The impact so far: Has Jio's entry delayed Modi's Digital India goals?

Ground reality and initial impact of Jio is very different and TRAI has played important role

Reliance Industries Ltd (RIL) has created quite a splash around the Modi government’s Digital India project. The Mukesh Ambani-run firm has consistently promoted its telecom subsidiary Reliance Jio as a key driver of Digital India.

The ground reality and initial impact of Jio is very different and the Telecom Regulatory Authority of India (TRAI) has played an important role in it.

Jio’s impact so far has been limited to mostly increasing urban teledensity while depleting the Universal Service Obligation fund (USOF) – a government fund that is used to build rural telecom infrastructure – by about Rs 1,600 crore in the fiscal ending March 31, 2017.

This depletion is largely because revenues of India’s telecom industry have seen a big fall after the entry of Jio – contributions to the USOF are based on a share of total revenues. The fall in revenues therefore seriously delays the Modi government’s ambitious project of providing connectivity in rural and remote areas, which is the backbone of Digital India. Former secretary of the Department of Telecommunications (DoT), J.S. Deepak, who was recently moved out, officially sounded a warning over the industry’s falling revenues by writing a letter to TRAI chairman R S Sharma.

When RIL chairman Mukesh Ambani launched 4G services in its AGM in September, last year, he said: “I want to dedicate the commencement of Jio to the Digital India vision of our prime minister….” The power point presentation on the backdrop screen had a big photograph of the PM Narendra Modi with a caption: “A tribute to realise the Digital India vision of the Prime Minister Narendra Modi.”

The next day, the cover pages of leading newspapers carried a full page photograph of the prime minister in Jio’s advertisements.

What is Digital India?

How does Modi define Digital India – and what are the goals of this grand project? Is it providing high speed Internet in urban areas at throwaway prices? Or is it about connecting India’s unconnected, which make up a substantial portion of the global unconnected?

The IT ministry’s defines Digital India’s vision as follows: “Digital infrastructure as a utility to every citizen, governance and services on demand, and empowerment of citizen.” The Digital India document of the ministry goes into some depth on providing e-learning, health and e-governance services as its primary aim. Main objectives include providing “public internet in 2.5 lakh villages by March, 2017’ and “broadband to all by March 2017.”

In a nutshell, Digital India is to empower common people using broadband by providing e-governance, education and health services to them even in remote areas. It aims to bridge the gap between haves and have-nots, between rural and urban areas.

Interestingly, the Digital India document under NDA government was largely prepared by the current chairman of the Telecom Regulatory Authority of India (TRAI), R S Sharma, when he was secretary of the IT ministry.

Sharma is now viewed as being biased towards Reliance Jio at the cost of the whole industry and the Digital India project. 

Status of Digital India

As of March 31, 2017, only 17,000 village panchayats could be provided with broadband connectivity as against a target of 2.5 lakh village panchayats. It clearly shows that the rural areas are still deprived of broadband. The government’s attempts at providing high-speed connectivity in remote and rural areas are not very successful and private operators are not interested in going to remote places.

Services such as e-learning, tele-medicine and e-governance, which are supposed to empower common people, are non-starters for all practical purposes.

The urban and rural digital divide

Reliance Jio launched its services in September, 2016. If we look at TRAI data, it becomes clear that Jio’s initial impact has been more in urban areas – the urban and rural divide has increased since the company launched its services.

Urban teledensity increased to 170% from 152% with first three months of launch of Jio, while rural increased by only 2% to 53%. Share of rural subscribers declined by 2% to 40.69%.

Increasing Urban Rural Digital Divide

                              Urban share                   Rural share

August, 2016      57.57%                            42.43%

Dec, 2016           59.3%                               40.69%

March, 2017       <60% (estimated)           >40% (estimated)

Jio impact on Urban and Rural Teledensity

                                Urban teledensity         Rural teledensity

August, 2016        152%                               51%

Dec, 2016             170%                               53%
 

It is clear that Jio’s entry has indirectly increased the digital divide between urban and rural India. TRAI has not yet given subscriber data since January and it should be noted that Jio’s subscribers have increased in the last three months.

What Jio has going in its favour when it comes to Digital India is the high usage of data services by its customers. The company claims that with more than 110 crore GB of data traffic per month and 220 crore voice and video minutes a day it is the largest network globally. Its users consume nearly as much data as on all the mobile networks in the USA and 50% more data than mobile networks in China.

The question, however, is: who are these subscribers and what they do with this data?

If most of these customers are subscribers in cities, as is evident from TRAI data and they are using data to download YouTube videos and play games, it’s difficult to argue that this is the “Digital India” defined by the government in its vision document.

Before the entry of Jio, telecom penetration in urban area was 150%. It means that there were 150 phones for 100 people. There were enough choices and people had an option for 4G services. By offering free 4G services and aggressive marketing, Jio offered 4G services to people in cities where incumbent operators were already offering services. After Jio’s entry, there are 170 phones for every 100 people.

There is no doubt that Reliance Jio’s entry reduced tariff for 4G services as it started offering services for free and the competitors also reduced tariff. This is always true whenever a new company enters the market. The incumbent operators like Airtel, Vodafone and Idea were forced to improve their quality of services.

Analysts say that even in urban India, Jio’s strategy will hamper quality of network in the long run. “There has to be sustainable average revenue per user (ARPU) in the long run for the survival of the industry. If that is not there the entire investment will be sucked in and it will have a domino effect to destroy the industry,” said B K Syngal, former chairman and managing director of VSNL. “In the long run, it will only harm the Digital India program even in cities.”

Syngal blames recent decisions of TRAI chairman Sharma for the present chaos in the industry. “It is clear that Sharma has failed in his duty as custodian of the sector.”

Depletion of USOF funds

Generally, private operators do not provide telecom services in rural and remote areas as it is not economically viable. That is the reason that the government created a universal service obligation fund (USOF) to provide connectivity in these places.

All operators pay 8% of the adjusted gross revenue (AGR) as fee to the government, out of which 5% goes towards USOF contribution. 

Jio gave services free for the first four months of its launch. The free data offer was further extended for another three months. Then it made another offer giving unlimited voice and data for four months for about Rs 400.

This forced competitors to reduce tariff and as a result the revenue of the industry went down. This also means that the licence fee collected by the government also reduced.

Telecom minister Manoj Sinha told parliament that the licence fee collected by the government fell to Rs 3,450.1 crore in the quarter ended December 31, from Rs 3,584.04 crore in July-September and Rs 3,975.7 crore in April-June. Revenue from spectrum usage charges dropped to Rs 1,553.2 crore in October-December from Rs 1,820.03 crore in July-September and Rs 1,995.2 crore in April-June.

This resulted in reduction in allocation of funds to USOF by Rs 1,600 crore for the financial years 2016-17. There was a growth of about Rs 2,300 crore in the funds in 2015-16 compared to the previous year. Generally, USOF fund contribution has been growing every year. This is for the first time that there is a drastic fall in the licence fee collection.

Funds for USOF

Financial Year                      UAL fee collection (crore)

2014-15                                7537.88

2015-16                                9835.70

2016-17 (provisional)        8233.53
 

If funds are depleted from the USOF, this could, in theory, certainly delay the goals of Modi’s Digital India program as the government will have less funds to tap into while setting up networks in rural areas.                                                                                                                                                                         In arrangement with TheWire