Universalization Funds: A Solution Toward Closing the Digital Gap
Universal service, the aim of which is to enable access to ICT services for all the inhabitants of a country, has been a central objective of telecommunications policies for decades. To illustrate the growing relevance of universal and affordable access to the internet, the 193 United Nations member countries agreed to work towards reaching this goal by 2030 as part of the Sustainable Development Goals.
Latin America has a long way to go. Some 244 million Latin Americans, which accounts for 38 percent of the population, still lack access to the internet. This figure reflects the wide gap of inequality between those who have immediate access to information and tools (i.e., to trade, produce or access certain services) and those who do not.
The region will need to make great efforts to close the digital gap with OECD countries by 2025. To that end, an estimated USD 160 billion investment would be required, in a scenario where returns on such investments are minimal and the supply or deployment of networks in remote areas is limited by higher cost of serving certain markets, either due to geographical barriers or conditions—remoteness from large urban centers or small size of communities—which results in the absence of economies of scale. From a demand point of view, despite compliance with UN-defined affordability targets, access to ICT services can take up to 40 percent the income of resource-poor households.
Bridging the digital gap requires the coordination of both private and public entities to benefit such sectors where investment incentives are not sufficient. To accomplish this goal, most countries in the region have implemented universal service funds through an array of programs, including infrastructure expansions, development of digital skills, subsidies to devices and terminals, and free internet access in public spaces. Such programs are nurtured by input from telecommunications service providers, who are obligated to contribute a percentage—usually between one and five percent—of all accrued revenue, except in the case of Chile, where the fund is financed via federal budget.
According to economic theory, universal service funds are an ideal mechanism to benefit both civil society and industry, thanks to the possibility of developing new markets while enabling wider access to social opportunities arising from connectivity. In practice, however, many cases have been far removed from the objectives pursued, being particularly questioned in terms of their efficiency (optimization of use) and effectiveness (purpose).
In this context, CAF held a workshop on the development of new mechanisms for closing the digital gap during theLatin American Telecommunications Convention, with more than 80 participants, including public servants, private sector executives and civil society representatives from Argentina, Colombia, Costa Rica, Mexico, Peru and the United States.
Participants proposed a number of solutions to the obstacles facing public policymaking and universal fund management , aiming to ensure the right conditions for them to be properly reinvested, avoiding that such funds, if left unused, go to cover programs under general budgets instead.
Regarding investment strategies, attendees spoke about the need for further progress toward innovative mechanisms to free up market forces. One of the main initiatives in this regard involves expanding Internet for All (IpT), a rural connectivity model implemented in Peru, , where a private sector alliance between Telefónica and Facebook and international banking institutions IDB and CAF—supported by a favorable regulatory environment—will broaden mobile internet networks to nearly 30,000 rural locations, benefiting more than six million people.
From the regulatory perspective, proposals focused on incentives that allow resolving financial barriers through compliance mechanisms in the development of projects that expand coverage and deploy networks in exchange for reductions in payments of access rights to essential resources such as radio spectrum. From the civil society perspective, participants addressed the potential benefits of validating the interests of the community and allowing members to manage network resources with the aid of autonomous and sustainable mechanisms.
To encourage demand, in addition to providing connectivity from the access-availability standpoint, as well as the quality needed to enable the use of advanced services, it is necessary to promote the development of relevant applications and content. To this end, it will be especially important to leverage infrastructure deployment initiatives with the provision of strategic programs, such as financial inclusion, e-education, telemedicine and e-government, to which CAF has much to contribute.
In short, it was concluded that closing the digital gap is to move toward a collective effort, which requires trust not only between companies and governments, but also within communities. Above all, it is imperative to rethink the design and use of universalization funds, as well as to come up with new mechanisms that leverage investment in remote areas and where deployment and access costs still make connectivity unaffordable to low-income households. To delve deeper into these issues, CAF’s Digital Agenda will support research to understand the state of affairs involving universal service funds and explore mechanisms to enable them to become true drivers of investment in the region’s digital development.
