Dr Kammy Naidoo November 2011

1. The relevance of public access services and universal service obligations in light of increased mobile market penetration Dr KammyNaidooNovember 2011 CPRSouth6, Bangkok, Thailand, December 9-10, 2011

2. Introduction • Market developments is forcing a fundamental rethink of traditional universal service models • Key objective of universal service policies have been to make available, expand and maintain affordable telecommunication services to the public, particularly in remote, rural areas • Internationally, several methods of achieving universal service and universal access have been used, for eg: • universal service funds collected through a operator tax; • exclusivity periods for incumbent service providers with corresponding obligations; • mandatory service obligations imposed on licensees, such as community service obligations (CSOs); and • regional or sub-regional licences. • The sources of funding for universal service differ from country to country – these are either obtained from national government revenues or levies and/or fees from operators. • The need to acquire and retain more customers is forcing operators to invest outside of major metropolitan areas thus achieving universal service through competition

3. Methodology Market data • Mobile and fixed penetration • ARPU • MOU • Coverage/Base Stations • Financial statements USO literature Primary market research • 4 qualitative focus groups Policy & Regulation • 4 qualitative focus groups • Multi-pronged approach to data collection

4. Background 5 Steps to telecoms usage • Large parts of the continent have moved beyond infrastructure coverage, public access and shared service and are entering private service; • Routine use will become more familiar once competition improves and pricing declines. 5 4 3 2 1

5. Research findings - SA Universal Service policy and objectives • SA government used a three phase market liberalisation process: • Phase 1 – Privatisation of the fixed line operator, introduction of mobile services • Phase 2 – managed liberalization with the introduction of a second national operator, a third mobile operator • Phase 3 – market convergence, competition

6. Research findings – mobile penetration • The unprecedented demand for ICT services, particularly basic voice telephony, over the last ten years has created a mobile market far in excess of the anticipated demand. Market forecasts estimate over 100% penetration on average across the African continent. Top 5 countries AVERAGE PENETRATION (FORECAST) Middle 5 countries Bottom 5 countries

7. Research findings - Business model innovation Barriers to entry (Fixed lines) Mobile entry • Procedure • Waiting list • Registration & credit check • Fixed address • Simply buy a sim card • No credit or simple registration • No credit check • Costs of entry • Deposit • Installation charge • Low sim and starter pack purchase price • Declining handset prices removes barriers to entry • Easily available second-hand handsets • Monthly rental & usage • Rent and call charge increases • Regular commitment • No control over monthly bills • Threat of credit blacklisting over non payment • No fixed monthly rental charge • “pay as you go” • Low cost top off ensure constant network access • Flat rate national calling cheaper for long distance • Low priced options such as beeping and sms • Business model innovation has enabled access to telecoms services

8. Research findings - South African telecoms market • Market demand has created technological and business model relevance for services • SA Mobile market growth expected to exceed 100% penetration • Fixed line growth has been dismal, with declining penetration • SA has achieved almost a 100% population coverage, only pricing remains an issue Source: Informa Source: Telkom Annual Report

9. Research findings - Universal service fund in South Africa • The SA market has reached high levels of penetration despite universal service and access goals; • The universal service agency has failed to deliver any telecoms service of significance to underserved people due to: •  Structural flaws in the setting up of the agency and its complex relationship with the various other institutional bodies • Inadequate articulation of objectives and strategy • Managerial, operational and capacity issues • Lack of co-ordination between supply and demand

10. Conclusion • Large scale infrastructure coverage achieved nationally; • Users have moved beyond shared access models as they no longer have relevance for their telecoms needs, prices have declined making shared access less relevant • Key challenges have shifted focus to increased private use and routine use – which is driven by price • The universal service agency has been unable to meet universal service objectives and the fund remains largely unspent • Business model innovation and market demand for mobile phones is making access to telecoms services a reality; 5 Steps to telecoms usage 5 4 3 2 1 • Market developments is forcing a fundamental rethink of traditional universal service models

11. Recommendations • Consolidate all universal service obligations into operator licences to ensure adequate coverage and penetration; • Write flexible licence conditions to allow both the market and policy-makers to respond to market changes or improve poor prior assumptions made in drawing up the original targets. • Improved monitoring to ensure that problems are picked up early and operators fulfill their obligations in the manner in which it was intended. • The most effective way to do this is through constant monitoring of consumer demand matched with effective market reviews to ensure that universal service targets are in keeping with market changes and consumer demand.