The ASEAN Framework for Next Generation Universal Service Obligation

(USO2.0)

ASEAN-ITU Project 2018-19 Revised: July 2019

ITU Experts:

Arif Wismadi, Parvez Iftikhar

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Table of Contents

1 Introduction ........................................................................................................................... 3

1.1 Big Picture: Digital Divide and USO .......................................................................... 3

1.2 What is known: ......................................................................................................... 4

1.2.1 Previous process of USO evolution. .......................................................................... 4

1.2.2 The current USO challenges ...................................................................................... 5

1.2.3 The newest idea for addressing the current challenges ........................................... 6

1.3 What is unknown:..................................................................................................... 8

1.3.1 Future direction of USO ............................................................................................ 8

1.3.2 The expected challenges for USO ............................................................................. 9

1.3.3 Response for the current and future challenges in USO program ......................... 10

1.4 Benefit to discover the unknown ........................................................................... 11

1.5 Risk if the new knowledge is not established ........................................................ 11

1.6 The specific purpose of this project ....................................................................... 12

1.7 Brief explanation of the method to serve the purpose ......................................... 12

2 Evolution of Universal Access and Service (UAS)................................................................. 13

3 Method for Redefining USO ................................................................................................. 18

3.1 General Framework: Trends in Engineering System Evolution (TESE) ................... 18

3.2 Generating alternative model based on the TESE ................................................. 18

3.3 Measurement: Indicators to measuring where you are heading for ..................... 19

3.4 Calculate: Estimating your positioning toward the ultimate phase of USO2.0 ..... 21

3.5 Analysis: What are possible paths for migrating toward USO2.0 .......................... 22

4 Result, Discussion and Recommendation ............................................................................ 23

4.1 Redefinition of universal service initiative in USO2.0 ............................................ 23

4.1.1 USF Administrative Evolvement ............................................................................. 23

4.1.2 Technology – Human Interaction ........................................................................... 23

4.1.3 Technology – Function Improvement ..................................................................... 23

4.1.4 Technology – Supersystems .................................................................................... 23

4.1.5 Coordination: USO – Broadband Ecosystem .......................................................... 23

4.1.6 Financial Performance ............................................................................................ 24

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4.1.7 Economic Sustainability .......................................................................................... 24

4.2 USO2.0 in the Future Shape of Global ICT ............................................................. 24

5 Conclusion and General Recommendation ......................................................................... 26

A. For under-performing USFs .................................................................................... 26

B. Additional Policy Recommendations for USO 2.0 bodies ...................................... 28

C. Long Term Policy of USO ........................................................................................ 29

D. Putting things in perspective .................................................................................. 30

Annex 1. The Evolutionary Future of USO ............................................................................. 32

Annex 1.1. USO Trend of Increasing Completeness of System Component: USF

Administrative Evolvement .................................................................................... 32

Annex 1.2. Trend of Decreasing Human Involvement: Technology – Human Interaction ..... 32

Annex 1.3. Trend of Increasing Degree of Trimming: Technology – Function Improvement . 33

Annex 1.4. Trend of Transition to the Supersystems: Technology – Supersystems ................ 33

Annex 1.5. Trend of Increasing Coordination: USO – Broadband Ecosystem ......................... 33

Annex 1.6. Trend of Increasing Controllability: USO – Financial Performance ....................... 34

Annex 1.7. Trend of Increasing Dynamization: USO – Economic Sustainability ...................... 34

Annex 2. Guidelines for Migration ........................................................................................ 35

Annex 3. The Matrix to Estimate of Current Position ........................................................... 37

Annex 4. Possible Path of Migration Towards USO2.0 ......................................................... 39

Annex 4.1. Recommended Strategy for a 1st Stage System Development .............................. 39

Annex 4.2. Recommended Strategy for a 2nd Stage System Development ............................. 39

Annex 4.3. Recommended Strategy for a 3rd Stage System Development .............................. 39

Annex 4.4. Recommended strategy for 4th Stage system development .................................. 39

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1 Introduction

1.1 Big Picture: Digital Divide and USO The vision for the ASEAN ICT Masterplan 2020 is to propel ASEAN towards a digitally-enabled

economy that is secure, sustainable, and transformative; and to enable an innovative, inclusive

and integrated ASEAN Community. Whereas the Constitution of the International

Telecommunication Union (ITU), Article 1(d), provides that one of the purposes of the Union is

to promote the extension of the benefits of the new telecommunication technologies to all the

world's inhabitants.

But extending benefits of the new telecommunication technologies to all the world's inhabitants

has never been possible due to myriad of reasons, and ASEAN countries face the same challenges.

Mostly, the governments (even working together with the private sector) could not deploy as

much telecom related infrastructure that the service reached everyone. Even where it did, large

segments of populations could not benefit in a way that was intended.

A consequence of this disparity in access of ICTs is that the segments of populations with access

enjoy more opportunities for economic advancement, social interaction and overall a higher

standard of living. For example, businesses get fast and reliable connection speeds to process

payments and orders, participate in online commerce, and stay competitive in an increasingly

digital economy. Those deprived of this access remain at a great disadvantage. They too like to

actively seek new opportunities to drive economic growth but face constraints with inadequate

broadband access and without the necessary skills needed to benefit from it.

Typically, those deprived are either residents of remote rural areas, or otherwise belong to

comparatively deprived communities. Thus the inequality, between those with access to ICTs and

those without access, widens even further. This divide started to become even more visible with

the advent of digital technology when the spread of information became easier and wider, and

has come to be known as the “Digital Divide”.

The obligation of the state to address any such divide, and provide services universally, was

recognized much earlier. In United Kingdom as far back as 1837, the postal reforms by Rowland

Hill included the concept of universal service across the UK with payment via postage stamps.

The concept of universal service was adopted by the Universal Postal Union, as an obligation of

the state.

Later, the same concept got adopted in the earliest eras of voice telephony. It came to be known

as “Universal Service Obligation” (USO). Today the term USO is used increasingly for universal

broadband internet1.

1 Also see ICT Regulation Toolkit at http://www.ictregulationtoolkit.org/toolkit/4

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1.2 What is known:

1.2.1 Previous process of USO evolution.

By some accounts, the term “Universal Service” in the context of telephony was first used by

Theodore Vail, the President of AT & T - a privately owned near-monopoly in the US. In the 1910

Company Annual Report, he wrote that the telephone system should be universal,

interdependent and intercommunicating, affording opportunity for any subscriber of any

exchange to communicate with any other subscriber of any other exchange. It is ironic because

the aim of a private company AT&T was not to fulfil any obligation of the state but to have more

subscribers and the possibility to interconnect with subscribers of other smaller town-based

telephone operations, in order to maximise profits!

When the obligation fell upon the governments, initially they tried to address their obligation of

enabling access to telecom utilities through state-owned enterprises or regulatory measures. For

example, liberalization in the UK in 1984 sought to protect the provision of public service by

compelling BT (British Telecom) as a general duty to meet all reasonable demands for telephone

service throughout Britain2. As the telecom sector grew, the government’s obligation started

getting addressed through internal industry cross-subsidies, mandated by governments and

regulators. Telecom operators subsidized investments in high cost or low revenue market

segments with profits from high value segments - even though in most cases they did nothing

more than to provide community phones in unserved towns and villages.

Although this USO policy was successful in expanding basic telephone services but it never

achieved anything close to “universal” access or service. In the developing economies the

situation was obviously worse. When the era of cut-throat competition in telecoms began in the

1980s, rapid innovation and substantial cost declines in the industry combined to fuel

exponential growth in the sector. The trends of declining costs and growing demand helped not

only to expand access to telecom services, but also highlighted the huge gaps, both in developed,

but especially in less developed, markets.

Gradually, as technological advances broke down economic barriers and brought private sector

to deliver telecom services, the competition made the internal cross-subsidies unsustainable. The

need for a new set of policies for promoting universal service in telecommunications was strongly

felt. This led to the introduction of new ideas and policies in the 1990s and 2000s, aimed at

providing service to all. Several “Universal Service Funds” (USFs) were set up to achieve true

universality goals in the new market conditions.

With the rapid advances of technology, the old goals of providing access to voice telephony gave

way to the cellular mobile service. The new objective came to be to make mobile signals

universally available, providing “coverage” to towns and villages. Somewhat later internet and

data joined voice, and quickly came to dominate the global ICT domain. Universal service policies

2 BT Act 1981 Chapter 38 Part 1 Section 3(1)

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began to adapt to the demand for internet, in time to be overtaken by the new, highly valuable

services and applications provided through Broadband Internet.

Consequently, countries started adapting. India amended its Universal Service Obligation (USO)

Policy in 2006 to support broadband. In the same year, the USFs in Mongolia and Pakistan were

created with mandate to support broadband right from the start.

In ASEAN, it was Malaysia's Universal Service Provision Fund officially that first included

broadband in 2008, followed by Indonesia in 2010, and Thailand in 2012. Cambodia and Myanmar

are the latest entrants to USO regime in ASEAN, and both aim to support Broadband Internet.

