Note Number 02 ICT POLICY 88217 NOTES June 2012 Partnerships for Broadband Innovative public private partnerships will support the expansion of broadband networks Doyle Gallegos Doyle Gallegos is Lead Increasing mobile telephone penetration was once the information and communica- ICT Policy Specialist and tion technology sector’s main challenge. We now need to close the broadband gap. Practice Leader for the As before, the private sector will lead the necessary investment, but it cannot do Connectivity Portfolio in the it alone. Governments must create the enabling environment and, under the most ICT Sector Unit of the World Bank challenging conditions, be prepared to lead. Governments are turning to innovative public-private partnerships (PPPs) to meet these objectives. This trend is strongly reflected in the World Bank’s work over the past few years, particularly in Africa, as well as in many of the recently announced national broadband network build-out initiatives. The types of PPPs vary and merit further discussion to help frame govern- ments’ broadband interventions. PPPs are supporting network issuing a ‘Broadband Challenge’: that countries expansion and private sector operators should help increase broadband penetration in developing countries from More developing countries are using public-private the current 10 percent to 50 percent by 2015.5 This partnerships (PPPs) as a financing mechanism and will help close the significant broadband gap that business model for broadband network build-out exists between developed and developing countries and commercialization. Since 2007, the World Bank (Figure 1). If broadband is to reach the needed 2.6 alone has approved about US$1.2 billion in technical billion additional citizens in developing countries, assistance and financial support to more than 30 it will require major investments over a short time, This series highlights developing countries in the design and implementation significant innovation, and creative financing and transformative analytical and of regional connectivity programs, many of which operating models.6 operational work and discusses used some form of PPP mechanism. Many of these countries will experience fiber optic connectivity to Figure 1: The Broadband Gap emerging policy issues in the information and communication international networks for the first time. 30.0 Fixed broadband Internet subscribers High Income technologies sector. Much of this recent assistance has been focused on 25.0 World connecting countries on the West coast of Africa (per 100 people) 20.0 Low and to the ACE (Africa Coast to Europe) submarine Middle Income cable.1 Connected countries will benefit economically 15.0 and socially from greater bandwidth at much lower 10.0 cost, just as East African countries have with their international submarine cable connections.2 Similar 5.0 PPP approaches are also appearing in the Caribbean 0.0 and the South Pacific.3 2000 2002 2004 2006 2008 2010 Source: World Bank Much of the increasing demand for PPPs to build secure infrastructure and broadband network facilities The private sector must be reengaged to meet this comes from policymakers who understand the challenge. The success of the mobile telephone potential benefits4 offered by broadband services. suggests that the private sector, with its knowledge, They also have the political will and courage to expertise, innovation, and access to capital markets, seek new ownership and operating models to drives investment.7 Now, such ambitious broadband realize those benefits quickly. The International penetration goals can be achieved by implementing Telecommunication Union (ITU) added to the PPPs that are well balanced and that consider sense of urgency to provide broadband services by fundamental sector development and market dynamics. Partnerships for Broadband: Innovative public private partnerships will support the expansion of broadband networks Types of PPPs for broadband and growth; and the lowest cost for the highest connectivity quality of service in a faster time to market. PPP approaches supported by smart universal service For broadband connectivity infrastructure, PPPs can programs can also help broadband reach areas and be defined as a financing mechanism or operating populations where market failure has resulted in 2 model, as established in a formal agreement between market and access gaps (for example, rural areas). government and a private investor or operator, with the objective of developing, operating, maintaining, In certain frontier, fragile, and high-risk markets or commercializing broadband network facilities and and regions, a PPP approach may be the only way services. This includes a wide range of ownership to bridge the digital divide that exists between and risk-sharing arrangements between the public countries, within countries, and across regions. and private partners, and various forms of operating As an interim solution, the public sector can play models. Figure 2 maps various PPP approaches the role of a catalyst to jumpstart and incentivize by the level of public ownership and risk and the