Does the project, or the site owner(s) require a license or special authorization to proceed and have these been granted. If special authorization is required, describe the steps taken and the likely outcome, the conditions attached or the outstanding issues to be resolved.
  • Marketing and sales plan – an explanation of how the market potential will be realized, people sensitized and made aware of the service(s) and, if appropriate, drawn to the site(s).
  • Competition – an assessment of how the market and sales assumptions could be affected by other similar installations, networks or alternatives, and the impacts on the project target.
  • Technical assessment - an assessment of the area’s access to communications infrastructure, the topography, the access technology and other systems (e.g., power) required. This assessment should recommend the most suitable technology for the characteristics of the site(s), and the initial and ongoing costs to connect and maintain the facility or facilities.
  • Financial worksheet - this should contain start-up expenses and start-up costs, as well as projections of number of users, traffic usage, prices and revenues, expenses, financing costs, operational costs and salaries, etc. Financial schedules, showing breakdown of costs and revenues for each major item, unit, department or service (e.g., telephone, fax, computer, Internet & email, training, photocopying, etc.) should be included. Amortization of costs, depreciation and replacement strategy should be shown.
  • Financial bottom line analysis - this must show the profitability calculation or any variations from profitability explained, justified and projected into the future to show how the situation will improve.
  • Funding requirements – a summary of funding requirements and of financial contributions, including in-kind contributions, from all sources. The scale of the investment and the scope of services proposed must be justified.
  • Operational plan – an organizational chart with clear responsibilities, staffing plan, equipment and facility plans and assessment of possible problems and solutions.
  • Training, capacity building and any other human resource development – the needs of the project and the assigned effort, plan, costs and partnership(s) to meet all stated goals for staff or users.
  • Community inputs - if appropriate, an assessment of support from the local community to confirm that the requirements are understood by the community and the sponsor(s).
  • Partnerships – after assessing all of the market, technical, operational, financial and human resource development needs and challenges, clearly outline the nature of partnerships required and secured for successful project implementation. Examples could include a selection of the following: a business with local operating experience; local merchants; telecom operator; Internet service provider; NGO and community organization specialising in training; university; international or national donors, government, etc.
  • Risk and sensitivity analysis – how is the project’s performance and success affected by various market, sales, cost, pricing or operational scenarios, especially the worst cases.

In addition to the above, other requirements dealing with the impact of the project and the project’s development outputs also need to be considered. A practical guide of how to approach these requirements in an application for funding can be found in the table below:

Development Rationale

Source: A rural ICT toolkit for Africa, Andrew Dymond, Sonja Oestmann, infoDev 2003

For smaller ICT projects such as small or micro-entrepreneurs applying for grants to open a telecentre or phone shop, the above requirements are obviously too onerous and complex. See Section 7.1.4 and its Practice Note Uganda’s application process for rural schools to have Internet access for guidance on simpler

4.7.3 Inspection, payment, monitoring and evaluation

Successful universal access and service (UAS) programmes need the following:

    • The supervision of the implementation of individual UAS projects and the inspection of milestone achievements by a technical auditor for payment release, as discussed in Section 7.3.1;
    • The monitoring of UAS projects which is helped by reporting requirements by the UAS service provider in order to have an early warning system of problems and sufficient data on which to evaluate projects later, elaborated in Section 7.3.2; and
    • The evaluation of individual project performance in terms of their impact as well as a strategic review and evaluation of the UAS programme and Universal Access and Service Fund (UASF) performance outlined in Section 7.3.3.

4.7.3.1 Inspection, payment and technical auditor

The main two purposes of a technical auditor are to inspect and certify that specific milestones set out in the payment schedule for the universal access and service UAS service provider are met (or have not been met), and, in the case of a force majeure event (e.g., weather damage such as lightning, storms, earthquakes; industrial disturbances such as strikes, or civil disturbances such as war, terrorist actions, and epidemics), certify that a force majeure event has occurred and make proposals for an amendment of the UAS project implementation and service provision in light of the force majeure event. The inspection and certification process of the achievement of milestones is very important as it plays a role as a notary, certifying the provision of the required service and hence allowing the UASF administrator to legally release the funds.In general, the technical auditor position should be contracted outside of the regulator, using a competitive process, based on detailed terms of references and expertise requirements which are in agreement with the bidding documents and the contact signed with the UAS service provider. In smaller projects, staff from the regulator might be able to perform the milestone inspection and certification, to save time and resources. However, this could be based on the premises that if a dispute or force majeure event occurs, an outside and independent technical auditor is contracted to solve the issue. Timeliness of milestone inspection and milestone certification is of the utmost importance to secure timely payment and a smooth roll-out of any UAS project.

4.7.3.2 Monitoring and reporting requirements

To assist with the monitoring of universal access and service (UAS) projects, reporting obligations of the UAS service provider are typically already outlined in the bidding document and are carefully specified in the actual contract. These requirements relate to the project implementation schedule, which is often related to a network being rolled out and becoming operational, and then to the quality of service requirements. The two tables below give an example of typical reporting requirements.  

