Note: The opinions expressed and the comments provided here in response to the Consultation process initiated by TRA

on behalf of MoTC are the views of the contributors/writer and the TRA may not agree to these fully or partially. However, the TRA shall consider all these contributions diligently and use them in the process of regulatory dispensation where ever appropriate or to make a recommendation to the Ministry in the context of policy formulation.

Summary Table of Omantels Comments

1. Background
Omantel has carefully considered the issues discussed in the TRA consultation paper Universal Service Policy and Implementation Strategy and fully supports the objective of providing universal service to customers throughout the country. Omatel believes that in achieving this objective, a number of policy issues and operational details must be carefully considered to ensure its success and achieve competitive equity as between various service providers. The Company also believes that it would be more appropriate to separate Universal Service Policy to be issued by the Minister from its implementation strategies and operational mechanisms.

2. Universal Service Policy 2.1 Definition of Universal Service

2.1.1 Scope of Universal Sevice in Oman

Omantel is generally in support of the scope of services to be included in the universal service, it has reservations about the need for and the cost effectiveness of the inclusion of some of these services Public call boxes: Omantel believes that payphones business is declining and it may not be of benefit to consumers to provide this service as a component of universal service if there is little or no demand for it. Also mobile phones are allowed everywhere including in hospitals (frequency jammers are not allowed under current regulations anywhere including in the hospitals). However, if the Authority decides to include public call boxes as a component of the Universal Service, the resulting amount of subsidy allocated for this service could be much higher than anticipated if the service subsequently declines. Telecentres: Omantels experience shows that the demand for Staffed Telecentres is almost negligible even in the high population areas and that is why we do not have any such centers around. This being the case, the service may not attract enough customers and, thus, may not take off. Provision of Maritime Services: For the provision of USO, equipment that will serve the mandatory requirements of International Maritime Organization (IMO) should be used.

Omantel successfully completed 3 years of providing maritime services in 2007 as mandated by the license and has informed TRA of its intention to cease as per the condition of the license. Omantel, honoring the request of the Authority, is continuing to operate and maintain the Coastal Radio station although it is uneconomical and difficult. Therefore, if Omantel is to continue to provide this service, appropriate subsidies should be provided based on the costs of purchasing and deploying the IMO compliant equipment.

2.1.3 Unserved and Under-served Areas

The Company believes that in order to clearly identify the areas in which universal service ought to be provided, a more precise operational definition is required. Such an operational definition is not discussed in the consultation paper, and no definition for served area exists in the existing regulations (e.g. Telecom Regulatory Act, Omantel license, etc.). Therefore, a clear definition of served areas is required to precisely specify the obligations of Omantel as the incumbent operator, while at the same time providing clarity and identifying and selecting areas to be potentially served by the USO operators. Accordingly, Omantel believes that a definition of served area should be finalized before implementing any USO mechanisms. As an illustration, served areas may be defined as areas within X meters (say 200 meters) of an Omantel distribution point (DP) in uneconomic areas with normal terrain and within X meters (say 75 meters) of an Omantel DP in uneconomic areas with difficult terrain (e.g. wadis, hilly areas, rocky areas, etc.), subject to availability of spare capacity in the DP. In cases where wireless technology is used, served areas may be defined as areas for which coverage is provided with existing radio sites. The policy makers also should make it clear that such a definition of served area clearly applies in the case of uneconomic areas. For example, new economic zones or large clusters of development would offer Omantel the opportunity to expand its network cost effectively regardless of distance from the existing DP. It is to be noted that it is a practice in many jurisdictions to define areas that qualify for universal service subsidies this is usually done by first defining served areas so as to identify areas to be potentially served by USO operators. A served area definition should allow the incumbent operator to serve new customers at reasonable additional costs, i.e, without undue capital or ongoing cost to expand its network. Obligations that include, for example, wider distances than illustrated above would impose undue costs on the incumbent and would put it at a competitive disadvantage where it would have to serve higher cost areas without subsidies, and therefore should be avoided. In the Companys view underserved areas are a subset of served areas in the sense that all services may not be available in some of the served areas. The Company believes that its obligation in underserved areas should be restricted to the provision of access to fixed line voice service only. All other services such as functional internet and broadband should be part of the subsidy scheme.

