Universal Service: Regulation, Competition and Contemporary Issues

Its been a long time since I wrote. An invitation to speak at a Conference on Universal Service in India in the context of India's broadband plan gave me the opportunity to put together some thoughts on Universal Service Regulation in India.  The use of Universal Service funding is in theory market friendly and complements liberalisation and competition. However, in practice, particularly in the context of roll out of national broadband networks, the design of USF interventions can do much harm to telecommunications sector by creating winners and losers, creating/exacerbating barriers to entry and distorting the competitive scenario. In the long run this would impede dynamic efficiency and harm the very objective of universal service.
Please see the slides here

Free Basics-Do we need Facebook to (selectively) connect India

I have read extensively and written previously on net neutrality. However, my pleasure in reading critics of breaching net neutrality principles has increased manifold since Facebook started placing full page ads in leading dailies. The quality of comments has improved. They are now more focussed and incisive. By Indian standards this is a desperate (and may I say vulgar display of desperation) attempt to patronisingly suggest that we need Facebook to connect India.

I am not denying that we have failed miserable in doing so, My entire blog is about how we have wasted opportunities to correct market failures and to correctly utilise universal service funds(USOF) in India. I have also pointed out regularly, the deficiencies in our approach to NOFN/BBNL.

The fact that we have multiple mobile operators in mobile/broadband does not tantamount to competition. Statistics suggest that our markets are far from competitive. This is reflected in high tariffs, low speeds and poor service quality. I place below evidence based on my own analysis of data.

Yet Facebook's blatant attempt to mislead the public and confuse the issue is something that I cannot stand by.  I reproduce below some excellent articles on the subject.

 The Hindu carries,firstly,
..Free Basics is not free, basic Internet as its name appears to imply. It has a version of Facebook, and only a few other websites and services that are willing to partner Facebook’s proprietary platform.

Today, there are nearly 1 billion websites. If we consider that there are 3.5 billion users of the Internet, 1 out of 3.5 such users also offers content or services. The reason that the Internet has become such a powerful force for change in such a short time is precisely because anybody, anywhere, can connect to anybody else, not only to receive, but also to provide content. All that is required is that both sides have access to the Internet.

All this would stop if the Internet Service Providers (ISPs) or telecom companies (telcos) are given the right to act as gatekeepers. This is what net neutrality is all about — no ISP or telco can decide what part of the Internet or which websites we can access. Tim Wu, the father of net neutrality, has written that keeping the two sides of the Internet free of gatekeepers is what has given a huge incentive for generating innovation and creating content. This is what has made the Internet, as a platform, so different from other mass communications platforms such as radio and television. Essentially, it has unleashed the creativity of the masses; and it is this creativity we see in the hundreds of millions of active websites.

Facebook’s ads and Mark Zuckerberg’s advertorials talk about education, health and other services being provided by Free Basics, without telling us how on earth we are going to access doctors and medicines through the Internet; or education. It forgets that while English is spoken by only about 12 per cent of the world’s population, 53 per cent of the Internet’s content is English. If Indians need to access education or health services, they need to access it in their languages, and not in English. And no education can succeed without teachers. The Internet is not a substitute for schools and colleges but only a complement, that too if material exists in the languages that the students understand. Similarly, health demands clinics, hospitals and doctors, not a few websites on a private Facebook platform.

Regulate price of data
While the Free Basics platform has connected only 15 million people in different parts of the world, in India, we have had 60 million people join the Internet using mobiles in the last 12 months alone. And this is in spite of the high cost of mobile data charges. There are 300 million mobile broadband users in the country, an increase fuelled by the falling price of smartphones.

In spite of this increase in connectivity, we have another 600 million mobile subscribers who need to be connected to the Internet. Instead of providing Facebook and its few partner websites and calling it “basic” Internet, we need to provide full Internet at prices that people can afford. This is where the regulatory system of the country has to step in. The main barrier to Internet connectivity is the high cost of data services in the country. If we use purchasing power parity as a basis, India has expensive data services compared to most countries. That is the main barrier to Internet penetration. Till now, TRAI has not regulated data tariffs. It is time it addresses the high price of data in the country and not let such prices lead to a completely truncated Internet for the poor.

There are various ways of providing free Internet, or cost-effective Internet, to the low-end subscribers. They could be provided some free data with their data connection, or get some free time slots when the traffic on the network is low. 2G data prices can and should be brought down drastically, as the telcos have already made their investments and recovered costs from the subscribers.

The danger of privileging a private platform such as Free Basics over a public Internet is that it introduces a new kind of digital divide among the people. A large fraction of those who will join such platforms may come to believe that Facebook is indeed the Internet. As Morozov writes, the digital divide today is “about those who can afford not to be stuck in the data clutches of Silicon Valley — counting on public money or their own capital to pay for connectivity — and those who are too poor to resist the tempting offers of Google and Facebook” (“Silicon Valley exploits time and space to extend the frontiers of capitalism”, The Guardian, Nov. 29, 2015). As he points out, the basic delusion Silicon Valley is nurturing is that the power divide will be bridged through Internet connectivity, no matter who provides it or in what form. This is not likely to happen through their platforms.

