Document of The World Bank

Public Disclosure Authorized Report No: ICR00001793

IMPLEMENTATION COMPLETION AND RESULTS REPORT (IDA-37240)

ON A

CREDIT Public Disclosure Authorized IN THE AMOUNT OF SDR 3.4 MILLION

(US$4.48 MILLION EQUIVALENT)

TO THE

INDEPENDENT STATE OF SAMOA

FOR A

TELECOMMUNICATIONS AND POSTAL SECTOR REFORM PROJECT Public Disclosure Authorized

NOVEMBER 1, 2011

Public Disclosure Authorized Transport, Water, Telecommunications and Information Communication Technologies Papua New Guinea, Pacific Islands and Timor-Leste East Asia and Pacific Region

CURRENCY EQUIVALENTS Exchange Date Effective (10/24/2010) Currency Unit = Western Samoa Tala 1.00 WST = US$0.44 1.00 US$ = 2.28 WST

FISCAL YEAR July 1 – June 30

ABBREVIATIONS AND ACRONYMS

$ All dollars are in United States dollars unless otherwise indicated APL Adaptable Program Loan GoS Government of Samoa IDA International Development Association KPI Key performance indicator MCIT Ministry of Information Communication Technologies M&E Monitoring and evaluation MoF Ministry of Finance OBA Output-based aid OoR Office of the Regulator PAD Project Appraisal Document PDO Project development objective PMU Project Management Unit TSC Telecommunications Samoa Cellular

Vice President: James W. Adams Country Director: Ferid Belhaj Sector Manager: Philippe Dongier Project Team Leader: Isabelle Huynh ICR Team Leader: Arturo Muente-Kunigami

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SAMOA Telecommunications and Postal Sector Reform Project

CONTENTS

1. Project Context, Development Objectives and Design ...... 1 2. Key Factors Affecting Implementation and Outcomes ...... 7 3. Assessment of Outcomes ...... 10 4. Assessment of Risk to Development Outcome ...... 16 5. Assessment of Bank and Borrower Performance ...... 17 6. Lessons Learned ...... 19 7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners ...... 20 Annex 1. Project Costs and Financing ...... 21 Annex 2. Outputs by Component ...... 22 Annex 3. Economic and Financial Analysis ...... 25 Annex 4. Bank Lending and Implementation Support/Supervision Processes ...... 32 Annex 5. Beneficiary Survey Results ...... 34 Annex 6. Stakeholder Workshop Report and Results ...... 35 Annex 7. Summary of Borrower's ICR and/or Comments on Draft ICR ...... 36 Annex 8. Comments of Cofinanciers and Other Partners/Stakeholders ...... 37 Annex 9. Announcement of Provider for the Second Digital Cellular License ...... 38 Annex 10. List of Supporting Documents ...... 43

MAP IBRD 30290

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A. Basic Information Samoa - Telecommunications and Country: Samoa Project Name: Postal Sector Reform Project Project ID: P075739 L/C/TF Number(s): IDA-37240 ICR Date: 11/01/2011 ICR Type: Core ICR INDEPENDENT STATE Lending Instrument: TAL Borrower: OF SAMOA Original Total XDR 3.40M Disbursed Amount: XDR 2.66M Commitment: Revised Amount: XDR 2.66M Environmental Category: C Implementing Agencies: Ministry of Finance SamoaTel Ministry of Information and Communication Technology Cofinanciers and Other External Partners:

B. Key Dates Revised / Actual Process Date Process Original Date Date(s) Concept Review: 01/16/2001 Effectiveness: 04/28/2003 04/28/2003 Appraisal: 03/25/2002 Restructuring(s): 09/21/2009 Approval: 12/17/2002 Mid-term Review: 11/15/2005 10/24/2005 Closing: 04/15/2008 02/28/2011

C. Ratings Summary C.1 Performance Rating by ICR Outcomes: Moderately Satisfactory Risk to Development Outcome: Low or Negligible Bank Performance: Moderately Satisfactory Borrower Performance: Satisfactory

C.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Bank Ratings Borrower Ratings Quality at Entry: Moderately Satisfactory Government: Satisfactory

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Implementing Quality of Supervision: Satisfactory Satisfactory Agency/Agencies: Overall Bank Overall Borrower Moderately Satisfactory Satisfactory Performance: Performance:

C.3 Quality at Entry and Implementation Performance Indicators Implementation QAG Assessments (if Indicators Rating Performance any) Potential Problem Project Quality at Entry No None at any time (Yes/No): (QEA): Problem Project at any time Quality of Supervision No None (Yes/No): (QSA): DO rating before Moderately

Closing/Inactive status: Satisfactory

D. Sector and Theme Codes Original Actual Sector Code (as % of total Bank financing) Law and justice 10 35 Postal services 40 20 Telecommunications 50 45

Theme Code (as % of total Bank financing) Other financial and private sector development 25 30 Regulation and competition policy 50 40 Rural services and infrastructure 25 30

E. Bank Staff Positions At ICR At Approval Vice President: James W. Adams Jemal-ud-din Kassum Country Director: Ferid Belhaj Klaus Rohland Sector Manager: Philippe Dongier Pierre A. Guislain Project Team Leader: Isabelle Huynh Carlo Maria Rossotto ICR Team Leader: Arturo Muente Kunigami ICR Primary Author: Andrea Ruiz-Esparza

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F. Results Framework Analysis

Project Development Objectives The project's objective is to assist the Government of Samoa (GOS) in implementing a comprehensive sector reform agenda focused on: (a) introducing competition and private participation in telecommunications and postal sectors; (b) advancing regulatory reform, and developing sector institutional capacity; and (c) extending access to basic communications, postal services, and information technologies.

Revised Project Development Objectives Project Development Objective did not change.

(a) PDO Indicator(s)

Original Target Actual Value Formally Values (from Achieved at Indicator Baseline Value Revised approval Completion or Target Values documents) Target Years Increase total number of customers (fixed and mobile) 20,000 in 2004 to 46,000 by end Indicator 1 : 2008 Value quantitative or 168,000 Qualitative) Date achieved 02/28/2011 Comments (incl. % achievement) Indicator 2 : Increase number of Internet subscribers 4,500 in 2004 to 10,000 by end of 2008 Value quantitative or 12,000 Qualitative) Date achieved 02/28/2011 Comments (incl. % achievement) Increase number of telecommunication customers in rural areas 2,400 in 2004 to 6,000 Indicator 3 : by end 2008. Value quantitative or 57,943 Qualitative) Date achieved 02/28/2011 Comments (incl. % achievement) Increase number of post office mail boxes per 100 inhabitant 5.58 in 2004 to 10.59 by Indicator 4 : end 2008 Value 2.8 quantitative or

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Qualitative) Date achieved 02/28/2011 Comments (incl. % achievement) Indicator 5 : Increase number of letter item/inhabitant from 4.5 to 12.2 by end 2008 Value quantitative or 3.0 Qualitative) Date achieved 02/28/2011 Comments (incl. % achievement)

(b) Intermediate Outcome Indicator(s)

Original Target Actual Value Formally Values (from Achieved at Indicator Baseline Value Revised Target approval Completion or Values documents) Target Years Indicator 1 : Second digitial cellular license Value (quantitative Awarded April 2006 or Qualitative) Date achieved 04/28/2006 Comments (incl. % achievement) Indicator 2 : New interconnection regime Value Interconnection (quantitative regime in place or Qualitative) Date achieved 10/29/2010 Comments (incl. % achievement) Indicator 3 : New spectrum monitoring and frequency allocation Value (quantitative SM system in place or Qualitative) Date achieved 10/29/2010 Comments (incl. % achievement) Indicator 4 : New Postal Law and Regulation Value Postal Bill and Postal

(quantitative Policy endorsed by

- vi - or Qualitative) Parliament Date achieved 12/31/2010 Comments (incl. % achievement) Indicator 5 : SamoaTel Privitized Value Privatizatin (quantitative transaction finalized or Qualitative) Date achieved 03/31/2011 Comments (incl. % achievement)

G. Ratings of Project Performance in ISRs

Date ISR Actual Disbursements No. DO IP Archived (USD millions) 1 12/20/2002 Satisfactory Satisfactory 0.00 2 06/23/2003 Satisfactory Satisfactory 0.00 3 12/18/2003 Satisfactory Satisfactory 0.15 4 06/17/2004 Satisfactory Satisfactory 0.15 5 12/15/2004 Satisfactory Satisfactory 0.39 6 05/25/2005 Satisfactory Moderately Satisfactory 0.50 7 12/14/2005 Satisfactory Moderately Satisfactory 0.55 8 04/22/2006 Satisfactory Moderately Satisfactory 0.93 9 02/15/2007 Moderately Satisfactory Moderately Satisfactory 1.32 10 07/27/2007 Moderately Satisfactory Moderately Satisfactory 1.83 11 03/06/2008 Moderately Satisfactory Moderately Satisfactory 2.39 12 09/10/2008 Moderately Satisfactory Moderately Satisfactory 2.58 13 06/11/2009 Moderately Satisfactory Moderately Satisfactory 2.79 14 11/20/2009 Moderately Satisfactory Moderately Satisfactory 3.20 15 05/28/2010 Moderately Satisfactory Moderately Satisfactory 3.23

H. Restructuring (if any)

ISR Ratings at Amount Board Restructuring Restructuring Disbursed at Reason for Restructuring & Key Approved PDO Date(s) Restructuring Changes Made Change DO IP in USD millions 09/21/2009 MS MS 3.19

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I. Disbursement Profile

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1. Project Context, Development Objectives and Design 1.1 Context at Appraisal

Country Background

1.1.1. Samoa is an island nation in the South Pacific with a total population of approximately 182,000 and, at appraisal, total GDP (gross domestic product) of $261 million. The population was (and remains) predominantly rural, with two-thirds of the labor force engaged in agriculture. GDP per capita income at market exchange rates was estimated at $1,525. Samoa experienced unsteady growth of GDP, and was largely impacted by the contractions of the Asian economies from 1997 to 1999. The report of the Commonwealth Secretariat/World Bank Joint Task Force on small states: “Small States: Meeting Challenges in the Global Economy” (Washington, D.C., April 17, 2000), emphasized the economic and administrative implications of remoteness, particularly when viewed together with the small size of Pacific countries. Samoa was included in the group of highly-vulnerable countries, characterized by highly-volatile economic growth, dependency on a limited number of exports, and a lack of economic diversification (concentration of production created additional vulnerabilities).

1.1.2. The Pacific Strategy 2000 noted that development of the postal and telecommunications sectors was considered crucial to development, and would create an environment wherein Samoa could overcome the constraints of being a small-state, including, among others: economic and environmental vulnerability, changing global trade regimes, and lack of institutional and human capacity.

1.1.3. Sector reform was consistent with the broader reforms that Samoa introduced. Since the 1990s, Samoa became the leader in the Pacific in terms of forging ahead with fiscal consolidation and structural reforms, thereby setting the economy on a relatively higher growth path than previously, despite still remaining inevitably vulnerable to external shocks.

