Wi Fi Internet for Indian Village Local Government Offices-Going Around in Circles?

A news item in the Times of India (November 30, 2013)  titled "Govt clears internet wi-fi plan for rural India" states that a proposal to provde wi-fi hotspots and internet connections to India's Gram Panchayats has recently been approved. Slated to cost Rs 37.5 billion and targeted to be completed by 2016, the project will be funded by Indian USOF and will ride on NOFN infrastructure, 

This may be an excellent idea with two caveats. 

One is that past experience has shown that telecom services in Panchayats tend to be used only by the rural elite and are unavailable to the common people. During USOF inspections I have seen private public calling offices doing roaring business whereas the USO funded village public telephone located in the village panchayat (local self government office) bang opposite, on the other side of the village mud track was being exclusively used by the local elite. Villagers were in fact unaware of this state funded facility. Thus, given the social and economic set up of Indian villages such facilities could encourage better data keeping and connectivity within the government set up but are likely to percolate to rural society at large. The village school may have been a better venue for such a facility if empowering the common people is the aim, but then more effort would be involved in managing, maintaining and manning the facility. I have written before about the need to look at various other facets of the demand side eco-system. You need applications and trainers/facilitators in rural India. This requires a multi-stakeholder approach to project design. A good and successful example is USOF's Sanchar Shakti.

My second concern is who is providing the last mile service. I hope it is not NOFN. The entry of NOFN into access segment would in my view negate the very idea of Universal Service as a modern mechanism in a liberalized sector as being different from state owned monopoly service provision. Please see my previous articles in this regard under the same labels.

Plus ça change, plus c'est la même chose

An article in the Economic Times today laments that poor rural teledensity is lie to hamper achievement of India's broadband target of 175 million subscribers by 2017. Teledensity in rural India is crawling and is at present 41.64% compared to urban teledensity of 146%.We still have only about 16 million broadband connections. The usual culprits have been blames-poor rural demand and higher costs of rural roll out including non availability of fibre. 

I have recently written about NOFN/BBNL and why it should focus on its core objective of providing           non-discriminatory OFC backhand rather than trying to become a vertically integrated service provider. We already have one such public sector operator in BSNL (which has continuously resisted sharing its fibre with other service providers in spite of regulatory recommendations).

The poor results of USOF's substantial funding to the incumbent BSNL for rural wire lines and broadband are evident. Perhaps there is a need to review the entire strategy of promoting rural telecommunications. Perhaps the solution lies in a more level playing field via regulation (fixing the market efficiency gap) and public funding that encourages private participation. Please also see my previous articles on 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" 

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.

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.

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.

Namibia's Progress in Telecommunications Regulation

The Communication Regulatory Authority of Namibia (CRAN) is following the footsteps of communications regulators across the world in terms of establishing the regulatory basis for licensing, universal service policy and fund, spectrum and digital dividend, infrastructure sharing, open access, number portability, green ICTs etc. This can be seen at "Namibia: CRAN Expects to Award More Licenses."

Newcomers on the scene have a wealth of international experience to learn from and to adapt to their own national context. Sufficient care to ensure competition and level playing field for all at the outset can prevent costly regulatory errors.

The Demand Side of Broadband Expansion-Telemedicine

As per the telecom live magazine (August issue) the Department of Telecommunications is collaborating with other ministries/ departments to establish the utility of the NOFN. This includes the Ministry of Health & Family Welfare which has reportedly stated in an inter ministerial meeting held in June 2013 that fibre connectivity and computers are critical for telemedicine applications. There is no doubt about that but a proper and detailed assessment of needs and gaps would be critical for BBNL to usefully boost telemedicine in rural India in a systematic manner.

We could learn something from USA 's experience. It has for the past 15 years run a programe to subsiise connectivity fo rural healthcare. 

As per an article titled, "FCC Rural Health Care Program coming up woefully short" in November 2010 a Government audit  said that the FCC "has not conducted an assessment of the telecommunications needs of rural healthcare providers as it has managed the primary Rural Health Care Program, which limits FCC's ability to determine how well the program has addressed those needs." In addition, government auditors found that the FCC has not developed specific performance goals for the Rural Health Care Program and has developed "ineffective" performance measures." 

