PROGRAM INFORMATION DOCUMENT (PID)
CONCEPT STAGE
February 14, 2014
Report No.: 86371
(The report # is automatically generated by IDU and should not be changed)
Operation Name
Region
Country
Sector
Operation ID
Lending Instrument
Borrower(s)
Implementing Agency
Date PID Prepared
Estimated Date of Appraisal
Estimated Date of Board
Approval
Corporate Review Decision
I.
MH: Second ICT Sector Development Policy Operation
EAST ASIA AND PACIFIC
Marshall Islands
Telecommunications (100%)
P146201
Development Policy Lending
MINISTRY OF FINANCE
Republic of the Marshall Islands
Ministry of Finance
February 21, 2014
April 7, 2014
May 29, 2014
Key Development Issues and Rationale for Bank Involvement
1.
The Marshall Islands is one of the least “connected” countries in the world. There is
a single service provider, the majority state-owned National Telecommunications Authority
(NTA). According to the latest available data about 35 percent of the population subscribes to
ICT services, while some urban areas have communal WiFi hot spots. Mobile phone penetration
is around 26 percent of the population. Less than 2 percent of the population subscribe to an
Internet connection. Mobile broadband is not yet available. Total broadband Internet1 take-up is
approximately 520 subscribers, or around 1 percent penetration (although only 120 subscribers
have subscribed for speeds of 512kbs or greater).2 This is despite the fact that Majuro and
Kwajalein are connected to a 10 Gbps capacity fiber-optic cable system (HANTRU) that links
the Marshall Islands to Guam. Cable capacity is significantly under-used, in part due to the
absence of mobile broadband (typically the fastest-growing driver of data usage) and to the
reliance on a single service provider.
2.
Limited connectivity imposes high business and social costs, including the isolation
of Outer Island communities and missed opportunities for economic and social
development. The main reasons for the limited and costly telecommunications service in the
Marshall Islands include the high costs of connecting remote and sparsely populated islands and
the monopolistic market structure. Reforms implemented in similar countries, including
elsewhere in the Pacific such as Fiji, Samoa, Solomon Islands, and Vanuatu, demonstrate
linkages between market-based reforms and improved economic and social indicators.
NTA classifies broadband Internet as speeds 128kbs or greater; the International Telecommunications Union’s definition of
broadband is a minimum download speed of 256kbps.
2 NTA has been requested to update these data for 2013.
1
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3.
Sector experience in comparable countries and analysis of the Marshall Islands
economy demonstrates that market entry can be expected in a variety of forms following
liberalization of the ICT sector. As a result of the proposed termination of the current NTA
monopoly, there would be scope for new service providers to enter the market in a number of
ways, ranging from small private providers with minimal infrastructure of their own who resell
calling and internet services purchased at wholesale from NTA, through to entrants with more
significant infrastructure of their own such as switches and network electronics, and full service
mobile network operators. As a competitive market gradually evolves, monopoly pricing will
cease and prices will trend towards cost. Consumers will benefit from this competitive dynamic
through lower prices and improved service levels, both in the range of service offerings and their
quality. Traffic volumes on domestic networks and on the HANTRU cable are likely to rise,
thereby improving the commercial viability of the cable. Evidence from other liberalized
markets demonstrates that with the introduction of mobile broadband services, data traffic will
grow at rapid rates year-on-year, reducing per-call fixed costs of backhaul networks.
4.
The forms that new entry will take will also change over time with technology shifts
continuing to create new opportunities for market segmentation. For example, mobile
operators in many markets are adding fixed broadband service offerings by installing modems in
customer premises that mimic the operation of a fixed landline. Micro cells can support cellular
service to small communities or groups of users without the need to provide full coverage by
conventional cell towers. To underpin this diversity, the licensing system administered by the
regulator will be flexible and will impose minimal costs on small-scale entry while demanding
more comprehensive standards of network operators. The regulator will also ensure that existing
core infrastructure such as cables, ducts and poles and cell towers are where feasible shared by
several operators to avoid wasteful duplication of these facilities. At the same time, the regulator
will monitor the behavior of all market participants to ensure that consumers are made aware of
the differences between various retail service offerings and that consumers receive fair treatment.
5.
