RURAL LIFE CONNECTED TO THE WORLD
>THE CHALLENGE
In many parts of Lunenburg County access to internet is often non-existent and where it does exist, it is painfully slow or expensive or both. This lack of reliable, affordable, and accessible internet issue is a major barrier to NOW Lunenburg County's population growth strategy. Internet access is essential for rural and home based businesses. Economic growth and prosperity in rural communities will only be achieved if we can connect the lifestyle we offer to the world economy.
>Rethinking Affordable access
By Steve Song
February 13, 2019
February 13, 2019
This guest post was prepared by Steve Song, a member of our NOWLC-Net Team and appeared first on his website Many Possibilities.
Everyone needs affordable access to communication. Affordable access strategies that don’t target everyone end up magnifying the digital divide in a kind of Matthew effect: those with affordable phone/internet services have access to ever increasing education resources, opportunities, services, social safety nets (the list goes on) such that the unconnected fall further behind just by standing still. You may not agree completely with this statement but let’s assume for the purpose of this article that it is true.
And if it is true, then we have a problem because access growth is slowing down. Growth is slowing whether you look at mobile subscribers or internet penetration. To date, a combination of public and private investments in telecommunications has managed to connect about half the world to the internet. Mobile Network Operators (MNOs) in particular are the runaway success story when it comes to providing affordable access in regions thought unreachable. So why, given the rapid growth of the last fifteen years, are things slowing down? The one-line answer is that we have connected the easy-to-connect half, the relatively wealthy living in relatively densely populated areas. Connecting poor people is sparsely populated rural areas is a much bigger challenge. In a recent Guardian article, Sonia Jorge of the Alliance for Affordable Internet Access (A4AI) suggests that universal internet access is as far away as 2050.
That same article suggests that the reason growth is slowing is a combination of lack of skills and lack of investment. It is undeniable that lack of skills to take advantage of digital tools and services is a significant barrier to uptake. It is also true that those skills are connected to affordability. We discover value online by experiencing it and by experimenting to discover what is valuable to us. When access is expensive, the discovery of value in being online is overshadowed by concerns about the cost of being online.
Lack of investment is also a complicated issue. The vast majority of MNOs are private companies that serve their shareholders. Even where MNOs are government-owned, there is often more interest in generating a profit than in providing universal, affordable access. It is unsurprising then that MNOs invest in areas where both population density and incomes levels are higher. Spectrum auctions that levy millions of dollars from MNOs in advance of network deployment only compound this trend as operators worry about an increased debt burden.
Universal Service Funds (USFs) are the primary mechanism that has been established to try to ensure that poorer and more remote regions also have access. Operators are typically taxed a percentage of their turnover that goes into a fund run by a Universal Service Agency, whose purpose is to finance access into unserved regions. The history of USFs and the associated agencies that manage them is pretty mixed. These agencies are typically government bureaucracies that have little experience managing millions of dollars and are risk averse by the very nature of being bureaucracies. Worse, funds with millions of dollars often attracts the worst kind of kleptocratic behaviour.
That said, USFs have made a difference. In the early days of mobile network growth, they created incentives for MNOs to invest in areas that were not economic priorities for them. This led to the growth of infrastructure into previously unserved regions. However, these subsidies have typically succeeded in regions where MNOs would have found themselves eventually, that is, areas that have populations dense enough to create profits for MNOs.
Where USFs have really run into problems is in trying to push MNOs into regions that are not economically viable for them. Stories abound, although seldom publicly, of USF funds that have completely subsidised the capital costs of cell tower build-outs for MNOs in remote areas but those cell towers are not operated by the MNOs because the towers don’t generate profits, or perhaps not sufficient profit. In one Southern African country, the USF agency has paid for the build-out of 103 base stations in rural areas; 77 of which are not operational. This is not particularly surprising. Often, the operational costs (e.g. maintenance, supply of diesel for back-up generators, etc.) can exceed the revenues generated by calls on the base stations in remote, sparsely populated regions where income levels are lower than in urban areas. For an MNO that is accountable to its shareholders, it only makes sense to turn those towers off.