However another article, "$400 million FCC fund to bolster rural telemedicine networks," describes the Federal Communications Commission plan to expand on the above-mentioned programme to " make up to $400 million available to healthcare providers in order to create and expand telemedicine networks nationwide, linking urban medical centers to rural clinics while providing greater access to medical specialists and instant access to electronic health records. "

It is said that, 

"According to the FCC, the Healthcare Connect Fund could cut the cost of broadband healthcare networks in half, through group purchases by consortia and other efficiencies. The fund will provide a 65 percent discount on broadband services, equipment and connections to research and education networks, and healthcare provider-constructed and owned facilities (if shown to be the most cost-effective connectivity option), while requiring a 35 percent HCP contribution.To be eligible for the funding, applicants must be public or not-for-profit hospitals, rural health clinics, community health centers, health centers serving migrants, community mental health centers, local health departments or agencies, post-secondary educational institutions/teaching hospitals/medical schools, or a consortia of the above."

USOF India needs to learn from successes and pitfalls of such initiatives while coming out with specific programmes to address demand side of the broadband ecosystem.

Cheap Smartphones & the Broadband Ecosystem

The Economic Times today carries an article about Government panning sub $100 smartphones to boost broadband penetration. As per TRAI, India has about 15 million broadband subscribers and about 143 million access internet through wireless.Clearly with  negligible wire lines in access, last mile connectivity in India will be wireless and mobile devices are therefore critical to broadband access.

It is reported that a telecom official stated that, 

"A fully-functional smartphone is no longer an object of desire but an instrument of empowerment ," the official said. He added that since smartphone affordability remains the biggest hurdle to broadband penetration in India, the world's second largest mobile phone market, the government is exploring ways to encourage the biggest handset makers to produce sub- $100 advanced smartphones on a large scale that will come pre-loaded with the latest entertainment applications and also support mobile banking, telemedicine, education to even farming applications like e-krishi."

One viewpoint is that affordability of smart phones is a key driver of broadband penetration.

 "This, mainly since the average global price of such devices continued to hover around $130 (Rs 7,800), the main reason why barely 5% of the Indian population has till date upgraded to genuine smartphones despite the country's 70 %-plus telecom penetration levels.."

 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. As readers may recall, I has commented earlier on news about a probability of USOF India subsidizing mobile devices for rural poor. My views on this subject may also be seen in previous posts on Broadband Ecosystem

One Size Does Not Fit All: US and Unique Needs

I have written earlier about reforms of USA's Universal Service Programme. A news item titled, "FCC suspends some cuts in rural high-cost support funding" tells us that FCC has announced that the suspension of its cuts in case of rural Alaska  planned as a part of its High Cost programme reforms. It has been stated by FCC that,

  “These measures will provide additional predictability and certainty for rate-of-return carriers as the Bureau works to adjust the benchmarking methodology as directed by the Commission through an open and transparent process.”

As explained in this article, "The Connect America Fund was designed to ensure that consumers in rural, insular and high cost areas have access to modern communications networks at rates comparable to those in urban areas. The program provides federal reimbursement to certain eligible carriers for some of the costs of serving rural communities."

As said by the Chairman of the American Indian and Alaska Native Affairs Subcommittee

 “The reforms they are suspending today is great news for rural Alaska, and is confirmation of what we have been trying to tell them this whole time: Alaska is different." He also emphasized that it has unique needs.

It has been recognized across the world that top down one size fit all approach will not work and Universal Service Funds and programmes must allow more stakeholder collaboration and bottom up projects to cater to different needs of geographies and communities.

Readers can also see  previous posts on U.S.A's Universal Service Programmes,  International Experience and related articles w.r.t  Indian USOF.

