Connecting everyone by mobile phone

A booming market

More than 5 billion people are expected to have access to mobile voice, data, and Internet services by 2015. A report released last October by the GSM Association (GSMA), a partner in the ITU Connect the World initiative, says that the cost of mobile networks and devices will continue to fall, enabling affordable mobile services to be offered to people on very low incomes. The report predicts that around 80 per cent of new subscribers will come from developing markets, primarily in Africa, the Asia-Pacific region and the Americas. It estimates the annual value of the mobile market to be around USD 700 billion, growing at 10 per cent year on year.

Mobile penetration is strongly correlated with economic growth and social benefits in many developing countries. To help achieve universal access, the GSMA report encourages governments and other stakeholders to lower mobile-specific consumer taxes and remove regulatory bottlenecks. It says that removing sales and customs taxes on mobile handsets and services could, for example, boost mobile penetration by up to 20 per cent in areas that already have network coverage.

Figure 1 — World coverage of mobile networks and penetration rate
Source: GSMA Report: "Universal Access — How mobile can bring communications to all"

Today, more than 80 per cent of the world’s population is covered by at least one mobile network — double the amount in 2000, according to GSMA (see Figure 1). In developing countries, mobile has eclipsed the fixed networks. Mobile operators have been able to meet demand for basic voice services more rapidly and flexibly than fixed-line operators, "eliminating many of the barriers for people on low incomes to subscribe and use communication services". Such barriers included long waiting lists, credit checks and installation charges.

Access to mobile services in rural areas — whether via public phones, village phones run by "phone ladies" or franchise outlets — are emerging fast in developing markets. These services may include simplified electronic payments, reverse-charge calling, and applications based on the short message service (SMS). Mobile banking is providing many millions of people with access to financial services for the first time. In the Philippines, for example, it allows people to receive money from Filipino workers abroad. Agriculture is helped too. The Kenya Agricultural Commodity Exchange provides real-time market prices to farmers, as does the "FOODNET Livestock Market Information System" in Uganda. Other services aimed at the agricultural and fishing industries are provided in such countries as Senegal and South Africa.

	Figure 2 — The three-gap model
	Source: GSMA Report: "Universal Access — How mobile can bring communications to all"

The "three-gap model"

The GSMA report recommends that governments "continue to encourage the industry to deliver commercial solutions that will achieve universal access and service goals on a sustainable basis". It says governments should intervene only when the market has already been given a chance to work, but has failed. It outlines a "three-gap model" to help decide when such intervention is needed and to design successful universal access strategies. This model allows them to distinguish the "market efficiency gap" from the "true access gap" (see Figure 2).

The "market efficiency gap"

This is the difference between what markets are actually achieving under existing conditions, and what they could achieve. This gap, the report says, can be bridged commercially if "the regulator removes barriers and creates a level playing field among all market participants". The only questions are how far and how fast the market can actually be reached commercially, and how best to implement pro-market measures. Such measures include open and competitive markets, spectrum harmonization, minimal tariff regulation, procedures for settling disputes over interconnection, geographically asymmetric termination rates, lower taxation, calling-party-pays systems and cost-based licence and spectrum fees.

The "smart subsidy zone"

This refers mainly to rural areas, population groups and types of service that the market alone might not reach for some time, but that will become commercially viable after an initial subsidy. Targeted financial interventions beyond normal regulatory measures (typically from universal service funds) can motivate or accelerate service provision.

The smart subsidy is, therefore, intended to help "kick start" a project or service with the ultimate objective of it becoming commercially viable. However, according to the report, "the smart subsidy zone is shrinking in most markets, as mobile operators are reaching new areas, previously thought to require subsidy, through normal commercial expansion".

The "true access gap"

This refers to areas or population groups that will not be served even in the most efficient and liberalized market conditions, and so financial support is required. In this case, additional investments must be mobilized through government intervention, in the form of subsidies or other special incentives, to encourage service providers to operate in these areas and provide affordable services. According to the report, this gap typically applies to between 2 and 5 per cent of a country’s population, or 20 to 30 per cent of its territory.

Universal service funds

To expand access to telecommunications, governments in several developing countries have established universal service funds. The earliest funds concentrated on subsidizing fixed-network expansion in remote, high-cost areas; however, this was before mobile networks offered lower cost and commercial solutions for such regions.

The GSMA report examines how universal service funds are meeting their connectivity objectives and what role mobile communications play in delivering universal service and access. It surveyed 92 developing countries, of which 32 have set up universal service funds (and 57 plan to do so). These funds are financed by contributions levied from operators of mobile and fixed services, typically at a level of between 1 and 2 per cent of gross or net revenues. In some countries, however, the levy reaches 5 per cent.

The report says that 15 of the 32 universal service funds have collected more than USD 6 billion in total from the industry, of which USD 2.1 billion is from mobile operators. However, only USD 1.6 billion (or 26 per cent) has been redistributed to aid network expansion. The remaining USD 4.4 billion (or 73 per cent) is unallocated and unspent.

Latin America has had the most experience of this type of funding. Funds have been established and subsidy competitions held in Bolivia, Chile, Colombia, El Salvador, Guatemala, Nicaragua and Peru. In almost all cases, the operational funds have been used for fixed-line public payphone services, though it is now intended to include mobile network expansion in several programmes.

The GSMA report says that the universal service funds which have been distributed have not had much impact on improving mobile market expansion or penetration, except in Uganda (see box) and Colombia, mainly because 93 per cent of the USD 1.6 billion spent so far has been used to extend fixed-line networks, which are relatively expensive.

Market forces and government action

According to the GSMA report, governments should regard market forces as the primary means for expanding access. It says that universal service funds should play a "last resort" role in providing access to telecommunications in very remote or high-cost areas where it is not commercially viable to build networks. In addition, these funds should only be used as a short to medium-term policy tool, and should be phased out over time. Meanwhile, the report recommends that universal service funds should be subject to a strategic policy and management review at least every three years.