Effective Regulation the key to Bridging the Market Efficiency Gap

 This is a recurring theme that I will be writing on. Its importance lies in the fact that by bridging the market efficiency gap we are economizing on time and cost involved in universal service and 100% digital inclusion. In the absence of effective regulation any attempts towards the latter would only bring short term and non sustainable gains. 

As far as telecom regulation in India is concerned it would appear that we need to take some brave steps to reconcile and simplify our licensing conditions and spectrum regulation. We are at present caught in the trap of  self created rigidities  that are not only at times outdated but often counter productive. The time is right as the telecom sector is at its lowest ebb and even the recent positive announcement of 100% Foreign Direct Investment (FDI) in Telecom is being viewed pessimistically on account of the overall regulatory environment. Please see "FDI Limit Aside, Raise the Bar for Governance"

An article titled An" Emergency Call from the Telecom Sector" appearing in the Business Standard on 17.7.13 draws attention to these issues.It highlights the need for bold decisions akin to the migration policy of 2003. It rues what it considers a tendency on the part of the telecom department to impose maximum penalties for fear of being accused as being partisan to telecom operators. 

Decision makers would find it much easier if rules were clearer.

The state of affairs today can in fact be gauged from the confusion and excessive recourse to litigation that characterizes our telecom sector today.  For example, there is  confusion surrounding the legality of intra circle roaming (ICR) and the distinction between ICR in the case of 2G and 3G licenses. The Controller and Auditor General of India cannot perhaps be faulted for criticizing actions that can be interpreted as being in contravention of stated policy/regulation which is in turn is often ambiguous and hence subject to interpretation.

The improvement of regulation and regulatory capacities is the order of the day. The former is relatively easy as international best practices and experiences can guide us, the latter requires a much broader spectrum of measures extending beyond just the telecom sector.

Talking about regulatory skills and capacities, another news item about the difficulties being faced vis-a-vis Italian communications Regulator's attempts to reduce access charges for fixed line grids, a common trend across EU, indicates that the overall institutional environment of an economy affects implementation and outcomes even where regulation is sound. I had written about this earlier at  http://ictsforall.blogspot.in/2013/07/closing-market-efficiency-gap.html

The Future of Australia's NBN: Technology Choices and More

I have written earlier about the technology debate centered around Australia's NBN i.e. Fibre to the Node versus Fibre to the Home.

Another news item from the Chicago Tribune on this issue titled "Australia election threatens shape of $34 billion broadband plan" would make it appear  that the views are polarized across political parties and vendor interests appear to play a role. Needless to say this is a bit surprising. One would hope that the telecoms and competition regulators' oversight would ensure adequate distance from such considerations. A revision in plans should normally be requited to be justified  on socio-economic grounds including consumer interests. Of course cost is a consideration in the above mentioned technology choice.

M Education and the Demographic Dividend

Two interesting news items caught my attention and I though these are worth sharing and reading.

The first is "Mobilising  Education in India" which highlights the potential of mobile screens to impart education in developing countries. India is a young country with 54% of the population being under 25.  In fact India is often cited as an example of the demographic dividend whereby the larger relative share of working age population has the potential to progress the economy to higher rates of growth.

In the near future India will be the largest individual contributor to the global demographic transition. A 2011 International Monetary Fund Working Paper found that substantial portion of the growth experienced by India since the 1980s is attributable to the country’s age structure and changing demographics. The U.S. Census Bureau predicts that India will surpass China as the world’s largest country by 2025, with a large proportion of those in the working age category. Over the next two decades the continuing demographic dividend in India could add about two percentage points per annum to India’s per capita GDP growth.[ Extreme actions are needed to take care of future basic minimum living standards including food, water and energy. As per Population Reference Bureau India's population in 2050 is projected to be 1.692 billion people. (Source: http://en.wikipedia.org/wiki/Demographic_dividend)

Quality education is critical for this existing/potential labour force. With schools and teacher availability being below par and computer penetration being very poor (Only 80 million personal computers in a nation of 1.2 billion population), we can take advantage of the affordability and ubiquity of smart phones as a medium for delivery of text, voice and video based educational content. The affinity that youth has for ICT enabled information and entertainment is a major plus point. 

This brings to to the second news item of interest titled "Making the Most of Mobiles" This article points out that even in the absence of internet,(only 12% of the 38 million internet users in India can access internet on their mobiles), micro secure digital (SD) cards are used to a good amount of store music and video on second/third hand smart phones by even poor labourers. This indicates that large variety of content can be made available even offline and the is a huge market potential in this area.

The increasing trend of educational material from even top universities being available free of cost is an opportunity waiting to be tapped. In India's case, ensuring affordability of smart phones, better & affordable connectivity (and in the interim  availability of content offline) and translation of content to local languages would be key requirements for us to reap the benefits of M-education.This would also be true of many developing countries.