Sector Background

1.1.3. Samoa’s telecommunications and postal sectors suffered from structural limitations that hindered their development, affecting, in turn, the competitiveness of the Samoan economy:

(a) Limited coverage and access to the telecommunication network. Fixed-line telephone penetration was 6.5 per 100 inhabitants, while other countries in the same income group had an average penetration of 12. Mobile penetration was 1.7 percent, compared to 5 percent penetration in other countries with similar income levels. A waiting list of more than 1,500 customers for fixed and mobile lines indicated that there was room for growth. The fixed line backbone infrastructure (with low quality of service) needed upgrading and expansion. (b) High communications costs hindered the competitiveness of the Samoan economy. The price of international voice calls was high and did not reflect the real cost of service provision. This contributed to Samoa’s isolation and was considered a major obstacle to firms that operated in the export-oriented sectors. A three-minute phone call to the United States was priced 10 times higher than in Australia, and 64kbps dedicated lines were estimated to be priced at 10 times its cost. (c) Lack of adequate postal services. The collection and delivery of postal items by SamoaTel were extremely limited, and well below the standards of universal service set by the Universal Postal Union. Samoa lacked home and business delivery, and mail was delivered to mail boxes located

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in post offices. The average number of inhabitants per post office was 21,250 in Samoa; compared to 17,800 in Comoros; 2,400 in Fiji, and 11,500 in Mauritius. (d) Lack of effective sector regulation. The sector’s performance was hindered by the lack of adequate regulation. SamoaTel played the roles of both operator and regulator of the sector. Despite some policy and regulatory attributions given to the MCIT, the lack of a regulatory framework and legislation limited its capacity to regulate the sector. This situation created bottlenecks to sector development, as evidenced by the failure of SamoaTel and TSC (mobile provider) to reach proper interconnection agreements, thereby hindering the capacity of TSC to deploy a nationwide network.

1.1.4 The Government of Samoa (GoS) recognized the clear need for change, and requested assistance from the International Development Association (IDA) to introduce reforms in both sectors.

Rationale for Bank Assistance

1.1.5. The proposed project was consistent with the Pacific Island Strategy 20001 noting that development of the postal and telecommunications sectors was considered crucial to development, and would create an environment where Samoa could overcome the constraints of being a small-state, including: economic and environmental vulnerability, changing global trade regimes, and lack of institutional and human capacity.

1.1.6. The World Bank/IDA had relevant and extensive experience in sector reforms in the region and in other small-states around the world that could be used to reform Samoa’s telecommunications and postal sectors.

1.2 Original Project Development Objectives (PDO) and Key Indicators (as approved).

1.2.1 The development objective of the project remained constant throughout the project; it was to assist Samoa to improve the performance of its telecommunications and postal sectors by: (a) increasing competition and private sector participation in the telecommunications and postal sectors, (b) strengthening its institutional and regulatory capacities, and (c) enhancing the provision of telecommunications and postal services in selected areas.

1.2.2. Table 1 shows the key performance indicators (KPI) for the project from the Project Appraisal Document (PAD).

Table 1. Key Performance Indicators Indicators 2000 2001 2002 2003 2004 2005 2006 2007 2008 Total number of customers 10,600 11,500 12,500 15,000 20,000 26,000 35,000 40,000 46,000 (fixed and mobile) No. of Internet subscribers 1,800 2,000 3,000 3,500 4,500 5,500 7,000 8,500 10,000 No. of telecomm 1,450 1,500 1,500 1,800 2,400 3,200 4,200 5,000 6,000 customers in rural areas No. of post office mail 4.05 n.a. n.a. 5.53 5.58 7.06 8.24 9.41 10.59

1 There was no Country Assistance Strategy Samoa at the time of project preparation instead the Bank worked with a Pacific Island Strategy 2000; the first CAS for Samoa is expected in 2012.

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boxes per 100 inhabitants Quality of service, Postal n.a. n.a. n.a. 85% 85% 85% 95% 95% 99% [DROPPED July 2007] No. of inhabitant/full postal service outlets n.a. 24,286 20,000 17,000 14,500 12,000 11,000 10,500 10,000 [DROPPED July 2007] Number of letter item/inhabitant 4.5 5.4 6.3 6.9 7.6 8.8 10.1 11.1 12.2

1.3 Revised PDO (as approved by original approving authority) and Key Indicators, and reasons/justification

1.3.1. The PDOs did not change throughout the project.

1.3.2. The KPIs were reduced (from the seven included in Table 1 to five) after the July 2007 mission, as the focus was directed on the telecommunication component. The final KPIs and output indicators at project closing are given in Table 2.

Table 2. Results Framework Target Monitoring Target/Indicator end 2006 2007 2008 2010 (initial goal 2008; 2002 Indicators (actual) (actual) (actual) New target 2010) in the PAD 1 Increase total number of 12,500 35,000 101,400 152,800 168,000* customers (fixed and mobile) (Dec.2007) 20,000 in 2004 to 46,000 by end 2008 New target 2010: 115,000

2 Increase number of Internet 3,000 7,000 7,000 9,000 users 12,000* subscribers 4,500 in 2004 to 10,000 by end of 2008 New target 2010: 12,000

3 Increase number of 1,500 4,200 5,500 6,000 57,943* telecommunication customers in

rural areas 2,400 in 2004 to 6,000 by end 2008 New target 2010: 7,000

4 Increase number of post office n.a. 8.24 3.07 2.0 2.8 mail boxes per 100 inhabitant (2008) 5.58 in 2004 to 10.59 by end 2008 New target 2010: 3.0

5 Increase number of letter 6.3 10.1 5.73 2.8 3.0 item/inhabitant from 4.5 to 12.2 (09/2005) by end 2008

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New target 2010: 3.0

Output Indicators Second digital cellular license 6 - Awarded April 2006 (actual) New interconnection regime 7 - - - - Interconnection regime in place, October 2010 New spectrum monitoring and 8 - - - - New spectrum frequency allocation management system in place, October 2010 New postal law and regulations 9 - - - - Postal Bill and Postal Policy endorsed by Parliament, 2010

10 SamoaTel privatization - - - - Privatized, [Added January 2009] March 2011

*Estimates from the OoR.

1.4 Main Beneficiaries

1.4.1. The project was designed to benefit consumers of telecommunications/postal products by increasing the access, quality, and lower the cost of the products. The components dedicated to capacity building would improve sector governance, competition, and liberalization. Combined, the project was expected to benefit all of Samoa’s users of telecommunications and postal services, and contribute to the strengthening of Samoa’s environment for economic development.

1.5 Original Components (as approved)

1.5.1 The project included five components to achieve the PDO:

(a) Competition and Sector Reform ($0.73 total, $0.55 IDA financed),2 to finance: (i) technical assistance to assist changes to sector legislation in order to increase competition, in the accession to the World Trade Organization, and in the design of a postal policy; (ii) engagement of advisors for the award of a digital cellular license; and (iii) professional development (training, study visits).

2 All dollars are United States dollars unless otherwise indicated.

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(b) Regulatory Reform ($1.52 total, $1.23 IDA financed) to assist the Ministry of Information Communication Technologies (MCIT)3 to introduce effective regulation of the telecommunications sector and strengthen the regulatory capacity of MCIT to carry out the regulatory oversight functions of a modern, independent telecommunications regulator. (c) Corporate Reform of SamoaTel ($0.79 total, $0.59 IDA financed) included the assistance to explore options to privatize SamoaTel, and to carry out its privatization. This involved providing options to enhance the corporate performance of SamoaTel, including options to restructure and privatize SamoaTel. The project financed the technical assistance and the studies to be carried out, including advisors for privatization. (d) Postal Reform ($3.19 total, $2.03 IDA financed) was envisaged in two phases: (i) Phase I involved technical assistance to the government to elaborate a postal sector strategy, including introduction of competition, definition and implementation of an adequate regulatory framework, extension of access, and review of the postal tariff regime. (ii) Phase II included the investment to upgrade SamoaTel’s postal capacity, both on the production side and the retail side. (e) Project Management Team ($0.10 total,$ 0.08 IDA financed) supported the Project Steering Committee and the three implementation agencies with the implementation of the project.

1.6 Revised Components

1.6.1 The project’s components were not revised, however there were some activities/subprojects added to respond to the needs of the client. These activities fit within the mandate of the components, and were critical in achieving the development objective.

1.6.2 To respond to the momentum of the telecommunications reforms and their potential impact on Samoa’s economy, and to direct the focus on the liberalization and the privatization, the postal component (Component 4) was reduced to $0.7 million. This reduction also reflected GoS’s concern that SamoaPost (whose creation as an independent entity was decided in 2007) would be burdened by the size of the loan, and would not be able to face the reimbursement schedule. Further explanation on reduction of Component 4 is provided under sections 2.1 and 2.2 below.

1.7 Other significant changes

1.7.1 At the request of the GoS, the project’s original closing date of April 2008 was extended three times. Additionally, the project also had a reallocation of funds between categories, as well as the inclusion of types of procurement. Table 4 shows the reallocation of funds for 2007 and 2009.

 The first extension (approved September 2007) of the closing date was for 18 months for a closing date of October 2009, to allow for the privatization of SamoaTel, the Output-based Aid (OBA) Universal Access Program, and the purchase of SamoaPost fixtures. The Development Credit Agreement was amended to include the Consultant Qualifications to allow the

3 At appraisal the name of the Ministry was the Ministry of Posts and Telecommunications (MOPT), the Ministry’s name was changed subsequently.

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procurement of small contracts, the Shopping method of procurement to purchase postal fixtures; and to reallocate the proceeds of the credit.  The second extension (approved October 2009) of 12 months for a closing date of October 31, 2010; the Development Credit Agreement was amended to further reallocate funds (from Goods to Consultant Services) to fund activities requested by the Ministry of Finance (MoF) and SamoaPost: (a) a cost assessment of universal postal service, (b) legal advisory services in connection with undersea cable infrastructure and services, (c) the purchase of antivirus software; (d) support on interconnection rates, (e) alternative dispute resolution, (f) capacity building, (g) update of the Telecommunications Policy, (h) the update of the National ICT Policy, and (i) update of the Broadcast Policy. The monitoring and evaluation framework was updated to reflect the “results framework” that evolved from the KPI model used at the project’s appraisal.

Table 4. Reallocation of the Proceeds of the Credit (September 2007, and June 2009)* Original 2007 2009 Allocation Reallocation Reallocation Category Description (XDR) (XDR) (XDR) 1 Goods a under the Respective Parts of the Project 230,000 480,000 420,000 b under Part D** of the Project 950,000 550,000 200,000 2 Consultant Services a under the Respective Parts of the Project 1,300,000 1,750,000 2,000,000 b under Part D of the Project 280,000 330,000 350,000 3 Training a under the Respective Parts of the Project 100,000 150,000 100,000 b under Part D of the Project 100,000 100,000 130,000 4 Unallocated 440,000 40,000 0 Total 3,400,000 3,4000,000 3,400,000 *1 From the Project Papers for the first and second extension of closing date, reallocation of credit proceeds. **Part D of project = postal.

 The third and final extension (approved October 2010) of 4.5 months (to February 2011) was requested to allow time to complete the technical assistance contract by the privatization advisors for the privatization of SamoaTel. All other activities under the project were closed by October 2010. Final closing of the privatization of SamoaTel occurred on March 31, 2011.

1.7.2 It is worth mentioning that, at the time of the second extension in September 2009, the Sector Management Unit and the Country Management Unit acknowledged that pending activities would most probably not be completed in 12 months. The 12-month extension was approved with the understanding that a third extension would be granted if key milestones were met by late 2010. This kept pressure on the Bank and Borrower for rapid implementation, and provided the project with an additional decision- point in the event that progress in 2010 was not at the level anticipated in 2009.