And that is where we find ourselves today. Access growth is slowing because the economics just don’t make sense. So what to do? A recently published report commissioned by the World Bank entitled “Innovative Business Models For Expanding Fiber-optic Networks And Closing The Access Gaps” attempts to answer that question. Their conclusions don’t exactly break any new ground for the World Bank, however. An extremely short (perhaps unfair) summary would be:
We Don’t Live in a Single Economy
The conventional analysis of the access challenge treats the economy as a single entity but the reality is that the economics of the rural poor is very different from comparatively wealthy big cities. French economic historian, Fernand Braudel, makes a distinction between global and local economies. Companies that operate in the global economy are easy to spot because the endgame for those companies is monopoly. Whether you are MTN or Amazon or McDonalds, the goal is to occupy the maximum possible amount of the market. These kinds of companies get most of our attention. Growing to this size is seen as a virtue. And indeed, there has been a lot of success in the growth of mobile access.
Silicon Valley has a particular obsession with scale. Where else would growth hacking be an actual profession. While there has been some pushback to this, scale remains the brass ring for internet companies in particular.
In contrast, local companies seek to serve an immediate market, one which they typically have much deeper knowledge of and are able to serve in a manner that a global company cannot. The economics of these local companies are different than those of global companies. Some things are more expensive, but many things are cheaper when it comes to serving a local market. Thus the local baker’s labour costs per loaf of bread are higher but they don’t incur any shipping costs and can tailor their production specifically to demand. Not to mention the fact that they can greet you every day and be a part of your life and your community.
This is not news. Governments around the world have recognised the importance of small and medium-sized enterprises (SMEs) and have policies developed to encourage their growth. The economic contribution of small business is substantial. In the United States, small businesses employ 47.5 percent of all private sector employees. In South Africa, SMEs contribute 34 percent towards Gross Domestic Product (GDP) and provide employment to about 60 percent of the labour force.
But nowhere do we see a deliberate strategy to empower small and medium telecommunication/internet access providers. Again, this is not surprising. Historically, building a telecommunications company required millions of dollars of investment in international connectivity, national network infrastructure, last mile infrastructure, handsets, agent networks, marketing, the list goes on. It was a risky bet too. Choose the wrong underlying technology (e.g., WiMAX mobile ten years ago) and you could lose millions.
READ MORE
And if it is true, then we have a problem because access growth is slowing down. Growth is slowing whether you look at mobile subscribers or internet penetration. To date, a combination of public and private investments in telecommunications has managed to connect about half the world to the internet. Mobile Network Operators (MNOs) in particular are the runaway success story when it comes to providing affordable access in regions thought unreachable. So why, given the rapid growth of the last fifteen years, are things slowing down? The one-line answer is that we have connected the easy-to-connect half, the relatively wealthy living in relatively densely populated areas. Connecting poor people is sparsely populated rural areas is a much bigger challenge. In a recent Guardian article, Sonia Jorge of the Alliance for Affordable Internet Access (A4AI) suggests that universal internet access is as far away as 2050.
That same article suggests that the reason growth is slowing is a combination of lack of skills and lack of investment. It is undeniable that lack of skills to take advantage of digital tools and services is a significant barrier to uptake. It is also true that those skills are connected to affordability. We discover value online by experiencing it and by experimenting to discover what is valuable to us. When access is expensive, the discovery of value in being online is overshadowed by concerns about the cost of being online.
Lack of investment is also a complicated issue. The vast majority of MNOs are private companies that serve their shareholders. Even where MNOs are government-owned, there is often more interest in generating a profit than in providing universal, affordable access. It is unsurprising then that MNOs invest in areas where both population density and incomes levels are higher. Spectrum auctions that levy millions of dollars from MNOs in advance of network deployment only compound this trend as operators worry about an increased debt burden.