Another wonderful thing about mobile education in my view is that with a little effort it can be made accessible to persons with disabilities. In fact mobile content is a powerful tool of empowerment of PwDs as long as its accessibility is ensured. 

USFs across the developing world would do well to concentrate of creating an enabling environment for M-Education. India has made a start with Sanchar Shakti but we need to do more.

U.S.A's Universal Service Programme

A Study titled "Unrepentant Policy failure-Universal Service Subsidies in Voice and Broadband" by Hazlett and Wallsten makes a scathing attack on U.S.A's US programme. In particular, it criticizes the High Cost Fund and the E Rate programme. It suggests shortcomings in FCC's reform efforts. For example resorting to bidding only when the incumbent refuses to "offer services at subsidies based on cost models." The USF programme has been criticized for introducing market distortions. One of the sources of this distortion being a tax on long distance services and wireless voice services to fund the programme. Another being the distortion to competition by subsiding one technology (landline) vis-a-vis competitors (satellite and cable). 

Reproduced below is an extract of the Abstract:

In  the  first  half  of  2013,  the   Universal  Service  Fund  levied  a  nearly  16  percent  tax  on users  of  fixed,  mobile,  and  VoIP  communications,  spending  nearly  $9   billion  to  extend  networks.  Yet, USF expenditures –  about $110  billion (in 2013 dollars) since 1998, of which $ 64  billion went for telephone carrier subsidies  --  extending  voice services to, at most,   one-half of one percent of U.S. households.  This generous estimate of  about 600,000 residences  implies  a  cost -per-home of  $106,000 ,  just  counting  the  federal carrier  subsidies. Entrenched  interests  make  the  program exceedingly difficult to change. These interests include hundreds of rural telephone companies, inefficiently small and opportunistically expensive because funds are paid out  according to  cost -plus  criteria .  Some carriers receive more than $10,000  per line per year   to support voice service. Yet,  FCC  data  show  that  mobile  voice  service  is   available  to  99.9  percent  of  households  and wireless broadband service   to   over   99.5% of the U.S. population, including 97.8 percent of rural residences.    In addition, satellite systems  supply voice  and data services to households virtually everywhere people live in the United States, using networks built without subsidies.   Even with subsidized  lines,  subscribers  typically  pay  $400  a  year  or  more  just  for  voice  service . While some USF dollars help low -income subscribers pay their bills, 80% of poor households receive no  subsidies  and  yet  pay  the  USF  tax.   Studies,  including  several  by  the  Government Accountability  Office  (GAO),  have  repeatedly  revealed  USF  waste,  fraud  and  abuse. The Federal Communications Commission (FCC) issued a 751-page Order  in late 2011 purporting to deal  with  part  of  the  situation,  but  rather  than  fixing  fundamental  problems  the  FCC  Order extend s subsidies from voice to broadband and mandat es   increases in  payments to carriers.  Even when  attempting  to  rein  in  costs,  the  Order   applies Band-Aids  where   tourniquets  are  needed.  Emblematic  of  the  new  rules  is  a  measure  to  limit  subsidies  to  rural  carriers  to  $3,000 per line per year.  This laughably spacious ceiling  –  in a day  when satellite voice -and-broadband service is   offered  to  virtually  every  U.S.  household  for $600 a year   -- will  fail  to  remedy  the  endemic waste  in  the  USF.    Instead,  it  targets   the  “headline  risk”  policy  makers  now  face  when grotesquely  profligate  industry  payments  are  made  public.   Most  critically ,  the  FCC  provides  a new rationale for subsidies –  substituting “broadband” for “voice” –  breathing re new ed   political life  into  a  failed  government  initiative  that  taxes  urban  phone  users,  most  heavily  poor households  who  use  wireless  phones  and  make  long -distance  (including  international)  calls,  in order to subsidize phone companies and property owners in rural markets.  Indeed, the reform’s first effects were to increase   the High Cost Fund by about $400 million.   Upon  examination, the fig  leaf  of  “public  interest”  for  this  transfer  wilts.  Any  plausible   cost -benefit  test  reveals  that economic welfare would increase were the entire $9 billion per year USF program eliminated.

Counter-view

[i}n a statement provided to Telecompetitor, the FCC  suggested that Hazlett’s and Wallsten’s numbers are outdated. An FCC spokesman noted that in 2011 — a year after the period the authors studied — the commission took “unprecedented steps to end waste, fraud and abuse,” including capping subsidies at a maximum of $250 per line per month and limiting corporate overhead expenses.

My previous post at http://ictsforall.blogspot.in/search/label/Connect%20America%20Fund and comments thereof may also be seen.

