Tag: Telecom

Broadband affordability

IT WAS QUITE A HORROR-STORY WHEN SOMEONE THOUGHT THAT JUST LOWERING BROADBAND TARIFFS WOULD MAKE THE PEOPLE FLOCK BUT FORGOT SOMETHING…

USF had just started the Broadband project where the criterion for getting subsidy was to prove to the Technical Auditors that the target number of broadband connections were actually working. The idea behind this criterion was that subsidies should not be given just for laying broadband infrastructure. Rather the broadband service providers should be made to ‘sell’ broadband connections – by creating necessary (but lacking) awareness among the people AND by making broadband affordable.

As the bidding allowed multiple winners (mainly to promote competition), one of the winning bidders was PTCL. Someone in PTCL, in his zeal to get the subsidy quickly, decided to acquire the necessary number of broadband connections just by lowering the tariff from Rs 1,199 to an incredible Rs 299 per month! But such a drastic reduction had to have a catch in it and the catch was that if the customer exceeded the download limit of 1 GB, he/she had to pay @ Rs 200 per GB extra. And somehow the reverse of this message got communicated!

Guess what happened when customers received their huge bills at the end of first month? Most of them ran away even before the Tech Auditors could start counting them. But hats off to PTCL because as soon as they realised what had happened they started damage control. They modified the low tariff, introduced a max limit, made it clear to everyone what the low tariff consisted of and compensated the effectees (it’s a different story that they had to form queues for that!). They also rationalised their overall tariffs. It took months to bring back the annoyed customers.

But whoever in PTCL thought of lowering tariff to attract broadband customers wasn’t actually wrong. Affordability is a big issue in Pakistan and continues to be one of the main impediments in growth of broadband. For a country where majority of the people scrape through their daily lives and 24%[1] people live under the poverty-line, it is pretty obvious. Although USF subsidies and overall market conditions have helped to lower broadband tariffs but most of the price-reductions got eaten up by inflation/devaluation and the rest has gone to increase broadband speeds. Consequently now for the same amount of Rupees one can get 4 times the speed of 2008.

Calculations given below show that on average a Pakistani household spends little more than 1% of it’s average spending on telephony. And if Broadband is added to an average household’s monthly spend (at the present rates that vary from Rs 300 to 1,200 per month), the percentage spent on ICT (Voice + Broadband) becomes 1.7% to 3.5% – not a big deal if you look at comparable countries.

That raises an interesting question: If 40% of Pakistani households are in cities and out of those only 30% can be considered to be “average-or-above” then 3.1 Million households fall into a category who can afford broadband. So there should be at least that many Broadband connections in the country! However there are about half of those! “Why” is a separate discussion, that involves multiple issues – availability (of broadband and PCs), awareness, content and necessity – yes, necessity!

Calculating Average household spend on ICT:

  • 2010-11[2] Population                                                                        177 Mil
  • Persons per Household[3]                                                                   6.8
  • 2010-11[4] GNP (not GDP)                                                                Rs  17,891 Mil
  • ‘Private Consumption’ part of GNP                                                   Rs  15,584 Mil
  • Total number of Cellphones[5] in 2010-11                                       109 Mil
  • Total Cellular Cos. Revenues[6] in 2010-11                                      Rs 262,761 Mil
  • This gives us an Average Revenue Per User (ARPU) per Month     Rs 201
  • No. of  Households – @ 6.8 persons                                                  26 Mil
  • ‘Private Consumption’ divided over 26 Mil HHs                              Rs 598,714
  • So the Private Consumption per Household per MONTH                Rs  49,893
  • Assuming 2/3rd  of 109 Mil Cellphones were actually in use            72.67 Mil
  • Thus the No. of Cellphones per Household                                       2.8
  • And therefore monthly spend per Household (2.8 x 201)                 Rs 561

This means that on an average, about 1.1% of overall spending of a household goes to telephony! Let’s now add broadband:

  • In Pakistan usual Broadband monthly charges vary between         Rs 300 to 1,200
  • Then total spend of a household on ICT (Voice + Broadband)      Rs 861 to 1,761
  • As a percentage of Average household spending would be            1.7% to 3.5%

(Indeed it is acknowledged that these represent average figures meant only to provide some indicators. Also in no case it is meant that tariffs should not be lowered further, to bring benefits of broadband to maximum number of citizens).

