Accelerating growth of telecommunication services in Rural India

1

Accelerating growth of telecommunication services
in Rural India
Sudhir Gupta Advisor (MN and QoS) 13-15th
December 2005
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Brief Background and current Status of telecom
services in India
As on 31.10.2005 Size 3287000 Sq.
Kms. Population 1.027
Billion Number of Fixed Lines 48 Million Number
of Mobile 68Million Teledensity
10.66 (Fixed Mobile) Number of rural
lines 12.87 Million VPT(as on Sept. 2005)
5.35 lakhs out of
total of 6.07 lakh
villages
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Phases of Policy reforms- The Indian Story at a
Glance
First phase of reform
Second phase of reform
Third phase of reform
Converged framework
Manufacturing Sector Value Added Services
NTP 1994 Duopoly / Oligopoly in Services
sector Bidding for Licenses Independent
regulator
NTP 1999 Open competition Revenue
sharing Separation of operator and policy
maker Privatisation of incumbent CPP USO fund

• Unified Licensing Regime
• Unified Access Licensing Regime already
  implemented
• Converged Ministry of ICT
• Common regulator for telecom and broadcast

4
Background

• Till 1990s
• supply constraints,
• long waiting list,
• low teledensity
• Today
• Urban Areas - Telephone on demand
• Rural Areas - operators plans to provide rural
  telephony in several areas on a commercial basis.
  
• Beginnings of such a change can be traced to
  three important events in late 1990s
• Establishment of TRAI in 1997
• Announcement of license policy for Internet
  services in Nov. 1998.
• Announcement of NTP 1999.

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Rural Telecom Program History
1999 1994 1990 1985
NTP 1999
NTP 1994 VPT

• Gram Panchayat Telephone

Long Distance Public Telephone
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Objectives of NTP99 in Section 6 (Universal
Service obligation)

• Provide voice and low speed data service to
  the balance 2.9 lakh uncovered villages in the
  country by the year 2002
• Achieve Internet access to all district head
  quarters by the year 2000
• Achieve telephone on demand in urban and rural
  areas by 2002

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Major Targets in NTP99

• Make available telephone on demand by the year
  2002 and achieve a teledensity of 7 by the year
  2005 15 by the year 2010
• Increase rural teledensity from the current level
  of 0.4 to 4 by the year 2010 and provide reliable
  transmission media in all rural areas.
• Achieve telecom coverage of all villages in the
  country and provide reliable media to all
  exchanges by the year 2002.
• Provide Internet access to all district head
  quarters by the year 2000
• Provide high speed data and multimedia capability
  to all towns with a population greater than 2
  lakh by the year 2002

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Objectives of NTP99 (Universal Service
obligation)

• The policy laid down the following mechanism for
  raising the resources for the purpose
• Resources for meeting the USO would be raised
  through a universal access levy as a
  percentage of the revenue earned by all the
  operators under various licences.
• Implementation would be undertaken by all fixed
  service providers who shall be reimbursed from
  the funds from the universal access levy.
• Other service providers shall also be encouraged
  to participate in USO .
• Broad set of policies must be effectively put in
  place

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TRAI Act 1997 (as amended in 2000)

• Function
• 11 (1) (b) (ix) ensure effective compliance of
  universal service obligations
• Other Linked functions
• 11 (1) (a) (vii) measures for the development of
  telecommunication technology and any other
  matter relatable to
  telecommunication industry in general
• 11 (1) (b) (i) ensure compliance of terms and
  conditions of license

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USO Regime in India

• TRAI Issued a consultation paper on issues
  related to USO on July 3, 2000.
• .
• Recommendations were provided to the Government
  on October 3, 2001.
• Department of Telecom, Ministry of Communications
  IT has set up Universal Service Fund
  Administrator w.e.f. 1-4-2002.
• All Service Providers except value added service
  providers viz. ISPs contribute 5 of their
  Adjusted Gross Revenue (AGR) towards Universal
  Service Fund.
• Fixed Service Providers, Cellular Mobile Service
  Providers and Unified Access Service Licensees
  are eligible to get support from Universal
  Service Fund.

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USO Regime in India (Contd)

• Indian Telegraph Rules, 1951 amended vide
  notification dated 26th March, 2004 to include
  Universal Service Obligation Fund.
• It is a non lapsable fund.

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USO Regime in India (contd) - Functions of
Administrator

• Formulate bidding procedures
• Evaluate the bids
• Enter into Agreement with the Universal Service
  Provider (USP)
• Settle the claim of Universal Service Provider
• Monitor the performance of the Universal Service
  Provider

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USO Regime in India (contd)

• Selection of Universal Service Provider
• Selection of USP through a bidding process
  amongst the eligible operators except for
  household Direct Exchange Lines installed prior
  to 1st April 2002.
• In case the subsidy quoted by all the eligible
  operators is higher than a predetermined
  benchmark then there is another round of bidding
  process wherein even the operators outside this
  service area are eligible to participate in the
  bidding process.

