Kenya starts Universal Service Fund implementation

Telecom companies argue they should have a say in how funds are invested

After two years of a convoluted tussle with telecom operators, the Communication Authority of Kenya has received the first US$1 million from telecom companies toward the implementation of the country's Universal Service Fund.

The USF is expected to help with network deployment and service provision in rural, outlying and economically unattractive areas, where telcos may not invest due to lack of economic viability. The regulator is expecting to receive 0.5 percent of the annual gross revenue from Safaricom, Airtel, Essar, and Orange -- about $120 million this year.

"The initial task is to identify the access gaps afresh, after which the fund will close the voice network gaps within three to five years and close the data gaps through provision of broadband services to all," said Patricia Muchiri, assistant director in charge of consumer and public affairs at CAK.

The operators agree that it would help if the regulator was to invest in economically unattractive areas, because it would aid network expansion and market growth beyond urban centers.

"We anticipate that the USF will contribute in the reaching of remote areas where rollout by operators is a challenge due to lack of supporting infrastructure such as road and the main power grid," said Nzioka Waita, Safaricom corporate affairs director.

The USF became law in 2013 but discussions between the regulator and the telecom companies started earlier, with the industry viewing the demand for more money for USF as a "grudge tax," given the investments they had made in network rollouts. The industry expressed skepticism over the priorities the USF will put in place, given that the telecom companies contribute high amounts in tax receipts while the government makes minimal investment in supporting infrastructure such as roads and power.

"There are many examples of wasteful spend of USF funds due to lack of understanding of the market, or the USF being guided more by political than economic objectives; one can extend the network, but that does not mean that services provided over the network will be affordable or sustainable within the community," said Dobek Pater, senior telecom analyst at Africa Analysis.

One of the major issues that the telecom companies have raised with the USF is the failure to include representatives from the industry on the board. The industry, through the Kenya Telecommunications Network Operators Forum, feels it deserves a say in selecting projects to invest in, and how to invest in them.

The regulator insists that the Kenya Information and Communications (Amendment) Act of 2013 does not have any provisions for involvement of the telecom industry, and any efforts to have the cabinet secretary in charge of information and communication weigh in on the issue would be futile.

"Safaricom is of the view that operators ought to be represented on the Universal Service Advisory Council (USAC); this is because operators collectively hold valuable input and experience that would enrich the operation of the Kenyan USF," added Waita.

Muchiri acknowledges that the involvement of operators is important for transparency and accountability, and notes the CAK is considering an oversight role for the operators in selected projects.

"It is probably better for a USF to work closely with the operators in terms of extending infrastructure and services into the under-served areas," said Pater. "The effect of leaving out the telcos from the process may be ill-conceived projects by the USF, which may translate into wasteful spend of the funds, and the operators treating the fund contributions as another grudge tax."

The invoices by the regulator started going out to operators in the second quarter of this year and Muchiri is optimistic that the levy will be collected in full. Analysts project that the regulator will peg annual spectrum license renewals to the contribution to the USF.

Copyright © 2014 IDG Communications, Inc.

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