Messing up the Market Efficiency Gap in a Hope to Address the Actual Access Gap

Readers may please refer to my earliest posts about the Market Efficiency Gap and my recent one titled "Going around in Circles"

Somewhere along the past decade, USOF India has lost its way and we have come back full circle to thinking of relying on roll out obligations to achieve desired levels of rural teledensity. The proposition of Department of Telecommunications (DoT) that future spectrum auctions be designed to include  rural roll out obligations (as per a news item in Economic Times ) displays a complete lack of appreciation of the concept of USFs and the failure of roll out obligations in the past. All we will achieve is distortions in the spectrum allocation process. 

How exactly are the operators to find funds to fulfill the mandatory roll out obligations in areas which are obviously not commercially viable? Were they waiting only for a diktat from DoT all this while? What if they bid lower for spectrum to compensate for this additional cost and then circumvent roll out as in the past? Why should only spectrum winners (of this future auction) be considered as prospective suppliers of services to meet the gap?Well designed USOF schemes can provide the required (financial) incentive to any operator without creating unnecessary market distortions. This thinking by DoT is perhaps indicative of the inability of USOF India to fulfill its mandate and this malady has been the subject matter of many of my previous posts.

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?

Going Around in Circles?

The whole idea of universal service funds was that at least  theoretically they are considered to be a more transparent, targeted and efficient means of achieving universal service as compared to cross-subsidies, access deficit charges and roll out obligations. 

The Economics Times today reports that USOF, India is considering a reduction in universal service levy for operators that meet roll out targets. This is a flawed approach. 

Firstly roll out obligations in Indian licenses do not  and cannot ensure that specific rural areas (uncovered/.under-served) will be covered. They generally require coverage of a certain percentage of rural area in the licensed  service area or telecom circle and history has shown that the areas covered are those closest to cities/towns. Secondly, mere technical roll out cannot ensure universal individual/household access which requires inter alia affordability or accessibility of connections. A well designed USF scheme can achieve both these objectives.

 An overall reduction in Universal Service Levy based on assessed requirement of funds is a different matter but retaining/relying on roll out obligations as a means of achieving universal service when a universal service fund exists is not advisable. It is likely to increase the government's regulatory and administrative burden while defeating the purpose of the Fund.

The Future of Wireless Communication?

An extremely interesting article from the Economist hints at the possibility of bidding farewell to electrical signals as the prime means of wireless communication.

The article explains that chemical based communication as found in nature-animals do it (your dog leaving urine samples replete with telling "chemical markers" at every nook and corner during his walks or internal communications within the human body are examples), could be used to transmit data which would be read by sensors.

Present trials are crude at best, with very low speeds, but there is hope for higher data transmission becoming a reality in the future especially if messages can be encoded in the molecules themselves.

A particularly useful application of such technology is in disaster related search and rescue operations where the situation does not permit normal mobile communications. This happens when a building collapses as mobile services are not of much under the debris. However a group of robots could go under the collapsed material and leave each other chemical messages about what areas were searched and what has been found.

Another lesson to learn is that we should not preemptively put all our eggs in one basket  assuming that a particular technology is the best-please see my post titled "Disruptive Technology and Public Funding of High Speed Broadband Networks." under the label Technology

Banking on Incumbent Status

Recently the Department of Post (DoP) has been in the news as regards its attempts to obtain a banking license. As analysts point out its one thing to have non-computerized make-shift rural post offices housed in a single room huts to deliver letters, but quite another to run a bank from such post offices. These rural branches lack physical infrastructure and human resource (with the requisite skill set) to run banking services. Even DoP's attempts to tender for hand held devices to serve as mobile ATMs are unsuccessful apparently due to rudimentary specifications and infeasible terms and conditions.

The recent liberalization of banking in India is intended to attract  more players so as to inter alia make banking inclusive, but the postal department may not be the ideal candidate to do so.

The persistence of efforts by the DoP in this area is  more about a loss making incumbent postal operator trying to survive in the face of competition (from private couriers and broadband/email) by reinventing itself,  than about helping the banking sector thrive and ensuring that its customer base increases or is better served. It must be remembered that this reinvention is not costless and these costs including recruitment/retraining of staff, must be weighed against benefits. (This applies equally to National Broadband Plans like NOFN/BBNL that hinge on huge public investments in enhancing incumbent's networks.)

This is exactly the sort of iffy policy that government's should be wary off. Universal Service whether in banking, airlines or post or telecommunications should not become an excuse / for helping an incumbent survive. This is throwing good (public) money after bad. Not something a developing economy can afford. In the end economic efficiency must allow for creative destruction rather than endless and expensive preservation of redundant public investments