Open Access and Financing Principles
for the Information Society
By Eric M.K
Osiakwan
Visiting Fellow and Scholar, DV
Program,
http://www.openaccessforafrica.org
Introduction
The second priority from the
Financing the information Society is
a tall order because there are so many things to be financed and the financing
principles, priorities and practice seems a bigger challenge, may be that’s why we
are giving it less priority but in this essay I would try to make an easy
attempt focusing on the financing of infrastructure. Infrastructure is at the
core of all the services and products we are envisaging to make the information
society so priority must be given to the financing of same. This is not to say
the financing of the others should be done later because they can be done
simultaneously and as a matter of fact some of the principles am going to
advance would be better served in a multi-track approach.
I think our first consideration
should be the need to separate infrastructure from products and services and
this distinction is advanced in the global communication paradigm. There is a
general consensus to move from the “silos” approach to the communication system
to a “horizontal layering” approach. In the silos approach what happened was
everyone could do anything once they where licensed to, which meant that
companies needed to build capital intensive infrastructure in order to provide
services and trade products. This also meant that the end product or service was
expensive for the market which meant it was less affordable for the majority.
Horizontal
Layering
The horizontal layering approach is
to distinguish infrastructure from services though there are other logical distinctions between:
Each layer has a set
of functional rules that allow it to interface with the other layer and for
information to flow over the network. Any player, including new players, can use
different elements of the network, or the entire network, to provide
services. The IP-based architecture
of the network makes it possible for services to be provided, and innovation to
occur, at any point on the network, including, notably, the edges, where the
network can be further “grown” as well.
Different segments of
the market – and different layers of the network -- will naturally have
different structures, and will attract players with different business
models. For example, in most
countries and regions, it will not be feasible or logical to have more than one
or two providers of backbone infrastructure. The key issue in an Open Access
model is to ensure that no player in one of the layers can block access to
another layer or to the rest of the network through having dominant market power
in one or another layer; hence some key principles of Open Access must be
advanced at this stage.
1. Anyone can
play
Particularly because of the
potential for locally-provided services and network growth “at the edges” made
possible by flexible technology and open network models, Open Access models
should assure that any provider willing to play by the rules can “plug and play”
in the network.
Regulation should be
technology-neutral, taking into account the cost and physical properties of the
technologies themselves. No one should be stopped from using a particular
technology and indeed a progressive regulator would encourage cost reduction
through technology innovation.
One needs to recognize that in
future a wide range of applications will require higher bandwidth. But there may
be no significant (order of magnitude) improvements in the performance of fibre,
particularly its installation. However with wireless there will be significant
improvements in performance and cost/capacity ratio and therefore wireless
solutions will become more attractive in local distribution
applications.
Competition should be fair and
non-discriminatory. There should be no predatory pricing, cross-subsidisation or
aggressive cross-ownership. Regulators will need to be capable of dealing with a
range of competition issues to ensure a genuine level playing field, and to
prevent market strength in one layer from creating unfair competitive advantage
at another layer. For all services at a given layer, there ought to be at least
two providers and whenever there are not 4-5 providers of a particular service,
issues of competitive position would need to be examined.
What is true for countries at a
national level holds true at a regional and international level. Ideally any
country should have a choice of at least two providers to connect to neighbours
and the rest of the world. The EU competition policy formulation of “significant
market power” provides a useful benchmark against which competitive position
might be examined.
Competitive markets thrive on
transparent information about market prices and service. Internal accounting
processes in companies need to be sufficiently transparent to enforce fair
trading. If there is tradable bandwidth – particularly at an international level
– it will allow clear comparisons to be made between different providers. There
needs to be greater levels of consumer information to allow comparisons between
“offers”, including offers at the interface between
layers.
The different roles of players need
to be transparent. In order to create trust in the market, infrastructure
providers need to be clear that they will not enter service markets to compete
with their customers. The regulator exists to encourage competition rather than
restrict it but to do so in a way that genuinely encourages increased investment
and lower access costs to communications technology. Where appropriate,
regulation becomes “light-touch” rather than prohibitive or restrictive.
Government exists to create the legal framework through which competition issues
can be mediated.
In order for a competitive market to
function, everyone must be able to connect to everyone else. Service providers
would be able to get access to infrastructure from the local to the
international level, whether they were small or large entities.
There will be inevitable
interconnection rate issues where the interests of the infrastructure provider
in keeping re-investing in the network need to be weighed against the
opportunities that can be created for greater levels of new
business.
It is important to ensure that the
“intelligence” in the network is to be found at the edges of the infrastructure
rather than at its centre. In other words, the infrastructure provider should
not be allowed to reserve for itself all of the functions that create value in
the market.
