Meaningful Broadband: Indonesia

About $40 billion of Universal Services Funds annually are supposed to bring the Internet to the poor. But instead it’s a mess. Here’s what DDI is working on to clean up that mess, beginning with Indonesia.

This tax, called Universal Services Obligation, is known to policy wonks as USO Funds. This year, governments will collect about $40 billion of these taxes, mostly from telecommunications operators, to pay for projects that increase internet access and use, subsidizing citizens who are too poor or too remote to otherwise attract business. But only half of that money will actually be spent while the other half will mostly be mismanaged.

At a time when the internet is contributing to an unprecedented inequality of wealth, it is a tragedy that a little-known tax, designed to produce the equitable spread of digital technologies, remains largely unknown, unspent and woefully ineffective in dozens of countries.
USO universal services obligation

In the US, where broadband internet is taken for granted, the USO fund debacle is not a life-or-death issue. In the developing world it is. There, deployment of broadband internet in the countryside may be the only way for governments to rescue rural economies by turning villagers into entrepreneurs who can make a living wage.

You would think that India, of all nations, could solve this problem. Led by tech-savvy Prime Minister Narendra Modi, the Digital India program’s aim is to uplift 500 million poor citizens who aren’t connected to the internet grid using the USO program as a centerpiece. Yet most of the money gathers dust in a Delhi government bureau — its unspent funds reached $4.1 billion this year. The program gathered so much criticism that Modi decided to roll back the tax from 5 to 3 percent of telecom spending and it may get shut down altogether.

What to do? Many nations have turned to the designated Thought Leaders in this field – known by the alphabet soup of acronyms ITU, WTO, OECD, and GSMA – which have all issued studies that form a consensus on what needs to be done to update the USO concept now that governments prescribe universal broadband for all citizens. Unfortunately, their recommendations don’t go far enough. They focus on revamping the content of their projects – like adding mobile apps and cloud services to USO agendas when what’s needed is to fundamentally challenge the separation between public and private that USO implies. To be effective, new USO projects must eliminate the boundary between public and private altogether and mix together funds from both sectors so that, added together, both sides share the costs and risks of serving those otherwise unserved by internet access.

Let’s step back a moment and look the big picture. Universal Service Concepts date back to the early 19th century. They are rooted in the “social contract” notion of Jean-Jacques Rouseau, who argued that for a society to be legitimate, it must achieve reasonable equality among citizens. If not, he argued, governments should step in. In other words, it is the government’s role to correct “market failure.” When the first USO programs were created by the US Telecommunications Act of 1934, market failure was taken for granted. All governments assumed that telecom companies were incapable of providing phone service to all on a profitable basis, which meant that all others must be subsidized if there was to be universal access, a public policy goal. This separation between public and private services survived in the first major digital update of telecom policy: the US Telecommunications Act of 1996, which became a benchmark for other nations.

The Telecommunications Act of 1996 argued that companies should pay into a fund to be used to subsidize the build-out of infrastructure to remote areas and pay the extra costs of providing internet-based education, health care and training for the poor. The assumption of market failure continued. In other words, USO programs aimed to create separate, publicly-funded telecommunications systems that sit alongside commercial systems. It should surprise no one that this idea didn’t work.

Now that we are in an era in which universal broadband is considered necessary for equitable human development – as well as for corporate success – market failure can no longer be taken for granted. The Digital Divide Institute has proposed a fundamental remake of USO that would obliterates distinctions between public and private altogether. In this case, USO would serve as a catalyst to induce private investment to enter locations and serve users who, in the past, were considered to be unprofitable.

DDI’s notion, called “USO X8” suggests that, if properly deployed, every dollar spent via a USO fund would trigger an additional eight dollars from other private and public sources. If this idea spreads globally, the $40 billion USO funds annually would serve as a catalyst for mobilizing a whopping $320 billion. This sum could be used to remake digital economies altogether, affecting not only telecommunications but also other industries that are destined to undergo their own digitalization. It could reverse the growing digital divide in the global economy at large.

To test the “USO X 8” idea, DDI received support this year from the Indonesian government’s National ICT Council, known locally as “Wantiknas.” This support came from the nation’s USO fund, administered by BAKTI of Kominfo, the ICT Ministry. Our hope is that a technical team from The World Bank will jump in during the implementation phase to help out. Beginning this year, the combined partners will invite investors from public and private sectors (domestic as well as international) to pool their money, their policies and their expertise. These public/private coalitions will build “meaningful broadband ecosystems” in five regional units which until now, have been ignored by the private sector.

“If the idea works and spreads to 500 other regional units across the Indonesian archipelago, the entire nation’s economy will change,” says Dr. Ilham A. Habibie, who oversees the Indonesian ICT Council, the official host of the “USO X 8” project. He adds that data centers and cloud services centered in Jakarta would be activated by the initiative. Consumers will benefit from Metcalf’s Law, which will assure a “network effect” as the project brings 120 million Indonesians onto the Internet grid. That would lower costs of goods and services for rural Indonesians, giving them a level playing field to benefit from eCommerce and data services and give birth to home grown start-ups that will benefit from low costs in outlying areas.

So stay tuned. Within two years, we should know how USO money can be optimized. Don’t get rid of USO funds just because they don’t work. In this era of Big Data, these funds can finally be used effectively!

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