The British Empire was based on the control of the seas. Today, whoever controls the data oceans controls the global economy. Silicon Valley’s data grab is the new form of colonialism we are witnessing now.

The Hindu also carries another article which is close to my heart as it focusses also on the issue of competition in telecoms.

If the objective is to connect the whole world to the Internet, then Free Basics by Facebook (previously known as internet.org) is a controversial method to achieve it. The company wants to provide a subset of the Internet free of charge to consumers, with mobile telecom operators bearing the costs of the traffic. Facebook acts as the unpaid gatekeeper of the platform.

This kind of arrangement has come to be called “zero rating” and attracted criticism from Internet civil society groups like the Electronic Frontier Foundation. It argues that the Free Basics scheme has “one unavoidable, inherent flaw: Facebook’s central role, which puts it in a privileged position to monitor its users’ traffic, and allows it to act as gatekeeper (or, depending on the situation, censor)... there is no technical restriction that prevents the company from monitoring and recording the traffic of Free Basics users. Unfortunately, this means there is no guarantee that the good faith promise Facebook has made today to protect Free Basics users’ privacy will be permanent.”

Monopolists vs free market

In India, Internet civil society activists are opposing Facebook’s scheme for additional reasons. While the attempt to introduce new users to the Internet is a good thing, they argue, the scheme risks breaking the network into many smaller ones and skewing the playing field in favour of apps and services that enjoy privileged pricing.

Zero rating in general and Free Basics by Facebook in particular has many defenders among advocates of free markets and capitalism. They argue that if the mobile operator wishes to lose money or cross-subsidise some users at the cost of others, then it should be allowed to do so. Government intervention in pricing usually has bad unintended consequences, and it should be no different in the case of Internet traffic.

The Telecom Regulatory Authority of India (TRAI) has re-engaged in a public consultation seeking submissions on which path it should take: the conservative path of insisting on net neutrality, a laissez-faire approach of non-intervention in the decisions of private firms, or other options in between these two.

What seems to be taken for granted but should really surprise us is that companies and policymakers accept that getting the developing world online requires methods that are different from how the developed countries got there. So, how did the hundreds of millions of people around the world become Internet subscribers? Not because of government schemes, but because they could afford it. They could afford it because market forces — competition — drove prices down to levels that made an Internet connection affordable. Unless government policies get in the way, there is no reason why the same forces will not reduce prices further to make the service affordable to ever more people, with lower disposable incomes.

There is empirical evidence for this: the 980 million mobile phone subscribers in India are able to make phone calls because they can afford the charges. Even after some price capping by TRAI, most mobile telecom operators are doing well. Despite persistent call drops and atrocious customer service, consumers enjoy reasonably good service and the industry as a whole is fairly healthy.

All this happened without a mobile phone operator providing free calls to a limited set of numbers in order to demonstrate the value of mobile phones and to encourage more people to take up subscriptions. Operators did, however, innovate in retailing, launching prepaid packages and recharging these connections. On the flip side, they also cut costs by skimping on customer service, overloading spectrum and sharing tower infrastructure.

Competition is the key

TRAI should reflect on its own success in transforming India from a low teledensity country to a moderately high teledensity one. This happened not due to “no-frills services for poor and developing country users” but by ensuring that market competition is allowed to take its course. There is no reason why mobile Internet services will not become as popular as mobile phone services as long as there is adequate competition.

Therefore, the debate on whether or not to permit zero rating is beside the point. What TRAI ought to be asking is whether there is sufficient competition in its current policy framework. Should it be licensing more telecom operators? Has the government made enough spectrum available so that mobile operators can lower prices and ensure adequate service quality? Are there bottlenecks in the hands of monopolists that raise the costs of service?

The path to achieving the dream of Digital India lies not in foreign companies deciding on what basic services India’s poor ought to access free of charge, but by encouraging ever greater competition and a level playing field. This calls for the regulator to have a hawkish approach towards anti-competitive behaviour by existing market players.

Now, let’s say that the government really wishes to make the Internet affordable to citizens whose incomes are too low to pay for it. There is a good case for this based on positive externalities: that some benefits of an individual’s connection to the Internet accrue to society as a whole. Much like primary education, an Internet connection allows a citizen to participate in the modern economy. Just as society as a whole benefits if all citizens are educated, it benefits if all citizens are connected. To be clear, this is not an argument for the government to run telecom businesses. Rather, it is to say that it is in the public interest for nearly everyone to be connected to the Internet.

Growth as a force multiplier

While it is tempting to provide free or subsidised services — like we do in India for many such things — the best method to achieve this outcome is to raise people’s incomes. If the Indian economy grows at 8 per cent over several years, the income effect will make Internet connections more affordable even if prices do not fall.

