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
Source: GSMA Report: "Universal Access — How mobile can bring communications
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
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
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
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.
A case study: Uganda
In Uganda, one of the countries surveyed by GSMA, the universal
service fund has had a significant effect on the mobile sector. Uganda’s
coordinated universal access policy and universal service fund have helped to
deliver accessible voice and data services countrywide. With 96 per cent of the
country’s population covered by mobile networks, the Uganda Communications
Commission (UCC) has demonstrated how an auction strategy can stimulate network
UCC made available a study of what communication services were
needed in rural areas, where 88 per cent of the people live. The two main
operators were required to declare which rural districts they could serve, and
to relinquish their exclusivity rights in areas they did not intend to serve.
Some 154 districts were identified and least cost subsidy tenders were won by
MTN Uganda in 2005 and 2006. Alongside its
normal services, MTN also established more than 4000 shared-access village
phones in previously unserved areas.
The reasons why mobile has been able to aid universal access in
- the introduction of competition using technology-neutral
licensing in 1998, prior to the privatization of incumbent operators;
- the presence of a trusted, independent regulator, which created
a stable and competitive environment;
- 100 per cent of the universal service fund allocated to mobile
- the fund’s focus on reaching the last remaining unserved areas,
boosting national access to data communications;
- the requirement for operators to nominate the places they would not serve,
enabling the government to then issue tenders to serve these areas with
subsidies from the universal service fund.