The NTA presents a significant fiscal risk for the Government. The Marshall Islands
section of the HANTRU cable was installed in 2010, with a construction cost of $21.5 million,
and financed by an $18.5 million loan to NTA from the United States Department of
Agriculture’s Rural Utilities Service (RUS), unconditionally guaranteed by the Government of
the Marshall Islands, and around $3 million financed by NTA itself (of which $2 million
comprised a grant from Government to NTA).3 NTA’s financial situation has been deteriorating,
as a result of the combination of static revenue growth and the indebtedness of the company to
both the Government and to RUS. The company faces a number of serious financial challenges
and has on several occasions sought financial support from the Government in order to meet debt
payments and operating costs, resulting in unbudgeted transfers in a context where Government
subsidies to the state-owned enterprises sector are running at around 8.5 per cent of GDP.4 NTA
is unable to consistently meet its debt service obligations from operating cash flow and will not
3
NTA has received two loans from RUS, both guaranteed by the Government. In addition to the 2010 loan for the HANTRU
cable, a loan of $18 million was made in 1989, at the time NTA was established, to finance investments in the domestic network.
The 1989 loan has been serviced regularly by NTA and, with principal repayments, the principal amount has reduced to
approximately $10.5 million.
4
The CPS recognizes that poorly performing SOEs present a fiscal risk for Government while also constraining growth through
providing poor services and charging high prices. While NTA is not strictly speaking an SOE, in practice its behavior is
indistinguishable from that of an SOE notwithstanding its minority private shareholding.
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be able to undertake the continuing investments that are required to improve access and services
in line with growing demand.
6.
The Government is addressing these fiscal risks in two ways: first, by liberalizing the
market and thereby growing the use of telecommunications services and increasing traffic
volumes on the cable system; and second, by exploring a restructuring of NTA that will result in
the cable system assets and the associated construction debt being removed from NTA and
transferred to a new government-owned open access cable company. While the restructuring of
the cable system assets and liabilities will result in the Government assuming primary liability
for the construction debt in place of the secondary liability the Government currently faces under
its guarantee of the debt, the Government will achieve offsetting benefits through: (a) the
removal of an uncertain and unpredictable debt service payment risk; (b) the opportunity to
improve the financial viability of the cable system under market liberalization; and (c) the
improvement of the Government’s investment in NTA as a result of a strengthened balance sheet
and enhanced liquidity position.
7.
Responsibility for the ICT sector. Following the establishment of the Office of the
Regulator, responsibility for the ICT sector is split between the regulator and the Ministry of
Transport and Communications (MTC). MTC is responsible for the development of major sector
policies while policy implementation is the responsibility of the regulator. Key to this division
of responsibilities is the independence of the regulator in carrying out its functions, which is
enshrined in the Communications Law. The regulator also has autonomy in administering the
regulatory system, subject only to rights for affected parties to appeal in limited circumstances
against a regulatory decision to the courts.
8.
Sharing regulatory tasks on a subregional basis. Other countries in the region
(Federated States of Micronesia and Palau) are considering the establishment of independent
telecommunications regulators. There is, therefore, the potential to reduce the costs to each
country of regulation and to enhance sharing of regulatory experiences through the establishment
by the Marshall Islands and neighboring countries of a sub-regional body to which a national
regulator could delegate specific activities. The proposed new Communications Law allows the
Government, after consultation with the Marshall Islands regulator, to authorize the regulator to
delegate certain of its functions to such a sub-regional body. Notwithstanding any such
delegation, however, overall responsibility for sector regulation remains with the Marshall
Islands regulator.
9.
The Government has chosen to embark upon ICT sector reform as a component of
broader economic and social development. The country’s long-term development objectives
are set out in Vision 2018, the Marshall Islands Strategic Economic Development Plan for 20032018. This vision was developed through an extensive consultative process starting with the
Second National Economic and Social Summit and then followed by extended deliberations by
various Working Committees established by the Cabinet. The second and third segments of the
Strategic Development Plan will consist of master plans focusing on major policy areas, and the
action plans of Ministries and Statutory Agencies. These documents will show programs and
projects together with the appropriate costing. It is also the Government’s intention for all Atoll
Local Governments to develop action plans tailored towards the achievement of the National
Vision.
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10.
The Government is committed to liberalizing the ICT sector and supporting the
introduction of competition. The national ICT Policy adopted in 2012 provides for market
liberalization and the proposed Communications Law gives effect to the policy reforms. The
objective of the sector reforms is focused on increasing private participation and investment in
the provision of ICT services, strengthening the incumbent to operate in a competitive
environment, and introducing competition. The Government recognizes that changes are needed
to lead and implement its vision for the sector, in terms of market structure, regulation and the
capacity of institutions. The pillars of the reform program are:
(a) New legal framework. The proposed Communications Law addresses a range of topics
related to market opening including (but not limited to): a unified, technology neutral
licensing regime; establishing an independent, industry funded regulator for the ICT
sector; providing for wholesale access regulation, including access to infrastructure;
provisions dealing with anticompetitive conduct and customer protection; technical
regulation, including spectrum management and numbering; and sector monitoring. The
Government is proceeding with the appointment of the members of the Office of the
Regulator, to be followed by the appointment of key staff.
