Communication for development Knowledge

Posted April 1999

Special: The first mile of connectivity

Global information infrastructure: the rural challenge

By Heather E. Hudson
Director, Telecommunications Management and Policy Program
University of San Francisco, USA


Foreword
1. Introduction

  • Why the first mile?
  • Telecommunication services and stakeholders
    2. Lessons learned
  • Communication for sustainable development
  • Eyes see; ears hear
  • Participatory rural communications appraisal
  • Radio and video
  • State media for democratic development
    3. Technologies
  • Telecommunications for sustainable development
  • Rural telecommunications in Africa
  • Integrated rural development through telecommunications
    4. Applications
  • Internet and rural development
  • Participatory approaches to rural connectivity
  • Empowering communities
  • Rural telecentres
  • Training community animators
  • Video conferencing
  • Connecting with the unconnected
    5. Policies
  • Global information infrastructure
  • Rural networking cooperatives
  • Public and private interests
    Editors, contributors
  • We believe that by the early part of the next century virtually the whole of mankind should be brought within easy reach of a telephone and, in due course, the other services telecommunications can provide.
    - The Maitland Commission, The missing link, 1984.

    We will use this [global information infrastructure] to help our respective economies and to promote health, education, environmental protection and democracy.... [The ITU] adopted five principles for a GII which the nations of the world have been putting into practice: Private investment. Market-driven competition. Flexible regulatory systems. Non-discriminatory access. And universal service.
    - United States Vice President Al Gore, address to the ITU Plenipotentiary Conference, September 1994.

    Introduction

    In 1984, the International Telecommunication Union's Maitland Commission noted that telecommunications was a "missing link" in much of the developing world. A decade later, policy makers were calling for a "global information infrastructure" that would link everyone into a worldwide network, or more likely, network of networks. Yet a majority of individuals and whole communities in the developing world still do not have access to telecommunications. And where telecommunication facilities exist in developing regions and remote parts of the industrialized world, limited capacity and unreliability may leave users decades behind their better-equipped counterparts who are able to take advantage of converging technologies and new services.

    This article examines what progress has been made toward bringing the "whole of mankind within easy reach of a telephone," what problems remain, and the effects of changing technologies and policies. It then proposes strategies to achieve the goal of universal access to reliable and affordable telecommunication services.

    Access to telecommunications: the gap remains

    Although there has been a dramatic increase in telecommunication investment in the past decade, there are still enormous gaps in accessibility to telecommunications between the developed and developing world and, within the developing world, between urban and rural areas. While there are now almost 50 lines per 100 people in high income industrialized countries, there is still an average of less than one line per 100 in the poorest countries. The gaps are even greater between urban and non-urban areas. There are almost three times as many telephone lines per 100 in the largest city of lower middle income countries as in their rural areas, and more than seven times as many lines per 100 in the largest city of low-income countries as in their rural areas. These gaps are even more significant given the fact that more than 50 percent - and as many as 80 percent - of the population in poorest countries, live in rural areas. (See Table 1).

    Table 1: Access to telecommunications
      Teledensity (lines/100 pop.) Urban density Rest of country
    High income countries

    48.8

    51.7

    48.5

    Upper middle income countries

    12.9

    21.9

    10.6

    Lower middle income countries

    8.1

    19.0

    6.8

    Low income countries

    0.9

    5.2

    0.7

    Source: ITU, World Telecommunication Development Report, 1995

    Indicators of pent-up demand

    Access to television vs. telephones

    The lack of telephones cannot necessarily be attributed to lack of demand or purchasing power. In many developing countries, television sets are much more prevalent than telephone lines. In industrialized countries, both TV sets and telephone lines are almost universally accessible. However, in lower middle income countries there are almost two and a half times as many TV sets as telephone lines, and in low income countries, there are more than 13 times as many TV sets as telephone lines. (See Table 2). The problem appears to be a bottleneck in provision of telephone service rather than lack of sufficient disposable income to pay for telephone calls.

