How Telecom Cooperatives Can Serve Rural and Remote Areas

Brian Mitchell International Projects Manager

Who we are…

We are the National Telecommunications Cooperative Association. Since 1954, the voice of small, rural telecommunications carriers connecting the heartland of America to the world. We are community-based, locally owned companies, dedicated to providing vital telecommunications services – ensuring the economic future of rural America.

…the voice of rural telecommunications

We Believe:

In telecom, there remains today an important role for local communities and governments -- ensuring that rural areas left out in the stampede toward competition receive adequate service.

Major Types of U.S. Rural Telecom Systems

• Cooperatives (community owned) • Commercial, family owned companies • Investor owned companies

Independent US Telecom Companies

• Number about 1,200 • Serve 5% of US subscribers • Cover over 40% of US land mass

NTCA Domestic Telecom Members

Serve 2.6 million subscribers • 50% have less than 2,500 subscribers • 80% serve between 500 and 10,000 • 20 members have over 20,000 lines • For all others, average company has 3,800 subscribers

Rural Needs are Different

• Competition will not bring service to all rural areas • Not attractive because they lack sufficient demand and financial resources • Thus: multiple delivery mechanisms are needed. Not as simple as “open competition” • Multiple delivery mechanisms require a sophisticated, flexible regulatory/legal framework

Rural Systems in the U.S.

• As recently as 1950s/1960s, most rural Americans did not have access to phones • U.S. Government loan program created in response to inability/unwillingness of major companies to serve rural areas

In the U.S., regulatory policy has played a key role in making universal access/service a reality

Universal Service Policies —> Critical to creation and success of rural telecom systems in the US

NTCA International Program

• Helps rural communities develop strong locally-owned telecommunications systems • Works with national level policy makers to help them address regulatory and legal issues • Non-profit: supported primarily by USAID

NTCA International Experience

NTCA has worked on policies and programs to develop community-based telecom systems and cooperatives in: Argentina, Australia, Bolivia, Bulgaria, Ghana, Namibia, Nigeria, Philippines, Poland, Romania, South Africa, Swaziland, Tanzania, Uganda, Ukraine

Serving Rural Areas Remains a Significant Challenge

Indonesia USA   South Africa Canada   Ecuador Mexico   Botswana Australia

Rural Telecom Can Be Sustainable . . .

Not a complete list, but some interesting examples:

USA Chile Peru Poland Senegal Bangladesh Bolivia

But Normal Industry Criteria for Return on Investment May Not Work in Rural Areas

– Some rural areas will inevitably remain “beyond the market” due to remote location, low density, or low income, among other factors – These combinations of factors add up to high cost of service relative to other areas – In such situations, cooperatives may be a viable alternative to investor-owned enterprises

What Is a Cooperative?

"Cooperatives are independent, privately-owned, and democratically-governed business enterprises, created with equity financed by members who invest in order to benefit through their patronage."

The Seven Cooperative Principles

• Voluntary and open membership • Democratic member control • Member economic participation • Autonomy and independence • Education, training and information • Cooperation among cooperatives • Concern for community

Characteristics of Cooperative Businesses

• Open membership • Member owners • One member, one vote • Service vs. profit • Surplus is reinvested in growth • Eventually surplus is returned to members • Education and training

Co-op Structure

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Cooperatives are merely a different kind of private enterprise

– For any type of enterprise to be successful, there must be an economic environment that favors the growth of private business – For telecommunications enterprises -- including cooperatives -- to be successful, the laws, regulations and policies must support them – In the case of Indonesia, this likely means that liberalization of the telecom sector and other policy reforms must continue

What is a Telecommunications Cooperative?

• Community-owned telecommunications systems • Bottom-up approach; community plays role in planning and financing

Advantages

Benefits to government: • Cheaper way to finance telecom development • Politically popular with rural people • Ownership and control stay within country • Profits stay within country   Benefits to national provider: • Relieved of burden of building/financing network in rural areas • Can invest in urban areas, data, toll and international service • More traffic going into and out of rural areas = greater revenue = greater profits     Benefits to investors in national provider: • Relieved of burden of some rural service • Increased profits by creating new traffic • Can count toward roll-out requirements

“Bottom-Up” Approach

• Community helps to plan and manage • Community contributes equity • Community leaders guide development with assistance from outside

Advantages

Benefits to all: • Economic development, micro and SME growth, job creation • Decreased migration to urban areas • Decreased vandalism

Locally Owned Telecommunications Systems

General steps in development: • Legislation, regulation, and government PTT involvement (framework for ownership, licensing,   interconnection, etc.) • Local initiative • Community meetings/education • Local government commitment • Financing/gather member equity • Feasibility studies • Reach agreement re existing plant • Bylaws and articles of incorporation • Procure equipment and construct outside plant

Examples of Financing Mechanisms

• Revolving loan fund (USA) • Profits from spectrum and license auctions (Guatemala, Bolivia) • Levy on wireless and other providers (RSA, Nigeria) • Multiple sources (Poland) • Public-private partnerships (Peru, Chile) • Local equity

Challenges

• Political Will • Licensing • Interconnection • Privatization/Exclusivity • Financing • Management

National Telecommunications Cooperative Association

• Rural telecommunications is our business. • We are more than 550 community-based, locally owned carriers. • Visit us at http://www.ntca.org.

Thank you!