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2. Key Factors Affecting Implementation and Outcomes

2.1 Project Preparation, Design and Quality at Entry

2.1.1. The project benefitted from the Bank’s/IDA’s experience (at the time of appraisal) gained from working in over 50 countries around the world, on similar operations that focused on implementing liberalization, privatization, and opening monopoly telecommunications sectors to competition. There are risks in pursuing liberalization in the telecommunications sector in a country with a small population, and in a remote location, such as Samoa. The end-goal of liberalization is to maximize the impact of market forces as opposed to state intervention, and this requires critical mass in demand for private operations to be profitable and to provide incentives for continued innovation. However, lessons learned from the Caribbean countries and other small economies have indicated that if sequenced and managed properly, countries with small populations can also introduce and benefit from increased competition in their telecommunications sectors. In these cases, liberalization needs to be tackled in a holistic manner by addressing policy and regulatory issues, opening competition, and establishing an independent regulator to evolve along with the sector. The project was designed to enable Samoa to address the key elements of liberalization, making it the first among Pacific island countries to take this holistic approach.

2.1.2. At appraisal, the postal component represented about half of the project cost. This was an unusually high proportion, and can be explained by the fact that a significant part of Component 4: Postal Reform, namely the development of a corporate strategy and implementation of information systems, aimed to improve the management and business performance of both the telecommunications and postal units of SamoaTel. The GoS’s decision to separate the two units was made only two years after project launch and was not foreseen at the time of the project preparation. Although, in hindsight, the separation of the business units is thought to have led to the successful privatization of SamoaTel as a telecommunications provider, the fact that the project could not take into account the necessary steps for the separation caused delays. Further, once the decision for separation was made, much of the focus and resources of the project were directed towards preparing for the privatization of SamoaTel. The activities related directly to the postal sector—and the newly-formed SamoaPost—were delayed significantly and it was evident that the budget needed for the component had been overstated. The component was reduced subsequently, and the remaining activities in the component focused on refurbishing and upgrading SamoaTel’s postal retail outlets, and upgrading operation management capabilities.

2.1.3. Key lessons from other Bank operations in the telecommunications and postal sectors were considered in the design of the project, and these lessons were:

(a) Competition is the driver of sector performance. A procompetitive framework and rapid transition of a multi-operator environment increases service coverage, quality, and affordability of service faster than a state monopoly operator, or a private monopoly. Privatization of the incumbent operator is a key step for effective reform;

(b) Capacity to regulate the sector is necessary to enable fair competition, to address emerging issues such as interconnection, pricing of noncompetitive services, spectrum (a scarce resource) management, and other disputes that may arise between service providers. There is a steep learning curve for the regulatory agency, particularly when the sector opens to competition and to new technologies;

(c) Speed is vital to introducing competition. The design of this project was intended to achieve a quick win in the opening of the mobile market, as a cornerstone of sector reform; and

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(d) Despite the postal sector’s diminishing relevance to development efforts (a global trend), it still benefits from competition and a sound policy framework.

2.2 Implementation

2.2.1 The project suffered from initial delays due to the fact that the implementing agency, the MCIT, lacked experience in implementing World Bank/IDA projects. There were delays in the submission of procurement and other project related reports. To build capacity, an external consulting firm experienced in supporting donor-funded projects was hired as the Project Management Unit (PMU) to support the Project Steering Committee. Further, the frequency of financial reporting requirements was reduced from every quarter to every six months. Long delays were caused due to the protracted negotiation processes between the various stakeholders, particularly once the decisions were made to separate the post and telecommunications business units, and to privatize SamoaTel.

2.2.2. Prior to the issuance of the second mobile license, the GoS had first to tackle the exclusive rights granted to Telecommunications Samoa Cellular (TSC) in its10-year license to provide analogue mobile services. TSC’s license locked Samoa into a low-quality and high-cost service. For example, at the time of project preparation in 2002, a three-minute call (fixed line) from Samoa to the United States was priced at $4.20, while a similar call from Australia to the United States cost $0.42. Following an analysis of the GoS’s options (and likely consequences of each option) to deal with TSC’s exclusive rights, GoS decided to renegotiate the terms of TSC’s license. TSC agreed to a renegotiation process and, pursuant to a mutually acceptable Deed of Settlement, TSC agreed to relinquish its exclusive rights in exchange for being granted a GSM (digital mobile) license. The GoS then proceeded to tender, and to award through an international, open, and competitive process a second license to introduce competition in the mobile market. Currently, a three minute call to the United States is priced at $1.20.

2.2.3. The award of the second GSM license was based on coverage obligations and rollout schedules rather than monetary bids. The emphasis was placed on coverage obligations and not on maximizing fiscal revenue to enable the new operator to accelerate mobile network expansion across the country. The GoS was of the view that Samoa had been deprived of new technological developments (including affordable services) for too long and needed to catch up with its neighbors (i.e., American Samoa, Australia, New Zealand). Both the coverage obligations as well as the introduction of competition led to the rapid increase of mobile network coverage, and concomitant introduction of new telecommunications services throughout Samoa, thereby effectively diminishing the need for a rural telecommunications OBA scheme.

2.2.4. At the same time it introduced competition in the sector, the GoS created an independent Office of the Regulator (OoR), following international best practice, to regulate competition in the sector. Additionally, in 2004, the GoS decided to separate SamoaTel’s telecommunications and postal business units, a decision that was implemented effectively in 2007. Although not envisaged during project preparation, splitting SamoaTel into separate postal and telecommunications companies enabled the successful privatization of SamoTel. The sale of SamoaTel would have been more difficult had SamoaTel retained the postal business. The postal business, at the time, was perceived to be unprofitable whereas the telecommunications business was becoming increasingly profitable. However, the complex process of separation resulted in further delays in implementation.

2.2.5. These two decisions (the creation of the regulator and separation of SamoaTel) are significant in that both actions required considerable building of institutional capacity. Although there was no need to revise the components (as the capacity building activities could be migrated to the new entities) the

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project team intensified its efforts to ensure that both entities were on the right track in terms of management and operational capacity.

2.2.6. Towards the end of the project, the GoS’s commitment to privatize SamoaTel strengthened, and upon its request, the project was extended a third time for the purpose of the privatization transaction.

2.3 Monitoring and Evaluation (M&E) Design, Implementation, and Use

2.3.1 The M&E plan was based on KPIs that were linked to achievements of the various project outputs. Data for the KPI were sought by the Bank team at regular intervals—usually during supervision missions—from the OoR, MCIT, SamoaTel, SamoaPost, Digicel, and CSL. However, throughout implementation collecting data on the indicators was challenging in terms of data availability, delays, and thoroughness. The challenge stemmed from limited resources (staff time and capacity, and technology) that hindered the ability to gather such data. In July 2007, as part of the reduction of Component 4: Postal Reform, the Bank dropped two indicators related to the postal sector (number of letters or items per inhabitant, and number of inhabitants per full postal service outlet). In 2009 the monitoring and M&E framework was updated to reflect the “results framework” that evolved from the KPI model used at the project’s appraisal.

2.4 Safeguard and Fiduciary Compliance 2.4.1. This was an Environmental Category B project. 2.4.2. Safeguards compliance is rated satisfactory. During project implementation no issues were reported regarding compliance with the Bank policy and procedural requirements.

2.5 Post-completion Operation/Next Phase

2.5.1 As a result of the project, Samoa’s telecommunications sector was strengthened with private investment, a clear regulatory framework, and a functioning regulatory authority. The OoR will continue its regulatory oversight with the income from annual licences and spectrum fees; and its staff will participate in and have access to the programs and services provided at the Pacific Regulatory Resource Centre (in Fiji).

2.5.2 Samoa’s story of reforming its telecommunications sector has had a positive demonstrative effect throughout the region, and other Pacific Island nations (Federated States of Micronesia, Fiji, Kiribati, Marshall Islands, Palau, Solomon Islands, Papua New Guinea, Timor-Leste, and Vanuatu) have followed, or are in dialogue with the World Bank/IDA for technical assistance in their telecommunications and ICT sectors:

(a) Solomon Islands Telecommunications and ICT Development Project (approved 2010); (b) Papua New Guinea Rural Communications Project (approved 2010); (c) Tonga/Fiji: Phase 1 Pacific Regional Connectivity Project (Adaptable Program Loan [APL], approved 2011); Samoa, Solomon Islands, and Vanuatu have also made formal requests for IDA support for similar connections; (d) The University of the South Pacific in Fiji hosts the Pacific Regulatory Resource Centre (opened in fall 2011); (e) Federated States of Micronesia, Kiribati, Palau, Republic of the Marshall Islands, and Vanuatu are involved in nonlending activities in their telecommunications and ICT sectors;

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2.5.4. Samoa is, however, now reviewing its options for an undersea cable network to link to other Pacific Island nations, Australia, New Zealand, Hawaii and the mainland United States. The World Bank will work with the GoS to explore Samoa’s participation in the APL for the Pacific Islands Connectivity Project (approved August 2011). A World Bank mission is scheduled to be in Samoa in early November 2011 to discuss Samoa’s options, the APL, and Samoa’s potential participation.

2.5.5. Another outgrowth of this project is the Pacific Regional Infrastructure Facility-funded Pacific Regulatory Resource Centre (Centre). The centre is currently operational and is expected to provide training and support to the region’s telecommunications and ICT regulators on a range of technical and economic issues.

2.5.6. The GoS is considering the option to expand the OoR’s responsibilities beyond telecommunications and broadcasting to encompass other utilities (electricity, water).

3. Assessment of Outcomes 3.1 Relevance of Objectives, Design, and Implementation

3.1.1. The project has a high relevance of objectives and was in line with the Pacific Island Strategy 2000 as well as the country’s economic development priorities. The project was consistent with the Pacific Island Strategy 20004 which stated that the development of the postal and telecommunications sectors is considered crucial to development, and would create an environment where Samoa could overcome the constraints of being a small-state, including: economic and environmental vulnerability, changing global trade regimes, and lack of institutional and human capacity. The relevance remains pertinent at the time of the writing of the ICR. A recent paper Pacific Islands: Directions in IDA 15, 2011 notes that telecommunications and other critical infrastructure expansion have benefitted people throughout the Pacific.

3.1.2. The PDOs were fully aligned to the GoS’s telecommunications sector strategy that was based on the premise that the availability of efficient, reliable, and affordable telecommunications services is vital to promoting rapid economic and social development, as well as facilitate regional integration. The PDO’s were also aligned to the GoS’s postal sector strategy which aimed to develop the sector by creating a competitive environment for the existing service providers including those operating without licenses; to modernize existing postal services through product and pricing reforms; and to improve management of and access to postal facilities.

3.1.3. The project had a moderately satisfactory design. The components supporting telecommunications reform were well-designed and the design was based on the success of other similar projects, with similar PDOs, led by the Bank in 50 other countries. The postal component was not fully conceptualized in the PAD, and was subsequently reduced during the midterm review. However, the project components were designed with enough flexibility to allow for changes to adapt to the changing environment during implementation. This flexibility, and the changes made, enabled the project to achieve the key development objectives.

4 There was no Country Assistance Strategy Samoa at the time of project preparation instead the Bank worked with a Pacific Island Strategy 2000; the first CAS for Samoa is expected in 2012.

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3.1.4. Finally, the project had a moderately satisfactory implementation. The project achieved the key objectives for the telecommunications sector, despite that this was the first World Bank/IDA project for MCIT; that the project took on the momentous tasks of issuance of a second mobile license and the privatization of a state-owned telecommunications provider; and that the project had to develop necessary policy and regulatory frameworks for liberalization to occur.