2.2 Selection Criteria for Project Areas

The definition of selected criteria in table 2-1 should be tentative at this stage. It is suggested that a detailed survey be conducted to assess the actual conditions and collect more information just prior to making a final decision on the implementation specifics.

2.3 Execution Mechanism

1. Omantel offers the following views on the provision of back-haul capacity through RAO (Table 22, row 3): a. Provision of the back-haul capacity to USO operators should be based on commercial negotiations. b. It is not clear at this time the scale and scope of back-haul capacity that would be required by the USO operators. It may not be possible or cost effective to provide back-haul capacity in all areas and to all locations because of lack of ready availability and / or technical constraints. c. Omantel notes that Reference Access Offer (RAO) proposes certain terms and conditions, which should form the basis for commercial negotiations. d. With respect to rates for back-haul capacity, Omantel notes that the tariffs that appear in the RAO are indicative and will need to be updated and/or costs needs to be developed based on specific back-haul services requested by the USO operators. 2. Omantel would like to raise a number of concerns and views in relation to license review: a. It should be noted that such a license review should be conducted with full consultation with Omantel. b. c. Omantel obligation in relation to served areas should be clearly articulated. Omantel reserves the right to a full participation at the time of license review; our current view on the obligations in the served areas is that it should be limited to the provision of basic voice service only. Omantel believes that functional internet should not be mandated because in many cases the equipment (e.g. modems) required may not be available in the serving exchanges and cannot be provided without substantial additional costs. Providing for such equipment without sufficient demand would impose undue capital and ongoing costs. And, there would be no means to recover these economically unviable costs in a liberalized market environment. Therefore it would be discriminatory to Omantel to impose any obligation other than the provision of basic voice service. With respect to system expansion requirements in Omantel license, it should be noted that these requirements were incorporated in the license during the monopoly environment. However, in the liberalized market, all operators should be given fair treatment without putting extra burden on any one operator. As the TRA is aware, Omantel has already more than met its system expansion requirements specified in its license. In a liberalized market environment it is neither fair nor in the interest of competitive equity to impose additional burdens on Omantel. If Omantel is required to provide service in uneconomic areas outside its served area (as defined above), then Omantel should have equal access to the subsidies under the USO mechanisms.

d.

e.

2.3.1 Tendering

Omantel welcomes the opportunity to compete and bring its extensive experience to bear to provide service in the USO funded areas. The TRA proposes that in Stage 2 of the tendering process, technical and legal criteria would be specified in the tender documents.

The consultation document has very little details on the tendering aspects, and hence cannot provide substantive comments. For example, there are no details on what the technical or legal criteria would be. There are no details or at least guidelines on the pre-qualification criteria that would be applied, and hence there is no visibility on who could possibly apply to be a USO operator. Notwithstanding the above comment, Omantel believes that the technical criteria should be broad based and include experience in providing service in high cost and remote areas, especially in Oman; experience in providing a wide variety of telecommunications services such as the ones specified in the scope of services; technical and financial resources to sustain during the period of license, and so on. Pre-qualification criteria also should be stringent enough to ensure entry of organizations with telecom experience and sufficient financial resources.

2.4 Assessment and Identification of Suitable Technologies

While selecting the technology, consideration should be given to the inter-operability issues. There may be high costs involved in resolving the incompatibilities between the two different interconnecting technologies. Operation and maintenance would also be a major issue, particularly because of the nature of USO areas which tend to be remote. Quality of service depends on the level of performance achieved through extensive and foolproof operation and maintenance program. All these considerations should be carefully evaluated during the selection process, as it is desirable to avoid higher cost technologies.

3. Universal Service Funding 3.1 Funding Mechanism

Omantel believes that the USO operators should pay royalty fees at the same rate as other fixed line operators.

