Rural Communications Corporations
Viable Today
In the last thirty years, the price of computers has fallen from about $3 million for a mainframe then, to about $600 for a laptop with comparable processing power today. Over the same period, the cost of a satellite voice circuit has dropped from $4,000 per year to $400 per year. Land and ocean cable has gone from $3,000 per year for a 5,000 km telephone circuit, to $1,250 per year per circuit today and $200 per year in the near future. The price of radio telephones has dropped from more than $5,000 to under $200 each. Yet calls from third world countries still cost from $3.00 to $20.00 a minute. Because of such costs, one-half to two-thirds of the world's rural population does not have easy access to a telephone.
I. The Opportunity
International telecom corporations have not addressed the needs of the low-income rural customer even though the technology to do so has been available for decades. In the 1980s, the long term importance of education and communications to rural economies justified government subsidies to the development of telecommunications technology. In the early 1990s such technology became economically viable even without subsidy, considering the prices rural populations are willing to pay for community access to pay phones and TV sets. In fact, the cost of telephone and TV service has dropped to the point where serving these populations could be highly profitable. In Western economic jargon such a situation is termed large "supplier surplus". There is even some remaining "consumer surplus," meaning rates could even be raised in rural areas and people would still be willing to pay.
Until recently, the complexities of the telecom industry's world wide network infrastructure and high economies of scale required capital investment which necessitated both coordination on national and international levels and years of customer growth to yield a reasonable rate of return. Thus, while individual rural communities could successfully establish community AM radio stations and amateur radio phone links, they did not have the resources to set up television and dialed telephone services. The situation, however, has changed. It is now possible for a community to own and operate a rural telephone service, and to connect it on national and international fiber networks, just as it might own and operate a TV broadcast station and studio using home video technology. Community programming can then be shared via a lease on continental satellites.
Advances in technology, however, have not been matched by corresponding changes in national regulatory policy. Regulatory bodies, national telecom corporations, and international carriers only recently began addressing rural needs. Now that the existence of "supplier surplus" in rural populations has been recognized, they are entering the rural market by installing urban owned service centers in rural towns. However, national governments have not taken steps to enable rural corporations to own and operate their own service and purchase national and international services from the lowest bidder.
Thus the question arises: will rural corporations provide their own services, or will urban corporations extract the "supplier surplus" from the rural poor? For a rural corporation serving a population of 100,000 to 200,000 with 100 or more payphones, that surplus can translate to more than $300,000. The contest seems to be between urban and rural populations rather than between economic philosophy and regulatory policy. Communications Satellites Planning Center studies in 1997 reviewed rural telecommunications in China, Indonesia, India, Mexico, Peru, Benin, Guinea, Nigeria, Congo. In these nations the core issue is similar; will the urban telecom organizations that historically dominated telecommunications services permit the emergence of rural corporations now that the disappearance of national economies of scale has rendered such corporations economically viable?
Three billion rural poor have an average "consumer surplus" of one to two dollars per year. If this surplus stays in the rural economies, it would help in the rural population's "terms of trade" with the urban sector. Furthermore, as many have pointed out, affordable phone, data and television services in rural communities would generate a multiplier effect the rural economic growth. This effect vastly benefits poor rural populations vis-?-vis the urban elite.
In the following sections I will describe the evolution of the technologies available to rural telecommunications in more detail, then summarize the benefits of rural infrastructure by describing stand-alone rural corporations, and suggesting how the Stanford Center can assist in supplying planning details. I will also suggest how existing institutions working in rural areas around the world might cooperate to bring such services to their communities.
II. Yesterday
In the 1970s, Stanford's Communications Satellite Planning Center helped introduce the first Television Receive Only (TVRO) technologies to the world, which culminated in NASA's ATS-F satellite demonstrating S-Band community TV receivers in Appalachia, the Rocky Mountains, and Alaska. Two years later, the ATS-F satellite was moved to India where it demonstrated an 800 MHz satellite TV broadcast to villages to support education and health programs in rural villages.
