Telecom for rural areas in India

As the final question to the closing plenary at Globalcomm India 2006, which I’ve described here, Ambassador Gross asked each panelist:  “If you could change just one thing in order to better promote ICT in rural India, what would that one thing be?”

I may have cheated on the “one thing” but my answer was:  Take a wide swath of 450 MHz spectrum and sell it off in multiple chucks of at least 10 MHz each, under special license terms for rural areas, to anyone who is interested — the special license terms to include:

• No telecom taxes for at least 15 years — after all the government is trying to promote rural communications.
• No restrictions on foreign investment — welcome anyone who wants to invest in rural India.
• No restriction on the technology employed — GSM, CDMA, OFDM, WiMAX, proprietary or something that hasn’t been invented yet.  Let operators mix and match in any way that makes sense for them and let them evolve what they are doing as technology and circumstances evolve.

I tried to say all that off-the-cuff.  From comments afterward, it appears I got some of the ideas across but I’m sure I didn’t get the detail across.  I was speaking without the benefit of notes or preparation.

And even now my proposal may not be complete.  It might be good to include some microwave back-haul spectrum with each license.  Also I should be clear that you want to sell off at least 3 blocks of spectrum in each license area (more if possible), as competition is the best way to increase teledensity.  This has been proven by comparing teledensity gains across the 100+ mobile markets around the world.  Get those foreign investors to compete for first mover advantage with a population that currently is dreadfully poor but who, with the advent of telecom, will become richer and richer.

I very much enjoyed my six days in India and, with our growing business in India and our purchase of Openera Technologies, I’m sure I will be spending a lot more time in India. And, whether it’s India or other developing economies, I’m sure I will have occasion to address this subject in the future. So if you have comments, I’d appreciate hearing from you in the comments area below or via email.

Comments

[J S Sai]

Your suggestions, though made off-the-cuff, seem to have hit the bull’s eye. Your detailed proposal would help the country.

Known for his innovative steps, India’s Minister of Communications and Information Technology Dayanidhi Maran has said that improved rural connectivity is one of the top priorities of the government.

My optimism in this regard stems from the boom in the Indian telecom sector. In just four years, the number of telephone users has seen a near four-fold rise to 125 million.

[Ashok Seth]

Dear Brough, it is indeed pleasure to go though your technical and techno - commercial analysis. Your contribution at the closing session was truly provocative.

Having worked with DoT / BSNL / MTNL as well as Reliance Infocm, in its formative years, I possibly have some understanding of weeknesses in both types of systems - state and private systems but the logic about lack of reliable power supply in rural areas is justifiable. This is based on old Multi Access Radio Relay systems which I was maintaining in Karnataka almost a decade back. The MARRs were supplied with solar power panels but these were invaraibly stolen and broken and the connectivity was poor until we started replacing the discharged batteries with charged batteries on a regular cycle.

In any case the suggestion about 450 MHs is really great. We had considered this option in 2001-2003 for RIC to meet rural coverage license condition in Gujrat but the 450 MHz CDMA equipment was only available from Lucent at high price as there were only a few eastern block countries who had used it. Perhaps the BS equipmentr would not have been an issue but mobiles were not being produced in volume to bring the price down. Let us hope the position has changed.

On the other hand I beleive that WiMAX / WiMob (802.20) should be more cost effective using digital microwave or fibers already laid by BSNL and other service providers. The same can also be used to feed WLAN APs. An illustration is available in one of my presentations prepared for RIC.

I also agree with you that rural communication should be opened up for competition with tax holiday as suggested by you. In addition we need to develop business case for content developers - data for sale of rural commodities, media flow entertainment etc. Perhaps the presentation by Prologix in session on IP services is very attractive for this which makes use of Indian languages to provide interactive data.

To say the least I have enjoyed reading your articles and would like to continue it.

Thanks
Ashok

[Brough]

Ashok,

Thank you.
I always think of better things to say after the occasion has passed. I wished I'd prefaced my remarks with:
1. Rural ICT deployment is not working (as indicated by 2% rural teledensity vs. 31% urban teledensity at the end of 2005).
2. If you stay on the same path, you will get the same results.
Ah well...

I think I can get access to some interesting data on electrical supply arrangements for remote cell sites in Africa - at least I have some emails out to people who may know more than I. If so, I'll write something up as a blog post.

If there were a serious chance of selling 450 MHz equipment for all of rural India, there would be many vendors competing very quickly and real equipment being delivered at competitive prices within 12-15 months.

I agree WiMAX/WiBro is interesting. ODFM is more efficient than CDMA, but it's also newer... I claim the government should not define the technology because they are certain to be wrong (if not immediately, then within a few years) and governments never move at market or technology speeds.

[A.P.Daniel sagayaraj]

sir
I am looing for the topic sharing mission 2007 :: technology for rural india.I request you to to send me some content on it if have .I will be very thankful to you.
thanking you

[James Dennis]

Tax holidays: Perhaps not so attractive after all

Tax holidays are an attractive idea if you feel the market needs stimulation.

It doesn't appear that this is the case in India. So the regulator should resist lobbyists and let investors operate in a business environment, using standard mechanisms, capital allowances related to actual investment in infrastructure.

Tax holidays encourage initial investment and create an expectation of excessive profits and when they end, investment dries up. Capital allowances are far more useful for promoting innovation through investment.

The risk is one ends up subsidising an industry before it even gets into its infancy.

Low tax rates for all business also foster investment, the trick is to ensure that some of the profit gets re-invested in the local economy. The reality is that high tax rates actually don't equate to high tax takes, moderate taxes are more successful.

The usual questions apply to the tax holiday:
a) "Who will benefit from the policy X?"
b) "Does that meet the goal of the initial exercise?"
c) "Can the the goal be met without policy X?"

If the answer is yes to the last question then you are actually unecessarily driving money out of the economy, hardly a great idea to promote in rural India.

[brough]

James, My topic was telecom for rural India so Yes!, the market needs stimulation. Mobile telecom is booming in urban areas, but advancing very slowly in rural areas. Worse, today's tax policy in India actually does as much as possible to slow the spread of mobile telecom, even though mobile telecom is, today, the most efficient way to bring telecom to any area, rural or urban.

Compared with other countries, for example China or Pakistan, India has some of the highest tax rates on mobile operators of any country. These include 5%-10% license fees, spectrum fees at 2%-6% of operators adjusted gross revenue and an access deficit charge of 1.5% which is redistributed to the (generally inefficient) incumbent fixed-line operator, BSNL. Finally, India collects an average of 5% of a mobile operator's gross revenues for the Universal Service Fund (USF). Although mobile is the most efficient way to provide service in most rural areas, mobile operators are excluded from receiving USF moneys. So far less than 30% of this fund has been disbursed, and that mostly to the incumbent, BSNL.

So, on reflection, I don't advocate a tax holiday, as that would be temporary. India should permanently eliminate all special taxes on mobile operators, including the USF. That would do more for mobile coverage in rural areas than any other policy I can think of.

Note I wrote about USF funds here:
http://blogs.nmss.com/communications/2006/10/mobile_networks.html
The short summary: a few countries (e.g. Uganda) have had some successs, but by and large USF programs do more harm than good.