Network status and roll-out

The department in charge of UAS within the regulator should require regular reports from operators that show network and service status and roll-out statistics. This provides a record of total network achievement as well as monitors the operator’s performance against their service contracts. These reports might be monthly or quarterly, as appropriate. Typically the frequency decreases after the implementation is complete. Categories for reporting will typically be, as a minimum, those shown in the table below.

Network or Project Implementation Status Report

Source: ITU-infoDev ICT Regulation Toolkit – UAS Module

Service qualityThe department in charge of UAS should maintain a database of service quality requirements and operator compliance, in order to:

  • Ensure that subsidised operators provide an acceptable grade of service in accordance to their UAS service agreement;
  • Determine the need for remedial action; and
  • Create competitive pressure towards good performance.

Typical minimum quality related issues to be monitored and recorded are listed in the table below:

Service Quality Monitoring

Source: ITU-infoDev ICT Regulation Toolkit – UAS Module

Enforcement, recourse & penaltiesWhen appropriate, UAS department project officers should:

  • Conduct random and routine checks of field performance to verify operating statistics and fulfillment of contractual obligations; and
  • Prepare consolidated monthly internal reports to summarise project progress, achievements, explanations and reasons for variance from norm, and recommended further action.

The indicators listed in the tables above, as well as other criteria included in the UAS service contract, should be used as a basis for the UAS department to monitor progress and to enforce the minimum stipulated quality standards on operators and service providers receiving subsidies in the UASF sponsored programme. Once successful bidders for UAS projects have commenced operation, they should be subject to regular audit. Failure to meet minimum acceptable standards, as spelled out in their UAS service contract, should lead to notification that the provider should improve their level of service within a stipulated period of time or to meet contractual obligations. Failure to do so should carry the jeopardy of financial penalties, as provided for in the UAS service contract, and should include the reclaiming of subsidies already paid out.

4.7.3.3 Strategic reviews & evaluation studies

Individual ICT projects as well as national universal access and service (UAS) programmes benefit greatly from periodic reviews and evaluations, and also help to increase public knowledge about experiences, impacts and pitfalls.

Evaluation of the UAS programme

National UAS programmes are ideally subject to a strategic policy and management review in regular intervals, for example every three years. The same applies for Universal Access and Service Funds (UASF) in the cases where a country chose to use a UASF to fund, manage and implement its UAS policy and programme. The review is typically commissioned by the relevant ministry on behalf of the government and is ideally carried out by an independent entity (with relevant expertise in the fields of universal access and service, project finance, and operational management).Without limiting the terms of reference of the review, which should be prepared by, or on behalf of, the government, the evaluation should consider:

  • The achievements of the UAS programme and, if applicable, of the UASF against its objectives;
  • The impact and contribution of the UAS projects and services on the development of the country and the reform, liberalization and development of the telecommunications sector;
  • The role of the commercial sector and of development or financing partners in contributing to the UAS programme implementation;
  • If applicable, the collections and disbursements of the UASF against projections and the costs and effectiveness of the UASF’s management and management structure;
  • The strategic options for future development of the UAS programme to further meet its objectives;
  • The financial requirements to meet these objectives, and recommendations with respect to future levies if applicable, fund raising and partnerships; and
  • Other strategic recommendations regarding the direction of the UAS programme and management of the Fund, if applicable.

The government can use the results of the study and its recommendations to guide future UAS policy, renewal and revision of its objectives or, where applicable, the mandate of the UASF for a further three to five year period.

Evaluation of ICT projects

There is a great variety of what exactly is evaluated in an ICT project, with which evaluation methods and by whom the evaluation is done, in addition to the variety of ICT projects itself. The following illustrates various approaches to ICT project evaluation, without attempting to be comprehensive.

Evaluation focus:

  • Impact on poverty reduction;
  • Improved government services provision;
  • Impact on education;
  • Impact on macro-economic situation;
  • Social diffusion and use of ICT services;
  • Financial sustainability;
  • Social development impact;
  • Stakeholder impact e.g., on organizations that manage or own the project; and
  • Impact on entrepreneurship and innovation.

Evaluation methods:

  • User and usage analysis (e.g., user demographics and how services are used, for what purpose, frequency, etc.);
  • Beneficiaries or stakeholder interviews and analysis;
  • Observation; and
  • Measuring changes in income or job creation.

Evaluators:

  • Academia;
  • Project sponsors;
  • International development agencies;
  • Social investors;
  • NGOs;
  • Commercial associations; and
  • Private consultants.

It is helpful to already develop an evaluation approach at the ICT project planning stage, which is tailored to the project objective, has a practical evaluation method and uses defined indicators and measurements to assess the particular project impact. It might be required to conduct a baseline study before the project is implemented in which certain key indicators are measured in order to assess the changes after project implementation. It is also advisable to choose in advance the time of evaluation i.e. to make a determination of how long it will take for impacts to take effect. The listed reference documents provide further insight on evaluation approaches and success of evaluations.

Reference Documents

Next: 4.7.3.2 Monitoring and reporting requirements