    Table 2: Access to telephones and television sets
      Tel. lines/100

    TV sets/100

    Ratio of TV sets: tel. lines

    High income countries

    48.8

    59.7

    1.2

    Upper middle income countries

    12.9

    24.1

    1.9

    Lower middle income countries

    8.1

    19.8

    2.4

    Low income countries

    0.9

    11.8

    13.1

    Source: ITU, World Telecommunication Development Report, 1995

    Put another way, it appears that where television is available, a significant percentage of families will find the money to buy TV sets. These numbers indicate a potential pent-up demand for other communication services, and the availability of disposable income if the service is deemed important.

    Indicators of entrepreneurship

    Another approach to determining whether current strategies for telecommunication investment are somehow missing the mark is to examine indicators of communication entrepreneurship. While comparative data are not available, the following activities in a country would indicate that there are entrepreneurs willing to offer communication services and customers to support them:

    Video shops: shops that rent video cassettes and/or video recorders and players. These are found in even relatively poor developing countries where there would appear to be very little disposable income for most families.

    Cable TV systems: cable TV systems (government authorized or otherwise) that have been installed to provide access to TV channels (e.g., from a satellite) for a fee. The most striking current example is India, where cable TV systems have sprung up in urban neighbourhoods to deliver programming from AsiaSat. Cable and MMDS (microwave multipoint distribution systems, also known as "wireless cable") are expanding rapidly in other developing Asian countries such as Thailand and the Philippines.

    Kiosks and copy shops: entrepreneurs who offer communication facilities such as telephones and facsimile services. Some countries such as Indonesia have introduced this model for payphone service, while retaining government control over operation of the public switched network. Entrepreneurs typically retain a percentage of the toll revenues.

    The changing telecommunications environment

    An analysis of strategies for increasing access to telecommunications in developing countries must be placed in context. First, telecommunication technologies have changed dramatically in the past decade, and many recent innovations offer promising solutions for extending services at lower costs than were generally thought possible. Perhaps the most telling evidence of change is the cover of the Maitland Commission report itself, which showed two rotary dial telephones. This is not to say that digital switching did not exist by 1984, but that it was not considered necessary or perhaps even appropriate for developing regions. A second indicator is that the Commission specifically identified only telephone service, and proposed access "in due course [to] the other services telecommunications can provide." Today, many of those services could be available as soon as telecommunication service is provided.

    There are many recent technological innovations that can make telecommunication services more reliable and cheaper to provide. Among the technological changes:

    Wireless technologies: Advances in radio technology such as cellular radio and rural radio subscriber systems offer affordable means of reaching less isolated rural customers. Cellular networks can be used for payphones and other "fixed" services as well as for mobile communications. "Wireless local loop" technologies can link subscribers to the network without the need for laying cable or stringing copper wire.

    Digital Compression: Digital video can be "compressed" so that video conferencing may require as few as two 64 kilobit per second circuits. Digital audio can also be compressed so that 8 or more conversations can be carried on a 64 kbit per second channel, thus reducing transmission costs.

    VSATs: Small satellite earth stations (very small aperture terminals or VSATs) are proliferating in developing regions, usually for distribution of television signals. However, VSATs can also be used for interactive voice and data, and for data broadcasting. Multiple channels of voice communications can be provided using digital compression. Satellite terminals can also serve as hubs for wireless local networks.

    Voice Messaging: Voice mail systems can do much more than replace analogue answering machines. TeleBahia in north-eastern Brazil is using voice messaging technology to offer "virtual telephone service" to people who are still without individual telephone service. They can rent a voice mail box for a monthly fee. Callers can leave messages in their mail boxes, which the subscribers can retrieve from a pay phone. (A similar approach has been used in some United States homeless shelters to enable job seekers to have a way to be contacted by prospective employers.)

    Store-and-forward data: Development organizations seeking cheap ways to communicate with field projects are using single satellite low earth orbiting (LEO) systems for electronic messaging. For example, SatelLife, a non-profit association of physicians based in Boston, operates "Health Net," using a micro-satellite to provide store-and-forward data communication to small terminals in developing countries.