In other words, the best scheme to bring the Internet to all involves boosting competition to bring down prices and pursuing economic growth to raise people’s incomes. This is the formula that has worked elsewhere in the world, has worked in India and will continue to work. Schemes like Free Basics by Facebook and Airtel Zero are unnecessary from the perspective of connecting the unconnected.

Now, Facebook is not a charity. So, it probably must have a good explanation to its shareholders why it is spending so much of its time and resources in promoting a good cause. That explanation is likely to go: “more Internet users in the world means more users for Facebook, which we monetise in our usual ways”. It might also hint that being the gatekeeper, however open, of Internet content for hundreds of millions of people will give it a lot more market power. This is important, for as Chamath Palihapitiya, venture capitalist and an early Facebook executive says, the company worries that it will lose out if it does not capture most of the world’s Internet content on its own platform.

TRAI must take a call on whether such business strategies are anti-competitive. But in dealing with the question, the regulator must not allow itself to be persuaded that such schemes are necessary for bringing the Internet to the masses.

The Net Neutrality Debate in India: The problem with killing more than one bird...

Certain  misleading arguments are being propounded by broadband service providers and some analysts in India to counter the pro net neutrality debate. Having witnessed  transformative  power of the internet, we must remember that it can continue to deliver its promise only when allowed to continue to connect people ideas, information, goods and services without unnecessary interference. In trying to achieve certain policy objectives (which can be better achieved through other means), we should not end up killing the proverbial goose that laid golden eggs
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My views on the subject can be read/downloaded here.

The Net Neutrality Debate in the Indian Context-A Pinch of Salt

I reproduce here my article on the subject, also available at this link

 It is easy to get swept away in the maelstrom of views and counter views, but difficult to arrive at an informed decision on the subject of net neutrality -- the uninhibited access to legal online content without broadband service providers (BSPs) being allowed to block, degrade, or create fast/slow lanes to this content that rides over the internet (OTTs).

The fundamental question is why fix the internet when it is not broken and that too for the wrong reasons? These include inter alia India's overwhelming dependence on mobile broadband due to abysmal wireline penetration, coupled with scarcity and high cost of spectrum and congestion of the internet due to bandwidth hogging free riders. 

To meet these challenges BSPs need tools to prevent congestion and shore up their revenues through levies on content or tie-ups with OTT providers so as to invest in infrastructure, improve service quality and make surfing affordable for the poor and bridge the digital divide. These theories demand a pinch of salt.

Reason One: India depends on wireless broadband. It is true that we have an abnormally high mobile to fixed broadband ratio of 4:1 and only 15.2 million wired broadband connections in a country of 1.2 billion. This has arisen from a legacy of overprotection of PSU incumbents (BSNL & MTNL) who would not allow private operators to access their infrastructure and neither was this mandated.

As PSU monopolies led to inefficiencies, but regulatory barriers made investing in wirelines unattractive, innovation driven, privately provided, wireless services took over. India has a fixed broadband penetration ratio of 1.2 per 100 as against the world average of 9.4 per 100. The incumbents continue to lose 2-3 million landline connections every year. 

However, this imbalance needs to be rectified through regulatory reforms rather than accepted as permanent; nor should it become a reason for interfering with net neutrality. It's important to note also that in terms of competition and performance, we don't fare too well in the wireless broadband space either, ranking 113th in the world with a penetration ratio of 3.2 per 100, performing worse than Nepal and Sri Lanka. 

We have one of the lowest broadband speeds in the world, both in wired and wireless broadband and broadband prices as a percentage of per capita incomes are higher in India than in Pakistan or Sri Lanka. The top four players command about 75 percent of the wireless broadband market. They are the new incumbents and predictably, they too would like to protect their turf. 

Applications like WhatsApp and Skype represent Schumpeterian creative destruction offering much cheaper messaging and voice services over the internet. To avoid going the landline way, mobile service providers must embrace technological progress, adapt, innovate and compete, rather than being allowed to thwart consumer access to applications or OTT providers' access to consumers. 

Reason two: Scarcity of spectrum. The scarcity of adequate and contiguous spectrum must be solved by better spectrum planning in the long run and the use of technology to enhance spectrum efficiency in the short run. The former includes freeing up spectrum held by defence and railways, and allowing spectrum trading and sharing. 

The latter includes employing techniques like multiple small cells to support more users with the same amount of spectrum and creating Wi-Fi hot spots to shift users from mobile broadband to unlicensed Wi-Fi spectrum, whenever feasible. If additional infrastructure costs must be borne to this end or if BSPs must be incentivised to do so by rationalizing indirect taxes or through subsidies, then so be it. Meddling with net neutrality is not the right solution. 

Reason three: Bandwidth hogging applications should cost more. BSPs in India offer multiple tariff plans with different browsing speeds and download limits. Beyond the download limit, the speed goes down drastically (fair usage). BSPs offer top ups, to maintain speed, albeit at a cost. 