3.3 Subsidy Estimation

In the consultation paper, it is proposed that the subsidy would be estimated using the standard DCF approach as a measure for costs, revenues and subsidy requirements, and the subsidy estimate for a given USO project would be equivalent to the absolute value of the NPV. It is further proposed that subsidy payments will be made over a period of 10 years, at the end of each year, and the maximum payable at the end of year 1 will be 40% of the total subsidy. While the NPV method of estimating the subsidy may be acceptable, the suggested payment schedule is inconsistent with the principles of NPV. Since the 10 years cash flow is already discounted (to NPV), paying the NPV value in 10 years would dilute the value further, and the USO operator would not be made whole. If payments are to be made each year, then payments should be revised to the absolute value of the cash flow applicable for each year but not discounted values.

4. Strategy for Implementing the Universal Service Policy 4.1 Type of Licenses Awarded to the USO Operators
The TRA proposes that USO operators may apply for the right to provide communications services within other parts of Oman against payment of the applicable fees. The Company has several

concerns in this regard: a. Such licensing in other areas should be limited to operation in USO areas. b. Extending the license of a USO operator to operate in non-USO areas of the country will lead to many fixed licensees operating across the country. This will not be economically viable in the long run as the Omani market cannot support a large number of operators. This in the long term will destroy value in the fixed line market and lead to situations where operators cannot earn reasonable returns on their investments which is not in the long term interests of consumers. c. Opportunities to expand outside USO areas will distract these USO operators from the intended TRA objective of providing universal service to customers in uneconomic areas in a focused manner. However, this should not preclude Omantel from competing for these USO areas for receiving the attendant subsidies because Omantel is an incumbent operator and is already experienced in providing fixed line services across the country including in high cost areas. The consultation document proposes that USO operators would have a Class I license. However, the consultation document has little detail on the license terms and conditions, other than the issues discussed in the consultation paper such as tariffs. It would be useful for participants to be able to comment on a draft license. 4.4 Allocation of Frequency Spectrum for USO USO operators should not be allowed to apply to use the assigned frequencies to areas other than USO areas. Extending the frequency license to non-USO areas will expand the scope and scale of their operation which will be tantamount to having many fixed licensees operating across the country. This will not be economically viable in the long run as the Omani market cannot support a large number of operators. This in the long term will destroy value in the fixed line market and lead to situations where operators cannot earn reasonable returns on their investments which is not in the long term interests of consumers.

5. Miscellaneous 5.1 Omantel Obligations to Facilitate Interconnection with USO Operators

The TRA proposes that Omantel should provide interconnection to USO operators at any local exchange and virtual interconnection at any RSU. Omantel does not agree with the proposal discussed in the consultation paper. Omantel believes the following should apply in relation to interconnection arrangements: a. Interconnection with USO operators should be based on commercial negotiations. b. Points of Interconnection should be based on cost effectiveness and technical feasibility, and should be subject to commercial negotiations. It is not possible or cost effective to provide interconnection at any point requested by the USO operator. It should be noted that interconnection at local exchange level or virtual interconnection at RSUs is not available at the moment due to technical complexities associated with it such as availability of proper interfaces, ability of the billing system to provide the required data at the local exchange level, etc. Omantel notes that Reference Access Offer (RAO) and Reference Interconnection Offer (RIO) propose

certain terms and conditions including points of interconnection. These should form the basis for negotiations. With respect to interconnection rates, Omantel notes that the tariffs that appear in the RIO and RAO are indicative and will need to be updated and/or costs need to be developed based on specific services requested by the USO operators.

Summary Table of Nawras Comments

2. Universal Service Policy 2.1 Definition of Universal Service

2.1.1 Scope of Universal Sevice in Oman

Nawras fully supports the role of mobile technology in providing universal service because it can provide a cheaper, faster and more effective access for people without communications than fixed lines. This point has been made by numerous studies into the provision of universal service. For example, in its report on international best practice in universal service, Intelecon reaches the following conclusions: mobile provision in rural areas is often cheaper than fixed provision because it avoids the cost of cable laying mobile operators are more innovative in providing tariff packages that suit universal service customers; prepay arrangements are particularly suitable for universal service customers as they avoid budgeting and debt problems; mobile telephony offers features that are particularly advantageous to universal service customers, such as SMS, beep and call back, voice mail boxes and money transfer services.