    The changing policy environment

    In addition to technological change, the policy environment is also changing dramatically. There is an increasing emphasis on private sector investment and market-driven competition, as advocated by United States' Vice President Al Gore to the ITU Plenipotentiary in 1994. The various models of restructuring the telecommunication sector, may be viewed as experiments whose impacts will not be fully known in this decade. The major models for restructuring the telecommunication sector include:

    Ownership

    Autonomous public sector corporations: The first strategy for creating incentives to improve efficiency and innovation in the telecommunication sector is to create an autonomous organization operating on business principles. This is often seen as an intermediate step between a PTT structure and some form of privatization. Most developing countries have taken this step, which is advocated by the World Bank and other funding agencies.

    Privatized corporations: Privatization models range from minor investments by private companies, to joint ventures between private carriers and governments, to full privatization without any government stake or with a small government "golden share."

    Structure

    Monopoly: Most countries began with a national monopoly model that is being eroded. Most maintain some level of monopoly, for example in the local loop, but alternative providers using wireless and fibre are also beginning to challenge the assumption of natural monopoly in the local loop.

    Open entry for unserved areas: An intermediate step between national monopoly and competition is a policy of open entry for unserved areas. For example, the United States, Finland, Hungary an Poland have small companies or cooperatives that were formed to provide services in areas ignored by the national monopoly carrier.

    Competition: Competition can range from terminal equipment (now commonly competitive in most countries, including developing countries), to new services such as cellular telephony, to value-added services such as packet data networks, to full competition in the network.

    Implications for planning

    Changing assumptions

    Changing developing economies are likely to result in new and changing demands for telecommunication services, while the introduction of new technologies is changing the economic viability of rural telecommunications.

    Voice and data: While basic voice communication is still the first priority, many users now have requirements for data communication as well, particularly facsimile and relatively low speed data communication. Demand for Internet access is also growing enormously for universities, libraries and schools, as well as for government and business applications and private use. Thus transmission channels must be reliable enough to handle data as well as voice traffic.

    Urban and rural: The availability of relatively low cost radio and satellite technologies for serving rural areas makes it possible to reach even the most remote locations, and to base priorities for service on need rather than proximity to the terrestrial network.

    The combination of increased demand and lower cost technologies makes rural areas more attractive for investment. As a result, other institutional structures besides public sector monopolies may also be suitable for rural service provision.

    Setting goals and targets

    Before taking major steps to encourage investment or restructure the telecommunication sector, planners should set national telecommunication goals. Nations in general seek to improve educational standards, to provide health care for all, to create jobs, to reduce disparities between haves and have-nots, both urban and rural. As shown in several studies, telecommunications can contribute to many of these goals (see, for example, Hudson, 1984; Parker and Hudson, 1995; Saunders, Warford and Wellenius, 1994).

    These general development goals must be translated into specific telecommunication goals, which might include:

    Universal access to basic communications: Access may be defined using a variety of criteria such as:

    Reliability: Standards for reliable operation and availability; quality sufficient for voice, facsimile, and data communication.

    Emergency services: A simple way to reach help immediately, so that anyone, including children and illiterate adults, would be able to call a hospital, police, etc.

    Pricing: Pricing based on communities of interest; for example, to regional centres where stores and government offices are located; to other locations where most relatives are located (surrounding villages, regional towns, etc.).

    In North America, Parker and Hudson (1995) have advocated that, in order to ensure that telecommunication technologies and services can be put to optimal use for rural development, the basic goal should be to provide rural and remote areas with affordable access to telecommunication and information services comparable to those available in urban areas. The underlying rationale is that universal access to information is critical to the development process.

    While planners may want to modify this goal for lower income countries, there is no longer a compelling technological or financial reason to limit rural services. The same technologies that are used to transmit voice can also transmit facsimile and data, and, through digital compression, video as well. As noted above, access criteria may differ in rural areas, but they actually may be comparable to access criteria in high density urban areas, where the goal is not to provide a line for every dwelling, but access for everyone through public phones in kiosks, shops, common areas, etc.

    It is important to note that this goal is in effect a "moving target": it does not specify a particular technology, but assumes that as facilities and services become widely available in urban areas, they should also be extended to rural areas. Information can be accessed and shared through a range of technologies such as satellite earth stations, microwave and cellular radio links, optical fibre and copper wire. Indeed, the technologies used to deliver the services in rural areas may differ from those installed in urban areas; for example, satellite links and radio networks may be less costly for rural communications than optical fibre or even copper wire.