While OTT players respond by continuously innovating to make their applications more bandwidth efficient, users are certainly not enjoying a free lunch at the cost of BSPs. The more they download, the more they pay. Also, growing data usage is a source of revenue for BSPS. Data revenue has nearly doubled, from Rs.3,057.83 crore in June 2013 to Rs.5,910.28 crore in September 2014.

Reason four: BSPs need a share of OTT players' revenues to fund universal connectivity. There are more transparent and less harmful ways to encourage investment in broadband infrastructure. India has a Universal Service Obligation Fund (USOF) to subsidise and promote rural telecom services. As per USOF rules, subsidy is available to both public and private sector players and is discovered through a transparent bidding process. This makes it the ideal means to bridge the digital divide.

Reason five: Free, or cheap content to allow a taste of the internet. The utility of the internet cannot be reduced to a few applications. Notwithstanding the harm this would do by way of discouraging innovation and distorting consumer choice, do we really want our price sensitive, digitally uninformed masses' internet experience to be limited largely to Facebook or Bing? 

We already rank below 11 African countries and among the Least Connected Countries on the ICT Development Index which includes ICT skills, usage and access. For deserving users, USOF can subsidise access to important applications (e-health, e-education etc.) in a transparent manner, leaving them to explore the rest of the internet as they please.

The transformative power of the World Wide Web lies in externalities created by its scale and scope - billions of users and a mindboggling array of information, products and services. Should we curb the freedom of this open exchange and that too for the wrong reasons?

If wishes were horses...

It is reported that,

" [t]he cabinet on Wednesday approved the ambitious Digital India programme that aims to connect all gram panchayats by broadband internet, promote e-governance and transform India into a connected knowledge economy......The vision of the programme is centred on three key areas: digital infrastructure as a utility to every citizen - digital identity, mobile phone and bank account, safe & secure cyber space; governance & services on demand - services available in real time on online and mobile platform, making financial transactions electronic and cashless, & digital empowerment of citizens - all documents, certificates available on cloud.Digital India envisages connecting 2.5 lakh villages by broadband and phones, reduce import of telecom imports to zero, wi-fi in 2.5 lakh schools, all universities, public wi-fi hotspots for citizens and creating 1.7 crore direct and 8.5 crore indirect jobs. Other impact points include training 1.7 crore citizens for IT, telecom and electronics jobs, and delivering e-governance and e-services."

As usual the programme that comes at a hefty cost of more than Rs one billion hinges on the success of USOF India's National Optic Fibre roll-out for broadband delivery.

All one can say is good luck with that! The same news item explains why I hold this view:

"Soon after assuming office, IT and telecom minister Ravi Shankar Prasad had said that the new BJP-led government will on priority take up the plan to connect 2,50,000 gram panchayats through the optic fibre network. The government plans to connect 50,000 gram panchayats this fiscal year itself ending March 31, 2014, one lakh in the next fiscal year and a similar number the year after.      The Rs 21,000-crore NOFN project - fully funded by the USOF - was unveiled by the UPA to digitally connect 2,50,000 gram panchayats. However, the project has not progressed much so far - delayed by over three years - due mainly as the cable laying and ducting process is yet to be finished. Among the pillars is mobile connectivity for all, which includes covering all the about 42,300 unpenetrated villages at a cost of Rs 16,000 crore to be completed by 2017-2018."

Views on the manner of planning and execution of NOFN / BBNL and alternative means of achieving broadband  roll outs through USOF are documented in previous posts. 

Interestingly, years after the project was initiated by way of an SPV of three public sector companies, the telecom regulator while commenting on the Digital India Plan has reportedly stated that the NOFN project is running over three years behind target and only 8% of the 0.18 million  kms of optic fibre has been rolled out. He says that private sector should be involved in NOFN roll out and that,

"Investment of private players could significantly reduce the cost of the entire   the project and therefore final tariffs"

The regulator also rightly points out the need for detailed planing of the actual content for the envisaged e-government services rather than limiting the plan to vague terminology such as e-health,e-education and the need to involve private sector in content development (rather than just depending on strengthening/ revamping the state agencies  as a means to achieve the plan.)

Letting the Market Function

A  very  thoughtprovoking paper on Broadband in USA highlights the power of innovation, genuine competition and  allowing markets to grow and cater to demand sans unnecessary regulation.
Its conclusions are reproduced below. They suggest avoidance of overenthusiastic tinkering in markets through market distorting regulation and subsidies. Most of these would be equally important in any context whether we talk about the developed or developing world except perhaps that in many developing countries supply side problems are far more prevalent

America’s broadband networks have allowed the United States to become a leading digital econ­omy. Building on a sound broadband foundation and leveraging the advantages of America’s inno­vation ecosystem have allowed American firms to export their digital goods and services to other countries, making the digital sector America’s third-largest category of exports after industrial supplies and capital goods. Policymakers should take the following steps to ensure that the United States continues to be the leader in global competitiveness:

In order to maximize investment, avoid utility-style regulation. Instead, focus on market-based, technology-neutral approaches that encourage dynamic competition with different networks and technologies.
Avoid subsidies for any particular technology: a variety of broadband technologies keep the market competitive. Government involvement in the broadband market may cause private firms to exit, stifling growth in the industry.
Permit competition-enhancing consolidation of broadband companies because mergers lower overhead costs and make operations more efficient.
Remove barriers to mobile infrastructure at the local level. Municipalities often hinder the deployment of infrastructure, which limits broadband competitors, particularly in rural areas.
Focus on increasing Internet adoption rather than the deployment of network. More than 80 percent of Americans use the Internet, and those who do not cite lack of usability and relevance as their primary reasons rather than cost or lack of access.

