Using Universal Service Funds (USFs) to Move Towards Universal Connectivity

As Information Technology (IT) evolves, the potential benefits of network connectivity grow—both for economic competitiveness and social inclusion. Building the essential infrastructure for the information economy and expanding the reach of connectivity is naturally seen as a priority across Latinamerica.

Policies and regulations that enable convergence around IP platforms are key ingredients—as are competitive markets and a business environment that fosters innovation . While research has shown conclusively that competition among service providers and/or diversity in technology platforms for connectivity are a major driver of broadband penetration, it would probably take a long time for commercial incentives to take services to remote or low income areas.

The stakes are high (poor connectivity will rapidly erode competitiveness) and the economic and social opportunity is huge. As governments address the challenge, existing USFs can become an important tool Bold decisions are needed to turn these “sleepers” into agents of change. Some countries have already moved and, inspired by those experiences, we venture here some ideas for discussion.

Two parallel avenues

a) Increasing Supply: Competition is the most powerful means for expanding the reach of networks, promoting usage and innovating in the provision of services, hence USF resources could be devoted to investments that reduce the cost of entry so a wider range of service provider business models becomes commercially viable.

b)  Accelerating Demand: Resources could also be devoted to complementing existing demand—making the business case for investing in underserved areas more compelling. This could include demand aggregation by the central government or matching grants for local government expenditure that expands demand for ICT services.

Allocating USF resources to expanding both supply and demand allow Governments to address efficiently the specific gaps in connectivity in different areas and segments of the population.

Three examples of mutually-reinforcing interventions

• Basic network infrastructure. The nature of the cost structure of IP networks and the negligible marginal cost of usage once the network is available suggest that funding devoted to completing the build-up of the basic layer of a national core network infrastructure would offer high socioeconomic returns. This is not just theoretically superior to subsidizing service provision but is borne out by experience: Governments that have allocated significant resources to connectivity without network built out have seen a great opportunity lost. When service contracts have expired; governments have realized have had to either renew the existing contracts at high operational costs, or start building the infrastructure from scratch..

• Education is a barrier to connectivity for many—notably among older generations (which includes many teachers). Simple programs to make people comfortable with computers and the Internet may not be a traditional tool but could well offer the most cost-effective means of boosting demand and empowering people for connectivity.

• Making devices (PCs and new-generation devices for connecting to the Internet) more accessible. Device penetration in the region is surprisingly low and not growing fast. Programs to lower their cost, promote leases and otherwise make them more accessible will relieve a key bottleneck to connectivity for many households

The Power of Collaboration

Finally, looking for ways of utilizing USFs effectively, why not rely on the power of networks and engage the “wisdom of the crowds”?. Governments could launch a competition for ideas on how to best achieve USF goals—with modest prices for the best—and most viable—proposals. Once interventions and specific targets for different regions and markets have been selected , competitive mechanisms like reverse auctions would further help engage the creativity of the private sector and allocate resources efficiently.
 

Enrique Rueda-Sabater
Director of Strategy and Business Development for emerging markets
Cisco Systems, Inc.

Andres Maz
Executive Director, Global Policy
Cisco Systems, Inc.