    Next it is necessary to devise a set of strategies to achieve these goals. Strategies are needed to create incentives to increase telecommunication investment, and to drive the investment toward achieving these goals.

    Industry structure

    The Maitland Commission paid little attention to the structure of the telecommunication sector beyond advocating that telecommunications be set up "as a separate, self-sustaining enterprise, run along business lines" (Missing link: 38). At the time, many developing countries were still running telecommunications through a government department with revenues subsidizing the postal services, and often turning foreign exchange earnings over to the national treasury. Today, a majority of developing countries are running their telecommunication administrations as autonomous government-owned enterprises, and many are in the process of privatizing these operations.

    Yet, as the data show, a more entrepreneurial national monopoly may not have adequate incentives to invest in facilities to accomplish the goals outlined above, given the unmet demands of business and upper middle class residential customers in the cities. The following are some strategies that can create incentives to invest in rural and less profitable areas:

    New services - franchise or competition: The introduction of a new service may be accelerated by issuing licenses for franchises. This approach has been used for cellular radio in Argentina and Mexico, for example. It allows foreign investors with the necessary capital and expertise to provide service more quickly than it could be offered through the PTT. Satellite services such as data communication may also be offered through one or more private licensed carriers. For example, private banking networks using VSATs have now been authorized in Brazil.

    Local companies: Although in most countries there is a single carrier that provides both local and long distance services, it may make sense to delineate territories that can be served by local entities. Local enterprises are likely to be more responsive to local needs, whether they be urban or rural. In the United States, the model of rural cooperatives fostered through the Rural Electrification Administration (REA) has been used to bring telephone service to areas ignored by the large carriers. An example of this approach in urban areas is India's Metropolitan Telephone Corporation established to serve Bombay and Delhi. Local companies also provide telephone service in Colombia. Cooperatives have been introduced in Hungary. A disadvantage of this approach is the need for local expertise to operate the system, which is likely to be in particularly short supply in many developing countries.

    Franchises for unserved areas: Another approach to serving presently unserved areas is to open them up to private franchises. Large carriers may determine that some rural areas are too unprofitable to serve in the near future. However, this conclusion may be based on assumptions about the cost of technologies and implementation that could be inappropriate.

    It should be noted that wireless technologies could change the economics of providing rural services, making rural franchises much more attractive to investors. For example, while companies such as GTE and US West are selling rural franchises, other companies with a more optimistic assessment of rural profitability are buying them. Rochester Telephone has bought properties in the rural east and midwest. Citizens Communications spent US$1.1 billion to buy 500 000 access lines, primarily in the rural western United States. And Pacific Telecom, the parent of Alascom, also recently has bought rural properties.

    Resale: Third parties may be permitted to lease capacity in bulk and resell it in units of bandwidth and/or time appropriate for business customers and other major users. This approach may be suitable where some excess network capacity exists (e.g., between major cities or on domestic or regional satellites). Resale is one of the simplest ways to introduce some competition and lower rates for users, but is not legal in most developing countries, even where some excess capacity exists in backbone networks.

    Incentives

    Another strategy that may be used with a variety of institutional structures is to introduce incentives that are designed to achieve policy goals such as extension of telecommunication services into rural areas. These may include:

    Incentive regulation: Some countries and US states have introduced changes in regulation that allow carriers considerable pricing flexibility in return for meeting certain conditions (e.g., price caps). An alternative to financial incentives would be a "management by objectives" approach where policy makers and/or regulators would set objectives and carriers would be rewarded for achieving them. These objectives could include service upgrades such as extension of service to rural areas or meeting quality of service targets. For example, the Philippines is requiring new franchisees for international gateways and cellular systems to install a specified number of lines in currently unserved rural areas.

    Investment incentives: Several countries including Indonesia and Thailand have encouraged investors to build new facilities through schemes known as Build Operate Transfer (BOT). Investors build the system, operate it and receive a percentage of the revenues for a specified period, and then turn it over to the government. Joint ventures may also include incentives for investment in rural areas.

