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.

NOFN/BBNL-Back to Square One Almost

I have not written for a while. Been busy in another sphere of regulation. However, I was drawn back to my much neglected blog by TRAI's recent Consultation paper on Implementation Model for BharatNet (BBNL has been rechristened BharatNet.)

So, after almost five precious years down the line and with nothing to show except inflated project estimates and an unnecessary bureaucracy created by way of BBNL, India's National Optic Fibre Network (NOFN) plan is being subject to public consultation. Its almost a case of reinventing the wheel which is right there in front of you by way of the existing regulatory structure of India's Universal service Obligation Fund (USOF). USOF Rules require the Government to provide incentive to telecom operators (public/private) to venture into commercially non viable rural telecommunications by way of subsidy to close the viability gap. The projects are to be designed with appropriate bidding units in mind (state/district etc.), subsidy benchmarking is to be carried out and projects are awarded through reverse bidding with the subsidy benchmark acting as the upper limit.

Had this been adhered to 5 years ago, we would have had the village to block level OFC laid out on open access basis by now. Different segments  (say state wise village to block level OFC, if states had been chosen as the bidding unit) would have been owned by different operators but connected at the district level to existing nation wide networks. This would have provided much needed OFC back haul at village level to telecom operators who often had to rely on unreliable microwave back haul, and provided a strong impetus to large/niche/small players in the rural broadband space.

Even now the TRAI paper talks about Build Own Operate and Transfer as the one option that would come closest to the USOF model. Why transfer. Why must the Government own telecoms infrastructure in a liberalised environment and be saddled with this depreciating asset? The whole philosophy of Universal Service has been lost in translation in the Indian scenario.   The creation and compulsion of  continued survival of BBNL is perhaps the reason why the Government cannot discard the concept of ownership. This goes against international best practices that point to smart, targeted use of universal service funds to incentivise operators and then leaving them to manage their business.The idea was never to create Government owned assets or to use the USOF to pay salaries to a bureaucratic organisation like BBNL. Unless our goals are clear , we will never get this right.

Please also see my previous posts on NOFN and BBNL.

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.

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..." 

NOFN-Better Late than Never?

My last post was about NOFN and the government considering private sector involvement. Not much has been reported about that realization being actually put into practice. Today's Financial Express does report however that,

 Industry analysts have all along being critical of the project from the point of view that its implementation is being done by PSUs rather than awarding work to private sector agencies on a turnkey basis.

In fact, with the delays and a realisation in the top echelons that the deadline would be missed, DoT is also considering roping in private agencies. Under it, the plan is to divide the the entire country into zones and allocate private players to lay the network. In this outsourcing model, [USOF model] the role of the government would be only supervisory, setting benchmarks, providing incentives for completion of work on time and levying penalties in case of delays.

Well what can one say, I have blogged about this a lot. In my view such expensive mistakes are a problem of the (lack of) regularity neutrality problem we face.  Please see my recent paper titled,  "The State of Broadband in India: A Call for Regulatory Neutrality" at
http://circ.in/pdf/Regulatory-Neutrality-in-Broadband-India.pdf

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.)

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.

The Long and Winding Road to Universal Broadband-USOF India

I have expressed reservations about the choice of methodology for OFC connectivity to rural India adopted by USOF India in earlier posts.

A network that was to cover 250000 village panchayats (local self government offices) by 2014 has not been able to cover even 50000 as of now. The new timeline is 2017. Can India afford this time overrun, let alone the inevitable cost overrun this would most likely entail?

The reasons for delay are the inability of  the public sector incumbents BSNL, Railtel and PGCIL (that constitute the implementing agency BBNL) to conclude contracts for purchase and laying of OFC. This is a commonly known problem that anyone familiar with these public sector units would have pointed out in 2012 itself. Interestingly, at that time, avoiding delay in roll out was the reason that the work was given on nomination basis to PSUs rather than bidding it out as per USOF Rules. It was said that benchmarking and tendering would lead to delay! This is in spite of USOF already having initiated two regional OFC projects through the bidding route earlier, implying availability of previous experience in benchmarking and scheme design.