3.1.5. Implementation for the telecommunications activities on its own would merit a highly satisfactory implementation rating. However, the overall rating is moderately satisfactory for two reasons. First, the activities under the postal component were not fully realized and delayed significantly leading to the reduction of the component during midterm review. Second, the OBA activity was prepared under the project, in order to extend services to the rural areas, but was not executed. This was mainly due to the fact that the obligations set in the second license together with the aggressive competitive dynamics (both were facilitated by the project) of the sector accelerated the expansion of coverage of telecommunications services for much of the rural areas of Samoa. Subsequently, despite three extensions of the closing date, the project was not able to disburse all the resources.

3.2 Achievement of Project Development Objectives

3.2.1. The first PDO, increasing competition and private sector participation in the telecommunications and postal sectors, was met successfully for both the telecommunications and postal sectors, and all but one of the KPI targets were met.

3.2.2. One of the key outcomes for the telecommunications sector was the Samoan people’s increased access to affordable mobile phone services through the introduction of competition. The target to issue a second digital cellular license was achieved in April 2006 (Table 2). While the PAD indicated that the KPI: Total number of customers (fixed and mobile) would likely reach 46,000 by 2008, however, mobile growth exceeded expectation and this number was surpassed in 2006. The project also surpassed the revised 2010 target of 115,000 fixed and mobile phone customers (Table 2) which reached 168,000 customers by the end of 2010.

3.2.3. Figure 1 shows that the announcement of the government’s decision to award a second license in 2005 triggered growth in mobile phone subscribers. The threat of competition moved operators to expand networks and reduce prices preparing themselves for the new competition. The growth in the number of mobile phone subscribers can be attributed to both expansion of network coverage to previously un- served areas and to the decline in the price of calls made on a mobile phone.

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Figure 1. Mobile Phone Subscribers and Fixed-lines, 2000-2011 180,000 160,000 140,000 Introduction of 120,000 Second Mobile Operator 100,000 80,000 60,000 40,000 20,000 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Telephone lines Mobile cellular subscriptions

Source: International Telecommunication Union

3.2.4. In particular, two technical assistance outputs under Component 1: Competition and Sector Reform, facilitated the preparation and award of the license. First, was the technical assistance to support the revisions to the telecommunications legislation to allow for more competition as well as technical assistance for accession to the World Trade Organization. The second output provided support to the MCIT for the drafting of the tender documents and procedures to allow for a competitive and transparent tender; and support to the evaluation of the bids. The Bank’s support to prepare the policy framework for competition, as well as the preparation for and support throughout the tender process ensured that the process was consistent with international good practice, namely, that it was competitive and transparent. The tender process ended with the disclosure of “Reasons for the Decision” to the public by the GoS, presenting the ranking of the five bids (Annex 9).

3.2.5. The other key project output for the telecommunications sector was the privatization of SamoaTel (Table 2) and its sale to BlueSky, a telecommunications company based in American Samoa. The sale was completed March 2011 for $11 million for 75 percent of the company. Component 3: Corporate Reform of SamoaTel, supported MOF to carry out the separation of the telecommunications and postal business units and the privatization of SamoaTel by conducting a restructuring and privatization options study to assess the options for privatization of SamoaTel, and provide advisors for the valuation of the company. SamoaTel was heavily debt ridden with loans from the GoS. The project provided support for the valuation of assets and liabilities of the two enterprises and preparation of audited accounts (following international standards) with debt restructuring (needing Cabinet approval).

3.2.6 The target for the KPI on Increase in the number of Internet subscribers was met in 2010 when the number of subscribers increased to about 12,000 (Table 2). The technical assistance provided for the policy and regulatory framework as well as for the issuance of the second mobile license also had a positive impact on the accessibility and affordability of Internet service as it is being carried over mobile networks. Further, the operator that was awarded the second digital license has a partnership with an Internet service provider.

3.2.7. Despite room for improvement in the design of the postal component, the PDO was met. Competition was reinforced namely through the establishment of SamoaPost as a commercially-viable

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operation. The key issue with the new entity, SamoaPost, was to build internal capacity to manage the postal operations, and for it to be financially viable once it separated from the telecommunications unit. The Bank’s technical assistance involved developing and implementing a corporate strategy for the new SamoaPost, building management capacity through defining a cost recovery structure, and readjusting the tariff structure to a more cost-based approach. As a result of the project, SamoaPost is self-sustaining and saw revenues increase from about WST 1 million in 2003 to WST 2.5 million in 2010.5 Although SamoaPost is the only postal entity that provides a full-range of postal services (including access to the Internet), it competes in a market with the informal postal channels provided by the networks such as church communities and universities.

3.7.8 Although the project achieved the overall PDO, it did not meet one out of the three KPI targets related to the postal sector. As shown in Table 2, the 2010 target for the KPI on Increase number of post office mail boxes per 100 inhabitants, was three mail boxes per 100 people. The actual number came slightly short at 2.8 mailboxes per 100 people. The 2010 target for the KPI on Increase number of letter item/inhabitant, was three letters/items per person, which was met. The Postal Bill and Postal Policy were endorsed by the Parliament in 2010. The first two targets were revised in 2009 to reflect the growing global trend in the decline of the use of postal networks.

3.2.9. The second PDO, strengthening the institutional and regulatory capacities for the telecommunications and postal sectors, was largely achieved through the establishment of the OoR. Establishing an independent regulatory authority is a major undertaking, particularly as capacity building takes time and high turn-over of personnel makes it difficult to retain knowledge, experience, and institutional memory. It is an institution that is costly to operate, and requires a team with both legal and technical expertise. Currently, larger markets in the Pacific (such as Fiji and Tonga) are without independent regulators. The administration costs to fund a regulator for a small country such as Samoa is high and therefore, to leverage economies of scale, the plan is for the OoR to eventually become a multi- sector regulator. Funding for the OoR comes from annual license and spectrum fees. The MCIT which retains the policy function for the telecommunications, postal and broadcasting sectors were supported through the project in the development of policy and legal documents. The two targets to put in place an interconnection regime and new spectrum monitoring system were achieved in October 2010 (Table 2).

3.2.10. The third PDO, enhancing the provision of these (telecommunications and postal) services in selected areas, was met successfully namely through the coverage obligations tied to the second mobile license as well as the introduction of competition into the market. The 2010 target for the KPI on Increase number of telecommunication customers in rural areas, was 7,000, as shown in Table 2. The actual number reported of customers in rural areas at the end of 2010 was 57,943. The unrealistic jump reflects an underestimation of the expected targets; and weakness in gathering data. A universal fund was created and preparation for the OBA pilot was conducted under the project in order to cover additional areas. However, at the tail-end of the project focus was directed to the privatization of SamoaTel. Implementation of the $100,000 OBA pilot would have required an additional extension, as disbursements under OBA tenders would have had to be made upon service delivery. On the postal side, the number of district post offices remain at four (with four more to open in Savaii in 2011), but the number of subpost offices went from 30 in 2002 (25 in Upolu, 5 in Savaii) to 41 in 2010 (37 in Upolo, 4 in Savaii).

5 $438,500.00 to $1,096,250.00.

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3.3 Efficiency

3.3.1. Despite all the challenges listed above, the project achieved its objectives and created economic benefits that far exceed the cost of the project. Annex 3 analyzes the economic benefits created by: (a) the liberalization of the mobile sector and introduction of a second operator; and (b) the privatization of SamoaTel.

Liberalization of the Mobile Sector

3.3.2. The increase in consumer welfare created by the introduction of the second mobile operator has been calculated. For this exercise, consumer welfare was assessed using an estimation of price elasticity done over a sample of 143 countries, and information on subscribers for Samoa. The period covered is between 2005 (just before the second mobile license was issued) and 2009 (latest information on price and subscribers). Additionally, a more conservative scenario was calculated using previous calculations on elasticity done in 2008. Table 5 shows the results:

Table 5. Consumer Welfare Created by the Introduction of a Second Mobile Operator Conservative Optimistic Price elasticity 0.28 0.1109 Subscribers in 2005 24,000 24,000 Subscribers in 2009 151,000 151,000 Price/month 2009 ($) 8.75 8.75 Increase in welfare (2005-2009) $20.03 million $50.56 million

3.3.3. The analysis suggests that the introduction of the second mobile operator created between $20 million and $51 million in consumer welfare.

Privatization of SamoaTel

3.3.4. The third extension of the project was requested (and approved) so that Bank assistance would continue to the GoS during the privatization of SamoaTel. As explained earlier, privatization was contemplated in the design of the project, but the GoS and the Bank agreed to proceed with the transaction towards the end of the project.

3.3.5. In order to evaluate the privatization, a valuation of the company was done. The main assumptions and calculations are included in Annex 3. Conservative and optimistic scenarios were created, assuming different revenue growth rates, EBITDA margins, and CapEx ratios for SamoaTel.

3.3.6. Using these assumptions, the value of the company has been estimated to be between $5.9 million and $17.1 million. Using the average of these two values, $11.5 million and knowing that 75 percent of the company was sold for $11 million (an implied $14.6 million company valuation), the operation has produced approximately $2.4 million in profits to the GoS.

3.3.7. In conclusion, it could be said that the benefits the project created through the liberalization of the mobile sector and the privatization of SamoaTel are between $14 million and $53 million.

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Table 6. Economic Benefits of the Project (in $ million) Optimistic Conservative Liberalization / second mobile license 50.56 20.03 Privatization of SamoaTel (75%) 6.58 -1.84 (-) Loan disbursements -4.30 -4.30 Project benefits 52.84 13.89

Other Benefits

3.3.8. It is important to mention that the project has created other benefits that have not been quantified in this exercise. Among others, the most important are:

(a) Impact on postal sector. Private participation in the postal sector was formalized, and SamoaPost has posted profits since the separation from SamoaTel, thanks in part to the strategic planning study carried out by the project. (b) Impact of conflict resolution in mobile. Stakeholders have confirmed that without the Bank’s intervention in the negotiations with TSC, Samoa, most probably, would have remained in a monopolistic market for mobile. The benefits of this effect are included in the analysis of the liberalization presented above. (c) Regional reform agenda. This project not only represented the first of its kind in the Pacific region, but triggered other requests from countries in the region that want to replicate the success of the Samoan experience to transition towards a competitive telecommunications market.

3.4 Justification of Overall Outcome Rating Rating: Moderately Satisfactory

3.4.1. The rating is based on relevance, PDO achievement and efficiency, and reflects the GoS’s success in reforming the sector (through liberalizing the sector, and privatizing SamoaTel) and increasing telecommunications penetration from 7 percent to 95 percent, its endorsement the Postal and Broadcasting Bills, and SamoaPost’s profitable split from SamoaTel, and the privatization of SamoaTel.

3.4.2. The project has met its main development objectives.

3.5 Overarching Themes, Other Outcomes and Impacts (a) Poverty Impacts, Gender Aspects, and Social Development

3.5.1 The Samoan population, academia, and the public and private sectors are expected to benefit from the reforms through:

(a) The reduced price of communications services enabled by competition; (b) The extended access to communications services due to reduced prices brought by the upgrade to digital cellular technology, and the coverage obligations included in the license for a digital cellular operator; (c) Samoa’s geographic remoteness will be reduced by the cellular roaming and Samoa will enjoy higher regional integration given the reduced costs for international communications. The capacity building activities supported by this project will facilitate the participation of Samoan officials in regional professional development activities. Increased competitiveness of enterprises. The reduced price of communications services, extension of digital cellular services and

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international roaming are benefits that the project will have on the competitiveness of Samoan enterprises. Expanded rural access is expected to facilitate the development of economic activities outside Apia; and (d) Effective delivery of traditional and new postal services (billing service for utilities, payment service for utility customers, courier services, cyber café, leasing space in Post Office to Western Union for money transfer, etc.).