News about a USOF Mobile Handset Scheme

It has been reported that USOF India may fund a scheme wherein mobile handsets are given to female members of poor rural households who have completed 100 days of work under India's rural employment guarantee scheme-MNREGA. Eligible beneficiaries would be identified by the state administration and handsets bundled with connectivity and m-government content such as health records and entitlements transfers would be provided by the USP chosen either through bidding or on nomination basis. Present USOF Rules would require choice of USP by bidding.

While the focus on women and m-government is welcome, I am not sure that mobile handsets are needed to be subsidized. It is the connectivity and content that USOF could focus on instead. If these are available, handsets (even second/third hand) would be purchased in any case. It is however a fact today that rural women may not own handsets. This was noticed during the implementation of USOF's Sanchar Shakti scheme. 

USOF may have to think of adequate safeguards to prevent transfer of the phone to non beneficiaries and false claims by USPs as implementing such schemes can be  administratively very challenging.

Nigeria's Universal Service Provision Fund-Lessons Learnt Way Forward & ITU's GSR 13 Discussion Paper

It has been reported that the Nigerian USPF ("which is a special fund set up by the Federal Government under the Nigerian Communications Act 2003, designed to provide telecommunications and ICT services to un-served, under-served and deprived groups and communities in the country") will under its new five year Strategic Management Plan (SMP),  build 1000 BTS per year and also lay 15,0000 kms of OFC . It will afurther create Internet POPs in 25 clusters by 2017.

The previous SMP which ended in 2011 revealed lessons that are perhaps  common across the globe. These include use of bidding for transparency, the need to "follow an  integrated approach to project strategy and execution would lead to increased participation of industry operators; ensure implementation of well-planned and adaptable projects that suits a variety of ICT schemes.." etc.

The problem with the earlier SMP include that,

“...[P]rojects were designed and defined using a ‘one size fits all’ approach, thus USP intervention, in some cases, did not directly address the specific needs of the beneficiaries, among others challenges,”  as stated by partner KPMG chief said.

I have written about this earlier as for example at http://ictsforall.blogspot.in/2013/07/usof-indias-unspent-balance-under.html.

Many of these thoughts are echoed in ITU's discussion paper on Universal Service Funds for the Global Symposium for Regulators 2013. (Please see  http://ictsforall.blogspot.in/search/label/GSR%202013.) This paper has outlined 12 success factors for effectiveness of USFs including policy and regulation, lexibility, transparency & accountability, active participation & inputs from all stakeholders, comprehensiveness of projects to cover all sustainability elements etc. I will write more about this soon.

USOF India's Unspent Balance under Criticism

In my previous post titled, "Questioning the Efficacy of Universal Service Funds: GSMA Calls for Re-evaluation and Reduction of the Universal Service Fund Levy,"  I had written that funding for Universal Access/ Universal Service is mostly from either the general budget or levies on operators. Given that it imposes a form of taxation and given that it is expected to meet certain legally, politically and ethically important targets, the subject of US in general and US funds (USFs)  in particular is always under scrutiny and debates on this issue range from questioning the need for US regulation in a competitive  market to arguing in favour/against inclusion of broadband  in its purview. Off late the balance seems to be tilting in favour of USF for funding national broadband plans and nation-wide OFC networks.  Thus discussions range from trashing the concept to seeing it as a vehicle for achieving state of art ICT services.

I had mentioned that the April 2013 GSMA Survey and Report available at GSMA Calls for Re-evaluation and Reduction of the Universal Service Fund Levy question the efficacy of USFs as means of  achieving the objectives of US.  As far as India is concerned there is praise for transparency in financial reporting and criticism for " inadequate or misguided articulation of USF objectives and strategy” that have encouraged urban rather than rural roll outs. (Please  also see my post on USOF India.). The findings of the survey including inter alia the large unspent balances point to the need for better institutional mechanisms that guarantee transparency, accountability and competitive neutrality while still being tailored to a country’s local context. Further we need to adopt a more innovative and flexible approach to US funding. We need to consider more bottom-up PPPs, more demand-driven projects and also projects that address demand side gaps to penetration of ICTs.

I have written earlier comparing the flexible bottom up multi-stakeholder approach of Sanchar Shakti programme that succeeded, with the more rigid, operator dependent approach taken in USOF's ICTs for PwDs project that did not. 