1.2.2 The current USO challenges

As technology and market conditions have continued to evolve, the objectives of universal

service, and the manner in which to achieve those, have been trying to catch up. However, the

challenges faced by universal service goals and policies are more difficult to achieve than any in

the past. Trying to keep pace with the needs of society, and the economic and social trends

driving the expanding ICT sector worldwide, presents a moving target. Thus the growing

prominence of high-speed broadband networks and services has compelled policymakers to

upgrade their universal service objectives yet again, now with the focus being on universal ICTs.3

ICTs have gradually evolved into a path to all human progress. From education to entertainment,

from health-care to space technology, from agriculture to commerce, from gender emancipation

to sports, everything not just benefits from ICTs, everything has actually become dependent on

ICTs. And broadband internet is the one way that brings ICTs literally into the palm of one’s hand.

Those without access to (and required skills to use) broadband are now at a great disadvantage.

Thus the benefits of today’s information-based economy depend on ubiquitous broadband

connectivity. Although the majority of the world’s population (52% or 3.7 billion) currently

remain unconnected (ITU, 2018), the number of total Internet users continues to grow strongly,

with annual Internet growth rates above 5%. According to the latest ITU estimates, nearly 4.4

billion people will be online by the end of this year (2018)4.

Therefore, governments are not left with any choice at all, except that they must do whatever is

possible to bring everyone within the fold of ICTs. Unlike voice, broadband is not something that

will become usable by the citizens as soon as it is supplied. The governments have now to ensure

that broadband is not just accessible for every citizen, it must also be affordable and useful. For

that, all the components of the “broadband ICT ecosystem” need to be addressed.

Ironically, on one side are the huge demands on the USOs to make broadband ubiquitous,

whereas on the other hand the broadband is also responsible for one of the biggest current

3 See A4AI, Universal Access and Service Funds in the Broadband Era at http://a4ai.org/wp-content/uploads/2015/03/A4AI-USAFs-2015_Final-v.2.pdf. 4 ITU - The State of BB 2018 https://www.itu.int/dms_pub/itu-s/opb/pol/S-POL-BROADBAND.19-2018-PDF-E.pdf

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challenges to USOs - the declining cash inflows of USOs! Broadband makes it possible to for the

‘Over The Top’ (OTT) services to operate using the same physical infrastructure as voice. The OTTs

eat into the revenues of the telcos who, particularly in developing economies, still rely mainly on

voice revenues. Since USO inflows are linked with telco revenues, the USO inflows are on the

decline.

In more than one way, the advent of broadband is impacting the very foundations of USOs.

1.2.3 The newest idea for addressing the current challenges

The gigantic challenge of providing broadband access which is universal, affordable and useful,

and then making the public adopt the broadband, requires an understanding of the wide scope

that makes up the broadband ICT ecosystem so that the ecosystem issues can be addressed while

defining policies to meet the current challenges.

Broadly, we can address the current challenges by looking at the developed economies and

learning some lessons from their experience.

The European concept of Universal Service Obligation has its foundations in European laws: the

Universal Services Directive (USD) which was implemented in 2002 and revised subsequently5.

USOs aim to ensure that a set of communications services are available to everyone at a fixed

location, upon request, at an affordable price, irrespective of where they live. OECD countries

promote technology neutrality and future proof frameworks, encouraging deployment of the

most appropriate technology for different local circumstances.

Switzerland was the first country, in 2008, to include broadband in their USO. Since 2009, a

number of other European States have implemented broadband USOs, e.g. Spain, Finland, Malta,

Belgium and Croatia.

To meet the current challenges, OECD countries have developed a range of tools and approaches

to assist in both setting of goals and timelines, as well as in monitoring plans and programmes

for expanding broadband access and its adoption. Examples include approaches to assess gaps,

estimate costs, mapping of available passive infrastructure or network reach and so forth, as well

as benchmarking developments6. In developed economies, however, the demand side more-or-

less takes care of itself without any needs for incentives.

However, in developing economies, it has been experienced that it is not enough to intervene on

the supply side alone. Therefore, both sides have to be addressed in a holistic manner. This is

often reflected in the National Broadband Plans of the countries. According to the list of countries

compiled in the ITU’s “The State of Broadband 2018”7 report, every ASEAN country, except for

Lao PDR and Myanmar, has formulated its National Broadband Plan. Starting with Thailand and

5 https://ec.europa.eu/commission/index_en 6 OECD - Bridging the Rural Divide https://read.oecd-ilibrary.org/science-and-technology/bridging-the-rural-digital-divide_852bd3b9-en#page1 7 https://www.itu.int/dms_pub/itu-s/opb/pol/S-POL-BROADBAND.19-2018-PDF-E.pdf

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Malaysia in 2010 to Philippines and Vietnam in 2016. Among others, Brunei, Cambodia and

Indonesia finalized their Broadband plans in 2014, while Singapore’s equivalent ‘Intelligent

Nation’ program was launched in 2015.

To supply the broadband, the most vital infrastructure part consists mainly of high speed high

volume data “pipes”, the fiber optic cables. For optimum - or high value - usage, ideally the optical

fibers should reach up to the end-user’s premises. But in the case of developing countries, such

would be overly costly. Therefore, optical fibers are usually run to the premises of high-usage

users, e.g.: data centers, data switching/transit points, schools, large public and private

organizations such as government offices, large firms, industries, etc.

For all other users such as households and small businesses, developing countries rely on wireless

last mile access. In such cases the large data pipes (fibers) are deployed to carry the aggregated

data traffic from/to the wireless access points (radio base stations or cellular towers) to/from the

core networks.

On the other hand, there have been many USFs that refrained from funding optical fiber

backbones. Instead, their priority is in the last mile access from base stations. This is slowly

changing. India, Indonesia, Malaysia, and Pakistan, are some of the examples where USFs are

investing in optical fiber backbones.

However, countries are sometimes struggling with the issue of “equal access” to the optical fiber

backbones. If these are publicly owned, the familiar inefficiencies of public sector come in the

way of fast and easy service provisioning to the users. For years the state owned fiber backbone

network NOFBI (National Optic Fiber Broadband Infrastructure) in Kenya remained under-utilized

and was not extended to rural or remote areas. Initially there was no USF in Kenya, and when it

was formed, its priority was in the last mile access, not backbones.

If these fiber backbones are owned by private sector operators, their important goal is to get

competitive advantage for their own (or their partner’s) retail business down the road. Some of

them use the backbone fibers even to restrain access of their retail competitors down the road.

Thus the fiber backbone networks owned by private sector may be fast and easy, but do not

always offer “equal access”.

Pakistan’s USF was probably the first one to fund optical fiber backbones in 2008-09. In order to

make the fibers of ‘equal access’, it was made obligatory for the subsidy winners to share – at

cost - at least one dark fiber pair, with another service provider. The objective was to generate

competition and ensure that anyone asking for access gets it. However, it remained largely

unsuccessful because the cost which the second operator was supposed to pay, could never be

agreed upon by both parties.

On the demand side, the biggest challenge is affordability (of service as well as of smart devices).

This is vital because most of the rural inhabitants and deprived/challenged communities, have

limited capacity to pay. According to the 2018 Affordability Report of Alliance for Affordable

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Internet (A4AI), around the world, over two billion people live in a country where just 1GB of

mobile data is unaffordable.8

The demand-side challenges also include awareness, useful content, and digital skills needed to

make use of broadband ICTs. All of these need to be addressed. Even if people are able to afford

broadband, they are unaware of the value that ICT broadband can bring them. And even if they

are aware they still need to be taught the skills on how to make use of ICT.

The trillions of bytes of content that is available on the net might not be understandable by

majority of rural inhabitants of developing countries. Even if its translation is audio dubbed for

them it is still not much useful for them as they cannot relate to most of it, and thus think of it as

irrelevant. According to an ITU background paper written for the special session of the Broadband

Commission and the World Economic Forum 2017, “In developing countries, the top Internet

Adoption Barrier is Relevance”.9

1.3 What is unknown:

1.3.1 Future direction of USO

The developed economies are undergoing fast digital transformation. Those who could have

managed without any separate USO-like concept are trying to do so. But, as stated above, most

of the developed economies also have USOs, which are all undergoing transformation to handle

the new demands. Some examples:

In March 2018, the UK Government introduced legislation for a broadband USO which will give

eligible homes and businesses the right to request a broadband connection. Ofcom proposed to

designate BT as the UK’s broadband universal service provider10. The consumers will be able to

make requests for 10 Mbps connections by end-2019.

In Australia, the government expects to set up a Universal Service Guarantee (USG) which will

use the national broadband network (NBN) for provision of broadband11. Aimed to be completed

in 2020, it will provide peak download data rates (and proportionate upload rates) of at least 25

Mbps to 98% of premises outside major urban areas.

