ICTs & SDGs: Sound Policy & Regulation required for beneficial effects of ICTs

I was deeply impressed with the ITU Publication 'ICT-centric economic growth, innovation and job creation.'

This book has many takeaways. My favourite ones are as follows:

The  publication captures the essence of the undeniable linkages between ICTs and the SDGs. It is both comprehensive and contemporary covering various aspects such as the digital divide, innovation and latest technologies and their connection with sustainable development

In particular, I  support and underline the contention in Chapter 2 that highlights that more emphasis needs to be placed on addressing inequalities in access and usage of ICTs between people and regions which if left unaddressed will exacerbate all other inequalities in development, growth and quality of life over time adversely affecting the progress in realizing the SDGs. The stress on ICT related Targets in SDGs (table 1.) is very important. The measures contained in sub goal 9c must include all disadvantaged persons including Persons with Disabilities (PwDs).

In this context, while governments have a very important role to play, the way forward is a multi-stakeholder model wherein private sector, academia and civil society are actively engaged and involved by governments. I wholeheartedly endorse the importance of good regulation that encourages and facilitates private sector innovation and government support (through inter alia innovative use of Universal Service Funds) to empower the poor, women and PwDs etc. such that they are provided the benefits of ICTs. 

The multi-stakeholder partnership model described in Appendix A to Chapter 2 is very relevant and tried and tested in India in its Sanchar Shakti project  for access to Mobile Value-Added Services for rural women. 

Chapter 4 with its emphasis on a conducive institutional and regulatory framework is highly relevant especially for policy makers and regulators in developing countries. Competition, liberalisation and innovation go hand in hand with sustainable growth. In particular, the trade-off between short term gains and long-term harm caused by policy decisions impacts all sectors including ICTs and has a very important bearing on achieving sustainable development. 

I also appreciate the stress on the capacity of ICTs to empower citizens by providing information and a feedback mechanism to express their views and preferences. The sections on competition, consumer regulation and State owned Enterprises (SoEs) are very well written and pertinent. Competition, credible governance, universal service regulation, privacy and data protection can have a critical impact on, long term growth of ICTs and hence overall socio-economic development given the intricate linkages between ICTs and the SDGs. This is an important precondition for overall balanced growth in international context.

Chapter 5 speaks about new data driven business models based on sharing and personalisation in the context of increasing growth of IoT, multi-sided platforms and the App economy, highlight the need for focus on  important issues such as privacy and data protection and cyber security which are critical to consumer protection, trust and hence uptake of ICTs and their continued contribution to sustainable development.

Arguing Against Net Neutrality for the Wrong Reasons

Off late opponents of Net Neutrality (“NN”) are using a new line of reasoning to convince regulators and policy makers, especially in developing countries, that NN is detrimental to socio-economic welfare of their constituents.

This belief rests on the fact that over-the-top (“OTT”) players are allowed to provide tax-free and uncontrolled access to consumers of their services (internet telephony, messaging, content etc.), while riding on the networks of tax-paying and regulated telecom service providers (“TSPs”). Consequently, such OTT players are depriving the government of revenue which can be used to expand networks and bridge the digital divide. To elaborate, this standpoint propounds that OTT players are snatching revenue from incumbent TSPs, depriving them of any incentive to innovate, improve their networks and expand into remote, unconnected areas. NN Rules which do not allow TSPs to impose differential charges on OTT players or favour their own in-house OTT services, and forbid them from earning revenue from exclusive deals such as through zero rating, reduce such TSPs to dumb pipes, commodifying them. When TSPs lose the ability to differentiate themselves and their profit margins shrink, they may stop investing as much; expansion of the telecom network will slow down or stop. Revenue from license fees and universal service levies which are often imposed as a percentage of TSP revenues will decrease. Bridging the digital divide will become challenging as universal service funds dry up and private networks don’t have incentive to expand.

Further, there are issues of security and privacy surrounding unregulated OTT access and the fear of  unregulated foreign OTT giants dominating the communications sector. 

