Auctioning ICT development

Sixty-three years after independence, the dismal failure of government schemes has left India at 128th position in the UN Human Development Index. One of the main causes is a silo based mentality focusing on the supply of developmental inputs rather than integrated solutions driven by the needs of citizens.

Further, in today's age of public-private partnerships, it is expected that after deliverables have been specified, an auction will determine the most efficient party for implementation following which the government can, as the ad said, 'fill it, shut it, forget it'.

Those quoting global studies showing a positive impact of internet penetration on GDP forget the unit of analysis in these studies is the country or province, and given heterogeneity levels, results may not be applicable to villages. A study in UP and Meghalaya conducted along with Prof Rupamanjari Sinha Ray shows that empowering the rural population requires more than merely providing access.

Low literacy levels, paucity of livelihood-related applications in the local language, technophobia, lack of role models within relevant socioeconomic groups, device unfamiliarity, unfriendly user interfaces and low incomes are some key bottlenecks. The USO Phase II tender should, therefore, reflect a considered strategy for IT empowerment, rather than a set of end-results for access. Further, its clauses should mitigate the potential fallout of the auction mechanism.

Auctions serve as the best method for bringing out the true value of an object, when there are a large number of bidders, manageable market risk, enforceable contracts and multiple bidding rounds, enabling market information to emerge. Rural auctions do not have such features.

In the CSC project for rural internet kiosks, for example, there was an average of only two-three bidders in each state. In this context, multiple rounds are not possible without the threat of collusion. With the remaining option of the single round sealed bid auction, the CSC scheme has resulted in a winner's curse in many states, with companies reading too much into the non-existent promise of e-governance as an instrument of triggering internet demand. In other states, lone bidders have walked away with handsome subsidies.

The term 'winner's curse' was first used for auctions of oil blocks in the United States in the 1960s. Venturing into a telecom market like that of remote rural India makes oil exploration appear like a safe, high return activity. Asking the private sector to bid for subsidies under such circumstances is tantamount to the captain of the ship passing the wheel to his first lieutenant in the midst of a particularly violent storm!

In the checkered history of universal service policy in India, there have been several episodes of the private sector accepting a universal service obligation and then renegotiating its contractual obligation. The National Telecom Policy (NTP) of 1994 targeted coverage of all six lakh villages by 1997 through a rural obligation. By 1999, as many as 3.1 lakh villages remained uncovered.

The NTP of 1999 again targeted universal coverage, but we moved to a universal levy in 2003 in the face of continued non-performance. Without casting any aspersions on the private sector claims of unviability, one must accept that the government is often willing to renegotiate in the face of post-auction distress.

Further distortions with auctions are caused by the unfair advantage of economies of scale for established technologies, and the imperative of recouping sunk costs on old R&D which may make subsidisation of inefficient technologies the best strategy for incumbent equipment manufacturers. Operators who have outsourced network operations to these vendors have no cause for dissent.

However, alternatives to auctions like beauty contests or negotiations are not easy to accept in a context where trust in the government is at an all-time low. So, without jettisoning the auction alternative, we need to ring fence the details of the tender.

Given the device dependence observed globally in the adoption of the internet, a highly plausible hypothesis is that the availability of easy-to-use internet on the affordable, familiar, easy to use mobile phone will promote the use of the advanced internet applications. Internet on mobile, therefore, must be at the heart of the USO strategy. Simple, livelihood-related applications that operate at the push of a button need to be built. Rural phones need to be designed and distributed.

In parallel, a village information centre, akin to the CSC, must be created to serve as a point for computer training, assisted internet services a la the proverbial letter reading postman, and self-driven internet access for the initiated. For the information centre to be sustainable as well as affordable, the cost of internet access must be taken off its books and the price of training and internet access must be regulated.

A tender open to all UAS licence-holders can be floated for each state asking for a certain voice quality, internet download speed (based on current need), a village information centre to be set up by a village entrepreneur from a backward community, free internet access for the village information centre and regulated internet prices to be charged by the village entrepreneur from users.

In addition, another scheme can be initiated for the creation of internet applications related to livelihoods and e-governance with mobile interfaces. Finally, given the availability of commercially optimal solar-powered architectures, the USO must mandate a fully solar solution for remote rural areas. The winning telecom operators would be given franchises at the state level. Bidders using mainly indigenous technologies should be given a premium on their bids in line with global practice.

The journey toward a national broadband network must begin with the prior build-up of a wireless internet eco-system. An auction is only one element of an overall development model, not the pile driver in the war against deprivation. Can telecom shake off age-old habits of fragmented thinking and show the way for all development sectors?

(The author is associate professor of economics at MDI Gurgaon and former member of the Spectrum Committee, department of telecommunications)