More about USOF India's Device Subsidy Scheme

The Economics Times today reports that the Telecom Commission of India has approved a Rs 50 billion scheme to provide subsidised mobile phones to specially identified beneficiaries in rural areas. the original proposal was to provide these to workers enrolled in the state funded MNERGA (employment guarantee scheme). However it now appears that a more detailed mechanism for identification of beneficiaries is to be determined. further, the TC has also raised objections about choice of the incumbent operator on nomination basis. These are in my view positive developments. Please see my comments under USOF India. The last post on this subject was titled, "Reactions to USOF India's Device Subsidy Schemes & the Confusion over Universal Service Funding"

Simple Solutions

An article titled "Mexico sees its first village cellphone network" on New Europe online caught my attention. It tells us about a village in Mexico where earlier the residents had to trudge to a community phone to make very expensive calls. Community phones are provided by big telecom operators.

However now,

"Using simple radio receivers, a laptop and relatively inexpensive Internet technologies, the people of the village have leapfrogged into the 21st century by setting up what amounts to their own mini-telecom company — one capable of handling 11 cellphone calls at a time at a small fraction of what they used to pay....in just six months, more than 720 residents have signed up to use the new system. Local calls made on off-the-shelf cellphones are free, and phoning relatives in Los Angeles costs just 20 centavos (1.5 cents) a minute. What's more, every subscriber has a distinct mobile number."

I remember a company approaching USOF India for funding a similar solution for inaccessible villages which could not be taken forward.In this case it appears that rather than look for formal funding, the village pooled money and with the help of a not for profit organisation they were able to set up this system.

Regulatory Tug of War

I found a post titled "Here’s how the telecom industry plans to defang their regulators" very interesting. In real world economics equilibrium is rarely stable. It is generally dynamic. So it would seem is the empowerment/dis-empowerment of a telecommunications regulator. 

In India, the Communications & IT Minister has criticized the Deptt. of Telecommunication's tendency to impose heavy penalties regardless of the nature of default by operators and has suggested that these powers be removed from bureaucrats and be given to TRAI. The TRAI is often at loggerheads with the Competition Regulator CCI, on jurisdiction. However, TRAI has recently come to the rescue of a  beleaguered telecom industry with its recommended reduction in reserve prices for spectrum. See "Regulate in Haste, Repent at leisure" under the label Telecom Regulation.

It would seem from the above mentioned post that USA's telecom giants want to remove/reduce FCC's powers to regulate issues relating to privacy, competition and net neutrality. While there motives are obviously their commercial interests, all these issues have an important bearing on consumer welfare which should be the primary concern of the sector regulator. Ex ante competition issues too would normally lie in its realm.

Bold, Brave Telecom Reforms in EU

With a view to boost investment and growth in electronic communications in the EU and with a view to serve customer interests better the European Commission has announced a new set of reforms for a connectec Europe. A post on this subject from International Business Times quotes the European Commission's telecoms chief Neelie Kroes as follows,

"Global competitors caught on to this long ago; Europe, once an ICT leader, is now lagging behind. Japan, South Korea and the USA combined have around the same population as the EU - but over eight times more fixed fibre broadband, and almost 15 times more 4G,"

The proposed legislation is reported to include:

Open internet - the proposals aim to enshrine net neutrality into law across the EU, meaning operators will no longer be allowed to block, slow down, degrade or discriminate against specific, content, applications or services, except in very limited, concretely defined cases.

Actual data speed - Operators will be obliged to provide clear information about the actual available data speed for downloads and uploads, including at peak-hours. If the actual speed the consumer receives is lower than the advertised speed, the operator will be considered to be in breach of their contract obligations.

Easier control of consumption - Consumers will be able to set how much they want to spend every month and once they hit 80% of this figure they will get a notification - also, detailed and itemised bills will be available free-of-charge.

End of roaming charges - The most high profile change being pushed through, the legislation could see the end of extra charges for making and receiving calls when you travel outside of your home country. While the proposals only seek to see the removal of charges for taking calls while roaming, they EC is also looking to get operators to promote "roam-like-at-home" offers where voice, SMS and data are all charged at the same rate while roaming within the EU.

The proposals will need approval from all 28 EU nations and the European Parliament if they are to become law, and if it does get approval the first changes are likely to take effect by July 2014.

While  these appear to be excellent reforms, it is also reported that the Industry [has] attack[ed these] EU telecoms reforms. Clearly roaming is a major source of revenue and their profits will take a hit. They warn against rising prices and less consumer choice as a consequence of these reforms. Small operators complain that roaming  reforms have been "watered down" on account of lobbying by big operators. There are also proponents of anti-net neutrality argument who plead that they should atleast be allowed to provide premium packages.

What I liked best was a quote from Stephen Howard, head of telecoms research at HSBC, “Politics is the art of the possible, and this initiative at last sets Europe on what we regard as a pro-investment course."

Reactions to USOF India's Device Subsidy Schemes & the Confusion over Universal Service Funding

I had written earlier about USOF's intended Mobile handset Scheme. While phones for voice alone may be unavailable to relatively few in rural areas, they may not be owned by women, aged and disabled. If we are aiming at smart phones for internet/broadband access, in my view, affordability of devices is a necessary but not sufficient condition for universalizing broadband access especially for rural India which has negligible broadband penetration. On the supply side, we also need good quality and affordable  connectivity (absent even in urban areas at present) and on the demand side we need locally relevant content in vernacular languages as well universal accessibility to cater to needs of disabled, illiterate and aged populations. My views on this subject may also be seen in previous posts on Broadband Ecosystem.

It has now been reported that 

"The Telecom Commission, the highest decision-making body in Department of Telecom (DoT), recently approved a proposal to give free mobiles to families in villages and tablet PCs to students in government schools that could cost the exchequer nearly Rs 10,000 crore.