This reminds me (in a convoluted way) of the arguments that were used by wire lines service providers (many of which were state owned incumbents), to convince regulators to subsidise them and tax the then new kids on the block – the mobile service providers. It was argued that the former were serving the rural areas and providing cheap services while the latter were catering to only the elite clientele who could afford mobility. As it happens, many governments did accede to this demand. However, as we know, it is mobile services that proved to be more cost-effective and it is mobile services that grew exponentially and finally connected the unconnected- something that the protected wire lines never could achieve.

The history of telecom has and always will record how disruptive technologies continuously breed both new innovative challengers and new incumbents, and how consumers continue to benefit from these welcome revolutions. However, as new technologies also come with potentially harmful aspects (e.g. security and privacy concerns), the stakes are high and governments, regulators and policy-makers must proceed carefully. 

It is important to protect national and consumer interests in terms of assuring secure communications, lawful interception and privacy of data, and to guard against the creation of new monopolies. But the reasons for regulating OTT players should be these, and not the misguided notion of protecting incumbents to expand networks or the preservation of existing sources of revenue.

The creation of a level playing field requires that the Government look simultaneously at easing the regulatory burdens on incumbents and bringing OTT players within the realms of regulation and taxation, without harming innovation or competition. The need of the hour is the progressive movement towards an evolved and lighter mode of regulation. This should be done gradually by easing the regulatory burden on TSPs while slowly bringing OTTs within the ambit of regulation without stifling innovation. A good example is Singapore’s class license which is a deemed license for internet content.

New forms of regulation would also entail building in security by design and through technology itself, and focusing on consumer education and awareness to empower consumers. One example is simpler, more transparent methods of ensuring consumer consent to guard against misuse of personal data coupled with consumer education.

When considering real or hypothetical revenue losses from existing sources, it is important to factor in the the OTT/application-based eco-system's (Uber, Airbnb, local Ola, Flipkart, OLX, Paytm etc.) overall contribution to a country’s GDP by way of  new markets, employment opportunities and decreasing transaction costs. In fact, the most economically efficient (and least market distorting) method of funding universal service is through the budget, rather than sector specific taxation.Thus, the reduction of revenues from telecom levies if offset by overall increase in budgetary resources requires a rethinking of methods of funding Universal Service rather than measures aimed at protecting incumbents which would end up hampering growth of OTTs, 

NN ensures that the internet continues to grow and flourish as a source of innovative, new services and provides a platform where consumers are free to choose and markets free to respond to this consumer choice. 

The new-age telecom regulator has to evolve sophisticated regulatory models that place the onus of compliance on the regulated (e.g. industry Code of Practices), and deter noncompliance through swift and exemplary punishment. The new-age telecom regulator should ideally be a converged regulator that handles IT, telecom, broadcasting and content, and collaborates effectively with other regulators such as the competition regulator to ensure that every part of the new OTT eco-system remains competitive (see for example, competition cases against Google) and a range of other regulators (health, financial services, data protection etc.), to ensure that the increasing volume of online transactions does not endanger individual safety, privacy or national security. 

The answer certainly does not lie in dismantling NN thereby killing the 'Goose that Laid the Golden Egg,' because of misguided notions of protecting incumbents’ revenue or the incumbents themselves. 

A similar approach is needed when considering regulation in other contemporary areas of ICTs such as internet telephony or the Internet of Things.

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

Hitting the Nail on the Head

It was a delight to read an article titled, "Net neutral, shift gears" It reiterates strongly the reasons why hard won net neutrality must be preserved and safeguarded from anti-competitive attempts to introduce divisions within the internet. Yet, it urges India to bridge the digital divide and connect every Indian immediately.

The only point where I disagree is the present idea/version of NOFN. I believe that universal broadband coverage can be achieved much faster and in a much more cost efficient manner by sticking to the original USOF concept of bidding out districts/states/regions in a technology neutral , competitive process that enables interested telecom operators to provide connectivity as defined by the Fund, with a limited smart subsidy.

The creation of a huge administrative set up by way of a megalithic government organisation and funding it from USOF ; expecting it to deliver any better than a monopolistic government department  in pre-liberalisation India, is in my view a wasteful, pipe dream. Please see my previous blogs on NOFN/BBNL.

NOFN-Do we need PPP or plain USOF subsidy?