In a number of countries mobile operators have provided local agents with a container of phones linked to the mobile network, and enabled the local agents to develop a business from providing telephony services to their village or community, thus developing enterprises at a local level and providing local management of the facility.

2.2 Selection Criteria

Top down or bottom up?
In paragraph 2.2 the draft Policy describes a process for identifying areas requiring assistance from universal service funds from statistical data, and universal service projects will be based on this analysis. An alternative approach is to request local communities to submit schemes for funding to the universal service fund administrator. This process is used by a number of universal service funds, for example the Fondo de Desarrollo de las Telecomunicaciones in Chile, with great success.

The important difference in these two approaches lies in the provision of local support and management, especially for local telecenters, which provide internet, data and broadband services in a centre. Experience from other countries demonstrates that it is necessary to have a local organization providing management of the facility, equipment maintenance, user education and support and local promotion. The organization can be a school, local bank, the local administration, or voluntary organizations. Hence if these organizations have an opportunity to become involved at the start, they will be committed to making a success of the project. Nawras would therefore urge TRA to consider a bottom-up approach in addition to the proposed top-down approach. While the statistical approach can be used as a first filter to identify the priority areas for universal service, we suggest that this should be supplemented by the involvement of the local communities in designing and operating the universal service projects. Nawras suggests a simpler process based on the following observations: the lack of commercial viability will be reflected in the current distribution of fixed and mobile telephony as the operators already provide services in commercially viable areas; the presence or absence of high cost areas are already taken into account in the assessment of commercial viability by the operators; distance from a fixed network exchange is not a proxy for the cost of a mobile or WiMAX network; Omantels current topology of local exchanges may change significantly over the next few years if it decides to rationalise its network or move to a next generation network; Table 2.1 does not take into account the distribution of mobile customers, and as a result the TRA may mistakenly assume that an area does not have internet services (as indicated by the lack of fixed lines) when in fact they are available through the mobile networks; no account is taken of the roll out plans of the existing fixed and mobile operators, or of the plans of the second fixed network operator (when licensed).

Nawras suggests that the TRA could undertake a simpler three stage approach: compare the number of fixed and mobile subscribers with the total population in each settlement, with priority being given to those with the lowest penetration rates; compare the availability of broadband fixed and mobile services to the location of institutions, with priority being given to those settlements without broadband services and with the most institutions; Examine the roll out plans of the Class 1 operators to see whether services will be provided to the priority areas in the near future.

TRA would then invite local organizations in the un-served or underserved priority areas to submit schemes for provision of universal services in their areas, either as new licensees or in conjunction with existing operators. If an existing licensee has a responsibility in its license obligations to provide the relevant narrowband or broadband services, TRA would either enforce those requirements or seek to bring them forward if the services are to be provided in the future.

2.3 Execution Mechanism

With the development of GPRS, EDGE and 3G mobile networks, it is quite possible to provide broadband services over mobile and other wireless networks. Indeed all the universal services listed in Table 2.2 (page 7 of the draft Policy) can be provided over mobile networks (except maritime services). Even public payphones in areas where individual mobile phones are banned can be linked to external antennae. As a result, Nawras believes that the policy should give more weight to the potential of mobile in providing universal service. The present document recognizes the role of mobile services, but the policy and its implementation are framed as if universal services are to be provided only through the fixed network. As details, we suggest that: In Table 2.1 (page 6) the distribution of mobile customers should be taken into account in assessing the priority areas for universal service; In Table 2.2 (page 7), the roll out responsibilities placed on mobile operators through their license conditions should be included.

