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Scope, funding mechanisms and challenges of universal service and access

Alison BirkettEuropean Commission

ITU Regional Regulatory Seminar: Dalian, China, 5-8 August 2002

EUROPEAN COMMISSIONEUROPEAN COMMISSION

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ContentsContents

I The EU approach to universal service- The new EU regulatory framework- Where are we today on US, and why change?- What’s in the US Directive?

II How will accession candidates (new EU Member States) deal with US?

III Universal service in emerging economies and developing countries

- Universal service or access?- Policy options- Issues

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AudioAudio--visualvisual TelecomsTelecoms

ITIT

MultimediaMultimedia

The Challenge of ConvergenceThe Challenge of Convergence

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Service

Network

Terminal

Voicetelephony

FixedMobile

Telephone/Handset

Data

Fixed

PC

Broadcasting

CableSatellite

Terrestrial

Television

Today - separate networks, separate rules

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Data

Fixed

PC

Broadcasting

CableSatellite

Terrestrial

Television

Voicetelephony

FixedMobile

Telephone/Handset

Service

Network

Terminal

Convergence is a reality

Wireless Satellite Cable Telecoms

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DEALING WITH CONVERGENCEDEALING WITH CONVERGENCE

1. All content can be delivered over all networks;network-dependent rules are being overtaken by technology; markets are merging; so:- coherent regulation of communications infrastructures

and associated services

2. Content and transport are different, so:- separate regulation for transport and for content, while

recognising the links between them

3. Regulation should be kept to a minimum, so:- only impose regulation where competition not effective

and where competition law isn’t enough

Content Services - outside scope of new framework

(e.g. broadcast content, e-commerce services)

Electronic communications Electronic communications networks and services networks and services -- ScopeScope

Communications services (e.g. telephone, fax, e-mail)

Communications networks (fixed, mobile, satellite, cable TV, powerline systems, networks used for radio and television broadcasting)

and associated facilities (e.g. CAS)

Regulatory approach of the packageRegulatory approach of the package

u Identify markets

wproduct markets (eg call termination)

wgeographical markets (eg local, national, global)

u See whether there are dominant operators on those markets (Significant Market Power)

wminimal and linked to degree of competition

w flexible BUT harmonised at a European level

w technologically neutral

u Regulate only where an operator has a dominant position in an identified market where competition is not effective

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Data Protection Directive

Unbundled local loopRegulation

SpectrumDecision(Art. 95)

The new packageThe new package

LiberalisationDirective(Art. 86)

Framework Directive(Art. 95)

Authorisation Directive

Access & Interconnection Directive

Universal Service and Users’ Rights Directive

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ContentsContents

I The EU approach to universal service- The new EU regulatory framework- Where are we today on US, and why change?- What’s in the US Directive?

II How will accession candidates (new EU Member States) deal with US?

III Universal service in emerging economies and developing countries

- Universal service or access?- Policy options- Issues

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PSTN/ISDN PenetrationPSTN/ISDN Penetration

PSTN/ISDN penetration (2001) 56

% 75%

65%

61%

48% 63

%

52%

54%

114%

73%

44% 54

% 66%

70%

59% 64%

102%

97% 10

9%

96% 10

8%

108%

95%

96%

221%

120%

107%

96%

94%

100% 105% 110%

0%

50%

100%

150%

200%

250%

B DK D EL E F IRL I L NL P A FIN S UK EU

% of population % of householdsSource: IDC 2001

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Mobile PenetrationMobile Penetration

Mobile subscribers and penetration rateTotal EU subscribers: 263 millions

55.1

7.0

26.8

33.7

47.1

0.37

11.9

6.6

7.6

6.7

43.42.67.

0

3.9

4.0

05

1015202530354045505560

B DK D EL E F IRL I L NL A P FIN S UK

Milli

ons

of s

ubsc

riber

s

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

Pene

tratio

n

Subscribers Penetration

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Internet PenetrationInternet Penetration

Household penetration of internet access (October 2000-June 2001)

0%

10%

20%

30%

40%

50%

60%

70%

B DK D EL E F IRL I L NL A P FIN S UK

October 2000 June 2001 EU average June 2001Sources: Eurobarometer

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Need for change ?Need for change ?

wMonitoring ReportswConsultancy studies

u No need for substantial modifications, but need to simplify, clarify, and take into account convergence

u Scope is broadly the same

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ContentsContents

I The EU approach to universal service- The new EU regulatory framework- Where are we today on US, and why change?- What’s in the US Directive?

II How will accession candidates (new EU Member States) deal with US?

