Rural telephony has still to catch up: Use the funds collected for it
According to the latest available figures the urban teledensity (number of telephones per 100 persons) was 72.47% against rural teledensity of only around 12.72%. This is in spite of the fact that an explicit Universal Service Support Policy was framed and came into force on April 1, 2002. On January 9, 2004, the USOF was granted a statutory non-lapsable status with the passing of the Indian Telegraph (Amendment) Act, 2004.
USO levy in India (one of the highest) is 5% of adjusted gross revenues of all operators except pure value-added service providers. Though transparent means of of disbursing the funds through the least cost subsidyauctions were adopted but until 2006, it was collected from all, but given only to fixed. Most funds went to incumbent, due to design biases. The incumbent had an edge over its competitors as it had a large amount of backhaul network in place and it has been able to make entry by the new entrants into rural markets unviable even with subsidy.
Rural connectivity could have been seen as on opportunity and not as an obligation, if not for this structurally imbalanced situation. If the essential facility had been shared for extending access, the viability concerns of the new entrants would have been limited to access network costs. In the current design, the new entrant has to factor in the costs of laying the backbone when deciding whether or not to enter rural markets.
Infrastructure sharing was not mandated in the early years despite excess capacity in the backbone infrastructure. In future the universal service policy should address access to the backhaul. In such a scenario universal service costs will be largely driven by the cost of access technology.
It is therefore important that universal service is accompanied by regulation which imposes special obligations on the dominant operator and enforces compliance, which in turn will counterbalance its market power. The premise of this open-access approach is that optimal operations of IP networks dictate the separation of the transport layers (physical and logical) from the higher layers (applications and content) to create maximum growth through competition in all other layers. In order to make it possible for small-scale ‘plug and play’ operators to interconnect with much larger operators, open access provision is a very important regulatory intervention. Only then can local networks co-exist as infrastructure providers alongside more traditional operators. The policymaker in India cannot ignore this logic and premise, if it is to address the problem of the digital divide effectively.
Another important reason for the lack of success of the universal service policies has been that India accounts for nearly 50 per cent of the money lying unused in various USOF across 15 developing countries. India has almost INR 136 billion (USD 3.04 billion) unused form the USD 4.53 billion collected. Public economics literature tells us that financing USO imposes distortions but DoT still refuses to lower the USOF contribution, defying all logic! At least if it is collecting it should use it.
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