Tuesday, November 06, 2007

Telecenter Sustainability - Myths and Opportunities

This article by Francisco J. Proenza is reprinted in part here, due to the interest of so many NGOs in telecenters. This posting carries the first part of the article: "Myths" and the second part "Opportunities" will be posted at a later time. If you do not wish to wait for the second posting of this series, you will find the link to the entire article [including footnotes, which are omitted here] at the end of this posting.


A Cybercafé is not a telecenter
It is an unfortunate but common mistake to disregard cybercafés, because they are "not development oriented". These small businesses have been expanding very rapidly worldwide, are sustainable as a system, and there is much to learn from their experience.

When we discard cybercafés we are ignoring the most replicable and sustainable governance structure known - i.e. the privately owned business, and narrowing the range of possibilities.3 Telecenters operated by institutions using perhaps the second most commonly used governance structure, i.e. not for profit non-governmental organizations (NGOs), by tradition rely on donor funding, at least to cover investment costs. No wonder we have a hard time finding telecenter models that are sustainable!

Cybercafés often provide as many services as other types of telecenters. They train their clients (for example, in basic computer skills and office applications) - either in response to local demand or to stimulate demand for their services. On the other hand, many NGO run telecenters are in practice "cybercafés " in disguise; they do not offer any more valued services than a typical cybercafé, and any excess revenues (from donor funding or fees) are distributed to operators as staff salaries.

By ignoring cybercafés we also miss an opportunity to learn important lessons about policy and managerial approaches that contribute to sustainability. Why, for example, have cybercafés spread rapidly and extensively throughout Lima, Peru, where they are known as cabinas públicas, whereas the same does not happen in other countries - e.g. Brasil and Jamaica? Mainly because Lima offers a combination of important features that facilitated telecenter development; that are not always present elsewhere, and that can help guide policy design in other countries. The features include:

. enormous and densely concentrated demand, in the form of young low-income people
with limited access to affordable telecommunications facilities;

. large number of well trained engineers with limited employment opportunities enabled the development of low-cost repair and supply of parts industry based on PC clones and pirated or low-cost software;

. imminent threat and eventually real competition, resulting from a privatized
telecommunications sector with limited exclusivity period that ended in 2000, resulting in a rapid fall in the cost of connectivity;

. a major awareness campaign launched by an NGO, the Red Cientifica Peruana, during the early days of Internet development, helping many young entrepreneurs learn of the potential benefits of ICTs. At the operator-level, the behavior of cybercafés is also instructive. Donor-driven telecenters have a weak motivation to be economical. They may invest and spend more than they can afford on superfluous services; e.g. fancy buildings, more than one attendant per shift, highly educated costly operators, and products that are not affordable or desired by customers. In contrast, a well-run cybercafe exhibits the following features:

. The local market demand determines the number and quality of services provided. The service provided is usually the basic minimum, mainly computer-Internet connect time. Refreshments, magazines, diskettes and related supplies, and Voice over IP are other common services. Although there are some departures from the norm4, supplementary services seldom account for more than 20% of total revenue.

. The training given to telecenter attendants is very basic. Whomever sets up the business needs to know about computers and how to set up a LAN, or needs at some point to hire someone who does. But everyday attendants are few in number (e.g. one person per shift for up to 30 computers) and are generally low-salary staff with a suitable but limited level of education.

. Software provided is minimal, depending on client demand for applications. Either pirated or free software is used, or software licenses are purchased at low-cost, for example through online auction sites.

. Where competition among telecenter operators is high, as in Lima, prices fall to very low levels - as little as US$.50 per hour of service. Interesting things start to happen: the operators who survive are those who find a way (through location, quality or variety of services) to fill in their cybercafés all of the time (65% or higher occupancy rate), and are in constant search for ways to keep expenses low by relying on special situations like, for example, running their businesses from their own home, or sharing overheads between different business activities (e.g. by combining their cybercafés with other enterprises such as, for instance, selling computer parts and supplies).

