Scripta Varia

The Role of Silicon Valley in the Development of Broadband in the Developing World

Denis O’Brien
Chairman, Digicel, Ireland

Thank you very much, Monsignor Marcelo Sánchez Sorondo, and all members of the Academy here today. We are already seeing the rapid development of new technologies – such as artificial intelligence, virtual reality, algorithms and robots – that will change the world in ways we could have never imagined until recent years. The next five years are going to be seismic. How governments, regulators and industry players from all over the world treat these technologies will be very important in shaping the future countries in the developing world and their people. The unregulated nature of the internet has been credited with much of the innovation that has already happened. However, the days of a couple of students working out of a garage are long gone. And the internet and the digital age it supports are now dominated by a handful of very large corporate corporations. The internet giants, such as Google, Facebook, Skype, Amazon and many more, have argued from the outset that they should be exempt from local in-country regulation. They believe that they are a special kind of species and there should be a cloak of regulatory invincibility just for them, while the rest of us in the telecommunications and retail industry must obey the law and build networks, which they effectively use for free. Since the liberalisation of the telecommunications market in the 1980s, in nearly every country throughout the world, existing telecoms operators and new operators have invested heavily in buying telecoms licences, paying for spectrum and then, subsequently, out of their revenues, paying VAT, sales tax and universal service levies, as a percentage of their revenues. All of these sources of revenue are invaluable to governments, particularly in poor and developing countries. The telecoms industry is seen as a golden goose, the public policies imperatives for regulators are very important, particularly at this time. The tax base in developing countries with small economies is very, very narrow and more and more of the burden of chief tax collector is falling on telecoms operators.

Internet companies have shown that they really do not care that much about consumer protection or indeed privacy, or licensing. Their argument is that they only deliver their services over the internet. The question I posed is why should a different set of rules apply to Google, Facebook, Skype, as opposed to companies like Vodafone, Telecom Italia or MTN? To say nothing about how retailers are getting crushed, particularly in small economies, by Amazon across the developing world, and retail shops are closing everyday. All these internet companies live on the “dark side” when it comes to the payment of corporate taxes and sales taxes, nearly in every case there is some tax haven where they book their revenues to avoid taxation. I would call on all governments and regulators to face these challenges head on and change their thinking on how they address OTT players such as Facebook, compared to traditional telecoms operators. The GSMA, which supposedly is the representative of mobile operators throughout the world, has developed a policy of “same service, same rules should apply”. When you look at Skype, WhatsApp and other voice and messaging services, these are the same style service that mobile operators offer, except that they use the internet. There is virulent opposition from OTT to any form of regulation and this has contributed to an internet that has facilitated unbridled levels of cyber attacks on government services, monetary extortion, cyber bullying, personal trolling, fake news and interference in the democratic electoral process, and unprecedented racism. These are the other challenges that government and regulators face from an unregulated internet.

I like to study history, because it puts everything into context. OTTs are the new colonies, they are akin to the sugar planters in the Caribbean in the 17th Century, the rubber planters of South East Asia and so on and so on. They extract huge revenues from poor developing countries and send them back to Silicon Valley. They employ few, if any staff, in any country and they pay absolutely no taxes locally. They are above the law. They are the modern day conquistadores in my mind. To prevent being conquered by modern day empires, governments in the developing world and regulators need to apply to bring OTTs into the regulatory framework, in order to protect national revenue, tax revenues, their GDPs and a flight of spending power from their economies, through a lack of regulation. If you are a telecoms operator anywhere in the world, the OTTs pay nothing to go on your network; they ride for free of costs, all the networks and have an unprecedented free distribution model. They also use this approach on how they deal with governments; they do not pay them either.

My company Digicel is the largest school builder in the Caribbean in modern times. In Haiti we have built 175 schools since 2010 and the earthquake there. We have 65,000 children going to schools in Haiti, which we have built. We have trained teachers and we have pushed first class internet access into those schools. You contrast this with the corporate behaviour of Google, Skype and Facebook, and you can see a difference in approach. Because of the decline in voice and SMS volumes, governments in the 26 countries in the Caribbean are receiving less tax revenues. The direct impact can be seen in VAT and general sales taxes, which are down 30% over the last three years. The reason for these declines is because customers are using OTT voice instead of mobile switch calls. WhatsApp minutes grew 100% in our last financial year and in September alone there were 250 million minutes of WhatsApp calls. WhatsApp, because it is over the internet, obviously there is a de-minimised charge for that because they are using such little data. But it is the impact on the local governments, particularly Haiti, that is absolutely startling. Over the last five years we have agreed to pay a tax of 5 cents for every call that goes into Haiti. That has been generating 25 million a year for the government of Haiti that they put into education services, where the total budget is around 250 million a year for 10 million people. Because people use WhatsApp, their own regulators, they do not pay the 5 cents tax, the government has seen its revenue, from this just one source, go down from 25 to 16 million in one year. If you buy a 10,000 dollar media campaign in a country like Jamaica, from the local newspaper, there called The Gleaner, the government of Jamaica gets 1650 dollars (i.e. 16.5% VAT), plus The Gleaner is a profitable newspaper and they pay corporations tax. However, if you spend 10,000 dollars on Google for advertising on Adwords, the government does not get the 1650 dollars in VAT, which helps maintain the social services in Jamaica and also they do not pay any corporations tax because they never fess up how much corporate tax they make in a country like Jamaica. Google are going to put large local media companies out of business. Google are a rare species in the business world, as they do not pay any taxes or employ anybody locally in the Caribbean. Politicians realize that if the local media companies go out of business, if in Jamaica, for example, The Gleaner cannot afford to pay for real journalism, if all you have is fake news, then the net result is that democracy becomes seriously fragile.

The UN Broadband Commission’s objective is to come up with a strategy and recommendations under a new deal where governments, telecom operators, regulators and OTTs all have to come together to create a strategy to bring broadband to the next four or four and half billion people who do not have broadband today. We have just completed a torturous six months and we have made our recommendations to the UN Broadband Commission in September under the new deal. But, unfortunately, despite our best efforts, Facebook and Microsoft blocked any more meaningful recommendations, including revenue share and the financing and actually how we would finance new broadband networks with participation of OTTs. In my opinion, as part of any new deal, all network providers, whether they are telecoms operators or Silicon Valley companies, need to give up some portion, a tiny portion, of their revenue from advertising and OTT services, so that they can fund broadband in the developing world. There is deep resistance from Silicon Valley and OTTs, including Microsoft, for any share of revenue to be given to this. They want to keep their existing business model intact and you must question whether they really care about the four/four and a half billion people that do not have access to broadband. A huge amount of capital investment needs to be sunk in building broadband networks, anywhere from 100 billion to 150 billion very, very quickly. And, this could be done using drones and balloons but, you know, they are not really the full solution.

Nicholas Negroponte has spoken to me about low-orbit satellites – absolutely! – but it is a mixture of all different technologies that are available. At the end of the day, broadband is a human right, but unless governments start making available spectrum for peppercorn amounts of money with strict roll-out obligations for broadband and OTT players work on the basis of revenue share, there is going to be no real change in the world we live in today in terms of broadband penetration. Who is going to build a broadband network in Burkina Faso or rural Chad? Telecom companies cannot do this on their own and there is no business case. But if Silicon Valley plays an active role in funding these new much-needed broadband networks, then we have a solution. Thank you.

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