This guest post was prepared by Steve Song 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:
- 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.
The problem with the above recommendations is that this course of action got us to where we are now — but it doesn’t address the fundamental problem of access economics that the MNOs face. Nor does does the proposed strategy mitigate any of the downsides of MNO network deployments, which is often a lack of market competition. If new thinking is required, what might that look like? Here are some news ways of looking at the problem.
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.
All this has changed. Telecommunications networks are becoming disaggregated. Increasingly international, national, and metropolitan network infrastructures are available as wholesale services to any operators, lowering the bar to market entry for smaller operators who can focus on last-mile delivery.
Also, communication technology in general has dramatically dropped (and continues to drop) in price. Not only has WiFi technology become extremely affordable but all kinds of communication technologies from point-to-point microwave to GSM to LTE base stations, even fibre optics now have prices that are within the reach of the community network and small-scale operator.
“When a flower doesn’t bloom, you fix the environment in which it grows, not the flower.”
Alexander Den Heijer
Tell me if this sounds familiar: You’re in a meeting about affordable internet access and someone mentions the importance of community networks and small-scale operators. Someone stands up, usually from a big operator, sometimes government, sometimes the regulator, or even the ITU and says, “Oh we recognise the value of community networks… but do they really scale?” The implied answer is “No, of course not.” But what if we could connect millions of people affordably through small businesses i.e. ISPs and community-owned networks without scaling?
Not far from where I now live in rural Nova Scotia, is a small community of about 500 people called Lawrencetown. They got fed up with not having decent access to broadband and being ignored by the incumbent telcos and formed a cooperative to build a WiFi network that serves the community. They started out charging about USD45 per month for 20 Mbps service but reduced the price to USD30 per month because they found they were making too much money. They don’t need to be any bigger than they are. They were able to do this because:
- Access to backhaul is affordable and open;
- The administrative barriers to setting up an ISP are very low; and,
- WiFi access technology is very cheap.
Their success has emboldened the community to explore the use of a cooperative to deliver both healthcare and energy.
We now live in world that has conspired to make it possible for local entrepreneurs and/or community groups to solve their own access challenges. What is missing is the enabling policies and regulation to let a million of these little (and not so little) flowers bloom.
In addition to creating an enabling environment for local access solutions, we need to break out of the Manichean world of private sector networks vs government networks. In particular, community ownership of telecommunications infrastructure needs to be elevated to the mainstream of affordable access debates.
We need to dispel the picture that many people seem to have of community-owned networks: two tin cans and a piece of string. It is true that in the early days of wireless hacking with WiFi, tin cans actually featured but it was that kind of hacking that spurred the growth of WiFi as a credible backhaul technology.
More to the point, as the status of telecommunications infrastructure is changing from luxury to essential utility, there are lessons we can learn from the growth of another essential utility that started out as a luxury: the electricity grid in the United States. In the early part of the 20th century, much of rural America had no access to electrical power. Rural farmers and ranchers banded together to form cooperatives to build their own power infrastructure. But they likely would not have succeeded had there not been enabling policies and programs put in place by the government. The following 3 minute video which tells the story of US electrical cooperatives is well worth watching.
Today, those same cooperatives are rolling out fibre optic infrastructure to address lack of broadband service in those same regions. Cooperatives can take many forms. They can be tiny like the one in Lawrencetown. They can address access challenges in regions that aren’t viable for large operators such as Rhizomatica are doing in rural Oaxaca, Mexico, or Zenzeleni in the Eastern Cape of South Africa. They can embody commons principles established by Elinor Ostrom as Guifi.net are doing in Catalunya, Spain. They can enable farmers to dig their own fibre trenches to deliver 1Gbps (symmetric) internet service in rural northern England as B4RN are doing.
Cooperatives are a time-tested model for addressing collective resource challenges, especially but in no way limited to in rural areas. Why should we prioritise their growth? Here are a few reasons:
- Cooperatives lower consumer costs. Cooperatives are non-profits and reinvest surplus back into the network, either by lowering costs (as Lawrencetown did) or by expanding the network. This is particularly relevant in areas that may have enough demand to support one network operators but not two. Subsidising a commercial operator to build a network may solve the access challenge but does not address the affordability challenge.
- Cooperatives invest in local economies. In a remote community, calling someone a block away typically generates revenue for the incumbent operator headquartered in the capital. It siphons revenue away from remote, poor communities. Community-owned networks ensure that revenue spent on telecommunications is spent locally, creating more local economic circulation.
- Cooperatives build local skills. The technical skills to build and manage communication networks is within reach of anyone with the right learning environment. Cooperatives provide a space for local skills development in a 21st century career.
- Cooperatives can help to unwind inequitable social systems. We know that communication technology is an amplifier which can magnify positive outcomes like entrepreneurship and education but which can also reinforce existing social and economic inequities. Because cooperatives are not driven by a profit motive and because they are local, they can both understand and collectively choose to address challenges that face their communities in a meaningful way.
- Cooperatives build… community.
- Perhaps that sounds like a tautology but there is nothing like having a project in common to build community bonds/ties and the social fabric that holds us all together.
This is a “yes, and” scenario
This article should not be interpreted as an argument against big telcos. The success of large-scale, commercial telecommunications networks is undeniable. They have great advantages thanks to their economies of scale, however, the evidence is mounting that the large network model alone is not enough to connect everyone affordably. Small businesses are now are practical reality in the world of telecommunications and the internet, but are limited, not by technology, but by the lack of an enabling policy and regulatory environment. Similarly, community ownership of telecommunications infrastructure in the form of cooperatives and similar structures is a proven success model that cries out for policy, regulatory, and investment support. Locally-owned commercial and/or community connectivity initiatives will grow the market which will ultimately be good for big telcos too.
The best news for regulators is that enabling local connectivity initiatives directly addresses one of the biggest concerns raised in the World Bank report: risk. Smaller initiatives can fail without causing systemic harm. They can innovate faster and be more responsive to local needs. Cooperatives are owned by their members. What better way to ensure skin-in-the-game, arguably one of the best ways to mitigate risk.
It’s time to move the word “local” into the mainstream of telecommunications policy, regulation, and investment.
For more updates on our work, follow us on Twitter at @A4A_Internet. Follow Steve at @stevesong.