Canada recognized broadband as part of the country’s universal service framework in 2016. This

year (2018) CRTC established a universal service objective that Canadians – in rural and remote

8 http://1e8q3q16vyc81g8l3h3md6q5f5e-wpengine.netdna-ssl.com/wp-content/uploads/2018/10/A4AI-2018-Affordability-Report.pdf 9 https://broadbandcommission.org/Documents/ITU_discussion-paper_Davos2017.pdf 10https://www.btplc.com/Thegroup/Policyandregulation/KeepingtheUKconnected/USO/index.htm 11 https://www.communications.gov.au/what-we-do/phone/phone-services/universal-service-guarantee-telecommunications

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areas as well as in urban centres – have access to broadband Internet services on fixed and mobile

networks12. Speeds of up to 50Mbps will be available to users in 2021.

In developing economies, some USOs have already started experimenting with solutions to

overcome the new challenges. The new Public Private Partnership (PPP) models for optical fiber

backbones in Indonesia and Malaysia (and something similar in India) may be the solution to that

elusive ‘equal access’ fiber backbones.

Accepting the findings of World Wide Web Foundation’s ‘Alliance for Affordable Internet’ (A4AI),

the UN Broadband Commission has recommended that the target of affordable broadband

should be 1 Gigabit of data per month at a cost to the user of no more than 2 percent of the

average monthly income13. A4AI diligently measures and reports 61 countries (the number is

growing) every year as to which country stands where with respect to the target, and what the

countries need to do with their policies and regulations to get to the Affordability targets14.

Invariably USOs play a strong role in A4AI’s recommended affordability measures.

A common measure to address the demand side is that almost all USOs are being used to take

Broadband to schools, which would not only help standard education but also be a place where

the citizens of tomorrow will learn the necessary digital skills.

Similarly, scattered efforts at creating local content in local languages have started appearing in

many developing countries, and so are efforts in to bring Digital Financial Services to the

doorsteps of the citizens to ensure financial inclusion of all.

But sadly, a holistic strategy, needed to meet the challenge of broadband adoption, is not very

visible in any USO so far.

1.3.2 The expected challenges for USO

Before we talk about the expected challenges, we should briefly touch upon the current

challenges which keep hindering the work that USFs are supposed to function even without the

new broadband challenges. It is important to mention the existing challenges because most of

them are likely to stay and add to the expected challenges.

It is due to these current challenges that USFs fail to spend the monies collected by them because

of

a) Low priority given to USFs by the governments;

b) Extremely cumbersome procedures to disburse funds - both for the USFs as well as for

the recipients of funds;

c) Difficulties in implementation of projects in the remote tough terrains;

d) Lack of interest - even hostility - on the part of telecom operators towards USFs;

12 https://crtc.gc.ca/eng/internet/internet.htm 13 https://a4ai.org/un-broadband-commission-adopts-a4ai-1-for-2-affordability-target/ 14 https://a4ai.org/affordability-report/data/?_year=2018&indicator=

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e) Lack of independence given to USF managements/administrations;

f) Lack of stakeholders’ involvement in USF, for which often the governments and telecom

authorities are responsible; and

g) Low level of capacity of USF staff.

Under these circumstances, if USOs want to broaden their scope and invest in backbones and

demand-side programs such as content creation and imparting digital skills, there would be

obviously additional challenges, namely:

i. The revenues of telcos (which have so far been predominantly voice-based) have been

eroding. Consequently, the USFs are facing the challenge of declining inflows, since they

completely rely on revenue-based levies on the telcos.

ii. Changing from only last-mile access projects to, now, more backhaul and backbone

projects means a big course correction on the part of the USFs, a change which is certainly

very challenging.

iii. It is normal for the operators who contribute to USFs to expect that all their contributions

would land back with them in form of subsidies in the infrastructure. When they now see

the funds flowing outside to non-operators for demand-side projects, they try to oppose

iv. The human resource capacity of USFs will become an even bigger challenge - in particular

if the USF staff has to deal with non-operators, i.e. the vendors of various demand side

services.

v. Contradictions may arise due to the proposed changes in the framework of USOs - just

like every policy change has some unforeseen and unintended consequences.

1.3.3 Response for the current and future challenges in USO program

If an ASEAN-wide common framework is not worked out and implemented, there is a risk that

individual countries may respond to the challenges in varying ways, and may go through

considerable distances in diverse - even opposing - directions. Unknown to others, some

countries may even respond to the challenges of broadband in ways that are considered obsolete

and damaging, e.g. forgetting the rationale of market-based economy, resorting back to State

Owned Entities (SOEs), bringing in protective policies, trying to block OTTs, putting undue

emphasis on net neutrality, etc.

It must be understood that if the countries forget the dismal record of the past monopolies, and

introduce protective policies, it will make the objectives of affordability, widespread availability,

further progress and overall adoption of ICTs, unachievable.

Therefore, it is also important that the proposal of moving in the direction of a common

framework is conveyed to all the stakeholders well in time, particularly to countries that already

appear to be moving in that direction.

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1.4 Benefit to discover the unknown If ASEAN is able to discover a possible framework to transform USO that makes it ready to meet

the new challenges, the benefits could be enormous. The transformed USO could bring more

accessible, affordable and usable broadband to the people who are deprived of it due to reasons

that are geographic, physical or financial. This will minimize the digital divide.

The new USO framework may help ASEAN meet the expected disruption caused by the OTTs,

help ASEAN use the new ICT applications such as the Internet of Things (IoTs), Blockchain and

Artificial Intelligence (AI) for the benefit of rural populations of all the countries, irrespective of

their standing among the ASEAN member countries. A country that is at a different stage of

development than the others may choose to adopt the same framework starting at a different

point. But the objective should be that all are moving in the same direction in order to take

advantage of the benefits of learning from, and supporting, each other.

The digital economy is essentially a knowledge-based economy that comes with specific skill sets,

and these are skills that people of several ASSEAN Member States do not yet have enough of.

The key objectives of the AIM 2020 have thus focused on enabling the transformation to the

digital economy and developing the human capacity necessary for this transition. It facilitates the

emergence of a single integrated market that is attractive to investment, talent and participation,

and building a digital environment that is safe and trusted.

1.5 Risk if the new knowledge is not established By now, it has been clearly established by numerous studies that:

a. without ICT/broadband services being provided ubiquitously, and its adoption by all, the

divide between the haves and the have-nots will go on increasing;

b. the USO in its present form is unsuited to make people adopt ICT/broadband. In fact, due

to the issues of achieving equal access to fiber backbones, the supply of broadband seems

challenging;

c. the fund collected by majority of USFs is not helping, either because they are unable to

utilize it, or it is not being utilized for the things it should be, namely backbones, and

demand side factors.

Thus, there appears to be a dire need to transform present-day USO into something new.

However, like most large scale transformations, the transformation to a new USO seems to be a

daunting challenge. If the transformation can be carried out, and the deprived communities can

be placed on the futuristic digital path of progress, its rewards are many.

But what happens if USO cannot be transformed?

Remaining with the current USO means that the people living in not-so-lucrative areas, or the

deprived communities, will probably never be able to adopt broadband even if ICT networks have

been established for them. If at all they try to do so, it would be somewhere far out in the future,

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while the digital divide with their urban counterparts has increased to un-bridgeable levels. In

the absence of a transformed USO, the people in such locations and such communities will

remain deprived of the benefits that broadband is bringing to the rest of the world.

Not being connected on broadband means that they would be unable to get financially included

in the nation’s economic progress, such as unable to get bank loans and insurances which their

urban counterparts enjoy as a matter of routine. Their education levels will remain low because

of using outdated teaching aids, tools and methods. Their healthcare will remain stuck in the

current dismal state, their agriculture outputs will not increase due to ancient farming practices,

their livestock will remain deprived of modern ways of proactive disease prevention, they will

not be able to enhance their markets beyond their physical vicinities, in fact even their locally

produced items will soon lose out to competition because the competing products would be

coming from places which are using modern production and marketing methods. The list can go

on and on…

Without it, the objectives of ASEAN ICT Masterplan 2020 which are focused on enabling the

transformation to the digital economy and developing the human capacity necessary for this

transition, facilitating the emergence of a single integrated market that is attractive to

investment, talent and participation, and building a digital environment that is safe and trusted,

may be put on a risk of not being achieved.

1.6 The specific purpose of this project A common way forward to a new transformed USO needs to be investigated to address the

shortcomings of the current framework of the USOs - that have generally failed to meet the

expectations, even after the passage of a couple of decades with no shortage of funds. Such an

investigation should lead to propose the way to transform the USOs for the new challenges that

would have enormous disruptive potential.

As stated in the ASEAN ICT Masterplan 2020, ASEAN stands on the cusp of a historic transition

and ICT stands to play a transformative role in fostering an integrated and inclusive digitally-

enabled community. A new era for ASEAN requires the successful implementation of a new ICT

vision to address and inspire the growing aspirations of ASEAN citizens. To realise this new vision,

among other actions, the tool of USO can be used to a great advantage. However, before one

may expect any positive results from it, the USO needs to be provided a new framework.

Such is the specific purpose of this project.

1.7 Brief explanation of the method to serve the purpose To propose the way to transform the USOs for the new challenges that have disruptive potential,

we applied the Trends of Engineering System Evolution (TESE). This method is based on

statistically proven direction of Engineering Systems development that describe the natural

transition from one state to another.

