Is rural communications a profitable business, contrary to what we have been told? Is the Universal Service Obligation Fund (USOF) redundant? Are telecom companies which are offering additional money and a performance bank guarantee to provide mobile telephony in rural India unaware that they have valid licences to provide services nationwide?
Some operators recently competed to offer money to, rather than seek it from, USOF—the agency created to subsidize rural communications. USOF conducts an auction to select the telecom operators that qualify to receive its subsidies. If a subsidy is required to connect rural areas, USOF’s auction to select the player who demands the least support makes sense.
USOF had invited two sets of bids. Part A, for subsidy required by telecom operators to set up passive infrastructure such as the towers and power supplies, to be shared by up to three mobile service providers. Part B, for subsidy required to install active infrastructure, the telecommunications equipment on the towers and backhaul carriage facilities.
Results of the bidding show that civil infrastructure such as towers, rather than the cost of telecom equipment, is the real challenge facing companies interested in providing rural telephony. Erecting wireless telecom towers in India’s tough rural terrain is still expensive and logistically challenging. Accordingly, operators—including those with licences to provide only civil infrastructure but not services for end users—have bid between Rs67,000 and about Rs2,65,000 per site. The winning bids in Part A may be barely 30% of USOF’s own benchmarks, but are significant. The winning bids for Part B suggest telecom companies don’t want a subsidy for active infrastructure. The companies that are offering up to Rs20,000 per tower to USOF to be allowed to use the towers are reinforcing not just that the second subsidy is unnecessary, but also that access to the tower, which can support only three of the six or seven operators in the market, is critical and worth the extra money.
USOF’s auction approach has been vindicated through both sets of bids. First, it will pay out less than a third of what its own calculations projected. Second, the more dramatic and hugely positive message is that beyond the initial investment in towers, operators expect to replicate in rural areas their experience of cities and towns—where they sell five million new mobile connections every month. USOF’s auction approach has kept one subsidy to a minimum and ensured that another one will now be killed at birth. Consequently, network extension across rural India may not need as much as the roughly $2 billion lying with USOF and it should happen in less than a year.
Providing network coverage is a rather limited target, chosen at a time when wireless technologies were not as powerful, or as cheap, as they are now. A telecom network is as good as the services it can deliver. Governments and USO funds worldwide now support higher capacity broadband networks that support data and Internet. Fortunately, USOF’s mandate, rules and resources allow it to support broadband services which will not just connect rural areas but revitalize them.
A broadband-enabled mobile service is a meaningful new target for USOF. Such a phone, with some exceptions, today supports most applications traditionally run on far more expensive and unwieldy desktop personal computers which need more power and maintenance. More than cities and towns, our villages need mobile broadband, as it offers powerful tools to overcome disadvantages of many kinds, including illiteracy, multiple languages and gender inequity. Imagine the power of a picture sent to farmers on a broadband phone which enables them to recognize pest attack or soil erosion or allows them to fix a tractor on the spot.
The Telecom Regulatory Authority of India (Trai) made comprehensive recommendations recently for allocation of spectrum for 3G services which offer precisely this kind of mobile broadband. The same infrastructure can support e-governance—computer-based government services such as birth and death registration, land records, driving licences, etc., that pose a bigger challenge in rural areas. Delays in moving on Trai recommendations can hurt villages more than cities.
USOF’s mandate includes support for mobility and broadband. 3G broadband mobile services (WCDMA/HSPA, CDMA2000/EVDO) and broadband wireless access technologies (such as WiMax, Flash OFDM, IMT-2000 etc.) are aggressive competitors with important strengths in their mobility and broadband offerings. Users will undoubtedly choose the appropriate mix based on their need, service availability and cost. Nothing will benefit users more if operators interested in deploying these technologies compete vigorously for the right to share the wireless infrastructure created with USOF support.
USOF’s auction route has stood the test of time. If it can be used to enable robust competition between broadband wireless technologies of all kinds, it will have not just connected but also genuinely empowered the rural population.
Mahesh Uppal is director, Com First (India) Pvt Ltd. He consults on regulatory issues in telecom. Your comments are welcome email@example.com