(b) Reform of the incumbent operator. NTA has indicated that it lacks access to adequate
financing for infrastructure upgrades and expansion, which has limited its ability to
increase access to services. It has also indicated that it would benefit from private sector
involvement to strengthen its operations and prepare it for competition. The Government
will undertake an analysis of possible options for obtaining further private investment in
NTA, including the sale of a part of the Government shareholding to a new cornerstone
investor.
(c) Introduction of competition. The Government is committed to opening the market to
competition through an open process pursuant to the new transparent licensing regime
administered by the regulator. Based on international and regional experience, it is
anticipated that the introduction of competition will: (i) encourage NTA to improve its
operational performance; (ii) increase access to services, including driving demand for
international connectivity services and improved access to services in the Outer Islands;
and (iii) create downward pressure on prices for telecommunications services.
II.
PROPOSED OBJECTIVE(S)
11.
The objective of the Operation is to continue support for the Government’s ICT sector
reform program and thereby to increase the availability of ICT services and enable the more
widespread application of ICT services supporting improvements in economic and social
development in the Marshall Islands.
12.
Key beneficiaries. The main group of beneficiaries will be the users of
telecommunications services who will benefit from lower prices and increased access to modern
communications, as a result of sector liberalization and the introduction of a modern regulatory
framework that supports a competitive environment and facilitates new investment. Other
benefits will be fiscal: the Government will experience fiscal relief from the restructuring of
NTA (including the RUS debt associated with NTA’s cable investment).
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13.
The proposed operation is the second in a series of three operations in support of the
Government’s ICT sector reforms and the Country Partnership Strategy FY13-16. The
operation builds on progress under the first operation, including the anticipated enactment of the
Communications Law, and helps to strengthen economic governance through the establishment
of an independent regulator with resources and a mandate to administer economic regulation of
the telecommunications sector. The operation also supports the opening of the
telecommunications market to competition with resulting benefits to living standards through
reductions in the cost and increases in the availability of telecommunications services and
improvements in the delivery of Government services through greater use of online provision.
III.
PRELIMINARY DESCRIPTION
14.
The proposed Operation is the second of a series of three DPOs. The Program
consists of three ICT Sector Development Policy Operations covering the period 2013 to 2016.
The first Operation focused on the basic policy and regulatory foundations for ICT sector reform.
This second Operation will focus on the implementation of the Communications Law and the
establishment of the Office of the Regulator. The third Operation will focus on NTA
restructuring, operationalizing the new Regulator and opening the ICT market to competition.
This programmatic approach suits the gradual nature of the policy, legal, institutional and
structural reforms that need to be implemented and sequenced appropriately to meet the
development objective. Consistent with the policy context analyzed above, this section describes
the overall approach of the proposed Second ICT Sector Development Policy Operation. The
multiyear programmatic series of Operations will assist the Government to implement key
aspects of its reform agenda for the ICT sector, while providing a predictable flow of resources
in a challenging fiscal environment.
Poverty and Social Impacts
15.
The Project is expected to contribute to poverty reduction by reducing transaction
costs and generating opportunities for income-generation, though the lack of significant
data constrains understanding of the likely impacts of telecommunications liberalization on
poverty and social conditions in the Marshall Islands. Limited data are available regarding
the nature and incidence of poverty in the Marshall Islands. The most recent census was
completed in 2011, but the results are not yet available. The only Household Income and
Expenditure Survey was carried out in Marshall Islands in 2002. A Community and
Socioeconomic Survey was completed in 2006, and a Demographic and Health Survey was
carried out in 2007. These provide cursory information regarding the level and geographical
incidence of poverty. No further detailed poverty surveys are currently scheduled. Without
detailed household expenditure and income information it is difficult to quantify the effects that
telecommunications liberalization will have on poverty. Globally, numerous reports, including
the World Bank’s ICT for Development Report (2010), cite economic impacts of
telecommunications liberalization including growth of mobile and broadband Internet. A recent
report on telecommunications liberalization in Vanuatu (Pacific Institute of Public Policy, 2012
(see www.pacificpolicy.org) gives an overview of broad economic and social benefits of sector
reform, particularly, the rapid growth of mobile telephony.