In the early eighties, the Center joined Alaska's Indian Health Service, State Legislature, and the Federal Communications Commission to persuade the State's licensed carrier to offer the first low-cost VSAT service to 200 Native American villages using Canada's Anik satellite and later RCA's Satcom satellite. The Stanford Center also worked with the Bandun Institute of Technology to introduce the VSAT service to the Indonesian islands using the Palapa Satellite.
These introductions led to confrontations with established telecom corporations offering much more expensive service alternatives. The $3 Million Intelsat trunking stations and $250,000 "remote" telephone stations along Alaska's Pipeline were superceded by the $3,000 TV "Receive Only" dish and $35,000 VSAT telephony stations. From these beginnings, the industry has grown to today's TVRO industry with home TV stations now as cheap as $290 and telephone VSATs as inexpensive as $3,000 to $5,000. Despite these reductions in costs, telecom corporations still largely ignore the interests of rural customers, pricing services beyond the reach of the majority of the world's rural population.
III. Today
The Donald Snowden program at Guelph conference on Rural Communications has convened rural community interest groups from around the world. These groups represent the populations often ignored or exploited by urban economies, but which still need basic communications to make their everyday activities more efficient, to support their education and health systems, and to preserve and enrich their cultural heritage. Rural groups account for one-half to two-thirds of the world's population, which can be served adequately if communications industry designers pay attention to it. I will present a proposal of how this can be done, based on studies we have done on rural needs around the world. The Center will be happy to support community groups interested in following up in their areas, correcting past suggestions where we have missed important issues, preparing local technical plans and assisting in identifying capital resources if requested. The information presented below is largely drawn from planning studies done by Stanford's Satellite Center. The reports are listed in the references and are available upon request.
While many systems have been developed for dispersed markets, research has found that the systems illustrated here are the most cost effective.
The rural market is best served by usage of high-production, low-cost modern technologies. Choosing from existing product lines, rather than seeking to develop new technology, brings the advantage of mass production efficiencies for consumer products in addition to low prices for excess capacity in existing national and international networks.
a. Community Telephone Service
Rural service is provided most efficient by a cellular tower site centrally located within a service area covering a radius of 20 km to 40 km, depending on local terrain. This tower site should be optimally located near a market town or local community having reasonable access to a tower, hill, or mountainside.
This central site supports a cellular radio telephone base station and controller to route local calls or transfer outgoing calls by satellite or radio relay. Selection of GSM (or DAMPS in a few nations) provides competitive suppliers for these radio bases. The $3,000/channel is for an 8-channel GSM system that can be competitively purchased for about $24,000. Outgoing calls are linked via satellite to a continental hub station or relayed by radio towards a national fiber connection. The VSAT alternatives are competitively priced at $3,000.
These facilities are located at the technical service center for all phone service within a 25 km to 40 km area, typically a county or other district. In sparsely populated nations the area may contain in twenty or thirty communities and 30,000 to 100,000 inhabitants. In Bangladesh, India, Pakistan and China, it may contain up to a million rural inhabitants.
Service to the public is provided through stand-alone GSM public pay telephones throughout the area and not in concentrated telecenters. The pay telephones are located in shops, schools, clinics, markets and community religious centers round the area, minimizing the distance the public must walk and thus enhancing efficient communication. The telephone is in the care of a local owner who makes change, assists new users, fetches recipients for incoming calls and shares in the profits and added traffic brought to the site.
The pay telephones are equipped with coin slots for the local currency (or tokens). The majority of local calls are made by occasional users who are not in a position to prepay for use of the phone for emergency calls. The phone also has a magnetic card reader that accepts normal international charge cards, which are read at the pay telephone and then verified and linked by the VSAT connection to world credit networks.