(b) Institutional Change/Strengthening

3.5.2. The OoR was created to regulate the telecommunications sector. The OoR is funded by revenues from the telecommunications sector which MoF collects, and MoF provides the OoR with a budget. The institutional success of the OoR (design and implementation) is also witnessed by the fact that the GoS is considering appointing the OoR to become the regulator for other infrastructure sectors in Samoa.

3.5.3. All implementing agencies, MoF, MCIT, SamoaTel/SamoaPost, as well as the OoR received training for capacity building from the project. MCIT received technical assistance to draft its Telecommunications, Postal Bills, and Broadcast Bills, and with the deployment of the spectrum management system. The OoR was strengthened by technical assistance in the areas of interconnection, dispute resolution; and the MoF was supported for the privatization of SamoaTel (options study and privatization advisors), and SamoaTel and SamoaPost were split into separate entities (an important action that enhanced SamoaTel’s profile to prospective buyers) and the privatization of SamoaTel was supported by the project through its technical assistance for the transaction advisors.

(c) Other Unintended Outcomes and Impacts (positive or negative)

3.5.4. Despite the final extension intended for the implementation of the MCIT-managed Pilot for Output-based Aid for Rural Communications ($100,000), was held in bottleneck and work was not started. However, the market forces set in motion by the liberalized and competitive market, facilitated mobile penetration throughout Samoa—including rural areas— and has reached 95 percent for all of Samoa.

3.5.5. Cabinet approval of the Postal and Broadcast Bills (technical assistance for this was funded by the credit). The National ICT Strategy is drafted and is awaiting approval by the Cabinet.

3.6 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops

3.6.1 Surveys were not generated and stakeholder workshops were not conducted.

4. Assessment of Risk to Development Outcome Rating: Low

4.1. Reversal of liberalization of the sector, as well as renationalization of SamoaTel is remote. The GoS is committed to liberalization of other sectors including the privatization of other state-owned entities. The benefits of liberalization, including increase in affordability and accessibility of telecommunications and postal services are evident to both the GoS and to the citizens of Samoa.

4.2. The second mobile license was awarded to Digicel Ltd. in 2006. The thriving competition triggered by the introduction of competition has increased accessibility and affordability of telecommunications services to both urban and rural areas of Samoa. Further, additional services are

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being provided over the mobile phone platform. Within weeks of the Bluesky’s acquisition of SamoaTel, Digicel began its mobile banking services with its “Mobile Me” for overseas transfers.

4.3. The OoR today regulates the telecommunications, postal, and broadcasting sectors, and discussions are underway with GoS to extend its responsibilities to the electricity and water sectors. The regulator will have access to the Pacific Regulatory Resource Centre (in Fiji) for further capacity building in the telecommunications and ICT sector. The OoR’s budget is now completely sustained through revenue generated from the sector; these revenues are collected by the MoF and the MoF provides the OoR with an annual budget. Litigation of disputes continues, and such litigation initially placed a tremendous burden on the resources of the OoR, but fewer decisions are being disputed in the courts largely due to the technical assistance to develop a mechanism for alternative disputes resolution with a focus on mediation, and to a nonrefundable fee to subsidize the court costs that is required (by the Attorney General’s office) by the operator bringing forth the dispute.

4.4. SamoaTel’s privatization was completed in March 31, 2011. The GoS received $11 million for 75 percent of the shares of SamoaTel. The remaining 25 percent of the shares were transferred to the Unit Trust of Samoa. Bluesky SamoaTel is making progress in providing improved services to customers, and maintaining its investment in its new incarnation as a privately owned company.

5. Assessment of Bank and Borrower Performance

5.1 Bank Performance (a) Bank Performance in Ensuring Quality at Entry Rating: Moderately Satisfactory

5.1.1 The Bank/IDA team worked closely with the GoS and stakeholders to design a project that would address and strengthen weaknesses in Samoa’s telecommunications and postal sectors. The components supporting telecommunications reform were designed based on the success of other similar projects, with similar PDOs, led by the Bank in 50 other countries. However, the technical assistance needed for the postal component was over-estimated at appraisal, and during the midterm review, funds from it were relocated to the components supporting telecommunications reforms. The project was designed to allow for changes to adapt to the changing environment during implementation. This flexibility, and the changes made, enabled the project to achieve the key development objectives.

(b) Quality of Supervision Rating: Satisfactory

5.1.2. Focus on development impact. The team’s focus on development impact was constant, and used sector-proven approaches towards corporatization, liberalization, privatization, and the creation of an enabling environment that was based on experience of supporting sector reforms in more than 50 countries.

5.1.3. Adequacy of supervision inputs and processes. The task team remained flexible and responsive to the GoS and the implementing agencies to manage key tasks so that they could be completed within the project, and to add additional support to enhance the capacity of the MCIT (for instance, the development of a regime for alternative dispute resolution, with a focus on mediation; support to resolve interconnection issues, etc.). The credit’s proceeds were reallocated twice, two additional procurement methods were added, and there were three extensions of the closing date, all to ensure that the development objectives of the project were met.

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5.1.4. The team was proactive and maintained frequent communications with the clients, making every effort to respond quickly and to follow-up with pending matters. The management of the implementation (in general with all aspects of the project, but particularly with procurement matters, and issues related to the privatization transaction). Monthly audio conferences (and more frequent during crush periods, such as the closing date for all activities but those related to the privatization) were conducted to review and provide guidance where it was needed to move meet the deadlines of the scheduled actions.

5.1.5. The team was effective in managing the extensions of the closing date (three), reallocation of proceeds of the credit (two). Working with the government to design clear and implementable action plans for the duration of the project.

5.1.6. Candor and quality of performance reporting. The team was candid in its reporting of performance issues, both to World Bank/IDA management and to the clients. Key issues were reported consistently. The quality of performance reporting was strong, with supervision documents being written clearly and shared with all implementing agencies and other officials relevant to the process (for instance, the Attorney General’s Office).

5.1.7. Supervision of fiduciary and safeguard aspects. Supervision of fiduciary aspects was thorough and proactive, and there were no major issues throughout the project.

(c) Justification of Rating for Overall Bank Performance Rating: Moderately Satisfactory

5.2 Borrower Performance (a) Government Performance Rating: Satisfactory

5.2.1. The GoS was unwaveringly committed to implementing the sector reforms needed to address the constraints to development of Samoa’s postal and telecommunications sectors. The team leveraged this support to make progress on the activities financed by the project. This commitment was particularly strong with creating the OoR, opening competition in the telecommunications market with the offering of the second GSM license, splitting the postal and telecommunication business of SamoaTel, and lastly, with the privatization of SamoaTel.

(b) Implementing Agency or Agencies Performance Rating: Satisfactory

5.2.2. The implementing agencies: MoF, MCIT, and SamoaTel (and later SamoaPost) were committed to achieving the development objective of increasing access to affordable services.

5.2.3. Early in project implementation the areas of financial management identified for strengthening were: information systems, budget systems and financial reporting. These areas were hampered by the existing MTX software, and in response to the need to provide accurate and timely reporting, the PMU adopted the use of an Excel-based system. The PMU provided quarterly project management reports containing updates on disbursement, procurement, and financial management.

5.2.4. The overall pace of implementation reflected the limited institutional capacity in Samoa (with its shortage of skilled staff, and high-turnover of staff, both are widespread features in Pacific regional governments), the borrower and the implementing agencies performed relatively satisfactory.

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5.2.5. Leading to the preparation for the privatization of SamoaTel, the transaction advisors identified financial management-related tasks that were vital to the privatization transaction: the transfer and valuation of assets between GoS and SamoaTel, write-off of debt, and the audit of financial statement of SamoaTel. The valuation of SamoaTel and the audited financial statements of SamoaTel experienced a three-month delay, which led the government to request a third extension of the closing date to February 28, 2011, so that the privatization transaction (among others) could be funded by the proceeds of the credit.

5.2.6. Disbursements: Of the original Credit of SDR 3.4 million, SDR .744 was undisbursed and cancelled at project closing. Total disbursement at project closing was SDR 2.655. The cancellation of funds did not compromise the project’s ability to achieve its objectives. Other than the slow rate of disbursement and the undisbursed/cancelled amount, there were no further issues.

(c) Justification of Rating for Overall Borrower Performance Rating: Satisfactory

6. Lessons Learned

6.1. Liberalization of the telecommunications and postal sector is possible in a small country such as Samoa when it is approached in a comprehensive manner (encompassing liberalization, regulatory framework, and private sector participation/privatization of SamoaTel). The reforms radically changed the landscape for ICTs in Samoa. The project provided capacity building to the MoF, MCIT, and the OoR. More capacity building in MCIT and the OoR may have enabled their ability to increase the depth and width of the reform agendas. MCIT, and OoR were slow to act on the agenda for rural access, and ICT reforms (that usually follow telecommunications reforms) were not undertaken.

6.2. Opening the telecommunications sector to competition and new technologies presents governments with a new set of learning curves. SamoaTel’s market position was critically affected by the entry of a competitor (Digicel) in the sector. Digicel soon became the dominant provider in Samoa, and despite its position in the market, it liberally and systematically litigated disputes that paralyzed the business of its competitor, and mobilized the OoR's limited resources. Rather than focus on regulatory matters that would benefit the market – interconnection, quality of service, pricing policy, broadband strategy, etc. – the OoR instead was tending to matters under litigation. In a small market where the incumbent has long been protected by its status, a comprehensive reform should commit more resources to prepare stakeholders for new market rules, and assess realistically the speed at which new competition can overtake and dominate the marketplace.

6.3. Lack of leadership in drawing the appropriate policy framework in a timely manner is a key factor in delays for sector reform. The MoF took the lead on a few items related to the reform agenda items (particularly, SamoaTel’s restructuring and privatization), but the rest of the sector reform agenda lacked momentum; and this inertia slowed project implementation. In addition, there was limited capacity to implement the reforms, and this translated into delayed progress, and into extending the project three times (for a total of 34 months beyond the original closing date). In the future, project designs should assess the strength of leadership, and provide for effective capacity for adequate project implementation.

6.4. In a small island economy, postal services have limited space for growth, and need more support to build a diversity of business streams (such as money transfers and payments) and improved quality of service to regain market shares in the parcels and express segments.

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7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners (a) Borrower/implementing agencies

7.1. No issues were raised by the Borrower and Implementing Agencies. The Task Team conducted in-depth interviews with all stakeholders and their comments and views are included in the document.

(b) Cofinanciers

(c) Other partners and stakeholders

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Annex 1. Project Costs and Financing

(a) Project Cost by Component (in $ million equivalent) Appraisal Estimate Actual/Latest Percentage of Components ($ millions) Estimate ($ millions) Appraisal (A) COMPETITION AND 0.73 .99 134.2 SECTOR REFORM (B) REGULATORY 1.52 2.33 153.3 FRAMEWORK (C) CORPORATE REFORM OF 0.79 1.41 178.5 SAMOATEL (D) POSTAL SECTOR REFORM 3.19 1.13 35.4 (E) PMT 0.10 .14 140.0

Total Baseline Cost 6.33 6.00 94.8

Physical Contingencies 0.00 0.00 0.00

Price Contingencies 0.00 0.00 0.00 Total Project Costs 6.33 6.00 94.8 Front-end fee PPF 0.00 0.00 .00 Front-end fee IBRD 0.00 0.00 .00 Total Financing Required 6.33

(b) Financing Appraisal Actual/Latest Type of Percentage of Source of Funds Estimate Estimate Cofinancing Appraisal ($ millions) ($ millions) Borrower 1.85 1.46 78.9 IDA 4.48 4.54 101.3

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Annex 2. Outputs by Component

1. Competition and Sector Reform to assist Ministry of Communications Information Technology MCIT to implement GoS policy to introduce competition in Samoa's posts and telecommunications sectors. Policy and legal reform (including World Trade Organization accession) for the Telecommunications and Postal Sectors (1.1). The technical assistance provided support to identify reforms necessary for Samoa’s telecommunications sector to transition from a monopoly to a more competitive market with incentives for operators to reduce prices and innovate. The technical assistance supported the revisions to the telecommunications and postal legislation to allow for more competition as well as start the process of accession to the World Trade Organization.

