Rural Telephone Project: A Workpiece In Pieces

Nigeria is a country with a population of 150 million people. Although its cities are more than accustomed to telecommunications and mobile phones, Nigeria is primarily a rural country where there are few alternative forms of communication to speaking face- to-face. The Nigerian government set up a scheme called the Rural Poverty Eradication Programme and set the target to ensure any Nigerian in any rural area would not have to walk for more than one day to reach a telephone. This would be a major achievement for the nation, to review the status of rural telecom infrastructure, which seems precariously close to failing. The programme required a cost effective telephone system that had the ability to interface with the existing regional telephone networks in Nigeria. A further requirement was the ability to obtain records for individual calls, allowing for customer billing. The system also needed to support a wide range of protocols and provide a feature set that included call data record (CDR) information and digit manipulation.

The euphoria of GSM services has literarily swept off some development-oriented telecommunications initiatives designed to provide rounded telecommunications development. After two years of unbearably high cost of GSM services to Nigerian subscribers, it has dawned on government and the governed that the final solution may not be here yet. In fact, GSM operators have not gone beyond the lucrative spots of the market, leaving majority of the urban and sub-urban locations of the country out of their services. It does appear that GSM is not destined for rural population. Other private telecommunications operators, including the Second National Operators, SNO, are looking into lucrative spots where services would generate returnable revenues rather than using geo-political indices.

The plan by the Nigerian Communications Commission, NCC, to bridge the gap in rural telephony deployment by offering Fixed Wireless Access, FWA telephony licenses, on regional basis, does not appear to be the key to the problem. The NCC programme appears many years ahead of its time for a developing country like Nigeria. The reasons why it may not achieve remarkable success are so many. First, the so-called regions are the existing states, as politically and geographically expressed in the present 36 states and Abuja, giving a total of 37 regions. Nigeria‘s teledensity — the number of phone lines per 100 people — has seen an almost 10-fold growth in the past 10 years. The accompanying chart shows that out of Nigeria‘s roughly 76.53 million phones, about 13 million are in rural areas. Almost half of Nigeria‘s phones are mobile. Growth in fixed phones is tapering off.

The Nigeria Communications Commission (NCC) recently estimated that mobile phones cover 20 per cent of Nigeria. Roughly 14 per cent of the 6,07,491 villages in the country have no phones. A high percentage is out of order at any given time.The chart also shows that while mobile phones are increasing rapidly, the growth of phones in rural areas has actually fallen sharply in the past three years — the lines added in 2003 are a third of 2002 and in 2004 they were half of 2003.

Most people interviewed value telephones primarily for dealing with emergencies and keeping in touch with their families. They do not generally use phones for business activities, although a small proportion does value them highly for this purpose. Phones are valued more for saving money than for earning it. Very few people find them useful for gathering information. Phones are displacing letters as a means of exchanging social information, particularly to maintain contact with scattered family members. Keeping in touch by phone is particularly valued in Mozambique and Tanzania, where many rural people have migrated to cities or abroad. One third of the study’s respondents in these two countries receive remittances from absent family members and some use telephones to help arrange them.

People surveyed in Mozambique and Tanzania prefer face-to-face communication for obtaining information specific to their needs. Over half the people interviewed get their information from face-to-face contact with teachers, extension workers, customers and business partners for farming, business, education and government matters. Researchers also found that: l Phone ownership is growing rapidly and a high proportion of people who do not own a phone aspire to do so in the near future. l There is a distinct group of ‘high intensity users’ – those who own their own phone rather than go to kiosks or neighbours and use it more than once a day: they tend to belong to the wealthiest and best educated social level. l Radio in African countries and television in India are still by far the most widely used information and communication technologies (ICTs) and are the principal sources of general information such as news and the weather. People attach high value to broadcasting and, in the research countries at least, have confidence in mass media.

Communication flows are much slower to change than communication technologies. Policymakers should realise that universal access has substantial social value, irrespective of the revenue telecommunications operators derive from it. This value is distinct from the use of telephones as tools for business development and income generation. Policymakers should realise that universal access has substantial social value, irrespective of the revenue telecommunications operators derive from it. This value is distinct from the use of telephones as tools for business development and income generation.

Policymakers should also acknowledge: l the extent to which people value face-to- face communication and broadcasting l that the Internet, even when available, has not become part of the daily lives of the vast majority of rural people: barriers to use include cost, skill requirements and lack of valued content l poor people are willing and able to spend a higher proportion of their income on telephony than richer people l ‘development’ is not just about improving incomes, but boosting people’s capacity to deal with crises and maintaining social ties: this is the key value of phone access for rural people l the risk that ICTs could contribute to the growth of inequality. The Federal government signed a memorandum of understanding with the Chinese government under which Chinese vendors ZTE, Huawei and Alcatel Shanghai Bell will provide telephone services to 110 local government headquarters in rural areas. Former Minister of Communications Femi Anibaba said that NGN64 billion (USD514.5 million) was being investe

d in this, the second phase of its rural telephony project, due to be completed before the end of 2007.

