USOF, the Need and the Way Ahead

The concept of the Universal Service Obligation (USO) was introduced in the discussion that centered on the telecommunication infrastructure in India, where in the need for the Universal Service Obligation Fund (USOF) as a means to finance the implementation of universal service in rural sector through the efforts of, mainly, BSNL was highlighted. My question is; is this the only way?

It is beyond doubt that among the five categories of infrastructure, the telecommunication sector has a place of its own; for it is perhaps the one sector that has the maximum positive network externalities. That is to say, the more users of the network the more beneficial the network becomes to all; quite simple right?, If Mr A alone has a phone in the world what is the point; but if Mrs A has a phone?

Let’s leave the idea dwindling in the back of our head and look in another direction, investment and return. Well like any other sector, investment in telecoms results in the obvious increase in demand for raw material, in this case equipment, cables, labor and the like, and the associated increase in economic activity. But what about the increase in efficiency and productivity of telecom users? Well arguably, the same holds true for other sectors, but it is beyond doubt that the extent is different in this case.

Also the idea of the existence of a “critical mass” ^[1] or level of service beyond which the benefits from investment in this sector become much higher than the linear profiles offered from investments in other sectors is quite intriguing.

Well, what is the point?

I argue that the idea of providing USOF as an incentive to allow telecom service providers, in this case BSNL, to service in the areas that have no coverage, is quite unessential; at least in the long run. One, because of the knowledge of the existence of the critical mass, almost all service providers look at rural India and similar land elsewhere as a potential market for expansion. The argument that BSNL has to enter such markets and prove the potential to invite competitors is quite an anti-competitive strategy; especially give the fact that the same is proved using USOF which comes from the license fee of all players (including the BSNL’s competitors)

Second, the role of the alleged benefiters of the network externalities and telecom driven developers, including the likes of handset manufacturers and BPO industry, is totally neglected from the equation. Then,

Why, in the name of USO, USOF giving off free crackers to these industries?

Why, in the name of USO, USOF promoting inefficient monopolistic development routes?

Reference

[1] Telecommunications Infrastructurea nd Economic Development: A Simultaneous Approach By LARS-HENDRIK ROLLER AND LEONARD WAVERMAN

[2] TRAI, Annual Report 2008-2009

[3] The Universal Service Obligation Fund (USOF) In India – An Overview

[4] http://www.indicus.net/media/index.php/2008/1245-indias-universal-service-obligation-for-rural-telecommunications

[5] http://findarticles.com/p/articles/mi_m0TLC/is_11_35/ai_80864265/