Pushing water downhill: Considering ICT PPPs

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Students using new high-speed Internet in Tonga. Photo: World Bank Group

For private financiers, official government support to information and communications technology (ICT) projects might seem like trying to push water downhill. After all, isn’t ICT incredibly profitable? What’s the point of a public-private partnership (PPP) in this sector, anyway?

Here’s the rest of that familiar argument: Government should stay out of the way and let the private sector carry the communications sector; it is a waste of effort and inefficient to try to push forward something that has its own momentum. Like a rushing river, the naysayers conclude, ICT needs no help advancing down its inevitable course.

It sounds reasonable in theory, but in practice, that approach just doesn’t work. The government needs to guide the river down the best course for the citizens it serves, building a weir or mill to help the river provide maximum benefits to the people who need it. And, just as water is the foundation of life, communication technologies are necessary to prosper in today’s world. Knowledge is power. And specifically, access to markets is improved by mobile phones, as is access to banking services, finance, investment opportunities, and education.

Successful ICT strategies usher in jobs, empowerment and economic growth.

Regulatory tools can help
Governments can use regulatory powers to avoid ICT monopolies and improve efficiencies. We see a great example in the Democratic Republic of Congo (DRC), which has an open market and six mobile carriers. The DRC has 13 times as many customers per 1,000 people as does Ethiopia, which has similar per capita income levels but only one carrier.  

( Find examples of regulation in ICT on the PPP in Infrastructure Resource Center.)

Government can also encourage efficiency where markets might not. When several competing companies wish to install fiber optic cables, for instance, government officials may require those companies to install common facilities, such as ducts and jointing chambers, to reduce the inconvenience to the public. Similarly, when installing mobile networks, competing operators may wish to install separate masts for their own purposes, but government can mandate mast sharing arrangements. These activities also provide cost savings for the operators that should translate into better pricing for consumers, and therefore better penetration of ICT services.

As can PPP fiber backbone
ICT services can be significantly improved by the installation of a backbone of fiber optic cables allowing increased capacity and speed of service. In developed markets, ICT operators install their own backbones.

However, operators may not be willing to undertake the expense of installing such a backbone in developing countries and more remote areas where revenues may be less obvious. Here, government can use PPPs to make land available and to bring operators together to install such a system — possibly on an open access basis. This might equate to government building canals to bring the river to those parts of the country with restricted access to water.

Burundi provides a good example. Here, the government entered into a PPP with a consortium of local operators to build out and operate a fiber optic backbone, based on government-provided land and a government pre-purchase of capacity from the system to secure financing. Government support was specifically linked to extension of the network to lesser developed areas of the country that would not normally justify the investment of operator funds.

Haiti offers another good glimpse of the power of PPP. Here, the privatization of the telco was combined with a fiber backbone developed on a PPP basis, which commercial incentives alone might not have achieved. In the South Pacific, small islands work together with partners like the World Bank to create PPP arrangements for submarine cables and backhaul to different isolated island nations, where private ventures might not be tempted.

Similar structures were used to tempt submarine cable networks ringing Africa to link to some of the least profitable countries. Output-based subsidies have proven successful in difficult terrain like Nepal, and for vast land masses like Mongolia.

And lots more
ICT requirements of government, hospitals, schools, universities, offices, and a variety of services can be developed through PPPs. E-procurement enables the procurement of goods, works, and services by a government through an Internet-based platform, which lends itself to a PPP solution. When properly designed, it provides opportunities for a wider spectrum of the private sector to participate in government procurement. These types of PPPs are challenging because of the requirements of software updates, new technologies, and changing requirements.

Instead of rushing water, this is more like the water at the bottom of the well: sometimes a PPP is needed to draw the water up and put it to good use, especially where the soil is thirsty but the area is not well-resourced. Given the developmental and growth impacts of ICT, such forms of PPP are particularly viable and can provide significant value for money.

And now for the challenges
While the benefits of ICT PPPs are clear and the need is huge, the challenges, as with any PPP, are significant:
  • In developing countries and economies, there are those who benefit from the lack of information made available to the public. They may seek to undermine the relationship between the new telco services and their customers, trying to lock in clients to financing, input supply, or other relationships that would deny them the benefits of the new information. In other cases, they seek to dominate access to new capacity, buying up capacity, or ensuring pricing is unaffordable. These can act like ill-placed river walls that divert water away from those areas that need it most in order to benefit from the drought. When financing such projects, a full stakeholder assessment can identify such interest groups and allow preventative measures to reduce their influence. Open access regimes can help to keep pricing at a sensible level and assure that access is well distributed.
  • Incumbent telcommunications companies (telcos) can either be a force for good or operate like a mighty boulder in the middle of the river, sabotaging sailors’ best efforts at navigation. In one country, the recently privatized telco offered to be a core investor in a PPP for communications, only to undermine the structure, withhold its equity share, change the rules at various times during project development, and finally lobby for new regulations that would undermine the very deal it was supporting. The government insisted on the telco’s involvement, only to later expend significant time and money to manage it.
  • Government “optimism bias” plays an even more important role in ICT PPPs where relative costs are lower. In a fiber optic backbone, multiple ducts will normally be installed to meet future demand. However, the addition of extra fiber optic cables would impact the project’s financials and can undermine the benefits sought by forcing the project company to keep prices high, or to delay extension of the network to additional less-developed areas. But fiber optic cables represent less of an absolute cost than would, say, extra lanes on a road, or extra capacity for a power plant, and hence governments are often tempted to insist on such an inefficient investment.
All of these challenges can be overcome with careful preparation, a well-structured agreement, and the good faith effort to ensure that ICT should serve all citizens. 

“Nothing is softer or more flexible than water, yet nothing can resist it.” Lao Tzu


Jeff Delmon

Senior PPP Specialist

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