Mobile Post #2: Case for providing end-user subsidy for data

In the previous blog post, we established that internet connectivity is critical for development and democracy and therefore it should be a priority for the government to ensure that India’s population is connected in the most efficient manner as soon as possible. In this post, we establish that the fastest and the cheapest way of achieving that could to be to use existing 2G and 2.5G infrastructure in the country.

The current government plan to get India connected via internet is to create new infrastructure by laying down fiber optic backhaul to every Gram Panchayat (GP) over the next 3 – 5 years, that is over 250,000 villages in total. The government has been pondering this idea for quite some time now, and the Department of Telecom in conjunction with other ministries has debated various solutions. The Confederation of Indian Industry, in partnership with Analysys Mason, and supported by a variety of telecom operators and vendors presented an extremely detailed proposal to the government on this last year. One of the key findings of the paper was that it is indeed critical for the government to intervene and enable deep broadband connectivity as all countries with successful or rapidly developing broadband penetration have benefited from government investments in infrastructure to kick start the growth, especially when broadband is at less than 10 – 20% penetration. The paper also estimated the cost for providing this fibre access at INR 17,500 cr. While this is a large enough, the USO Fund has enough to cover it.

The paper also went further to recommend that access (the part the connects the backhaul to the consumer) should also be subsidized / funded by the government, and that using wireless broadband (like 3G, 4G) to do that would cost an additional INR 20,000 – 22,000 cr.

The Telecom Regulatory Authority of India (TRAI) also released recommendations on how DoT should proceed in this plan. Most of the recommendations are aligned, but TRAI also suggested that one should provide fibre connectivity directly to homes and other premises in rural areas, and this suggestion increased the cost of the whole project up multi-fold. Also, since fibre goes to specific points, the number of users who would get coverage would still remain limited to less than those who would benefit from wireless.

While this initiative is certainly a welcome idea because it will reduce the cost of connectivity and provide high speed internet, the challenge is that this approach will take a long time (despite claims that it can be done in the next 12 months!). Also, as per the current direction of discussion, the access subsidy part, whether via wireless as per the CII-Analysys Mason recommendations or via fibre as per TRAI’s recommendations, is not going to be implemented. Therefore, the key problem of providing access to citizens will remain still remain as the backhaul will connect the GPs – not to individuals.

So our recommendation to overcome the time lag and the high cost of access is to use the existing 2G and 2.5G infrastructure. Again as mentioned previously, mobile reach in India has exploded to the point where there are 900 million connections nationally today. As a result of the scale, market forces have driven the price of devices, basic voice calling and SMS to an affordable point. We have 1p/s calling rates, Re.1/day for SMS rates (thank God for those – SMS was Tushar and Matt’s communication mainstay at Rs. 32/day!), feature phones under Rs. 1,000 and tablet computers under Rs. 3,000. However, this is all voice based usage with people speaking to each other. Even those using SMS are limited to less than 30% of the subscriber base, primarily because of lack of local language / character support and literacy challenges. So while users are benefiting from the livelihood enhancement that being connected on voice brings, they are not at all benefiting from the additional enhancements that data could bring, as discussed in our previous post.

Therefore, data usage remains unused and expensive (Rs. 90/month) despite existing infrastructure largely being in place. Compared to total Avg Revenue (Spend) Per User (ARPU) of Rs 50 – 60 for the incremental / new users that sign up today, especially in rural areas, a data plan alone is higher than their total willingness to spend. Granted, as users mature, their spend increases over time, but you hit affordability issues very quickly at the current data service costs. If only the government could provide an end-user subsidy of Rs. 100/month for any one person in the household, it could be enough to get that household connected almost instantly, although at 2G and 2.5G connectivity speeds.

Getting simple data connectivity is the first step – not everyone needs broadband right away. Simple things like agricultural advice, weather, simple educational tools, jobs listings, commerce, etc. can all work on low bandwidth data connections. Even entertainment like music streaming can work on low bandwidth. Having low bandwidth connections in place first will allow users to figure out what to do with a data connection before the more expensive shiny new broadband connections come in the future. This acts like a warm-up and a nice “on-ramp”.

Plus the infrastructure for voice is there and data (EDGE) only needs to be enabled. Today, base stations deployed in rural areas are largely deployed without the software to support GPRS or EDGE data connectivity, and they typically have only enough backhaul to support voice calls. So yes, telcos may have to invest in upgrading the base station software and the capacity in the backhaul, but those are all incremental costs and knowing that an end user subsidy exists should create enough incentive to get them to make that effort.

Data connectivity will also enable the relatively less educated population to engage with rich information in the form of pictures, videos and interactive apps/modules, which can convey much more than SMS and voice without needing a large vocabulary or technology understanding.

What about those that can’t afford even basic phones/voice? Perhaps a next level of subsidy for devices and voice can also be considered for the “AAY” equivalent population, but a start can be made with the Rs 100/family data subsidy for the BPL. Cost to the nation would be approx. Rs 10k crore annually to cover all the BPL population and is likely to go down as data prices decrease with scale. That is a small fraction of govt spend on social protection programs (Rs. 150k crore for Food, NREGA, kerosene and LPG subsidy alone). In fact Rs 10k crore is less than the leakage in kerosene alone! In our opinion, its high time India got connected, empowered and the cost is well justified.



One Comment to “Mobile Post #2: Case for providing end-user subsidy for data”

  1. After spectrum auction by central government in different mobile territory the call rate of all mobile service providers are going higher and higher. The telecom companies are facing a great deal of losses and try to add some extra charge on there customers. It is better to regularize the TRAI to regulate the telephone companies to provide better and lower priced calls for everyone.

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