Progress the E-way

A though provoking article "Solving Social issues through Technology" draws attention to the progress India has made in the realm of technology (reference the latest Mars mission) and the need to harness technology to bring education, facilities and opportunities to rural Indians and others who aspire to break out of poverty. It pins hope inter alia upon the NOFN.

Another article, "Technology rings in Financial Inclusion" highlights that in India, 65% of population has no access to banking but mobile phones  can change that. Innovative applications can enhance financial literacy and in fact, it has been proven by field research that even illiterate Indians take to financial inclusion apps and become adept at mobile banking.

All this has been said before (and posted about before in this blog). What we need most in my opinion is the Market Efficiency side of reforms to ensure that connectivity is widespread and universally available and that regulations encourage the use of ICTs including all aspects of the mobile/broadband ecosystem. This includes of course Universal Service Regulation.

Digital Literacy and the Huge untapped Demand for Internet in Rural India

An article in the Financial Express titled "Time to Push the Pedal" highlights yet again the huge potential of imparting digital training to rural Indians including grown ups and particularly women. 

My own experience with USOF India's project for ICT facilities and skills  for women is exactly as stated in this article. Parents/mothers in rural India and even ultra conservative states would like their daughters to educate themselves and seek employment as a means of financial independence. For that purpose alone they would happily embrace a tool like the internet which provides convenient access to information and knowledge on a vast range of topics from online courses, university admissions to entrance exams and job opportunities. Please see my post titled " Special Initiatives, ICTs for Women" under the label ICTs for Women. My articles on this scheme may also be seen at 

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2103235

and

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=230247

Needless to say along with supply side measures like broadband infrastructure, local language content and useful applications, efforts to precipitate demand as envisaged in India's National ICT policies are of critical importance. While doing so we must focus on adult education and ensure inclusion of women and the disabled.

Internet for Indian Villages-Where does the solution lie?

One possible answer is that we have to encourage community participation rather than purely top down supply side big schemes. We have had little success with the former as for example the Common Service Centre scheme of Department of IT. 

My previous post "Wi Fi Internet for Indian Village Local Government Offices-Going Around in Circles?" has already suggested that USOF's proposed project for wi-fi and internet at panchayat offices may not necessarily meet with success as far as bringing internet to ordinary rural folk goes. I believe we have to allow big schemes to include the end users and NGOs into the design is we are to succeed. 

A good example of such a project has been documented in an article titled "Let NGOs provide rural net services" It describes a success story wherein involving and training locals in villages to provide services where big operators are not interested with the help of NGOs has enabled even illiterate villagers to benefit from online content (such as audio-visual content).

Such schemes require far more effort and time as was the case of USOF's Sanchar Shakti. However they are worth it in terms of outcomes.

 Einstein had famously said insanity is repeating the same thing again and again and expecting different results. Time to change our approach? 

Wi Fi Internet for Indian Village Local Government Offices-Going Around in Circles?

A news item in the Times of India (November 30, 2013)  titled "Govt clears internet wi-fi plan for rural India" states that a proposal to provde wi-fi hotspots and internet connections to India's Gram Panchayats has recently been approved. Slated to cost Rs 37.5 billion and targeted to be completed by 2016, the project will be funded by Indian USOF and will ride on NOFN infrastructure, 

This may be an excellent idea with two caveats. 

One is that past experience has shown that telecom services in Panchayats tend to be used only by the rural elite and are unavailable to the common people. During USOF inspections I have seen private public calling offices doing roaring business whereas the USO funded village public telephone located in the village panchayat (local self government office) bang opposite, on the other side of the village mud track was being exclusively used by the local elite. Villagers were in fact unaware of this state funded facility. Thus, given the social and economic set up of Indian villages such facilities could encourage better data keeping and connectivity within the government set up but are likely to percolate to rural society at large. The village school may have been a better venue for such a facility if empowering the common people is the aim, but then more effort would be involved in managing, maintaining and manning the facility. I have written before about the need to look at various other facets of the demand side eco-system. You need applications and trainers/facilitators in rural India. This requires a multi-stakeholder approach to project design. A good and successful example is USOF's Sanchar Shakti.

My second concern is who is providing the last mile service. I hope it is not NOFN. The entry of NOFN into access segment would in my view negate the very idea of Universal Service as a modern mechanism in a liberalized sector as being different from state owned monopoly service provision. Please see my previous articles in this regard under the same labels.