As suggested in section 2.1, the roll-out requirements placed on mobile operators should be mentioned in table 2-2. Additionally, row 6 of table 2-2 mentions the liberalization of access and ISP segment. Nawras notes that while internet service provision was liberalized in June, 2007, the development of this market has been prevented by the wholesale prices offered by Omantel, because they are higher than retail prices. Hence TRA needs to ensure that all its policies support and enable the achievement of its universal service objectives.

2.3.1 Tendering

The existing Class 1 licensees in Oman should not be required to submit a detailed Expression of Interest as TRA will already be well aware of their qualifications, experience and general suitability. For Class 1 licensees, which would include any Class 1 universal service providers, a brief letter to register their interest should be sufficient.

2.4 Assessment and Identification of Suitable Technologies

The list of suitable technologies for the provision of universal service should also include 3G and HSPA as examples of wireless technology.

3. Universal Service Funding 3.1 Funding Mechanism

Nawras notes that the universal service fund will have a much higher contribution from operators than in some other countries, as shown in the table below.

Table 2.1:

Country Malaysia India Colombia Dominican Republic

Proportion of operator revenues levied by universal service funds

% operator revenues 6 5 5 2

Peru Uganda Nigeria Egypt South Africa

1 1 1 1 0.2

At this point Nawras is not proposing that the percentage levied in Oman should be reduced. Rather it suggests there needs to be some form of control on the universal service fund to ensure that the moneys are being spent on necessary and effective projects (see our specific comments on the economic and financial model in para 3.7 below). The universal service fund in Oman will have more contributions as a percentage of operator revenues than in other countries, and this should result in rapid progress in the undertaking of universal service projects. There will come a time when the need for universal service projects will reduce, and the proportion of revenues required from operators should also be reduced. At present there is no mechanism to achieve this transition, and without it, there is a danger that the moneys will be spent on unnecessary projects or diverted to other expenditures. We would therefore invite TRA to consider how this can be managed. As a suggestion, at the start of the programme there could simply be a meeting with the operators to explain the annual plan for universal service expenditures, and later on the meeting could offer advice to TRA on the size of the universal service budget. Coordination with other infrastructure providers: The expenditure of universal service funds can be made more effective if they are co-ordinate with other providers of infrastructure to remote areas, for example the electricity, education, health, road or water suppliers. Telecommunications facilities can be provided at the same time, with a resulting reduction in cost and improved impact on the local community. In its administration of the universal service fund, we suggest that TRA should regularly liaise with the appropriate agencies, and that plans to provide other infrastructures should be included in its criteria for selecting areas and projects for investment.

3.3 Subsidy Estimation

Nawras notes that the cost categories described here relate to telecommunications networks. In some universal service projects it will be essential to include computer and other terminal equipment, training and support for users, and maintenance and management of telecentre facilities. There should be additional cost categories included here for these types of expenditures. Discount factor: The subsidy estimate will be based on a discounted cash flow model, and the result will be heavily influenced by the discount factor chosen. The discount factor should represent the riskiness of the project to a commercial operator, taking into account the uncertainty of revenues from a market which is not commercially viable. This suggests that in addition to the usual inflation and market risk factors, there should be a factor to represent the additional risk of universal service projects. These principles should be added in this section.

3.3.1 Economic and Financial Model

Nawras questions whether there is a need for TRA to invest in a costly model and in its operation. In most countries the universal fund administrator does not undertake its own modeling because it receives real bids from commercial operators based on tenders issued. It is suggested that instead the TRA and the Treasury should take a decision on the value for money based on bids received from

the competing operators. The economic model cannot second guess the operators estimates of costs and revenues. Nawras is concerned that the royalties paid by the operators may be misused on for unnecessary projects such as the financial model. It is noted that there is no reference to revenues from call termination from calls made to universal service customers in the text. This is included in all universal service models, and if TRA does decide that it needs an economic and financial model, terminating revenues should be mentioned here for the sake of completeness.