National Broadband Plans-Technology Choices

National Broadband Plans always involve technology choices. The fibre vs wireless debate is in my opinion rather unnecessary until the state decides to fund one and not the other. In India, the regulator came out in strong criticism of a USOF Wireless Broadband Scheme as it appeared to see this programme as a competitor to the National Optic Fibre Network. Though USOF tried its best to plead that the two were complementary and not mutually exclusive, the former has not seen the light of the day while the latter is being rolled out as BBNL. The result is that rural areas continue to have negligible broadband penetration and will have to wait patiently till fibre is laid up to the village panchayat and then (hopefully) access providers use this connectivity to bring them high speed broadband on wireless. It is a moot point why both could not have been achieved simultaneously. Please see my previous posts on this topic at

http://ictsforall.blogspot.in/search/label/National%20Broadband%20Plans and http://ictsforall.blogspot.in/search/label/Broadband%20networks

It is also interesting to read about the technology debate (fibre to the node plus wireless vs. fibre to the home) in the context of Australia's NBN. While, cost, bandwidth and speed do play an important role in how one perceives the relative benefits, I would also be concerned about platform and service competition. Please see "Lets not go back to the dark ages on technology" which argues for FTTH and "Future of broadband going down to the wire" that argues against it.

Mobile VAS as a means of Mpowerment

I have already written about Indian USOF’s Sanchar Shakti programme. This programme has been instrumental in bringing highly customized  knowledge inputs to rural women’s Self Help Groups through mobile VAS helping them improve their livelihoods, self confidence and social standing. The uniqueness of this programme lies in its ability to reach out to these women in situ i.e. in their villages and homes and in that the content being delivered to them is gender sensitive and in the local language. Sanchar Shakti includes many woman farmers in its purview. Its gender specificity makes it a very unique programme in a country which still does not give enough importance to  the fact that many small holdings are farmed by women, while the men folk seek jobs on construction sites/urban areas.

Other  recent  initiatives include the soon to be launched Kisan portal for framers in India wherein 'SMS advisories and alerts will enable farmers to take informed decisions relating to different aspects of farming including crop production and marketing, animal husbandry, dairying and fisheries.' It has also been stated that, 'Officers of various departments, experts and scientists in research institution and in the field will use this portal for disseminating information, giving topical and seasonal advisories to farmers in their local languages.'

A simple form of communication like mobile SMS can be a powerful tool for empowerment of two way communication between the government and  target beneficiaries in a country where mobile penetration is strong while fixed line and broadband penetration is abysmal especially in rural areas. mVAS can provide knowledge and market information in situations where access to both is difficult on account of poor infrastructure and facilities.

A  news item titled Mobile Phone-Medically Yours describes the innovative use of mobile phones by the Government to reduce maternal and infant mortality by training health workers and providing tools for data collection and knowledge dissemination. Like Sanchar Shakti, here too the content is in the local language. What is particularly noteworthy in the case of the mobile Kunji  programme described in this article is revenue sharing between the NGOs, Government and service providers demonstrating  the commercial viability of such beneficial applications. This is also one of the aims of the Sanchar Shakti programme

Closing the market Efficiency Gap-Regulation and Competition

As I mentioned earlier closing the Market Efficiency Gap demands effective regulation and competition. In my view there is no point in utilizing public funds or USFs to take telecommunications to market segments that operators would willingly serve if they were facilitated through effective regulation and forced to as a result of healthy competition. This is one area where developing countries with overall institutional (implementation) weakness may fall short.

This makes it all the more important that they focus on putting in place sound laws and regulation modeled on international best practices but adapted to local context. This would ensures inter alia a level playing field  which precludes vested interests from rent seeking behaviour that is detrimental to the economy as a whole.

As an observer of worldwide developments in the area of telecom regulation I would like to draw the attention of readers to to some recent  news items:

The first is about investigation of several telecom giants for suspected abuse of dominance by the competition wing of the European Commission.  This can be read at:

http://www.theregister.co.uk/2013/07/11/european_commission_inspects_telcos_over_alleged_violation_of_competition_rules/

The second is about the likely  mandating of a reduction in access charges for fixed line grid by the Italian firm Telecom Italia SpA by the Communications Regulator of Italy. This article also speaks about the general trend towards reduction in network access charges (both fixed line and mobile) across Europe as a result of conscious efforts of regulators to enhance penetration.This is available at:  http://www.businessweek.com/news/2013-07-10/telecom-italia-is-said-to-face-about-6-percent-cut-in-grid-access-fees.

The third is about a  more liberalised M&A regime in Europe consistent with market conditions.  This includes a softening of attitude towards active infrastructure sharing. Ultimately increasing penetration is also about ensuring the financial health of the telecom opertaors. This can be viewed at http://www.mobileworldlive.com/fours-a-crowd.

An article  from the Indian Express dated 12.7.13 about present regulations relating to M&A in India may also be of interest to readers. This may be viewed at http://www.indianexpress.com/news/permit-spectrum-trade-m-as-will-follow-vodafone/1140801/