With 5 to 10 cents per minute for local calls and one to two hours of calls a day, each pay telephone can normally bring in $2,000 to $4,000 per year in local currency, providing income to the phone monitor and to the Central cellular facility and staff. One hundred telephones in the coverage area would earn about $300,000 a year over the service area, more than enough to cover the capital investment in equipment and staff. The rural service would be fully self-sustaining, and issues such as local taxes, lower calling rates, and the division of profits between the phone monitors, the county or district corporation could easily be resolved by community dialogue.
The card reader on the telephone charges local users for national and international calls. In most regions of the world, such calls can cost $1.00 to $3.00 a minute even though once a fiber connection is reached, the cost to carry the call to its destination is 25 to 50 cents a minute. Just four minutes a day of national and international calls would generate an added $3,000 to $6,000 in addition to revenues from local calls. International charge cards have the added benefit of earnings in "hard" currencies. Such earnings can provide confidence to international financiers or lenders, hedge against variations in national currencies, and can provide the local community owners with international accounts to support trade in other areas.
However, while the above hardware and pricing is common in the developed world, there is a lack of effort in extending such systems to the rural communities of the world and a reluctance to allow the benefits of the cost reduction to be distributed throughout the local community.
b. Community TV Service
Another service that is potentially important to the rural communities of the world is television service. The advent of digital television has created an opportunity for "narrowcasters" that has not yet been even offered to the various rural populations around the world. Digital TV has increased eight-fold the carrying capacity of today's C-Band satellites. One transponder, renting for $2 million per year can now carry eight channels to 3-meter diameter TV dishes instead of the one channel possible with earlier FM-TV analog technology. Digital TV reduces the annual per channel cost to $250,000 to $325,000 or $80 per hour on the average and $125 per hour during prime time.
Continental coverage at $125 per hour and the dramatic reduction in the cost of home video filming equipment brings the TV media within the reach of local production and rural regional distribution networks. The AM radio media in the last decades has come under the control of local community programmers and broadcasters. Today there is the real possibility for a local operator to do the same with TV production.
In the developed world, digital TV has been concentrated on Direct Broadcast Satellites (DBS) which distribute pay TV to homes through the new, expensive, rain-plagued Ku-Band satellites. The door is open for rural communities to employ the under-used C-Band satellites, the 3-meter receive dishes in the rural cellular centers, and low-power UHF-TV rebroadcast transmitters from the cellular towers. The TV program is received by the end users on normal TV sets. With this low cost approach, the local corporation can support the costs of the dish and rebroadcast transmitter by selling TV sets. Given sufficient local interest, a mini-TV production facility, based on home video equipment can produce and broadcast local events. Just as Canada's Farm Forum interconnected communities with common interests in the 1970s and 1980s, the low cost digital TV satellites can do the same for rural groups of common interests in the next millenium.
IV. The Future
The technical capability which could underpin rural communications corporations has been available for a decade, and large-scale urban systems have been deployed in the last five years. However, the needs of two-thirds of the world have been ignored. Now that the price of applicable technology has dropped to one-twentieth of its cost fifteen years ago, the potential profit from rural users has become apparent to urban suppliers. We hope activities such as the Don Snowden Program for Development Communication can help encourage an approach that benefits local communities, rather than exploit them.
The Communications Satellite Planning Center uses computerized data banks to produce detailed regional telephone plans for developing nations. The geographic information allows the staff at Stanford to select cellular tower sites on the basis of terrain, population, location of market towns, and connection with other tower sites. These plans can be easily modified with local knowledge in order to account for community groupings, local government centers, and environmental factors not included in the general data.