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16.
The Program supports the provision of public services within challenging fiscal
constraints. To adequately capitalize the CTF to sustainable levels by the time Compact grants
expire, the Government will need to achieve fiscal surpluses of around five percent of GDP
through 2016. While some scope exists for fiscal consolidation through improvements in the
efficiency of public service delivery, it unlikely that this target could be achieved in the shortterm without some reductions to financing of core public services. The budget support will help
the Government of the Marshall Islands achieve its objectives for fiscal sustainability over the
short-term, while not compromising service delivery, as options are explored through planned
reform programs to improve the allocation and technical efficiency of Government expenditure.
In the absence of such assistance, the government faces a difficult trade-off between substantial
cuts in public service expenditure in the short-term against inadequate capitalization of the trust
fund, potentially undermining future service delivery.
17.
International evidence demonstrates the potential for ICT liberalization to support
private sector development and job creation, and hence to the goal of shared prosperity.
The current level of performance by the ICT sector imposes high business and social costs,
including the isolation of entire island communities and missed opportunities for economic and
social development. The introduction of competition and the reform of NTA are expected to
lead to lower costs for ICT services and to increased access to ICT services in the Marshall
Islands. While the overall macroeconomic and growth impacts of telecommunications
liberalization have not been the subject of detailed analysis in Pacific contexts, market-based
reforms implemented in similar countries (including elsewhere in the Pacific), demonstrate
strong links between market-based reforms and improved economic indicators for rural and
isolated households through job creation and access to economic opportunities. In Vanuatu,
where competition was introduced in the mobile telephony sector in 2007, rural and Outer Island
respondents to a recent survey considered access to affordable mobile phone services to be
essential for business activity, and something without which it would be difficult to continue
sustaining business activities.
18.
Reducing prices and increasing access will provide nonmonetary but economically
significant benefits to poor households. There is strong evidence across the Pacific of high
willingness to pay for telecommunications access for noneconomic use. This indicates high
social benefits to a wide range of household types from reducing costs and improving access.
Market-based reforms can be expected to benefit poor households through reducing the drain on
constrained discretionary incomes from existing high charges, and providing a large consumer
surplus to new users.
19.
Improved ICT access will facilitate access to public and privately provided services.
Access to lower cost and more reliable telecommunications following market-based reforms is
likely to facilitate the provision of public services and increase equity of access between urban
and rural areas. Improved access to telecommunications can reduce perceptions of household
vulnerability in rural areas through providing direct lines of communication to health and law
and order services. Improved rural access through market-based reforms can also facilitate
greater access to financial services over the medium-term, depending on the introduction of
supporting technologies, further supporting job creation and expanding economic opportunities.
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20.
Impact on employment opportunities. Experience elsewhere suggests that employment
levels in the incumbent, NTA, which currently stand at around 100 relatively skilled staff, may
change in composition and number as a result of restructuring and skills realignment to prepare
for competition. Employment opportunities in new entrants, the Office of the Regulator, and
ancillary services will compensate at least in part for any employment reductions in NTA.
Overall, the number of structural redundancies (i.e., individuals who are unable to transition to
an alternative role within the ICT sector) is expected to be limited, particularly having regard to
the scarcity of sector expertise in the Marshall Islands.
Environmental Aspects
21.
The policy actions supported under the Program will not have a negative effect on the
Marshall Island’s environment or natural resources. The Operation is unlikely to cause
significant effects on environment, forests or other natural resources.
IV.
TENTATIVE FINANCING
Source:
BORROWER/RECIPIENT
IDA Grant
Borrower/Recipient
IBRD
Others (specifiy)
($m.)
0.0
3.0
Total
V.
Contact point
World Bank
Contact: Natasha Beschorner
Title: Senior ICT Policy Specialist
Tel: 5720+71264 / 65- -6517-1264
Fax:
Email: Nbeschorner@worldbank.org
Location: Singapore (IBRD)
Borrower
Contact: Mr. Alfred Alfred
Title: Secretary of Finance
Tel:
Email: finsec@ntamar.net
VI.
For more information contact:
The InfoShop
The World Bank
1818 H Street, NW
Washington, D.C. 20433
Telephone: (202) 458-4500
Fax: (202) 522-1500
Web: http://www.worldbank.org/infoshop
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3.0
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