Tue | Jan 25, 2022

Editorial | Technological change and the future of the Universal Service Fund

Published:Tuesday | May 7, 2019 | 12:00 AM

The Universal Service Fund (USF), in 2012, replaced and assumed the mandate of the Universal Access Fund, which was set up in 2005. Today, the future of the USF is under threat. The Fund was set up to collect and manage a service levy from the companies operating in the local telecommunications sector, on international calls terminating in Jamaica.

The broad objectives of the Fund included: the creation of community access points to provide broadband service to citizens; distribution of computers and tablets in schools to prepare students for the digital age; and the general facilitation of less wealthy citizens to access the internet. Since its establishment, well over $20 billion have been collected and spent in meeting these objectives. In the absence of a comprehensive and independent impact assessment of the overall programme, it is difficult to pass judgment on its success to date. The government should immediately initiate such an assessment.

While there was no universal joy from the telecommunications companies at the time of the Fund’s establishment, there was a broad national support. Unfortunately, much of that national support has been weakened by the recent documented cases of alleged fraud, nepotism and poor governance.

These egregious acts are not, however, the major threat to the future of the USF; that comes from technological and price changes, resulting in a sharp drop in revenue. This trend has been underway for some time, as customers migrate to using the much cheaper “over-the-top” technology, such as WhatsApp, Skype and Magic Jack, to make international telephone calls. Unless a new source of revenue is identified, inflows to the USF will continue to decline.

For 2019, the revenue into the USF is projected to drop by 29 per cent. With the committed level of spending underway, the Fund is expected to end the year with a deficit of $660 million. If there is no change in policy or new revenues sources, the Fund could well end up as a charge on the Budget in a short while.

The technological challenge that the USF is facing is a global phenomenon which is not likely to be reversed anytime soon. Some countries have addressed the issue by applying a tax or charge to the use of social media type apps to fund internet access for the wider public. Jamaica has not had a full-fledged debate about using general revenue to fund public access. Such a debate now would be useful.

The poor public image of the Fund, due to the loss of trust, will make it very hard for the government to justify putting tax payers money into the USF as currently structured. The government should act now to restore the image of the USF and to start examining possible future sources of funding.

SOVEREIGN WEALTH FUND NEEDED

To fund long term public good projects, like those flowing from the USF, the government could use the US$1.6 billion flowing to its coffers, with the closure of the PetroCaribe Development Fund, and the projected $5.5 billion divestment proceeds from the Wigton Wind Farm as seed capital for a new Sovereign Wealth Fund.

Such a wealth fund would require adequate protection from the constant raiding from the Ministry of Finance to fund the annual Budget; a fate suffered by the Capital Development Fund, financed by the Bauxite Production Levy. Any new Fund would require very strong legislative, and broad-based citizens protection. The Minister of Finance may well cast his eyes to such a Sovereign Wealth Fund for resources for disaster risk financing going forward.

Despite the sharp fall in revenue, the general public will likely be reluctant to pay additional taxes to fund the USF, given its current appalling public image. The recent review by the International Monetary Fund (IMF) of the implementation of the Stand-By Agreement, which expires in November 2019, highlighted the need for urgent action by the Government on the issue of corruption and the theft of public funds. They called for urgent and immediate action to reform public bodies, particularly the appointment of boards, to ensure competent people are selected.

As the USF faces what may well be an existential crisis, the government may well look to the USF to start the implementation of the serious reforms of public bodies that the IMF board strongly recommended.