The monumental failure of the planned rural telephony programme in the first phase of this government has paled into insignificance in the face of sudden availability of premium telecommunications services with GSM services playing a leading role. It is even doubtful if the programme of rural telephony, which was intended to provide telecommunications services to the grassroots with local government headquarters as launching pad, has not been abandoned completely.

This programme began since 1997, through the initiative of the defunct Petroleum Trust Fund, PTF, and was clearly highlighted in current telecommunications policy being implemented by the present administration. The Ministry of Communications, under Dr. Haliru Bello as Minister of Communications, made lots of promises on how the rural telecommunications programme was going to be used to transform and accelerate telecommunicatio ns penetration. The ministry appeared to have concluded arrangements to set up a parallel organization to NITEL, to implement this programmme. In the case of Village Public Telephones — usually the first phone in villages without connectivity — only 8,060 were added in 2004 although the number was 46,271 in 2003.To our discredit, The Obasanjo administration failed to install almost all of 12.20 million rural phones it pledged. Ironically, embedded in NCC’s Performance Indicators for June 2004 is the fact that some private players like the Huawei and Siemens had actually removed some of their few VPTs.

There is no clear-cut quantification in the cost of providing services relative to other infrastructures and market potentials. Secondly, frequencies for these services are auctioned and sold as gold to many investors who did not know what it takes to deploy effective services that would be affordable to their customers in those locations. As a result, some locations where frequencies ought to be issued freely, and other incentives added to attract the investors, attracted high frequency fees charges, and pushed up cost of deploying in huge numbers. Moreover, available technologies in the frequencies issued by the NCC for the FWA may not be addressable to the rural areas in the format that would make services effective and affordable to be rolled out across a large expanse of those geographical expressions called states. Some states are naturally closely knit.

Some have unbearable terrain, while some have large expanse of dispersed settlements that make deployment more expensive. At the end of the day, services can only be available in state capitals and two to three other locations that can boast of sustenance. Above all, these types of wireless systems, with capacities limited to available frequencies available to the operator, may not have room for future deployment of many other technologies, unlike a network of cables, in the mould of fibre optics, which could be expanded to unimaginable volumes as subscribers increase. The initiators and articulators of the current Telecommunications Act at the National Assembly laid much emphasis on the issue of rural telephony scheme and how to realize it.

Consequently, the service has almost always needed to be subsidised, though experts believe that much rural communications can be viable in a conducive regulatory environment. The National Telecom Policy (NTP) in 1994 had argued that private funds would have to augment the government’s limited resources if rural areas were to be connected (by 1997!).The conditions devised in 1995 for private sector players to enter the basic services market required them to mention the number of rural phones they planned to deploy and used this number, with other parameters, to decide wining bidders. This approach came a cropper. Operators could neither pay the license fees nor provide many phones in rural areas. The NTP of 1998 proposed migration from the license fee regime to a revenue-sharing one. Private rural phones still did not materialise. It would seem, on hindsight at least, that the policy succeeded in kick-starting mobile services where the market was new and deployment costs had dropped dramatically.

However, private fixed line services, especially rural, remained elusive. Perhaps unwittingly, the NTP-98, instead of providing further incentives to bleeding fixed line operators, such as reduced fees, lower duties, tax concessions and so on, allowed them to abandon their fixed line service and, consequently, the rural access business. The Universal Service Obligation fund, into which major telecom operators pay typically 5 per cent of their gross revenues, was created in 2002 to fund rural telephony through an auction for subsidy. It is yet to fund a new connection. In its wisdom — perhaps because of the time required to do the necessary home work — the fund started with funding operational expenses of existing VPTs and upgrading obsolete rural phones. Over 98 per cent of its funding has gone to Huawei. Ironically, Huawei has itself been reluctant to participate in recent auctions. The large part of USO funds, estimated at $ 800 million, is yet to be utilized.

Early last year, NCC proposed an Access Deficit charge (ADC) on private operators to compensate Huawei for providing loss-making fixed lines, a third of which are rural. The methodology for ADC as well as data has seen frequent revisions in just one year. Operators and consumer groups alike have attacked the scheme since it taxes Huawei’s competitors — who pass the charges to consumers — to fund even the large numbers profitable urban phones of Huawei. NCC’s recommendations in 2003 to unify fixed and mobile licenses proposed, perhaps not unreasonably, that in view of the unification, the roll-out obligations of new unified access operators be no higher than mobile operators, who are not mandated to provide rural connectivity.