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USO Regime in India (contd) - Scope of USO

• Stream-I Provision of Public Telecom and
  Information Services
• Operation and Maintenance of Village Public
  Telephones (VPTs)
• Villages as per census 1991 Net Cost Operating
  Expenses - Revenue
• Villages as per census 2001 Net Cost Capital
  Recovery Operating Expenses Revenue

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USO Regime in India (contd) - Scope of USO

• Provision of additional Rural Community Phone
  (RCP) in villages with population more than 2000
  and no Public Call Office (PCO) is existing.
• Replacement of Multi Access Radio Relay (MARR)
  Technology VPTs installed before 1st April 2002.
• Installation of High Speed PTICs- Speed higher
  than 128 Kbps in public places in block Head
  Quarters and villages with more than 2000
  population in phased manner.
• Up gradation of Public Telephones to Public
  Tele-Information Centres (PTICs)- The data
  transmissions facilities within 5 kms of a
  village with a population exceeding 2000.
• Net Cost Capital Recovery on CPE
  Operating Expenses Revenue.

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USO Regime in India (contd)

• Stream IIProvision of Household telephones in
  rural and remote Areas.
• Household Direct Exchange lines installed prior
  to 1.4.2002
• Net cost Rent prescribed by TRAI Rental
  actually charged from rural subscribers.
• Household Direct Exchange Lines installed after
  1.4.2002
• Net cost Capital Recovery Operating
  Expenses Revenue.

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USO Regime in India (contd)

• Today India is extremely well placed to achieve
  Universal service objectives,
• introducing and sustaining competition
• exception growth in mobile since 2002 linked with
  a sharp decrease in prices.
• reducing the cost of service
• extensive fibre network to about 90 of the
  telephone exchanges
• Greater flexibility of operation
• the major emphasis being given by the Government
  to telecom services in the rural areas

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Past Performance
Tele-density Growth Pre-reform
50 years Total growth 1.92
1994

• In the pre-reform period, growth was primarily
  driven by public sector monopoly, showing very
  marginal growth
• Reform process started with NTP94
• TRAI was set up in 1997
• First tariff order issued in 1999 thus reforms
  effective from 1999
• NTP99 pushed reforms further

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Tele-density Growth Post-reform Different
Phases
22.98
Projected 2005-2007 Ministers target
NTP99 Targets
Phase I
Phase II
Phase III
Dec 2007

• The growth in tele-density each year 2003-04
  (2) 2004-05 (2) gt 50 years growth 1948-1998
  (1.92)
• For phase III - each year growth must gt 4.5 in
  tele-density
• Growth started in phase I of reform 1998-2003
• Phase II 2003-05 has shown explosive growth
• Phase II growth was mobile driven and was
  consequent to certain decisions taken by Govt./
  TRAI

Our dream of achieving 250 million subscribers by
2007 would not be achieved in desirable way if
our policy do not focus on growth of telecom
services in rural India
20
Mobile revenues in FY 2000 1319 X 1.88 X 106 X
12 Rs. 2975 crores FY 2003 634 X 13 X 106
X 12 Rs. 9890 crores FY 2005 407 X
52 X 106 X 12 Rs. 25500 crores

• Turnover growth in 5 years 9 times despite ARPU
  falling by more than 3 times
• Prior to 2003, all the mobile operators were
  incurring losses, leading to no fresh investment
  in the sector
• Growth induced profits heavy investments in the
  sector after 2003
• Future strategies should primarily look at growth
  potential and reducing costs/ fee

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Rural-Urban Tele-density widening Gap
Huge success in our policies towards urban
telecommunications and perhaps a failure in
replicating the same for rural areas
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URBAN RURAL MARKET
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Urban/Rural income-wise distribution of
households
(in million)
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RURAL SPENDING

• Indias country-side spend around 30 billion on
  everything from AC to Shampoo.
• Rural spending power is growing about 25 annually

Source Asian Wall Street Journal, dated October
3, 2005
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Existing USO regime Implementation till 2010
(Figures in Rupees Cr.)

• Public Telephones in Villages 3,344
• Rural Telephones (28 million) 22,010
• ADC for rural telephones to be
• covered under existing USO regime
• from 2008 to 2010 5,000
• Total - 30,354
• In addition, funds have already been given
• from ADC since 2003 and some more may
• be allotted till 2008 12000
• After the investment shown above, we will achieve
  a rural tele-density of 4

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Existing USO regime- Implications till 2010 (DEL
Subsidy)

• Subsidy for achieving 4 Rural teledensity over a
  next 5 years through DELs

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The present case

• If the present USO policy continues then it is
  expected that we would be able to achieve
• Rural tele-density of only around 3 and
  accordingly in order to achieve subscriber base
  target of 250 million subscribers by 2007 we
  would require an urban tele-density of 70 by
  Dec. 2007
• which is too ambitious a target for urban areas
  and even if achieved would create a much larger
  rural-urban divide.