Figures 3,4, and 5 show the network layouts of Henan Province and Tibet in China, and of Benin in Africa. Each circle on these maps represents a cellular tower site selected by techniques described above. The interconnecting lines represent radio lines of sight allowing one county to be connected to another and finally connected to a city on the normal telephone network. The planning program uses population density, desired telephone density and assumed charge rates to project staffing, number of telephones required, and internal profitability to each tower site in the locale. An example is provided in Figure 6 for Henan province. While the figures vary considerably from nation to nation, studies over 1997 and 1998 for Benin, China, Indonesia, India, Mexico, Guinea, Nigeria, and the Congo indicate high rates of return from all but the most sparsely populated regions of the world. The studies also indicate that only very small economies of scale are needed. One hundred pay telephones or more within a forty kilometer radius already makes rural projects efficient. The central tower equipment and the long haul through VSAT or radio link to fiber already in place add only about 20% to the cost of the basic telephone service itself larger number of telephones in the cell site will not reduce the per telephone cost significantly.
V. The Rural Corporation
Figure 5 illustrates the necessary facilities of a rural service. The service can be implemented as an independent local corporation operating within the framework of accepted local business and government practice. The local service internalizes the profits of local calls and TV rebroadcast services. It purchases telephone links at competitive world prices for national and international connections and exchanges TV programming with other communities served by the continental satellite.
The actual physical site of the office is located in a market town near a hill or structure suitable for the GSM and TV retransmit tower. The local engineer maintains this equipment and also repairs telephones and TV sets of local users. (The repair, as with all modern electronics, is done through replacement of failed cards by spares, sending the failed part for warranty replacement). The single tower covers a service region of twenty to fifty kilometer in radius typically with a customer base of 50,000 or more (and much more in most Asian countries). The central staff typically comprises eight to ten people: the owner and business manager, the engineer, and a sales force of two or three selling private telephones, TV sets, and other simple electronics. The rest of the staff maintains the public pay telephone services. Pay telephones are placed for the convenience of the users throughout the twenty to fifty kilometer service area. Each telephone is located in a public building in an optimal center of local commercial and/or social activity. Retail shops, community markets, roadside service stations, clinics, schools, churches, inns and government offices represent such optimal locations. Each telephone is monitored by the local facility owner or staff in return for a small share of the earnings, the convenience of the service, and attraction of users to his establishment. In this model, the population is most effectively served by telephones where people normally gather. "Monitors" need little training and are employed in their normal activity in the community rather than by the telephone service. The monitors themselves earn a little extra income and improve their own enterprise due to the ready availability of the phone to the public.
All phones in the region are serviced by the central office staff. The staff periodically visits each phone site to collect coins from the monitor or phone and to give the monitor his share of earnings from long distance card calls. The fiscal honesty of the monitors is ensured by central printout of records of all coins deposited in each telephone, by central collection of charge-card earnings, and by central control of the telephone. (It can be switched off if there are irregularities in its use).
The central facility uses GSM smart base station controller that can route calls locally, and the majority of calls would be from one town to another within the 30,000 km2 covered by the tower. Long distance calls to the national network are routed through a satellite VSAT station to the national and/or international hub station or relayed by radio from the next cell site to the national network. The rural corporation pays the local call charges and, if allowed by the government authorities, bulk purchases international access from one of the many competing international vendors who resell connection to the international land and ocean fiber systems.
In most areas the radio relay to a fiber hub is the most efficient and the VSAT would not be used for telephone calls. The VSAT remains the preferred mode for charging calls to international credit organizations for card use. A ready link for reporting transactions to centralized management, it is also a connection to worldwide data networks for web services to the community. The central facility can be expanded to include a web server through the GSM connections or to be a physical location for a "local Kinko's" for supporting local business and other computer applications.
In the central office there is also the possibility of receiving TV channels from a continental satellite on a 2-meter antenna and rebroadcasting the channels to viewers within the 30,000 km2 local viewing area. If there is interest in local programming, a small studio can be provided in the central facility using home video equipment for local broadcasts. The facility can also play videotape cassettes from local events or from national or international events.
The rural TV service is very low cost, well within the range and technical capability of existing local AM radio broadcasters in rural farm radio networks. Such a local corporation would be expected to supplement its income through sale of TV sets to the local community. It would technically and economically advantageous for a local Rural Telecommunications Corporation to combine the television and telephone support services in one facility to increase efficiency and responsiveness to community needs. The public telephone service generates faster earnings in the project. Community Television service would be expected to have the greatest impact in support of education and economic growth. Furthermore, added Internet access would be expected to grow as the basic telephone and TV services spurred economic growth in the community.
