Role of universal service obligation fund in rural telecom services: lesson from the Indian experience

Abstract

Despite the tremendous growth of mobile services in most developing countries, these have largely remained limited to urban areas, aggravating the existing urban and rural divide. Policy makers and regulators perceive the need for an effective regulatory and policy environ- ment to reduce the gap, as there are several market challenges in this endeavour including low commercial viability; however, most such interventions have had little success. This paper out- lines India’s experience of increasing rural teledensity, including its recent policy initiative to increase penetration through creation of a Universal Service Obligation Fund (USOF) that sup- ports a variety of innovative initiatives. USOF’s most ambitious programme to date has been the design and deployment of mobile services in rural areas. This paper analyses the outcomes of this exercise. Despite the innovative design of the USOF programme, it has had little impact on increasing rural teledensity. On the other hand, positive policy steps that reduced the costs for service provision (revenue shares, duties, access deficit charge etc) and competition facilitated greater rural penetration. This raises the issue of the role of government vis-a ` -vis the private sector in increasing rural teledensities. This paper also provides a framework for assessment of USOF and relates it to the experience in other countries. The conclusion is that USOF must be treated as one among many instruments for increasing rural teledensities. For USOF to be effec- tive, it needs to be managed by an independent body that is made responsible for outcomes. Third party assessments and greater enforceability of contracts are necessary operational ele- ments of this design