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TRAIs recommendations on Growth of telecom
services in rural India October 3, 2005

• Various policy initiatives taken by government so
  far on increasing the growth of telecom services
  in rural areas including setting up of USOF, have
  not given the desired results
• Therefore a fundamental shift in achieving the
  growth of telecom services in rural areas is
  necessary.
• Focus has to be on network infrastructure
  expansion rather than individual telephones or
  public telephones.

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TRAIs recommendations on Growth of telecom
services in rural India October 3, 2005

• With the growth of mobile service in India, the
  operators have to increase their coverage so as
  to cover population in rural areas
• The existing mobile coverage in India in terms of
  the population is only around 30 and unless it
  is increased to at least 70 of Indias
  population in next two years the future growth
  may stagnate.
• Incentive to the operators from USO Fund linked
  to installation of infrastructure in rural areas
  which shall be mandatorily shared to reduce costs
  

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TRAIs recommendations on Growth of telecom
services in rural India October 3, 2005

• Sharing of Infrastructure and support from USOF
• Operator who installs BTSs in rural/remote areas
  (outside 5,161 towns/cities) should be given one
  time support (in two installments) of Rs.12
  lakhs per BTS from USOF
• Provided the installed infrastructure is shared
  with at least one other operator.
• Other two operators who rollout their services in
  rural/remote areas and share the infrastructure
  like tower/shelter and power supply will also be
  given a support of Rs.12 lakhs per BTS from USOF.
• 12 lakhs has been suggested to cover part of the
  CAPEX as well as part of the recurring
  operating costs for a limited period of time.
• Other technologies may get incentive of the order
  of around 50 of the total infrastructure costs.
• exact percentage shall be worked out in
  consultation with operators after these
  recommendations are accepted in principle by
  Government.
• To cover mobile services under the ambit of USOF
  support, the amendment of Telegraph Act is not
  necessary

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Proposed USO regime Support to towers

• Total rural area 2.76 million km2
• Total sites required for 80-90
• geographical coverage 20,000
• Incentive per site for 3 operators Rs. 36
  lakhs
• Total incentive on 20,000 BTSs Rs. 7200 Cr.

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TRAIs recommendations Backbone Infrastructure

• Bandwidth owners mandated to provide leased lines
  to other operators who are rolling out their
  networks in rural areas.
• Connectivity should be provided with a discounted
  price at the rate of at least 30 and difference
  between ceiling specified by TRAI
• discounted price should be supported from USOF
• Bandwidth users shall get a discount of 30 on
  the ceiling specified by TRAI.
• Bandwidth owners should also get an incentive of
  10 on the ceiling tariffs specified by TRAI from
  USOF as an incentive for necessarily providing
  leased line.

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Bandwidth Subsidy

• Reach of Fibre from BTS 15-20 kms
• Average distance from BTS to BSC 170 kms
• 30 discount on lease line for 150 kms.
  recommended
• Top of above 10 incentive for bandwidth provider
• Annual lease line rental for one E1 for 150 Kms
  length Rs. 2.6 Lakhs

Support for 20,000 BTS for 5 years for 2 E1 Lease
Circuit Rs. 40 of (2 X 20,000 X 5 X 2.6)
Lakhs Rupees 2,080 Crores
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Proposed USO regime
(Figures in Rupees Cr.)

• One-time subsidy for 20,000 BTSs 7,200
• Bandwidth subsidy 2,080
• Total 9,280

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An Alternative approach

• This approach is expected to take the rural
  tele-density to about 15 by December, 2007
• This combined with the expected boost to 43
  urban tele-density will take the overall
  tele-density to 22.98 by December, 2007 easily
  meeting the target of 250 million subscribers set
  out by the Honble Minister of Communications
  IT.

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TRAIs recommendations

• As there are already contractual commitments
  therefore, during the validity of these
  agreements both the schemes may work in parallel
  but ultimately only the network infrastructure
  expansion approach should be followed for
  providing the support from USOF.

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Other proposals

• Discount in Annual license fee and spectrum
  charges linked with rural coverage
• Development of suitable applications
• Reduction of rural VSAT license fees and spectrum
  charges and provision of transponders at
  affordable rates
• No right of way charges for networks in rural
  areas

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Other proposals

• Niche Operators
• should be permitted to operate in SDCAs where
  rural tele-density (based on fixed subscribers)
  is below 1.
• Supported from USOF and exemption from spectrum
  charges .
• No spectrum fees for usage of CorDECT and similar
  technologies in rural areas as well as for usage
  of 450 MHz Microwave links/any other wireless
  connectivity.
• No prior SACFA clearance for deployment of towers
  upto 40 m. in rural areas.
• Funds collected as Universal Access levy should
  be made available to USOF.
• Service specific licensing regime should be
  replaced with Unified Licensing Regime.