Speed up broadband roll-out

War over USO fund should be resolved transparently

It has been almost two decades since the Union government’s telecom policy set aside 5 per cent of its receipts from the sector towards the Universal Service Obligation (USO) fund. The USO fund now totals in excess of Rs 1 trillion. Yet the Comptroller and Auditor General has repeatedly pulled up the government for how it is managing the fund. In the past, the statutory obligation to pass dues on to the USO fund has not always been observed in a timely manner; as a consequence, the money has remained in the Consolidated Fund of India while the Union Budget’s mathematics are being worked out, thereby artificially reducing the fiscal deficit. But, even more worryingly, the CAG has also pointed out that the fund, even when topped up, has been only half used. This defeats the purpose of the USO fund, which is to manage market failures in the telecom sector by rolling out more infrastructure and access in underserved areas of the country. 

Unsurprisingly, the size of the amount remaining in the fund — almost Rs 60,000 crore at present — has sparked a rent-seeking war in the telecom industry. The state-controlled providers such as BSNL have traditionally seen the money in the USO fund as ways to support their operations. Now others have staked their claim. Satellite-based broadband providers such as Bharti Airtel-backed OneWeb have noted that they might provide a cost-effective way of getting broadband connectivity to hard-to-reach areas. Legacy telecom operators have condemned this idea, saying that the money in the USO fund had emerged from their operations and should be ploughed back into infrastructure that builds their networks. And now the owner of Reliance Jio, Mukesh Ambani, has argued that the USO fund could be used to subsidise handsets that would enable low-income users to upgrade from feature phones to smartphones, and thereby increase the uptake of mobile broadband in the country. 

What is certain is that the government must stop considering that the USO fund is something that exists to be dipped into arbitrarily, and should create a road map for utilising the funds based on transparent and commonly agreed principles. There can be no controversy that extending broadband access across the country is a paramount goal. Thus the fact that about half the money disbursed from the USO fund so far has gone towards the BharatNet project initiated in 2011, which aims to connect all gram panchayats in the country through a fibre-optic network, is very sensible. The project has been delayed, and its current target date for its second phase is early 2023 — it was originally supposed to be 2016. It is worth asking whether a paucity of funds has caused this delay —and if so, why, given that the USO fund has not been fully drawn down. Any problems due to the lumpiness of deposits in the USO fund could have been dealt with by following the 2015 expert committee’s recommendation to let the USO borrow on the market to smoothen its capital flows in the short term, with the interest cost being considered part of the project expenses. These mistakes and delays should not be repeated in the next steps for BharatNet after Phase II is completed. Instead, the USO fund should be fully utilised, with a focus on a transparent technology-neutral financing of broadband infrastructure. Of course, satellite-based broadband should be considered part of the BharatNet project in the regions where a credible case can be made for its use. But the focus must be on infrastructure creation, not on other forms of subsidies.