Plus ça change, plus c'est la même chose

An article in the Economic Times today laments that poor rural teledensity is lie to hamper achievement of India's broadband target of 175 million subscribers by 2017. Teledensity in rural India is crawling and is at present 41.64% compared to urban teledensity of 146%.We still have only about 16 million broadband connections. The usual culprits have been blames-poor rural demand and higher costs of rural roll out including non availability of fibre. 

I have recently written about NOFN/BBNL and why it should focus on its core objective of providing           non-discriminatory OFC backhand rather than trying to become a vertically integrated service provider. We already have one such public sector operator in BSNL (which has continuously resisted sharing its fibre with other service providers in spite of regulatory recommendations).

The poor results of USOF's substantial funding to the incumbent BSNL for rural wire lines and broadband are evident. Perhaps there is a need to review the entire strategy of promoting rural telecommunications. Perhaps the solution lies in a more level playing field via regulation (fixing the market efficiency gap) and public funding that encourages private participation. Please also see my previous articles on competition.

NOFN Veering Away from its Core Objective?

In a post titled BBNL and Competition Neutral Broadband Funding I had mentioned the proposal to make India's USF funded rural broadband back haul provider into a service provider.

In an article from the Economic Times it is now learned that BBNL is likely to acquire only an Internet Service Provider license. While this is better than it trying to become a unified service provider it is not what a state funded broadband back haul network is supposed to do. It would become difficult to regulate BBNL's wholesale bandwidth and ensure a level playing field vis-a-vis its own service provider arm. 

As regards the lack of interest among ISPs to venture into rural areas to provide internet, I would not agree with the justification provided in the article. The whole idea of NOFN/BBNL was to eliminate the high speed and bandwidth back haul issue and to allow private and public players to provide last mile access (with this problem taken care off). If the Government was to provide the latter too, the funding may as well have gone to the incumbent BSNL by way of budgetary support instead of creating another PSU monopoly.

A proper study and public consultation process would be in order before assuming a lack of interest  in tapping the rural market among India's multiple  ISP's. (392 as per Department of Telecom's website). There are competition issues here which invariably mean issues realting to long term health of the sector.

Internet for Rural Livelihoods

I have written earlier about internet based applications and services and their positive impact by way of bridging infrastructural gaps. An interesting article in this regard tells us about Taking Indian handicrafts online.

As per the article Craftsvilla.com is an e-commerce site that tied up with an NGO to provide an interface to about 5000 artisans across India to sell their handicrafts online thereby expanding their market access. There are challenges in terms of commissions paid to various service intermediaries and continued dependence of craftsmen on wholesale dealers but the reach of the handicrafts themselves expands to a larger market. 

My grouse is that the website does not sell handicrafts as handicrafts but rather tries to entice buyers by using references to popular culture.  Other than that this is a welcome initiative. What India needs is lots more connectivity and e-literacy so craftsmen can deal directly with buyers through e-commerce portals much as we use e-bay like sites as individuals.

Internet/Broadband in India-So Important and Yet So Scarce

An article by Mr Manzar in the Mint  highlights at the end of 2012, internet users were only 10% of the population making it among the lowest in the world in internet and computer penetration.

Another article by him points to the sheer importance of internet in creating awareness about government services and entitlements among illiterate rural poor who otherwise remain ignorant and are duped by unscrupulous elements. This was in the context of Indias' MNREGA-a rural employment guarantee scheme.
 An inspiring  article on "'Enabling access to vocational training content on cellphones" tells us about "'SkillTrain" being run Mr Ganesh.B in the state of  Madhya Pradesh.

"The company records videos of the module that students can download on their mobile phones for free and learn from it.SkillTrain offers four courses—mobile repairing, electronics, computer science and computer hardware—that extend from 12 to 20 modules. It plans to extend it to wider subjects such as welding, two-wheeler and automobile mechanic, electrician, plumbing and tailoring next year." 

The article also states that,

 "It is estimated that about 15 million Indian students drop out of school every year. The gross enrollment ratio in higher education in India is at 17.9%, much below the the global average of 27%.
The government has set an ambitious target to train 500 million people by 2022 to help them acquire vocational skills and provide an efficient workforce for industry. There is a shortage of trained manpower and even the available talent does not match the requirements of industry.
School dropouts fail to go for mainstream education for several reasons, including ineligibility, the family’s financial conditions, academic pressures and regulatory requirements."

Learning on the mobile for a fees was found to be more economical by students rather than travelling long distances to a training centre.

All this goes to show the importance of broadband connectivity which India is struggling to provide to especially its rural population.Please also see previous posts on Mobile VAS and USOF India's Mobile VAS Scheme Sanchar Shakti..

BBNL and Competition Neutral Broadband Funding

The Economic Time reports that BBNL(NOFN) which is at present an infrastructure provider may acquire a unified license and become a service provider. This broadband network funded by USOF India was to provide OFC connectivity to 2.5 lakh village panchayats (local self government offices) up to block level as private operators were not likely to cater to this market segment.