Cybercafés sometimes have a bad name because they are associated with upscale businesses serving tourists. While these types of telecenter meet a market need, their development impact is limited. In practice, however, where cybercafes are ubiquitous and competition is intense, small entrepreneurs set up shop in areas serving low-income communities. At US$ 0.50/hour in Lima, 20 hours of Internet service every month can be purchased for US$10 or US$120/ year. This is hardly an insurmountable obstacle in a country with an average per capita income of about US$2,100. (Per capita income figures are from World Bank 2001.)

Success is assured through community ownership

The notion of "community ownership" is vague, yet it is frequently the alleged driving force behind telecenter experiments. Well-meaning donors that provide initial funding but let their projects start running on loose terms regarding ownership and control over resources are courting disappointment and failure.

Like any organization, a telecenter must have working rules to ensure sustained satisfactory operation. Its governance structure needs to be clear, must stimulate the commitment of the operator working at the local level, and must be compatible with the objectives of the center and its sustainability. Someone needs to be responsible and accountable for repairs in the event of a breakdown, hiring and firing staff and paying their salaries or for recruiting and supervising volunteers, opening the center on a regular schedule, helping customers and making sure that their needs and aspirations are met by the center, and protecting the equipment and premises.

The reason commercial telecenters are so resilient, as a system, is that if a telecenter owner is not committed he will surely fail while others take over to serve his market. In contrast, telecenters "owned" by municipalities or otherwise heavily influenced by politicians tend to give headaches because a mayor's foremost concern is to keep in good standing with the electorate. Financial sustainability is of secondary consideration. This, of course, less of a consideration in high income countries where the political significance of telecenters is not so large.

Grass roots organizations and NGOs are excellent vehicles for reaching the target group. Because they rely on external fund raising, some are able to offer the kinds of specialized services - e.g., geared to the disabled or to women - that disadvantaged people need most from a telecenter, but which would hardly be provided by firms on a for profit basis.

Furthermore, the social interaction that occurs through joint action for a common purpose, offers the potential for contributing significant to social and economic development, over and above the direct benefits associated with using the new technologies. These spillover or external benefits will become increasingly important as communities of disenfranchised groups facing common problems expand and develop; i.e. as they learn to trust each other and work together through a combination of face to face encounters and online interaction.

Not-for-profit organizations, however, tend to be most effective in short-lived single-cause action; less so when concerted prolonged effort is required. Because the managerial and financial requirements of telecenters are not complex, these shortcomings may be overcome through training and institutional upgrading primarily geared at improving governance, enhancing staff capacity to keep records and manage resources, and making sustainability a central objective of telecenter operations from the outset.

Set up the right policy framework and the market will provide

A stable macroeconomic environment, competition in the telecommunications sector, and a suitable regulatory environment, is necessary to make ICTs more accessible to the public at large, but other factors may inhibit commercial telecenter development.

A key issue is whether there is a sufficiently large market to stimulate entrepreneurship in the cybercafé business. Telecenter markets, however, are highly localized and sensitive to distance. In Peru, customers use 2.3 cabinas on average, and 44% of the time they use cabinas located within 1 km from their home, 70% within 5 km (Proenza, Bastidas-Buch and Montero 2001:23). If a city has no areas with a large concentration of young low-income people having no alternative low-cost means of connecting to the Net, self-sustaining commercial telecenters will not arise.

Establishing telecenters in rural areas can be a particularly daunting challenge, particularly where the landscape is irregular and the population is scattered. Both of these features make the cost of expanding the telecommunications infrastructure expensive. The low density of population that is typical of rural Africa and Latin America defies the basic premise of sharing equipment within a single facility. It is much easier to keep a 10 - 30 computer telecenter fully occupied in a large city than in a sparsely populated small town where clients are poor and have limited means of transportation. Even where commercial telecenters are located in urban marginal neighborhoods they are frequented primarily by well-educated young people. To reach the large mass of low-income people, most of whom have limited education, specific measures - promotion campaigns, start-up investment capital, training programs, and demand support during the initial stages while users become familiar with the technology - will need to be instituted. These measures are costly. They yield high social but low private returns. Private enterprise will not bear these costs on its own volition.