I reproduce below a news item regarding TRAI recommendations on NOFN 

I have previously pointed out that the simplest and fastest route to funding optic fibre roll out in rural areas would have been to faithfully follow the USOF model of bidding out service areas based on reveres auctions with open access conditions. This was done by USOF for the North Eastern states. That would have been akin to PPP based on BOO model rather than BOOT.

There is absolutely no reason for the ownership of the network to be with/transfer back to the government unless it is to justify the huge paraphernalia that has been created by way of BBNL.  The whole  idea of Universal Service Funds is to provide a minimal smart subsidy and let markets take over. 

Issues such as fair open access and Right of Way cannot necessarily be solved only by public equity participation. NOFN/BBNL  at present under public ownership has failed to deliver for past 4 years (including solving the RoW problem) and its cost has trebled. 

I have examined this debate earlier in my post "Broadband Networks through Infrastructure Sharing Route"  (also placed under the label NOFN). 

Its time we dusted the departmental files containing the original idea of universal service funding based on international best practices and allowed the Indian USOF to deliver as per its own original rules of competitive neutrality. 

The news article:

The Telecom Regulatory Authority of India (Trai) has recommended a public-private partnership (PPP) model for BharatNet, an ambitious project involving setting up a broadband network in rural India.

A model with private incentives and long-term service delivery similar to the build-own-operate transfer or build-operate-transfer models of implementation would be the preferred means of implementation, Trai said in its recommendations announced on Monday.

“PPPs seek to combine the private sector’s capacity for delivery with the Government’s role as an enabler and regulator to overcome market failures. PPPs must be viewed as not just an instrument for easing finance and capacity constraints, but as an effective tool towards ensuring competition in service delivery and improvement in quality of service,” Trai said.

A special purpose vehicle, the Bharat Broadband Network Limited (BBNL), under the telecom ministry is now handling rolling out the optical fibre network being executed by BSNL, Railtel and Power Grid.

The previous government had approved a project cost of Rs 20,000 crore for laying optical fibre network in 2011 but progress has been poor. It is expected that BharatNet will be completed by 2017-18, after missing many deadlines. Even the project cost has increased to about Rs 70,000 crore over the years. The project was earlier named the national optical fibre network but later renamed BharatNet by the current government.

Trai said the concessionaires should be given the job of deploying the optical fibre cable and other network infrastructure as well as operating the network during the period of contract. The contract period should be of 25 years which can be further extended in block of 10, 20 or 30 years.

The national optical fibre network (NOFN) project had failed in achieving its original objective of increasing broadband subscription in the country. The task of rolling out a broadband network should be given to a concessionaire selected through reverse bidding. Funding should be done to bridge the loss incurred due to higher operational expenses and lower commercial accruals, Trai said.

It can be safely concluded that the NOFN has failed in achieving its original objectives, the regulator said. Focusing on the design of the finance and investment model for future roll-out of broadband is critical.

The National Telecom Policy of 2012 (NTP 2012) envisaged broadband on demand by 2015, and 175 million broadband subscribers by 2017 with a minimum speed of 2 Mbps and up to 100 Mbps on demand. As of September 2015, the total number of broadband (defined as download speeds >=512 Kbps) subscribers stood at 120.88 million (largely concentrated in Andhra Pradesh, Delhi, Karnataka, Kerala, Maharashtra and Tamil Nadu), with only 27.20 million rural subscribers. This “internet divide” between rural and urban India has become more relevant as the scope of activities carried out on the Internet has expanded beyond what was previously imagined, Trai said.

Moreover, rural broadband access will help address multiple service deficits that arise due to other infrastructure related constraints widespread among the rural population. The potential gains from increasing such access are tremendous — the Report of the Committee on NOFN in its projections of the economic benefit from BharatNet estimated that an additional 25 million Internet users by 2018-19 would result in economic benefits of Rs 66,465 crore due to the direct, indirect and spillover benefits of Internet access.

It also recommended that the central and state governments become anchor clients of this project and purchase a bandwidth of 100 megabytes per second at market rate.

To ensure that the concessionaire does not discriminate between service providers in granting access of optical fibres, Trai has recommended arm's length relationship between concessionaire and service providers, adding that 50 per cent of the optical fibre should be reserved for telecom and cable service providers.

