How to connect all villages

Last week, I showed how fishermen in Kerala had benefited greatly from cellphones, which enabled them to auction their catch while still at sea, and avoided tragedies where they might land their catch at a shore point where there were few buyers, leading to an unsold catch that rotted in the Kerala sun. I also mentioned how cellphones enabled landless labourers to find out where daily jobs were available and go those villages, instead of waiting in vain in the wrong villages. Cellphones translated into improved incomes and opportunities.

However, cellphone penetration in rural areas is abysmally low at barely 2%, against 33% in urban areas. This is only partly because rural incomes are lower. NCAER studies show that 19% of rural households have TV sets, 32% have radios and 43% have bicycles. Many or most of these households would have cellphones if only services were available. We need cellphones to spread as swiftly in rural as in urban areas, yielding enormous gains in rural productivity and incomes. But that will require major policy changes.

Universal phone availability—at least one in every village—is a major aim of the government. But telephone services in rural areas are generally unprofitable at today’s calling rates, which are the lowest in the world. So the government levies a tax—called the access deficit charge—on urban telephony, to finance a Universal Service Obligation fund. This fund subsidises the capital cost of providing new services to specified villages. But the subsidy is available only to fixed-line operators, not cellphone operators.

This is an enormous error. It dates from an era when wired telehones rather than cellphones were thought to be the way to penetrate the countryside. Pradeep Baijal, head of the Telecom Regulatory Authority of India, estimates that the total subsidy likely to be disbursed to fixed line operators under the Universal Service Obligation may be Rs 42,000 crore by 2010. Even this massive subsidy will achieve a rural teledensity of no more than 4%.

What is the alternative? Well, there are two good ones. One is the cellphone. The other is broadband, which is currently utilised for TV distribution in rural areas.

The cellphone revolution has transformed urban India. Every paanwala and chauffer seems to have one. Monthly additions have grown exponentially, from 50,000 in 1997 to 1.4 million in 2003 and a record 4.5 million in December 2005. At this level, India has finally caught up with China (in monthly additions, not total phones). This is a major achievement.

Urban cellphone penetration is gradually approaching saturation levels. Future growth needs to come from rural areas. But putting up cellphone towers in rural areas is expensive, and not economic at today’s low calling rates.

The logical reform is to make cellphone operators also eligible for the USO subsidy. The heydey of fixed lines has passed, and we need to move swiftly to cellphone technology. Baijal estimates that a subsidy of no more than Rs 7,200 crore till 2010 will enable mobile operators to cover most of the countryside. This will be far cheaper than subsidizing fixed lines.

The second option is through broadband. Optic fibres are already penetrating rural areas to deliver TV. One consequence is that India has become the only country in the world where the number of homes with cable TV and DTH (61million) exceeds the number of fixed line connections (47 million). In China, there are105 million TV homes against 263 million with fixed telephone lines.

New technology allows telephone calls to be delivered by the same cable that delivers TV. Alas, this technology is illegal today. This is silly. We need to junk old thinking and rules that regarded TV and voice as two different services. Modern technology is leading to a great convergence. Extending the USO subsidy to rural broadband will cost maybe Rs 2,000 crore, says Baijal.

So the two subsidies–for cellphones (Rs 7,200 crore) and rural broadband (Rs 2,000 crore)—should suffice to cover virtually all India’s villages. This will cost less than a quarter of the projected subsidy for fixed lines, yet yield a much higher teledensity.

So, we urgently need two policy reforms. First, telephone calls over TV cable must be allowed. Second, the USO subsidy should be available for all technologies, such as cellphones and broadband, not just fixed lines.

New technology may change even this situation. Wi-max is a new technology that could provide wireless connectivity to users within 70 km of an optic fibre transmission tower. We need a flexible policy that offers the USO subsidy to any existing and future technology without exception. That is the way to connect up every village in India. That will enable every villager to seize on the opportunities provided by globalisation

What do you think?