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Using the TESE that is based on analysis of patents and technology history, which has uncovered

predictable, high-level patterns of technology evolution, we brought the predictability of USO2.0

innovation. The prediction aims to uplift productivity and lower risk.

TESE can give us better insights and point in directions that may prove beneficial. If we know the

general evolutionary direction of USO and the overall society and market to serve, we will be

more likely to choose winning ideas over ideas whose time has passed.

2 Evolution of Universal Access and Service (UAS)

A 2011 ITU GSR Discussion Paper15 recognizes that over the past two decades, the scope of

universal service and universal access, which describes the level of ICT inclusion, has widened.

Historically, inclusion related to basic voice services (including access to emergency services and

access for people with disabilities); today however it is increasingly being re-conceptualized to

include Internet – ideally broadband Internet – and to address other issues around digital

inclusion such as digital literacy and access to relevant local applications and content.

The growth of the Internet and associated broadband technologies have highlighted the links

between ICTs, economic growth and social opportunity, and have brought into focus the

increased importance of universal access to ICTs so as to help achieve the SDGs. This has affected

the definition and scope of universal access and service. Today, numerous countries include

broadband Internet in their universal service or universal access definitions.

These include:

• In February 2000, the Estonian Riigikogu (Parliament) enacted the new Telecommunications Act, adding Internet access to its universal service list. It has also indicated that internet access is a legal right.

• India was one of the first countries to include broadband in the mandate of its universal service fund in 2006.

• The United States has recently restructured its universal service financing and now the universal service fund is helping to increase broadband penetration by providing funding for new Internet access infrastructure in rural areas.

• In 2001, Greece amended its Constitution to provide that all persons have the right to participate in the Information Society. The State is obliged to facilitate access to

15 https://www.itu.int/ITU-D/treg/Events/Seminars/GSR/GSR11/documents/06-Universal-

broabdand-access-E.pdf

14

electronically transmitted information, as well as to the production, exchange and diffusion of information.

• In Switzerland broadband has been included in the scope of the Universal Service Obligations (USO) since 2008 – the universal service provider charged with USO must provide a broadband connection to the whole population, via DSL or satellite or other technologies (at least 600 Kbit/s downloads and 100 Kbit/s uploads, and monthly subscription of less than CHF 69).

• In Finland broadband access is a legal right and national legislation extended its USO to cover broadband, with the objective of a basic 1Mbit/s broadband connection available to all by 2011.

• Similarly, the Constitutional Court of Costa Rica declared internet access a fundamental legal right in September 2010. The government has thus been urged to adopt the necessary measures to promote its universal service in the country.16

A 2013 ITU Study further recognizes that the underlying concept of Universal Service is to ensure

that telecommunications services are accessible to the widest number of people (and

communities) at affordable prices.17 The study identified three principles as being at the core of

the development of universal access and service, namely:

• Availability: the level of service is the same for all users in their place of work or

residence, at all times and without geographical discrimination

• Affordability: for all users, the price of the service should not be a factor that limits

service access

• Accessibility: all subscribers should be treated in a non-discriminatory manner with

respect to the price, service and quality of the service, in all places, without distinction

of race, sex, religion, etc.

Telecommunications markets are, however, dynamic, and new technologies are constantly

emerging, with new services rapidly become popular and then often indispensable. In summary,

as shown in the figure below, today, the concept of universal access (UA) has extended towards

to ICTs (and particularly to the Internet, through broadband Internet access), and towards

universal service (US), in which affordable access becomes a reality.

16 https://www.itu.int/ITU-D/treg/Events/Seminars/GSR/GSR11/documents/06-Universal-broabdand-

access-E.pdf 17 https://www.itu.int/en/ITU-D/Conferences/GSR/Documents/ITU%20USF%20Final%20Report.pdf

15

• Figure 1: Rising aspirations for UAS

Means to achieving Universal Access and Service

Universal access and service (UAS) is achieved through a combination of liberalization measures

and regulatory reform, as well as dedicated financing instruments and additional measures that

have an impact on affordability, availability and accessibility and stimulate expansion beyond

“normal” market forces into rural and remote areas and including marginalized population

groups. Mechanisms that have been applied by countries over the years to achieve universal

access and service have generally included:

• Market based reforms, such as authorization and licensing, spectrum management,

access and interconnection, competition regulation, numbering;

• Mandatory universal service obligations;

• Cross subsidies and access deficit charges (where operators are compensated for the

provision of unprofitable services);

• Private public partnerships (PPPs); and

• Universal Service Funds18.

The GSR 2011 Best Practice Guidelines specifically addressed Universal Service and specified

that:

We believe that including broadband internet access in the universal service definition can

be a first step to bridging the looming digital divide. In addition, a national universal

service programme that incorporates a framework to ensure blanket access to essential

broadband services can be chosen. The universal service needs to be defined in a

18 http://www.ictregulationtoolkit.org/4.2

Radio & Television

Basic telephony

Mobile voice

Fixed Internet

Fixed Broadband

16

technologically neutral manner, i.e., by defining services rather than networks or

technologies.

Regulators and policy makers may consider transforming existing universal service

programmes into programmes for digital inclusion that support broadband services for all

citizens. Universal service programmes could be financed by revenues raised from the

activities of a wide range of market players as well as from alternative sources. Smart

subsidies can be used to avoid distorting the market while furthering universal service

goals.

Where a Universal Access/Service Fund (UASF) exists, it could be modernized:

• To serve as a facilitator of the market, piloting innovative rural services and applications, creating demand for advanced ICT connectivity and services (i.e., through financing broadband access for schools and hospitals, and direct subsidies to users); and/or

• To serve as a funding mechanism for broadband networks into rural and high‐cost areas through support both at the retail end (e.g., shared access), as well as at the wholesale end (e.g., through subsidizing intermediary network facilities such as backbones, wireless towers and other passive infrastructure).

The GSR 2011 Best Practice Guidelines also focused on identifying innovative regulatory

approaches that policy makers and regulators can take to advance the deployment of broadband

networks, encourage innovation and extend digital literacy to enable digital inclusion of all in a

broadband world. They identified innovative policy and regulatory approaches in the following

areas:

• Funding mechanisms to foster public and private investment in broadband, defining the

policy and regulatory framework, goals and achievements expected

• Investment incentives, coordination with stakeholders, other national entities involved

and collaboration at the regional and international levels

• Stimulating innovation and development of applications and services

• Expanding Digital literacy.19

It is clear that affordable access and availability of broadband requires interplay between

interdependent elements, defined as the “Broadband Ecosystem”. There is an urgent need for

policy and regulatory reform to address this evolution and to create the enabling environment

to successfully leverage ICTS to help achieve the SDGs.

19 https://www.itu.int/ITU-D/treg/Events/Seminars/GSR/GSR11/consultation/GSR11_BPG_E.pdf

17

Elements to be considered not only relate to supply, but also include demand-side measures that

can enhance the creation of content, including local content, applications, as well institutional

adoption. In this respect governments and regulators have a key role to play in promoting and

increasing awareness of the use and benefits of ICTs20.

In this respect an enabling environment generally includes public policy directives and guidance

so that the different elements are considered holistically and coherently and the different

features are harmonised. The 2013 GSR Best Practice Guidelines recognized that governments

should work collaboratively with all stakeholders, and in particular with the industry and

regulators to facilitate the development of infrastructure and provision of services, particularly

in rural, un-served and underserved areas.

From the supply side, predictable and stable regulations are needed to maintain effective

competition and drive the development of innovative services. In particular, regulators are

encouraged to modernize Universal Service programs to extend broadband to the un-served and

underserved, notably through a redefinition of the scope of universal service.

From the demand side, measures such as deferring or altogether elimination of heavy or special

taxes on ICT equipment and services, encouraging research and development, and special

programs to stimulate e-literacy, will result in higher penetration, increased demand, better

social inclusion and contribute to national economic growth. In this respect governments and

regulators are seen to have a key role to play in promoting and increasing awareness of the use

and benefits of ICTs.

Within this context, national broadband strategies have been adopted in many countries around

the world, and views and inputs from a wide range of stakeholder groups including ministries,

local and municipal governments, small and medium enterprises as well as large corporations

and consumers have greatly contributed to the development of such plans and policies.21

Today, the realization has also grown that the interconnected nature of digital societies across

the sectors means that there is a need for collaboration between government and industry

operators, as well as between regulators across the sectors to provide effective responses to

issues arising in networked communication flows. Regulators and policy makers are starting to

define the foundation as well as the platforms and mechanisms for collaborative regulation with

other sectors such as health, finance, education, energy. Their goal is to define common

measures to include and empower citizens so that they can benefit from the opportunities

offered by a digital connected society.

20 http://www.itu.int/en/ITU-D/Regulatory-Market/Documents/GSRBestPracticeGuidelines_2013.pdf 21 http://www.itu.int/en/ITU-D/Regulatory-Market/Documents/GSRBestPracticeGuidelines_2013.pdf

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3 Method for Redefining USO

3.1 General Framework: Trends in Engineering System Evolution (TESE) Predicting future technology evolution, especially in a fast-changing, dynamic industry such as

ICT, is at best a speculative exercise. The visions of technology futurists in the past have been

wrong at least as often as they have been right. Nevertheless, there are well established theories

and methods for anticipating the general trends of technology evolution, which can help create

a foundation for projecting the next generations and directions of ICTs.