The scheme is expected to benefit 2.5 crore individuals in rural households while the free tablet programme would cover 90 lakh students in 11th and 12th classes.It is to be jointly funded by the Department of Telecom and Universal Services Obligations Fund (USOF) – a fund to facilitate telecom services in rural areas. The project is proposed to be implemented through state-run BSNL which will float tenders for sourcing of mobile phones and tablets.The tablets will cost around Rs 4,972.5 crore, of which the USOF will fund 60 per cent and the remaining amount will be provided by DoT.Similarly, the mobile phone scheme, meant for mainly MGNREGA workers, is estimated to cost the government Rs 4,850 crore.The mobile phones and tablet PCs are proposed to come with a warranty of three years. Both the schemes are expected to start after March 2014. ..The tablet PC will be distributed in three phases where is first phase 15 lakh students will be covered, 35 lakh in second phase and 40 lakh in third phase. Under the proposed scheme, students will get tablets for duration of their studies at the school they are enrolled with.

The mobile phone scheme is proposed to cover 25 lakh beneficiaries in first year, 50 lakh in second, 75 lakh in third and 1 crore in fourth year. The mobile phone scheme, meant for mainly MGNREGA workers is likely to be completed over period of six years."

A critique of this initiative may be seen in a newspaper editorial titled "Honey Pot" It has criticized the Fund for being bureaucratic and tight fisted in the past but is also very critical of this scheme which is labeled as a populist measure at the cost of operators whose revenues go towards funding the subsidies. The argument is that the Fund should have been wound up to spare the operators the mandatory contributions to USOF so that they could provide rural services.

It is a fact that much of rural penetration has taken place outside the realm of USOF. I would be a bit wary of device subsidies unless they are restricted to the really deserving (socially/economically)and clearly under served such as rural women, aged and disabled. I would also fault the choice of the incumbent by nomination for almost every recent USOF endeavour. This goes against the letter and spirit of USOF Rules besides being anti competitive. (Read post on Competition for my views on the subject).

However, it is wrong to assume that if the USOF were scrapped operators would have with this money. It is in fact a part of their license fees and hence would be recovered any way. Neither would  they would cater to non viable market segments on their own even if no license fees (or universal levy) was recovered from them. US Funds are supposed to be a competitively neutral, transparent, targeted and hopefully minimal way of providing incentives to bridge the actual access gap. The concept has proven to be more effective than at least rural  roll out obligations in India. The problem arises when the Fund is not used in this ideal manner. This can be traced back to regulatory frameworks and underlying institutions but it is wrong to imagine  that markets can achieve universal service on their own.

Regulate in Haste Repent at Leisure

There are many stories in Indian newspapers at present wherein one can read about the Telecommunications Regulator's recent recommendation in favour of  a considerable reduction in reserve price of spectrum and those relating to permitting spectrum trading. As expected, some are and for and others against these recommendations. Also see "Cheers for old telcos, worries for new" and "Pragmatic way forward."

Either way, in my view, what is important is that all regulation must be based on sound economic analysis placing consumer interests above all. The latter includes a healthy, viable and competitive telecom sector.

This brings to notice the recent controversy over TRAI's 12 minute cap on  advertisements in its role as a broadcasting regulator. The decision is at present subjudice with TDSAT (Telecom Dispute Settlement and Appellate Tribunal) . Now the Ministry of I & B is said to be collecting data on potential revenue losses as a result of this measure. It would be much better if this exercise (and such groundwork in general ) was done before the regulator recommends and the government accepts its recommendations. 

An extract from a news item is placed below which is quite self explanatory:

In May, the Telecom Regulatory Authority of India (Trai) had said commercial advertising limits for TV channels should be capped at 10 minutes. A two-minute-an-hour cap was allowed on ads promoting the channels or their shows, putting the overall ad cap at 12 minutes an hour. Meanwhile, I&B Minister Manish Tewari said a solution should be found through consensus.

“There is a need for both the regulator and the stakeholder to work out a road map regarding the ad cap. There cannot be a regulator if there is no stakeholder and the stakeholders have said they would suffer a loss if the rule comes into effect, while the regulator is doing what they have to,” said Tewari.

I think we need to take regulation much much more seriously in this country as much of our recent economic woes have been identified as arising from inadequate regulatory capacities and fairly clumsy regulation with serious negative repercussions.

Another article which is worth reading on this subject is "Regulators Must Promote Not Strangulate Industry"  in today's Times of India. It speaks about the above issues and correctly highlights the need to improve regulation in all sectors in India. 

Please see my previous posts on this subject under Telecom Regulation.

The Oldest Item in the US Basket-Still Indispensable

An article in the Times of India on 8.9.13 titles "As PCOs hang up, distress calls drop" highlights the importance of public calling offices (PCOs) or pay phones as thet are called in some parts of the world. It is said that ever since the number PCOs are in decline, the number of calls being received from distressed children on the government funded Child Helpline has decreased sharply. As many of these children would be orphans, homeless or from marginalized segments of society, the Helpline would have been a lifeline of sorts to report mistreatment or to locate shelter. It is suggested that the solution lies in installing free phones to the child hotline. 

In India the Village Public Telephone (VPT) schemes were the first to be launched by the Universal Service Obligation Fund and have now been discontinued. As private PCOs outpaced the USOF subsidized in numbers and quality of service this was the right thing to do. However, the government does need to ensure the availability of PCOs in both rural and urban areas. 

One option could be to install purely government/CSR funded phones which can dial all types of public /welfare related hotlines and emergency services. These phones should also be equipped with assistive technologies to make them disabled friendly.This would serve the public well and is a worthy cause for USOF to espouse and support. The revenue earned from calls could meet some of the installation and maintenance costs.