III Universal service in emerging economies and developing countries

- Universal service or access?- Policy options- Issues

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Scope of Universal Service:Scope of Universal Service:General General

uSet of servicesumust be available under some conditions:

waffordability (type of users, and geographical locations)wquality

uScope linked to financing mechanism -Member States can go further with the general budget

uPossible review

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Scope of Universal Service:Scope of Universal Service:Different servicesDifferent services

uProvision of access at a fixed locationwsufficient for functional Internet accessw technologically neutral (wire or wireless) on

connection at fixed locationwno extension to mobile

uDirectories and directory enquiry servicesuPublic pay telephonesuSpecial measures for disabled users

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Scope of Universal Service:Scope of Universal Service:ConditionsConditions

uAffordability of tariffswLow income or peripheral regions

uFacilities permitting control of expenditure

uQuality of services: Publication and performance targets

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Means: Designation of USO Means: Designation of USO providersproviders

u If necessary, Member States may designate one or more USO providers

wUse of efficient, objective, transparent, and non-discriminatory mechanismw to ensure that USO is provided in a cost-

effective manner and may be used as a means of determining the net costwDesignation for all or part of the different

services, all or part of the territory

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Means: Determination of the cost Means: Determination of the cost of USOof USO

uWhen representing an unfair burden, NRA shall calculate the net cost of USO

uEither calculation of the net costwAvoidable cost - provision at non-commercial

conditions - take into account intangible benefits

uOr, cost revealed during designation process (eg: auctions)

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Means: Financing the USO costMeans: Financing the USO cost

uThe net cost of USO can be financed in two ways

uGeneral government budget and/oruSectoral Fund

wShould respect principles of transparency, least possible market distortion, non-discrimination and proportionalitywContributors: providers of electronic

communications networks and services

uTransparency

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ContentsContents

I The EU approach to universal service- The new EU regulatory framework- Where are we today on US, and why change?- What’s in the US Directive?

II How will accession candidates (new EU Member States) deal with US?

III Universal service in emerging economies and developing countries

- Universal service or access?- Policy options- Issues

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Applicability to EU candidate Applicability to EU candidate countriescountries

u Main lines per 100 population (1999, WIK)w35.4 average in candidate countriesw54.9 average in EU15

uAvailability of universal servicewFlexibility to permit use of lower data rates (eg

to allow use of wireless technologies)

uDesignation of undertakings to provide universal servicewdesignation methods do not exclude auctions or

tenders

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ContentsContents

I The EU approach to universal service- The new EU regulatory framework- Where are we today on US, and why change?- What’s in the US Directive?

II How will accession candidates (new EU Member States) deal with US?

III Universal service in emerging economies and developing countries

- Universal service or access?- Policy options- Issues

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Emerging economies and Emerging economies and Developing countries (1)Developing countries (1)

uUniversal service or universal access?

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Emerging economies and Emerging economies and Developing countries (2)Developing countries (2)

uPolicy optionswPublic access policies wUniversal service fundswCompetitive bidding systemswLow interest loans and microcreditwUse of service requirements

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Emerging economies and Emerging economies and Developing countries (3)Developing countries (3)

u IssueswSustainabilitywPricingwFunding

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Possible sources of revenues for Universal Possible sources of revenues for Universal service/access funds service/access funds (World Bank study)(World Bank study)

Source ofRevenues

Definition/Description Characteristics/Examples

Interconnectlevies

Incumbent operator carriesa universal service oraccess obligation

Interconnection surcharge may beopaque and operator has noincentive to reduce costs.Example : US

Operatorrevenuecontribution

All operators charged apercentage of revenue

Levy generally varies between 1-2%, eg Peru and DominicanRepublic. In Guatemala, 70% ofrevenues from spectrum auctionsgo to the fund

Governmentbudget

Funds for UA provided bytreasury

Eg Chile

Seed finance bydevelopmentbank or agency

Funds for UA come frominternational organisations

Eg WB recent project in Nicaraguaincludes a small portion of seedfinancing for the rural developmentfund. Similar schemes underdiscussion in Nepal and Nigeria.

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Examples (1)Examples (1)

uChilewUniversal service fund (national budget)wEligible projects (areas to be served) selectedwPublic competitive bids invitedwNon-exclusive 30 year licences awarded to

winnerswLicensees set retail prices of most servicesw1994 to 2002: reduction from 15% to 1% of

proportion of population living in places without access to voice telephony

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Examples (2)Examples (2)

uSouth AfricawNetwork rollout obligations in licencewFinanced through cross-subsidy of incumbent

during 5 year monopoly periodwUniversal service fund (financed by telecom

licensees)wEstablishment of telecentreswHuman resources fund (financed by telecom

licensees)

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Examples (3)Examples (3)

uChina?wUp to now: China Telecom cross-subsidieswNow: break-up of China TelecomwSoon: Universal service fund?wContributions from market participants?

For more information ...For more information ...

On the European Commission:http://europa.eu.int/

On DG Information Society:http://europa.eu.int/information_society/topics/

telecoms/index_en.htm

On the new legislation:http://europa.eu.int/information_society/topics/

telecoms/regulatory/new_rf/index_en.htm