investment with the expectation that the private scope or functionality of the operating unit or sector will expand its role as the business matures. service in question. More than defining boundaries This approach enables high-risk and low-return between forms, Figure 2 should indicate the range projects and offers an innovative way to leverage of approaches. funds from the public sector while sharing some of the risks associated with the adoption of a fast- Figure 2: Matrix of Sample PPP Approaches and Models changing technology. Wide Scope management IPO Experience from World Bank- Scope of Enterprise Functionality contract privatization supported PPP initiatives and Service Offering concession contract Most submarine cable projects that the World Bank supported were either (a) in fragile states or small BOT BOO island states, or (b) too large or too risky for the private sector to undertake on its own. The involvement of network PPP the public sector through a PPP mechanism helped leasing landing mitigate risks and encourage investment. station outsource (BPO) Recent World Bank-supported PPP initiatives have Limited Scope demonstrated that there is no single formula that can be applied in every case. Experience demonstrates Public Ownership and Risk Private that each case has different in-country factors and circumstances, and differing objectives and Note: BOO = build-own-operate; BOT = build-operate-transfer; BPO = business pro- priorities of the policy makers and private partners cessing outsourcing; IPO = initial public offering; PPP= public-private partnership. involved. Yet, every PPP is governed to some extent Within some PPP structures and under certain by a legal and regulatory structure that is agreed circumstances, governments need to take a wider and to by the partners. This agreement is reflected in more proactive role. This greater role of government various documents, which may include the PPP has been demonstrated in the submarine cable agreement (between public and private partners), the projects referred to earlier in this note. In those shareholder’s agreement (between the shareowners), cases, governments led possibly because of capital and possibly the operating license or concession “Ambitious broadband pen- rationing by the private sector due to the financial agreement (between the new operating entity and etration goals can be achieved crisis and possibly because of the higher risk profile the regulator). by implementing PPPs of the developing countries in question. that are well balanced and For purposes of comparing and contrasting different that consider fundamental PPP approaches, recent World Bank interventions are Benefits of PPP approaches sector development and categorized into five primary approaches or models, market dynamics.” Broadly, PPP approaches can help to use public as described in table 1. sector investment effectively to leverage private sources and bridge the digital divide. PPPs allow Some of these models are standard in the industry for better use of scarce public funds; better access (for example, equity–joint venture, build-operate- to design, innovation, project management and transfer, and concession). Others, like the cooperative skills available in the private sector; greater customer approach, are more creative and reflect a hybrid orientation; better alignment of incentives for superior approach (for example, the equity approach with a performance; higher private sector development strong government incentive or subsidy) and unique ICT Policy NoteS POlicIES for the ICT TRANSFORMATION Table 1: Recent World Bank supported PPPs, Approaches and Models Model Description Examples Cooperative All sector operators (MNOs, ISPs) unite to form a private company (special- Burundi national purpose vehicle) for the purpose of building, owning, and operating the national backbone project, backbone as a wholesale operator. The government contributes a subsidy with 2007 no related ownership to ensure national coverage, including rural access points, 3 open access, nondiscrimination, and low-cost pricing. Equity Similar to the cooperative model except that the government obtains equity and The Gambia, Guinea, shareholding ownership rights in exchange for its contribution. Generally, gov- Liberia, São Tomé ernment divestiture mechanisms are built in. and Príncipe, Sierra Leone, Concession Traditional build-operate-transfer approach, whereby the government issues a Republic of Congo, public tender to select a private sector operator to build and operate the na- in process tional backbone or specific national and cross-border links. The agreement is in the form of a long-term concession (15–25 years) that requires the transfer of the networks back to the government at the end of the concession. Bulk capacity The government, acting as an “anchor client,” issues a public tender for the long- Rwanda, 2011; purchase term (10–15 years) supply of bulk capacity (+ 1 gigabit) bandwidth. This model Malawi, in process stimulates investment by the private sector through the aggregation of demand. In this case, the partnership is