4. Strategy for Implementing the Universal Service Policy 4.1 Type of Licenses Awarded to the USO Operator
The draft Policy envisages the issuing of new Class 1 licenses to universal service operators. While Nawras will welcome new operators providing these services, the creation of new operators to provide universal services has had limited success in other countries. For example, in South Africa there has been a clear policy to encourage new operators to provide universal service, but they have generally not proved to be viable. Small operators lack economies of scale, and so may prove to be an expensive solution. It is expected that the most successful model is likely to be a combination of local organizations and the national Class 1 licensees.

4.2 Tariff Regulation

The more substantive issue concerns the proposals for tariff regulation in paragraph 4.2 (page 12). The policy suggests that prices for universal service customers should be capped at Omantels retail prices, and Nawras assumes that this means its fixed network prices. This may well result in mobile operators not undertaking universal service projects because Omantels fixed network prices are substantially below mobile prices. It would be impracticable for a mobile operator to offer packages to universal service customers at fixed line prices because people from other areas would be able to buy services in the universal service areas and take the mobile phone and prepay card to use in other areas. While it would be possible to have a home zone tariff for universal service customers at fixed line prices, the result of this would be to deny universal service customers the full benefits of mobility. Moreover, universal service customers would be receiving more value from a mobile service (including mobility, messaging services, handset functionality etc). Which fixed line customers do not obtain. Hence it would be reasonable for charges for mobile services to be somewhat higher than Omantels fixed line tariffs. Of course, WiMAX services will be able to provide similar functionalities to mobile services, and so these problems will not just be limited to mobile services. The structure of Omantels fixed line retail tariffs do not map on to mobile tariffs (for example, a line rental is not charged for pre-pay customers), thus making it impossible to peg any mobile based universal service tariffs to Omantels fixed line tariffs. Moreover, as Omantel is now introducing new retail packages that include a number of free minutes, it is no longer possible to have a direct linkage between Omantels retail prices and the prices to be charged by a universal service operator. Therefore Nawras suggests that the issue of placing a cap on universal service provision linked to the Omantel retail tariffs needs more consideration. Possible solutions include: capping universal service tariffs that are not provided through a fixed line to the tariffs

charged by the dominant mobile operator; placing separate tariff controls on universal service projects; including a consideration of proposed tariffs in the evaluation of proposals for universal service funds; agreeing a cap on universal service retail prices with each universal service provider as part of the negotiations; Deleting this paragraph.

At present Nawras does not have a simple solution to this issue, and would be pleased to discuss it further with TRA. The proposal in section 2.1 to limit universal service prices to those charged by Omantel may have unforeseen consequences by deterring the involvement of mobile and other wireless operators in providing universal services. Moreover, as Omantel has started to restructure its retail prices by including free minutes in its packages, it will be increasingly difficult to make a clear linkage between Omantels retail prices and universal service prices The policies proposed here should be the subject of more detailed discussion and consideration, and we propose some alternative approaches in para 2.1.

4.3 Royalty and Fees

The requirement placed on universal service providers to pay royalties will simply result in a requirement for a higher subsidy from the universal service fund, equal to the amount of the royalty, and this should be included in the economic modelling proposed in para 3.3.1. 4.4 Allocation of Frequency Spectrum for USO If mobile solutions are to be considered, TRA would also need to allocate spectrum for 900 and 1800 MHz as well as spectrum for 3G services. TRA will want to ensure that the bandwidth requirements stated in the two tables on page 14 for WiMax have been allocated after taking into consideration the bandwidth which is going to be distributed to the second fixed licence and to organizations bidding for commercial WiMax licences.

5. Miscellaneous 5.1 Omantel Obligations to Facilitate Interconnection with USO Operators

Nawras notes that the obligation to provide interconnection to universal service operators should be placed on all Class 1 operators, including mobile operators and other universal service operators. Of course, this may be achieved through transit arrangements where direct interconnection is not commercially viable

5.2 The Costs of Interconnection

In order to prevent Omantel imposing an inefficient solution for interconnection, as it has done for interconnection circuits between Nawras and Omantel Mobile, Nawras suggests that the words that would be incurred by an efficient operator should be added at the end of this paragraph after the words cost based charges.

