Avoiding the Recreation of Monopolies in the Age of Superfast Broadband

I have been writing about this subject quite often. I worry that in our enthusiasm to provide universal access to high speed broadband on an urgent basis, nations who are going in for incumbent centric OFC roll out are erring on the side of monopoly recreation and regulatory headaches apart from all the ill effects of non competitive service provision.

It would appear that similar concerns are being expressed vis-a-vis the rural roll of broadband network in UK. Lack of competition in selection of Universal Service Providers runs the risk of higher than required costs in the short run apart from the usual problems associated with monopoly service provision in the long run. Australia's NBN has been subject to similar criticism.

Quite predictably, Indian USOF's project whereby incumbent BSNL is to to roll out 2199 mobile towers in insurgency prone rural areas is reportedly  running into cost issues even before the project has taken off.

Please see previous posts on competition and National Broadband Plans and Competition. 

Continuously Declining Wire Lines in India

Telecom Regulatory Authority of India's latest Performance Indicators Report (January-March 2013) indicates that the wire line teledensity of the country has further declined from 2.52% to 2.47%. In Urban areas, wire line teledensity is 6.29% while in rural areas it is 0.79%. The market share of PSUs in wir line market is about 80%. Though not a part of this report, in rural areas the market share of the incumbent, PSU BSNL in wire lines is 99.9%.

The state of wire line penetration is closely related to negligible rural broadband penetration. While as I had written earlier, there are many regulatory issues contributing to this scenario, it is noteworthy that this situation is in spite of considerable USF support to BSNL for rural wire lines and broadband. My post titled "Regulation and USFs-Support for Rural Wire lines in India" had drawn attention to the fact that,about 98.6% of USOF funding has gone to support rural wire lines for voice and broadband connectivity. However BSNL which is the recipient of more than 86%  of USOF’s  total subsidy pay out  continues to steadily lose  rural wire line connections. These could have been maintained, improved and expanded by BSNL to provide broadband to rural areas. Much of this infrastructure was  put in place before BSNL was carved out of the Department of Telecommunications. It thus  represents a large amount of government investment besides presenting a huge competitive advantage for BSNL, considering  that it owns 99.9% of rural wire lines and rural India has negligible broadband penetration. This advantage has not been leveraged by BSNL. Nor has unbundling of this infrastructure been carried out in spite of regulatory recommendations. Further, against a Rs 1500 crore scheme initiated in January 2009 to support rural wire line basedbroadband with a scope to add about  18,00,000  connections (with subsidy being linked to the number of connections) BSNL had added less 400000 connections over a period of 3 years.

I had commented earlier that laxity in maintaining competitive neutrality of USF interventions tends to have long term negative implications on  the affected markets and defeats the very purpose of Universal Service.

More on USF Programmes with Tariff Discounts

In continuation of my earlier posts on the issue of USF schemes/projects having a tariff discount component, I would like to add some further thoughts. A view has been expressed by a  very experienced USF expert that tariffs discounts in case of voice services, can create artificial differences with non USF areas and discourage operators who must have a business case to invest. I would say that these arguments have merit. In addition to my comments cautioning against being too optimistic about tariff discounts at the bottom of  the post at http://ictsforall.blogspot.in/2013/07/a-discussion-on-tariff-discounts-for.html, I  would like to clarify as follows.

In my previous posts I had alluded to a rural tariff ceiling. This was  set by the telecoms regulator and is pan India. Thus, it covers all rural fixed line subscribers uniformly. However, the regulatory requirement at present is that this tariff plan must be made available. It need not be the only plan. Operators are free to offer other tariff plans. The idea is to ensure that the poor have at least some basic plan for affordable service. Both operators and subscribers have a wide choice in this case.

In India, rural subscribers mostly opt for prepaid plans which ensures that they do not pay more than their budgeted amount. This is true for both  voice (which is almost entirely wireless) and data.  

By discounts in case of USF schemes I mean making available at least some cheaper plans so that the poor can avail of some service. As mentioned above, in the case of voice (fixed) this was mandated by the regulator not by USOF.

In fact when USOF scheme for rural household fixed lines brought in competition from CDMA phones, the Universal Service Providers (USPs) offered extremely attractive prepaid tariff plans with generous free incoming components to attract customers, and with great success in terms of increasing subscription (but not revenue. (Please see http://ictsforall.blogspot.in/2013/06/ensuring-affordability-of-usf-supported.html ).

These plans were far cheaper than the regulator's tariff ceiling plan. Thus, in the case of voice, USOF India did not specify tariff discounts.The USPs responded voluntarily with tariff plans in response to market conditions.

As already explained in my previous post post  http://ictsforall.blogspot.in/2013/06/ensuring-affordability-of-usf-supported.html, for data services (Wire line Broadband Scheme), USOF required entry level plans to be made available during the OBA contract period but the USP could also offer any number of other plans. This has worked well as a means to attract new users who have subsequently upgraded to costlier packages with higher download limits. As far as the operators business case is concerned, USOF calculated subsidy benchmarks assuming that the bulk of rural subscribers would at least initially prefer the cheapest plan. Thus, USPs stood fully compensated for the discounted tariff plan.