Traditionally, USFs have folowed a supply centric, top-down  approach wherein gaps are identified by the USF Administration and then projects are designed and bid out to select the Universal Service Providers (USPs). This approach may however not be flexible enough to meet the needs of various sections of the population and to address different reasons for the access gap.  Hence there is a need to consider a more flexible, consultative, collaboartive and multi-stakeholder approach to designing USOF programmes.

Again, USFs in many developing countries have problems of under-spending whereby funds continue to accumulate as not enough projects are initiated in comparison to collections.  This is partly on account of difficulties in conceiving appropriate projects meet diverse and ever evolving stakeholder requirements.  I believe that USFs set aside a percentage of available funds to be utilised for demand-driven projects emanating from the user community. Broad eligibility criteria could be pre-decided and placed in public domain along with transparent but mainly qualitative evaluation criteria and procedures. This would allow USF Administrations to maintain a shelf of projects that are useful and pertinent to end users. This is especially true for needs that are more application-centric such as projects for marginalised communities that may have a major content and capacity building component. This approach would lend a much needed dynamism to USF activities. It would also help USOF address demand side gaps in telecom penetration as opposed to supporting only supply side initiatives.

An article dated 28.7.2013 titled "Disconnect in India's rural telecom fund; $4.65 bn idling” highlights the unspent balances of USOF and comments of Administrator USOF thereof.It quotes Gabriel Solomon, the public policy head of Groupe Speciale Mobile Association (GSMA), the global association for mobile companies as having said that, 

"One  of the main reasons why such funds remain unused in many countries is that a competitive industry like telecom moves at a pace which these funds cannot keep up with," 

and that

"In a matter of a few years, the mobile industry in India has built huge infrastructure, connecting hundreds of millions of people. Why even consider a USOF (Universal Service Obligation Fund) now? If the private sector is appropriately incentivised it will always outperform the public sector."

As per the same article, the USOF Administrator has clarified as follows

"Out of the Rs.27,949.91 crore left unused, some Rs.20,000 crore will be deployed for the national optic fibre network project and another Rs.3,046 crore for installing 2,199 mobile towers in the nine Left-wing extremism-affected states."

"The criticism is valid for the time being. But we are evolving. As the projects start rolling out, we will need more funds," he said, adding the projects include one to link each of India's 250,000 village councils with high-speed data cables."

USOF India has many good schemes to its credit.(Please see many previous posts USOF India). What is  perhaps needed is a more imaginative, flexible approach and assurance of a level playing field between private and public sector operators.

Reforming USA's US Programme

As reported at "FCC Votes To Launch E-Rate Reform"

The FCC Friday launched its reform of the E-rate schools and libraries subsidy, proposing to refocus the program from connectivity to capacity and speed, collect more and better data, simplify the application process and take other steps to modernize the program.

The E-rate program provides discounted broadband service to schools and libraries through the FCC's Universal Service Fund, a fund paid into by telecom providers--the fee is passed onto subscribers.

The proposed reform has three main goals: 1) insuring affordable access to 21st Century communications; 2) maximizing its cost-effectiveness; and 3) streamlining its administration.

In my view the progranme continues to be very complicated and demanding of Administration. 

Please see my previous posts at 

http://ictsforall.blogspot.in/search/label/U.S.A%27s%20US%20Programme 

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.

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/

Regulation and USFs- Support for Rural Wire Lines in India

One of the amendments to the Indian USOF Rules which instituted an exception to the prescription of bidding as a means of selection of Universal Service Providers was carried out in 2008 on the recommendations of the regulator. Vide this amendment, Rs 6000 crore (an amount equivalent to USD one billion today) would be provided to the incumbent Bharat Sanchar Nigam Ltd (BSNL) over a period of three years “operational sustainability of rural wire lines in lieu of Access Deficit Charges being phased out.” 

It has been reported  by the Economic Times on 9.7.13  that BSNL is to get a Rs 1500 crore life line from USOF again.