In practical terms, it should be
possible to create a local entity that can operate on the small or medium-scale
and can “plug into” the network without needing to cede control over its
activities to the infrastructure provider. Local operators need to be able to
own and control a significant level of “intelligence” in the system (eg billing,
features, etc) to encourage open access.
Having advanced the following
principles a couple of financing mechanisms are made possible namely;
However these funding mechanisms
must be implemented within a set of financial principles if public resources are to be used to intervene in the
telecommunications sector, what should the criteria for these investments and
projects be? Surprisingly, the criteria are not terribly complex, and there are
only three. Readers not familiar with the sector and its traditions will be
surprised to know that almost any project on the table today, such as SAT3 and
EASSy fiber buildout, violate all of the following
“principles”.
Public money should be
used to create resources that are open to all customers, including future
customers who may not yet exist. When private capital creates a resource one of
the forms of “Return on Investment” can be exclusion of future competitors.
Private investors can give a price advantage to “early” customers or they can
simply deny “late” customers a chance at all. Either form of exclusion is a fine
strategy for private businesses investing private money. On the other hand,
public money should be used to create
opportunity, not exclude it or reserve it for a select group. To the degree that
public money finances telecommunications, the network so created should be open
to all customers, for all time, on equal terms. This does not mean early
contributors of capital should not be paid a fair rate of interest for making
their investment early, when risk is higher. It does mean that customers who come along
five or ten years later should have access on terms that are determined by the
global and regional economy as a whole. Fiber optic systems like EASSy in
particular have very long operating life spans, 20 years or more, so they have
the ability to grow their benefits to a region if given a chance; to have such a
powerful resource controlled by a monopoly consortium is especially
damaging.
Resources created with
public money should be sold on a cost-recovery basis. Private investors in
telecommunications seek a financial return (profit). They must charge the
highest price they can get or they will eventually be pushed out by a
competitor. Governments should endeavor to insure that private investors in
telecommunications enterprises operate in a competitive market; that will hold
prices down; but government should not regulate prices or regulate the market in
other ways. Only the free market is powerful enough to defend the customer from
the natural tendency for private companies to charge the highest price they can.
Conversely, when public money is used to create telecommunications networks the
situation changes; governments become active participants in the market; but the
objective of government participants should not be to charge the highest price
they can. The objective of investing public money in telecommunications should
be to create the highest benefit to the citizens and economy as a whole.
Government needs to satisfy “investors” too, but in different ways. Government
needs to deliver results, not profits. Because telecommunications is a
high-technology product, the cost of capacity-creation is constantly dropping in
real dollars. Certain layers of the telecommunications business involve
extremely high levels of technical skill and expertise, so it is never a good
idea for government to try and run a telecommunications network. However, parts
of modern telecommunications networks, such as fiber optic “backbones,” have all
the physical and economic characteristics of roads and waterworks and other
“heavy infrastructure.” They are the kinds of resources government can help
finance without getting into something too complex for governments to manage.
But to achieve maximum benefit these resources need to be made available. That means public money
should not seek a financial return, but should buy the delivery of capacity into
a fair market at the lowest price possible (which is a price that seeks to
recover cost and no more). In fact, public money should not be involved unless
the explicit outcome will be a reduction in prices to customers. If public money
can’t deliver that, then we have to ask if the free market is not already
operating efficiently and if there may be no role or need for public
money.
Public money should
not be invested in markets that are distorted by anti-competitive regulatory
regimes. As stewards of
public money, governments should not invest resources in an environment where
customers and competitors are not treated fairly by law. Unfortunately in every
African country today telecommunications regulations are a systematic labyrinth
of laws that create unfair advantages for certain companies, drive costs up for
many companies, and drive costs up and deny service to almost all customers.
Investment of public money into projects which must operate in these distorted
“sub-economies” is a mistake; the vast quantity of telecommunications capacity
created by a project like SAT3 or EASSy can only be productively sold in a fair
and free market. Therefore, a precondition to large scale projects financed by
global donor and World Bank money should be that governments clean regulatory
house and create a business climate for telecommunications that is open and
fair.
The last point may be
the hardest for
Reference:
This note draws from a study
prepared for the WorldBank through InfoDev on “Leveraging New Technologies and
Open Access Models: Options for Improving Backbone Access in Developing
Countries (with a focus on sub-Saharan Africa”, by a team consisting of Anders
Comstedt, Russell Southwood and Eric Osiakwan, under the auspices of the
consulting firm Spintrack @ http://www.infodev.org and http://www.spintrack.com
It also draws from a paper written
by Roland Alden on Public Finance of Telecommunication @ www.ralden.com/C1/EASSy/default.aspx