governed by a PPP agreement or supplier con- tract that establishes the rights and obligation of each party. Management Standard management contract agreement whereby the government issues a Gabon, in processa contract public tender to select a private operator to build, operate, and commercialize the national backbone (or specific national or cross-border links) for a fee during a short-term period (3–5 years). Core assets remain the property of the government. Source: World Bank, ICT Unit analysis. Note: ISP = internet service provider; MNO = mobile network operator. a. The initial PPP structure allows for conversion to an equity approach at a later stage. market and sector dynamics in the country at the backbone, and local access) by ending monopoly time of design. control over bottleneck facilities (Williams 2010). A role for government Use of PPPs in national Although often left untold when discussing the broadband plans mobile miracle, government leaders unlocked PPPs also feature in various national broadband private sector participation by creating enabling plans. Responding to the 2008financial crisis, legal and regulatory frameworks and by significant many governments defined such plans as a part of pro-competition policy shifts. It is widely accepted economic stimulus packages. Countries sought to that an enabling policy and regulatory environment invest in ICT infrastructure, specifically broadband is critical in facilitating PPPs. and next-generation networks, as a countercyclical “In certain frontier, frag- tool to create jobs and provide the foundation for ile, and high-risk markets, Yet, governments have much to do to continue economic recovery and long-term sustained growth a PPP approach may be the sector reforms to accelerate broadband development. (Qiang 2009). Since then, several countries have only way to bridge the digital For example, about half of all countries in Africa initiated national broadband programs for different divide that exists between have little or no effective competition outside the purposes and in different forms. countries, within countries, mobile segment of the market. Reforms are needed and across regions.” to deepen competition, such as unified licensing; A survey of several noteworthy and recently announced promote infrastructure sharing; and create effective national broadband network build-out initiatives voice and data interconnection regimes (Kim, Kelly, was conducted to determine if, how, and to what and Raja 2010). And regulation must be revised to extent the private sector was involved (that is, the accommodate rapid technological change, emerging form and scope of PPPs). The survey findings are competition, and media convergence (Singh and Raja available online.8 Several noteworthy observations 2009). Similar to the submarine cable infrastructure, can be made as follows: there is a growing need to support low-cost access . PPPs can help. PPPs are used extensively to infrastructure (for example, international, national finance, operate, or construct the network. Partnerships for Broadband: Innovative public private partnerships will support the expansion of broadband networks . PPPs should be creative and adaptable. A range Williams, Mark. 2010. Broadband for Africa : Developing of approaches is used across these programs. In several Backbone Communications Networks, Washington cases, the project is led by the incumbent operator, even DC: World Bank. http://hdl.handle.net/10986/2569 if the incumbent is not wholly owned or controlled World Bank. 2009. Information and Communication for by the government. In other cases, a new entity (say Development: Extending Reach and Increasing Impact, a special-purpose vehicle or joint venture) is set up to Washington, DC: World Bank. http://go.worldbank. build, own, and operate the network (for example, a org/NATLOH7HV0. wholesale or passive infrastructure operator) with the government participating as a shareowner. Endnotes . Initiatives are extensive in their reach. Most 1 The ACE submarine cable project is expected to con- have extensive targets, with population coverage nect Europe with 12 countries along the West Coast of requirements of 72 percent to 95 percent. Africa, of which seven (Equatorial Guinea, Gabon, The . Enabling legislation or regulations are necessary. Gambia, Guinea, Sierra Leone, Liberia, Liberia, São Tomé and Príncipe, and Sierra Leone) have mobilized World In a majority of cases, some form of enabling legislation Bank financing to join ACE. The commercial service date or regulation was required as a prerequisite to build a is planned for the end of 2012. network, and in many cases a national broadband plan or strategy document was prepared to create awareness, 2 Since 2009, three submarine cables have been land- convene stakeholder inputs, and establish the specific ed in East Africa. After the initial landing of the Seacom development targets. submarine cable in Kenya in July 2009, spot short-term pricing terms for 1 megabyte dropped from more than . Best practices are evolving. It is still too early to US$3,000 a month to a range of US$400 