Universal service funds push rural connectivity in Africa, but hurdles remain

Telecom companies don't see such areas as profitable. With the population in these regions sparsely spread over large tracts of land, such areas would be capital intensive to cover. As a result, getting a mobile signal in rural Africa can be like striking gold.

"Rural connectivity still remains a big issue in this region; most service providers are concentrated in areas where they could recoup their return on investment," said Danson Njue, an analyst with Ovum Research, at the recently concluded East Africa Com held in Nairobi.

Some African countries have introduced universal service funds, which typically require profitable telecom companies to be levied about 1 percent or 2 percent of profits, to be spent on rural connectivity, mostly on a shared infrastructure.

According to Ovum Research, Tanzania has led the effort to connect rural mobile subscribers.

"We are seeing a lot of activity especially in Tanzania where the government through the regulator is making use of the universal service fund and trying to boost connectivity in the rural areas," Njue said.

In March 2013, the Tanzanian government-sponsored Universal Communications Service Access Fund (UCSAF) worked with Vodacom, Airtel, Tanzania Telecommunication Co. and Tigo to provide telecommunication services to 52 wards in the country, in a project valued at US$9.85 million.

USCSAF also did a similar project with the telecom companies to extend telecom services to 112 wards in unserved and underserved areas in April this year, in a deal valued at $9.1 million. For both projects, funds were collected through a special levy, or tax, set up by the government through the country's telecom regulator. The telecom companies and the government came to an agreement on the amount of the levy and how it was collected.

The Telecommunication Service Providers Association of Kenya (TESPOK), meanwhile, has laid down rules that will govern the contribution and use of the universal service fund for the country. Rules include regulation about who sits on the universal fund board and how the funds are distributed to participating companies helping in rural connectivity.

TESPOK reports that the USF has collected over US$27 million, exceeding their expectations. TESPOK is waiting for Parliamentary action on a legal framework for fund management.

Twenty-three African countries have set up the Universal Service Fund, according to a report released last September by the GSM Association. However, many of the funds have not actually been disbursed on projects. The GSMA report notes that half of the world's inactive universal service funds are located in sub-Saharan Africa (SSA).

"Out of all the funds surveyed within SSA, Ghana and Uganda appear to be the countries that come closest to reflecting best practice in the development and administration of USFs," the report said.

Meanwhile, there are opportunities to fund services for which there is demand, Ovum Research's Njue said.

"There are certain services which are in high demand in the rural areas, such as m-Health, and E-government and m-Agriculture, that the operators can and should create a business case for," Njue said.

He urged governments across Africa not to sit on money that has been collected thus far in universal service funds, but use it to push rural connectivity.