In 2019, ten years after the activation of Meaningful Broadband – Indonesia, our new focus is all about financial innovation.
In partnership with the National ICT Council (“Wantiknas”), Digital Divide Institute (DDI) hopes to articulate an economic model. For the first time, we intend to produce hard metrics that define costs and risks entailed in bringing full benefits of digital technology to hard -to-serve citizens, not just the affluent. We’ve been waiting a long time for this! Since we first organized a 1999 global conference in Seattle called “Financial Solutions to the Digital Divide,” this year is the first time we been invited to find such solutions for one large developing nation. We are very grateful and excited to do this.
Here are the finance questions we are examining with the help of stakeholders in that nation:
- The Price Tag: How much will it cost to activate Meaningful Broadband Ecosystems for the regions (kabupaten) where the Indonesian low-income population are concentrated?
- Mixing Instruments of Finance: Will the necessary funding come from market forces, from government budgets, or from consumers themselves – or some “cross-sector” mixing of all three sources of finance?
- Scaling: What is the cost for one specific test-market location? And how will costs drop as we anticipate economies of scale when Meaningful Broadband deployments reach millions of citizens, incorporating remotely located island’s within nation’s archipelago?
- Regulation: How would this financial scenario change if the government chooses to introduce new regulations which cause investors to put their money into Meaningful Broadband Ecosystems?
- Supply/demand dynamics: How are the costs divided between supply and demand?
- Pricing the “meaningful factor”: If we add an ethical dimension of “meaningful” – meaningful supply and meaningful demand – which extra costs would be involved?
- ROI: What payback formulas can we anticipate for investors?
- Reinvestment: As locations become self-sustaining, how can wealth be reinvested so that each Meaningful Broadband Ecosystem is able to fund upgrades to incorporate ongoing innovations, e.g. software bundling, satellite deployments, cloud services, digital ID programs, data centers, etc.
Why Indonesia? Why now? It is because of the close alignment between aims of the country’s universal services obligation (USO) agency, BAKTI, and the priorities of the Meaningful Broadband Kabupaten Initiative, managed by Wantiknas. BAKTI is seeking innovative answers to a problem that now vexes developing nations around the world: how to optimize funding for Universal Services Obligation (USO).
The USO Concept is in trouble. After a number of studied by global think thanks – OECD, ITU, UNCTAD and the World Bank’s IFC – a new consensus has emerged that suggests that USO programs must be rethought entirely in light the new dynamics of each nation’s digital economy, which are being shaped by ecommerce, cloud services and other factors. To find answers to this global problem, the Indonesian agency has identified innovative criteria: its USO funding should be “kabupaten oriented”; it should be “bottoms up;” it should be “ecosystem oriented;” and the funds should be aligned with a range of other national policies. By establishing these priorities, it became possible that Indonesia’s USO funding could conceivably support Meaningful Broadband. Digital Divide Institute offered to step forward to produce financial scenarios that show how the aims of BAKTI and Wantiknas could be fulfilled by inserting USO funding into the establishment of Meaningful Broadband ecosystems.
If we can find the answer to this national problem, we may be able to contribute to the rethinking of USO at a worldwide level. This year, governments will collect billions from their own telecommunications operating companies to pay for projects that increase internet access and use, subsidizing citizens who are too poor or too remote to otherwise attract business. But, according to ITU, only about half of that money actually gets spent from year to year.
Consider India, for example. Led by tech-savvy Prime Minister Narendra Modi, the Digital India program’s has aimed to uplift 500 million poor citizens who aren’t adequately connected to the internet grid, using the USO program as a centerpiece. Yet, according to media reports, most of the money has remained in a Delhi government bureau — its unspent funds reached $4.1 billion in 2017. 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 adopted partial solutions to their USO problems. They focus on revamping the content of their projects – like adding mobile apps and cloud services to USO agendas rather than follow Indonesia’s aspiration to fundamentally challenge the separation between public and private that USO implies.
The key to this new approach is that it does not assume that markets are unable to serve the poor.
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.
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. Our initiative – called USO X 8 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. The project 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 billions USO funds annually would multiply dramatically. 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 in 2016 for a project which will we expect to conclude at the end of 2019. 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 stimulate investments that could affect the overall economy. “If the idea works and spreads to 500 other regional units across the Indonesian archipelago, the entire nation’s digital economy would change,” says Dr. Ilham A. Habibie, who oversees Wantiknas. the Indonesian ICT Council. He adds that data centers and cloud services centered in Jakarta could be activated by the initiative. Consumers will benefit from Metcalf’s Law, which will assure a “network effect” as the project brings millions of lower income 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. We may soon learn how USO funds could emerge as a vital tool to establish more equitable spread of wealth as each nation digitalizes its operations.
Craig Warren Smith