Please see my earlier posts under National Broadband Plans,  Competition and Broadband Networks.

State-run Bharat Sanchar Nigam Ltd, RailTel and PowerGrid Corp, which are executing the NOFN project, told the review meeting that they were facing challenges in concluding cable laying, trenching and ducting work in their respective zones, said the USOF official who was present at the NOFN review meeting. USOF now expects the three-phase broadband coverage to be concluded earliest in March 2017, which would translate in a five-year delay since the project has already suffered a two-year time ov ..

Read more at:
http://economictimes.indiatimes.com/articleshow/37105173.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst

State-run Bharat Sanchar Nigam Ltd, RailTel and PowerGrid Corp, which are executing the NOFN project, told the review meeting that they were facing challenges in concluding cable laying, trenching and ducting work in their respective zones, said the USOF official who was present at the NOFN review meeting. USOF now expects the three-phase broadband coverage to be concluded earliest in March 2017, which would translate in a five-year delay since the project has already suffered a two-year time ov ..

Read more at:
http://economictimes.indiatimes.com/articleshow/37105173.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst

State-run Bharat Sanchar Nigam Ltd, RailTel and PowerGrid Corp, which are executing the NOFN project, told the review meeting that they were facing challenges in concluding cable laying, trenching and ducting work in their respective zones, said the USOF official who was present at the NOFN review meeting. USOF now expects the three-phase broadband coverage to be concluded earliest in March 2017, which would translate in a five-year delay since the project has already suffered a two-year time ov ..

Read more at:
http://economictimes.indiatimes.com/articleshow/37105173.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst

State-run Bharat Sanchar Nigam Ltd, RailTel and PowerGrid Corp, which are executing the NOFN project, told the review meeting that they were facing challenges in concluding cable laying, trenching and ducting work in their respective zones, said the USOF official who was present at the NOFN review meeting. USOF now expects the three-phase broadband coverage to be concluded earliest in March 2017, which would translate in a five-year delay since the project has already suffered a two-year time ov ..

Read more at:
http://economictimes.indiatimes.com/articleshow/37105173.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst

Fibre, Regulation & Competition

It may be noted that a common strain running throughout my blog is my concern with huge, national level roll out of incumbent centric state-sponsored fibre networks. In the enthusiasm for broadband and its inclusion as a key component of growth or stimulus plans, developed nations too seem to have relaxed their strict concern for competition or at least have had to modify competition/telecom regulation to accommodate these projects (NBN). Developing nations like India that have adopted a "me too" approach are perhaps even worse off for the lack of adequate regulation and almost complete lack of competition assessment at a policy and project level. (BBNL)

I have often warned that there would be problems ahead. Please see my posts under national broadband plans, broadband networks and competition and have suggested an alternative approach based on tendering and infrastructure sharing.

It is of interest that the fears surrounding fibre backhaul as a key, potentially bottleneck input are being articulated even in Europe with much more sophisticated regulation in place. These have led to plea for (re)regulation of access to especially backhaul owned by former fixed line incumbents.Please see the report on Vodafone lobbying for regulated fibre access,

Do we want to go back to the era of complicated (and often less than perfect) fixed line type of regulation or can we learn from the past?

Disruptive Technology and Public Funding of High Speed Broadband Networks

In my posts on the issue of National Broadband Plan and Broadband  Networks, I have consistently cautioned against creating publicly funded monopolies for OFC Networks and reminded readers about the regulatory issues involved in managing our legacy of wire line based incumbents. One of the reasons for avoiding the same is the nature of telecommunications where technology change is the rule.The advent of affordable  and competitively provided mobile services debunked the notion of telecoms as natural monopolies, yet we risk repeating this faulty argument when it comes to high speed broadband.

In India, the Public Sector Incumbents BSNL and MTNL have been supported with billions of rupees to survive in a competitive environment. However, not even their dominance in wire line telephony has helped them compete with a nimble private sector. On the other hand, regulatory protection of legacy public investment in their wire line networks has had a negative effect on competition in that segment in the country. The result is very poor broadband penetration.