It is reported that,

"The government is looking to "revise BBNL's mandate" as it wants it to directly deliver high-speed broadband services down to the district level to maximise utilisation of NOFN infrastructure, which is the communications ministry's biggest telecom venture.

The immediate plan is use the NOFN resources to build a "government-user overlay network" — akin to a virtual private network — for delivering a host of citizen-centric e-services to bridge the digital divide across rural India.

The DoT has proposed joint funding of the "proposed overlay network" by the Universal Services Obligation Fund (USOF) and the ministry of rural development. It wants USOF to handle the entire upfront capex payout — pegged at Rs 3,750 crore — and the rural development ministry to handle opex over a 10-year span - estimated at about .`1,860 crore a year - putting the total cost at Rs crore, excluding taxes."

In my previous posts on National Broadband Plans and incumbent centric, public funded Broadband Networks I have highlighted the importance of competition and avoidance of market distortions or recreation of monopolies. I believe that if BBNL were to complete roll out and the government was to focus on            e-government services (applications), a host of private and public sector telecom service providers would step in to provide last mile connectivity for broadband enabled services on commercial considerations.

In fact it has recently been reported that India has croseed the billion mark as far as e governance transactions go. Also that, "[w]ith more parts of the country getting connected through the National Optic Fibre Network, industry watchers expect more citizens to be accessing government services over the internet. ... The network has been launched in pockets of Rajasthan, Andhra Pradesh and Tripura, with some 80,500 transactions already recorded."

Mobiles for Medical Help in Rural Areas

In an article titled "Soon Medical Services through Phone"it is informed that

"Notwithstanding challenges like low bandwidth and internet penetration, health professionals feel that there is a huge market (900 million Indian cellphone owners) waiting to be tapped. A recent study conducted by Apollo Hospitals and Georgia State University , Atlanta, gives credence to this belief. The survey found that nearly 28% people in rural areas and 46% in urban areas owned smartphones. Conducted across a sample of 1,866 people spread in five states — Chhattisgarh, Andhra Pradesh, Gujarat, West Bengal and Tamil Nadu — it also found that one-third of those interviewed had not undergone a health check-up in five years with 55% saying they were open to accessing medical services through mobile phones."

Given the overall underdevelopment of rural areas, doctors are not easily available. Providing medical services through ICTs is the best bet in rural India. This underlines the importance of universal availability of high speed broadband.

Relevant Markets of the Future

It is interesting to think of broadband which people like me have already likened to a bridge across infrastructural gaps as being treated as a substitute to transportation, not for purposes of competition  law jurisdiction as my title may suggest, but at least as a competitor for public funding. 

Thus, a post titled "Building railways not broadband is a ‘strategic mistake" quotes a Microsoft personnel as saying that "The UK government is making “a strategic mistake” investing billions of pounds into railways rather than broadband." The said executive has criticized  "the government for not investing into the technologies needed to make mobile working a reality for more, instead sticking with the traditional investments for the commute to work. “The one negative fact about the future is the current and previous governments think we need to build railways instead of broadband infrastructure and networks,” 

I am not sure that the two investments are mutually exclusive for a country like U.K, but certainly one can envisage that the future would be one where mobile work or tele-commuting predominates. One can quite easily stretch one's imagination to a scenario where the broadband becomes more important than the railways when it comes to interacting with co-workers.

In developing countries broadband already compensates for lack of roads, hospitals, schools, work opportunities, social services etc.  My articles on the subject can be seen here.

News for USOF India

Apart from its Scheme for its scheme for subsidised Mobile Phones and tablets, USOF India has been in the news lately on two counts.

This is first on account of the telecoms regulator's (TRAI) recent recommendations on improving connectivity in the North Eastern states of India. It is reported that based on Department of Telecom's request, TRAI has suggested inter alia that:

(i) A 2 per cent discount be provided in licence fee, charged annually, of those telecom operators who cover at least 80 per cent of the habitations with a population of 250 and subsidies for installation of solar power units at telecom towers.

(ii) Providing seamless connectivity across National Highways in the North East region covering Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim and Tripura.

(iii) Providing subsidy from Universal Services Obligation fund for bandwidth charges through satellite connectivity.

Also [t]he regulator has asked state governments in North East to address issues raised by the telecom operators on priority so that they are encouraged to roll-out services faster, provide land, government building, power for mobile towers, single-window clearance system for all telecom related issues among others.

My comments are that this is a welcome initiative. However, I do not find merit in a roll out based discount.  Past experience has shown that roll out is very difficult to establish conclusively. It also tends to encourage fraudulent coverage claims. I would prefer output based subsidy for clearly targeted interventions.

The second news item states that USOF has been asked by DoT for its views on viability gap funding required for achieving DoTs green telecom targets. It is reported that USOF, "is likely to advice the government based on findings of Indian Council for Research on International Economic Relations (ICRIER) on this issue."