 

[1] http://en.wikipedia.org/wiki/Economy_of_Pakistan

[2] Printed version of “Pakistan Economic Survey 2010-11”, Statistical Appendix, Page 6/7

[3] http://www.census.gov.pk/PopulationSex.htm

[4] Printed version of “Pakistan Economic Survey 2010-11”, Statistical Appendix, Page 12, Table 1.6

[5] http://www.pta.gov.pk/index.php?option=com_content&task=view&id=269&Itemid=658

[6] http://www.pta.gov.pk/index.php?option=com_content&task=view&id=269&Itemid=658

Broadband for unserved areas – innovative bidding by USF Pakistan

THE THING THAT INTERESTS OTHER COUNTRIES MOST IN USF PAKISTAN, IS OUR INNOVATIVE BROADBAND PROGRAM! Even this month (Oct. 2011) I will be conducting an ITU sponsored workshop on this topic in Thailand.

Designing the program was rather arduous. Initially we thought we would conduct standard auctions for Broadband too, just like the Rural Telecom Program, where one lowest bidder emerges as the winner and deploys the infrastructure. But ‘the devil lies in the details’. Soon we realized that in case of Broadband for unserved cities and towns, there were a host of other concerns that had to be addressed. We thought:

• If the sole bid-winner is a DSL Operator (likely scenario), how would Broadband get
deployed in areas with no copper cables?
• How would multiple technologies come in to spread Broadband fast?
• With one bidder winning, how would there be competition?
• What if the infrastructure was built but there were no takers in those towns?
• It would be necessary to create awareness among people of these areas. But how?
• What if Broadband tariffs (perceived high), prove to be an insurmountable
hindrance?
• How would those citizens, who cannot afford their own PCs, be served?
• Educated youth are the most important segment for broadband. What approach to adopt that Broadband is introduced in educational institutions of unserved towns?

In other words some innovations had to be brought into the standard bidding process. A lot of consultations with stakeholders and a lot of brain storming sessions of our team (mainly on weekends) resulted in the present Broadband bidding process.

I explain the major innovations – with the rationale of each – that differentiate the process.

First, bidders other than the lowest are also allowed to win (Multiple Winners), albeit only by matching the lowest bid. This makes it possible for multiple technologies (wired and wireless) to deliver Broadband while also generating competition!

Second, the higher one-third of the bidders get thrown out immediately – only the lower two-thirds remain in the race. This is because when you allow multiple winners there is less incentive to bid low in the first place. With this, you try to bid low to avoid getting thrown out!

Third innovation is the OBA (Output Based Assistance) nature of bidding. Even normally (except for 20% mobilisation advance) USF subsidy winners are not paid until they have deployed the infrastructure. But in case of Broadband, they are asked to actually bring Broadband subscribers on board before they get paid. This is to compel the subsidy winners to first deploy infrastructure and then make extra efforts to “sell” it to subscribers, for which obviously they have to create awareness and keep tariffs low!

Fourth – the “sold” subscribers, on the basis of which a subsidy winner claims payment, must have been on board for at least 90-days, so that only genuine subscribers are counted.

Fifth – a very comprehensive and robust Technical Audit is put in place that employs multiple measurements to confirm (or reject) the number of subscribers claimed by the subsidy winner.

Subsidy winners are required to set up “Community Broadband Centers” (CBCs), each with at least 5 PCs plus allied equipment to cater for those who cannot afford PCs.

Similarly for each and every Higher Secondary School, College and Library in the project areas, subsidy winners have to set up “Educational Broadband Centers” (EBCs) consisting of 5 PCs in a LAN, training of two teachers plus free Broadband for 12 months. In most educational institutions of small cities either there are no PCs to terminate Broadband on, or there are no budgets to pay the tariffs.

Other than that, all bidding terms are standard USF, ie: open transparent auctions, technology neutral and one-time subsidies.

Starting in April 2009, so far 256 small cities and towns have benefitted from USF funded Broadband, where 897 EBCs, 258 CBCs and nearly 310,000 subscribers are connected to Broadband and the numbers are growing each day.

Three more Broadband projects have been advertised that will add 122 towns, where 492 EBCs, 151 CBCs and 150,000 Broadband subscribers will be connected.

