Increasing Broadband Internet Penetration
In the OIC Member Countries
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VI.1.1. Promotion of investment of next generation broadband networksStimulation of network deployment and investment of next generation technologies should be
based on policies that reduce the cost of acquiring network equipment by operators. For
example, one approach is to reduce import duties and VAT on the acquisition of broadband
equipment. Taxes tend to raise the required pre-tax rate of return of capital invested. In
general terms, leaving aside the positive impact taxes fulfill in terms of their contribution to
the delivery of public services, they tend to also affect the incentives of a company to make
investments and reduce the supply of funds available to finance them. In industries such as
telecommunications that provide broadband services, a critical platform to deliver
information, public services, and ensure economic growth, taxation tends to reduce the level of
capital investment. Therefore, the government should consider an exemption of import duties
and maybe VAT for equipment to be used in deploying broadband services. Malaysia has
enacted such a policy in order to promote deployment of last mile broadband networks. The
tax exemption could be applied on a selective basis. For example, if equipment is acquired in
order to be deployed in rural and/or isolated areas, the exemption could be applied. On the
other hand, if the equipment is intended to be deployed in urban areas, the service provider
should pay the corresponding taxes and levies.
On the mobile broadband side, the deployment of 3G in the OIC Member Countries has been a
success. However, the increase in data traffic is putting pressure on operators to continue
deploying 4G technology. However, it should be considered that, with only recent advances on
3G deployment, operators in some countries would be reluctant to proceed towards deploying
4G before achieving a reasonable rate of return on the prior generation of technology. In order
to accelerate 4G deployment governments should consider the enactment of financial
incentives to operators. One of them is the extension of the tax exemption for the purchasing of
network equipment mentioned above. Beyond this, governments should consider reducing
some of the spectrum licensing costs that are incurred by operators. These measures will have
a negative impact on the operators’ willingness and ability to commit capital for the
deployment of 4G. While acknowledging that these measures are aimed at collecting additional
revenues for the country’s treasury, their impact should be evaluated also in terms of whether
they detract the country from accelerating its transition to new technology. Several
approaches exist that could reduce the cost of acquiring spectrum. One of them is to extend
spectrum license renewal payment policies. Another one is to implement spectrum auction
approaches such as beauty contests that reduce the cost of acquisition when compared to
conventional auction approaches.
Approaches combining regulatory holidays and direct subsidies tend to address the problem of
how to achieve high-speed coverage in rural and isolated areas (recognizing that for advanced
countries, high speed service is already provided in urban and suburban areas). Regulatory
holidays exempt incumbents that deploy fiber from the obligation of sharing their network
with competitors. Subsidies could entail co-financing mechanisms were governments invest in
deploying ultra broadband infrastructure in areas with limited return on investment. These
approaches are expanded in the section below.