Besides, the government should become a minority partner of the concessionaire with 26 per cent stake as this would lower financing cost and risk. "In addition, this can help the government check monopolistic behaviour on the part of the concessionaire," Trai added.

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.

NOFN-Getting it wrong yet again

An editorial humorously titled "Optical Illusion" correctly points out that the latest government effort to revive BBNL/NOFN by way of appointing a private sector chairman etc. is not likely to make much of a difference. However  the newspaper gets it wrong in suggesting that the USOF which is funding NOFN/BBNL, should be scrapped.

On the contrary, BBNL should be wound up and the methodology to achieve the laying of a high speed rural OFC network should go back to the traditional USOF method of achieving rural penetration through multiple (regional) reverse bidding based projects open to both public and private sector.

Just scrapping USOF (funded out of license fees paid by service providers) and leaving more money in the hands of service providers will not guarantee provision of broad band services to commercially unviable rural areas.

 I have written extensively on the subject under the same key words/labels. Please see my previous blogs.

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?

Competitive Neutrality in Liberalized Sectors of the Economy

I have been blogging about the need for competitive neutrality mostly in the context of  broadband networks. However, the importance of regulatory neutrality would apply equally to any other liberalized sector be it say, power or airlines. I have written about this in a paper titled,

"Of Airwaves, Incumbents and Good Governance - The Urgent Need for a Robust Competition Policy Framework"

Interestingly, though seldom do papers in India comment on this problem in the context of telecommunications, I find mention of the issue in the context of power transmission. Thus the Financial Express has reported that,

The central power regulator’s bid to end public sector dominance in the transmission sector by putting in place a system to award new projects based on tariff-based competitive bidding (TBCB) is threatening to unravel with the power ministry deciding to virtually persist with the previous regime where the projects are given on a platter to the state-run Power Grid Corporation (PGCIL).

According to sources, the ministry has invoked a provision in the relevant Central Electricity Regulatory Commission (CERC) rules to give eight new transmission projects with an estimated cost of Rs 36,000 crore to PGCIL....The provision of “compressed time schedule” vests discretion with the ministry to nominate PGCIL for executing projects if it is convinced that the bidding route could delay projects that are of critical nature, requiring time-bound execution.

An industry official said: “Any incumbent that continues to have 70-80% market share will have a natural advantage over new entrants in terms of winning even future projects being bid out. Moreover, if that incumbent is a PSU, then it will have clear financing advantages which private players cannot match under current circumstances.”...

Criticising the government’s decision, an executive of a private firm involved in the transmission sector told FE on condition of anonymity that it was the need of the hour to encourage private participation in transmission so that it can bring global technologies to complete projects in compressed time schedules. 

This echoes what I have written about NOFN/BBNL. I particular in my paper titled,  "The State of Broadband in India: A Call for Regulatory Neutrality" wherein I have specifically mentioned that,

"Public funding in a developing nation has to  be undertaken with particular care on account of the opportunity cost of allocating scarce resources. Subsidy schemes are designed to minimise costs and avoid duplicating expensive infrastructure. This could explain BSNL’s nomination in the Wireline Broadband scheme, its winning the bid in the Assam OFC scheme and its role in the forthcoming NOFN.  While this approach makes apparent sense in terms of short term financial prudence, its impact on the long term growth of the sector is unlikely to be positive given that it stifles competition and all its concomitant benefits. From a bureaucratic perspective, relying on public ownership or funding the incumbent is also perhaps more attractive in the short run in terms of relatively less time and effort estimated to commence roll outs (as against tendering/auction), even if we were to assume that public sector could and would deliver. However, the long term impact of monopoly ownership of even open access networks (on competition and accompanying aspects such as innovation/customer service/technological neutrality) merit consideration. If nothing else, our experience with monopoly in wire lines should have cautioned us. USOF had almost got it right with its regional OFC schemes, but it needs to be rescued from over specification of technology and incumbent -centric scheme design through regulation which insists inter alia on competitive neutrality. Thus, rather than doing away with USOF as is the demand of the aggrieved private sector, a relook at its regulatory structure and a focus on competitive neutrality would be the order of the day..." 