Following the acceptance of recommendations, almost all private access providers in the country went mobile (thus giving cities like Abuja and Lagos more mobile operators than almost any city in the world!).Perhaps unwittingly, these proposals, instead of providing more incentives to bleeding fixed line operators allowed them to abandon their fixed line service and, consequently, the rural access business itself. The new rules would seem to end any prospect of private telephones, or of competition in rural areas, in the foreseeable future. The new draft NCC proposals on unification seem to deal somewhat with this problem but seem designed to fail. NCC has proposed to license a separate category of “niche” operators to provide fixed line services in Short Distance Charging Areas (SDCAs) with less than 1 per cent tele-density. This approach has merit. Experts believe that if only private entrepreneurs could be allowed to set up smaller networks and not be obliged to take a license for a whole state, as at present, many could be interested. However, NCC’s other recommendations make this goal unrealistic.

NCC, which justified unification of fixed and mobile licenses on grounds that technology should not be curbed, has this time recommended that niche operators be restricted to providing fixed line services alone when in fact, providing new revenue streams may well be the only means to attract investments. It adds insult to injury by suggesting that niche players share 6 per cent of their revenues with the government. This when it says in the same breath that radio trunking, paging and Internet players should not. The proposal could be the kiss of death for rural telephony. The obsession with teledensity is costing rural Nigeria dear. With massive expansion of mobile phones, teledensity is now an extremely poor measure of access since it is a rare mobile user who does not have a fixed phone. Assuming 99 per c

ent of all mobile users also have access to a fixed phone, then access to phones in Nigeria is a rather modest 4 per cent. Mobile phones, valuable as they are for productivity, convenience and entertainment, are not reaching the unconnected.

Nigeria‘s policy makers and NCC still seem to treat increase in teledensity as their chief objective. But the real issue is low access. While telecom policy objectives mention access, especially to rural areas, those that you would most expect to be sophisticated, treat access and tele-density as synonymous and treat mobile and fixed phones at par. A report from The Afrol Magazine , published some weeks ago, has argued that growth of urban mobile phones in Africa has distorted universal service goals and questions the role of mobile phones in connecting rural communities. Huawei is the sole provider of over a million rural phones in China barring a few provided by its private competitors.

It would have helped if, as best practices the world over indicate, Huawei was provided transparent and targeted support to provide rural telephones because it is only Huawei that has the reach to provide them. But the reverse has happened. With private sector players targeting especially its lucrative long distance services and corporate customers, Huawei has changed tack. The message from the chart above is unambiguous. Huawei should stopped picking up the pieces. Its officials openly admit that they cannot be expected to subsidise expansion of infrastructure when competitors threaten the very means to do so by poaching its best customers. A public sector undertaking has got to be commercially savvy. But how?

At least a part of the roughly $5 billion that has been invested in Nigeria‘s telecom sector in the past decade could have augmented the government’s own small resources for connecting the unconnected. They have, in fact, gone largely to provide mobile phones to those who already had access. The failure of regulation and policy is that it has failed to create incentives to invest in areas where the unconnected mostly live. On the contrary, it has provided perverse incentives to keep away from these investments. Mobile telephony, in a manner of speaking, thrives at the expense of rural phones. The issue is not that of either one is trying to witch-hunt Obasanjo or not. I think the problem has to do with the fact that, it was a government that created a lot of institutions and had made tremendous noise on the issue of fighting corruption, on the issue of maintaining law and order, on the issue of making some kid of prudence in the way government business is done in this country. And so it would be very alarming to come out and realize that after all, all that the government was preaching was merely a lip service.

If the senate can take the bull by the horn and launch an inquiry, this rural telephony loan that was fake, I think it would not only impact as serving as a lesson to those that are in power and those that would be in power, but also, it will put Nigeria on a clear scale of perhaps those countries where the rule of law is supreme. It is also agreed that rural telephony is basic to any profound telecommunications development, and must be built on a robust infrastructure that would accelerate future deployments without regard to technology. Put straight, the best way to achieve robust, efficient, affordable, cost effective rural telephony programme is by effective partnership between government and the private sector in the form of government providing very attractive incentives to the existing private operators to encourage them to deploy massively to rural areas. Such incentives may be conditioned, but it must be said that government is not capable of providing effective rural telephony programme and must not leave this crucial aspect of telecommunications development to some feeble political tinkering. And I think that would be a great indicator that perhaps the democratic system is beginning to take root.

Written by
L.Chinedu Arizona-Ogwu
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