Universal Telecommunications Service in India

Nearly every country in the world, including India, has policies intended to promote universal access to telecommunications services, despite the absence of evidence of a market failure in the industry. Universal service policies typically involve cross-subsidies among types of telecom consumers and among telecom providers. India’s New Telecom Policy of 1999 set goals of providing telephone and Internet access in all villages by 2002. This plan was not successful, so in 2003 DoT established a program to subsidize some telecommunications services in Indian villages. Taxes on all providers, raised mostly from private entrants, are transferred to the state-owned incumbent, BSNL, to cover part of the costs of its local network. Additional funds are distributed via auction to the firm requesting the smallest subsidy to provide service in a given area. The auction design discourages competition, so that the initial subsidies went primarily to the incumbent, BSNL. To be effective, policies intended to bring telecommunications services to people who otherwise would not have access should focus on encouraging competition, which has proven worldwide to be the most effective mechanism for encouraging investment and reducing prices. JEL Classifications: L88, O14