Summary Table of Intercais Comments

2. Universal Service Policy 2.4 Assessment and Identification of Suitable Technologies
TRA may want to add in something about the infrastructure being broadband ready if not already providing broadband so that any infrastructure used for the USO would need to be able to support broadband at some later date. Oftel originally used 28.8kbps for functional internet access because this just above the speed that could be supported by lines shared between properties. Oftel was trying to get BT to phase out shared lines and using that speed forced BT to replace shared lines when asked to do so. I think that functional internet access is around 1Mbps now, given the volume of changes from Microsoft!

3. Universal Service Funding 3.4 Timing of Payments and Operational Sustainability Provisions
TRA need to decide whether the provision of services will be retendered periodically. If infrastructure and services are subject to periodic tendering, the value of the project will be equivalent to the NPV of the cash flow over the period of the contract. If it they arent to be retendered, the winner will have the benefit of an ongoing business with little requirement for additional capital investment. Therefore, there should be a positive terminal value. This could be taken into consideration. The bidders could be asked to provide their estimate of the terminal value discounted back as well as the estimate of the NPV of the cash flow. That should reduce the subsidy requirement a bit. This approach would mean that the word project was inappropriate, because that would mean that it was time limited. This change may have an effect on the timing of payments, but doesnt need to. Many areas would cover their annual operating costs, so the regulator would just be deferring payment of the subsidy for initial network build over ten years. Following on from then, if the network does not cover its capital replacement costs, the terminal value would also be negative, and would continue a requirement for subsidy. If positive, it wouldnt need a subsidy.

5. Miscellaneous 5.1 Omantel Obligations to Facilitate Interconnection with USO Operators

When tendering for services for un-served and poorly served areas, TRA will need to ensure interconnection with networks in other locations for both voice and data. TRA might also want to say something about the network being an open access network that is any ISP could provide service to an end user over the network. So the network provider will then just be responsible for the basic infrastructure and possibly telephone services. Interconnection charges for terminating calls could be levied so that incoming calls will contribute to cost of providing high cost networks. This seems reasonable, given that the OLO would not be terminating the call itself.

Summary Table of Cisco Systems Inc. Comments

1. Background
Cisco believes that the proposal is sound and will lead to increased deployment of telecom infrastructure in Oman. While Cisco suggests some relatively modest changes to the TRAs proposed framework, Cisco strongly encourages the TRA to use this opportunity to promote more rapid deployment of broadband services throughout Oman.

2.1 Definition of Universal Service

2.1.1 Scope of Universal Sevice in Oman

The TRA also recognizes the need to define what types of services should be funded and why. This task is complicated by the fact that the services available have continued to evolve. Customers in developed areas of countries around the world have access to more advanced services year after year. As a result, citizens living in un-served and under-served areas are being left farther and farther behind. The Consultation Document notes, for example, that the availability of voice services is now widely regarded as a right for every citizen in developed countries as a prerequisite for the participation in society. Consultation Document at 5. This is certainly true, but today access to the Internet and indeed, broadband access is also increasingly regarded as a prerequisite for participation in society. Indeed, broadband networks inherently have the capability to deliver voice services in addition to data services, so deployment of broadband facilities will also address the need to provide access to voice services. Furthermore, the value to be connected to broadband is exponentially greater than the value of simple dial tone. In addition, many governments, including in the Middle East, are actively developing ambitious eGovernment programs. For example, Saudi Arabia attaches high significance to the e-government concept and the Saudi government established the e-government program to help lead Saudi Arabias transformation to an information society. Despite such efforts, broadband penetration rates in Saudi Arabia and in the region are still relatively low. According to the International Telecommunication Union, broadband penetration in Oman is just 0.73% of the population and in many other countries in the region penetration is also less than one percent. In Saudi Arabia, broadband penetration is just 2.43% and Qatar has by far the highest broadband penetration in the Gulf region at 8.37 percent. In contrast, Denmark leads the world with a broadband penetration rate of over 36%; South Koreas penetration rate is almost 30% and the United States and much of Western Europe have penetration rates between 20 and 25%. Cisco believes that increasing broadband penetration will significantly enhance economic productivity in Oman, as it has around the world. In the Consultation Document, the TRA only proposes to provide universal service support for broadband services to institutions such as schools, hospitals, government offices, post offices and police stations. Rather, Cisco recommends that broadband also be made available to business and residential customers in areas where universal service projects are awarded. Deployment of additional telecom infrastructure will benefit not only residents of un-served and under-served areas, but the overall economy and population of the Sultanate. In particular, Cisco