Universal Service Funds (USFs) are the primary mechanism that has been established to try to ensure that poorer and more remote regions also have access. Operators are typically taxed a percentage of their turnover that goes into a fund run by a Universal Service Agency, whose purpose is to finance access into unserved regions. The history of USFs and the associated agencies that manage them is pretty mixed. These agencies are typically government bureaucracies that have little experience managing millions of dollars and are risk averse by the very nature of being bureaucracies. Worse, funds with millions of dollars often attracts the worst kind of kleptocratic behaviour.
That said, USFs have made a difference. In the early days of mobile network growth, they created incentives for MNOs to invest in areas that were not economic priorities for them. This led to the growth of infrastructure into previously unserved regions. However, these subsidies have typically succeeded in regions where MNOs would have found themselves eventually, that is, areas that have populations dense enough to create profits for MNOs.
Where USFs have really run into problems is in trying to push MNOs into regions that are not economically viable for them. Stories abound, although seldom publicly, of USF funds that have completely subsidised the capital costs of cell tower build-outs for MNOs in remote areas but those cell towers are not operated by the MNOs because the towers don’t generate profits, or perhaps not sufficient profit. In one Southern African country, the USF agency has paid for the build-out of 103 base stations in rural areas; 77 of which are not operational. This is not particularly surprising. Often, the operational costs (e.g. maintenance, supply of diesel for back-up generators, etc.) can exceed the revenues generated by calls on the base stations in remote, sparsely populated regions where income levels are lower than in urban areas. For an MNO that is accountable to its shareholders, it only makes sense to turn those towers off.
And that is where we find ourselves today. Access growth is slowing because the economics just don’t make sense. So what to do? A recently published report commissioned by the World Bank entitled “Innovative Business Models For Expanding Fiber-optic Networks And Closing The Access Gaps” attempts to answer that question. Their conclusions don’t exactly break any new ground for the World Bank, however. An extremely short (perhaps unfair) summary would be:
- Enable market forces; the private sector has been most successful at deploying networks. Try to get out of their way.
- Regulate only as a last resort where there is absolutely clear evidence that the market has failed.
- Government investment should be cautious and only implemented with a clear vision.
We Don’t Live in a Single Economy
The conventional analysis of the access challenge treats the economy as a single entity but the reality is that the economics of the rural poor is very different from comparatively wealthy big cities. French economic historian, Fernand Braudel, makes a distinction between global and local economies. Companies that operate in the global economy are easy to spot because the endgame for those companies is monopoly. Whether you are MTN or Amazon or McDonalds, the goal is to occupy the maximum possible amount of the market. These kinds of companies get most of our attention. Growing to this size is seen as a virtue. And indeed, there has been a lot of success in the growth of mobile access.
Silicon Valley has a particular obsession with scale. Where else would growth hacking be an actual profession. While there has been some pushback to this, scale remains the brass ring for internet companies in particular.
In contrast, local companies seek to serve an immediate market, one which they typically have much deeper knowledge of and are able to serve in a manner that a global company cannot. The economics of these local companies are different than those of global companies. Some things are more expensive, but many things are cheaper when it comes to serving a local market. Thus the local baker’s labour costs per loaf of bread are higher but they don’t incur any shipping costs and can tailor their production specifically to demand. Not to mention the fact that they can greet you every day and be a part of your life and your community.
This is not news. Governments around the world have recognised the importance of small and medium-sized enterprises (SMEs) and have policies developed to encourage their growth. The economic contribution of small business is substantial. In the United States, small businesses employ 47.5 percent of all private sector employees. In South Africa, SMEs contribute 34 percent towards Gross Domestic Product (GDP) and provide employment to about 60 percent of the labour force.
But nowhere do we see a deliberate strategy to empower small and medium telecommunication/internet access providers. Again, this is not surprising. Historically, building a telecommunications company required millions of dollars of investment in international connectivity, national network infrastructure, last mile infrastructure, handsets, agent networks, marketing, the list goes on. It was a risky bet too. Choose the wrong underlying technology (e.g., WiMAX mobile ten years ago) and you could lose millions.
READ MORE
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