Also that, 

"The telecom department plans to urge Asian Development Bank to extend long-term soft loans to India's cash-strapped telecom sector which has been clamouring for viability gap funding (VGF) as a precondition to invest in capex-intensive green energy technologies mandated by the government. ....Discussions on incentivising green energy were triggered by DoT's refusal to ease targets linked to renewable energy deployment for running towers sites. The green policy requires telcos to migrate 50% of all cell towers in rural areas and 20% in urban areas to hybrid power by 2015. By 2020, operators will need to run 75% and 33% of cell towers in rural and urban zones, respectively, on hybrid supplies. Hybrid power has been defined as a mix of grid supplies and renewable energy based on solar, wind, biomass or fuel cells."

USOF has previously encouraged use of solar and solar-wind hybrid renewable energy in its subsidised mobile infrastructure project but the scheme remained in pilot phase. It also liaised with the Ministry of New and renewable Energy in this regard. There is a DoT report on this subject titled "Hybrid Wind/Solar Power for Rural Telephony- Green Solution to Power Problems" 

The Importance of Being Connected

I quote below from two studies.They highlightsthe importance of connectivity for political, social and economic development and underline how ICTs help bridge the lack of infrastructure in developing countries, thereby contributing to citizens' empowerment and growth.

The first is  "Measuring the Impact of Broadband on Income" by Ericsson. The second is a study by Vodafone Institute for Society & Communications titled "Mobile Technologies the Digital Fabric of our Lives."   The first study focuses on impact of broadband access and speed on income. It indicates inter alia that for Brazil, China & India(BIC), even a 0.5 Mb broadband connections increases household income by USD 800 per annum. Further, "[i]n  BIC countries, upgrading from 0.5 to 4 Mbps increases income by USD 46 per month." (Access to more sophisticated services " boosts personal productivity and teleworking and telecommuting allow for more flexible work arrangements."

A longer quote (below) from the second study reiterates the importance of mobile phones which continue to predominate in countries like India with very low fixed line penetration.

"In developing countries, mobile phones have changed everyday lives for many people. Often, mobile phones are the only accessible and functioning infrastructure. As a result, it is unsurprising that people have become inventive by using their mobile phones to replace or create other societal and economic institutions thatwere inefficient or sometimes non-existent. M-Pesa, for instance, has enabled millions of Kenyans to transfer money without having to travel. It is the most successful mobile banking service in the world, but by far not the only one: around the globe, more than 150 mobile banking systems have been introduced, mainly in developing countries. A similar pattern was found regarding the impact of mobile phone subscriptions on social development. 

• [M]odels show that more mobile phone subscriptions correlate with more democratic participation, less gender inequality and more time in education. Our results support this evidence on the macro-level across a sample of 202 countries. They show a significant relationship between the number of mobile phone subscriptions and the voice and accountability index, which is taken as a proxy for democratisation. This relationship is more pronounced in developing countries as there is naturally more scope for improvement in relation to political participation. 
• Women and girls are often the most vulnerable members of communities in developing countries. Their access to the outer world is often very limited and they have to cope with numerous hurdles. First and foremost, they have to ensure the health and well-being of their families and changing their traditionally assigned roles is often the only way forward. The connectedness and   communication without intervention by (male) others can facilitate such a change and reduce gender inequality. Our model across 148 countries supports this idea based on macro-economic data. It shows that with increasing mobile phone subscriptions gender inequality decreases. Again, the effect is most visible in developing countries.
• Mobile phones can have two major types of effects on education:the most direct impact is the use of education via SMS texts or mobile applications, which can reach children as well as adults tend to be larger in developing countries. 
•  In practice, mobile phones fill the gap that other poor or non-existent infrastructure in these countries leave wide open. It is therefore not surprising that many innovations related to mobile phones are adopted more quickly in developing countries than in developed countries. 
• Finally, mobile phones are often the first and only way of communication without having to travel under difficult circumstances. 

There is more to Broadband Penetration than Physical Infrastructure

This is a theme that runs through by blog. In this case I am speaking not only about broadband enabled services and capacities of stakeholders but also the need for a vibrant market with multi-stakeholder participation and abundant competition at every level, infrastructure, services and content.

An article in the Economic Times titled "Why Broadband is Stuck"  by Mr Pradip Baijal, draws attention to the heavy reliance on PSU incumbents in India to the detriment of outcomes. An example cited by him is the present NOFN scheme which is still in the roll out phase. He speaks about the need for sharing available infrastructure including the aspect of unbundling available fixed line infrastructure. There is also a mention of spectrum sharing. 

What this boils down to is Telecom Regulation. I have argued time and again in  this blog about the need for regulation to keep customer interest in focus and that encouraging competition is one of the best ways of doing so. As regards, the regulatory issues in universal access to broadband services in the Indian context, my article titled "Universal Service Policy in India-Theory and Practice" pointed out the damage done to rural wire line and broadband penetration by regulation that favoured the incumbent at the cost of competition and growth  of services. This paper was written in 2010 but we perhaps have not progressed much in practice as is evident from USOF India's current activities.