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Financial Fillip - USO Fund support for rural telecom initiatives

June 15, 2009
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Backed by the initiatives of the government and private operators, rural connectivity in the country has grown at a rapid pace over the past two to three years. While private operators are expediting rural network rollout and actively targeting rural customers, for the government, providing telecom facilities in rural India has been the highest priority for some time now. The rural regions, comprising 600,000 villages and a population of over 809 million (over 70 per cent of the country's population), are the focus area as the government works to bridge the digital divide.

The Universal Service Obligation (USO) Fund, set up by the government especially for this purpose, has played a key role in driving rural connectivity. For instance, as of March 2009, 57,181 of the 66,822 village public telephones (VPTs) to be installed under the Bharat Nirman programme had been provided in uncovered villages. About 4,000 VPTs will be provided through digital satellite phone terminals (DSPTs).

The Bharat Nirman programme envisages setting up VPTs in all inhabited villages in the country except those with a population of less than 100 or ones that are affected by insurgency or are situated in deep forests. Bharat Sanchar Nigam Limited (BSNL) will set up VPTs in these remaining villages with subsidy support from the USO Fund by March 2011. The USO Fund is also being used for the maintenance of about 558,000 existing VPTs.

On the wireless front, in order to encourage operators to set up networks in rural areas, the government has been encouraging infrastructure sharing and has provided subsidies from the USO Fund for rural network rollouts.

Under the first phase of the Shared Mobile Infrastructure Scheme, subsidies from the fund were disbursed to private operators like Reliance Communications and Vodafone Essar, as well as to independent tower companies like GTL and Quippo for the installation of 7,871 mobile towers. These towers are spread over 500 districts in over 27 states. However, the progress in setting up the towers under the first phase of the scheme has been slow, which has delayed the launch of the second phase.

Till March 2009, only about 4,700 towers had been set up. Most of these towers were installed by the private players. State-run BSNL, which won the bid for setting up the highest number of towers (6,175), has not managed to install most of its towers. But the company is expected to complete the installation over the next few months.

Some of the key hurdles that have resulted in the time overrun in the first phase of the scheme include delays in land acquisition, particularly in tribal areas; non-availability of electricity connections from the state electricity boards; Naxalite activities leading to non-execution of work in some states; inaccessibility of some tower sites in the difficult terrain of the Northeast; floods in Bihar; and disturbances in other parts of the country.

The government is now getting ready to float the tender for the second phase of the Shared Mobile Infrastructure Scheme under which 101,28 new towers will be set up. Villages with a population of 500 or more will be covered under this phase.

In the beginning of this year, the government signed an agreement with BSNL to create broadband capacity for about 1.8 million connections in 28,000 rural exchanges. There will be one kiosk per rural exchange for providing public access to broadband services. BSNL will also provide 512 kbps broadband connections to government institutions and individual users. Other service providers will be made a part of the scheme if they meet the eligibility criteria. The estimated subsidy outflow for the programme is about Rs 15 billion.

The government is also working on augmenting the optic fibre cable (OFC) network between block headquarters anddistrict headquarters. This will strengthen the backbone connectivity to carry rural voice and data traffic. The scheme will be rolled out initially in Assam in the current financial year at an estimated subsidy outflow of Rs 1.1 billion. Work will be undertaken following a technology-neutral approach to create bulk network bandwidth that may be shared with other operators.

The USO Fund is also looking to support research activities that will help drive rural telephony. It has invited proposals for pilot projects that aim to develop new technologies in the telecom sector which can be deployed in rural and remote areas.

With erratic or no power supply being a key problem in these regions, support is also being considered for renewable energy sources such as solar, wind and diesel hybrids for some sites on a pilot basis.

Apart from USO Fund initiatives, the government's National e-Governance Plan, which envisages setting up common service centres (CSCs), state wide area networks (SWANs) and state data centres (SDCs), will play a key role in increasing broadband penetration in the rural areas. For instance, the CSCs aim to equip panchayats in villages with advanced computerised systems and trained IT representatives.

Considerable progress has been made in the rollout of CSCs. Work in states like Gujarat and West Bengal is moving ahead especially fast. In Gujarat, where Bharti Airtel is the implementing agency, 2 Mbps broadband connectivity via VSAT is being provided for more than 13,000 panchayats. The project cost has been estimated at Rs 2-Rs 3 billion. Similarly, in West Bengal, 1,860 CSCs are being set up. Each CSC is equipped with a computer and offers voice, data and video communication, and is managed by a village-level entrepreneur.

Government policies have played a key role in increasing connectivity in the rural areas. For instance, in September 2008, the Department of Telecommunications (DoT) decided to waive the licence fee on rural landline telephones to step up rural penetration. In addition, the Telecom Commission decided to reduce the USO Fund levy to 3 per cent of adjusted gross revenue from 5 per cent for service providers that have a presence in over 95 per cent in the rural areas. However, since these decisions have revenue implications for the exchequer, the finance ministry demanded a review of these decisions.

The advent of mobile virtual network operators (MVNOs), which ride on the telecom infrastructure of existing players, is also expected to drive rural mobile penetration. The decision to allow MVNOs is currently under review with the Telecom Regulatory Authority of India. With the telecom industry on a rural overdrive, MVNOs are likely to focus on profitable rural niche consumer segments like educated farmers or people having links to a specific commodity.

While the government has played a key role in increasing rural connectivity, it needs to address certain issues and take initiatives to sustain this growth and take it to the next level.

First, a more efficient disbursal mechanism for the USO Fund needs to be put in place as a significant proportion of the funds lies unutilised. Also, the government should diversify the scope of the USO Fund. It should be used not only for providing VPTs and setting up towers but also for initiatives which focus on providing suitable applications for the rural population. These funds should be made easily available not just to telecom operators but also to other stakeholders in the rural telecom value chain.

Since the areas still not covered are in very remote regions, the government should provide a higher subsidy to the operators or else set up the telecom infrastructure in these areas itself and then lease it out to operators. More projects need to be implemented on a public-private partnership basis since it will expedite the provision of telecom services in the rural areas.

The government has been proactive in its efforts to promote rural telecom penetration and has taken several steps to bridge the digital divide. However, much still remains to be done in order to achieve the rural teledensity target of 25 per cent and 200 million rural connections by the end of the Eleventh Plan period.

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