It may be of interest for readers to know that about 98.6% of USOF funding has gone to support rural wire lines for voice and broadband connectivity. However BSNL which is the recipient of more than 86%  of USOF’s  total subsidy pay out  continues to steadily lose  rural wire line connections. These could have been maintained, improved and expanded by BSNL to provide broadband to rural areas. Much of this infrastructure was  put in place before BSNL was carved out of the Department of Telecommunications. It thus  represents a large amount of government investment besides presenting a huge competitive advantage for BSNL, considering  that it owns 99.9% of rural wire lines and rural India has negligible broadband penetration. This advantage has not been leveraged by BSNL. Nor has unbundling of this infrastructure been carried out in spite of regulatory recommendations.

Against a Rs 1500 crore scheme initiated in January 2009 to support rural wire line based broadband with a scope to add about  18,00,000  connections (with subsidy being linked to the number of connections) BSNL had added less 400000 connections over a period of 3 years.

A USOF Supported Rural Broadband Connection in West Bengal

In this background, it is a moot point whether such additional funding and that too from USOF is justified and whether it will have any positive impact on rural wire lines or broadband.

As far as rural broadband markets go, there are larger regulatory issues involved. Yet, limiting our concerns to USOF it can be cautioned that due care should be taken as to the ends and means in using a Universal Service Funds.  Laxity in maintaining competitive neutrality would tend to have long term negative implications on  the affected markets and defeat the very purpose of Universal Service.

A thought provoking article on public sector enterprises in India may be seen here
http://www.telegraphindia.com/1130708/jsp/opinion/story_17076125.jsp#.UdohM6xhAng

More on USF Programmes with Tariff Discounts

In continuation of my earlier posts on the issue of USF schemes/projects having a tariff discount component, I would like to add some further thoughts. A view has been expressed by a  very experienced USF expert that tariffs discounts in case of voice services, can create artificial differences with non USF areas and discourage operators who must have a business case to invest. I would say that these arguments have merit. In addition to my comments cautioning against being too optimistic about tariff discounts at the bottom of  the post at http://ictsforall.blogspot.in/2013/07/a-discussion-on-tariff-discounts-for.html, I  would like to clarify as follows.

In my previous posts I had alluded to a rural tariff ceiling. This was  set by the telecoms regulator and is pan India. Thus, it covers all rural fixed line subscribers uniformly. However, the regulatory requirement at present is that this tariff plan must be made available. It need not be the only plan. Operators are free to offer other tariff plans. The idea is to ensure that the poor have at least some basic plan for affordable service. Both operators and subscribers have a wide choice in this case.

In India, rural subscribers mostly opt for prepaid plans which ensures that they do not pay more than their budgeted amount. This is true for both  voice (which is almost entirely wireless) and data.  

By discounts in case of USF schemes I mean making available at least some cheaper plans so that the poor can avail of some service. As mentioned above, in the case of voice (fixed) this was mandated by the regulator not by USOF.

In fact when USOF scheme for rural household fixed lines brought in competition from CDMA phones, the Universal Service Providers (USPs) offered extremely attractive prepaid tariff plans with generous free incoming components to attract customers, and with great success in terms of increasing subscription (but not revenue. (Please see http://ictsforall.blogspot.in/2013/06/ensuring-affordability-of-usf-supported.html ).

These plans were far cheaper than the regulator's tariff ceiling plan. Thus, in the case of voice, USOF India did not specify tariff discounts.The USPs responded voluntarily with tariff plans in response to market conditions.

As already explained in my previous post post  http://ictsforall.blogspot.in/2013/06/ensuring-affordability-of-usf-supported.html, for data services (Wire line Broadband Scheme), USOF required entry level plans to be made available during the OBA contract period but the USP could also offer any number of other plans. This has worked well as a means to attract new users who have subsequently upgraded to costlier packages with higher download limits. As far as the operators business case is concerned, USOF calculated subsidy benchmarks assuming that the bulk of rural subscribers would at least initially prefer the cheapest plan. Thus, USPs stood fully compensated for the discounted tariff plan.