Access Regulation as Important as Nationwide Backhaul

I have been repeatedly stressing on the importance of competition as a means to ensure not only universal service and access to telecommunications but also sustained growth of the telecommunications sector.  Even in situations where there is  platform competition, due attention needs to be paid to competition is copper line access networks. 

As reported in a news item from Telecomputer.com 

"Access regulation remains a necessity in the Netherlands to ensure effective competition between fixed networks, according to a report from Ecorys for Tele2. Most EU countries have just one national access network, based on copper. Regulation is aimed at creating a 'ladder of investment', providing alternative operators various ways to deliver services. The tariffs and conditions should be structured in such a way to encourage alternative operators to invest in their own networks and equipment, allowing them to differentiate their offering, according to the report. The last step on the ladder is deploying a competitive local loop. 

In the Netherlands, the country benefits from DSL, cable and FTTH infrastructure for broadband. The roll-out of fibre will mean an eventual end to the use of the copper network. The telecom regulator has always found that "two is not enough" with the copper and cable networks and supported third-party providers with wholesale access regulation. The report concludes that access regulation will remain necessary to support this in future and during the transition to fibre. "

For the market to remain competitive, competition on copper must continue, and the position of alternative DSL providers such as Tele2 and Online must be protected. This should include access to a regulated virtual local access service and a continuation of subloop unbundling.

Competition in  last mile connectivity is particularly important in developing countries like India where platform competition is very limited. The Indian situation is that unbundling is not mandated and has not taken place and 3G wireless services are largely unavailable in rural and remote areas. USOF  India's wireless broadband scheme that would have introduced competitive provision of the same in rural areas was criticized by the regulator as being premature and in conflict with 3G roll out obligations and never took off. This is one of the major reasons for the minimal wire line broadband penetration in India. 

Please also see my previous posts on Wire Lines in India, Broadband Networks, National Broadband Plans and Competition

The Problems of Monitoring certain USF schemes

I am always wary of USF schemes that pose too heavy a burden in terms of monitoring. USOF India had a scheme for rural household connections which posed exactly such a burden and has thankfully been discontinued.

Even with its presumably more advanced regulatory and administrative abilities, FCC seems to find it hard to keep fraudulent claims out of its similar lifeline programme. A recent news item speaks about penalties being imposed for claiming  ineligible connections and for fraudulent duplication in claims . It is said that,

"FCC Commissioner Ajit Pai said federal Lifeline reimbursements to phone companies grew to $2.2 billion in 2012, up from $817 million in 2008. He said a "significant amount" of that growth was due to increased waste, fraud and abuse."

I would have thought that FCC would consider closing this programme or redesigning it altogether.

Please see previous posts on (Reforming) U.S.A's Universal Service programme. Also readers may like to view my article "Monitoring for Effective service Delivery-The case of USO Funded Schemes"

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" 

Public Funding of Incumbent-Centric Broadband Networks

In a post titled, "Incumbents and national Broadband Networks-Broadband Deliver U.K Project" under the label "Broadband Deliver U.K Project" I had written about U.K's Public Accounts Committee's criticism about lack of competition in choice of implementing agency for this project. Another recent news item  talks about PAC's doubts about misuse of public funding. There are allegations of predatory pricing and misguiding/ intimidating customers in local markets.

Fears have been expressed about recreation of BT's monopoly in fixed line broadband. A telling critique goes as follows, " There are many other providers around the country which are delivering future-proof networks today, both in the community sector and the private sector. All of those face the danger of being overbuilt – having their networks overbuilt by BT turning up with state funding. That seems to be entirely the wrong way round.”

This is the point I make in my posts about National Broadband Plans. I believe that public funding of incumbent-centric optic fibre roll outs is a classic case of repeating past mistakes. It goes against competition and will ultimately affect long term growth, innovation and customer service.

Regulation-Competition, Operator Profits and Customer Welfare

The constant tussle between firms' profits, customer welfare (prices and quality) and the regulatory burden of balancing theses interests in the real world (less than perfect markets) is a worldwide phenomenon. 

A recent news item about Canada's Competition and Radio-TV and Communications Regulators issuing a joint statement to the effect that they would work together to "ensure access to services at competitive prices" also informs us that large  domestic firms are up in arms against the government's decision to allow foreign participation in spectrum auctions. The government justifies its decision as it finds that "Canadians pay some of the highest wireless rates in the developed world and that more players would help boost competition." Three big operators insist that "wireless rates in Canada are competitive with those in the United States." 

My question is that is U.S.A the correct benchmark?

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. 

The Economist says it Best

I am an ardent fan of the Economist magazine and have been reading it for decades. I love it for its language and  variety. A recent article titled, "A World Turned Upside Down with a catch line" Giant state-owned firms have fallen back out of fashion" captures an important lesson in economics (which I hapr on frequently in this blog) in a most engaging fashion with pop music analogies and irreverent certainty of its line of argument.

It states that,

"These vast organisations are not going away; most still make huge profits, often boosted by cheap public funding. But governments must recognise that the slump in their valuations is a sign they are allocating capital badly. That is in no one’s interest. Petrobras has made a baby step by allowing outside shareholders to appoint a director, while China sometimes mutters about modest reforms of its industrial fiefs. But the hybrid model of a firm beholden to both investors and politicians is as full of contradictions as Karl Marx said capitalism was. Privatisation is the best way to resolve these tensions. Businesspeople, at least, can now be a little less dazzled by state firms. To outlast the average pop star’s career, companies need a culture of innovation, financial discipline and, increasingly, global reach. These are things only a few managers are able to deliver—and which no government can."

I have nothing against the public sector but I do feel that a level playing field is imperative for healthy growth of a liberalised sector/economy. I am against ill analysed public funding of PSUs and believe that they must compete (and be allowed to compete) on equal terms with private counterparts to create value for customers. This applies also to Broadband Networks and National Broadband Plans.