Figure 1: Trends in Engineering System Evolution

For example, the Theory of Inventive Problem Solving (“TRIZ”) has been developed and adapted

over many decades to account for common trends in innovation across industries and

technologies. This has produced a widely recognized hierarchy of Trends in Engineering System

Evolution (TESE), which has been utilized by both technicians and business planners to forecast

future changes in technology. (See Figure 1.)

Each of these Trends can be identified and examined at a given stage of technology evolution, to

anticipate the likely directions of future changes in a system or platform. The trends are not

necessarily sequential or mutually dependent; rather, they tend to occur in parallel, to varying

degrees, depending on the nature of the system and its stage of development.

3.2 Generating alternative model based on the TESE In the case of ICT, for example, we can highlight several general trends that have been prominent

throughout the technology revolutions of the recent past:

• Trends of S-Curve Evolution and Increasing Value: These are basic principles of most

technology development. Innovation tends to occur along an “S-Curve” function, featuring 3-4

stages: slow initial experimentation, then rapid acceleration as the best new ideas are widely

disseminated, followed by a slowdown and sometimes reversal as the wave of changes reaches

its limits. Each stage is driven by the motivation to increase value in the system. With ICTs, these

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trends have been dramatic across multiple generations of transmission, computing, smart phone,

and other technologies, which have seen order-of-magnitude improvements in performance

accompanied by persistent cost declines for more than two decades.

• Trends of Increasing Dynamism, Controllability, Coordination: These trends all reflect

the tendency of technology innovators to move in the direction of greater usefulness, flexibility,

and functionality for any system. With ICTs, each new service, device, and quality enhancement

has produced a broader range of choice and control for end users, while further integrating and

coordinating the role of these technologies in all aspects of social, commercial, and public life.

• Trends of Decreasing Human Involvement and Transition to Supersystem: These are

somewhat higher-level macro trends as technical systems evolve deeper into their life cycle.

They tend to become so integrated into societal and industrial functions that humans are less

needed to operate them. In the same manner, well-established systems that have been

improved to near the peak of their potential tend to be incorporated as components of broader

supersystems, along with other components, which themselves then continue to evolve. The

latest trends in ICTs have been following these patterns. Such developments as the Internet of

Things (IoT), machine learning, Artificial Intelligence, Cloud computing, Big Data analytics, and

blockchain cybersecurity all represent increasingly sophisticated systems that are based on

automated interactions among high-level programs with minimal direct human involvement.

3.3 Measurement: Indicators to measuring where you are heading for To measure the trend of increasing completeness of system component, the level of evolution

could be classified in which the main function is provided, without sufficiently supported with

resource for operation. At the highest level of evolution beside the operating agent of the system,

it is the integrated with the transmission, energy source and the control systems.

In the case of USO, it has been happening in both the administrative aspect of USO as well as the

engineering solution to deploy the program. In the administrative aspect of USO financing, it

might be initiated with the state budget as an ad-hoc fund for providing last mile connectivity

(operating agent), but later Universal Service Fund (USF) is established with contribution of

industry that provided interconnected network (transmission) with the operating agent. In a

more mature situation, the USF Administration might become a more independent in managing

the resources for USO program which later include the backbone, and the ecosystem of USO.

While the completeness of system component is increasing, other trend of Increasing Degree of

Trimming is happening. It means the systems evolves in a way that system elements are

eliminated but the functionality of the system remains or possibly improved. Three possible sub-

trends are trimming subsystems, trimming operation and trimming the component with the

lowest value.

The subsystems are trimmed in the following order, the transmission, energy source, control

system and operating agent. In the evolution of telephone instrument (set) technology, the first

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element trimmed is the cable, and then the detached electricity source, omission of number-pad

or button continued with the use of wearable gadget that can be used without the phone as the

operating agent.

The operations of systems is trimmed in the following order; operation with Corrective function,

operation with Providing function, and operation with Productive function. In the evolution of

typewriter into computing technology, it first trimmed the tedious operation of corrective

function, then unnecessity of copy-carbon, and the trimming of production function with voice

command for typing.

The trend of Transition to Supersystems could be measured when the resource within the

systems become depleted and it needs new resource to continue evolving to increase the value

by increasing function and decreasing cost. In this case, the engineering system integrates with

supersystems component to gain resources.

This trend of transition to supersystems consists of four sub-trends. First, the trend to the

parameter of the systems to become increasingly different from the original, such as the telco

functioning parameter from voice to text and then data. Second, the trend of increasing

differentiation between main functions. In this case, the integration of the systems to

supersystems might occur in the form of Competing Engineering Systems, such as smart phone

with voice and voice-over-IP function. Other type of integration is Allied Engineering Systems of

those have different main functions but common object characteristics, such as a smart phone

that produce texts, send texts, storage texts, exchange texts etc. These allied engineering systems

include the integration of systems that involved in the same processes, such as smart phone with

GPS positioning process and route navigation process. Other allied engineering systems is

integration of those used in the same situation, such as a smart phone that is needed in an idle-

no-job and mobility situation for listening music as well as gaming.

The trend of transition to supersystems include a deeper integration of unlinked, sequentially

linked into partially or completely trimmed engineering systems. This integration might increase

dimension of systems service of mono-bi-poly systems such as from a point-of-presence of

Internet service, a communal Internet learning facility, to socially inclusive and comprehensive

Broadband village programs.

The trend of Flow Enhancement involves a movement of substance, energy, and data through

an engineering systems. This trend consists of two sub-trends, first is to improve useful flow, and

the other is to reduce negative effect of harmful or incidental flows. In USO program it might

related with flow of USO Fund, the collection and disbursement that involves an attempt to

improve useful flow and reduce the negative effect of harmful flow. By understanding the types

and characteristics of the trend of flow, various strategies could be provided to serve the purpose

of the systems.

The trend of Increasing Coordination occurs when the system evolves in a way that

characteristics of the components become more coordinated with each other and with the

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supersystem. It consists of four sub-trends of coordinating shape, rhythms, materials and actions.

In the USO programs it might be related with feature and spatial targets of area, time periods of

financing cycles, technology and types of activities.

The trend of Increasing Controllability is happening as the engineering systems evolve, they

develop more ways in which they can be controlled. It consists of increasing level of control

starting from uncontrolled systems, fixed programs, fixed program with intervention, externally

controlled systems and self-controlled systems.

The trend of Increasing Dynamization appears as an engineering system evolves, it and its

component become more “dynamic”. Dynamization means the ability to change parameter value

in time. This trend consists of four subtrends of design dynamization, component dynamization,

internal structure dynamization and function dynamization.

The trend of Decreasing Human Involvement comes in place when the human being gradually

stops performing the function of transmission, energy sources, control systems, and decision

making. At the earlier stage human performs the function at all levels, otherwise the functions

do not exist.

The trend of Uneven Development of System Component could be identified when an

engineering system evolves by first being concentrated on the operating agent, then the auxiliary

function and on the rest of systems or even on the unrelated systems. In the USO program, it

might first be focused on finding technological solution in rural and remote areas, and later

expanded into finding a maximized socio-development impact of the USO. The program then

somehow has some distance to technology aspect as the operating agent of USO.

3.4 Calculate: Estimating your positioning toward the ultimate phase of USO2.0 Technology does not evolve randomly but along specific paths. The TESE are the paths that

technologies follow as they evolve. The validity of the TESE is based on statistical observation of

large number of technologies.

Using the TESE we can use it for:

1. Describing how the USO has typically developed in the past; and

2. Predicting how the USO will develop in the future

To estimate the current position of USO towards the ultimate phase of USO2.0 the observation

of Trend of Increasing Value could be applied. The trend evolution is described by the Trend of

S-Curve evolution. The Trend of Increasing Value is the driving force behind the development of

all technology. This value is aggregated indicator of all of other trends.

The estimate is based on value of Function and value of Cost. The stage of USO development

could be identified based on the trend of increasing or decreasing value of Function and Cost.

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When the Function increases and cost decreases, we might be in the position of 1st or 3rd stage.

If the function increases significantly with increase in cost, or, the function increases with little

or no increase in cost, we might be in 2nd stage. If the cost decreases with little or no changes in

the function, we might be in the 3rd or 4th stage of system evolvement.

At the end of the 4th stage the new form of technology might be revealed. In this case we could

also identify when USO2.0 would start.

3.5 Analysis: What are possible paths for migrating toward USO2.0 Trends of Engineering System Evolution can give us better insights and point in directions that

may prove beneficial. If we know the general evolutionary direction of USO and the overall

society and market to serve, we will be more likely to choose winning ideas over ideas whose

time has passed.

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4 Result, Discussion and Recommendation As the result of the proposed method, a redefinition of USO into USO2.0 is provided. It consists

of various aspects, from administrative, technology and coordination, toward financial as well as

economic feasibility. The detailed process to formulate this definition is provided in the Annexes.

