The Universal Service Funds (USFs) have received a scathing examination by the global GSM Association. The body of over 800 mobile network operators from over 220 countries studied USFs in 64 countries (including Pakistan) and suggested that USFs had proven inefficient and ineffective as a means to reach universal service, and therefore be considered for shutdown.
Universal service here refers to the goal of having telecom services available, accessible and affordable to everyone within a particular country or territory. To achieve that goal, USFs are established by the governments to incentivise telecom operators to provide their services in underserved and un-served geographies where it is commercially unviable to go on their own.
The biggest fault GSMA finds with the USF mechanism (which it championed in the 2000s when telecom markets were being deregulated across the globe) is the underutilisation of money accumulated by USFs. Operators contribute a certain percentage of their net revenues to these funds, and the money collected is spent on the development of telecom infrastructure, for both fixed and wireless communication.
Since the formation of USF in Pakistan in 2006, telecom operators have been contributing 1.5 percent of their adjusted revenues to the fund. Part of proceeds from Access Promotion Component (APC, which is charged on the LDI industry revenues) also lands into USF account maintained at the Ministry of IT. Pakistans USF has since started a number of projects, brief details of which are shown in the illustration.
It makes sense for the telecom operators to be reluctant to contribute to the USFs when that money is spent either slowly or on non-priority areas. The GSMA has effectively voiced their concerns in the report, while noting that more than $11 billion are waiting to be disbursed by these USFs, and that less than half of what they collected has been disbursed.
Appallingly, "more than one third of these USFs have yet to distribute any of the levies collected; and very few funds would appear to disburse everything they collect", the report titled Survey of Universal Service Funds - Key Findings said last month.
Funds held up by the governments in the USFs are a significant portion of their GDP. GSMA estimates that the USF in Pakistan is sitting on funds worth 0.26 percent of the countrys GDP (India, 0.23 percent; Brazil, 0.19 percent). It has accumulated up to $0.55 billion in unspent money; and it collected $90 million from the operators in 2010-11. This shows that disbursals haven kept pace with the collections.
For poor utilisation of USF funds, GSMA finds fault with governments that are levying USF charges when there is no action plan to spend that money. It specifically mentions India, which has accumulated close to four billion dollars in unused funds, but continues to impose a five percent USF levy on operator revenues.
Political interventions, limited project planning and poorly-conceived programmes are cited as other factors plaguing the USFs. While the GSMA has been right in pointing out these issues (which are formidable indeed), but is closing down the USFs really the answer here? Whats on stake here is the ability of especially the developing countries to meet their universal service obligations.
Yet the industry association fails to give any concrete, alternative solutions. Though it cites experience from North America and Western Europe which suggests that market forces may help expand the telecom footprint, and that imposition of license conditions on operators may do the trick. But that may not necessarily work in the developing countries context.
In short, closing down the USFs doesn seem like a practical idea, especially when there are no alternatives. These funds haven brought a revolution, but they are a source of some progress, after all. The issues highlighted by the GSMA must be addressed, by reforming the USFs both organisationally and strategically.
No wonder then that despite their reservations, telecom operators in Pakistan want the USF to continue pursuing its mandate. USFs need reforms and continuity and not a shutdown.
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Performance of USF in Pakistan
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Rural Broadband Optical Fiber
Telecom Programme Cable
Programme Program
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Operations
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(Mauzas) (Connections (Tehsils &
towns)
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Contracted 6,410 491,250 102
Completed 3,810 473,992 67
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Subsidy (Rs bn)
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Contracted 7.37 7.55 6.48
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Public Call Educational Optical Fiber
Offices/ Community Cable length
Telecenters Broadband (Km)
Center
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Contracted 885 / 64 1298/400 6,703
Completed 545 / 49 1036/302 4,258
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Source: USF website