An update on NOFN

My last post "Broadband Planning in India-Missing the Wood for the Trees" had highlighted the tardy progress of the all important NOFN project. I had mentioned  the rejection of the USOF bidding model which would have enabled private sector participation.Now it is  reported the government is contemplating a larger role for the private sector. 

Broadband Planning in India-Missing the Wood for the trees

I reproduce below the text of my article with the same title. It was published in the Financial Express today.

In the recent TRAI consultation paper titled Delivering Broadband Quickly: What do we Need to do?, the issues delineated for stakeholder consultation give the impression that the solution lies in controlling or influencing technological choices or costs. In a liberalised sector, healthy competition accompanied by efficient regulation would mean that market dynamics guide appropriate technological and cost choices, without government intervention. When regulatory interventions go beyond what is necessary to correct market failure, they create and exacerbate market distortions, doing more harm than good. India’s abnormally low ratio of wirelines to wireless connections is part of the broadband problem. While the paper has fleetingly mentioned public sector monopoly in this segment, it has not related the same to poor and falling wireline penetration in our country. Nor has it mentioned the abysmal state of rural broadband penetration, which persists in being negligible in spite of billions of rupees of funding to the incumbent in support of its wireline services by way of access deficit charges and universal service funding.

The relationship between competitive service provision and innovation, quality, and long-term growth in telecommunications is too well known to ignore, and unless efforts are made to correct underlying regulatory problems and consequential market distortions, we may not be able to move forward.

Sadly, one of the most market-friendly initiatives of the government which is key to promotion of broadband—the Universal Service Obligation Fund (USOF)—has also fallen prey to the same lack of understanding. The USOF subsidy is given to willing market players (universal service providers or USPs) to cover the viability gap and hence encourage them to provide services in commercially unviable areas. The USOF subsidised facilities are owned by USPs rather than by the government. Thus, USOF is potentially a valuable tool for minimalistic, targeted interventions to achieve greater penetration of broadband in a competition friendly manner.

A very important aspect of preventing market distortion is ensuring technological neutrality and competitive neutrality. The former would imply defining deliverables to be achieved through the USOF subsidy, while leaving specific technology choices and configurations to USPs’ wisdom. The latter implies that no entity operating in an economic market should be subject to undue competitive advantages or disadvantages.

It is well known that while the government as regulator is supposed to ensure a level-playing field, the government as owner of public enterprises may face difficulties in balancing various conflicting commercial and non-commercial interests.However, regulatory neutrality, which encompasses both technological and competitive neutrality, is a sine qua non for economic efficiency or welfare maximisation.

From data available on the USOF website, it would appear that USOF’s present regulatory framework has been unsuccessful in this regard. USOF had disbursed R17,580 crore of subsidy up to January 31, 2014, of which rural fixed line telephony and broadband based schemes taken together account for about 95%. Yet rural teledensity at 43% is made up almost entirely of private sector wireless connections. Rural wireline teledensity is less than 1% and broadband penetration negligible. BSNL’s monopoly in the rural wireline and optic fibre segment has meant that majority of the USOF support (focused disproportionately on fixed lines) has been given to BSNL on nomination basis. The other technologies mentioned in the Trai paper would perhaps have been deployed by USPs long ago, had USOF’s schemes been technologically neutral.

The USOF website reveals that the roll out of deliverables by BSNL as USP has been delayed consistently. For example, against a target of approximately 8.8 lakh broadband connections and 28,000 broadband kiosks by January 2014 under the Wireline Broadband Scheme, BSNL had provided only about 4.3 lakh broadband connections and less than 11,000 kiosks. Despite its poor track record, BSNL was chosen as one of the three PSUs to partner in the National Optical Fibre Network (NOFN) project through the creation of Bharat Broadband Network Limited (BBNL).

NOFN’s tardy progress has been documented in the consultation paper. While dwelling on which model to adopt for rural OFC backhaul, the USOF model of reverse bidding with the lowest bidder (public or private) setting up open access networks under contract was considered, but rejected as being tedious and long drawn, as it involves subsidy benchmarking. Instead, the BBNL route was chosen. The result of this choice made three years ago is out there for us to see. BBNL has not made even a dent in the targeted roll out (2.5 lakh gram panchayats by 2014) and what’s worse is the reported doubling of estimated costs from Rs 20,000 crore (A crore is 10 million) to more than Rs 40,000 crore. 