The annexes also provide a guideline and framework for migration from USO to USO 2.0, the

approach to estimate the position of a country, according to the migration path, with series of

guideline for the AMSs to apply to their respective domestic environments.

4.1 Redefinition of universal service initiative in USO2.0 Based on the TESE analysis, the likely features of USO2.0 could be described as follows.

4.1.1 USF Administrative Evolvement

USF Administration would be transformed into a more independent USO Authority. The resource

for USO program could be provided with a consolidated USO Fund and resources from multi-

sector bodies.

The eligibility of the fund would be expanded to a wide range, including deployment of back-

bone and distribution lines to the Inclusive Broadband Village programs

4.1.2 Technology – Human Interaction

In USO2.0, the deployed technology will be minimum in involving human, with the application of

smart network management, computer based or even Artificial Intelligent systems to manage

payment and pricing mechanisms. It would all be a remotely controlled service and usage,

including the well-known pre-paid and post-paid systems which might involve end user subsidy

mechanism.

4.1.3 Technology – Function Improvement

On the side of technology, the USO2.0 will rely on Internet Protocol based as Network Controller,

transmitted wirelessly and involve more IP users from wearable devices and IOT applications.

4.1.4 Technology – Supersystems

In relation to the transition to a supersystem, a homogeneous integration will reach telepresence

technology to virtually bring together people in remote areas. Allied and inverse engineering

system would converge various apps on voice, text, data and other parameters of

telecommunications. OTTs, which are now perceived as a competing services would be sought as

alternative system of USO services.

4.1.5 Coordination: USO – Broadband Ecosystem

On the spatial coordination aspect of USO and broadband, the program will be directed towards

Ubiquitous Broadband. On the financing and procurement systems, the common interest of

public and private will lead to new scheme for deployment.

USO feature would be transformed from unserved, underserved and under privileged groups into

a nation-wide social inclusive adoption. In the most matured areas, exit strategy will be applied.

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4.1.6 Financial Performance

To gain financial performance, especially in the most remote and socio-economic challenged

geographical areas, the competition to operate in USO areas will be based on competition for the

market towards long term and bundling Area Concession. With this scheme the operators would

conduct a Self-Controlled System for managing both service and financial performance from a

cross subsidy mechanism of lucrative business unit to social responsibilities.

4.1.7 Economic Sustainability

In maintaining the economic sustainability of USO2.0, the design of deployment would be based

on area or region involving the whole Ecosystem. The internal structure of program will form a

Networked Knowledge consisting public entity, academic, business and community. The main

function of USO2.0 aims at the ultimate target of Societal Transformation.

4.2 USO2.0 in the Future Shape of Global ICT It is globally recognized that broadband has gone from being a luxury to a necessity for a full

participation in economy and society. The emerging economies are not alone in attempting to

shape the future with broadband, even the developed economies of the world are using some

form of USO to achieve their broadband ambitions.

For that reason, the FCC in the USA adopted comprehensive reforms of its Universal Service Fund

(USF) and Inter-Carrier Compensation (ICC) systems to accelerate broadband build-out to millions

of Americans who lack access to broadband. This reform is to transform the existing USF to

‘Connect America Fund’22 focused on broadband.

Similarly, in the UK the Prime Minister announced the Government’s intention to put broadband

on a more equal footing to other utility services by giving people the legal right to request a

connection at a minimum speed no matter where they lived through the implementation of a

new broadband Universal Service Obligation (USO).

European Commission’s The Digital Agenda Toolbox23 declares that ensuring access to the critical

infrastructure – the Next Generation Networks (NGN) - is essential not just for the development

of a digital economy but also for ensuring that there will not be a “digital divide”. For these

reasons, the Digital Agenda for Europe foresees that by 2020, all Europeans should have access

to Internet speeds of above 30 Mbps. Therefore, investing in these areas through the European

Structural and Investment Funds (ESIF) is considered as a way to energise the European economy.

Among developing nations too, the “wave” of next generation USO that supports broadband

holistically and not just the last mile, is sweeping across.

22 https://www.fcc.gov/general/connect-america-fund-caf 23 http://publications.jrc.ec.europa.eu/repository/bitstream/JRC88896/ipts%20jrc%2088896%20%28print%29%20final.pdf

25

Prominent examples include that of Indonesia, where Bakti (Indonesian USF) is not only executing

mega optic fiber backbone projects in Public Private Partnerships, but is also trying to address

demand side issues like ICT Training, E-Government Apps, and ICT research.

And Malaysia, where the new generation USPF Internet Centers offer a wide range of services

including “e-Banking”, “Cyber Wellness”, “Child ON Line Protection”, “E-Health”,

“Entrepreneurship training”, and so on24.

Elsewhere in Asia, USF Pakistan recently launched projects aimed at increasing internet adoption

by women (“ICT for Girls”25 and “She Means Business” together with Facebook)26, and by offering

e-commerce market access to small artisans scattered all over the country in small towns and

villages27.

On the other end of the spectrum, according to ITU Broadband Commission report on “ICTs, LDCs

and the SDGs: Achieving universal and affordable Internet in the LDCs”28 800 million people in

the LDCs remain offline today, and in 2020, less than 1 out of 4 people in the LDCs will be using

the Internet. Many people lack the necessary skills and, therefore, the governments need to

make the vital link between strategic ICT sector plans and educational policies. This would not be

possible without adequate funding, which could come through initiatives like USO.

The Next Generation USO (also called USO2.0) is well on its way to help transform nations into

intelligent nations powered by Information Communication Technology as the key enabler of

socio-economic growth.

24 https://www.itu.int/en/ITU-D/Regional-Presence/AsiaPacific/SiteAssets/Pages/ITU-USF-%28Pakistan%29-Workshop-on-Internet-Access-and-Adoption/NEW%2c%20INNOVATIVE%20UNIVERSAL%20SERVICE%20PROVISION%20%28USP.pdf 25 https://usf.org.pk/projects/detail/special-project/ICTforGirls 26 https://usf.org.pk/news-detail/102 27 https://usf.org.pk/projects/detail/special-project/empowerment-of-craft-smemsmes-through-e-commerce:-developing-and-managing-the-value-chai 28 https://www.itu.int/en/ITU-D/LDCs/Pages/ICTs-for-SDGs-in-LDCs-Report.aspx

26

5 Conclusion and General Recommendation

In many countries USFs appear to be constrained because, among other factors, the USO is

defined too narrowly – only to provide voice coverage to the unserved/underserved rural areas.

In the beginning (previous century) USFs were meant to provide community phones in the

villages. This later on transformed into providing “coverage” to all, so that anyone could avail of

the telecom services. Now the whole concept is changing. Several forward looking countries are

already in the process of changing their USFs (e.g. Thailand, Malaysia, Indonesia) and adopting

programs that are aimed towards digital transformation. This next generation Universal Service

is being referred to as USO 2.0.

This change has come about due to a variety of reasons:

a Broadband Internet has effectively replaced voice as the primary reason of the digital

divide. It is broadband internet that brings ‘digital everything’ within the reach of the

consumer – ironically, now, including voice as a result of converged network technologies.

b Mere supply of affordable broadband does not fulfil anyone’s purpose. Neither that of

the government (i.e. bringing economic prosperity) nor that of operators (increase in

revenues), nor that of the users (unless they obtain relevant content and know how to

make use of it).

For broadband to be used, USFs must also turn their attention to the demand side issues

– i.e. the whole ecosystem needs to be addressed.

This means achieving universal access, service and usage through a holistic strategy that

integrates innovative regulatory and financing techniques. Proposed elements of a holistic Digital

Transformation Strategy in developing countries, where USO 2.0 is just one of the elements of

Digital Transformation Policy, are proposed as follows:

A. For under-performing USFs

Considering the critical success factors of those funds that are more effective, the following

guidelines are strongly recommended for those that are under-performing:

1. The Universal Broadband Policy must be well-articulated, having a clear legal and regulatory

framework to support29.

29 Broadband Commission - The State of Broadband: https://www.itu.int/dms_pub/itu-s/opb/pol/S-POL-

BROADBAND.19-2018-PDF-E.pdf

27

2. In many countries, USOs do not appear to have the authority to finance broadband projects

because of the legal interpretation of their respective scope. In such cases, there is an urgent

need to re-visit the legislation. The opportunity should also be used to make other

legislative/regulatory reforms, some of which are stated below.

3. The Governance body of USF should be truly participatory, where all stakeholders - not just

the government - are regularly consulted (this is most important). It should not take any

decisions without consultation and involvement of all stakeholders. The governance structure

of USF should not only provide policy direction it should also monitor performance of USF

Administration as well.

Most USF programs complain about non-cooperation of operators with the USF

administrations. Ironically, if the non-cooperation results in funds not being spent, it is the

operators who are most concerned. But the best way to avoid such situations is to invite them

on to the governance boards of USF, and make the decision making participatory.

4. The USF Administration should be autonomous and independent, with sufficient authority to

determine the scope of its work within parameters specified by the Policy and Rules. There

should be no need to go to the governing body or the parent Ministry for every little decision.

