According to the latest available figures the urban teledensity (number of telephones per 100 persons) was 72.47% against rural teledensity of only around 12.72%. This is in spite of the fact that an explicit Universal Service Support Policy was framed and came into force on April 1, 2002. On January 9, 2004, the USOF was granted a statutory non-lapsable status with the passing of the Indian Telegraph (Amendment) Act, 2004.

1. Indicus Analytics, An Economics Research Firm www.indicus.net
Rural telephony has still to catch up: Use the
funds collected for it
Article url - http://www.indicus.net/blog/index.php/information-
communications-technology/payal/rural-telephony-has-still-to-catch-
up-use-the-funds-collected-for-it/
Payal Malik
According to the latest available figures the urban teledensity (number of
telephones per 100 persons) was 72.47% against rural teledensity of only
around 12.72%. This is in spite of the fact that an explicit Universal
Service Support Policy was framed and came into force on April 1, 2002.
On January 9, 2004, the USOF was granted a statutory non-lapsable
status with the passing of the Indian Telegraph (Amendment) Act, 2004.
USO levy in India (one of the highest) is 5% of adjusted gross revenues
of all operators except pure value-added service providers. Though
transparent means of of disbursing the funds through the least cost
subsidyauctions were adopted but until 2006, it was collected from all,
but given only to fixed. Most funds went to incumbent, due to design
biases. The incumbent had an edge over its competitors as it had a large
amount of backhaul network in place and it has been able to make entry
by the new entrants into rural markets unviable even with subsidy.
Rural connectivity could have been seen as on opportunity and not as an
obligation, if not for this structurally imbalanced situation. If the essential
facility had been shared for extending access, the viability concerns of the
new entrants would have been limited to access network costs. In the
current design, the new entrant has to factor in the costs of laying the
backbone when deciding whether or not to enter rural markets.
Infrastructure sharing was not mandated in the early years despite excess
capacity in the backbone infrastructure. In future the universal service
policy should address access to the backhaul. In such a scenario universal
service costs will be largely driven by the cost of access technology.
It is therefore important that universal service is accompanied by
regulation which imposes special obligations on the dominant operator
and enforces compliance, which in turn will counterbalance its market
power. The premise of this open-access approach is that optimal
operations of IP networks dictate the separation of the transport layers

2. Indicus Analytics, An Economics Research Firm www.indicus.net
(physical and logical) from the higher layers (applications and content) to
create maximum growth through competition in all other layers. In order
to make it possible for small-scale ‘plug and play’ operators to
interconnect with much larger operators, open access provision is a very
important regulatory intervention. Only then can local networks co-exist
as infrastructure providers alongside more traditional operators. The
policymaker in India cannot ignore this logic and premise, if it is to
address the problem of the digital divide effectively.
Another important reason for the lack of success of the universal service
policies has been that India accounts for nearly 50 per cent of the money
lying unused in various USOF across 15 developing countries. India has
almost INR 136 billion (USD 3.04 billion) unused form the USD 4.53
billion collected. Public economics literature tells us that financing USO
imposes distortions but DoT still refuses to lower the USOF contribution,
defying all logic! At least if it is collecting it should use it.