to US$600 a determine the success of any one program or whether a month. Longer term (for example, 15 to 20 year IRU ba- predominant, best-practice approach is in the making. POlICY NOTES sis) pricing terms were as low as US$150 to US$200 per Yet, governments need to ensure that such initiatives do megabyt a month. This pricing decrease resulted in a sig- This series highlights trans- not reverse or impede private capital trends in the sector nificant increase in bandwidth demand growing from 2 formative analytical and op- and return to the era when state-owned enterprises gigabytes per second in 2008 to more than 50 gigabytes erational work and discusses dominated the telecommunications landscape. per second by the end of 2011. Although the bandwidth emerging policy issues in the pricing and availability has greatly improved, some East information and communica- African countries (for example, those that are landlocked) tion technologies sector. The Conclusion continue to struggle for affordable broadband access. findings, interpretations and conclusions expressed PPP mechanisms to build out and commercialize 3 In 2012, the World Bank initiated the Caribbean Regional herein are entirely those Communications Infrastructure Program (CARCIP). In its broadband access, particularly in high-risk, low- first phase, CARCIP included Grenada, St. Lucia, and St. of the author(s) and do not margin markets are proven, can be effective, and may Vincent and the Grenadines. In 2011, the World Bank initiat- necessarily reflect the view of the International Bank be necessary to bring affordable broadband access ed the Pacific Regional Connectivity Program, which in its for Reconstruction and first phase included connectivity between Fiji and Tonga. to the mass market. There is no single PPP best Development/The World practice, but examples exist to guide policymakers 4 The World Bank (2009) highlighted the boost to eco- Bank and its affiliated organizations, the Board in designing approaches and models that address nomic development provided by broadband networks. In of Executive Directors of developing countries, a 10 percent increase in broadband specific market dynamics and the goals and objectives penetration is associated with a 1.4 percent rise in gross do- the World Bank or the of all stakeholders. mestic product per capita. governments they represent. The World Bank cannot 5 Under the Broadband Challenge, the United Nation’s guarantee the accuracy A government’s most significant contribution in the Broadband Commission for Digital Development has set of the data included in PPP approach is its authority to create an enabling four new targets for governments across the world to en- this work. environment that attracts private sector development. sure that citizens have sufficient broadband access. One of the targets is to have broadband access for 50 percent To order additional Governments must take a more proactive leadership of people in developing countries by 2015 (ITU 2011). copies contact role in creating and implementing PPPs. This role 6 According to the World Bank’s World Development will only become more critical and innovative as Indicators database, the total population in developing Siddhartha Raja sraja2@worldbank.org governments push to bring broadband services to countries including low- and middle-income countries is 5,767,157,445 in 2010. or citizens in the most remote and least profitable zones. 7 The hugely successful growth of mobile services in Africa Tim Kelly was the direct result of private sector investment. Between tkelly@worldbank.org References 2000 and 2010 in Sub-Saharan Africa, total private sector investments in telecommunications reached US$77 billion. Telephone: ITU (International Telecommunication Union). 2011, 27 Oc- The number of mobile telephone subscriptions grew from +1 (202) 473 1000 tober. ITU Telecom World 2011 sets new paradigm for 7 million to 392 million during the same period, thereby top-level networking, knowledge-sharing. http://www. increasing penetration from 1.7 percent to 44.9 percent. The World Bank itu.int/net/pressoffice/press_releases/2011/47.aspx The telecommunications sector accounted for more than 1818 H St, N.W., Kim, Yongsoo, Kelly, Tim, and Raja, Siddhartha. 2010. 80 percent of total private investments for the region dur- Washington, D.C., 20433 Building Broadband: Strategies and Policies for the ing that time. Investment estimates from the World Bank’s Developing World, Washington, DC: World Bank. PPI Project Database, and mobile subscription numbers sourced from Wireless Intelligence 2012. Qiang, Christine. 2009. “Broadband Infrastructure Invest- ment in Stimulus Packages: Relevance for Develop- 8 Results of the survey are available at: http://bit.ly/Mb- ing Countries,” World Bank, Washington, DC. http:// PZc4 go.worldbank.org/YJPDV8U9L0. Singh, Rajendra and Raja, Siddhartha. 2009. Convergence in Information and Communication Technology: Stra- ICT Policy Notes are also available online tegic and Regulatory Considerations, Washington, DC: World Bank. h t t p : // www.w o r ldb a n k . o r g / I C T