Home Global-ICTGlobal-ICT 2005 Universal Service – obligation or opportunity?

Universal Service – obligation or opportunity?

by david.nunes
Pradip BaijalIssue:Global-ICT 2005
Article no.:8
Topic:Universal Service – obligation or opportunity?
Author:Pradip Baijal
Organisation:Telecom Regulatory Authority of India (TRAI)
PDF size:332KB

About author

Pradip Baijal is the Chairman of the Telecom Regulatory Authority of India (TRAI), a statutory body constituted under an Act of Parliament. TRAI regulates India’s telecom, broadcasting and cable TV sectors. Before his current assignment in TRAI, he was the first Secretary, Minister of Disinvestment, from 1999 to 2003, and laid down the entire gamut of rules and regulations for privatisation. Mr Baijal, who in an earlier assignment was the Minister of Power, from 1994 to 1999, and assisted the central Government in power sector reforms, has been a member of India’s Administrative Service since 1966. He has published many papers on privatisation, liberalisation, power and telecom regulation issues. Shri Baijal earned his BE (Honours) in Mechanical Engineering from the Indian Institute of Technology at Roorkee. He took part in a one year visiting fellowship at Oxford University on the Privatisation of Public Enterprise.

Article abstract

Since privatisation and the introduction of competition in India’s telecommunications sector, telephony growth in urban areas has accelerated, but rural areas have hardly grown. Universal Service subsidies are needed to cover the higher cost of rural service rollout. Based on the current fixed-line model, subsidies would total US$8 billion to US$10 billion just to reach a 4 per cent rural teledensity by 2010. With mobile technology and a new one-time subsidy model, only US$2 billion will cover rural expansion costs.

Full Article

The Universal Service Obligation (USO) has generally been considered in India, an obligation of the privileged to provide connectivity to the under privileged. Recent technological advances and regulatory initiatives have made it possible to look at USO as an opportunity. The economic reforms since 1991 have lead to a paradigm shift in the Indian economy, particularly in the telecom sector but rural areas are still neglected. India’s teledensity only increased from 0.02 per cent to 1.94 per cent during the 50 years (1948 to 1998) of the public sector monopoly of telecommunications. Liberalisation, regulation and a multi-operator competitive regime made it possible for the teledensity to increase by more than 2 per cent per year. However, rural areas are still treated as an obligation. The government/public sector USO regime has not improved rural teledensity. From 1998 to 2005, urban teledensity increased from 5.8 per cent to 33 per cent, but the rural teledensity only increased from 0.4 per cent to 2 per cent. Inadequate access in rural areas, where 70 per cent of the population lives, has further marginalized the population. Policy and regulatory measures are essential to convert this digital divide into a digital opportunity. This sort of change is the mission of the Word Summit on the Information Society (WSIS). Partnerships Public/private partnerships and competition in telecommunication services, introduced by the liberalized and regulated regime since 1998, have brought great benefit to the Indian economy and telecom subscribers. This is largely due to the changes made by the Government of India and TRAI in telecommunication sector policies, structures and regulations. Private operators and mobile technologies contributed greatly to post-1998 growth. PSU (public sector undertaking) operators’ subscriber bases grew by 34.28 million subscribers, 23.28 million fixed and 11 million mobile subscribers, during the seven years from 1998 to 2005. The private sector grew by 45.45 million subscribers, 5.09 million fixed and 40.36 million mobile. Public/private cooperation and competition led to immensely improved performance in the public and private sectors. The public sector grew by 0.3 million subscribers every year from 1948 to 1998, but grew by 5 million subscribers every year since liberalisation. Mobile growth picked up after 2003 when mobile tariffs started approaching fixed tariffs. The tariffs dropped due to competition and the broad working class acceptance of mobile telephony. TRAI reduced tariffs by encouraging competition and by a series of other measures including unified Access Licensing, calling party pays, reduced access deficit charges (ADC), cheaper handsets and cheaper intra-network calling. This led to phenomenal growth. The Government encouraged the process by substituting high entry fees with revenue sharing to reduce the revenue fare still further. Mobile technology has been the key to boosting teledensity. The low penetration of mobile services in rural areas is due to the limited infrastructure, towers, power supply, etc., in rural areas. The great reduction in mobile tariffs has created a huge demand for mobile telephones in rural areas. Nevertheless, unless towers are built and coverage in rural areas is increased, this demand cannot be met. TRAI, together with mobile operators and players, have agreed upon a telecom expansion plan (see Figure 1). Experience shows that, while telecom operators have moved aggressively in towns, growth in rural areas is very poor. To speed growth, TRAI’s policies must facilitate mobile coverage of rural areas. Do rural areas have the purchasing power needed to adopt mobile telephony? Figure 2 gives an idea of rural area purchasing power. It shows that rural areas have substantial purchasing power, comparable to that in urban areas. Rural growth It is because rural populations are spread out that rural coverage is more costly than in cities and may initially require subsidies to be viable. The plans for rural growth should also take into account the remarkable growth of cable TV services in India (see Figure 3). The growth of cable TV shows that Indian consumers, unlike the rest of the world, values multi-sourced information and entertainment much more than fixed line telephone services. By encouraging triple play networks, the popularity of cable TV in India can be leveraged to increase the penetration of communication services in remote and rural areas. IP-based, next generation networks, would be possible if India adopted a converged network/licensing regime. The Government of India is currently examining the issue. India’s fixed-line centric USO scheme is expensive, given the vast reaches of rural India, so USO losses grow year-after-year. TRAI studies show that, by continuing the fixed-line policy, USO and Access Deficit Charge (ADC) liabilities will total US$8 billion to US$10 billion just to reach 4 per cent rural teledensity by 2010. Using mobile technology, rural users can be being reached for as little as 20 per cent of fixed line costs, eliminating the need for yearly subsidies. Consequently, the Government can subsidise the expansion of a rural mobile infrastructure on a one-time basis. A one-time US$2 billion subsidy would expand rural networks throughout India at the same rate seen in urban areas during the last two to three years. Encouraging competition between several operators will keep rural tariffs low. So, to reduce network costs and enhance competition, subsidised rural mobile networks must, compulsorily, be shared between operators. USO can become an ‘opportunity’ for both operators and consumers, if the Government facilitates network expansion. Operators would gain by acquiring more subscribers and revenue, and rural users would get quick access to mobile telephony. Building triple play networks that affordably deliver multiple services would help bridge the information divide in rural areas.

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