urges the TRA to focus more attention on promoting the deployment of broadband infrastructure and opening the necessary spectrum to facilitate new network buildout. Building the essential infrastructure for the information economy and expanding the reach of connectivity is clearly a necessary condition for the Sultanate to be part of the information society.

2.2 Selection Criteria

The TRA has identified a reasonable method for identifying the areas of the Sultanate that will be eligible for universal service funding. Consultation Document at 6-7 and Table 2-1. In particular, the TRAs proposed method would focus attention on un-served or under-served areas where there are public institutions, such as schools, hospitals, government offices, etc. Certainly, the need for service to these institutions is especially great. Likewise, the TRAs proposal to prioritize localities where public welfare will be most benefited by the provision of a universal service project makes sense. Assuming that the universal service fund is not large enough to guarantee service to every un-served or under-served area, the TRA will have to identify some method of deciding which areas will receive assistance. TRA is very reasonably proposing to devote resources to the areas where it believes they will do the most good. Cisco does not disagree with the other factors that the TRA identifies as selection criteria i.e., current lack of USO services, high cost, and low likelihood of commercial viability. It seems likely, however, that these factors will not be useful in choosing one un-served or under-served area over another, because these three factors are, in essence, the definition of un-served areas. In other words, established telecom networks have not been extended to the un-served areas because network operators face high costs to deploy infrastructure or poor prospects for recouping whatever investment they might make in such areas or, frequently, both high costs and poor commercial prospects.

2.4 Assessment and Identification of Suitable Technologies

Wireless technologies should make it possible for universal service operators to make broadband more generally available. The TRA has recognized that wireless will be the likely technology of choice for universal service projects. Consultation Document at 9. But the TRA only proposes to make 100 MHz of spectrum available for WiMAX service in universal service areas. Consultation Document at 14, Table 4-1. Cisco recommends that the TRA consider whether it can make more spectrum available to provide service in un-served and under-served areas. If the TRA makes additional spectrum available then universal service providers will be able to provide more advanced, higher bandwidth services to a larger number of subscribers at a lower cost per subscriber. Indeed, the TRA might consider requiring universal service operators that deploy WiMAX and other advanced wireless technologies to provide a more advanced suite of services than the services the TRA has so far defined in the Consultation Document.

4. Strategy for Implementing the Universal Service Policy 4.3 Royalty and Fees
In discussing its strategy for implementing its universal service policy the TRA makes clear that its main objective is to promote deployment of communications infrastructure. The TRA also proposes, however, to require universal service providers to pay a percentage of its revenue as a royalty to the Government of the Sultanate. The requirement of a royalty payment for universal service providers may be counter-productive, however, for two reasons. First, royalty payments will decrease the amount of money that universal service providers have to deploy infrastructure. And

further, the TRA has recognized that universal service projects are needed in areas where telecom services have a low likelihood of commercial viability. A requirement to pay a royalty will make it even less likely that services will be commercially viable. Therefore, if possible, Cisco recommends that the TRA waive the royalty requirement for universal service providers.

4.5 USO Programs Administrations

The TRAs consultation document proposes to identify and fund universal service projects in a clear and straightforward manner. Efficient and effective management will be critical to the success of Omans universal service program. Cisco also urges the TRA to ensure that its final rules for universal service ensures a competitive allocation of universal service resources and that the TRA encourages competition in general as the best way to promote infrastructure deployment. Indeed,

appropriate regulatory policies, including allocating sufficient spectrum for the provision of new services, is likely to be at least as important to promoting the development of telecom infrastructure in Oman as the proposed universal service program will be.