Universal Service: Connecting Unprofitable Areas

How governments fund telecom networks in remote and rural areas that private companies would not serve profitably, and India's Digital Bharat Nidhi.

Private telecom companies build networks where they expect profits. In remote, sparsely populated or poor areas, the cost of building towers and cables may exceed the revenue from customers. Without intervention, these areas may be left unconnected.

Universal service obligations

Many countries have universal service policies to ensure everyone has access to basic telecom services. Common approaches include:

Universal service funds: operators contribute a share of their revenue to a fund, which subsidises networks in underserved areas.
Obligations attached to licences, requiring operators to cover certain areas.
Public networks, such as state-owned operators serving rural areas.

India’s fund

India created the Universal Service Obligation Fund in 2002, financed by a levy of 5 percent of operators’ adjusted gross revenue. It has funded rural telephone services, mobile towers in remote areas, including those affected by conflict, and the BharatNet fibre network to connect gram panchayats. Under the Telecommunications Act, 2023, it was renamed Digital Bharat Nidhi, with a broader mandate including research and development.

Challenges

Unspent funds: large amounts collected in India’s fund went unspent for years, drawing criticism.
Slow implementation of projects like BharatNet.
Choosing technologies: satellite, mobile towers or fibre, depending on geography.

The economic case

Connecting remote areas brings external benefits: access to markets, services, education and emergency help. These benefits go beyond what individual customers pay, justifying public support.

The tower in the mountains

A remote mountain village has a few hundred residents. Building a mobile tower there costs far more than the operator would earn from local customers. A universal service subsidy covers the gap. Villagers can now call for medical help, check crop prices and receive government payments, benefits that reach well beyond the operator's revenue.

Thinking markets will eventually connect everyone

Where costs exceed revenues, private operators may never find it profitable to serve some areas. Universal service policies address this market failure.

Key takeaways

Private operators may not serve remote areas where costs exceed revenue.
Universal service funds subsidise networks in underserved areas.
India's Universal Service Obligation Fund, created in 2002, was renamed Digital Bharat Nidhi in 2023.
Unspent funds and slow implementation have been challenges.