Going forward, a focus on regulatory neutrality would be the order of the day and a major part of what needs to be done.

Lessons from Down Under

An article titled "Australia's Last Chance for Infrastructure Competition" describes failed opportunities as far as introducing competition in the wire line broadband market. This is said to be in stark contrast to the mobile telecoms segment where competition and innovation have flourished. The article states that the government is now looking to promote platform competition in high speed broadband.(HSBB)

I am always sufficiently wary of superimposing models from the developed world on to the Indian telecoms scenario because apart from many other aspects, regulatory structures and capacities and penetration levels are different, but I do believe that we can learn something from their experience.

I have written earlier under the same labels as this post in favour of a technology neutral and multi-operator, approach to high speed broadband penetration in India. Getting NOFN / BBNL off the ground in my view would be a Herculean effort whose success in the near future if at all is doubtful. The earlier USOF approach of tendering out region-wise HSBB network projects would work much better as it would allow many operators other than the incumbent to participate. Investment and innovation would take off and the roll out would be much quicker bringing much needed broadband to our young aspiring population,especially in rural India.

Previous USOF OFC schemes suffered from flaws such as overspecialization of technology but had several progressive features such as mandatory open access and even allowing the selected Universal Service Provider to complete the project by renting  bandwidth from existing players to  (rather than necessarily laying fresh OFC). USOF India needs to think beyond PSU led nation wide OFC networks if we are to progress. A technology mix in wire line broadband would be welcome. Please see my previous posts in this regard.

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.

Messing up the Market Efficiency Gap in a Hope to Address the Actual Access Gap

Readers may please refer to my earliest posts about the Market Efficiency Gap and my recent one titled "Going around in Circles"

Somewhere along the past decade, USOF India has lost its way and we have come back full circle to thinking of relying on roll out obligations to achieve desired levels of rural teledensity. The proposition of Department of Telecommunications (DoT) that future spectrum auctions be designed to include  rural roll out obligations (as per a news item in Economic Times ) displays a complete lack of appreciation of the concept of USFs and the failure of roll out obligations in the past. All we will achieve is distortions in the spectrum allocation process. 

How exactly are the operators to find funds to fulfill the mandatory roll out obligations in areas which are obviously not commercially viable? Were they waiting only for a diktat from DoT all this while? What if they bid lower for spectrum to compensate for this additional cost and then circumvent roll out as in the past? Why should only spectrum winners (of this future auction) be considered as prospective suppliers of services to meet the gap?Well designed USOF schemes can provide the required (financial) incentive to any operator without creating unnecessary market distortions. This thinking by DoT is perhaps indicative of the inability of USOF India to fulfill its mandate and this malady has been the subject matter of many of my previous posts.

Self Help in rural areas-How Long can They Wait for Internet

An inspiring and at the same time saddening news item in the Times of India today describes how NGOs are helping rural folk especially in remote parts of the country like the state of Jharkhand connect to the internet. This involves training locals to rig up and maintain local networks. The connectivity is not very high speed and relatively expensive, but it is working and helping local businesses.

The sad part is that  USOF India has not been able to utilize its sizable resources to empower those who want to and can provide rural broadband like these niche operators, but instead is channelizing all its efforts and funds into huge incumbent centric projects broadband which are either under performing or not performing. A USOF wire line broadband project has rolled out less than a third of mandated number of connections. The connections under this project were to be available to rural pubic at a fraction of the cost of the locally set up networks described above, thanks to USOF subsidy. Also public access broadband facilities have not been set up properly / at all defeating the purpose of the project. Optic fibre connectivity through NOFN / BBNL is badly delayed. There has been a very apparent move away from bidding which is required by the USOF Rules to handing over projects on nomination basis. Curiously, this problem seems to arise from bureaucratic  fear of the implications of dealing with private sector (on account of vigilantism by vested interests) rather than on a sound socioeconomic basis including public good.