Today's Times of India carries an article about a new laser developed by the California Institute of Technology that promises to greatly  outdo the speed of existing OFC cables (that are based on older S-DBF lasers). This sort of disruption should be expected in telecommunications. There could be many more such developments even before the roll out of nation-wide  OFC network projects which is underway in many counties (like India's NOFN by BBNL) is even completed. What then will be the fate of the sunk (public) investment in these (then) obsolete megalithic OFC networks?

This will inevitably throw up complex regulatory issues such as those described above, with less than optimal results. This brings me back to what I wrote in my posts titled  "Broadband Networks through Infrastructure Sharing" and National Broadband Networks: Regulation, Universal Service, Competition and Monopolies."

We may need to learn from the story about the "Tortoise and the Hare" that we may not win in the long run if in our haste to speed up high speed broadband deployment, we ride roughshod over hard learned lessons about competition and technological neutrality.

The NBN Debate Continues-Lessons for India's NOFN?

It is reported that an independent review of NBN ordered by the new Coalition Government of Australia has found that NBN costs and time lines have been understated and revenues overstated.

The news report states that,

"'The  full cost of Labor's original National Broadband Network plans would blow out by $29 billion and be completed three years late, the strategic review has found.

Communications Minister Malcolm Turnbull released details of the review he started 60 days ago on Thursday.The review found the fibre-to-the-premises NBN under Labor would have cost $73 billion, $29 billion more than forecast, and not be completed until 2024.It also found the current NBN Co corporate plan had overestimated revenues from the network by $13 billion.While the review found the cost and timing of the original plans would blow out, Opposition communications spokesman Jason Clare challenged the review's findings.He released an internal government analysis of the Coalition's plans, which he said revealed the new government's plans were "the wrong approach", and would not achieve the promised speeds.

Mr Turnbull has pledged download speeds of 50mbps by 2019 under the Coalition's plan, which will rely on copper connecting to fibre nodes, rather than brining the higher-speed fibre direct to all homes.

But Mr Clare said the analysis should the two stage approach - with 25mbps promised by 2016, expanding to 50mbps by 2019 - was unworkable.

He said the government's fibre-to-the-node plan would lower revenues from the network by 30% and the actual cost of fixing the existing Telstra-owned copper network, and was "unknown".

But Mr Turnbull said the review found the Labor network was "never achievable", and the results of the review would be "a crucial input into government policy".

Clearly the debate can go on forever. Nevertheless a mid term policy/projectreview and corrective steps are a good idea for any ambitious national broadband network roll out. India's NOFN/BBNL is already in difficulties. Ironically though it is being heavily subsidized because it is supposed to be financially nonviable and the PSU SPV route was chosen to cut red tape in Right of Way and other such causes of delay; the three PSU implementation partners in charge of this project are now citing the very same reasons for their difficulties and delays. Time for a review of costs and revenue projections and last but not lease scheme design? 

India's Broadband Initiative-Bharat Broadband Network Ltd

I have mentioned earlier that 2.5 lakh village panchayats (local government centres) are to be connected through the National Optic Fibre Network or the public sector SPV called Bharat Broadband Network Ltd. This roll out would take high speed broadband  to rural India and hopefully revolutionize rural telecommunications.  A rare update on BBNL appeared recently in Business Line. It reported inter alia that 

"A survey – to chart an optimum route [for OFC] - for all 2.5 lakh GPs in the country is underway. The National Information Centre has been roped in to create a digital map, with routes and nodes, using Geographic Information Systems technology. It would be hosted on BBNL Web site for the citizens to review it and provide feedback."

and that,

"Tenders for laying the network had been floated and financial bids were opened on June 7, however unsuccessful bidders have approached court and their bids were opened on June 21. Due to this delay, the tender would be finalised by July 31."

This is often a problem with PSU tenders and not limited to India. Expenditure so far has been Rs 229 crore or USD 38.346 Million.

It is hoped that these teething problems are soon overcome and the roll out is achieved on time. It is also hoped that  the resultant network is effectively regulated to ensure open access and a level playing field between participating Public Sector Units (PSUs) and various private entities involved in the broadband eco-system. Needless to say these supply side initiatives must be accompanied by measures to address other aspects of the rural broadband value chain.