    Service incentives: Some countries have encouraged private entrepreneurs to offer telecommunication services. For example, in Indonesia and Rwanda, entrepreneurs may install telephones in kiosks that also sell soft drinks and newspapers. The entrepreneurs receive a percentage of the revenue, typically stay open much longer hours than post offices, and provide a secure location for the telephone.

    Limiting exclusivity: While investors may require a predictable industry environment to commit capital, countries must resist pressure to issue indefinite or very long term licenses. The technology and the industry is changing too fast for countries to assume that what seems adequate investment and performance today will be adequate five years, let alone ten years, from now. Thus, franchise awards should be for five years or less and exclusivity agreements should not exceed five years.

    Other sources of revenue

    Internal cross-subsidies have been the primary means of sustaining rural services in the past. However, with the restructuring of the sector, if competition is introduced or even contemplated for some services, subsidies must be separately accounted for so that monopoly services are not used to subsidize competitive services. If subsidies are required, they should be targeted for specific services or classes of customers. Funds may be generated in several ways:

    Pooled revenues: Carriers may pool a percentage of their revenues which would then be allocated to provide services in high cost areas. In the United States, a "high cost fund" set up after the divestiture of AT&T is administered by the National Exchange Carriers Association (NECA).

    Taxes on usage: A tax on usage may be imposed, with the revenue used to provide services that would otherwise not be economical. This is one of the models used to support universal service in the United States .

    Taxes on revenues: Carriers or service providers may be taxed on revenues generated, with these taxes allocated for service upgrades or rate subsidies.

    License or franchise fees: Carriers may be charged fees for a franchise, use of spectrum, or other resource. These fees could be allocated to a fund for upgrading or extending services. The goal should be to raise income to support upgrading and oversight of the telecommunication sector - and possibly applications such as pilot projects for education and health care - not to provide a new source of revenue for the national treasury.

    Aggregating demand: Rural areas often lack economies of scale that would make provision of new services attractive. One approach to aggregating demand would be to require that all government traffic, often carried out on dedicated networks, be carried on the public switched network. Government expenditures would then generate revenue that could be used to upgrade and extend the public network.

    Monitoring progress

    No matter what approach or combination of approaches countries choose to adopt, they must have some way of monitoring progress toward their goals. Incentives have been stressed because most countries do not have the legal history or regulation, nor sufficient available expertise, to staff regulatory bodies. However, these countries can establish a small oversight group with the legal authority to require licensed carriers to provide data on the number of lines available, quality of service, sample period traffic data, etc.

    A second strategy is for this oversight group to schedule regular opportunities for users to present their needs and problems to carriers. Formal hearings may not always be appropriate, but there needs to be some mechanism for carriers and users to share information, and for regulators to be made aware of user issues and perspectives.

    Bringing telecommunications within reach of all

    The above strategies are designed to reflect the changing technological, policy and financial environments of the 1990s. In particular, they are designed to reflect three themes:

    These themes of moving targets, planning to reflect the public interest, and incentives with sanctions need to be incorporated into policies that embrace privatization and liberalization if telecommunication services are to become universally accessible throughout the developing world.


    References

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    Gore, Albert, Jr. 1991. Infrastructure for the global village: computers, networks and public policy. Scientific American, 265(3): 150.

    Hardy, Andrew P. 1980. The Role of the Telephone in Economic Development. Telecommunications policy.

    Hudson, Heather E. 1992. Applications of new technologies in distance education: telecommunications policy issues and options. Melbourne, Australia: Centre for International Research on Communication and Information Technologies (CIRCIT).

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    Hudson, Heather E. 1997. Global connections: international telecommunications infrastructure and policy. New York: Van Nostrand Reinhold.

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    Johnson, Tony. 1991. Microsatellite that turns information into medical power. The (Manchester) Guardian, April 26.

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    National Research Council, Board on Science and Technology for International Development. 1990. Science and technology information services and systems in Africa. Washington, D.C., National Academy Press.

    Parker, Edwin B. and Heather E. Hudson. 1995. Electronic byways: state policies for rural development through telecommunications. Washington, D.C.: The Aspen Institute, second edition.

    Saunders, Robert, Jeremy Warford, and Bjorn Wellenius. 1994. Telecommunications and economic development. Baltimore: Johns Hopkins, second edition.


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