ISLAMABAD: The universal service subsidy requirement of telecom sector in Pakistan entirely offsets the fiscal revenues it generates through spectrum pricing and taxation, making broadband infrastructure a net recipient of public funds, says the World Bank.
The World Bank in its latest report, “Policy choices can help keep 4G and 5G Universal Broadband Affordable”, stated that in Malawi and Pakistan (but not quite Uganda), the universal service subsidy requirement of the sector entirely offsets the fiscal revenues it generates through spectrum pricing and taxation, making broadband infrastructure a net recipient of public funds.
In such challenging environments, every dollar gained from spectrum fees translates to a dollar more of required public subsidy, leaving the government’s net fiscal position completely unchanged.
Any attempt to raise government revenues through spectrum pricing simply generates an off-setting subsidy requirement, with no resulting net impact on the government finances, it added.
The World Bank has emphasised that any reduction of spectrum pricing would need to be accompanied by a strong regulatory regime to ensure certain objectives are achieved.
The spectrum pricing regimes need to have coverage obligations attached to avoid private mobile network operators (MNOs) cashing in on tax breaks via extraction of excess profits from highly viable areas.
Achieving total coverage involves user cross-subsidization from profitable (predominantly urban) areas to (predominantly rural and remote) locations that are not commercially viable to cover, requiring incentivisation via regulatory instruments such as coverage obligations.
The report noted that Pakistan, where current 4G coverage is much lower, it is more attractive to deploy 5G NSA (non-standalone) as the means of reaching universal service, says the World Bank.
The cost of meeting the UN Broadband Commission targets across the developing world is estimated at $1.6-1.7 trillion over the next decade, approximately 0.5-0.6 percent of annual gross domestic product for the developing world over the next decade.
However, by creating a favorable regulatory environment, governments can bring down these costs by as much as three-quarters – to $0.5 trillion (around 0.15 percent of annual gross domestic product) – and largely avoid the need for public subsidies.
While 4G technology remains somewhat more cost-effective at the global scale, the 5G NSA can sometimes prove less costly at the national level, particularly for countries with relatively low existing coverage of 4G technologies, and a tendency to be capacity-constrained in terms of demand.
Providing that governments make judicious choices, adopting fiscal and regulatory regimes that are conducive to lowering costs, universal broadband may be within reach of most developing countries over the next decade.
The findings suggest that technological leapfrogging to 5G NSA can be an advisable strategy for countries with under-developed telecom infrastructure.
While 5G is more cost efficient (per bit of data transferred) than previous generations of technology, the real choice faced by policy makers is between completing a partial 4G roll-out or beginning on an entirely new 5G roll-out.
Hence, the existing level of 4G roll-out has a large impact on technology choice.
This is the reason why it is cheaper overall to complete 4G deployment in countries such as Albania, Peru, and Mexico, where 4G coverage is already relatively high (85 percent-95 percent). Whereas in countries such as Senegal, Kenya, and Pakistan, where current 4G coverage is much lower (30 percent-65 percent), it is more attractive to deploy 5G NSA as the means of reaching universal service, the report noted. In principle, it is possible to combine the cost reducing measures explored above by simultaneously permitting infrastructure sharing, while keeping spectrum pricing and taxes at relatively low levels. For the illustrative case of 5G NSA (W), the overall impact of adopting the full range of cost minimisation measures is to bring costs down by as much as 75 percent relative to the baseline, with Pakistan being a good example.
For countries, where universal access to broadband is commercially not viable (such as Malawi, Pakistan, and Uganda) cost minimisation measures can make all the difference between universal service being commercially viable or not.
For instance, in Pakistan in S2 (<2Mbps) commercially-viable coverage increases from below 10 percent to 100 percent when cost minimisation measures are adopted, leading to substantial savings in the requirement for government subsidy, which would otherwise have been as high as $5 billion in NPV terms.
While 4G technology remains somewhat more cost-effective than 5G at the global level, the relative cost of these two technologies can be reversed at the country level.
This means that the governments should carefully consider the choice between 4G or 5G NSA technology as the basis for their universal service strategies.
The study finds that 5G NSA can be the lowest cost technology choice in many developing country settings, thanks to the added spectral efficiency it can provide, leading to a reduction in the number of required sites.
This is the case in countries where 4G networks remain incomplete, reaching no more than 50 percent-60 percent of the population (such as Kenya, Pakistan, and Senegal), and indicates the potential for technological leapfrogging.
The findings suggest that 5G deployment (specifically 5G NSA with wireless backhaul) is much more viable in capacity-constrained countries such as Pakistan, in contrast with coverage-constrained countries such as Malawi or Uganda, where 4G is competitive at providing low user capacities.
Copyright Business Recorder, 2021