The package described above is economically viable and self-sustaining based on the fact that telephone earnings are able to pay off the purchase of capital equipment with a high rate of return. A community corporation with rights to offer national and international connections would be able to attract equity investment or secured equipment loans based on the efficient choice of equipment and statistics now emerging regarding the earning power of public pay telephones in rural areas.
In order to generate further investor interest, the Rural Corporation can emphasize that its main facility is in a community center, directly connected to international data networks and is manned 24 hours a day. The collection sites the pay telephones are in public facilities under control of monitors who share in the profits. All transactions are centrally recorded and made available internationally in real time. The facility is secure; the phones are of little commercial value if stolen because they can be deactivated remotely. About half of the earnings of each unit will appear in international accounts, including hard currency accounts that will pay for the initial investment oftentimes in less than a year.
A more subtle point that fosters investor interest is that the investment responds flexibly to meet demonstrated demand. The "starter set" is one centralized GSM radio and repeater able to serve eight simultaneous calls, typically sufficient to serve twenty to thirty telephones in the area. Expansion cards and telephones are added as need arises. If the use is there, the original investment has been paid off quickly and earnings from established telephones are used to buy the additional equipment. To the investor or loan provider the initial investment cost is low and there is no need for expansion investment as earnings can simply be reinvested in accordance with expansion needs.
A typical investment for one of the central facilities described above would be $50,000. Fifty pay telephones at $800 each would add $40,000. A fifty telephone system would earn $150,000 to $300,000 a year to cover the costs of capital, staff and expansion of service.
The groups interested in such a rural service opportunity naturally include the current national carrier. The opportunity to offer such service in the community interest depends on the ability of rural corporations to obtain the relevant licenses and to attract the capital. Potential sources of capital include the local community, rural banking or micro-loan programs, the manufacturers (who if allowed to sell directly to rural corporations will find a substantial market), local businesses, and NGOs that provide service in the communities. If the investment has a high rate of return, capital from the users who will benefit from the service is also an obvious source of initial funding.
The capital from existing telecom providers is available. However, for the aforementioned reasons, established urban corporations are not as likely to offer reasonable loan conditions to the rural community because the project comes from within the community or from organizations specializing on general (i.e. not limited to telecom) support of rural growth. The Stanford Center has developed detailed plans for a number of rural areas in the world and will be happy to develop similar plans for other areas in collaboration with organizations addressing the needs of the rural populations. These plans include network layouts, equipment recommendations, national and international hook-up options, and calculation of internal rates of return. These reports can serve as an integral starting point for discussions with decision makers and financial backers. It is in the best interests of two-thirds of the world's population that such efforts are utilized to develop rural communications infrastructure.
REFERENCES
1. "Model for Telecommunications Modernization in Developing Nations," Carlos Cordero, January 1997.
2. "Rural Communications in Africa," Executive Summary, Staff, July 1997.
3. "Rural Communications in Africa, Benin," Staff, August 1997.
4. "Television and Communications for Development in the Rural Regions of Latin America, the Peruvian Case, " Y.B. Kim, April 1998.
5. "Rural Telecommunications Modernization Project for Tibet, People's Republic of China," Vi Lui, Y. Zhou, L. Zhu, June 1998.
6. "Rural Telecommunications Modernization Project for Henan Province, People's Republic of China," June 1998.
7. "Rural Telephone Franchise Model for the State of Andhra Pradsh, India," Praveen Raj Singh, June 1998.
8. "System of Telecommunications for Nigeria," F. Dalle, Al Azim, June 1998.
9. "Rural Communications in Indonesia," J. Krisnanto, D. Rizal, M. Satyadi, LC Wang, W. Yasa, June 1998.