Telecenters that help build up social capital in a community create more wealth and value than the market will recognize. Communities of people facing common problems and pursuing action through joint efforts generate externalities that cannot be reproduced or captured by the individual or the firm (Collier 1998; Knack and Keefer 1997). Pure for profit ventures will not engage in these activities. Yet, in order to be effective, the needs of indigenous people, of women and other minorities need to be addressed directly through explicit concerted action. The risk, especially in highly fragmented societies, is that community empowerment through ICTs will at times involve struggles over use and control of resources. A major challenge facing developing country governments is to recognize and provide the leadership and funding necessary to sponsor community networks that help minorities and disenfranchised groups use ICTs to improve their condition and, in the process, build up overall trust in society and forge new democratic all-inclusive institutions.

Franchising is a proven and effective strategy

Commercial telecenter franchises are conceptually appealing, as a way to profit from scale, and to serve large numbers of people through a replicable model. In practice, implementing telecenter franchises has been fraught with difficulties.

Franchises have been common in the telephone industry, set up by traditional monopoly operators in many countries, but also by innovative cellular operators like Grameen Telecom (http://www.citechco.net/grameen/telecom/). More recently, some countries have established minimum subsidy schemes to encourage the development of telecommunications and telecenter infrastructure in small towns [Colombia]. These subsidized schemes stimulate telecenter franchising: the infrastructure development is undertaken by a large firm, but the local entrepreneurs.

As yet, however, there are no known successful commercial franchising (Internet service) telecenter experiences in a competitive (e.g. urban) unsubsidized setting serving a low-income population. For several years the Red Cientifica Peruana advertised a telecenter franchise project in its web pages. In practice, it never managed to put together a marketable plan of services or assistance of value to prospective franchisees beyond what an independent operator could purchase in the open market.

Beginning in 1999, S. Kumars Ltd. started promoting in India what a promising service package. It seeks to connect small towns and villages through a network of 1-computer Internet kiosks using VSAT technology. What sets the S. Kumars model apart from other franchising schemes, are its provision of infrastructure and network economies associated with a large network of franchisees and a comprehensive service package (connectivity, equipment, credit, cash based e-commerce). Plans provide for the establishment of a total of 50,000 kiosks spread throughout the country. In practice, however, the company has experienced serious difficulties while implementing its model. Out of a total 53,000 franchise applicants in the first quarter of 2000, only 1,400 franchisees paid the required investment and, as of 14 July, these were still waiting for their kiosks to be set up [Chatterjee 2001].
Some franchising efforts have tended to focus on the high end of the market. The investment cost of a TeltecGlobal telecenter, for instance, ranges from US$ 350,000 to 750,000. These are intended to be a combination of "Super Kinkos, Internet café, virtual classroom, internet service provider and small (electrical appliance and equipment) showroom under one roof".

A number of Internet connected kiosks are also being launched, for example, in Mexico, in the U.K., in Jamaica. These are still experimental risky ventures, geared primarily for businessperson on the run. Companies, however, are beginning to focus on a broad expansion of the service.The most extensive urban franchising telecenter scheme appears to be emerging in Argentina, where computer terminals providing Internet service have been added in an estimated 300 (Telefónica) and 450 (Telecom)
Locutorios that previously only offered telephone service [Davidziuk 2001]. The provision of Internet service through the McDonald's chain is being tested in Israel (Heller) and Brazil (DiarioTI) and could significantly increase access to the technology.

Developing profitable franchising schemes has proven difficult and their impact on low-income people is an open question. Yet time and again, public or quasi-public institutions take up franchising as a suitable way to provide easy access to the masses expeditiously. In fact, these initiatives end up trying to control from their "headquarters" office very critical aspects of the telecenter operations (e.g.
prices) that can only sensibly be provided by a local operator responsive to a community's needs. The "central office", hires overqualified expensive staff that presume they know better than the people on the locality when in fact just the opposite is true. There are tremendous economies of "decentralization" in telecenter operations, that far outweigh any advantage from say "bulk purchase" of equipment and software. Hence, the importance of letting the local entrepreneur run the show; to give him the power and flexibility to operate the telecenter according to the needs of his clientele, and to address the problems he faces with the resources he has within reach.

The entire article may be found here: Telecenter Sustainability - Myths and Opportunities

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