Advisors to MCIT for the award of a digital cellular license (1.2) to a private operator through an open, competitive international tender. The technical assistance provided support to the MCIT with the drafting of the tender documents and procedures to allow for a competitive and transparent tender; and support to the evaluation of the bids. The license was awarded in March 2006 to Digicel Samoa Ltd. The Bank’s support in preparing the policy framework for competition as well as the preparation for and support throughout the tender process ensured that the process was consistent with international good practice, namely that it was competitive and transparent (Annex 9).

2. Regulatory Reform to assist MCIT to introduce effective regulation of the telecommunications sector and to strengthen the regulatory capacity of MCIT. Provision of Advice to MCIT on Regulatory Matters (2.1) undertaken to address key issues such as interconnection between operators, management of spectrum which is a scarce resource, and drafting license templates. The Corporate Plan was developed jointly by the OoR staff and consultants provided technical assistance. The project also included the preparation of key policies: Telecommunications Policy, Postal Bill, and its update (2010), Broadcasting Bill (2010), and National ICT Policy (pending); these provide the framework to facilitate the separation of the policy arm (MCIT) and regulatory arm (OoR) which is in line with international good practice.

Information systems (2.2) were supplied/installed/ and a maintenance program provided to MCIT for its business operation (PCs, docking stations, monitors, notebooks, servers, UPS for servers, back-up drives software and media, printers, projector and accessories, copier, fax/scanner machine, conference telephone, RAM drive, PC operating system, Microsoft Office software, Adobe PDF, project management software).

An integrated spectrum management system (2.4) was procured to allow MCIT to monitor/manage Samoa’s spectrum with modern tools.

Monitoring and evaluation of poverty impact (2.5) was conducted to explore options to increase access to communications services beyond the level sustained by commercial operators in the rural areas. The options submitted included a pilot project for an output based aid scheme that would allow operators to bid for the minimum subsidy in a public tender process to reach unserved areas of the country. The activities supporting the roll-out of services into the unserved areas was initiated late 2010 when it was handed over from MCIT to the OoR. This left very little time for roll-out and Samoa was unable to access and make full use of $100,000 that was available for the pilot OBA scheme (2.8), and the pilot was not conducted. Further, the original intention to extend postal services was not achieved.

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Interconnection Cost Study(2.12) was conducted to assist GoS to establish fully cost based interconnection rates for mobile- and fixed-lines services, in keeping with international best practices. The rates were to be fair and nondiscriminatory and to include a fare rate-of-return on investment to the fixed and mobile operators. (2.16) Strengthening the Institutional Capacity of the Regulators was undertaken to conduct an independent assessment of the OoR via multiple methodologies and analysis to illustrate a comprehensive “roadmap” based on existing operations and functions of the OoR and the key regulatory challenges. The consultants assisted in the development and review of the overall strategic approach proposed by the OoR for the next five years. (2.17) Alternative Dispute Resolution, or ADR, with a focus on Mediation was undertaken to is to assist the OoR to develop an appropriate alternative to litigation as the traditional form of dispute resolution. Conscious of the range of ADR methods available, the OoR specified its preference for a regime that focuses on mediation. In order to ensure efficiency and the proper utilization of resources, the OoR intends to develop this regime in collaboration with the Ministry of Justice and Court Administration, the administrator of the Alternative Dispute Resolution Act 2007 (ADR Act).

4. Corporate Reform of SamoaTel to develop and assess options to enhance the corporate performance of SamoaTel for privatization. SamoaTel Scoping Study (3.1) was undertaken to advise and assist the GoS to identify the options for the reform of SamoaTel by reviewing the current business environment and sales issues for SamoaTel, and provided a broad framework within which further specific due diligence and sale management tasks were to be undertaken. The Privatization Advisors (3.2) provided technical assistance to the GoS to perform a valuation of SamoaTel, to prepare the privatization transaction, or sale of SamoaTel. The privatization transaction was delayed (due to limited capacity at MoF and to health reasons of a key member of the consulting firm), and a third extension to the closing date was approved to allow the privatization to proceed under the project. SamoaTel was privatized on March 31, 2011. 5. Postal Reform including technical assistance to construct a postal sector strategy The technical assistance provided to the postal branch of SamoaTel were, overall, high-quality, although, one could argue, that the SamoaTel postal staff did not fully embrace and reap the full benefit of the high-level advise, in part because of the high turn-over of staff.

The technical assistance on (4.1.1) Corporate Strategy and Implementation for the Postal Services was undertaken by Transend, Zealand. Transend had earlier provided support to the postal services of SamoaTel, so it was well versed in its market structure and its dynamics. Transend conducted a detailed market analysis and SWOT analysis of the SamoaTel's postal services to structure a strategic recommendations and action plan. Transend insisted on the need to strengthen the commercial and marketing capacity of the branch to discover the demand and the client's needs; it also provided advice on adjusting the tariffs to set them at a cost-recovery level. The study prepared a pro forma profit-and-loss statement for the postal branch for the years 2004 and 2005, which showed that the postal service was run at a profit, a conclusion that surprised most stakeholders, but which has since proved to be factual.

The technical assistance on the (4.1.2) Legal Dimensions of the Postal Business provided valuable advice in the field of partnership/service level agreement contracting, as well as on the more institutional front, ideas to spur increased compensated for the universal service obligations. This assistance aimed to strengthen the ability of the postal service to negotiate access of the postal retail access points by partners, and seek an optimal outsourcing policy with a view to focus on its core business. The outcome of this assistance was, unfortunately, only partially implemented by the post.

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The technical assistance relative to the (4.1.3) Audit, awarded to Comgate, mainly aimed to prepare the separation between the telecommunications and postal branches of SamoaTel, and to provide a cost methodology for SamaoTel so it could replicate the cost accounting system over the years until actual separation between the two branches. The study covered both the balance sheet of SamoaTel, providing a pro forma split between assets/liabilities, and the income statement, with the separation between telecommunications and postal revenues, and telecommunications and postal expenses. It provided SamoaTel with a detailed methodology for asset valuation, cost accounting, and pricing policy.

Equipment and furniture purchased by SamaoTel for the postal business mainly aimed to improve its retail services (IT equipment and mail electronic scales) and its commercial orientation and image (particularly, the set- up of a modern cyber cafe, and new furniture/display cases for the refurbished headquarters). This equipment contributed a tangible and improved image of the soon-to-be SamoaPost.

5. Project Management. Technical assistance to support the Project Steering Committee and implementing agencies to implement the project. The PMU provided support to the implementing agencies and the Project Steering Committee in the areas of procurement, financial reporting, implementation reporting, and record keeping.

The project financed professional development (training, study visits) to build the capacity of staff in all of the implementing agencies: MCIT, OoR, SamoaTel, and SamoaPost.

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Annex 3. Economic and Financial Analysis

1. This section provides an estimation of the economic and financial analysis of two outcomes of the project, namely: (a) the liberalization of the mobile sector and introduction of a second operator; and (b) the privatization of SamoaTel.

Liberalization of the Mobile Sector

2. Liberalization and introduction of competition brought prices down and increased penetration of mobile services in the country. The economic benefits created by this reform can be measured by the increase in consumer welfare. A conservative calculation of consumer welfare is given by the following equation:

W = [ 1 / 2 ]*[ Q1 + Q2 ] * [ P1 - P2 ] where: W is the increase in consumer welfare Pi is the price in period i Qi is the quantity in period i

Since information on a weighted average price is only available for the years 2008 and 2009, the increase in welfare has been calculated using price elasticity. Price elasticity is given by:

P = [ Q /P ] * [ P / Q ] where:

P is the price elasticity of demand Q is the change in quantity P is the change in price

3. Then, the increase in welfare can be expressed as:

2 W = [ 1 / 2 ] * [ (Q) / P ] * [ P / Q ]

4. To calculate the price elasticity, the demand for mobile services was estimated using information from 143 developing countries for the year 2008. The results of the demand calculation are provided in Table A3.1:

Table A3.1. Demand for Mobile Services Dependent variable: L(Q/T)

Coefficient Std. Error t-Statistic Prob. r1.45743 0.18959 7.68733 0.00000 L(P) -0.11093 0.05012 -2.21334 0.02849 L(Y) 0.35423 0.02205 16.06329 0.00000

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R-Squared 65.68% Adj. R-Squared 65.19% F-statistic 133.973 Probability (F) 0.00000

5. The dependent variable was penetration of mobile subscribers (Q/T), and the independent variables were monthly price (L(P)) and GDP per capita (L(Y)). The underlying demand function is a loglinear one, so Logarithms were used to estimate elasticities. As shown in the table, price elasticity is estimated to be 0.1109.

6. Knowing that the weighted average price of mobile services in Samoa was $8.756 and that users increased from 24,000 in 2005 to 151,000 by year-end 2009, consumer welfare increased by $50 million. A similar exercise was done by Favaro, Halewood, and Rossotto in 20087 to evaluate the value of reform in 2006. Price elasticity was estimated in -0.28. Using this estimation, consumer welfare would have increased by $20 million. Table A3.2 shows these two estimations:

Table A3.2. Consumer Welfare Created by the Introduction of a Second Mobile Operator Conservative Optimistic Price elasticity 0.28 0.1109 Subscribers in 2005 24,000 24,000 Subscribers in 2009 151,000 151,000 Price/month 2009 ($) 8.75 8.75 Increase in welfare (2005-2009) $20.03 million $50.56 million

7. The changes between the two estimations suggest that as mobile markets expand and worldwide users increase, the mobile service becomes more inelastic. That is, people are less sensitive to change in prices in terms of their use of the mobile service. Thus, the analysis suggests that the introduction of the second mobile operator created between $20 million and $50 million in consumer welfare.

Privatization of SamoaTel

8. The privatization of SamoaTel, despite being included as part of the project since its design, was only done towards the end of the project, in 2010. Moreover, the third extension of the project was requested so that the Bank could assist the GoS during the process.

9. In order to estimate the benefits created by the privatization, a valuation of the company was carried out. Tables A3.3 and A3.4 show Balance Sheet and P&L information for 2008-2010, while Table A3.5 includes the main assumptions for the valuation:

6 Source: World Bank Development Indicators (http://data.worldbank.org)

7 Favaro, Halewood, and Rossotto, “From Monopoly to Competition: Reform of Samoa’s Telecommunications Sector”, The World Bank, 2008.

