In my first instalment of this blog series, we showed how a country could determine the areas where coverage would be economically beneficial. In this second part, we look at where the funding should come from to deliver this coverage.
The key change of the new approach is to move away from a complete reliance on market forces and to be directive in delivering quality connectivity in those areas where there is overall economic benefit for the country. But where should that direction come from?
In most countries, there are three interested parties – the relevant government ministry, the regulator, and the Treasury. The relationships between these parties vary across countries, particularly in the relationship between the ministry and the regulator. In some cases, they are the same entity; in others, they are very clearly separated; and in many, they are loosely connected. My view is that it is the role of the government to decide on the use of public money, although as we will see, in some cases, the money is never really in the public purse. Hence, it will generally be for the ministry to explicitly set objectives to achieve quality coverage and connectivity goals. These goals would typically be stated in a white paper or similar, setting out the national connectivity strategy. Bearing this in mind, the first step is for the government ministry to publish a connectivity strategy, clearly setting out what targets must be achieved in terms of geographic area, data rate and capacity, and the allowed timescales to achieve it. A good objective should clearly set out the end goal, including how its delivery will be verified, but leave it entirely up to the regulator as to how it is achieved.
Many governments already do set targets, but the difference with this approach is that these targets should be binding rather than aspirational. The targets should bind the regulator, which is the entity with the powers to enact many of the approaches we recommend, such as changing the format of spectrum auctions, enabling sharing, and approving new approaches such as high-altitude platforms (HAPS). In some cases, legislation may need to be changed to allow government to mandate an outcome to a regulator, and there will likely be debate around the ability of government to intervene in regulatory decision-making. Hence, the next step is to ensure that there is an appropriate relationship between the ministry and the regulator and enact new legislation if needed.
The third interested party is the Treasury. Enhanced coverage costs money, and this money cannot come from commercial entities (since it is uneconomic for them to make the investment). My approaches favour a diversion of resources, rather than a direct ask to the Treasury for more money. For example, if there are currently annual licence fees that operators pay, they could retain these fees in return for using the money to build better coverage. This approach tends to be more palatable politically, but nevertheless, it effectively uses government funds to deliver better connectivity. This will need Treasury approval. Generally, this requires an investment case, showing that the money spent will deliver greater economic gains – this case was delivered in the first article. The case will need to be properly presented to Treasury and their approval given for the use of funds.
Once all of these steps are achieved, the regulator will have a mandate to deliver better coverage and connectivity. They will need to determine how much money, or equivalent benefits, are needed, and then how best to find the resources. In the final instalment of this series, we look at ways that they could reduce the cost; in the remainder of this one, we consider where the money might come from.
The lowest hanging fruit is money that the operators pay to the regulator. This may be annual licence fees of various sorts, auction fees, or other costs. In my book, I showed how licence fees could be made available for operators to spend on specific categories of deployment and how auctions could be turned into cashless competitions where the bids are for amounts of coverage delivered. However, in some cases, regulators rely on these fees to fund their own costs, so if they are to be re-purposed, the regulator may need a larger budget from the Treasury. The regulator should explore the viability of using operator payments, comparing the amount of payments with the approximate cost of delivering the required connectivity to determine whether this alone will be sufficient. If insufficient, the savings needed can be examined, as we will discuss in the next article.
The regulator may need to undertake a number of studies to refine the data on costs of delivery and benefits. It may want to benchmark against other regulators that have embarked on a similar path and hold discussions with operators to understand their concerns and preferences.
This second stage of getting the governance in place is likely to take around three to six months, depending on the speed that government engages and whether connectivity strategies already exist. The outcome is a clear mandate delivered to the regulator, and initial thinking from the regulator as to whether a diversion of operator payments will be sufficient to deliver the coverage required within an acceptable timeline.
In the final part of this series, we turn to looking at innovative ways that the costs of improved connectivity can be reduced and what regulators and governments can do to facilitate these.
Emperor Ofcom’s New Clothes by Stephen Temple and William Webb: https://www.amazon.co.uk/dp/B0CRGSSZSS?ref_=pe_93986420_774957520.
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