Its time for USOF to rescue itself from such distortions. As it is, there have been several demands from industry to scrap the Fund which is based on contributions portion of license fee) of operators. A more thorough ex ante policy / programme analysis including competition related vetting is the need of the hour.

Going Around in Circles?

The whole idea of universal service funds was that at least  theoretically they are considered to be a more transparent, targeted and efficient means of achieving universal service as compared to cross-subsidies, access deficit charges and roll out obligations. 

The Economics Times today reports that USOF, India is considering a reduction in universal service levy for operators that meet roll out targets. This is a flawed approach. 

Firstly roll out obligations in Indian licenses do not  and cannot ensure that specific rural areas (uncovered/.under-served) will be covered. They generally require coverage of a certain percentage of rural area in the licensed  service area or telecom circle and history has shown that the areas covered are those closest to cities/towns. Secondly, mere technical roll out cannot ensure universal individual/household access which requires inter alia affordability or accessibility of connections. A well designed USF scheme can achieve both these objectives.

 An overall reduction in Universal Service Levy based on assessed requirement of funds is a different matter but retaining/relying on roll out obligations as a means of achieving universal service when a universal service fund exists is not advisable. It is likely to increase the government's regulatory and administrative burden while defeating the purpose of the Fund.

Banking on Incumbent Status

Recently the Department of Post (DoP) has been in the news as regards its attempts to obtain a banking license. As analysts point out its one thing to have non-computerized make-shift rural post offices housed in a single room huts to deliver letters, but quite another to run a bank from such post offices. These rural branches lack physical infrastructure and human resource (with the requisite skill set) to run banking services. Even DoP's attempts to tender for hand held devices to serve as mobile ATMs are unsuccessful apparently due to rudimentary specifications and infeasible terms and conditions.

The recent liberalization of banking in India is intended to attract  more players so as to inter alia make banking inclusive, but the postal department may not be the ideal candidate to do so.

The persistence of efforts by the DoP in this area is  more about a loss making incumbent postal operator trying to survive in the face of competition (from private couriers and broadband/email) by reinventing itself,  than about helping the banking sector thrive and ensuring that its customer base increases or is better served. It must be remembered that this reinvention is not costless and these costs including recruitment/retraining of staff, must be weighed against benefits. (This applies equally to National Broadband Plans like NOFN/BBNL that hinge on huge public investments in enhancing incumbent's networks.)

This is exactly the sort of iffy policy that government's should be wary off. Universal Service whether in banking, airlines or post or telecommunications should not become an excuse / for helping an incumbent survive. This is throwing good (public) money after bad. Not something a developing economy can afford. In the end economic efficiency must allow for creative destruction rather than endless and expensive preservation of redundant public investments

National Broadband Plans- Cracks Emerge

Two interesting pieces of news that make me feel like a seer. 

First a post titled "Fibre fanaticism overrode proper NBN planning says report" that quotes Australia's   National Productivity councils draft report as follows,

 Early planning for Australia's National Broadband Network (NBN) focused on “how best to implement the government’s policy objectives, rather than considering the merits of different options.”

This implies that rather than exploring various options on how to provide high speed broadband to end users, a policy decision on fibre as the preferred mode  and the NBN  as a delivery mechanism was taken. This obviously restricted options.

Thus instead of "conducting a cost benefit analysis to ensure economic efficiency and value for money", an implementation study was conducted which "did not evaluate the decision to implement NBN via NBN Co" or the macroeconomic and social benefits of implementing a super fast broadband network.

This often happens in Government, but in fast changing field like telecommunications, such costly mistakes lead to long term regulatory headaches and negative consequences in terms of competition, growth and customer service. Please see my previous post on disruptive technology in this regard.

In the short term  NBN is already facing time and cost overruns.

Another news item  about USA's National Broadband Plan 2010, states that, "major U.S. carriers have started to seek relief from their vow to support the plan as its enormous costs become clearer...........They are persuading state legislatures and regulatory boards to quietly adopt new rules—rules written by the telecoms—to eliminate their legal obligations to provide broadband service nationwide and replace landlines with wireless. This abrupt change in plans will leave vast areas of the country with poor service, slow telecommunications and higher bills." 

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