Through separate auctions, backbone for Broadband, ie: Optic Fiber Cables are being laid to connect all 115 yet un-served Tehsils (sub-districts).

So far USF’s Broadband bidding has been fairly successful – at least experts watching us from abroad tell us so, especially when they compare us with most Universal Service Programs in the developing world. But then, ‘one who rests on one’s laurels is obviously wearing those at the wrong place’! So we are not resting and are now working hard to take Broadband to villages also – through our Universal Telecenters program (described in my Blog “ USF Telecenters – The Simple Concept”).

It is our resolve to take Broadband to every corner of Pakistan.

“Corruption in USF”

ONE OF THE BIGGEST CHALLENGES I face is to convince some of those who matter that it is possible to deal in Billions WITHOUT ANY CORRUPTION. I don’t blame them. Corruption has become so pervasive that if and when it is absent, one tends to disbelieve!

So what does one do? It is said that transparency helps. Ostensibly, transparency ensures that the rationale of everything that you do becomes visible to everyone so that they are able to see that the decisions were arrived at on the basis of laid down rules and parameters – and not on any personal whims or favors. On top of that, making one’s work transparent by itself forces one to act clean. The mere thought that others are able to see, acts as a deterrent.

So at USF (Universal Service Fund) Company we try our utmost to keep things transparent and above board:

  • The set of rules used are the ones available in public domain – the Public Procurement Regulatory Authority (commonly known as PPRA) Rules.
  • Wherever these rules fall short (no set of rules can cover every eventuality), the bidding terms and conditions are elaborated, well in advance. It is considered important that bidders are not confronted with any surprises.
  • All bidding documents (standard terms/conditions, service specifications, any special conditions and even the templates of the contracts to be signed by the winning bidders) are posted on the website from where these are accessible to everyone. However the exact geographical co-ordinates are not posted on the website. These are provided to bidders who register themselves.
  • In almost all cases USF does not specify which technology the Service Provider should use to deliver the desired service (Technology Neutrality). In exceptional cases where some technical specifications must be given, then standards defined by International Telecom Union (ITU) are used.
  • All projects/procurements are advertised in at least 2 prominent national Newspapers – English and Urdu. Additionally the Ads are also placed on own and PPRA websites.
  • All questions received from the bidders – and their given answers – are shared with all registered bidders. Later these are also posted on the website so that everyone knows exactly what was asked and what were the replies given.
  • Bids are accepted, at the announced bid-submission date/time, in presence of all bidders and the major contents of the bids (especially bid-bonds) are checked. This ensures that each one of them knows exactly who is bidding and if any bid is incomplete.
  • Only LOWEST bidders are awarded contracts. Even the Board cannot change that. In case it is already declared that there would be more than one winner, all have to match the lowest bid otherwise they lose out.
  • At the conclusion of every bidding, the bid evaluation summary consisting of bidding process, it’s history and the bidding result is posted on the website for everyone to see.

It doesn’t stop with culmination of the bidding process:

  • After signing of the contract 20% mobilization advance is given to the successful bidder, but only after getting an irrevocable bank guarantee of double the value of the advance.
  • Project time-lines are divided into “milestones” and payments are released only on completion of milestones. To check completion of work at each milestone, Technical Audits are conducted by independent (third party) Technical Auditors, as well as by USF Co. experts.
  • Technical Auditors are appointed in the same transparent manner, through competitive bidding, among technically qualified firms. Records of these biddings are also posted on the website.
  • In case of completed projects, any penalties imposed on account of delays or other lapses, are also posted on the website.

There have been a couple of instances where the failed bidders – actually two – expressed their reservations. One of these was a telecom operator and the project was large. So the bidder was allowed to submit his reservations directly to the Board, who checked and ruled in management’s favor. Both bidders continue to participate and, as always, lose sometimes and win sometimes!

Not to take the credit away from a truly “dream team” of USF Co., the processes in place are such that if ever one of us tries to indulge in any corrupt practice, it would not be possible to hide it. And if one would still try, remember USF Co. is audited every 6 months – 9 Audits so far and not a single audit objection. In any case we would not be spared by the fund contributing telecom companies – keep in mind the cut-throat competition among themselves with billions at stake here. On the contrary, they all seem to have developed complete confidence in USF processes – that these are fair and free of any corruption.