The USF Administration must be appropriately staffed - preferably including professionals

hired from the private sector. The USF Administrative unit must undergo Audit by qualified

professional auditors on a regular basis (e.g. twice a year)

5. Some USO Regulatory Frameworks have over-specified the manner in which the USO

Administration shall undertake its work, such as outlining specific processes or procedures

that the Administration must carry out. This is one of the major hindrances for even those

USFs which are otherwise equipped to do better, e.g. the auction process that a USF is asked

to follow is the one meant for public procurements, whereas USF auctions are not

“procurements” as such.

Regulatory frameworks should be flexible, and USF administration should have sufficient

independence that it should not be required to go beyond its Governing body for day to day

decision-making.

6. There should be the highest level of Transparency, Visibility and Accountability, in the work

carried out by USF. Everything USF does/decides must be placed on its website. This also

includes results of any auctions (who bid, and how much), reasons of any disqualifications,

progress of on-going projects, funds collected, funds disbursed, funds committed awaiting

completion of work, etc.

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7. Project funds allocation must be completely Impartial and Fair, and there should be an

impartial Appeal Management process in case of any complaints against the head or the staff

of USF Administration.

8. The USF programs must undergo Periodic Reviews, every 3 years at most, by the government.

Disbursement of subsidies must be made after proper checks and Technical-Audits,

preferably by neutral third parties.

9. USO should remain strictly Technology Agnostic. It should neither promote nor discourage

any innovative affordable solutions that the operators may come up with.

10. Helping the operators in providing inexpensive Energy in remote areas should also be a part

of the USO Policy. Rules should allow subsidies not just for voice and data transmission, but

also for innovative energy solutions - especially renewable energy.

11. USF should try to play a Facilitator's role for those operators who bid for subsidies. Since the

USF belongs to the government, the Ministries and/or the regulator needs to support efforts

by the USO to help aspects such as obtaining Rights of Way, etc.

B. Additional Policy Recommendations for USO 2.0 bodies

The scope and definition of Universal Service 2.0 is fairly simple - to break through the older,

more narrow definitions of USF which are focussed primarily towards just supplying voice and

broadband internet at the end-user level. To have such financing, regulatory and policy

mechanisms that the digital transformation could be powered by USF, the following additional

policy recommendations are proposed as guidelines for governments wishing to reform their

USFs to address the challenges of digital transformation:

1. The Policy should encourage and induce full participation by allowing the Governance body

of USF to include representatives of all stakeholders - including operators, even if the

operators are potential recipients of the funds.

2. USF 2.0 should focus not just on the last mile but also on high capacity, high speed digital

Backbones, i.e. optical fiber cables, like in India, Indonesia, Malaysia and Pakistan.

3. USF 2.0 should also support International connectivity and IXP projects with the aim of

providing affordable access to international fiber connectivity.

4. USF 2.0 should start changing the prevalent model of giving outright grants as subsidies, and

also use other financing mechanisms like Public Private Partnerships, as in Indonesia.

5. USF 2.0 should encourage any element of the Broadband Ecosystem and the demand

stimulation that promises to support movement towards digital transformation. This includes

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international/national fibre, developing local content and applications in local languages, and

digital financial services.

6. USF 2.0 should aim to create Awareness about digital transformation, and build capacity

relating to Digital Literacy, through schools, community centers, and other locations

convenient for the public - in particular for persons with disabilities.

7. USF 2.0 should strongly promote affordable access through steps such as funding free WiFi

Hotspots at public places and subsidizing Smart Devices for pre-defined sections of people,

such as: students, ‘Persons With Disabilities’, women, one per household, etc.

8. USF 2.0 Policies should be redesigned towards using a new “Bottom-Up” Approach, where

projects are tailored to the conditions and readiness of each region in the country, and are

developed with the participation of stakeholders right from the planning stage. As a result, it

automatically addresses the elements of the digital ecosystem, like it is being done in

Indonesia

C. Long Term Policy of USO

The new USO Policy should be flexible enough to be able to adapt to support the broadband

services that are already visible over the horizon.

As examples, three such services are mentioned here:

1. Internet of Things - soon enough some new smart IoT devices are going to become so

“essential” that USF subsidy could start looking at these areas, eg: sensors of livestock and

plants, for the use of farmers.

2. Artificial Intelligence - applications to control epidemics and warn against impending

dangerous situations may become eligible because of their immense usefulness, eg: apps

warning against weather events, tsunamis, viral diseases such as Ebola, Dengue, etc.

3. Digital Security - when commerce and trade would not work without e-Banking, digital

security will become particularly essential for the vulnerable and inexperienced users,

especially in rural areas.

For those who think that the above may be too far-fetched and improbable, it may be recalled

that about 10 to 15 years ago, when USFs used to support just the “Community Phones” and no

one ever thought that one day optic fiber backbones would recieve USF subsidies.

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D. Putting things in perspective

USO 2.0 should be defined in a way which encourages the effective development of different

elements of the Broadband Ecosystem that promises to support movement towards digital

transformation, including measures like developing local content and applications in local

languages. The overall ICT regulatory environment should play a defining role in supporting

broadband.

Some legislative/regulatory reforms are recommended to support introduction of ubiquitous

broadband through USO 2.0:

Competition

To facilitate the expansion and deepening of universal service objectives, reforms to promote

and safeguard the competitive process should be undertaken.

Licensing

The licensing framework must be transparent. Decision making should be based on evidence

rather than on political influence.

Long Distance Infrastructure

In case of data, the optic fibre backbones play a significant role in making data services available

in unserved and under-served areas. Therefore, it is important to re-visit the prevailing USO and

USF strategies in this respect, that bar some USFs in funding backbone networks.

Infrastructure Sharing

Infrastructure sharing, if facilitated, creates opportunities to eliminate network redundancies,

support greater market competition, and reduce overhead costs. In the same context, all roads

and power/gas transmission lines should have the provision to include optic fiber cables, either

by burying ducts for fibers, or by installing fiber embedded ground conductor lines.

Spectrum

A report from GSMA in July 2018 ‘Spectrum Pricing in Developing Countries’30 stated that the

average spectrum prices in developing countries are more than three times higher than in

developed countries, accounting for income differences. Thus the policymakers’ emphasis should

be on efficient allocation of spectrum to maximise the opportunity for operators and community

to provide reliable service, not to obtain short-term benefit of generating cash for the

governments. Perhaps it is also time to re-think if auctions are really the best way to allocate

spectrum.

30 https://www.gsma.com/spectrum/consumers-in-developing-countries-are-hard-hit-by-high-

spectrum-prices/

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The policy governing low frequency spectrum - in particular the 700 MHz band due to its long

range efficiencies - should be made available urgently.

Financing of UAS

Means of financing, other than USO levies on the operators, can include government financing,

where the government funds universal service projects from loans or grants from development

assistance agencies, or other modalities.

Public Private Partnerships (PPP), wherein the government makes some form of contribution and

the private sector entity is bound by a contract with the government, is one way of funding

broadband projects. In this, the government’s contribution typically comes from the USF.

Demand Side Policy Interventions

Policies should be formulated:

• to make arrangements of teaching digital skills so that people can effectively - and safely

- participate in eCommerce, eBanking, eBusiness, eAgriculture, eHealth, etc.

• to introduce e-government services, which do not only provide government services at

the citizens’ doorsteps, it gives a boost to ICT domain as a whole.

• to give incentives to the private sector to generate local content.

• to lower taxes on ICT infrastructure, devices and services, in order to lower the costs for

users and encourage increased use. The cost of a smartphone represents one of the

biggest barriers to access broadband for poorer consumers.

• to provide subsidized broadband to access points like the rural schools, healthcare units,

community centers, WiFi hotspots. All contribute towards stimulating demand.

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Annex 1. The Evolutionary Future of USO

Annex 1.1. USO Trend of Increasing Completeness of System Component: USF

Administrative Evolvement

Component Function Initial > >> >>> Future >>>>

Supersystems Control Systems:

State Controlled

State mandates USF to middle management level.

USO Authority under Ministry’s middle management level

Independent USO Authority

Resource: USO Pilot Ad-hoc state budget

USF with strict public procurement mechanism.

USF under USO Administrative procurement scheme.

USO Fund and multi-sector bodies

Transmission: Last-mile extension

Last-mile transmission performance-based contract

USF subsidises rural network (BTS)

Back-bone and distribution line

Engineering Systems

Operating Agent:

Public Phone within walking distance

Communal Access

Individual Access Coverage

Inclusive Broadband Village programs

Annex 1.2. Trend of Decreasing Human Involvement: Technology – Human Interaction

Component Function Initial > >> >>> Future >>>>

Machine Control Systems:

Human managed network and financial resources

Machine controlled network, human managed finance

Computer controlled network and finance performance management

Smart network management

Resource: Human processes bills and payment

Local machine, human operated revenue systems

Computer base billing system, and human distributed scratch-card.

Computer based payment and pricing mechanism.

Shared Human-Machine Roles

Transmission: Human controlled switching

Human maintained last mile service and

Remote last-mile operation and

Computer based and remotely controlled

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revenue collection

revenue collection.

service and usage.