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(a) According to Wireless Intelligence, revenue growth for mobile operators was 25 percent in 2010. Even though a portion of revenues from SamoaTel comes from fixed line services (which in turn has a lower growth rate), this growth rate was used for the optimistic scenario. (b) SamoaTel had an EBITDA margin of 20 percent in 2010. However, industry estimates are between 40 percent and 50 percent. The optimistic scenario assumes efficiency gains for the next ten years that will increase EBITDA margins to 50 percent. (c) Depreciation has been assumed to be equal to the amount included in 2010. (d) New investments in SamoaTel will focus on their mobile business. Mobile operators invest approximately 30 percent of their revenues. (e) SamoaTel did not have any debt by the time it was privatized. For the calculation of the cost of capital, a debt ratio similar to the one in the United States telecommunications services industry has been assumed as optimal. (f) Debt rate is given by the average commercial debt in Samoa as reported by the Samoan Central Bank in June 2011.

10. Table A3.6 shows the estimated Cash Flows. The net present value of the cash flow is $17 million in the optimistic scenario and $6 million in the conservative scenario. The average is $11.5 million, below the implied valuation of $14.6 million given by the $11 million paid for 75 percent of the company.

11. From this analysis, it could be said that the benefits the project created through the liberalization of the mobile sector and the privatization of SamoaTel are between $23 and $45 million.

Table A3.7. Economic benefits of the Project (in $ million) Optimistic Conservative Liberalization / second mobile license 50.56 20.03 Privatization of SamoaTel (75%) 6.58 -1.84 (-) Loan disbursements -4.30 -4.30 Project benefits 52.84 13.89

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Table A3.3. SamoaTel Balance Sheet 2008-2010

In Samoa Tala In US$ Assets 2008 2009 2010 2010

Current Assets Cash and cash equivalent 16,534,112 18,270,404 20,588,306 8,213,157 Accounts and other receivables 8,557,890 7,513,346 10,631,962 4,241,338 Stock on hand 3,409,125 2,811,838 2,610,085 1,041,224 Income tax receivable 738,267 533,982 730,987 291,608 Total Current Assets 29,239,394 29,129,570 34,561,340 13,787,327

Non‐current assets Property, Plant and Equipment 87,359,779 80,102,908 76,210,630 30,402,203 Work in Progress 8,799,912 5,140,501 4,760,315 1,899,001 Total Non‐Current Assets 96,159,691 85,243,409 80,970,945 32,301,204

Total Assets 125,399,085 114,372,979 115,532,285 46,088,530

Equity and Liabilities

Shareholder's Equity Authorized, issued and paid capital 15,801,230 15,801,230 15,801,230 6,303,480 Retained earnings 76,673,288 78,787,155 78,613,444 31,360,741 Total Shareholder's Equity 92,474,518 94,588,385 94,414,674 37,664,221

Current Liabilities Accounts and other payables 3,710,906 3,543,108 6,766,416 2,699,282 Dividend payable 3,227,646 3,841,514 1,940,158 773,974 Term Loan ‐ current portion 14,210,408 ‐ ‐ ‐ Total Current Liabilities 21,148,960 7,384,622 8,706,574 3,473,256

Non‐Current Liabilities Deferred Tax Liability 11,775,610 12,399,972 12,411,036 4,951,052 Term Loans ‐ noncurrent portion ‐ ‐ ‐ ‐ Total non‐current Liabilities 11,775,610 12,399,972 12,411,036 4,951,052

Total Liabilities 32,924,570 19,784,594 21,117,610 8,424,308

Total Equity and Liabilities 125,399,088 114,372,979 115,532,284 46,088,530

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Table A3.4. SamoaTel Profit & Loss Statements (2008 – 2010)

In Samoa Tala In US$ 2008 2009 2010 2010 Revenue Telecommunications 52,598,064 47,418,405 44,099,148 17,592,181 Postal 2,191,826 281,363 ‐ ‐ Other Revenue 4,599,579 16,114,373 3,074,161 1,226,355 Total Revenue 59,389,469 63,814,141 47,173,309 18,818,536

Expenditure Audit fees 80,700 140,700 90,000 35,903 Director fees 99,495 74,999 90,754 36,204 Depreciation 8,949,936 8,524,227 8,715,032 3,476,630 Doubtful Debts 2,316,900 1,096,226 1,420,376 566,621 Other Operating Expenditures 46,737,410 48,773,067 36,818,120 14,687,609 Total Operating Expenditures 58,184,441 58,609,219 47,134,282 18,802,967

Net Income Before Income tax 1,205,028 5,204,922 39,027 15,569 Income tax expense (95,857) (977,188) (11,064) (4,414)

Net Profit After Tax 1,109,171 4,227,734 27,963 11,155

Table A3.5. Privatization of SamoaTel – Main Assumptions

Aggressive Conservative Source: Operations Revenue growth (per year) 25% 15% Wireless Intelligence (2009‐2011) EBITDA margin after 10 years 50% 40% Wireless Intelligence (2009‐2011) Capital Expenditure / Revenue 30% 25% Wireless Intelligence (2009‐2011) Tax rate 27% SamoaTel Audited Financial Statements

Financial Evaluation Risk‐free rate 5.28% Arithmetic average, 1928 ‐ 2010, Damodaran Online Country Risk 6% Moody's / Damodaran Online (for Fiji and PNG) Levered  1.01 Damodaran Online Market Return 11.31% Arithmetic average, 1928 ‐ 2010, Damodaran Online Debt/Equity 0.3406 US Telecom Services, Damodaran Online Cost of Equity 17%

Cost of Debt 12.00% Central Bank of Samoa, Average Commercial Bank rate

WACC 15.18%

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Table A3.6. SamoaTel: Estimated Cash Flows 2010 - 2020

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 TV

Revenues 18.8 23.5 29.4 36.8 45.9 57.4 71.8 89.7 112.2 140.2 175.3

Operating 15.3 18.4 22.1 26.5 31.6 37.7 44.9 53.3 63.1 74.5 87.6 Expenditures Depreciation 3.5 3.5 3.5 3.5 3.5 3.5 3.5 3.5 3.5 3.5 3.5

Taxes 0.0 0.4 1.0 1.8 2.9 4.4 6.3 8.9 12.3 16.8 22.7

NOPAT 0.0 1.2 2.8 5.0 7.9 11.8 17.1 24.0 33.3 45.4 61.4 + Depreciation 3.5 3.5 3.5 3.5 3.5 3.5 3.5 3.5 3.5 3.5 3.5

Cash Flow from 3.5 4.7 6.3 8.4 11.4 15.3 20.5 27.5 36.7 48.9 64.9 Operations

Capital Expenditure 1.9 7.1 8.8 11.0 13.8 17.2 21.5 26.9 33.7 42.1 52.6

Free Cash Flow 1.6 ‐2.4 ‐2.5 ‐2.6 ‐2.4 ‐1.9 ‐1.0 0.6 3.1 6.8 12.3 81.2

NPV of Cash Flows Optimistic 17.1 Conservative 5.9 Average 11.5

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Other Benefits

12. It is important to mention that the project has created other benefits that have not been quantified in this exercise. Among others, the most important are:

(a) Impact on postal sector. Private participation in the postal sector was formalized, and SamoaPost has posted profits since the separation from SamoaTel, thanks in part to the strategic planning study carried out by the project. (b) Impact of conflict resolution in mobile. Stakeholders have confirmed that without the Bank’s intervention in the negotiations with TSC. Samoa, most probably, would have remained in a monopolistic market for mobile. The benefits of this effect are included in the analysis of the liberalization presented above. (c) Regional reform agenda. This project not only represented the first of its kind in the Pacific region, but triggered other requests from countries in the region that want to replicate the success of the Samoan experience to transition towards a competitive telecommunications market.

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Annex 4. Bank Lending and Implementation Support/Supervision Processes

(a) Task Team members (alpha by surname) Responsibility/ Names Title Unit Specialty Lending Carlo Maria Rossotto Senior ICT Policy Specialist TWICT Task Team Leader Postal Sector Specialist, Isabelle Huynh Operations Officer TWICT Task Team Leader David Michael Chandler Senior Financial Management Specialist Deceased Financial Management Kashmira Daruwalla Senior Procurement Specialist TWICT Procurement Patricia Miranda Senior Counsel LEGIP Legal Rajesh Pradhan Lead Financial Analyst Retired Financial Andrea Ruiz-Esparza Senior Program Assistant TWICT Administration David Satola Senior Counsel LEGPS Legal A. Shanmugrajah Telecommunications Specialist Deceased Peer Reviewer Peter L. Smith Lead ICT Specialist Retired Peer Reviewer Rajiv Sondhi Financial Management Specialist Retired Financial Vivek Suri Country Economist EASPR Economics

Supervision/ICR (alpha by surname) Task Team Leader, Isabelle Huynh, Operations Officer TWICT SPN; and Sr. Operations Officer Task Team Leader, Arturo Muente-Kunigami ICT Policy Specialist TWICT ICR; ICT Policy Specialist Natasha Beschorner Senior ICT Policy Specialist TWICT Operations Yann Burtin Senior ICT Policy Specialist TWICT Operations David Michael Chandler Senior Financial Management Specialist EAPCO Financial Kashmira Daruwalla Senior Procurement Specialist ECSO2 Procurement Stephen Paul Hartung Financial Management Specialist EAPFM Financial Naomi Halewood ICT Policy Specialist TWICT ICT / co-author ICR James L. Neumann Counsel LEGPS Legal Administrative/co- Andrea Ruiz-Esparza Senior Program Assistant TWICT Author ICR David Satola Sr Counsel LEGPS Legal

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(b) Staff Time and Cost Staff Time and Cost (Bank Budget Only) Stage of Project Cycle USD Thousands (including No. of staff weeks travel and consultant costs) Lending FY02 28 131.58 FY03 29 124.88 FY04 -0.09 FY05 0.00 FY06 0.00 FY07 0.00 FY08 0.00

Total: 57 256.37 Supervision/ICR FY02 0.00 FY03 0.00 FY04 16 92.14 FY05 11 68.48 FY06 8 69.86 FY07 13 79.96 FY08 14 83.57 FY09 19 75.67 FY10 18 72.32 FY11 12 43.90 FY12 5 15.59

Total: 116 601.49

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Annex 5. Beneficiary Survey Results (if any)

Not applicable.

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Annex 6. Stakeholder Workshop Report and Results (if any)

Not applicable.

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Annex 7. Summary of Borrower's ICR

The Borrower’s ICR exceeds 10 pages, and will be submitted under separate cover.

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Annex 8. Comments of Cofinanciers and Other Partners/Stakeholders

Not applicable.

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Annex 9. Announcement of Provider for the Second Digital Cellular License

News Release

Government of Samoa

Ministry of Communications and Information Technology

Apia, Samoa, 8 March, 2006 – Today, the Minister of Communications and Information Technology, the Honourable Palusalue Faapo II, announced a decision to award a new GSM digital cellular telecommunications licence in Samoa. The decision concludes a competitive licensing process that was launched on 4 October, 2005. Five applications for the licence were received on 10th February, 2006.

The Minister announced that the licence will be awarded to a new company to be jointly owned by Computer Services Ltd. (CSL), Samoa’s largest internet service provider and a wireless network operator, and Digicel Ltd. which operates GSM networks in 15 Caribbean island nations. The new company will be called Digicel Samoa Ltd.

In making the announcement, the Minister said: “The Government of Samoa is very pleased to have received five good applications to provide GSM services. We have selected the applicant that best met the criteria established in our competitive process. Digicel Samoa Ltd demonstrated that it has the most experience and the strong financial capability to quickly build and operate a world-class new GSM network to serve all areas of Samoa.”