Human Operating Agent:

Payphone with attendance

Coin Payphone

Scratch-card payment

Pre-paid and post-paid systems

Annex 1.3. Trend of Increasing Degree of Trimming: Technology – Function

Improvement

Component Function Initial > >> >>> Future >>>>

Trimmed Control Systems:

PSTN Radio Network Controller

Network Operating Control

IP Network Controller

Resource: Numbering Mobile number

Number Portability

IP

Transmission: Wired Wireless Wireless Wireless

Used Operating Agent:

Fixed phone Mobile Phone

Smart-phone Wearable Device

Annex 1.4. Trend of Transition to the Supersystems: Technology – Supersystems

Component Approach Initial > >> >>> Future >>>>

Homogenous Integration:

2-way comm.

Diverting feature

Teleconference Telepresence

Differing Parameters:

Voice Service

Heterogeneous Engineering System of txt apps

Allied engineering systems of voice

Inverse Engineering System

Alternative Systems:

Natural Monopoly

Network and Coverage

Competing Price

Competing Voice Service

Engineering System Evolution

Telecom. Systems

Fixed phone

Mobile Phone Manage service IP Phone

Alternative Systems: OTT Apps

Annex 1.5. Trend of Increasing Coordination: USO – Broadband Ecosystem

Approach for Coordinate

Function Initial > >> >>> Future >>>>

Coordinate ‘Shape’

Technology: Identical: Point-to-Point last mile

Self-compatible: Point-to-Multi Point last mile

Compatible: Cellular Network

Ubiquitous Broadband

Coordinate ‘rhythms’

Procurement Systems:

Identical: Output- based Public Procurement

Complementary: Performance-based service contract

Special Shape: Tailored Public

Public-Private Common Interest

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Procurement for USO

Coordinate ‘material’

USO Feature:

Replacement: access to unserved area

Complementary: access to underserved area

Compatible Shape: Under-priviledge groups

Inclusive Adoption

Coordinate ‘Action’

High Interaction vs Low resources:

0 D: Simulation

1D: Pilot

2D: Scaled-up

3D: Exit

Annex 1.6. Trend of Increasing Controllability: USO – Financial Performance

Type of Control

Revenue Collection

Initial > >> >>> Future >>>>

Single State Output procurement

Service Procurement

Multiple State

Net-cost contract

Gross-cost contract

Dynamically Stable States

Performance Based Service Contract

Coverage Performance Contract

Area Concession

Level of Control:

Uncontrolled Systems

Fixed Program

Fixed Program with intervention

Externally controlled Systems

Self-Controlled Systems

Annex 1.7. Trend of Increasing Dynamization: USO – Economic Sustainability

Type of Dynamization

Economic Valuation

Initial > >> >>> Future >>>>

Design Cost of Technology

Point Communal Coverage Area

Composition Program Infrastructure Telecenters Smart Village

Ecosystems

Internal Structure

Governance Project Based Multi Years Based

Program Based

Networked Knowledge

Function Service Programs

Public Service Social Interaction

Economic Transaction

Societal Transformation

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Annex 2. Guidelines for Migration Toward the migration for a future system, a framework of 10 steps strategy is proposed. In every

step an analytical tool could be used to assist the process.

Step 1: Define the problem with defining Ideality Statement with all positive expectation of future

systems (faster, better, cheaper, etc.) and describe how the current system does not fit with this

ideality statement.

Step 2: Using TESE, observe to understand the level of evolution of the current systems and the

trend towards the future

Step 3: Define the historical and current Main Parameter of Value (MPV) of the systems, or the

most important parameters relevant to the market.

Step 4: Indicate the systems stage using stage indicators (your stage in the S-Curve).

Step 5: Explore the strategy associated with system development in the respective stage.

Step 6: Compare and choose strategy with Function Analysis that defines the main function of

new system.

Step 7: Investigate if any contradiction is found toward the implementation of the chosen

strategy - inventive problem definition.

Step 8: Provide the solution of the inventive problem by mitigating all the negative aspects and

worsening effect of the chosen strategy.

Step 9: Provide a Proof-of-Concept with solution robustness check.

Step 10: Migrate by implementing the standardized solution as the new system.

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UnderstandingCurrent & Trend

Define the MPV

Indicate your stage in the S-Curve

Explore the Strategy

Investigate the contradiction from the selected strategy

Compare and Choose the Strategy

Solve the inventive problem

Proof of Concept

Migrate

TESE

Customer Behavior

Stage Indicators

Stage Strategy

Function Analysis

Inventive Problem Definition

Solution Generation

Solution Robustness Check

Implement and Standardize

Define ProblemIdeality

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Annex 3. The Matrix to Estimate of Current Position

In order to estimate the position of USO Program in each ASEAN Member State, a matrix

consisting of relative level of transition from USO1.0 (past and current) to USO2.0 (future) and

Main Parameter of Value (MPV) is needed. The historical MPV is related to the distance to service

of the USO, for example, the transition from one phone one village, public phone within walking

distance, mobile signal within walking range from the house, to mobile signal everywhere.

This matrix helps us to map current USO program by understanding the Supply Side (USO feature)

and the Demand Side (customer behaviour in the market). The MPV is the product attribute that

defines customer behavior.

The MPV has to be objective and technical parameters to be used as instruments for innovation.

In many cases only 1-3 parameters are important to the customers, and it might be different for

a specific market segment.

The MPV evolves in each Stage of S-Curve Evolution, therefore in each stage of 1, 2, 3 and 4 we

need to define the MPV and understand the general overview and the indicators. Based on the

mapping on the S-Curve, a set of recommendations is provided.

In assisting the analysis of each stage, the following overview and indicators are provided.

1st Stage Analysis

At this stage, the system is born, the principle of action is first applied to deliver the main

function. Therefore, the system design and components are not refined.

At this stage, the system faces an intense competition with emerging and leading solutions.

The indicator of a system that has just born at this level is that it is new and has a champion

parameter but has not yet entered the market.

2nd Stage Analysis

During the 2nd stage, the Main Parameter of Value improve rapidly, the volume of production

grows and it expands to new applications.

The indicators of this stages are the mass production of the system, the increased differentiation

between system applications, and the systems gain function that are closely connected to the

main function.

3rd Stage Analysis

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At this stage, the system development slows enormously, despite the increasing efforts. The

production volumes also become stable. On the other side, one or more contradictions increase

exponentially, hindering further the growth of the function over cost ratio.

There are several indicators, first is that the systems consume highly specialized resources. At the

same time, the supersystem components are designed to accommodate the systems. If any

variation differs from one another, mainly it is by design. In this stage the systems acquire

additional functions that are of little relevance to the main function.

4th Stage Analysis

In this stage, the system functionality and revenue decline. Production volume also drops

considerably and more effective systems have reached their 2nd stage and are beginning to force

the systems out.

Some indicators include a situation where the main function of the system loses its utility

becoming non-utilitarian such as toy, souvenir, decoration or sport equipment and

entertainment. The system then continues to function only in highly specialized fields. The

system in fact continues to function within a supersystem.

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Annex 4. Possible Path of Migration Towards USO2.0

Annex 4.1. Recommended Strategy for a 1st Stage System Development In this stage, major changes to system including its principles of operation are allowed. A new-

born system must be launched into the market as quickly as possible and focused on the market

where the MPV is of most importance.

The importance to accelerating the introduction of the new system is critical as it will not always

be beneficial in making the system better. However, the minimal acceptable value of the basic

parameters needs to be achieved and needs to considerably exceed the value of one of the

parameters.

Therefore, the system should be introduced in one specific field, where the ratio of advantages

to disadvantages is most acceptable.

To minimize cost, it is recommended to adapt existing infrastructure and sources of supply, and

integrate the system with any system that is leading at the moment.

It is also important to identify and eliminate bottlenecks that prevent the system from entering

the market.

Annex 4.2. Recommended Strategy for a 2nd Stage System Development A system in this stage should be developed towards optimization of the system and adapt it to

new fields of applications. It is also important to gain more functions.

Moderate-degree changes can be introduced to the systems design without changing the

principle of operation as it has not reached its development limits.

If any problem occurs, solve it by adapting the systems to new fields of application. He we can

also utilize specially adapted resources of the supersystems.

Annex 4.3. Recommended Strategy for a 3rd Stage System Development A system in this stage should be developed to reduce cost, develop service components, and

improve the aesthetic design or images.

In a distant future, it is recommended to switch to another principle of operation for the System

or its component which resolves contradictions hindering further development.

A deep trimming and integration of alternative system or transition to supersystem could be

done. Review and research for a MPV that is in an earlier stage to integrate and develop the

system with alternative systems approach.

Annex 4.4. Recommended strategy for 4th Stage system development A system in this stage should look for the market where it would be still competitive.

For the near future, solve problems aimed at reducing cost, develop service sub-systems and

improve aesthetic value.

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For the distance future, switch to another principle of operation for the system or its components

which resolve contradictions hindering further development. Deep trimming, integration of

alternative systems and other techniques of transition to supersystems are highly effective.