Digicel Samoa Ltd’s application proposes to build a state-of –the art GSM cellular network, with over 40 cell sites throughout Samoa. The company will hire 27 permanent employees, and create up to 200 indirect jobs in construction, sales and distribution channels. The new network will be operational within six months.

The Minister added that: “The licensing of a new GSM cellular service is the next step in our program to modernize the telecommunications sector in Samoa. Last year we passed the Telecommunications Act 2005, and established a modern telecommunications regulatory framework. We have now successfully completed an open competition to licence an experienced new telecommunications operator for Samoa. As a result of our telecommunications

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modernization program, the people of Samoa will see more competition, lower prices and a wide range of new services.”

The Government of Samoa was advised throughout the licensing process by McCarthy Tétrault, a large Canadian law firm with a leading international telecommunications practice. They have advised on similar licensing processes in over a dozen countries.

Minister Palusalue Faapo II added: “We are pleased with the recent progress made by both existing telecommunications operators, Samoa Tel and Telecom Samoa Cellular Ltd. to expand coverage in Samoa. Introduction of the new GSM network operator will provide a stimulus to ensure that there is healthy competition among all Samoan telecommunications service providers. The result will be that Samoans will receive among the best telecommunications services at the best prices in the South Pacific.”

For further information, please contact the CEO of MCIT, Mr. Tua’imalo Asamu Ah Sam. (Fax: +685-24671- E-mail: [email protected]

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Apia, Samoa, 8 March, 2006

Government of Samoa

Ministry of Communications and Information Technology Office of the Telecommunications Regulator

Issuance of a New Digital Cellular Licence Reasons for Decision

This document sets out the reasons for the decision made today, to select a one of the five applicants to receive a new GSM digital cellular telecommunications licence in Samoa, and to deny the applications of the other four applicants.

This decision concludes a competitive licensing process that was launched by issuance of an Information Memorandum (InfoMem) on 4 October, 2005. Five applications for the licence were received on 10th February, 2006. These applications were filed on behalf of:

 ATH - Amalgamated Telecom Holdings, owner of Fiji Telecom and Vodafone Fiji,  BSC - Blue Sky Communications, a mobile operator based in American Samoa,  CSLD – Dicigel Samoa Ltd, a company owned by CSL, a Samoa-based Internet service provider and Digicel, a mobile operator in the Caribbean,  PSW - Pro-Com-Samoa Wireless, a Samoan wireless and technical services company,  SDC - Samoa Digital Cellular, a Samoan wireless and technical services company.

The applications were evaluated in accordance with 5 evaluation criteria that were described in detail in the InfoMem. The maximum points available for each criterion were as follows:

Maximum Evaluation Criteria Points (a) Demonstrated telecommunications sector experience 35 (b) Demonstrated financial capability 35 (c) Viable business plan 10 (d) Service commitments 10 (e) Proposed local benefits 10 Maximum Points Available 100

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An assessment of the 5 applications against the evaluation criteria produced the following main results:

Three bids did not meet the minimum requirements set out in the 5 evaluation criteria:

 PSW and SDC have no experience in operating GSM cellular mobile systems, and no partners with 10,000 or more mobile subscribers (as required by the InfoMem). While PSW and SDC have some private mobile wireless experience, neither have GSM mobile experience, nor partners with any. PSW and SDC therefore failed to obtain the minimum points required under criterion (a).

 ATH did not clearly demonstrate its commitment to fund its business plan nor to investment in Samoa and it provided an incomplete business plan. ATH thus failed to obtain the minimum points required by the InfoMem under criteria (b) and (c). ATH’s application provided few details of the services it would provide in Samoa; nor was detailed information provided on local benefits. There was no analysis of the Samoan market nor proposed services, pricing plans, distribution channels, etc. ATH thus also failed to obtain the minimum points required under criteria (d) and (e).

For these reasons, the bids from ATH, PSW and SDC were ranked well below those of BSC and CSLD.

Comparing the two leading applicants – BSC and CSLD:

 With respect to the criterion of telecom sector experience, Digicel (the majority shareholder of CSLD) is a bigger and more experienced operator than Blue Sky (BSC) with 1.7 million subs in 15 Caribbean island markets, compared to 16.5 thousand in one market for Blue Sky. In addition, CSL operates Samoa’s largest internet and private wireless communications networks. Thus CSLD has more mobile GSM and, generally, more wireless telecommunications sector experience, and was awarded significantly more points for criterion (a).

 Digicel is a much larger operator than Blue Sky and it has much larger and more credible financial capability. CSLD’s ST$81.6 million in investment, with 50 percent in equity is fully funded at the outset of the business plan. Blue Sky committed less than ST$1 million in investment and proposed to finance more than 90 percent of its project with debt. Digicel is a large and profitable operator, while the information submitted by e- Landia, the recently restructured parent company of BSC indicated that it has significantly less financial capability than Digicel and CSL. CSLD thus obtains more points under criterion (b).

 BSC’s business plan is more conservative than CSLD’s, and BSC was awarded slightly more points under criterion (c).

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 The BSC and CSLD bids are both strong and relatively equal with respect to criterion (d) service commitments, with both offering the required services; but with CSLD proposing more sites and coverage.

 Both bids were strong on local benefits. BSC may have more tendency to try to run operations from American Samoa (where their MSC and other operations systems are), but overall the two bids will likely bring similar local benefits. BSC probably understands the Samoan community better than Digicel, but CSL’s partnership in CSLD will likely offset that. Both have credible local partners. Digicel appears to have a plan to expand to other Pacific Islands, which could create opportunities for Samoa-based employees.

In conclusion, therefore, CSLD clearly has more telecommunications sector experience than BSC, and definitely has a stronger financial capacity. BSC presented a more conservative, and thus somewhat more viable business plan than CSLD. Both of the two leading bidders provided strong, and essentially equal proposals for service commitments and local benefits.

Based on this evaluation, the comparative ranking of the applications for the digital cellular licensing process is as follows:

 CSLD filed the highest-ranked application, met other requirements set out in the InfoMem, and accordingly should be treated as the successful applicant;

 BSC is ranked a strong second, but well behind CSLD; and

 The applications from ATH, PSW and SDC were ranked well below the two leading applications. Each of the three failed to meet one or more of the minimum points requirements in the evaluation process.

For these reasons, it was decided that the licence should be issued to Digicel Samoa Ltd., the new mobile operating company formed by CSLD. Since only one licence will be issued, the remaining four applications will be denied.

These reasons do not constitute the awarding of a licence. The licence will be issued to the successful applicant in accordance with the conditions described in the InfoMem, including the requirement to file of a Letter of Credit to secure performance of the licence commitments.

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Annex 10. List of Supporting Documents

Project Appraisal Document (Report 24794) Project Supervision Aide-memoires/ISRs Project Extension, September 2007 Project Paper, August 2009 Project Paper, October 2010 Reports submitted by for each piece of technical assistance

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172˚40' 172˚20' 172˚00' 171˚40' SAMOA alo Laum Sam M Safotu anase oli Fagam auga Tutaga Lefagaoali'i Sato'alepai TELECOMMUNICATIONS AND Safune Sale'aula Sasina FALEALUPO Mauga POSTAL SECTOR REFORM PROJECT Vaotupua Vaipouli Letui Falealupo Vaisala Samalaeulu Fagasa 'Auala Utuloa Papa Ologogo UNPAVED ROADS Sataua South Pacific Tufutafoe Asau Patamea PAVED ROADS VAISIGANO A'opo Ocean WEST VAISIGANO RIVERS WEST EAST IIIIII III II I ALATAUA SAVAI'INeiafu ELEVATIONS (IN FEET): Pu'apu'a Falelima Asaga 0–999 IV Lano 1000–1999 SALEGA Fagafau III Saipipi 2000–3999 Samataiuta Sa'asa'ai

Fogatuli II Lu'ua 4000 AND ABOVE Vaiola Faga Faia'ai Si'ufaga SELECTED TOWNS AND VILLAGES Vaipu'a Tuasivi 13˚40' 13˚40' Fogasavai'i Sagone S Safotulafai NATIONAL CAPITAL A I Foailalo WEST T Sapapali'i U PA L AU L I Lalomalava Gaga'emalae P SUB-DISTRICT BOUNDARIES A Sala'ilua ’IT 'Iva Si'utu FALEFA E Salelavalu DISTRICT BOUNDARIES A Salelologa Sili Mosula Vailoa INTERNATIONAL BOUNDARY (INSET) Tafuauta Gautavai Fa'aala Papa Satupa'itea Gataivai Puleia Satufia FALEFA ferry Taga Tafuatai SAGAGA USOGO oa Le'auva'a Tuana'iMalie Fale'ula Utuali'i Sale'im Saina LeulumNofoali'i Fasito'o-uta Fasito'o-lai Lev'i Afega Vaigaga oega This map was produced by the Apolima Faleasi'u Vailoa Map Design Unit of The World Bank. Satui Lepea APIA Mulifanua A SAGAGA Falofituoataa The boundaries, colors, denominations M L Fagali'i and any other information shown on Vailu'u-laiA FALEFA Vaimoso O Vailele this map do not imply, on the part of L Vaimea Manono Satapuala FI Letogo The World Bank Group, any judgment Satuimalufilufi O

FI I Lauli'i Luatuanu'u on the legal status of any territory, or Vaipapa Lepale Aleisa any endorsement or acceptance of I ALOFI III I Solosolo such boundaries. SaluafataLufilufi 172˚40' Tiapapata Utumapu Faleapuna FALEATA A Tanumalala 'Eva Falefa Manono-uta WEST FALEATA G Salelesi Si'ufaga EAST U T A Uafato Samatau Pata A S G N. Mariana Is. (US) E U Manunu T Sauago Falelatau IM MARSHALL Afiamalu W A S Lalomauga Saletele Guam (US) A A ISLANDS LEFAGA V IM ’AOAMA’A SAMATAU & E Musumusu Falease'ela A WEST Falevao FALELATAI V Safa'ato'a SAFATA North PacificSUNDAY ’AOAMA’A Ta'elefaga Lona MONDAY Savaia EAST Uafato PALAU Ocean Sa'anaou-uta Matautu Tiavi FEDERATED STATES Tiavea ALEIPATA Lotofaga-uta SI’UMU ITUPA I LALO OF MICRONESIA Sataoa-tai Vaie'e LOTOFAGA Salamumu Mulivai Samusu Palmyra Atoll (US) Si'umu FALEALILI Sopo'aga Fall 14˚00' 14˚00' LEPA Sale'a'aumua Tafitoala Lotopu'e Poutasi PAPUA Howland(US) Saleilua Satitoa KIRIBATI SapunaoaSalesateleSalani Lotofaga INDONESIA Vaovai Lepa 'Ulutogia NEW Baker (US) Satalo Saleapaga Matatufu Vailoa GUINEA SOLOMON Jarvis (US) Sapo'e A'ufaga Lalom Nene ISLANDS TUVALU anu ALEIPATA SAMOA ITUPA I LUGA Wallis and Futuna Is. (Fr) VANUATU Tokelau (NZ) TONGA UPOLU FIJI New American South Pacific Caledonia Samoa T (US) Cook (Fr)ropic of Capricorn Islands Ocean AUSTRALIA (NZ) Niue French MILES 0 510Nu'Utele Lord (NZ) Polynesia Howe (Fr) (Aus) Norfolk (Aus) KILOMETERS 0 4 8 12 16 Kermadec Nu'Ulua South Pacific Is. (NZ) Ocean NEW

ZEALAND DATE LINE

INTERNATIONAL 172˚20' 172˚00' 171˚40'

SEPTEMBER 2002